Nutex Health, Inc. - Quarter Report: 2023 March (Form 10-Q)

Three Months Ended March 31,

Patient visits:

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-41346

NUTEX HEALTH INC.

(Exact name of registrant as specified in its charter)


Delaware	11-3363609
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

6030 S. Rice Ave, Suite C,
Houston, Texas	77081
(Address of principal executive offices)	(Zip code)

(713) 660-0557
(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	NUTX	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 12, 2023, the registrant had 656,563,153 shares of common stock outstanding.

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NUTEX HEALTH INC.

FORM 10-Q

TABLE OF CONTENTS


Introductory Note
Note About Forward-Looking Statements

Part I — Financial Information
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

Part II — Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36

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INTRODUCTORY NOTE

Unless the context dictates otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” “our,” and similar words are references to Nutex Health Inc. (formerly known as Clinigence Holdings, Inc.), a Delaware corporation, and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”) and “Nutex” refers to Nutex Health Inc.

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, changes in laws or regulations, any statements about our business (including the impact of the COVID-19 pandemic on our business), financial condition, operating results, plans, objectives, expectations and intentions, any guidance on, or projections of, earnings, revenue or other financial items, or otherwise, and our future liquidity, including cash flows; any statements of any plans, strategies, and objectives of management for future operations, such as the material opportunities that we believe exist for our Company; any statements concerning proposed services, developments, mergers or acquisitions; or strategic transactions; any statements regarding management’s view of future expectations and prospects for us; any statements about prospective adoption of new accounting standards or effects of changes in accounting standards; any statements regarding future economic conditions or performance; any statements of belief; any statements of assumptions underlying any of the foregoing; and other statements that are not historical facts. Forward-looking statements may be identified by the use of forward-looking terms such as “anticipate,” “could,” “can,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “think,” “plan,” “envision,” “intend,” “continue,” “target,” “seek,” “contemplate,” “budgeted,” “will,” “would,” and the negative of such terms, other variations on such terms or other similar or comparable words, phrases, or terminology. These forward-looking statements present our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and are subject to change.

Forward-looking statements involve risks and uncertainties and are based on the current beliefs, expectations, and certain assumptions of management. Some or all of such beliefs, expectations, and assumptions may not materialize or may vary significantly from actual results. Such statements are qualified by important economic, competitive, governmental, and technological factors that could cause our business, strategy, or actual results or events to differ materially from those in our forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under, but not limited to, the heading “Item 1A. Risk Factors” included in this Quarterly Report and elsewhere in the Annual Report of Nutex Health Inc. on Form 10-K for the year ended December 31, 2022 and other filings of the Company with the United States Securities and Exchange Commission. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change, and significant risks and uncertainties that could cause actual conditions, outcomes, and results to differ materially from those indicated by such statements. Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

NUTEX HEALTH INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	32,836,535	$	34,255,264
Accounts receivable		50,977,291		57,777,386
Accounts receivable - related parties		538,283		538,183
Inventories		3,485,445		3,533,285
Prepaid expenses and other current assets		829,553		1,869,806
Total current assets		88,667,107		97,973,924
Property and equipment, net		77,116,496		82,094,352
Operating right-of-use assets		17,454,733		20,466,632
Finance right-of-use assets		208,619,460		192,591,624
Intangible assets, net		20,804,971		21,191,390
Goodwill, net		17,010,637		17,010,637
Other assets		422,926		423,426

Total assets	$	430,096,330	$	431,751,985

Liabilities and Equity
Current liabilities:
Accounts payable	$	15,048,720	$	23,614,387
Accounts payable - related parties		3,925,297		3,915,661
Lines of credit		2,672,893		2,623,479
Current portion of long-term debt		10,456,134		12,546,097
Operating lease liabilities, current portion		1,495,409		1,703,014
Finance lease liabilities, current portion		4,118,170		4,219,518
Accrued expenses and other current liabilities		10,162,166		6,240,813
Total current liabilities		47,878,789		54,862,969
Long-term debt, net		25,108,364		23,051,152
Operating lease liabilities, net		16,634,948		19,438,497
Finance lease liabilities, net		221,394,523		203,619,756
Deferred tax liabilities		9,541,552		10,452,211
Total liabilities		320,558,176		311,424,585

Commitments and contingencies

Equity:
Common stock, $0.001 par value; 900,000,000 shares authorized; 651,926,125 and 650,223,840 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		651,926		650,224
Additional paid-in capital		460,396,700		458,498,402
Accumulated deficit		(368,433,204)		(363,285,925)
Nutex Health Inc. equity		92,615,422		95,862,701
Noncontrolling interests		16,922,732		24,464,699
Total equity		109,538,154		120,327,400

Total liabilities and equity	$	430,096,330	$	431,751,985

See accompanying notes to the unaudited condensed consolidated financial statements.

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NUTEX HEALTH INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended March 31,
	2023		2022
Revenue:
Hospital division	$	49,288,164	$	79,127,242
Population health management division		7,041,253		-
Total revenue		56,329,417		79,127,242

Operating costs and expenses:
Payroll and benefits		25,836,673		25,610,217
Contract services		9,189,331		4,918,632
Medical supplies		4,023,882		4,259,479
Depreciation and amortization		3,993,747		2,396,861
Other		8,438,061		6,126,557
Total operating costs and expenses		51,481,694		43,311,746

Gross profit		4,847,723		35,815,496

Corporate and other costs:
Facilities closing costs		217,266		-
Stock-based compensation expense		1,900,000		-
General and administrative expenses		7,175,544		6,576,523
Total corporate and other costs		9,292,810		6,576,523

Operating income (loss)		(4,445,087)		29,238,973

Interest expense, net		3,140,089		1,855,974
Other expense		247,455		2,380,545
Income (loss) before taxes		(7,832,631)		25,002,454

Income tax expense (benefit)		(910,659)		176,323

Net income (loss)		(6,921,972)		24,826,131

Less: net income (loss) attributable to noncontrolling interests		(1,774,693)		3,383,288

Net income (loss) attributable to Nutex Health Inc.	$	(5,147,279)	$	21,442,843

Earnings (loss) per common share
Basic	$	(0.01)	$	0.04
Diluted	$	(0.01)	$	0.04

See accompanying notes to the unaudited condensed consolidated financial statements.

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NUTEX HEALTH INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)


	Common Stock			Additional Paid-in		Retained Earnings		Noncontrolling		Total
	Shares	Amount		Capital		(Accumulated Deficit)		Interests		Equity

Balance at January 1, 2022	592,791,712	$	592,792	$	11,742,891	$	102,315,623	$	76,929,704	$	191,581,010
Contributions	-		-		-		-		3,869,201		3,869,201
Distributions	-		-		-		(27,114,936)		(5,738,045)		(32,852,981)
Net income	-		-		-		21,442,843		3,383,288		24,826,131
Balance at March 31, 2022	592,791,712	$	592,792	$	11,742,891	$	96,643,530	$	78,444,148	$	187,423,361

Balance at January 1, 2023	650,223,840		650,224		458,498,402		(363,285,925)		24,464,699		120,327,400
Deconsolidation of Real Estate Entity	-		-		-		-		(4,258,133)		(4,258,133)
Common stock issued for exercise of warrants	702,285		702		(702)		-		-		-
Common stock issued to Apollo Medical Holdings, Inc.	1,000,000		1,000		1,899,000		-		-		1,900,000
Contributions	-		-		-		-		28,000		28,000
Distributions	-		-		-		-		(1,537,141)		(1,537,141)
Net loss	-		-		-		(5,147,279)		(1,774,693)		(6,921,972)
Balance at March 31, 2023	651,926,125	$	651,926	$	460,396,700	$	(368,433,204)	$	16,922,732	$	109,538,154

See accompanying notes to the unaudited condensed consolidated financial statements.

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NUTEX HEALTH INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	(6,921,972)	$	24,826,131
Adjustment to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		3,993,747		2,396,861
Amortization of debt issuance costs		6,738		-
Stock-based compensation expense		1,900,000		-
Deferred tax expense		(910,659)		-
Loss on lease termination		58,211
Non-cash lease expense		40,545		58,857
Changes in operating assets and liabilities:
Accounts receivable		6,620,249		2,849,060
Accounts receivable - related party		(100)		1,867,496
Inventories		47,840		(578)
Prepaid expenses and other current assets		1,040,753		131,053
Accounts payable		(8,565,577)		3,871,115
Accounts payable - related party		9,636		(531,066)
Accrued expenses and other current liabilities		3,732,602		272,493
Net cash from operating activities		1,052,013		35,741,422

Cash flows from investing activities:
Acquisitions of property and equipment		(4,376,983)		(8,591,823)
Cash related to deconsolidation of Real Estate Entity		(1,039,157)		-
Net cash from investing activities		(5,416,140)		(8,591,823)

Cash flows from financing activities:
Proceeds from lines of credit		49,414		2,044,765
Proceeds from notes payable		7,551,506		2,192,309
Repayments of lines of credit		-		(45,107)
Repayments of notes payable		(2,209,678)		(2,590,917)
Repayments of finance leases		(936,703)		(299,275)
Payment of debt issuance costs		-		(27,388)
Members' contributions		28,000		3,869,201
Members' distributions		(1,537,141)		(32,852,981)
Net cash from financing activities		2,945,398		(27,709,393)
Net change in cash and cash equivalents		(1,418,729)		(559,794)
Cash and cash equivalents - beginning of the period		34,255,264		36,118,284
Cash and cash equivalents - end of the period	$	32,836,535	$	35,558,490

See accompanying notes to the unaudited condensed consolidated financial statements.

NUTEX HEALTH INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 – Organization and Operations

Nutex Health Inc. (“Nutex Health” or the “Company”), is a physician-led, healthcare services and operations company with 19 hospital facilities in eight states (hospital division), and a primary care-centric, risk-bearing population health management division. Our hospital division implements and operates different innovative health care models, including micro-hospitals, specialty hospitals and hospital outpatient departments (“HOPDs”). The population health management division owns and operates provider networks such as independent physician associations (“IPAs”) and offers a cloud-based proprietary technology platform to IPAs which aggregates clinical and claims data across multiple settings, information systems and sources to create a holistic view of patients and providers.

We employ approximately 1,200 full time employees and partner with over 900 physicians. Our corporate headquarters is based in Houston, Texas. We were incorporated on April 13, 2000 in the state of Delaware.

Merger of Nutex Health Holdco LLC and Clinigence Holdings, Inc. On April 1, 2022, the merger (the “Merger”) of Nutex Health Holdco LLC and Clinigence Holdings, Inc. (“Clinigence”) was completed pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) entered on November 23, 2021 between Clinigence, Nutex Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of Clinigence, Nutex, Micro Hospital Holding LLC (solely for the purposes of certain sections of the Merger Agreement), Nutex Health Holdco LLC and Thomas Vo, M.D., solely in his capacity as the representative of the equity holders of Nutex Health Holdco LLC.

In connection with the Merger Agreement, Nutex Health Holdco LLC entered into certain Contribution Agreements with holders of equity interests (“Nutex Owners”) of subsidiaries and affiliates (the “Nutex Subsidiaries”) pursuant to which such Nutex Owners agreed to contribute certain equity interests in the Nutex Subsidiaries to Nutex Health Holdco LLC in exchange for specified equity interests in Nutex Health Holdco LLC (collectively, the “Contribution Transaction”). Nutex owners having ownership interests representing approximately 84% of the agreed upon aggregate equity value of the Nutex Subsidiaries, agreed to contribute all or a portion of their equity interests, as applicable.

Pursuant to the Merger Agreement, each unit representing an equity interest in Nutex Health Holdco LLC issued and outstanding immediately prior to the effective time of the Merger but after the Contribution Transaction (collectively, the “Nutex Membership Interests”) was converted into the right to receive 3.571428575 shares of common stock of Clinigence, or an aggregate of 592,791,712 shares of common stock of Clinigence.

After completing the merger, Clinigence was renamed Nutex Health Inc.

Note 2 - Summary of Significant Accounting Policies

Basis of presentation. These financial statements present the Company’s consolidated financial condition and results of operations including those of majority-owned subsidiaries and variable interest entities (“VIEs”) for which we are the primary beneficiary.

The hospital division includes our healthcare billing and collections organization and hospital entities. In addition, we have financial and operating relationships with multiple professional entities (the “Physician LLCs”) and real estate entities (the “Real Estate Entities”). The Physician LLCs employ the doctors who work in our hospitals. These entities are consolidated by the Company as VIEs because they do not have significant equity at risk, and we have historically provided support to the Physician LLCs in the event of cash shortages and received the benefit of their cash surpluses.

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outstanding mortgage loans. Since the second quarter of 2022, we have deconsolidated 18 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans.

The Company has no direct or indirect ownership interest in the consolidated Physician LLCs or Real Estate Entities, so 100% of the equity for these entities is shown as noncontrolling interests in the consolidated balance sheets and statements of operations. Many of the Physician LLCs and Real Estate Entities are owned in part and in some cases controlled by related parties including members of our executive management team.

The population health management division includes our management services organizations and a healthcare information technology company providing a cloud-based platform for healthcare organizations. In addition, Associated Hispanic Physicians of So. California (“AHISP”), an IPA entity that is not owned by us, but is consolidated as a VIE of our wholly-owned subsidiary AHP Health Management Services Inc. (“AHP”) since AHP is the primary beneficiary of its operations and has 100% control of AHISP’s operations through its management services agreement with AHISP.

All significant intercompany balances and transactions have been eliminated in consolidation.

Interim financial statements. These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting Accordingly, they do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed consolidated financial statements include all material adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods presented. These interim financial statements should be read together with the consolidated financial statements and notes thereto included in our audited financial statements for the years ended December 31, 2022 and 2021.

Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include (i) estimates of net revenue and accounts receivable, (ii) fair value of acquired assets and liabilities in business combinations and (iii) impairment of long-lived assets and goodwill. Actual results could differ from those estimates.

Fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We classify fair value balances based on the classification of the inputs used to calculate the fair value of a transaction. The three levels related to fair value measurements are as follows:

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The estimated fair value of accounts receivable, accounts payable, accrued expenses and notes payable approximate the carrying amount due to the relatively short maturity or time to maturity of these instruments. Accounts receivable and payable with related parties may not be arms-length transactions and therefore, may not reflect fair value.

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Except for the initial valuation of intangible assets in connection with the reverse business combination with Clinigence discussed in Note 3 and the impairment of goodwill discussed above, there were no assets or liabilities that were re-measured at fair value on a non-recurring basis during the periods presented.

Segment reporting. A public company is required to report descriptive information about its reportable operating segments. Operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Aggregation of similar operating segments into a single reportable operating segment is permitted if the businesses have similar economic characteristics and meet established criteria. The Company operates three reportable segments – the hospital division, the population health management division and the real estate division. The real estate division is comprised of the Real Estate Entities.

Reclassifications. Financial statements presented for prior periods include reclassifications that were made to conform to the current year presentation.

Recent accounting pronouncements. There are no new accounting pronouncements that are expected to have a material impact on the condensed consolidated financial statements.

Note 3 - Merger of Nutex Health Holdco LLC and Clinigence Holdings, Inc.

The merger of Nutex Health Holdco LLC and Clinigence was completed pursuant to the Merger Agreement on April 1, 2022. As discussed above, the merger was accounted for as a reverse business combination with Nutex Health Holdco LLC as the accounting acquirer and Clinigence as the accounting acquiree.

The fair value of purchase consideration transferred on the closing date includes the value of the shares of the combined company owned by Clinigence shareholders at closing of the merger and the fair value of Clinigence’s outstanding and exercisable common stock options and warrants as determined using a Black-Scholes valuation model. The fair value per share of Clinigence’s common stock was $6.40; its traded closing price on April 1, 2022.

Total consideration in the merger is shown below:


Fair value of Clinigence common shares at $6.40 per share (50,961,109 shares)	$	326,151,098
Fair value of Clinigence outstanding common stock options and warrants		110,543,915
Total consideration	$	436,695,013

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The following is the allocation of the total purchase consideration to acquired assets and assumed liabilities including the fair value of identified intangible assets as determined by independent valuation (a level 3 measurement):


Cash and cash equivalents	$	12,716,228
Accounts receivable, net		2,127,076
Prepaid expenses and other current assets		127,384
Property and equipment, net		14,793
Right of use asset, net		86,989
Intangible assets, net		21,668,000
Goodwill		414,006,378
Accounts payable and accrued expenses		(3,966,100)
Deferred revenue		(92,111)
Convertible notes payable, net		(3,771,858)
Term note payable		(674,526)
Lease liability		(91,238)
Deferred tax liability		(5,456,002)
Assets acquired	$	436,695,013

We made a retrospective change in the valuation of options and warrants assumed by us as part of the total consideration in the merger. This change reduced the fair value of consideration paid and goodwill by $10.3 million.

The intangible assets denoted above each have definite lives. These intangible assets are being amortized over their estimated useful lives of 5 to 16 years. Goodwill arising from the reverse business combination is not tax-deductible. As discussed above, we recognized a non-cash impairment charge of $398.1 million in 2022 to reduce the carrying amount of goodwill arising in the reverse business combination.

The results of operations of Clinigence have been included in the Company’s consolidated financial statements since the April 1, 2022 merger date. We expensed $3.9 million of acquisition-related costs for the merger in 2022. These costs consisted principally of legal, accounting and other professional fees for the transaction.

Supplemental Pro Forma Information – The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the merger with Clinigence had been completed on the date indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that management believes are reasonable under the circumstances.

The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on January 1, 2021, to give effect to certain events that management believes to be directly attributable to the acquisition. These pro forma adjustments primarily include an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and intangible assets.

The supplemental pro forma financial information is as follows:


	Three Months Ended March 31,
	2022

Revenue	$	85,336,417
Net income attributable to Nutex Health Inc.		7,180,154
Basic earnings per share		0.01
Diluted earning per share		0.01

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The pro forma income above includes $14.2 million of one-time stock-based compensation expense related to the merger transaction. Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the period presented and is not intended to be a projection of future results.

Note 4 – Revenue

We disaggregate revenue from contracts with customers into types of services or products, consistent with our reportable segments, as follows:


	Three Months Ended March 31,
	2023		2022
Hospital Division:
Net patient service revenue	$	54,137,235	$	79,127,242
Management fees		(4,849,071)		-
Total Hospital Division revenue		49,288,164		79,127,242

Population Health Management Division:
Capitation revenue, net		6,051,574		-
Management fees		719,626		-
SaaS revenue		270,053		-
Total Population Health Management Division revenue		7,041,253		-
Total revenue	$	56,329,417	$	79,127,242

Net patient service revenue. We receive payment for facility services rendered by us from federal agencies, private insurance carriers, and patients. The Physician LLCs receive payment for doctor services from these same sources. On average, greater than 90% of our net patient service revenue is paid by insurers, federal agencies, and other non-patient third parties. The remaining revenues are paid by our patients in the form of copays, deductibles, and self-payment. We generally operate as an out-of-‎network provider and, as such, do not have negotiated reimbursement rates with insurance ‎companies. In the fourth quarter of 2022, we signed in-network provider contracts with the Provider Network of America (PNA).

The following tables present the allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage:


	Three Months Ended March 31,
	2023		2022

Insurance		93%		96%
Self pay		4%		3%
Workers compensation		1%		1%
Medicare/Medicaid		2%		0%
Total		100%		100%

Contract balances. Cash payments for SaaS-based subscriptions received in advance of the satisfaction of our performance obligations are reported as deferred revenue and subsequently recognized as revenue over the period in which the performance obligations are satisfied. The Company completes its contractual performance obligations through providing its customers access to specified data through subscriptions for a service period, and training on consulting associated with the subscriptions. We primarily invoice our customers on a monthly basis and do not provide any refunds, rights of return, or warranties. Deferred revenue is presented as current liabilities and totaled $119,872 as of March 31, 2023 and $99,143 as of December 31, 2022. We expect to recognize revenue for these amounts within the next twelve months.

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Note 5 - Property and Equipment

The principal categories of property and equipment, net are summarized as follows:


	Useful		March 31,		December 31,
	Life (years)		2023		2022

Buildings and improvements		39	$	9,086,826	$	8,521,996
Land		-		2,650,670		3,721,576
Leasehold improvements		10-39		28,855,241		28,855,239
Construction in progress		-		13,560,583		19,389,329
Medical equipment		10		29,220,485		28,744,664
Office furniture and equipment		7		2,860,680		2,860,680
Computer hardware and software		5		3,221,577		1,713,434
Vehicles		5		135,590		135,590
Signage		10		1,163,722		1,163,722
Total cost				90,755,374		95,106,230
Less: accumulated depreciation				(13,638,878)		(13,011,878)
Total property and equipment, net			$	77,116,496	$	82,094,352

We deconsolidated 17 Real Estate Entities in the second quarter of 2022 and one Real Estate Entity in the first quarter of 2023. Refer to Note 18.

Depreciation and amortization of property and equipment for the three months ended March 31, 2023 and 2022 totaled $1,123,053 and $1,469,198 respectively.

Note 6 – Intangible Assets

The following tables provide detail of the Company’s intangible assets:


	Gross		Accumulated		Net Carrying		Weighted Average
March 31, 2023	Carrying Amount		Amortization		Amount		Useful Life (in years)
Amortizing intangible assets:
Member relationships	$	16,899,000	$	1,126,599	$	15,772,401		15
Management contracts		2,021,000		126,313		1,894,687		16
Customer contracts		914,000		60,933		853,067		15
Trademarks		1,425,000		150,033		1,274,967		7-12
PHP technology		409,000		81,800		327,200		5
Indefinite life intangible - license		682,649		-		682,649		-
Total	$	22,350,649	$	1,545,678	$	20,804,971

December 31, 2022
Amortizing intangible assets:
Member relationships	$	16,899,000	$	844,950	$	16,054,050		15
Management contracts		2,021,000		94,734		1,926,266		16
Customer contracts		914,000		45,700		868,300		15
Trademarks		1,425,000		112,525		1,312,475		7-12
PHP technology		409,000		61,350		347,650		5
Indefinite life intangible - license		682,649		-		682,649		-
Total	$	22,350,649	$	1,159,259	$	21,191,390

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Amortization of intangible assets for the three months ended March 31, 2023 and 2022 totaled $386,419 and $0, respectively.

Note 7 – Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	March 31,		December 31,
	2023		2022

Accrued wages and benefits	$	5,901,561	$	4,235,167
Accrued taxes		3,461,054		1,029,790
Accrued other		799,551		975,856
Total accrued expenses and other current liabilities	$	10,162,166	$	6,240,813

Note 8 – Debt

The Company’s outstanding debt is shown in the following table:


	Maturity	Interest	March 31,		December 31,
	Dates	Rates	2023		2022

Term loans secured by all assets	04/2023 - 11/2030	3.25 - 6.00%	$	10,965,545	$	11,341,934
Term loans secured by property and equipment	01/2024 - 10/2029	4.19 - 6.90%		10,815,089		9,299,197
Line of credit secured by all assets	04/2023 - 11/2025	4.50 - 6.50%		2,672,894		2,623,479
Term loans of consolidated Real Estate Entities	08/2023 - 03/2037	3.59 - 4.80%		13,886,997		15,068,920
Total				38,340,525		38,333,530
Less: unamortized debt issuance costs				103,134		112,802
Less: short-term lines of credit				2,672,893		2,623,479
Less: current portion of long-term debt				10,456,134		12,546,097
Total long-term debt			$	25,108,364	$	23,051,152

Term loans and lines of credit. We have entered into private debt arrangements with banking institutions for the purchase of equipment and to provide working capital and liquidity through cash and lines of credit. Unless otherwise delineated above, these debt arrangements are obligations of Nutex and/or its wholly-owned subsidiaries. Consolidated Real Estate Entities have entered into private debt arrangements with banking institutions for purposes of purchasing land, constructing new emergency room facilities and building out leasehold improvements which are leased to our hospital entities. Nutex is a guarantor or, in limited cases, a co-borrower on the debt arrangements of the Real Estate Entities for the periods shown. Since the second quarter of 2022, we have deconsolidated 18 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans.

Certain outstanding debt arrangements require minimum debt service coverage ratios and other financial covenants. At March 31, 2023, we were not in compliance with the debt service coverage ratio for one term loan with an outstanding balance of $1.0 million. This balance has been included in current liabilities. At March 31, 2023, we had remaining availability of $3.1 million under outstanding lines of credit.

Convertible notes payable. We assumed $5,415,375 principal of convertible notes payable of Clinigence outstanding at the merger date. The convertible notes payable were fully converted into 3,474,430 shares of common stock at a conversion price of $1.55 per share before their maturity on July 31, 2022. Debt discount totaling $1,719,572 was accreted over four months to the maturity date of the convertible notes payable.

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Note 9 – Leases

We have entered into hospital property, office and equipment rental agreements with various lessors including related parties. The following tables disclose information about our leases of property and equipment:


	Three Months Ended March 31,
	2023		2022

Operating lease cost	$	948,515	$	692,669

Finance lease cost:
Amortization of right-of-use assets	$	2,484,275	$	927,664
Interest on lease liabilities		2,688,520		980,619
Total finance lease cost	$	5,172,795	$	1,908,283

Note 10 – Commitments and Contingencies

Litigation. The Company, its consolidated subsidiaries or VIEs may be named in various claims and legal actions in the normal course of business. Based upon counsel and management’s opinion, the outcome of such matters is not expected to have a material adverse effect on the consolidated financial statements.

Note 11 – Stock-based Compensation

In 2022, the Company adopted the Amended and Restated Nutex Health Inc. 2022 Equity Incentive Plan (the “2022 Plan”). The maximum aggregate number of shares that may be issued under the 2022 Plan is 5,000,000 shares, subject to increases on January 1st of each calendar year through January 1, 2027 of up to 5% annually at the discretion of the compensation committee of our Board of Directors. A total of 2,416,221 shares were available for issuance under the 2022 Plan at March 31, 2023. Awards granted under the 2022 Plan have a ten-year term and may be incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units or performance shares. The awards are granted at an exercise price equal to the fair market value on the date of grant and generally vest over a four-year period.

Obligations for under-construction and ramping hospitals. Under the terms of the Contribution Agreements, contributing owners of the under-construction hospitals and ramping hospitals are eligible to receive a one-time additional issuance of Company common stock.

●

With respect to ramping hospitals, 24 months after the opening date (the “Determination Date”) of the applicable ramping hospital, such owner is eligible to receive such owner’s pro rata share of a number of shares of Company Common Stock equal to (i) the trailing twelve months earnings before interest, taxes, depreciation and amortization on the respective Determination Date, multiplied by (ii) 10, (iii) minus the initial equity value received at the Closing of the Merger, and (iv) minus such owner’s pro rata share of the aggregate debt of the applicable ramping hospital outstanding as of the closing of the Merger. The number of additional shares to be issued will be determined based on the greater of (a) the price of the Company’s common stock at the time of determination or (b) $2.80.

●

With respect to under construction hospitals, contributing owners of under construction hospitals will be eligible to receive, on the Determination Date, such owner’s pro rata share of a number of shares of Company common stock equal to (a)(i) the trailing twelve months earnings before interest, taxes, depreciation and amortization as of the Determination Date multiplied by (ii) 10, minus (iii) the aggregate amount of such owner’s capital contribution to the under construction hospital, minus (iv) such owner’s pro rata share of the aggregate debt of the applicable under construction hospital outstanding as of the Closing of the Merger,

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divided by (b) the greater of (i) the price of the Company common stock at the time of determination or (ii) $2.80.

We have not recognized any expense for this stock-based compensation based on our current estimates of future obligations to the contributing owners.

Options. Clinigence had 6,500,010 options for the purchase of our common stock outstanding as of the merger date, all of which were fully vested and exercisable. The following table summarizes stock-based awards activity:


					Weighted Average
	Options		Weighted Average		Remaining Contractual
	Outstanding		Exercise Price		Life (Years)

Options outstanding at December 31, 2022		5,147,770	$	2.30		7.60
Options exercised		-		-
Options cancelled		-		-
Options outstanding at March 31, 2023		5,147,770	$	2.32		7.35

Options outstanding as of March 31, 2023 consisted of:


Expiration	Number		Number		Exercise
Date	Outstanding		Exercisable		Price

March 15, 2025		157,196		157,196	$	4.47
January 27, 2027		180,000		180,000		1.50
May 11, 2027		350,000		350,000		1.50
June 6, 2027		3,600		3,600		36.25
August 16, 2027		25,000		25,000		2.51
January 28, 2028		180,000		180,000		1.61
January 27, 2030		296,865		296,865		1.50
February 28, 2030		95,794		95,794		1.25
June 30, 2030		117,056		117,056		1.45
August 4, 2029		40,480		40,480		5.56
January 28, 2031		1,000,000		1,000,000		1.61
February 28, 2031		200,000		200,000		2.00
September 9, 2031		1,934,779		1,934,779		2.75
September 9, 2031		410,000		410,000		2.75
December 17, 2031		157,000		157,000		3.50
Total		5,147,770		5,147,770

Note 12 – Equity

We are authorized to issue up to a total of 900,000,000 shares of common stock having a par value of $0.001 per share. Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders and to receive ratably in proportion to the shares of common stock held by them any dividends declared from time to time by the board of directors. Our common stock has no preferences or rights of conversion, exchange, pre-exemption or other subscription rights.

Common Stock Issued. Following is a discussion of common stock issuances during the periods presented. All issuances referenced below were unregistered and were exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(a)(2).

●

In March 2023, we issued 1,000,000 common shares to Apollo Medical Holdings, Inc. for IPA managerial services. We recognized $1.9 million of stock-based compensation expense for this issuance. This expense

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should have been recognized on December 31, 2022. However, we consider this expense not material for revision and thus, is an out-of-period adjustment in this quarter’s financial statements.

●

At the time of the Merger, Clinigence had 50,961,109 common shares outstanding. These amounts are shown as issued by us in the presentation of consolidated financial statements as the accounting acquiror.

Warrants. Clinigence had 12,401,240 common stock warrants outstanding as of the merger date. Warrant activity follows:


					Weighted Average
	Warrants		Weighted Average		Remaining Contractual
	Outstanding		Exercise Price		Life (years)

Warrants outstanding at December 31, 2022		11,033,015	$	1.96		3.80
Warrants exercised		(806,453)		1.55
Warrants expired		(1,500)		1.55
Warrants outstanding at March 31, 2023		10,225,062	$	1.99		3.53

In the first quarter of 2023, 702,285 shares of common stock were issued in satisfaction of cashless exercises of warrants to purchase of 806,453 shares of common stock. Warrants outstanding as of March 31, 2023 consisted of:


Expiration	Number		Number		Exercise
Date	Outstanding		Exercisable		Price


April 27, 2023		1,500		1,500	$	25.00
December 31, 2024		554,873		554,873		6.67
October 31, 2025		16,250		16,250		1.25
October 31, 2025		1,566,451		1,566,451		1.55
February 26, 2026		288,235		288,235		4.00
July 31, 2026		2,532,900		2,532,900		1.55
February 1, 2027		650,000		650,000		1.55
May 31, 2027		4,614,853		4,614,853		1.75
Total		10,225,062		10,225,062

Note 13 – Income Taxes

Income tax provisions for interim quarterly periods are generally based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual items related specifically to interim periods. The income tax impact of discrete items is recognized in the period these occur.

In periods before the merger with Clinigence, Nutex Health Holdco LLC and the Nutex Subsidiaries were pass-through entities treated as partnerships for U.S. federal income tax purposes. No provision for federal income taxes was provided for these periods as federal taxes were obligations of these companies’ members. After the merger, Nutex Health Holdco LLC became a wholly-owned subsidiary of Clinigence and is included in its future consolidated corporate tax filings.

Our effective tax rate for the three months ended March 31, 2023 was 11.63%.

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Note 14 – Earnings per Share

The following is the computation of earnings (loss) per basic and diluted share:


	Three Months Ended March 31,
	2023		2022
Amounts attributable to Nutex Health Inc.:
Numerator-
Net income (loss) attributable to common stockholders	$	(5,147,279)	$	21,442,843

Denominator:
Weighted average shares used to compute basic and diluted EPS		650,915,693		592,791,712

Earnings (loss) per share:
Basic	$	(0.01)	$	0.04
Diluted	$	(0.01)	$	0.04

The computation of diluted earnings per common share excludes the 5,147,770 common stock options and 10,225,062 warrants for the three months ended March 31, 2023. The dilutive effect of the assumed exercise of outstanding options and warrants was calculated using the treasury stock method.

Note 15 - Supplemental Cash Flows Information


	Three Months Ended March 31,
	2023		2022
Cash paid for interest	$	430,643	$	875,355
Cash paid for income taxes		-		18,473
Non-cash investing and financing activities:
Financed capital expenditures		2,709,019		-
Acquisition of finance leases		18,798,667		9,937,104
Termination of operating and finance leases		2,818,498		-
Exercise of warrants on cashless basis		702		-
Issuance of common stock to Apollo Medical Holdings, Inc.		1,900,000		-
Deconsolidation of Real Estate Entity		4,258,133		-

Note 16 – Segment Information

We report the results of our operations as three segments in our consolidated financial statements: (i) the hospital division, (ii) the population health management division and (ii) the real estate division. The determination of our reporting segments was made on the basis of our strategic priorities, which corresponds to the manner in which our Chief Executive Officer, as our chief operating decision maker, reviews and evaluates operating performance to make decisions about resources to be allocated. We evaluate the performance of our reportable segments based on, among other measures, operating income, which is defined as income before interest expense, other income (expense), and taxes. Corporate costs primarily include expenses for support functions and salaries and benefits for corporate employees and are excluded from segment operating results.

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Reportable segment information, including intercompany transactions, is presented below:


	Three Months Ended March 31,
	2023		2022
Revenue from external customers:
Hospital division	$	49,288,164	$	79,127,242
Population health management division		7,041,253		-
Total revenue	$	56,329,417	$	79,127,242

Segment operating income:
Hospital division		4,778,637		35,815,496
Population health management division		69,086		-
Total segment operating income	$	4,847,723	$	35,815,496

Capital expenditures:
Hospital division		4,376,983		2,365,359
Real estate division		-		6,226,464
Total capital expenditures	$	4,376,983	$	8,591,823

Revenue from inter-segment activities:
Real estate division	$	258,015	$	4,045,969

Depreciation and amortization:
Hospital division		3,564,022		2,396,861
Population health management division		388,047		-
Real estate division		41,678		-
Total depreciation and amortization	$	3,993,747	$	2,396,861

Note 17 – Related Party Transactions

Related party transactions included the following:

●

The Physician LLCs employ the doctors who work in our hospitals. We have no direct ownership interest in these entities but they are owned and, in some instances, controlled by related parties including our CEO, Dr. Thomas Vo. The Physician LLCs are consolidated by the Company as VIEs because they do not have significant equity at risk, and we have historically provided support to them in the event of cash shortages and received the benefit of their cash surpluses.

In connection with the merger with Clinigence, we forgave certain amounts due from Physician LLCs for past advances made by us in support of their operations. We recognized net expense of $1,506,650 in the three months ended March 31, 2022 as other expense in the consolidated statements of operations. No such expense was recognized subsequently.

The Physician LLCs had outstanding obligations to their member owners, who are also Company stockholders, totaling $2,488,212 at March 31, 2023 and $2,058,701 at December 31, 2022 reported within accounts payable – related party in our consolidated balance sheets.

●

Most of our hospital division facilities are leased from real estate entities which are owned by related parties. These leases are typically on a triple net basis where our hospital division is responsible for all operating costs, repairs and taxes on the facilities. Our obligations under these leases are presented in Note 9. During the three months ended March 31, 2023, we made cash payments for these lease obligations totaling $3,519,345. Cash payments for these lease obligations made in the three months ended March 31, 2022 totaled $2,883,681.

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●

We consolidate Real Estate Entities as VIEs when they do not have sufficient equity at risk and our hospital entities are guarantors or co-borrowers under their outstanding mortgage loans. The consolidated Real Estate Entities have mortgage loans payable to third parties which are collateralized by the land and buildings. We have no direct ownership interest in these entities but they are owned and, in some instances, controlled by related parties including our CEO. We deconsolidated 17 Real Estate Entities in the second quarter of 2022 and one Real Estate Entity in the first quarter of 2023. At March 31, 2023, two Real Estate Entities continue to be consolidated in our financial statements.

In connection with the merger with Clinigence, we forgave certain amounts due from Real Estate Entities for past advances made by us. We recognized net expense totaling $553,259 in the three months ended March 31, 2022 as other expense in the consolidated statements of operations. No such expense was recognized subsequently.

●	Accounts receivable – related party included $538,259 at March 31, 2023 and $538,184 at December 31, 2022 due from noncontrolling interest owners of consolidated ER Entities.

●

Micro Hospital Holding LLC, an affiliate controlled by our CEO made advances to one of our hospital facilities, SE Texas ER. These advances totaled $1,424,948 at March 31, 2023 and $1,424,948 at December 31, 2022 and are reported as accounts payable – related party in our consolidated balance sheets. The advances have no stated maturity and bear no interest.

●	Accounts payable – related party in our consolidated balance sheets included $12,136 at March 31, 2023 and $2,500 at December 31, 2022 for reimbursement of expenses incurred on our behalf.

●

We provide managerial services to emergency centers owned and, in some instances, controlled by related parties including an entity controlled by our CEO. We recognized $158,851of managerial fees within the hospital division in the three months ended March 31, 2023 for these services. In the three months ended March 31, 2022, we recognized $412,554 of revenue for these services.

●	Two of our ER Entities are obligated under managerial services agreements with related parties commencing in 2022. Payments under these agreements totaled $336,000 for the three months ended March 31, 2023 and $323,194 for the three months ended March 31, 2022.

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Note 18 – Variable Interest Entities

The following tables provide the balance sheet amounts for consolidated VIEs:


	March 31, 2023
	Real Estate		Physician		AHISP
	Entities		LLCs		IPA

Current assets	$	4,671,762	$	6,288,095	$	8,016,463
Property and equipment, net		10,975,277		3,668		-
Other long-term assets		19,634,442		-		16,254,462

Total assets	$	35,281,481	$	6,291,763	$	24,270,925

Current liabilities		1,038,381		5,400,568		24,240,245
Long-term liabilities		13,838,569		-		30,680

Total liabilities		14,876,950		5,400,568		24,270,925

Equity		20,404,531		891,195		-

Total liabilities and equity	$	35,281,481	$	6,291,763	$	24,270,925


	December 31, 2022
	Real Estate		Physician		AHISP
	Entities		LLCs		IPA

Current assets	$	3,466,811	$	6,915,710	$	6,641,448
Property and equipment, net		16,726,986		3,668		-
Long-term assets		19,647,148		-		16,553,040

Total assets	$	39,840,945	$	6,919,378	$	23,194,488

Current liabilities		2,326,335		4,831,617		23,163,808
Long-term liabilities		15,019,633		-		30,680

Total liabilities		17,345,968		4,831,617		23,194,488

Equity		22,494,977		2,087,761		-

Total liabilities and equity	$	39,840,945	$	6,919,378	$	23,194,488

The assets of each of the ER Entities may only be used to settle the liabilities of that entity or its consolidated VIEs and may not be required to be used to settle the liabilities of any of the other ER Entities, other VIEs, or corporate entity. Additionally, the assets of corporate entities cannot be used to settle the liabilities of VIEs. The Company has aggregated all of the Physician LLCs and Real Estate Entities into two categories above, because they have similar risk characteristics, and presenting distinct financial information for each VIE would not add more useful information.

Real Estate Entities are consolidated by the Company as VIEs because they do not have sufficient equity at risk and our hospital entities are guarantors of their outstanding mortgage loans. We have been working with the third-party lenders to remove our guarantees of their outstanding mortgage loans. As these guarantees are released, the associated Real Estate Entity no longer qualifies as a VIE and is deconsolidated. We deconsolidated 17 Real Estate Entities in the second

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quarter of 2022 and one Real Estate Entity in the first quarter of 2023. There was no gain or loss on the deconsolidation of these entities. As of March 31, 2023, two Real Estate Entities continue to be consolidated in our financial statements.

At the date we deconsolidated these Real Estate Entities in the second quarter of 2022, they had $2,421,212 of cash, $98,086,690 of fixed assets (principally land and building), $533,874 of other assets, $69,638,778 of liabilities (principally mortgage indebtedness) and $31,402,998 of equity reported as noncontrolling interests.

The Real Estate Entity we deconsolidated in the first quarter of 2023 had $1,039,156 of cash, $8,420,537 of fixed assets (principally land and building), $179,846 of other assets, $5,381,316 of liabilities (principally mortgage indebtedness) and $4,258,133 million of equity reported as noncontrolling interests as of the date of deconsolidation.

Note 19 - Subsequent Events

The Company has evaluated subsequent events through the filing of this report and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements except for the transactions described below:

Yorkville Transaction and Conversion. On April 11, 2023, the Company entered into a Pre-Paid Advance Agreement (the “PPA”) with YA II PN, Ltd. (“Yorkville”). In accordance with the terms of the PPA, the Company may request advances of up to $25 million from Yorkville (or such greater amount that the parties may mutually agree) (each, a “Pre-Paid Advance”), which will be purchased by Yorkville at 90% of the face amount. Future Pre-Paid Advances will range from $5 million to $25 million depending on stock price and volume conditions being met, with an aggregate limitation on the Pre-Paid Advances of $100 million over an 18-months period. At the request and sole discretion of Yorkville, such Pre-Paid Advances will be correspondingly reduced upon the issuance of our Common Stock to Yorkville at a Purchase Price equal to (a) $1.00 in respect of the initial Pre-Paid Advance, and (b) with respect to each subsequent Pre-Paid Advance the lower of (i) 100% of the volume weighted average price (VWAP) of the Company’s common stock on the trading day immediately preceding the closing of such Pre- Paid Advance or (ii) 92.0% of the average of the two lowest daily VWAP of the shares during the seven trading days immediately prior to each Pre-Paid Advance, subject to a floor price of $0.1851 per share.

In connection with the execution of the PPA, Yorkville paid to the Company an initial Pre-Paid Advance amount of $15 million ($12.8 million before expenses) and agreed to pay an additional $10 million on the earlier of June 10, 2023, or the date upon which the outstanding balance on the initial $15 million has been reduced below $1 million, in each case, as long as the volume weighted average price (VWAP) for the ten trading days prior to such date is at least $0.60 per share.

Subsequent to the end of the period through the date of the report, in connection with the PPA, Yorkville converted $2,000,000 of principal balance to 3,856,267 shares of common stock. The stock issued was determined based on the terms of the PPA.

Restricted Stock Awards. On April 1, 2023, the Company issued 604,158 Restricted Stock Units (RSUs), valued at $610,210 to certain employees. The 214,719 RSU Common Shares vested on April 1, 2023, another 194,719 common shares will vest on March 1, 2024 and another 194,719 common shares will vest on March 1, 2025.

Stock Issuance. On April 10, 2023, 566,042 shares of common stock were issued in satisfaction of cashless exercises of warrants to purchase of 650,000 shares of common stock.

* * * * *

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.

Explanatory Note

On April 1, 2022 (the “Merger Date”), Nutex Health Holdco LLC and Clinigence Holdings, Inc. (“Clinigence”) completed the merger (the “Merger”) contemplated by the Agreement and Plan of Merger (the “Merger Agreement”) dated as of November 23, 2021 between Clinigence, Nutex Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of Clinigence, Nutex, Micro Hospital Holding LLC (solely for the purposes of certain sections of the Merger Agreement), Nutex Health Holdco LLC and Thomas Vo, M.D., solely in his capacity as the representative of the equity holders of Nutex. Immediately following the completion of the Merger, Clinigence amended its certificate of incorporation and bylaws to change its name to “Nutex Health Inc.” In connection with the Merger, each outstanding equity interest of Nutex Health Holdco LLC was exchanged for 3.571428575 shares of Clinigence common stock. The Merger was accounted for as a reverse business combination under U.S. GAAP. Therefore, Nutex Health Holdco LLC was treated as the accounting acquirer in the Merger. Our financial statements presented for periods prior to the Merger Date are those of Nutex Health Holdco, LLC, as the Company’s predecessor entity. Beginning with the second quarter of 2022, our financial statements are presented on a consolidated basis and include Clinigence.

Except where the context indicates otherwise, (i) references to “we,” “us,” “our,” or the “Company” refer, for periods prior to the completion of the Merger, to Nutex Health Holdco LLC and its subsidiaries, (ii) references the “Nutex Health” for periods following the completion of the Merger, refer to Nutex Health Inc. and its subsidiaries and (ii) references to “Clinigence” refer to Clinigence Holdings, Inc. and its subsidiaries prior to the completion of the Merger.

Overview

Nutex Health Inc. is a physician-led, healthcare services and operations company with 19 hospital facilities in eight states (hospital division), and a primary care-centric, risk-bearing population health management division. Our hospital division implements and operates different innovative health care models, including micro-hospitals, specialty hospitals and hospital outpatient departments (“HOPDs”). The population health management division owns and operates provider networks such as independent physician associations (“IPAs”) and offers a cloud-based proprietary technology platform to IPAs which aggregates clinical and claims data across multiple settings, information systems and sources to create a holistic view of patients and providers.

We employ approximately 1200 full time employees and partner with over 900 physicians. Our corporate headquarters is based in Houston, Texas. We were incorporated on April 13, 2000 in the state of Delaware.

Our financial statements present the Company’s consolidated financial condition and results of operations including those of majority-owned subsidiaries and variable interest entities (“VIEs”) for which we are the primary beneficiary.

The Real Estate Entities own the land and hospital buildings which are leased to our hospital entities. The Real Estate Entities have mortgage loans payable to third parties which are collateralized by the land and buildings. We consolidate the Real Estate Entities as VIEs in instances where our hospital entities are guarantors or co-borrowers under their outstanding mortgage loans. Since the second quarter of 2022, we deconsolidated 18 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans.

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The Company has no direct or indirect ownership interest in the Physician LLCs or Real Estate Entities, so 100% of the equity for these entities is shown as noncontrolling interest in the consolidated balance sheets and statements of operations.

The population health management division includes our management services organizations and a healthcare information technology company providing a cloud-based platform for healthcare organizations. In addition, AHISP, IPA, a physician-affiliated entity that is not owned by us—is consolidated as a VIE of our wholly-owned subsidiary AHP since we are the primary beneficiary of their operations under AHP’s management services contracts with them.

Sources of revenue. Our hospital division recognizes net patient service revenue for contracts with patients and in most cases a third-party payor (commercial insurance, workers compensation insurance or, in limited cases, Medicare/Medicaid).

We receive payment for facility services rendered by us from federal agencies, private insurance carriers, and patients. The Physician LLCs receive payment for doctor services from these same sources. On average, greater than 90% of our net patient service revenue are paid by insurers, federal agencies, and other non-patient third parties. The remaining revenues are paid by our patients in the form of copays, deductibles, and self-payment. The following tables present the allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage:


	Three Months Ended March 31,
	2023		2022

Insurance		93%		96%
Self pay		4%		3%
Workers compensation		1%		1%
Medicare/Medicaid		2%		0%
Total		100%		100%

The population health management division recognizes revenue for capitation and management fees for services to IPAs and physician groups and for the licensing, training, and consulting related to our cloud-based proprietary technology. Capitation revenue consists primarily of capitated fees for medical services provided by physician-owned entities we consolidate as VIEs. Capitated arrangements made directly with various managed care providers including HMOs. Capitation revenues are typically prepaid monthly to us based on the number of enrollees selecting us as their healthcare provider. Capitation is a fixed payment amount per patient per unit of time paid in advance for the delivery of health care services, whereby the service providers are generally liable for excess medical costs. We receive management fees that are received based on gross capitation revenues of the IPAs or physician groups we manage.

Our growth plans. We plan to expand our operations by entering new market areas either through development of new hospitals, formation of new IPAs or by making acquisitions.

We identify new market areas for hospitals based on the area’s need for access to emergency health services and growth expectations. We identify and partner with local physicians who will operate and manage the new location. When developing new hospitals, we have a turn-key process for location selection, real estate acquisition, design, ‎and development of the facility including staffing, training and operations. We extend our existing comprehensive suite of ‎centralized services to operating hospitals, including executive management, billing, collections, recruiting ‎and marketing.

Overview of Legislative Developments

The U.S. Congress and many state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system, including changes that have impacted access to health insurance. The most prominent of these efforts, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed. The Affordable Care Act increased health insurance coverage through a combination of public

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program expansion and private sector health insurance reforms. There is uncertainty regarding the ongoing net effect of the Affordable Care Act due to the potential for continued changes to the law’s implementation and its interpretation by government agencies and courts. There is also uncertainty regarding the potential impact of other health reform efforts at the federal and state levels.

In response to the COVID-19 pandemic, federal and state governments passed legislation, promulgated regulations, and have taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency and to provide financial relief. Among these, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) had the most impact on our business.

The CARES Act included a waiver of insurance copayments, coinsurance, and annual deductibles for laboratory tests to diagnose COVID-19 and visits to diagnose COVID-19 at an emergency department of a hospital. These provisions of the CARES Act expired on June 30, 2021. While these provisions were effective, we experienced higher levels of revenue due to a shift of payor mix. The larger number and acuity of patient claims for COVID-19 also resulted in higher revenue.

No Surprises Act

The No Surprises Act (“NSA”) is a federal law that took effect January 1, 2022, to protect consumers from most instances of “surprise” balance billing. The legislation was included in the Consolidated Appropriations Act, 2021, which was passed by Congress and signed into law by President Trump on December 27, 2020. With respect to the Company, ‎the NSA limits the amount an insured patient will pay for emergency services furnished by an out-of-network ‎provider. The NSA addresses the payment of these out-of-network providers by group health plans or health ‎insurance issuers (collectively, “insurers”). In particular, the NSA requires insurers to reimburse out-of-network ‎providers at a statutorily calculated “out-of-network rate.” In states without an all-payor model agreement or ‎specified state law, the out-of-network rate is either the amount agreed to by the insurer and the out-of-network ‎provider or an amount determined through an independent dispute resolution (“IDR”) process. ‎

‎

Under the NSA, insurers must issue an initial payment or notice of denial of payment to a provider within ‎thirty days after the provider submits a bill for an out-of-network service. If the provider disagrees with the ‎insurer’s determination, the provider may initiate a thirty-day period of open negotiation with the insurer over the ‎claim. If the parties cannot resolve the dispute through negotiation, the parties may then proceed to IDR ‎arbitration. ‎

Independent Dispute Resolution. The provider and insurer each submits a proposed payment amount and ‎explanation to the arbitrator. The arbitrator must select one of the two proposed payment amounts taking into ‎account the “qualifying payment amount” and additional circumstances including among other things the level of training, outcomes ‎measurements of the facility, the acuity of the individual treated, and the case mix and scope of services of the ‎facility providing the service. The NSA prohibits the arbitrator from considering the provider’s usual and ‎customary charges for an item or service, or the amount the provider would have billed for the item or service in ‎the absence of the NSA. ‎

Qualifying Payment Amount. The “qualifying payment amount” is generally “the median of the contracted ‎rates recognized by the plan or issuer under such plans or coverage, respectively, on January 31, 2019, for the ‎same or a similar item or service that is provided by a provider in the same or similar specialty and provided in the ‎geographic region in which the items or service is furnished,” with annual increases based on the consumer price ‎index. In other words, the qualifying payment amount is typically the median rate the insurer would have paid for ‎the service if provided by an in-network provider or facility.‎

HHS Final Rule. As required by the NSA, the United States Department of Health and Human ‎Services (“HHS”) has established an IDR process under which a certified IDR ‎entity determines the ultimate amount of payment. The HHS’ final rule became effective October 25, 2022. The final rule eliminated the rebuttable presumption that the qualified payment amount is the correct price and also abandoned the requirement that the certified IDR entity must select the offer closest to the qualifying payment amount. These key provisions were initially part of the interim rule issued in 2021 and were challenged by several court cases. Under the final rule, the certified IDR entity must instead select the

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offer that best reflects the value of the item or service provided, by first considering the QPA and then considering “additional information” that is relevant to the dispute.

Since the NSA became effective January 1, 2022, our average payment by insurers of patient claims for emergency services has declined by approximately 30%. In our experience, insurers often initially pay amounts lower than the QPA without regard for other information relevant to the claim. This requires us to make more appeals using the IDR process. While we are working within the established processes for IDR, we have had varying successes at achieving collections higher than the established QPA.

On March 17, 2023, the Centers for Medicare & Medicaid Services (“CMS”) issued new guidance (“Guidance”) applicable to the independent dispute resolution (“IDR”) process in the NSA effective for payment determinations made on or after February 6, 2023 for items and services furnished on or after October 25, 2022 for plan years (in the individual market, policy years) beginning on or after January 1, 2022. The revisions were put in place to help balance the arbitration process by including the recent Texas Medical Association Court Order and removing “double counting” provisions. From now on, independent arbiters must consider all evidence given to them by the disputing parties, and not just the Qualified Payment Amount (QPA).

Under the Guidance, Certified IDR Entities now must consider:

●

QPA(s) for the applicable year for the qualified IDR item or service; and

●

other information submitted by a party as long as it does not contain prohibited factors.

Generally, parties may submit additional information regarding any of the circumstances of the services provided. Under the Guidance, the certified IDR entity now must consider all information submitted to determine the appropriate payment rate. Previously, there was a rebuttable presumption that the QPA was the appropriate payment amount, and the IDR entity was not required to consider any additional factors. This news comes as a major win for Nutex Health and other providers’ quest to make the arbitration process more equitable and straightforward.

After being suspended for services rendered after October 25, 2022, IDR entities have been instructed to resume payments. Now that the IDR process is reopened for all claims, arbiters can start making headway on the backlog.

We are supportive of industry efforts seeking to amend the NSA final rule. Our experience, like that of many other healthcare providers, is that the final rule continues to unfairly favor insurers in the determination of the QPA we receive for our healthcare services. It is difficult to predict the outcome of efforts to challenge or amend the final rule. As well, there can be no assurance that third-party payors will not attempt to further reduce the rates they pay for our services or that additional rules issued under the NSA will not have adverse consequences to our business.

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Results of Operations

We report the results of our operations as three segments in our consolidated financial statements: (i) the hospital division, (ii) the population health management division and (ii) the real estate division. Activity within our business segments is significantly impacted by demand for healthcare services we provide, competition for these services in each of the market areas we serve, and the legislative changes discussed above.


	Three Months Ended March 31,
	2023		2022
Revenue:
Hospital division	$	49,288,164	$	79,127,242
Population health management division		7,041,253		-
Total revenue		56,329,417		79,127,242
Segment operating income:
Hospital division		4,778,637		35,815,496
Population health management division		69,086		-
Total segment operating income		4,847,723		35,815,496
Corporate and other costs:
Facilities closing costs		217,266		-
Stock-based compensation expense		1,900,000		-
General and administrative expenses		7,175,544		6,576,523
Total corporate and other costs		9,292,810		6,576,523
Interest expense		3,140,089		1,855,974
Other expense		247,455		2,380,545
Income (loss) before taxes		(7,832,631)		25,002,454
Income tax expense (benefit)		(910,659)		176,323

Net income (loss)		(6,921,972)		24,826,131
Less: net income (loss) attributable to noncontrolling interests		(1,774,693)		3,383,288
Net income (loss) attributable to Nutex Health Inc.	$	(5,147,279)	$	21,442,843

Adjusted EBITDA	$	2,437,854	$	24,175,775

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

We reported a net loss attributable to Nutex Health Inc. of $5.1 million, or a loss of $0.01 per share, for the three months ended March 31, 2023 as compared with net income attributable to Nutex Health Inc. of $21.4 million, or $0.04 per diluted share, for same period of 2022. Our 2023 results were principally affected by:

●

Lower patient visits, decreasing by 36% during the three months ended March 31, 2023 as compared with the same period of 2022 due mostly to increased Covid visits in January 2022;

●

Issuance in March 2023 of 1,000,000 common shares for total expense of $1.9 million to Apollo Medical Holdings, Inc. for IPA managerial services; and

●

Higher overall cost of employees and independent contractors.

Adjusted EBITDA for the three months ended March 31, 2023 was $2.4 million as compared to $24.2 million for the comparable period of 2022. Refer to Non-GAAP Financial Measures discussed below for a definition and reconciliation of Adjusted EBITDA. The items affecting revenue and start-up costs contributed significantly to the decline in Adjusted EBITDA in the 2023 period.

A discussion of our segment results is included below.

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Hospital Division. Our revenue for the three months ended March 31, 2023 totaled $49.3 million as compared to $79.1 million for the same period of 2022, a decrease of 38% caused by a reduction in both collection amounts and the number of patient visits.

The following table shows the number of patient visits during the periods:

Total patient visits decreased 36% during the three months ended March 31, 2023 as compared with the same period of 2022. Patient visits in the 2022 period included significant volumes of COVID-19 related cases.

The hospital division’s operating income was $4.8 million during the three months ended March 31, 2023, down as compared with income of $35.8 million in the same period of 2022, a decrease of 86.6%. Our operating income for the first quarter of 2023 was adversely affected by the reduction in net revenue discussed above. Additionally, we have made professional staffing additions in line with our operations.

Population Health Management Division. We completed our reverse business combination with Clinigence in April 2022. Clinigence's operations are reported as the population health management division. Our total revenue for the three months ended March 31, 2023 was $7.0 million consisting of capitation revenue of $6.0 million, management fees of $0.7 million and SaaS revenue of $0.3 million. Capitation revenue is recognized by our consolidated VIE, AHISP. We do not have an equity interest in this VIE but consolidate it since we are the primary beneficiary of its operations under our management services contract with them. We also earn management fees under our management services contracts with other IPAs and MSOs which are reported as revenue.

The population health management division had $0.1 million of operating income for the three months ended

March 31, 2023. Strategically, we are focused on the growth of this division principally through the addition of new independent physician associations and have staffed our organization to manage larger numbers of such organizations.

Real Estate Division. This division reports the operations of consolidated Real Estate Entities where we provide guarantees of their indebtedness or are co-borrowers. During the first quarter of 2023, we deconsolidated one Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans.

Revenue and operating expenses of consolidated Real Estate Entities are not significant since the extent of these entities’ operations is to own facilities leased to our hospital division entities which are financed by a combination of contributed equity by related parties and third-party mortgage indebtedness. Such leases are typically on a triple net basis where our hospital division is responsible for all operating costs, repairs and taxes on the facilities. Finance lease income is recognized outside of segment operating income as other income by the Real Estate Entities. However, these amounts are largely eliminated in the consolidation of these entities into our financial statements.

At March 31, 2023, two Real Estate Entities continue to be consolidated in our financial statements. We expect that hospitals we open in the future may be leased from new Real Estate Entities which may be owned in whole or part by related parties. Third-party lenders to these entities may require that we provide a guarantee or become co-borrowers under mortgage indebtedness financings for such facilities. In such instances, we may be required to consolidate these new Real Estate Entities in our financial statements as VIEs.

Corporate and other costs. Corporate and other costs in the three months ended March 31, 2023 included general and administrative expenses totaling $7.2 million. Our corporate costs for the three months ended March 31, 2022 totaled $6.6 million and consisted of general and administrative expenses. General and administrative costs include our executive management, accounting, human resources, corporate technology, insurance and professional fees. We have incurred higher levels of professional fees as a public company. During the three months ended March 31, 2023, we

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incurred closing costs of $0.2 million due to the closure of three facilities in January 2023. In addition, we have made staffing and management additions commensurate with our operational growth. In March 2023, we issued 1,000,000 common shares to Apollo Medical Holdings, Inc. for IPA managerial services. We recognized $1.9 million of stock-based compensation expense for this issuance.

Nonoperating items

Interest expense. Interest expense totaled $3.1 million in the three months ended March 31, 2023 as compared with $1.9 million for the same period of 2022. This includes interest expense associated with the mortgage indebtedness of consolidated Real Estate Entities, interest expense on outstanding term notes and lines of credit for financing operating equipment and working capital needs and interest expense for financing leases.

Income tax expense. Income tax provisions for interim quarterly periods are generally based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual items related specifically to interim periods. The income tax impact of discrete items is recognized in the period these occur.

Our effective tax rate for the three months ended March 31, 2023, excluding the non-deductible goodwill impairment expense, was approximately 11.63%. The primary difference from the federal statutory rate of 21% is related to state taxes, income of noncontrolling interests in flow-through entities and permanent differences for non-deductible expenses.

Liquidity and Capital Resources

As of March 31, 2023, we had $32.8 million of cash and equivalents, compared to $34.3 million of cash and equivalents at December 31, 2022.

Significant sources and uses of cash during the first three months of 2023.

Sources of cash:

●

Cash from operating activities was $1.1 million, which included $2.9 million from the primary components of our working capital (receivables, inventories, accounts payable and expenses).

●

We received net proceeds of $5.4 million from borrowings under notes payable and lines of credit.

Uses of cash:

●

Capital expenditures were $4.4 million.

●

Distributions, net of contributions, to noncontrolling interests totaling $1.5 million.

●

Cash associated with the deconsolidated Real Estate Entity totaled $1.0 million.

Future sources and uses of cash. Our operating activities are financed with cash on hand which is generated from revenues, which may vary significantly based on regulatory changes affecting the timing and amounts of insurance reimbursements for our services. Most of our hospital facilities are leased from various lessors including related parties. These leases are presented in our consolidated balance sheets unless the lease is from a consolidated Real Estate Entity. Our growth plans include the development of new hospital locations. We expect that in many of these locations we will lease facilities from newly established entities partially owned by related parties.

We routinely enter into equipment lease agreements to procure new or replacement equipment and may also finance these purchases with term debt‎. We have smaller lines of credits available for working capital purposes and are presently working to supplement or replace these with larger financing commitments. These larger financing commitments are subject to market conditions and we may not be able to obtain such larger financing commitments at favorable economic terms or at all. We also believe that our existing cash, cash equivalents, and marketable securities, and available borrowing capacity, in addition to the $12.8 million of net proceeds received in connection with the execution of the Yorkville PPA on April 11, 2023, will be sufficient to meet our anticipated cash needs requirements for operations and growth objectives for at least the next twelve months. If the assumptions underlying our business plan regarding future

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revenue and expenses change or if unexpected opportunities or needs arise, we may seek to raise additional cash by selling equity or debt securities.

Indebtedness. The Company’s indebtedness at March 31, 2023 is presented in Item I, “Financial Statements – Note 8 – Debt” and our lease obligations are presented in Item I, “Financial Statements—Note 9 – Leases.”

Off-Balance Sheet Arrangements

As of March 31, 2023, we had no material off-balance sheet arrangements.

Non-GAAP Financial Measures

Adjusted EBITDA. Adjusted EBITDA is used as a supplemental non-GAAP financial measure by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance.

We define Adjusted EBITDA as net income (loss) attributable to Nutex Health Inc. plus net interest expense, income taxes, depreciation and amortization, further adjusted for stock-based compensation, any facilities closing costs, acquisition related costs and impairments. A reconciliation of net income to Adjusted EBITDA is included below. Adjusted EBITDA is not intended to serve as an alternative to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies.


	Three Months Ended March 31,
	2023		2022
Reconciliation of net income (loss) attributable to Nutex Health Inc. to Adjusted EBITDA:
Net income (loss) attributable to Nutex Health Inc.	$	(5,147,279)	$	21,442,843
Depreciation and amortization		3,993,747		2,396,861
Interest expense, net		3,140,089		1,855,974
Income tax expense (benefit)		(910,659)		176,323
Allocation to noncontrolling interests		(755,310)		(1,696,226)
EBITDA		320,588		24,175,775
Facilities closing costs		217,266		-
Stock-based compensation expense		1,900,000		-
Adjusted EBITDA	$	2,437,854	$	24,175,775

Significant Accounting Policies

The preparation of financial statements and related disclosures in accordance with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements included in the Form 10-K for the year ended December 31, 2022 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. The Company’s critical accounting policies that are impacted by judgments, assumptions and estimates are described in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022. Since December 31, 2022, there have been no material changes in the Company’s accounting policies that are impacted by judgments, assumptions and estimates.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

With respect to the three months ended March 31, 2023, there have been no material changes in our primary market risk exposures or how those exposures are managed since the information disclosed in our 2022 Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision of our CEO and our CFO, the effectiveness of disclosure controls and procedures as of March 31, 2023. Based on this evaluation, the Company concluded that our disclosure controls and procedures were not effective as of March 31, 2023 due to the material weakness previously identified as described below.

Previously Reported Material Weaknesses. We previously identified material weaknesses in our internal control over financial reporting in our Form 10-K for the year ended December 31, 2022, based on criteria established in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Based on our assessment, the following material weaknesses were identified:

●

The Company did not design and implement logical access controls for certain financially relevant systems. Business process controls, both automated and manual, that are dependent upon the information derived from those financially relevant systems were also determined to be ineffective as a result of such deficiency;

●

Business process controls across the entity’s financial reporting processes were not effectively designed and implemented to properly address the risk of material misstatement, including controls without proper segregation of duties between preparer and reviewer and key management review controls; and

●

Ineffective design and implementation of controls over the completeness and accuracy of information included in key spreadsheets supporting the financial statements.

Management has concluded that, based on applying the COSO criteria, as of December 31, 2022, the Company’s internal control over financial reporting was not effective to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Remediation Plans. These material weaknesses did not result in material misstatement of the Company’s consolidated financial statements for the periods presented. The Company has started the process of designing and implementing effective internal control measures to remediate the material weakness. The Company’s efforts include the implementation of a new enterprise-wide system in the first quarter of 2023 that will reduce reliance on manual processes and spreadsheets supporting the financial statements. Additionally, the Company plans to engage a firm to assist in the proper design, implementation and testing of internal controls over financial reporting. We expect to add key senior management positions including a Chief Operating Officer as well in the near term. We have also already made some additions to our accounting and financial reporting teams in the first quarter of 2023.

While we believe that these efforts will improve our internal control over financial reporting, our remediation efforts are ongoing and will require validation and testing of the design and operating effectiveness of internal controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the remaining material weakness in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their

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effectiveness. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting. We are taking actions to remediate the material weakness relating to our internal control over financial reporting, as described above. Except as otherwise described herein, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are making changes to our internal control over financial reporting in connection with the implementation of our new enterprise-wide system in the first quarter of 2023.

Inherent Limitations on Effectiveness of Disclosure Controls and Procedures. Our senior members of management do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

From time-to-time, the Company is involved in various civil actions as part of its normal course of business. The Company is not a party to any litigation that is material to ongoing operations as defined in Item 103 of Regulation S-K as of the period ended March 31, 2023.

Item 1A. Risk Factors.

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Form 10-K for the year ended December 31, 2022 and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our businesses, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. In addition, you should carefully consider the risks described below.

Substantial blocks of our Common Stock may be sold into the market as a result of the Pre-Paid Advance Agreement.

The price of our Common Stock could decline if there are substantial sales of shares of our Common Stock, if there is a large number of shares of our Common Stock available for sale, or if there is the perception that these sales could occur.

On April 11, 2023, we entered into the PPA with Yorkville. Pursuant to the PPA, we may request Pre-Paid Advances of up to $25 million each from Yorkville (or such greater amount that the parties may mutually agree), with a limitation on outstanding Pre-Paid Advances ranging from up to $25 million to $5 million depending on stock price and volume conditions being met, and an aggregate Commitment Amount of $100 million. At the request and sole discretion of Yorkville, such Pre-Paid Advances will be correspondingly reduced upon the issuance of our Common Stock to Yorkville at a Purchase Price equal to (a) $1.00 in respect of the initial Pre-Paid Advance, and (b) with respect to each subsequent Pre-Paid Advance the lower of (i) 100% of the volume weighted average price (VWAP) of the Company’s common stock on the trading day immediately preceding the closing of such Pre- Paid Advance or (ii) 92.0% of the average of the two lowest daily VWAP of the shares during the seven trading days immediately prior to each Pre-Paid Advance, subject to a floor price of $0.1851 per share.

Any issuances of shares of our Common Stock pursuant to the PPA to offset the Pre-Paid Advances will dilute the percentage ownership of stockholders and may dilute the per share projected earnings (if any) or book value of

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our Common Stock. Sales of a substantial number of shares of our Common Stock in the public market or other issuances of shares of our Common Stock, or the perception that these sales or issuances could occur, could cause the market price of our Common Stock to decline and may make it more difficult for you to sell your shares at a time and price that you deem appropriate.

We may not receive the full amount of the initial Pre-Paid Advance

Yorkville has agreed to pay to the Company the initial Pre-Paid Advance amount as follows: (i) $15 million on April 11, 2023, and (ii) $10 million on the earlier of (y) June 10, 2023, or (z) the date upon which the outstanding balance on the initial portion of the initial Pre-Paid Advance has been reduced below $1 million, in both cases, as long as the VWAP for the ten trading days prior to June 10, 2023 or the date when the balance is reduced below $1 million, as applicable, is at least $0.60 per share, otherwise, the parties hereto shall mutually agree on the amount and timing of the remaining $10 million payment. As a result, we may only receive total proceeds, before expenses, of approximately $12.8 million, before expenses.

Once we receive a Pre-Paid Advance, we do not have the right to control the timing and amount of the issuance of our shares of Common Stock to Yorkville under the PPA and, accordingly, it is not possible to predict the actual number of shares we will issue pursuant to the Pre-Paid Advance Agreement at any one time or in total.

Once we receive any of the Pre-Paid Advances, including the initial Pre-Paid Advance, we do not have the right to control the timing and amount of any issuances of our shares of Common Stock to Yorkville under the PPA. Sales of our Common Stock, if any, to Yorkville under the PPA will depend upon market conditions and other factors, and the discretion of Yorkville. We may ultimately decide to sell to Yorkville all, some or none of the shares of our Common Stock that may be available for us to sell to Yorkville pursuant to the PPA. Each Pre-Paid Advance matures within one year.

Because the purchase price per share to be paid by Yorkville for the shares of Common Stock that we may elect to sell to Yorkville under the PPA, if any, will fluctuate based on the market prices of our Common Stock, if any, it is not possible for us to predict, prior to any such sales, the number of shares of Common Stock that we will sell to Yorkville under the PPA, the purchase price per share that Yorkville will pay for shares purchased from us under the PPA, or the aggregate gross proceeds that we will receive from those purchases by Yorkville under the PPA, if any.

In addition, unless we satisfy the exception set forth in the PPA based on the average price of our sales thereunder or we obtain stockholder approval, we will not be able to issue shares of our Common Stock in excess of 19.9% of the outstanding shares of Common Stock as of April 10, 2023 (the “Exchange Cap”) under the PPA (or any other transaction that is integrated with the PPA) in accordance with applicable Nasdaq rules. Depending on the market prices of our Common Stock in the future, this could be a significant limitation on the amount of funds we are able to raise pursuant to the PPA. Other limitations in the PPA, including the ownership limitation on Yorkville of 4.99% of the then outstanding voting power or number of shares of outstanding Common Stock (the “Ownership Limitation”), and our ability to meet the conditions necessary to request a Pre-Paid Advance, could also prevent us from being able to request Pre-Paid Advances up to the Commitment Amount.

If we desire to request Pre-Paid Advances under the PPA in excess of $25 million, and the Exchange Cap provisions and other limitations in the PPA would allow us to do so, we would need to file with the SEC one or more prospectus supplements to register under the Securities Act any such additional shares of our Common Stock.

Further, the resale by Yorkville of a significant amount of shares registered in this offering at any given time, or the perception that these sales may occur, could cause the market price of our Common Stock to decline and to be highly volatile.

Upon a trigger event, the Company may be required to make payments that could cause financial hardship to the Company.

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Upon entering into the PPA, the Company agreed that within three trading days of (i) the Common Stock’s trading price becoming lower than $0.1851 for any five of seven consecutive trading days or (ii) the Company issuing substantially all of the shares available under the Nasdaq Cap, the Company must pay Yorkville a monthly cash payment (the “Monthly Payment”) of $7.5 million (or such lower amount of a particular Pre-Paid Advance then outstanding), plus any accrued and unpaid interest and a 6% redemption premium. This financial obligation may cause an undue and unsustainable burden on the Company and cause a material adverse effect on the Company’s operations and financial condition.

Our current business plans require a significant amount of capital. If we are unable to obtain sufficient funding or do not have access to capital, we may not be able to execute our business plans and our prospects, financial condition and results of operations could be materially adversely affected.

The extent to which we rely on Yorkville as a source of funding will depend on a number of factors, including the prevailing market price of our Common Stock, our ability to meet the conditions necessary to request for Pre-Paid Advances under the PPA, the impacts of the Exchange Cap and the Ownership Limitation and the extent to which we are able to secure funding from other sources. In addition to the amount of funds we ultimately raise under the PPA, if any, we expect to continue to seek other sources of funding, including by offering additional equity, and/or equity-linked securities, through one or more credit facilities and potentially by offering debt securities, to finance a portion of our future expenditures.

We have experienced operating losses, and we expect to continue to incur operating losses as we implement our business plans. We expect our capital expenditures to continue to be significant in the foreseeable future as we expand our business. We expect to expend capital with significant outlays directed towards expanding current programs and service offerings. As a result, our capital requirements are uncertain and actual capital requirements may be different from those we currently anticipate. In addition, new opportunities for growth in future product lines and markets may arise and may require additional capital.

As of March 31, 2023, our principal source of liquidity is our unrestricted cash balance in the amount of approximately $33 million. We entered into the PPA whereby we will have the ability to request Pre-Paid Advances of up to $25 million. In addition, we previously entered into the Lincoln Committed Equity Financing whereby we will have the right, but not the obligation, to sell to LPCF (“Lincoln Purchase Agreement”) up to $100 million worth of our shares of Common Stock. We may not be able to utilize these facilities to raise additional capital when, or in the amounts, we may require. Nutex has agreed with Yorkville that it will not utilize the Lincoln Purchase Agreement while there are Pre-Paid Advances outstanding under the PPA in excess of $1 million. Any debt we incur from Yorkville or other parties could make us more vulnerable to a downturn in our operating results or a downturn in economic conditions. If our cash flow from operations and our then-existing liquidity is insufficient to meet any debt service requirements, we could be required to refinance our obligations, or dispose of assets in order to meet debt service requirements.

We expect that we will need to raise additional capital in order to continue to execute our business plans in the future, and we plan to use the PPA, if the conditions for its use are satisfied and seek additional equity and/or debt financing, including by offering additional equity, and/or equity-linked securities, through one or more credit facilities and potentially by offering debt securities, to finance a portion of our future expenditures.

The sale of additional equity or equity-linked securities could dilute our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations or our ability to pay dividends to our stockholders. Our ability to obtain the necessary additional financing to carry out our business plans or to refinance, if necessary, any outstanding debt when due is subject to a number of factors, including general market conditions and investor acceptance of our business model. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds on favorable terms, we may have to significantly reduce our spending, delay or cancel our planned activities or substantially change our corporate structure. We might not be able to obtain any such funding or we might not have sufficient resources to

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conduct our business as projected, both of which could mean that we would be forced to curtail or discontinue our operations and our prospects, financial consolidated results of operations could be materially adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities; use of proceeds from registered securities.

Common Stock Issued. In the first quarter of 2023, 702,285 shares of common stock were issued in satisfaction of cashless exercises of warrants to purchase of 806,453 shares of common stock. The Company issued common stock warrants to accredited investors in private placements exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. In addition, we issued 1,000,000 common shares to Apollo Medical Holdings, Inc., an accredited investor, in satisfaction of the Stock Purchase Agreement dated September 21, 2021. The Stock Purchase Agreement is exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

Item 3. Defaults upon Senior Securities.

Not Applicable

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information.

Not Applicable

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Item 6. Exhibits


Exhibit No.	Description
10.1*	Employment Agreement by and between the Company and Pamela Montgomery dated August 8, 2022.
31.1*	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
32.2*	Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
101.INS*	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 15, 2023.


	Nutex Health Inc.

	By:	/s/ Thomas T. Vo
		Thomas T. Vo
		Chief Executive Officer and Chairman of the Board (principal executive officer)


	By:	/s/ Jon C. Bates
		Jon C. Bates
		Chief Financial Officer (principal financial officer and principal accounting officer)