What changed in this filing

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Item 9A. Controls and Procedures

2024-03-28 compared with 2023-03-31 · 244 added, 1401 removed, 103 unchanged (94% of the section changed)

6 unchanged sentences

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, 2023.

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, we concluded that there were material weaknesses in our internal control over financial reporting.

Management’s annual report on internal control over financial reporting

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, 2023 due to the material weaknesses in our internal control over financial reporting described below.

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, which continued to exist as of December 31, 2022:

Control Environment, Risk Assessment and Monitoring Activities

We did not maintain appropriately designed entity-level controls impacting the control environment, risk assessment procedures, and effective monitoring activities to prevent or detect material misstatements to the consolidated financial statements.

These material weaknesses are specifically attributed to the following:

● We did not have adequate policies and procedure or sufficient qualified resources with sufficient technical knowledge to maintain effective controls over the accounting related to significant accounts and related financial statement disclosures.

● We did not design and implement a sufficient risk assessment process to identify and assess risks impacting control over financial reporting.

As previously reported, management has identified the following material weaknesses in the Company’s internal control over financial reporting, which continued to exist as of December 31, 2023:

• We did not have adequate policies and procedures or sufficient qualified resources with appropriate technical knowledge to maintain effective internal controls over the accounting related to significant accounts and related financial statement disclosures;

• We did not design and implement a sufficient risk assessment process to identify and assess risks impacting internal control over financial reporting;

• We had ineffective evaluation and determination as to whether the components of internal control were present and functioning;

Control Activities and Information and Communication

As a consequence of these entity-level material weaknesses, we did not design, implement, and maintain effective control activities within certain business processes and the information technology environment to mitigate the risk of material misstatement in financial reporting.

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, including:

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 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 implement effective information technology general controls in the areas of user access related to certain information technology systems that support our financial reporting process;

• 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 all financial statement areas;

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• 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.

Remediation activities

We have taken and are taking steps to remediate these material weaknesses through (i) hiring qualified accounting, financial reporting, IT, and other key management personnel with public company experience, (ii) engaging an external advisor to assist with documenting internal controls, including enhancing controls to ensure proper communication of critical information, review and approvals;

evaluating effectiveness of internal controls and assist with the remediation of deficiencies and training of personnel, as necessary, and establishment of a formal internal audit function and (iii) enhancing policies, procedures, and documentation for significant areas of accounting, including each area where a material weakness was identified.

In response to these material weaknesses, with oversight from the Audit Committee of the Board of Directors, we have continued to implement significant changes to improve our internal control structure.

Specifically, we have:

• engaged an external advisor to assist with documenting internal controls, including (i) enhancing controls to ensure proper communication of critical information, review and approvals, (ii) evaluating effectiveness of internal controls, and (iii) assisting with the remediation of deficiencies and training of personnel, as necessary;

• formalized enhanced policies, procedures, and documentation for significant areas of accounting, including each area where a material weakness was identified;

• hired qualified accounting, financial reporting, information technology, and other key management personnel with public company experience;

• implemented a revised information technology general controls framework that is customized to our application landscape and information risks inherent in the financial reporting process;

• implemented user access reviews across all significant information technology applications, standardized and improved the change management process to mitigate execution risks, and provided training to control owners;

• designed a segregation of duties risk framework in order to establish a technology-enabled process to identify and evaluate user roles to mitigate segregation of duties conflicts.

We are committed to maintaining a strong internal control environment.

We are still in the process of implementing these steps and cannot assure investors that these measures will significantly improve or remediate the material weaknesses described above.

Management’s annual report on internal control over financial reporting

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).

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.

The material weaknesses cannot be considered remediated until the newly designed control activity operates for a sufficient period of time and management has concluded, through testing, that the control is operating effectively.

We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional implementation and evaluation time.

We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.

The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by BDO USA, P.C., an independent registered public accounting firm, as stated in their attestation report, which is included below.

Changes in 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 than the actions taken to remediate our material weaknesses, described 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

(b) Insider Trading Arrangements and Policies.

There were no adoptions, modifications, or terminations by directors or officers of written trading arrangements under Exchange Act Rule 10b5-1 during the quarter ended December 31, 2023.

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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

P3 Health Partners Inc.

Henderson, Nevada

Opinion on Internal Control over Financial Reporting

We have audited P3 Health Partners Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity and mezzanine equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated March 28, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

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

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 the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Material weaknesses have been identified and described in management’s assessment.

The material weaknesses related to the following:

(1) The Company did not have adequate policies and procedures or sufficient qualified resources with appropriate technical knowledge to maintain effective internal controls over the accounting related to significant accounts and related financial statement disclosures;

(2) The Company did not design and implement a sufficient risk assessment process to identify and assess risks impacting internal control over financial reporting;

(3) The Company had ineffective evaluation and determination as to whether the components of internal control were present and functioning;

(4) The Company did not design and implement effective information technology general controls in the areas of user access related to certain information technology systems that support the financial reporting process;

(5) The Company 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;

(6) The Company did not design and maintain effective management review controls at a sufficient level of precision over all financial statement areas;

and (7) The Company 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.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 financial statements, and this report does not affect our report dated March 28, 2024 on those financial statements.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, P.C.

Las Vegas, Nevada

March 28, 2024

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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 Form 10-K):

Name Age Position at P3

Principal Employment

Executive Officers

Sherif Abdou, M.D.

Chief Executive Officer, Director and Co-Founder

63 Chief Executive Officer, Director and Co-Founder Same

Amir Bacchus, M.D.

Chief Medical Officer, Director and Co-Founder

Atul Kavthekar

Chief Financial Officer

60 Chief Medical Officer, Director and Co-Founder Same

Atul Kavthekar 55 Chief Financial Officer Same

Non-Employee Directors

Chairman of the Board

Greg Kazarian

Sherif Abdou, M.D.

is a Co-founder of P3 and has served as P3’s Chief Executive Officer and on the Legacy P3 Board of Managers since 2017 and as a Director of the Company since December 2021.

Abdou served as Chief Executive Officer of P3 Health Group from 2015 to 2017.

Abdou received a Bachelor of Medicine and Surgery degree from Mansoura University and a Master of Medical Management degree from the University of Southern California.

Abdou 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 Executive Officer.

Amir Bacchus, M.D.

is a Co-founder of P3 and has served as P3’s Chief Medical Officer and on the Legacy P3 Board of Managers since 2017 and as a Director of the Company since December 2021.

Bacchus served as Chief Medical Officer of P3 Health Group from 2015 to 2017.

Bacchus served as a director of the University of Nevada, Las Vegas—School of Medicine Advisory Board, a position he held from 2014 to 2020.

Bacchus received a Bachelor of Arts degree from California State University, Northridge, a Doctor of Medicine from Wayne State University School of Medicine and an MBA from the University of Nevada, Las Vegas.

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.

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.

Thierer currently serves as the managing partner of the investment firm he formed, AssetBlue Investment Group, a position he has held since June 2017.

From October 2017 through February 2018, Mr.

Thierer also served as the interim Chief Executive Officer of Dentsply Sirona Inc.

XRAY), a manufacturer of dental implants.

Thierer was Chief Executive Officer of OptumRx, a pharmacy care services company, from July 2015 until September 2017.

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.

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

His skills include strategy and business development, technology, finance and marketing.

He brings valuable leadership experience and knowledge of operations and the day-to-day management of a national corporation.

Thierer also has experience in the structuring and execution of strategic corporate transactions, including mergers and acquisitions.

Thierer is a member of the board of directors of Discover Financial Services (NYSE:

DFS) since 2014 and Senior Connect Acquisition Corp.

Thierer received a BS in Finance from the University of Minnesota and an MBA from Nova Southeastern University.

Thierer also holds the designation of CEBS (Certified Employee Benefits Specialist) from The Wharton School of the University of Pennsylvania.

Thierer was selected to serve on our board of directors for his extensive experience in both the financial and healthcare sectors.

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

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

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

Wasson Enterprise’s focus is to partner with entrepreneurs and operators to build sustainable, high-growth businesses that do well by doing good.

As the former President and CEO of Walgreens Boots Alliance, Inc., Mr.

Wasson has extensive global operational and management experience, as well as extensive knowledge of the retail and healthcare industries.

Wasson attended Purdue University’s School of Pharmacy, receiving his pharmacy degree in 1981.

Before his senior year, he was invited to become one of the first pharmacy services interns in Walgreens’ corporate offices—an opportunity that led to his being hired by Walgreens upon graduation and that changed the course of his future career.

Mentored by many company leaders through the years, together with his outstanding performance in positions of increasing responsibility, Mr.

Wasson served Walgreens for 34 years.

As Walgreens CEO, Mr.

Wasson led the Fortune 35 company to record fiscal 2014 sales of $76.4 billion.

He is credited with creating significant financial and shareholder value, initiating and completing transformative mergers and investments, leading complex organizational and structural change, assembling a diverse and high- performance senior leadership team, and establishing Walgreens’ position as an industry leader.

Before retiring from Walgreens, Mr.

Wasson had transformed an iconic 114-year-old domestic company into the first global pharmacy-led, health, well-being and beauty enterprise via the successful merger with European-based Alliance Boots to create Walgreens Boots Alliance, Inc.

Wasson currently serves on the Board of Directors of OptimizeRx Corp.

OPRX), a position he has held since August 2020.

Wasson also served on the Board of Directors of PNC Financial Services Group, Inc.

PNC) from July 2015 to October 2018 and Verizon Communications Inc.

VZ) from February 2013 to October 2018.

Wasson was selected to serve on our board of directors for his deep experience as an executive in the healthcare services industry and broad industry relationships.

Leisure has served as a Director of the Company since December 2021 and on the Legacy P3 Board of Managers since April 2017.

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, 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.

He also serves on the board of IrsVision, and Cahrus Technologies, both early-stage startup companies.

From a not-for-profit perspective, he is a Senior Advisor to the Byers Center for BIODESIGN at Stanford University, a member of the Board of Advisors of the UCLA Anderson School of Management, and Chair of the Advisory Board of the UCSF Rosenman Institute.

Leisure received a Bachelor of Arts degree from Stanford University and an MBA degree from the University of California, Los Angeles.

Leisure was selected to serve on our board of directors for his deep experience in value-based healthcare delivery models and broad industry relationships.

Mary Tolan has served as a Director of the Company since December 2021 and on the Legacy P3 Board of Managers since April 2017.

Tolan co-founded and has served as a Managing Partner of Chicago Pacific Founders, a private equity fund focused exclusively on healthcare services, technology and healthcare real estate, since 2014.

Previously, Ms.

Tolan was the founder of R1 RCM, Inc.

RCM), a provider of comprehensive end-to-end healthcare revenue-cycle management services and population health management services infrastructure.

Prior to R1 RCM, Ms.

Tolan was a Group Chief Executive at Accenture, the global management consulting, technology services, and outsourcing company.

Tolan currently serves as a director of Tredence, Inc., Atrio, WellBe, Duo, Peeq, Novum Health, SightMD, and Ascend.

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

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.

Greg Kazarian has served as a Director of the Company since December 2021 and on the Legacy P3 Board of Managers since May 2017.

Kazarian has served as an Operating Partner of Chicago Pacific Founders since 2014.

Kazarian currently serves as a director of Recovery Ways Holdings, LLC, a position he has held since July 2014, and a director of CPF Outpatient Holdings, LLC, a position he has held since October 2020.

Kazarian was one of the four Executive Officers of Accretive Health (now R1 RCM, Inc.

RCM)) a provider of comprehensive end-to-end healthcare revenue-cycle management services and population health management services infrastructure.

Kazarian served in a variety of roles during his tenure at Accretive Health including General Counsel, Head of the Physician Advisory Services Business and Senior Vice President of Operations with P&L responsibility for one third of the Company’s revenue cycle business.

Prior to joining Accretive Health, Mr.

Kazarian was a partner at Pedersen and Houpt in Chicago, where he spent 16 years representing mid-sized growth companies.

Kazarian received his law degree and his Bachelor of Science degree in Biophysics from the University of Illinois.

Kazarian was selected to serve on our board of directors for his experience as an executive in the healthcare services industry and his investing experience.

has served as a Director of the Company since December 2021 and on the Legacy P3 Board of Managers since January 2018.

Price currently serves as a director of Triumph Orthopedics, LLC, a position he has held since 2021, a sole director of HealthWiseFirst, LLC, a position he has held since 2018, a director of Association Health Plans of America, LLC, a position he has held since 2018, a director of Transformation Care Network, LLC, a position he has held since 2020, a director of Botanicals Sciences, LLC, a position he has held since 2020, a director of Capital Ministries (non-profit), a position he has held since 2018.

Price entered private medical practice in 1984, returned to Emory University as an assistant professor of orthopedic surgery in 2002 and subsequently serviced as director of the orthopedic clinic at Atlanta’s Grady Memorial Hospital.

Price served in the US House of Representatives from Georgia’s 6th district from 2005 to 2017, during which time he served as Chair of the House Budget Committee from 2015 to 2017.

In February 2017, he was confirmed by the Senate as the United States Secretary of Health and Human Services (HHS) and remained in that position until September 2017.

Currently, Dr.

Price serves on the boards of several privately held health care companies and non-profits as well as consulting and advising companies.

Price holds Bachelor’s and Doctor of Medicine degrees from the University of Michigan.

He completed his residency at Emory University and was in private orthopedic practice from 1984 to 2004.

Price was selected to serve on our board of directors for his extensive experience in public service and medical practice that bring a deep perspective on P3’s business.

Park has served as a Director of the Company since December 2021.

Park was the Chairman and Chief Executive Officer of WellDyneRx, an independent pharmacy benefits manager, from April 2019 until April 2022 and since October 2019 as a director of Progyny (Nasdaq:

From January 2018 until May 2018, he was the Interim Chief Executive Officer of Diplomat Pharmacy, Inc., or Diplomat (NYSE:

DPLO), a provider of specialty pharmacy services.

Additionally, from June 2017 to February 2019, he served on the board of directors of Diplomat.

Prior to that, from July 2015 until July 2016, he was the Chief Operating Officer of OptumRX, the entity resulting from the merger of Catamaran Corporation, or Catamaran, and OptumRX, UnitedHealthcare Group’s free-standing pharmacy care services business.

Before the merger, from March 2014 until July 2015, he was Catamaran’s Executive Vice President, Operations, and previously served as Catamaran’s Chief Financial Officer, beginning in 2006.

Park holds a B.S.

in Accounting from Brock University.

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

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.

Mark Thierer 64 Chairman of the Board Managing Partner of AssetBlue Investment Group, an investment firm

Greg Wasson 65 Director Co-President and Founder of Wasson Enterprise, a family-based investment office

Leisure 73 Director Co-Founder and a Managing Partner of Chicago Pacific Founders, a private equity fund focused on healthcare services, technology and healthcare real estate

Mary Tolan 63 Director Co-Founder and a Managing Partner of Chicago Pacific Founders, a private equity fund focused on healthcare services, technology and healthcare real estate

Greg Kazarian 61 Director Operating Partner of Chicago Pacific Founders, a private equity fund focused on healthcare services, technology and healthcare real estate

69 Director Director of:

Triumph Orthopedics, LLC;

HealthWiseFirst, LLC;

Association Health Plans of America, LLC;

Transformation Care Network;

Botanicals Sciences, LLC;

and Capital Ministries (non-profit)

Park 52 Director President of Waltz Health, a digital health company

The remaining information required by this item will be included in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders and such information is incorporated herein by reference.

Executive Compensation.

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.

The information required by this item will be included in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders and such information is incorporated herein by reference.

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| 2023 Form 10-K | 118

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

Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2023)

Plan category:

Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights (2)

Number of Securities Available for Future Issuance Under Equity Compensation Plans (excludes securities reflected in first column) (3)

Equity compensation plans approved by security holders (1)

10,671,766 $ 1.33 5,862,646

_____________________________________________

(1) Consists of the 2021 Plan.

(2) The weighted average exercise price does not include restricted stock units granted under the 2021 Plan.

(3) 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.

The information required by this item will be included in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders and such information is incorporated herein by reference.

Principal Accountant Fees and Services.

The information required by this item will be included in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders and such information is incorporated herein by reference.

P3 Health Partners Inc.

| 2023 Form 10-K | 119

Exhibit and Financial Statement Schedules.

(a)(1) Financial Statements.

Reference is made to the Index to Consolidated Financial Statements beginning on Page F-1 hereof.

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity and Mezzanine Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules.

Financial statements schedules are omitted because they are not applicable, not required, or because the required information is included in the consolidated financial statements or notes thereto.

Financial statement schedules are omitted because they are not applicable, not required, or because the required information is included in the consolidated financial statements or notes thereto.

(a)(3) Exhibits.

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

Number Description

Incorporated by Reference

Filed/Furnished

Exhibit Description

Form File No.

Exhibit Filing Date

2.1 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.

8-K 001-40033 2.1 6/1/2021

2.2 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.

8-K 001-40033 2.2 6/1/2021

2.3 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.

8-K 001-40033 2.1 11/22/2021

2.4 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.

8-K 001-40033 2.4 12/9/2021

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

8-K 001-40033 2.5 12/9/2021

3.1 Amended and Restated Certificate of Incorporation of the Company.

Bylaws of the Company.

8-K 001-40033 3.1 12/9/2021

3.2 Amended and Restated Bylaws of the Company.

8-K 001-40033 3.1 3/12/2024

4.1 Form of Common Stock Certificate of the Company.

S-1 333-251978 4.2 1/19/2021

4.2 Warrant Agreement, dated February 9, 2021, between the Company and Continental Stock Transfer & Trust Company.

8-K 001-40033 4.1 2/16/2021

4.3 Form of Warrant Certificate of the Company.

8-K 001-40033 4.1 2/16/2021

4.4 Description of Registered Securities.

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

10-K 001-40033 4.4 10/21/2022

P3 Health Partners Inc.

| 2023 Form 10-K | 120

Number Description

Incorporated by Reference

Form File No.

Exhibit Filing Date

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

8-K 001-40033 10.2 2/13/2022

4.6 Form of Common Stock Purchase Warrant, dated April 6, 2023.

8-K 001-40033 4.1 4/7/2023

4.7 Form of Pre-Funded Common Stock Purchase Warrant, dated April 6, 2023.

8-K 001-40033 4.2 4/7/2023

10.1 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.

8-K 001-40033 10.1 12/9/2021

10.2 Form of Subscription Agreement.

8-K 001-40033 10.2 6/1/2021

10.3 Form of Consent and Amendment to Subscription Agreement.

8-K 001-40033 10.1 11/22/2021

10.4 Registration Rights and Lock-up Agreement, dated December 3, 2021, by and among the registrant, Foresight Sponsor Group, LLC, FA Co-Investment LLC and the P3 Sellers party thereto.

8-K 001-40033 10.4 12/9/2021

10.5 P3 Health Group, LLC Amended and Restated Limited Liability Agreement, dated as of December 3, 2021, by and among P3 Health Group, LLC, the registrant and each of the other members party thereto.

8-K 001-40033 10.5 12/9/2021

10.6 Tax Receivable Agreement, dated as of December 3, 2021, by and among P3 Health Group, LLC and the members of P3 Health Group, LLC from time to time party thereto.

8-K 001-40033 10.6 12/9/2021

10.7† Form of Indemnification Agreement for directors and executive officers.

8-K 001-40033 10.7 12/9/2021

10.8† Form of Indemnification Agreement for sponsor affiliated directors.

8-K 001-40033 10.8 12/9/2021

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

and Atul Kavthekar.

8-K 001-40033 10.2 12/1/2022

10.10† P3 Health Partners Inc.

2021 Incentive Award Plan.

8-K 001-40033 10.1 12/9/2021

10.11† First Amendment to the P3 Health Partners Inc.

2021 Incentive Award Plan.

10-K 001-40033 10.1 10/21/2022

10.12† Form of Restricted Stock Unit Award Agreement under the P3 Health Partners Inc.

2021 Incentive Award Plan.

8-K 001-40033 10.1 12/9/2021

10.13† Form of Stock Option Award Agreement under the P3 Health Partners Inc.

2021 Incentive Award Plan.

8-K 001-40033 10.1 12/9/2021

10.14† P3 Health Group Holdings, LLC 2017 Management Incentive Plan.

8-K 001-40033 10.2 12/9/2021

10.15† Form of Incentive Unit Award Agreement under the P3 Health Group Holdings, LLC 2017 Management Incentive Plan.

8-K 001-40033 10.2 12/9/2021

10.16 Form of Joinder and Waiver Agreement.

8-K 001-40033 10.2 12/9/2021

P3 Health Partners Inc.

| 2023 Form 10-K | 121

Number Description

Incorporated by Reference

Form File No.

Exhibit Filing Date

10.17 Escrow Agreement, dated as of December 3, 2021, by and among the Company, P3 Health Group Holdings, LLC, P3 Health Group, LLC, Hudson Vegas Investment SPV, LLC, Mary Tolan and Sherif Abdou, as unitholder representatives and PNC Bank, N.A.

8-K 001-40033 10.2 12/9/2021

10.18 Repurchase Promissory Note between P3 Health Group Holdings, LLC and IHC Health Services, Inc., dated June 28, 2019.

10-K 001-40033 10.2 10/21/2022

10.19 First Amendment to Repurchase Promissory Note between P3 Health Group Holdings, LLC and IHC Health Services, Inc., dated November 19, 2020.

10-K 001-40033 10.2 10/21/2022

10.20 Second Amendment to Term Loan Agreement and First Amendment to Security Agreement, dated as of December 21, 2021, by and among P3 Health Group, LLC, as borrower, the Subsidiary Guarantors party thereto and CRG Servicing LLC, as administrative agent and collateral agent.

10-K 001-40033 10.2 10/21/2022

10.21† Employment Agreement, by and among P3 Health Partners Inc., P3 Health Group Management, LLC and Dr.

Sherif Abdou.

8-K 001-40033 10.1 5/18/2022

10.22† Employment Agreement, by and among P3 Health Partners Inc., P3 Health Group Management, LLC and Dr.

Amir Bacchus.

8-K 001-40033 10.2 5/18/2022

10.23† Transaction Bonus Agreement, by and among P3 Health Partners Inc., P3 Health Group Management, LLC and Dr.

Sherif Abdou.

8-K 001-40033 10.3 5/18/2022

10.24† Transaction Bonus Agreement, by and among P3 Health Partners Inc., P3 Health Group Management, LLC and Dr.

Amir Bacchus.

8-K 001-40033 10.4 5/18/2022

10.25† Non-Employee Director Compensation Program.

10-K 001-40033 10.3 10/21/2022

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

8-K 001-40033 10.1 12/13/2022

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

8-K 001-40033 10.3 12/13/2022

10.28 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.

8-K 001-40033 10.4 12/13/2022

10.29 Securities Purchase Agreement, dated March 30, 2023, by and among P3 Health Partners Inc.

and the Purchasers named therein.

8-K 001-40033 10.1 4/7/2023

10.30 Registration Rights Agreement, dated April 6, 2023, by and among P3 Health Partners Inc.

and the Purchasers named therein.

8-K 001-40033 10.2 4/7/2023

A mendment No.

1 to Registration Rights Agreement and Waiver , dated November 8, 2023, by and among P3 Health Partners Inc.

and certain stockholders pa rty thereto .

P3 Health Partners Inc.

| 2023 Form 10-K | 122

Number Description

Incorporated by Reference

Form File No.

Exhibit Filing Date

10.32 Letter Agreement, dated April 6, 2023, by and among P3 Health Partners Inc., Chicago Pacific Founders GP, L.P.

and Chicago Pacific Founders GP III, L.P.

8-K 001-40033 10.3 4/7/2023

Transaction Bonus Restricted Stock Unit Agreement by and between Sherif Abdou, M.D.

and P3 Health Partners Inc., dated August 4, 2023.

001-40033 10.1 11/8/2023

Transaction Bonus Restricted Stock Unit Agreement by and between Amir Bacchus, M.D.

and P3 Health Partners Inc., dated August 4, 2023.

10-Q 001-40033 10.2 11/8/2023

10.35 Unsecured Promissory Note, by and between P3 Health Group, LLC and VBC Growth SPV 2, LLC.

8-K 001-40033 10.1 3/28/2024

10.36 Subordination Agreement, by and among P3 Health Group, LLC, CRG Servicing LLC and VBC Growth SPV 2, LLC.

8-K 001-40033 10.2 3/28/2024

10.37 Fourth Amendment to Term Loan Agreement, by and among P3 Health Group, LLC, the subsidiary guarantors party thereto, the lenders party thereto and CRG Servicing LLC.

8-K 001-40033 10.3 3/28/2024

10.38 Consent, by and between P3 Health Group, LLC and VBC Growth SPV LLC.

8-K 001-40033 10.4 3/28/2024

21.1 * List of Subsidiaries.

6 unchanged sentences

Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Document

Policy for Recovery of Erroneously Awarded Compensation.

101.INS * Inline XBRL Instance Document

101.SCH * Inline XBRL Taxonomy Extension Schema Document

101.CAL * Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF * Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB * Inline XBRL Taxonomy Extension Label Linkbase Document

P3 Health Partners Inc.

| 2023 Form 10-K | 123

Number Description

Incorporated by Reference

Form File No.

Exhibit Filing Date

101.PRE * Inline XBRL Taxonomy Extension Presentation Document

104 * Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

____________________

Filed herewith

2 unchanged sentences

Form 10-K Summary.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

P3 Health Partners Inc.

| 2023 Form 10-K | 124

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

P3 Health Partners Inc.

/s/ Sherif W.

1 unchanged sentence

Chief Executive Officer

(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Sherif W.

Chief Executive Officer and Director

March 31, 2023

Chief Executive Officer and Director March 28, 2024

(Principal Executive Officer)

/s/ Atul Kavthekar

Chief Financial Officer

March 31, 2023

Atul Kavthekar

(Principal Financial Officer and Principal Accounting Officer)

/s/ Mark Thierer

Chairman of the Board of Directors

March 31, 2023

Chief Medical Officer and Director

March 31, 2023

/s/ Atul Kavthekar Chief Financial Officer March 28, 2024

Atul Kavthekar (Principal Financial Officer and Principal Accounting Officer)

/s/ Mark Thierer Chairman of the Board of Directors March 28, 2024

Bacchus, M.D.

Chief Medical Officer and Director March 28, 2024

Bacchus, M.D.

/s/ Gregory N.

March 31, 2023

Kazarian Director March 28, 2024

/s/ Lawrence B.

March 31, 2023

Leisure Director March 28, 2024

/s/ Jeffrey G.

March 31, 2023

Park Director March 28, 2024

/s/ Thomas E.

March 31, 2023

/s/ Greg Wasson

March 31, 2023

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

Las Vegas, Nevada ;

PCAOB ID# 243 )

Consolidated Balance Sheets as of December 31, 2022 and 2021

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

P3 Health Partners Inc.

Henderson, Nevada

Opinion on the Consolidated Financial Statements

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

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

As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to this matter is also described in Note 2.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the 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 audits 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 audits provide a reasonable basis for our opinion.

/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

(Dollars in thousands, except per share amounts)

CURRENT ASSETS:

Restricted cash

Health plan receivable

Clinic fees and insurance receivable, net

Other receivable

Prepaid expenses and other current assets

TOTAL CURRENT ASSETS

LONG-TERM ASSETS:

Property and equipment, net

Intangible assets, net

Other long-term assets

TOTAL LONG-TERM ASSETS

TOTAL ASSETS (1)

LIABILITIES, MEZZANINE EQUITY, and STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

Accrued expenses and other current liabilities

Accrued payroll

Health plan settlements payable

Claims payable

Premium deficiency reserve

Accrued interest

Current portion of long-term debt

Short-term debt

TOTAL CURRENT LIABILITIES

LONG-TERM LIABILITIES:

Operating lease liability

Warrant liabilities

Contingent consideration

Long-term debt, net

TOTAL LONG-TERM LIABILITIES

TOTAL LIABILITIES (1)

COMMITMENTS AND CONTINGENCIES (NOTE 17 AND NOTE 21)

MEZZANINE EQUITY

Redeemable non-controlling interest

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, 2022 and 2021

Class V common stock, $ 0.0001 par value;

205,000,000 shares authorized;

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

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”).

As discussed in Note 23:

Variable Interest Entities, P3 LLC is itself a VIE.

P3 LLC represents substantially all the assets and liabilities of the Company.

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

The 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.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

December 3, 2021

January 1, 2021

through December 31,

through December 2,

OPERATING REVENUE:

Capitated revenue

Other patient service revenue

TOTAL OPERATING REVENUE

OPERATING EXPENSE:

Medical expense

Premium deficiency reserve

Corporate, general and administrative expense

Sales and marketing expense

Depreciation and amortization

Goodwill impairment

TOTAL OPERATING EXPENSE

OPERATING LOSS

( 1,560,913 )

OTHER INCOME (EXPENSE):

Interest expense, net

Mark-to-market of stock warrants

TOTAL OTHER INCOME (EXPENSE)

LOSS BEFORE INCOME TAXES

( 1,559,695 )

PROVISION FOR INCOME TAXES

( 1,561,557 )

NET LOSS ATTRIBUTABLE TO REDEEMABLE NON-CONTROLLING INTERESTS

( 1,291,430 )

NET LOSS ATTRIBUTABLE TO CONTROLLING INTERESTS

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’ DEFICIT AND MEZZANINE EQUITY

(Dollars in thousands)

Class A Units Subject to

Class D Units Subject to

Possible Redemption

Profit Interests

MEMBERS’ DEFICIT, as of December 31, 2020

Class B-1 and Class C Unit Based Compensation

Class B-2 Units Accelerated on Merger Date

Class B-3 Units Accelerated on Merger Date

Class C-1 Units Accelerated on Merger Date

Class C-2 Units Accelerated on Merger Date

MEMBERS’ DEFICIT, as of December 2, 2021

Non-controlling

Class A Common Stock

Class V Common Stock

Additional Paid

Total Stockholders’

in Capital (1)

STOCKHOLDERS’ EQUITY, December 3, 2021

Equity-based compensation

STOCKHOLDERS’ EQUITY, December 31, 2021

Vesting of Class V common stock awards

Equity-based compensation

Class A common stock warrants issued

( 1,291,430 )

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.

P3 HEALTH PARTNERS INC and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

December 3, 2021

January 1, 2021

through December 31,

through December 2,

CASH FLOWS FROM OPERATING ACTIVITIES:

( 1,561,557 )

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

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

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

Health plan settlements payable

Claims payable

Accrued interest

Operating lease liability

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

Acquisitions, net of cash acquired

Notes receivable

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from PIPE, net of issuance costs

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

Proceeds from short-term debt

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

Cash and restricted cash at beginning of period

Cash and restricted cash at end of period

Supplemental disclosure of cash flow information:

Cash paid for interest

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

P3 Health Partners Inc.

(“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”), 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.

The services provided to health plans’ members vary by contract.

These may include utilization management, care management, disease education, and maintenance of a quality improvement and quality management program for members assigned to the Company.

The Company is also responsible for the credentialing of 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.

Going Concern and Liquidity

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, 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.

If the Company is unable to obtain additional funding when needed, it will need to curtail planned activities in order to reduce costs, which will likely have an unfavorable effect on the Company’s ability to execute on its business plan, and have an adverse effect on its business, results of operations, and future prospects.

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

Significant Accounting Policies

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.

● P3 Medical Group, P.C.

● P3 Health Partners California, P.C.

(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

Preparation of these consolidated financial statements and accompanying footnotes, in conformity with GAAP, requires management to make estimates and assumptions that could affect amounts reported here.

Management bases its estimates on the best information available at the time, its experiences and various other assumptions believed to be reasonable under the circumstances, including estimates of the impact of COVID-19.

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, 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.

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, 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

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, 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

January 1, 2021

through December 31,

through December 2,

Capitated revenue

Other patient service revenue:

Clinical fees & insurance revenue

Shared risk revenue

Care coordination / management fees

Incentive fees

Total other patient service revenue

Total revenue

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 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 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.

Medicare Advantage plans with higher acuity patients receive higher premiums.

Conversely, Medicare Advantage plans with lower acuity patients receive lesser premiums.

Under the risk adjustment model, capitation is paid on an interim basis based on enrollee data submitted for the preceding year and is adjusted in subsequent periods after final data is compiled.

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 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 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.

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.

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 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, 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;

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.

On a quarterly or monthly basis, health plans conduct a settlement of the reserve to determine any surplus or deficit amount.

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 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 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 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.

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.

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.

Retroactively calculated explicit price concessions tied to reimbursement agreements with third-party payers are recognized on an estimated basis in the period related services are rendered and adjusted in future periods as final payments are received.

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 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 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 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.

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 these parties.

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

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, 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 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.

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

Property and equipment is carried at acquisition cost, net of accumulated depreciation.

Costs for repairs and maintenance of property and equipment, after such property and equipment has been placed in service, are expensed as incurred.

Costs and related accumulated depreciation are eliminated when property and equipment is sold or otherwise disposed.

Sales and disposals may result in asset-specific gains or losses.

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

Depreciation Cycle

Leasehold improvements (cycle:

1 to 10 Years

Furniture and fixtures

Computer equipment

Medical equipment

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 uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market.

When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels (see Note 6 “Fair Value Measurements and Hierarchy” for further discussion):

Level 1 inputs:

Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 inputs:

Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 inputs:

Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

Impairment of Long-Lived Assets

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.

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

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 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.

Intangible Assets

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives.

In determining the estimated useful lives of definite-lived intangibles, the Company considers the nature, competitive position, life cycle position and historical and expected future operating cash flows of each acquired asset, as well as its commitment to support these assets through continued investment and legal infringement protection.

The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset.

Such events and circumstances include the occurrence of an adverse change in the market involving the business employing the assets or a situation in which it is more likely than not that the Company will dispose of such assets.

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 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.

The Company is generally not able to readily determine the implicit rate in the lease and therefore uses the determined incremental borrowing rate at lease commencement to compute the present value of lease payments.

The incremental borrowing rate represents an estimate of the market interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease.

Renewal options are not included in the measurement of the right-of-use assets and lease liabilities unless the Company is reasonably certain to exercise the optional renewal periods.

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, 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’s lease agreements contain variable payments for common area maintenance and utilities.

The Company has elected the practical expedient to combine lease and non-lease components for all asset categories;

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.

Business Combinations

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.

Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts.

Adjustments to these provisional amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed, and the non-controlling interests obtained, limited to one year from the acquisition date) are recorded when identified.

Equity-Based Compensation

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.

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 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).

Warrants classified as equity are initially measured at fair value.

Subsequent changes in fair value are not recognized as long as the warrants continue to be classified as equity.

The Company classifies as assets or liabilities any equity-linked contracts that (1) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the Company’s control) or (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

For equity-linked contracts that are classified as liabilities, the Company records the fair value of the equity-linked contracts at each balance sheet date and records the change in the statements of operations as a gain (loss) from change in fair value of warrant liability.

The Company’s public warrant liability is valued using observable market prices for those public warrants.

The Company’s private placement warrants are valued using a binomial lattice pricing model when the warrants are subject to the make-whole table, or otherwise are valued using a Black-Scholes pricing model.

The Company’s warrants issued to a capital provider are valued using a Black-Scholes-Merton pricing model based on observable market prices for public shares and warrants.

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.

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.

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 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.

This also includes an estimate of the cost of services that have been incurred, but not yet reported (“IBNR”).

Medical expenses also include costs for overseeing the quality of care and programs, which focus on patient wellness.

Additionally, healthcare expenses can include, from time to time, remediation of certain claims that might result from periodic reviews conducted by various regulatory agencies.

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.

IBNR estimates are made on an accrual basis and adjusted in future periods as required.

Any adjustments to prior period estimates are included in the current period.

Such estimates are subject to the impact from changes in both the regulatory and economic environments.

The Company’s claims payable represents management’s best estimate of its liability for unpaid medical costs as of December 31, 2022 and 2021.

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 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 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 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.

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

ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”)

ASU 2021-08 requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

At the acquisition date, an acquirer should account for the related revenue contracts as if it had originated the contracts.

The amendments in this update are effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

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”)

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, 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.

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.

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

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;

(ii) No one predecessor stakeholder of P3 had a controlling interest in P3 before or has a controlling interest in the combined company after the Business Combinations.

The Business Combinations is not a transaction between entities under common control.

The following summarizes the purchase price consideration:

Fair value of redeemable non-controlling interest

Stock compensation pre-combination services

Cash consideration

Payment of P3 LLC’s transaction costs

Total purchase consideration

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 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 receivables

Clinic fees and insurance receivables, net

Other receivables

Prepaid expenses and other current assets

Property and equipment

Definite lived intangible assets:

Customer relationships

Provider network

Operating lease right-of-use assets (1)

Total assets acquired

Liabilities assumed:

Accounts payable and accrued expenses

Accrued payroll

Health plan settlements payable

Claims payable

Premium deficiency reserve

Accrued interest

Current portion of long-term debt

Operating lease liability

Long-term debt, net of current portion

Total liabilities assumed

Net assets acquired

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

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.

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 receivables

Clinic fees and insurance receivables, net

Other receivables

Prepaid expenses and other current assets

Property and equipment

Definite lived intangible assets:

Customer relationships

Payor contracts

Provider network

Indefinite lived intangible assets:

Medical licenses

Total assets acquired

Liabilities assumed:

Accounts payable

Accrued payroll

Health plan settlements payable

Claims payable

Total liabilities assumed

Net assets acquired

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 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

Net loss attributable to non-controlling interest

Net loss attributable to controlling interest

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

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:

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

Exercise price

Expected term

Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the warrants would each result in a directionally similar change in the estimated fair value of the Company’s warrant liabilities.

Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability.

An increase in the risk-free interest rate would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability.

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.

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

January 1, 2021

December 2, 2021

Beginning balance

Mark-to-market adjustment of stock warrants

Ending balance

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 consisted of the following:

Leasehold improvements

Furniture & fixtures

Computer equipment & software

Medical equipment

Software (development in process)

accumulated depreciation

Property and equipment, net

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)

Accumulated goodwill impairment losses

Balance at December 31, 2021

Accumulated goodwill impairment losses

Impairment losses

( 1,314,952 )

Balance at December 31, 2022

Accumulated goodwill impairment losses

( 1,314,952 )

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 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.

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 for the term of the related Notes.

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 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

Incurred, related to:

Current period

Prior period(s)

Total incurred

Paid, related to:

Current period

Prior period(s)

Claims unpaid assumed in acquisitions

Claims unpaid, end of period

Estimates for incurred claims are based on historical enrollment and cost trends while also taking into consideration operational changes.

Future and actual results typically differ from estimates.

Differences could result from an overall change in medical expenses per member, changes in member mix or simply due to the addition of new members.

Long-Term Debt

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

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 $ 3.7 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.

federal and most applicable state and local income tax jurisdictions.

As a partnership, P3 LLC is generally not subject to U.S.

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 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.

The Company is taxed as a corporation and pays corporate federal, state, and local taxes on income allocated to it from P3 LLC based on the Company’s economic interest held in P3 LLC.

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 consolidated financial statements.

The components of loss before income taxes were as follows:

December 3, 2021

January 1, 2021

through December 31,

through December 2,

( 1,559,695 )

The components of income tax expense were as follows:

December 3, 2021

January 1, 2021

through December 31,

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

Non-controlling interest and nontaxable income

Change in valuation allowance

Investment in P3 LLC

Other reconciling items

Effective tax rate

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 the Company’s deferred income tax assets and liabilities are as follows:

Deferred tax assets:

Investment in P3 LLC

Net operating loss carryforwards

Accrued liabilities

Goodwill and identifiable intangible assets

Section 163j interest limitation

Other deferred tax assets

Total deferred tax assets

valuation allowance

Net deferred tax assets

Deferred tax liabilities:

Other deferred tax liabilities

Operating lease, right-of-use assets

Goodwill and identifiable intangible assets

Total deferred tax liabilities

Net deferred tax asset

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 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, the Company has recorded a valuation allowance against the tax benefits of the U.S.

losses incurred.

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 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.

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 (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.

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.

Generally, federal and state tax authorities provide that the statutes of limitations remain open for three or four years from the tax year in which net operating losses or tax credits are utilized.

On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan Act”) was passed into law and amended portions of relevant tax laws.

The American Rescue Plan Act did not have a significant impact on the provision for income taxes for the year ended December 31, 2021.

Tax Receivable Agreement

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 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.

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.

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.

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

In 2017, the Predecessor Company adopted the Management Incentive Plan (the “Predecessor Equity Plan”).

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 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 .

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 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

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,

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.

December 3, 2021

through 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

Maturities of operating lease liabilities as of December 31, 2022 are as follows:

Year Ending December 31,

Total undiscounted future cash flows

Present value of operating lease liabilities

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

January 1, 2021

through December 31,

through December 2,

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

The Company maintains a retirement savings 401(k) Plan (the “401(k) Plan”) for full-time employees.

Participants may elect to contribute to the 401(k) Plan, through payroll deductions, subject to Internal Revenue Service limitations.

At its discretion, the Company can make a matching contribution to the 401(k) Plan.

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 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, 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’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

The Company is a party to various claims, legal and regulatory proceedings, lawsuits, and administrative actions arising in the ordinary course of business and associated with the Business Combinations.

The Company carries general and professional liability insurance coverage to mitigate the Company’s risk of potential loss in such cases.

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.

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

The healthcare industry is subject to numerous laws and regulations of Federal, state, and local governments.

These laws and regulations include, but are not limited to, matters of licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare / Medicaid Fraud, Waste and Abuse Prevention.

Recently, government activity has increased with respect to investigations and allegations concerning possible violations of Fraud, Waste and Abuse statutes and regulations by healthcare providers.

Violations of these laws and regulations could result in expulsion from government healthcare programs together with imposition of significant fines and penalties as well as significant repayment for patient services billed.

Management believes the Company is compliant with Fraud, Waste and Abuse regulations as well as other applicable government laws.

While no regulatory inquiries have been made, compliance with such laws and regulations is subject to government review and interpretation, as well as other regulatory actions which might be unknown at this time.

Healthcare reform legislation at both the Federal and state levels continues to evolve.

Changes continue to impact existing and future laws and rules.

Such changes may impact the manner in which the Company conducts business, restrict the Company’s revenue growth in certain eligibility categories, slow down revenue growth rates for certain eligibility categories, increase certain medical, administrative and capital costs, and expose the Company to increased risk of loss or further liabilities.

As a result, the Company’s consolidated financial position could be impacted by such changes.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated COVID-19 a global pandemic.

The rapid spread of COVID-19 around the world and throughout the U.S.

has altered the behavior of businesses and people, with significant negative effects on Federal, state, and local economies, the duration of which continues to remain unknown.

Various mandates were implemented by Federal, state, and local governments in response to the pandemic, which caused many people to remain at home along with forced closure of or limitations on certain businesses.

This included suspension of elective procedures by healthcare facilities.

While some of these restrictions have been eased across the U.S.

and most states have lifted moratoriums on non-emergent procedures, some restrictions remain in place, and many state and local governments are re-imposing certain restrictions due to an increase in reported COVID-19 cases.

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 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.

The full extent to which COVID-19 will directly or indirectly impact the Company, its future results of operations and financial condition will depend on factors which are highly uncertain and cannot be accurately predicted.

This includes new and emerging information from the impact of new variants of the virus, the actions taken to contain it or treat its impact and the economic impact on the Company’s markets.

Such factors include, but are not limited to, the scope and duration of stay-at-home practices and business closures and restrictions, government- imposed or recommended suspensions of elective procedures, and expenses required for supplies and personal protective equipment.

Because of these and other uncertainties, Management cannot estimate the length or severity of the impact of the pandemic on the Company’s business.

Furthermore, because of the Company’s business model, the full impact of COVID-19 may not be fully reflected in the Company’s results of operations and overall financial condition until future periods.

However, Management will continue to closely evaluate and monitor the nature and extent of these potential impacts to the Company’s business, results of operations, and liquidity.

Related Parties

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

January 1, 2021

through December 31,

through December 2,

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

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 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

Accrued expenses and other current liabilities

Accrued payroll

Due to consolidated entities of P3

TOTAL LIABILITIES

MEMBERS’ DEFICIT

TOTAL LIABILITIES AND MEMBERS’ DEFICIT

December 3, 2021

January 1, 2021

through December 31,

through December 2,

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 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 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

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.

Director March 28, 2024

Tolan Director March 28, 2024

/s/ Greg Wasson Director March 28, 2024

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