(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
001-37392
| Delaware | 95-4472349 | ||||
| (State or Other Jurisdiction | (I.R.S. Employer | ||||
| of | |||||
700 North Brand Boulevard, Suite 1400
Glendale,
91801
(818) 396-8050
offices and zip code)
(Former name, former address and former fiscal year, if changed since last report)
Securities Registered Pursuant to Section 12(b) of the Act:
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
number, including area code)
| Large accelerated filer | ☐ | Accelerated filer | ☒ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ | ||||||||||
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||||||||||||||
| Common Stock, $0.001 par value per share | AMEH | Nasdaq Capital Market | ||||||||||||||||||
| PAGE | ||||||||
| Accountable Health Care | Accountable Health Care IPA, a Professional Medical Corporation | ||||
| AHMC | AHMC Healthcare Inc. | ||||
| AIPBP | All-Inclusive Population-Based Payments | ||||
| Alpha Care | Alpha Care Medical Group, Inc. | ||||
| AMG | AMG, a Professional Medical Corporation | ||||
| AMH | ApolloMed Hospitalists, a Medical Corporation | ||||
| AMM | Apollo Medical Management, Inc. | ||||
| AP-AMH | AP-AMH Medical Corporation | ||||
| APAACO | APA ACO, Inc. | ||||
| APC | Allied Pacific of California IPA | ||||
| APC-LSMA | APC-LSMA Designated Shareholder Medical Corporation | ||||
| Apollo Care Connect | Apollo Care Connect, Inc. | ||||
| BAHA | Bay Area Hospitalist Associates | ||||
| Bright | Bright Health Company of California, Inc. | ||||
| CDSC | Concourse Diagnostic Surgery Center, LLC | ||||
| CQMC | Critical Quality Management Corporation | ||||
| CSI | College Street Investment LP, a California limited partnership | ||||
| DMHC | California Department of Managed Healthcare | ||||
| DMG | Diagnostic Medical Group | ||||
| HSMSO | Health Source MSO Inc., a California corporation | ||||
| ICC | AHMC International Cancer Center, a Medical Corporation | ||||
| IPA | independent practice association | ||||
| LMA | LaSalle Medical Associates | ||||
| MMG | Maverick Medical Group, Inc. | ||||
| MPP | Medical Property Partners | ||||
| NGACO | Next Generation Accountable Care Organization | ||||
| NMM | Network Medical Management, Inc. | ||||
| PASC | Pacific Ambulatory Health Care, LLC | ||||
| PMIOC | Pacific Medical Imaging and Oncology Center, Inc. | ||||
| SCHC | Southern California Heart Centers | ||||
| UCAP | Universal Care Acquisition Partners, LLC | ||||
| UCI | Universal Care, Inc. | ||||
| VIE | Variable Interest Entity | ||||
Forward-Looking Statements
Forward-looking statements involve risks and uncertainties and are based on the current beliefs, expectations and certain assumptions of the Company’s management. Some or all of such beliefs, expectations and assumptions may not materialize or may vary significantly from actual results. We further caution that 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, or otherwise, from those in the forward-looking statements in this Report.
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 reportQuarterly Report on Form 10-Q and are subject to change. Except as required
risk factors discussed under the heading “Risk Factors” in Part I, Item IA thereof. Although we believe that the expectations reflected in any of 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 condition,conditions, outcomes and results to differ materially from those indicated by such statements, including, without limitation, the risk factors discussed in this Report, in our Annual Report on Form 10-K for the year ended March 31, 2017 filed on June 29, 2017, and in the Registration Statement Amendment No. 2 on Form S-4/A filed by us and Network Medical Management, Inc. on November 9, 2017. Some of the key factors impacting these risks and uncertainties include, but are not limited to:
For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see the section entitled “Risk Factors,” beginning on page 39 of this Quarterly Report on Form 10-Q, the section entitled “Risk Factors,” beginning on page 28 of our Annual Report on Form 10-K for the year ended March 31, 2017, filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2017, and the section entitled “Risk Factors,” beginning on page 44 of the Registration Statement Amendment No. 2 on Form S-4/A filed with the SEC by us and NMM on November 9, 2017. In light of the foregoing, investors are advised to carefully read this Report in connection with the important disclaimers set forth above and are urged not to rely on any forward-looking statements in reaching any conclusions or making any investment decisions about us or our securities.
- UNAUDITED
| September 30, | March 31, | |||||||
| 2017 | 2017 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 30,203,773 | $ | 8,664,211 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $381,019 and $475,080, respectively | 4,857,136 | 5,506,472 | ||||||
| Other receivables | 372,334 | 464,085 | ||||||
| Due from affiliates | - | 18,314 | ||||||
| Prepaid expenses and other current assets | 298,477 | 269,168 | ||||||
| Total current assets | 35,731,720 | 14,922,250 | ||||||
| Property and equipment, net | 1,121,632 | 1,205,139 | ||||||
| Restricted cash | 745,176 | 765,058 | ||||||
| Intangible assets, net | 1,732,984 | 1,904,269 | ||||||
| Goodwill | 1,622,483 | 1,622,483 | ||||||
| Other assets | 219,174 | 225,358 | ||||||
| TOTAL ASSETS | $ | 41,173,169 | $ | 20,644,557 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Accounts payable and accrued liabilities | $ | 7,042,043 | $ | 7,883,373 | ||||
| Medical liabilities | 30,694,173 | 1,768,231 | ||||||
| Convertible note payable, net of debt issuance cost of $53,667 and $161,000, respectively | 4,936,333 | 4,829,000 | ||||||
| Lines of credit | 25,000 | 62,500 | ||||||
| Total current liabilities | 42,697,549 | 14,543,104 | ||||||
| Note payable – related party | 5,000,000 | 5,000,000 | ||||||
| Deferred rent liability | 683,504 | 747,418 | ||||||
| Deferred tax liability | 83,666 | 83,667 | ||||||
| TOTAL LIABILITIES | 48,464,719 | 20,374,189 | ||||||
| COMMITMENTS AND CONTINGENCIES (see Note 8) | ||||||||
| STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Series A Preferred stock, par value $0.001; 5,000,000 shares authorized (inclusive of Series B Preferred stock); 1,111,111 issued and outstanding Liquidation preference of $9,999,999 | 7,077,778 | 7,077,778 | ||||||
| Series B Preferred stock, par value $0.001; 5,000,000 shares authorized (inclusive of Series A Preferred stock) 555,555 issued and outstanding Liquidation preference of $4,999,995 | 3,884,745 | 3,884,745 | ||||||
| Common stock, par value $0.001; 100,000,000 shares authorized; 6,052,518 and 6,033,518 shares issued and outstanding, respectively | 6,053 | 6,033 | ||||||
| Additional paid-in capital | 26,836,238 | 26,331,948 | ||||||
| Accumulated deficit | (45,148,985 | ) | (37,654,381 | ) | ||||
| Stockholders’ deficit attributable to Apollo Medical Holdings, Inc. | (7,344,171 | ) | (353,877 | ) | ||||
| Non-controlling interest | 52,621 | 624,245 | ||||||
| Total stockholders’ (deficit) equity | (7,291,550 | ) | 270,368 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | 41,173,169 | $ | 20,644,557 | ||||
| June 30, 2020 | December 31, 2019 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 152,441 | $ | 103,189 | |||||||
| Restricted cash | — | 75 | |||||||||
| Investment in marketable securities | 117,656 | 116,539 | |||||||||
| Receivables, net | 17,588 | 11,004 | |||||||||
| Receivables, net – related parties | 59,328 | 48,136 | |||||||||
| Other receivables | 15,919 | 16,885 | |||||||||
| Prepaid expenses and other current assets | 11,188 | 10,315 | |||||||||
| Loans receivable | 6,425 | 6,425 | |||||||||
| Loans receivable – related parties | — | 16,500 | |||||||||
| Total current assets | 380,545 | 329,068 | |||||||||
| Noncurrent assets | |||||||||||
| Restricted cash | 746 | 746 | |||||||||
| Land, property and equipment, net | 11,485 | 12,130 | |||||||||
| Intangible assets, net | 94,790 | 103,012 | |||||||||
| Goodwill | 239,053 | 238,505 | |||||||||
| Investment in other entities – equity method | 26,817 | 28,427 | |||||||||
| Investments in privately held entities | 37,075 | 896 | |||||||||
| Operating lease right-of-use assets | 20,219 | 14,248 | |||||||||
| Other assets | 22,487 | 1,681 | |||||||||
| Total noncurrent assets | 452,672 | 399,645 | |||||||||
| Total assets | $ | 833,217 | $ | 728,713 | |||||||
| Liabilities, mezzanine equity and stockholders’ equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable and accrued expenses | $ | 24,788 | $ | 27,279 | |||||||
| Fiduciary accounts payable | 1,853 | 2,027 | |||||||||
| Medical liabilities | 70,273 | 58,725 | |||||||||
| Income taxes payable | 42,210 | 4,529 | |||||||||
| Dividend payable | 431 | 271 | |||||||||
| Finance lease liabilities | 102 | 102 | |||||||||
| Operating lease liabilities | 3,350 | 2,990 | |||||||||
| June 30, 2020 | December 31, 2019 | ||||||||||
| Current portion of long-term debt | 9,500 | 9,500 | |||||||||
| Total current liabilities | 152,507 | 105,423 | |||||||||
| Noncurrent liabilities | |||||||||||
| Deferred tax liability | 13,654 | 18,269 | |||||||||
| Finance lease liabilities, net of current portion | 355 | 416 | |||||||||
| Operating lease liabilities, net of current portion | 17,418 | 11,373 | |||||||||
| Long-term debt, net of current portion and deferred financing costs | 230,455 | 232,172 | |||||||||
| Total noncurrent liabilities | 261,882 | 262,230 | |||||||||
| Total liabilities | 414,389 | 367,653 | |||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| Mezzanine equity | |||||||||||
| Noncontrolling interest in Allied Physicians of California, a Professional Medical Corporation | 210,980 | 168,725 | |||||||||
| Stockholders’ equity | |||||||||||
| Series A Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series B Preferred stock); 1,111,111 issued and 0 outstanding | — | — | |||||||||
| Series B Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series A Preferred stock); 555,555 issued and 0 outstanding | — | — | |||||||||
| Common stock, $0.001 par value per share; 100,000,000 shares authorized, 36,309,513 and 35,908,057 shares outstanding, excluding 17,475,707 and 17,458,810 treasury shares, at June 30, 2020, and December 31, 2019, respectively | 36 | 36 | |||||||||
| Additional paid-in capital | 163,986 | 159,608 | |||||||||
| Retained earnings | 43,001 | 31,905 | |||||||||
| 207,023 | 191,549 | ||||||||||
| Noncontrolling interest | 825 | 786 | |||||||||
| Total stockholders’ equity | 207,848 | 192,335 | |||||||||
| Total liabilities, mezzanine equity and stockholders’ equity | $ | 833,217 | $ | 728,713 | |||||||
5
INCOME
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net revenues | $ | 40,483,346 | $ | 14,622,656 | $ | 82,058,826 | $ | 26,994,329 | ||||||||
| Costs and expenses | ||||||||||||||||
| Cost of services | 39,096,618 | 12,171,183 | 79,336,260 | 22,304,188 | ||||||||||||
| General and administrative | 5,345,742 | 4,455,329 | 10,234,926 | 8,291,804 | ||||||||||||
| Depreciation and amortization | 155,937 | 170,555 | 311,204 | 335,213 | ||||||||||||
| Total costs and expenses | 44,598,297 | 16,797,067 | 89,882,390 | 30,931,205 | ||||||||||||
| Loss from operations | (4,114,951 | ) | (2,174,411 | ) | (7,823,564 | ) | (3,936,876 | ) | ||||||||
| Other (expense) income | ||||||||||||||||
| Interest expense | (199,662 | ) | (3,054 | ) | (392,651 | ) | (5,713 | ) | ||||||||
| Gain (loss) on change in fair value of warrant liabilities | - | 511,111 | - | 1,333,333 | ||||||||||||
| Other income (expense) | 54,635 | 10,560 | 93,295 | 12,531 | ||||||||||||
| Total other income (expense), net | (145,027 | ) | 518,617 | (299,356 | ) | 1,340,151 | ||||||||||
| Loss before benefit from income taxes | (4,259,978 | ) | (1,655,794 | ) | (8,122,920 | ) | (2,596,725 | ) | ||||||||
| Benefit from income taxes | (26,858 | ) | (185,040 | ) | (56,692 | ) | (226,593 | ) | ||||||||
| Net loss | $ | (4,233,120 | ) | $ | (1,470,754 | ) | $ | (8,066,228 | ) | $ | (2,370,132 | ) | ||||
| Net (income) loss attributable to non-controlling interest | 350,382 | 112,345 | 571,624 | (303,534 | ) | |||||||||||
| Net loss attributable to Apollo Medical Holdings, Inc. | $ | (3,882,738 | ) | $ | (1,358,409 | ) | $ | (7,494,604 | ) | $ | (2,673,666 | ) | ||||
| Net loss per share: | ||||||||||||||||
| Basic and diluted | $ | (0.64 | ) | $ | (0.23 | ) | $ | (1.24 | ) | $ | (0.45 | ) | ||||
| Weighted average number of shares of common stock outstanding: | ||||||||||||||||
| Basic and diluted | 6,035,159 | 6,024,605 | 6,034,343 | 5,970,015 | ||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||
| Capitation, net | $ | 140,949 | $ | 103,224 | $ | 281,370 | $ | 174,740 | |||||||||||||||||||||||||||
| Risk pool settlements and incentives | 12,003 | 11,191 | 23,239 | 21,285 | |||||||||||||||||||||||||||||||
| Management fee income | 8,690 | 10,353 | 17,505 | 19,349 | |||||||||||||||||||||||||||||||
| Fee-for-service, net | 2,270 | 3,878 | 5,697 | 7,959 | |||||||||||||||||||||||||||||||
| Other income | 1,257 | 1,404 | 2,463 | 2,473 | |||||||||||||||||||||||||||||||
| Total revenue | 165,169 | 130,050 | 330,274 | 225,806 | |||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| Cost of services | 136,079 | 101,363 | 280,283 | 184,795 | |||||||||||||||||||||||||||||||
| General and administrative expenses | 11,556 | 11,818 | 23,390 | 22,081 | |||||||||||||||||||||||||||||||
| Depreciation and amortization | 4,628 | 4,455 | 9,330 | 8,872 | |||||||||||||||||||||||||||||||
| Provision for doubtful accounts | — | (2,314) | — | (1,363) | |||||||||||||||||||||||||||||||
| Total expenses | 152,263 | 115,322 | 313,003 | 214,385 | |||||||||||||||||||||||||||||||
| Income from operations | 12,906 | 14,728 | 17,271 | 11,421 | |||||||||||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||||||||||
| Income (loss) from equity method investments | 834 | (42) | 2,888 | (892) | |||||||||||||||||||||||||||||||
| Gain on sale of equity method investment | 99,647 | — | 99,647 | — | |||||||||||||||||||||||||||||||
| Interest expense | (2,673) | (311) | (5,541) | (522) | |||||||||||||||||||||||||||||||
| Interest income | 863 | 474 | 1,792 | 797 | |||||||||||||||||||||||||||||||
| Other income | 1,282 | 24 | 1,384 | 211 | |||||||||||||||||||||||||||||||
| Total other income (expense), net | 99,953 | 145 | 100,170 | (406) | |||||||||||||||||||||||||||||||
| Income before provision for income taxes | 112,859 | 14,873 | 117,441 | 11,015 | |||||||||||||||||||||||||||||||
| Provision for income taxes | 31,858 | 4,209 | 33,453 | 2,801 | |||||||||||||||||||||||||||||||
Net income | 81,001 | 10,664 | 83,988 | 8,214 | |||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 73,957 | 7,119 | 72,892 | 4,529 | |||||||||||||||||||||||||||||||
| Net income attributable to Apollo Medical Holdings, Inc. | $ | 7,044 | $ | 3,545 | $ | 11,096 | $ | 3,685 | |||||||||||||||||||||||||||
| Earnings per share – basic | $ | 0.20 | $ | 0.10 | $ | 0.31 | $ | 0.11 | |||||||||||||||||||||||||||
| Earnings per share – diluted | $ | 0.19 | $ | 0.09 | $ | 0.30 | $ | 0.10 | |||||||||||||||||||||||||||
MEZZANINE AND STOCKHOLDERS’ EQUITY
| Six Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (8,066,228 | ) | $ | (2,370,132 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Provision for doubtful accounts, net of recoveries | 90,037 | 69,633 | ||||||
| Loss on disposal of property and equipment | - | 6,185 | ||||||
| Depreciation and amortization expense | 311,204 | 335,213 | ||||||
| Stock-based compensation expense | 418,810 | 493,758 | ||||||
| Amortization of deferred financing costs | 107,333 | 37,926 | ||||||
| Gain on change in fair value of warrant liabilities | - | (1,333,333 | ) | |||||
| Changes in assets and liabilities: | ||||||||
| Restricted cash | 19,882 | - | ||||||
| Accounts receivable | 559,299 | (1,254,806 | ) | |||||
| Other receivables | 91,750 | 290,272 | ||||||
| Due from affiliates | 18,314 | 453 | ||||||
| Prepaid expenses and other current assets | (29,309 | ) | (136,450 | ) | ||||
| Other assets | 6,184 | (5,537 | ||||||
| Accounts payable and accrued liabilities | (841,330 | ) | (27,596 | ) | ||||
| Deferred rent liability | (63,914 | ) | 90,498 | |||||
| Medical liabilities | 28,925,942 | (601,317 | ) | |||||
| Net cash provided by (used in) operating activities | 21,547,974 | (4,405,233 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Property and equipment acquired | (56,412 | ) | (205,775 | ) | ||||
| Net cash used in investing activities | (56,412 | ) | (205,775 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from lines of credit | - | 75,000 | ||||||
| Principal payments on lines of credit | (37,500 | ) | (62,500 | ) | ||||
| Distributions to non-controlling interest shareholder | - | (1,050,000 | ) | |||||
| Proceeds from the exercise of warrants/options | 85,500 | 172,000 | ||||||
| Net cash provided by (used in) financing activities | 48,000 | (865,500 | ) | |||||
| Net change in cash and cash equivalents | 21,539,562 | (5,476,508 | ) | |||||
| Cash and cash equivalents, beginning of period | 8,664,211 | 9,270,010 | ||||||
| Cash and cash equivalents, end of period | $ | 30,203,773 | $ | 3,793,502 | ||||
| Supplementary disclosures of cash flow information: | ||||||||
| Interest paid | $ | 872 | $ | 10,199 | ||||
| Income taxes paid | $ | 17,700 | $ | 16,400 | ||||
Mezzanine Equity – Noncontrolling Interest in APC | Retained Earnings | ||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Outstanding | Additional Paid-in Capital | Noncontrolling Interest | Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | 168,725 | 35,908,057 | $ | 36 | $ | 159,608 | $ | 31,905 | $ | 786 | $ | 192,335 | ||||||||||||||||||||||||||||||||||
| Net (loss) income | (1,161) | — | — | — | 4,052 | 95 | 4,147 | ||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | — | (16,897) | — | (301) | — | — | (301) | ||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interest | (125) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of options and warrants | — | 151,601 | — | 722 | — | — | 722 | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | 1,058 | — | — | 1,058 | ||||||||||||||||||||||||||||||||||||||||
| Dividends | (10,000) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | 157,439 | 36,042,761 | $ | 36 | $ | 161,087 | $ | 35,957 | $ | 881 | $ | 197,961 | ||||||||||||||||||||||||||||||||||
| Net income | 73,667 | — | — | — | 7,044 | 291 | 7,335 | ||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interest | (126) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Shares issued for vesting of restricted stock awards | — | 24,453 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of options and warrants | — | 242,299 | — | 2,283 | — | — | 2,283 | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | 852 | — | — | 852 | ||||||||||||||||||||||||||||||||||||||||
| Cancellation of restricted stock awards | — | — | — | (236) | — | — | (236) | ||||||||||||||||||||||||||||||||||||||||
| Dividends | (20,000) | — | — | — | — | (347) | (347) | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | 210,980 | 36,309,513 | $ | 36 | $ | 163,986 | $ | 43,001 | $ | 825 | $ | 207,848 | ||||||||||||||||||||||||||||||||||
Mezzanine Equity – Noncontrolling Interest in APC | Retained Earnings | ||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Outstanding | Additional Paid-in Capital | Noncontrolling Interest | Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2019 | $ | 225,117 | 34,578,040 | $ | 35 | $ | 162,723 | $ | 17,788 | $ | 998 | $ | 181,544 | ||||||||||||||||||||||||||||||||||
| Net (loss) income | (3,000) | — | — | — | 140 | 410 | 550 | ||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | (40) | (93,451) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of options and warrants | 155 | 17,516 | — | 140 | — | — | 140 | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 202 | 1,599 | — | 143 | — | — | 143 | ||||||||||||||||||||||||||||||||||||||||
| Dividends | (10,000) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2019 | $ | 212,434 | 34,503,704 | $ | 35 | $ | 163,006 | $ | 17,928 | $ | 1,408 | $ | 182,377 | ||||||||||||||||||||||||||||||||||
| Net income | 6,896 | — | — | $ | — | 3,545 | 223 | 3,768 | |||||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of options and warrants | 50 | 135,108 | — | $ | 758 | — | — | 758 | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 203 | — | — | $ | 128 | — | — | 128 | |||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | $ | — | — | (942) | (942) | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | $ | 219,583 | 34,638,812 | $ | 35 | $ | 163,892 | $ | 21,473 | $ | 689 | $ | 186,089 | ||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Cash flows from operating activities | |||||||||||||||||
| Net income | $ | 83,988 | $ | 8,214 | |||||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||||||||
| Depreciation and amortization | 9,330 | 8,872 | |||||||||||||||
| Amortization of debt issuance costs | 658 | — | |||||||||||||||
| Provision for doubtful accounts | — | (1,363) | |||||||||||||||
| Share-based compensation | 1,910 | 676 | |||||||||||||||
| Unrealized loss (gain) from investment in equity securities | 25 | (15) | |||||||||||||||
| (Income) loss from equity method investments | (2,888) | 892 | |||||||||||||||
| Gain on sale of equity method investments | (99,647) | — | |||||||||||||||
| Deferred tax | (4,473) | (549) | |||||||||||||||
| Changes in operating assets and liabilities, net of business combinations: | |||||||||||||||||
| Receivables, net | (6,284) | 588 | |||||||||||||||
| Receivables, net – related parties | (11,191) | (12,665) | |||||||||||||||
| Other receivables | 966 | (11,897) | |||||||||||||||
| Prepaid expenses and other current assets | (873) | (2,740) | |||||||||||||||
| Right-of-use assets | 1,680 | 1,098 | |||||||||||||||
| Other assets | (5,095) | (243) | |||||||||||||||
| Accounts payable and accrued expenses | (3,043) | 3,340 | |||||||||||||||
| Fiduciary accounts payable | (174) | 260 | |||||||||||||||
| Medical liabilities | 11,252 | (3,819) | |||||||||||||||
| Income taxes payable | 37,681 | (11,622) | |||||||||||||||
| Operating lease liabilities | (1,247) | (1,044) | |||||||||||||||
| Net cash provided by (used in) operating activities | 12,575 | (22,017) | |||||||||||||||
| Cash flows from investing activities | |||||||||||||||||
| Payments for business acquisition, net of cash acquired | — | (41,518) | |||||||||||||||
| Proceeds from repayment of loans receivable – related parties | 16,500 | — | |||||||||||||||
| Advances on loans receivable | — | (6,425) | |||||||||||||||
| Purchases of marketable securities | (1,142) | (8) | |||||||||||||||
| Purchases of investment – equity method | (500) | (2,158) | |||||||||||||||
| Proceeds from sale of equity method investment | 52,743 | — | |||||||||||||||
| Purchases of property and equipment | (451) | (378) | |||||||||||||||
| Dividend received | — | 240 | |||||||||||||||
| Net cash provided by (used in) investing activities | 67,150 | (50,247) | |||||||||||||||
| Cash flows from financing activities | |||||||||||||||||
| Repayment of bank loan and lines of credit | — | (8,040) | |||||||||||||||
| Dividends paid | (30,187) | (10,942) | |||||||||||||||
| Repayment of term loan | (2,375) | — | |||||||||||||||
| Payment of finance lease obligations | (61) | (50) | |||||||||
| Proceeds from the exercise of stock options and warrants | 2,863 | 898 | |||||||||
| Repurchase of shares | (788) | (40) | |||||||||
| Borrowings on line of credit | — | 39,600 | |||||||||
| Proceeds from common stock offering | — | 205 | |||||||||
| Net cash (used in) provided by financing activities | (30,548) | 21,631 | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 49,177 | (50,633) | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 104,010 | 107,637 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 153,187 | $ | 57,004 | |||||||
| Supplementary disclosures of cash flow information: | |||||||||||
| Cash paid for income taxes | $ | — | $ | 16,700 | |||||||
| Cash paid for interest | 2,623 | 439 | |||||||||
| Supplemental disclosures of non-cash investing and financing activities | |||||||||||
| Dividend declared included in dividend payable | $ | 160 | $ | — | |||||||
| Deferred tax liability adjustment to goodwill | — | 8,355 | |||||||||
| Preferred shares received from sale of equity method investment | 36,179 | — | |||||||||
| June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Cash and cash equivalents | $ | 152,441 | $ | 52,726 | |||||||||||||
| Restricted cash – non-current | 746 | 4,278 | |||||||||||||||
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | 153,187 | $ | 57,004 | |||||||||||||
ApolloMed serves Medicare, Medicaid and health maintenance organization (“HMO”) patients, and uninsured patients, in California. The Company primarily provides services to patients who are covered predominantly by private or public insurance, although the Company derivesplans, with a small portion of itsthe Company’s revenue coming from non-insured patients. The Company provides care coordination services to each major constituent of the healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician groups and health plans.
ApolloMed’s The Company’s physician network consists of hospitalists, primary care physicians, and specialist physicians, and hospitalists. The Company operates primarily through ApolloMed’s owned and affiliated physician groups. ApolloMed operates through itsthe following subsidiaries includingof ApolloMed: Network Medical Management, Inc. (“NMM”), Apollo Medical Management, Inc. (“AMM”), Pulmonary Critical Care Management,APA ACO, Inc. (“PCCM”("APAACO"), Verdugo Medical Management, Inc. (“VMM”), ApolloMed Palliative Services, LLC (“APS”), ApolloMed Accountable Care Organization, Inc. (“ApolloMed ACO”), and Apollo Care Connect, Inc. (“ApolloCare”Apollo Care Connect”), and their consolidated entities.
The management services primarily include billing, collection, accounting, administration, quality assurance, marketing, compliance, and education. Following a business combination, NMM became a wholly-owned subsidiary of ApolloMed in December 2017.
ApolloMed has a controlling interestpurpose of holding an investment in APS, which owns two Los Angeles-based companies, Best Choice Hospice Care LLC (“BCHC”) and Holistic Health Home HealthUniversal Care, Inc. (“HCHHA”UCI”).
ApolloMed also On April 30, 2020, UCAP completed the sale of its 48.9% ownership interest in UCI to Bright Health Company of California, Inc. ("Bright") for approximately $69.2 million in cash proceeds (including $16.5 million as repayment of indebtedness owed to APC), plus non-cash consideration consisting of shares of Bright Health, Inc.'s preferred stock having an estimated fair value of approximately $36.2 million on the date of sale. In addition, pursuant to the terms of the stock purchase agreement, APC has a controllingbeneficial interest in ApolloMed ACO, which participatesthe equity method investment sold. The estimated fair value of such interest on April 30, 2020 was $15.7 million (see Note 5). As set forth in the Medicare Shared Savings Program (“MSSP”Company’s definitive proxy statement filed with the SEC on July 31, 2019 (the “Proxy Statement”), the goal48.9% interest in UCI is an “Excluded Asset” that remains solely for the benefit of which isAPC and its shareholders. As such, any proceeds or gain on the sale of APC’s indirect ownership interest in UCI has no impact on the Series A Dividend payable by APC to improveAP-AMH Medical Corporation as described in the qualityProxy Statement and consequently the sale did not affect net income attributable to ApolloMed.
In January 2016, the Company formed ApolloCare, which acquired certain technology and other assets of Healarium, Inc., whichApolloMed, provides the Company with a cloud and mobile-based population health management platform that includes digital care plans, a case management module, connectivity with multiple healthcare tracking devices and the ability to integrate with multiple electronic health records to capture clinical data.
During fiscal year 2016, the Company combined the operations
In November 2016, BAHA Acquisition Corp., an affiliated entity owned by the Company’s CEO and
On December 21, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) among the Company, Apollo Acquisition Corp., a wholly-owned subsidiary of ours (“Merger Subsidiary”), Network Medical Management, Inc. (“NMM”) and Kenneth Sim, M.D., in his capacity as the representative of the shareholders of NMM, pursuant to which NMM, one of the largest healthcare management services organizations in the United States that currently is responsible for coordinating the care for over 600,000 covered patients in Southern and Central California through a network of ten IPAs with over 4,000 contracted physicians, will merge into Merger Subsidiary (the “Merger”) and upon consummation of the Merger, NMM shareholders will receive such number of shares of the Company’s common stock (“Common Stock”) such that, after giving effect to the Merger and assuming there would be no dissenting NMM shareholdersbalance sheets at the closing, NMM shareholders will own 82% of the total issued and outstanding shares of Common Stock at the closing of the Merger and the Company’s current stockholders will own the other 18% (the “Exchange Ratio”). Additionally, NMM agreed to relinquish its redemption rights relating to the Company’s Series A Preferred Stock that NMM owns.
On March 30, 2017, NMM, the Company and other relevant parties entered into an Amendment to the Merger Agreement (the “Merger Agreement Amendment No. 1”) to exclude, for purposes of calculating the Exchange Ratio, from “Parent Shares” (as defined in the Merger Agreement) 499,000 shares of Common Stock issued or issuable pursuant to a securities purchase agreement dated as of March 30, 2017, between the Company and Alliance Apex, LLC. As part the Merger Agreement Amendment, the merger consideration to be paid by the Company to NMM was amended to include warrants to purchase 850,000 shares of Common Stock at an exercise price of $11 per share in the closing of the proposed Merger. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”), with respect to the proposed Merger expired on July 7, 2017. The expiration of the HSR waiting period satisfies a condition to the closing of Merger. Consummation of the Merger, which remains subject to other conditions described in the Merger Agreement, including approval by stockholders of the Company and the shareholders of NMM, is expected to take place in the second half of calendar year 2017. On August 10, 2017, NMM and the Company filed a registration statement on form S-4 with the Securities and Exchange Commission (the “SEC”) in connection with the proposed Merger. On October 17, 2017, the Company entered into a second amendment to the Merger Agreement (the “Merger Agreement Amendment No. 2”) (see Note 10 “Subsequent Events” below). The Merger Agreement Amendment No. 2 extended the “End Date” (as defined in the Merger Agreement) to March 31, 2018. Furthermore, pursuant to the Merger Agreement Amendment No. 2, upon consummation of the Merger (and assuming there will be no NMM dissenting shareholder interests as of the effective time of the Merger), in addition to receive such number of shares of Common Stock that represents 82% of the total issued and outstanding shares of Common Stock immediately following the consummation of the Merger and warrants to purchase 850,000 shares of Common Stock at an exercise price of $11 per share, NMM shareholders will be entitled to receive at the closing of the Merger an aggregate of 2,566,666 shares of Common Stock and warrants to purchase an aggregate of 900,000 shares of Common Stock exercisable at $10.00 per share. Pursuant to the Merger Agreement Amendment No. 2, NMM also agreed to provide an additional $4,000,000 working capital loan to the Company as evidenced by a promissory note in the principal amount of $9,000,000, which replaces the NMM Note in the principal amount of $5,000,000 (see Note 7 “Debt - Restated NMM Note” below) and is convertible into shares of Common Stock at a conversion price of $10.00 per share (subject to adjustment for stock splits, dividends, recapitalizations and the like) within 10 business days prior to maturity.
On January 1, 2017 and March 24, 2017, PCCM and VMM amended the management services agreements that they entered into with LALC and Hendel, respectively, and among other things, reduced the scope of services to be provided by PCCM and VMM to align with the actual course of dealing between the parties. Based on the Company’s evaluation of current accounting guidance, it was determined that the Company no longer holds an explicit or implicit variable interest in these entities, and accordingly LALC and Hendel are no longer consolidated effective January 1, 2017 and their operations are not included in the March 31, 2017 and subsequent consolidated financial statements of the Company as of such date.
On January 18, 2017, CMS announced that APAACO, which is owned 50% by ApolloMed and 50% by NMM, has been approved to participate in CMS’ Next Generation ACO Model (the “NGACO Model”). The NGACO Model is a new CMS program that builds upon previous ACO programs. Through this new model, CMS will partner with APAACO and other accountable care organizations (“ACOs”) experienced in coordinating care for populations of patients and whose provider groups are willing to assume higher levels of financial risk and potentially achieve a higher reward from participating in this new attribution-based risk sharing model. The NGACO program began on January 1, 2017. AMM, one of the Company’s wholly-owned subsidiaries, has a long-term management services agreement with APAACO. APAACO is consolidated as a variable interest entity by AMM as it was determined that AMM is the primary beneficiary of APAACO.
There are different levels of financial risk and reward that an ACO may select, and the extent of risk and reward may be limited on a percentage basis. The NGACO Model offers two risk arrangement options. In Arrangement A, the ACO takes 80% of Medicare Part A and Part B risk. In Arrangement B, the ACO takes 100% of Medicare Part A and Part B risk. Under each risk arrangement, the ACO can cap aggregate savings and losses anywhere between 5% to 15%. The cap is elected annually by the ACO. APAACO has opted for Risk Arrangement A and a shared savings and losses cap of 5%.
The NGACO Model offers four payment mechanisms:
APAACO began operations on January 1, 2017. APAACO opted for, and was approved by CMS effective on April 1, 2017 to participate in, the AIPBP track, which is the most advanced risk-taking payment model. APAACO is the only ACO that in the United States is participating in the AIPBP track, out of 44 ACOs approved for the NGACO Model. Under the AIPBP track, CMS will estimate the total annual expenditures for APAACO's patients and then pay that projected amount to APAACO in a per-beneficiary, per-month payment. APAACO will then be responsible for paying all Part A and Part B costs for in-network participating providers and preferred providers with whom it has contracted.
In connection with the approval by CMS for APAACO to participate in the NGACO Model, CMS and APAACO have entered into a NGACO Model Participation Agreement (the “Participation Agreement”), which was last modified on December 15, 2016. The term of the Participation Agreement is for two performance years, from January 1, 2017 through December 31, 2018. CMS may offer to renew the Participation Agreement for an additional term of two performance years. Additionally, the Participation Agreement may be terminated sooner by CMS as specified therein. Under the NGACO Model, CMS grants to APAACO a pool of patients to manage (direct care and pay providers) based on a budget negotiated with CMS. APAACO is responsible to manage medical costs for these patients to receive services from doctors and medical service providers as influenced by the Company. The Company earns revenues based on the negotiated contract terms with in-network providers. The Company’s profits or losses in managing the services provided by out-of-network providers are generally determined on an annual basis after reconciliation with CMS. The Company receives capitation from CMS on a monthly basis. Based on the Company’s efficiency or lack thereof, the Company’s profits/losses on providing such services are capped with CMS. The Company records the receipts from CMS as revenue as the Company is primarily responsible and liable for managing the costs incurred by the patients and to satisfy all provider obligations, assuming the credit risk through the arrangement with CMS, and controlling the funds, the services provided and the process by which the providers are ultimately paid. In October 2017, CMS notified APAACO that it has not been renewed for participation in the AIPBP payment mechanism of the NGACO Model for performance year 2018 due to certain alleged deficiencies in performance by APAACO. APAACO does not believe the allegations by CMS of performance deficiencies are valid or justify the CMS non-renewal determination and is in discussions with CMS regarding possible reversal of such determination. On November 9, 2017, APAACO submitted a request for reconsideration to CMS. If APAACO is not successful in convincing CMS to reverse its decision then the payment mechanism under the NGACO Model would default to traditional FFS. This would result in the loss in monthly revenues and cash flow currently being generated by APAACO, currently at a rate of approximately $9.3 million per month, and would thus have a material adverse effect on ApolloMed’s future revenues and potential cash flow.
AMM has entered into a long-term Master Services Agreement with APAACO (the “APAACO MSA”). Under the APAACO MSA, AMM provides APAACO with care coordination, data analytics and reporting, technology and other administrative capabilities to enable participating providers to deliver better care and lower healthcare costs for their Medicare FFS beneficiaries. APAACO employs local operations and clinical staff to drive physician engagement and care coordination improvements.
Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business.
As shown in the accompanying unaudited condensed consolidated financial statements, the Company has incurred a net loss of approximately $8.1 million during the six months ended September 30, 2017, and, as of September 30, 2017, has a net working capital deficit of approximately $7.0 million and an accumulated deficit of approximately $45.1 million. The primary source of liquidity as of September 30, 2017 is cash and cash equivalents of approximately $30.2 million, which includes the capitation payments received from CMS, all or most of which will be used to pay the corresponding fee for service claims liability in future months.
These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon the Company’s ability to increase revenue, reduce costs, attain a satisfactory level of profitability, obtain suitable and adequate financing, and further develop business. In addition, the Company may have to reduce certain overhead costs through the deferral of salaries and other means, and settle liabilities through negotiation. There can be no assurance that management’s plan and attempts will be successful.
The Company’s ability to continue as a going concern also depends, in significant part, on its ability to obtain the necessary financing to meet its obligations and pay the Company’s obligations arising from normal business operations as they come due. To date, the Company has funded the Company’s operations from a combination of internally generated cash flow and external sources, including the proceeds from the issuance of equity and/or debt securities. The Company is substantially dependent upon the consummation of the Merger to meet the Company’s liquidity requirements. The Company is currently exploring sources of additional funding. Without limiting its available options, future equity financings will most likely be through the sale of additional shares of its securities. It is possible that the Company could also offer warrants, options and/or rights in conjunction with any future issuances of its common stock. The Company’s current sources of revenues are insufficient to cover its operating costs, and as such, has incurred an operating loss since its inception. Thus, until the Company can generate sufficient cash flows to fund operations, the Company remains substantially dependent on raising additional capital through debt and/or equity transactions. There is no assurance that the proposed Merger will take place, or that any such additional financing will be available on favorable terms, or at all. If, after utilizing the existing sources of capital available to the Company, further capital needs are identified and the Company is not successful in obtaining the financing, it may be forced to curtail its existing or planned future operations.
The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern.
Certain reclassifications have been made to comparative amounts in order to conform with current period presentation.
Basis of Presentation
The accompanying condensed consolidated balance sheet at March 31, 2017,2019, has been derived from the Company’s audited consolidated financial statements. The unaudited condensed consolidated financial statements, as of September 30, 2017 and for the six months ended September 30, 2017 and 2016, have been prepared in accordance withbut does not include all disclosures required by generally accepted accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited consolidated financial statements as of June 30, 2020, and for the three and six months ended June 30, 2020 and 2019, have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and related footnotesnotes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended MarchDecember 31, 20172019 as filed with the SEC on June 29, 2017.March 16, 2020. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made in the condensed consolidated financial statements. The condensed consolidated financial statements include all material adjustments (consisting of normal recurring accruals) necessary to make the condensed consolidated financial statements not misleading as required by Regulation S-X, Rule 10-01. Operating results for the three and six months ended SeptemberJune 30, 20172020, are not necessarily indicative of the results that may be expected for the year ending MarchDecember 31, 2018.
2020, or any future periods.
Business Combinations
eliminated in consolidation.
assumptions.
| For the Three Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Commercial | $ | 25,479 | $ | 25,365 | |||||||||||||
| Medicare | 62,038 | 57,965 | |||||||||||||||
| Medicaid | 68,450 | 36,277 | |||||||||||||||
| Other third parties | 9,202 | 10,443 | |||||||||||||||
| Revenue | $ | 165,169 | $ | 130,050 | |||||||||||||
| For the Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Commercial | $ | 50,192 | $ | 50,383 | |||||||||||||
| Medicare | 126,918 | 95,063 | |||||||||||||||
| Medicaid | 134,897 | 61,647 | |||||||||||||||
| Other third parties | 18,267 | 18,713 | |||||||||||||||
| Revenue | $ | 330,274 | $ | 225,806 | |||||||||||||
| For the Three Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Payor A | 11.9 | % | 13.7 | % | |||||||||||||
| Payor B | 10.3 | % | 12.6 | % | |||||||||||||
| Payor C | * | 10.5 | % | ||||||||||||||
| Payor D | 17.5 | % | 13.7 | % | |||||||||||||
| Payor E | 12.4 | % | * | ||||||||||||||
| Payor F | 10.1 | % | * | ||||||||||||||
| For the Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Payor A | 11.9 | % | 15.8 | % | |||||||||||||
| Payor B | 10.3 | % | 14.3 | % | |||||||||||||
| Payor C | * | 11.7 | % | ||||||||||||||
| Payor D | 17.5 | % | * | ||||||||||||||
| Payor E | 12.9 | % | * | ||||||||||||||
| Payor F | 10.3 | % | * | ||||||||||||||
| As of June 30, 2020 | As of December 31, 2019 | ||||||||||
| Payor D | 12.4 | % | * | ||||||||
| Payor G | 33.5 | % | 30.4 | % | |||||||
| Payor H | 35.1 | % | 36.0 | % | |||||||
| Fair Value Measurements | |||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Money market funds* | $ | 108,195 | $ | — | $ | — | $ | 108,195 | |||||||||||||||||||||||||||
| Marketable securities – certificates of deposit | 117,611 | — | — | 117,611 | |||||||||||||||||||||||||||||||
| Marketable securities – equity securities | 45 | — | 45 | ||||||||||||||||||||||||||||||||
| Total | $ | 225,851 | $ | — | $ | — | $ | 225,851 | |||||||||||||||||||||||||||
| Fair Value Measurements | |||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Money market funds* | $ | 50,731 | $ | — | $ | — | $ | 50,731 | |||||||||||||||||||||||||||
| Marketable securities – certificates of deposit | 116,469 | — | — | 116,469 | |||||||||||||||||||||||||||||||
| Marketable securities – equity securities | 70 | — | — | 70 | |||||||||||||||||||||||||||||||
| Total | $ | 167,270 | $ | — | $ | — | $ | 167,270 | |||||||||||||||||||||||||||
11
Contracted
Contracted is typically prepaid monthly to the Company based on the number of enrollees selecting the Company as their healthcare provider. Capitation revenue represents revenue generatedis recognized in the month in which the Company is obligated to provide services to plan enrollees under contracts with various health plans. Minor ongoing adjustments to prior months’ capitation, primarily arising from contracted HMOs finalizing their monthly patient eligibility data for additions or subtractions of enrollees, are recognized in the month they are communicated to the Company. Additionally, Medicare pays capitation using a “Risk Adjustment” model, which compensates managed care organizations and providers based on the health status (acuity) of each individual enrollee. Health plans and providers with higher acuity enrollees will receive more and those with lower acuity enrollees will receive less. Under Risk Adjustment, capitation is determined based on health severity, measured using patient encounter data. Capitation is paid on a monthly basis based on data submitted for the enrollee for the preceding year and is adjusted in subsequent periods after the final data is compiled. Positive or negative capitation adjustments are made for Medicare enrollees with conditions requiring more or less healthcare services than assumed in the interim payments. Since the Company cannot reliably predict these adjustments, periodic changes in capitation amounts earned as a result of Risk Adjustment are recognized when those changes are communicated by the health plans to the Company.
Fee-for-service revenue
Fee-for-serviceseries guidance, the Company has applied the optional exemption to exclude disclosure of the allocation of the transaction price to remaining performance obligations.
Capitation
Capitation stream to group together contracts with similar characteristics and analyze historical cash collections trends. The contracts within the portfolio share the characteristics conducive to ensuring that the results do not materially differ under the new standard if it were to be applied to individual patient contracts related to each patient encounter. Accordingly, there was no change in the Company’s method to recognize revenue under ASC 606
| Balance Sheet | |||||
| Assets acquired | |||||
| Cash and cash equivalents | $ | 3,569 | |||
| Accounts receivable, net | 10,336 | ||||
| Other current assets | 4,675 | ||||
| Network relationship intangible assets | 22,636 | ||||
| Goodwill | 28,585 | ||||
| Accounts payable | (2,795) | ||||
| Deferred tax liabilities | (6,334) | ||||
| Medical liabilities | (15,616) | ||||
| Net assets acquired | $ | 45,056 | |||
| Cash paid | $ | 45,056 | |||
| Balance Sheet | |||||
| Assets acquired | |||||
| Cash and cash equivalents | $ | 582 | |||
| Accounts receivable, net | 5,150 | ||||
| Other current assets | 198 | ||||
| Network relationship intangible assets | 11,411 | ||||
| Goodwill | 23,566 | ||||
| Accounts payable | (3,759) | ||||
| Medical liabilities | (12,154) | ||||
| Subordinated loan | (15,327) | ||||
| Net asset acquired | $ | 9,667 | |||
| Equity investment contributed | $ | 2,417 | |||
| Cash paid | $ | 7,250 | |||
| Balance, January 1, 2020 | $ | 238,505 | |||
| Adjustments | 548 | ||||
| Balance, June 30, 2020 | $ | 239,053 | |||
Useful Life (Years) | Gross June 30, 2020 | Accumulated Amortization | Net June 30, 2020 | ||||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||
| Network relationships | 11-15 | $ | 143,930 | $ | (67,015) | $ | 76,915 | ||||||||||||||||
| Management contracts | 15 | 22,832 | (10,736) | 12,096 | |||||||||||||||||||
| Member relationships | 12 | 6,696 | (2,793) | 3,903 | |||||||||||||||||||
| Patient management platform | 5 | 2,060 | (1,064) | 996 | |||||||||||||||||||
| Trade names/trademarks | 20 | 1,011 | (131) | 880 | |||||||||||||||||||
| $ | 176,529 | $ | (81,739) | $ | 94,790 | ||||||||||||||||||
Useful Life (Years) | Gross December 31, 2019 | Accumulated Amortization | Net December 31, 2019 | ||||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||
| Network relationships | 11-15 | $ | 143,930 | $ | (60,526) | $ | 83,404 | ||||||||||||||||
| Management contracts | 15 | 22,832 | (9,676) | 13,156 | |||||||||||||||||||
| Member relationships | 12 | 6,696 | (2,352) | 4,344 | |||||||||||||||||||
| Patient management platform | 5 | 2,060 | (858) | 1,202 | |||||||||||||||||||
| Trade names/trademarks | 20 | 1,011 | (105) | 906 | |||||||||||||||||||
| $ | 176,529 | $ | (73,517) | $ | 103,012 | ||||||||||||||||||
| Amount | |||||
| 2020 (excluding the six months ended June 30, 2020) | $ | 7,807 | |||
| 2021 | 14,524 | ||||
| 2022 | 12,673 | ||||
| 2023 | 10,842 | ||||
| 2024 | 9,830 | ||||
| Thereafter | 39,114 | ||||
| Total | $ | 94,790 | |||
| December 31, 2019 | Allocation of Income (Loss) | Contribution | Sale | June 30, 2020 | |||||||||||||||||||||||||
| LaSalle Medical Associates – IPA Line of Business | $ | 6,397 | $ | (428) | $ | — | $ | — | $ | 5,969 | |||||||||||||||||||
| Pacific Medical Imaging & Oncology Center, Inc. | 1,396 | 77 | — | — | 1,473 | ||||||||||||||||||||||||
| Universal Care, Inc. | 1,438 | 3,560 | — | (4,998) | — | ||||||||||||||||||||||||
| Diagnostic Medical Group | 2,334 | (102) | — | — | 2,232 | ||||||||||||||||||||||||
| 531 W. College, LLC – related party | 16,698 | (231) | 500 | — | 16,967 | ||||||||||||||||||||||||
| MWN, LLC – related party | 164 | 12 | — | — | 176 | ||||||||||||||||||||||||
| $ | 28,427 | $ | 2,888 | $ | 500 | $ | (4,998) | $ | 26,817 | ||||||||||||||||||||
| June 30, 2020 | December 31, 2019 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 2,852 | $ | 6,345 | |||||||
| Receivables, net | 6,751 | 5,124 | |||||||||
| Other current assets | 880 | 3,526 | |||||||||
| Loan receivable | 2,250 | 2,250 | |||||||||
| Restricted cash | 688 | 683 | |||||||||
| Total assets | $ | 13,421 | $ | 17,928 | |||||||
| Liabilities and Stockholders’ (Deficit) Equity | |||||||||||
| Current liabilities | $ | 20,735 | $ | 23,530 | |||||||
| Stockholders’ deficit | (7,314) | (5,602) | |||||||||
| Total liabilities and stockholders’ deficit | $ | 13,421 | $ | 17,928 | |||||||
| Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Revenues | $ | 92,113 | $ | 93,434 | |||||||||||||
| Expenses | 93,680 | 102,845 | |||||||||||||||
| Net loss | $ | (1,567) | $ | (9,411) | |||||||||||||
| Amount (in '000s) | |||||
| Cash proceeds (excludes proceeds to settle indebtedness owed to APC from UCI) | $ | 52,743 | |||
| Preferred shares in Bright Health, Inc. | $ | 36,179 | |||
| Beneficial interest in UCI | $ | 15,723 | |||
| Less: Carrying value of equity method investment on date of sale | $ | (4,998) | |||
| Gain on sale of equity method investment | $ | 99,647 | |||
| December 31, 2019 | |||||
| Assets | |||||
| Cash and cash equivalents | $ | 33,890 | |||
| Receivables, net | 63,843 | ||||
| Other current assets | 38,280 | ||||
| Loan receivable | 882 | ||||
| Restricted cash | 4,021 | ||||
| Total assets | $ | 140,916 | |||
| Liabilities and Stockholders’ (Deficit) Equity | |||||
| Current liabilities | $ | 128,330 | |||
| Other liabilities | 33,133 | ||||
| Stockholders’ deficit | (20,547) | ||||
| Total liabilities and stockholders’ deficit | $ | 140,916 | |||
| Four Months Ended | Six Months Ended | ||||||||||
| April 30, 2020 | June 30, 2019 | ||||||||||
| Revenues | $ | 195,308 | $ | 247,517 | |||||||
| Expenses | 189,028 | 239,389 | |||||||||
| Income before benefit from income taxes | 6,280 | 8,128 | |||||||||
| Benefit from income taxes | — | (3,167) | |||||||||
| Net income | $ | 6,280 | $ | 11,295 | |||||||
| June 30, 2020 | December 31, 2019 | ||||||||||
| Assets | |||||||||||
| Cash | $ | 126 | $ | 139 | |||||||
| Other current assets | — | 17 | |||||||||
| Other assets | 70 | 70 | |||||||||
| Property and equipment, net | 33,697 | 33,581 | |||||||||
| Total assets | $ | 33,893 | $ | 33,807 | |||||||
| Liabilities and Members’ Equity | |||||||||||
| Current liabilities | $ | 1,109 | $ | 1,062 | |||||||
| Stockholders’ equity | 32,784 | 32,745 | |||||||||
| Total liabilities and members’ equity | $ | 33,893 | $ | 33,807 | |||||||
| Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Revenues | — | — | |||||||||||||||
| Expenses | 579 | 538 | |||||||||||||||
| Loss from operations | (579) | (538) | |||||||||||||||
| Other income | $ | 21 | $ | 385 | |||||||||||||
| Net loss | $ | (558) | $ | (153) | |||||||||||||
HMO contracts also include provisions to share in the risk for enrollee hospitalization, whereby the Company can earn additional incentive revenue or incur penalties based upon the utilization of hospital services. Typically, any shared risk deficits are not payable until and unless the Company generates future risk sharing surpluses, or if the HMO withholds a portion of the capitation revenue to fund any risk share deficits. At the termination of the HMO contract, any accumulated risk share deficit is typically extinguished. Due to the lack of access to information necessary to estimate the related costs, shared-risk amounts receivable from the HMOs are only recorded when such amounts are known. Risk pools for the prior contract years are generally final settled in the third or fourth quarter of the following fiscal year.
In addition to risk-sharing revenues, the Company also receives incentives under “pay-for-performance” programs for quality medical care, based on various criteria. These incentives are generally recorded in the third and fourth quarters of the fiscal year and recorded when such amounts are known.
Under full risk capitation contracts, an affiliated hospital enters into agreements with several HMOs, pursuant to which, the affiliated hospital provides hospital, medical, and other healthcare services to enrollees under a fixed capitation arrangement (“Capitation Arrangement”). In addition, under a risk pool sharing agreement, the affiliated hospital and a medical group agree to establish a Hospital Control Program to serve the enrollees, pursuant to which, the medical group is allocated a percentage of the profit or loss, after deductions for costs to the affiliated hospital. The Company typically participates in full risk programs under the terms of a PSA, with health plans whereby the Company is wholly liable for the deficits allocated to the medical group under the arrangement.10% interest. The related liabilityinvestment balance of $0.5 million is included in medical liabilities“Investment in privately held entities” in the accompanying consolidated balance sheets as of SeptemberJune 30, 2017 and March 31, 2017. See “Medical Liabilities” below.
Medicare Shared Savings Program Revenue
2020.
Hospitalist Agreements
During fiscal year 2017,owned by Dr. Arteaga. The entire note receivable has been classified under loans receivable on the consolidated balance sheets in the amount of $6.4 million as of June 30, 2020.
| June 30, 2020 | December 31, 2019 | ||||||||||
| Accounts payable | $ | 10,425 | $ | 6,914 | |||||||
| Capitation payable | 2,754 | 2,813 | |||||||||
| Subcontractor IPA payable | 3,083 | 3,360 | |||||||||
| Professional fees | 2,325 | 1,837 | |||||||||
| Due to related parties | 80 | 225 | |||||||||
| Accrued compensation | 3,060 | 3,238 | |||||||||
| Contract liabilities | 3,061 | 8,892 | |||||||||
| Total accounts payable and accrued expenses | $ | 24,788 | $ | 27,279 | |||||||
| June 30, 2020 | June 30, 2019 | ||||||||||
| Medical liabilities, beginning of period | $ | 58,725 | $ | 33,642 | |||||||
| Components of medical care costs related to claims incurred: | |||||||||||
| Current period | 165,571 | 93,833 | |||||||||
| Prior periods | 233 | 2,688 | |||||||||
| Total medical care costs | 165,804 | 96,521 | |||||||||
| Payments for medical care costs related to claims incurred: | |||||||||||
| Current period | (97,112) | (60,440) | |||||||||
| Prior periods | (57,470) | (39,744) | |||||||||
| Total paid | (154,582) | (100,184) | |||||||||
| Acquired from Alpha Care | — | 13,120 | |||||||||
| Adjustments | 326 | (156) | |||||||||
| Medical liabilities, end of period | $ | 70,273 | $ | 42,943 | |||||||
| June 30, 2020 | |||||
| Term loan A | $ | 185,250 | |||
| Revolver loan | 60,000 | ||||
| Total debt | 245,250 | ||||
| Less: Current portion of debt | (9,500) | ||||
| Less: Unamortized financing costs | (5,295) | ||||
| Long-term debt | $ | 230,455 | |||
| Amount | |||||
| 2020 (excluding the six months ended June 30, 2020) | $ | 7,125 | |||
| 2021 | 10,688 | ||||
| 2022 | 14,250 | ||||
| 2023 | 15,437 | ||||
| 2024 | 197,750 | ||||
| Total | $ | 245,250 | |||
Next Generation Accountable Care Organization Revenue
Under the NGACO Model, CMS grants APAACO, which is jointly owned by the Company and its subsidiaries and the associated practices, and may in the future provide, (i) investment banking, commercial banking (including pursuant to certain existing business loan and credit agreements being terminated in connection with entering into the Credit Agreement), cash management, foreign exchange or other financial services, and (ii) services as a bond trustee and other trust and fiduciary services, for which they have received compensation and may receive compensation in the future.
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Options outstanding at January 1, 2020 | 607,346 | $ | 9.22 | 3.42 | $ | 5,600 | |||||||||||||||||
| Options granted | 11,742 | 18.41 | — | — | |||||||||||||||||||
| Options exercised | (120,000) | 2.58 | — | 1,800 | |||||||||||||||||||
| Options forfeited | (12,228) | 17.57 | — | — | |||||||||||||||||||
| Options outstanding at June 30, 2020 | 486,860 | $ | 10.86 | 3.70 | $ | 2,900 | |||||||||||||||||
| Options exercisable at June 30, 2020 | 380,894 | $ | 7.11 | 2.74 | $ | 3,000 | |||||||||||||||||
| June 30, 2020 | Board Members | ||||
| Expected term | 3.0 years | ||||
| Expected volatility | 90.01 | % | |||
| Risk-free interest rate | 1.43 | % | |||
| Market value of common stock | $ | 10.56 | |||
| Annual dividend yield | — | % | |||
| Forfeiture rate | — | % | |||
The Company also has arrangements for billingrecorded approximately $0.9 million and payment services$1.6 million of share-based compensation expense associated with the medical providers within the NGACO network. The Company retains certain defined percentagesissuance of the payments made to the providersrestricted shares of common stock and vesting of stock options which is included in exchange for using the Company’s billinggeneral and payment services. The revenue for this service is earned as payments are made to medical providers.
For each performance year, APAACO shall submit to CMS its selections for risk arrangement; the amount of a savings/loss cap; alternative payment mechanism; benefits enhancements, if any; and its decision regarding voluntary alignment under the NGACO Model. APAACO must obtain CMS consent before voluntarily discontinuing any benefit enhancement during a performance year.
For each performance year, CMS shall pay APAACO in accordance with the alternative payment mechanism, if any, for which CMS has approved APAACO; the risk arrangement for which APAACO has been approved by CMS; and as otherwise provided in the Participation Agreement. Following the end of each performance year, and at such other times as may be required under the Participation Agreement, CMS will issue a settlement report to APAACO setting forth the amount of any shared savings or shared losses and the amount of other monies owed. If CMS owes APAACO shared savings or other monies owed, CMS shall pay the ACO in full within 30 days after the date on which the relevant settlement report is deemed final, except as provided in the Participation Agreement. If APAACO owes CMS shared losses or other monies owed as a result of a final settlement, APAACO shall pay CMS in full within 30 days after the relevant settlement report is deemed final. If APAACO fails to pay the amounts due to CMS in full within 30 days after the date of a demand letter or settlement report, CMS shall assess simple interest on the unpaid balance at the rate applicable to other Medicare debts under current provisions of law and applicable regulations. In addition, CMS and the U.S. Department of the Treasury may use any applicable debt collection tools available to collect any amounts owed by APAACO.
In October 2017, CMS notified APAACO that it has not been renewed for participation in the AIPBP payment mechanism of the NGACO Model for performance year 2018 due to certain alleged deficiencies in performance by APAACO. APAACO does not believe the allegations by CMS of performance deficiencies are valid or justify the CMS non-renewal determination and is in discussions with CMS regarding possible reversal of such determination. On November 9, 2017, APAACO submitted a request for reconsideration to CMS. If APAACO is not successful in convincing CMS to reverse its decision then the payment mechanism under the NGACO Model would default to traditional FFS. This would result in the loss in monthly revenues and cash flow currently being generated by APAACO, currently at a rate of approximately $9.3 million per month, and would thus have a material adverse effect on ApolloMed’s future revenues and potential cash flow.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid investments with an initial maturity of three months or less at date of purchase to be cash equivalents.
Restricted Cash
Restricted cash primarily consists of cash held as collateral to secure standby letters of credits as required by certain contracts.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable primarily consists of amounts due from third-party payors, including government sponsored Medicare and Medicaid programs, insurance companies, and amounts due from hospitals and patients. Accounts receivable are recorded and stated at the amount expected to be collected.
The Company maintains reserves for potential credit losses on accounts receivable. The Company reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The Company also regularly analyzes the ultimate collectability of accounts receivable after certain stages of the collection cycle using a look-back analysis to determine the amount of receivables subsequently collected and adjustments are recorded when necessary. Reserves are recorded primarily on a specific identification basis.
Concentrations
Major payors that contributed the following percentage of net revenue of the Company included:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Governmental - Medicare/Medi-Cal | 73 | % | 21.9 | % | 72.5 | % | 22.6 | % | ||||||||
| L.A Care | * | % | * | % | * | % | 11.9 | % | ||||||||
| Allied Physicians | * | % | * | % | * | % | 11.3 | % | ||||||||
* Represents less than 10%
Receivables from major payors amounted to the following percentage of total accounts receivable:
| September 30, 2017 | March 31, 2017 | |||||||
| Governmental - Medicare/Medi-Cal | 24.3 | % | 20.5 | % | ||||
| Allied Physicians | 12.5 | % | 12.8 | % | ||||
The increase in government revenue is due to APAACO’s new NGACO contract with CMS of approximately $55.7 million that went into effect in the first quarter of fiscal year 2018.
The Company maintains its cash and cash equivalents and restricted cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts; however, amounts in excess of the federally insured limit may be at risk if the bank experiences financial difficulties. Approximately $32.9 million was in excess of the Federal Deposit Insurance Corporation limits of $250,000 per depositor as of September 30, 2017.
The Company’s business and operations are concentrated in one state, California. Any material changes by California with respect to strategy, taxation and economics of healthcare delivery, reimbursements, financial requirements or other aspects of regulation of the healthcare industry could have an adverse effect on the Company’s operations and cost of doing business.
Medical Liabilities
The Company is responsible for integrated care that the associated physicians and contracted hospitals provide to its enrollees under risk-pool arrangements. The Company provides integrated care to health plan enrollees through a network of contracted providers under sub-capitation and direct patient service arrangements, company-operated clinics and staff physicians. Medical costs for professional and institutional services rendered by contracted providers are recorded as cost of servicesadministrative expenses in the accompanying consolidated statements of operations. Costsincome, respectively. Unrecognized compensation expense related to total share-based payments outstanding as of June 30, 2020, was $3.8 million.
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Warrants outstanding at January 1, 2020 | 3,154,590 | $ | 9.96 | 2.01 | $ | 26,700 | |||||||||||||||||
| Warrants granted | — | — | — | — | |||||||||||||||||||
| Warrants exercised | (273,900) | 9.32 | — | 2,000 | |||||||||||||||||||
| Warrants expired/forfeited | — | — | — | — | |||||||||||||||||||
| Warrants outstanding at June 30, 2020 | 2,880,690 | $ | 10.02 | 1.61 | $ | 18,700 | |||||||||||||||||
| Exercise Price Per Share | Warrants Outstanding | Weighted Average Remaining Contractual Life | Warrants Exercisable | Weighted Average Exercise Price Per Share | ||||||||||||||||||||||
| $ | 9.00 | 754,870 | 0.29 | 754,870 | $ | 9.00 | ||||||||||||||||||||
| 10.00 | 1,313,345 | 1.85 | 1,313,345 | 10.00 | ||||||||||||||||||||||
| 11.00 | 812,475 | 2.44 | 812,475 | 11.00 | ||||||||||||||||||||||
| $ $ 9.00 –11.00 | 2,880,690 | 1.61 | 2,880,690 | $ | 10.02 | |||||||||||||||||||||
An estimate ofclaims payment requirements prescribed by the California DMHC. TNE is defined as net equity less intangibles, less non-allowable assets (which include unsecured amounts due to contracted physicians, hospitals,from affiliates), plus subordinated obligations. At June 30, 2020 and other professional providers is includedDecember 31, 2019, APC, Alpha Care and Accountable Health Care were in medical liabilities in the accompanying consolidated balance sheets. Medical liabilities include claims reported as of the balance sheet date and estimates of incurred but not reported claims (“IBNR”). Such estimates are developed using actuarial methods and are based on many variables, including the utilization of health care services, historical payment patterns, cost trends, product mix, seasonality, changes in membership, and other factors. As APAACO’s NGACO program is new and no sufficient claims history is available, the medical liabilities for the NGACO program are estimated and booked at 100% of the revenue less actual claims processed for or paid to in-network providers (after taking into account the average discount negotiatedcompliance with the in-network providers). The Company plans to use the traditional lag models as the claims history matures. The estimation methods and the resulting reserves are periodically reviewed and updated. these regulations.
The Company’s medical liabilities were as follows:
| Six Months Ended September 30, 2017 | Year Ended March 31, 2017 | |||||||
| Balance, beginning of period | $ | 1,768,231 | $ | 2,670,709 | ||||
| Incurred health care costs: | ||||||||
| Current year | 60,445,600 | 10,365,502 | ||||||
| Claims paid: | ||||||||
| Current year | (30,685,463 | ) | (8,524,215 | ) | ||||
| Prior years | (1,829,866 | ) | (1,881,869 | ) | ||||
| Total claims paid | (32,515,329 | ) | (10,406,084 | ) | ||||
| Risk pool settlement | - | 814,733 | ||||||
| Accrual for net surplus (deficit) from full risk capitation contracts | 995,671 | (1,676,629 | ) | |||||
| Balance, end of period | $ | 30,694,173 | $ | 1,768,231 | ||||
Deferred Financing Costs
The Company’s costs relating to debt issuance have been deferred and are amortized over the lives
Stock-Based Compensation
$0.2 million, respectively, to Critical Quality Management Corporation (“CQMC”) for an office lease. CQMC shares common ownership with certain board members of APC.
The Company accounts for share-based awards granted to persons other than employees and directors under ASC 505-50,Equity-Based Payments to Non-Employees. As such, the fair value of such shares is periodically re-measured using an appropriate valuation model and income or expense is recognized over the vesting period.
Fair Value of Financial Instruments
The Company’s accounting for Fair Value Measurement and Disclosures defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level one — Quoted market prices in active markets for identical assets or liabilities;
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and
Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.
The carrying amount reported in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. The carrying amount for borrowings under the lines of credit approximate fair value which is determined by using interest rates that are available for similar debt obligations with similar terms at the balance sheet date.
Warrant liabilities
In October 2015, the Company issued a stock purchase warrant (the “Series A Warrant”) to NMM in connection with its purchaseCompany. One of the Company’s Series A convertible preferred stock (the “Series A Preferred Stock”) (see Note 6), which initially required liability classification. The fair valueboard members is an officer of the warrant liabilities of approximately $2.8 million at March 31, 2016, was estimated using the Monte Carlo valuation model, using the following inputs: term of 4.5 years, risk free rate of 1.13%, no dividends, volatility of 65.7%, share price of $5.93 per share based on the trading priceAHMC, HSMSO and Aurion. Aurion is also partially owned by one of the Company’s common stock adjusted for marketability discount, and a 0% probability of redemption of the warrant shares issued along with the shares of the Series A Preferred Stock issued to NMM in October 2015. The fair value of the warrant liabilities of approximately $1.5 million as of September 30, 2016, was estimated using the Monte Carlo valuation model which used the following inputs: term of 4.04 years, risk free rate of 0.99%, no dividends, volatility of 61.7%, share price of $4.50 per share based on the trading price of the Company’s common stock adjusted for a marketability discount. As of September 30, 2017 and March 31, 2017, the Company’s outstanding warrants did not require liability classification.
There was no financial instrument measured at fair value on a recurring basis as of September 30, 2017 and March 31, 2017.
There was no Level 3 input measured on a recurring basis in the three months ended September 30, 2017. The following summarizes activity of Level 3 inputs measured on a recurring basis in the six months ended September 30, 2016:
| Warrant Liability | ||||
| Balance at March 31, 2016 | $ | 2,811,111 | ||
| Gain on change in fair value of warrant liabilities | (1,333,333 | ) | ||
| Balance at September 30, 2016 | $ | 1,477,778 | ||
The gain on change in fair value of the warrant liabilities of $1,333,333 for the six months ended September 30, 2016 is included in the accompanying condensed consolidated statement of operations. As there was no warrant liability at either March 31, 2017 or September 30, 2017, there is no change in the fair value of warrant liabilities for the six months ended September 30, 2017.
Non-controlling Interests
The non-controlling interests recorded in the Company’s consolidated financial statements includes the equity of PPCs in which the Company has determined that it has a controlling financial interest and for which consolidation is required as a result of management contracts entered into with these entities owned by third-party physicians. The nature of these contracts provide the Company with a monthly management fee to provide the services described above, and as such, the adjustments to non-controlling interests in any period subsequent to initial consolidation would relate to either capital contributions or distributions by the non-controlling parties as well as income or losses attributable to certain non-controlling interests. Non-controlling interests also represent third-party minority equity ownership interests which are majority owned by the Company.
Basic and Diluted Earnings per Share
Basic net income (loss) per share is calculated using the weighted average number of shares of the Company’s common stock issued and outstanding during a certain period, and is calculated by dividing net income (loss) by the weighted average number of shares of the Company’s common stock issued and outstanding during such period. Diluted net income (loss) per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding during the period, using the as-if converted method for secured convertible notes, preferred stock, and the treasury stock method for options and warrants.
board members. The following table sets forth fees incurred and income earned related to AHMC, HSMSO and Aurion (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
| AHMC – Risk pool, capitation, claims payment, net | $ | 6,057 | $ | 16,350 | $ | 18,056 | $ | 27,950 | |||||||||||||||||||||||||||
| HSMSO – Management fees, net | (189) | (265) | (321) | (915) | |||||||||||||||||||||||||||||||
| Aurion – Management fees | (53) | (100) | (128) | (200) | |||||||||||||||||||||||||||||||
| Net total | $ | 5,815 | $ | 15,985 | $ | 17,607 | $ | 26,835 | |||||||||||||||||||||||||||
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Preferred Stock | 1,666,666 | 1,666,666 | 1,666,666 | 1,666,666 | ||||||||||||
| Options | 1,019,850 | 487,500 | 1,099,850 | 527,500 | ||||||||||||
| Warrants | 169,500 | 104,500 | 1,295,611 | 114,500 | ||||||||||||
| Convertible Notes | 514,093 | - | 514,093 | - | ||||||||||||
| 3,370,109 | 2,258,666 | 4,576,220 | 2,308,666 | |||||||||||||
New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). This new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginningeach of the earliest comparative period presented inhospital pools. During the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). This ASU makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation,three and the financial statement presentation of excess tax benefits or deficiencies. With respect to the accounting for forfeitures, ASU 2016-09 allows an entity to elect as an accounting policy either to continue to estimate the total number of awards for which the requisite service period will not be rendered (as currently required) or to account for forfeitures when they occur. This entity-wide accounting policy election only applies to service conditions; for performance conditions, the entity continues to assess the probability that such conditions will be achieved. An entity must also disclose its policy election for forfeitures. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance on April 1, 2017 and chose the option to account for forfeitures as they occur. Such adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 addresses certain aspects of recognition, measurement, presentation and disclosures of financial instruments including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. ASU 2016-01 will become effective for the Company on April 1, 2018. The Company is currently evaluating the guidance to determine the potential impact on its financial condition, results of operations, cash flows and financial statement disclosures.
Recently, the FASB issued the following accounting standard updates related to ASU 2014-09 (Topic 606),Revenue Contracts with Customers:
These ASUs will become effective for the Company on April 1, 2018. The Company currently anticipates adopting the standard using the modified retrospective method. The Company has begun the process of implementing this standard, including performing a review of its revenue streams to identify any differences in the timing, measurement, or presentation of revenue recognition. The Company currently believes that the primary impact will be changes to the timing of recognition of revenues related to fee-for-service and enhanced financial statement disclosures. The Company will continue to assess the impact on all areas of its revenue recognition, disclosure requirements and changes that may be necessary to its internal controls over financial reporting.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). This ASU provides clarification regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The issues addressed in this ASU that will affect the Company are classifying debt prepayments or debt extinguishment costs and contingent consideration payments made after a business combination. This update is effective for annual and interim periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-15 will have on the Company’s consolidated financial statements.
In December 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”). The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-17 will become effective for the Company on April 1, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently assessing the impact the adoption of ASU 2016-18 will have on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). This ASU provides a screen to determine when an asset is not a business, which requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business, which reduces the number of transactions that need to be further evaluated. If the screen is not met, this ASU require that to be considered a business, a set much include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and also remove the evaluation of whether a market participant could replace missing elements. This update is effective for annual and interim periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently assessing the impact the adoption of ASU 2017-01 will have on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This ASU eliminates Step 2 from the goodwill impairment test if the carrying amount exceeds the fair value of a reporting unit and also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. This update is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the impact the adoption of ASU 2017-04 will have on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). This ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This update is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this update should be applied prospectively to an award modified on or after the adoption date, The Company is currently assessing the impact the adoption of ASU 2017-09 will have on the Company’s consolidated financial statements.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception (“ASU 2017-11”). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part 1 of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently assessing the impact the adoption of ASU 2017-11 will have on the Company’s consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts 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. Actual results may materially differ from these estimates under different assumptions or conditions.
Intangible assets, net consisted of the following:
| Weighted | Gross | Net | ||||||||||||||
| Average | September 30, | Accumulated | September 30, | |||||||||||||
| Life (Yrs.) | 2017 | Amortization | 2017 | |||||||||||||
| Indefinite Lived Assets: | ||||||||||||||||
| Medicare License | N/A | $ | 704,000 | $ | - | $ | 704,000 | |||||||||
| Amortized Intangible Assets: | ||||||||||||||||
| Acquired Technology | 5 | 1,312,500 | (393,750 | ) | 918,750 | |||||||||||
| Network Relationships | 5 | 220,000 | (139,333 | ) | 80,667 | |||||||||||
| Trade Name | 5 | 102,000 | (72,433 | ) | 29,567 | |||||||||||
| $ | 2,338,500 | $ | (605,516 | ) | $ | 1,732,984 | ||||||||||
| Weighted | Gross | Net | ||||||||||||||
| Average | March 31, | Accumulated | March 31, | |||||||||||||
| Life (Yrs.) | 2017 | Amortization | 2017 | |||||||||||||
| Indefinite Lived Assets: | ||||||||||||||||
| Medicare License | N/A | $ | 704,000 | $ | - | $ | 704,000 | |||||||||
| Amortized Intangible Assets: | ||||||||||||||||
| Acquired Technology | 5 | 1,312,500 | (262,500 | ) | 1,050,000 | |||||||||||
| Network Relationships | 5 | 220,000 | (117,331 | ) | 102,669 | |||||||||||
| Trade Name | 5 | 102,000 | (54,400 | ) | 47,600 | |||||||||||
| $ | 2,338,500 | $ | (434,231 | ) | $ | 1,904,269 | ||||||||||
The amortization expense for the six months ended SeptemberJune 30, 20172020 and 2016 was approximately $171,0002019, the Company has recognized risk pool revenue under this agreement of $10.2 million and $190,000,$10.2 million, respectively, and $21.0 million and $25.0 million, respectively, for which $53.7 million and $40.4 million remain outstanding as of June 30, 2020 and December 31, 2019, respectively. The amortization for
The following table summarizes the approximate expected future amortization expense as of September 30, 2017 of definite-lived intangible assets for each for the four fiscal years ending March 31 thereafter:
| 2018 (remaining 6 months) | $ | 163,000 | ||
| 2019 | 327,000 | |||
| 2020 | 284,000 | |||
| 2021 | 254,984 | |||
| $ | 1,028,984 |
Accounts payable and accrued liabilities consisted of the following:
| September 30, | March 31, | |||||||
| 2017 | 2017 | |||||||
| Accounts payable | $ | 2,165,151 | $ | 3,569,011 | ||||
| Accrued compensation | 3,649,166 | 2,860,340 | ||||||
| Income taxes payable | 391 | 20,827 | ||||||
| Accrued interest | 338,604 | 54,158 | ||||||
| Accrued professional fees | 888,731 | 1,379,037 | ||||||
| $ | 7,042,043 | $ | 7,883,373 | |||||
Due
these assets is uncertain.
allowance.
Series A Preferred Stock
On October 14, 2015,March 27, 2020, the Company enteredCoronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into a Securities Purchase Agreement (the “2015 SPA”) with NMM pursuantlaw. The CARES Act includes various income and payroll tax provisions that we are in the process of analyzing to whichdetermine the Company sold to NMM, and NMM purchased fromtax impacts.
| Three Months Ended June 30, | 2020 | 2019 | ||||||||||||
| Earnings per share – basic | $ | 0.20 | $ | 0.10 | ||||||||||
| Earnings per share – diluted | $ | 0.19 | $ | 0.09 | ||||||||||
| Weighted average shares of common stock outstanding – basic | 36,071,604 | 34,540,059 | ||||||||||||
| Weighted average shares of common stock outstanding – diluted | 37,285,585 | 37,962,555 | ||||||||||||
| Six Months Ended June 30, | 2020 | 2019 | ||||||||||||
| Earnings per share – basic | $ | 0.31 | $ | 0.11 | ||||||||||
| Earnings per share – diluted | $ | 0.30 | $ | 0.10 | ||||||||||
| Weighted average shares of common stock outstanding – basic | 36,040,936 | 34,518,461 | ||||||||||||
| Weighted average shares of common stock outstanding – diluted | 37,296,913 | 37,896,837 | ||||||||||||
| Three Months Ended June 30, | 2020 | 2019 | ||||||||||||
| Weighted average shares of common stock outstanding – basic | 36,071,604 | 34,540,059 | ||||||||||||
| 10% shares held back pursuant to indemnification clause | — | 1,519,805 | ||||||||||||
| Stock options | 169,402 | 363,593 | ||||||||||||
| Warrants | 1,041,784 | 1,539,098 | ||||||||||||
| Restricted stock awards | 2,795 | — | ||||||||||||
| Weighted average shares of common stock outstanding – diluted | 37,285,585 | 37,962,555 | ||||||||||||
| Six Months Ended June 30, | 2020 | 2019 | ||||||||||||
| Weighted average shares of common stock outstanding – basic | 36,040,936 | 34,518,461 | ||||||||||||
| 10% shares held back pursuant to indemnification clause | — | 1,519,805 | ||||||||||||
| Stock options | 173,299 | 368,273 | ||||||||||||
| Warrants | 1,076,802 | 1,490,298 | ||||||||||||
| Restricted stock awards | 5,876 | — | ||||||||||||
| Weighted average shares of common stock outstanding – diluted | 37,296,913 | 37,896,837 | ||||||||||||
Series B Preferred Stock
On March 30, 2016, the Company entered into an additional Securities Purchase Agreement (the “2016 SPA”) with NMM pursuantAccountable Health Care, and to which the Company sold to NMM,creditors of APC, including Alpha Care and NMM purchased from the Company, in a private offering of securities, 555,555 units, each unit consisting of one share of the Company’s Series B Preferred Stock and a stock purchase warrant (the “Series B Warrant”) to purchase one share of Common Stock at an exercise price of $10.00 per share. NMM paid the Company an aggregate $4,999,995 for the units. The Series B Preferred Stock has a liquidation preference in the amount of $9.00 per share plus any declared and unpaid dividends. The Series B can be voted for the number of shares of Common Stock into which the Series B Preferred Stock could then be converted, which initially is one-for-one. The Series B Preferred Stock is convertible into Common Stock, (i) at the option of NMM or (ii) mandatorily at any time prior to and including March 30, 2021, if the Company receives aggregate gross proceeds of not less than $5,000,000 in one or more transactions for the sale of the Company’s equity or convertible securities (other than transactions with NMM), at an initial conversion rate of one-for-one, subject to adjustment in the event of stock dividends, stock splits and certain other similar transactions. The Company has not received at least $5,000,000 in one or more transactions for the sale of its equity or convertible securities to parties other than NMM. The Series B Warrant may be exercised at any time after issuance and through March 30, 2021, for $10.00 per share, subject to adjustment in the event of stock dividends and stock splits. The Series B Warrant is not separately transferable from the Series B Preferred Stock. See Note 2 for information on the fair value of the Series B Warrant.
Common Stock Issuance
During the three months ended September 30, 2017, the Company received warrant exercise notices and proceeds with respect to 19,000 shares of Common Stock. The number of shares of Common Stock that are issued and outstanding as of September 30 and March 31, 2017 is 6,052,518 and 6,033,518, respectively. Common Stock is currently quoted on OTC Pink and traded under the symbol “AMEH.” The Company has applied for listing of its common stock on the NASDAQ Global Market effective as of the closing of the Merger. No assurance can be given that ApolloMed can meet the listing requirements for the NASDAQ Global Market, including at the closing of the Merger, or that ApolloMed’s application will ever be approved.
Equity Incentive Plans
On December 15, 2015, the Company’s Board of Directors (the “Board”) approved the Company’s 2015 Equity Incentive Plan (the “2015 Plan”), pursuant to which 1,500,000 shares of Common Stock were reserved for issuance thereunder. In addition, shares that are subject to outstanding grants under the Company’s 2010 Equity Incentive Plan and 2013 Equity Incentive Plan but that ordinarily wouldAccountable Health Care, have been restored to such plans reserve due to award forfeitures and terminations will roll into and become available for awards under the 2015 Plan. The 2015 Plan provides for awards, including incentive stock options, non-qualified options, restricted common stock, and stock appreciation rights. The 2015 Plan was approved by the Company’s stockholders at the 2016 Annual Meeting of Stockholders that was held on September 14, 2016. As of September 30, 2017, there were approximately 941,000 shares available for future grants under the 2015 Plan. As of September 30, 2017, there were no shares available for future grants under the 2010 and 2013 Equity Incentive Plans. In May 2017, the Company filed an application with the California Department of Business Oversight (“DBO”), seeking qualification of securities issued under its 2010 and 2015 Equity Incentive Plans under California securities laws. On November 1, 2017, the DBO approved the Company’s qualification application, which qualification will continue to be effective until November 1, 2018.
Options
On April 6, 2017, the Company granted stock options to employees and a director to purchase up to 80,000 shares of Common Stock. Two of the options expire on the 5th anniversary date from date of grant and have an exercise price of $10.18 per share. The remaining options expire on the 10th anniversary date from date of grant and have an exercise price of $9.25 per share. The fair value of the stock option of $572,000 was computed using the Black-Scholes option pricing model, using the following assumptions: expected term – 3-6 years; stock price $9.25 per share; volatility – 109.95% - 134.83%; risk-free interest rate – 1.53% - 2.09%; and zero annual rate of quarterly dividend. All of these stock options vest over a period of 24 months from date of grant.
Stock option activity for the six months ended September 30, 2017 is summarized below:
| Shares | Weighted Average Per Share Exercise Price | Weighted Average Remaining Life (Years) | Weighted Average Per Share Intrinsic Value | |||||||||||||
| Balance, March 31, 2017 | 1,165,350 | $ | 4.24 | 6.64 | $ | 4.86 | ||||||||||
| Granted | 80,000 | 9.71 | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Cancelled/expired | (33,000 | ) | 9.62 | - | - | |||||||||||
| Balance, September 30, 2017 | 1,212,350 | $ | 4.42 | 6.36 | $ | 5.35 | ||||||||||
| Vested, September 30, 2017 | 1,040,840 | $ | 4.04 | 5.92 | $ | 5.74 | ||||||||||
As of September 30, 2017, total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Company’s three Equity Incentive Plans was approximately $616,000 and the weighted-average period of years expected to recognize those costs was 1.6 years, which included stock options granted to our executive officers in April 2017 that have subsequently been deemed void and are currently planned to be cancelled without payment by the Company. Until the options are formally cancelled, the Company will continue to accrue compensation cost. The compensation cost with respect to the April 2017 stock options for the six months ended September 30, 2017 was approximately $143,000. None of such stock options have been exercised.
Stock-based compensation expense related to common stock option awards is recognized over their respective vesting periods and was included in the accompanying condensed consolidated statement of operations as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Stock-based compensation expense: | ||||||||||||||||
| Cost of services | $ | - | $ | 1,227 | $ | - | $ | 2,454 | ||||||||
| General and administrative | 195,244 | 244,814 | 418,810 | 491,304 | ||||||||||||
| $ | 195,244 | $ | 246,041 | $ | 418,810 | $ | 493,758 | |||||||||
Warrants
Warrants consisted of the following for the six months ended September 30, 2017:
| Weighted Average Per Share | ||||||||
| Intrinsic | Number of | |||||||
| Value | Warrants | |||||||
| Outstanding at March 31, 2017 | $ | 4.68 | 1,970,166 | |||||
| Granted | - | - | ||||||
| Exercised | 5.09 | (19,000 | ) | |||||
| Cancelled | - | - | ||||||
| Outstanding at September 30, 2017 | $ | 1.34 | 1,951,166 | |||||
| Weighted | Weighted | |||||||||||||||||
| Average | Average | |||||||||||||||||
| Exercise Price Per | Warrants | Remaining | Warrants | Exercise Price Per | ||||||||||||||
| Share | Outstanding | Contractual Life | Exercisable | Share | ||||||||||||||
| $4.00-$5.00 | 169,500 | [1] | 0.39 | 169,500 | 4.46 | |||||||||||||
| $9.00-$10.00 | 1,781,666 | [2] | 3.04 | 1,781,666 | 9.37 | |||||||||||||
| $4.00-$10.00 | 1,951,166 | 2.81 | 1,951,166 | $ | 8.94 | |||||||||||||
[1]Such warrants outstanding as of September 30, 2017 comprise warrants issued in October 2009 in connection with the Company’s 10% Senior Subordinated Callable Convertible Notes and warrants issued in January 2013 in connection with the Company’s 9% Senior Subordinated Callable Convertible Promissory Notes. The 2009 warrants have expired as of the date of this Quarterly Report on Form 10-Q. The 2013 warrants may be exercised at an exercise price of $4.50 per share at any time until the end of January 2018. In addition, in November, 2016, in connection with the acquisition of BAHA, the Company issued to Scott Enderby, D.O., a warrant to purchase 24,000 shares of Common Stock at an exercise price of $4.50 per share.
[2]In July 2014, in connection with the acquisition of SCHC, the Company issued to Stanley Lau, M.D., and Yih Jen Kok, M.D., warrants to purchase up to 100,000 shares of Common Stock (on a post stock-split basis) at an exercise price of $10.00 per share exercisable until July 21, 2018. In February 2015, in consideration of services renderedrecourse to the Company, nor do creditors of the Company issued to RedChip Companies, Inc.have recourse against the assets of APC, including Alpha Care and Accountable Health Care. These assets and liabilities, with the exception of the investment in a warrant to purchase up to 10,000 shares of Common Stock (on a post stock-split basis) at an exercise price of $9.00 per share exercisable until February 20, 2018. In connection with NMM’s investments in the Company, in October, 2015 and March 2016, respectively, the Company issued to NMM a stock purchase warrant (the “Series A Warrant”) to purchase up to 1,111,111 shares of Common Stock at an exercise price of $9.00privately held entity that does not report net asset value per share and a stock purchase warrant (the “Series B Warrant”)amounts due to purchase up to 555,555 shares of Common Stock at an exercise price of $10.00 per share. In November, 2016, in connection with a promissory note issued to Liviu Chindris, M.D., which the Company has repaid in full, the Company issued to Dr. Chindris a warrant to purchase up to 5,000 shares of Common Stock at an exercise price of $9.00 per share.
During the second quarter of fiscal year 2018, the Company received notices for, and proceeds of approximately $85,000 from, the exercise of warrants to purchase to 19,000 shares of Common Stock. In addition, during September 2017, the Company received notices for the exercise of warrants to purchase 21,000 shares of Common Stock for approximately $94,500. The Company, however, had not received proceeds from such exercise, and as a result, the related shares were not recorded as issued and outstanding.
Authorized Stock
As of September 30, 2017, the Company was authorized to issue up to 100,000,000 shares of Common Stock and 5,000,000 shares of its preferred stock.
The number of shares of Series A Preferred Stock and Series B Preferred Stock that are issued and outstanding as of September 30, 2017 is 1,111,111 and 555,555, respectively. The number of shares of Common Stock that are issued and outstanding as of September 30, 2017 is 6,052,518.
The Company is required to reserve and keep available out of the authorized but unissued shares of Common Stock such number of shares sufficient to affect the conversion of all outstanding preferred stock, the exercise of all outstanding warrants exercisable into shares of Common Stock, the conversion of all outstanding notes and accrued interest into shares of Common Stock, and shares granted and available for grant as stock options under the Company’s Equity Incentive Plans. The number of shares of Common Stock reserved for these purposes is as follows as of September 30, 2017:
23
Standby Letters of Credit and Lines of Credit
In January 2013, City National Bank (“CNB”) provided to MMG an irrevocable standby letter of credit for $10,000, which was increased to $500,000 in November, 2014. Such letter of credit renews automatically every 5 months. In December 2016, CNB provided to MMG another irrevocable standby letter of credit for $235,000, which expires December 31, 2017. In March 2017, APAACO established an irrevocable standby letter of credit with a financial institution for $6,699,329 for the benefit of CMS, which expires on December 31, 2018 and will be automatically extended without amendment for additional one-year periods, unless terminated by the institution prior to 90 days from the expiration date. The standby letters of credit are typically collateralized by cash deposits,affiliates, which are included in restricted cash in the amount of $745,176 and $765,058 on the consolidated balance sheets as of September 30, 2017 and March 31, 2017, respectively.
BAHA has a line of credit of $150,000 with First Republic Bank. Borrowings thereunder bear interest at the prime rate (as defined) plus 3.0% (7.25% and 7.0% per annum at September 30, 2017 and March 31, 2017, respectively). The Company has an outstanding balanceof $25,000 and $62,500 as of September 30, 2017 and March 31, 2017, respectively. The line of credit is unsecured.
Restated NMM Note (Related Party)
In connection with the proposed Merger, on January 3, 2017, the Company issued a promissory note to NMM in the amount of $5,000,000 (the “NMM Note”). Interest was due quarterly at the rate of prime plus 1% (or 5.25% at September 30, 2017), with the entire principal balance being due on January 3, 2019. In the event of default, as defined, all unpaid principal and interest will become due and payable.
In connection with the Merger Agreement Amendment No. 2 (see Note 1 “Overview” above and Note 10 “Subsequent Events” below), on October 17, 2017, the original NMM Note was amended and restated (the “Restated NMM Note”) to include, among others, (i) an additional $4,000,000 to be used for working capital, (ii) an extension of the maturity date to the earlier of (A) March 31, 2019 or (B) 12 months after the date the Merger Agreement is terminated (the “Restated NMM Note Maturity Date”), (iii) the increase in the principal amount of the Restated NMM Note to $13,990,000 if the Company fails to pay the Amended Alliance Note (see “Amended Alliance Note” below), in which case NMM will either pay all amounts owed under the Amended Alliance Note or enter into another agreement with Alliance (such that in either case the Amended Alliance Note is cancelled), and (iv) a conversion feature allowing the Restated NMM Note to be converted into shares of Common Stock at $10.00 per share (subject to adjustment for stock splits, dividends, recapitalizations and the like) with such conversion, if exercised in accordance with the terms of the Restated NMM Note, becoming effective on the maturity date.
Under the terms of the Restated NMM Note, the Company must pay NMM successive quarterly installments comprising all accrued and unpaid interest on the principal balance outstanding at the prime rate (as such term is defined in the Restated NMM Note) plus 1%. All outstanding principal and accrued but unpaid interest under the Restated NMM Note is due and payable in full on the Restated NMM Note Maturity Date. The Company may voluntarily prepay the outstanding principal and interest in whole or in part without penalty or premium. Upon the occurrence of an event of default (as such term is defined in the Restated NMM Note), the unpaid principal amount of, and all accrued but unpaid interest on, the Restated NMM Note will become due and payable immediately at the option of NMM. In such event, NMM may, at its option, declare the entire unpaid balance of the Restated NMM Note, together with all accrued interest, applicable fees, and costs and charges, including costs of collection, if any, to be immediately due and payable in cash.
Interest expense associated with the outstanding notes payable amounted to $70,243 and $134,336 for the three and six months ended September 30, 2017, respectively. There was no interest on these notes for the three and six months ended September 30, 2016.
Amended Alliance Note
On March 30, 3017, the Company issued a 6% convertible promissory note to Alliance Apex, LLC (“Alliance”) in the principal amount of $4,990,000 (the “Alliance Note”). On October 16, 2017, the Company and Alliance amended the Alliance Note (the “Amended Alliance Note”) (see Note 10 “Subsequent Events” below). The Amended Alliance Note is due and payable to Alliance on (i) March 31, 2018, or (ii) the date on which the Merger Agreementeliminated upon consolidation with NMM, is terminated (see Note 1 above), whichever occurs first. Upon the closing of the proposed Merger on or before March 31, 2018, the Amended Alliance Note together with the accrued and unpaid interest, shall automatically be converted into 499,000 shares of Common Stock, at a conversion price of $10.00 per share, subject to adjustment for stock splits, stock dividends, reclassifications and other similar recapitalization transactions. If the Merger is not consummated by March 31, 2018, the Company will be obligated to repay the outstanding principal, together with accrued and unpaid interest, on the Amended Alliance Note within 45 days, which would require a significant amount of cash on hand or the need to raise capital to pay off or refinance the Amended Alliance Note. There can be no assurance that is such event arose, the Company would have sufficient cash on hand to repay the Amended Alliance Note or could raise capital on favorable terms, or at all, to repay the Amended Alliance Note.
In the case of an event of default (as defined in the Alliance Note), the entire outstanding principal and all accrued and unpaid interest under the Alliance Note shall automatically become immediately due and payable, without presentment, demand, protest or notice of any kind. If any other event of default occurs and is continuing, Alliance, by written notice to the Company, may declare the outstanding principal and interest under the Alliance Note to be immediately due and payable. After maturity (by acceleration or otherwise), the unpaid balance (both as to principal and unpaid pre-maturity interest) shall bear interest at a default rate equal to the lesser of (a) 3% over the rate of interest in effect immediately prior to maturity or (ii) the then maximum legal rate allowed under the laws of the State of California. Additionally, the Company shall pay all costs of collection incurred by Alliance, including reasonable attorney’s fees incurred in connection with the Alliance’s reasonable collection efforts. These terms equally apply to the Amended Alliance Note.
As part of the Merger Agreement Amendments No. 1 and No. 2 (see Note 1 “Overview” above), NMM provided a guarantee for the Alliance Note and Amended Alliance Note, which guarantee was considered a debt issuance cost. The Company estimated the debt issuance cost and related warrants issuable for the debt guarantee of $161,000 based on the incremental fair value to a market participant of a similar but unsecured debt instrument without such guarantee using a market rate for an unsecured high yield note of 12.4% and a 25% probability of the note not being converted. As of September 30, 2017 and March 31, 2017, the debt issuance cost associated with the guarantee was approximately $54,000 and $161,000, respectively, and after being offset against the Alliance Note, resulted in a net balance of approximately $4,936,000 and $4,829,000, respectively.
Standby Letters of Credit, Lines of Credit and Outstanding Notes
See Note 7 - “Debt - Standby Letters of Credit and Lines of Credit” above.
Lease Commitments
The Company’s lease for its current corporate headquarters, as amended, sets base rent at $37,913 per month for the first year and schedules annual increases in base rent each year until the final rental year, which is capped at $43,957 per month. The base rent may be abated by up to $228,049 subject to other terms of the lease. As of September 30, 2017, deferred rent liability associated with such leases was approximately $648,000.
Employment Agreements
In December 2016, AMM entered into employment agreements with Warren Hosseinion, M.D., Adrian Vazquez, M.D., Gary Augusta and Mihir Shah, which replaced such officers’ previous employment agreements and revised certain term, bonus and severance arrangements. Such agreements, as amended as of the date of this Report, provide annual base salaries in the aggregate amount of $1,550,000 for such officers. Each of the new employment agreements has an initial term of three years with automatic annual renewals and provide 20 business days of paid time off per calendar year. Accrued and unused paid time off shall be paid in cash at the end of each calendar year. Under the new employment agreements, each officer is eligible to receive an annual bonus and is granted certain vesting rights and accrued benefits (as such term is defined therein) if his employment is terminated without “cause” (as such term is defined therein) or if he resigns with “good reason” (as such term is defined therein) during the employment term.
Regulatory Matters
The healthcare industry and Medicare and Medicaid programs are subject to numerous laws and regulations of federal, state and local governments, including the Health Insurance Portability and Accountability Act, the Health Information Technology for Economic and Clinical Health Act and the Patient Protection and Affordable Care Act, which are generally are complex and subject to interpretation. These laws and regulations govern matters such as licensure, accreditation, security and privacy of health information, health insurance portability, health insurance exchanges, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has continued with respect to investigations and allegations concerning possible violations of such laws and regulations by healthcare providers. Compliance with such laws and regulations can be subject to government review and interpretation. Violations of these laws and regulations may result in significant adverse regulatory actions, including fines, penalties, exclusion from government healthcare programs, repayments for patient services previously billed as well as those unknown or unasserted at this time.
As a risk-bearing organization (“RBO”), the Company is required to follow regulations of the California Department of Managed Health Care (“DMHC”). The Company and its applicable affiliates must comply with a minimum working capital requirement, Tangible Net Equity (“TNE”) requirement, cash-to-claims ratio and claims payment requirements prescribed by the DMHC. TNE is defined as net assets less intangibles, less non-allowable assets (which include amounts due from affiliates), plus subordinated obligations. The DMHC determined that, as of February 28, 2016, MMG, was not in compliance with the DMHC’s positive TNE requirement for a RBO. As a result, the DMHC required MMG to develop and implement a corrective action plan (“CAP”) for such deficiency. MMG’s CAP has been submitted and was approved by DMHC in December 2016. Through a $2,000,000 intercompany revolving subordinate loan from AMM dated November 22, 2016, where AMM agreed to subordinate to other creditors its right in and to the repayment of the revolving loan, MMG achieved positive TNE in the third quarter of fiscal year 2017 and has maintained positive TNE to date. The DMHC is in the process of reviewing the Company’s filings for MMG to be taken off the CAP. As of the date of this Quarterly Report on Form 10-Q, the DMHC staff has indicated to the Company that it has no objections to the closing of the CAP. On August 31, 2017, AMM and MMG entered into an amendment to the intercompany revolving loan, increasing the revolving loan commitment from $2,000,000 to $3,000,000.
In addition, the Company has from time to time issued securities to investors to raise capital and as compensation to directors, employees and consultants to attract and retain talent. As a result, the Company is subject to federal and state securities laws. Non-compliance with such laws, such as its failing to file information statements for two corporate actions taken by its majority stockholders in written consents in 2012 and 2013, could cause federal or state agencies to take action against the Company, including restricting its ability to issue securities or imposing fines or penalties on it.
Legal Actions and Proceedings
In the ordinary course of the Company’s business, the Company from time to time becomes involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by the Company’s affiliated hospitalists. The Company may also become subject to other lawsuits which could involve significant claims and/or significant defense costs. See “Potential Third-Party Claims” below. Many of the Company’s payer and provider contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of medical services, which may not come to light until a substantial period of time has passed following contract implementation. Liabilities for claims are recorded when the loss is probable and can be estimated. Any adjustments to reserves are reflected in current operations. As of the date of this Quarterly Report on Form 10-Q, the Company is not a party to any legal proceedings, which the Company expects individually or in the aggregate to have a material adverse effect on the Company’s financial condition, cash flows or results of operations. Nonetheless, the resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows or results of operations.
Potential Third-Party Claims
Monteverde & Associates PC, a plaintiffs’ securities law firm, has announced that it is investigating the Company and its board of directors for potential federal law violations and/or breaches of fiduciary duties in connection the Merger. This investigation purportedly focuses on whether the Company and/or its board of directors violated federal securities laws and/or breached their fiduciary duties to the Company’s stockholders by failing to properly value the Merger and failing to disclose all material information in connection with the Merger. While the Company believes that its board of directors and management have faithfully upheld their fiduciary duties in negotiating and executing the Merger for the combined interest of all of the Company’s stockholders, the Company cannot preclude the possibility that this investigation may lead to legal actions and proceedings against the Company.
Liability Insurance
Although the Company currently maintains liability insurance policies on a claims-made basis, which are mainly intended to cover malpractice liability and certain other claims, the coverage must be renewed annually, and may not continue to be available to the Company in future years at acceptable costs, and on favorable terms. In addition, the Company cannot be certain that the Company’s current insurance coverage will be adequate to cover liabilities arising out of claims asserted against the Company, the Company’s affiliated professional organizations or the Company’s affiliated hospitalists in the future where the outcomes of such claims are unfavorable. Liabilities in excess of the Company’s insurance coverage may have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.
Dr. Thomas Lam, one of the Company’s directors is a significant shareholder and the Chief Executive Officer of NMM. See Note 1 for information on the proposed Merger and NMM’s investments in and loan to the Company.
Mark Fawcett, one of the Company’s directors, was nominated by NNA as its representative on the Board. See Note 10 for information in relation to NNA’s registration rights granted by the Company.
In September 2015, the Company entered into a note receivable with Rob Mikitarian, a minority owner in APS, in the amount of approximately $150,000. The note accrues interest at 3% per annum and is due on or before September 2017. At both September 30, 2017 and March 31, 2017, the balance of the note was approximately $150,000 and is included in other receivables in the accompanying consolidated balance sheets.
In September 2015, the Company entered into a note receivable with Liviu Chindris, M.D., a minority owner in APS, in the amountsheets (in thousands).
| June 30, 2020 | December 31, 2019 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 113,790 | $ | 87,110 | |||||||
| Restricted cash | — | 75 | |||||||||
| Investment in marketable securities | 117,611 | 123,948 | |||||||||
| Receivables, net | 15,687 | 9,300 | |||||||||
| Receivables, net – related party | 55,889 | 42,976 | |||||||||
| Other receivables | 734 | 744 | |||||||||
| Prepaid expenses and other current assets | 7,752 | 7,403 | |||||||||
| Loan receivable | 6,425 | 6,425 | |||||||||
| Loan receivable – related parties | — | 16,500 | |||||||||
| Total current assets | 317,888 | 294,481 | |||||||||
| Noncurrent assets | |||||||||||
| Land, property and equipment, net | 9,085 | 9,547 | |||||||||
| Intangible assets, net | 75,177 | 81,439 | |||||||||
| Goodwill | 109,460 | 108,913 | |||||||||
| Investment in affiliates | 285,569 | 318,315 | |||||||||
| Investment in privately held entities | 36,584 | 1,615 | |||||||||
| Investments in other entities – equity method | 26,864 | 28,427 | |||||||||
| Restricted cash | 746 | 746 | |||||||||
| Operating lease right-of-use assets | 7,017 | 4,751 | |||||||||
| Other assets | 20,750 | 1,057 | |||||||||
| Total noncurrent assets | 571,252 | 554,810 | |||||||||
| Total assets | $ | 889,140 | $ | 849,291 | |||||||
| Current liabilities | |||||||||||
| Accounts payable and accrued expenses | $ | 11,822 | $ | 11,187 | |||||||
| Fiduciary accounts payable | 1,853 | 2,027 | |||||||||
| Medical liabilities | 47,304 | 49,019 | |||||||||
| Income taxes payable | 42,211 | 4,530 | |||||||||
| Amount due to affiliate | 21,533 | 28,058 | |||||||||
| Dividends payable | 431 | 271 | |||||||||
| Finance lease liabilities | 102 | 102 | |||||||||
| Operating lease liabilities | 1,319 | 1,088 | |||||||||
| Total current liabilities | 126,575 | 96,282 | |||||||||
| Noncurrent liabilities | |||||||||||
| Deferred tax liability | 9,490 | 14,059 | |||||||||
| Finance lease liabilities, net of current portion | 355 | 416 | |||||||||
| Operating lease liabilities, net of current portion | 5,833 | 3,742 | |||||||||
| Total noncurrent liabilities | 15,678 | 18,217 | |||||||||
| Total liabilities | $ | 142,253 | $ | 114,499 | |||||||
During the three and six months ended September 30, 2017, the Company billed NMM approximately $0 and $400,000, respectively, for its 50% share of the costs related to APAACO’s participation in the NGACO Model that the Company had incurred on behalf of APAACO.
In the ordinary courseassets of the Company’s business,other consolidated VIEs were not considered significant.
| Three Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Operating lease cost | $ | 1,446 | $ | 1,240 | |||||||||||||
| Finance lease cost | |||||||||||||||||
| Amortization of lease expense | $ | 35 | $ | 25 | |||||||||||||
| Interest on lease liabilities | 4 | 4 | |||||||||||||||
| Sublease income | $ | (226) | $ | (106) | |||||||||||||
| Total finance lease cost, net | $ | 1,259 | $ | 1,163 | |||||||||||||
| Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Operating lease cost | $ | 3,388 | $ | 2,343 | |||||||||||||
| Finance lease cost | |||||||||||||||||
| Amortization of lease expense | $ | 61 | $ | 50 | |||||||||||||
| Interest on lease liabilities | 7 | 9 | |||||||||||||||
| Sublease income | $ | (360) | $ | (206) | |||||||||||||
| Total finance lease cost, net | $ | 3,096 | $ | 2,196 | |||||||||||||
| Three Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Supplemental Cash Flows Information | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 1,333 | $ | 1,239 | |||||||||||||
| Operating cash flows from finance leases | 4 | 4 | |||||||||||||||
| Financing cash flows from finance leases | 35 | 25 | |||||||||||||||
| Right-of-use assets obtained in exchange for lease liabilities: | |||||||||||||||||
| Operating leases | 2,907 | 6,441 | |||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Supplemental Cash Flows Information | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 2,880 | $ | 2,273 | |||||||||||||
| Operating cash flows from finance leases | 7 | 9 | |||||||||||||||
| Financing cash flows from finance leases | 61 | 50 | |||||||||||||||
| Right-of-use assets obtained in exchange for lease liabilities: | |||||||||||||||||
| Operating leases | 7,652 | 15,417 | |||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Weighted Average Remaining Lease Term | |||||||||||||||||
| Operating leases | 7.06 years | 6.87 years | |||||||||||||||
| Finance leases | 4.17 years | 5.00 years | |||||||||||||||
| Weighted Average Discount Rate | |||||||||||||||||
| Operating leases | 6.10 | % | 6.18 | % | |||||||||||||
| Finance leases | 3.00 | % | 3.00 | % | |||||||||||||
In addition, affiliates wholly-owned by the Company’s officers, including Dr. Hosseinion, are reported in the accompanying condensed consolidated statementnon-cancellable leases as of operations on a consolidated basis, together with the Company’s subsidiaries, and therefore,June 30, 2020 is as follows (in thousands):
| June 30, 2020 | Operating Leases | Finance Leases | |||||||||
| 2020 (excluding the six months ended June 30, 2020) | $ | 2,337 | $ | 59 | |||||||
| 2021 | 4,297 | 119 | |||||||||
| 2022 | 3,529 | 119 | |||||||||
| 2023 | 3,303 | 119 | |||||||||
| 2024 | 2,940 | 79 | |||||||||
| Thereafter | 9,459 | — | |||||||||
| Total future minimum lease payments | 25,865 | 495 | |||||||||
| Less: imputed interest | 5,097 | 38 | |||||||||
| Total lease liabilities | 20,768 | 457 | |||||||||
| Less: current portion | 3,350 | 102 | |||||||||
| Long-term lease liabilities | $ | 17,418 | $ | 355 | |||||||
Amendment No.2 to the Merger Agreement, NMM Note Restatement and Alliance Note Amendment
On October 17, 2017, NMM and the Company entered into an second amendment (the “Merger Agreement Amendment No. 2”) to the Merger Agreement to include, in addition to such number of shares of Common Stockfinance leases that represents 82% of the total issued and outstanding shares of Common Stock immediately following the consummation of the Merger and warrants to purchase 850,000 shares of Common Stock at an exercise price of $11 per share, the following as NMM shareholders’ merger consideration payable at the closing of the Merger: an aggregate of 2,566,666 common shares and five-year warrants to purchase an aggregate of 900,000 shares of Common Stock exercisable at $10.00 per share, Pursuant to the Merger Agreement Amendment No. 2, NMM also agreed to provide an additional $4,000,000 capital loan to the Company as evidenced by a convertible promissory note in the principal amount of $9,000,000 (the “Restated NMM Note”), which replaces the NMM Note in the principal amount of $5,000,000 (see Note 7 “Debt - Restated NMM Note” above). The Merger Agreement Amendment No. 2 also extended the “End Date” (as defined in the Merger Agreement) from August 31, 2017 to March 31, 2018.
On October 17, 2017, concurrent with the execution of the Merger Agreement Amendment No. 2, the Company issued to NMM the Restated NMM Note to amend, restate and replace the NMM Note, and the entire outstanding principal balance of the NMM Note, all accrued and unpaid interest thereon, and all other applicable fees, costs and charges, if any, shall be rolled into and become payable pursuant to the Restated NMM Note. The Restated NMM Note also extended the maturity date to the earlier of (A) March 31, 2019 or (B) 12 months after the date the Merger Agreement is terminated. Within 10 business days prior to maturity, NMM shall have the right (but not the obligation) in its sole discretion to convert the Restated NMM Note into shares of Common Stock at a conversion price of $10.00 per share (subject to adjustment for stock splits, dividends, recapitalizations and the like). In addition, pursuant to its terms, the principal amount of the Restated NMM Note shall be increased to $13,990,000 if the Company fails to pay the Amended Alliance Note described below, and NMM will either pay all amounts owed under the Amended Alliance Note or enter into another agreement with Alliance (such that in either case the Amended Alliance Note is cancelled). See Note 7 “Debt - Restated NMM Note” above for additional information.
On October 16, 2017, the Company and Alliance Apex, LLC (“Alliance”) amended the Alliance Note to extend the maturity date such that the entire outstanding principal and all accrued and unpaid interest thereon, is due and payable on the earlier of (i) March 31, 2018 or (ii) the date on which the Merger Agreement is terminated, whichever occurs first (the “Alliance Maturity Date”). If the Merger has not been consummated on or before the Alliance Maturity Date, then the outstanding principal balance and interest will be due 45 days after the Alliance Maturity Date. On the business day following closing of the Merger on or before the Alliance Maturity Date, the principal amount of the amended Alliance Note, together with all accrued and unpaid interest thereon, will automatically be converted into shares of Common Stock, at a conversion price of $10.00 per share, subject to adjustment for stock splits, stock dividends, reclassifications and other similar recapitalization transactions. See Note 7 “Debt - Amended Alliance Note” above for addition information. Pursuant to the Restated NMM Note, the principal amount of the Restated NMM Note shall be increased to $13,990,000 if the Company fails to pay the Amended Alliance Note, and NMM will either pay all amounts owed under the Amended Alliance Note or enter into another agreement with Alliance (such that in either case the Amended Alliance Note is cancelled).
Effectiveness of Amended S-4 Registration Statement
On August 11, 2017, NMM and ApolloMed filed a registration statement on Form S-4 with the SEC in connection with the proposed Merger. On October 30, 2017 and November 9, 2017, respectively, NMM and ApolloMed filed an Amendment No. 1 on Form S-4/A and two additional amendments, Amendment No. 2 and Amendment No. 3 on Forms S-4/A, to the August 11, 2017 registration statement. On November 13, 2017, the SEC staff declared the registration statement as amended to be effective.
Our physician network consists of To implement a patient-centered, physician-centric experience, we also have other integrated and synergistic operations, including (i) MSOs that provide management and other services to our affiliated IPAs, (ii) outpatient clinics and (iii) hospitalists that coordinate the care of patients in hospitals. affiliated physician groups. These services include providing utilization and case management, physician practice billing, revenue cycle services, physician practice management, administrative oversight, coding services, and other consulting services. 2019. Administrative Expenses December 31, 2018. The September 11, 2019. December 31, 2019, there was no availability under this line of credit. condensed consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements” of this Report.Quarterly Report on Form 10-Q. In addition, reference is made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our most recent Annual Report on Form 10-K for the year ended MarchDecember 31, 2017,2019, filed with the SecuritiesSEC on March 16, 2020.Exchange Commission on June 29, 2017.In this Report, unless otherwise expressly stated or the context otherwise requires, the “Company,” “ApolloMed,” “we,” “us,” “our” and similar words refer to Apollo Medical Holdings, Inc., a Delaware corporation, its consolidated subsidiaries and its affiliates. Our affiliated professional organizations are separate legal entities, that provide physician services and with which we have management service agreements. For financial reporting purposes, we consolidate the revenues and expenses of all our practice groups that we own or manage because we have a controlling financial interest in these practices based on applicable accounting rules and as described in our accompanying consolidated financial statements. References to “practices” or “practice groups” refer to our subsidiary-management company and the affiliated professional organizations of Apollo that provide medical services, unless otherwise expressly stated or the context otherwise requires.27 The following management’s discussion and analysis contain forward-looking statements that reflect our plans, estimates, and beliefs as discussed in the “Forward-Looking Statements” at the beginning of this Report. Our actual results could differ materially from those plans, estimates, and beliefs. Factors that could cause or contribute to these differences include those discussed in this Report as well as the factors discussed in Part I, Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K for the year ended March 31, 2017.OverviewWe are a patient-centered, physician-centric integrated population health management company working to provideproviding coordinated, outcomes-based medical care in a cost-effective manner. Led by a management team with over a decade of experience, we have built a companymanner and culture that is focused on physicians providing high-quality medical care, population health management and care coordination for patients, particularly senior patients and patients with multiple chronic conditions. We believe that we are well-positioned to take advantage of changes in the rapidly evolving U.S. healthcare industry, as there is a growing national movement towards more results-oriented healthcare centered on the triple aim of patient satisfaction, high-quality care and cost efficiency. Our three core pillars are: our clinical expertise in managing patients with multiple chronic conditions, our experience in taking on financial risk for these patients, and our technology infrastructure.We implement and operate innovative health care models to create a patient-centered, physician-centric experience. We have the following integrated, synergistic operations:·Hospitalists, which includes our contracted physicians who focus on the delivery of comprehensive medical care to hospitalized patients;·An accountable care organization (“ACO”) participating in the Medicare Shared Savings Program (the “MSSP”), which focuses on providing high-quality and cost-efficient care to Medicare fee-for-service (“FFS”) patients;·A next generation accountable care organization (“NGACO”), which started operations on January 1, 2017, and focuses on providing high-quality and cost-efficient care for Medicare FFS patients;·An independent practice association (“IPA”), which contracts with physicians and provides care to Medicare, Medicaid, commercial and dual-eligible patients on a risk- and value-based fee basis;·One clinic which we own, and which provides specialty care in the greater Los Angeles area;·Hospice care, Palliative care, and home health services, which include our at-home and end-of-life services; and·A cloud-based population health management IT platform, which was acquired in January 2016, and includes digital care plans, a case management module, connectivity with multiple healthcare tracking devices and also integrates clinical data.We operate in one reportable segment, the healthcare delivery segment. Our revenue streams are diversified among our various operations and contract types, and include:·Traditional FFS reimbursement; and·Risk and value-based contracts with health plans, third party IPAs, hospitals and the NGACO and MSSP sponsored by CMS, which are the primary revenue sources for our hospitalists, ACOs, IPAs and hospice/palliative care operations.We serve Medicare, Medicaid, HMO and uninsuredserving patients in California. We provide services to patients,California, the majority of whom are covered by private or public insurance provided through Medicare, Medicaid and HMOs, with a small portion of our revenuerevenues coming from non-insured patients. We provide care coordination services to each major constituent of the healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician groups and health plans.Our mission is to transform the delivery of healthcare services in the communities we serve by implementing innovative population health models and creating a patient-centered, physician-centric experience in a high-performance environment of integrated care.The initial business owned by us was ApolloMed Hospitalists (“AMH”), a hospitalist company, incorporated in California in June, 2001, which began operations at Glendale Memorial Hospital. Through a reverse merger, we became a publicly held company in June 2008.We were initially organized around the admission and care of patients at inpatient facilities such as hospitals. We have grown our inpatient strategy in a competitive market by providing high-quality care and innovative solutions for our hospital and managed care clients.We operate through our subsidiaries, including:·Apollo Palliative Care Services, LLC (“APS”);·Apollo Medical Management, Inc. (“AMM”)·Pulmonary Critical Care Management, Inc. (“PCCM”)·Verdugo Medical Management, Inc. (“VMM”); and·ApolloMed Accountable Care Organization, Inc. (“ApolloMed ACO”).We have a controlling interest in APS, which owns two Los Angeles-based companies, Best Choice Hospice Care LLC (“BCHC”) and Holistic Care Home Health Care Inc. (“HCHHA”). Our palliative care services focuses on providing relief from the symptoms and stress of a serious illness. The goal is to improve quality of life for both the patient and the patient’s family.AMM, PCCM and VMM each operates as a physician practice management company and is in the business of providing management services to physician practice corporations under long-term MSAs, pursuant to which AMM, PCCM or VMM, as applicable, manages certain non-medical services for the physician group and has exclusive authority over all non-medical decision making related to ongoing business operations. The MSAs that AMM, PCCM and VMM enter into with physician groups generally provide for management fees that are recognized as earned based on a percentage of revenues or cash collections generated by the physician practices.Through PCCM we managed Los Angeles Lung Center (“LALC”), and through VMM we managed Eli Hendel, M.D., Inc. (“Hendel”). On January 1, 2017 and March 24, 2017, PCCM and VMM amended the MSAs entered into with LALC and Hendel, respectively, and among other things, reduced the scope of services to be provided by PCCM and VMM to align with the actual course of dealing between the parties. Based on our evaluation of current accounting guidance, we determined that we no longer hold an explicit or implicit variable interest in these entities. We have consolidated the results of these entities through December 31, 2016.Through AMM, we manage a number of our affiliates pursuant to their long-term MSAs with AMM, including:·AMH, the initial business owned by us;·Maverick Medical Group, Inc. (“MMG”);·Southern California Heart Centers (“SCHC”); and·Bay Area Hospitalist Associates, a Medical Corporation (“BAHA”).In 2012, we formed an ACO, ApolloMed ACO, which participates in the MSSP to improve the quality of patient care and outcomes through more efficient and coordinated approach among providers, and an IPA, MMG. In 2013 we expanded our service offering to include integrated inpatient and outpatient services through MMG.In 2014, we added several complementary operations by acquiring an IPA, AKM Medical Group, Inc. (“AKM”), outpatient primary care and specialty clinics, as well as hospice/palliative care and home health entities. During fiscal year 2016, we combined the operations of AKM into those of MMG.In 2014, we acquired SCHC, a specialty clinic that focuses on cardiac care and diagnostic testing.In 2016, we acquired a controlling interest in BAHA. BAHA is a hospitalist, intensivist and post-acute care practice with a presence at three acute care hospitals, one long-term acute care hospital and several skilled nursing facilities in San Francisco.In 2016, we, together with NMM, formed APA ACO, Inc. (“APAACO”) to participate in the NGACO Model, for which we were approved by CMS in January 2017. The goal of the NGACO Model is to improve the quality of patient care and outcomes through more efficient and coordinated approach among providers.hospitalists, primary care physicians, and specialist physicians and hospitalists. We operate primarily through ApolloMed and the following subsidiaries: NMM, AMM, APAACO and Apollo Care Connect, and their consolidated entities.ownedNGACO model and affiliateda network of IPAs with more than 7,000 contracted physicians, which physician groups. On February 17, 2015, we entered into a long-term management services agreement (the “Bay Area MSA”) with a hospitalist group located in the San Francisco Bay Area. Under the Bay Area MSA, we provide certain business administrative services, including accounting, human resources management and supervision of non-medical business operations. We evaluated the Bay Area MSA andgroups have determined that it triggers variable interest entity accounting, which requires consolidating the hospitalist group into our consolidated financial statements. During fiscal year 2017, we entered into four management services agreements with various health plans, hospitals to provide staffing.In 2016, through Apollo Care Connect, we acquired certain technology and other assets of Healarium, Inc., which provides us with a population health management platform that includes digital care plans, a case management module, connectivity with multiple healthcare tracking devices and the ability to integrate with multiple electronic health records to capture clinical data.Our common stock (“Common Stock”) is currently quoted on OTC Pink and traded under the symbol “AMEH.” ApolloMed has applied for listing of its common stock on the NASDAQ Global Market effectiveHMOs, we are, as of the closing of the Merger. No assurance can be given that we can meet the listing requirements for the NASDAQ Global Market, including at the closing of the Merger, or that ApolloMed’s application will ever be approved.Recent DevelopmentsOperations and FinancingsFor the three-month period ended SeptemberJune 30, 2017, we achieved a 177% increase in revenue over the same period in the prior fiscal year. This increase of approximately $27.9 million in revenue primarily resulted from the new APAACO NGACO contract with CMS that went into effect in April 2017. We also accrued approximately $27.3 million in costs related to this contract with CMS. Notwithstanding that revenue growth, our net loss without taking into account any non-controlling interest increased by approximately 188% during the same period mostly attributable to the proposed merger related cost.In a continued effort to improve profitability, we terminated four hospitalist contracts during the six-month period ended September 30, 2017, ceased using locum tenens physicians starting in September 2017, and began several other operational efficiency initiatives.APAACO (Next Generation ACO)On January 18, 2017, CMS announced that APAACO, jointly owned by us and NMM, has been approved to participate in the new NGACO Model. Through the NGACO Model, CMS has partnered with APAACO and other ACOs experienced in coordinating care for populations of patients and whose provider groups are willing to assume higher levels of financial risk and reward under the NGACO Model. The NGACO program began on January 1, 2017. In connection with the approval by CMS for APAACO to participate in the NGACO Model, CMS and APAACO have entered into a NGACO Model Participation Agreement (the “Participation Agreement”). The term of the Participation Agreement is two performance years, from January 1, 2017 through December 31, 2018. CMS may offer to renew the Participation Agreement for an additional term of two performance years. Additionally, the Participation Agreement may be terminated sooner by CMS as specified therein.AMM, one of our wholly-owned subsidiaries, has a long-term management services agreement with APAACO. APAACO is a consolidating variable interest entity of AMM as it was determined that AMM is the primary beneficiary of APAACO.To participate in the NGACO Model, we have devoted, and intend to continue to devote, significant effort and resources, financial and otherwise, to the NGACO Model, and refocused away and pulled resources from certain other parts of our historic business and revenue streams, including the MSSP ACO, which will receive less emphasis in the future and could result in reduced revenue from such business. We2020, currently anticipate that the NGACO Model, if successful, will be a significant source of revenue for us in fiscal year 2018 and future periods, although no assurance of that can be given at this time. APAACO chose to participate in the All-Inclusive Population-Based Payment (“AIPBP”) payment mechanism of the NGACO Model. Under the AIPBP payment mechanism, CMS estimates the total annual Part A and Part B Medicare expenditures of APAACO’s assigned Medicare beneficiaries and pays that projected amount in per beneficiary per month payments. See Notes 1 and 2 to the accompanying condensed consolidated financial statements for additional information. APAACO’s future participation in the AIPBP payment mechanism, however, is uncertain. In October 2017, CMS notified APAACO that it has not been renewed for participation in the AIPBP payment mechanism of the NGACO Model for performance year 2018 due to certain alleged deficiencies in performance by APAACO. APAACO does not believe the allegations by CMS of performance deficiencies are valid or justify the CMS non-renewal determination and is in discussions with CMS regarding possible reversal of such determination. On November 9, 2017, APAACO submitted a request for reconsideration to CMS. If APAACO is not successful in convincing CMS to reverse its decision then the payment mechanism under the NGACO Model would default to traditional Fee For Service (“FFS”). This would result in the loss in monthly revenues and cash flow currently being generated by APAACO, currently at a rate of approximately $9.3 million per month, and would thus have a material adverse effect on ApolloMed’s future revenues and potential cash flow.Standby Letters of CreditOn March 3, 2017, APAACO established an irrevocable standby letter of credit with a financial institution for $6,699,329 for the benefit of CMS. The letter of credit expires on December 31, 2017 and deemed automatically extended without amendment for additional one - year periods from the present or any future expiration date, unless notified by the institution to terminate prior to 90 days from any expiration date.Proposed MergerOn December 21, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) among us, Apollo Acquisition Corp., a wholly-owned subsidiary of ours (“Merger Subsidiary”), NMM and Kenneth Sim, M.D., in his capacity as the representative of the shareholders of NMM, pursuant to which NMM will merge into Merger Subsidiary (the “Merger”) and upon consummation of the Merger, NMM shareholders will receive such number of shares of Common Stock such that, after giving effect to the Merger and assuming there would be no dissenting NMM shareholders at the closing, NMM shareholders will own 82% of the total issued and outstanding shares of Common Stock at the closing of the Merger and our current stockholders will own the other 18% (the “Exchange Ratio”). Additionally, NMM has agreed to relinquish its redemption rights relating to our Series A Preferred Stock that NMM owns.On March 30, 2017, NMM and ApolloMed, together with other relevant parties, entered into an Amendment to the Merger Agreement (the “Merger Agreement Amendment No. 1”) to exclude, for purposes of calculating the Exchange Ratio, from “parent shares” (as defined in the Merger Agreement) 499,000 shares of Common Stock issued or issuable pursuant to a securities purchase agreement dated as of March 30, 2017, between ApolloMed and Alliance Apex, LLC. As part the Merger Agreement Amendment No. 1, the merger consideration to be paid by the Company to NMM shareholders at the closing of the Merger was amended to include warrants to purchase 850,000 shares of Common Stock at an exercise price of $11 per share.On October 17, 2017, NMM and ApolloMed entered into a second Amendment to the Merger Agreement (the “Merger Agreement Amendment No. 2”), which extended the “End Date” as defined in the Merger Agreement from August 31, 2017 to March 31, 2018, and increased NMM shareholders’ merger consideration payable at the closing of the Merger to include an aggregate of 2,566,666 shares of Common Stock and warrants to purchase an aggregate of 900,000 shares of Common Stock exercisable at $10.00 per share, in addition to such number of shares of Common Stock that represents 82% of the total issued and outstanding shares of Common Stock immediately following the consummation of the Merger and warrants to purchase 850,000 shares of Common Stock at an exercise price of $11 per share. Pursuant to the Merger Agreement Amendment No. 2, NMM also agreed to provide an additional $4,000,000 working capital loan to the Company as evidenced by a promissory note in the principal amount of $9,000,000 (the “Restated NMM Note”), which is convertible into shares of Common Stock at a conversion price of $10.00 per share (subject to adjustment for stock splits, dividends, recapitalizations and the like) within 10 business days prior to maturity. The Restated NMM Note amended and restated the previous $5,000,000 promissory note issued by the Company to NMM on January 3, 2017. In addition, pursuant to its terms, the principal amount of the Restated NMM Note shall be increased to $13,990,000 if the Company fails to pay the Amended Alliance Note described below, and NMM will either pay all amounts owed under the Amended Alliance Note or enter into another agreement with Alliance (such that in either case the Amended Alliance Note is cancelled).On October 16, 2017, the Company and Alliance Apex, LLC (“Alliance”) amended the Alliance Note to extend the maturity date for the entire outstanding principal and all accrued and unpaid interest thereon to the earlier of (i) March 31, 2018 or (ii) the date on which the Merger Agreement is terminated, whichever occurs first (the “Alliance Maturity Date”). If the Merger has not been consummated by the Alliance Maturity Date, then the outstanding principal balance and interest will be due 45 days after the Alliance Maturity Date. Pursuant to the Restated NMM Note, the principal amount of the Restated NMM Note shall be increased to $13,990,000 if the Company fails to pay the Amended Alliance Note, and NMM will either pay all amounts owed under the Amended Alliance Note or enter into another agreement with Alliance (such that in either case the Amended Alliance Note is cancelled). On the business day following closing of the Merger on or before the Alliance Maturity Date, the principal amount of the amended Alliance Note, together with all accrued and unpaid interest thereon, will automatically be converted into shares of Common Stock, at a conversion price of $10.00 per share, subject to adjustment for stock splits, stock dividends, reclassifications and other similar recapitalization transactions. The amended Alliance Note may not be prepaid, in whole or in part, by ApolloMed nor converted into shares of Common Stock voluntarily by Alliance.NMM is one of the largest healthcare management services organizations in the United States, delivering comprehensive healthcare management services to a client base consisting of health plans, IPAs, hospitals, physicians and other health care networks. NMM currently is responsible for coordinating the care for over 600,000approximately 1.1 million patients in California as of June 30, 2020. These covered patients in Southernare comprised of managed care members whose health coverage is provided through their employers or who have acquired health coverage directly from a health plan or as a result of their eligibility for Medicaid or Medicare benefits. Our managed patients benefit from an integrated approach that places physicians at the center of patient care and Central California through a network of ten IPAs with over 2,000 contracted physicians. On a pro forma basis, the combined organization is expectedutilizes sophisticated risk management techniques and clinical protocols to provide medical management for over 700,000 patients through a network of over 3,000 healthcare professionals and over 400 employees. The combination of ApolloMed and NMM would bring together two complementary healthcare organizations to form one of the nation’s largest integrated population health management companies, which we believe will be well positioned for the ongoing transition of U.S. healthcare to value-based reimbursements. The Merger, if consummated, is expected to further expand our operating platform for providing high-quality, cost effective valued-based care.waiting period under the Hart-Scott-Rodino Antitrust Improvements Actform of 1976, as amended (“HSR”), with respect to the proposed Merger expired on July 7, 2017. The expirationbilling and related risk of the HSR waiting period satisfies a condition to the closingcollection for such services may vary by type of Merger. Based on current information and subject to future events and circumstances, consummation of the Merger, which remains subject to other conditions described in the Merger Agreement, including approval by ApolloMed’s stockholdersrevenue and the shareholderscustomer.NMM, is expected to take place in the second half of calendar year 2017.On August 11, 2017, NMMproviding management and ApolloMed filed a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”) in connection with the proposed Merger. On October 30, 2017 and November 9, 2017, respectively, NMM and ApolloMed filed an Amendment No. 1 on Form S-4/A and two additional amendments, Amendment No. 2 and Amendment No. 3 on Forms S-4/A, to the August 11, 2017 registration statement.On November 13, 2017, the SEC staff declared the Form S-4 registration statement as amended to be effective.We have applied for listing of Common Stock on the NASDAQ Global Market effective as of the closing of the Merger. In September 2017, The Nasdaq Stock Market LLC (“Nasdaq”) requested us to provide additional information in relation to such application. We responded to Nasdaq’s request on November 3, 2017. No assurance can be given that our application will be approved after such response.For all purposes of this report, unless expressly indicated otherwise, we have discussed our present and intended operations, opportunities and challenges without consideration of the Merger or the effect of the Merger, if and should it be consummated.The items above describe certain recent developments that are important to understanding our financial condition and results of operations. See the notesadministrative support services to our condensed consolidated financial statements included in this Report for additional information about these developments.For the Three Months Ended June 30, 2020 June 30, 2019 $ Change % Change Revenue Capitation, net $ 140,949 $ 103,224 $ 37,725 37 % Risk pool settlements and incentives 12,003 11,191 812 7 % Management fee income 8,690 10,353 (1,663) (16) % Fee-for-services, net 2,270 3,878 (1,608) (41) % Other income 1,257 1,404 (147) (10) % Total revenue 165,169 130,050 35,119 27 % Operating expenses Cost of services 136,079 101,363 34,716 34 % General and administrative expenses 11,556 11,818 (262) (2) % Depreciation and amortization 4,628 4,455 173 4 % Provision for doubtful accounts — (2,314) 2,314 (100) % Total expenses 152,263 115,322 36,941 32 % Income from operations 12,906 14,728 (1,822) (12) % Other income Income (loss) from equity method investments 834 (42) 876 * Gain on sale of equity method investments 99,647 — 99,647 100 % Interest expense (2,673) (311) (2,362) * Interest income 863 474 389 82 % Other income 1,282 24 1,258 * Total other income, net 99,953 145 99,808 * Income before provision for income taxes 112,859 14,873 97,986 * Provision for income taxes 31,858 4,209 27,649 * Net income $ 81,001 $ 10,664 $ 70,337 * Net income attributable to noncontrolling interests 73,957 7,119 66,838 * Net income attributable to ApolloMed $ 7,044 $ 3,545 $ 3,499 99 % For the Six Months Ended June 30, 2020 June 30, 2019 $ Change % Change Revenue Capitation, net $ 281,370 $ 174,740 $ 106,630 61 % Risk pool settlements and incentives 23,239 21,285 1,954 9 % Management fee income 17,505 19,349 (1,844) (10) % Fee-for-services, net 5,697 7,959 (2,262) (28) % Other income 2,463 2,473 (10) — % Total revenue 330,274 225,806 104,468 46 % Operating expenses Cost of services 280,283 184,795 95,488 52 % General and administrative expenses 23,390 22,081 1,309 6 % Depreciation and amortization 9,330 8,872 458 5 % Provision for doubtful accounts — (1,363) 1,363 (100) % Total expenses 313,003 214,385 98,618 46 % Income from operations 17,271 11,421 5,850 51 % Other income (expense) Income (loss) from equity method investments 2,888 (892) 3,780 * Gain on sale of equity method investments 99,647 — 99,647 100 % Interest expense (5,541) (522) (5,019) * Interest income 1,792 797 995 125 % Other income 1,384 211 1,173 * Total other income (expense), net 100,170 (406) 100,576 * Income before provision for income taxes 117,441 11,015 106,426 * Provision for income taxes 33,453 2,801 30,652 * Net income $ 83,988 $ 8,214 $ 75,774 * Net income attributable to noncontrolling interests 72,892 4,529 68,363 * Net income attributable to ApolloMed $ 11,096 $ 3,685 $ 7,411 201 % results of operationsincrease in net income attributable to ApolloMed for the three and six months ended SeptemberJune 30, 2017 reflected2020 was primarily driven by the completion of a significantseries of transactions with APC as further described in Note 1 to our financial impactstatements above, which resulted in preferred, cumulative dividends from our investments in population healthAPC being allocated to AP-AMH.infrastructureservices agreement we entered with an independent practice association, Community Family Care Medical Group IPA, Inc. ("CFC"), which contributed 0.1 million new members and value-based care processes for our patients.The following sets forth selected data from our resultsincreased membership at the other physician groups we manage.SeptemberJune 30, 20172020, was $165.2 million, as compared to $130.1 million for the three months ended June 30, 2019, an increase of $35.1 million, or 27%. The increase in revenue was primarily attributable to the following:$25.9$37.7 million or 177%,primarily due to our acquisitions of Alpha Care on May 31, 2019 and Accountable Health Care on August 30, 2019, which contributed additional revenue of approximately $20.7 million and $11.8 million, respectively, in addition to organic capitation revenue growth at APC of $2.5 million, for the three months ended June 30, 2020. Further, APA ACO generated additional capitation revenue of approximately $2.7 million for the three months ended June 30, 2020 as compared to the same period of 2016. The increase in net revenues was primarilyJune 30, 2019 due to an increasethe delayed start of approximately $27.92019 APA ACO performance year.in APAACO’s revenues resultingdue to the refinement of the assumptions used to estimate the amount of net surplus expected to be received from the new NGACO contract with CMS, pursuantaffiliated hospitals’ risk pools. Our estimated risk pool receivable is calculated based on reports received from our hospital partners and on management’s estimate of the Company’s portion of any estimated risk pool surpluses for which payments have not been received. The actual risk pool surpluses are settled approximately 18 months later.we started to receive capitation from CMS in April 2017, an increase of approximately $0.4reduced management fee income by $2.2 million in AMH’s revenues which resulted from hospitalist contracts that started in the second quarter of fiscal year 2017. These increases were partially offset by a decrease of $0.5 million in MMG’s revenues, which resulted from a deficit in the full risk contracts related to high patient care cost, a decrease of approximately $0.4 million in BAHA’s revenues related toand a decrease in patient encountersLMA's management fee of $1.0 million. This decrease was offset by management fee income of $1.7 million for the three months ended June 30, 2020 generated from the management services agreement we entered into with CFC, which became effective on January 1, 2020.terminationheart center as a result of a facility contract, a decrease ofthe COVID-19 outbreak.in SCHC’s revenuesas a result of decreased revenue related to decreased patient encounters, a decrease of $0.3 million in BCHC’s revenues due to decreased patient census, a decrease of $0.5 million in HCHHA’s revenues due to decreased patient census, as well as a decrease of $0.6 million in revenues of LALC and Hendel due to deconsolidation of the two variable interest entities (“VIEs”) from us during the fourth quarter of fiscal year 2017.Net revenuesmaternity supplemental payments.SeptemberJune 30, 20172020 was $330.3 million, as compared to $225.8 million for the six months ended June 30, 2019, an increase of $104.5 million, or 46%. The increase in revenue was primarily attributable to the following:$55.1$106.6 million or 204%, as compared to the same period of 2016. The increase in net revenues was primarily due to an increaseour acquisitions of Alpha Care on May 31, 2019 and Accountable Health Care on August 30, 2019, which contributed additional revenue of approximately $55.7$53.2 million and $24.3 million, respectively, in APAACO’s revenues resultingaddition to organic capitation revenue growth at APC of $4.5 million, for the six months ended June 30, 2020. Further, APA ACO generated additional capitation revenue of approximately $24.6 million for the six months ended June 30, 2020 as compared June 30, 2019 due to the delayed start of the 2019 APA ACO performance year.new NGACO contract with CMS, pursuantaffiliated hospitals’ risk pools. Our estimated risk pool receivable is calculated based on reports received from our hospital partners and on management’s estimate of the Company’s portion of any estimated risk pool surpluses for which payments have not been received. The actual risk pool surpluses are settled approximately 18 months later.we started to receive capitation from CMSreduced management fee income by $4.2 million and a reduction in April 2017, an increasehospitalist stipend of approximately $2.9$1.0 million. This decrease was offset by management fee income of $3.4 million in AMH’s revenues which resultedfor the six months ended June 30, 2020 generated from the new hospitalist contracts that started inmanagement services agreement we entered into with CFC, which became effective on January 1, 2020.second quarterCOVID-19 outbreak.fiscal year 2017. These increases were partially offset by a decrease of $0.8 million in MMG’s revenues, which resulted from a deficit in the full risk contractsServiceshigh patient care cost a decrease of $0.9 million in BCHC’s revenues due to decreased patient census, a decrease of $0.6 million in HCHHA’s revenues due to decreased patient census, as well as a decrease of $1.1 million in revenues of LALC and Hendel due to deconsolidation of the two variable interest entities (“VIEs”) from us during the fourth quarter of fiscal year 2017. The Company’s other entities accounted for an aggregate decrease of $0.1 million, none of which were individually significant.Cost of servicesCost of services for the three months ended SeptemberJune 30, 2017 increased by approximately 26.92020, were $136.1 million, or 221%, as compared to $101.4 million for the same period of 2016. The increase in cost of services was primarily related to2019, an increase of approximately $27.3$34.7 million, or 34%. The overall increase was due to a $32.8 million increase in APAACOmedical claims, capitation and other health services expenses, primarily driven by the acquisitions of Alpha Care, Accountable Health Care and AMG and a $1.9 million increase in payroll costs to support the continued growth of the business.the patient care, a decrease of approximately $0.4 million in AMH’s and BAHA’s expenses related to migration from the use of contracted providers to employed providers, and an increase of approximately $0.6 million in MMG’s expenses due to increased costs in patient care. These expenses were partially offset by a decrease of approximately $0.1 million and a decrease of $0.2 million in BCHC’s expenses and HCHHA’s expenses, respectively, both of which were due to reduction in patient census, as well as a decrease of approximately $0.1 million in each of LALC’s expenses and Hendel’s expenses, respectively, both of which were due to deconsolidation of the two VIEs from us during the fourth quarter of fiscal year 2017 and a decrease of $0.1 million in SCHC’s expenses.Costcost of services for the six months ended SeptemberJune 30, 2017 increased by approximately $57.02020, were $280.3 million, as compared to $184.8 million for the same period in 2019, an increase of $95.5 million, or 256%,52%. The overall increase was due to a $99.3 million increase in medical claims, capitation and other health services expenses, primarily driven by the acquisition of Alpha Care, Accountable Health Care and AMG, in addition to increased costs at APA ACO for the six month period ended June 30, 2020 as compared to the same period in 2019 due to the delayed start of 2016. Thethe 2019 APA ACO performance year and a $4.2 million increase in costpayroll costs to support the continued growth of services was primarily related to an increase of approximately $54.6 million in APAACO expenses related to the patient care, an increase of approximately $2.2 million in AMH’s expenses related to the new hospitalist contracts that increased AMH’s revenues, an increase of approximately $0.9 million in BAHA’s expenses related to its new hospitalist contract and the use of locum providers, and an increase of approximately $0.8 million in MMG’s expenses due tobusiness. The increased costs in patient care. These increases in expenses were partially offset by a net decrease of approximately $0.4 million and a decrease of $0.4$8.0 million in BCHC’s expenses and HCHHA’s expenses, respectively, both of which were duebonus payments made to reduction in patient census,providers for the six months ended June 30, 2020 as well as a decrease of an aggregate of approximately $0.5 million in LALC’s and Hendel’s expenses, both of which were duecompared to deconsolidation of the two VIEs from usbonus payments made to providers during the fourth quarter of fiscal year 2017 and a decrease of approximately $0.2 millionsame period in SCHC’s expenses.administrative(G&A) costsexpenses for the three months ended SeptemberJune 30, 2017 increased by approximately $0.92020, were $11.6 million, or 20%, as compared to $11.8 million for the same period of 2016. Approximately $0.9 million of the increase was due to APAACO’s new NGACO operations, approximately $0.7 million of the increase was related to costs associated with the proposed Merger with NMM, and approximately $0.2 million correlated to an increase in MMG’s G&A costs. These increases in our G&A costs were offset by2019, a decrease of approximately $0.4 million in ACO’s G&A costs as the MMSP ACO operations have been gradually merged into the NGACO program of APAACO, a decrease of approximately $0.3 million related to AMH from general management of overhead costs, and a decrease of approximately $0.2 million, in Hendel’s G&A costsor 2%. The decrease is primarily due to its deconsolidation from us duringfewer supplies required as COVID-19 outbreak caused a reduction of procedures performed on site at the fourth quarter of fiscal year 2017.G&A costssurgery centers and heart centers.SeptemberJune 30, 2017 increased by approximately $1.92020 were $23.4 million, or 23%, as compared to $22.1 million for the same period in 2019, an increase of 2016. Approximately 1.7$1.3 million, or 6%. The increase is primarily due to increased rent expense to support the continued growth in depth and breadth of our operations.APAACO’sequity earnings from UCI of $0.9 million.NGACO operations, approximatelycredit facility we secured in September 2019 to fund growth, primarily through acquisitions.increase was related to costs associated with the proposed Merger with NMM, and approximately $0.1 million of the increase correlated to ansame periods in 2019. The increase in MMG’s G&A costs. These increases in our G&A costs were offset by a decrease of approximately $0.8 million in ACO’s G&A costs as the MMSP ACO operations have been gradually merged into the NGACO program, a decrease of approximately $0.3 million in AMH expenses related to general management of overhead costs, and a decrease of approximately $0.1 million in Hendel’s G&A costsother income was primarily due to its deconsolidation from us during the fourth quarter of fiscal year 2017.Depreciation and amortizationDepreciation and amortizationgovernment grants received during the three and six months ended SeptemberJune 30, 2017 were comparable2020 of $0.9 million.periods of fiscal year 2016.Interestperiod in 2019. The increase in tax expenseInterest expense was due to increased by approximately $0.2 million and $0.4 million, or 6,438% and 6,773% duringincome in the three and six months ended SeptemberJune 30, 2017,2020, period as compared to the same periodsperiod in 2019, as described above.2016, respectively.$2.8 million for the same period in 2019. The increase in tax expense was due to increased income in the six months ended June 30, 2020 period as compared to the same period in 2019, as described above.Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA (in thousands) Year Ending December 31, 2020 Low High $ 100,000 $ 110,000 Depreciation and amortization 18,000 20,000 Provision for income taxes 30,000 31,000 Interest expense 8,000 9,000 Interest income (1,000) (3,000) 155,000 167,000 (95,000) (94,000) EBITDA adjustment for recently acquired IPAs 15,000 17,000 Adjusted EBITDA $ 75,000 $ 90,000 expensetaxes, depreciation, and amortization, excluding income from equity method investments and other income earned that is not related to the Company's normal operations. Adjusted EBITDA also excludes the effect on EBITDA of certain IPAs we recently acquired.additionpayments of dividends totaling $30.2 million, repayment on our term loan totaling $2.4 million and repurchase of shares of $0.8 million, offset with proceeds from exercise of stock options and warrants of $2.9 million. This is compared to cash generated for the six months period ended June 30, 2019 due to proceeds from borrowings on our line of credit of $39.6 million, proceeds from the exercise of stock options and warrants of $0.9 million and proceeds from common stock offering of $0.2 million offset with payments of dividends and repayments on our bank loan and lines of credit totaling $10.9 million and $8.0 million, respectively.$5,000,000following (in thousands):June 30, 2020 Term loan A $ 185,250 Revolver loan 60,000 Total debt 245,250 Less: Current portion of debt (9,500) Less: Unamortized financing costs (5,295) Long-term debt $ 230,455 Amount 2020 (excluding the six months ended June 30, 2020) $ 7,125 2021 10,688 2022 14,250 2023 15,437 2024 197,750 Total $ 245,250 Note and $4,990,000 Alliance Note. See Note 7 “Debt”the Agent entered into a Guaranty and Security Agreement (the “Guaranty and Security Agreement”), pursuant to which, among other things, NMM guaranteed the obligations of the Company under the Credit Agreement.accompanying condensedCompany of $100.0 million (“Revolver Loan”), which includes a letter of credit subfacility of up to $25.0 million. The Credit Agreement also provides for a term loan of $190.0 million, (“Term Loan A”). The unpaid principal amount of the term loan is payable in quarterly installments on the last day of each fiscal quarter commencing on December 31, 2019. The principal payment for each of the first eight fiscal quarters is $2.4 million, for the following eight fiscal quarters thereafter is $3.6 million and for the following three fiscal quarters thereafter is $4.8 million. The remaining principal payment on the term loan is due on September 11, 2024.financial statementsbasis. The Company must maintain a maximum consolidated leverage ratio of not greater than 3.75 to 1.00 as of the last day of each fiscal quarter. The maximum consolidated leverage ratio decreases by 0.25 each year, until it is reduced to 3.00 to 1.00 for additional information.Gaineach fiscal quarter ending after September 30, 2022. The Company must maintain a minimum consolidated interest coverage ratio of not less than 3.25 to 1.00 as of the last day of each fiscal quarter. As of June 30, 2020, the Company was in compliance with the covenants relating to its credit facility.fair valuecontrol, as defined in the Credit Agreement, an event of warrant liabilitiesThere was a gain ondefault under the changeAP-AMH Loan, failure by APC to pay dividends in fair valuecash for any period of two consecutive fiscal quarters, failure by AP-AMH to pay cash interest to the Company, or if any modification is made to the Certificate of Determination or the Special Purpose Shareholder Agreement that directly or indirectly restricts, conditions, impairs, reduces or otherwise limits the payment of the warrant liabilitiesSeries A Preferred dividend by APC to AP-AMH. In addition, it will constitute an event of approximately $0.5default under the Credit Agreement if APC uses all or any portion of the consideration received by APC from AP-AMH on account of AP-AMH’s purchase of Series A Preferred Stock for any purpose other than certain specific approved uses described in the following sentence, unless not less than 50.01% of all holders of common stock of APC at such time approve such use; provided that APC may use up to $50.0 million in the aggregate of such consideration for any purpose without any requirement to obtain such approval of the holders of common stock of APC. The approved uses include (i) any permitted investment, (ii) any dividend or distribution to the holders of the common stock of APC, (iii) any repurchase of common stock of APC, (iv) paying taxes relating to or arising from certain assets and $1.3transactions, or (v) funding losses, deficits or working capital support on account of certain non-healthcare assets in an amount not to exceed $125.0 million. If any event of default occurs and is continuing under the Credit Agreement, the Lenders may terminate their commitments, and may require the Company and its guarantors to repay outstanding debt and/or to provide a cash deposit as additional security for outstanding letters of credit. In addition, the Agent, on behalf of the Lenders, may pursue remedies under the Guaranty and Security Agreement, including, without limitation, transferring pledged securities of the Company’s subsidiaries in the name of the Agent and exercising all rights with respect thereto (including the right to vote and to receive dividends), collect on pledged accounts, instruments and other receivables (including the AP-AMH Loan), and all other rights provided by law or under the loan documents and the AP-AMH Loan.SeptemberJune 30, 2016. This gain resulted from the change in the fair value measurement2020 and 2019, of $0.3 million and $0, respectively, and $0.7 million and $0, respectively.warrants issuedboard members is the chairman and CEO of Preferred Bank. The NMM Business Loan Agreement was subsequently amended on September 1, 2018, to NMM in October 2015, which consider among other things, expected term,temporarily increase the volatility of the Company’s share price, interest rates, and the probability of additional financing. As there was no warrant liability at either March 31, 2017 or September 30, 2017, there is no change in the fair value of warrant liabilities for the three and six months ended September 30, 2017.Other incomeOther income increased by approximately $44,000 and $80,000, or 417% and 645%, for the three and six months ended September 30, 2017 comparedloan availability from $20.0 million to the same periods of 2016, respectively. The increase in other income is due to interest from the cash held by APAACO.Income tax provision (benefit)Benefit from income taxes was less in the current fiscal year periods comparable to the same periods of fiscal year 2016 because there are losses that receive no tax benefit as a result of a valuation allowance being recorded for such losses and the exclusion of loss entities from our overall estimated annual effective rate calculation.Net loss attributable to non-controlling interestsNet loss attributable to non-controlling interests increased by approximately $0.2 million, or 212%, for the three months ended September 30, 2017 as compared to the same period of fiscal year 2016, which resulted from the deconsolidation of LALC and Hendel from us in the fourth quarter of fiscal year 2017.Net loss attributable to non-controlling interests increased by approximately $0.9 million, or 288%, for the six months ended September 30, 2017, as compared to the same period of fiscal year 2016, which resulted from the deconsolidation of LALC and Hendel from us in the fourth quarter of fiscal year 2017.Liquidity and Capital ResourcesThe accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business.We have a history of operating losses. For the six months ended September 30, 2017 and 2016, we had a net loss of approximately $8.1 million and $2.4 million, respectively. We generated positive cash flow from operations of approximately $21.5$27.0 million for the six months endedperiod from September 30, 2017 and used cash in operating activities of approximately $4.4 million for the six months ended September 30, 2016. We do not expect1, 2018 through January 31, 2019, further extended to have positive cash flow from operations for the remainder of fiscal year 2018. Cash flows used in investing activities for the six months ended September 30, 2017 and 2016, were approximately $0.06 million and $0.2 million, respectively. Cash flows provided by financing activities for the six months ended September 30, 2017 was approximately $0.05 million, and Cash flows used by operation in 2016 was approximately $0.9 million.As of September 30, 2017, we have a net working capital deficit of approximately $7.0 million and an accumulated deficit of approximately $45.1 million, net borrowings from notes and lines of credit totaling approximately $10.0 million and availability ty under lines of credit of approximately $0.1 million. The primary source of liquidity as of September 30, 2017 is cash and cash equivalents of approximately $30.2 million, which includes the capitation payments received from CMS, all or most of which will be usedOctober 31, 2019, to pay the corresponding fee for service claims liability in future months.These factors among others raise substantial doubt about our ability to continue as a going concern. Our long-term ability to continue as a going concern is dependent upon our ability to increase revenue, reduce costs, achieve a satisfactory level of profitable operations, and obtain additional sources of suitable and adequate financing.Our ability to continue as a going concern is also dependent our ability to further develop our business. We may also have to reduce certain overhead costs through the reduction of salaries and other means, and settle liabilities through negotiation. There can be no assurance that management’s plan and attempts at any or all of these endeavors will be successful.In addition, our ability to continue as a going concern depends, in significant part, on our ability to obtain the necessary financing to meet our obligations and pay our obligations arising from normal business operations as they come due. To date, we have funded our operations from a combination of internally generated cash flow and external sources, including the proceeds fromfacilitate the issuance of equity and/or debt securities. We expect to continue to fund our working capital requirements, capital expenditures and payments of principal and interest on outstanding indebtedness, with cash on hand, cash flows from operations, available borrowings under our linesan additional standby letter of credit and, if available, additional financings of equity and/or debt by our current investors and/or others. Management does not believe that we have sufficient liquidity to meet our obligations for at least the next twelve months without some additional funds, such as funds available from raising capital. However, no assurance can be given that any such funds will be available at all or available on favorable terms.We, therefore, are substantially dependent upon the consummation of the Merger to meet our liquidity requirements. See “The Proposed Merger and NMM Note” below. Until we can generate sufficient positive cash flow to fund operations, we will remain dependent on raising additional capital through debt and/or equity transactions. Without limiting our available options, future equity financings will most likely be through the sale of debt and/or equity securities. It is possible that we would also offer warrants, options and/or rights in conjunction with any future sales of our securities. Management believes that we will be able to raise additional working capital through the issuance of stock and/or debt. Currently, however, we do not have any commitments for the proposed Merger or additional capital, nor can we provide assurance that any financing will be available to us on favorable terms, or at all. If, after utilizing the existing sourcesbenefit of capital available to us, further capital needs are identified and we are not successful in obtaining financing, we may be forced to curtail our existing or planned future operations.For the six months ended September 30, 2017, cash provided by operating activities was approximately $21.5 million. This was the result of a change in working capital of $28.7 million due to increases in accounts receivable, medical liabilities and add-backs of non-cash items of $0.9 million, net, offset by a net loss of approximately $8.1 million. For the six months ended September 30, 2017, our non-cash expenses primarily included provision for depreciation and amortization expense, stock-based compensation expense, and amortization of debt issuance costs.For the six months ended September 30, 2017, cash used in investing activities was approximately $0.06 million primarily related to purchases of fixed assets.For the six months ended September 30, 2017, net cash provided by financing activities was $0.05 million, which relates to proceeds from the exercise of warrants net of principal paymentsCMS. The interest rate is based on the BAHA lineWall Street Journal “prime rate,” plus 0.125%, or 5.625% as of credit.unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverabilityloan was guaranteed by Apollo Medical Holdings, Inc. and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that we cannot continue as a going concern.In connection with its liquidity and capital resources, below is a high-level summary of the Company’s major financing activities as well as related agreements, including (i) NNA financing, (ii) NMM investments, (iii) the proposed Merger and NMM Note, and (iv) the Alliance Note and Merger Agreement Amendment No. 1, and (v) the Merger Agreement Amendment No. 2, Restated NMM Note and Amended Alliance Note. Our securities issued in connection in such financing activities have not been registered under the Securities Act of 1933, as amended.NNA FinancingIn March, 2014, concurrently with a credit agreement (the “Credit Agreement”), an investment agreement (the “Investment Agreement”) with, a convertible note and stock purchase warrants issued to, NNA of Nevada, Inc. (“NNA”), an affiliate of Fresenius SE & Co. KGaA (“Fresenius”), we entered into a registration rights agreement (the “Registration Rights Agreement”) with NNA, pursuant to which we are required to prepare and file a resale registration statement covering NNA’s registrable securities and will have to issue additional shares of Common Stock to NNA if we fail to comply with such requirement. In October, 2015, we repaid the outstanding term loan and revolving credit facility under the Credit Agreement. In November, 2015, we issued a total of 600,000 shares of Common Stock and paid accrued and unpaid interest of $47,112 to NNA in exchange for the convertible note andcollateralized by substantially all of the stock purchase warrants issued to NNA. We and NNA also extended the deadline for filing the resale registration statement covering NNA’s registrable securitiesassets of NMM. The amounts outstanding as required under the Registration Rights Agreement and amended the Investment Agreement to (i) delete NNA’s right to subscribe to purchase a pro rata share of certain new equity securities that may be issued by us in the future, and (ii) provide that NNA must hold at least 200,000 shares of Common Stock to have the right to have a representative nominated as a member of the Company’s Board of Directors (the “Board”) and each committee thereof and appoint a representative to attend all Board and committee meetings in a nonvoting observer capacity. NNA nominated Mark Fawcett as its representative on the Board, who was first elected as our director on January 12, 2016.In April and July 2017, we and NNA amended the Registration Rights Agreement to extend the deadline for filing the resale registration statement for NNA to March 31, 2018 and the date by which we are required to use commercially reasonable best efforts to cause such registration statement to be declared effective to June 30, 2018 (or, if earlier, the 5th trading day after the date2019, of $5.0 million was fully repaid on which the Securities and Exchange Commission notifies us that such registration statement will not be “reviewed” or subject to further review), and remove prohibitions on the Company’s ability to file other registration statements.NMM InvestmentsOctober 14, 2015, we entered into a Securities Purchase Agreement with NMM, pursuant to which we sold 1,111,111 units (the “Series A Units”), each Series A Unit consisting of one share of our Series A Preferred Stock (the “Series A Preferred Stock”) and a stock purchase warrant (the “Series A Warrant”) to purchase one share of Common Stock at an exercise price of $9.00 per share, for which NMM paid us $10,000,000. We used the proceeds to repay certain outstanding indebtedness owed by us to NNA under the Credit Agreement. The Series A Units initially had a redemption feature. However, as part of the proposed Merger,September 5, 2018, NMM entered into a Consent and Waiver Agreement dated December 21, 2016, pursuant to which NMM has relinquished its right of redemption with respect to its shares of Series A Preferred Stock and Series A Warrants. On March 30, 2016, we entered into a Securities Purchase Agreement with NMM, pursuant to which we sold NMM 555,555 units (the “Series B Units”) each Series B Unit consisting of one share of our Series B Preferred Stock (the “Series B Preferred Stock”) and a stock purchase warrant (the “Series B Warrant”) to purchase one share of Common Stock at an exercise price of $10.00 per share, for which NMM paid us $4,999,995 which was be used for our working capital. See Note 6 to the accompanying condensed consolidated financial statements for additional information on Series A Preferred Stock, Series A Warrant, Series B Preferred Stock and Series B Warrant.The Proposed Merger and NMM NoteOn December 21, 2016, we entered into the Merger Agreement with NMM. Under the terms of the Merger Agreement, Apollo Acquisition Corp., a wholly-owned subsidiary of the Company (“Merger Subsidiary”), will merge with and into NMM, with NMM becoming one of our wholly-owned subsidiaries and NMM shareholders will own 82% of the total issued and outstanding shares of Common Stock at the closing of the Merger and our current stockholders will own the other 18% (the “Exchange Ratio”). The Merger is intended to qualify for federal income tax purposes as a tax-deferred reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986. Consummation of the Merger is subject to various closing conditions, including, among other things, approval by the stockholders of the Company and the shareholders of NMM. The Merger Agreement also provides that Thomas Lam, M.D., current Chief Executive Officer of NMM, and Warren Hosseinion, M.D., will be Co-Chief Executive Officers of the combined company upon closing of the Merger. Kenneth Sim, M.D., who currently serves as Chairman of NMM, will be Executive Chairman of the combined company. Gary Augusta, current Executive Chairman of the Company, will be President, Mihir Shah will continue as Chief Financial Officer, and Hing Ang, current Chief Financial Officer of NMM will be the Chief Operating Officer. Adrian Vazquez, M.D. and Albert Young, M.D. will be Co-Chief Medical Officers. The Board of Directors of the combined company will consist of nine directors, five appointees (including three independent directors) from NMM and four appointees (including two independent directors) from the Company. Thomas Lam, M.D., who is also one of our directors, and Kenneth Sim, M.D. entered into voting agreement (the “Voting Agreements”) with us. Under the Voting Agreements, Dr. Sim and Dr. Lam have agreed, among other things, to vote in favor of the approval and adoption of the Merger and the Merger Agreement.As required by the terms of the Merger Agreement, on January 3, 2017, NMM provided a working capital loan to us, which was evidenced by a promissory note in the principal amount of $5,000,000 (the “NMM Note”).We currently anticipate the closing of the Merger to take place in the second half of calendar year 2017, which remains subject to conditions described in the Merger Agreement. However, if the Merger Agreement is terminated and the Merger is not consummated, we might have an immediate need to raise additional capital to fund our business and meet our expenses, including both transactional and operational expenses.Alliance Note and Merger Agreement Amendment No. 1On March 30, 2017, Alliance APEX, LLC (“Alliance”) loaned us $4,990,000, and for which we issued the Alliance Note bearing interest at a rate of 6% per annum. The Alliance Note is due and payable to Alliance on (i) December 31, 2017, or (ii) the date on which the Merger Agreement is terminated, whichever occurs first.We have granted Alliance both “demand” and “piggyback” registration rights to register the shares of Common Stock issuable upon conversion of the Alliance Note, subject to a good faith, pro rata claw-back provision.In connection with the Alliance Note, Alliance requested NMM to guaranty repayment of the Alliance Note if it is not converted into shares of Common Stock in accordance therewith. In connection with the issuance of such guaranty, we and NMM, together with other parties, entered into an Amendment to the Merger Agreement (the “Merger Agreement Amendment No. 1”). Pursuant to the Merger Agreement Amendment No. 1, certain shares of Common Stock, including shares issuable to Alliance upon conversion of the Alliance Note, are excluded from the “Parent Shares” (as defined in the Merger Agreement) for purposes of calculating the Exchange Ratio. Additionally, as consideration for excluding the shares issuable upon conversion of the Alliance Note from the Parent Shares and thus the calculation of Exchange Ratio and for NMM’s issuing the guaranty, we agreed to issue NMM shareholders warrants to purchase 850,000 shares of Common Stock at an exercise price of $11.00 per share, as part of the merger consideration, payable at the closing of the Merger.Merger Agreement Amendment No. 2, Restated NMM Note and Amended Alliance NoteOn October 17, 2017, we and NMM and ApolloMed entered into a second Amendment to the Merger Agreement (the “Merger Agreement Amendment No. 2”), which extended the “End Date” as defined in the Merger Agreement from August 31, 2017 to March 31, 2018, and increased NMM shareholders’ merger consideration payable at the closing of the Merger to include an aggregate of 2,566,666 shares of Common Stock and warrants to purchase an aggregate of 900,000 shares of Common Stock exercisable at $10.00 per share, in addition to such number of shares of Common Stock that represents 82% of the total issued and outstanding shares of Common Stock immediately following the consummation of the Merger and warrants to purchase 850,000 shares of Common Stock at an exercise price of $11 per share.Pursuant to the Merger Agreement Amendment No. 2, NMM also agreed to provide an additional $4,000,000 working capital loan to us as evidenced by a promissory note in the principal amount of $9,000,000 (the “Restated NMM Note”), which is convertible into shares of Common Stock at a conversion price of $10.00 per share (subject to adjustment for stock splits, dividends, recapitalizations and the like) within 10 business days prior to maturity. The Restated NMM Note amended and restated the NMM Note issued by the Company to NMM on January 3, 2017 in the principal amount of $5,000,000. In addition, pursuant to its terms, the principal amount of the Restated NMM Note shall be increased to $13,990,000 if the Company fails to pay the Amended Alliance Note described below, and NMM will either pay all amounts owed under the Amended Alliance Note or enter into another agreement with Alliance (such that in either case the Amended Alliance Note is cancelled). See Note 7 “Debt - Restated NMM Note” to the accompanying condensed consolidated financial statements for additional information on the Restated NMM Note.On October 16, 2017, we and Alliance amended the Alliance Note to extend the maturity date for the entire outstanding principal and all accrued and unpaid interest thereon to the earlier of (i) March 31, 2018 or (ii) the date on which the Merger Agreement is terminated, whichever occurs first (the “Alliance Maturity Date”). If the Merger has not been consummated by the Alliance Maturity Date, then the outstanding principal balance and interest will be due 45 days after the Alliance Maturity Date. On the business day following closing of the Merger on or before the Alliance Maturity Date, the principal amount of the amended Alliance Note, together with all accrued and unpaid interest thereon, will automatically be converted into shares of Common Stock, at a conversion price of $10.00 per share, subject to adjustment for stock splits, stock dividends, reclassifications and other similar recapitalization transactions The amended Alliance Note may not be prepaid, in whole or in part, by ApolloMed nor converted into shares of Common Stock voluntarily by Alliance. See Note 7 “Debt - Amended Alliance Note” to the accompanying condensed consolidated financial statements for additional information on the Amended Alliance Note.36 Regulatory MattersWe operate in a highly regulated industry and are subject to federal and statement governmental oversight. For example, as a risk-bearing organization (“RBO”), the Company and its affiliates, as applicable, are required to follow regulations of the California Department of Managed Health Care (“DMHC”). The Company must comply with a minimum working capital requirement, Tangible Net Equity (“TNE”) requirement, cash-to-claims ratio and claims payment requirements prescribed by the DMHC. TNE is defined as net assets less intangibles, less non-allowable assets (which include amounts due from affiliates), plus subordinated obligations. The DMHC determined that, as of February 28, 2016, MMG, an affiliated IPA, was not in compliance with the DMHC’s positive TNE requirement for a RBO. As a result, the DMHC required MMG to develop and implement a corrective action plan (“CAP”) for such deficiency. MMG’s CAP has been submitted and was approved by DMHC in December 2016. Through an intercompany revolving subordinate loan from AMM (see “Intercompany Loans” below), MMG achieved positive TNE in the third quarter of fiscal 2017 and has maintained positive TNE to date. The DMHC is reviewing the Company’s filings for MMG to be taken off the CAP. In addition, MMG arranged for City National Bank (“CNB”) to provide two irrevocable standby letters of credit (see Note 7 “Debt - Standby Letters of Credit and Lines of Credit” to the accompanying condensed consolidated financial statements for additional information). There is no assurance that the DMHC will agree for MMG to be taken off the CAP. Non-compliance with the TNE requirement or any other applicable regulatory requirement by us, including our applicable affiliates, could result in significant consequences, including suspension or termination of operations and thus adversely affect our business, prospects, revenues and earnings. In addition, changes in compliance requirements or in governmental policies could also impact our operations, revenues and earnings by, among other things, increasing resource spent in our compliance efforts and limiting the scope of our operations.In addition, we are subject to federal and state securities laws. Non-compliance with such laws, such as our failing to file information statements for two corporate actions taken by our majority stockholders in written consents in 2012 and 2013, could cause federal or state agencies to take action against us, including imposing fines or penalties on us or restricting our ability to issue securities.See Note 8 “Commitments and Contingencies - Regulatory Matters” to the accompanying condensed consolidated financial statements for additional information.Lines of creditBAHA has anon-revolving line of credit agreement with Preferred Bank, which provides for loan availability of $150,000up to $20.0 million with First Republic Bank. Borrowings undera maturity date of September 5, 2019. This credit facility was subsequently amended on April 17, 2019, and July 29, 2019, to reduce the line of credit bearloan availability from $20.0 million to $16.0 million and from $16.0 million to $2.2 million, respectively. The interest atrate is based on the primeWall Street Journal “prime rate, (as defined)” plus 3.0% (7.25% and 7.0% per annum at September 30, 2017 and March 31, 2017, respectively). We have an outstanding balance of $25,000 and $62,5000.125%, or 3.375% as of SeptemberJune 30, 20172020, and March4.875% as of December 31, 2017, respectively.2019. The line of credit is unsecured.Concentrationguaranteed by Apollo Medical Holdings, Inc. and is collateralized by substantially all assets of PayorsWe haveNMM. NMM obtained this line of credit to finance potential acquisitions. Each drawdown from the line of credit is converted into a few key payors that representfive-year term loan with monthly principal payments, plus interest based on a significant portionfive-year amortization schedule.our accounts receivable.Receivables from Government - Medicare/Medi-Cal amounted to approximately 24.3 %June 14, 2018, between NMM and 20.5%Preferred Bank, as amended, and the Line of total accounts receivableCredit Agreement, dated as of September 5, 2018, between NMM and Preferred Bank, as amended, were terminated in connection with the closing of the credit facility. Certain letters of credit issued by Preferred Bank under the Line of Credit Agreement were terminated and reissued under the Credit Agreement. As of June 30, 20172020, outstanding letters of credit totaled $14.8 million and Marchthe Company has $10.2 million available under the revolving credit facility for letters of credit.2017,2020. On August 1, 2019, and September 10, 2019, this credit facility was further amended to increase loan availability from $40.0 million to $43.8 million, and decrease loan availability from $43.8 million to $4.1 million, respectively. Receivables from Allied Physicians amountedThis decrease further limited the purpose of the indebtedness under APC Business Loan Agreement to 12.5%the issuance of standby letters of credit, and 12.8%added as a permitted lien the security interest in all of accounts receivableits assets granted by APC in favor of NMM under a Security Agreement dated on or about September 11, 2019, securing APC’s obligations to NMM under, and as required pursuant to, the APC management services agreement dated as of SeptemberJuly 1, 1999, as amended. The interest rate is based on the Wall Street Journal “prime rate,” plus 0.125%, or 3.375% and 4.875% as of June 30, 20172020, and MarchDecember 31, 2017,2019, respectively. The Company anticipates that Medicare/Medi-CalAllied Physicians will continue to be significant payors.ACC, MMG, BAHA, Apollo Care Connect, AKM SCHCMedical Group, Inc. ("AKM") and BAHASCHC has entered into an intercompany loan agreementIntercompany Loan Agreement with AMM under which AMM has providedagreed to provide a revolving loan commitment to each of thesuch affiliated entities in an amount set forth in each Intercompany Loan Agreement. Each Intercompany Loan Agreement provides that AMM’s obligation to make any advances automatically terminates concurrently with the loan agreement.We hadtermination of the following outstandingmanagement agreement with the applicable affiliated entity. In addition, each Intercompany Loan Agreement provides that (i) any material breach by the shareholder of record of the applicable Physician Shareholder Agreement or (ii) the termination ofas of September 30, 2017 and March 31, 2017, respectively: Six Months Ended September 30, 2017 Entity Facility Expiration Interest rate per Annum Maximum Balance
During Period Ending Balance Principal Paid During
Period Interest Paid During
Period AMH $ 10,000,000 9/30/2018 10 % $ 5,204,341 $ 3,820,391 $ 1,700,000 $ - ACC 1,000,000 7/31/2018 10 % 1,287,843 1,287,843 - - MMG 3,000,000 2/1/2018 10 % 2,392,266 2,392,266 - - AKM 5,000,000 5/30/2019 10 % - - - - SCHC 5,000,000 7/21/2019 10 % 3,169,014 3,169,014 - - BAHA 250,000 7/22/2021 10 % 2,081,096 2,081,096 - - $ 24,250,000 $ 14,134,560 $ 12,750,610 $ 1,700,000 $ - Six Months Ended June 30, 2020 Entity Facility Interest
Rate
per AnnumAMH $ 10,000 10 % $ 6,193 $ 6,193 $ — $ — Apollo Care Connect 1,000 10 % 1,283 1,283 — — MMG 3,000 10 % 3,571 3,571 — — AKM 5,000 10 % — — — — SCHC 5,000 10 % 4,940 4,940 — — BAHA 250 10 % 4,066 4,066 — — $ 24,250 $ 20,053 $ 20,053 $ — $ — Year Ended March 31, 2017 Entity Facility Expiration Interest rate per Annum Maximum Balance
During Period Ending Balance Principal Paid During
Period Interest Paid During
Period AMH $ 10,000,000 9/30/2018 10 % $ 4,904,147 $ 4,904,147 $ - $ - ACC 1,000,000 7/31/2018 10 % 1,287,843 1,287,843 5,000 - MMG 2,000,000 2/1/2018 10 % 1,918,724 1,255,111 725,107 - AKM 5,000,000 5/30/2019 10 % - - - - SCHC 5,000,000 7/21/2019 10 % 3,079,916 3,079,916 50,000 - BAHA 250,000 7/22/2021 10 % 1,171,526 1,171,526 - $ 23,250,000 $ 12,362,156 $ 11,698,543 $ 780,107 $ -
On August 31, 2017, AMM and MMG entered into Amendment No. 1 to their Intercompany Revolving Loan Agreement dated November 22, 2016 to increase the revolving loan commitment by AMM under the loan agreement from $2,000,000 to $3,000,000, and Amendment No. 1 to their Subordination Agreement also dated November 22, 2016 to reflect the increased revolving loan commitment. See Note 8 “Commitments and Contingencies - Regulatory Matters” to the accompanying condensed consolidated financial statements.
2019.
Off Balance
Not applicable.
We conductedchief executive officerCo-Chief Executive Officers and chief financial officer,Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including Co-Chief Executive Officers and Chief Financial Officer, concluded that our disclosure controls and procedures (asas defined in Rules 13a-15(e) and 15d-15(e)15(d)-15(e) under the Securities Exchange Act, of 1934, as amended)were effective as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of the evaluation date, our disclosure controls and procedures were effective at the reasonable assurance level.Our disclosure controls and procedures are designedJune 30, 2020, to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed by us in our SEC reportsthis Quarterly Report on Form 10-Q or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SECthe Securities and Exchange Commission rules and forms and is(ii) accumulated and communicated to our management, including our chiefprincipal executive officerofficers and chiefprincipal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system,
There have not been anyother changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act during our second fiscal quarter of 1934, as amended) during the period covered by this quarterly report2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
payerpayor and provider contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of medical services, which may not come to light until a substantial period of time has passed following contract implementation. We may also become subject to other lawsuits which could involve significant claims and/or significant defense costs, but as of the date of this Quarterly Report on Form 10-Q, except as disclosed, we are not a party to any lawsuit or proceeding, which in the opinion of management is expected to individually or in the aggregate have a material adverse effect on us or our business. Nonetheless, theThe resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows or results of operations. Nonetheless, the resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows or results of operations. See Note 8 “Commitments and Contingencies - Legal Actions and Proceedings” to the accompanying condensed consolidated financial statements for additional comments.
MarchDecember 31, 20172019, filed with the SEC on June 29, 2017 and risk factors discussed in the Registration Statement Amendment No. 2 on Form S-4/A filed with the SEC by us and Network Medical Management, Inc. (“NMM”) on November 9, 2017 (available at www.sec.gov).March 16, 2020. The risks disclosed in such Annual Report in such Registration Statement Amendment and in this Quarterly Report could materially adversely affect our business, financial condition, cash flows or results of operations and thus our stock price. While weWe believe there have been no material changes in our risk factors from those disclosed in the Annual Report or the Registration Statement Amendment, other than those discussed below,except as described below. However, additional risks and uncertainties not currently known or we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations.The following discussion of risk factors contains forward-looking statements. Report. The following informationReport and should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report.Report on Form 10-Q. Because of the followingsuch risk factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.Merger has not yet been consummated despite the filingcurrent outbreak of the associated Registration Statementnovel coronavirus disease, or COVID-19, or the future outbreak of any other highly infectious or contagious diseases, could adversely impact or cause disruption to our business, financial condition and results of operations.Form S-4March 11, 2020, and Amendments thereof withwhich the SEC.U.S. declared a national emergency on March 13, 2020, has caused governments and the private sector globally to take a number of drastic precautionary measures to contain the spread of the coronavirus, including the restriction and suspension of in-person classes at schools, colleges and universities, the cancellation of public events and other nonessential mass gatherings and the implementation of work from home, stay at home and other quarantine directives. The failurepotential impact and duration of the COVID-19 pandemic has had, and continues to consummate the Merger could have, a materialsignificant adverse effect on ApolloMed’s business, including that ApolloMed may be unable to repay its debt,impact across regional and any delay in completing the Merger may substantially reduce the benefits to ApolloMed.Consummationglobal economies and financial markets. The global impact of the Merger is subject to various closing conditions,outbreak has been rapidly evolving and as new cases of the virus have continued, particularly in the U.S., countries around the world and states around the U.S., have reacted by instituting quarantines and restrictions on travel.approval by both ApolloMed’s stockholdersamong others, Los Angeles and San Bernardino counties, and the shareholdersstate of NMM,California, where we operate. The lockdown restrictions implemented included quarantines, restrictions on travel, shelter-in-place orders, school closures, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that could continue. These quarantines generally came with exceptions for essential healthcare and public health operations, among other essential businesses.Beginning in early May 2020, the U.S. began to lift the lockdown restrictions and allow for the reopening of businesses. The gradual reopening of retail, manufacturing, and office facilities came with required or recommended safety protocols. There is no assurance that the reopening of businesses, even if those businesses adhere to recommended safety protocols, will enable us or our subsidiaries, VIEs, affiliated IPAs, contracted physician groups, service providers and suppliers to avoid adverse effects on our or their operations and businesses. Due to the increase in the number of COVID-19 cases after the reopening of many states beginning in early June 2020, there is no assurance that local and state governments will not reinstitute new lockdown directives.complete the Merger, including without limitation, (a) the approval of the proposed Merger by the affirmative vote of NMM shareholders (x) holding at least 95% of the outstanding shares of NMM’s common stock and (y) representing at least 95% inprotect our employees, we have implemented a number of precautionary measures, including a work from home policy, under which the NMM shareholders; (b) at the closingvast majority of the Merger, there are (i) no dissenting NMM shareholders (as defined in the Merger Agreement as amended) and (ii) no NMM shareholders who have exercised their dissenters’ rights under the California General Corporation Law and have not withdrawn such exercise or otherwise have become ineligible to effect such exercise; and (c) the delivery of a duly executed lock-up agreement by each NMM shareholder, other than dissenting shareholders, at or before the Closing.If for any reason the Merger is not consummated, upon the termination of the Merger Agreement, ApolloMed would have significant financial obligations to its creditors, including NMM. For example, ApolloMed has incurred debt under the Amended Alliance Note and the Restated NMM Note in the aggregate of almost $14,000,000. See Note 7 to the accompanying condensed consolidated financial statements for additional information. As such notes are unsecured andpari passu, ApolloMedour employees currently operate. Such measures may have insufficient funds to repay the two notes if both become due upon the termination of the Merger Agreement.In addition, as ApolloMed anticipates that NMM will be an important future source of working capital for ApolloMed after the consummation of the Merger, if the Merger does not occur, ApolloMed would not benefit from such additional working capital. Furthermore, there are several areas of operations in which NMM and ApolloMed work together, including APAACO, which is owned 50% by NMM and 50% by ApolloMed, as well as management services agreements ApolloMed has with certain NMM affiliates. If for any reason the Merger is not consummated, ApolloMed cannot predict the effect this would havea substantial impact on areas where ApolloMed operates together with NMM and for which ApolloMed is dependent upon significant revenue.If the Merger is not completed within the expected time frame, such delay could result in additional transaction costsemployee attendance or other adverse effects associated with uncertainty about the Merger. As a result, the ongoing businesses of ApolloMed could beproductivity, or adversely affected, including being subject to the following risks:·certain costs related to the Merger, such as legal and accounting fees, must be paid even if the Merger is not completed;·if the Merger Agreement is terminated under certain circumstances, either party may be required to pay the other party a termination fee of $1.5 million, as applicable;·the attention of management of ApolloMed may have been diverted to the Merger rather than to ApolloMed’s own operations and the pursuit of other opportunities that could have been beneficial;·the potential loss of key personnel during the pendency of the Merger as employees may experience uncertainty about their future roles with the combined company;·reputational harm due to the adverse perception of any failure to successfully complete the Merger;·the price of ApolloMed stock may decline;·ApolloMed will have been subject to certain restrictions on the conduct of its business which may have prevented it from making certain acquisitions or dispositions or pursuing certain business opportunities while the Merger was pending; and·ApolloMed may be subject to litigation related to the Merger or any failure to complete the Merger.Furthermore, if the Merger Agreement is terminated, ApolloMed is likely to have an immediate financial need to raise additional capital to fund ApolloMed’s business and meet ApolloMed’s expenses, including both transactional and operational expenses.ApolloMed and its board of directors may be subject to liability for failure to fully comply with federal and state securities laws.ApolloMed is subject to federal and state securities laws. Any failure to comply with such laws, such as ApolloMed’s failing to file information statements for two corporate actions taken by its majority stockholders in written consents in 2012 and 2013, could cause federal or state agencies to take action against ApolloMed, which could restrict itsaffect our ability to issue securities and resultrecruit, attract or retain skilled personnel, which in fines or penalties. Any claims brought by such an agency could also cause ApolloMed to expend resources to defend itself, would divert the attention of its management from ApolloMed’s core business and could significantly harm ApolloMed’s business, operating results and financial condition, even if the claims are resolved in ApolloMed’s favor. Further, at ApolloMed’s 2016 annual meeting, its stockholders voted on the frequency of their future votes on its executive compensation. ApolloMed inadvertently failed to file, within 150 days after the meeting, a Form 8-K amendment to disclose its decision as to how frequently it will hold such a vote, resulting in ApolloMed’s failing to file all reports required to be filed by Section 13 or 15(d) of the Exchange Act for at least 12 months before filing certain subsequent periodic and other reports. While ApolloMed filed the Form 8-K amendment on November 3, 2017, such failureturn may adversely affect our operations, including our ability to effectively provide management services to our affiliated IPAs and contracted physician groups in compliance with regulatory requirements. An extended outbreak may also result in disruptions to critical infrastructures and our supply chains and the supply chains of our affiliated IPAs and contracted physician groups, including the supply of pharmaceuticals and medical supplies. The duration and extent of the impact from the coronavirus outbreak depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of ApolloMed’s registration statement on Form S-8 filed in May 2016containment actions. If we are not able to respond to and ApolloMed may need to refilemanage the impact of such registration statement. This failure also hinders ApolloMed’s ability to issue securities in certain transactions and raise additional capital, including being unable to use Form S-3 for a substantial period of time. ApolloMed may also be subject to certain other restrictions or fines or penalties.In addition, a plaintiffs’ securities law firm has announced that it is investigating ApolloMed and its board of directors for potential federal law violations and breaches of fiduciary duties in connection the Merger. This investigation purportedly focuses on whether ApolloMed and its board of directors violated federal securities laws or breached their fiduciary duties to ApolloMed’s stockholders by failing to properly value the Merger and failing to disclose all material information in connection with the Merger. While we believe that our board of directors and management have faithfully upheld their fiduciary duties in negotiating and executing the Merger for the combined interest of all of ApolloMed’s stockholders, we cannot preclude the possibility that this investigation and any lawsuit brought relating to any alleged federal law violations and/or breaches of fiduciary duty in connection with the Merger could result in a delay of the Merger, as well as the potentially significant expenditures of time and resources to defend any such lawsuit. As a result, our management and board of directors may have less time to devote toevents effectively, our business could be harmed.consummation of the Merger and the successful integration of the business of ApolloMed and NMM.APAACO’s future participation in the AIPBP Payment Mechanism is uncertain and payments thereunder represent a significant part of ApolloMed’s total revenues. ApolloMed also cannot accurately predict and monitor its performance under the AIPBP payment mechanism.APAACO chose to participate in the All-Inclusive Population-Based Payment (“AIPBP”) payment mechanism. Under the AIPBP payment mechanism, CMS estimates the total annual Part A and Part B Medicare expenditures of APAACO’s assigned Medicare beneficiaries and pays that projected amount in per beneficiary per month payments. In October 2017, CMS notified APAACO that it hasCompany’s operations have not been renewed for participation in the AIPBP payment mechanism of the NGACO Model for performance year 2018 due to certain alleged deficiencies in performance by APAACO. APAACO does not believe the allegations by CMS of performance deficiencies are valid or justify the CMS non-renewal determination and is in discussions with CMS regarding possible reversal of such determination. On November 9, 2017, APAACO submitted a request for reconsideration to CMS. If APAACO is not successful in convincing CMS to reverse its decision then the payment mechanism under the NGACO Model would default to traditional Fee For Service (“FFS”). This would result in the loss in monthly revenues and cash flow currently being generated by APAACO, currently at a rate of approximately $9.3 million per month, and would thus have a material adverse effect on ApolloMed’s future revenues and potential cash flow.In addition, APAACO chose “Risk Arrangement A,” comprising 80% risk for Part A and Part B Medicare expenditures and a shared savings and losses cap of 5%, or as a result a 4% effective shared savings and losses cap when factoring in 80% risk impact. APAACO’s benchmark Medicare Part A and Part B expenditures for beneficiaries for its 2017 performance year are approximately $335 million, and under “Risk Arrangement A” of the AIPBP payment mechanism APAACO could therefore have profits or be liable for losses of up to 4% of such benchmarked expenditures, or approximately $13.4 million. While performance can be monitored throughout the year, end results will not be known until 2018. ApolloMed cannot accurately predict and monitor performance under the AIPBP payment mechanism for 2017 because, among other factors, end results are released annually rather than on a more frequent basis.Actual ApolloMed results are significantly different from those contained in the cash flow and other projections prepared in late 2016 by ApolloMed management and used by BofA Merrill Lynch in its financial analyses in connection with the Merger.ApolloMed management prepared certain financial projections, which were based on management's projection of ApolloMed’s future financial performancedirectly affected as of the date provided in late 2016. These projections were not prepared with a view toward public disclosure or compliance with published guidelines of this Quarterly Report on Form 10-Q, the SEC regarding forward-looking information. More importantly,Company is also monitoring potential impacts from weeks of widespread protests and civil unrest that began at the cash flowend of May 2020 related to efforts to institute law enforcement and other financial projections were based on a numbersocial and political reforms.None.None.this Report or filed or furnished with this report,Quarterly Report on Form 10-Q, as indicated below.32** *101.INS* *XBRL Instance Document 101.SCH* *XBRL Taxonomy Extension Schema Document 101.CAL* *XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* *XBRL Taxonomy Extension Definition Linkbase 101.LAB* *XBRL Taxonomy Extension Label Linkbase Document 101.PRE* *XBRL Taxonomy Extension Presentation Linkbase Document * Incorporated by reference to the respective exhibit of this Report.**Filed herewith. ** *Furnished herewith † The schedules and exhibits thereof have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the SEC upon request. APOLLO MEDICAL HOLDINGS, INC. Dated: November 14, 2017August 7, 2020By: /s/ Mihir ShahKenneth SimMihir ShahKenneth Sim, M.D.
Executive Chairman & Co-Chief Executive Officer
(Principal Executive Officer)Dated: August 7, 2020 By: /s/ Thomas Lam Thomas Lam, M.D., M.P.H.
Co-Chief Executive Officer & President
(Principal Executive Officer)Dated: August 7, 2020 By: /s/ Eric Chin Eric Chin
Chief Financial Officer and Interim Co-Chief Operating Officer
(Principal Financial and Accounting Officer)