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Item 9A. Controls and Procedures

2023-03-31 compared with 2022-10-21 · 773 added, 2483 removed, 731 unchanged (82% of the section changed)

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In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

Based on that evaluation, our Chief

Executive Officer and Chief Financial Officer concluded that, due to the material weaknesses described below, our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2021.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weaknesses described below, our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2022.

Material Weaknesses

In connection with the audit of our financial statements for the year ended December 31, 2021, and as previously reported, the restatement of the Company’s financial statements for the years ended December 31, 2020 and 2019 as more fully described in Note 2 “Restatement of Previously Issued Financial Statements” to our consolidated financial statements in “Item 15.

Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K, we concluded that there were material weaknesses in our internal control over financial reporting.

In connection with the audit of our financial statements for the year ended December 31, 2021, and as previously reported, the restatement of the Company’s financial statements for the years ended December 31, 2020 and 2019, we concluded that there were material weaknesses in our internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management has determined that the Company had the following material weaknesses in its internal control over financial reporting:

Management has determined that the Company had the following material weaknesses in its internal control over financial reporting, which continued to exist as of December 31, 2022:

Control Environment, Risk Assessment and Monitoring Activities

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Specifically:

● We did not maintain effective controls over our information systems to ensure that relevant and reliable information was communicated on a timely basis across the organization to support the financial reporting process.

Particularly:

o We did not design and implement effective information technology general controls in the areas of user access related to certain information technology systems that support our financial reporting process.

o We did not maintain sufficient segregation of duties over the performance of control activities for financial close and reporting, including over the review of account reconciliations and journal entries.

● We did not design and maintain effective management review controls at a sufficient level of precision over the accounting for transactions related to the risk adjustment factor receivable and related revenue,

capitated revenue classification, premium deficiency reserves, business combinations, goodwill and intangibles, income taxes, warrant valuation, and equity awards.

This material weakness resulted in certain material corrections to the financial statements.

● We did not design and maintain effective management review controls at a sufficient level of precision over account reconciliations and the accounting for transactions related to the risk adjustment factor receivable and related revenue, capitated revenue classification, premium deficiency reserves, business combinations, goodwill and intangibles, income taxes, warrant valuation, equity awards, and the inaccurate attribution of net income or loss to the controlling and non-controlling interests for subsidiaries that are variable interest entities.

● We did not design and maintain effective controls at a sufficient level of precision over the estimation of claims expense and payable including controls over the review of historical claims data, including the completeness and accuracy of data used to determine the financial statement amounts.

● We did not design and maintain effective controls over accounting for complex transactions, including the inaccurate attribution of net income or loss to the controlling and non-controlling interest pursuant to ASC 810 for subsidiaries that are variable interest entities, the improper classification of the Class A Units as permanent equity instead of temporary equity, and the improper accounting of preferred returns in equity and interest expense, as no recognition is necessary until legally declared.

This material weakness resulted in the restatement discussed in Note 2 to the financial statements included herein.

Remediation Activities

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Management’s annual report on internal control over financial reporting

As disclosed elsewhere in this Annual Report on Form 10-K, we completed the Business Combinations on December 3, 2021.

Prior to the Business Combinations, our predecessor, Foresight, was a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization, or similar business combination with one or more businesses.

As a result, previously existing internal controls were no longer applicable or comprehensive enough as of the assessment date, as Foresight’s operations prior to the Business Combinations were insignificant compared to those of the consolidated entity post-Business Combinations.

Therefore, management was unable, without incurring unreasonable effort or expense, to complete an assessment of our internal control over financial reporting as of December 31, 2021.

Accordingly, we are excluding management’s report on internal control over financial reporting pursuant to Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Compliance & Disclosure Interpretations.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, our management concluded that our internal control over financial reporting was not effective as of December 31, 2022 due to the material weaknesses in our internal control over financial reporting described above.

Our independent registered public accounting firm is not yet required to formally attest to the effectiveness of our internal controls over financial reporting, and will not be required to do so for as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act.

Changes in internal control over financial reporting

On December 31, 2021, we completed the acquisition of Medcore HP and Omni IPA Medical Group, Inc.

Together, those acquired businesses represent 3.0% of total assets and 0.0% of total revenues as of and for the year ended December 31, 2021.

We have not completed an assessment of internal control over financial reporting for these businesses, and we are in the process of design and implementation of our internal control over financial reporting for the acquired entities in a manner commensurate with our operations subsequent to the acquisition.

Other than the design and implementation of internal controls related to this acquisition and the actions to remediate the material weaknesses in our internal control over financial reporting as described above, both of which were ongoing as of the date of issuance of this Annual Report on Form 10-K, and the material weaknesses noted above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

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Directors, Executive Officers and Corporate Governance.

The following table provides information regarding our executive officers and members of our board of directors (ages as of the date of this Annual Report on Form 10-K):

The following table provides information regarding our executive officers and members of our board of directors (ages as of the date of this Form 10-K):

Executive Officers

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Chief Medical Officer, Director and Co-Founder

Atul Kavthekar

Chief Financial Officer

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Bacchus was selected to serve on our board of directors for his experience in the healthcare industry, his role as one of P3’s founders and his service as P3’s Chief Medical Officer.

Eric Atkins has served as P3’s Chief Financial Officer since January 2021.

Prior to joining P3, Mr.

Atkins served as Chief Financial Officer of Sprout Pharmaceuticals, Inc., a virtual pharmaceutical manufacturer, from December 2017 to August 2020.

From September 2015 to August 2017, Mr.

Atkins served as Vice President Finance, Front Line Care, of Hill-Rom Holdings, Inc., a medical device manufacturer.

Atkins received a Bachelor of Science in Accounting and a Bachelor of Science in Finance from the University of Illinois, Urbana-Champaign and an MBA from Northwestern University.

Atkins is a registered certified public accountant in the state of Illinois.

Atul Kavthekar has served as our Chief Financial Officer since December 12, 2022.

Prior to joining the Company, Mr.

Kavthekar served as Executive Vice President and Chief Financial Officer of EyeCare Partners, a clinically-integrated comprehensive eyecare platform, since March 2021.

From July 2020 to March 2021, Mr.

Kavthekar served as Chief Financial Officer of Encyclopedia Britannica, a digital media, publishing and educational curriculum company.

From May 2017 to April 2019, Mr.

Kavthekar served as Chief Financial Officer and Treasurer of Diplomat Pharmacy, Inc., an independent provider of specialty pharmacy services.

Kavthekar served as Chief Financial Officer of LivingSocial, Inc., an e-commerce retailer, from June 2015 to December 2016.

Kavthekar also served as Chief Financial Officer and Head of Corporate Development for the health and wellness division of Sears Holding Corporation, which included the Kmart Pharmacy business, from December 2013 to May 2015, and as Division Chief Financial Officer of e-commerce for Walgreen Co.

from December 2009 to December 2013.

Prior to these positions, he held a number of positions in the financial industry, focusing on investment banking and mergers and acquisitions.

Kavthekar received an MBA from The University of Chicago Booth School of Business.

Mark Thierer has served as a Director of the Company since December 2021 and an advisor to Foresight since October 2020.

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He previously served as chairman and Chief Executive Officer of Catamaran Corporation (Nasdaq:

CTRX), one of the nation’s largest pharmacy benefit management companies, from March 2011 until it combined with OptumRx in 2015.

CTRX), one of the nation’s largest pharmacy benefit management companies, from

March 2011 until it combined with OptumRx in 2015.

Thierer has experience as a Chief Executive Officer leading a national pharmacy benefit and healthcare information technology solutions company.

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Greg Wasson has served continually as a director of P3 Health Partners Inc.

and it’s predecessor, Foresight Acquisition Corp, since November 2020.

and its predecessor, Foresight Acquisition Corp, since November 2020.

Wasson currently serves as President and Founder of his own family office, Wasson Enterprise.

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Leisure co-founded and has served as a Managing Partner of Chicago Pacific Founders, a private equity fund focused exclusively on healthcare services and senior living, since 2014.

Leisure currently serves as a director of BioIntelliSense, a position he has held since January 2019, a director of Xsell Technology, a position he has held since December 2015.

Leisure also served as a director of MyGrove, from January 2012 to June 2021.

Leisure currently serves as a manager of Recovery Ways Holdings, a position he has held since July 2014, a manager of Sage Veterinary Partners, LLC, a position he has held since July 2018, a manager of Chicago Pacific Capital, L.P., a position he has held since July 2014, a manager of Chicago Pacific Founders UGP I, a position he has held since July 2014, a manager of Chicago Pacific Founders UPP II, a position he has held since June 2019, a manager of Wellbe Senior Medical, LLC, a position he has held since March 2019, a manager of Impact Advisors Holdings, LLC, a position he has held since December 2019, and a manager of Allymar Health Solutions, LLC, a position he has held since March 2021.

Leisure currently serves as a director of BioIntelliSense, a position he has held since January 2019, as a manager of Recovery Ways Holdings, a position he has held since July 2014.

Leisure serves as a manager of Chicago Pacific Capital, L.P., a position he has held since July 2014, a manager of Chicago Pacific Founders UGP I, a position he has held since July 2014, a manager of Chicago Pacific Founders UPP II, a position he has held since June 2019, a manager of Wellbe Senior Medical, LLC, a position he has held since March 2019, a manager of Impact Advisors Holdings, LLC, a position he has held since December 2019, and a manager of Allymar Health Solutions, LLC, a position he has held since March 2021.

Leisure also served as a manager of FEMG Holdings, LLC, from August 2018 to July 2021.

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Tolan serves on the Board of Trustees for the University of Chicago.

Tolan received a Bachelor of Business Administration degree from Loyola University and an MBA from the University of Chicago.

Tolan received a Bachelor of Business Administration degree from Loyola University and an MBA from the University

Tolan was selected to serve on our board of directors for her extensive experience in value-based care as an executive in the healthcare services industry and her investing experience.

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Park was selected to serve on our board of directors for his extensive leadership experience in the pharmaceutical industry.

Family Relationships

There are no family relationships among any of our directors or executive officers.

Code of Business Conduct and Ethics

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

Our code of business conduct and ethics is available under the Corporate Governance section of our website at ir.p3hp.org.

In addition, we intend to post on our website all disclosures that are required by law or the Nasdaq rules concerning any amendments to, or waivers from, any provision of the code.

The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report on Form 10-K.

Audit Committee and Audit Committee Financial Expert

We have a separately-designated standing audit committee (“Audit Committee”) that consists of Jeffrey G.

Park, Greg Wasson and Thomas E.

Price, with Jeffrey G.

Park serving as the chair of the Audit Committee.

Our board of directors has determined that all members of the Audit Committee (Jeffrey G.

Park, Greg Wasson and Thomas E.

Price) are independent directors under the Nasdaq rules and the additional independence standards applicable to audit committee members established pursuant to Rule 10A-3 under the Exchange Act.

Our board of directors has also determined that each of Jeffrey G.

Park, Greg Wasson and Thomas E.

Price meets the “financial literacy” requirement for audit committee members under the Nasdaq Stock Market rules and Jeffrey G.

Park is an “audit committee financial expert” within the meaning of the SEC rules.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our officers and directors, and persons who beneficially own more than 10% of our common stock to file with the SEC reports of their ownership and changes in their ownership of our common stock.

To our knowledge, based solely on review of the copies of such reports and amendments to such reports with respect to the year ended December 31, 2021 filed with the SEC and on written representations by our directors and executive officers, all required Section 16 reports under the Exchange Act for our directors, officers and beneficial owners of greater than 10% of our common stock were filed on a timely basis during the year ended December 31, 2021 other than one Form 3 filed jointly by Hudson Vegas Investment SPV, LLC, Hudson Vegas Investment Manager, LLC and Daniel Straus, which was filed late.

The remaining information required by this item will be included in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, if filed with the SEC within 120 days after December 31, 2022, and incorporated herein by reference, or will be provided in an amendment filed on Form 10-K/A with the SEC no later than 120 days after December 31, 2022.

Executive Compensation.

This section discusses the material components of the executive compensation program for P3 executive officers who are named in the “ Summary Compensation Table ” below.

In 2021, the “named executive officers” and their positions with P3 were as follows:

● Sherif Abdou, M.D., Chief Executive Officer;

● Amir Bacchus, M.D., Chief Medical Officer;

● Eric Atkins, Chief Financial Officer.

Summary Compensation Table

The following table sets forth information concerning the compensation of the named executive officers for the year ended December 31, 2020 and December 31, 2021:

Name and Principal Position

Chief Executive Officer

Chief Medical Officer

Chief Financial Officer

(1) Amounts reflect annual discretionary bonuses paid to the named executive officers for services performed in 2021, paid in 2022.

(2) Amounts reflect the aggregate grant date fair value of Incentive Units in P3 Health Group Holdings, LLC granted under the 2017 Management Incentive Plan to the named executive officers during the applicable year computed in accordance with FASB ASC Topic 718.

For additional information regarding the awards granted to our named executive officers, please see Note 18 “Capitalization and Management Incentive Units” and Note 19 “Share-Based Compensation” in our consolidated statements included elsewhere in this Annual Report on Form 10-K for a discussion of the relevant assumptions used in calculating this amount.

(3) Amounts reflect Company-paid term life insurance premiums.

(4) Amounts reflect the incremental fair value associated with the time-vesting Incentive Units held by Drs.

Abdou and Bacchus that vested and were converted into the right to receive a portion of the P3 Merger consideration upon the closing of the P3 Merger, as computed in accordance with FASB ASC Topic 718.

Narrative to Summary Compensation Table

2021 Salaries

In 2021, the named executive officers received an annual base salary to compensate them for services rendered to our company.

The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities.

The 2021 annual base salaries for our named executive officers were $750,000 for Dr.

Abdou, $500,000 for Dr.

Bacchus, and $350,000 for Mr.

The actual base salaries earned by our named executive officers for services in 2021 are set forth above in the Summary Compensation Table in the column entitled “ Salary ”.

Our named executive officers were eligible to earn cash bonuses for work performed in calendar year 2021, as determined by our board of directors (or a subcommittee thereof).

For 2021, Drs.

Abdou and Bacchus and Mr.

Atkins were eligible to receive annual target bonuses of 100%, 100% and 50%, respectively, of their respective base salaries.

Based on a review of Company performance for 2021 and each named executive officer’s individual performance and contributions to the Company’s success, the board of directors approved bonuses equal to 100% of each named executive officer’s respective 2021 target bonus opportunity.

The actual cash bonus amounts awarded to our named executive officers for 2021 performance are set forth above in the Summary Compensation Table in the column entitled “ Bonus .”

Equity-Based Compensation

2017 Management Incentive Plan

Prior to the P3 Merger, we maintained the P3 Health Group Holdings, LLC Amended and Restated 2017 Management Incentive Plan (the “2017 Plan”) which provided our service providers the opportunity to acquire a proprietary interest in our success.

Awards that were granted under the 2017 Plan were intended to qualify as profits interests within the meaning of Internal Revenue Service Revenue Procedures 93-27 and 2001-43 (“Incentive Units”).

Following the P3 Merger and the effectiveness of the P3 Health Partners Inc.

2021 Incentive Award Plan (the “2021 Plan”), the 2017 Plan terminated and no further awards will be made under the plan.

In connection with the P3 Merger, each Incentive Unit that was outstanding immediately prior to the effective time of the P3 Merger and that was vested (after taking into account any accelerated vesting that occurred in connection with the P3 Merger) was canceled and converted into the right to receive a portion of the Merger consideration, which consisted of P3 LLC Units and, in certain cases, cash.

Each outstanding Incentive Unit that was subject to time-based vesting but had not vested immediately prior to the effective time of the P3 Merger was converted into the right to receive a portion of the Merger consideration, which Merger consideration remained subject to the original vesting conditions.

Each outstanding Incentive Unit that was subject to performance-vesting requirements that were not achieved in connection with the P3 Merger was forfeited without consideration.

For each P3 LLC Unit held by the named executive officer (whether vested or unvested), the officer was also entitled to a share of Class V Common Stock on a one-for-one basis.

In 2021, we awarded time-vesting Incentive Units to Mr.

Atkins under the 2017 Plan.

Atkins’ 2021 grant (215,000 Incentive Units) is subject to vesting 20% annually on each anniversary of January 20, 2021, provided that Mr.

Atkins remains employed through such vesting date, such that all time-vested units will be vested as of January 20, 2026.

In addition, under the terms of Mr.

Atkins’ grant agreement, if his employment is terminated at any time other than for “cause,” then the Incentive Units that would have vested on the next vesting date (had he remained employed) will vest on a pro-rated basis (based on the number of months he was employed between vesting dates).

Upon the occurrence of a Sale of the Company (as defined in Mr.

Atkins’ award agreement), if Mr.

Atkins remains employed by the Company as of the date of the sale, 50% of his unvested Incentive Units would become vested.

Upon the closing of the P3 Merger and pursuant to action taken by the Board of Directors, all of the time-vesting Incentive Units held by Drs.

Abdou and Bacchus vested and were converted into the right to receive a portion of the P3 Merger consideration.

In addition, in connection with the P3 Merger, 50% of Mr.

Atkins’ unvested Incentive Units (107,500) vested and converted into 203,160 P3 LLC Units and shares of Class V Common Stock.

The remaining 50% of Mr.

Atkins’ Incentive Units (107,500) converted into 203,160 unvested P3 LLC Units and Class V Common Stock, of which 81,264 vested on January 20, 2022, 81,264 shares will vest on January 20, 2023 and the remaining 40,632 will vest on January 20, 2024, subject, in each case, to Mr.

Atkins’ continued employment through such date.

Abdou and Bacchus did not receive any incentive equity awards in 2021.

All of the incentive equity awards held by our named executive officers as of December 31, 2021 are further described below in the section entitled, “— Outstanding Equity Awards at Fiscal Year-End .”

2021 Incentive Award Plan

In connection with the Business Combinations, the Company’s board of directors adopted, and its stockholders approved, the 2021 Plan, in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and certain of our affiliates and to enable us to obtain and retain services of these individuals, which is essential to our long-term success.

The 2021 Plan became effective on December 3, 2021.

Benefits and Perquisites

Health and Welfare Plans

In 2021, the named executive officers participated in a 401(k) retirement savings plan maintained by P3.

The Internal Revenue Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan.

In 2021, the Company did not make matching contributions under the 401(k) plan.

In 2021, the named executive officers participated in standard health and welfare plans maintained by P3.

We believe the benefits described above are necessary and appropriate to provide a competitive compensation package to our named executive officers.

No Tax Gross-Ups

We do not make gross-up payments to cover our named executive officers’ personal income taxes that may pertain to any of the compensation or perquisites paid or provided by our company.

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes information regarding the outstanding equity awards held by each named executive officer as of December 31, 2021.

Market Value of

Shares or Units of Stock

That Have Not

Vested ($)(1)

(1) There is no public market for the P3 LLC Units, which are exchangeable for shares of Class A common stock of the Company on a one-for-one basis.

For purposes of this disclosure, we have valued the P3 LLC Units based on the closing price of our Class A common stock of $7.04 per share on December 31, 2021.

(2) Represents P3 LLC Units that were converted in connection with the P3 Merger from the unvested Incentive Units that had been awarded to the executive on March 1, 2021, and that remained unvested as of December 31, 2021.

In connection with the P3 Merger, 50% of Mr.

Atkins’ unvested Incentive Units (107,500) vested and converted into 203,160 P3 LLC Units and shares of Class V Common Stock.

The remaining 50% of Mr.

Atkins’ unvested Incentive Units (107,500) converted into 203,160 unvested P3 LLC Units and shares of Class V Common Stock, of which 81,264 P3 LLC Units and Class V Units vested on January 20, 2022, 81,264 shares will vest on January 20, 2023 and the remaining 40,632 will vest on January 20, 2024, in each case subject to Mr.

Atkins’ continued employment through such date.

Executive Compensation Arrangements

We have entered into offers of employment letters or employment agreements with each of our named executive officers.

The material terms of these agreements are described below.

Sherif Abdou and Amir Bacchus 2017 Employment Agreements

Each of our founders, Sherif Abdou and Amir Bacchus, was party to an employment agreement that was entered into in April 2017 (collectively, the “2017 Employment Agreements”), which were in effect through 2021.

We entered into new employment agreements with Drs.

Abdou and Bacchus in May 2022.

The following describes the 2017 Employment Agreements as they were in effect in 2021.

Pursuant to their respective agreements, Dr.

Abdou served as our Chief Executive Officer and President and Dr.

Bacchus served as our Chief Medical Officer.

The 2017 Employment Agreements provided for a base salary ($600,000 in the case of Dr.

Abdou and $400,000 in the case of Dr.

Bacchus) and eligibility to earn an annual bonus (100% of base salary).

Abdou and Bacchus was entitled to participate in any employee benefit plan adopted by the Company or its affiliates, and we agreed to maintain short-term and long-term disability insurance coverage for Drs.

Abdou and Bacchus during the term of their respective employment.

The 2017 Employment Agreements included customary restrictive covenants, including confidentiality, non-disparagement, non-competition (36 months post-employment), and employee non-solicitation and noninterference covenants (each 36 months post-employment).

The term of the noncompetition covenant would have been reduced from 36 months to zero months post-employment if the executive’s employment would have been terminated without cause (as defined in the applicable agreement).

Under the terms of the 2017 Employment Agreements, if the employment of Dr.

Bacchus was terminated by us without cause, then, in addition to the accrued benefits through the date of termination, the executive would have been entitled to receive continued base salary payments for a period of 12 months (to be paid according to the Company’s normal payroll cycle).

In the event Drs.

Abdou or Bacchus terminate his own employment with “cause” (as defined in the Employment Agreements), then, in addition to the accrued benefits through the date of termination of employment, the executive would have been entitled to receive continued base salary payments for a period of 18 months.

Sherif Abdou and Amir Bacchus 2022 Employment Agreements

We entered into new employment agreements with each of Sherif Abdou and Amir Bacchus in May 2022, which superseded the 2017 Employment Agreements (collectively, the “2022 Employment Agreements”).

The initial term of the 2022 Employment Agreements will end on January 1, 2025, and the term automatically will renew for successive one-year terms unless advance written notice of non-renewal is given by either party (such term, the “employment term”).

In addition, during the employment term, for so long as Dr.

Bacchus serve as Chief Executive Office or Chief Medical Officer, respectively, the Company will nominate the executive for re-election as a member of the board of directors.

The 2022 Employment Agreements provide for a base salary ($800,000 in the case of Dr.

Abdou and $600,000 in the case of Dr.

Bacchus) and eligibility to earn an annual bonus (100% of base salary in the case of each of Drs.

Abdou and Bacchus).

Abdou and Bacchus are entitled to participate in any employee benefit plan that the Company and its affiliates adopts, and the Company has agreed to maintain short-term and long-term disability insurance coverage for Drs.

Abdou and Bacchus during the term of their respective employment.

The 2022 Employment Agreements include customary confidentiality and mutual non-disparagement provisions, as well as a standard non-compete restriction effective during employment and for 18 months thereafter and service provider/customer non-solicitation restrictions effective during employment and for 24 months thereafter.

Under the terms of the 2022 Employment Agreements, if the employment of Dr.

Bacchus is terminated by the Company without “cause” or by the executive for “cause” (each, as defined in the 2022 Employment Agreements), then, in addition to any accrued benefits through the date of termination, the executive will be entitled to receive the following severance payments and benefits, subject to the executive’s and the Company’s timely execution (and non-revocation) of a mutual release of claims:

(i) cash severance in an aggregate amount equal to one-and-one-half times the sum of the executive’s (a) annual base salary then in effect and (b) target annual bonus amount, payable in equal monthly installments over an 18-month period following the date of termination;

and (ii) Company-subsidized COBRA premiums for up to 18 months.

If the executive’s employment is terminated without “cause” by the executive, then, in addition to any accrued benefits through the date of termination, the executive will be entitled to receive cash severance in an aggregate amount equal to one-and-one-half times the sum of the executive’s (i) annual base salary then in effect and (ii) target annual bonus amount, payable in equal monthly installments over an 18-month period following the date of termination.

In addition, if the executive’s employment is terminated due to his death, then, in addition to any accrued benefits through the date of termination, the executive will be entitled to receive a pro-rated portion of his target bonus for the year of termination.

Sherif Abdou and Amir Bacchus Transaction Bonus Agreements

In connection with the consummation of the Business Combination, the board of directors of the Company approved Transaction Bonus Agreements with each of Sherif Abdou and Amir Bacchus in May 2022.

The Transaction Bonus Agreements provide for the payment of bonuses in an aggregate amount equal to $6,300,000 (Dr.

Abdou) and $3,700,000 (Dr.

Bacchus)(each, a “Transaction Bonus”).

Pursuant to the Transaction Bonus Agreements, the first installment of the Transaction Bonus ($3,300,000 for Dr.

Abdou and $1,700,000 for Dr.

Bacchus) was paid within five days following the execution of the Transaction Bonus Agreement.

The second installment of the Transaction Bonus ($3,000,000 for Dr.

Abdou and $2,000,000 for Dr.

Bacchus) will be paid on December 15, 2022.

The second installment will not be paid if the executive’s employment is terminated for “cause” by the Company or without “cause” by the executive prior to the payment date.

If the executive fails to comply with the Transaction Bonus Terms (as described below), the executive will be required to repay the Transaction Bonus (or forfeit any portion of the Transaction Bonus that has not yet been paid).

The Transaction Bonus Terms include:

(i) a restriction on the executive’s ability to offer, sell, or announce an intention to dispose of any shares of the Company’s Class A common stock until the closing of the Company’s first underwritten offering and sale of common stock (the “First Secondary Sale”);

(ii) a requirement that, following the First Secondary Sale, the executive will only sell shares of the Company’s Class A common stock pursuant to a customary 10b5-1 plan;

and (iii) a limitation on the number of shares of Class A common stock the executive may sell under such 10b5-1 plan.

These restrictions apply to Class A common stock held directly by the executive or in a trust established by the executive.

Eric Atkins Offer Letter Agreement

We entered into an offer letter agreement with Eric Atkins on January 13, 2021 (the “Atkins Offer Letter”).

Pursuant to the terms of his agreement, Mr.

Atkins serves as our Chief Financial Officer and reports to the Chief Executive Officer.

The Atkins Offer Letter provides for a starting annual salary of $350,000 and a target bonus of 50% if target bonus goals are met.

In addition, the Atkins Offer Letter provides for the grant of time-vesting Incentive Units, as described in the section entitled, “— Equity-Based Compensation .”

Atkins is entitled to participate in any employee benefit plan that the Company adopts.

The Atkins Offer Letter provides for an employee non-solicitation covenant that continues for a 24 month period following the termination of Mr.

Atkins’ employment, as well as a confidentiality covenant.

The Atkins Offer Letter also provides that if Mr.

Atkins’ employment is terminated by the Company for any reason other than for “cause,” a portion of the unvested Incentive Units will become vested in connection with such termination, as discussed in more detail in the section entitled, “— Equity-Based Compensation .” As described above, in connection with the P3 Merger, a portion of the unvested Incentive Units was converted to unvested P3 LLC Units (and paired with shares of Class V Common Stock) that will vest and be paid in accordance with the vesting schedule described above.

Non-Employee Director Compensation

None of our non-employee directors received compensation from the Company for their services on our board in 2021.

Effective as of March 24, 2022, our Board adopted a non-employee director compensation program (the “Director Compensation Program”).

The Director Compensation Program provides for annual cash retainer fees and long-term equity awards for each of our non-employee directors (each, an “Eligible Director”).

The Director Compensation Program consists of the following components:

Cash Compensation

● Annual Retainer:

● Annual Committee Chair Retainer:

o Compensation and Nominating:

● Annual Committee Member (Non-Chair) Retainer:

o Compensation and Nominating:

● Chairperson:

The annual cash retainers will be paid in quarterly installments in arrears, but effective as of January 1 of each calendar year (including 2022).

Annual cash retainers will be pro-rated for any partial calendar quarter of service.

Equity Compensation

An Eligible Director who is serving on our Board as of the date of an annual meeting of stockholders (beginning with calendar year 2022) automatically will be granted, on the date of such annual meeting, an option to purchase shares of the Company’s Class A Common Stock with an aggregate fair market value of $170,000 and, in the case of the Chairperson of the Board, an aggregate fair market value of $340,000 (an “Annual Grant”).

Each Annual Grant will vest in full on the earlier to occur of the first anniversary of the grant date and the date of the next annual meeting following the grant date, subject to continued service.

However, for calendar years 2022 and 2023, each of, Mr.

Kazarian, Mr.

Tolan, and Mr.

Wasson received a stock option grant on March 24, 2022 with an aggregate fair market value of $340,000 or, in the case of Mr.

Thierer, an aggregate fair market value of $680,000 (the “2022/2023 Grant”).

The 2022/2023 Grant will vest as to 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date, subject to continued service.

Each of these directors will not be eligible to receive the Annual Grant for calendar years 2022 and 2023.

The Annual Grant and the 2022/2023 Grant will vest and become exercisable in full immediately prior to the occurrence of a Change in Control (as defined in the 2021 Plan).

Compensation under the Director Compensation Program is subject to the annual limits on non-employee director compensation set forth in the 2021 Plan.

Compensation Committee Interlocks and Insider Participation

During 2021, the members of our Compensation and Nominating Committee were Lawrence B.

Leisure, Thomas E.

Price, Mary Tolan and Greg Wasson, none of whom was an officer or employee of the Company during fiscal year 2021 or was formerly an officer of the Company.

Related person transactions pursuant to Item 404(a) of Regulation S-K involving those who served on the Compensation and Nominating Committee during 2021 are described in Item 13.

“Certain Relationships and Related Party Transactions.” During 2021, none of our executive officers served as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that had one or more executive officers serving on our board of directors or Compensation and Nominating Committee.

The information required by this item will be included in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, if filed with the SEC within 120 days after December 31, 2022, and incorporated herein by reference, or will be provided in an amendment filed on Form 10-K/A with the SEC no later than 120 days after December 31, 2022.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information with respect to holdings of our Class A Common Stock and Class V Common Stock by:

● stockholders who beneficially owned more than 5% of the outstanding shares of our Class A Common Stock and Class V Common Stock;

● each of our named executive officers and directors;

● all directors and executive officers as a group.

The number of shares beneficially owned by each stockholder is determined under rules issued by the SEC and includes voting or investment power with respect to securities.

These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days.

As described in Item 13.

“Certain Relationships and Related Party Transactions,” each P3 LLC Unit (other than P3 LLC Units held by us) is redeemable from time to time at each holder’s option (subject in certain circumstances to time-based vesting requirements) for, at our election (determined solely by a majority of our directors who are disinterested), shares of our Class A Common Stock on a one-for-one basis, or to the extent there is cash available from a secondary offering, a cash payment equal to a volume weighted average market price of one share of Class A Common Stock for each P3 LLC Unit so redeemed, in each case, in accordance with the terms of the P3 LLC A&R LLC Agreement;

provided that, at our election (determined by a majority or our directors who are disinterested), we may effect a direct exchange of such Class A Common Stock or such cash, as applicable, for such P3 LLC Units.

The P3 LLC Unitholders may, subject to certain exceptions, exercise such redemption right for as long as their P3 LLC Units remain outstanding.

“Certain Relationships and Related Party Transactions— Amended and Restated Limited Liability Company Agreement of P3 LLC.” In connection with the Business Combinations, we issued to each P3 Equityholder, for nominal consideration, one share of Class V Common Stock for each P3 LLC Unit such P3 Equityholder owned.

As a result, the number of shares of Class V Common Stock listed in the table below correlates to the number of P3 LLC Units the P3 Equityholders own as of October 14, 2022.

The number of shares beneficially owned by the holders in the table below assume the maximum number of P3 LLC Units and shares of Class V Common Stock or shares of Class A Common Stock, as applicable, are released from escrow to each holder.

See the disclosure in the section entitled Item 13.

“Certain Relationships and Related Party Transactions — Related Party Transactions in connection with the Business Combinations—Escrow Agreement.”

Unless otherwise noted, the business address of each of those listed in the table below is 2370 Corporate Circle, Suite 300, Henderson, NV 89074.

We have based our calculation of the percentage of beneficial ownership on 243,603,813 shares of common stock outstanding as of October 14, 2022 consisting of 41,578,890 shares of our Class A common stock and 202,024,923 shares of our Class V Common Stock.

Unless otherwise indicated, we believe, based on information provided to us, that each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.

Common Stock (1)

Directors and Named Executive Officers:

Sherif Abdou (3)

Amir Bacchus (4)

Greg Wasson (5)

Lawrence Leisure

Greg Kazarian (6)

Thomas Price (7)

Eric Atkins (8)

All Directors and Executive Officers of post-combination Company as a group (9 individuals) (9)

Five Percent Holders:

Chicago Pacific Founders (10)

Hudson Vegas Investment SPV, LLC (11)

Foresight Sponsor Group, LLC (13)

Leavitt Equity Partners II, L.P.

Ameriprise Financial, Inc.

LMR Partners LLP (16)

The Vanguard Group (17)

* Less than 1%.

(1) Class V Common Stock entitles the holder thereof to one vote per share.

(2) Represents the percentage of voting power of the holders of Class A Common Stock and Class V Common Stock of the Company voting together as a single class.

(3) Includes 7,907,484 shares held by the NA 2021 GRAT, a grantor retained annuity trust of which Dr.

Abdou and his spouse serve as trustees, 3,058,479 shares held by the NA 2021 Trust, a trust for the benefit of Dr.

Abdou and his children, of which Dr.

Abdou and his spouse serve as trustees, 1,408,437 shares held by the NA Charitable Trust, a charitable remainder trust of which Dr.

Abdou, his spouse and his children serve as trustees, 7,907,484 shares held by the SA 2021 GRAT, a grantor retained annuity trust of which Dr.

Abdou and his spouse serve as trustees, 3,058,479 shares held by the SA 2021 Trust, a trust for the benefit of Dr.

Abdou and his children, of which Dr.

Abdou and his spouse serve as trustees, 1,408,437 shares held by the SA Charitable Trust, a charitable remainder trust of which Dr.

Abdou, his spouse and his children serve as trustees, and 3,437,182 shares held by the Abdou Family Trust, a revocable trust of which Dr.

Abdou and his spouse serve as trustees, and of which Dr.

Abdou and his spouse are beneficiaries.

Includes an aggregate of 2,653,044 shares of Class V Common Stock and 2,653,044 P3 LLC Units being held in escrow until the resolution of the Class D Dispute and the Cash Preference Dispute.

(4) Includes 15,032,528 shares held by Dr.

Bacchus and 3,758,130 shares held by Charlee Co LLC, of which Dr.

Bacchus serves as managing member.

Includes 1,768,698 shares of Class V Common Stock and 1,768,698 P3 LLC Units being held in escrow until the resolution of the Class D Dispute and the Cash Preference Dispute.

(5) Consists of the securities held by Foresight Sponsor Group, LLC (“FSG”) identified in footnote (11) below.

FSG is governed by a board of managers consisting of Greg Wasson and Michael Balkin.

Accordingly, each of Mr.

Wasson and Mr.

Balkin may be deemed to beneficially own the securities held by FSG.

The principal business office of Mr.

Wasson is 2045 W.

Grand Avenue, Ste.

B, PMB 8512, Chicago, Illinois 60612.

(6) Includes 102,785 shares of Class V Common Stock and 102,785 P3 LLC Units being held in escrow until the resolution of the Class D Dispute.

Includes 706,595 shares that Mr.

Kazarian owns directly and 471,064 shares owned through the Kazarian 2020 Irrevocable Trust, for which Mr.

Kazarian serves as Trustee.

(7) Includes 102,785 shares of Class V Common Stock and 102,785 P3 LLC Units being held in escrow until the resolution of the Class D Dispute.

(8) Includes 44,197 shares of Class V Common Stock and 44,197 P3 LLC Units being held in escrow until the resolution of the Class D Dispute.

Also includes 203,160 shares of restricted Class V common stock and 203,160 restricted Common Units that vest in five equal annual installments beginning on January 20, 2022.

(9) Includes 4,671,509 shares of Class V Common Stock and 4,671,509 P3 LLC Units being held in escrow until the resolution of the Class D Dispute and the Cash Preference Dispute.

(10) Based solely on the Schedule 13D filed with the SEC on December 13, 2021 by (i) Chicago Pacific Founders UGP, LLC, (ii) Chicago Pacific Founder GP, L.P., (iii) Chicago Pacific Founders Fund, L.P., and (iv) Chicago Pacific Founders Fund B, L,P.

Includes 89,183,894 shares of Class V Common Stock held by Chicago Pacific Founders Fund, L.P., 2,085,333 shares of Class V Common Stock held by Chicago Pacific Founders GP, L.P., 2,778,931 shares of Class A Common Stock held by Chicago Pacific Founders Fund-A, L.P.

and 5,953,586 shares of Class A Common Stock held by Chicago Pacific Founders Fund-B, L.P.

The General Partner of each of Chicago Pacific Founders Fund, L.P., Chicago Pacific Founders Fund-A, L.P.

and Chicago Pacific Founders Fund-B, L.P.

is Chicago Pacific Founders GP, L.P.

The General Partner of Chicago Pacific Founders GP, L.P.

is Chicago Pacific Founders UGP, LLC, which is managed by Mary Tolan, Lawrence Leisure and Vance Vanier.

Included in the number of shares of Class V Common Stock and Class A Common Stock are 8,224,897 shares of Class V Common Stock and 723,291 shares of Class A Common Stock, respectively, that are being held in escrow until the resolution of the Class D Dispute and the Cash Preference Dispute, as applicable, described above and will be voted in accordance with the proportional vote totals that a matter receives by all voting securities other than those being held in escrow.

The business address for the reporting persons is 980 North Michigan Avenue, Suite 1998, Chicago, IL 60611.

(11) Based solely on the Schedule 13D filed by Hudson Vegas Investment SPV, LLC, Hudson Vegas Investment Manager, LLC and Daniel Straus with the SEC on December 17, 2021.

Hudson Vegas Investment Manager, LLC and Daniel Straus each may be deemed to share voting and dispositive power over the shares of Class V Common Stock which are held by Hudson Vegas Investment SPV, LLC.

Each of Hudson Vegas Investment Manager, LLC and Daniel Straus disclaims beneficial ownership of any shares other than to the extent they may have a pecuniary interest therein.

Included in the number of shares of Class V Common Stock are 1,126,765 shares of Class V Common Stock that are being held in escrow until the resolution of the Cash Preference Dispute and 3,315,859 shares of Class V Common Stock that are being held in escrow until the resolution of the Class D Dispute, and will be voted in accordance with the proportional vote totals that a matter receives by all voting securities other than those being held in escrow.

The principal business address of each of the reporting persons is 173 Bridge Plaza North, Fort Lee, New Jersey 07024.

(12) Based solely on the Schedule 13G filed by FMR LLC, Fidelity Contrafund and Abigail P.

Johnson with the SEC on January 7, 2022.

FMR LLC and Abigail P.

Johnson may be deemed to have beneficial ownership over 10,120,307 shares.

Fidelity Contrafund may be deemed to have beneficial ownership over 2,735,364 shares.

FMR LLC has sole voting power with respect to 3,473,042 shares and sole dispositive power with respect to 10,120,307 shares.

Johnson has sole voting power with respect to no shares and sole dispositive power with respect to 10,120,307 shares.

Fidelity Contrafund has sole voting power with respect to 2,735,364 shares and sole dispositive power with respect to no shares.

Johnson is a Director, the Chairman, and the Chief Executive Officer of FMR LLC.

Members of the Johnson family, including Abigail P.

Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC.

The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares.

Accordingly, through their ownership of voting common shares and the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act, to form a controlling group with respect to FMR LLC.

Neither FMR LLC nor Abigail P.

Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act (the “Fidelity Funds”) advised by Fidelity Management & Research Company LLC (“FMR Co.

LLC”), a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds’ Boards of Trustees.

LLC carries out the voting of the shares under written guidelines established by the Fidelity Funds’ Boards of Trustees.

The principal business address of FMR LLC is 245 Summer Street, Boston, MA 02210.

(13) Based solely on the Schedule 13G filed with the SEC on January 18, 2022 by FSG, Michael P.

Balkin and Gregory D.

Each of the reporting persons may be deemed to have beneficial ownership of 7,753,525 shares of Class A Common Stock consisting of (1) 7,526,025 shares of Class A Common Stock held by FSG and (2) 227,500 shares of Class A Common Stock issuable upon exercise of a warrant held by FSG (the “FSG Warrant”).

Each of the reporting persons has shared voting and dispositive power with respect to 7,753,525 shares.

The principal business office of Mr.

Wasson and FSG is 2045 W.

Grand Avenue, Ste.

B, PMB 82152, Chicago, Illinois 60612.

The principal business office of Mr.

Balkin is 3201 South Ocean Boulevard, Unit 404, Highland Beach, Florida 33487.

(14) Based solely on the Schedule 13D filed with the SEC on September 12, 2022 by Leavitt Equity Partners II, L.P.

(“LEP LP”), Leavitt Equity Partners II, LLC (“LEP LLC”), LEP Management, LLC (“LEP Management”), Leavitt Legacy LLC (“Legacy”), and Taylor Leavitt (collectively, the “Leavitt Reporting Persons”).

LEP LLC is the general partner of LEP LP, which is an investment limited partnership.

LEP Management is the investment advisor of LEP LP.

Legacy is the manager of LEP LLC.

Leavitt is the sole owner of Legacy.

In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, the Leavitt Reporting Persons would be deemed to beneficially own more than five percent of Class A Common Stock as result of the Reporting Persons’ ownership of P3 LLC Units.

Each of the Levitt Reporting Persons is deemed to have shared voting and shared dispositive power with respect to 7,505,383 shares.

Includes 676,360 shares of Class V Common Stock and 676,360 P3 LLC Units being held in escrow until the resolution of the Class D Dispute.

The business address of the Leavitt Reporting Persons is 299 South Main Street, Suite 2300, Salt Lake City, UT 84111.

(15) Based solely on the Schedule 13G filed with the SEC on April 11, 2022 by Ameriprise Financial, Inc.

(“AFI”), Columbia Management Investment Advisers, LLC (“CMIA”), Columbia Wanger Asset Management, LLC (“CWAM”), and Columbia Acord Fund (the “Fund”).

CMIA, CWAM and AFI do not directly own any shares.

As the investment adviser to the Fund and various other unregistered and registered investment companies and other managed accounts, CMIA and CWAM may be deemed to beneficially own the Fund’s shares.

AFI, as the parent company of CMIA and CWAM, may be deemed to beneficially own CMIA and CWAM’s shares.

AFI and CMIA reported shared voting and dispositive power over 4,200,863 shares and sole voting and dispositive power over no shares.

CWAM reported shared voting and dispositive power with respect to 4,197,373 shares and sole voting power and dispositive power over no shares.

The Fund reported sole voting power and dispositive power over 2,500,000 shares and shared voting and dispositive power over no shares.

The principal business address of AFI is 45 Ameriprise Financial Center, Minneapolis, MN 55474.

The principal business address of CMIA is 290 Congress Street, Boston, MA 02210.

The principal business address of CWAM and the Fund is 71 S Wacker Drive, Suite 2500, Chicago, IL 60606.

(16) Based solely on the Schedule 13G filed with the SEC on April 12, 2022 by LMR Master Fund Ltd (“LMR Master Fund”), LMR CCSA Master Fund Ltd.

(“CCSA Master Fund”), LMR Partners LLP, LMR Partners Limited, LMR Partners LLC, LMR Partners AG, Ben Levine and Stefan Renold (collectively, the “LMR Reporting Persons”).

Represents 2,463,719 shares of Class A common stock issuable upon the exercise of Public Warrants held by LMR Master Fund and CCSA Master Fund.

Ben Levine and Stefan Renold are ultimately in control of the investment and voting decisions of the LMR Investment Managers with respect to the securities held by LMR Master Fund and CCSA Master Fund.

The business address of each of the LMR Reporting Persons is c/o LMR Partners LLP, 9 th Floor, Devonshire House, 1 Mayfair Place, London, W1J 8AJ, United Kingdom.

(17) Based solely on the Schedule 13G filed by The Vanguard Group with the SEC on February 9, 2022.

The 13G reports that The Vanguard Group has sole dispositive power with respect to 2,140,558 shares, shares dispositive power with respect to no shares, and sole voting and dispositive power with respect to no shares.

The Vanguard Group, Inc.’s clients, including investment companies registered under the Investment Company Act of 1940 and other managed accounts, have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities reported.

The business address of The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.

Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2021)

Number of Securities

Available for Future

Number of Securities to

Weighted-Average

Issuance Under Equity

be Issued Upon Exercise

Exercise Price of

Compensation Plans

of Outstanding Options,

Outstanding Options,

(excludes securities

Plan category:

Warrants, and Rights

Reflected in first column)

Equity compensation plans approved by security holders (1)

Equity compensation plans not approved by security holders

(1) Consists of the P3 Health Partners Inc.

2021 Incentive Award Plan (the “2021 Plan”).

(2) Consists of 14,616,229 shares of Class A common stock of the Company available for issuance under the 2021 Plan, as of December 31, 2021.

The number of shares of common stock reserved for issuance under the 2021 Plan will increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031, by a number equal to the lesser of (i) 1% of the aggregate number of shares of Class A Common Stock and Class V Common Stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of Shares (as defined in the 2021 Plan) as is determined by the board of directors.

Certain Relationships and Related Transactions, and Director Independence.

Policies and Procedures for Approval of Related Person Transactions

Our Board of Directors has adopted a written Related Person Transaction Policy, setting forth the policies and procedures for the review and approval or ratification of related person transactions.

Under the policy, our legal team is primarily responsible for developing and implementing processes and procedures to obtain information regarding related persons with respect to potential related person transactions and then determining, based on the facts and circumstances, whether such potential related person transactions do, in fact, constitute related person transactions requiring compliance with the policy.

If our legal team determines that a transaction or relationship is a related person transaction requiring compliance with the policy, our General Counsel is required to present to the Audit Committee all relevant facts and circumstances relating to the related person transaction.

Our Audit Committee must review the relevant facts and circumstances of each related person transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and the extent of the related person’s interest in the transaction, take into account the conflicts of interest and corporate opportunity provisions of our Code of Business Conduct and Ethics, and either approve or disapprove the related person transaction.

If advance Audit Committee approval of a related person transaction requiring the Audit Committee’s approval is not feasible, then the transaction may be preliminarily entered into by management upon prior approval of the transaction by the chair of the Audit Committee subject to ratification of the transaction by the Audit Committee at the Audit Committee’s next regularly scheduled meeting;

provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction.

If a transaction was not initially recognized as a related person, then upon such recognition the transaction will be presented to the Audit Committee for ratification at the Audit Committee’s next regularly scheduled meeting;

provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction.

Our management will update the Audit Committee as to any material changes to any approved or ratified related person transaction and will provide a status report at least annually of all then current related person transactions.

No director may participate in approval of a related person transaction for which he or she is a related person.

Relationships and Transactions with Directors, Executive Officers and Significant Stockholders

The following are certain transactions, arrangements and relationships with our directors, executive officers and stockholders owning 5% or more of our outstanding common stock, or any member of the immediate family of any of the foregoing persons, since January 1, 2021, other than equity and other compensation, termination, change in control and other arrangements, which are described under Item 11.

“Executive Compensation.”

Transactions in connection with the Business Combinations

Subscription Agreements

Contemporaneously with the execution of the Merger Agreement and the Transaction and Combination Agreement, we entered into the Subscription Agreements with the various Subscribers party thereto.

Under the Subscription Agreements, the investors agreed to purchase and subscribe for, and we agreed to sell and issue to such investors, an aggregate of 20,870,307 PIPE Shares (as defined above) for a purchase price of $10.00 per share, in a private placement.

The primary purpose of the sale of the PIPE Shares was to raise additional capital for use in connection with the Business Combinations and to meet the minimum available cash requirement provided in the Merger Agreement.

Pursuant to the Subscription Agreements, we agreed that, within 30 calendar days after the consummation of the Business Combinations (the “Filing Deadline”), we would file with the SEC a registration statement registering the resale of the PIPE Shares, and use our commercially reasonable efforts to have that registration statement declared effective as soon as practicable after the filing thereof, but no later than the earlier of (i) the 75th calendar day following the earlier of the Filing Deadline and the initial filing date of the registration statement if the SEC notifies us that it will “review” the registration statement and (ii) the 5th business day after the date we are notified (orally or in writing, whichever is earlier) by the SEC that the registration statement will not be “reviewed” or will not be subject to further review.

Our obligations to include the PIPE Shares held by a Subscriber in the registration statement is contingent upon the relevant Subscriber furnishing in writing, to us such information regarding the Subscriber, the PIPE Shares held by such Subscriber and the intended method of disposition of the PIPE Shares, as is reasonably requested by us to effect the registration of such PIPE Shares, and must execute such documents in connection with such registration as we may reasonably request, which will be what is customary of a selling stockholder in similar situations.

Support Agreement

Contemporaneously with the execution of the Merger Agreement and the Transaction and Combination Agreement, the Sponsors, Foresight and Legacy P3 entered into the Sponsor Support Agreement (the “Support Agreement”).

Pursuant to the Support Agreement, the Sponsors agreed, among other things:

(i) not to sell, pledge or otherwise dispose of (or agree to dispose of) any of their securities in Foresight;

(ii) to vote or cause to be voted at any meeting in favor of each proposal in favor of the Business Combinations and against any merger or other similar business combination transaction with any party other than Legacy P3 or other proposal that would prevent the Business Combinations;

(iii) to vote or cause to be voted at any meeting in favor of any amendment to warrants issued by Foresight, and any amendment thereto proposed in the Warrant Exchange Offer/Solicitation contemplated by the Merger Agreement (which did not occur);

(iv) to comply with their obligations under that certain letter agreement, dated as of February 9, 2021, by and among Foresight, the Sponsors, Greg Wasson, Michael Balkin, Gerald Muizelaar, Brian Gamache, Robert Zimmerman and John Svoboda;

and (v) comply with Foresight’s non-solicitation covenants under the Merger Agreement (with respect to the provisions thereof applicable to representatives of Foresight).

Pursuant to the Support Agreement, our Sponsor (but not FA Co-Investment LLC) agreed to tender or cause to be tendered any and all Foresight Warrants that our Sponsor owns of record or beneficially (as defined in the Securities Act) pursuant to and in accordance with the terms of the Warrant Exchange Offer/Solicitation.

Our Sponsor also agreed that once its Foresight Warrants are tendered, it will not withdraw or cause or permit to be withdrawn any of such Foresight Warrants from the Warrant Exchange Offer/Solicitation, unless and until the Support Agreement has been terminated.

Amended and Restated Limited Liability Company Agreement of P3 LLC

We operate our business through P3 LLC (as the successor of P3) and its subsidiaries.

At the closing of the Business Combinations, the limited liability company agreement of P3 LLC was amended and restated into the P3 LLC A&R LLC Agreement, which sets forth, among other things, the rights and obligations of the members of P3 LLC after the Closing.

Sole Manager .

Pursuant to the P3 LLC A&R LLC Agreement, P3 is the sole manager of P3 LLC.

As the sole manager, P3 is generally able to control all of the day-to-day business affairs and decision-making of P3 LLC without the approval of any member of P3 LLC, unless otherwise stated in the P3 LLC A&R LLC Agreement.

As the sole manager of P3 LLC, P3, through its officers and directors, is responsible for all operational and administrative decisions of P3 LLC and the day-to-day management of P3 LLC’s business.

Pursuant to the terms of the P3 LLC A&R LLC Agreement, P3 cannot be removed or replaced as the sole manager of P3 LLC except by its resignation, which may be given at any time by written notice to the other members of P3 LLC.

Compensation, Expenses .

P3 is not entitled to compensation for its services as the manager of P3 LLC except as expressly provided for in the P3 LLC A&R LLC Agreement.

P3 is entitled to reimbursement by P3 LLC for reasonable out-of-pocket expenses incurred on behalf of P3 LLC, including all expenses associated with P3 being a public company and maintaining its corporate existence.

Distributions .

The P3 LLC A&R LLC Agreement requires tax distributions to be made by P3 LLC to its members on a pro rata basis, except to the extent such distributions would render P3 LLC insolvent or are otherwise prohibited by law.

Tax distributions are made on a quarterly basis, to each member of P3 LLC, including P3, based on such member’s allocable share of the taxable income of P3 LLC and an assumed tax rate that will be determined by P3, as described below.

The assumed tax rate for purposes of determining tax distributions from P3 LLC to its members will be the highest combined federal, state, and local tax rate that may potentially apply to a corporate or individual taxpayer (whichever is higher) resident in New York City, New York, taking into account certain assumptions and without regard to the actual final tax liability of any such member.

The P3 LLC A&R LLC Agreement also allows for cash distributions to be made by P3 LLC (subject to P3’s discretion as the sole manager of P3 LLC) to its members on a pro rata basis out of cash available for distribution in accordance with the P3 LLC A&R LLC Agreement.

We expect P3 LLC may make distributions out of distributable cash periodically and as necessary to enable us to cover P3’s operating expenses and other obligations, including tax liability and other obligations under the Tax Receivable Agreement, except to the extent such distributions would render P3 LLC insolvent or are otherwise prohibited by law.

Transfer Restrictions .

The P3 LLC A&R LLC Agreement generally does not permit transfers of P3 LLC Units by members, except for transfers to permitted transferees, transfers pursuant to the participation right described below and other limited exceptions.

The P3 LLC A&R LLC Agreement imposes additional restrictions on transfers (including on exchanges of P3 LLC Units and Class V Common Stock for Class A - Common Stock) that are necessary or advisable so that P3 LLC is not treated as a “publicly traded partnership” for U.S.

federal income tax purposes.

In the event of a permitted transfer under the P3 LLC A&R LLC Agreement, the transferring member will be required to simultaneously transfer shares of Class V Common Stock held by such transferring member to such transferee equal to the number of P3 LLC Units that were transferred to such transferee in such permitted transfer.

The P3 LLC A&R LLC Agreement permits holders of P3 LLC Units to participate in a tender offer, share exchange offer, issuer bid, take-over bid, recapitalization or similar transaction with respect to Class A Common Stock that is approved by our board of directors by delivering a participation redemption notice, which shall be effective immediately prior to, and contingent upon, the consummation of such transaction.

Permitted transferees of P3 LLC Units will be required to assume all of the obligations of a transferring member with respect to the transferred P3 LLC Units by executing a joinder to the P3 LLC A&R LLC Agreement, and such transferee shall be bound by any limitations and obligations under the P3 LLC A&R LLC Agreement.

Maintenance of One-to-One Ratios .

The P3 LLC A&R LLC Agreement includes provisions intended to ensure that P3 at all times maintains (i) a one-to-one ratio between the number of P3 LLC Units owned, directly or indirectly, by P3 and the aggregate number of shares of Class A Common Stock issued and outstanding, and (ii) a one-to-one ratio between the aggregate number of P3 LLC Units owned, directly or indirectly, by the members of P3 LLC (other than P3 and its subsidiaries) and the number of shares of Class V Common Stock issued and outstanding.

These ratio requirements disregard (1) shares of Class A Common Stock issuable under unvested equity incentive awards granted by P3, (2) treasury stock, and (3) preferred stock or other debt or equity securities (including warrants, options or rights) issued by P3 that are convertible into or exercisable or exchangeable for shares of Class A Common Stock, except to the extent P3 has contributed the net proceeds from such other securities, including any exercise or purchase price payable upon conversion, exercise or exchange thereof, to the equity capital of P3 LLC.

Excluding certain warrants, options or similar instruments granted pursuant to any equity plan or stock option plan in effect on, or adopted after, the date of the P3 LLC A&R LLC Agreement by P3 LLC or P3, in the event any holder of P3 Warrants exercises a P3 Warrant, then P3 will cause a corresponding exercise of a warrant to purchase P3 LLC Units with similar terms held by P3, such that the number of shares of Class A Common Stock issued in connection with the exercise of such P3 Warrants will be matched with a corresponding number of P3 LLC Units issued by P3 LLC to P3.

In the event that a P3 Warrant is redeemed, P3 LLC will redeem a warrant to purchase P3 LLC Units with similar terms held by P3.

Issuance of P3 LLC Units upon Exercise of Options or Issuance of Other Equity Compensation .

The P3 LLC A&R LLC Agreement contemplates the manner in which various types of equity incentive awards will be treated by P3 and P3 LLC.

Dissolution .

The P3 LLC A&R LLC Agreement provides that the consent of P3, as the manager of P3 LLC, and members holding a majority of the P3 LLC Units then outstanding (excluding P3 LLC Units held directly or indirectly by P3) will be required to voluntarily dissolve P3 LLC.

In addition to a voluntary dissolution, P3 LLC will be dissolved upon the entry of a decree of judicial dissolution or other circumstances in accordance with Delaware law.

Upon a dissolution event, the proceeds of a liquidation will be distributed in the following order:

(1) first, to pay the expenses of winding up P3 LLC;

(2) second, to pay debts, liabilities and obligations owed to creditors of P3 LLC other than members;

(3) third, to pay debts, liabilities and obligations owed to the members (other than payments or distributions owed to the members in their capacity as such pursuant to the P3 LLC A&R LLC Agreement);

and (4) fourth, to the members pro-rata in accordance with their respective percentage ownership interests in P3 LLC (as determined based on the number of P3 LLC Units held by a member relative to the aggregate number of all outstanding P3 LLC Units).

Confidentiality .

Each member of P3 LLC (other than P3) agrees to maintain the confidentiality of P3 LLC’s confidential information.

This obligation excludes information (i) that is independently developed by the members without use of or reference to such confidential information, (ii) that is or becomes generally available to the public other than as a direct or indirect result of a disclosure by a member or its affiliates or representatives, (iii) that is or becomes available to a member from a source other than P3, P3 LLC, any of its subsidiaries or their respective representatives, provided that such source is not, and was not, known by such member to be bound by a confidentiality agreement with, or any other confidentiality obligation owed to P3, P3 LLC or any of their respective affiliates or representatives, or (iv) approved for release by written authorization of the Chief Executive Officer, the Chief Financial Officer or the General Counsel of either P3 LLC or P3.

Fiduciary Duties;

Indemnification .

The P3 LLC A&R LLC Agreement provides (i) that the manager of P3 LLC owes P3 LLC and its members the same fiduciary duties as the manager would owe to a Delaware corporation and its stockholders if such manager were a member of the board of directors of such corporation, and (ii) that the officers of P3 LLC owe P3 LLC and its members duties of the type owed by the officers of a Delaware corporation to such corporation and its stockholders.

The P3 LLC A&R LLC Agreement also provides for indemnification to the fullest extent permitted by law of (1) the manager (and its directors, officers, employees and agents), (2) officers, employees and agents of P3 LLC and (3) persons serving at P3 LLC’s request as a manager, officer, director, employee or agent of another entity, in each case, subject to certain exceptions, including in the case of fraud, willful misconduct, knowing violations of law and breaches of representations, warranties or covenants under the P3 LLC A&R LLC Agreement.

P3 LLC Unit Exchange Right .

The P3 LLC A&R LLC Agreement provides a redemption right to the members of P3 LLC (other than P3 and its subsidiaries) which entitles them to have their P3 LLC Units redeemed for, at P3’s election, newly-issued shares of Class A Common Stock on a one-for-one basis, or a cash payment equal to the volume weighted average market price of one share of Class A Common Stock for each P3 LLC Unit so redeemed.

As holders of P3 LLC Units exercise their redemption rights, P3’s economic interest in P3 LLC will be correspondingly increased and the number of shares of Class V Common Stock outstanding will be correspondingly reduced.

Each member’s (other than P3 and its subsidiaries) redemption rights are subject to certain customary limitations, including the expiration of any contractual lock-up period relating to the shares of Class A Common Stock that may be applicable to such member, and may be conditioned on the closing of an underwritten distribution of the shares of Class A Common Stock that may be issued in connection with such proposed redemption.

Whether by redemption or exchange, P3 is obligated to ensure that at all times the number of P3 LLC Units that P3 owns equals the number of outstanding shares of Class A - Common Stock (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).

In addition to certain other requirements, P3’s prior written consent, as manager, and the prior written consent of members holding a majority of the P3 LLC Units then outstanding and entitled to vote (excluding P3 LLC Units held directly or indirectly by P3) will generally be required to amend or modify the P3 LLC A&R LLC Agreement.

Tax Receivable Agreement

Pursuant to our election under Section 754 of the Internal Revenue Code (the “Code”), we expect to obtain an increase in our share of the tax basis in the net assets of P3 LLC when its units are redeemed or exchanged.

We intend to treat any redemptions and exchanges of P3 LLC units as direct purchases of the units for U.S.

federal income tax purposes.

These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities.

They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent the tax basis is allocated to those capital assets.

In connection with the Business Combinations, we entered into a TRA that provides for the payment by us of 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of P3 LLC resulting from any redemptions or exchanges of P3 LLC, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”).

We expect to benefit from the remaining 15% of any tax benefits that we may actually realize.

The estimation of a liability under the TRA is, by its nature, imprecise and subject to significant assumptions regarding a number of factors, including (but not limited to) the amount and timing of taxable income generated by the Company each year as well as the tax rate then applicable.

As a result of the Business Combinations, the potential future tax benefits are estimated to be $5.4 million, of which $4.6 million is estimated to be the associated TRA liability.

As noted above, the Company has no recorded tax benefits associated with the increase in tax basis as a result of the Business Combinations.

As a result, the Company determined that payments to TRA holders are not probable and no TRA liability has been recorded as of December 31, 2021.

As non-controlling interest holders exercise their right to exchange their units in P3 LLC, a TRA liability may be recorded based on 85% of the estimated future tax benefits that the Company may realize as a result of increases in the tax basis of P3 LLC.

The amount of the increase in the tax basis, the related estimated tax benefits, and the related TRA liability to be recorded will depend on the price of the Company’s Class A Common Stock at the time of the relevant redemption or exchange.

We expect to obtain an increase in our proportionate share of the tax basis of the assets of P3 LLC (1) as a result of the purchase of P3 Existing Units from the P3 Equityholders in connection with the Business Combinations, (2) if and when (as described above under “— Amended and Restated Limited Liability Company Agreement of P3 LLC ”) the P3 Equityholders receive shares of Class A Common Stock or cash in connection with any future redemption or exchange of P3 LLC Units pursuant to the P3 LLC A&R LLC Agreement and (3) in connection with certain distributions (or deemed distributions) by P3 LLC (any such basis increase, the “Basis Adjustments”).

The parties intend to treat the purchase of P3 Existing Units described in clause (1) and any such redemption or exchange of P3 LLC Units described in clause (2) above as a direct purchase by us of P3 Existing Units and P3 LLC Units, as applicable, from the P3 Equityholders for U.S.

federal income and other applicable tax purposes, regardless of whether such P3 Existing Units or P3 LLC Units are surrendered by the P3 Equityholders to P3 LLC or sold to us upon the exercise of our election to acquire P3 LLC Units directly.

A Basis Adjustment may have the effect of increasing (for income tax purposes) depreciation and amortization deductions allocable to us and thereby reducing the amounts that we would otherwise pay in the future to various tax authorities.

The Basis Adjustments may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.

In connection with the Business Combinations, we entered into the Tax Receivable Agreement with certain of the P3 Equityholders and P3 LLC.

The Tax Receivable Agreement provides for the payment by us to the P3 Equityholders of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of the transactions described above, including tax benefits attributable to payments made under the Tax Receivable Agreement (such as deductions attributable to imputed interest deemed paid pursuant to the Tax Receivable Agreement).

P3 LLC has in effect an election under Section 754 of the Code effective for each taxable year in which a redemption or exchange of P3 LLC Units for shares of Class A Common Stock or cash occurs.

These Tax Receivable Agreement payments are not conditioned upon any continued ownership interest in either P3 LLC or us by the P3 Equityholders.

The rights of the P3 Equityholders under the Tax Receivable Agreement are assignable to transferees, including transferees of the P3 LLC Units (other than us or P3 LLC as transferee pursuant to subsequent redemptions or exchanges of the transferred P3 LLC Units).

We expect to benefit from the remaining 15% of tax benefits, if any, that we may actually realize.

The actual Basis Adjustments, as well as any amounts paid to the P3 Equityholders under the Tax Receivable Agreement, varies depending on a number of factors, including:

● the price of shares of Class A Common Stock in connection at the time of redemptions or exchanges —the Basis Adjustments, as well as any related increase in any tax deductions, are directly related to the price of shares of Class A Common Stock at the time of each redemption or exchange;

● the timing of any subsequent redemptions or exchanges—for instance, the increase in any tax deductions will vary depending on the fair market value, which may fluctuate over time, of the depreciable or amortizable assets of P3 LLC at the time of each redemption or exchange or distribution (or deemed distribution);

● the extent to which such redemptions or exchanges are taxable —if a redemption or exchange is not taxable for any reason, the Basis Adjustments, as well as any related increase in tax deductions, relating to such redemption or exchange will not be available;

● the amount and timing of our income—the Tax Receivable Agreement generally requires us to pay 85% of the tax benefits as and when those benefits are treated as realized under the terms of the Tax Receivable Agreement.

If we do not have taxable income, we generally will not be required (absent a change of control or other circumstances requiring an early termination payment) to make payments under the Tax Receivable Agreement for that taxable year because no tax benefits will have been actually realized.

However, any tax benefits that do not result in realized tax benefits in a given taxable year will likely generate tax attributes that may be utilized to generate tax benefits in previous or future taxable years.

The utilization of any such tax attributes generally will result in payments under the Tax Receivable Agreement.

Decisions made by us in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations, or other changes in control, may influence the timing and amount of payments that are received by the P3 Equityholders under the Tax Receivable Agreement.

For example, the earlier disposition of assets following a transaction that results in a Basis Adjustment will generally accelerate payments under the Tax Receivable Agreement and increase the present value of such payments.

For purposes of the Tax Receivable Agreement, cash savings in income tax are computed by comparing our actual income tax liability (subject to certain assumptions relating to state and local income taxes) to the amount of such taxes that we would have been required to pay had there been no Basis Adjustments and had the Tax Receivable Agreement not been entered into.

The Tax Receivable Agreement generally applies to each of our taxable years, beginning with the first taxable year ending after the Business Combinations.

There is no maximum term for the Tax Receivable Agreement;

however, the Tax Receivable Agreement may be voluntarily terminated by us pursuant to an early termination procedure and shall be terminated upon the occurrence of certain mergers, asset sales, other forms of business combinations, or other changes of control or our material breach of our material obligations under the Tax Receivable Agreement under certain circumstances, and in each case we will be obligated to pay the P3 Equityholders an agreed upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated based on certain assumptions, including regarding tax rates and utilization of the Basis Adjustments).

However, our ability to make such payment may be subject to various limitations and restrictions, such as restrictions on distributions that would either violate any contract or agreement to which we or P3 LLC are then a party, or any applicable law.

The payment obligations under the Tax Receivable Agreement are our obligations and not of P3 LLC.

Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments that we may be required to make to the P3 Equityholders will be substantial.

Any payments made by us to the P3 Equityholders under the Tax Receivable Agreement will generally reduce the amount of cash that might have otherwise been available to us.

To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid.

Our failure to make any payment required under the Tax Receivable Agreement (including any accrued and unpaid interest) within 90 calendar days of the date on which the payment is required to be made will constitute a material breach of a material obligation under the Tax Receivable Agreement, which will generally terminate the Tax Receivable Agreement and accelerate payments thereunder, unless the applicable payment is not made because (i) we are prohibited from making such payment under the terms of the Tax Receivable Agreement or the terms governing certain of our indebtedness or (ii) we do not have, and despite using commercially reasonable efforts cannot obtain, sufficient funds to make such payment.

The Tax Receivable Agreement provides that if (i) we materially breach any of our material obligations under the Tax Receivable Agreement, (ii) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur, or (iii) we elect an early termination of the Tax Receivable Agreement, then our obligations, or our successor’s obligations, under the Tax Receivable Agreement would accelerate and become due and payable, based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement, and an assumption that, as of the effective date of the acceleration, any P3 Equityholder that has P3 LLC Units that have not been exchanged is deemed to have exchanged such P3 LLC Units for the fair market value of the shares of Class A Common Stock or the amount of cash that would be received by such P3 Equityholder had such P3 LLC Units actually been exchanged on such date, whichever is lower.

However, as noted above, our ability to make such payments may be limited by restrictions on distributions that would either violate any contract or agreement to which we or P3 LLC are then a party, or any applicable law.

As a result of the foregoing, we would be required to make an immediate cash payment equal to the estimated present value (calculated based on a discount rate equal to 10%) of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement based on certain assumptions, which payment may be made significantly in advance of the actual realization, if any, of those future tax benefits and, therefore, we could be required to make cash payments to the P3 Equityholders that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the Tax Receivable Agreement.

In these situations, our obligations under the Tax Receivable Agreement could have a material adverse effect on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations, or other changes of control.

We cannot assure that we will be able to finance our obligations under the Tax Receivable Agreement or that we will be able to make the immediate cash payment described above to the extent our or P3 LLC’s ability to make such payment is restricted as described above.

Payments under the Tax Receivable Agreement are based on the tax reporting positions that we determine, and the IRS or another tax authority may challenge all or part of the Basis Adjustments, as well as other related tax positions we take, and a court could sustain any such challenge.

If the outcome of any such challenge to any Basis Adjustments or the deduction of imputed interest deemed paid pursuant to the Tax Receivable Agreement would reasonably be expected to materially affect a recipient’s payments under the Tax Receivable Agreement, then we will not be permitted to settle or to fail to contest such challenge without the consent (not to be unreasonably withheld or delayed) of each P3 Equityholder, and any such restrictions will apply for as long as the Tax Receivable Agreement remains in effect.

We will not be reimbursed for any cash payments previously made to the P3 Equityholders pursuant to the Tax Receivable Agreement if any tax benefits initially claimed by us are subsequently challenged by a taxing authority and ultimately disallowed.

Instead, in such circumstances, any excess cash payments made by us to the P3 Equityholders will be netted against any future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement.

However, we might not determine that we have effectively made an excess cash payment to the P3 Equityholders for a number of years following the initial time of such payment.

As a result, it is possible that we could make cash payments under the Tax Receivable Agreement that are substantially greater than our actual cash tax savings.

Payments are generally due under the Tax Receivable Agreement within a specified period of time following the filing of our tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of such tax return.

Any late payments that may be made under the Tax Receivable Agreement will continue to accrue interest at LIBOR (or alternate replacement rate) plus 500 basis points until such payments are made, including any late payments that we may subsequently make because we did not have enough available cash to satisfy our payment obligations at the time at which they originally arose or were prohibited from making such payments under the terms governing certain of our indebtedness (although such payments are not considered late payments and therefore would accrue interest at the lower interest if we make such payments promptly after such limitations are removed).

Subject to certain exceptions as noted above, our failure to make any payment required under the Tax Receivable Agreement (including any accrued and unpaid interest) within 90 calendar days of the date on which the payment is required to be made will constitute a material breach of a material obligation under the Tax Receivable Agreement under certain circumstances, in which case, the Tax Receivable Agreement will terminate and future payments thereunder will be accelerated, as noted above.

Registration Rights and Lock-Up Agreement

At the Closing, the Sponsors, the Blocker Sellers, certain P3 Equityholders, Brian Gamache, John Svoboda and Robert Zimmerman (collectively, the “Holders”) and Foresight entered into the Registration Rights and Lock-Up Agreement.

The Registration Rights and Lock-Up Agreement (i) amends, restates and replaces the registration rights agreement entered into by Foresight with the Sponsors, Brian Gamache, John Svoboda and Robert Zimmerman on February 9, 2021, and (ii) provides registration rights to the Holders pursuant to which P3 will be required to file a shelf registration statement to register the resale shares of Class A Common Stock or any other equity security held by the Holders upon the Closing, including the shares of Class A Common Stock issuable upon the future redemption of P3 LLC Units and shares of Class V Common Stock by such Holders and the Private Placement Units (including the Foresight Warrants and Class A Common Stock included therein and the Class A Common Stock issuable upon exercise of the Foresight Warrants included therein), in each case held by them upon the Closing (collectively, “Registrable Securities”).

Assuming all of the P3 LLC Units are redeemed for Class A Common Stock and all of the Private Placement Warrants are exercised, the Registrable Securities consist of an aggregate of 239,866,497 shares of Class A Common Stock and 277,500 Private Placement Warrants.

In addition, subject to certain requirements and customary conditions, the Holders may demand, at any time or from time to time, that Foresight file a shelf registration statement on Form S-3, or if Form S-3 is not available, a Form S-1 to register the Registrable Securities held by such Holders.

The Registration Rights and Lock-Up Agreement also provides the Holders with “piggy-back” registration rights, subject to certain requirements and customary conditions.

Subject to certain exceptions, the Registration Rights and Lock-Up Agreement further provides for the Class A Common Stock, the Class V Common Stock and the Class A Common Stock issuable upon the future exchange of P3 LLC Units and shares of Class V Common Stock held by the P3 Equityholders and the Blocker Sellers after the Closing to be locked-up for a period of six months following the Closing, while the Class A Common Stock received by the Sponsors upon conversion of the Class B Common Stock on the Closing Date will be locked-up for a period of one year following the Closing, subject to earlier release upon (i) the date on which the last reported sale price of the Class A Common Stock equals or exceeds $12.00 per share for any 20 trading days within any 30-day trading period commencing at least 150 days after the Closing or (ii) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction after the Closing that results in all of the Company’s stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property.

The Private Placement Units, including the Class A Common Stock included therein, the Private Placement Warrants and Class A Common Stock issuable upon exercise of the Private Placement Warrants will be locked-up for a period of thirty days following the Closing.

Except as set forth in the Registration Rights and Lock-Up Agreement, P3 will be required to bear all expenses incurred in connection with the filing of any such registration statements and any such offerings, other than underwriting discounts and commissions on the sale of Registrable Securities, brokerage fees, underwriter marketing costs and, except as specified in the Registration Rights and Lock-Up Agreement, the fees and expenses of counsel to holders of Registrable Securities.

The Registration Rights and Lock-Up Agreement also includes customary provisions regarding indemnification and contribution.

Escrow Agreement

On December 3, 2021, we entered into an escrow agreement (the “Escrow Agreement”) with P3 Health Group Holdings, P3 LLC, Hudson Vegas Investment SPV, LLC (the “Class D Member”), Mary Tolan and Sherif Abdou (the “Unitholder Representatives”) and PNC Bank, N.A.

(“Escrow Agent”).

Pursuant to the Escrow Agreement, certain of the consideration for the Business Combinations was set aside in an escrow until resolution of the disputes described below.

At Closing, (i) cash, certain units of P3 LLC (“P3 LLC Units”) and shares of Class V Common Stock and Class A Common Stock were placed in escrow, to be allocated upon resolution of the dispute regarding the Class D purchase option described in the section titled “Business—Legal Proceedings—Class D Dispute” (the “Class D Dispute”), and (ii) certain members of P3 LLC (the “Contributing P3 Equityholders”) contributed cash, and Hudson contributed P3 LLC Units and shares of Class V Common Stock, into escrow, to be allocated upon resolution of a dispute regarding Hudson’s right to a preference on the cash portion of the Merger consideration (the “Cash Preference Dispute”).

If the Class D Dispute is (i) resolved in favor of Hudson, Hudson will receive cash, the P3 LLC Units and shares of Class V Common Stock escrowed for the Class D Dispute and the shares of Class A Common Stock escrowed for the Class D Dispute will be retired or (ii) resolved in favor of the former members of P3 Health Group Holdings (other than Hudson), the former members of P3 Health Group Holdings (including Hudson) will receive cash, the P3 LLC Units and Class V Common Stock or shares of Class A Common Stock, as applicable, escrowed for the Class D Dispute.

If the Cash Preference Dispute is (i) resolved in favor of Hudson, the Contributing P3 Equityholders will receive the P3 LLC Units and shares of Class V Common Stock escrowed for the Cash Preference Dispute or shares of Class A Common Stock, as applicable, and Hudson will receive cash, or (ii) resolved in favor of the former members of P3 Health Group Holdings (other than Hudson), Hudson will receive the P3 LLC Units and shares of Class V Common Stock escrowed for the Cash Preference Dispute and the Contributing P3 Equityholders will receive cash.

In the Escrow Agreement, the parties authorized the Unitholder Representatives to direct the voting power of any of the securities in escrow, as applicable, on any matter put to a vote of the applicable securityholders in accordance with the proportional vote totals that such matter received by all voting securities other than those in escrow.

Foresight Transactions

Founder Shares and Private Placement Units

Founder Shares

In October 2020, our Sponsors purchased an aggregate of 7,906,250 founder shares for a capital contribution of $25,000.

In January 2021, our Sponsor transferred 25,000 founder shares to each Messrs.

Gamache, Svoboda and Zimmerman, our initial director nominees.

On October 4, 2021, all outstanding shares of Class B Common Stock were converted into shares of Class A Common Stock on a one-for-one basis.

Private Placement Units

Our Sponsors purchased an aggregate of 832,500 Private Placement Units for a purchase price of $10.00 per unit in a private placement that occurred simultaneously with the closing of our IPO on February 12, 2021.

682,500 of the Private Placement Units were purchased by our Sponsor and 150,000 Private Placement Units were purchased by FA Co-Investment LLC, an affiliate of one of the underwriters in the IPO.

Transfer Restrictions

The founder shares and the Private Placement Units (including the underlying Private Placement Warrants, the Private Placement Shares and the shares of Class A Common Stock issuable upon exercise of the Private Placement Warrants) are each subject to transfer restrictions pursuant to lock-up provisions in the letter agreement with us entered into by our initial stockholders, officers and directors on February 9, 2021.

Those lock-up provisions provide that, subject to limited exceptions, such securities are not transferable or salable (1) in the case of the founder shares, until the earlier of (A) one year after the completion of our Business Combinations and (B) subsequent to our Business Combinations, (x) the date on which we complete a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of our public stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property or (y) if the last reported sale price of the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after our Business Combinations, and (2) in the case of the Private Placement Units (including the underlying Private Placement Warrants, the Private Placement Shares and the shares of Class A Common Stock issuable upon exercise of the Private Placement Warrants), until 30 days after the completion of our Business Combinations.

Waiver of Redemption Rights

In addition, pursuant to the letter agreement, dated February 9, 2021, our initial stockholders, officers and directors have agreed to waive:

(1) their redemption rights with respect to any founder shares, the Private Placement Shares and public shares held by them, as applicable, in connection with the completion of our Business Combinations;

(2) their redemption rights with respect to any founder shares, the Private Placement Shares and public shares held by them in connection with a stockholder vote to approve an amendment to our Charter (A) to modify the substance or timing of our obligation to allow redemptions in connection with our Business Combinations or to redeem 100% of our public shares if we have not consummated our Business Combinations by February 12, 2023 or (B) with respect to any other provision relating to stockholders’ rights or pre-Business Combinations activity;

and (3) their rights to liquidating distributions from the Trust Account with respect to any founder shares and Private Placement Shares they hold if we fail to complete our Business Combinations by February 12, 2023 or during any extension period (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if we fail to complete our Business Combinations within the prescribed time frame).

Pursuant to the letter agreement, dated February 9, 2021, our initial stockholders, officers and directors have agreed to vote any shares of Class A Common Stock or founder shares owned by them in favor of the Business Combinations.

Administrative Services Agreement

On February 9, 2021, we entered into an Administrative Services Agreement pursuant to which we paid our Sponsor a total of $10,000 per month for office space, administrative and support services.

Upon completion of our Business Combinations, we ceased paying these monthly fees.

From the period commencing February 9, 2021 through December 31, 2021, we paid the Sponsor an aggregate of $96,071 for such services under the Administrative Services, as well as an additional $149,838 aggregate amount in support fees.

Registration Rights

Pursuant to a registration rights agreement entered into by us on February 9, 2021, the holders of the founder shares, Private Placement Units (including the underlying securities) and units (including the underlying securities) that may be issued upon conversion of working capital loans, and any shares of Class A Common Stock issuable upon the exercise of the Private Placement Warrants or upon the exercise of any warrants included within Working Capital Units issued upon conversion of working capital loans are entitled to registration rights requiring the Company to register such securities for resale (in the case of the founder shares, only after conversion to shares of Class A Common Stock).

The holders of these securities will be entitled to make up to three demands, excluding short form registration demands, that we register such securities.

In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of our Business Combinations and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act.

Notwithstanding the foregoing, FA Co-Investment LLC, an affiliate of one of the underwriters in the IPO, may not exercise its demand or “piggyback” registration rights after five and seven years, respectively, after the effective date of the IPO registration statement and may not exercise its demand rights on more than one occasion.

The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering our securities.

We will bear the expenses incurred in connection with the filing of any such registration statements.

Promissory Notes—Related Parties

On October 22, 2020 and October 27, 2020, the Sponsors issued unsecured promissory notes to us, pursuant to which we may borrow up to an aggregate principal amount of $300,000.

The promissory notes were non-interest bearing and payable on the earlier of (i) March 31, 2021 or (ii) the consummation of the IPO.

The outstanding balance under the promissory notes of $275,000 as of December 31, 2020 was repaid upon the closing of the IPO on February 12, 2021 out of the portion of offering proceeds that was allocated for the payment of offering expenses (other than underwriting commissions) not held in the Trust Account.

On August 19, 2021, our Sponsor committed to providing us with an aggregate of $300,000 in loans.

We borrowed $150,000 under the loan, which was non-interest bearing, unsecured and subsequently repaid upon the consummation of the Business Combinations.

Working Capital Loans

On August 19, 2021, the Sponsor committed to provide up to $300,000 in working capital loans as needed by the Company in order to finance transaction costs in connection with a Business Combinations.

On October 27, 2021, the Sponsor committed to provide up to an additional $600,000 in working capital loans as needed by the Company in order to finance transaction costs in connection with a Business Combinations.

The loans will follow the same structure as the $300,000 working capital loans as described above.

The total commitment provided by the Sponsor will total $900,000, where none of which has been borrowed as of December 31, 2021.

P3 Transactions

Atrio Health Plans

In 2019, Chicago Pacific Founders, a P3 Equityholder,made an equity investment in Atrio Holding Company, LLC (“Atrio Holdings”).

Atrio Health Plans, Inc.

(“Atrio”) is a wholly owned subsidiary of Atrio Holdings.

Two members of P3’s board of directors, Mary Tolan and Lawrence B.

Leisure, serve as Managing Partners of Chicago Pacific Founders, and one member of P3’s board of directors, Greg Kazarian, serves as an Operating Partner of Chicago Pacific Founders.

Beginning in 2020, P3 entered into a Full-Risk capitation agreement with Atrio pursuant to which P3 is delegated to perform services on behalf of Atrio’s members assigned to P3, including provider network credentialing, patient authorizations and medical management (care management, quality management and utilization management).

In 2021, P3 earned capitation revenue from Atrio assigned members of $154.4 million and management fees of $2.2 million;

and paid claims of $160.9 million for Atrio assigned members.

In 2020, P3 earned capitation revenue from Atrio assigned members of $146.5 million and management fees of $2.2 million;

and paid claims of $148.9 million for Atrio assigned members.

Director Independence

Mark Thierer, Greg Wasson, Lawrence B.

Leisure, Mary Tolan, Tom E.

and Jeffrey G.

Park each qualify as “independent” in accordance with the listing requirements of Nasdaq.

The Nasdaq independence definition includes a series of objective tests, including that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us.

In addition, as required by Nasdaq rules, our board of directors has made a subjective determination as to each independent director that no relationships exist, which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management, including the beneficial ownership of our capital stock by each director.

There are no family relationships among any of our directors or executive officers.

Principal Accountant Fees and Services.

The following table summarizes the fees billed to us by BDO USA, LLP, our independent registered public accounting firm, and KPMG LLP, our former independent registered public accounting firms, for services rendered in connection with the years ended December 31, 2021, and 2020, respectively:

Year Ended December 31,

Audit Fees (1)

Audit-Related Fees (2)

All Other Fees

(1) Audit fees consist of fees associated with the audit of the Company’s annual financial statements and review of its condensed quarterly financial statements.

(2) Audit-related fees consist of fees associated with review of the Company’s Form S-1 and Definitive Proxy Statement filed in 2021.

Audit Committee Pre-Approval Policy and Procedures

The Audit Committee has adopted a policy (the “Pre-Approval Policy”) that sets forth the procedures and conditions pursuant to which audit and non-audit services proposed to be performed by the independent auditor may be pre-approved.

The Pre-Approval Policy generally provides that we will not engage our independent auditor to render any audit, audit-related, tax or permissible non-audit service unless the service is either (i) explicitly approved by the Audit Committee (“specific pre-approval”) or (ii) entered into pursuant to the pre-approval policies and procedures described in the Pre-Approval Policy (“general pre-approval”).

Unless a type of service to be provided by our independent auditor has received general pre-approval under the Pre-Approval Policy, it requires specific pre-approval by the Audit Committee.

The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve audit services, other than with respect to the annual audit of the Company’s consolidated financial statements, and other services on behalf of the Audit Committee.

To the extent that the Audit Committee pre-approves any services under its general pre-approval policy, pre-approved fee levels or budgeted amounts for all services to be provided by the independent auditor will be established annually by the Audit Committee.

Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval.

For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC’s rules on auditor independence.

The Audit Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality.

All such factors will be considered as a whole, and no one factor should necessarily be determinative.

On a periodic basis, the Audit Committee may review and generally pre-approve the services (and related fee levels or budgeted amounts) that may be provided by the independent auditor without first obtaining specific pre-approval from the Audit Committee.

The Audit Committee may revise the list of general pre-approved services from time to time, based on subsequent determinations.

The Audit Committee pre-approved all services performed since the Pre-Approval Policy was adopted.

Exhibits and Financial Statement Schedules

Exhibit and Financial Statement Schedules.

(a)(1) Financial Statements.

3 unchanged sentences

(a)(3) Exhibits.

The following is a list of exhibits filed as part of this Annual Report on Form 10-K.

The following is a list of exhibits filed as part of this Form 10-K.

Incorporated by Reference

1 unchanged sentence

Exhibit Description

Agreement and Plan of Merger, dated as of May 25, 2021, by and between Foresight, P3 Health Group Holdings, LLC, FAC Merger Sub LLC.

Transaction and Combination Agreement, dated as of May 25, 2021, by and among Foresight, the Merger Corps, the Blockers, Splitter and the Blocker Sellers.

First Amendment to Merger Agreement, dated as of November 21, 2021, by and among Foresight, Merger Sub and P3.

Second Amendment, dated as of December 3, 2021, to the Agreement and Plan of Merger, dated as of May 25, 2021, by and among Foresight Acquisition Corp.

(“Foresight”), FAC Merger Sub LLC and P3 Health Group Holdings, LLC.

The First Amendment to the Transaction and Combination Agreement between Foresight, the Merger Corps, the Blockers, Splitter and the Blocker Sellers.

Agreement and Plan of Merger, dated as of May 25, 2021, by and between Foresight Acquisition Corp., P3 Health Group Holdings, LLC and FAC Merger Sub LLC.

Transaction and Combination Agreement, dated as of May 25, 2021, by and among Foresight Acquisition Corp., the Merger Corps, the Blockers, Splitter and the Blocker Sellers.

First Amendment to Merger Agreement, dated as of November 21, 2021, by and among Foresight Acquisition Corp., FAC Merger Sub LLC and P3 Health Group Holdings, LLC.

Second Amendment, dated as of December 3, 2021, to the Agreement and Plan of Merger, dated as of May 25, 2021, by and among Foresight Acquisition Corp., FAC Merger Sub LLC and P3 Health Group Holdings, LLC.

The First Amendment to the Transaction and Combination Agreement between Foresight Acquisition Corp., the Merger Corps, the Blockers, Splitter and the Blocker Sellers.

Amended and Restated Certificate of Incorporation of the Company.

4 unchanged sentences

Description of Registered Securities.

Warrant Agreement, dated December 13, 2022, by and between P3 Health Partners LLC and VBC Growth SPC LLC.

First Amendment to Term Loan Agreement, Termination of Management Rights Letter and Consent, dated as of December 3, 2021, by among P3 Health Group Holdings, LLC, as borrower, the subsidiary guarantors party thereto, the lenders from time to time party thereto and CRG Servicing LLC, as administrative agent and collateral agent.

6 unchanged sentences

Form of Indemnification Agreement for sponsor affiliated directors.

Offer Letter Agreement, dated as of March 13, 2017, by and between P3 Health Group Holdings, LLC and Todd Lefkowitz.

Letter Agreement, dated November 27, 2022, by and between P3 Health Partners Inc.

and Atul Kavthekar.

P3 Health Partners Inc.

22 unchanged sentences

Non-Employee Director Compensation Program.

Unsecured Promissory Note, dated December 13, 2022, by and between P3 Health Partners LLC and VBC Growth SPV LLC.

Subordination Agreement, dated as of December 13, 2022, by and among CRG Servicing, LLC and VBC Growth SPV LLC.

Third Amendment to Term Loan Agreement, dated as of December 13, 2022, by and among P3 Health Group, LLC, as borrower, the Subsidiary Guarantors party thereto, the Lenders party thereto and CRG Servicing LLC, as administrative agent and collateral agent.

Separation Agreement, effective as of November 1, 2022, by and between P3 Health Partners Inc.

and Eric Atkins.

List of Subsidiaries.

Consent of Independent Registered Public Accounting Firm.

Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

18 unchanged sentences

/s/ Sherif W.

October 20, 2022

March 31, 2023

Chief Executive Officer

2 unchanged sentences

Chief Executive Officer and Director

October 20, 2022

March 31, 2023

(Principal Executive Officer)

/s/ Atul Kavthekar

Chief Financial Officer

October 20, 2022

March 31, 2023

Atul Kavthekar

(Principal Financial Officer and Principal Accounting Officer)

1 unchanged sentence

Chairman of the Board of Directors

October 20, 2022

March 31, 2023

Chief Medical Officer and Director

October 20, 2022

March 31, 2023

Bacchus, M.D.

/s/ Gregory N.

October 20, 2022

March 31, 2023

/s/ Lawrence B.

October 20, 2022

March 31, 2023

/s/ Jeffrey G.

October 20, 2022

March 31, 2023

/s/ Thomas E.

October 20, 2022

/s/ Mary A Tolan

October 20, 2022

March 31, 2023

/s/ Greg Wasson

October 20, 2022

March 31, 2023

Index to Consolidated Financial Statements

2 unchanged sentences

PCAOB ID# 243 )

Report of Independent Registered Public Accounting Firm ( KPMG LLP ;

Irvine, California ;

PCAOB ID# 185 )

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the periods December 3, 2021 through December 31, 2021 and January 1, 2021 through December 2, 2021 and the years ended December 31, 2020 and 2019

Consolidated Statements of Stockholders’ Equity (Deficit) and Mezzanine Equity for the periods December 3, 2021 through December 31, 2021 and January 1, 2021 through December 2, 2021 and years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the periods December 3, 2021 through December 31, 2021 and January 1, 2021 through December 2, 2021 and the years ended December 31, 2020 and 2019

Consolidated Statements of Operations for the year ended December 31, 2022 and the periods December 3, 2021 through December 31, 2021 and January 1, 2021 through December 2, 2021

Consolidated Statements of Stockholders’ Equity /Members’ Deficit and Mezzanine Equity for the year ended December 31, 2022 and the periods December 3, 2021 through December 31, 2021 and January 1, 2021 through December 2, 2021

Consolidated Statements of Cash Flows for the year ended December 31, 2022 and the periods December 3, 2021 through December 31, 2021 and January 1, 2021 through December 2, 2021

Notes to Consolidated Financial Statements

4 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of P3 Health Partners Inc.

(the “Company”), as of December 31, 2021 (Successor), and the related statements of operations, changes in stockholders’/members’ equity (deficit) and mezzanine equity, and cash flows for the period from December 3, 2021 to December 31, 2021 (Successor) and the period from January 1, 2021 to December 2, 2021 (Predecessor) , and the related notes to the consolidated financial statements (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 at December 31, 2021 (Successor), and the results of its operations and its cash flows for the period from December 3, 2021 to December 31, 2021 (Successor) and the period from January 1, 2021 to December 2, 2021 (Predecessor) , in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of P3 Health Partners Inc.

(the “Company”), as of December 31, 2022 and 2021 (Successor), and the related statements of operations, changes in stockholders’/members’ equity (deficit) and mezzanine equity, and cash flows for the year ended December 31, 2022 and for the period from December 3, 2021 to December 31, 2021 (Successor) and the period from January 1, 2021 to December 2, 2021 (Predecessor), and the related notes to the consolidated financial statements (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 at December 31, 2022 and 2021 (Successor), and the results of its operations and its cash flows for the year ended December 31, 2022 and for the period from December 3, 2021 to December 31, 2021 (Successor) and the period from January 1, 2021 to December 2, 2021 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

5 unchanged sentences

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 audit.

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 audit in accordance with the standards of 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 consolidated 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 audit 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.

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 audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ BDO USA, LLP

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

Las Vegas, Nevada

October 20, 2022

Report of Independent Registered Public Accounting Firm

To the Stockholders/Members and Board of Directors

P3 Health Partners Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of P3 Health Partners Inc.

(formerly, P3 Health Group Holdings, LLC) and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations, stockholders’/members’ equity (deficit) and mezzanine equity, and cash flows for each of the years in the two year period ended December 31, 2020, and the related notes (collectively, 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, 2020, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

Correction of a Misstatement

As discussed in Note 2 to the consolidated financial statements, the 2020 and 2019 financial statements have been restated to correct misstatements.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these 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.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

2 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

We served as the Company’s auditor from 2021 to 2021.

Phoenix, Arizona

July 2, 2021, except for Note 25, as to which the date is August 11, 2021, and Note 2 as to which the date is October 20, 2022

/s/ BDO USA, LLP

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

Las Vegas, Nevada

March 31, 2023

P3 HEALTH PARTNERS INC and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2021 and 2020

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

CURRENT ASSETS:

Restricted cash

Health Plan Receivables

Clinic Fees and Insurance Receivables, Net

Other Receivables

Health plan receivable

Clinic fees and insurance receivable, net

Other receivable

Prepaid expenses and other current assets

1 unchanged sentence

LONG-TERM ASSETS:

Property and Equipment

Accumulated Depreciation

( 1,592,827 )

Property and equipment, net

1,309,750,216

Intangible assets, net

Notes Receivable, Net

Right of Use Asset

Other long-term assets

TOTAL LONG-TERM ASSETS

2,164,247,510

TOTAL ASSETS (1)

2,364,108,460

LIABILITIES, MEZZANINE EQUITY and STOCKHOLDERS'/MEMBERS’ EQUITY (DEFICIT)

LIABILITIES, MEZZANINE EQUITY, and STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts Payable and Accrued Expenses

Accounts payable

Accrued expenses and other current liabilities

Accrued payroll

Health Plans Settlements Payable

Health plan settlements payable

Claims payable

5 unchanged sentences

LONG-TERM LIABILITIES:

Right of Use Liability

Operating lease liability

Warrant liabilities

Contingent consideration

Long-Term Debt

Long-term debt, net

TOTAL LONG-TERM LIABILITIES

TOTAL LIABILITIES (1)

COMMITMENTS AND CONTINGENCIES (NOTE 26)

COMMITMENTS AND CONTINGENCIES (NOTE 17 AND NOTE 21)

MEZZANINE EQUITY

Redeemable non-controlling interest

1,790,617,285

Class D Units Subject to Possible Redemption (Predecessor), 16,130,034 Units Net of Issuance Costs $ 2,958,446

Class A Units Subject to Possible Redemption (Predecessor)

STOCKHOLDERS'/MEMBERS’ EQUITY (DEFICIT):

Accumulated Equity-Based Compensation (Predecessor)

Redemption of Profits Interests (Predecessor)

STOCKHOLDERS’ EQUITY:

Class A common stock, $ 0.0001 par value;

800,000,000 shares authorized;

41,578,890 shares issued and outstanding as of December 31, 2021

41,578,890 shares issued and outstanding as of December 31, 2022 and 2021

Class V common stock, $ 0.0001 par value;

205,000,000 shares authorized;

196,553,523 shares issued and outstanding as of December 31, 2021

201,592,012 and 196,553,523 shares issued and outstanding as of December 31, 2022 and 2021, respectively

Additional paid in capital

Accumulated deficit

( 39,418,124 )

( 130,485,179 )

TOTAL STOCKHOLDERS'/MEMBERS' EQUITY (DEFICIT)

( 130,217,705 )

TOTAL LIABILITIES, MEZZANINE EQUITY & STOCKHOLDERS'/MEMBERS’ EQUITY (DEFICIT)

2,364,108,460

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES, MEZZANINE EQUITY, and STOCKHOLDERS’ EQUITY

The Company’s consolidated balance sheets include the assets and liabilities of its consolidated variable interest entities (“VIEs”).

3 unchanged sentences

As a result, the language and numbers below refer only to VIEs held at the P3 LLC level.

The consolidated balance sheets include total assets that can be used only to settle obligations of P3 LLC’s consolidated VIEs totaling $ 8.1 million and $ 0.8 million as of December 31, 2021 and December 31, 2020, respectively, and total liabilities of P3 LLC’s consolidated VIEs for which creditors do not have recourse to the general credit of the Company totaled $ 6.1 million and $ 1.7 million as of December 31, 2021 and December 31, 2020, respectively.

These VIE assets and liabilities do not include $ 6.0 million of investment in affiliates and $ 24.1 million of amounts due to affiliates as of December 31, 2021 and $ 19.4 million of amounts due to affiliates as of December 31, 2020 as these are eliminated in consolidation and not presented within the consolidated balance sheets.

See Note 28 “Variable Interest Entities.”

The consolidated balance sheets include total assets that can be used only to settle obligations of P3 LLC’s consolidated VIEs totaling $ 3.1 million and $ 8.1 million as of December 31, 2022 and 2021, respectively, and total liabilities of P3 LLC’s consolidated VIEs for which creditors do not have recourse to the general credit of the Company totaled $ 9.9 million and $ 6.1 million as of December 31, 2022 and 2021, respectively.

These VIE assets and liabilities do not include $ 33.0 million of net amounts due to affiliates as of December 31, 2022 and $ 6.0 million of investment in affiliates and $ 24.1 million of amounts due to affiliates as of December 31, 2021 as these are eliminated in consolidation and not presented within the consolidated balance sheets.

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

December 3, 2021

6 unchanged sentences

TOTAL OPERATING REVENUE

OPERATING EXPENSES:

Medical Expenses

OPERATING EXPENSE:

Medical expense

Premium deficiency reserve

( 20,539,364 )

Corporate, General and Administrative Expenses

Sales and Marketing Expenses

Amortization of Intangible Assets

TOTAL OPERATING EXPENSES

Corporate, general and administrative expense

Sales and marketing expense

Depreciation and amortization

Goodwill impairment

TOTAL OPERATING EXPENSE

OPERATING LOSS

( 1,560,913 )

( 129,057,592 )

( 28,587,678 )

( 39,535,671 )

OTHER INCOME (EXPENSES):

OTHER INCOME (EXPENSE):

Interest expense, net

( 1,321,922 )

( 9,677,477 )

( 2,533,180 )

( 2,533,842 )

Mark-to-market of stock warrants

( 7,664,869 )

TOTAL OTHER INCOME (EXPENSE)

( 17,342,346 )

( 2,823,864 )

( 2,435,887 )

LOSS BEFORE INCOME TAXES

( 1,559,695 )

( 146,399,938 )

( 31,411,542 )

( 41,971,558 )

PROVISION FOR INCOME TAXES

( 1,561,557 )

( 146,399,938 )

( 31,411,542 )

( 41,971,558 )

LESS NET LOSS ATTRIBUTABLE TO REDEEMABLE NON-CONTROLLING INTERESTS

NET LOSS ATTRIBUTABLE TO REDEEMABLE NON-CONTROLLING INTERESTS

( 1,291,430 )

NET LOSS ATTRIBUTABLE TO CONTROLLING INTERESTS

( 10,081,200 )

( 146,399,938 )

( 31,411,542 )

( 41,971,558 )

NET LOSS PER SHARE (BASIC AND DILUTED)

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.

NET LOSS PER SHARE (BASIC)

NET LOSS PER SHARE (DILUTED)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (BASIC)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (DILUTED)

The Company analyzed the calculation of net loss per member unit for predecessor periods prior to the Business Combinations (Note 5) 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 (Note 5) on December 3, 2021.

See accompanying notes to consolidated financial statements.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’/MEMBERS’ DEFICIT AND MEZZANINE EQUITY

(Dollars in thousands)

Class A Units Subject to

3 unchanged sentences

Profit Interests

Balance as of December 31, 2018 As Restated

( 56,131,171 )

( 55,684,119 )

Issuance of Class D Units

Conversion of Debt to Class A Units

Costs of Issuance of Class D Units

( 2,958,446 )

Class A Units Issued

Class B-1 and Class C Unit Based Compensation

Redemption of Class A Units

( 15,000,000 )

Modification of Class A

( 1,892,002 )

( 41,971,558 )

Balance as of December 31, 2019 As Restated

( 99,073,637 )

Class B-1 and Class C Unit Based Compensation

Redemption of Class C Units

( 31,411,542 )

Balance as of December 31, 2020 As Restated

( 130,485,179 )

( 130,217,705 )

MEMBERS’ DEFICIT, as of December 31, 2020

Class B-1 and Class C Unit Based Compensation

3 unchanged sentences

Class C-2 Units Accelerated on Merger Date

( 146,399,938 )

Balance as of December 2, 2021

( 276,885,117 )

( 272,916,391 )

MEMBERS’ DEFICIT, as of December 2, 2021

Non-controlling

3 unchanged sentences

Total Stockholders’

in Capital (1)

STOCKHOLDERS’ EQUITY, December 3, 2021

1,833,838,872

( 29,336,924 )

Stock Compensation

( 47,856,729 )

( 10,081,200 )

Equity-based compensation

STOCKHOLDERS’ EQUITY, December 31, 2021

1,790,617,285

Vesting of Class V common stock awards

Equity-based compensation

Class A common stock warrants issued

( 1,291,430 )

Included in the opening balance are transactions completed in connection with the Business Combinations, including the PIPE investment of $ 195.3 million (net of issuance costs), the equity consideration to P3 shareholders of $ 80.3 million, and the trust proceeds (net of redemptions) of $ 37.4 million.

STOCKHOLDERS’ EQUITY, December 31, 2022

Included in the opening balance are transactions completed in connection with the Business Combinations (Note 5), including the PIPE Investment (Note 1) of $ 195.3 million (net of issuance costs), the equity consideration to P3 shareholders of $ 80.3 million, and the trust proceeds (net of redemptions) of $ 37.4 million.

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

December 3, 2021

2 unchanged sentences

through December 2,

2020 (As Restated)

2019 (As Restated)

CASH FLOWS FROM OPERATING ACTIVITIES:

( 1,561,557 )

( 146,399,938 )

( 31,411,542 )

( 41,971,558 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation Expense

Amortization of Intangible Assets

Stock-Based Compensation

Amortization of Debt Origination Fees

Amortization of Discount from Issuance of Debt

Mark-to-Market Adjustment of Stock Warrants

( 2,271,659 )

Depreciation and amortization

Equity-based compensation

Goodwill impairment

Amortization of original issue discount and debt issuance costs

Accretion of contingent consideration

Mark-to-market of stock warrants

Premium deficiency reserve

( 20,539,364 )

Changes in Assets and Liabilities, net of Acquisitions:

Accounts Receivable

( 1,484,932 )

Health Plan Receivables / Premiums

( 2,770,246 )

( 27,507,240 )

( 9,653,991 )

Other Current Assets

( 4,704,294 )

( 4,160,078 )

Net Change in ROU Assets and Liabilities

( 1,620,600 )

Accounts Payable

Changes in operating assets and liabilities:

Health plan receivable

Clinic fees, insurance, and other receivables

Prepaid expenses and other current assets

Other long-term assets

Accounts payable, accrued expenses, and other current liabilities

Accrued payroll

( 1,134,709 )

Accrued Interest

Health Plan Payables / Premiums

( 2,591,997 )

Health plan settlements payable

Claims payable

Accrued interest

Operating lease liability

Net cash used in operating activities

( 15,341,894 )

( 51,129,531 )

( 24,595,814 )

( 28,286,510 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of Property, Plant and Equipment

( 3,290,482 )

( 2,926,621 )

( 1,451,861 )

Purchases of property and equipment

Acquisitions, net of cash acquired

( 47,879,102 )

( 4,989,000 )

Notes Receivable, Net

( 2,404,862 )

Notes receivable

Net cash used in investing activities

( 47,856,364 )

( 8,208,832 )

( 3,166,148 )

( 3,856,723 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance (Redemption) of Class A, C and D Units

Proceeds from PIPE, net of issuance costs

Proceeds from Long-Term Debt, Net of Discount and Issuance Costs

Proceeds from long-term debt, net of original issue discount

Proceeds from short-term debt

Repayment of Long-Term Debt

( 1,493,221 )

( 14,586,891 )

Payment of long-term debt

Payment of debt issuance costs

Payment of short-term debt

Net cash provided by financing activities

Net change in cash and restricted cash

( 34,548,010 )

Cash and restricted cash at beginning of period

Cash and restricted cash at end of period

Supplemental Cash Flow Information:

Supplemental disclosure of cash flow information:

Cash paid for interest

Accrued Costs for Software (Development in Process)

Conversion of Class A Units to Long-Term Debt

Conversion of Long-Term Debt to Class A Units

Supplemental disclosures of non-cash investing and financing information:

Operating lease liabilities arising from obtaining new right-of-use assets

Warrants issued in connection with new debt

Increase in accrued expenses related to debt issuance costs and original issue discount

Reconciliation of cash and restricted cash:

Restricted cash

Total cash and restricted cash

See accompanying notes to consolidated financial statements.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

P3 HEALTH PARTNERS INC.

and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company Operations

(Dollars in thousands except per share amounts, or as otherwise stated)

P3 Health Partners Inc.

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

P3 Health Group Holdings 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.

(“P3”), f/k/a Foresight Acquisition Corp., is a patient-centered and physician-led population health management company and, for accounting purposes, the successor to P3 Health Group Holdings, LLC and its subsidiaries (collectively, “P3 LLC,” and together with P3, the “Company”).

P3 LLC 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”), Foresight Acquisition Corp (“Foresight”) and P3 Health Group Holdings consummated a series of business combinations pursuant to which, among other things, P3 Health Group Holdings merged with and into FAC Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Foresight Acquisition Corp.

(“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.

On December 3, 2021, (the “Closing Date”), P3 and P3 LLC consummated a series of business combinations pursuant to which, among other things, P3 LLC merged with and into FAC Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub”) (the “P3 Merger”), with Merger Sub as the surviving company, which was renamed P3 LLC, and FAC-A Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of P3, FAC-B Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of the P3 (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 P3 (collectively, the “Business Combinations”).

Upon completion of the Business Combinations (the “Closing”), the Company was organized in an “Up-C” structure in which P3 directly owned approximately 17.1 % of the common units of P3 LLC (“Common Units”) and became the sole manager of P3 LLC.

Following the Closing, substantially all of the Company’s assets are held and operations are conducted by P3 LLC, and P3’s only assets are equity interests in P3 LLC.

Upon closing of the Business Combinations:

● 8.7 million shares of Class A common stock were issued as part of the purchase consideration;

● 3.7 million shares of Class A common stock (after redemptions) were no longer subject to redemption;

● 8.8 million shares of Class A common stock held by the founder holders remained outstanding;

● 20.4 million shares of Class A common stock were issued in a private placement pursuant to subscription agreements entered into effective as of March 25, 2021 (the “PIPE Investment”).

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).

Under this arrangement, Medicare beneficiaries generally receive all their healthcare coverage through the Company’s network of employed and affiliated physicians and specialists.

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.

Effective January 1, 2019, 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 December 31, 2021, 2020 and 2019, the Company had agreements with seventeen , twelve and seven health plans, respectively.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 28 “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 %.

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.

The Company is also responsible for the credentialing of its providers, processing and payment of claims, and the establishment of a provider network for certain health plans.

In addition to the Company’s contracts with health plans, 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.

Restatement of Previously Issued Financial Statements

The Company has restated the consolidated financial statements for the years ended December 31, 2020 and 2019.

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.

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.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Capitation revenues for 2020 are 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 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.

Disclosure Correction

The amounts reported as intercompany accrued interest for advances made to the Company’s consolidated VIE were incorrectly disclosed for the year ended December 31, 2020 and has been reduced (see Note 27).

The disclosure of the condensed financial statement of the VIE have also been corrected for accrued interest and interest expense relating to the advance (see Note 28).

There is no impact to the consolidated financial statements of the Company as result of this correction to the disclosures.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Preferred Returns

Class A Units

Consolidated Balance Sheet as of December 31, 2020

Health Plan Settlement Receivable

Total Current Assets

Class A Units Subject to Possible Redemption

Class D Units Subject to Possible Redemption

( 4,567,346 )

Contributed Capital

( 41,764,270 )

Class A Preferred Returns

( 3,815,034 )

Accumulated Equity-Based Compensation

Retained Loss from Non-Controlling Interests

( 18,187,381 )

Accumulated Deficit (formerly Accumulated Loss from Controlling Interest)

( 126,242,225 )

( 18,187,381 )

( 130,485,179 )

Total Member’s Deficit

( 97,661,735 )

( 43,656,270 )

( 130,217,705 )

Total Liabilities, Mezzanine Equity & Members' Equity (Deficit)

Consolidated Statement of Operations for the Year Ended December 31, 2020

Capitated Revenue

Other Patient Service Revenue

( 3,666,102 )

Total Operating Revenue

Medical Expenses

( 1,010,720 )

Total Operating Expenses

( 1,010,720 )

Operating Loss

( 35,120,632 )

( 28,587,678 )

Interest Expense, net

( 9,970,260 )

( 2,533,180 )

Total Other Income (Expense)

( 10,260,944 )

( 2,823,864 )

Net Loss Attributable to Non-Controlling Interests

( 4,307,071 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 41,074,505 )

( 4,307,071 )

( 31,411,542 )

Consolidated Statements of Changes in Members' Deficit for the Year Ended December 31, 2020

Preferred Return(s) at 8 % (Class A + Class D Units)

( 7,437,080 )

( 45,381,576 )

( 31,411,542 )

Balance as of December 31, 2020

( 97,661,735 )

( 43,656,270 )

( 130,217,705 )

Consolidated Statements of Cash Flows for the Year Ended December 31 2020

( 45,381,576 )

( 31,411,542 )

Health Plan Settlements Receivable/Premiums Receivable

( 20,974,286 )

( 6,532,954 )

( 27,507,240 )

Class A and Class D Preferred Returns

( 7,437,080 )

Consolidated Balance Sheet as of December 31, 2019

Class A Units Subject to Possible Redemption

Class D Units Subject to Possible Redemption

Contributed Capital

( 41,764,270 )

Class A Preferred Returns

Accumulated Equity-Based Compensation

Retained Loss from Non-Controlling Interests

( 13,880,310 )

Accumulated Deficit (formerly Accumulated Loss from Controlling Interest)

( 85,167,716 )

( 13,880,310 )

( 99,073,637 )

Total Member’s Deficit

( 55,932,434 )

( 43,656,271 )

( 99,073,637 )

Consolidated Statement of Operations for the Year Ended December 31, 2019

Capitated Revenue

Other Patient Service Revenue

( 1,017,484 )

Total Operating Revenue

Medical Expenses

Total Operating Expenses

Interest Expense, net

( 3,479,139 )

( 2,533,842 )

Total Other Income (Expense)

( 3,381,184 )

( 2,435,887 )

Net Loss Attributable to Non-Controlling Interests

( 7,907,592 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 35,009,263 )

( 7,907,592 )

( 41,971,558 )

Consolidated Statements of Changes in Members' Deficit for the Year Ended December 31, 2019

Preferred Return(s) at 8 % (Class A + Class D Units)

( 42,916,855 )

( 41,971,558 )

Conversion of Debt to Class A Units

( 3,764,025 )

Class A Units Issued

( 11,184,468 )

Redemption of Class A Units

( 15,000,000 )

Modification of Class A

( 1,892,002 )

Balance as of December 31, 2019

( 55,932,434 )

( 43,656,271 )

( 99,073,637 )

Consolidated Statements of Cash Flows for the Year Ended December 31 2019

( 42,916,855 )

( 41,971,558 )

Class A and Class D Preferred Returns

Consolidated Statements of Changes in Members' Deficit for the Year Ended December 31, 2018

Balance as of December 31, 2018

( 13,868,589 )

( 41,815,530 )

( 55,684,119 )

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The restated unaudited interim financial information for the quarterly periods ended September 30, 2021, June 30, 2021, March 31, 2021, September 30, 2020, June 30, 2020 and March 31, 2020, is included in Note 30, “Quarterly Financial Information (Unaudited)”.

Going Concern and Liquidity

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern.

The Company has experienced losses since its inception and had losses of $ 57,937,929 for the 2021 Successor Period (See Note 4), $ 146,399,938 for the 2021 Predecessor Period (See Note 4), and $ 31,411,542 for the year ended December 31, 2020.

Such losses were primarily the result of costs incurred in adding new members, building relationships with physician partners and payors, and developing new services.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.

The Company has experienced losses since its inception and net losses of $ 1,561.6 million for the year ended December 31, 2022, $ 57.9 million for the Successor Period of 2021 (as defined in Note 3), and $ 146.4 million for the Predecessor Period of 2021 (as defined in Note 3).

Such losses were primarily the result of goodwill impairment charges in 2022 and costs incurred in adding new members, building relationships with physician partners and payors, and developing new services.

The Company anticipates operating losses and negative cash flows to continue for the foreseeable future as it continues to grow membership.

As of December 31, 2021, and December 31, 2020, the Company had $ 140,477,586 and $ 36,261,104 , respectively, in unrestricted cash and cash equivalents available to fund future operations.

The Company’s capital requirements will depend on many factors, including the pace of our growth, ability to manage medical costs, the maturity of our members, and our ability to raise capital, and the Company will need to use available capital resources and/or raise additional capital earlier than currently anticipated.

As of December 31, 2022 and 2021, the Company had $ 17.5 million and $ 140.5 million, respectively, in cash available to fund future operations.

The Company’s capital requirements will depend on many factors, including the pace of its growth, ability to manage medical costs, the maturity of its members, and its ability to raise capital, and the Company will need to use available capital resources and/or raise additional capital earlier than currently anticipated.

When the Company pursues additional debt and/or equity financing, there can be no assurance that such financing will be available on terms commercially acceptable to the Company.

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As a result of these matters, substantial doubt exists about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) .

As a result of the Business Combinations, for accounting purposes, Foresight is the acquirer and P3 Health Group Holdings, LLC, which was renamed P3 Health Group, LLC (“P3 LLC”), is the accounting acquiree and predecessor.

The financial statement presentation includes the financial statements of P3 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 LLC.

The Successor Period includes the Company’s results of operations and cash flows for the period December 1 through December 2, 2021.

As a result of the application of the acquisition method of accounting as of the Closing Date of the Business Combinations, the accompanying 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.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with GAAP and include the accounts of the Company, and its subsidiaries, all of which are controlled by the Company through majority voting control and variable interest entities for which the Company is the primary beneficiary.

As more fully described in Note 28 “Variable Interest Entities”, the Company is the primary beneficiary of the following physician practices (the “Network”):

● Kahan, Wakefield, Abdou, PLLC (“KWA”)

● Bacchus, Wakefield, Kahan, PC (“BACC”)

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company.

All intercompany accounts and transactions have been eliminated.

The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model.

This evaluation includes a qualitative review of the design of the entity, its organizational structure, including decision making ability and financial agreements, as well as a quantitative review.

The Company consolidates a VIE when it has a variable interest that provides it with a controlling financial interest in the VIE, referred to as the primary beneficiary of the VIE.

See Note 23 “Variable Interest Entities.”

As the sole managing manager of P3 LLC, P3 has the right to direct the most significant activities of P3 LLC and the obligation to absorb losses and receive benefits.

The rights of the non-managing members of P3 LLC are limited and protective in nature and do not give substantive participation rights over the sole managing member.

Accordingly, P3 identifies itself as the primary beneficiary of P3 LLC and began consolidating P3 LLC as of the Closing Date resulting in a noncontrolling interest related to the Common Units held by members other than P3.

Additionally, as more fully described in Note 23 “Variable Interest Entities,” P3 LLC is the primary beneficiary of the following physician practices (collectively, the “Network”):

● Kahan, Wakefield, Abdou, PLLC

● Bacchus, Wakefield, Kahan, PC

● P3 Health Partners Professional Services, P.C.

1 unchanged sentence

● P3 Health Partners California, P.C.

All intercompany accounts and transactions have been eliminated in consolidation.

Variable Interest Entities (“VIE” or “VIEs”)

Management analyzes whether the Company has any financial interests in VIEs.

This analysis includes a qualitative review based on an evaluation of the design of the entity, its organizational structure, including decision making ability and financial agreements, as well as a quantitative review.

ASC 810 , requires a reporting entity to consolidate a VIE when that reporting entity has a variable interest that provides it with a controlling financial interest in the VIE.

The entity which consolidates a VIE is referred to as the primary beneficiary of the VIE.

See Note 28 “Variable Interest Entities”.

Segment Reporting

The Company presents the financial statements by segment in accordance with Accounting Standard Codification Topic No.

280, Segment Reporting (“ASC 280”) to provide investors with transparency into how the chief operating decision maker (“CODM”) manages the business.

The Company determined the CODM is its Chief Executive Officer.

The Company’s CODM manages the operations on a consolidated basis to make decisions about overall corporate resource allocation and to assess overall corporate profitability based on consolidated revenues and adjusted EBITDA, as described further in Note 25 “Segment Reporting.” The Company has one reportable segment.

(f/k/a Omni IPA Medical Group, Inc.)

As a result of the Business Combinations, P3 LLC has been determined to be the predecessor for accounting purposes and, accordingly, the consolidated financial statements and notes to consolidated financial statements of P3 LLC are presented herein as “Predecessor” for the period prior to the Closing Date (the “Predecessor Period”) and the consolidated financial statements and notes to consolidated financial statements of the Company are presented herein as “Successor” for the period after the Closing Date (the “Successor Period”), which include the consolidated operations of P3 LLC.

The accompanying 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.

Comprehensive Loss

Comprehensive loss includes net loss to common stockholders as well as other changes in equity that result from transactions and economic events other than those with stockholders.

There was no difference between comprehensive loss and net loss to common stockholders for the periods presented.

Management’s Use of Estimates

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See Note 21 “Commitments and Contingencies” for further discussion on the impact of COVID-19.

The areas where significant estimates are used in these accompanying consolidated financial statements include revenue recognition, the liability for unpaid claims, unit-based compensation, premium deficiency reserves, fair value and impairment recognition of long-lived assets (including intangibles and goodwill), fair value of acquired assets and liabilities in business combinations, share-based compensation, fair value of liability classified instruments and judgments related to deferred income taxes.

The areas where significant estimates are used in these accompanying consolidated financial statements include revenue recognition, the liability for unpaid claims, equity-based compensation, premium deficiency reserves, fair value and impairment recognition of long-lived assets (including intangible assets and goodwill), fair value of acquired assets and liabilities in business combinations, fair value of liability classified instruments, and judgments related to deferred income taxes.

Actual results could differ from those estimates.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings (Loss) per Share and Member Unit

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities.

Commitments and Contingencies

An accrual is established for commitments and contingencies when management, after considering the facts and circumstances of each matter as then known to management, has determined a specific contingency is probable and estimable.

The Company also faces contingencies that are reasonably possible to occur that cannot currently be estimated.

When only a range of amounts is reasonably estimable and no amount within the range is more likely than another, the low end of the range is recorded.

The Company expenses costs associated with loss contingencies, including any related legal fees, as they are incurred.

Due to the inherent uncertainties surrounding gain contingencies, the Company does not recognize potential gains until realized.

Loss per Share

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of Public Warrants, Private Placement Warrants, restricted shares and escrow shares.

As the Company has reported losses for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

The Company analyzed the calculation of net loss per member unit for Predecessor Periods 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.

Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of public warrants, private placement warrants, stock options, and Common Units convertible into shares of Class A common stock during the period by applying the treasury stock method or if-converted method, as applicable.

Net loss per member unit has not been presented for Predecessor Period as the Company’s management determined it would not be meaningful to the users of these consolidated financial statements.

Cash and Restricted Cash

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at banks.

Accounts at each institution are insured up to $ 250,000 by the Federal Deposit Insurance Corporation (“FDIC”).

In 2021 and 2020, the Company maintained its cash in bank deposit accounts that, at times, may have exceeded FDIC insured limits.

Cash includes all cash and liquid investments with an initial maturity of three months or less.

Cash deposits held in accounts at each financial institution are insured up to $ 250,000 by the Federal Deposit Insurance Corporation (“FDIC”).

The Company maintains its cash in bank deposit accounts that, at times, may exceed FDIC insured limits.

Management does not expect any losses to occur on such accounts.

At December 31, 2021 and 2020, the Company had unrestricted cash of $ 140,477,586 and $ 36,261,104 , respectively, deposited at banking institutions which are subject to the FDIC insured limit.

Total Cash Balances

Restricted Cash is that which is held for a specific purpose (such as payment of partner distributions and legal settlements) and is thus not available to the Company for immediate or general business use.

Restricted Cash appears as a separate line item on the Company’s consolidated balance sheets.

The following table provides a reconciliation of cash and restricted cash on the balance sheet of the predecessor period at December 2, 2021, December 31, 2020, and December 31, 2019 that sum to the total of these items reported in the statement of cash flows.

Total Cash Balances

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition and Revenue Sources

The Company categorizes revenue based on various factors such as the nature of contracts and order to billing arrangements as follows:

At December 31, 2022 and 2021, the Company had cash of $ 17.5 million and $ 140.5 million, respectively, deposited at banking institutions which are subject to the FDIC insured limit.

Restricted cash is held for a specific purpose (such as payment of employee healthcare claims) and is thus not available to the Company for immediate or general business use.

At December 31, 2022 and 2021, the Company had restricted cash of $ 0.9 million and $ 0.4 million, respectively.

Revenue Recognition

The Company categorizes revenue based on various factors such as the nature of contracts as follows:

December 3, 2021

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Total revenue

The following table depicts the health plans from which the Company has a concentration of revenue that is 10.0% or more:

December 3, 2021

January 1, 2021

through December 31,

through December 2,

Health Plan A

Health Plan B

Health Plan C

Health Plan D

Health Plan E

Health Plan F

Health Plan G

Total Revenue

Revenue Recognition

The Company follows the accounting requirements of ASC 606, Revenue from Contracts with Customers (“ASC 606”), to recognize revenue.

The core principle of ASC 606 is that an entity’s performance obligation is

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

complete, and revenue is earned, upon the transfer of a promise to deliver services to customers commensurate with consideration to which it would expect to be received in exchange for the actual delivery of those services.

The terms of the contract and all relevant facts and circumstances should be considered when applying this guidance.

This includes application of a practical expedient (a “portfolio approach”) to contracts with similar characteristics and circumstances.

The Company used the portfolio approach to account for any ASC 606 transition adjustments for revenue from its Medicare Advantage contracted health plans.

The principles of ASC 606 are generally applied using the following five steps:

Identify the contract(s) with a customer.

Identify the performance obligations in the contract.

Determine the transaction price.

Allocate the transaction price to the performance obligations in the contract;

Recognize revenue when (or as) the entity satisfies a performance obligation.

The guidance requires disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized.

The Company initially applied the standard on January 1, 2019, using the modified retrospective adoption method, and elected to apply the modified retrospective method only to contracts that were not completed as of this date.

Additionally, the Company utilized the portfolio approach to group contracts together with similar characteristics for the adoption analysis.

During the year ended December 31, 2022, the Successor Period of 2021, and the Predecessor Period of 2021, four health plan customers each accounted for 10% or more of total revenue and collectively comprised 66 %, 70 %, and 78 %, respectively, of the Company’s total revenue.

Capitated Revenue

The Company contracts with health plans using an at-risk (shared savings) model.

The Company contracts with health plans using an at-risk model.

Under the at-risk model, the Company is responsible for the cost of all covered services provided to members assigned by the health plans to the Company in exchange for a fixed premium payment, which generally is a percentage of the payment (“POP”) based on health plans’ premiums received from CMS.

Through this capitation arrangement, the Company stands ready to provide assigned Medicare Advantage beneficiaries all their medical care via the Company’s directly employed and affiliated physician/specialist network.

The premiums health plans receive are determined via a competitive bidding process with CMS and are based on the costs of care in local markets and the average utilization of services by patients enrolled.

The capitated revenue the Company receives is determined via a competitive bidding process with CMS and is based on the costs of care in local markets and the average utilization of services by patients enrolled.

Medicare pays capitation using a “risk adjustment model,” which compensates providers based on the health status (acuity) of each individual patient.

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The Company generally estimates transaction prices using the most likely methodology.

Amounts are only included in the transaction price to the extent any significant uncertainty of reversal on cumulative revenue will not occur and is, furthermore, resolved.

Amounts are only included in the transaction price to the extent any significant uncertainty of reversal on cumulative revenue will not occur and is resolved.

In certain contracts, PMPM fees also include adjustments for items such as performance incentives or penalties based on the achievement of certain clinical quality metrics as contracted with payors.

Capitated revenues are recognized based on an estimated PMPM transaction price to transfer the service for a distinct increment of the series (e.g.

month) and is recognized net of projected acuity adjustments and performance incentives or penalties as Management cannot reasonably estimate the ultimate PMPM payment of those contracts.

Capitated revenue is recognized based on an estimated PMPM transaction price to transfer the service for a distinct increment of the series (e.g., month), net of projected acuity adjustments and performance incentives or penalties as the Company cannot reasonably estimate the ultimate PMPM payment of those contracts.

The Company recognizes revenue in the month in which eligible members are entitled to receive healthcare benefits during the contract term.

The capitation amount is subject to possible retroactive premium risk adjustments based on the member’s individual acuity.

In 2019, the Company recorded $ 150,681 of additional revenue related to prior year

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premium risk adjustments.

There were no premium risk adjustments recorded in 2021 and 2020 as related to prior years.

As the period between the time of service and time of payment is typically one year or less, Management elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

The Company’s contracts with health plans may include core functions and services for managing assigned patients’ medical care.

The combination of those services is offered as one “single solution” (“bundle”).

Capitation contracts have a single performance obligation that is a stand ready obligation to perform healthcare services to the population of enrolled members and constitutes a series for the provision of managed healthcare services for the term of the contract, which is deemed to be one month since the mix of patients-customers can change month over month The Company does not offer nor price each individual function as a standalone a la carte service to health plans.

Premium risk adjustments recorded in 2022 which relate to 2021 were $ 3.3 million.

There were no premium risk adjustments recorded in 2021 related to prior years.

As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient not to adjust for the effects of a significant financing component.

The Company’s contracts with health plans may include core functions and services for managing assigned patients’ medical care, the combination of which is offered as a single solution.

The Company does not offer nor price each individual function as a standalone service to health plans;

however, the addition or exclusion of certain services may be negotiated and reflected in each health plan’s specific total POP.

At December 31, 2021, 2020 and 2019, the Company had POP contracts in effect with 17 health plans (across 4 states), 12 health plans (across 4 states) and 7 health plans (across 2 states), respectively.

At December 31, 2022 and 2021, the Company had POP contracts in effect with 24 health plans (across five states) and 17 health plans (across four states), respectively.

Each month, in accordance with contractual obligations (for non-delegated health plans;

those for which the Company has not been delegated for claims processing), each plan funds a medical claims payment reserve equal to a defined percentage of premium attributable to members assigned to the Company.

e.g., those for which the Company has not been delegated for claims processing), each plan funds a medical claims payment reserve equal to a defined percentage of premium attributable to members assigned to the Company.

In turn, the Company administers and funds medical claims for contractually covered services, for assigned health plan members, from that health plan’s reserve.

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The reconciliation and distribution of the reserve occur within 120 days following the end of each quarter.

An annual settlement reconciliation and distribution from all funds occurs within twenty-one months following each year-end.

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As of December 31, health plan receivables and health plan settlement payables, by health plan, by year, were as follows:

Health Plan Receivables

Health Plan Name

Health Plan A

Health Plan B

Health Plan C

Health Plan D

Health Plan E

Health Plan F

Health Plan G

Health Plan H

Health Plan I

Health Plan J

Health Plan K

Health Plan L

Health Plan M

Health Plan N

Health Plan O

Health Plan P

Health Plan Q

Health Plan R

Health Plan T

Health Plan U

Total Health Plan Receivables

Health Plan Settlement Payables

Health Plan Name

Health Plan B

Health Plan C

Health Plan D

Health Plan F

Health Plan G

Health Plan I

Health Plan O

Health Plan U

Health Plan V

Total Health Plan Settlement Payables

An annual settlement reconciliation and distribution from all funds occurs within 21 months following each year-end.

Three health plan customers accounted for 10% or more of total health plan receivables as of December 31, 2022.

Two health plan customers accounted for 10% or more of total health plan receivables as of December 31, 2021.

At December 31, 2022 and 2021, Management has deemed the Company’s settlement receivables to be fully collectible from those health plans where the Company is not delegated for claims processing.

Accordingly, a constraint on the variable consideration associated with settlement receivables was not necessary.

Other Patient Service Revenue(s) – Clinical Fees and Insurance Revenue

Clinic fees and insurance revenues relate to net patient fees received from various payers and direct patients (“self-payers”) under contracts in which the Company’s sole performance obligation is to provide healthcare services through the operation of medical clinics.

The Company recognizes clinic fees and insurance revenue in the period in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

which services are provided.

Under FFS payment arrangements, revenue is recognized on the date of service.

Accordingly, a constraint on the variable consideration associated with settlement receivables was not recorded.

Other Patient Service Revenue – Clinical Fees and Insurance Revenue

Clinical fees and insurance revenue relates to net patient fees received from various payors and direct patients under contracts in which the Company’s sole performance obligation is to provide healthcare services through the operation of medical clinics.

The Company recognizes clinic fees and insurance revenue in the period in which services are provided.

Under FFS payment arrangements, revenue is recognized on the date of service using a portfolio approach.

The Company’s performance obligations are typically satisfied in the same day services are provided.

All the Company’s contracts with its customers under these arrangements include a single performance obligation.

The Company’s contractual relationships with patients, in most cases, also involve third-party payers (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through state-sponsored health insurance exchanges).

Transaction prices for services provided are dependent upon specific rules in place with third party payers – specifically, Medicare/Medicaid and pre-negotiated rates with managed care health plans and commercial insurance companies.

The Company’s contractual relationships with patients, in most cases, also involve third-party payors (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through state-sponsored health insurance exchanges).

Transaction prices for services provided are dependent upon specific rules in place with third party payors–specifically, Medicare/Medicaid and pre-negotiated rates with managed care health plans and commercial insurance companies.

Contractual arrangements with third parties typically include payments at amounts which are less than standard charges.

These charges generally have predetermined rates for diagnostic service codes or discounted FFS rates.

Management perpetually reviews the Company’s contractual estimation processes to consider and incorporate updates to laws, regulations and frequent changes in the managed care system.

The Company perpetually reviews its contractual estimation processes to consider and incorporate updates to laws, regulations, and frequent changes in the managed care system.

Contractual terms are negotiated and updated accordingly upon renewal.

The Company’s revenue is based upon the estimated amounts Management expects to receive from patients and third-party payers.

Clinical fees and insurance revenue is based upon the estimated amounts the Company expects to receive from patients and third-party payors.

Estimates of explicit price concessions under managed care and commercial insurance plans are tied to payment terms specified in related contractual agreements.

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Revenue related to uninsured patients, uninsured co-payments, and deductibles (for patients with healthcare coverage) may also be discounted.

The Company records implicit price concessions (based on historical collection experience) related to uninsured accounts to recognize self-pay revenues at their most likely amounts to be collected.

The Company deems FFS revenue to be variable consideration and that its estimates of associated transaction prices will not result in a significant revenue reversal in the future.

Based on satisfaction of single performance obligations occurring on the dates of service, revenue is recognized as of the date services are provided.

The Company, therefore, applies a portfolio approach to recognizing revenue from its FFS contracts.

Management has elected two of the available practical expedients provided for by ASC 606.

First, the Company did not adjust the transaction price for any financing components as those were deemed to be insignificant.

Additionally, the Company expensed all incremental customer contract acquisition costs as incurred as such costs are not material and would be amortized over a period less than one year.

Other Patient Service Revenue(s) – Shared Risk Revenue

P3 LLC (via one of its wholly owned subsidiaries – P3 Health Partners ACO, LLC “AzCC”) receives 30 % of the shared risk savings from parties with whom it contracts under four separate arrangements.

The Company records implicit price concessions (based on historical collection experience) related to uninsured accounts to recognize self-pay revenue at their most likely amounts to be collected.

The Company deems FFS revenue to be variable consideration and its estimates of associated transaction prices will not result in a significant revenue reversal in the future.

The Company has elected the practical expedient not to adjust the transaction price for any financing components as those were deemed to be insignificant and to expense all incremental customer contract acquisition costs as incurred as such costs are not material and would be amortized over a period less than one year.

Other Patient Service Revenue – Shared Risk Revenue

P3 LLC (via one of its wholly owned subsidiaries) receives 30 % of the shared risk savings from parties with whom it contracts under four separate arrangements.

These arrangements are driven solely by medical cost containment year-over-year (“YoY”) expense reductions.

This key performance indicator (“KPI”) is measured by the aggregate change in PMPY (per member, per year medical costs).

This key performance indicator (“KPI”) is measured by the aggregate change in per member, per year (“PMPY”) medical costs.

If the sequential YoY PMPY aggregate change yields a reduction, the Company receives 30 % of the associated total cost savings for that year.

Conversely, if the sequential YoY PMPY aggregate change yields an increase in medical costs, no monies are due the Company that year.

Conversely, if the sequential YoY PMPY aggregate change yields an increase in medical costs, no monies are due to the Company that year.

This KPI is compiled and reviewed on a calendar year basis.

The Company recognizes shared risk revenue only upon the receipt of cash.

Therefore, the likelihood of any significant revenue reversal in the future is low.

Other Patient Service Revenue(s) – Care Coordination Fees and Management Fees

Other Patient Service Revenue – Care Coordination Fees and Management Fees

The Company’s delegated health plans may also pay a Care Coordination Fee (“CCF”) or management fee to the Company.

CCFs and management fees are intended to fund the costs of delegated services provided to certain health plans.

CCFs are specifically identified and separated in each monthly capitation payment the Company receives from

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

these parties.

CCFs are specifically identified and separated in each monthly capitation payment the Company receives from these parties.

None of the Company’s other health plans bifurcate CCFs nor are any of them contractually required to do so.

The Company uses a portfolio approach to account for CCFs and Management Fees.

Based on similarities of the terms of the care coordination and administrative services, Management believes that revenue recognized by utilizing the portfolio approach approximates that which it would have realized if an individual contract approach were applied.

Based on similarities of the terms of the care coordination and administrative services, the Company uses a portfolio approach to record revenue from CCFs and management fees.

Patient Fees Receivable

Substantially, all client fees and insurance receivables are due under FFS contracts with third party payors, such as commercial insurance companies (“Commercial”), government-sponsored healthcare programs (“Medicare/ Medicaid”) or directly from patients (“Self-Pay”).

Management continuously monitors activities from payors (including patients) and records an estimated price concession based on specific contracts and actual historical collection patterns.

Patient fees receivable, where a third-party payor is responsible for the amount due, are carried at amounts determined by the original charges for services provided less implicit and explicit price concessions.

Price concessions represent amounts made for contractual adjustments (discounts).

Patient fees receivable is included in Clinic Fees and Insurance Receivables in the Company’s consolidated balance sheets and are recorded net of contractual allowances.

Patient fees receivable are recorded at the invoiced amount, net of any expected contractual adjustments and implicit price concessions, and do not bear interest.

Substantially all client fees and insurance receivables are due under FFS contracts with third party payors, such as commercial insurance companies, government-sponsored healthcare programs, or directly from patients.

The Company has agreements with third-party payors that provide for payments at amounts different from the established rates.

Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem payments.

Patient service revenues are reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered.

Patient fees receivable, where a third-party payor is responsible for the amount due, are recorded at the invoiced amount, net of any expected contractual adjustments and implicit price concessions, and do not bear interest.

Contractual adjustments arising under reimbursement arrangements with third-party payors are accrued on an estimated basis in the period the related services are rendered and are adjusted in future periods as final settlements are determined.

Implicit price concessions are taken based on historical collection experience and reflect the estimated amounts the Company expects to collect.

The Company continuously monitors activities from payors (including patients) and records an implicit price concession based on specific contracts and actual historical collection patterns to reflect the estimated amounts the Company expects to collect.

Patient fees receivable of $ 0.8 million and $ 0.7 million are included in clinic fees and insurance receivables in the Company’s consolidated balance sheets as of December 31, 2022 and 2021, respectively, and are recorded net of contractual allowances of $ 5.8 million and $ 2.0 million as of December 31, 2022 and 2021, respectively.

Property and Equipment

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Sales and disposals may result in asset-specific gains or losses.

Any such gains or losses are included as a component of net income (loss).

Management computes and records depreciation using the straight-line method.

Lease terms range from one to ten years .

The following table summarizes the estimated useful lives applicable to property and equipment:

Any such gains or losses are included as a component of operations.

The Company records depreciation using the straight-line method over the estimated useful lives of the respective assets.

The following table summarizes the estimated useful lives of the Company’s property and equipment:

Classification

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1 to 10 Years

Furniture & Fixtures

Furniture and fixtures

Computer equipment

Medical equipment

Software (Development in Process)

ASC 350-40, Internal Use Software , outlines how companies should capitalize or expense internal-use software, based on achieving two key objectives.

The first objective includes ensuring that the Preliminary Project Stage has been completed and the second one being the type of work being completed within the Application Development Stage, which qualifies as a capitalizable activity.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Computer software is considered for internal use when it is developed or purchased for the internal usage and needs of the organization only.

Beginning in 2018, the Company began the project build of its own proprietary technology to serve core functions of its business operations such as revenue and medical cost analysis, care management and various facets that promote impactful utilization.

At December 31, 2021 and 2020, the Company has categorized $ 2,433,470 and $ 2,794,221 , respectively to property and equipment for these software costs (specifically to work in progress).

The Company’s internally-developed technology has been and is continuing to be designed to standardize the availability of quality data used across the enterprise.

The technology requires several components of external input from health plans served by the Company, its provider network and member-patient populations.

As internally developed technology is deemed “substantially complete”, it is placed into service and depreciated over three years.

In 2021 and 2020, $ 2,087,022 and $ 534,931 of capitalized costs was placed into service.

Any, and all, costs associated with internally developed technology, following deployment are expensed directly to the Company’s consolidated statements of operations, as incurred.

The Company capitalizes certain costs incurred in connection with developing its own proprietary technology to serve core functions of its business operations such as revenue and medical cost analysis, care management and various facets that promote impactful utilization.

At December 31, 2022 and 2021, the Company has capitalized $ 3.5 million and $ 2.4 million, respectively, to property and equipment for these software costs (specifically to work in progress).

In 2022 and 2021, $ 0.7 million and $ 2.1 million of capitalized costs were placed into service, respectively.

All costs associated with internally developed technology following deployment, or that otherwise do not meet capitalization criteria, are expensed as incurred.

Fair Value Measurements

The Company accounts for fair value measurements in accordance with ASC 820, Fair Value Measurements .

The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

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Impairment of Long-Lived Assets

In accordance with ASC 360, Property, Plant, and Equipment , the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate their carrying amounts may not be recoverable.

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate their carrying amounts may not be recoverable.

Recoverability of an asset or asset group is measured by comparing its carrying amount to the future undiscounted net cash flows the asset or asset group is expected to generate.

If such assets are considered impaired (e.g.

– future undiscounted cash flows are less than net book value), an impairment charge is recognized, measured by the difference between the carrying value and the estimated fair value of the assets.

If such assets are considered impaired (e.g., future undiscounted cash flows are less than net book value), an impairment charge is recognized, measured by the difference between the carrying value and the estimated 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.

To date, the Company has not retired nor sold any property and equipment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accordance with ASC 350, Intangibles – Goodwill and Other , Management tests goodwill for impairment at the reporting unit level.

The Company has one reporting unit for the goodwill impairment testing purposes.

Goodwill is tested for impairment on an annual basis in the fourth quarter, or more frequently if events or changes in circumstances indicate the carrying value of goodwill may not be recoverable (a “triggering event”).

Goodwill represents the excess of the purchase price over the fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed.

Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter, or more frequently if events or changes in circumstances indicate the carrying value of goodwill may not be recoverable (a “triggering event”).

On the occurrence of a triggering event, an entity has the option to first assess qualitative factors to determine whether a quantitative impairment test is necessary.

If it is more likely than not that goodwill is impaired, the fair value of the reporting unit (the Company) is compared with its carrying value.

If it is more likely than not that goodwill is impaired, the fair value of the reporting unit is compared with its carrying value.

An impairment charge is recognized for the amount by which the carrying amount exceeds the fair value, provided, the loss recognized cannot exceed the total amount of goodwill.

No goodwill impairment charges were recorded in 2021, 2020 and 2019.

See Note 11 “Goodwill.”

Intangible Assets

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If the comparison indicates that there is impairment, the impairment loss to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying amount of the asset exceeds its fair value and the impaired asset is written down to its fair value or, if fair value is not readily determinable, to an estimated fair value based on discounted expected future cash flows.

The Company accounts for leases in accordance with ASC 842, Leases .

At the inception of the contract, the Company determines whether a contract is or contains a lease.

The Company determines whether a contract is or contains a lease at the inception of the contract.

For leases with terms greater than 12 months, the Company records the related operating or finance right-of-use asset and lease liability at the present value of lease payments over the lease term.

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Some leases also include early termination options, which can be exercised under specific conditions.

Additionally, certain leases contain incentives, such as construction allowances from landlords.

These incentives reduce the right-of-use asset related to the lease.

Some of the Company’s leases contain rent escalations over the lease term.

Additionally, certain leases contain incentives, such as construction allowances from landlords, which reduce the right-of-use asset related to the lease.

Certain of the Company’s leases contain rent escalations over the lease term.

The Company recognizes expense for operating leases on a straight-line basis over the lease term.

The Company does not currently have any finance leases.

The Company’s lease agreements contain variable payments for common area maintenance and utilities.

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therefore, the lease payments used to measure the lease liability for these leases include fixed minimum rentals along with fixed non-lease component charges.

Variable lease payments are excluded from the measurement of right-of-use assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred.

The Company does not have significant residual value guarantees or restrictive covenants in its lease portfolio.

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Business Combinations

In accordance with ASC 805, Business Combinations , the price tendered in business acquisitions is allocated using the acquisition method of accounting among the identifiable tangible and intangible assets and assumed liabilities and non-controlling interests, all of which are based on estimates of corresponding fair value as of the acquisition date.

Management applies valuation methods which are ultimately used in the Company’s purchase price allocations.

The price tendered in business combinations is allocated using the acquisition method of accounting among the identifiable tangible and intangible assets and assumed liabilities and non-controlling interests, all of which are based on estimates of corresponding fair value as of the acquisition date.

The Company applies valuation methods which are ultimately used in the Company’s purchase price allocations.

Goodwill is recorded based on the difference between the fair value of consideration exchanged and the fair value of the net assets and liabilities assumed.

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Equity-Based Compensation

Unit-Based Compensation

Prior to the Business Combinations, P3 Health Group Holdings had granted unit-based awards to certain non-employee Board directors and officers of P3 Health Group Holdings, in the form of non-vested units (the “Incentive Units”).

All awards of Incentive Units were equity-classified and measured on the fair value of the award on the date of grant.

For equity awards that vest subject to the satisfaction of service-based conditions, compensation cost is measured at the grant date fair value and compensation cost is recognized on a straight-line basis over the requisite service period, which varies by award.

For equity awards that vest subject to the satisfaction of performance-based conditions, compensation cost is measured based on the grant date fair value.

The Company evaluates the probability of achieving each performance-based condition at each reporting date and recognizes compensation cost when it is deemed probable that the performance-based condition will be met on an accelerated basis over the requisite service period, which varies by award.

There have been no issuances of grant awards under the legacy P3 Health Group Holdings incentive program since the Business Combinations.

Any future grants will be made under the 2021 Incentive Award Plan.

Equity-based compensation cost is measured at the grant date for all equity-based awards based on the fair value of the awards.

For equity awards that vest subject to the satisfaction of service-based conditions, compensation cost is recognized on a straight-line basis over the requisite service period, which varies by award.

For equity awards that vest subject to the satisfaction of performance-based conditions, the Company evaluates the probability of achieving each performance-based condition at each reporting date and recognizes compensation cost when it is deemed probable that the performance-based condition will be met on an accelerated basis over the requisite service period, which varies by award.

Equity-based compensation is classified in the accompanying consolidated statements of operations based on the function to which the related services are provided.

The Company accounts for forfeitures as they occur.

As P3 LLC is a subsidiary of the Company, the Company consolidates compensation cost recognized by P3 LLC in its consolidated financial statements.

Stock-based compensation is classified in the accompanying consolidated statements of operations based on the function to which the related services are provided.

The Company estimates the fair value of equity grants using the Black-Sholes option pricing model.

The assumptions used in estimating the fair value of these awards, such as expected term, expected dividend yield, volatility, and risk-free interest rate represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

As part of our fair value process, we assess the impact of material nonpublic information on our share price or expected volatility, as applicable, at the time of grant.

Management’s estimates related to the likelihood of achieving performance conditions is not considered in the estimate of fair value.

If actual results are not consistent with the Company’s assumptions and judgments used in making such estimates, the Company may be required to increase or decrease compensation cost, which could be material to the Company’s consolidated results of operations.

In connection with the Business Combinations, each Incentive Unit that was outstanding immediately prior to the effective time of the Business Combinations and that was vested (after taking into account any accelerated vesting that occurred in connection with the Business Combinations) was canceled and converted into the right to receive a portion of the merger consideration, which consisted of Common Units of P3 LLC and cash.

Each outstanding Incentive Unit that was subject to time-based vesting but had not vested immediately prior to the effective time of the Business Combinations was converted into the right to receive a portion of the merger consideration, which merger consideration remained subject to the original vesting conditions.

Each outstanding Incentive Unit that was subject to performance-vesting requirements that were not achieved in connection with the Business Combinations was forfeited without

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consideration.

For each Common Unit held by a participant (whether vested or unvested), the participant also subscribed for a share of Class V Common Stock on a one-for-one basis.

P3 LLC used the Black-Scholes option-pricing model to determine the fair value of P3 LLC’s incentive unit awards (“Incentive Units”).

The risk-free interest rate estimate was based on constant maturity, which is the theoretical value of a U.S.

Treasury that is based on recent values of auctioned U.S.

Treasuries with remaining terms similar to the expected term of the incentive unit awards.

The expected dividend yield was based on P3 LLC’s expectation of not paying dividends in the foreseeable future.

The expected term was calculated primarily based upon the estimated time to a liquidation event.

The expected volatility was estimated using company-specific historical information, guideline company information, and implied volatility information.

The Company uses the Black-Sholes option-pricing model to determine the fair value of the Company’s stock option awards.

The risk-free interest rate estimate was based on constant maturity, which is the theoretical value of a U.S.

Treasury that is based on recent values of auctioned U.S.

Treasuries with remaining terms similar to the expected term of the stock option awards.

The expected dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future.

The expected term was calculated using the “simplified” method;

whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the stock option due to P3’s lack of sufficient historical data.

The expected volatility was estimated using an average of the historical volatilities of a peer group comprised of publicly traded companies in the same industry.

The Company assesses the impact of material nonpublic information on its share price or expected volatility, as applicable, at the time of grant.

Warrant Liability

The Company has public and private placement warrants classified as liabilities as well as warrants issued to a capital provider classified as equity.

The Company has public and private placement warrants of Class A common stock classified as liabilities as well as warrants of Class A common stock issued to a lender classified as equity.

The Company classifies as equity any equity-linked contracts that (1) require physical settlement or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement).

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The assumptions used in preparing these models include estimates such as volatility, contractual terms, discount rates, dividend yield, expiration dates and risk-free rates.

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification.

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms.

The assessment considers whether the warrants are freestanding financial instruments, meet the definition of a liability, and whether the warrants meet all of the requirements for equity classification, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

The warrant liability relates to Class A Common Stock as of December 31, 2021 and outstanding warrants to purchase Class D Common Stock as of December 31, 2020.

The warrant liabilities are subject to remeasurement at each balance sheet date and any change in fair value is recognized in the Company’s consolidated statements of operations.

Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss.

The fair value of the warrants was estimated using an Option Pricing model (Black-Scholes-Merton).

The key inputs into the option pricing model as of December 31, 2021 were as follows:

Risk-Free Interest rate

Exercise Price

Expected Term

Premium Deficiency Reserve (“PDR”)

Premium deficiency reserve liabilities are established when it is probable that expected future health care costs and maintenance costs under a group of existing contracts will exceed anticipated future premiums and stop-loss insurance recoveries on those contracts.

We assess if a PDR liability is needed through review of current results and forecasts.

Premium Deficiency Reserve

Premium deficiency reserve (“PDR”) liabilities are established when it is probable that expected future health care costs and maintenance costs under a group of existing contracts will exceed anticipated future premiums and stop-loss insurance recoveries on those contracts.

The Company assesses if a PDR liability is needed through review of current results and forecasts.

For purposes of determining premium deficiency losses, contracts are grouped consistent with our method of acquiring, servicing, and measuring the profitability of such contracts.

The Company grouped its Medicare Advantage

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

health plan contracts together as a “single group” as P3 operates in one line of business - Medicare Advantage.

This single group represents one line of business, to which the Company serves a homogenous/Medicare Advantage population of members.

Management further concluded that the costs to administer these contracts are based on centralized and shared service functions.

As of December 31, 2021, the PDR liability was $ 37.8 million.

There was no PDR liability as of December 31, 2020.

Healthcare Services Expense and Claims Payable (collectively, “Medical Expenses”)

The Company grouped its Medicare Advantage health plan contracts together as a single group as it operates in one line of business.

The Company further concluded that the costs to administer these contracts are based on centralized and shared service functions.

As of December 31, 2022 and 2021, the PDR liability was $ 26.4 million and $ 37.8 million, respectively, which represented its estimate of probable contract losses expected to be generated by the Company’s health plans.

Medical Expense and Claims Payable

The cost of healthcare services is recognized in the period services are provided.

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Additionally, healthcare expenses can include, from time to time, remediation of certain claims that might result from periodic reviews conducted by various regulatory agencies.

IBNR is recorded as “Claims Payable” in the accompanying consolidated balance sheets.

The IBNR liability was $ 101,958,324 and $ 56,934,400 as of December 31, 2021 and 2020, respectively.

Management estimates the Company’s IBNR by applying standard actuarial methodologies, which utilize historical data, including the period between the date services are rendered and the date claims are received (and paid), denied claims activity, expected medical cost inflation, seasonality patterns, and changes in membership mix.

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The Company’s claims payable represents management’s best estimate of its liability for unpaid medical costs as of December 31, 2022 and 2021.

We use the asset and liability method of accounting for income taxes.

The Company uses the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe it is more likely than not that they will not be realized.

We consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under tax law, and results of recent operations.

We record uncertain tax positions in accordance with ASC 740 , Income Taxes on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We consider many factors when evaluating our uncertain tax positions during the course of the year through a review of policies and procedures, reviews of customary and regular tax filings, and discussions with third party experts.

Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes it is more likely than not that they will not be realized.

The Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under tax law, and results of recent operations.

The Company records uncertain tax positions on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

The Company considers many factors when evaluating its uncertain tax positions during the course of the year through a review of policies and procedures, reviews of customary and regular tax filings, and discussions with third party experts.

This review can involve significant judgment and may require periodic adjustments.

The resolution of these uncertain tax positions in a manner inconsistent with management’s expectations could have a material impact on our consolidated financial statements.

We recognize interest and penalties related to uncertain tax positions as a component of our provision for income taxes.

The resolution of these uncertain tax positions in a manner inconsistent with management’s expectations could have a material impact on the Company’s consolidated financial statements.

The Company recognizes interest and penalties related to uncertain tax positions as a component of its provision for income taxes.

Accrued interest and penalties are included with the related tax liability.

See Note 17 “Income Taxes.”

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sales and Marketing Expenses

The Company uses advertising primarily to promote the health plans with whom it conducts business as well as its physician clinics throughout the geographic areas it serves.

See Note 13 “Income Taxes” for further information.

Advertising Expense

The Company uses advertising primarily to promote the health plans with which it conducts business as well as its physician clinics throughout the geographic areas it serves.

Advertising costs are charged directly to operations as incurred.

Sales and Marketing Expenses totaled $ 364,127 , $ 1,818,015 , $ 1,502,634 and $ 801,685 in the Successor Period of 2021 and the Predecessor Periods of 2021, 2020 and 2019, respectively.

Redeemable Non-controlling Interests

Redeemable non-controlling interest includes the economic interest of P3 LLC Units not owned by the Company resulting from the Up-C structure as described in Note 1 “Company Operations”.

These units have been classified as redeemable non-controlling interest in the Company due to a certain cash redemption feature that is considered outside of the control of the Company.

Redeemable non-controlling interests are initially recorded at the transaction price, which is equal to their fair value, then remeasured at fair value at the end of each reporting period, with the remeasurement amount being no less than the initial value, as adjusted for the redeemable non-controlling interest’s share of net income or loss.

See Note 24 “Redeemable Non-controlling Interests” for further discussion.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements Adopted

ASU 2017-04, Intangible – Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment (“ASU 2017-04”)

In the fourth quarter of 2021, the Company adopted ASU 2017-04 on a prospective basis.

The primary provision of ASU 2017-04 was to simplify the subsequent measurement of goodwill whereby the test for impairment of goodwill consists of comparing the fair value of the reporting unit to the carrying value of the reporting unit.

An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;

provided, the loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit.

The income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss are considered.

See Note 11 “Goodwill” for a summary of the Company’s 2021 assessment of goodwill.

Advertising expense totaled $ 4.5 million, $ 0.3 million, and $ 1.8 million in the year ended December 31, 2022, the Successor Period of 2021, and the Predecessor Period of 2021, respectively.

Reclassifications

Certain amounts in the consolidated balance sheet as of December 31, 2021 and the consolidated statements of operations and cash flows for the Successor Period of 2021 and Predecessor Period of 2021 have been reclassified to be consistent with the current period presentation.

These reclassifications were to (i) present notes receivable, net and right-of-use asset collectively as other long-term assets on the consolidated balance sheet;

(ii) separately present accounts payable from accrued expenses and other current liabilities on the consolidated balance sheet;

(iii) present depreciation expense and amortization of intangible assets collectively as depreciation and amortization expense on the consolidated statements of operations and cash flows;

(iv) present amortization of debt origination fees and amortization of discount from issuance of debt collectively as amortization of original issue discount and debt issuance costs on the consolidated statements of cash flows;

and (v) present payment of debt issuance costs separately from debt proceeds on the consolidated statements of cash flows.

The reclassifications had no impact on the Company’s financial condition, results of operations, or net cash flows.

Recent Accounting Pronouncements

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 below reflect effective dates for the Company as an EGC with the extended transition period.

Recently Adopted Accounting Pronouncements

Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 8352), Disclosures by Business Entities about Government Assistance (“ASU 2021-10”)

ASU 2021-10 requires annual disclosures about transactions with a government entity that are accounted for by applying a grant or contribution accounting model including (i) information about the nature of the transactions and the related accounting policy used to account for the transaction;

(ii) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item;

and (iii) significant terms and conditions of the transactions, including commitments and contingencies.

ASU 2021-10 is effective for annual periods beginning after December 15, 2021.

The Company adopted the ASU prospectively on January 1, 2022.

The adoption of this standard did not have a material effect on the Company’s consolidated financial statements and related disclosures.

ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”)

ASU 2021-04 requires issuers to account for modifications or exchanges of freestanding equity-classified written call options (e.g., warrants) that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange.

The Company adopted ASU 2014-04 in the first quarter of 2022 on a prospective basis.

The adoption of this standard did not have a material effect on the Company’s consolidated financial statements and related disclosures.

ASU 2020-10, Codification Improvements (“ASU 2020-10”)

The amendments in ASU 2020-10 improve codification by ensuring that all guidance that includes an option for an entity to provide information in the notes to financial statements is codified within the disclosure section of the codification.

The amendments are effective for annual periods beginning after December 15, 2021, and interim periods beginning after December 15, 2022.

The Company adopted this guidance retrospectively in the 2022 annual period.

The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”)

ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

It also clarifies and simplifies other aspects of the accounting for income taxes.

It is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

The Company adopted the ASU in the first quarter of 2022 on a prospective basis.

The adoption of this standard did not have a material effect on the Company’s consolidated financial statements and related disclosures

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses.

The guidance is effective for us beginning January 1, 2023.

The new current expected credit losses (CECL) model generally calls for the immediate recognition of all expected credit losses and applies to loans, accounts and trade receivables as well as other financial assets measured at amortized cost, loan commitments and off-balance sheet credit exposures, debt securities and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets.

The new guidance replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available for sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities, and provides for additional disclosure requirements.

The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt:

Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call-Options (“ASU 2021-04”).

ASU 2021-04 clarifies and reduces the diversity in the accounting for modifications or exchanges of freestanding equity-classified written call options (including warrants) that remain equity classified after modification or exchange and is effective beginning in the first quarter of 2022.

The Company is evaluating the effect ASU 2021-04 will have on its financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

ASU 2020-06 eliminates two of the three models in ASC 470-20 that require issuers to separately account for embedded conversion features and eliminates some of the requirements for equity classification in ASC 815-40-25 for contracts in an entity’s own equity.

The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and generally requires them to include the effect of potential share settlement for instruments that may be settled in cash or shares.

It is effective for annual periods beginning after December 15, 2023, and interim periods therein.

Early adoption is permitted in fiscal years beginning after December 15, 2020, but the Company must adopt the guidance as of the beginning of a fiscal year.

The Company is evaluating the effect ASU 2020-06 will have on its financial statements and related disclosures.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”)

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Early adoption is permitted.

Adoption is not currently expected to have a material impact on the Company’s financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance (“ASU 2021-10”).

(ii) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item;

and (iii) significant terms and conditions of the transactions, including commitments and contingencies.

ASU 2021-10 is effective for annual periods beginning after December 15, 2021.

The Company is currently evaluating the impact of ASU 2021-10 on its disclosures, which it does not currently expect to be material.

Upon adoption, the Company will apply this guidance to future business combinations.

ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”)

It is effective for annual periods beginning after December 15, 2023, and interim periods therein.

Early adoption is permitted, but the Company must adopt the guidance as of the beginning of a fiscal year.

The Company is evaluating the effect ASU 2020-06 will have on its financial statements and related disclosures.

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)

ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses.

The new current expected credit losses model generally calls for the immediate recognition of all expected credit losses and applies to loans, accounts and trade receivables as well as other financial assets measured at amortized cost, loan commitments and off-balance sheet credit exposures, debt securities and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets.

In April 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-04, which, among other amendments, allows for certain policy elections and practical expedients related to accrued interest on financial instruments.

In May 2019, the FASB issued ASU 2019-05, which granted targeted transition relief by allowing entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost.

In November 2019, the FASB issued ASU 2019-10 and ASU 2019-11, which addressed certain aspects of the guidance related to effective dates, expected recoveries, troubled debt restructurings, accrued interest receivables, and financial assets secured by collateral.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and is effective for the Company beginning January 1, 2023.

The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

Business Combinations

Foresight Business Combinations

On December 3, 2021, the Company entered into the Business Combinations described in Note 1 “Company Operations.” The Business Combinations represent a forward merger and is accounted for using the acquisition method of accounting under which P3 Health Group Holdings is treated as the acquired company for financial reporting purposes.

This determination is based primarily on the following facts:

(i) The Company is the sole managing member of P3 LLC subsequent to the consummation of the Business Combinations, and the managing member conducts, directs and exercises full control over all activities of P3 LLC.

P3 Business Combinations

The Business Combinations represented a forward merger and was accounted for using the acquisition method of accounting under which P3 LLC was the acquired company and P3 was the accounting acquirer for financial reporting purposes.

This determination is based primarily on the following:

(i) P3 is the sole managing member of P3 LLC subsequent to the Closing, and the managing member conducts, directs, and exercises full control over all activities of P3 LLC.

The non-managing members of P3 LLC do not have substantive kick-out or participating rights;

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The Business Combinations is not a transaction between entities under common control.

These factors support the conclusion that the Company acquired a controlling interest in P3 LLC and is the accounting acquirer.

For accounting purposes, the accounting acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination.

The determination of whether control has been obtained begins with the evaluation of whether control should be evaluated based on the variable interest or voting interest model pursuant to ASC 810.

If the acquiree is a variable interest entity, the primary beneficiary would be the accounting acquirer.

The Company is the primary beneficiary of P3 LLC, which is a variable interest entity, since it has the power to direct the activities of P3 LLC that most significantly impact P3 LLC’s economic performance through its role as the sole managing member.

Therefore, the Company is the accounting acquirer of P3 LLC and the Business Combinations should be accounted for using the acquisition method.

Under the acquisition method of accounting, Foresight’s assets and liabilities are recorded at carrying value and the assets and liabilities associated with P3 LLC are recorded at estimated fair value as of the acquisition date.

The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

The acquisition method of accounting is based on ASC Topic 805 , Business Combinations (“ASC 805”) and uses the fair value concepts defined in ASC Topic 820, Fair Value Measurements (“ASC 820”).

In general, ASC 805 requires, among other things, that assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date by the accounting acquirer, which was determined to be Foresight.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASC 820 defines fair value, establishes a framework for measuring fair value, and sets forth a fair value hierarchy that prioritizes and ranks the level of observability of inputs used to develop the fair value measurements.

Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability.

In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability.

Fair value measurements for a non-financial asset assume the highest and best use by these market participants.

Many of these fair value measurements can be highly subjective, and it is possible that other professionals applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

As a result of the Business Combinations, P3 LLC which represents substantially all of the economic activity of the Company became a subsidiary of the Company.

Since the Company is the sole managing member of P3 LLC following the Business Combinations, the P3 LLC Units held by P3 Equityholders are classified as Redeemable Non-controlling Interests in the Company’s financial statements for financial reporting purposes.

An allocation of net income or loss representing the percentage of ownership of P3 LLC not controlled by the Company will be attributed to the Redeemable Non-controlling Interests in the Company’s statement of operations.

Upon the completion of the Business Combinations, the Company entered into a Tax Receivable Agreement with certain of the P3 Equityholders and P3 LLC.

The Tax Receivable Agreement provides for the payment to the P3 Equityholders of 85 % of the income tax benefits, if any, that are actually realized.

At the completion of the Business Combinations, the Company did not record a Tax Receivable Agreement liability related to the tax savings it would realize from the utilization of such tax benefits after concluding it is not probable that such a liability would be paid based on its estimates of future taxable income, consistent with the Company’s conclusion that it is not more-likely-than-not to realize its deferred tax assets.

See Note 14 “Tax Receivable Agreement” for further information.

The following summarizes the purchase price consideration:

Fair Value of Non-controlling Interest

1,807,427,576

Fair value of redeemable non-controlling interest

Stock compensation pre-combination services

Cash consideration

Payment of P3 Health Group Holdings, LLC’s Transaction Costs

Payment of P3 LLC’s transaction costs

Total purchase consideration

1,951,598,620

The Company recorded the allocation of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the Closing Date.

The allocation reflects the fair value of assets and liabilities associated with the Company’s other acquisitions in 2021 Predecessor Period described below with the exception of Medcore Health Plan, Inc.

and Omni IPA Medical Group, Inc., which occurred in the Successor Period.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The aggregate purchase price consideration for the P3 LLC acquisition has been allocated as follows:

The purchase consideration and allocation includes the fair value of assets and liabilities associated with the Company’s acquisitions of three medical practices in the Predecessor Period of 2021 described below.

The aggregate purchase price consideration for the Business Combinations has been allocated as follows at the acquisition date:

Assets acquired:

Restricted cash

Health Plan Settlement Receivables

Health plan receivables

Clinic fees and insurance receivables, net

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Prepaid expenses and other current assets

Property and Equipment, Net

Intangible Assets, Net:

Property and equipment

Definite lived intangible assets:

Customer relationships

Provider network

1,278,452,778

Notes Receivable, Net

Right of Use Assets

Operating lease right-of-use assets (1)

Total assets acquired

2,188,665,689

Liabilities assumed:

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Accrued payroll

Health Plans Settlements Payable

Health plan settlements payable

Claims payable

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Current portion of long-term debt

Lease Liability

Operating lease liability

Long-term debt, net of current portion

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Net assets acquired

1,951,598,620

Goodwill represents the excess of the purchase price over the fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and expected future market opportunities.

$ 3.8 million of goodwill recognized in the Business Combinations is expected to be deductible for tax purposes.

See Note 17 “Income Taxes.” The useful life of acquired definite lived intangible assets is 10 years .

Included within other long-term assets on the consolidated balance sheet.

Fair value of property and equipment acquired consists of the following at the acquisition date:

Leasehold improvements

Furniture and fixtures

Computer equipment and software

Medical equipment

Software (development in process)

Total property and equipment

Working capital accounts, property and equipment, and notes receivable were measured at the existing carrying values, which approximated fair values.

The fair value of long-term debt was measured at face value, which approximated the fair value.

The fair value of customer relationships was measured at the acquisition date under the excess earnings method using Level 3 inputs, such as projected cash flows, annual retention rates attributable to the existing relationships, and a selected discount rate.

The fair value of the provider network was measured at the acquisition date under the cost approach using Level 3 inputs, such as estimated direct costs, estimates of allocated overhead costs, and an estimated mark-up percentage to apply to such costs.

The fair value of trademarks was measured at the acquisition date under the relief-from-royalty method using Level 3 inputs, such as projected cash flows, benchmark royalty rates, and a selected discount rate.

Goodwill arising from the acquisition is primarily attributable to the assembled workforce of P3 LLC and expected future market opportunities.

Goodwill of $ 3.8 million recognized in the Business Combinations is expected to be deductible for tax purposes.

The useful life of acquired definite lived intangible assets is 10 years .

Other Acquisitions

On December 31, and December 27, 2021, respectively, the Company acquired 100 % of the outstanding equity of Medcore Health Plan, Inc.

(“Medcore HP”) and the net assets of Omni IPA Medical Group, Inc .

(“Omni”) (collectively the “Medcore Acquisition”).

The Company acquired 100 % of the outstanding equity interests of Medcore Health Plan, Inc.

(“Medcore HP”) on December 31, 2021 and the net assets of Omni IPA Medical Group, Inc.

(“Omni”) on December 27, 2021 (collectively, the “Medcore Acquisition”).

Medcore HP is a health plan licensed under the California Knox-Keen Health Care Service Plan Act of 1975 and Omni is an independent practice association located in California.

Omni serves as Medcore HP’s contracted and fully delegated physician network providing medical services to Medcore HP’s patients and members.

Because of the extensive inter-reliance of these two businesses, the Company accounted for the purchases as a single, combined business.

The total purchase price of $ 40,013,321 includes $ 3,486,593 to be paid to the sellers upon resolution of the assumed claims payable, or IBNR, and risk adjustment factor.

Due to the volatility of these items, the outcome cannot be currently estimated.

Release of this payment, currently expected in the first quarter of 2023, is not

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

subject to resolution of a substantive future contingent event and has therefore been included in the total consideration to be transferred.

The cash payment, net of cash acquired and the $ 3,486,593 retained, was $ 15,677,205 .

The Company also purchased three other medical practices during the Predecessor Period of 2021 for a total net cash purchase price of $ 4,989,000 .

As referenced above, the assets acquired and liabilities assumed in these acquisitions was included in the purchase consideration and allocation for the Business Combinations.

$ 8.1 million of goodwill recognized in the Business Combinations is expected to be deductible for tax purposes.

The aggregate purchase price consideration of the other acquisitions in 2021 has been allocated as follows:

Due to the extensive inter-reliance of these two businesses, the Company accounted for the purchases as a single, combined business.

The total purchase price of $ 40.0 million includes $ 3.5 million to be paid to the sellers upon resolution of the assumed claims payable and risk adjustment factor, which is considered to be a Level 3 fair value measurement.

The change in fair value of the contingent consideration from the acquisition date to December 31, 2022 was not material.

Release of this payment, currently expected in the first half of 2023, is not subject to resolution of a substantive future contingent event and has therefore been included in the total consideration to be transferred.

The cash payment, net of cash acquired and the amount retained payment of $ 3.5 million, was $ 15.7 million.

The Company also purchased three medical practices during the Predecessor Period of 2021 for a total net cash purchase price of $ 5.0 million.

As referenced above, the assets acquired and liabilities assumed in these acquisitions were included in the purchase consideration and allocation for the Business Combinations.

Goodwill arising from the acquisition is primarily attributable to the assembled workforce and expected future market opportunities.

Goodwill of $ 8.1 million recognized in these other acquisitions is expected to be deductible for tax purposes.

The useful life of acquired definite lived intangible assets is 10 years .

The aggregate purchase price consideration of the other acquisitions in 2021 has been allocated as follows at the acquisition dates:

Assets acquired:

Restricted cash

Health Plan Settlement Receivables

Health plan receivables

Clinic fees and insurance receivables, net

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Prepaid expenses and other current assets

Property and Equipment, Net

Intangible Assets, Net:

Property and equipment

Definite lived intangible assets:

Customer relationships

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Provider network

Indefinite lived intangible assets:

Medical licenses

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Liabilities assumed:

Accounts Payable and Accrued Expenses

Accounts payable

Accrued payroll

Health Plans Settlements Payable

Health plan settlements payable

Claims payable

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Net assets acquired

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the third quarter of 2022, the Company acquired two medical practices in separate transactions.

The total cash purchase price was $ 5.5 million, net of cash acquired, and was allocated primarily to goodwill.

Pro Forma Financial Information (Unaudited)

The following unaudited pro forma financial information summarizes the results of operations for the Company as though the Business Combinations, and the Medcore Acquisition had occurred on January 1, 2020.

The following unaudited pro forma financial information summarizes the results of operations for the Company as though the Business Combinations and the Medcore Acquisition had occurred on January 1, 2020 and has been derived from the historical consolidated financial statements of the Company’s Predecessor Periods and the Successor Period.

The Successor and Predecessor Periods for the year ended December 31, 2021 have been combined.

The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the future consolidated results of operations of the Company.

December 31,2021

Total operating revenue

( 259,282,984 )

( 198,926,617 )

Net loss attributable to non-controlling interest

( 214,167,745 )

( 164,313,386 )

Net loss attributable to controlling interest

( 45,115,239 )

( 34,613,231 )

The proforma financial information presented above has been derived from the historical consolidated financial statements of the Company, the Company’s Predecessor Periods and the Company’s Successor Period.

The Successor and Predecessor Periods for the year ended December 31, 2021 have been combined.

The unaudited pro forma results reflect the step-up amortization adjustments for the fair value of intangible assets acquired, transaction expenses, accelerated vesting of equity compensation, debt discount amortization and income attributable to non-controlling interest holders.

The unaudited pro forma results include certain pro forma adjustments to revenue and net loss that were directly attributable to the P3 Health Group Holdings, LLC acquisition, assuming the acquisition had occurred on January 1, 2020, including the following:

1) Transaction costs of approximately $ 39.4 million are assumed to have occurred on January 1, 2020 and are recognized as if incurred on January 1, 2020.

2) The acceleration of certain stock-based awards of $ 2.4 million are assumed to have occurred on January 1, 2020 and are recognized as if incurred on January 1, 2020.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma results reflect the step-up amortization adjustments for the fair value of intangible assets acquired, transaction expenses, accelerated vesting of equity-based compensation, debt discount amortization, and income attributable to non-controlling interest holders.

Fair Value Measurements and Hierarchy

See Note 4 “Significant Accounting Policies” for a summary of the Company’s policies relating to fair value measurements.

The following table presents the carrying amounts of the Company’s financial instruments at December 31, 2021 and 2020:

Financial Assets:

Restricted Cash

Clinics Fees and Insurance Receivables, Net

Other Receivables

Information about the Company’s financial liabilities measured at fair value on a recurring basis is presented below:

December 31, 2022

Carrying Value

Financial liabilities:

Accounts Payable and Accrued Expenses

Liability for Warrants

The book value of cash, clinic fees and insurance receivables, net, other receivables, and accounts payable and accrued expenses approximate fair value because of the short maturity and high liquidity of these instruments.

Liabilities for private placement warrants are measured at fair value using Level 3 inputs.

The key Level 3 inputs into the option pricing model as of December 31, 2020 related to the Class D warrants to purchase Class D Shares were as follows:

Risk-Free Interest rate

Exercise Price

Expected Term

The key Level 3 inputs into the option pricing model as of December 31, 2021 relating to the Private Placement Warrants to purchase Class A Common Stock were as follows:

Liability for private placement warrants

Liability for public warrants

December 31, 2021

Carrying Value

Financial liabilities:

Liability for private placement warrants

Liability for public warrants

The key Level 3 inputs into the option pricing model related to the private placement warrants to purchase Class A common stock were as follows:

Risk-free interest rate

5 unchanged sentences

The Company has not, and does not plan to, declare dividends on its common stock and, as such, there is no change in the estimated fair value of the warrant liabilities due to the dividend assumption.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth a summary of changes in the fair value of the Company’s Level 3 fair value measurements for the periods indicated:

The following table sets forth a summary of changes in the fair value of the Company’s private placement warrants, which are considered to be Level 3 fair value measurements:

December 3, 2021

2 unchanged sentences

Beginning balance

Issuance of Class D Warrants

Mark-to-Market Adjustment for Stock Warrants

Mark-to-market adjustment of stock warrants

Ending balance

Patient Fees Receivable

Patient fees receivable is included in Clinic Fees and Insurance Receivables in the Company’s consolidated balance sheets and consisted of the following categories for each of the years ending December 31, presented below:

Total Receivables:

Contractual Allowances

( 1,968,750 )

Receivables Net of Contractual Allowances

Medicare / Medicaid

Receivables Net of Contractual Allowances

The Company recorded gains on the changes in the fair value of public warrants of $ 9.4 million and $ 2.3 million during the year ended December 31, 2022 and the Successor Period of 2021, respectively.

Property and Equipment

The Company’s property and equipment balances as of December 31 consisted of the following:

The Company’s property and equipment balances consisted of the following:

Leasehold improvements

4 unchanged sentences

accumulated depreciation

( 1,592,827 )

Property and equipment, net

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables provide changes in goodwill for the periods indicated.

Balance at December 31, 2019

Balance at December 31, 2020

Balance at December 2, 2021

Total depreciation of property and equipment recognized on the consolidated statements of operations was $ 2.4 million, $ 0.2 million, and $ 1.5 million for the year ended December 31, 2022, the Successor Period of 2021, and the Predecessor Period of 2021, respectively.

The following table provides a reconciliation of goodwill and accumulated goodwill impairment losses as of:

Balance at December 3, 2021 (1)

1,278,452,778

Accumulated goodwill impairment losses

Balance at December 31, 2021

Accumulated goodwill impairment losses

Impairment losses

( 1,314,952 )

Represents the opening balance of goodwill as of December 3, 2021 due to the Business Combination

Goodwill recorded in the Predecessor Period of 2021 was associated with the acquisition of three medical practices.

The opening balance of goodwill at December 3, 2021 reflects the Business Combinations.

Goodwill recorded in the Successor Period of 2021 was associated with the Medcore Acquisition.

See Note 7 “Business Combinations.”

Based on Management’s qualitative analysis, no goodwill impairment charges were recorded in the Successor Period of 2021 and the Predecessor Periods of 2021, 2020 and 2019.

Due to the decrease in the share price over the second quarter of 2022, the Company will record a goodwill impairment of $ 851.5 million as of June 30, 2022.

The amount was not recorded at December 31, 2021 or March 31, 2022 as the decline in the share price was considered temporary under the ASC 350 guidance as of those dates.

Intangible Assets

The follow tables provide changes in intangible assets for the periods indicated.

Relationships

Balance at December 31, 2022

Balance at December 2, 2021

Relationships

Balance at December 3, 2021 1

( 5,700,000 )

( 1,230,833 )

Accumulated goodwill impairment losses

( 1,314,952 )

Balance at December 31, 2021

Represents the opening balance of intangibles as of December 3, 2021 due to the Business Combination

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Customer relationships recorded in the Predecessor Period of 2021 were associated with the acquisition of two medical practices.

The opening balance of intangible assets at December 3, 2021 reflects the Business Combinations.

Intangible assets recorded in the Successor Period of 2021 was associated with the Medcore Acquisition.

See Note 7 “Business Combinations.”

Amortization of intangible assets is anticipated to be approximately $ 84.6 million in 2022 and 2023 and $ 84.1 million for each of the years 2024 through 2026 .

The weighted average remaining useful life of definite lived intangible assets is as below:

Relationships

Weighted average remaining useful life

Represents the opening balance of goodwill due to the Business Combinations (Note 5)

In the second quarter of 2022, the Company identified indicators of impairment related to goodwill due to a significant deterioration in the overall market and a sustained decrease in the price of the Company’s Class A common stock.

As a result, the Company performed an interim assessment for impairment as of June 30, 2022 and noted that the Company’s share price (i) was significantly lower than its opening price on December 2, 2021, (ii) had not surpassed its opening price since December 15, 2021, and (iii) had steadily declined through the end of the second quarter of 2022, which did not follow the overall rebound pattern in the healthcare industry.

Management concluded that, given the macroeconomic and financial market conditions, industry-specific considerations, the decline in the Company’s performance as a result of higher than expected medical expenses due to the COVID-19 pandemic, and the sustained decrease in share price, it was more likely than not that the Company’s fair value was less than its carrying amount at June 30, 2022.

Accordingly, management performed the two-step impairment test by estimating the Company’s fair value using a weighted combination of (i) discounted cash flows, using Level 3 inputs such as revenue, profit margin, and discount rate and (ii) market-based approach, using Level 3 inputs such as comparable companies’ market multiples.

Based on management’s comparison of the Company’s weighted estimated fair value to its carrying amount, an $ 851.5 million goodwill impairment charge was recorded for the three-month period ended June 30, 2022.

In the fourth quarter of 2022, the Company identified indicators of impairment related to goodwill due to the Company’s overall financial performance and a sustained decrease in the price of the Company’s Class A common stock.

As a result, the Company performed an assessment for impairment as of December 31, 2022 and noted that the Company’s share price closed at its lowest price in its trading history and had steadily declined through the end of December 2022, which was not consistent or was significantly worse when compared to the performance of its peers and the healthcare industry as a whole.

Management concluded that, given the decline in the Company’s performance and the sustained decrease in its share price, it was more likely than not that the Company’s fair value was less than its carrying amount at December 31, 2022.

and (ii) market-based approach, using Level 3 inputs such as comparable companies’ market multiples.

Based on management’s comparison of the Company’s weighted estimated fair value to its carrying amount, a $ 463.5 million goodwill impairment charge was recorded for the three-month period ended December 31, 2022.

Based on the Company’s qualitative analyses, no goodwill impairment charges were recorded in the Successor Period of 2021 or the Predecessor Period of 2021.

Intangible Assets, Net

Intangible assets, net consisted of the following as of:

Gross Carrying

Indefinite lived intangible assets:

Medical licenses

Definite lived intangible assets:

Customer relationships

Payor contracts

Provider network

Amortization of intangible assets was $ 84.8 million and $ 7.0 million during the year ended December 31, 2022, and Successor Period of 2021, respectively.

Estimated future amortization of intangible assets is $ 84.6 million for the year 2023 and $ 84.2 million for each of the years 2024 through 2027.

Notes Receivable, Net

The Company entered into five Promissory Notes (the “Notes”) with three family medical practices (the “Practices”) to fund their working capital needs.

The Company simultaneously entered into separate Provider Agreements with each Practice related to four of these five Notes.

Each Provider Agreement establishes a preferred, predetermined reimbursement rate for services rendered to the Company’s members and requires that Practice to furnish healthcare services to the Company’s members.

The Provider Agreements mature in concert with each practice’s loan.

In accordance with each of these four Notes, so long as the corresponding Provider Agreement is in effect on the maturity date of each Note and has not been terminated by the borrower for any reason, the Company will forgive the entire principal, plus accrued interest due on the date of maturity.

Likewise, if the Company terminates the Provider Agreement prior to maturity without cause, all principal plus accrued interest due from the borrower will be forgiven.

Upon early termination of the Provider Agreement by borrower, all principal and accrued interest will become immediately payable and due the Company.

Related to potential forgiveness, the Company records a valuation allowance on a straight-line basis following the early termination date through the date of maturity, due to the probable likelihood of needing to forgive the notes at maturity, with a full valuation allowance set at the time of maturity.

At December 31, 2021 and 2020, the Company has recorded notes receivable of $ 3,590,715 and $ 3,804,662 , including accrued interest receivable of $ 885,243 and $ 572,382 , and net of valuation allowances of $ 526,808 and $ 195,967 , respectively.

The Notes carry maturity dates ranging from December 31, 2021 through December 31, 2028 with interest rates ranging from 5.0 % to 10.0 %.

Two of the Notes are included in Other Receivables in the Company’s consolidated balance sheet due to their short-term maturity dates of December 31, 2021.

The Company forgave two of its notes receivable from one provider group on their maturity date of December 31, 2021.

The combined principal and interest forgiven were $ 286,600 and $ 71,762 , respectively, both of which were fully reserved.

Tax Receivable Agreement

The Company entered into a Tax Receivable Agreement (“TRA”) with selling equity holders of P3 LLC that requires the Company to pay 85 % of the tax savings that are realized as a result of (i) the Company’s direct and indirect allocable share of existing tax basis acquired in the Business Combinations, (ii) increases in the tax basis in P3 LLC’s assets as a result of the sale and exchange of the P3 LLC units for the Company’s Class A Common Stock and cash, and (iii) the Company’s utilization of certain tax attributes and of certain other tax benefits, including those attributable to payments under the TRA.

The Company will retain the benefit of the remaining 15 % of these cash savings.

The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable, among other factors.

Actual tax benefits realized by the Company may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The payment obligation under the TRA is an obligation of the Company and not of P3 LLC.

The payments that we will be required to make will generally reduce the amount of the overall cash flow that might have otherwise been available, but we expect the cash tax savings we will realize from the utilization of the related tax benefits will exceed the amount of any required payments.

As of December 31, 2021, the Company did not record a TRA liability related to the tax savings it would realize from the utilization of such deferred tax assets because it is not probable that such a liability would be paid based on its estimates of future taxable income, consistent with the Company’s conclusion that it is not more-likely-than-not to realize its deferred tax assets.

The Company has entered into Promissory Notes (the “Notes”) with certain family medical practices (each a “Practice”) to fund their working capital needs.

The Company simultaneously entered into separate Provider Agreements with each Practice.

As long as the Provider Agreement is in effect on the maturity date of the related Note and has not been terminated by the Practice for any reason, or the Company terminates the Provider Agreement prior to maturity without cause, the Company will forgive the entire principal, plus accrued interest, on the maturity date.

Upon early termination of the Provider Agreement by the Practice, all principal and accrued interest will become immediately payable and due to the Company.

Due to the probable likelihood of forgiveness at maturity, the Company records a valuation allowance on a straight-line basis following the early termination date through the maturity date, with a full valuation allowance recorded at the maturity date.

As of December 31, 2022 and 2021, the Company has recorded notes receivable of $ 3.5 million and $ 3.6 million, respectively, accrued interest receivable of $ 1.0 million and $ 0.9 million, respectively, and net of valuation allowances of $ 0.7 million and $ 0.5 million, respectively, within other long-term assets on the consolidated balance sheets.

As of December 31, 2022, the Notes have maturity dates ranging from March 31, 2025 through December 31, 2028 with interest rates ranging from 5.0 % to 10.0 %.

During the Successor Period of 2021, the Company forgave notes receivable on their maturity date of December 31, 2021 comprised of principal and interest of $ 0.3 million and $ 0.1 million, respectively, both of which were fully reserved.

Claims Payable

Claims payable includes claims reported as of the balance sheet date, including estimates for IBNR, due to third parties for health care services provided to members.

IBNR was $ 101,958,324 and $ 56,934,400 at December 31, 2021 and 2020, respectively.

Activity in the liability for claims payable and healthcare expenses for the Periods indicated, was as follows:

December 3, 2021

January 1, 2021

through December 31,

through December 2,

Claims payable includes claims reported as of the end of the reporting period, including estimates for IBNR, due to third parties for health care services provided to members.

Activity in the liability for claims payable and healthcare expenses was as follows:

Claims unpaid, beginning of period

12 unchanged sentences

Long-Term Debt

On November 19, 2020, the Company entered a Term Loan and Security Agreement (the “Facility”) with a commercial lender (“LTD-D”).

The Facility was amended on December 21, 2021.

The Facility provided funding up to $ 100,000,000 , of which $ 65,000,000 has been drawn as of December 31, 2021.

Of the $ 65,000,000 drawn, $ 61,058,281 was received (net of $ 3,941,719 in financing costs).

Upon closing of the Business Combinations on December 3, 2021, the unamortized financing costs were written off and the debt was recorded at fair value.

The Facility may be used to pay certain indebtedness of the Company and for general working capital needs.

Accrued interest was $ 2,259,588 and $ 186,666 at December 31, 2021 and 2020, respectively.

The Facility includes certain restrictive covenants, including restrictions on the payment of cash dividends.

Repayment of principal of all amounts drawn are due at maturity.

The Company’s access to additional borrowings under the Facility ended upon termination of the commitment period on February 28, 2022.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company was required to meet a borrowing base milestone by demonstrating to the lenders that revenue for any three consecutive month period (ending after the Facility’s closing date, but on or prior to December 31, 2021) was greater than or equal to $ 125.0 million.

Additionally, the Company must remain in compliance with financial covenants such as minimum liquidity of $ 5.0 million and annual minimum revenue levels.

Starting in 2021, and on an annual basis thereafter, the Company must post a minimum amount of annual revenue equal to, or greater than $ 395.0 million;

increasing to $ 460.0 million in 2022;

$ 525.0 million in 2023;

$ 585.0 million in 2024 and $ 650.0 million in 2025.

Also, the Company is subject to certain restrictions that include indebtedness and liens.

As of December 31, 2021, the Company was not in compliance with its Term Loan covenants related to issuance of the 2021 financial statements with an audit opinion free of a “going concern” qualification or timely filing of the 2021 financial statements.

The Term Loan lenders granted (i) a waiver of the covenant under the Facility related to the existence of a “going concern” qualification in the audit opinion for our audited financial statements for the fiscal year ended December 31, 2021 and (ii) a consent to extend the deadline to provide audited financial statements for the year ended December 31, 2021 to October 21, 2022.

We were in compliance with all other covenants under the Facility as of December 31, 2021.

However, there can be no assurance that we will be able to maintain compliance with these covenants in the future or that the lenders under the Facility or the lenders of any future indebtedness we may incur will grant us any such waiver or forbearance in the future.

The Facility’s expected maturity date is December 31, 2025.

This maturity date may be accelerated as a remedy under the certain default provisions in the agreement or in the event a mandatory prepayment trigger occurs.

Interest is payable at 12.0 % per annum on a quarterly cycle (in arrears) beginning March 31, 2021.

Management may elect to pay the full 12.0 % per annum in cash or 8.0 % per annum interest in cash with the remaining 4.0 % per annum being added to principal as “paid in kind” (“PIK”) for a period of three years (or twelve payments).

The PIK is subject to acceleration in the event certain occurrences in the Facility’s agreement are triggered.

The Facility’s lenders also received ten-year warrants to purchase 858,351 shares of Series D Preferred Units at $ 4.68 per share.

These warrants have been recorded as a liability in the Company’s consolidated balance sheets at fair market value and are marked to market on a quarterly basis until exercised.

A discount was recorded on the debt issued for the same amount and written off upon closing of the Business Combinations.

The Security Agreement provides the lenders collateral in 100 % of the Company’s pledged stock, its subsidiaries (including tangible and intangible personal property) and bank accounts.

On June 7, 2020, the Company repurchased 200,000 Class C (Time-based) Units, at $ 0.90 per Unit from a former Executive through issuance of a long-term note (“LTD-E”).

This repurchase was recognized in the Company’s consolidated balance sheets as a reduction to Members’ Deficit in the amount of $ 180,000 and a corresponding increase in long-term debt.

LTD-E bears interest of 3.25 % and fixed monthly payments of $ 7,757 through date of maturity (June 7, 2022).

In 2019, the Company received bridge loans (“LTD-A”) from some of its existing investors totaling $ 16,164,914 .

The bridge loans accrued interest at 12 % and were scheduled to mature on November 12, 2019.

All but one was repaid with proceeds raised from the issuance of Class D Units.

The remaining and outstanding bridge loan balance was $ 1,516,598 , plus accrued interest of $ 112,712 , at December 31, 2019.

This remaining and outstanding balance, plus accrued interest was fully paid in 2020.

In 2019, the Company executed a share repurchase agreement with one of its investors (“LTD-C”), which was subsequently amended on November 19, 2020.

The agreement, as amended stipulated $ 15.0 million originally contributed by the investor would be repaid by the earlier of June 30, 2026 or a change in control transaction.

As part of this repurchase agreement, the investor exchanged its owned units back for a $ 15.0 million note receivable from the Company - thus, no longer holding its former equity position.

The note carries interest of 11.0 % per year.

Its principal balance, accrued interest and an exit fee of $ 600,000 is due at maturity.

Accrued interest was $ 6,511,477 and $ 3,865,740 at December 31, 2021 and 2020, respectively.

The total principal balance is included in Long-Term Debt on the Company’s consolidated balance sheets at December 31, 2021 and 2020.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables roll forward the long-term debt balances presented in the Company’s consolidated balance sheets:

Balance at December 31, 2019

Issued in 2020

Principal Payments in 2020

( 1,516,598 )

( 1,560,509 )

Balance at December 31, 2020

Issued in 2021

Principal Payments in 2021

Balance at December 2, 2021

Balance at December 3, 2021 1

Issued in 2021

Principal Payments in 2021

Balance at December 31, 2021

1) Represents the opening balance of goodwill as of December 3, 2021 due to the Business Combination

As of December 31, 2021 for the years presented below, the Company’s annual, minimum payments due under debt obligations are as follows:

Cash Interest

Total Cash Payments consist of principal and cash interest.

Long-term debt was comprised of the following at December 31, 2021 and 2020:

December 31, 2021

December 31, 2020

Total Principal

Long-term debt consists of the following:

Repurchase Promissory Note

Term Loan Facility

Unsecured Promissory Note

Long-term debt, gross

unamortized debt issuance costs and original issue discount

current portion of long-term debt

Loan Origination Fees

( 3,566,718 )

Accumulated Amortization of Loan Origination Fees

Discount for Issuance of Class D Warrants

( 6,316,605 )

Accumulated Amortization of Discount

Long Term Debt

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term debt, net

Repurchase Promissory Note

In June 2019, the Company issued a share repurchase promissory note (the “Repurchase Promissory Note”) to a former equity investor for $ 15.0 million, which was subsequently amended in November 2020.

The amended agreement stipulated that the Repurchase Promissory Note would automatically mature and be due and payable on the earlier of June 30, 2026, a change in control transaction, or an underwritten primary public offering, each as defined in the agreement.

The note accrues paid in-kind (“PIK”) interest of 11.0 % per year.

The principal balance, accrued interest, and an exit fee of $ 0.6 million are due at maturity.

Accrued interest was $ 9.0 million and $ 6.5 million at December 31, 2022 and 2021, respectively.

Term Loan Facility

In November 2020, the Company entered into a Term Loan Agreement and Security Agreement with a commercial lender (as amended, the “Term Loan Agreement”), which provided funding up to $ 100.0 million (the “Term Loan Facility”), of which $ 65.0 million was drawn as of December 31, 2022 and 2021.

The Company’s access to additional borrowings under the Term Loan Facility ended upon termination of the commitment period on February 28, 2022.

The Term Loan Agreement was amended on November 16, 2021 to provide for certain modifications and to obtain consent from the lenders to consummate the Business Combinations.

At Closing, the balance of unamortized debt issuance costs and original issue discount related to the Term Loan Facility was written off and the debt was recorded at face value, which approximated fair value.

The Term Loan Agreement was amended on December 21, 2021 to provide for certain modifications and to permit the consummation of the Medcore Acquisition and related transactions.

The Term Loan Agreement was amended on December 13, 2022 to provide for certain modifications and to permit the issuance of the Unsecured Promissory Note (as defined below) and related transactions.

The Security Agreement provides the lenders collateral in 100 % of the Company’s pledged stock, its subsidiaries (including tangible and intangible personal property), and bank accounts.

The principal balance is due in full on the maturity date, which is December 31, 2025.

This maturity date may be accelerated as a remedy under certain default provisions in the agreement or in the event a mandatory prepayment trigger occurs.

Interest is payable at 12.0 % per annum on a quarterly cycle (in arrears) beginning March 31, 2021.

The Company has elected to pay interest of 8.0 % per annum in cash with the remaining 4.0 % per annum being added to principal as PIK interest for a period of three years (or 12 payments).

The PIK is subject to acceleration in the event certain occurrences in the Term Loan Facility’s agreement are triggered.

Accrued interest was $ 5.0 million and $ 2.3 million at December 31, 2022 and 2021, respectively.

The Term Loan Facility includes certain restrictive covenants, including restrictions on the payment of cash dividends.

The Company must remain in compliance with financial covenants such as minimum liquidity of $ 5.0 million and annual minimum revenue levels.

On an annual basis, the Company must post a minimum amount of annual revenue equal to or greater than $ 460.0 million in 2022, $ 525.0 million in 2023, $ 585.0 million in 2024, and $ 650.0 million in 2025.

The Company is also subject to certain restrictions that include indebtedness and liens.

As of December 31, 2022, the Company was not in compliance with its Term Loan Facility covenants related to issuance of the 2022 financial statements with an audit opinion free of a “going concern” qualification.

The Term Loan Facility lenders granted a waiver of the covenant under the Term Loan Facility related to the existence of a “going concern” qualification in the audit opinion for our audited financial statements for the fiscal year ended December 31, 2022.

The Company was in compliance with all other covenants under the Term Loan Facility as of December 31, 2022;

however, there can be no assurance that the Company will be able to maintain compliance with these covenants in the future or that the lenders under the Term Loan Facility or the lenders of any future indebtedness the Company may incur will grant any such waiver or forbearance in the future.

Unsecured Promissory Note

In December 2022, the Company entered into a related party financing transaction (see Note 22 “Related Parties”) with VBC Growth SPV LLC (“VGS”) which included an unsecured promissory note (the “Unsecured Promissory Note”);

warrant agreement, pursuant to which the Company issued warrants to purchase 429,180 shares of Class A common stock at an exercise price of $ 4.26 per share to VGS (see Note 24 “Warrants”);

and a subordination agreement (the “Subordination Agreement”), pursuant to which VGS agreed to subordinate its right of payment under the Unsecured Promissory Note to the right of payment and security interests of the lenders under the Term Loan Facility.

The Unsecured Promissory Note provides for funding of up to $ 40.0 million, available for draw by the Company in three tranches as follows:

(i) a first tranche of $ 15.0 million available on December 13, 2022, (ii) a second tranche of up to $ 15.0 million in a single draw at the Company’s option after January 5, 2023, and (iii) a third tranche of up to $ 10.0 million available at the Company’s option in a single draw after January 5, 2023 and on or prior to February 3, 2023.

The Company will pay VGS an up-front fee of 1.5 % at the time of each draw.

As of December 31, 2022, $ 15.0 million had been drawn on the Unsecured Promissory Note and the Company had recorded original issue discount of $ 0.2 million and debt issuance costs comprising the fair value of the warrants issued to VGS and other costs incurred related to this financing totaling $ 0.9 million, of which $ 0.6 million is deferred as other long-term assets until the subsequent tranches are drawn.

The Unsecured Promissory Note matures on May 19, 2026.

Interest is payable at 14.0 % per annum on a quarterly cycle (in arrears) beginning March 31, 2023.

The Company may elect to pay interest 6.0 % in kind and 8.0 % in cash, but if the terms of the Subordination Agreement do not permit the Company to pay interest in cash, interest will be paid entirely in-kind.

Accrued interest was $ 0.1 million at December 31, 2022.

The Company will pay VGS a back-end fee at the time the Unsecured Promissory Note is paid as follows:

(i) if paid from March 1, 2023 through June 30, 2023, 4.5 %;

(ii) if paid from July 1, 2023 through December 31, 2023, 6.75 %;

and (iii) if paid on January 1, 2024 or later, 9.0 %.

The Unsecured Promissory Note may be prepaid, at the Company’s option, either in whole or in part, without penalty or premium, at any time and from time to time, subject to the payment of the back-end fee;

provided that prepayments must be in increments of at least $ 2.0 million.

The Unsecured Promissory Note restricts the Company’s ability and the ability of its subsidiaries to, among other things, incur indebtedness and liens, and make investments and restricted payments.

The maturity date may be accelerated as a remedy under the certain default provisions in the agreement, or in the event a mandatory prepayment event occurs.

As of December 31, 2022, long-term debt maturities are as follows:

unamortized debt issuance costs and original issue discount

Short-Term Debt

In 2021, the Company entered into short term financing agreements totaling $ 3,683,100 for the funding of certain insurance policies.

The terms of the agreements ranged from nine to ten months and the weighted average annual interest rate was 2.6 %.

Remaining scheduled principal payments as of December 31, 2021 are as follows:

First quarter 2022

Second quarter 2022

Third quarter 2022

As a result of the Business Combinations, substantially all the Company’s assets and operations are held and conducted by P3 LLC and its subsidiaries, and the Company’s only assets are equity interests in P3 LLC.

In 2021, the Company entered into short term financing agreements totaling $ 3.7 million for the funding of certain insurance policies.

The terms of the agreements ranged from nine to 10 months and the weighted average annual interest rate was 2.6 %.

The debt was repaid during the third quarter of 2022.

As a result of the Business Combinations, 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 interests in P3 LLC.

P3 LLC is treated as a partnership for U.S.

2 unchanged sentences

federal, state, and local income taxes.

Any taxable income or loss generated by P3 LLC is passed through to and included within the taxable income or loss of its members in accordance with the terms of the P3 LLC A&R LLC Agreement.

Any taxable income or loss generated by P3 LLC is passed through to and included within the taxable income or loss of its members in accordance with the terms of the P3 LLC operating agreement.

Prior to the Business Combinations, the income and losses of P3 LLC were passed through to its members and nontaxable to P3 LLC.

1 unchanged sentence

While the Company consolidates P3 LLC for financial purposes as a VIE, the Company will not be taxed on the earnings attributed to the non-controlling interests.

As a result, the income tax burden on the earnings taxed on the non-controlling interests is not reported by the Company in its financial statements.

Components of Loss Before Taxes

The components of net loss before the provision for income taxes were as follows:

As a result, the income tax burden on the earnings taxed on the non-controlling interests is not reported by the Company in its consolidated financial statements.

The components of loss before income taxes were as follows:

December 3, 2021

4 unchanged sentences

( 1,559,695 )

( 31,411,542 )

( 41,971,558 )

( 57,937,929 )

( 146,399,938 )

( 31,411,542 )

( 41,971,558 )

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Components of Income Tax Expense

For the reasons described above, there was no provision for income taxes for the periods December 3, 2021, through December 31, 2021, January 1, 2021, through December 2, 2021, and the years ended December 31, 2020, and 2019.

A reconciliation between the income tax provision computed by applying the statutory federal rate and the actual provision is as follows:

The components of income tax expense were as follows:

December 3, 2021

2 unchanged sentences

through December 2,

Current income taxes:

Total current income taxes

Deferred income taxes:

Total deferred income taxes

Total income tax expense

A reconciliation of the statutory federal income tax to the Company’s provision for income taxes is as follows:

December 3, 2021

January 1, 2021

through December 31,

through December 2,

Tax at federal statutory rate

( 12,166,545 )

( 30,743,987 )

( 6,596,424 )

( 8,814,027 )

State taxes, net of Federal Benefit

Allocable loss from investment in P3 LLC

SPAC warrants change in fair-value

Non-controlling interest and nontaxable income

Permanent book to tax differences

Change in valuation allowance

Investment in P3 LLC

Other reconciling items

Effective tax rate

Our tax rate is affected primarily by the recognition of a valuation allowance and the portion of income and expense allocated to the non-controlling interest.

It is also affected by discrete items that may occur in any given year such as benefits from fair value changes in SPAC warrants.

The Company’s tax rate is affected primarily by the recognition of a valuation allowance and the portion of income and expense allocated to the non-controlling interest.

It is also affected by discrete items that may occur in any given year such as benefits from changes in the fair value of private placement and public warrants.

Deferred Income Taxes

Deferred income taxes result from differences in the recognition of amounts for tax and financial reporting purposes, as well as operating loss and tax credit carryforwards.

Significant components of our deferred income tax assets and liabilities are as follows:

Significant components of the Company’s deferred income tax assets and liabilities are as follows:

Deferred tax assets:

2 unchanged sentences

Accrued liabilities

Goodwill and identifiable intangible assets

Section 163j interest limitation

2 unchanged sentences

valuation allowance

( 9,621,431 )

Net deferred tax assets

1 unchanged sentence

Other deferred tax liabilities

Operating lease, right-of-use assets

Goodwill and identifiable intangible assets

( 1,755,897 )

Total deferred tax liabilities

( 1,843,312 )

Net deferred tax asset

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized.

The Company recognizes deferred tax assets to the extent it believes that these assets are more likely than not to be realized.

The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable.

Based on the available evidence during the year ended December 31, 2021, we believe that it is more likely than not that the tax benefits of the U.S.

Based on the available evidence as of December 31, 2022, the Company believes that it is more likely than not that the tax benefits of the U.S.

losses incurred will not be realized.

Accordingly, we have recorded a valuation allowance against the tax benefits of the U.S.

Accordingly, the Company has recorded a valuation allowance against the tax benefits of the U.S.

losses incurred.

We intend to maintain the valuation allowance on the U.S.

The Company intends to maintain the valuation allowance on the U.S.

net deferred tax assets until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance.

The valuation allowance recorded in 2021 was $ 9.6 million.

We have recognized no deferred taxes in connection with the Medcore Acquisition.

Because Medcore does not file a consolidated corporate income tax return with the Company, the deferred tax assets of Medcore are separately assessed for realizability.

Based on the weight of all available evidence, including cumulative losses in recent years, we believe that it is more likely than not that the tax benefits of the deferred tax assets will not be realized.

Accordingly, we have recorded a valuation allowance against the tax benefits of the acquired deferred tax assets.

We have recognized no deferred taxes in connection with the Network VIEs.

The Company has recognized no deferred taxes in connection with the Medcore Acquisition.

Because Medcore HP does not file a consolidated corporate income tax return with the Company, the deferred tax assets of Medcore HP are separately assessed for realizability.

Based on the weight of all available evidence, including cumulative losses in recent years, the Company believes that it is more likely than not that the tax benefits of the deferred tax assets will not be realized.

Accordingly, the Company has recorded a valuation allowance against the tax benefits of the acquired deferred tax assets.

The Company has recognized no deferred taxes in connection with the Network VIEs.

Because the Network VIEs do not file a consolidated corporate income tax return with the Company, the deferred tax assets are separately assessed for realizability.

Accordingly, we have recorded a valuation allowance against the tax benefits of the related deferred tax assets.

The Company has not recognized a deferred tax liability in connection with its investment in P3 LLC due to the deferred tax liability recognition exception contained within ASC 740, in circumstances where book goodwill exceeds tax-deductible of goodwill.

As of December 31, 2021, we had net operating loss carryforwards of approximately $ 31.4 million for federal income tax purposes.

Based on the weight of all available evidence as of December 31, 2022, including cumulative losses in recent years, the Company believes that it is more likely than not that the tax benefits of the deferred tax assets will not be realized.

Accordingly, the Company has recorded a valuation allowance against the tax benefits of the related deferred tax assets.

The Company has not recognized a deferred tax liability in connection with its investment in P3 LLC due to the deferred tax liability recognition exception in circumstances where book goodwill exceeds tax-deductible of goodwill.

As of December 31, 2022, the Company had net operating loss carryforwards of approximately $ 31.4 million for federal income tax purposes.

Federal net operating losses have an unlimited carryforward period but utilization for a given tax year is limited to 80 % of taxable income.

The federal and state net operating loss carryforwards may be subject to limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986 and similar provisions under state law.

The federal and state net operating loss carryforwards may be subject to limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986 (the “Code”) and similar provisions under state law.

The Tax Reform Act of 1986 contains provisions that limit the federal net operating loss carryforwards that may be used in any given year in the event of special occurrences, including significant ownership changes.

We have yet to complete a Section 382 review to determine if our tax attributes will be limited in the future.

However, our federal operating loss carryforwards have an unlimited carryforward life and therefore do not expire.

We will file income tax returns in the U.S.

The Company has yet to complete a Section 382 review to determine if its tax attributes will be limited in the future;

however, the Company’s federal operating loss carryforwards have an unlimited carryforward life and therefore do not expire.

The Company will file income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

3 unchanged sentences

Tax Receivable Agreement

We intend to treat any redemptions and exchanges of P3 LLC units as direct purchases of the units for U.S.

In connection with the Business Combinations, the Company entered into a TRA that provides for the payment by the Company of 85 % of the amount of any tax benefits that are realized, or in some cases are deemed to realize, as a result of (i) increases in the Company’s share of the tax basis in the net assets of P3 LLC resulting from any redemptions or exchanges of P3 LLC, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”).

The Company expects to benefit from the remaining 15 % of any tax benefits that are realized.

Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of P3 LLC when Common Units are redeemed or exchanged.

The Company intends to treat any redemptions and exchanges of Common Units as direct purchases of the units for U.S.

federal income tax purposes.

These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities.

These increases in tax basis may reduce the amounts that the Company would otherwise pay in the future to various tax authorities.

They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent the tax basis is allocated to those capital assets.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the Business Combinations, we entered into a TRA that provides for the payment by us of 85 % of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of P3 LLC resulting from any redemptions or exchanges of P3 LLC, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”).

We expect to benefit from the remaining 15 % of any tax benefits that we may actually realize.

The estimation of liability under the TRA is, by its nature, imprecise and subject to significant assumptions regarding a number of factors, including (but not limited to) the amount and timing of taxable income generated by the Company each year as well as the tax rate then applicable.

As a result of the Business Combinations, the potential future tax benefits are estimated to be $ 5.4 million, of which $ 4.6 million is estimated to be the associated TRA liability.

However, due to the full valuation allowance recorded by the Company, which results in no tax benefits that are to be realized related to the amortization of the step-up, no TRA liability is recorded within the Company’s Consolidated Financial Statements.

As noted above, the Company has no recorded tax benefits associated with the increase in tax basis as a result of the Business Combinations.

As a result, the Company determined that payments to TRA holders are not probable and no TRA liability has been recorded as of December 31, 2021.

As non-controlling interest holders exercise their right to exchange their units in P3 LLC, a TRA liability may be recorded based on 85 % of the estimated future tax benefits that the Company may realize as a result of increases in the tax basis of P3 LLC.

Capitalization and Management Incentive Units

Successor Period

Class A Common Stock

The Company is authorized to issue 800,000,000 shares of Class A common stock with a par value of $ 0.0001 per share, of which 41,578,890 shares were issued and outstanding on December 31, 2021.

Upon closing of the Foresight Business Combinations:

● 8,732,517 shares of Class A common stock were issued as part of the purchase consideration;

● 3,737,316 shares of Class A common stock (after redemptions) were no longer subject to redemption;

● 8,738,750 shares of Class A common stock held by the Founder Holders remained outstanding;

● 20,370,307 shares of Class A common stock were issued in a private placement pursuant to subscription agreements entered into effective as of March 25, 2021 (the “PIPE Investment”).

Class V Common Stock

The Company is authorized to issue 205,000,000 shares of Class V common stock with a par value of $ 0.0001 per share.

These shares have no economic value but entitle the holder to one vote per share.

The holders of Common Units of P3 Health Group, LLC subscribed for shares of Class V common stock on a one -for-one basis and may exchange their Common Units and Class V common stock together for Class A common stock on a one -for-one basis.

All Class V common stock issued as of the Business Combinations date is subject to a 180 day lockup period.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021, there were 196,553,523 shares of Class V common stock issued and outstanding , and an additional 5,471,400 Class V shares which are restricted and subject to time-based vesting requirements related to the underlying incentive units further discussed in Note 19 “Share-Based Compensation”.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $ 0.0001 per share, of which zero shares were outstanding as of December 31, 2021.

P3 Health Group, LLC Common Units

In connection with the Business Combinations, all outstanding Class A Units, Class B Units, Class C Units and Class D Units of P3 Health Group Holdings, LLC were converted into the right to receive the merger consideration, which consisted of cash and newly-issued Common Units of P3 Health Group, LLC.

The Common Units were issued in amounts determined in accordance with the agreement and plan of merger, dated as of May 25, 2021 (as amended), by and among Foresight, P3 Health Group Holdings and FAC Merger Sub LLC, and the then-existing limited liability company agreement of P3 Health Group Holdings, LLC.

Each holder of Common Units was issued shares of Class V common stock on a one-for-one basis.

At December 31, 2021, there were 243,603,813 Common Units outstanding at P3 LLC of which the Company held 41,578,890 Common units and non-controlling interests held the remaining 202,024,923 Common Units outstanding, 5,471,400 of which are restricted as discussed above.

Predecessor Period

Prior to the Business Combinations, P3 Health Group Holdings, LLC’s capital structure consists of Class A Units, which represent commitments from the Company’s private equity sponsors, Class B Units, which represent founders common equity, Class C Units, which represented Management Incentive Units, and Class D Units, which represents an additional investment from a private equity sponsor.

Class A Units

At December 31, 2019, the Company had received total funding commitments from its Class A Unit holders totaling $ 43.0 million.

Class A Units had voting rights and, whether, or not declared or approved by the Board, the holders of Class A Units were entitled to a preferred return in the amount of 8.0 %, per annum (beginning on November 19, 2019).

At December 31, 2020 and 2019, there were 43,000,000 Class A Units authorized and outstanding.

The Class A Units were subject to possible redemption rights and have been classified in mezzanine equity.

At December 31, 2021, there were zero Class A Units authorized and outstanding .

In connection with the Business Combinations, all outstanding Class A Units were converted into the right to receive the merger consideration described above.

Class B Units

Class B Units are those, that were issued to the Company’s Founders.

At December 2, 2021 and December 31, 2020 and 2019, there were 19,701,492 Class B Units authorized.

At December 31, 2021, there were zero Class B Units outstanding.

At December 2, 2021 and December 31, 2020 and 2019, there were 19,701,492 Class B Units outstanding.

Class B Units are subdivided among three tranches:

Subclass B-1;

Subclass B-2;

and Subclass B-3.

Each Subclass is described below:

● Subclass B-1 ( 10,000,000 Units):

Subclass B-1 Units were entirely service based (Time-based).

20 % of Subclass B-1 Units vested each year beginning on April 20, 2018 and annually thereafter until April 20, 2022.

Subclass B-1 Units very closely resemble Class C Time-based Profits Interest(s) Units.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

● Subclass B-2 ( 4,054,054 ):

Subclass B-2 Units were entirely Performance-based.

100 % of Subclass B-2 Units would vest immediately prior to and conditioned upon the occurrence of a Sale of the Company in which the Company’s EBITDA as of the date of such Sale of the Company is at least $ 20 million or net proceeds distributable among the Members from such Sale of the Company are at least $ 200 million.

● Subclass B-3 ( 5,647,438 ):

Subclass B-3 Units were entirely performance-based.

100 % of Subclass B-3 Units would vest immediately prior to and conditioned upon the occurrence of a Sale of the Company in which the Company’s EBITDA as of the date of such Sale of the Company is at least $ 30 million or net proceeds distributable among the members from such Sale of the Company are at least $ 300 million.

Of this 19,701,492 , there were 17,701,492 , 6,000,000 and 4,000,000 Subclass B-1 Units vested as of December 2, 2021 and December 31, 2020 and 2019, respectively.

Only vested units are presented in the consolidated statements of changes in members’ deficit.

As of December 31, 2020, 4,000,000 Subclass B-1 Units remained unvested.

In connection with the Business Combinations, all outstanding Class B Units were converted into the right to receive the merger consideration described above.

See Note 19 “Share-Based Compensation.”

Class C Units

P3 Health Group Holdings, LLC maintained a Management Incentive Plan (the “Plan”), which provides for the grant of service-based and performance-based Class C Units to board managers and key employees.

Subject to adjustment, a maximum aggregate of 6,845,297 Class C Units have been authorized for issuance under the Plan.

Class C Units were governed by the terms of the Plan, the terms of the award agreement documenting the grant and the Limited Liability Company agreement of P3 Health Group Holdings, LLC (the “LLC Agreement”).

Class C Units were intended to qualify as “Profits Interests” for Federal income tax purposes.

Service-based Class C Units generally vested, except as otherwise approved by P3 Health Group Holdings, LLC’s Board, over a period of four to five years , with ratable vesting each year following twelve months of continued employment or service with the balance vesting in equal annual installments over the remaining and required service period, provided the grantee continues to be employed by, or provide service to, P3 Health Group Holdings, LLC and be employed on the applicable vesting anniversary date.

Performance-based Class C Units would vest upon the Company’s attainment of certain Board-established milestones (thresholds).

Board-established milestones were grant specific and set on the date of each Class C Unit grant.

P3 Health Group Holdings, LLC Board had the right to accelerate the vesting of any Class C incentive units granted under the Plan at such times and upon such terms and conditions as may be deemed advisable, for which any determination could be made on a grant-specific basis.

As of December 2, 2021 and December 31, 2020, and 2019, the number of Class C Units issued were 5,235,833 (of which 1,962,500 were vested), 5,420,833 (of which, 1,302,083 were vested) and 4,070,833 (of which 1,058,333 were vested), respectively, and only the vested units are presented in the consolidated statements of changes in members’ deficit.

In connection with the Business Combinations, all outstanding Class C Units were converted into the right to receive the merger consideration described above.

See Note 19 “Share-Based Compensation.”

Class D Units Subject to Possible Redemption

On November 14, 2019, P3 Health Group Holdings, LLC received $ 50.0 million in funding from Hudson Vegas Investment, SPV, LLC, an investment vehicle of The Straus Group (“Straus”) per the unit purchase agreement executed between the parties.

P3 Health Group Holdings, LLC issued Straus 16,130,034 of Class D Units.

Class D Units have voting rights and, accrue a preferred return in the amount of 8.0 %, per annum.

Of the $ 50.0 million received from Straus, the Company utilized $ 16,752,354 to settle outstanding bridge loans, plus accrued interest and $ 2,958,446 to

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

settle transaction closing costs related to Class D Units.

These transaction closing costs were netted against the $ 50.0 million in proceeds raised.

There were 16,130,034 Class D Units authorized and outstanding as of December 31, 2020 and 2019.

Class D units contained a provision whereby at any time after November 4, 2024, the holders of Class D Units could exercise a right that would require the Company to redeem their outstanding units for cash, if certain conditions related to a sale of the Company are not met.

Upon exercise of this right, the Company would be required to redeem all the then outstanding Class D units at a price equal to the amount of proceeds that otherwise would have been received in a sale transaction.

In accordance ASC 480-10-S99, Distinguishing Liabilities from Equity (“ASC 480”), redemption provisions not solely within the control of the Company require the associated equity instruments to be classified outside of permanent equity.

As such, the Class D units have been presented outside of permanent equity.

The Company has concluded it is not probable that the conditional redemption feature will be exercised, as significant uncertainties exist that indicate the redemption will not occur;

therefore, Class D shares are recorded at initial fair value.

Prior to the Business Combinations, distributions to the unitholders of P3 Health Group Holdings, LLC were made according to the following priority:

● First, to Class D Unitholders in proportion to their unreturned contribution amounts and until each Class D Member’s unreturned contribution amount is reduced to zero.

● Second, to Class A Unitholders in proportion to their unreturned contribution amount and until each Class A Member’s unreturned contribution amount is reduced to zero.

● Third, to Class A and Class D Unitholders in proportion to their respective unpaid preferred return balances have been reduced to zero;

● Thereafter, any remaining amounts to holders of all vested units, in proportion to their number of vested units.

In connection with the Business Combinations, all outstanding Class D Units were converted into the right to receive the merger consideration described above.

Share-Based Compensation

Successor Company

Successor Awards

In connection with the Business Combinations, Foresight’s Board of Directors adopted, and its stockholders approved, the 2021 Incentive Award Plan (the “2021 Plan”), in order to facilitate the grant of cash and equity incentives to employees, consultants, and directors of the Company and certain affiliates.

The 2021 Plan became effective on December 3, 2021.

As of December 31, 2021, the Successor Company did not issue any awards under the 2021 Plan, as the only shares outstanding at year-end are the unvested awards which were replaced with the Class V shares and

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Common Units.

The following table sets forth a summary of Class V share-based compensation activity of the Successor Company:

Outstanding and non-vested at December 3, 2021

Granted on December 3, 2021 1

Granted during period

Cancelled/forfeited

Outstanding and non-vested at December 31, 2021

1 Represents predecessor profit interest awards which were replaced with Class V awards on the Merger Date.

Predecessor Company

The estimation of liability under the TRA is, by its nature, imprecise and subject to significant assumptions regarding a number of factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable, among other factors.

The payment obligation under the TRA is an obligation of the Company and not of P3 LLC.

The payments that the Company will be required to make will generally reduce the amount of the overall cash flow that might have otherwise been available, but the Company expects the cash tax savings realized from the utilization of the related tax benefits will exceed the amount of any required payments.

As of December 31, 2022 and 2021, the TRA liability is estimated to be $ 4.6 million;

however, due to the full valuation allowance recorded by the Company, which results in no tax benefits that are to be realized related to the amortization of the step-up, the Company determined that payments to TRA holders are not probable and no TRA liability has been recorded as of December 31, 2022 and 2021.

As non-controlling interest holders exercise their right to exchange their Common Units, a TRA liability may be recorded based on 85 % of the estimated future tax benefits that the Company may realize as a result of increases in its tax basis of P3 LLC.

The amount of the increase in the tax basis, the related estimated tax benefits, and the related TRA liability to be recorded will depend on the price of a share of the Company’s Class A common stock at the time of the relevant redemption or exchange.

Capitalization

As of December 31, 2022, under the Company’s amended and restated certificate of incorporation dated August 20, 2020, the Company is authorized to issue:

(i) 800,000,000 shares of Class A common stock with a par value of $ 0.0001 per share, (ii) 205,000,000 shares of Class V common stock with a par value of $ 0.0001 per share, and (iii) 10,000,000 shares of preferred stock with a par value of $ 0.0001 per share, of which no shares were issued or outstanding as of December 31, 2022 and 2021.

Holders of shares of Class A common stock and Class V common stock are each entitled to one vote on all matters to be voted upon by stockholders.

The declaration, amount, and payment of any future dividends on shares of Class A common stock will be at the discretion of the Company’s Board of Directors and will depend upon many factors, including the Company’s results of operations, financial condition, capital requirements, restrictions in its debt agreements, and other factors that the Company’s Board of Directors deems relevant.

Holders of shares of Class A common stock are entitled to receive such dividends declared by the Company’s Board of Directors.

Holders of shares of Class V common stock are not entitled to participate in any such dividends declared by the Company’s Board of Directors.

The Company’s Board of Directors has not declared any cash dividends during the year ended December 31, 2022, the Successor Period of 2021, or the Predecessor Period of 2021.

Equity-Based Compensation

Predecessor Awards

1 unchanged sentence

Under the Predecessor Equity Plan, the Predecessor Company granted awards in the form of profits interests to employees, officers, and directors or in the form of common equity to founders.

The Predecessor Plan was administered by the Board of Directors which had full power and authority to select the participants to whom awards were granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award, and to determine the specific terms and conditions of each award, subject to the provisions of the Predecessor Equity Plan.

Following the Business Combinations and the effectiveness of the 2021 Plan, the Predecessor Equity Plan terminated and no further awards will be made under the Predecessor Equity Plan.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Class C Units

The Predecessor Equity Plan was administered by the Predecessor Company’s board of managers which had full power and authority to select the participants to whom awards were granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award, and to determine the specific terms and conditions of each award, subject to the provisions of the Predecessor Equity Plan.

Following the Business Combinations, the Predecessor Equity Plan was terminated.

Under the Predecessor Equity Plan, 6,845,297 Class C units were authorized and 5,235,833 were issued to non-employee directors and officers as of December 2, 2021.

Time-based Class C units generally vested over a period of four to five years if the grantee continues to be employed by, or provide services to, the Predecessor Company.

Time-based Class C units generally vested over a period of four to five years .

The Class C units were equity-classified awards.

Vesting of performance-based Class C units was based on the Predecessor Company’s achievement of specified performance hurdles, which were established by the Board of Directors and differ on an individual award-by-award basis.

The performance hurdles were based on an achievement of specified returns, the range of which vary on an individual award-by-award basis, upon a change of control or an IPO.

Since such a qualifying event was not probable of occurring until it is consummated, the Predecessor Company did not recognize any compensation cost related to performance-based Class C units until the Business Combinations were completed.

The following tables set forth a summary of Class C profits interest activity of the Predecessor Company:

Outstanding and non-vested at December 31, 2018

Cancelled/forfeited

Outstanding and non-vested at December 31, 2019

Cancelled/forfeited

Outstanding and non-vested at December 31, 2020

Cancelled/forfeited

Outstanding and non-vested at December 2, 2021

Business Combination

On December 3, 2021, in connection with the Business Combinations, each Incentive Unit that was outstanding immediately prior to the effective time of the Business Combinations and that was vested (after taking into account any accelerated vesting that occurred in connection with the Business Combinations) was canceled and converted into the right to receive a portion of the merger consideration, which consisted of Common Units of P3 LLC and cash.

Each outstanding Incentive Unit that was subject to time-based vesting, but had not vested immediately prior to the effective time of the Business Combinations, was converted into the right to receive a portion of the merger consideration, which merger consideration remained subject to the original vesting conditions.

Pursuant to action taken by the Board of Directors in connection with the closing of the Business Combinations, all of the time-vesting Incentive Units held by two executive officers that were not vested were accelerated such that all of the merger consideration received by these executive officers was not subject to any vesting restrictions, which resulted in an acceleration of compensation cost of $ 2,419,678 recognized by the Predecessor Company.

In total, 5,471,400 Common Units were issued in respect of unvested time-based Incentive Units held by directors, executive officers or employees, which were paired with an equal number of unvested Class V shares and remained subject to the original vesting restrictions.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain of the performance-based Incentive Units issued to directors, executive officers and employees vested on December 3, 2021 to the extent a qualifying event was consummated and the applicable performance hurdles were achieved upon consummation of the Business Combinations, and were converted into the right to receive a portion of the merger consideration.

To the extent not vested upon the consummation of the Business Combinations on December 3, 2021, each unvested performance-based Incentive Unit was forfeited without consideration.

Each P3 LLC Unit received as merger consideration was paired with a share of Class V common stock issued in the Successor Company.

The acquisition date fair value of the unvested profits interests attributable to post-combination services was $ 23,999,330 which will be expensed over the relevant vesting period by the Successor Company.

The acquisition date fair value of the unvested profits interest attributable to pre-combination services was $ 26,313,476 and was included in consideration transferred in connection with the Business Combinations.

Valuation of Equity-Based Awards

The Black-Scholes-Merton option pricing model was used in both the Successor Period and Predecessor Period to value equity-based awards and determine the related compensation cost.

The following table illustrates assumptions used to value all classes of awards granted for the periods indicated:

at Grant Date

The table above assumed the risk-free interest rate estimate was based on constant maturity, which is the theoretical value of a U.S.

Treasury that is based on recent values of auctioned U.S.

The expected dividend yield was based on our expectation of not paying dividends in the foreseeable future.

We calculated the expected term primarily based upon the estimated time to a liquidation event.

We used company-specific historical information, guideline company information, and implied volatility information to generate the volatility assumptions.

Vesting of performance-based Class C units was based on the Predecessor Company’s achievement of specified performance hurdles established by the Predecessor Company’s board of managers, such as the achievement of specified returns (the range of which varied on an individual award-by-award basis), a change of control, or an initial public offering.

Since such a qualifying event was not probable of occurring until it was consummated, the Predecessor Company did not recognize any compensation cost related to performance-based Class C units until the Business Combinations were completed.

On the Closing Date, each Incentive Unit that was outstanding immediately prior to the effective time of the Business Combinations and vested (after taking into account any accelerated vesting that occurred in connection with the Business Combinations) was canceled and converted into the right to receive a portion of the merger consideration, which consisted of Common Units and cash.

Additionally, the vesting of Incentive Units totaling 4,319,964 held by two executive officers was accelerated such that all of the merger consideration received by these executive officers was not subject to any vesting restrictions, which resulted in an acceleration of equity-based compensation cost of $ 2.4 million recognized by the Predecessor Company.

Certain of the performance-based Incentive Units issued to directors, executive officers, and employees vested on the Closing Date to the extent the applicable performance hurdles were achieved, and were converted into the right to receive a portion of the merger consideration.

To the extent not vested on the Closing Date, each unvested performance-based Incentive Unit was forfeited without consideration.

Each Common Unit received as merger consideration was paired with a share of Class V common stock issued in the Successor Company.

The acquisition date fair value of the unvested profits interests attributable to post-combination services was $ 24.0 million which will be expensed over the relevant vesting period by the Successor Company.

The acquisition date fair value of the unvested profits interest attributable to pre-combination services was $ 26.3 million and was included in consideration transferred in connection with the Business Combinations.

Successor Awards

In connection with the Closing, unvested Incentive Units granted under the Predecessor Equity Plan totaling 587,500 were converted into 5,471,400 Common Units, which were paired with an equal number of shares of the Company’s Class V common stock, and remained subject to the original vesting conditions.

If a forfeiture of unvested Common Units occurs, the associated shares of Class V common stock are also forfeited.

The following summarizes Common Unit award activity for the year ended December 31, 2022:

(in thousands)

Non-vested at December 31, 2021

Non-vested at December 31, 2022

Total fair value of Common Unit awards vested during the year ended December 31, 2022 was $ 17.6 million.

There were no Common Unit awards vested during the Successor Period of 2021.

The weighted-average grant date fair value for Common Unit awards granted during the Successor Period of 2021 was $ 9.20 per award.

The Common Unit awards vest ratably over a period between one month and two years , so long as the grantee stays employed.

As of December 31, 2022, there was $ 1.1 million of unrecognized equity-based compensation cost related to all unvested Common Unit awards, which is expected to be recognized over a weighted-average period of 0.95 years.

In connection with the Business Combinations, the Company’s Board of Directors adopted, and its stockholders approved, the 2021 Incentive Award Plan (the “2021 Plan”), effective on its adoption date, in order to facilitate the grant of cash and equity incentives to employees, consultants, and directors of the Company and certain affiliates.

The 2021 Plan provides that the initial aggregate number of shares reserved and available for issuance is 14.6 million plus an increase each January 1, beginning on January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (i) 1 % of the aggregate number of shares of Class A common stock and Class V common stock outstanding on the final day of the immediately preceding quarter and (ii) such smaller number of shares of Class A common stock as is determined by the Company’s Board of Directors.

The 2021 Plan allows for the grant of (i) stock options, including incentive stock options, (ii) stock appreciation rights, (iii) restricted stock awards, (iv) restricted stock unit awards, or (v) other stock or cash based awards as may be determined by the plan’s administrator from time to time.

The term of each option award shall be no more than 10 years from the date of grant.

Options exercised under the 2021 Plan provide the purchaser with full rights equivalent to those of existing Class A common stockholders and holders as of the date of exercise.

The Company’s policy for issuing shares upon stock option exercise is to issue new shares of Class A common stock.

Additionally, the P3 LLC operating agreement states that P3 LLC will maintain at all times a one -to-one ratio between the number of Common Units owned by the Company and the number of outstanding shares of Class A common stock, including those issued as result of stock option exercises and vesting of restricted stock unit awards.

The 2021 Plan also provides for dividend equivalent units based on the value of the dividends per share paid on the Company’s Class A common stock, which are accumulated on restricted stock units during the vesting period.

The following table summarizes time-based stock option activity for the year ended December 31, 2022:

Stock Options

(in thousands)

Outstanding at December 31, 2021

Outstanding at December 31, 2022

Fully vested and expected to vest at December 31, 2022

Exercisable at December 31, 2022

The following table summarizes performance-based stock option activity for the year ended December 31, 2022:

Stock Options

(in thousands)

Outstanding at December 31, 2021

Outstanding at December 31, 2022

Fully vested and expected to vest at December 31, 2022

Exercisable at December 31, 2022

The vesting criteria for 0.1 million performance-based stock option awards has not yet been achieved;

therefore, no expense has been recorded.

There were no stock options granted, exercised , or vested during the Successor Period of 2021.

The weighted average assumptions used in estimating the grant date fair value of stock options are listed in the table below:

Expected volatility

Risk-free interest rate

Expected term (in years)

Dividend rate

Time-based stock options vest ratably over a period between two and five years , so long as the optionee continues to provide services to the Company.

As of December 31, 2022, there was $ 7.2 million and $ 5.3 million of unrecognized equity-based compensation cost related to time-based and performance-based stock options, respectively, which is expected to be recognized over a weighted-average period of 3.66 years and 9.83 years, respectively.

Compensation Expense

Compensation costs during the periods indicated below are as follows:

December 3, 2021

January 1, 2021

through December 31,

through December 2,

Grant date fair value of profits interests - time-based

Profits interest compensation cost - time-based

Grant date fair value of profits interests - performance-based

Profits interest compensation cost - performance based

The Company accounts for forfeitures of awards as they occur.

As of December 31, 2021, and December 31, 2020, there was $ 19,364,188 and $ 1,198,550 , respectively, of unrecognized equity-based compensation cost.

The cost related to the time-based awards is expected to be recognized over a weighted-average period of 0.48 years.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company did no t recognize any tax benefits related to stock-based compensation for the Successor Period ended December 31, 2021, the Predecessor Period ended December 2, 2021, and the Predecessor years ended December 31, 2020 and 2019.

Earnings (Loss) per Share

Loss per Share – Successor Period

The following table provides the computation of net loss per share and weighted average shares of the Company’s common stock outstanding during the periods presented:

Equity-based compensation recorded within corporate, general and administrative expense on the consolidated statements of operations was $ 19.4 million, $ 4.6 million, and $ 3.5 million during the year ended December 31, 2022, the Successor Period of 2021, and the Predecessor Period of 2021, respectively.

The Company did no t recognize any tax benefits related to equity-based compensation for the year ended December 31, 2022, the Successor Period of 2021, and the Predecessor Period of 2021.

Loss per Share

The following table provides the computation of basic and diluted net loss per share:

December 3, 2021

through December 31,

( 57,937,929 )

Loss Attributable to Non-controlling Interest

( 47,856,729 )

Net Loss Attributable to Class A Common Stockholders - Basic and Diluted EPS

( 10,081,200 )

Weighted Average Class A Common Shares Outstanding - Basic and Diluted EPS

Loss per Share Attributable to Class A Common Shareholders - Basic and Diluted

Net loss attributable to Class A common stockholders-basic and diluted

Weighted average Class A common shares outstanding-basic and diluted

Loss per share attributable to Class A common stockholders-basic and diluted

Shares of Class V common stock do not share in the earnings or losses of P3 Health Partners, Inc.

and are therefore not participating securities.

As such, separate presentation of basic and diluted net income per share for Class V common stock under the two-class method is not required.

The following table presents potentially dilutive securities excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive.

The liability-classified Public and Private Warrants are out of the money and thus have no impact on diluted EPS.

Additionally, the Company considered the potential conversion of the 196,553,523 shares Class V common stock as potentially dilutive securities.

However, net loss has already been allocated to the non-controlling interests in P3 LLC who hold all of the Class V common stock.

Therefore, the inclusion of the Class V common stock on an if-converted basis would not impact the diluted EPS calculation and these shares have been excluded from the table below.

December 3, 2021

through December 31,

Public Warrants

Private Warrants

Restricted Shares

Premium Deficiency Reserve

We assess the profitability of our at-risk share savings arrangements to identify contracts where current operating results or forecasts indicate probable future losses.

If anticipated future variable costs exceed anticipated future revenues, a premium deficiency reserve is recognized.

No premium deficiency reserves were recorded as of December 31, 2020 given the maturing of these health plans.

Management concluded a PDR of $ 37,835,642 existed at December 31, 2021, which represented its estimate of probable contract losses expected to be generated by the Company’s health plans.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company leases real estate in the form of corporate office space and operating facilities.

The Company additionally leases certain machinery in the form of office equipment.

Generally, the term for real estate leases ranges from one to eight years at inception of the contract.

Generally, the term for equipment leases is one to three years at inception of the contract.

Some real estate leases include one to two options to renew that can extend the original term by five to ten years .

Operating lease costs are included within operating expenses on the consolidated statements of operations.

The Company does not have any finance leases, short-term lease costs nor any sublease income.

December 3, 2021

January 1, 2021

through December 31,

through December 2,

Operating Lease Costs

Lease terms and discount rates consisted of the following at each of the periods presented below:

Year Ending December 31,

Stock warrants (1)

Stock options (1)

Shares of Class V common stock (2)

(1) Represents the number of instruments outstanding at the end of the period.

Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted net loss per share

(2) Shares of Class V common stock at the end of the period, including shares tied to unvested Common Units, are considered potentially dilutive shares of Class A common stock under application of the if-converted method.

The Company leases real estate, in the form of corporate office space and operating facilities, and certain office equipment.

The Company’s real estate leases have noncancelable terms expiring in 2023 to 2032, certain of which have one to two renewal options of five to 10 years .

The Company’s equipment leases have noncancelable terms expiring in 2025 to 2027.

Operating lease right-of-use assets of $ 11.7 million and $ 7.0 million were included within other long-term assets on the Company’s consolidated balance sheets as of December 31, 2022 and 2021, respectively.

Operating lease costs are included within operating expenses on the consolidated statements of operations and were $ 3.1 million, $ 0.3 million, and $ 2.3 million for the year ended December 31, 2022, the Successor Period of 2021, and the Predecessor Period of 2021, respectively.

Lease terms and discount rates consisted of the following as of:

Weighted average remaining lease term (years)

Weighted average discount rate

* All Leases are Operating

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liability recognized on the consolidated balance sheets as of the dates presented.

Maturities of operating lease liabilities as of December 31, 2022 are as follows:

Year Ending December 31,

Total Payments for Operating Leases

( 2,744,830 )

Total undiscounted future cash flows

Present value of operating lease liabilities

The current portions of ROU liabilities of $ 2,087,235 and $ 2,174,095 are included in Accounts Payable and Accrued Expenses in the Company’s consolidated balance sheets as of December 31, 2021 and December 31, 2020, respectively.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash flows and other information related to leases for each of the periods ending December 31:

The current portions of right-of-use liabilities of $ 1.6 million and $ 2.1 million are included in accrued expenses and other current liabilities in the Company’s consolidated balance sheets as of December 31, 2022 and 2021, respectively.

Supplemental cash flows and other information related to leases are as follows:

December 3, 2021

2 unchanged sentences

through December 2,

New Assets Obtained in Exchange for Operating Lease Liabilities

Operating cash flows paid for operating leases

As of December 31, 2022, the Company had entered into an office space lease resulting in an aggregate lease commitment of $ 0.6 million during the five-year lease term, which commences on February 1, 2023.

Retirement Plan

2 unchanged sentences

At its discretion, the Company can make a matching contribution to the 401(k) Plan.

The Company did no t make any contributions to the 401(k) Plan in the Successor Period of 2021, and the Predecessor Periods of 2021, 2020 and 2019.

Redeemable Non-Controlling Interests

Non-controlling interests represents the portion of P3 LLC that the Company controls and consolidates but does not own (i.e., the P3 LLC Common Units held directly by the shareholders other than the Company).

The non-controlling interests represent approximately 83 % ownership in P3 LLC as of December 3, 2021.

Generally, P3 LLC Common Units participate in net income or loss allocations and distributions and entitle their holder to the right, subject to the terms set forth in the limited liability agreement, to require P3 to redeem all or a portion of the Common Units held by such participant, together with a corresponding number of shares of Class V Common Stock, in exchange for Class A Common Stock or at the Company’s option, and subject to certain limitations, in cash.

As the non-controlling interest holders have an approximately 83 % voting interest in the Company through their Class V Common Stock and have appointed most of the initial members to the Board of Directors, the ability to elect cash settlement upon redemption is outside of the control of the Company.

The P3 LLC Common Units held by outside shareholders have been classified as redeemable non-controlling interest in the Company.

The cash redemption feature is considered outside of the control of the Company for the reason described above.

Therefore, in accordance with ASC Topic 480, Distinguishing Liabilities from Equity , the P3 LLC Units are classified as temporary equity in the Company’s consolidated balance sheet.

The Company recognized expense related to its contributions to the 401(k) Plan of $ 0.8 million during the year ended December 31, 2022.

The Company did no t make any contributions to the 401(k) Plan in the Successor Period of 2021 and the Predecessor Period of 2021.

Redeemable Non-controlling Interest

Non-controlling interest represents the portion of P3 LLC that the Company controls and consolidates but does not own (i.e., the Common Units held directly by equityholders other than the Company).

The ownership of the Common Units is summarized as follows:

December 31, 2022

December 31, 2021

P3 Health Partners Inc.’s ownership of Common Units

Non-controlling interest holders’ ownership of Common Units

Total Common Units

Common Units participate in net income or loss allocations and distributions and entitle their holder to the right, subject to the terms set forth in the limited liability company agreement, to require the Company to redeem all or a portion of the Common Units held by such participant, together with a corresponding number of shares of Class V common stock, in exchange for Class A common stock or at the Company’s option, and subject to certain limitations, in cash.

As the non-controlling interest holders had an approximate 83 % voting interest in the Company through their Class V common stock as of the Closing Date and appointed most of the initial members to the Board of Directors, the ability to elect cash settlement upon redemption is outside of the control of the Company.

As a result, the Common Units held by outside shareholders have been classified as redeemable non-controlling interest and presented as temporary equity in the Company’s consolidated balance sheets.

The redeemable non-controlling interest was initially measured at its fair value on December 3, 2021.

Net income or loss is attributed to the redeemable non-controlling interest during each reporting period based on its ownership percentage, as appropriate.

Subsequent to that, the redeemable non-controlling interest is measured at its fair value (i.e., based on the Class A stock price) at the end of each reporting period, with the remeasurement amount being no less than the initial value, as adjusted for the redeemable non-controlling interest’s share of net income or loss.

Net income or loss is attributed to the redeemable non-controlling interest during each reporting period based on a daily weighted average ownership percentage.

In subsequent periods, the redeemable non-controlling interest is measured at its fair value (i.e., based on the five-day volume-weighted average price of a share of Class A common stock) at the end of each reporting period, with the remeasurement amount being no less than the initial value, as adjusted for the redeemable non-controlling interest’s share of net income or loss and ownership changes.

The offset of any fair value adjustment is recorded to equity, with no impact to net income or loss.

As of December 31, 2021, the fair value of redeemable non-controlling interest is lower than the initial value, as such, there was no remeasurement adjustment recorded.

In addition, pursuant to the Agreement and Plan of Merger, all non-controlling interest holders are subject to certain lock-up period and as a result, there was no exchange or redemption activity as of December 31, 2021.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021, there was no remeasurement adjustment recorded as the fair value of redeemable non-controlling interest was lower than the initial value.

There was no Common Unit exchange or redemption activity during the year ended December 31, 2022 or Successor Period of 2021.

Segment Reporting

The Company organizes its operations into one reportable segment.

The Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), reviews financial information and makes decisions about resource allocation based on the Company’s responsibility to deliver high quality primary medical care services to its patient population.

For the periods presented, all the Company’s revenues were earned in the United States.

Likewise, all the Company’s long-lived assets were in the United States.

The Company’s operations are organized under a single reportable segment.

The Chief Executive Officer, who is the Company’s CODM, manages the Company’s operations and reviews financial information on a consolidated basis.

Decisions regarding resource allocation and assessment of profitability are based on the Company’s responsibility to deliver high quality primary medical care services to its patient population.

For the periods presented, all the Company’s revenue was earned in the United States.

Likewise, all the Company’s long-lived assets were located in the United States.

Commitments and Contingencies

1 unchanged sentence

The Company carries general and professional liability insurance coverage to mitigate the Company’s risk of potential loss in such cases.

An accrual is established when a specific contingency is probable and estimable.

The Company also faces contingencies that are reasonably possible to occur that cannot currently be estimated.

The Company believes that disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, net loss or cash flows.

It is the Company’s policy to expense costs associated with loss contingencies, including any related legal fees, as they are incurred.

In the fourth quarter of 2021, a discrepancy was identified in the service agreement with one of the Company’s health plans resulting in a renegotiation of the agreement.

As of the date of the filing of this Annual Report on Form 10-K, the renegotiation was in process.

The Company has determined it is probable that resolution of this discrepancy will result in an additional payment to the health plan of approximately $ 10.6 million.

This contingent liability is reflected in the Company’s financial statements presented in this Annual Report on Form 10-K.

In the Predecessor Period of 2021, the Company recorded a $ 3.6 million reduction in operating revenue and a $ 7.0 million charge to operating expense to account for amounts not previously recorded.

In 2021, a discrepancy was identified in the service agreement with one of the Company’s health plans resulting in a renegotiation of the agreement.

In the Predecessor Period of 2021, the Company recorded a $ 3.6 million reduction in operating revenue and a $ 7.0 million charge to operating expense to account for a probable settlement of $ 11.7 million within health plan settlements payable as of December 31, 2021.

In January 2023, the renegotiation was settled and the Company recorded a $ 3.6 million increase in operating revenue and a $ 3.1 million reduction in operating expense during the year ended December 31, 2022 to reflect the known settlement of $ 5.0 million within health plan settlements payable as of December 31, 2022.

Uncertainties

9 unchanged sentences

As a result, the Company’s consolidated financial position could be impacted by such changes.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COVID-19 Pandemic

7 unchanged sentences

COVID-19 disproportionately impacts older adults, especially those with chronic illnesses, which describes many of the Company’s patients.

The COVID-19 pandemic did not have a material impact on the Company’s revenues as of year ended December 31, 2021.

Nearly 97 % of the Company’s total revenues are recurring, consisting of fixed monthly PMPM capitation payments received from Medicare Advantage health plans.

Based on claims paid to date, direct costs associated with COVID-19 claims was approximately $ 67.4 million for the period March 1, 2020 through December 31, 2021.

The COVID-19 pandemic did not have a material impact on the Company’s revenue for the years ended December 31, 2022 and 2021.

Nearly 99 % of the Company’s total revenue is recurring, consisting of fixed monthly PMPM capitation payments received from Medicare Advantage health plans.

Management instituted multiple safety measures for the Company’s employees including a work-from-home policy and access to free vaccinations and personal protective equipment.

6 unchanged sentences

Related Parties

Intercompany Transactions

BACC entered an agreement (“Services Agreement”) with P3-NV, collectively the “Parties”, under which P3-NV provides BACC with certain management, administrative, and other non-medical support services in connection with BACC’s medical practice.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company and its subsidiaries have “Deficit Funding Agreements” with the Network, whereby the Company or its subsidiaries provide loans (“Advances”) from time to time principally for the purpose of working capital support.

Interest accrues monthly on each Advance from the date of disbursement.

Net Advances made to the Network and accrued interest expense were as follows:

December 3, 2021

January 1, 2021

through December 31,

through December 2,

December 31, 2020

(As Restated)

Balance at Beginning of Period

Advanced During Period

Interest Accrued During period

Balance at End of Period

Advances, in most cases, have been constructively made by P3 Health Group Holdings, LLC on P3-NV’s behalf, and were therefore deemed Advances made by P3-NV.

P3-NV’s Advances to BACC include all years prior, for which balances have, historically, not been settled periodically between the Parties and, thus have carried forward one year to the next.

All transactions related to these Services and Deficit Funding Agreements (including accrued interest) have been eliminated in consolidation.

There were no advances transacted between P3-NV and KWA during 2021 or 2020.

Atrio Health Plans

Chicago Pacific Founders (“CPF”), a principal equity holder of P3 LLC, has an equity investment in Atrio Health Plans (“Atrio”).

The Company has a full-risk capitation agreement in place with Atrio whereby the Company is delegated to perform services on behalf of Atrio’s members assigned to the Company.

These delegated services include but are not limited to provider network credentialing, patient authorizations, and medical management (care management, quality management and utilization management).

The following tables summarize the Company’s transactions with Atrio:

December 3, 2021

2 unchanged sentences

through December 2,

Revenue Earned from Capitation

Management Fees

Atrio Health Plans was established in 2004 and has since grown to serve Medicare beneficiaries in numerous counties throughout Oregon.

Atrio works closely with local providers to improve healthcare outcomes of the population(s) served.

In 2019, Chicago Pacific Founders (“CPF”) made an equity investment in Atrio.

CPF is also a principal holder of shares of Class V common stock and Common Units of P3 LLC.

Beginning in 2020, the Company has a Full-Risk capitation agreement in place with Atrio whereby the Company is delegated to perform services on behalf of Atrio’s members assigned to the Company.

These delegated services include but are not limited to provider network credentialing, patient authorizations and medical management (care management, quality management and utilization management).

Capitated revenue

Other patient service revenue

Medical expenses

Health plan receivables

Claims payable

Health plan settlements payable

Unsecured Promissory Note

As described in Note 12, in December 2022, the Company issued an Unsecured Promissory Note to VGS, an entity managed by CPF and whose equity holders consist of two members of the Company’s Board of Directors and the Company’s Chief Executive Officer and Chief Medical Officer, among others.

The following tables summarize the Company’s transactions with VGS:

Interest expense, net

December 31, 2022

Long-term debt, net

Accrued interest

Accrued expenses

Variable Interest Entities

The Company prepares its consolidated financial statements in accordance with ASC 810 which provides for the consolidation of VIEs of which an entity is the primary beneficiary.

In connection with the Business Combinations further described in Note 1, the Company became the sole managing member of P3 LLC.

The rights of the non-managing members of P3 LLC are limited and protective in nature and do not give substantive participation rights over the sole managing member.

As a result, P3 LLC is considered a VIE.

As the sole managing member, the Company has the right to direct the most significant activities of P3 LLC and the obligation to absorb losses and receive benefits and accordingly is considered the primary beneficiary.

Since P3 LLC represents substantially all the assets and liabilities of the Company, the numbers and language below refer to only VIEs held at the P3 LLC level.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Additionally, P3 LLC is the primary beneficiary of the Network.

P3, LLC entered Stock Transfer Restriction Agreements with the Practice Shareholders of the Network.

The Stock Transfer Restriction Agreements, by way of a call option, unequivocally permit P3 LLC to appoint Successor Physicians if a Practice Shareholder vacates their ownership position.

Pursuant to ASC 810 both the “power of control” and “economics” criteria were reviewed for VIE consideration.

P3 LLC’s ability to appoint Successor Physicians to the Network demonstrates “power of control”.

Also, there are Deficit Funding Agreements in place between P3 LLC and the Network.

The Deficit Funding Agreement between P3 LLC and the members of the Network states that P3 LLC will advance funds, as needed, to support working capital needs to the extent operating expenses exceed gross revenue.

These funding arrangements further illustrate and fulfill the economic criteria for VIE consolidation.

Practice Shareholders, who are employees of the Company, retain equity ownership in the Network, which represents nominal non-controlling interests.

The non-controlling interests do not participate in the profit or loss of the Network, however.

P3 LLC has Management Services Agreements (“MSAs”) and deficit funding agreements with the Network.

The MSAs provide that the P3 LLC 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, P3 LLC is obligated to advance funds, as needed, to support the Network’s working capital needs to the extent operating expenses exceed gross revenue.

These advances accrue interest at a rate of prime plus 2 %.

Net advances made to the Network and accrued interest on those advances are presented within due to consolidated entities of P3 in the table below.

Additionally, P3 LLC entered into stock transfer restriction agreements with the practice shareholders of the Network, which, by way of a call option, unequivocally permit P3 LLC to appoint successor physicians if a practice shareholder vacates their ownership position.

Accordingly, P3 LLC identifies itself as the primary beneficiary of the Network.

Practice shareholders, who are employees of P3 LLC, retain equity ownership in the Network, which represents nominal non-controlling interests;

however, the non-controlling interests do not participate in the profit or loss of the Network.

P3 LLC, directly or indirectly via its wholly owned subsidiaries, may not use or access any net assets of these VIEs to settle its obligations or the obligations of its wholly owned subsidiaries.

Additionally, the creditors of the VIE do not have recourse to the credit of the Company.

The following tables provide a summary of the VIE’s assets, liabilities and operating performance.

(As Restated)

Client Fees and Insurance Receivable, net

Additionally, the creditors of the VIEs do not have recourse to the net assets of P3 LLC.

Since P3 LLC represents substantially all the assets and liabilities of the Company, the following tables provide a summary of the assets, liabilities, and operating performance of only VIEs held at the P3 LLC level.

Clinic fees and insurance receivables, net

Prepaid expenses and other current assets

Other receivable

Property and equipment, net

Due from consolidated entities of P3

Investment in other P3 entities

LIABILITIES AND MEMBERS’ DEFICIT

Accounts Payable and Accrued Expenses

Accounts payable

Accrued expenses and other current liabilities

Accrued payroll

2 unchanged sentences

MEMBERS’ DEFICIT

( 16,145,300 )

( 20,234,013 )

TOTAL LIABILITIES AND MEMBERS’ DEFICIT

3 unchanged sentences

through December 2,

December 31, 2020

December 31, 2019

(As Restated)

( 4,713,241 )

( 5,488,711 )

( 8,646,100 )

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2020, there were 858,351 Class D warrants outstanding for the predecessor entity.

In conjunction with the Term Loan issued November 19, 2020, the predecessor entity issued 858,351 10-year warrants to purchase shares of Series D Preferred Units at $ 4.68 per share.

The warrants were recorded as a liability on the consolidated balance sheet with a balance of $ 6,316,605 as of December 31, 2020.

During the year ended December 31, 2020, no change in the fair value of the warrant liability was recognized in the consolidated statements of operations (See note 8 “Fair Value Measurements and Hierarchy” for further information).

During 2021, 858,351 warrants were exercised on a cashless basis, with an exercise price of $ 4.68 per share as part of the Business Combinations.

There were no Class D Warrants outstanding as of December 31, 2021.

As of December 31, 2021, there were an aggregate of 10,819,167 warrants outstanding, which include the Public Warrants and Private Placement Warrants.

Each warrant entitles the holder to purchase one share of Class A Common Stock at a price of $ 11.50 per share.

The Public Warrants became exercisable 30 days after the completion of the Business Combinations.

As of December 31, 2022 and 2021, there were an aggregate of 11,248,285 and 10,819,105 warrants outstanding, respectively, which include the public warrants, private placement warrants, and VGS Warrants (as defined below).

Public and Private Placement Warrants

Each public and private placement warrant entitles the holder to purchase one share of Class A common stock at a price of $ 11.50 per share.

The public warrants will expire five years after the completion of the Business Combinations.

The Company has the right to redeem the Public Warrants when the price per Class A ordinary share equals or exceeds $ 18.00 for 20 days within a 30 -day trading period.

The Company has the right to redeem the public warrants when the price per share of Class A common stock equals or exceeds $ 18.00 for 20 days within a 30-day trading period.

The private placement warrants are identical to the public warrants, except that the private placement warrants are subject to certain transfer restrictions, are not redeemable by the Company if they are held by Sponsors, and are exercisable on a cashless basis.

The Public Warrants and Private Placement Warrants are recorded as a liability on the consolidated balance sheets with a balance of $ 11,382,826 as of December 31, 2021.

A gain of $ 2,271,659 was recognized in the Successor Period of 2021, and a loss of $ 7,664,869 was recognized in the Predecessor Period of 2021 from the change in fair value of the warrant liability in the consolidated statements of operations.

During 2021, zero Public Warrants and Private Placement Warrants were exercised.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restatement of Quarterly Financial Information (Unaudited)

We have restated herein our previously issued unaudited condensed consolidated financial statements for each interim period within the fiscal years ended December 31, 2021 and December 31, 2020.

See Note 2 “Restatement of Previously Issued Financial Statements” for additional information.

As Previously

Preferred Returns

Class A Units

Condensed Consolidated Balance Sheet as of September 30, 2021 (Unaudited)

Class A Units Subject to Possible Redemption

Class D Units Subject to Possible Redemption

( 7,895,162 )

Contributed Capital

( 41,764,270 )

Class A Preferred Returns

( 6,594,660 )

Accumulated Equity-Based Compensation

Retained Loss from Non-Controlling Interests

( 26,231,059 )

Accumulated Deficit (formerly Accumulated Loss from Controlling Interest)

( 203,942,517 )

( 26,231,059 )

( 216,654,719 )

Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2021 (Unaudited)

Capitated Revenue

( 3,539,071 )

Other Patient Service Revenue

( 3,893,823 )

Total Operating Revenue

( 7,432,894 )

Medical Expenses

Total Operating Expenses

Operating Loss

( 60,550,077 )

( 6,532,954 )

( 67,083,031 )

Interest Expense, net

( 13,130,628 )

( 7,023,187 )

Total Other Expenses

( 25,193,893 )

( 19,086,452 )

Net Loss Attributable to Non-Controlling Interests

( 8,043,678 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 77,700,292 )

( 8,043,678 )

( 6,532,954 )

( 86,169,483 )

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

Capitated Revenue

Other Patient Service Revenue

( 1,130,303 )

Total Operating Revenue

Medical Expenses

Total Operating Expenses

Interest Expense, net

( 4,643,254 )

( 2,529,191 )

Total Other Expenses

( 6,044,940 )

( 3,930,877 )

Net Loss Attributable to Non-Controlling Interests

( 2,801,965 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 31,366,517 )

( 2,801,965 )

( 32,054,419 )

Condensed Consolidated Statement of Changes in Members' Deficit for the Nine Months Ended September 30, 2021

Preferred Return at 8 % for Class A Units

( 2,779,619 )

( 85,743,970 )

( 6,532,954 )

( 86,169,483 )

Balance as of September 30, 2021

( 179,246,686 )

( 43,656,331 )

( 215,007,850 )

Condensed Consolidated Statement of Changes in Members' Deficit for the Three Months Ended September 30, 2021

Preferred Return at 8 % for Class A Units

( 34,168,482 )

( 32,054,419 )

Balance as of September 30, 2021

( 179,246,686 )

( 43,656,331 )

( 215,007,850 )

Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2021

( 85,743,970 )

( 6,532,954 )

( 86,169,483 )

Health Plan Settlements Receivable/Premiums Receivable

( 7,417,477 )

Class A and Class D Preferred Returns

( 6,107,441 )

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As Previously

Preferred Returns

Class A Units

Condensed Consolidated Balance Sheet as of June 30, 2021 (Unaudited)

Class A Units Subject to Possible Redemption

Class D Units Subject to Possible Redemption

( 6,743,207 )

Contributed Capital

( 41,764,270 )

Class A Preferred Returns

( 5,632,496 )

Accumulated Equity-Based Compensation

Retained Loss from Non-Controlling Interests

( 23,429,094 )

Accumulated Deficit (formerly Accumulated Loss from Controlling Interest)

( 172,576,003 )

( 23,429,094 )

( 184,600,300 )

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

Capitated Revenue

( 4,335,073 )

Other Patient Service Revenue

( 2,763,520 )

Total Operating Revenue

( 7,098,593 )

Medical Expenses

Total Operating Expenses

Operating Loss

( 32,426,538 )

( 6,532,953 )

( 38,959,491 )

Interest Expense, net

( 8,487,374 )

( 4,494,049 )

Total Other Expenses

( 19,148,953 )

( 15,155,628 )

Net Loss Attributable to Non-Controlling Interests

( 5,241,713 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 46,333,778 )

( 5,241,713 )

( 6,532,953 )

( 54,115,119 )

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

Capitated Revenue

( 5,598,799 )

Other Patient Service Revenue

( 1,233,356 )

Total Operating Revenue

( 6,832,155 )

Medical Expenses

Total Operating Expenses

Operating Loss

( 19,438,108 )

( 6,532,955 )

( 25,971,063 )

Interest Expense, net

( 4,406,240 )

( 2,369,764 )

Total Other Expenses

( 5,529,823 )

( 3,493,347 )

Net Loss Attributable to Non-Controlling Interests

( 1,959,421 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 23,008,510 )

( 1,959,421 )

( 6,532,955 )

( 29,464,410 )

Condensed Consolidated Statement of Changes in Members' Deficit for the Six Months Ended June 30, 2021

Preferred Return at 8 % for Class A Units

( 1,817,564 )

( 51,575,491 )

( 6,532,953 )

( 54,115,119 )

Balance as of June 30,2021

( 146,395,455 )

( 43,656,170 )

( 183,308,519 )

Condensed Consolidated Statement of Changes in Members' Deficit for the Three Months Ended June 30, 2021

Preferred Return at 8 % for Class A Units

( 24,967,931 )

( 6,532,955 )

( 29,464,410 )

Balance as of June 30,2021

( 146,395,455 )

( 43,656,170 )

( 183,308,519 )

Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2021

( 51,575,491 )

( 6,532,953 )

( 54,115,119 )

Health Plan Settlements Receivable/Premiums Receivable

( 5,320,861 )

Class A and Class D Preferred Returns

( 3,993,325 )

*Rounding may cause variances

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As Previously

Preferred Returns

Class A Units

Condensed Consolidated Balance Sheet as of March 31, 2021 (Unaudited)

Health Plan Settlement Receivables

Total Current Assets

Class A Units Subject to Possible Redemption

Class D Units Subject to Possible Redemption

( 5,633,583 )

Contributed Capital

( 41,764,270 )

Class A Preferred Returns

( 4,705,644 )

Accumulated Equity-Based Compensation

Retained Loss from Non-Controlling Interests

( 21,469,673 )

Accumulated Deficit (formerly Accumulated Loss from Controlling Interest)

( 149,567,493 )

( 21,469,673 )

( 155,135,893 )

Total Liabilities, Mezzanine Equity & Members' Equity (Deficit)

Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2021 (Unaudited)

Capitated Revenue

Other Patient Service Revenue

( 1,530,165 )

Total Operating Revenue

Medical Expenses

Total Operating Expenses

Interest Expense, net

( 4,081,134 )

( 2,124,286 )

Total Other Expenses

( 13,619,130 )

( 11,662,282 )

Net Loss Attributable to Non-Controlling Interests

( 3,282,292 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 23,325,268 )

( 3,282,292 )

( 24,650,712 )

Condensed Consolidated Statements of Changes in Members' Deficit for the 3 Months Ended March 31, 2021

Preferred Return at 8 % for Class A Units

( 26,607,560 )

( 24,650,712 )

Balance as of March 31,2021

( 122,918,168 )

( 43,656,269 )

( 154,407,902 )

Condensed Consolidated Statements of Cash Flows for the 3 Months Ended March 31, 2021

( 26,607,560 )

( 24,650,712 )

Class A and Class D Preferred Returns

( 1,956,848 )

*Rounding may cause variances

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As Previously

Preferred Returns

Class A Units

Capitated Revenue

Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2020 (Unaudited)

Capitated Revenue

Other Patient Service Revenue

( 2,230,451 )

Total Operating Revenue

Medical Expenses

Total Operating Expenses

Interest Expense, net

( 6,877,619 )

( 1,299,807 )

Total Other Expenses

( 6,877,619 )

( 1,299,807 )

Net Loss Attributable to Non-Controlling Interests

( 3,449,955 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 27,734,641 )

( 3,449,955 )

( 25,606,784 )

Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2020 (Unaudited)

Capitated Revenue

Other Patient Service Revenue

( 1,018,851 )

Total Operating Revenue

Medical Expenses

Total Operating Expenses

Interest Expense, net

( 2,316,579 )

Total Other Expenses

( 2,316,579 )

Net Income Attributable to Non-Controlling Interests

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 16,706,718 )

( 13,971,888 )

Condensed Consolidated Statements of Changes in Members' Deficit for the 9 Months Ended September 30, 2020

Preferred Return at 8 % for Class A Units

( 2,534,853 )

( 31,184,596 )

( 25,606,784 )

Balance as of September 30, 2020

( 84,110,848 )

( 43,656,271 )

( 124,209,092 )

Condensed Consolidated Statements of Changes in Members' Deficit for the 3 Months Ended September 30, 2020

Preferred Return at 8 % for Class A Units

( 15,831,158 )

( 13,971,888 )

Balance as of September 30, 2020

( 84,110,848 )

( 43,656,271 )

( 124,209,092 )

Condensed Consolidated Statements of Cash Flows for the 9 Months Ended September 30, 2020

( 31,184,596 )

( 25,606,784 )

Class A and Class D Preferred Returns

( 5,577,812 )

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As Previously

Preferred Returns

Class A Units

Captital Revenue

Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2020 (Unaudited)

Capitated Revenue

Other Patient Service Revenue

( 1,211,599 )

Total Operating Revenue

Medical Expenses

Total Operating Expenses

Interest Expense, net

( 4,561,039 )

Total Other Expenses

( 4,561,039 )

Net Loss Attributable to Non-Controlling Interests

( 4,325,515 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 11,027,923 )

( 4,325,515 )

( 11,634,896 )

Condensed Consolidated Statement of Operations for the Three Months Ended June 30, 2020 (Unaudited)

Capitated Revenue

Other Patient Service Revenue

Total Operating Revenue

Medical Expenses

Total Operating Expenses

Interest Expense, net

( 2,249,977 )

Total Other Expenses

( 2,299,977 )

Net Loss Attributable to Non-Controlling Interests

( 2,774,562 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 4,188,102 )

( 2,774,562 )

( 5,103,393 )

Condensed Consolidated Statements of Changes in Members' Deficit for the 6 Months Ended June 30, 2020

Preferred Return at 8 % for Class A Units

( 1,694,048 )

( 15,353,438 )

( 11,634,896 )

Balance as of June 30, 2020

( 69,173,164 )

( 43,656,272 )

( 110,289,874 )

Condensed Consolidated Statements of Changes in Members' Deficit for the 3 Months Ended June 30, 2020

Preferred Return at 8 % for Class A Units

( 6,962,664 )

( 5,103,393 )

Balance as of June 30, 2020

( 69,173,164 )

( 43,656,272 )

( 110,289,874 )

Condensed Consolidated Statements of Cash Flows for the 6 Months Ended June 30, 2020

( 15,353,438 )

( 11,634,896 )

Class A and Class D Preferred Returns

( 3,718,542 )

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As Previously

Preferred Returns

Class A Units

Capitated Revenue

Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2020 (Unaudited)

Capitated Revenue

Other Patient Service Revenue

Total Operating Revenue

Medical Expenses

Total Operating Expenses

Interest Expense, net

( 2,261,063 )

Total Other Expenses

( 2,261,063 )

Net Loss Attributable to Non-Controlling Interests

( 1,550,953 )

Net Loss (formerly Net Loss Attributable to Controlling Interests)

( 6,839,821 )

( 1,550,953 )

( 6,531,503 )

Condensed Consolidated Statements of Changes in Members' Deficit for the 3 Months Ended March 31, 2020

Preferred Return at 8 % for Class A Units

( 8,390,774 )

( 6,531,503 )

Balance as of March 31, 2020

( 63,212,106 )

( 43,656,272 )

( 105,341,038 )

Condensed Consolidated Statements of Cash Flows for the 3 Months Ended March 31, 2020

( 8,390,774 )

( 6,531,503 )

Class A and Class D Preferred Returns

( 1,859,271 )

P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The public and private placement warrants are recorded as a liability on the consolidated balance sheets with a balance of $ 1.5 million and $ 11.4 million as of December 31, 2022 and 2021, respectively.

The Company recorded a gain of $ 9.9 million, a gain of $ 2.3 million, and a loss of $ 7.7 million from the change in fair value of the warrants during the year ended December 31, 2022, the Successor Period of 2021, and the Predecessor Period of 2021, respectively.

No warrants were exercised during the year ended December 31, 2022, the Successor Period of 2021, and the Predecessor Period of 2021.

In connection with the Unsecured Promissory Note issued in December 2022 (see Note 12 “Debt”), the Company and VGS entered into a warrant agreement (the “VGS Warrant Agreement”) pursuant to which the Company issued warrants to purchase 429,180 shares of Class A common stock of the Company at an exercise price of $ 4.26 per share to VGS (the “VGS Warrants”).

The number of shares of common stock for which the VGS Warrants is exercisable and the exercise price may be adjusted upon any event involving subdivisions, combinations, distributions, recapitalizations, and similar transactions.

Pursuant to the VGS Warrant Agreement, the warrants and the right to purchase securities upon the exercise of the warrants will terminate upon the earliest to occur of the following:

(a) December 13, 2027;

and (b) the consummation of (i) a sale, conveyance, consolidation with any other corporation (other than a wholly owned subsidiary corporation) or (ii) any other transaction or series of related transactions in which more than 50 % of the voting power of which the Company or P3 LLC is disposed.

The Company recorded the fair value of the VGS Warrants of $ 0.6 million as an increase to additional paid in capital during the year ended December 31, 2022.

The key Level 3 inputs into the option pricing model related to the VGS Warrants were as follows:

Risk-free interest rate

Exercise price

Expected term

Subsequent Events

Events Subsequent to the July 2, 2021 Issuance of the December 31, 2020 Financial Statements (Unaudited)

Subsequent to the July 2, 2021 issuance of the December 31, 2020 consolidated financial statements, events or conditions occurred that led to the conclusion that substantial doubt exists about the Company’s ability to continue as a going concern as further described in Note 3.

Transaction Bonus Agreements

As disclosed in the Form 8-K filed on May 18, 2022, the Company’s Board of Directors approved entering into employment agreements and transaction bonus agreements with the Company’s Chief Executive Officer and Chief Medical Officer.

The transaction bonus agreements provide for aggregate payments by the Company of $ 10,000,000 in 2022, which will be charged to operating expense in 2022.

Nasdaq Notification

On May 18, 2022, the Company received a notification from the listing qualifications department of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that as a result of the Company’s untimely filing of the its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”) and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (the “First Quarter Form 10-Q”), the Company was not in compliance with the requirements for continued listing under Listing Rule 5250(c)(1) (the “Listing Rule”), which requires listed companies to timely file all required periodic financial

On July 19, 2022, Nasdaq granted us a grace period of up to 180 calendar days from the due date of the 2021 Form 10-K, or until September 27, 2022, in which to regain compliance with the Listing Rule.

On August 17, 2022, we received a deficiency notice from Nasdaq as a result of the delay in filing its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022 (the “Second Quarter Form 10-Q”), indicating that any additional Nasdaq exception to allow the Company to regain compliance with all delinquent filings, including the Second Quarter Form 10-Q, would be limited to September 27, 2022.

Because the Company did not file the 2021 Form 10-K, the First Quarter Form 10-Q and the Second Quarter Form 10-Q with the SEC before September 27, 2022, Nasdaq notified the Company on September 28, 2022, that the Nasdaq Listing Qualifications Department has initiated a process to delist the Company’s securities from Nasdaq as a result of the Company not being in compliance with the Listing Rule.

On October 5, 2022, the Company appealed Nasdaq’s delisting determination by requesting a hearing before the Nasdaq Hearing Panel (the “Panel”), which request automatically stays the suspension of the Company’s securities for a period of 15 days from the date of the request.

The Nasdaq Staff granted the Company’s request for a hearing, which is scheduled for November 3, 2022, and the Company’s request to extend the stay of any trading suspension pending the hearing and the issuance of a final Panel decision.

There can be no assurance that our appeal will be successful.

Due to the decrease in the share price over the second quarter of 2022, the Company will record a goodwill impairment of $ 851.5 million as of June 30, 2022.

The amount was not recorded at December 31, 2021 or March 31, 2022 as the decline in the share price was considered temporary under the ASC 350 guidance as of those dates.

Between January and March 2023, the Company borrowed a total of $ 12.9 million under the Unsecured Promissory Note.

On March 30, 2023, the Company entered into a Securities Purchase Agreement with the purchasers named therein (the “Purchasers”), certain of which are related parties, pursuant to which the Company will issue approximately 79.9 million units at a price of approximately $ 1.12 per unit for institutional investors, and a purchase price of approximately $ 1.19 per unit for employees and consultants.

Each unit consists of one share of Class A common stock and 0.75 of a warrant to purchase one share of Class A common stock at an exercise price of $ 1.13 .

Certain institutional investors have elected to receive pre-funded warrants to purchase Class A common stock in lieu of a portion of their Class A common stock.

In total, the Company agreed to sell (i) an aggregate of approximately 69.2 million shares of its Class A common stock, (ii) warrants to purchase an aggregate of approximately 59.9 million shares of Class A common stock, and (iii) pre-funded warrants to purchase an aggregate of approximately 10.8 million shares of Class A common stock, to the Purchasers for aggregate gross proceeds of approximately $ 89.5 million (collectively, the “Private Placement”).

The Private Placement is subject to certain conditions and is expected to close on April 6, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures