RadNet, Inc. 10-Q

Item 1 – Financial Statements RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) June 30, 2021 December 31, 2020 (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 140,852 $ 102,018 Accounts receivable 157,328 129,585 Due from affiliates 6,290 5,836 Prepaid expenses and other current assets 30,449 32,985 Total current assets 334,919 270,424 PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS Property and equipment, net 435,172 399,335 Operating lease right-of-use assets 593,574 483,661 Total property, equipment and right-of-use assets 1,028,746 882,996 OTHER ASSETS Goodwill 502,331 472,879 Other intangible assets 51,783 52,393 Deferred financing costs 2,386 1,767 Investment in joint ventures 41,375 34,528 Deferred tax assets, net of current portion 29,390 34,687 Deposits and other 41,268 36,983 Total assets $ 2,032,198 $ 1,786,657 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable, accrued expenses and other $ 244,536 $ 236,684 Due to affiliates 22,596 14,010 Deferred revenue 31,947 39,257 Current finance lease liability — 2,578 Current operating lease liability 71,399 65,794 Current portion of notes payable 10,789 39,791 Total current liabilities 381,267 398,114 LONG-TERM LIABILITIES Long-term finance lease liability — 743 Long-term operating lease liability 567,674 463,096 Notes payable, net of current portion 749,079 612,913 Other non-current liabilities 34,899 53,488 Total liabilities 1,732,919 1,528,354 EQUITY Common stock - $ 0.0001 par value, 200,000,000 shares authorized; 52,678,030 and 51,640,537 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively 5 5 Additional paid-in-capital 324,954 307,788 Accumulated other comprehensive loss ( 22,227 ) ( 24,051 ) Accumulated deficit ( 105,668 ) ( 117,999 ) Total RadNet, Inc.'s stockholders' equity 197,064 165,743 Noncontrolling interests 102,215 92,560 Total equity 299,279 258,303 Total liabilities and equity $ 2,032,198 $ 1,786,657 The accompanying notes are an integral part of these financial statements. 1 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 REVENUE Service fee revenue $ 295,494 $ 155,698 $ 575,071 $ 404,031 Revenue under capitation arrangements 38,424 34,868 74,166 68,099 Total service revenue 333,918 190,566 649,237 472,130 Provider relief funding 43 25,475 6,291 25,475 OPERATING EXPENSES Cost of operations, excluding depreciation and amortization 283,571 194,217 565,851 461,635 Depreciation and amortization 24,011 21,355 46,667 43,289 (Gain) loss on sale and disposal of equipment and other ( 1,567 ) ( 569 ) ( 2,874 ) 202 Severance costs 268 859 551 1,076 Total operating expenses 306,283 215,862 610,195 506,202 INCOME (LOSS) FROM OPERATIONS 27,678 179 45,333 ( 8,597 ) OTHER INCOME AND EXPENSES Interest expense 12,171 10,831 24,997 22,382 Equity in earnings of joint ventures ( 3,121 ) ( 945 ) ( 5,406 ) ( 2,900 ) Non-cash change in fair value of interest rate hedge ( 35 ) 3,843 ( 11,280 ) 3,843 Debt restructuring and extinguishment expenses 6,044 — 6,044 — Other expenses (income) 1,658 ( 115 ) 1,867 ( 108 ) Total other (income) expenses 16,717 13,614 16,222 23,217 INCOME (LOSS) BEFORE INCOME TAXES 10,961 ( 13,435 ) 29,111 ( 31,814 ) (Provision for) benefit from income taxes ( 2,874 ) 4,475 ( 7,249 ) 8,856 NET INCOME (LOSS) 8,087 ( 8,960 ) 21,862 ( 22,958 ) Net income attributable to noncontrolling interests 5,214 1,634 9,531 3,994 NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 2,873 $ ( 10,594 ) $ 12,331 $ ( 26,952 ) BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.05 $ ( 0.21 ) $ 0.24 $ ( 0.53 ) DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.05 $ ( 0.21 ) $ 0.23 $ ( 0.53 ) WEIGHTED AVERAGE SHARES OUTSTANDING Basic 52,238,709 50,672,219 52,004,653 50,483,274 Diluted 53,133,091 50,672,219 52,890,561 50,483,274 The accompanying notes are an integral part of these financial statements. 2 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 NET INCOME (LOSS) $ 8,087 $ ( 8,960 ) $ 21,862 $ ( 22,958 ) Foreign currency translation adjustments ( 9 ) ( 7 ) ( 21 ) ( 6 ) Change in fair value of cash flow hedge, net of taxes — ( 409 ) — ( 18,958 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes 920 892 1,845 892 COMPREHENSIVE INCOME (LOSS) 8,998 ( 8,484 ) 23,686 ( 41,030 ) Less comprehensive income attributable to noncontrolling interests 5,214 1,634 9,531 3,994 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 3,784 $ ( 10,118 ) $ 14,155 $ ( 45,024 ) The accompanying notes are an integral part of these financial statements. 3 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE DATA) (unaudited) The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the three months ended June 30, 2021 and June 30, 2020. Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Radnet, Inc.'s Equity Noncontrolling Interests Total Equity Shares Amount BALANCE - March 31, 2021 52,340,856 $ 5 $ 316,032 $ ( 23,138 ) $ ( 108,541 ) $ 184,358 $ 97,000 $ 281,358 Issuance of common stock upon exercise of options 2,500 — 26 — — 26 — 26 Issuance of common stock under the equity compensation plan 333,533 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 1,141 — — — — — — — Stock-based compensation expense — — 8,897 — — 8,897 — 8,897 Change in cumulative foreign currency translation adjustment — — — ( 9 ) — ( 9 ) — ( 9 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes — — — 920 — 920 — 920 Other — — ( 1 ) — ( 1 ) 1 — Net income — — — — 2,873 2,873 5,214 8,087 BALANCE-JUNE 30, 2021 52,678,030 $ 5 $ 324,954 $ ( 22,227 ) $ ( 105,668 ) $ 197,064 $ 102,215 $ 299,279 BALANCE - March 31, 2020 50,694,375 $ 5 $ 269,461 $ ( 26,574 ) $ ( 119,517 ) $ 123,375 $ 83,814 $ 207,189 Issuance of common stock under the equity compensation plan 36,770 — — — — — — — Stock-based compensation expense — — 1,540 — — 1,540 — 1,540 Issuance of common stock for sale of unregistered securities for the DeepHealth acquisition 823,615 — 33,011 — — 33,011 — 33,011 Change in cumulative foreign currency translation adjustment — — — ( 7 ) — ( 7 ) — ( 7 ) Change in fair value cash flow hedge, net of taxes — — — ( 409 ) — ( 409 ) — ( 409 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings — — — 892 — 892 892 Net (loss) income — — — — ( 10,594 ) ( 10,594 ) 1,634 ( 8,960 ) BALANCE-JUNE 30, 2020 51,554,760 $ 5 $ 304,012 $ ( 26,098 ) $ ( 130,111 ) $ 147,808 $ 85,448 $ 233,256 The accompanying notes are an integral part of these financial statements. 4 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE DATA) (unaudited) The following table summarizes changes in the Company’s consolidated stockholders' equity, including noncontrolling interest, during the six months ended June 30, 2021 and June 30, 2020. Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Radnet, Inc.'s Equity Noncontrolling Interests Total Equity Shares Amount BALANCE - December 31, 2020 51,640,537 $ 5 $ 307,788 $ ( 24,051 ) $ ( 117,999 ) $ 165,743 $ 92,560 $ 258,303 Issuance of common stock upon exercise of options 2,500 — 26 — — 26 — 26 Issuance of common stock under the equity compensation plan 1,033,358 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 1,635 — — — — — — — Stock-based compensation expense — — 17,145 — — 17,145 — 17,145 Purchase of noncontrolling interests — — ( 4 ) — — ( 4 ) — ( 4 ) Contribution from noncontrolling partner — — — — — — 123 123 Change in cumulative foreign currency translation adjustment — — — ( 21 ) — ( 21 ) — ( 21 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes — — — 1,845 — 1,845 — 1,845 Other — — ( 1 ) — — ( 1 ) 1 — Net income — — — — 12,331 12,331 9,531 21,862 BALANCE-JUNE 30, 2021 52,678,030 $ 5 $ 324,954 $ ( 22,227 ) $ ( 105,668 ) $ 197,064 $ 102,215 $ 299,279 BALANCE - December 31, 2019 50,314,328 $ 5 $ 262,865 $ ( 8,026 ) $ ( 103,159 ) $ 151,685 $ 81,454 $ 233,139 Issuance of common stock under the equity compensation plan 416,817 — — — — — — — Stock-based compensation expense — — 8,136 — — 8,136 — 8,136 Issuance of common stock for sale of unregistered securities for the DeepHealth acquisition 823,615 — 33,011 — — 33,011 — 33,011 Change in cumulative foreign currency translation adjustment — — — ( 6 ) — ( 6 ) — ( 6 ) Change in fair value cash flow hedge, net of taxes — — — ( 18,958 ) — ( 18,958 ) — ( 18,958 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes 892 892 892 Net (loss) income — — — — ( 26,952 ) ( 26,952 ) 3,994 ( 22,958 ) BALANCE-JUNE 30, 2020 51,554,760 $ 5 $ 304,012 $ ( 26,098 ) $ ( 130,111 ) $ 147,808 $ 85,448 $ 233,256 The accompanying notes are an integral part of these financial statements. 5 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (unaudited) Six Months Ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 21,862 $ ( 22,958 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 46,667 43,289 Amortization of operating lease right-of-use assets 36,834 34,094 Equity in earnings of joint ventures, net of dividends ( 5,406 ) ( 2,900 ) Amortization of deferred financing costs and loan discount 1,959 2,163 (Gain) loss on sale and disposal of equipment and other ( 2,874 ) 202 Loss on extinguishment of debt 1,496 — Amortization of cash flow hedge, net of taxes 1,845 892 Non-cash change in fair value of interest rate hedge ( 11,280 ) 3,843 Stock-based compensation 17,145 8,078 Change in fair value of contingent consideration 1,292 ( 97 ) Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions: Accounts receivable ( 28,156 ) 29,018 Other current assets 2,963 9,884 Other assets ( 4,997 ) ( 4,257 ) Deferred taxes 5,297 ( 11,678 ) Operating lease liability ( 36,564 ) ( 30,182 ) Deferred revenue ( 7,147 ) 44,384 Accounts payable, accrued expenses and other 17,765 27,690 Net cash provided by operating activities 58,701 131,465 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of imaging facilities and other acquisitions ( 64,918 ) ( 4,188 ) Purchase of property and equipment ( 53,799 ) ( 64,193 ) Proceeds from sale of equipment 500 779 Equity contributions in existing and purchase of interest in joint ventures ( 1,441 ) — Net cash used in investing activities ( 119,658 ) ( 67,602 ) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes and leases payable ( 3,304 ) ( 1,814 ) Payments on term loan debt ( 613,279 ) ( 21,648 ) Proceeds from debt refinancing, net of issuing costs 716,369 — Proceeds from paycheck protection program loans — 4,023 Proceeds from revolving credit facility 128,300 250,900 Payments on revolving credit facility ( 128,300 ) ( 250,900 ) Proceeds from issuance of common stock upon exercise of options 26 — Net cash provided by (used in) financing activities 99,812 ( 19,439 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 21 ) ( 6 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 38,834 44,418 CASH AND CASH EQUIVALENTS, beginning of period 102,018 40,165 CASH AND CASH EQUIVALENTS, end of period $ 140,852 $ 84,583 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 13,774 $ 22,826 The accompanying notes are an integral part of these financial statements. 6 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (unaudited) Supplemental Schedule of Non-Cash Investing and Financing Activities We acquired equipment and certain leasehold improvements for approximately $ 42.1 million and $ 31.8 million during the six months ended June 30, 2021 and 2020, respectively, which were not paid for as of June 30, 2021 and 2020 , respectively. The offsetting amounts due were recorded in our condensed consolidated balance sheet under accounts payable, accrued expenses and other. On January 1, 2021 we entered into the Simi Valley Imaging Group, LLC, partnership agreement with Simi Valley Hospital and Health Services ("Simi Adventist"). Of the total combined assets of $ 0.4 million, RadNet transferred $ 0.3 million and Simi Adventist contributed the remaining $ 0.1 million. On June 1, 2020, we completed our stock purchase of DeepHealth, Inc. by issuing 823,615 shares of our common stock to purchase all of Deep Health's shares and share equivalents. The shares were ascribed a value of $ 13.9 million. 7 Table of Contents RADNET, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION We are a national provider of freestanding, fixed-site outpatient diagnostic imaging services with operations in seven U.S. states. At June 30, 2021, we operated, directly or indirectly through joint ventures with hospitals, 353 centers located in Arizona, California, Delaware, Florida, Maryland, New Jersey, and New York. Our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders. Our services include magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology (X-ray), fluoroscopy and other related procedures. The vast majority of our centers offer multi-modality imaging services. Our multi-modality strategy diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians the convenience of a single location to serve the needs of multiple procedures. In addition to our imaging services, we design and develop software applications, artificial intelligence tools and other computerized systems for the diagnostic imaging industry. Our operations comprise a single segment for financial reporting purposes. The consolidated financial statements include the accounts of RadNet, Inc as well as its subsidiaries in which RadNet has a controlling financial interest. The consolidated financial statements also include certain variable interest entities in which we are the primary beneficiary (as described in more detail below). All material intercompany transactions and balances have been eliminated upon consolidation. All of these affiliated entities are referred to collectively as “RadNet”, “we”, “us”, “our” or the “Company” in this report. Accounting regulations stipulate that generally any entity with a) insufficient equity to finance its activities without additional subordinated financial support provided by any parties, or b) equity holders that, as a group, lack the characteristics which evidence a controlling financial interest, is considered a variable interest entity (“VIE”). We consolidate all VIEs in which we are the primary beneficiary. We determine whether we are the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. VIEs that we consolidate as the primary beneficiary consist of professional corporations which are owned or controlled by individuals within our senior management, namely Howard G. Berger, M.D., our President and Chief Executive Officer and a member of our Board of Directors, and John V. Crues, III, M.D., RadNet's Medical Director. Dr. Berger owns, indirectly, 99 % of the equity interests in Beverly Radiology Medical Group III (BRMG) and a controlling interest in two professional corporations in New York City. BRMG is responsible for the professional medical services at nearly all of our facilities located in California. Dr. Crues owns six professional corporations which provide medical services in Delaware, Maryland, New Jersey and New York. Additionally, Dr. Crues is a 1 % owner of BRMG. These VIEs are collectively referred to as the Group. RadNet provides non-medical, technical and administrative services to the Group for which it receives a management fee, pursuant to the related management agreements. Through the management agreements we have exclusive authority over all non-medical decision making related to the ongoing business operations and we determine the annual budget. The Group has insignificant operating assets and liabilities, and de minimis equity. Through management agreements with us, substantially all cash flows of the Group after expenses, including professional salaries, are transferred to us. We consolidate the revenue and expenses, assets and liabilities of the Group. The Group on a combined basis recognized $ 45.1 million and $ 26.9 million of revenue, net of management services fees to RadNet, for the three months ended June 30, 2021 and 2020, respectively and $ 45.1 million and $ 26.9 million of operating expenses for the three months ended June 30, 2021 and 2020, respectively. RadNet recognized $ 190.6 million and $ 116.4 million of total billed net service fee revenue for the three months ended June 30, 2021, and 2020, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue. The Group on a combined basis recognized $ 91.2 million and $ 66.4 million of revenue, net of management services fees to RadNet, for the six months ended June 30, 2021 and 2020, respectively and $ 91.2 million and $ 66.4 million of operating expenses for the six months ended June 30, 2021 and 2020, respectively. RadNet recognized $ 369.5 million and $ 264.3 million 8 Table of Contents of total billed net service fee revenue for the six months ended June 30, 2021, and 2020, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue. The cash flows of the Group are included in the accompanying condensed consolidated statements of cash flows. All intercompany balances and transactions have been eliminated in consolidation. In our condensed consolidated balance sheets at June 30, 2021 and December 31, 2020, we have included approximately $ 102.4 million and $ 82.3 million, respectively, of accounts receivable and approximately $ 21.8 million and $ 15.2 million of accounts payable and accrued liabilities related to the Group, respectively. The creditors of the Group do not have recourse to our general credit and there are no other arrangements that could expose us to losses on their behalf. However, we may be required to provide financial support to cover any operating expenses in excess of operating revenues. We also own a 49 % economic interest in ScriptSender, LLC, which provides secure data transmission services of medical information. Through a management agreement, RadNet provides management and accounting services and receives an agreed upon fee. ScriptSender, LLC is dependent on RadNet to finance its own activities, and as such we determined that it is a VIE but we are not a primary beneficiary since we do not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance. At all of our centers not serviced by the Group we have entered into long-term contracts (typically up to 40 years) with independent radiology groups to provide physician services at those centers. These radiology practices provide professional services, including supervision and interpretation of diagnostic imaging procedures, in our diagnostic imaging centers. The radiology practices maintain full control over the provision of professional services. Under these arrangements, in addition to obtaining technical fees for the use of our diagnostic imaging equipment and the provision of technical services, we provide management services and receive a fee based on the value of the services we provide. We own the diagnostic imaging equipment and, therefore, receive 100% of the technical reimbursements associated with imaging procedures. The radiology practice groups retain the professional reimbursements associated with imaging procedures after deducting management service fees paid to us and we have no economic controlling interest in these radiology practices as such, the financial results of these practices are not consolidated in our financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for conformity with U.S. generally accepted accounting principles for complete financial statements; however, in the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods ended June 30, 2021 and 2020 have been made. The results of operations for any interim period are not necessarily indicative of the results for a full year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto contained in our annual report on Form 10-K for the year ended December 31, 2020. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES During the period covered in this report, there have been no material changes to the significant accounting policies we use and have explained, in our annual report on Form 10-K for the fiscal year ended December 31, 2020. The information below is intended only to supplement the disclosure in our annual report on Form 10-K for the fiscal year ended December 31, 2020. REVENUES - Our revenues generally relate to net patient fees received from various payors and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period when our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payors. The payment arrangements with third-party payors for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. 9 Table of Contents As it relates to the Group, this service fee revenue includes payments for both the professional medical interpretation revenue recognized by them as well as the payment for all other aspects related to our providing the imaging services, for which we earn management fees. As it relates to others centers, this service fee revenue is earned through providing the use of our diagnostic imaging equipment and the provision of technical services as well as providing administration services such as clerical and administrative personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial, reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities. Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payors. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect. Under capitation arrangements with various health plans, we earn a per-enrollee amount each month for making available diagnostic imaging services to all plan enrollees under the capitation arrangement. Revenue under capitation arrangements is recognized in the period in which we are obligated to provide services to plan enrollees under contracts with various health plans. Our total service revenues during the three and six months ended June 30, 2021 and 2020 are presented in the table below based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Commercial insurance $ 187,354 $ 96,349 $ 369,566 $ 251,711 Medicare 71,407 35,082 134,877 92,587 Medicaid 9,039 4,300 17,486 10,980 Workers' compensation/personal injury 10,556 7,359 20,966 17,916 Other patient revenue 5,189 3,549 9,961 9,218 Management fee revenue 5,533 3,332 10,752 5,899 Teleradiology and Software revenue 2,621 2,200 5,047 5,970 Other 3,795 3,527 6,416 9,750 Service fee revenue 295,494 155,698 575,071 404,031 Revenue under capitation arrangements 38,424 34,868 74,166 68,099 Total service revenue $ 333,918 $ 190,566 $ 649,237 $ 472,130 COVID-19 PANDEMIC AND CARES ACT FUNDING - On March 11, 2020 the World Health Organization (WHO) designated COVID-19 as a global pandemic. To aid businesses and stimulate the national economy, Congress passed The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which was signed in to law on March 27, 2020. Beginning in the second quarter of 2020 and through the six months ended June 30, 2021, we received funding from the various programs established by the CARES Act as follows: • $ 39.5 million of accelerated Medicare payments through the twelve months ended December 31, 2020 • $ 4.0 million from the Paycheck Protection Program through the twelve months ended December 31, 2020 • $ 32.6 million total Provider Relief Funding, $ 26.3 million received for the 12 months ended December 31, 2020 and $ 6.3 million for the 6 months ended June 30, 2021 In addition, we have received for the 12 months ended December 31, 2020, $ 5.0 million in advance payments from insurer Blue Shield. 10 Table of Contents The accelerated Medicare and Blue Shield payments are recorded to Deferred Revenue in our condensed consolidated balance sheet and are being applied to revenue as services are performed beginning in 2021. For the six months ended June 30, 2021, $ 10.3 million of the accelerated Medicare and $ 3.8 million of the Blue Shield funds have been applied to revenue. The $ 4.0 million secured from the Paycheck Protection Program was accounted for as debt and in December 2020 we met the eligibility requirements under the government guidelines for forgiveness and the loans were written off to gain on extinguishment of debt. The Provider Relief Funding is displayed as such on our condensed consolidated statements of operations. The CARES Act also provides for a payment deferral of the employer portion of Social Security tax incurred during the pandemic, allowing half of such payroll taxes to be deferred until December 2021 and the remaining half until December 2022. At December 31, 2020 and at June 30, 2021, the Company had in total $ 16.3 million of deferred Social Security taxes. The current portion of payment deferrals are recorded as payroll tax liability under the caption “Accounts payable, accrued expenses and other”, while the long term portion is recorded to Other Long Term Liabilities in our condensed consolidated balance sheet. ACCOUNTS RECEIVABLE - Substantially all of our accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, or directly from patients. Services are generally provided pursuant to one-year contracts with healthcare providers. We continuously monitor collections from our payors and maintain an allowance for bad debts based upon specific payor collection issues that we have identified and our historical experience. We have entered into factoring agreements with various institutions and sold certain accounts receivable under non-recourse agreements in exchange for notes receivables from the buyers. These transactions are accounted for as a reduction in accounts receivable as the agreements transfer effective control over and risk related to the receivables to the buyers. Proceeds on notes receivables are reflected as operating activities on our statement of cash flows and on our balance sheet as prepaid expenses and other current assets for the current portion and deposits and other for the long term portion. Amounts remaining to be collected on these agreement were $ 19.8 million and $ 20.5 million at June 30, 2021 and December 31, 2020, respectively. We do not utilize factoring arrangements as an integral part of our financing for working capital and assess the party's ability to pay upfront at the inception of the notes receivable and subsequently by reviewing their financial statements annually and reassessing any insolvency risk on a periodic basis. DEFERRED FINANCING COSTS - Costs of financing are deferred and amortized using the effective interest rate method. Deferred financing costs, net of accumulated amortization, were $ 2.4 million and $ 1.8 million, as of June 30, 2021 and December 31, 2020, respectively and related to our Barclays Revolving Credit Facility. See Note 5, Credit Facilities and Notes Payable for more information. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is performed using the straight-line method over the estimated useful lives of the assets acquired, which range from 3 to 15 years. Leasehold improvements are amortized at the lesser of lease term or their estimated useful lives, which range from 3 to 15 years. Maintenance and repairs are charged to expense as incurred. BUSINESS COMBINATION - When the qualifications for business combination accounting treatment are met, it requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. GOODWILL AND INDEFINITE LIVED INTANGIBLES - Goodwill at June 30, 2021 totaled $ 502.3 million. Indefinite lived intangible assets at June 30, 2021 were $ 7.1 million. Goodwill and Indefinite Lived Intangibles are recorded as a result of business combinations. When we determine the carrying value of reporting unit exceeds its fair value an impairment charge would be recognized and should not exceed the total amount of goodwill allocated to that reporting unit. We tested goodwill and indefinite lived intangibles for impairment on October 1, 2020, noting no impairment. However, during 2020 we ceased employing certain indefinite lived trade names with a total value of $ 4.2 million and they were written off in full. In addition to the annual impairment test, we regularly assess if an event has occurred which would require interim impairment 11 Table of Contents testing. We considered the current and expected future economic and market conditions surrounding COVID-19 pandemic and did not identify an indication of goodwill impairment being more likely than not through June 30, 2021. Activity in goodwill for the six months ended June 30, 2021 is provided below (in thousands): Balance as of December 31, 2020 $ 472,879 Goodwill acquired through acquisitions 29,375 Goodwill attributable to formation of Simi Valley Imaging Group LLC 105 Other Adjustments ( 28 ) Balance as of June 30, 2021 $ 502,331 INCOME TAXES - Income tax expense is computed using an asset and liability method and using expected annual effective tax rates. Under this method, deferred income tax assets and liabilities result from temporary differences in the financial reporting bases and the income tax reporting bases of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. When it appears more likely than not that deferred taxes will not be realized, a valuation allowance is recorded to reduce the deferred tax asset to its estimated realizable value. For net deferred tax assets we consider estimates of future taxable income in determining whether our net deferred tax assets are more likely than not to be realized. We recorded income tax expense of $ 2.9 million, or an effective tax rate of 26.2 %, for the three months ended June 30, 2021 compared to a benefit from income taxes of $ 4.5 million, or an effective tax rate of 33.3 % for the three months ended June 30, 2020. We recorded income tax expense of $ 7.2 million, or an effective tax rate of 24.9 %, for the six months ended June 30, 2021 compared to a benefit from income taxes of $ 8.9 million, or an effective tax rate of 27.8 % for the six months ended June 30, 2020. The income tax rates for the three and six months ended June 30, 2021 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships; (ii) effects of state income taxes; and (iii) excess tax benefits attributable to share-based compensation. We believe no significant changes in the unrecognized tax benefits will occur within the next 12 months. On March 27, 2020, the President of the United States signed into law the CARES Act, which among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact the Company’s current tax provision. LEASES - We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long term operating lease liability in our consolidated balance sheets. Finance leases are included in property and equipment, current finance lease liability, and long-term finance lease liability in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. We include options to extend a lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For a contract in which we are a lessee that contains fixed payments for both lease and non-lease components, we have elected to account for the components as a single lease component, as permitted. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the ROU asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. ROU assets are tested for impairment if circumstances suggest that the carrying amount may not be recoverable. Our ROU assets consist of facility and equipment assets on operating leases. No events have occurred such as fire, flood, or other acts which have impaired the integrity of our ROU assets as of June 30, 2021. Our facility leases require us to maintain insurance policies which would cover major damage to our facilities. We maintain business interruption insurance to cover loss of business due to a facility becoming non-operational under certain circumstances. Our equipment leases are covered by warranty and service contracts which cover repairs and provide regular maintenance to keep the equipment in functioning order. 12 Table of Contents EQUITY BASED COMPENSATION – We have one long-term incentive plan that we adopted in 2006 and which we have amended and restated at various points in time: first on April 20, 2015, second on March 9, 2017, and currently as of April 15, 2021 (the “Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 10, 2021. We have reserved 16,500,000 shares of common stock for issuance under the Restated Plan which can be issued in the form of incentive and/or nonstatutory stock options, restricted and/or unrestricted stock, stock units, and stock appreciation rights. Stock options generally vest over three years to five years and expire five years to ten years from date of grant. We determine the compensation expense for each stock option award using the Black Scholes, or similar valuation model. Those models require that our management make certain estimates concerning risk free interest rates and volatility in the trading price of our common stock. The compensation expense recognized for all equity-based awards is recognized over the awards’ service periods. Equity-based compensation is classified in operating expenses within the same line item as the majority of the cash compensation paid to employees. In connection with our acquisition of DeepHealth Inc. on June 1, 2020, we assumed the DeepHealth, Inc. 2017 Stock Incentive Plan, including outstanding options awards that can be exercised for our common stock. No additional awards will be granted under the DeepHealth, Inc. 2017 Equity Incentive Plan. See Note 6, Stock-Based Compensation, for more information. COMPREHENSIVE INCOME (LOSS) - Accounting guidance establishes rules for reporting and displaying comprehensive income or loss and its components. Our unrealized gains or losses on foreign currency translation adjustments, interest rate cap and swap agreements are included in comprehensive loss and are included in the consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020 . COMMITMENTS AND CONTINGENCIES - We are party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, we evaluate the developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. Based on current information, we do not believe that reasonably possible or probable losses associated with pending legal proceedings would either individually or in the aggregate, have a material adverse effect on our business and consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected. DERIVATIVE INSTRUMENTS - In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 Swaps"). The 2019 Swaps have total notional amounts of $ 500,000,000 , consisting of two agreements of $ 50,000,000 each and two agreements of $ 200,000,000 each. The 2019 Swaps will secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They will mature in October 2023 for the smaller notional and October 2025 for the larger notional. Under these arrangements, we arranged the 2019 Swaps with locked in 1 month LIBOR rates at 1.96 % for the $ 100,000,000 notional and at 2.05 % for the $ 400,000,000 notional. As of the effective date, we will be liable for premium payments if interest rates decline below arranged rates, but will receive interest payments if rates are above the arranged rates. At inception, we designated our 2019 Swaps as cash flow hedges of floating-rate borrowings. In accordance with accounting guidance, derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The gain or loss on the effective portion of the hedge (i.e. change in fair value) is reported as a component of comprehensive loss in the consolidated statement of equity. The remaining gain or loss, if any, is recognized currently in earnings. The cash flows for both our $ 400,000,000 notional interest rate swap contract locked in at 2.05 % due October 2025 and our $ 100,000,000 notional interest rate swap contract locked in at 1.96 % do not match the cash flows for our First Lien Term Loans and so we have determined that they are not currently effective as cash flow hedges. Accordingly, all changes in their fair value after April 1, 2020 for the $ 400,000,000 notional and after July 1, 2020 for the $ 100,000,000 notional are being recognized in earnings. As of July 1, 2020, the total change in fair value relating to swaps included in other comprehensive income was approximately $ 24.4 million, net of taxes. This amount will be amortized to interest expense through October 2023 at approximately $ 0.4 million per month and continuing at approximately $ 0.3 million through October 2025. A tabular presentation of the effect of derivative instruments on our consolidated statement of comprehensive loss of the 2019 Swaps which remain ineffective is as follows (amounts in thousands): 13 Table of Contents For the three months ended June 30, 2021 Account March 31, 2021 Balance Amount of comprehensive loss recognized on derivative net of taxes Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes June 30, 2021 Balance Location Accumulated Other Comprehensive Loss, net of taxes $ ( 21,656 ) $ — $ 920 $ ( 20,736 ) Equity For the six months ended June 30, 2021 Account December 31, 2020 Balance Amount of comprehensive loss recognized on derivative net of taxes Amount of loss reclassified out of accumulated OCI into income (prior period effective portion), net of taxes June 30, 2021 Balance Location Accumulated Other Comprehensive Loss, net of taxes $ ( 22,581 ) $ — $ 1,845 $ ( 20,736 ) Equity A tabular presentation of the effect of derivative instruments on our statement of operations of the 2019 Swaps which remain ineffective is as follows (amounts in thousands): For the three months ended June 30, 2021 Ineffective interest rate swap Amount of gain recognized in income on derivative (current period ineffective portion) Location of gain recognized in Income on derivative (current period ineffective portion) Gross amount of loss reclassified from accumulated OCI into income (prior period effective portion) Location of loss reclassified from accumulated OCI into income (prior period effective portion) Interest rate contracts $ 35 Other income (expense) $ ( 1,245 ) Interest Expense For the six months ended June 30, 2021 Ineffective interest rate swap Amount of gain recognized in income on derivative (current period ineffective portion) Location of gain recognized in Income on derivative (current period ineffective portion) Gross amount of loss reclassified from accumulated OCI into income (prior period effective portion) Location of loss reclassified from accumulated OCI into income (prior period effective portion) Interest rate contracts $ 11,280 Other income (expense) $ ( 2,169 ) Interest Expense See Fair Value Measurements section below for the fair value of the 2019 Swaps at June 30, 2021. FAIR VALUE MEASUREMENTS – Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs used to determine fair value. Accordingly, assets and liabilities carried at, or permitted to be carried at, fair value are classified within the fair value hierarchy in one of the following categories based on the lowest level input that is significant to a fair value measurement: Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities. 14 Table of Contents Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market data. Level 3—Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgment. Derivatives: The tables below summarize the estimated fair values of certain of our financial assets that are subject to fair value measurements, and the classification of these assets on our condensed consolidated balance sheets, as follows (in thousands): As of June 30, 2021 Level 1 Level 2 Level 3 Total Current and long term liabilities 2019 Swaps - Interest Rate Contracts $ — $ 26,709 $ — $ 26,709 As of December 31, 2020 Level 1 Level 2 Level 3 Total Current and long term liabilities 2019 Swaps - Interest Rate Contracts $ — $ 37,989 $ — $ 37,989 The estimated fair value of these contracts was determined using Level 2 inputs. More specifically, the fair value was determined by calculating the value of the difference between the fixed interest rate of the interest rate swaps and the counterparty’s forward LIBOR curve. The forward LIBOR curve is readily available in the public markets or can be derived from information available in the public markets. Long Term Debt: The table below summarizes the estimated fair value compared to our face value of our long-term debt as follows (in thousands): As of June 30, 2021 Level 1 Level 2 Level 3 Total Fair Value Total Face Value First Lien Term Loans and SunTrust Term Loan $ — $ 772,313 $ — $ 772,313 $ 774,125 As of December 31, 2020 Level 1 Level 2 Level 3 Total Fair Value Total Face Value First Lien Term Loans and SunTrust Term Loan $ — $ 661,640 $ — $ 661,640 $ 662,403 As of June 30, 2021 and at December 31, 2020 our Barclays revolving credit facility had no balance outstanding. Our SunTrust revolving credit facility relating to our consolidated subsidiary The New Jersey Imaging Network ("NJIN"), had no principal amount outstanding at June 30, 2021 and at December 31, 2020. The estimated fair value of our long-term debt, which is discussed in Note 5, Credit Facilities and Notes Payable, was determined using Level 2 inputs primarily related to comparable market prices. We consider the carrying amounts of cash and cash equivalents, receivables, other current assets, current liabilities and other notes payables to approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization or payment. Additionally, we consider the carrying amount of our finance lease obligations to approximate their fair value because the weighted average interest rate used to formulate the carrying amounts approximates current market rates. EARNINGS PER SHARE - Earnings per share is based upon the weighted average number of shares of common stock and common stock equivalents outstanding, net of common stock held in treasury, as follows (in thousands except share and per share data): 15 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income (loss) attributable to RadNet, Inc.'s common stockholders $ 2,873 $ ( 10,594 ) $ 12,331 $ ( 26,952 ) BASIC NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 52,238,709 50,672,219 52,004,653 50,483,274 Basic net income (loss) per share attributable to RadNet, Inc.'s common stockholders $ 0.05 $ ( 0.21 ) $ 0.24 $ ( 0.53 ) DILUTED NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 52,238,709 50,672,219 52,004,653 50,483,274 Add nonvested restricted stock subject only to service vesting 202,341 — 227,803 — Add additional shares issuable upon exercise of stock options and warrants 692,041 — 658,105 — Weighted average number of common shares used in calculating diluted net income per share 53,133,091 50,672,219 52,890,561 50,483,274 Diluted net income (loss) per share attributable to RadNet, Inc.'s common stockholders $ 0.05 $ ( 0.21 ) $ 0.23 $ ( 0.53 ) Stock options and non vested restricted awards excluded from the computation of diluted per share amounts as their effect would be antidilutive: Nonvested restricted stock subject to service vesting — 319,659 — 319,659 Shares issuable upon the exercise of stock options: — 604,257 — 604,257 EQUITY INVESTMENTS AT FAIR VALUE–Accounting guidance requires entities to measure equity investments at fair value, with any changes in fair value recognized in net income. If there is no readily determinable fair value, the guidance allows entities the ability to measure investments at cost, adjusted for observable price changes and impairments, with changes recognized in net income. As of June 30, 2021, we have three equity investments for which a fair value is not readily determinable and therefore the total amounts invested are recognized at cost as follows: Medic Vision Imaging Solutions Ltd., based in Israel, specializes in software packages that provide compliant radiation dose structured reporting and enhanced images from reduced dose CT scans. Our investment of $ 1.2 million represents a 14.21 % equity interest in the company. No observable price changes or impairment in our investment was identified as of June 30, 2021. Turner Imaging Systems, based in Utah, develops and markets portable X-ray imaging systems that provide a user the ability to acquire X-ray images wherever and whenever they are needed. On February 1, 2018, we purchased 2.1 million preferred shares in Turner Imaging Systems for $ 2.0 million. On January 1, 2019 we funded a convertible promissory note in the amount of $ 0.1 million that converted to additional 80,000 shares December 21, 2019. No observable price changes or impairment in our investment was identified as of June 30, 2021. WhiteRabbit.ai Inc., based in California, is currently developing an artificial intelligence suite which aims to improve the speed and accuracy of cancer detection in radiology and improve patient care. On November 5, 2019 we acquired an equity interest in the company for $ 1.0 million and also loaned the company $ 2.5 million in support of its operations. No observable price changes, impairment in our investment or impairment of the loan receivable was identified as of June 30, 2021. 16 Table of Contents INVESTMENT IN JOINT VENTURES – We have 13 unconsolidated joint ventures with ownership interests ranging from 35 % to 55 %. These joint ventures represent partnerships with hospitals, health systems or radiology practices and were formed for the purpose of owning and operating diagnostic imaging centers. Professional services at the joint venture diagnostic imaging centers are performed by contracted radiology practices or a radiology practice that participates in the joint venture. Our investment in these joint ventures is accounted for under the equity method, since RadNet does not have a controlling financial interest in such ventures. We evaluate our investment in joint ventures, including cost in excess of book value (equity method goodwill) for impairment whenever indicators of impairment exist. No indicators of impairment existed as of June 30, 2021. Joint venture investment and financial information The following table is a summary of our investment in joint ventures during the six months ended June 30, 2021 (in thousands): Balance as of December 31, 2020 $ 34,528 Equity in earnings in these joint ventures 5,406 Equity contributions in existing joint ventures 1,441 Balance as of June 30, 2021 $ 41,375 We charged management service fees from the centers underlying these joint ventures of approximately $ 5.5 million and $ 3.3 million for the three months ended June 30, 2021 and 2020 and $ 10.8 million and $ 5.9 million for the six months ended June 30, 2021 and 2020, respectively. On June 23, 2021, we made an additional equity contribution to our joint venture in Arizona of $ 1.4 million. Our equity ownership interest percentage in the venture did not change. The following table is a summary of key balance sheet data for these joint ventures as of June 30, 2021 and December 31, 2020 and income statement data for the six months ended June 30, 2021 and 2020 (in thousands): Balance Sheet Data: June 30, 2021 December 31, 2020 Current assets $ 39,925 $ 27,085 Noncurrent assets 68,699 68,686 Current liabilities ( 12,165 ) ( 12,545 ) Noncurrent liabilities ( 21,605 ) ( 21,582 ) Total net assets $ 74,854 $ 61,644 Book value of RadNet joint venture interests $ 34,901 $ 28,079 Cost in excess of book value of acquired joint venture interests and other 6,474 6,449 Total value of RadNet joint venture interests $ 41,375 $ 34,528 Income statement data for the six months ended June 30, 2021 2020 Net revenue $ 64,636 $ 43,849 Net income $ 10,258 $ 6,001 NOTE 3 – RECENT ACCOUNTING AND REPORTING STANDARD Accounting standards adopted In January 2021, the FASB issued ASU 2021-01 ("ASU 2021-01"), Reference Rate Reform (Topic 848), Scope . ASU 2021-01 clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain option expedients and exceptions in Topic 848. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the potential impact of ASU 2021-01 on our financial statements. 17 Table of Contents In March 2020, the FASB issued ASU 2020-04 ("ASU 2020-04"), Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the potential impact of ASU 2020-04 on our financial statements. In January 2020, the FASB issued ASU 2020-01 ("ASU 2020-01"), Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), clarifying the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020. The adoption did not have a material impact on our financial statements. In December 2019, the FASB issued ASU 2019-12 ("ASU 2019-12"), Income Taxes (Topic 740). ASU 2019-12 removes certain exceptions related to the approach for intraperiod 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 areas of the standard. ASU 2019-12 is effective beginning in the first quarter of 2021. The adoption did not have a material impact on our financial statements. NOTE 4 – FACILITY ACQUISITIONS Acquisitions During the first and second quarters of 2021, we completed the acquisition of certain assets of the following entities, all of which engage in the practice of radiology. The primary reason for these acquisitions was to strengthen our presence in the New York City, New Jersey and California markets. We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands): Entity Date Acquired Total Cash Consideration Property & Equipment Right of Use Assets Goodwill Intangible Assets Other Assets Right of Use Liabilities Personal Health Imaging PLLC* 2/1/2021 2,995 576 608 2,355 50 14 ( 608 ) ZP Elmont LLC* 2/1/2021 2,194 1,112 — 1,005 50 27 — ZP Freeport LLC* 2/1/2021 6,065 4,668 — 1,328 40 29 — Broadway Medical Imaging LLC* 2/1/2021 1,155 1,076 446 6 50 23 ( 446 ) 3235 Hempstead LLC* 2/1/2021 9,386 5,667 — 3,649 70 — — SLZM Realty LLC* 2/1/2021 13,671 4,617 — 8,974 80 — — 2012 Sunrise Merrick LLC* 2/1/2021 11,428 2,741 335 8,617 70 — ( 335 ) ZP Bayside LLC* 3/1/2021 3,545 3,385 2,191 40 50 70 ( 2,191 ) ZP Laurelton LLC* 3/1/2021 2,658 2,530 1,418 32 50 46 ( 1,418 ) ZP Smith LLC* 3/1/2021 3,978 3,581 2,214 347 50 — ( 2,214 ) ZP 907 Northern LLC 4/1/2021 562 507 1,817 5 50 — ( 1,817 ) William M. Kelly MD, Inc. 5/1/2021 3,750 990 1,379 2,710 50 — ( 1,379 ) 60th Street MRI, LLC 5/1/2021 400 85 — 290 25 — — ZP Parkchester LLC 5/1/2021 263 213 311 — 50 — ( 311 ) ZP Eastern LLC 6/1/2021 2,868 2,801 1,951 17 50 — ( 1,951 ) Total 64,918 34,549 12,670 29,375 785 209 ( 12,670 ) *Fair Value Determination is Final 18 Table of Contents Formation of majority owned subsidiary On January 1, 2021 we entered into the Simi Valley Imaging Group, LLC, a partnership with Simi Valley Hospital and Health Services ("Simi Adventist"). The operation will offer multi-modality imaging services out of two locations in Ventura County, California. Total investment in the venture is $ 0.4 million. RadNet contributed $ 0.3 million in assets for a 60 % economic interest and Simi Adventist contributed assets totaling $ 0.1 million for a 40 % economic interest. NOTE 5 – CREDIT FACILITIES AND NOTES PAYABLE As of June 30, 2021 and December 31, 2020 our term loan debt obligations are as follows (in thousands): June 30, 2021 December 31, 2020 First Lien Term Loans collateralized by RadNet's tangible and intangible assets $ 725,000 $ 611,028 Discount on First Lien Term Loans ( 14,257 ) ( 9,699 ) SunTrust Term Loan Agreement collateralized by NJIN's tangible and intangible assets 49,125 51,375 Total debt obligations 759,868 652,704 Less: current portion ( 10,789 ) ( 39,791 ) Long term portion debt obligations $ 749,079 $ 612,913 We had no outstanding balance under our $ 195.0 million Barclays Revolving Credit Facility at June 30, 2021 and have reserved $ 7.8 million for certain letters of credit. The remaining $ 187.2 million of our Barclays Revolving Credit Facility was available to draw upon as of June 30, 2021. We had no outstanding balance under our $ 30.0 million SunTrust Revolving Credit Facility at June 30, 2021. As of June 30, 2021, we were in compliance with all covenants under our credit facilities. Second Amended and Restated First Lien Credit and Guaranty Agreement On April 23, 2021, we entered into the Second Amended and Restated First Lien Credit and Guaranty Agreement (the "Restated Credit Agreement") which provides for $ 725.0 million of senior secured First Lien Term Loans and a $ 195.0 million senior secured revolving credit facility (the "Barclays Revolving Credit Facility"). The proceeds of the First Lien Term Loans were used to refinance loans outstanding under our prior first lien credit agreement and provide funding for current and future operations. Total costs of the Restated Credit Agreement amounted to approximately $ 14.9 million segregated as follows: $ 8.8 million capitalized to discount and deferred finance cost, $ 4.5 million expensed to debt restructuring costs, $ 1.5 million charged to loss on early extinguishment of debt and $ 0.1 million written off to interest expense. Amounts capitalized will be amortized over the remaining terms of the respective credit facilities under the Restated Credit Agreement. Senior Secured Credit Facilities First Lien Term Loans: The First Lien Term Loans under the Restated Credit Agreement bear interest at either a Eurodollar Rate or an Alternate Base Rate (in each case, as defined in the Restated Credit Agreement), plus an applicable margin. The applicable margin for Eurodollar Rate term loans under the Restated Credit Agreement is 3.25 % per annum, which a reduction to 3.00 % per annum upon delivery by us of financial statements for the period ending March 31, 2021 evidencing a first lien net leverage ratio of 3.00 to 1.00 or less. Such statements were delivered by us on May 27, 2021. At June 30, 2021 the effective Eurodollar Rate and the Alternate Base Rate for the First Lien Term Loans under the Restated Agreement was 0.75 % and 3.25 %, respectively and the applicable margin for the Eurodollar Rate and Alternate Base Rate borrowings was 3.00 % and 2.00 %, respectively. The Restated Credit Agreement provides for quarterly payments of principal for the First Lien Term Loan in the amount of approximately $ 1.8 million. The First Lien Term Loan will mature on April 23, 2028 unless otherwise accelerated under the terms of the Restated Credit Agreement. SunTrust Credit Facilities: 19 Table of Contents At June 30, 2021, our SunTrust credit facilities, which relate to our consolidated subsidiary The New Jersey Imaging Network, L.L.C.("NJIN"), were comprised of one term loan in the principal amount described in the table above (the "SunTrust Term Loan") and a revolving credit facility of $ 30.0 million (the "SunTrust Revolving Credit Facility") both of which are provided pursuant to the Amended and Restated Revolving Credit and Term Loan Agreement dated August 31, 2018, among NJIN, as borrower, with SunTrust Bank, as administrative agent, and the lenders identified therein (as amended, the "SunTrust Credit Agreement"). Our SunTrust Term Loan bears interest at either an Adjusted LIBOR or a Base Rate (each as defined in the SunTrust Credit Agreement), plus an applicable margin according to the following schedule: Pricing Level Leverage Ratio Applicable Margin for Eurodollar Loans Applicable Margin for Base Rate Loans Applicable Margin for Letter of Credit Fees Applicable Percentage for Commitment Fee I Greater than or equal to 3.00 :1.00 2.75 % per annum 1.75 % per annum 2.75 % per annum 0.45 % per annum II Less than 3.00 :1.00 but greater than or equal to 2.50 :1.00 2.25 % per annum 1.25 % per annum 2.25 % per annum 0.40 % per annum III Less than 2.50 :1.00 but greater than or equal to 2.00 :1.00 2.00 % per annum 1.00 % per annum 2.00 % per annum 0.35 % per annum IV Less than 2.00 :1.00 but greater than or equal to 1.50 :1.00 1.75 % per annum 0.75 % per annum 1.75 % per annum 0.30 % per annum V Less than 1.50 :1.00 1.50 % per annum 0.50 % per annum 1.50 % per annum 0.30 % per annum The loans and other obligations outstanding under the SunTrust Credit Agreement currently bear interest at a three month LIBOR election at 0.20 % plus an applicable margin and fees based on Pricing Level III described above. The scheduled amortization of the SunTrust Term Loan began December 31, 2018 with quarterly payments of $ 0.8 million, representing annual amortization equal to 5.0 % of the original principal amount of the SunTrust Term Loan. At scheduled intervals, the quarterly amortization increases by $ 0.4 million, with the remaining balance to be paid at maturity. The SunTrust Term Loan will mature on August 31, 2023 unless otherwise accelerated under the terms of the SunTrust Credit Agreement. Revolving Credit Facilities Barclays Revolving Credit Facility The Barclays Revolving Credit Facility under the Restated Credit Agreement is a $ 195.0 million senior secured revolving credit facility. Associated with the Barclays Revolving Credit Facility are deferred financing costs, net of accumulated amortization, of $ 2.4 million at June 30, 2021. Revolving loans borrowed under the Barclays Revolving Credit Facility bear interest at either a Eurodollar Rate or an Alternate Base Rate (in each case, as defined in the Restated Credit Agreement) plus an applicable margin which adjusts depending on our first lien net leverage ratio, according to the following schedule: First Lien Net Leverage Ratio Eurodollar Rate Spread Alternate Base Rate Spread > 3.50 x 3.25 % 2.25 % > 3.00 x but ≤ 3.50 x 3.00 % 2.00 % ≤ 3.00 x 2.75 % 1.75 % As of June 30, 2021, the effective interest rate payable on revolving loans under the Barclays Revolving Credit Facility was 5.25 %. 20 Table of Contents For letters of credit issued under the Barclays Revolving Credit Facility, letter of credit fees accrue at the applicable margin of the Eurodollar Rate, currently 3.00 %, and fronting fees accrue at 0.125 % per annum, in each case on the average aggregate daily maximum amount available to be drawn under all letters of credit issued under the Restated Credit Agreement. In addition, a commitment fee of 0.50 % per annum accrues on the unused revolver commitments under the Barclays Revolving Credit Facility. The Barclays Revolving Credit Facility will terminate on April 23, 2026 unless otherwise accelerated in accordance with the terms of the Restated Credit Agreement. SunTrust Revolving Credit Facility The SunTrust Credit Agreement established a $ 30.0 million revolving credit facility available to NJIN for funding requirements. The SunTrust Revolving Credit Facility terminates on the earliest of (i) August 31, 2023, (ii) the voluntary termination thereof by NJIN pursuant to Section 2.8 of the SunTrust Credit Agreement, or (iii) the date on which all amounts outstanding under the SunTrust Credit Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise). As of June 30, 2021, NJIN had no borrowings under the SunTrust Revolving Credit Facility. Recent prior amendments to prior credit facilities: Barclays Credit Facilities: On August 28, 2020, RadNet Management, Inc. and RadNet, Inc. entered into Amendment No. 8, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement (the "Eighth Amendment"). The Eighth Amendment amended the prior first lien credit agreement to add $ 57.5 million of revolving commitments to the prior Barclays revolving credit facility increasing the maximum borrowing capacity under the prior Barclays revolving credit facility to $ 195.0 million while leaving the maturity date of July 1, 2023 unchanged. On April 18, 2019 we entered into the following two amendments to the prior first lien credit agreement: (i) Amendment No. 6, Consent and Incremental Joinder Agreement to Credit and Guaranty Agreement (the “Sixth Amendment”); and (ii) Amendment No. 7 to Credit and Guaranty Agreement (the “Seventh Amendment”). Among other things, the Sixth Amendment amended the prior first lien credit agreement to issue $ 100.0 million in incremental first lien term loans and to add an additional $ 20.0 million of revolving commitments to the prior Barclays revolving credit facility. The Seventh Amendment amended the prior first lien credit agreement to extend the maturity date of the prior Barclays revolving credit facility by an additional two years to July 1, 2023, unless sooner terminated in accordance with the terms of the prior first lien credit agreement. The prior first lien credit agreement was amended and restated by the Restated Credit Agreement described above, and the prior first lien term loans and prior Barclays revolving credit facility under the prior first lien credit agreement were refinanced and replaced by the First Lien Term Loans and the Barclays Revolving Credit Facility provided under the Restated Credit Agreement described above. NOTE 6 – STOCK-BASED COMPENSATION Stock Incentive Plans We have one long-term equity incentive plan, the RadNet, Inc. Equity Incentive Plan, which we first amended and restated April 20, 2015, again on March 9, 2017 and currently as of April 15, 2021 (the "Restated Plan”). The Restated Plan was approved by our stockholders at our annual stockholders meeting on June 10, 2021. We have reserved for issuance under the Restated Plan 16,500,000 shares of common stock. We can issue options (incentive and nonstatutory), stock awards (restricted or unrestricted), stock units, and stock appreciation rights under the Restated Plan. Options Stock option grants, whether incentive or nonstatutory, generally vest over 3 to 5 years and expire 5 to 10 years from the date of grant. Under the Restated Plan, stock options may not be granted at a per share exercise price below the fair market value of a share of our common stock on the date of grant, may not be repriced or exchanged without stockholder approval, and the maximum exercisable term of the option may not exceed ten years. 21 Table of Contents As of June 30, 2021, we had outstanding options to acquire 525,399 shares of our common stock, of which options to acquire 430,702 shares were exercisable. The following summarizes all of our option transactions for the six months ended June 30, 2021: Outstanding Options Under the 2006 Plan Shares Weighted Average Exercise price Per Common Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Balance, December 31, 2020 527,899 $ 9.34 Exercised ( 2,500 ) 10.10 Balance, June 30, 2021 525,399 9.34 5.86 $ 12,793,992 Exercisable at June 30, 2021 430,702 8.34 5.50 10,920,256 Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on June 30, 2021 and the exercise price, multiplied by the number of in-the-money options as applicable) that would have been received by the holder had all holders exercised their options on June 30, 2021. Options for 2,500 shares of our common stock were exercised during the six months ended June 30, 2021. As of June 30, 2021, total unrecognized stock-based compensation expense related to non-vested employee awards was $ 0.4 million, which is expected to be recognized over a weighted average period of approximately 1.11 years. DeepHealth Options During the second quarter of fiscal 2020, in connection with the completion of the DeepHealth acquisition, we granted options to acquire 412,434 shares at a grant date fair value of $ 16.93 per share unit to DeepHealth employees in replacement of their stock options that were outstanding as of the closing date. As of June 30, 2021, total unrecognized stock based compensation expense related to non-vested DeepHealth options was approximately $ 3.0 million, which is expected to be recognized over a weighted average period of approximately 1.84 years. Outstanding Options Under the Deep Health Plan Shares Weighted Average Exercise price Per Common Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Balance December 31, 2020 400,539 $ — Exercised ( 1,141 ) — Balance, June 30, 2021 399,398 — 7.91 $ 13,455,719 Exercisable at June 30, 2021 37,713 — 7.91 1,270,551 Restricted Stock Awards The Restated Plan permits the award of restricted stock awards (“RSA’s”). As of June 30, 2021, we have issued a total of 7,699,439 RSA’s of which 427,688 were unvested at June 30, 2021. The following summarizes all unvested RSA’s activities during the six months ended June 30, 2021: RSA's Weighted-Average Remaining Contractual Term (Years) Weighted-Average Fair Value RSA's unvested at December 31, 2020 329,159 $ 16.69 Changes during the period Granted 640,546 $ 19.37 Vested ( 542,017 ) $ 17.57 RSA's unvested at June 30, 2021 427,688 1.12 $ 18.75 We determine the fair value of all RSA’s based on the closing price of our common stock on the award date. Other stock bonus awards 22 Table of Contents The Restated Plan also permits share awards not subject to any future service period. These are valued and expensed based on the closing price of our common stock on the date of award. During the six months ended June 30, 2021, awards amounting to 294,048 shares valued at $ 6.5 million in compensation expense were issued in employee COVID-19 related bonuses. Plan summary In summary, of the 16,500,000 shares of common stock reserved for issuance under the Restated Plan, at June 30, 2021, we had issued 16,419,296 total shares between options, RSA’s and other stock awards. With options canceled and RSA’s forfeited amounting to 3,281,040 and 61,703 shares, respectively, there remain 3,423,447 shares available under the Restated Plan for future issuance. Options issued in replacement of original DeepHealth options as a result of our acquisition are not included in the share count under the Restated Plan. NOTE 7 – SUBSEQUENT EVENTS Business Combinations/Dispositions: On July 30, 2021, we completed the sale of a 24.9 % portion of our 75.0 % ownership interest in one of our majority owned subsidiaries for $ 13.1 million. After the sale, we retain a 50.1 % ownership interest in this subsidiary. On July 30, 2021, we acquired certain business assets for purchase consideration of approximately $ 5.2 million.