RadNet, Inc. 10-Q

Item 1 – Financial Statements RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) September 30, 2022 December 31, 2021 (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 95,006 $ 134,606 Accounts receivable 172,507 135,062 Due from affiliates 3,648 5,384 Prepaid expenses and other current assets 53,344 49,212 Total current assets 324,505 324,264 PROPERTY, EQUIPMENT AND RIGHT-OF-USE ASSETS Property and equipment, net 515,569 484,247 Operating lease right-of-use assets 631,338 584,291 Total property, equipment and right-of-use assets 1,146,907 1,068,538 OTHER ASSETS Goodwill 575,092 513,820 Other intangible assets 88,640 56,603 Deferred financing costs 1,758 2,135 Investment in joint ventures 52,020 42,229 Deferred tax assets 3,512 14,853 Deposits and other 54,730 36,032 Total assets $ 2,247,164 $ 2,058,474 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable, accrued expenses and other $ 296,333 $ 263,937 Due to affiliates 31,664 23,530 Deferred revenue 3,565 10,701 Current operating lease liability 66,872 65,452 Current portion of notes payable 10,789 11,164 Total current liabilities 409,223 374,784 LONG-TERM LIABILITIES Long-term operating lease liability 625,278 577,675 Notes payable, net of current portion 735,500 743,498 Other non-current liabilities 18,773 16,360 Total liabilities 1,788,774 1,712,317 EQUITY Common stock - $ 0.0001 par value, 200,000,000 shares authorized; 57,290,756 and 53,548,227 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively 5 5 Additional paid-in-capital 424,369 342,592 Accumulated other comprehensive loss ( 29,680 ) ( 20,421 ) Accumulated deficit ( 81,688 ) ( 93,272 ) Total RadNet, Inc.'s stockholders' equity 313,006 228,904 Noncontrolling interests 145,384 117,253 Total equity 458,390 346,157 Total liabilities and equity $ 2,247,164 $ 2,058,474 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 REVENUE Service fee revenue $ 312,043 $ 295,407 $ 931,819 $ 870,479 Revenue under capitation arrangements 38,001 37,283 114,366 111,449 Total service revenue 350,044 332,690 1,046,185 981,928 Provider relief funding — — — 6,291 OPERATING EXPENSES Cost of operations, excluding depreciation and amortization 313,943 272,756 934,757 838,609 Depreciation and amortization 29,229 24,606 85,209 71,272 (Gain) loss on sale and disposal of equipment and other ( 247 ) 2,595 962 ( 279 ) Severance costs 195 163 496 715 Total operating expenses 343,120 300,120 1,021,424 910,317 INCOME FROM OPERATIONS 6,924 32,570 24,761 77,902 OTHER INCOME AND EXPENSES Interest expense 12,420 12,032 35,398 37,028 Equity in earnings of joint ventures ( 3,085 ) ( 2,853 ) ( 8,350 ) ( 8,259 ) Non-cash change in fair value of interest rate swaps ( 12,451 ) ( 2,870 ) ( 39,576 ) ( 14,149 ) Debt restructuring and extinguishment expenses — — — 6,044 Other expenses (income) 1,405 ( 167 ) 1,562 1,699 Total other (income) expenses ( 1,711 ) 6,142 ( 10,966 ) 22,363 INCOME BEFORE INCOME TAXES 8,635 26,428 35,727 55,539 Provision for income taxes ( 2,188 ) ( 5,284 ) ( 7,087 ) ( 12,534 ) NET INCOME 6,447 21,144 28,640 43,005 Net income attributable to noncontrolling interests 5,779 4,924 17,055 14,455 NET INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 668 $ 16,220 $ 11,585 $ 28,550 BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.01 $ 0.31 $ 0.21 $ 0.55 DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ 0.01 $ 0.30 $ 0.19 $ 0.54 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 56,744,419 52,810,644 56,041,017 52,323,360 Diluted 57,651,761 53,817,840 57,036,417 53,249,698 The accompanying notes are an integral part of these financial statements. 2 Table of Contents RADNET, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (IN THOUSANDS) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 NET INCOME $ 6,447 $ 21,144 $ 28,640 $ 43,005 Foreign currency translation adjustments ( 6,000 ) ( 11 ) ( 12,031 ) ( 32 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes 924 920 2,771 2,765 COMPREHENSIVE INCOME 1,371 22,053 19,380 45,738 Less comprehensive income attributable to noncontrolling interests 5,779 4,924 17,055 14,455 COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS $ ( 4,408 ) $ 17,129 $ 2,325 $ 31,283 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 September 30, 2022 and September 30, 2021. Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Radnet, Inc.'s Equity Noncontrolling Interests Total Equity Shares Amount BALANCE - JUNE 30, 2022 57,303,565 $ 5 $ 419,136 $ ( 24,603 ) $ ( 82,355 ) $ 312,183 $ 139,202 $ 451,385 Issuance of common stock under the equity compensation plan 2,500 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 7,175 — — — — — — — Stock-based compensation expense — — 3,362 — — 3,362 — 3,362 Adjustment for shares returned/forfeited ( 22,484 ) — ( 45 ) — — ( 45 ) — ( 45 ) Sale of economic interests in majority owned subsidiary, net of taxes — — 1,916 — — 1,916 — 1,916 Contribution from noncontrolling partner — — — — — — 404 404 Change in cumulative foreign currency translation adjustment — — — ( 6,000 ) — ( 6,000 ) — ( 6,000 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes — — — 924 — 924 — 924 Other — — — ( 1 ) ( 1 ) ( 2 ) ( 1 ) ( 3 ) Net income — — — — 668 668 5,779 6,447 BALANCE-SEPTEMBER 30, 2022 57,290,756 $ 5 $ 424,369 $ ( 29,680 ) $ ( 81,688 ) $ 313,006 $ 145,384 $ 458,390 BALANCE - JUNE 30, 2021 52,678,030 $ 5 $ 324,954 $ ( 22,227 ) $ ( 105,668 ) $ 197,064 $ 102,215 $ 299,279 Issuance of common stock under the equity compensation plan 94,638 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 464,855 — — — — — — — Stock-based compensation expense — — 4,463 — — 4,463 — 4,463 Issuance of common stock for sale of unregistered securities for acquisition 67,658 — 2,025 — — 2,025 — 2,025 Forfeiture of restricted stock ( 3,365 ) — ( 42 ) — — ( 42 ) — ( 42 ) Sale of noncontrolling interests, net of taxes — — 4,198 — — 4,198 7,404 11,602 Change in cumulative foreign currency translation adjustment — — — ( 11 ) — ( 11 ) — ( 11 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings — — — 920 — 920 — 920 Other — — 1 1 ( 2 ) — ( 1 ) ( 1 ) Net income — — — — 16,220 16,220 4,924 21,144 BALANCE-SEPTEMBER 30, 2021 53,301,816 $ 5 $ 335,599 $ ( 21,317 ) $ ( 89,450 ) $ 224,837 $ 114,542 $ 339,379 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 nine months ended September 30, 2022 and September 30, 2021 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, 2021 53,548,227 $ 5 $ 342,592 $ ( 20,421 ) $ ( 93,272 ) $ 228,904 $ 117,253 $ 346,157 Issuance of common stock under the equity compensation plan 685,577 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 973,144 — — — — — — — Stock-based compensation expense — — 18,856 — — 18,856 — 18,856 Issuance of common stock for sale of unregistered securities for acquisition 2,106,292 — 56,470 — — 56,470 — 56,470 Adjustment for shares returned/forfeited ( 22,484 ) — ( 45 ) — — ( 45 ) — ( 45 ) Contribution from noncontrolling partner — — — — — — 11,077 11,077 Sale of economic interests in majority owned subsidiary, net of taxes — — 6,498 — — 6,498 — 6,498 Change in cumulative foreign currency translation adjustment — — — ( 12,031 ) — ( 12,031 ) — ( 12,031 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes — — — 2,771 — 2,771 — 2,771 Other — — ( 2 ) 1 ( 1 ) ( 2 ) ( 1 ) ( 3 ) Net income — — — — 11,585 11,585 17,055 28,640 BALANCE-SEPTEMBER 30, 2022 57,290,756 $ 5 $ 424,369 $ ( 29,680 ) $ ( 81,688 ) $ 313,006 $ 145,384 $ 458,390 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 1,127,996 — — — — — — — Issuance of common stock under the DeepHealth equity compensation plan 466,490 — — — — — — — Stock-based compensation expense — — 21,608 — — 21,608 — 21,608 Issuance of common stock for sale of unregistered securities for acquisition 67,658 — 2,025 — — 2,025 — 2,025 Adjustment for shares returned/forfeited ( 3,365 ) — ( 42 ) — — ( 42 ) — ( 42 ) Sale of noncontrolling interests, net of taxes — — 4,198 — — 4,198 7,404 11,602 Purchase of noncontrolling interests — — ( 4 ) — — ( 4 ) — ( 4 ) Contribution from noncontrolling partner — — — — — — 123 123 Change in cumulative foreign currency translation adjustment — — — ( 32 ) — ( 32 ) — ( 32 ) Change in fair value of cash flow hedge from prior periods reclassified to earnings, net of taxes 2,765 2,765 — 2,765 Other — — — 1 ( 1 ) — — — Net income — — — — 28,550 28,550 14,455 43,005 BALANCE-SEPTEMBER 30, 2021 53,301,816 $ 5 $ 335,599 $ ( 21,317 ) $ ( 89,450 ) $ 224,837 $ 114,542 $ 339,379 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) Nine Months Ended September 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 28,640 $ 43,005 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 85,209 71,272 Amortization of operating lease right-of-use assets 51,573 55,880 Equity in earnings of joint ventures, net of dividends ( 8,350 ) ( 8,259 ) Amortization of deferred financing costs and loan discount 1,943 2,608 Loss (gain) on sale and disposal of equipment and other 962 ( 279 ) Loss on extinguishment of debt — 1,496 Amortization of cash flow hedge, net of taxes 2,771 2,765 Non-cash change in fair value of interest rate swaps ( 39,576 ) ( 14,149 ) Stock-based compensation 19,112 21,566 Change in fair value of contingent consideration ( 329 ) 891 Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions: Accounts receivable ( 36,686 ) ( 23,237 ) Other current assets ( 4,934 ) 3,358 Other assets 3,738 ( 4,998 ) Deferred taxes 8,955 10,124 Operating lease liability ( 49,597 ) ( 55,035 ) Deferred revenue ( 7,809 ) ( 19,438 ) Accounts payable, accrued expenses and other 37,148 12,725 Net cash provided by operating activities 92,770 100,295 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of imaging centers and other acquisitions ( 26,009 ) ( 70,108 ) Purchase of property and equipment ( 98,606 ) ( 88,478 ) Proceeds from sale of equipment 3,008 521 Equity contributions in existing and purchase of interest in joint ventures ( 1,441 ) ( 1,441 ) Net cash used in investing activities ( 123,048 ) ( 159,506 ) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes and leases payable — ( 3,302 ) Payments on term loan debt ( 9,938 ) ( 616,217 ) Proceeds from debt refinancing, net of issuing costs — 716,369 Proceeds from sale of economic interest in majority owned subsidiary, net of taxes — 11,602 Proceeds from revolving credit facility — 128,300 Payments on revolving credit facility — ( 128,300 ) Proceeds from issuance of common stock upon exercise of options — 26 Net cash (used in) provided by financing activities ( 9,938 ) 108,478 EFFECT OF EXCHANGE RATE CHANGES ON CASH 616 ( 32 ) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 39,600 ) 49,235 CASH AND CASH EQUIVALENTS, beginning of period 134,606 102,018 CASH AND CASH EQUIVALENTS, end of period $ 95,006 $ 151,253 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 30,251 $ 21,408 Cash paid during the period for income taxes $ 560 $ 1,913 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 $ 61.0 million and $ 50.5 million during the nine months ended September 30, 2022 and 2021, respectively, which were not paid for as of September 30, 2022 and 2021 , respectively. The offsetting amounts due were recorded in our condensed consolidated balance sheet under accounts payable, accrued expenses and other. On April 1, 2022 we received $ 8.4 million in fixed assets and equipment from our partner in Frederick County Radiology, LLC. See Note 4, Facility Acquisitions contained herein. On January 20, 2022, we issued 1,141,234 shares of our common stock to complete our purchase of Aidence Holding B.V. The shares were ascribed a value of $ 30.6 million. On January 20, 2022, we issued 965,058 shares to complete our purchase of Quantib B.V. The shares were ascribed a value of $ 25.9 million. On August 24, 2021, we completed our stock purchase of Tangent Associates LLC by issuing 67,658 shares of our common stock to complete the transaction. The shares were ascribed a value of $ 2.0 million. 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. 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 in the United States. At September 30, 2022, we operated directly or indirectly through joint ventures with hospitals, 349 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 one location to serve the needs of multiple procedures. In addition to our center operations, we have certain other subsidiaries that develop Artificial Intelligence ("AI") products and solutions that are designed to enhance interpretation of radiographic images. Our operations comprise two segments for financial reporting purposes for this reporting period, Imaging Centers and Artificial Intelligence. For further financial information about these segments, see Note 5, Segment Reporting. 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 and provide professional medical services for centers in Arizona, California, Delaware, Maryland, New Jersey and New York. 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. 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 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 behalf of the Group. However, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues. The Group on a combined basis recognized $ 48.9 million and $ 43.8 million of revenue, net of management services fees to RadNet, for the three months ended September 30, 2022 and 2021, respectively and $ 48.9 million and $ 43.8 million of operating expenses for the three months ended September 30, 2022 and 2021, respectively. RadNet recognized $ 190.6 million and $ 186.8 million of total billed net service fee revenue for the three months ended September 30, 2022, and 2021, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue. The Group on a combined basis recognized $ 141.4 million and $ 135.0 million of revenue, net of management services fees to RadNet, for the nine months ended September 30, 2022 and 2021, respectively and $ 141.4 million and $ 135.0 million of operating expenses for the nine months ended September 30, 2022 and 2021, respectively. RadNet recognized $ 584.0 million and $ 556.4 million of total billed net service fee revenue for the nine months ended September 30, 2022, and 2021, respectively, for management services provided to the Group relating primarily to the technical portion of billed revenue. 8 Table of Contents 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 September 30, 2022 and December 31, 2021, we have included approximately $ 102.1 million and $ 89.2 million, respectively, of accounts receivable and approximately $ 14.8 million and $ 14.4 million of accounts payable and accrued liabilities related to the Group, respectively. At all of our centers not serviced by the Group we have entered into long-term contracts with medical groups to provide professional services at those centers, including supervision and interpretation of diagnostic imaging procedures. The medical groups maintain full control over the physicians they employ. Through our management agreements, we make available to the medical groups the imaging centers, including all furniture, fixtures and medical equipment therein. The medical groups are compensated for their services from the professional component of the global net service fee revenue and after deducting management service fees paid to us, we have no economic controlling interest in these medical groups. As such, the financial results of these groups are not consolidated in our financial statements. 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. We have continued to finance ScriptSender during it's development phase and our maximum exposure to loss is $ 3.5 million, which represents our receivable balance from the entity. Maximum exposure to loss is the loss that we would absorb in the event that all of the assets of ScriptSender are deemed worthless. We paid operating expenses for the venture of $ 0.5 million and $ 0.6 million for the three months ended September 30, 2022 and September 30, 2021, respectively and $ 1.5 million and $ 1.8 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. 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 September 30, 2022 and 2021 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, 2021. 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, 2021. 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, 2021. 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 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. 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 other 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 9 Table of Contents 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 fee revenues during the three and nine months ended September 30, 2022 and 2021 are presented in the table below. Our imaging center revenue is displayed as the estimated service fee, broken down by classification of insurance coverage type. Additional revenues are earned from our management services provided to joint ventures and our software and AI subsidiaries. In Thousands Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Commercial insurance $ 189,634 $ 185,723 $ 573,259 $ 555,355 Medicare 78,034 73,163 226,827 207,977 Medicaid 9,669 8,707 28,456 26,198 Workers' compensation/personal injury 13,200 11,554 38,785 32,507 Other patient revenue 7,646 4,800 22,334 14,766 Management fee revenue 6,099 5,255 17,199 16,007 Software revenue 3,430 2,068 9,849 7,115 Other 3,431 3,641 12,054 10,058 Revenue under capitation arrangements 38,001 37,283 114,366 111,449 Imaging Center Segment Revenue 349,144 332,194 1,043,129 981,432 AI Segment Revenue 900 496 3,056 496 Total service revenue $ 350,044 $ 332,690 $ 1,046,185 $ 981,928 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, we received funding from the various programs established by the CARES Act as follows: • $ 39.6 million total of accelerated Medicare payments received, $ 39.5 million in the twelve months ended December 31, 2020 and $ 0.1 million in the twelve months ended December 31, 2021. • $ 4.0 million from the Paycheck Protection Program through the twelve months ended December 31, 2020. • $ 35.4 million total Provider Relief Funding, $ 26.3 million received for the twelve months ended December 31, 2020 and $ 9.1 million received for the twelve months ended December 31, 2021, with no funds received for the three months ended September 30, 2021 and $ 6.3 million received during the nine months ended September 30, 2021. 10 Table of Contents The accelerated Medicare payments were recorded to Deferred Revenue in our consolidated balance sheet and are being applied to revenue as services are performed beginning in 2021. Through September 30, 2022, $ 38.6 million of the accelerated Medicare payments has 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 from 2021 is displayed as such on our condensed consolidated statements of operations. The CARES Act also provides for the deferral of the employer-paid portion of the social security payroll tax with 50 % due by December 31, 2021 and 50 % due December 31, 2022. We elected to defer $ 16.3 million of this tax through December 31, 2020. Additionally, The CARES Act provided a refundable employer tax credit equal to 50 % of qualified wages, including certain health insurance costs, that can be used to offset payroll tax liabilities. In 2021 we qualified for a portion of the credit and recorded a benefit of $ 7.7 million through a reduction of payroll tax expense. Our remaining deferred payroll tax liability balance of approximately $ 8.1 million at September 30, 2022, will be paid by December 31, 2022. 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 agreements were $ 15.5 million and $ 17.7 million at September 30, 2022 and December 31, 2021, 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 reassess 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 $ 1.8 million and $ 2.1 million, as of September 30, 2022 and December 31, 2021, respectively and related to our Barclays Revolving Credit Facility. See Note 6, 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 the 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 September 30, 2022 totaled $ 575.1 million. Indefinite lived intangible assets at September 30, 2022 were $ 12.7 million. Goodwill and Indefinite Lived Intangibles are recorded as a result of business combinations. When we determine the carrying value of a 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, 2021, noting no impairment. We considered the current and expected future economic and market conditions including those resulting from the COVID-19 pandemic and 11 Table of Contents did not identify an indication of goodwill impairment being more likely than not through September 30, 2022 . Activity in goodwill for the nine months ended September 30, 2022 is provided below (in thousands): Balance as of December 31, 2021 $ 513,820 Goodwill from acquisitions 67,979 Valuation adjustment ( 338 ) Currency translation ( 6,369 ) Balance as of September 30, 2022 $ 575,092 Goodwill balances at September 30, 2022 reflect additional goodwill arising from deferred tax liabilities recorded on our acquisitions of Aidence Holding B.V. and Quantib B.V. of $ 7.3 million. See Note 4, Business Combinations and Related Activity for more information. 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 $ 2.2 million, or an effective tax rate of 25.3 %, for the three months ended September 30, 2022 compared to income tax expense of $ 5.3 million, or an effective tax rate of 20.0 % for the three months ended September 30, 2021. We recorded income tax expense of $ 7.1 million, or an effective tax rate of 19.8 %, for the nine months ended September 30, 2022 compared to income tax expense of $ 12.5 million or an effective tax rate of 22.6 % for the nine months ended September 31, 2021. The income tax rates for the three and nine months ended September 30, 2022 diverge from the federal statutory rate due to (i) noncontrolling interests due to the controlled partnerships; (ii) effects of state income taxes (iii) effects of foreign income taxes; and (iv) 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. 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 September 30, 2022. 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. Terms and conditions of awards can be direct grants or based on achieving a performance metric. We evaluate performance-based awards to determine if it is probable that the vesting conditions will be met. We also consider probability of achievement of performance conditions when determining expense recognition. For the awards where vesting is probable, equity-based compensation is recognized over the related vesting period. 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 Equity 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 7, Stock-Based Compensation, for more information. COMPREHENSIVE (LOSS) INCOME - 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 and swap agreements are included in comprehensive (loss) income and are included in the consolidated statements of comprehensive (loss) income for the three and nine months ended September 30, 2022 and 2021 . 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 are liable for premium payments if interest rates decline below the 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 September 30, 2022 Account June 30, 2022 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 September 30, 2022 Balance Location Accumulated Other Comprehensive Loss, net of taxes $ ( 17,039 ) $ — $ 924 $ ( 16,115 ) Equity For the nine months ended September 30, 2022 Account December 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 September 30, 2022 Balance Location Accumulated Other Comprehensive Loss, net of taxes $ ( 18,886 ) $ — $ 2,771 $ ( 16,115 ) 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 September 30, 2022 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 $ 12,451 Non-cash change in fair value of interest rate swaps $ ( 1,245 ) Interest Expense For the nine months ended September 30, 2022 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 $ 39,576 Non-cash change in fair value of interest rate swaps $ ( 3,735 ) Interest Expense See Fair Value Measurements section below for the fair value of the 2019 Swaps at September 30, 2022. CONTINGENT CONSIDERATION - Aidence Holding B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Aidence Holding B.V. ("Aidence") an artificial intelligence enterprise centered on lung cancer screening. As part of the purchase agreement, we will pay up to $ 10.0 million consideration upon the completion of two identified milestones in RadNet common shares. This contingency had a value of approximately $ 7.9 million on September 30, 2022. The amount is reviewed quarterly and adjusted to fair value based 14 Table of Contents on the yield rate of S&P B-rated corporate bonds and the probability of FDA approval, which has been currently determined by management to be 90 % for milestone one and 80 % for milestone two. Quantib B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Quantib B.V. ("Quantib") an artificial intelligence enterprise centered on prostate cancer screening. As part of the purchase agreement, we will issue 18 months after acquisition, 113,303 shares with an initial fair value at the date of close of $ 3.0 million subject to adjustment for any indemnification claims and will be marked to market in subsequent periods. See Note 4, Business Combinations and Related Activity for more information on the Quantib acquisition. A tabular presentation of the effect of the combined Aidence and Quantib contingent consideration on our condensed consolidated balance sheet is as follows (amounts in thousands): For the three months ended September 30, 2022 Account June 30, 2022 Balance Amount of other non operating income recognized on contingent consideration Currency Translation September 30, 2022 Balance Location Other Long Term Liabilities $ 8,437 $ 958 $ 833 $ 10,228 Liabilities and Non Operating Income For the nine months ended September 30, 2022 Account January 1, 2022 Balance Issuance of contingent consideration Amount of other non operating income recognized on contingent consideration Currency Translation September 30, 2022 Balance Location Other Long Term Liabilities $ — $ 10,459 $ ( 329 ) $ 98 $ 10,228 Liabilities and Non Operating Income See Fair Value Measurements section below for the fair value of contingent consideration at September 30, 2022. 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. 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 September 30, 2022 Level 1 Level 2 Level 3 Total Current and long term assets 2019 Swaps - Interest Rate Contracts $ — $ 23,258 $ — $ 23,258 15 Table of Contents As of December 31, 2021 Level 1 Level 2 Level 3 Total Current and long term liabilities 2019 Swaps - Interest Rate Contracts $ — $ 16,319 $ — $ 16,319 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. Contingent Consideration: The table below summarizes the estimated fair values of contingencies and holdback relating to our Aidence Holding B.V. and Quantib B.V. acquisitions on January 20, 2022, that are subject to fair value measurements and the classification of these liabilities on our condensed consolidated balance sheets, as follows (in thousands): As of September 30, 2022 Level 1 Level 2 Level 3 Total Long term liabilities Aidence Holding B.V. milestone consideration $ — $ — $ 7,922 $ 7,922 Quantib B.V. holdback of 113,303 shares of RadNet common stock $ — $ — $ 2,306 $ 2,306 The estimated fair value of these liabilities was determined using Level 3 inputs. For Aidence Holding B.V., the milestone contingent liability was adjusted to fair value based on the yield rate of S&P B-rated corporate bonds and the probability of FDA approval. For the Quantib B.V holdback shares, the fair value was determined by calculating the value estimated shares issuable as of the reporting date (which was $ 20.35 ) translated at the current exchange rate at September 30, 2022, the time period related to the contractual settlement term, and the probability of issuing the shares. As all the inputs for the contingent consideration of both Aidence Holding B.V and Quantib B.V. are not observable (excluding our closing share price) and cannot be corroborated by observable market data, we employ a Level 3 category. 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 September 30, 2022 Level 1 Level 2 Level 3 Total Fair Value Total Face Value First Lien Term Loans and SunTrust Term Loan $ — $ 727,510 $ — $ 727,510 $ 757,938 As of December 31, 2021 Level 1 Level 2 Level 3 Total Fair Value Total Face Value First Lien Term Loans and SunTrust Term Loan $ — $ 766,973 $ — $ 766,973 $ 767,875 At September 30, 2022 and at December 31, 2021 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 September 30, 2022 and at December 31, 2021. The estimated fair value of our long-term debt, which is discussed in Note 6, 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. 16 Table of Contents 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): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income attributable to RadNet, Inc.'s common stockholders $ 668 $ 16,220 $ 11,585 $ 28,550 BASIC NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 56,744,419 52,810,644 56,041,017 52,323,360 Basic net income per share attributable to RadNet, Inc.'s common stockholders $ 0.01 $ 0.31 $ 0.21 $ 0.55 DILUTED NET INCOME PER SHARE ATTRIBUTABLE TO RADNET, INC.'S COMMON STOCKHOLDERS Weighted average number of common shares outstanding during the period 56,744,419 52,810,644 56,041,017 52,323,360 Add nonvested restricted stock subject only to service vesting 179,268 271,964 141,492 242,523 Add additional shares issuable upon exercise of stock options and contingently issuable shares 728,074 735,232 853,908 683,815 Weighted average number of common shares used in calculating diluted net income per share 57,651,761 53,817,840 57,036,417 53,249,698 Changes in FV associated with contingently issuable shares $ — $ — $ ( 586 ) $ — Net income attributable to RadNet, Inc's common stockholders for diluted share calculation $ 668 $ — $ 10,999 $ — Diluted net income per share attributable to RadNet, Inc.'s common stockholders $ 0.01 $ 0.30 $ 0.19 $ 0.54 Fair value change for contingently available shares excluded from the computation of diluted per share amounts as its effect would be antidilutive $ 278 $ — $ — $ — Stock options and other non vested shares excluded from the computation of diluted per share amounts as their effect would be antidilutive: Shares issuable subject to satisfaction of certain contingencies 113,303 — — — Shares issuable upon the exercise of stock options: 84,885 — 67,289 — Weighted average shares for which the exercise price exceeds average market price of common stock 83,972 — 73,094 — 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 September 30, 2022, 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 17 Table of Contents represents a 14.21 % equity interest in the company. No observable price changes or impairment in our investment was identified during the three and nine months ended September 30, 2022. 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 into an additional 80,000 shares effective December 21, 2019. No observable price changes or impairment in our investment was identified during the three and nine months ended September 30, 2022. 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 during the three and nine months ended September 30, 2022. 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 September 30, 2022. Acquisition by Equity Method Investee During the first quarter of 2022, our joint venture with Calvert Medical Imaging Center, LLC, completed the acquisition of certain assets to strengthen its presence in the Maryland market. We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands): Entity Date Acquired Total Consideration Property & Equipment Right of Use Assets Goodwill Right of Use Liabilities IFRC LLC *^ 1/1/2022 3,922 2,121 1,295 1,801 ( 1,295 ) *Fair Value Determination is Final ^ IFRC LLC acquisitions consisted of three subsidiaries of IFRC, two of which were purchased separately by wholly owned RadNet subsidiaries. Joint venture investment and financial information The following table is a summary of our investment in joint ventures during the nine months ended September 30, 2022 (in thousands): Balance as of December 31, 2021 $ 42,229 Equity in earnings in these joint ventures 8,350 Equity contributions in existing joint ventures 1,441 Balance as of September 30, 2022 $ 52,020 We charged management service fees from the centers underlying these joint ventures of approximately $ 6.1 million and $ 5.3 million for the three months ended September 30, 2022 and 2021 and $ 17.2 million and $ 16.0 million for the nine months ended September 30, 2022 and 2021, respectively. On June 24, 2022, 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. 18 Table of Contents The following table is a summary of key balance sheet data for these joint ventures as of September 30, 2022 and December 31, 2021 and income statement data for the nine months ended September 30, 2022 and 2021 (in thousands): Balance Sheet Data: September 30, 2022 December 31, 2021 Current assets $ 48,154 $ 37,186 Noncurrent assets 86,123 73,592 Current liabilities ( 12,211 ) ( 12,919 ) Noncurrent liabilities ( 26,619 ) ( 22,370 ) Total net assets $ 95,447 $ 75,489 Book value of RadNet joint venture interests $ 43,947 $ 34,930 Cost in excess of book value of acquired joint venture interests and other 8,073 7,299 Total value of RadNet joint venture interests $ 52,020 $ 42,229 Income statement data for the nine months ended September 30, 2022 2021 Net revenue $ 107,241 $ 98,193 Net income $ 17,034 $ 16,007 NOTE 3 – RECENT ACCOUNTING AND REPORTING STANDARD Accounting standards adopted In November 2021, the FASB issued ASU 2021-10 ("ASU 2021-10"), Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The new standard was effective for financial statements issued for annual reporting periods beginning after December 15, 2021. As ASU 2021-10 only impacts annual financial statement footnote disclosures, the adoption will not have a material effect on our consolidated financial statements. 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. The adoption did not have a material effect on our consolidated financial statements. 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. The adoption did not have a material effect on our consolidated financial statements. Accounting standards not yet adopted In October 2021, the FASB issued ASU 2021-08 ("ASU 2021-08), Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. We do not expect ASU 2021-08 to have a material effect, if any, on our consolidated financial statements. NOTE 4 – BUSINESS COMBINATIONS AND RELATED ACTIVITY 19 Table of Contents Acquisitions Imaging Center During the first quarter of 2022, we completed the acquisition of certain assets of the following entities, which either engage directly in the practice of radiology or associated businesses. The primary reason for these acquisitions was to strengthen our presence in the Maryland market. These acquisitions are reported as part of our Imaging Center segment. We made a fair value determination of the acquired assets and assumed liabilities and the following were recorded (in thousands): Entity Date Acquired Total Consideration Property & Equipment Right of Use Assets Goodwill Other Assets Right of Use Liabilities IFRC LLC*^ 1/1/2022 4,800 2,103 857 2,697 — ( 857 ) IFRC LLC*^ 1/1/2022 8,200 2,910 1,703 5,271 19 ( 1,703 ) Total 13,000 5,013 2,560 7,968 19 ( 2,560 ) *Fair Value Determination is Final ^ IFRC LLC acquisitions consisted of three subsidiaries of IFRC, one of which was purchased separately by a joint venture with Calvert Medical Imaging Centers, LLC. Artificial Intelligence Aidence Holding B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Aidence Holding B.V. ("Aidence") an artificial intelligence enterprise centered on lung cancer screening, in an combination stock and cash purchase. Aidence is reported as part of our artificial intelligence segment and was acquired to enhance our AI capabilities. The transaction was accounted for as an acquisition of a business and total purchase consideration was determined to be approximately $ 45.2 million including i) 1,117,872 shares issued at $ 26.80 per share with a fair value of $ 30.0 million ii) cash of $ 1.8 million and iii) assuming liabilities of $ 11.9 million, $ 7.4 million in milestone contingent consideration and cash holdback of $ 4.5 million and iv) a settlement of a loan from RadNet of $ 1.5 million. In addition we paid certain seller closing costs through the issuance of 23,362 shares at a fair value of $ 0.6 million. We recorded $ 1.0 million in current assets, $ 0.2 million in property plant and equipment, $ 27.7 million in intangible assets, $ 3.2 million in liabilities and $ 19.0 million in goodwill. Quantib B.V. On January 20, 2022, we completed our acquisition of all the equity interests of Quantib B.V. ("Quantib") an artificial intelligence enterprise centered on prostate cancer screening, in a combination stock and cash purchase. Quantib is reported as part of our artificial intelligence segment, and was acquired to enhance our AI capabilities. The transaction was accounted for as an acquisition of a business and total purchase consideration was determined to be approximately $ 42.3 million including i) 965,058 shares issued at $ 26.80 per share with a fair value of $ 25.9 million ii) cash of $ 11.8 million and iii) 113,303 shares with a fair value at the date of close of $ 3.0 million and cash holdback of $ 1.6 million to be released 18 months after acquisition subject to adjustment for any indemnification claims and will be marked to market in subsequent periods. We recorded $ 2.4 million in current assets, $ 0.1 million in property plant and equipment, $ 21.3 million in intangible assets, $ 3.7 million in liabilities and $ 22.2 million in goodwill. Formation of majority owned subsidiary Frederick County Radiology, LLC On April 1, 2022 we formed Frederick County Radiology, LLC ("FCR"), a partnership with Frederick Health Hospital, Inc. ("Hospital"). The operation offers multi-modality services out of six locations in Frederick, Maryland. We contributed the operations of 4 centers to the enterprise and Hospital contributed $ 5.4 million in fixed assets, $ 3.0 million in equipment, and $ 10.8 million in goodwill. As a result of the the transaction, we retain a 65 % controlling economic interest in FCR and Hospital retains a preliminary $ 11.1 million or 35 % noncontrolling economic interest in FCR. The initial accounting is preliminary as of September 30, 2022 for the acquired assets and liabilities as we are currently in the process of completing the assessment of valuation inputs and assumptions as well as completing the assessment of the tax attributes of the business 20 Table of Contents combination. Advanced Radiology at Capital Region, LLC On June 15, 2022 we entered into Advanced Radiology at Capital Region, LLC, a partnership with Dimension Health Corporation. ("Dimension"), an affiliate of the University of Maryland. The operation will provide multi-modality services out of two yet to be determined locations in the Largo, Maryland area. The venture was initially capitalized with nominal amounts of $ 5.1 thousand for a 51 % economic interest from us and $ 4.9 thousand from Dimension for a 49 % economic interest. NOTE 5 – SEGMENT REPORTING Our reportable segments are described below: Imaging Center Our Imaging Center segment provides physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders. 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, a strategy that diversifies revenue streams, reduces exposure to reimbursement changes and provides patients and referring physicians one location to serve the needs of multiple procedures. Included in the segment is our eRad subsidiary, which designs the underlying critical scheduling, data storage and retrieval systems necessary for imaging center operation. Artificial Intelligence ("AI") Our AI segment develops and deploys clinical applications to enhance interpretation of medical images and improve patient outcomes with an emphasis on brain, breast, prostate, and pulmonary diagnostics. Our chief operating decision maker ("CODM"), who is also our CEO, evaluates the financial performance of our segments based upon their respective revenue and segmented internal profit and loss statements prepared on a basis not consistent with GAAP. We do not report balance sheet information by segment since it is not reviewed by our CODM. The table below present segment information reconciled to our financial results, with segment operating income or loss including revenue less cost of operations, depreciation and amortization, and other operating expenses to the extent specifically identified by segment (in thousands): 21 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue: Imaging Centers $ 349,144 $ 332,194 $ 1,043,129 $ 981,432 AI 900 496 3,056 496 Total revenue $ 350,044 $ 332,690 $ 1,046,185 $ 981,928 Cost of Operations Imaging Centers $ 307,868 $ 271,509 $ 917,329 $ 834,944 AI 6,075 1,247 17,428 3,665 Total cost of operations $ 313,943 $ 272,756 $ 934,757 $ 838,609 Depreciation and Amortization Imaging Centers $ 27,590 $ 24,437 $ 80,496 $ 70,924 AI 1,639 169 4,713 348 Total depreciation and amortization $ 29,229 $ 24,606 $ 85,209 $ 71,272 Loss (Gain) on Disposal of Equipment Imaging Centers $ ( 253 ) $ 2,595 $ 936 $ ( 279 ) AI 6 — 26 — Total loss (gain) $ ( 247 ) $ 2,595 $ 962 $ ( 279 ) Severance Imaging Centers $ 187 $ 163 $ 488 $ 715 AI 8 — 8 — Total severance $ 195 $ 163 $ 496 $ 715 Income from Operations Imaging Centers $ 13,752 $ 33,490 $ 43,880 $ 75,128 AI ( 6,828 ) ( 920 ) ( 19,119 ) ( 3,517 ) Total income from operations $ 6,924 $ 32,570 $ 24,761 $ 71,611 For proper comparative purposes, Imaging Center segment revenue in 2021 excludes Provider Relief Funding of $ 6.3 million for the nine months ended September 30, 2021, as it represents a form of direct Government stimulus. No such funds were received for the three months ended September 30, 2021. 22 Table of Contents NOTE 6 – CREDIT FACILITIES AND NOTES PAYABLE As of September 30, 2022 and December 31, 2021 our term loan debt obligations are as follows (in thousands): September 30, 2022 December 31, 2021 First Lien Term Loans collateralized by RadNet's tangible and intangible assets $ 715,938 $ 721,375 Discount on First Lien Term Loans ( 11,649 ) ( 13,213 ) SunTrust Term Loan collateralized by NJIN's tangible and intangible assets 42,000 46,500 Total debt obligations 746,289 754,662 Less: current portion ( 10,789 ) ( 11,164 ) Long term portion debt obligations $ 735,500 $ 743,498 We had no outstanding balance under our $ 195.0 million Barclays Revolving Credit Facility at September 30, 2022 and have reserved $ 7.6 million for certain letters of credit. The remaining $ 187.4 million of our Barclays Revolving Credit Facility was available to draw upon as of September 30, 2022. We had no outstanding balance under our $ 30.0 million SunTrust Revolving Credit Facility at September 30, 2022. As of September 30, 2022, 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 (the "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, with 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 3.50 to 1.00 or less. Such statements were delivered by us on May 27, 2021. At September 30, 2022 the effective Eurodollar Rate and the Alternate Base Rate for the First Lien Term Loans under the Restated Credit Agreement was 2.49 % and 6.25 %, respectively and the applicable margin for the Eurodollar Rate and Alternate Base Rate First Lien Term Loans under the Restated Credit Agreement 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: At September 30, 2022, 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: 23 Table of Contents 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 2.88 % plus an applicable margin and fees based on Pricing Level V 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 $ 1.8 million at September 30, 2022. 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 September 30, 2022, the effective interest rate payable on revolving loans under the Barclays Revolving Credit Facility was 8.25 %. For letters of credit issued under the Barclays Revolving Credit Facility, letter of credit fees accrue at the applicable margin for Eurodollar rate revolving loans which is 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. 24 Table of Contents 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 September 30, 2022, NJIN had no borrowings under the SunTrust Revolving Credit Facility. NOTE 7 – 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 most recently 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), performance based options, stock awards (restricted or unrestricted), stock units, performance based 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 10 years. As of September 30, 2022, we had outstanding options to acquire 703,914 shares of our common stock, of which options to acquire 508,969 shares were exercisable. The following summarizes all of our option transactions for the nine months ended September 30, 2022: 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, 2021 473,939 $ 9.38 Granted 229,975 28.36 Balance, September 30, 2022 703,914 15.58 6.10 $ 5,270,161 Exercisable at September 30, 2022 508,969 11.05 4.93 5,204,446 Aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between our closing stock price on September 30, 2022 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 September 30, 2022. As of September 30, 2022, total unrecognized stock-based compensation expense related to non-vested employee awards was $ 1.4 million, which is expected to be recognized over a weighted average period of approximately 2.20 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 September 30, 2022, total unrecognized stock based compensation expense related to non-vested DeepHealth options was approximately $ 0.9 million, which is expected to be recognized over a weighted average period of approximately 0.89 years 25 Table of Contents 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, 2021 320,660 $ — Exercised ( 191,085 ) — Balance, September 30, 2022 129,575 — 7.03 $ 2,636,851 Exercisable at September 30, 2022 84,885 — 7.03 1,727,406 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. Restricted Stock Awards The Restated Plan permits the award of restricted stock awards (“RSA’s”). As of September 30, 2022, we have issued a total of 7,892,930 RSA’s of which 554,476 were unvested at September 30, 2022. The following summarizes all unvested RSA’s activities during the nine months ended September 30, 2022: RSA's Weighted-Average Remaining Contractual Term (Years) Weighted-Average Fair Value RSA's unvested at December 31, 2021 456,075 $ 20.06 Changes during the period Granted 649,901 $ 26.33 Vested ( 550,248 ) $ 21.95 Forfeited or Canceled ( 1,252 ) $ 28.53 RSA's unvested at September 30, 2022 554,476 1.29 $ 23.84 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 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 nine months ended September 30, 2022, awards totaling 1,000 shares with a value of approximately $ 19.0 thousand were granted. Performance based stock units ("PSUs") In January 2022, we granted certain employees PSUs with a target award of 25,683 shares of our common stock. The PSUs will vest in two equal parts, starting three years from the grant date based on continuous service, with the number of shares earned ( 0 % to 200 % of the target award) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period from January 1, 2022 through December 31, 2022. Performance based stock options ("PSOs") In January 2022, we granted certain employees PSOs to purchase a maximum of 111,925 shares of our common stock. The PSOs will vest in three equal parts, starting three years from the grant date based on continuous service, with the number of shares earned ( 0 shares to 111,925 shares) depending upon the extent to which we achieve a performance condition as determined by the board of directors over the period from January 1, 2022 through December 31, 2022. Long Term Incentive Plan shares ("LTIPs") In addition, we issue stock-based compensation to certain employees in our AI segment in the form of Stock Units and Restricted Stock Awards, subject to certain restrictions. The awards represent a form of long term incentive and are reflective of a general practice within the software industry. The units and shares vest ratably over a 2 to 4 year period, conditioned on continued employment through the vesting periods. We determine the fair value of all LTIPs based on the closing price of our 26 Table of Contents common stock on the award date. The following summarizes all unvested LTIPs activities during the nine months ended September 30, 2022: LTIPs Weighted-Average Remaining Contractual Term (Years) Weighted-Average Fair Value RSA's unvested at December 31, 2021 — $ — Changes during the period Granted 178,748 $ 19.56 Forfeited or Canceled ( 5,479 ) $ 19.50 RSA's unvested at September 30, 2022 173,269 2.98 $ 19.56 Restated Plan summary In summary, of the 16,500,000 shares of common stock reserved for issuance under the Restated Plan, at September 30, 2022, there remain 2,037,463 shares available under the Restated Plan for future issuance. NOTE 8 – SUBSEQUENT EVENTS Refinancing of SunTrust (Now Truist) Credit Facilities: On October 7, 2022, our subsidiary, NJIN, entered into a Second Amended and Restated Credit and Term Loan Agreement which provides for a single term loan of $ 150.0 million and a $ 50.0 million revolving credit facility. The proceeds of the term loan were used to partially fund the acquisition of Montclair Radiological Associates, refinance the outstanding $ 42.0 million term loan and pay fees and expenses associated with the refinancing transaction. The key terms of the Restated Credit and Term Loan Agreement are: • Interest Rates: Borrowings bear interest at either the SOFR or Base Rate as defined in the agreement, plus an applicable margin. • Maturity Dates: The maturity date for both the term loan and revolving loans is October 7, 2027, unless accelerated in accordance with the terms of the agreement. • Payments: Beginning March 31, 2023, we will be required to make quarterly principal amortization payments on the term loan in the amount of $ 1.9 million, which will increase to $ 3.8 million, with the balance paid at maturity. Acquisitions: On October 1, 2022, through our NJIN subsidiary, we acquired Montclair Radiological Associates for purchase consideration of approximately $ 112.6 million. Montclair consists of six multi modality radiology centers located in New Jersey. On November 1, 2022, we acquired a 75 % controlling share interest in London-based Heart & Lung Imaging Limited ("HLH"). HLH was founded to improve lung cancer outcomes through early detection and accurate diagnosis. HLH will be integrated into our AI operations. Total combined purchase consideration, including contingencies, consists of RadNet common stock and cash up to a potential $ 27.6 million.