Some of our operations may be subject to compliance with certain provisions of the Fair Debt Collection Practices Act and comparable statutes in many states. Under the Fair Debt Collection Practices Act, a third-party collection company is restricted in the methods it uses to contact consumer debtors and elicit payments with respect to placed accounts. Requirements under state collection agency statutes vary, with most requiring compliance similar to that required under the Fair Debt Collection Practices Act.
U.S. Sentencing Guidelines
The U.S. Sentencing Guidelines are used by federal judges in determining sentences in federal criminal cases. The guidelines are advisory, not mandatory. With respect to corporations, the guidelines state that having an effective ethics and compliance program may be a relevant mitigating factor in determining sentencing. To comply with the guidelines, the compliance program must be reasonably designed, implemented, and enforced such that it is generally effective in preventing and detecting criminal conduct. The guidelines also state that a corporation should take certain steps such as periodic monitoring and appropriately responding to detected criminal conduct. We have yet to develop a formal ethics and compliance program.
Professional Licensing Requirements
The Company’s affiliated hospitalists must satisfy and maintain their professional licensing in the states where they practice medicine. Activities that qualify as professional misconduct under state law may subject them to sanctions, or to even lose their license and could, possibly, subject us to sanctions as well. Some state boards of medicine impose reciprocal discipline, that is, if a physician is disciplined for having committed professional misconduct in one state where he or she is licensed, another state where he or she is also licensed may impose the same discipline even though the conduct occurred in another state. Professional licensing sanctions may also result in exclusion from participation in governmental healthcare programs, such as Medicare and Medicaid, as well as other third-party programs.
Employees
As of April 15, 2010,30, 2011, we had 45 full-time employees. None of our full-time employees is a member of a labor union, and we have never experienced a work stoppage.
ITEM 1A. RISK FACTORS
RISK FACTORS
If any of the following risks occur, our business, financial condition or results of operations could be materially harmed. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties not presently known to the Company or that the Company currently deems immaterial may also impair its business operations or financial condition. You should consider carefully the following factors, in addition to the other information concerning the Company and its business, before purchasing the Securities being offered.
Notice and Risks Relating to Forward-Looking Statements
This report contains forward-looking statements, which reflect management's current view with respect to future events and the Company's performance. Such forward-looking statements include statements with respect to the development of the Company’s business, the commencement of revenue, market size and acceptance for the Company's products and services and the Company's future revenues and earnings, marketing and sales strategies, business operations and the prospects and possible terms of future debt and equity financings for the Company. These forward-looking statements are subject to certain risks and uncertainties, including, but not limited to, acceptance of the Company's products and services, ability to compete with existing and new products and services, the ability to price our products and services competitively, our ability to attract additional capital, the establishment of an effective marketing plan, and the other risks identified herein. Due to such uncertainties and the risk factors set forth herein, you are cautioned not to place undue reliance upon such forward-looking statements.
Risk Relating to Our Business
The Company has a limited operating history that makes it difficult to reliably predict future growth and operating results.
Apollo Medical, the predecessor to our operating subsidiary, was incorporated on October 18, 2006, and served initially as the management company for two affiliated medical groups, AMH and AMA. Accordingly, we have a limited operating history upon which you can evaluate its business prospects, which makes it difficult to forecast Apollo’s future operating results. The evolving nature of the current medical services industry increases these uncertainties. You must consider the Company’s business prospects in light of the risks, uncertainties and problems frequently encountered by companies with limited operating histories. Our ability to predict growth at any time in the future may be limited.
The Company has an unproven business model with no assurance of significant revenues or operating profit.
The current business model is unproven and the profit potential, if any, is unknown at this time. The Company is subject to all of the risks inherent in the creation of a new business. We have not yet commenced full operations and our ability to achieve profitability is dependent, among other things, on our initial marketing to generate sufficient operating cash flow to fund future expansion. There can be no assurance that our results of operations or business strategy will achieve significant revenue or profitability.
The growth strategy of the Company may not prove viable and expected growth and value may not be realized.
Our business strategy is to rapidly grow by financing the acquisition and establishment, and managing a network, of medical groups providing certain hospital-based services. Where permitted by local law, we may also acquire such medical groups directly. Groups managed (or owned) by the Company are referred to herein as “Affiliated Medical Groups.” Identifying quality acquisition candidates is a time-consuming and costly process. There can be no assurance that we will be successful in identifying and establishing relationships with these and other candidates. If the Company is successful in identifying and acquiring other businesses, there is no assurance that it will be able to manage the growth of such businesses effectively.
The success of the Company’s growth strategy depends on the successful identification, completion and integration of acquisitions.
The Company’s future success will depend on the ability to identify, complete, and integrate the acquired businesses with its existing operations. The growth strategy will result in additional demands on our infrastructure, and will place further strain on limited management, administrative, operational, financial and technical resources. Acquisitions involve numerous risks, including, but not limited to:
| · | the possibility that we will not able to identify suitable acquisition candidates or consummate acquisitions on acceptable terms, if at all; |
| · | possible decreases in capital resources or dilution to existing stockholders; |
| · | difficulties and expenses incurred in connection with an acquisition; |
| · | the diversion of management’s attention from other business concerns; |
| · | the difficulties of managing an acquired business; |
| · | the potential loss of key employees and customers of an acquired business; and |
| · | in the event that the operations of an acquired business do not meet expectations, we may be required to restructure the acquired entity or write-off the value of some or all of the assets of the acquisition. |
Our future growth could be harmed if we lose the services of certain key personnel.
The Company’s success depends upon the services of a number of key employees, specifically Warren Hosseinion, M.D. and Adrian Vazquez, M.D., and will depend upon certain other additional key employees. We plan to enter into employment agreements with, and acquire key man life insurance for, Drs. Hosseinion and Vazquez and other key executives hired in the future. The loss of the services of one or more of these key employees could harm our business. The Company’s success also depends upon its ability to attract highly skilled new employees. Competition for such employees is intense in the industries and geographic areas in which we operate. We may rely on our ability to grant stock options as one mechanism for recruiting and retaining highly skilled talent. Recently proposed accounting regulations requiring the expensing of stock options may impair our future ability to provide these incentives without incurring significant compensation costs. If the Company is unable to compete successfully for key employees, its results of operations, financial condition, business and prospects could be adversely affected.
Economic conditions or changing consumer preferences could adversely impact our business.
A downturn in economic conditions in one or more of the Company’s markets could have a material adverse effect on its results of operations, financial condition, business and prospects. Although we attempt to stay informed of customer preferences, any sustained failure to identify and respond to trends could have a material adverse effect on our results of operations, financial condition, business and prospects.
We may be unable to scale our operations successfully.
Our growth strategy will place significant demands on our management and financial, administrative and other resources. Operating results will depend substantially on the ability of our officers and key employees to manage changing business conditions and to implement and improve our financial, administrative and other resources. If the Company is unable to respond to and manage changing business conditions, or the scale of its operations, then the quality of its services, its ability to retain key personnel, and its business could be harmed.
We may be unable to integrate new business entities and manage our growth.
The Company’s ability to manage its growth effectively will require it to continue to improve its operational, financial and management controls and information systems to accurately forecast sales demand, to manage its operating costs, manage its marketing programs in conjunction with an emerging market, and attract, train, motivate and manage its employees effectively. If our management fails to manage the expected growth, our results of operations, financial condition, business and prospects could be adversely affected. In addition, the Company’s growth strategy may depend on effectively integrating future entities, which requires cooperative efforts from the managers and employees of the respective business entities. If our management is unable to effectively integrate our various business entities, our results of operations, financial condition, business and prospects could be adversely affected.
The Company’s success depends upon the ability to adapt to a changing market and continued development of additional services.
Although we expect to provide a broad and competitive range of services, there can be no assurance of acceptance by the marketplace. The procurement of new contracts by the Company’s Affiliated Medical Groups may be dependent upon the continuing results achieved at the current facilities, upon pricing and operational considerations, as well as the potential need for continuing improvement to existing services. Moreover, the markets for such services may not develop as expected nor can there be any assurance that we will be successful in its marketing of any such services.
Changes associated with reimbursement by third-party payers for the Company’s services may adversely affect operating results and financial condition.
The medical services industry is undergoing significant changes with third-party payers that are taking measures to reduce reimbursement rates or in some cases, denying reimbursement altogether. There is no assurance that third party payers will continue to pay for the services provided by our Affiliated Medical Groups. Failure of third party payers to adequately cover the medical services so provided by the Company will have a material adverse affect on our results of operations, financial condition, business and prospects.
The medical services industry is highly regulated and failure to comply with laws and regulations applicable to our business could have an adverse affect on the Company’s financial condition.
The medical services currently provided by our Affiliated Medical Groups and those expected to be provided in the future are subject to stringent federal, state, and local government health care laws and regulations. If we fail to comply with applicable laws, we could be subject to civil or criminal penalties while also being declined participation in Medicare, Medicaid, and other government sponsored health care programs.
Federal and state healthcare reform may have an adverse effect on the Company’s financial condition and results of operations.
Federal and state governments have continued to focus significant attention on health care reform. A broad range of health care reform measures have been introduced in Congress and in state legislatures. It is not clear at this time what proposals, if any, will be adopted, or, if adopted, what effect, if any, such proposals would have on the Company’s business.
Regulatory authorities or other persons could assert that current or future relationships with any acquired companies fail to comply with the anti-kickback law which could adversely affect our business operations.
The anti-kickback provisions of the Social Security Act prohibit anyone from knowingly and willfully (a) soliciting or receiving any remuneration in return for referrals for items and services reimbursable under most federal health care programs or (b) offering or paying any remunerations to induce a person to make referrals for items and services reimbursable under most federal health care programs, which is referred to as the “anti-kickback law”. The prohibited remunerations may be paid directly or indirectly, overtly or covertly, in cash or in kind. If such a claim were successfully asserted, the Company could be subject to civil and criminal penalties and could be required to restructure or terminate the applicable contractual arrangements. If we were subjected to penalties or were unable to successfully restructure our relationships to comply with the anti-kickback law, our results of operations, financial condition, business and prospects could be adversely affected.
Regulatory authorities could assert that acquisitions or service agreements with third parties fail to comply with the federal Stark Law and state laws prohibiting physicians from referring to entities in which they have a financial interest.
The Stark Law prohibits a physician from making a referral to an entity for the furnishing of federally funded designated health services if the physician has a financial relationship with the entity. Designated health services include clinical laboratory services, physical and occupational therapy services, radiology services such as magnetic resonance imaging (MRI) and ultrasound services, radiation therapy services and supplies, durable medical equipment and supplies, and others. More detailed implementing regulations have been promulgated by the United States Department of Health and Human Services. Some states have comparable laws restricting referrals for designated health services paid by any payer. Unless an exception is satisfied, these laws and regulations prevent physician investors and other physicians who have a financial relationship with the Company from referring patients to us for designated health services. The inability of these physicians to refer designated health services to us may have an adverse effect on our financial condition and results of operations. In addition, we could be required to restructure or terminate acquisitions or service agreements to ensure compliance with the Stark Law and applicable rules and regulations. The provisions of the self-referral laws, like all statutes affecting the health care industry, and the regulatory implementation and interpretation of them may change, and the nature and timing of any such change cannot be predicted.
We are subject to information privacy regulations, and our failure to comply with such laws may adversely affect our business operations.
Numerous state, federal and international laws and regulations govern the collection, dissemination, use and confidentiality of patient-identifiable health information, including the Federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and related rules and regulations. The HIPAA Privacy Rule restricts the use and disclosure of patient information and requires entities to safeguard that information and to provide certain rights to individuals with respect to that information. The HIPAA Security Rule establishes elaborate requirements for safeguarding patient information transmitted or stored electronically. We may be required to make costly system purchases and modifications to comply with the HIPAA requirements that will be imposed on us. Our failure to comply with these requirements could result in liability and have a material adverse affect on our results of operations, financial condition, business and prospects.
Our business may expose us to certain potential litigation, which if successful and not covered by existing insurance could have a material adverse effect on our profitability.
The Company’s business may expose it to potential litigation. While we intend to take precautions we deem appropriate, there can be no assurance that we will be able to avoid significant liability or litigation exposure. Service liability insurance is expensive and it may not be available. There can be no assurance that we will be able to obtain such insurance on acceptable terms, if at all, or that we will be able to secure increased coverage or that any insurance policy will provide adequate protection against successful claims, if at all. A successful claim brought against the Company in excess of its insurance coverage would have a material adverse effect upon our results of operations and financial condition.
Compliance with changing regulation of corporate governance and public disclosure, once the Company is subject to such requirements, will result in significant additional expenses.
Changing laws, regulations, and standards relating to corporate governance and public disclosure for public companies, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and various rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), are creating uncertainty for public companies. Following the completion of the transaction with the Acquisition Candidate, theThe Company's management will needcontinue to invest significant time and financial resources to comply with both existing and evolving requirements for public companies, which will lead, among other things, to significantly increased general and administrative expenses and a certain diversion of management time and attention from revenue generating activities to compliance activities.
Risks Relating to Our Common Stock
If we fail to remain current in our SEC reporting obligations, we could be removed from the OTC Bulletin Board,OTCQB, which would adversely affect the market liquidity for our securities.
Companies trading on the OTC Bulletin Board,OTCQB, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board.OTCQB. If we fail to remain current in our reporting requirements, we could be removed from the OTC Bulletin Board.OTCQB. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Our common stock is subject to the “penny stock” rules of the SEC, and trading in our securities is very limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in our securities.
The SEC has adopted Rule 3a51-1 of the Securities and Exchange Act of 1943,1934, as amended, which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:
| · | that a broker or dealer approve a person's account for transactions in penny stocks; and |
| · | the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
| · | obtain financial information and investment experience objectives of the person; and |
| · | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, among other things:
| · | sets forth the basis on which the broker or dealer made the suitability determination; and |
| · | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Efforts to comply with recently enacted changes in federal securities laws will increase our costs and require additional management resources.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the Company’s internal controls over financial reporting in their annual reports on Form 10-K. In addition, the public accounting firm auditing the company’s financial statements must attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting. These requirements are not presently applicable to us but we will become subject to these requirements by the end of our next fiscal year. If and when these regulations become applicable to us, and if we are unable to conclude that we have effective internal controls over financial reporting or if our independent auditors are unable to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our securities. We have not yet begun a formal process to evaluate our internal controls over financial reporting. Given the status of our efforts, coupled with the fact that guidance from regulatory authorities in the area of internal controls continues to evolve, substantial uncertainty exists regarding our ability to comply by applicable deadlines.15
Trading on the OTC Bulletin BoardOTCQB may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the OTC Bulletin Board service of the Financial Industry Regulatory Authority (“FINRA”).OTCQB. Trading in stock quoted on the OTC Bulletin BoardOTCQB is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin BoardOTCQB is not a stock exchange, and trading of securities on the OTC Bulletin BoardOTCQB is often more sporadic than the trading of securities listed on a quotation systemstock exchange like NASDAQ or a stock exchange like the AmericanNew York Stock Exchange. Accordingly, our shareholders may have difficulty reselling any of their shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company’s corporate headquarters is located at 450 North Brand Boulevard, Suite 600, Glendale, California. The lease on our present administrative offices expires on December 31, 2010.2011. We believe our present facilities are adequate to meet our current and projected needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any litigation and, to its knowledge, no action, suit or proceeding has been threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
The Company’sMarket Information
Our common stock was approved for listingis traded on the OTC Bulletin Board,OTCQB under the symbol “AMEH,” on July 13, 2008. The following"AMEH". Following is a table sets forth,presenting the closing sale prices for a share of our common stock by fiscal quarter for the fiscal quarters indicated, highyears 2011 and low sale prices for the common stock on the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. (NASD). The information below reflects inter-dealer prices, without retail mark-up, markdown or commissions, and may not necessarily represent actual transactions. There was little trading in our common stock during the period(s) reflected. 2010
| | High | | | Low | |
Fiscal Year ended January 31, 2011 | | | | | | |
First Quarter | | $ | 0.15 | | | $ | 0.07 | |
Second Quarter | | | 0.10 | | | | 0.08 | |
Third Quarter | | | 0.14 | | | | 0.08 | |
Fourth Quarter | | | 0.18 | | | | 0.11 | |
| | High | | | Low | |
Fiscal Year ended January 31, 2010 | | | | | | |
First Quarter | | $ | 1.70 | | | $ | 0.25 | |
Second Quarter | | | 0.20 | | | | 0.01 | |
Third Quarter | | | 0.10 | | | | 0.01 | |
Fourth Quarter | | | 0.13 | | | | 0.05 | |
As of April 15, 2010, the Company had 27,424,661 common shares outstanding, of which 3,737,185 were free trading.
| | High | | | Low | |
Fiscal Year ended January 31, 2009 | | | | | | |
July 13, 2008 – July 31, 2008 | | $ | 0.0001 | | | $ | 0.0001 | |
Third Quarter | | | 4.25 | | | | 0.0001 | |
Fourth Quarter | | | 4.24 | | | | 0.51 | |
Fiscal Year ended January 31, 2010 | | | | | | |
First Quarter | | $ | 1.70 | | | $ | 0.25 | |
Second Quarter | | | 0.20 | | | | 0.01 | |
Third Quarter | | | 0.10 | | | | 0.01 | |
Fourth Quarter | | | 0.13 | | | | 0.05 | |
Stockholders
As of April 15, 2010,30, 2011, as reported by the Company’s stock transfer agent, there were 324325 holders of record of our common stock.
Dividends
To date, we have not paid any cash dividends on our common stock and we do not contemplate the payment of cash dividends in the foreseeable future. Our future dividend policy will depend on our earnings, capital requirements, financial condition, and other factors considered relevant to our ability to pay dividends.
Stock Option Grants
For the twelve months ended January 31, 2010, we2011, the Company granted no1,150,000 stock options.
Equity Compensation Plan Information
The following table provides information, as of January 31, 2010, with respectoptions to all of our compensation plans under which equity securities are authorized for issuance :management, employees and consultants.
| | | | | | | | Number of securities | |
| | | | | | | | remaining available | |
| | Number of securities | | | | | | for future issuance | |
| | issued upon | | | Weighted-average | | | under equity | |
| | exercise of | | | exercise price of | | | compensation plans | |
| | outstanding options, | | | outstanding options, | | | (excluding securities | |
Plan category | | warrants and rights | | | warrants and rights | | | reflected in column (a)) | |
| | (a) | | | (b) | | | (c) | |
| | | | | | | | | |
Equity compensation plans approved by stockholders | | | – | | | | – | | | | – | |
| | | | | | | | | | | | |
Equity compensation plans not approved by stockholders (1) | | | 815,554 | | | $ | 0.22 | | | | 1,760,000 | |
17
(1) The amounts reported include: (i) 250,000 shares of common stock issued to A. Noel DeWinter, the Company’s Chief Financial Officer, pursuant to an employment agreement with the Company, dated September 10, 2008; (ii) a stock award of 400,000 shares to Kaneohe (Kyle Francis) of which 50,000 shares were issued under a consulting contract signed October 22, 2008, and 350,000 shares issued under a contract dated March 15, 2009; (iii) up to 400,000 shares of common stock issuable to Suresh Nihalani under a director agreement with the Company, dated as October 27, 2008. The shares issuable to Mr. Nihalani will vest ratably over a thirty-six month period commencing December 2008. As of January 31, 2010, 155,554 shares had been issued under the director agreement, and 244,446 shares remained unissued; and (iv) 10,000 shares granted to an employee.
The Company has previously made the following grants of common stock pursuant to compensation plans, none of which were approved by the stockholders: (i) 250,000 shares of common stock were issued to A. Noel DeWinter, the Company’s Chief Financial Officer, pursuant to an employment agreement with the Company, dated September 10, 2008; (ii) a stock award of 400,000 shares was made to Kaneohe (Kyle Francis) of which 50,000 shares were issued under a consulting contract dated October 22, 2008, and 350,000 shares issued under a contract dated March 15, 2009; (iii) the Board of Directors approved a grant of up to 400,000 shares of common stock to Suresh Nihalani under a Director Agreement with the Company, dated as October 27, 2008. The ownership of the shares vests ratably over a thirty-six month period commencing December 2008. As of January 31, 2010, 155,554 shares had vested under the director agreement, and 244,446 shares remained unvested, and (iv) 10,000 shares were granted to an employee.
As of January 31, 2010, there were no other equity compensation plans under which equity securities were authorized for issuance. On March 4, 2010, the Board of Directors of Apollo Medical Holdings, Inc. and three members of our Board that own, in the aggregate, approximately 70% of the outstanding shares of our common stock, approved the adoption of the Apollo Medical Holdings Inc., 2010 Equity Incentive Plan.Plan (the “Plan”). Subject to the adjustment provisions of the 2010 Plan that are applicable in the event of a stock dividend, stock split, reverse stock split or similar transaction, up to 5,000,000 shares of common stock may be issued under the 2010 Plan. As of the date ofJanuary 31, 2011, 666,616 shares had vested under this Report, no grants have been made under the 2010 Equity Incentive Plan. Plan and 533,334 remained unvested.
Recent Sales of Unregistered Securities
We have issued and sold securities of the Company as disclosed below within the last three years. Unless otherwise noted, the following sales of securities were effected in reliance on the exemption from registration contained in Section 4(2) of the Act and Regulation D promulgated there under, and such securities may not be reoffered or sold in the United States by the holders in the absence of an effective registration statement, or valid exemption from the registration requirements, under the Securities Act of 1933 (as amended, the “ Act ”):
During the period from February 1, 2008 through Julyfiscal year ended January 31, 2008, we sold2011, the company issued 350,000 restricted shares Kaneohe Advisors LLC (Kyle Francis) pursuant to a total of 670,000 shares of our common stock to investors for aggregate proceeds of $335,000, at a per share price of $0.50. As part of this issuance, we granted 167,500 warrants to purchase shares of our common stock to such investors.
consulting contract dated October 22, 2008.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENTS’ DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Forward-Looking Statements- Cautionary Statement
The following discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, written, oral or otherwise, are based on the Company’s current expectations or beliefs rather than historical facts concerning future events, and they are indicated by words or phrases such as (but not limited to) “anticipate,” “could,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “think,” “intend,” “plan,” “envision,” “continue,” “intend,” “target,” “contemplate,” “budgeted,” or “will” and similar words or phrases or comparable terminology. Forward-looking statements involve risks and uncertainties. The Company cautions that these statements are further qualified by important economic, competitive, governmental and technological factors that could cause the Company’s business, strategy, or actual results or events to differ materially, or otherwise, from those in the forward-looking statements. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections, and therefore there can be no assurance that any forward-looking statement contained herein, or otherwise made by the Company, will prove to be accurate. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Item 1A “Risk Factors,” and elsewhere in this report. The Company assumes no obligation to update the forward-looking statements.
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT.
Overview and Plan of Operations
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 of Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (i) we are required to make assumptions about matters that are uncertain at the time of the estimate; and (ii) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and meaningfully present our financial condition and results of operations.
We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:
Revenue Recognition
The Company provides hospitalist services to numerous hospitals and other health care providers and recognizes revenue as the services are provided. The Company generates, and segregates, its revenue into three categories: Case Rate, Capitation and Fee for Service. Case Rate and Capitation revenues in each period are recorded upon completion of the services under each contract.
Patient Fee for Service revenues in each period is recorded at amounts reasonably assured to be collected. The percentage of Fee for Service billings that are assumed reasonably collectible are based on experience and are adjusted to reflect actual collections in subsequent periods.
The estimation and the reporting of patient responsibility revenues is highly subjective and depends on the payer mix, contractual reimbursement rates, collection experiences, and other factors.
Direct Costs of Services
Direct Costs include the direct salaries and contract payments to physicians employed by the Company that serve as hospitalists, all employment related taxes, medical and disability insurance costs, premiums for malpractice insurance provided to these physicians, and costs associated with establishing physician privileges.
Management Fees
AMH is charged, and pays, a monthly management fee to AMM. The fee is calculated on a percentage of AMH’s gross revenue that AMH receives for the performance of medical services by AMH. The monthly percentage is established based upon the requirements of AMM. The Management Services Agreement was modified on March 20, 2009 to allow for an adjustment in monthly management fees as needed to cover costs incurred by AMM. These fees are eliminated in consolidation.
FISCAL YEAR ENDED JANUARY 31, 20102011 COMPARED TO FISCAL YEAR ENDED JANUARY 31, 20092010
Net revenue was $2,441,452$3,896,584 for the twelve months ended January 2010,2011, compared to revenues of $1,057,354$2,441,452 for the comparable twelve months ended January 2009.2010. The Company increased the number of contracts hospitals and independent physician associations contracts to 1731 at the end of January 2010. Revenues in fiscal 2010 are comprised of a full twelve months of billings for medical services provided. In fiscal 2009, ended January 31, 2009, the Company only reported management fees charged to its affiliate, AMH, prior to the execution of the Management Services Agreement on August 1, 2008. Subsequent to August 1, 2008, revenues represent the billings by AMH under the various fee structures from health plans, medical groups/IPA’s and hospitals. Consequently, net revenues in fiscal year 2009 include $1,037,559 for the last six months of medical services and two prior quarters of management service fee income totaling $19,795 reported by AMM. Management fee revenues have been eliminated subsequent to August 1, 2008.2011.
Physician practice salaries, benefits and other expenses totaled $1,813,994$3,314,722 for the twelve months ended January 2010,2011, compared to $1,046,103$1,813,994 for the corresponding twelve months ended January 2009.2010. Cost of Services were 74%85% of net revenues for the twelve months ended January 2010, down2011, up from 99%74% of revenues for the comparable twelve month period ended January 2009.2010. Cost of Services includes the payroll and consulting costs of the physicians, all payroll related costs, costs for all medical malpractice insurance and physician privileges. ForThe increase in cost of services is due to start-up losses associated with new contracts, higher stock compensation expense incurred due to stock option grants during the year ended January 2009, Costfourth quarter of Services included all physician service related costs from August 1, 2008 for the last half2011 and lower bad debt expense. The reduction in bad debt is a result of the fiscal yearimproved collections efforts to identify and $34,237 of costs recorded by AMM priortrack payments due to the execution of the Management Agreement on August 1, 2008.company for physician services.
General and administrative expenses decreased $132,968,$127,670, or 16%18%, to $566,649 or 15% of net revenue, for the twelve months ended January 2011, as compared to of $694,319, at 28% of net revenue, for the twelve months ended January 2010, as compared to of $827,287, at 78% of net revenue, for the twelve months ended January 2009.2010. The decrease in General and Administrative costs was due primarily to absence of transaction expenses $278,348 related to the Siclone Merger in 2009.10% Senior Subordinated Callable Convertible Notes 2010 and reduction is certain other expenses. This reduction in expenses was partially offset by higher public-company expenses and costs related to the continuing growth of our operations. In addition, the Company recorded bad debtstock compensation expense of $110,976$11,810 for the twelve months ended January 2011 compared with $0 in the year ended January 2010 for slow paying health care providers.2010.
Depreciation and amortization expense was $35,704$11,198 and $19,780$35,704 for the twelve months ended January 31, 2011 and 2010, and 2009, respectively.
The Company reported a Lossprofit from Operations of $102,515$4,015 for the twelve months ended January 31, 2010,2011, compared to a Loss from Operations of $835,815$102,515 in the fiscal year ended January 31, 2009.2010. The decrease in the Loss from Operations was due to the increased contribution from the growth in revenues, coupled with the decrease in General and Administrative expenses.expenses,
Interest expense and financing costs were $163,931 for the twelve months ended January 31, 2011, compared to interest and financing expenses of $93,066 for the twelve months ended January 31, 2010, compared to interest and financing expenses of $55,200 for the twelve months ended January 31, 2009.2010. Interest expense in 20102011 included $36,458$125,000 of interest expense related to our 10% Senior Subordinated Callable Convertible Notes. Financing fees included a commissionthe amortization of $10,938, a one-time $25,000 financing feepre-paid commissions of $37,500 that were paid to the placement agent on this transaction, and $4,000 for 100,000 shares granted to the agent at closing.agent.
The Company reported a net loss of $196,080$156,331 for the twelve months ended January 31, 2010,2011, favorable by $697,735$39,750 to the net loss of $891,815$196,080 reported for the twelve months ended January 31, 2009.2010. The reduction in net loss was primarily due to the higher revenues reduction of Physician practice salaries, benefits and other expenses as a percentage of revenue, and the decrease in General and Administrative costs in 20102011 from 2009. 2010.
Liquidity and Capital Resources
At January 31, 2010,2011, the Company had cash and cash equivalents of $665,737,$397,101, compared to cash and cash equivalents of $84,161$665,737 at the beginning of the fiscal year at January 31, 2009.2010. The cash balance at January 31, 20102011 included $650,160$389,198 in a money market brokerage account. The Company had no short-termLong-term borrowings at January 31, 2010, compared to $74,782totaled $1,248,588 as of January 31, 2009. Long-term borrowings totaled $1,247,582 as of January 31, 2010,2011, compared to long-term borrowings of $231,218$1,247,582 on January 31, 2009.2010.
Net cash used in operating activities totaled $338,141 in$245,031in the twelve months ended January 31, 2010,2011, compared to net cash used in operations of $645,582$338,141 in the comparable twelvemonthstwelve months ended January 31, 2009.2010. The significantly smallerreduction in net cash used in operating loss in 2010activities was primarily responsible fordue to the improvementhigher revenues and the decrease in the operating cash flow.General and Administrative costs in 2011 from 2010.
Net cash used in operating activities for the twelve months of 20102011 of $338,141$245,031 was comprised of a net loss of $196,080$156,331 for the twelve month period. Adjustments for non-cash charges which include depreciation, bad debt expense, the value of shares issued and shares issuedfor services, option expense, and the amortization of warrant discount, totaled $338,239.$18,310. In addition, net changes in operating assets and liabilities, primarily an increase in outstanding receivables, used cash of $480,300.$290,363.
We did not spend any
Net cash used for investing activities totaled $21,165 in the fiscal year ended January 31, 2010 and 2009. The $19,295 reported for the twelve months ended January 2009, represents31, 2011, compared to net cash used in operations of $0 in the comparable twelvemonths ended January 31, 2010. The increase in net cash balance at AMH asused in operating activities was primarily due to cash associated with improvements to ApolloWeb and purchase of July 31, 2008 which was consolidated into AMM on the execution of the Management Services Fee Agreement as of August 1, 2008.new computers and office equipment.
For the twelve months ended January 31, 2010,2011, net cash provided fromused in financing activities totaled $919,717,$2,440, compared to $656,098$919,717 provided by financing activities for the same period in 2009.2010. The Company did not complete any financing transactions during the twelve months ended January 31, 2011. During fiscal 2010, the Company completed the private placement with Syndicated Capital which provided proceeds of $1,250,000. Concurrent with the receipt of these proceeds, the Company retired the business loan with Wells Fargo Bank of $ 198,000 on October 27, 2009, and the related party convertible note in the amount of $75,000 on October 22, 2009. Three convertible notes, two of which were payable to related parties aggregating to $33,000, were fully paid off in late December 2009.
The Company had no off-balance sheet arrangements during the period ended January 31, 2011.
In fiscal 2009, the Company issued 670,000 shares for $335,000 and borrowed $70,000 from a party related to the CEO of the Company. In addition, the Company, recorded the $198,000 balance on the Wells Fargo Business Loan, on the consolidation of AMH on August 1, 2008.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s financial statements for the fiscal year ended January 31, 20102011 are included in this annual report, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company has carried out an evaluation under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, at January 31, 2010, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective, at a reasonable assurance level, in ensuring that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported as and when required. For a discussion of the reasons on which this conclusion was based, see “Management’s Annual Report on Internal Control over Financial Reporting” below.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. Management must evaluate its internal controls over financial reporting, as required by Sarbanes-Oxley Act. The Company's internal control over financial reporting is a process designed under the supervision of the Company's management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on this evaluation, our management concluded that there were material weaknesses in our internal control over financial reporting as of January 31, 2010.
A material weakness is a significant control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of significant control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following three material weaknesses in our disclosure controls and procedures, and internal controls over financial reporting:
1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures, and concluded that the control deficiency that resulted represented a material weakness.
2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures, and concluded that the control deficiency that resulted represented a material weakness.
3. We do not have review and supervision procedures for financial reporting functions. The review and supervision function of internal control relates to the accuracy of financial information reported. The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information. Due to our size and nature, review and supervision may not always be possible or economically feasible. Management evaluated the impact of our significant number of audit adjustments, and concluded that the control deficiency that resulted represented a material weakness.
Based on the foregoing materials weaknesses, we have determined that, as of January 31, 2010,2011, the effectiveness of our controls and procedures over financial accounting and reporting are insufficient. The Company is taking steps to improve the timeliness and accuracy of its financial information, including the hiring of additional employees to facilitate proper segregation of duties. It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Controls Over Financial Reporting
There has been no change in our internal controls over financial reporting during our most recently completed fiscal quarter (i.e., the three-month period ended January 31, 2010)2011) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth information with respect to the Company’s directors and executive officers, as of the date hereof. Dr. Hosseinion and Dr. Vazquez have served as directors since the formation of the Company on July 3, 2008. Mr. Nihalani was elected a Director on October 27, 2008.
Name | | Age | | Title |
Warren Hosseinion, M.D. | | 38 | | Chief Executive Officer, Director |
Adrian Vazquez, M.D. | | 40 | | President and Chairman of the Board |
A. Noel DeWinterKyle W.D. Francis | | 7137 | | Executive Vice President and Chief Financial Officer |
Suresh Nihalani | | 57 | | Director |
Raouf Khalil | | 57 | | Director |
Warren Hosseinion, M.D. Dr. Hosseinion has served as the Company’s Chief Executive Officer (“CEO”) since July 2008, and prior to that he served as the CEO of ApolloMed Hospitalists beginning in 2001. Dr. Hosseinion received his medical degree from Georgetown University and is a Diplomate of the American Board of Internal Medicine.
Adrian Vazquez, M.D. Dr. Vazquez has served as the Company’s President and Chairman of the Board since 2008. Dr. Vazquez co-founded ApolloMed Hospitalists in 2001, and he has served as President and Chairman of AMH since June 2001. Dr. Vazquez received his medical degree from the University of California, Irvine and is a Diplomate of the American Board of Internal Medicine.
A. Noel DeWinter.Kyle Francis Mr. DeWinter has served as theFrancis joined ApolloMed in February 2009 and was named Chief Financial Officer (“CFO”) since joining the Company in August 2008.December 2010. Prior to joining ApolloMed, he was a member of the Company, Mr. DeWinter served as Chief Financial OfficerHealthcare Services Investment Banking Division of Bridgetech Holdings International, Inc. (“Bridgetech”), from March 2007 through September 2007.Oppenheimer & Co. and CIBC World Markets. Prior to that,joining CIBC World Markets, Mr. DeWinter served as CFO of Retail Pilot, Inc., an affiliate of Bridgetech, since March 2005.Francis worked at Enron Corporation. Mr. DeWinterFrancis holds a BABachelor of Commerce with a major in Economicsfinance and accounting degree from Carleton College and an MBA from the Wharton School at the University of Pennsylvania. McGill University.
Suresh Nihalani was President and CEO of ClearMesh Network from 2005 to 2007. He also co-founded Nevis Networks, where he served as CEO from 2002 through 2005. Prior to Nevis Networks, he co-founded Accelerated Networks and ACT Networks. Mr. Nihalani holds a BS in Electrical Engineering from ITT Bombay and MSEE and MBA degrees from the Florida Institute of Technology. Raouf Khalil Mr. Khalil joined ApolloMed in February 2011. Mr. Khalil was the co-founder and CEO of Care Level Management Group LLC. Mr. Khalil also founded and managed Mobile Doctors 24-7 International and Professional Home Health Services. Mr. Khalil received an MBA from University of Southern California in 1981.
Family Relationships
There are no family relationships among the directors and executive offices identified in this report.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors, and persons who beneficially own more than 10% of a registered class of our equity securities (“10% stockholders”) to file reports of ownership and changes in ownership with the SEC. Officers, directors, and 10% stockholders also are required to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely upon a review of the copies of such reports furnished to us and written representations provided by our officers, directors and 10% stockholders, Warren Hosseinion, M.D., Adrian Vazquez, M.D. A. Noel DeWinterKyle Francis and Suresh NihalaniRaouf Khalil have not yet filed their Initial Statements of Beneficial Ownership on Form 3, and Messers DeWinterWarren Hosseinion, M.D., Adrian Vazquez, M.D. and NihalaniKyle Francis have not metyet filed their filing requirements under Section 16(a) with respect to the equity compensation grants made to them as described under Item 11, Executive Compensation. Statement of Changes of Beneficial Ownership of Securities on Form 4.
Code of Ethics
The Company has not yet adopted a code of ethics, in part because we recently commenced business operations and have a limited number of employees. As the Company grows its business, and hires additional employees, we expect to adopt a code of ethics applicable to the conduct of our employees.
Committees of the Board of Directors
Our common stock is currently quoted on the OTC Bulletin BoardOTCQB electronic trading platform, which does not maintain any standards requiring us to establish or maintain an Audit, Nominating or Compensation committee. As of January 31, 2010,2011, our Board of Directors did not maintain an Audit Committee, Nominating Committee or Compensation Committee. The entire Board of Directors is acting as the Company’s audit committee, and the Board of Directors has determined that no current director is an “audit committee financial engineer”expert” as defined by item 407 of Regulation [5-12].S-K.
ITEM 11. EXECUTIVE COMPENSATION
The following table discloses the compensation awarded to, earned by, or paid to the our executive officers for the fiscal years ended January 31, 2011 and 2010, and 2009, respectively:
Summary Compensation Table
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | Non-Qualified | | | | | | | | | | | | | | | | | | | | | | | Non- Qualified | | | | |
Name and | | | | | | | | | | | | | | | | Non-Equity | | | Deferred | | | | | | | | | | | | | | | | | Stock | | | Non-Equity | | | Deferred | | | | |
Principal Position | | Year | | Salary | | | Bonus | | | Stock Awards(3) | | | Option Awards | | | Incentive Plan Compensation | | | Compensation Earnings | | | All Other Compensation | | | Total | | | Year | | Salary | | | Bonus | | | Awards (3) | | | Incentive Plan Compensation | | | Compensation Earnings | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Warren Hosseinion, M. D. | | 2010 | | $ | 353,285 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | $ | 353,285 | | | 2010 | | $ | 385,013 | | | | - | | | $ | 12,619 | | | | - | | | | - | | | $ | 397,632 | |
Chief Executive Officer(1) | | 2009 | | $ | 239,830 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | $ | 239,830 | | | 2009 | | $ | 353,285 | | | | - | | | | - | | | | - | | | | - | | | $ | 353,285 | |
| | 2008 | | $ | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | $ | 0 | | | 2008 | | $ | 239,830 | | | | - | | | | - | | | | - | | | | - | | | $ | 239,830 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adrian Vazquez, M.D. | | 2010 | | $ | 361,097 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | $ | 361,097 | | | 2010 | | $ | 382,920 | | | | - | | | $ | 12,619 | | | | - | | | | - | | | $ | 395,539 | |
President and Chairman(1) | | 2009 | | $ | 256,720 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | $ | 256,720 | | | 2009 | | $ | 361,097 | | | | - | | | | - | | | | - | | | | - | | | $ | 361,097 | |
| | 2008 | | $ | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | | | 2008 | | $ | 256,720 | | | | - | | | | - | | | | - | | | | - | | | $ | 256,720 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
A. Noel DeWinter | | 2009 | | $ | 85,000 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | $ | 85,000 | | | 2010 | | $ | 96,000 | | | | - | | | $ | 5,500 | | | | - | | | | - | | | $ | 101,500 | |
Chief Financial Officer (2) | | 2008 | | $ | 33,500 | | | | 0 | | | | 67,500 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | $ | 101,000 | | | 2009 | | $ | 85,000 | | | | - | | | | - | | | | - | | | | - | | | $ | 85,000 | |
| | 2008 | | $ | 0 | | | | 0 | | | | 0 | | | | | | | | 0 | | | | 0 | | | | 0 | | | | | | | 2008 | | $ | 33,500 | | | | - | | | $ | 67,500 | | | | - | | | | - | | | $ | 101,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kyle Francis | | | 2010 | | $ | 11,000 | | | | - | | | $ | 6,310 | | | | - | | | | - | | | $ | 17,310 | |
Chief Financial Officer (4) | | | 2009 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | 2008 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
(1) The reported compensation for Dr. Hosseinion and Dr. Vazquez is a fixed annual amount and is generated from patient care activities. [to be discussed with Alison]
(2) Mr. DeWinter joined the Company on August 1, 2008. On December 28, 2010, Mr. DeWinter announced his retirement, effective December 31, 2010.
(3) The amount shown in this column reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.
(4) Mr. Francis was appointed as Chief Financial Officer, effective December 31, 2010. Prior to being appointed Chief Financial Officer, Mr. Francis served as the Executive Vice President of Business Development and Strategy. Mr. Francis will continue to serve in that function as well as Chief Financial Officer.
Employment Agreements
On September 4, 2008, Apollo Medical Management, Inc. executed an employment agreement with Jilbert Issai, M.D., to provide services as Senior Vice President. The agreement is for an initial one-year term with provision for successive one-year periods. Under the agreement, Doctor Issai is entitled to a nominal salary and may be granted options to purchase an aggregate of 300,000 shares of the Company’s common stock at an exercise price of $.15 per share when and if the Company is to adopt a stock compensation plan.
On September 10, 2008, the Company entered into an employment agreement with A. Noel DeWinter pursuant to which Mr. DeWinter agreed to serve as the Chief Financial Officer of the Company. Under the employment agreement, Mr. DeWinter is entitled to a base salary of $7,000 per month, and reimbursement of reasonable travel and other expenses. In addition, pursuant to the employment agreement, the Company issued to Mr. DeWinter a stock award of 250,000 shares of common stock.
Outstanding Equity Awards at Fiscal Year-End
As discussed above, Mr. DeWinter was granted a stock award of 250,000 shares in September 2008. Such shares were fully vested at the time of grant. There were no other equity awards outstanding for the named executive officers for the fiscal year ended January 31, 2010.
On March 4, 2010, the Board of Directors of Apollo Medical Holdings, Inc. and three members of our Board that own, in the aggregate, approximately 70% of the outstanding shares of our common stock, approved the adoption of the Apollo Medical Holdings Inc., 2010 Equity Incentive Plan. Subject to the adjustment provisions of the 2010 Plan that are applicable in the event of a stock dividend, stock split, reverse stock split or similar transaction, up to 5,000,000 shares of common stock may be issued under the 2010 Plan. AsDuring the fiscal year ended January 31, 2011, 1,150,000 options were granted to management, directors and independent contractors of the datewhich 616,666 were exercisable as of this Report, no grants have been made under the 2010 Equity Incentive Plan.January 31, 2011 at an exercise price of $0.15 per stock option.
Director Compensation
On October 27, 2008, we entered into a Director Agreement with Suresh Nihalani. Under the agreement, Mr. Nihalani has the right to receive up to 400,000 shares of common stock, issued ratably over a 36 month period commencing December 2008 so long as Mr. Nihalani continues to serve as a director. As of January 31, 2010, 155,5542011, 188,887 shares had been issued pursuant to the agreement. Mr. Nihalani also receives $1,000 for each meeting of the Board of Directors and $1,200 per day for any time Mr. Nihalani is required to travel out-of-town on behalf of the Company.
On July 16, 2010, the Director Agreement with Mr. Nihalani was amended to modify the manner in which Mr. Nihalani received shares from that date forward. Under the terms of the amended contract, Mr. Nihalani purchased 211,113 “Purchased Shares” of the Company’s Common Stock at a purchase price of $0.001 per share. The Purchased Shares are restricted securities under the Securities Act of 1933 (the “1933 Act”) and may not be resold or transferred unless the Purchased Shares are first registered under the federal securities laws or unless an exemption from such registration is available.
The Corporation shall not be required (i) to transfer on its books any Purchased Shares that have been sold or transferred in violation of the provisions of this section or (ii) to treat as the owner of the Purchased Shares, or otherwise to accord voting or dividend rights to, any transferee to whom the Purchased Shares have been transferred in contravention of the Directors Agreement, including this Amendment.
All of our remaining directors are named executedexecutive officers whose compensation is fully reflected in the Summary Compensation Table. None of our remaining directors received any compensation solely for their services as directors.
| | Fees Earned or Paid in Cash ($) | | | | | | | | | Non-Equity Incentive Plan Compensation ($) | | | Nonqualified Deferred Compensation Earnings | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Suresh Nihalani | | $ | 2,000 | | | $ | 8,045 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | $ | 10,045 | |
25
Name | | Fees Earned or Paid in Cash ($) | | | Stock Awards ($)(1) | | | Option Awards ($) | | | Non-Equity Incentive Plan Compensation ($) | | | Nonqualified Deferred Compensation Earnings | | | All Other Compensation ($) | | | Total ($) | |
| | | | | | | | | | | | | | | | | | | | | |
Suresh Nihalani | | $ | 3,000 | | | $ | 30,067 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | $ | 33,067 | |
(1) The amount shown in this column reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for the year of grant.
[See Reg S-K, Item 402(r)(2)(iii)]ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of April 15, 2010,30, 2011, with respect to (i) those persons known to us to beneficially own more than 5% of our voting securities, (ii) each of our directors, (iii) each of our executive officers, and (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act. Except as indicated below, the beneficial owners have sole voting and dispositive power with respect to the shares beneficially owned. As of April 15, 2010,30, 2011, there were 27,424,66128,985,774 shares of the Company’s common stock issued and outstanding, of which 3,737,1854,892,236 are free trading shares and 23,687,47624,093,538 are restricted shares.
Name and Address of Beneficial Owner (1) | | Shares Beneficially Owned (2) | | | Percent of Class (3) | |
Certain Beneficial Owners: | | | | | | |
| | | - | | | | - | |
| | | | | | | | |
Directors/Named Executive Officers: | | | | | | | | |
Warren Hosseinion, M.D. | | | 9,123,387 | | | | 31.4 | % |
Adrian Vazquez, M.D | | | 9,123,387 | | | | 31.4 | % |
A. Noel DeWinter | | | 250,000 | | | | — | |
Suresh Nihalani | | | 400,000 | | | | 1.4 | % |
Kyle Francis | | | 1,100,000 | | | | 3.8 | % |
All Named Executive Officers and Directors as a group (4 persons) | | | 19,646,774 | | | | 67.8 | % |
Name and Address of Beneficial Owner (1) | | Shares Beneficially Owned (2) | | | Percent of Class (3) | |
Certain Beneficial Owners: | | | | | | | | |
| | | - | | | | - | |
| | | | | | | | |
Directors/Named Executive Officers: | | | | | | | | |
Warren Hosseinion, M.D. | | | 9,123,387 | | | | 33.3 | % |
Adrian Vazquez, M.D | | | 9,123,387 | | | | 33.3 | % |
A. Noel DeWinter | | | 250,000 | | | | — | |
Suresh Nihalani | | | 155,554 | | | | — | |
All Named Executive Officers and Directors as a group (4 persons) | | | 18,652,328 | | | | 66.6 | % |
(1) Unless otherwise indicated, the business address of each person listed is c/o Apollo Medical Holdings, Inc., 450 N. Brand Blvd., Suite 600, Glendale, California 91203.
(2) For purposes of this table, shares are considered beneficially owned if the person directly or indirectly has the sole or shared power to vote or direct the voting of the securities or the sole or shared power to dispose of or direct the disposition of the securities. Shares are also considered beneficially owned if a person has the right to acquire beneficial ownership of the shares within 60 days of April 15, 2010.30, 2011. AMH is 100% owned by Dr Hosseinion and Dr. Vazquez. Dr. Hosseinion and Dr. Vazquez are officers and Directors of Apollo.
(3) The percentages are calculated based on the actual number of shares issued and outstanding as of April 15, 2010,30, 2011, which is 27,424,66128,985,774.
Equity Compensation Plan Information
The following table provides information, as of January 31, 2011, with respect to all of our compensation plans under which equity securities are authorized for issuance :
| | | | | | | | Number of securities | |
| | | | | | | | remaining available | |
| | Number of securities | | | | | | for future issuance | |
| | to be issued upon | | | Weighted-average | | | under equity | |
| | exercise of | | | exercise price of | | | compensation plans | |
| | outstanding options, | | | outstanding options, | | | (excluding securities | |
Plan category | | warrants and rights | | | warrants and rights | | | reflected in column (a)) | |
| | (a) | | | (b) | | | (c) | |
| | | | | | | | | |
Equity compensation plans approved by stockholders | | | | | | | | | | | | |
| | | | | | | | | | | | |
Equity compensation plans not approved by stockholders (1) | | | 1,150,000 | | | $ | 0.15 | | | | 3,850,000 | |
| | | | | | | | | | | | |
Total | | | 1,150,000 | | | | | | | | 3,850,000 | |
(1) The amounts reported include: (i) 250,000 shares of common stock issued to A. Noel DeWinter, the Company’s Chief Financial Officer, pursuant to an employment agreement with the Company, dated September 10, 2008; (ii) a stock award of 400,000 shares to Kaneohe (Kyle Francis) of which 50,000 shares were issued under a consulting contract signed October 22, 2008, and 700,000 shares issued under a contract dated March 15, 2009; (iii) up to 400,000 shares of common stock issuable to Suresh Nihalani under a director agreement with the Company, dated as October 27, 2008. On July 16, 2010, the Director Agreement with the Company was amended. Under the terms of the amendment, Mr. Nihalani purchased 211,113 shares of the Company’s common stock at a purchase price of $0.001. Prior to the amendment, and as of January 31, 2011, 188,887 shares had vested under the Director Agreement; and (iv) 10,000 shares granted to an employee.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
During the twelve months ended January 31, 20102011 and 2009,2010, the Company generated revenue of $395,135$577,000 and $90,500,$395,135, respectively, by providing management services to ApolloMed Hospitalists (AMH), an affiliated company with common ownership interest. Commencing August 1, 2008, the management services fee income reported by AMM was eliminated in consolidation against similar costs recorded at AMH. The Company borrowed $70,000 on a short-term promissory note in the quarter ended July 2008 from a related party of the Chief Executive officer of the Company. The $70,000 note was due and payable in full no later than October 1, 2008, carries no interest rate, and the Company was obligated to pay an origination fee of $5,000 at the time of payoff. The note was extended by verbal agreement on its expiration date with no change in terms. On January 24, 2009, the Company formalized the note extension. Under the terms of the new note, the $5,000 origination fee was added to the note, the due date was extended to March 31, 2011, the interest rate was set at 8% and the note was convertible into 214,285 shares of common stock. The Company paid the note off in full, with accrued interest, on October 22, 2009.
In addition, during the fourth quarter of 2009, we issued convertible notes in amounts aggregating to $23,000 to two relatives of Warren Hosseinion, the Company’s Chief Executive Officer. These were paid off in full plus accrued interest on December 28, 2009.
Our common stock is quoted on the OTC Bulletin BoardOTCQB electronic trading platform, which does not maintain any standards regarding the “independence” of the directors on our Company’s Board, and we are not otherwise subject to the requirements of any national securities exchange or an inter-dealer quotation system with respect to the need to have a majority of our directors be independent. In the absence of such requirements, we have elected to use the definition for director independence under the NASDAQ stock market’s listing standards, which defines an independent director as “a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship, which in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.” The definition further provides that, among others, employment of a director by us (or any parent or subsidiary of ours) at any time during the past three years is considered a bar to independence regardless of the determination of our Board. Based on the foregoing standards, we have determined that Suresh Nihalani is our only “independent” director.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees for professional services rendered by Kabani and Company to us for the fiscal years ended January 31, 20102011 and January 31, 20092010 were as follows:
| | Fiscal Year Ended 1/31/2010 | | | Fiscal Year Ended 1/31/2009 | | | Fiscal Year Ended 1/31/2011 | | | Fiscal Year Ended 1/31/2010 | |
Audit fees | | $ | 35,000 | | $ | 27,000 | | | $ | 27,000 | | | $ | 35,000 | |
Audit-related fees | | | - | | - | | | | - | | | | - | |
Tax fees(1) | | $ | - | | - | | | $ | - | | | | - | |
All other fees | | | - | | | - | | | | - | | | | - | |
Total | | $ | 35,000 | | $ | 35,000 | | | $ | 27,000 | | | $ | 35,000 | |
(1) Tax Returns for the Company were completed by a local CPA firm. The Company paid $1,200 to such firm for 20102011 and $3,000$1,200 for 2009.2010.
Notes:
(A) Audit fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review of our financial statements included in our Form 10-Q quarterly reports and services that are normally provided in connection with statutory or regulatory filings for the 20092010 and 20102011 fiscal years.
(B) Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported above under “Audit Fees.”
(C) Tax fees represent fees for professional services related to tax compliance, tax advice and tax planning.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| (a) | Please see the Report of our Independent Registered Public Accounting Firm, and related financial statements for our fiscal year ended January 31, 2010,2011, beginning on page F-1 of this Form 10-K. |
Number | | Exhibit |
3.1 | | Certificate of Incorporation (filed as an exhibit to Registration Statement on Form 10 filed on April 19, 1999, and incorporated herein by reference). |
3.2 | | Certificate of Ownership (filed as an exhibit to Current Report on Form 8-K filed on July 15, 2008, and incorporated herein by reference). |
3.3 | | Bylaws (filed as an exhibit to Registration Statement on Form 10 filed on April 19, 1999, and incorporated herein by reference). |
4.1 | | Form of 10% Senior Subordinated Convertible Note, dated October 16, 2009. *(filed as an exhibit on Annual Report on Form 10-K on May 14, 2010, and incorporated herein by reference) |
4.2 | | Form of Investor Warrant, dated October 16, 2009, for the purchase of 25,000 shares of common stock. * |
10.1 | | Employment Agreement with A. Noel DeWinter (filed as an exhibit to Currenton Annual Report on Form 8-K filed10-K on September 11, 2008,May 14, 2010, and incorporated herein by reference). |
| | |
10.2 | | Management Services Agreement dated August 1, 2008, between Apollo Medical Management and ApolloMed Hospitalists (filed as an exhibit on Quarterly Report on Form 10-Q on December 22, 2008, and incorporated herein by reference). |
10.3 | | Director Agreement, dated October 27, 2008, between the Company and Suresh Nihalani. *(filed as an exhibit on Annual Report on Form 10-K on May 14, 2010, and incorporated herein by reference) |
| | |
10.4 | | Management Services Agreement dated March 20, 2009, between Apollo Medical Management and ApolloMed Hospitalists (filed as an exhibit on Annual Report on Form 10-K on May 18, 2009, and incorporated herein by reference). |
10.5 | | 2010 Equity Compensation Plan (filed as an exhibit to Current Report on Form 8-K filed on March 9, 2010, and incorporated herein by reference). |
21.1 | | Subsidiaries of Apollo Medical Holdings, Inc.* |
23.1 | | Consent of Kabani and Company. * |
31.1 | | Rule 13a-14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * |
31.2 | | Rule 13a-14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * |
32.1 | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * |
32.2 | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * |
* Filed herewith.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| APOLLO MEDICAL HOLDINGS, INC. |
| | |
Date: May 14, 201016, 2011 | By: | /s/ WARREN HOSSEINION, M.D |
| | Warren Hosseinion, M.D., |
| | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
| | TITLE | | DATE |
| | | | |
/S/ WARREN HOSSEINION, M.D. | | Chief Executive Officer, | | May 14, 2010 |
Warren Hosseinion, M.D. | | | | |
| | | | |
/S/ ADRIAN VAZQUEZ, M.D. | | President and Chairman of the Board | | May 14, 201016, 2011 |
Adrian Vazquez, M.D. | | | | |
| | | | |
/S/ A. NOEL DeWinterKYLE FRANCIS | | Chief Financial Officer | | May 14, 201016, 2011 |
A. Noel DeWinterKyle Francis | | | | |
FINANCIAL STATEMENTS - TABLE OF CONTENTS:
| Page |
| |
Report of independent registered public accounting firm | F-2 |
| |
Financial statements: | |
Consolidated balance sheets | F-3 |
Consolidated statements of operations | F-4 |
Consolidated statements of changes in stockholders’ equitydeficit | F-5 |
Consolidated statements of cash flows | F-6 |
Notes to consolidated financial statements | F-7 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Apollo Medical Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Apollo Medical Holdings, Inc as of January 31, 20102011 and 20092010 and the related consolidated statements of operations, stockholders' equity,deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Apollo Medical Holdings, Inc as of January 31, 20102011 and 2009,2010, and the results of their operations and their cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.
The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has accumulated deficit of $1,241,031$1,397,363 as of January 31, 2010,2011, working capital of $1,075,499$1,104,738 and cash flows used in operating activities of $338,141.$245,031. This factor, as discussed in Note 3 to the financial statements raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to the matter are also described in Note 3. The statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Kabani & Company, Inc.
Certified Public Accountants
Los Angeles, California
May 14, 201016, 2011
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
FOR THE YEARYEARS ENDED JANUARY 31, 20102011 AND 2009
2010
| | January 31, | | | January 31, | |
| | 2010 | | | 2009 | | | 2011 | | 2010 | |
CURRENT ASSETS | | | | | | | | | | | |
Cash and cash equivalents | | $ | 665,737 | | | $ | 84,161 | | | $ | 397,101 | | $ | 665,737 | |
Accounts receivable, net | | | 457,517 | | | | 255,665 | | | 704,971 | | 457,517 | |
Receivable from officers | | | 23,483 | | | | - | | | 24,873 | | 23,483 | |
Due from affiliate | | | 2,850 | | | | 2,050 | | | 3,900 | | 2,850 | |
Prepaid expenses | | | 30,165 | | | | 25,025 | | | 29,138 | | 30,165 | |
Prepaid financing cost, current | | | 37,500 | | 37,500 | |
Total current assets | | | 1,179,751 | | | | 366,902 | | | 1,197,483 | | 1,217,251 | |
| | | | | | | | | | | | | |
Prepaid financing cost | | | 114,063 | | | | - | | |
Property and equipment - net | | | 11,627 | | | | 47,330 | | |
Prepaid financing cost, long term | | | 39,500 | | 76,563 | |
Property and equipment – net | | | 21,593 | | 11,627 | |
| | | | | | | | | | | | | | | |
TOTAL ASSETS | | $ | 1,305,441 | | | $ | 414,232 | | | $ | 1,258,139 | | $ | 1,305,441 | |
| | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 104,252 | | | $ | 349,141 | | | $ | 92,745 | | $ | 104,252 | |
Convertible notes | | | - | | | | 10,000 | | |
Convertible notes payable-related party | | | - | | | | 23,000 | | |
Current portion of line of credit | | | - | | | | 41,782 | | |
Total current liabilities | | | 104,252 | | | | 423,923 | | | | 92,745 | | 104,252 | |
| | | | | | | | | | | | | |
Line of credit | | | - | | | | 156,218 | | |
Convertible Notes | | | 1,247,582 | | | | - | | |
Convertible notes payable-related party | | | - | | | | 75,000 | | |
Convertible notes | | | | 1,248,588 | | | 1,247,582 | |
Total liabilities | | | 1,351,834 | | | | 655,141 | | | 1,341,333 | | 1,351,834 | |
| | | | | | | | | |
Commitments and contingency | | | - | | | | - | | |
| | | | | | | | | | | | | |
STOCKHOLDERS' DEFICIT: | | | | | | | | | | | | | |
Preferred stock, par value $0.001 ; 5,000,000 shares authorized; none issued | | | - | | | | - | | | - | | - | |
Common Stock, par value $0.001; 100,000,000 shares authorized, 27,041,328 and 25,870,220 shares issued and outstanding as on January 31, 2010 and 2009, respectively | | | 27,041 | | | | 25,870 | | |
Common Stock, par value $0.001; 100,000,000 shares authorized, 27,635,774 and 27,041,328 shares issued and outstanding as on January 31, 2011 and 2010, respectively | | | 27,636 | | 27,041 | |
Additional paid-in-capital | | | 939,483 | | | | 550,058 | | | 1,058,418 | | 939,483 | |
Accumulated deficit | | | (1,241,031 | ) | | | (1,044,951 | ) | | | (1,397,363 | ) | | | (1,241,031 | ) |
Total | | | (274,507 | ) | | | (469,024 | ) | | (311,309 | ) | | (274,507 | ) |
Non-controlling interest | | | 228,115 | | | | 228,115 | | | | 228,115 | | | 228,115 | |
Total stockholders' deficit | | | (46,393 | ) | | | (240,909 | ) | | (83,194 | ) | | (46,393 | ) |
| | | | | | | | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 1,305,441 | | | $ | 414,232 | | | $ | 1,258,139 | | $ | 1,305,441 | |
The accompanying notes are an integral part of these consolidated financial statements
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 20102011 AND 20092010
| | For the years ended | | | For the years ended | |
| | January 31, | | | January 31, | |
| | 2010 | | | 2009 | | | 2011 | | 2010 | |
| | | | | | | | | | | |
REVENUES | | $ | 2,441,452 | | | $ | 1,057,354 | | | $ | 3,896,584 | | | $ | 2,441,452 | |
COST OF SERVICES | | | 1,813,944 | | | | 1,046,103 | | | | 3,314,722 | | | | 1,813,944 | |
GROSS REVENUE | | | 627,508 | | | | 11,251 | | | | 581,862 | | | | 627,508 | |
| | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | |
General and administrative | | | 694,319 | | | | 827,287 | | | | 566,649 | | | | 694,319 | |
Depreciation | | | 35,704 | | | | 19,780 | | | | 11,198 | | | | 35,704 | |
Total operating expenses | | | 730,023 | | | | 847,067 | | | | 577,847 | | | | 730,023 | |
| | | | | | | | | | | | | | | |
LOSS FROM OPERATIONS | | | (102,515 | ) | | | (835,816 | ) | |
INCOME (LOSS) FROM OPERATIONS | | | | 4,015 | | | | (102,515 | ) |
| | | | | | | | | | | | | |
OTHER EXPENSES: | | | | | | | | | | | | | |
Interest expense | | | 53,128 | | | | 8,950 | | | | (126,431 | ) | | | (53,128 | ) |
Financing cost | | | 39,938 | | | | 46,250 | | | | (37,500 | ) | | | (39,938 | ) |
Other expense | | | (300 | ) | | | - | | |
Other income | | | | 5,185 | | | | 300 | |
Total other expenses | | | 92,766 | | | | 55,200 | | | | 158,746 | | | | 92,766 | |
| | | | | | | | | | | | | | | |
LOSS BEFORE INCOME TAXES | | | (195,280 | ) | | | (891,015 | ) | | | (154,731 | ) | | | (195,280 | ) |
| | | | | | | | | | | | | |
Provision for income tax | | | 800 | | | | 800 | | | | 1,600 | | | | 800 | |
| | | | | | | | | | | | | | | |
NET LOSS | | $ | (196,080 | ) | | $ | (891,815 | ) | | $ | (156,331 | ) | | $ | (196,280 | ) |
| | | | | | | | | | | | | |
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING, | | | | | | | | | |
BASIC AND DILUTED | | | 26,491,052 | | | | 24,007,988 | | |
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING, BASIC AND DILUTED | | | | 27,490,476 | | | | 26,491,052 | |
| | | | | | | | | | | | | |
*BASIC AND DILUTED NET LOSS PER SHARE | | $ | (0.01 | ) | | $ | (0.04 | ) | | $ | (0.00 | ) | | $ | (0.01 | ) |
*Weighted average number of shares used to compute basic and diluted loss per share is the same since the effect of dilutive securities is anti-dilutive.
The accompanying notes are an integral part of these consolidated financial statements
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JANUARY 31, 20102011 AND 20092010
| | Common Stock | | | | | | Non-controlling | | | (Accumulated | | | Stockholder's | | | Common Stock | | | | | | Non- controlling | | | Accumulated | | | Stockholder's | |
| | Shares | | | Amount | | | APIC | | | Interest | | | Deficit) | | | Equity (Deficit) | | | Shares | | | Amount | | | APIC | | | Interest | | | Deficit | | | Deficit | |
Balance at January 31, 2008 | | | 20,933,490 | | | $ | 20,933 | | | $ | 161,067 | | | $ | - | | | $ | (153,136 | ) | | $ | 28,864 | | |
Issuance of shares by AMM | | | - | | | | - | | | | 335,000 | | | | - | | | | - | | | | 335,000 | | |
Recapitalization due to reverse acquisition | | | 4,606,932 | | | | 4,607 | | | | (35,206 | ) | | | - | | | | - | | | | (30,599 | ) | |
Shares issued for finance charge | | | 50,000 | | | | 50 | | | | 13,450 | | | | - | | | | - | | | | 13,500 | | |
Shares issued for service | | | 279,798 | | | | 280 | | | | 75,266 | | | | - | | | | - | | | | 75,546 | | |
Non-controlling Interest | | | - | | | | - | | | | - | | | | 228,115 | | | | - | | | | 228,115 | | |
Issuance of warrants | | | - | | | | - | | | | 481 | | | | - | | | | - | | | | 481 | | |
Net Loss | | | - | | | | - | | | | - | | | | - | | | | (891,815 | ) | | | (891,815 | ) | |
Balance at January 31, 2009 | | | 25,870,220 | | | | 25,870 | | | | 550,058 | | | | 228,115 | | | | (1,044,951 | ) | | | (240,909 | ) | | | 25,870,220 | | | $ | 25,870 | | | $ | 550,058 | | | $ | 228,115 | | | $ | (1,044,951 | ) | | $ | (240,909 | ) |
Shares issued for service | | | 804,443 | | | | 804 | | | | 183,139 | | | | - | | | | - | | | | 183,943 | | | | 804,443 | | | | 804 | | | | 183,139 | | | | - | | | | - | | | | 183,943 | |
Shares issued for financing cost | | | 100,000 | | | | 100 | | | | 3,900 | | | | - | | | | - | | | | 4,000 | | | | 100,000 | | | | 100 | | | | 3,900 | | | | - | | | | - | | | | 4,000 | |
Shares issued for convertible notes payable | | | 266,665 | | | | 267 | | | | 199,733 | | | | - | | | | - | | | | 200,000 | | | | 266,665 | | | | 267 | | | | 199,733 | | | | - | | | | - | | | | 200,000 | |
Unamortized warrant discount | | | - | | | | - | | | | 2,653 | | | | - | | | | - | | | | 2,653 | | | | - | | | | - | | | | 2,653 | | | | - | | | | - | | | | 2,653 | |
Net Loss | | | - | | | | - | | | | - | | | | - | | | | (196,080 | ) | | | (196,080 | ) | | | - | | | | - | | | | - | | | | - | | | | (196,080 | ) | | | (196,080 | ) |
Balance at January 31, 2010 | | | 27,041,328 | | | $ | 27,041 | | | $ | 939,483 | | | $ | 228,115 | | | $ | (1,241,031 | ) | | $ | (46,393 | ) | | | 27,041,328 | | | | 27,041 | | | | 939,483 | | | | 228,115 | | | | (1,241,031 | ) | | | (46,393 | ) |
Shares issued for service | | | | 594,446 | | | | 595 | | | | 46,783 | | | | - | | | | - | | | | 47,378 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Non-cash stock-based compensation charges | | | | - | | | | - | | | | 72,152 | | | | - | | | | - | | | | 72,152 | |
Net Loss | | | | - | | | | - | | | | - | | | | - | | | | (156,331 | ) | | | (156,331 | ) |
Balance at January 31, 2011 | | | | 27,635,794 | | | $ | 27,636 | | | $ | 1,058,418 | | | $ | 228,115 | | | $ | (1,397,362 | ) | | $ | (83,194 | ) |
The accompanying notes are an integral part of these consolidated financial statements
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 20102011 AND 2009
2010
| | Years ended January 31, | | | Years ended January 31, | |
| | 2010 | | | 2009 | | | 2011 | | 2010 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | |
Net loss | | $ | (196,080 | ) | | $ | (891,815 | ) | | $ | (156,331 | ) | | $ | (196,080 | ) |
Adjustments to reconcile net loss to net cash (used in) operating activities: | | | | | | | | | | | | | | | | |
Depreciation | | | 35,703 | | | | 19,780 | | | | 11,198 | | | | 35,703 | |
Bad debt expense | | | 114,358 | | | | 22,963 | | | | 42,908 | | | | 114,358 | |
Issuance of shares for services | | | 183,944 | | | | 75,545 | | | | 47,378 | | | | 183,944 | |
Shares issued as finance charge | | | 4,000 | | | | 13,500 | | | | - | | | | 4,000 | |
Stock option expense | | | 72,152 | | - | |
Amortization of debt discount | | | 235 | | | | 481 | | | | 1,006 | | | | 235 | |
Changes in assets and liabilities: | | | | | | | | | | | | | |
Accounts receivable | | | (316,208 | ) | | | 25,183 | | | | (290,363 | ) | | | (316,208 | ) |
Prepaid financing cost | | | (114,063 | ) | | | - | | | | 37,500 | | | | (114,063 | ) |
Prepaid expenses | | | (5,140 | ) | | | (9,306 | ) | | | 1,027 | | | | (5,140 | ) |
Accounts payable and accrued liabilities | | | (44,889 | ) | | | 108,087 | | | | (11,507 | ) | | | (44,889 | |
Net cash used in operating activities | | | (338,141 | ) | | | (635,582 | ) | | | (245,031 | ) | | | (338,141 | ) |
| | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | |
Cash acquired through acquisition | | | - | | | | 19,295 | | |
Cash paid for purchase of property and equipment | | | | (21,165 | ) | | | - | |
| | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | |
Payments of line of credit | | | (198,000 | ) | | | - | | | | - | | | | (198,000 | ) |
Proceeds from notes payable | | | - | | | | 250,000 | | |
Payments of notes payable | | | - | | | | (250,000 | ) | |
| | | (24,283 | ) | | | 13,098 | | | | (2,440 | ) | | | (24,283 | ) |
Proceeds from/(payment to) related parties | | | (98,000 | ) | | | 98,000 | | | | - | | | | (98,000 | ) |
Proceeds from/(payment to) convertible notes | | | 1,240,000 | | | | 210,000 | | | | - | | | | 1,240,000 | |
Proceeds from issuance of common stock for cash | | | - | | | | 335,000 | | |
Net cash provided by financing activities | | | 919,717 | | | | 656,097 | | |
| | | | | | | | | | | | | | | |
NET INCREASE IN CASH & CASH EQUIVALENTS | | | 581,576 | | | | 39,809 | | |
Net cash (used) provided by financing activities | | | | (2,440 | ) | | | 919,717 | |
| | | | | | | | |
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS | | | | (268,636 | ) | | | 581,576 | |
| | | | | | | | | | | | | | | |
CASH & CASH EQUIVALENTS, BEGINNING BALANCE | | | 84,161 | | | | 44,352 | | | | 665,737 | | | | 84,161 | |
| | | | | | | | | | | | | | | |
CASH & CASH EQUIVALENTS, ENDING BALANCE | | $ | 665,737 | | | $ | 84,161 | | | $ | 397,101 | | | $ | 665,737 | |
| | | | | | | | | | | | | |
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION | | | | | | | | | | | | | |
| | | | | | | | | |
Interest paid during the year | | $ | 53,128 | | | $ | 7,960 | | | $ | 125,425 | | | $ | 53,128 | |
Taxes paid during the year | | $ | 1,600 | | | $ | - | | | $ | 1,600 | | | $ | 1,600 | |
| | | | | | | | | | | | | |
NON-CASH SUPPLEMENTAL DISCLOSURE | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Conversion of convertible notes payable to equity | | $ | 200,000 | | | $ | - | | | $ | - | | | $ | 200,000 | |
| | | | | | | | | |
Convertible note payable due and classified in accrued liabilities | | $ | - | | | $ | 200,000 | | | $ | - | | | $ | 200,000 | |
| | | | | | | | | |
Addition to assets through acquisition | | $ | - | | | $ | 403,976 | | |
| | | | | | | | | |
Assumption of liabilities through acquisition | | $ | - | | | $ | (195,155 | ) | |
The accompanying notes are an integral part of these consolidated financial statements
APOLLO MEDICAL HOLDINGS, INC.
1. Organization and Summary of Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles requires management 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.
During the twelve month period ended January 31, 2010, the Company had three major customers, which contributed 28%, 13% and 11% of revenue. As of January 31, 2010, the total receivables from these customers amounted to $159,348, $75,145 and $65,250, respectively.
The Company recognizes Case Rate, Hourly and Capitation revenue when persuasive evidence of an arrangement exists, service has been rendered, the service rate is fixed or determinable, and collection is reasonable assured. Fee for Service revenues are recorded at amounts reasonably assured to be collected. The determination of reasonably assured collections is based on historical Fee for Service collections as a percent of billings. The provisions are adjusted to reflect actual collections in subsequent periods.
Accounts Receivable is stated at the amount management expects to collect from outstanding balances. An allowance for doubtful accounts is provided for those accounts receivable considered to be uncollectible, based upon historical experience and management's evaluation of outstanding accounts receivable at each quarter end. As of January 31, 2010,2011, Accounts Receivable totals $457,517,$704,971, net of a provision for bad debt expense of $110,976,$34,746, and represents amounts invoiced by AMH. Accounts Receivable was $255,665,$457,517, net of the provision for bad debt expense of $11,465,$110,976, on January 31, 2009.2010.