UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the fiscal period ended January 31, 2010
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT
For the
transition period from ___________ to ____________
Commission
File No.
000-25809
Apollo
Medical Holdings, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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20-8046599
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State
of Incorporation
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IRS
Employer Identification No.
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450
North Brand Blvd., Suite 600
Glendale,
California 91203
(Address
of principal executive offices)
(818)
507-4617
(Issuer’s
telephone number)
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Securities
Registered Pursuant to Section 12(b) of the Act:
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Title
of each Class
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Name
of each Exchange on which Registered
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None
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Securities
Registered Pursuant to Section 12(g) of the Act:
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Common
Stock, $.001 Par Value
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act
Yes
o
No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
Yes
o
No þ
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes þ
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every interactive data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that registrant was required to submit and
post such files).
Yes o
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein and,
will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company þ
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
o
No þ
The
aggregate market value of the shares of voting common stock held by
non-affiliates of the Registrant computed by reference to the price at which the
common stock was last sold on OTC Bulletin Board on July 31, 2010, the last
business day of the Registrant’s most recently completed second fiscal quarter,
was [$670,120]. Solely for purposes of the foregoing calculation, all
of the registrant’s directors and officers as of July 31, 2010 are deemed to be
affiliates. This determination of affiliate status for this purpose does not
reflect a determination that any persons are affiliates for any other
purpose.
As of
April 15, 2010, there were 27,424,661 shares of common stock, $.001 par value
per share issued and outstanding.
APOLLO
MEDICAL HOLDINGS, INC.
FORM
10-K
FOR
THE TWELVE MONTHS ENDED JANUARY 31, 2009
TABLE
OF CONTENTS
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PART
I
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Item
1
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Description
of Business
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3
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Item
1A
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Risk
Factors
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13
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Item
1B
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Unresolved
Staff Comments
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17
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Item
2
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Description
of Properties
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17
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Item
3
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Legal
Proceedings
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18
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Item
4
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Submission
of Matters to a Vote of Security Holders
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18
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PART
II
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Item
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities
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18
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Item
6
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Selected
Financial Data
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20
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Item
7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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20
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Item
7A
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Quantitative
and Qualitative Disclosures about Market Risk
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23
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Item
8
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Financial
Statements and Supplementary Data
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23
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Item
9
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Changes
in and Disagreements with Accountants and Financial
Disclosures
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23
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Item
9A(T)
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Controls
and Procedures
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23
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Item
9B
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Other
Information
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25
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PART
III
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Item
10
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Directors,
Executive Officers and Corporate Governance
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25
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Item
11
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Executive
Compensation
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27
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and related
Stockholder Matters
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28
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Item
13
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Certain
Relationships and Related Transactions, and Director
Independence
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29
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Item
14
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Principal
Accounting Fees and Services
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30
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PART
IV
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Item
15
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Exhibits,
Financial Statement Schedules
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31
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Signatures
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31
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PART
I
ITEM
1. DESCRIPTION OF
BUSINESS
Introductory
Comment
Unless
context dictates otherwise, references in this Annual Report on Form 10-K (the
“Report”) to the “Company,” “we,” “us,” “our” and similar words are to Apollo
Medical Holdings, Inc. (“Apollo”), and its wholly owned subsidiaries and
affiliated medical groups: (i) Apollo Medical Management, Inc. (“AMM”); (ii)
ApolloMed Hospitalists (“AMH”) and (iii) Apollo Medical Associates
(“AMA”).
The
following discussion and analysis provides information that management believes
is relevant to an assessment and understanding of our results of operations and
financial operations. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere herein,
and with our prior filings with the Securities Exchange Commission (the
“SEC”).
Disclosure
Regarding Forward-Looking Statements - Cautionary Statement
We
caution readers that this Report contains “forward-looking statements”.
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. The Company assumes no obligation to update the
forward-looking statements.
The
Company has a relatively limited operating history compared to others in the
same business and is operating in a rapidly changing industry environment, and
its ability to predict results or the actual effect of future plans or
strategies, based on historical results or trends or otherwise, is inherently
uncertain. While we believe that these forward-looking statements are
reasonable, they are merely predictions or illustrations of potential outcomes,
and they involve known and unknown risks and uncertainties, many beyond our
control, that are likely to cause actual results, performance, or achievements
to be materially different from those expressed or implied by such
forward-looking statements. Factors that could have a material adverse affect on
the operations and future prospects of the Company on a condensed basis include
those factors discussed under Item 1A “Risk Factors” and Item 7, “Management’s
Discussion and Analysis or Plan of Operation” in this Report, and include, but
are not limited to, the following:
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Our ability to attract and retain
management, and to integrate and maintain technical information and
management information
systems;
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Our ability to raise capital when
needed and on acceptable terms and
conditions;
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The intensity of competition;
and
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General economic
conditions.
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All
written and oral forward-looking statements made in connection with this Report
that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.
Overview
Apollo
Medical Holdings, Inc. originally incorporated in Delaware on November 1, 1985
as McKinnely Investments, Inc. The Company changed its name to Accoline
Industries, Inc. on November 5, 1986 and again changed its name to Siclone
Industries, Inc. on May 24, 1988. Until June 2008, the Company had no
active business operations.
Apollo
Medical Holdings, Inc. and its subsidiaries are a leading provider of
hospitalist services in the Greater Los Angeles, California area. Hospitalist
medicine is organized around the admission and care of patients in inpatient
facilities such as a hospitals and Long Term Acute Care (LTAC) Facilities and is
focused on providing, managing and coordinating the care of hospitalized
patients. The Company provides hospitalist services to a range of medical
groups, health plans, community physicians and hospital clients at 17 hospitals.
The Company is currently headquartered in Glendale, California.
The
Company operates as a medical management holding company that focuses on
managing the provision of hospital-based medicine through a wholly owned
subsidiary-management company, Apollo Medical Management, Inc. (“AMM”). Through
AMM, the Company manages affiliated medical groups, which presently consist of
ApolloMed Hospitalists (“AMH”) and Apollo Medical Associates
(“AMA”). AMM operates as a Physician Practice Management Company
(PPM) and is in the business of providing management services to Physician
Practice Companies (PPC) under Management Service Agreements.
Organizational
History
On June
13, 2008, Siclone Industries, Inc. (“Siclone”), Apollo Acquisition Co., Inc., a
wholly owned subsidiary of Siclone (“Acquisition”), Apollo Medical Management,
Inc. (“Apollo Medical”) and the shareholders of Apollo Medical entered into an
agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms of
the Merger Agreement, Apollo Medical merged with and into Acquisition, becoming
a wholly owned subsidiary of Siclone. . The former shareholders of Apollo
Medical received 20,933,490 shares of Siclone’s common stock in the
acquisition.
The
acquisition of Apollo Medical is accounted for as a reverse acquisition under
the purchase method of accounting since the shareholders of Apollo Medical
obtained control of the consolidated entity. Accordingly,
the reorganization of the two companies is recorded as a recapitalization
of Apollo Medical, with Apollo Medical being treated as the continuing operating
entity. The historical financial statements presented herein will be those of
Apollo Medical. The continuing entity retained January 31 as its fiscal year
end. The financial statements of the legal acquirer are not significant;
therefore, no pro forma financial information is submitted. On July 1, 2008, the
surviving entity (i.e., the combined entity of Acquisition and Apollo Medical)
changed its name to Apollo Medical Management, Inc. (AMM). On July 3,
2008, Siclone changed its name to Apollo Medical Holdings,
Inc. Following the merger, the Company is headquartered in
Glendale, California.
On August
1, 2008, AMM completed negotiations and executed a formal Management Services
Agreement with ApolloMed Hospitalists (“AMH”), under which AMM will provide
management services to AMH. The Agreement is effective as of August
1, 2008 and will allow AMM, which operates as a Physician Practice Management
Company, to consolidate AMH, which operates as a Physician Practice, in
accordance with EITF 97-2, Application of FASB Statement No. 94 and APB Opinion
No. 16 to Physician Management Entities and Certain Other Entities with
Contractual Management Agreements. The Management Services Agreement was amended
on March 20, 2009 to allow for the calculation of the fee on a monthly basis
with payment of the calculated fee each month. AMH is controlled by
Dr. Hosseinion and Dr. Vazquez, the Company’s Chief Executive Officer and
President, respectively.
Hospitalist
Industry Overview
Hospitalists
are physicians who spend their professional time serving as the
physicians-of-record for inpatients. Today, many primary care
physicians/healthcare providers use hospitalists to care for their patients when
they visit emergency rooms or are admitted to the hospital. The hospitalist
handles the patient’s care during the time spent in the hospital, and
communicates often with the patient’s primary care physician about the patient’s
progress. At the time of discharge from the hospital, the hospitalists returns
the patient back to the care of their primary care providers. According to the
Society of Hospital Medicine, the number of hospitalists in the U.S. has grown
from a few hundred in 1996 to over 20,000 today in response to a need for more
efficient delivery of inpatient care. It is anticipated that as many as 33,000
hospitalists may be currently needed for full coverage of inpatients in the
United States.
Rising
healthcare expenditures is a key motivating factor behind the utilization of
hospitalists. An aging population, advancements in medical technology, and the
rising cost of pharmaceuticals are just some of the forces driving up healthcare
costs. Hospital medicine has developed as a specialty with unique
characteristics and expertise. Hospitalists have specialized skills, knowledge,
and relationships that contribute value to hospitals, physicians, patients, and
health plans. These skills go beyond the delivery of quality patient care to
hospital inpatients and include:
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Providing
measurable quality improvement through setting standards and
compliance;
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Saving
money and resources by reducing the patient’s length of stay and achieving
better utilization;
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Improving
the efficiency of the hospital by early patient discharge, better
throughput in the emergency department (ED), and the opening up of ICU
beds;
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Creating
a seamless continuity from inpatient to outpatient care, from the ED to
the hospital floor, and from the ICU to the hospital
floor;
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Creating
teams of healthcare professionals that make better use of the resources at
the hospital and create a better working environment for nurses and
others;
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Creating
synergies between emergency and inpatient hospital services by the
management of both areas through the Company’s strategy of acquisitions of
both ER and hospitalist groups; and
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Managing
acutely ill, complex hospitalized
patients.
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In
today’s healthcare environment, patients are generally admitted to hospitals and
cared for by primary care physicians (PCPs). The demands of modern medical
practice, however, require that PCPs spend most of their time in outpatient
practices, limiting their availability to care for hospitalized patients. These
requirements and demands have led to ever-diminishing quality of inpatient care,
longer hospital stays, and higher costs to the insurance companies. Over the
past few years, hospital-based physicians, or hospitalists (i.e. those
physicians that do not have a separate outpatient practice), are becoming a
regular part of the healthcare landscape allowing PCPs to focus on outpatient
office visits. Generally hospital-based physicians:
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are
medical doctors that spend their time in the inpatient environment, making
them familiar with hospital systems, policies, services, departments, and
staff;
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are
in-patient experts who possess clinical credibility when addressing key
issues regarding the inpatient environment;
and
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understand
the tradeoffs involved in balancing the needs of the hospital with those
of the medical staff; they tend to have an intimate knowledge of the
issues that the hospital is facing and are invested in finding solutions
to these problems.
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Principal
Services and Markets
The
Company provides management services to medical groups that provide
comprehensive inpatient care services. We offer a comprehensive set of
integrated medical services to hospitals, health carriers and medical groups as
well as individual physicians, through our affiliated medical groups, as
follows:
Services
for Hospitals
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Providing
care from the emergency room through hospital
discharge;
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Admission
and care of unassigned and/or uninsured
patients;
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Inpatient
internal medicine consultation
services;
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Emergency
room Clinical Decision Unit services to improve throughput and ease
overcrowding;
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Development
of hospital-based physicians programs, including pulmonary, critical care,
cardiology and nephrology;
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24/7
in-hospital inpatient coverage
services;
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Development
of evidence-based medicine protocols for common
diagnoses;
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Implementation
of patient safety guidelines;
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Education
of nurses and hospital staff;
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Analysis
of statistics via the ApolloWeb (discussed further below) database,
including length of stay, bed days/1000 admissions, and readmission rates;
and
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Care
of patients at academic medical centers, including the education of
medical students, interns and
residents
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Services
for Health Carriers and Medical Groups
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Admission
and care of assigned patients;
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Consistent
communication with primary care physicians upon admission, during the
patient’s hospital stay, and upon
discharge;
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Rapid
transfer of out-of-network patients back to designated
hospitals;
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24/7
in-hospital inpatient coverage
services;
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Consistent
communication with case managers, social workers, and medical group
personnel;
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Hospital-based
physician consulting services; and
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Analysis
of statistics via the ApolloWeb database
technology.
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Services
for Individual Physicians
Hospital-based
services for physicians on weekends, holidays, or for those who do not wish to
come to the hospital; primary care physicians can benefit from this arrangement
because they have more time to focus on outpatient care.
Competition
The
healthcare industry is highly competitive, and the market for hospitalists
within this industry is highly fragmented. The Company faces
competition from numerous small hospitalist and emergency room practices as well
as large physician groups. Some of these competitors operate on a national
level, such as Emcare, Team Health and IPC and may have greater financial and
other resources available to them.
In
addition, because the market for hospitalist services is highly fragmented and
the ability of individual physicians to provide services in any hospital where
they have certain credentials and privileges, competition for growth in existing
and expanding markets is not limited to our largest competitors.
Growth
Strategy
We
anticipate that we will grow our business by two primary methods, organic growth
and acquisitions.
Organic
Growth
The
Company has initiated a marketing plan focused on targeting hospitals, hospital
chains, health carriers/HMOs, medical groups and individual physicians. We have
commenced a physician recruitment campaign aimed at attracting physicians to
meet the expected increase in demand for our services. This campaign will be
driven by utilizing direct contacts with internal medicine residency programs,
advertising in professional journals, and on-line advertising programs. We
believe we have a competitive advantage in attracting highly qualified
physicians by offering recruits, through our affiliated medical groups,
competitive salary and benefits including, if appropriate, incentive-based stock
options as part of the compensation package.
We expect
to add key personnel to our business operations in order implement our growth
strategy. Management believes that this will include a marketing division,
expanding the billing department, and establishing a case management division.
We also intend to upgrade our information technology systems to keep pace with
growth. This could include: (1) upgrading the ApolloWeb technology, (2)
integration of billing and collections functions, (3) electronic medical
records, and (4) upgrading the wireless technology system.
Acquisitions
The
Company also plans to grow through mergers and acquisitions. Targeted
mergers/acquisitions will focus on hospitalist groups, emergency room physician
groups, and other hospital-based specialty physicians. We have identified a
number of small group practices, as well as larger groups with between 40 and
200 physicians that may be potential merger/acquisition candidates. We believe
that we may have a competitive advantage in closing potential
mergers/acquisitions as a publicly-traded company, which could provide us with
access to additional capital and the ability to utilize our stock as part of the
compensation package to the stockholders of the target companies.
Technology
AMH and
Drs. Hosseinion and Vazquez have developed, and own, a proprietary web-based,
practice management software program for hospital-based physicians. The system,
known as ApolloWeb allows a physician to enter patient information in real-time
at a patient’s bedside via a 3G broadband-enabled PDA or a desktop computer.
ApolloWeb is capable of generating:
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real-time,
comprehensive statistical data
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complete
HCFA(Health Care Financing Administration) billing
forms
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patient
admissions and discharge summaries, including major test results and
necessary follow-ups
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faxes
or emails to primary care physicians with the aforementioned
information.
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It is
expected that additional features will be added to enhance the ApolloWeb
technology, several of which include an Electronic Medical Record (EMR) platform
and a quality control component in the near future. In exchange for the
Company’s management services, AMH and Drs. Hosseinion and Vazquez currently
make ApolloWeb available to the Company for its use at no charge in its business
operations. The Company is currently negotiating to acquire the rights to the
ApolloWeb technology from AMH, and Drs. Hosseinion and Vazquez.
Geographic
Coverage
As of
April 15, 2010, we provide hospitalist services at 17 hospitals in Greater Los
Angeles, CA.
Professional
Liability and Other Insurance Coverage
Our
business has an inherent risk of claims of medical malpractice against our
affiliated physicians and us. We or our physician contractors pay premiums for
third-party professional liability insurance that indemnifies us and our
affiliated hospitalists on a claims-made basis for losses incurred related to
medical malpractice litigation. Professional liability coverage is required in
order for our affiliated hospitalists to maintain hospital privileges. All of
our physicians carry first dollar coverage with limits of coverage with limits
of liability equal to $1,000,000 for all claims based on occurrence up to an
aggregate of $3,000,000 per year.
We
believe that our insurance coverage is appropriate based upon our claims
experience and the nature and risks of our business. In addition to the known
incidents that have resulted in the assertion of claims, we cannot be certain
that our insurance coverage will be adequate to cover liabilities arising out of
claims asserted against us, our affiliated professional organizations or our
affiliated hospitalists in the future where the outcomes of such claims are
unfavorable. We believe that the ultimate resolution of all pending claims,
including liabilities in excess of our insurance coverage, will not have a
material adverse effect on our financial position, results of operations or cash
flows; however, there can be no assurance that future claims will not have such
a material adverse effect on our business.
We also
maintain worker’s compensation, director and officer, and other third-party
insurance coverage subject to deductibles and other restrictions in accordance
with industry standards. We believe that our insurance coverage is appropriate
based upon our claims experience and the nature and risks of our business.
However, we cannot assure that any pending or future claim will not be
successful or if successful will not exceed the limits of available insurance
coverage.
Regulatory
Matters
Significant
Federal and State Healthcare Laws Governing Our Business
As a
healthcare company, our operations and relationships with healthcare providers
such as hospitals, other healthcare facilities, and healthcare professionals are
subject to extensive and increasing regulation by numerous federal, state, and
local government entities. These laws and regulations often are interpreted
broadly and enforced aggressively by multiple government agencies, including the
U.S. Department of Health and Human Services Office of the Inspector General, or
the OIG, the U.S. Department of Justice, and various state authorities. We have
included brief descriptions of some, but not all, of the laws and regulations
that affect our business.
Imposition
of sanctions associated with a violation of any of these healthcare laws and
regulations could have a material adverse effect on our business, financial
condition and results of operations. The Company cannot guarantee that its
arrangements or business practices will not be subject to government scrutiny or
be found to violate certain healthcare laws. Government investigations and
prosecutions, even if we are ultimately found to be without fault, can be costly
and disruptive to our business. Moreover, changes in healthcare legislation or
government regulation may restrict our existing operations, limit the expansion
of our business or impose additional compliance requirements and costs, any of
which could have a material adverse affect on our business, financial condition
and results of operations.
False
Claims Acts
The
federal civil False Claims Act imposes civil liability on individuals or
entities that submit false or fraudulent claims for payment to the federal
government. The False Claims Act provides, in part, that the federal government
may bring a lawsuit against any person whom it believes has knowingly or
recklessly presented, or caused to be presented, a false or fraudulent request
for payment from the federal government, or who has made a false statement or
used a false record to get a claim for payment approved. Private parties may
initiate qui tam
whistleblower lawsuits against any person or entity under the False Claims Act
in the name of the government and may share in the proceeds of a successful
suit.
The
federal government has used the False Claims Act to prosecute a wide variety of
alleged false claims and fraud allegedly perpetrated against Medicare and state
healthcare programs. By way of illustration, these prosecutions may be based
upon alleged coding errors, billing for services not rendered, billing services
at a higher payment rate than appropriate, and billing for care that is not
considered medically necessary. The government and a number of courts also have
taken the position that claims presented in violation of certain other statutes,
including the federal Anti-Kickback Statute or the Stark Law, can be considered
a violation of the False Claims Act based on the theory that a provider
impliedly certifies compliance with all applicable laws, regulations, and other
rules when submitting claims for reimbursement.
Penalties
for False Claims Act violations include fines ranging from $5,500 to $11,000 for
each false claim, plus up to three times the amount of damages sustained by the
government. A False Claims Act violation may provide the basis for the
imposition of administrative penalties as well as exclusion from participation
in governmental healthcare programs, including Medicare and Medicaid. In
addition to the provisions of the False Claims Act, which provide for civil
enforcement, the federal government also can use several criminal statutes to
prosecute persons who are alleged to have submitted false or fraudulent claims
for payment to the federal government.
A number
of states have enacted false claims acts that are similar to the federal False
Claims Act. Even more states are expected to do so in the future because
Section 6031 of the Deficit Reduction Act of 2005, or the DRA, amended the
federal law to encourage these types of changes, along with a corresponding
increase in state initiated false claims enforcement efforts. Under the DRA, if
a state enacts a false claims act that is at least as stringent as the federal
statute and that also meets certain other requirements, the state will be
eligible to receive a greater share of any monetary recovery obtained pursuant
to certain actions brought under the state’s false claims act. The OIG, in
consultation with the Attorney General of the United States, is responsible for
determining if a state’s false claims act complies with the statutory
requirements. Currently, 19 states, including California, and the District of
Columbia have some form of a state false claims acts.
Anti-Kickback
Statutes
The
federal Anti-Kickback Statute contained in the Social Security Act prohibits the
knowing and willful offer, payment, solicitation or receipt of any form of
remuneration in return for, or to induce, (1) the referral of a beneficiary
of Medicare, Medicaid or other governmental healthcare programs, (2) the
furnishing or arranging for the furnishing of items or services reimbursable
under Medicare, Medicaid or other governmental healthcare programs or
(3) the purchase, lease, or order or arranging or recommending the
purchasing, leasing or ordering of any item or service reimbursable under
Medicare, Medicaid or other governmental healthcare programs. Some courts and
the OIG interpret the statute to cover any arrangement where even one purpose of
the remuneration is to influence referrals. A violation of the Anti-Kickback
Statute is a felony punishable by imprisonment, and criminal and civil fines of
up to $50,000 per violation and three times the amount of the unlawful
remuneration. A violation also can result in exclusion from Medicare, Medicaid
or other governmental healthcare programs.
Due to
the breadth of the Anti-Kickback Statute’s broad prohibition, there are a few
statutory exceptions that protect various common business transactions and
arrangements from prosecution. In addition, the OIG has published safe harbor
regulations that outline other arrangements that also are deemed protected from
prosecution under the Anti-Kickback Statute, provided all applicable criteria
are met. The failure of an activity to meet all of the applicable safe harbor
criteria does not necessarily mean that the particular arrangement violates the
Anti-Kickback Statute, but these arrangements will be subject to greater
scrutiny by enforcement agencies.
Some
states have enacted statutes and regulations similar to the Anti-Kickback
Statute, but which may be applicable regardless of the payer source of the
patient. These state laws may contain exceptions and safe harbors that are
different from those of the federal law and that may vary from state to
state.
Federal
Stark Law
The
federal Stark Law, also known as the physician self-referral law, generally
prohibits a physician from referring Medicare and Medicaid patients to an entity
(including hospitals) providing ‘‘designated health services,’’ if the physician
or a member of the physician’s immediate family has a ‘‘financial relationship’’
with the entity, unless a specific exception applies. Designated health services
include, among other services, inpatient and outpatient hospital services,
clinical laboratory services, certain imaging services, and other items or
services that our affiliated physicians may order. The prohibition applies
regardless of the reasons for the financial relationship and the referral; and
therefore, unlike the federal Anti-Kickback Statute, intent to violate the law
is not required. Like the Anti-Kickback Statute, the Stark Law contains a number
of statutory and regulatory exceptions intended to protect certain types of
transactions and business arrangements from penalty. Compliance with all
elements of the applicable Stark Law exception is mandatory.
The
penalties for violating the Stark Law include the denial of payment for services
ordered in violation of the statute, mandatory refunds of any sums paid for such
services and civil penalties of up to $15,000 for each violation, double
damages, and possible exclusion from future participation in the governmental
healthcare programs. A person who engages in a scheme to circumvent the Stark
Law’s prohibitions may be fined up to $100,000 for each applicable arrangement
or scheme.
Some
states have enacted statutes and regulations similar to the Stark Law, but which
may be applicable to the referral of patients regardless of their payer source
and which may apply to different types of services. These state laws may contain
statutory and regulatory exceptions that are different from those of the federal
law and that may vary from state to state.
Health
Information Privacy and Security Standards
Among
other directives, the Administrative Simplification Provisions of the Health
Insurance Portability and Accountability Act of 1996, or HIPAA, required the
Department of Health and Human Services, or the HHS, to adopt standards to
protect the privacy and security of certain health-related information. The
HIPAA privacy regulations contain detailed requirements concerning the use and
disclosure of individually identifiable health information by “HIPAA covered
entities,” which include entities like the Company, our affiliated hospitalists,
and practice groups.
In
addition to the privacy requirements, HIPAA covered entities must implement
certain administrative, physical, and technical security standards to protect
the integrity, confidentiality and availability of certain electronic health
information received, maintained, or transmitted. HIPAA also implemented the use
of standard transaction code sets and standard identifiers that covered entities
must use when submitting or receiving certain electronic healthcare
transactions, including activities associated with the billing and collection of
healthcare claims.
Violations
of the HIPAA privacy and security standards may result in civil and criminal
penalties, including: (1) civil money penalties of $100 per incident, up to
a maximum of $25,000, per person, per year, per standard violated and
(2) depending upon the nature of the violation, fines of up to $250,000 and
imprisonment for up to ten years.
Many
states also have laws that protect the privacy and security of
confidential, personal information. These laws may be similar to or even more
protective than the federal provisions. Not only may some of these state laws
impose fines and penalties upon violators but some may afford private rights of
action to individuals who believe their personal information has been
misused.
Fee-Splitting
and Corporate Practice of Medicine
Some
states have laws that prohibit business entities, such as the Company, from
practicing medicine, employing physicians to practice medicine, exercising
control over medical decisions by physicians, also known collectively as the
corporate practice of medicine, or engaging in certain arrangements, such as
fee-splitting, with physicians. In some states these prohibitions are expressly
stated in a statute or regulation, while in other states the prohibition is a
matter of judicial or regulatory interpretation.
The
Company operates by maintaining long-term management contracts with affiliated
professional organizations, which are each owned and operated by physicians and
which employ or contract with additional physicians to provide hospitalist
services. Under these arrangements, we perform only non-medical administrative
services, do not represent that we offer medical services, and do not exercise
influence or control over the practice of medicine by the physicians or the
affiliated professional organizations.
Some of
the relevant laws, regulations, and agency interpretations in the State of
California have been subject to limited judicial and regulatory interpretation.
Moreover, state law are subject to change and regulatory authorities and other
parties, including our affiliated physicians, may assert that, despite these
arrangements, we are engaged in the prohibited corporate practice of medicine or
that our arrangements constitute unlawful fee-splitting. If this occurred, we
could be subject to civil or criminal penalties, our contracts could be found
legally invalid and unenforceable (in whole or in part), or we could be required
to restructure our contractual arrangements.
Deficit
Reduction Act of 2005
Among
other mandates, the Deficit Reduction Act of 2005, or the DRA, created a new
Medicaid Integrity Program designed to enhance federal and state efforts to
detect Medicaid fraud, waste and abuse. Additionally, section 6032 of the DRA
requires entities that make or receive annual Medicaid payments of $5.0 million
or more from any one state to provide their employees, contractors and agents
with written policies and employee handbook materials on federal and state False
Claims Acts and related statues. At this time, we are not required to comply
with section 6032 because we receive less than $5.0 million in Medicaid payments
annually from any one state. However, we may likely be required to comply in the
future as our Medicaid billings increase, but we cannot predict when that will
occur. We also cannot predict what new state statutes or enforcement efforts may
emerge from the DRA and what impact they may have on our
operations.
Other
Federal Healthcare Fraud and Abuse Laws
We are
also subject to other federal healthcare fraud and abuse laws. Under HIPAA,
there are two additional federal crimes that could have an impact on our
business: ‘‘Health Care Fraud’’ and ‘‘False Statements Relating to Health Care
Matters.’’ The Health Care Fraud statute prohibits any person from knowingly and
recklessly executing a scheme or artifice to defraud any healthcare benefit
program. Healthcare benefit programs include both government and private payers.
A violation of this statute is a felony and may result in fines, imprisonment
and/or exclusion from governmental healthcare programs.
The False
Statements Relating to Health Care Matters statute prohibits knowingly and
willfully falsifying, concealing or covering a material fact by any trick,
scheme or device or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits,
items or services. A violation of this statute is a felony and may result in
fines and/or imprisonment.
The OIG
may impose administrative sanctions or civil monetary penalties against any
person or entity that knowingly presents or causes to be presented a claim for
payment to a governmental healthcare program for services that were not provided
as claimed, is fraudulent, is for a service by an unlicensed physician, or is
for medically unnecessary services. Violations may result in penalties of up to
$10,000 per claim, treble damages, and exclusion from governmental healthcare
funded programs, such as Medicare and Medicaid. In addition, the OIG may impose
administrative sanctions against any physician who knowingly accepts payment
from a hospital as an inducement to reduce or limit services provided to
Medicare and Medicaid program beneficiaries.
Fair
Debt Collection Practices Act
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.
Licensing,
Certification, Accreditation and Related Laws and Guidelines
Clinical
personnel are subject to numerous federal, state and local licensing laws and
regulations, relating to, among other things, professional credentialing and
professional ethics. Since the Company performs services at hospitals and other
types of healthcare facilities, it may indirectly be subject to laws applicable
to those entities as well as ethical guidelines and operating standards of
professional trade associations and private accreditation commissions, such as
the American Medical Association and the Joint Commission on Accreditation of
Health Care Organizations. There are penalties for non-compliance with these
laws and standards, including loss of professional license, civil or criminal
fines and penalties, loss of hospital admitting privileges, and exclusion from
participation in various governmental and other third-party healthcare
programs.
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, we had 4 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:
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the
possibility that we will not able to identify suitable acquisition
candidates or consummate acquisitions on acceptable terms, if at
all;
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possible
decreases in capital resources or dilution to existing
stockholders;
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difficulties
and expenses incurred in connection with an
acquisition;
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the
diversion of management’s attention from other business
concerns;
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the
difficulties of managing an acquired
business;
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the
potential loss of key employees and customers of an acquired
business;
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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.
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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 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, the Company's management will need 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, which would adversely affect the market liquidity
for our securities.
Companies
trading on the OTC Bulletin Board, 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. If we fail to remain current in our
reporting requirements, we could be removed from the OTC Bulletin Board. 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, 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:
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that
a broker or dealer approve a person's account for transactions in penny
stocks; and
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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.
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In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the person;
and
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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.
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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:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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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.
Trading
on the OTC Bulletin Board 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”). Trading in stock quoted on the OTC
Bulletin Board 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
Board is not a stock exchange, and trading of securities on the OTC Bulletin
Board is often more sporadic than the trading of securities listed on a
quotation system like NASDAQ or a stock exchange like the American 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. 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’s common stock was approved for listing on the OTC Bulletin Board, under
the symbol “AMEH,” on July 13, 2008. The following table sets forth, for the
fiscal quarters indicated, high 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. 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, as reported by the Company’s stock transfer agent, there were
324 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, we granted no stock options.
Equity
Compensation Plan Information
The
following table provides information, as of January 31, 2010, 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
|
|
|
|
|
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 |
|
(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. 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 of this Report, no
grants have been made under the 2010 Equity Incentive Plan.
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 July 31, 2008, we sold 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.
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, 2010 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
2009
Net revenue was $2,441,452 for the
twelve months ended January 2010, compared to revenues of $1,057,354 for the
comparable twelve months ended January 2009. The Company increased the
number of contracts hospitals and independent physician associations to 17 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.
Physician practice salaries, benefits
and other expenses totaled $1,813,994 for the
twelve months ended January 2010, compared to $1,046,103 for the corresponding
twelve months ended January 2009. Cost of Services were 74% of net revenues
for the twelve months ended January 2010, down from 99% of revenues
for the comparable twelve month period ended January 2009. 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. For the year ended January 2009, Cost of Services
included all physician service related costs from August 1, 2008 for the last
half of the fiscal year and $34,237 of costs recorded by AMM prior to the
execution of the Management Agreement on August 1, 2008.
General and administrative expenses
decreased $132,968, or 16%, to $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. The decrease in General and
Administrative costs was due primarily to absence of transaction expenses
$278,348 related to the Siclone Merger in 2009. 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 debt
expense of $110,976 in the year ended January 2010 for slow paying health care
providers.
Depreciation and amortization expense
was $35,704 and $19,780 for the twelve months ended January 31, 2010 and 2009,
respectively.
The Company reported a Loss from
Operations of $102,515 for the twelve months ended January 31, 2010, compared to
a Loss from Operations of $835,815 in the fiscal year ended January 31,
2009. 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.
Interest expense and financing costs
were $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. Interest expense in 2010 included $36,458 of
interest expense related to our 10% Senior Subordinated Callable Convertible
Notes. Financing fees included a commission of $10,938, a one-time
$25,000 financing fee paid to the placement agent on this transaction, and
$4,000 for 100,000 shares granted to the agent at closing.
The Company reported a net loss of
$196,080 for the twelve months ended January 31, 2010, favorable
by $697,735 to the net loss of $891,815 reported for the twelve
months ended January 31, 2009. 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 2010 from 2009.
Liquidity
and Capital Resources
At
January 31, 2010, the Company had cash and cash equivalents of $665,737,
compared to cash and cash equivalents of $84,161 at the beginning of the fiscal
year at January 31, 2009. The cash balance at January 31,
2010 included $650,160 in a money market brokerage
account. The Company had no short-term borrowings at
January 31, 2010, compared to $74,782 as of January 31,
2009. Long-term borrowings totaled $1,247,582 as of January 31, 2010,
compared to long-term borrowings of $231,218 on January 31, 2009.
Net
cash used in operating activities totaled $338,141 in the twelve months ended
January 31, 2010, compared to net cash used in operations of $645,582 in the
comparable twelvemonths ended January 31, 2009. The significantly smaller
operating loss in 2010 was primarily responsible for the improvement in the
operating cash flow.
Net
cash used in operating activities for the twelve months of 2010 of $338,141 was
comprised of a net loss of $196,080 for the twelve month period. Adjustments for
non-cash charges which include depreciation, bad debt expense, the value of
shares issued and shares issued and the amortization of warrant
discount, totaled $338,239. In addition, net changes in operating assets and
liabilities, primarily an increase in outstanding receivables, used cash of
$480,300.
We
did not spend any cash for investing activities in the fiscal year ended January
31, 2010 and 2009. The $19,295 reported for the twelve months ended
January 2009, represents the cash balance at AMH as of July 31, 2008 which was
consolidated into AMM on the execution of the Management Services Fee Agreement
as of August 1, 2008.
For
the twelve months ended January 31, 2010, net cash provided from financing
activities totaled $919,717, compared to $656,098 provided by financing
activities for the same period in 2009. 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.
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, 2010 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, 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) 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 DeWinter
|
|
71
|
|
Chief Financial Officer
|
|
Suresh Nihalani
|
|
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.
Mr. DeWinter has served as the Chief Financial Officer (“CFO”) since joining the
Company in August 2008. Prior to joining the Company, Mr. DeWinter served as
Chief Financial Officer of Bridgetech Holdings International, Inc.
(“Bridgetech”), from March 2007 through
September 2007. Prior to that, Mr. DeWinter
served as CFO of Retail Pilot, Inc., an affiliate of Bridgetech, since March
2005. Mr. DeWinter holds a BA in Economics from Carleton College and an MBA from
the Wharton School at the University of Pennsylvania.
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.
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 DeWinter and Suresh Nihalani have
not yet filed their Initial Statements of Beneficial Ownership on Form 3, and
Messers DeWinter and Nihalani have not met their filing requirements under
Section 16(a) with respect to the equity compensation grants made to them as
described under Item 11, Executive Compensation.
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 Board 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,
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” as defined by item
407 of Regulation [5-12].
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, 2010 and 2009,
respectively:
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Principal
Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards(3)
|
|
|
Option
Awards
|
|
|
Incentive Plan
Compensation
|
|
|
Compensation
Earnings
|
|
|
All Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warren
Hosseinion, M. D.
|
|
2010
|
|
$ |
353,285 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
353,285 |
|
|
Chief
Executive Officer(1)
|
|
2009
|
|
$ |
239,830 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
239,830 |
|
|
|
|
2008
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adrian
Vazquez, M.D.
|
|
2010
|
|
$ |
361,097 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
361,097 |
|
|
President
and Chairman(1)
|
|
2009
|
|
$ |
256,720 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
256,720 |
|
|
|
|
2008
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.
Noel DeWinter
|
|
2009
|
|
$ |
85,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
85,000 |
|
|
Chief
Financial Officer (2)
|
|
2008
|
|
$ |
33,500 |
|
|
|
0 |
|
|
|
67,500 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
101,000 |
|
|
|
|
2008
|
|
$ |
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
(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.
(3) The
amount shown in this column reflects the aggregate grant date fair value
computed in accordance with FASB ASC Topic 718.
Employment
Agreements
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. As of
the date of this Report, no grants have been made under the 2010 Equity
Incentive Plan.
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, 155,554 shares had been issued pursuant to the
agreement. Mr. Nihalani also receives $1,000 for each meeting of the Board of
Directors and $1,200 per day for any time Mr. Nihalani is required to travel
out-of-town on behalf of the Company. All of our remaining directors
are named executed officers whose compensation is fully reflected in the Summary
Compensation Table. None of our remaining directors received any
compensation solely for their services as directors.
|
|
|
Fees
Earned
or Paid
in Cash
($)
|
|
|
|
|
|
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All Other
Compensation
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suresh
Nihalani
|
|
$ |
2,000 |
|
|
$ |
8,045 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
10,045 |
|
(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, 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, there were 27,424,661 shares of the
Company’s common stock issued and outstanding, of which 3,737,185 are
free trading shares and 23,687,476 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
|
|
|
|
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. 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, which is 27,424,661
ITEM 13.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
During
the twelve months ended January 31, 2010 and 2009, the Company generated revenue
of $395,135 and $90,500, 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.
Director
Independence
Our
common stock is quoted on the OTC Bulletin Board 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, 2010 and January 31, 2009 were as
follows:
|
|
|
Fiscal Year
Ended
1/31/2010
|
|
|
Fiscal Year
Ended
1/31/2009
|
|
|
Audit
fees
|
|
$
|
35,000
|
|
|
$
|
27,000
|
|
|
Audit-related
fees
|
|
|
-
|
|
|
|
-
|
|
|
Tax
fees(1)
|
|
$
|
-
|
|
|
|
-
|
|
|
All
other fees
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
35,000
|
|
|
$
|
35,000
|
|
(1) Tax
Returns for the Company were completed by a local CPA firm. The Company paid
$1,200 to such firm for 2010 and $3,000 for 2009.
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
2009 and 2010 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.
PART
IV
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, 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.
*
|
|
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 Current Report on
Form 8-K filed on September 11, 2008, 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. *
|
|
|
|
|
|
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).
|
|
|
|
|
|
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.
SIGNATURES
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, 2010
|
By:
|
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.
|
SIGNATURE
|
|
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, 2010
|
|
Adrian
Vazquez, M.D.
|
|
|
|
|
|
|
|
|
|
|
|
/S/ A. NOEL DeWinter
|
|
Chief
Financial Officer
|
|
May
14, 2010
|
|
A.
Noel DeWinter
|
|
|
|
|
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’ equity
|
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, 2010 and 2009 and the related consolidated statements of
operations, stockholders' equity, 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, 2010 and 2009, 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 as of January 31,
2010, working capital of $1,075,499 and cash flows used in operating activities
of $338,141. 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,
2010
APOLLO
MEDICAL HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
FOR THE YEAR ENDED JANUARY 31, 2010 AND 2009
|
|
|
January
31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
665,737 |
|
|
$ |
84,161 |
|
|
Accounts
receivable, net
|
|
|
457,517 |
|
|
|
255,665 |
|
|
Receivable
from officers
|
|
|
23,483 |
|
|
|
- |
|
|
Due
from affiliate
|
|
|
2,850 |
|
|
|
2,050 |
|
|
Prepaid
expenses
|
|
|
30,165 |
|
|
|
25,025 |
|
|
Total
current assets
|
|
|
1,179,751 |
|
|
|
366,902 |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
financing cost
|
|
|
114,063 |
|
|
|
- |
|
|
Property
and equipment - net
|
|
|
11,627 |
|
|
|
47,330 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
1,305,441 |
|
|
$ |
414,232 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
104,252 |
|
|
$ |
349,141 |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
|
- |
|
|
|
156,218 |
|
|
Convertible
Notes
|
|
|
1,247,582 |
|
|
|
- |
|
|
Convertible
notes payable-related party
|
|
|
- |
|
|
|
75,000 |
|
|
Total
liabilities
|
|
|
1,351,834 |
|
|
|
655,141 |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
Additional
paid-in-capital
|
|
|
939,483 |
|
|
|
550,058 |
|
|
Accumulated
deficit
|
|
|
(1,241,031 |
) |
|
|
(1,044,951 |
) |
| Total |
|
|
(274,507
|
) |
|
|
(469,024
|
) |
|
Non-controlling
interest
|
|
|
228,115 |
|
|
|
228,115 |
|
|
Total
stockholders' deficit
|
|
|
(46,393 |
) |
|
|
(240,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ |
1,305,441 |
|
|
$ |
414,232 |
|
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, 2010 AND 2009
|
|
|
For the years ended
|
|
|
|
|
January 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$ |
2,441,452 |
|
|
$ |
1,057,354 |
|
|
COST
OF SERVICES
|
|
|
1,813,944 |
|
|
|
1,046,103 |
|
|
GROSS
REVENUE
|
|
|
627,508 |
|
|
|
11,251 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
694,319 |
|
|
|
827,287 |
|
|
Depreciation
|
|
|
35,704 |
|
|
|
19,780 |
|
|
Total
operating expenses
|
|
|
730,023 |
|
|
|
847,067 |
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(102,515 |
) |
|
|
(835,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES:
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
53,128 |
|
|
|
8,950 |
|
|
Financing
cost
|
|
|
39,938 |
|
|
|
46,250 |
|
|
Other
expense
|
|
|
(300 |
) |
|
|
- |
|
|
Total
other expenses
|
|
|
92,766 |
|
|
|
55,200 |
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAXES
|
|
|
(195,280 |
) |
|
|
(891,015 |
) |
|
|
|
|
|
|
|
|
|
|
|
Provision
for income tax
|
|
|
800 |
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$ |
(196,080 |
) |
|
$ |
(891,815 |
) |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OF COMMON STOCK OUTSTANDING,
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED
|
|
|
26,491,052 |
|
|
|
24,007,988 |
|
|
|
|
|
|
|
|
|
|
|
|
*BASIC
AND DILUTED NET LOSS PER SHARE
|
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
*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, 2010 AND 2009
|
|
|
Common Stock
|
|
|
|
|
|
Non-controlling
|
|
|
(Accumulated
|
|
|
Stockholder's
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
APIC
|
|
|
Interest
|
|
|
Deficit)
|
|
|
Equity (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 |
) |
|
Shares
issued for service
|
|
|
804,443 |
|
|
|
804 |
|
|
|
183,139 |
|
|
|
- |
|
|
|
- |
|
|
|
183,943 |
|
|
Shares
issued for financing cost
|
|
|
100,000 |
|
|
|
100 |
|
|
|
3,900 |
|
|
|
- |
|
|
|
- |
|
|
|
4,000 |
|
|
Shares
issued for convertible notes payable
|
|
|
266,665 |
|
|
|
267 |
|
|
|
199,733 |
|
|
|
- |
|
|
|
- |
|
|
|
200,000 |
|
|
Unamortized
warrant discount
|
|
|
- |
|
|
|
- |
|
|
|
2,653 |
|
|
|
- |
|
|
|
- |
|
|
|
2,653 |
|
|
Net
Loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(196,080 |
) |
|
|
(196,080 |
) |
|
Balance
at January 31, 2010
|
|
|
27,041,328 |
|
|
$ |
27,041 |
|
|
$ |
939,483 |
|
|
$ |
228,115 |
|
|
$ |
(1,241,031 |
) |
|
$ |
(46,393 |
) |
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, 2010 AND 2009
|
|
|
Years
ended January 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(196,080 |
) |
|
$ |
(891,815 |
) |
|
Adjustments
to reconcile net loss to net cash (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
35,703 |
|
|
|
19,780 |
|
|
Bad
debt expense
|
|
|
114,358 |
|
|
|
22,963 |
|
|
Issuance
of shares for services
|
|
|
183,944 |
|
|
|
75,545 |
|
|
Shares
issued as finance charge
|
|
|
4,000 |
|
|
|
13,500 |
|
|
Amortization
of debt discount
|
|
|
235 |
|
|
|
481 |
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(316,208 |
) |
|
|
25,183 |
|
|
Prepaid
financing cost
|
|
|
(114,063 |
) |
|
|
- |
|
|
Prepaid
expenses
|
|
|
(5,140 |
) |
|
|
(9,306 |
) |
|
Accounts
payable and accrued liabilities
|
|
|
(44,889 |
) |
|
|
108,087 |
|
|
Net
cash used in operating activities
|
|
|
(338,141 |
) |
|
|
(635,582 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Cash
acquired through acquisition
|
|
|
- |
|
|
|
19,295 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Payments
of line of credit
|
|
|
(198,000 |
) |
|
|
- |
|
|
Proceeds
from notes payable
|
|
|
- |
|
|
|
250,000 |
|
|
Payments
of notes payable
|
|
|
- |
|
|
|
(250,000 |
) |
|
|
|
|
(24,283 |
) |
|
|
13,098 |
|
|
Proceeds
from/(payment to) related parties
|
|
|
(98,000 |
) |
|
|
98,000 |
|
|
Proceeds
from/(payment to) convertible notes
|
|
|
1,240,000 |
|
|
|
210,000 |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, BEGINNING BALANCE
|
|
|
84,161 |
|
|
|
44,352 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
& CASH EQUIVALENTS, ENDING BALANCE
|
|
$ |
665,737 |
|
|
$ |
84,161 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid during the year
|
|
$ |
53,128 |
|
|
$ |
7,960 |
|
|
Taxes
paid during the year
|
|
$ |
1,600 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
SUPPLEMENTAL DISCLOSURE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Conversion
of convertible notes payable to equity |
|
$ |
200,000 |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
Convertible
note payable due and classified in accrued liabilities
|
|
$ |
- |
|
|
$ |
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.
(FORMERLY,
SICLONE INDUSTRIES, INC.)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
and Summary of Critical Accounting Policies
On June
13, 2008, Siclone Industries, Inc. (the “Company”), Apollo Acquisition Co.,
Inc., a wholly owned subsidiary of the Company (“Acquisition”), Apollo Medical
Management, Inc. (“Apollo Medical”) and the shareholders of Apollo Medical
entered into an agreement and Plan of Merger (the “Merger Agreement”). Pursuant
to the terms of the Merger Agreement, Apollo Medical merged with and into
Acquisition. The former shareholders of Apollo Medical received 20,933,490
shares of the Company’s common stock in exchange for all the issued and
outstanding shares of Apollo Medical.
The
acquisition of Apollo Medical was accounted for as a reverse acquisition under
the purchase method of accounting since the shareholders of Apollo Medical
obtained control of the consolidated entity. Accordingly, the reorganization of
the two companies is recorded as a recapitalization of Apollo Medical, with
Apollo Medical being treated as the continuing operating entity. The historical
financial statements presented herein were those of Apollo Medical. The
continuing entity retained January 31 as its fiscal year end. The statements of
the legal acquirer were not significant; therefore, no pro forma financial
information is submitted.
On July
1, 2008, “Acquisition” changed its name to Apollo Medical Management, Inc.
(AMM). On July 3, 2008, the Company changed its name from Siclone Industries,
Inc. to Apollo Medical Holdings, Inc. (“Apollo or the Company”).
The
Company is a medical management holding company that focuses on managing the
provision of hospital-based medicine through a management company, Apollo
Medical Management, Inc. (“AMM”). Through AMM, the Company manages affiliated
medical groups, which presently consist of ApolloMed Hospitalists (“AMH”) and
Apollo Medical Associates (“AMA”).
AMM
operates as a Physician Practice Management Company (PPM) and is in the business
of providing management services to Physician Practice Companies (PPC) under
Management Service Agreements. The Company’s goal is to become a leading
provider of management services to medical groups that provide comprehensive
inpatient care services such as hospitalists, emergency room physicians, and
other hospital-based specialists.
On August
1, 2008, AMM completed negotiations and executed a formal management agreement
with AMH, under which AMM will provide management services to AMH. The Agreement
is effective as of August 1, 2008 and will allow AMM, which operates as a
Physician Practice Management Company, to consolidate AMH, which operates as a
Physician Practice, in accordance with EITF 97-2, Application of FASB Statement
No. 94 and APB Opinion No. 16 to Physician Management Entities and Certain Other
Entities with Contractual Management Agreements. AMH is owned by an officer,
director and major shareholder of the Company,
Basis
of Consolidation
The
accompanying statements consist solely of the management company, Apollo Medical
Holdings, Inc. prior to August 1, 2008. Commencing with the Company’s third
quarter on August 1, 2008, and concurrent with the execution of the Management
Services Agreement, the statements reflect the consolidation of AMM and AMH, in
accordance with EITF 97-2, Application of FASB Statement No. 94 and APB Opinion
No. 16 to Physician Management Entities and Certain Other Entities with
Contractual Management Agreements. All intercompany balances and transactions
have been eliminated in consolidation
Use
of Estimates
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.
Concentrations
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.
Recently
Issued Accounting Pronouncements
In June 2009, the FASB issued ASC 105
(previously SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles ("GAAP") - a replacement of FASB Statement No.
162), which will become the source of authoritative accounting principles
generally accepted in the United States recognized by the FASB to be applied to
nongovernmental entities. In June 2009, the FASB issued ASC 855 (previously SFAS
No. 165, Subsequent
Events), which establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before the
financial statements are issued or available to be issued. It is effective for
interim and annual periods ending after June 15, 2009. There was no material
impact upon the adoption of this standard on the Company’s consolidated
financial statements.
In June 2009, the FASB issued ASC 860
(previously SFAS No. 166, “Accounting for Transfers of Financial Assets”) ,
which requires additional information regarding transfers of financial assets,
including securitization transactions, and where companies have continuing
exposure to the risks related to transferred financial assets. SFAS 166
eliminates the concept of a “qualifying special-purpose entity,” changes the
requirements for derecognizing financial assets, and requires additional
disclosures. SFAS 166 is effective for fiscal years beginning after November 15,
2009. The Company does not believe this pronouncement will impact its financial
statements.
In June 2009, the FASB issued ASC 810
(previously SFAS No. 167) for determining whether to consolidate a variable
interest entity. These amended standards eliminate a mandatory quantitative
approach to determine whether a variable interest gives the entity a controlling
financial interest in a variable interest entity in favor of a qualitatively
focused analysis, and require an ongoing reassessment of whether an entity is
the primary beneficiary. These amended standards are effective for us beginning
in the first quarter of fiscal year 2010 and we are currently evaluating the
impact that adoption will have on our consolidated financial statements. In
August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which
amends ASC Topic 820, Measuring Liabilities at Fair
Value, which provides additional guidance on the measurement of
liabilities at fair value. These amended standards clarify that in circumstances
in which a quoted price in an active market for the identical liability is not
available, we are required to use the quoted price of the identical liability
when traded as an asset, quoted prices for similar liabilities, or quoted prices
for similar liabilities when traded as assets. If these quoted prices are not
available, we are required to use another valuation technique, such as an income
approach or a market approach. These amended standards are effective for us
beginning in the fourth quarter of fiscal year 2009 and are not expected to have
a significant impact on our consolidated financial statements.
In October 2009, the FASB issued ASU
2009-13, “Multiple-Deliverable Revenue Arrangements,” now codified under FASB
ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires
entities to allocate revenue in an arrangement using estimated selling prices of
the delivered goods and services based on a selling price hierarchy. The
amendments eliminate the residual method of revenue allocation and require
revenue to be allocated using the relative selling price method. ASU 2009-13
should be applied on a prospective basis for revenue arrangements entered into
or materially modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. Management is currently evaluating the potential
impact of ASU2009-13 on our financial statements.
In
October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing,”
now codified under FASB ASC Topic 470 “Debt”, (“ASU 2009-15”), and provides
guidance for accounting and reporting for own-share lending arrangements issued
in contemplation of a convertible debt issuance. At the date of issuance, a
share-lending arrangement entered into on an entity’s own shares should be
measured at fair value in accordance with Topic 820 and recognized as an
issuance cost, with an offset to additional paid-in capital. Loaned shares are
excluded from basic and diluted earnings per share unless default of the
share-lending arrangement occurs. The amendments also require several
disclosures including a description and the terms of the arrangement and the
reason for entering into the arrangement. The effective dates of the amendments
are dependent upon the date the share-lending arrangement was entered into and
include retrospective application for arrangements outstanding as of the
beginning of fiscal years beginning on or after December 15, 2009. Management is
currently evaluating the potential impact of ASU 2009-15 on our financial
statements.
In December, 2009, under FASB ASC Topic
860, “Transfers and Servicing,” new authoritative accounting guidance amended
prior accounting guidance to enhance reporting about transfers of financial
assets, including securitizations, and where companies have continuing exposure
to the risks related to transferred financial assets. The new authoritative
accounting guidance eliminates the concept of a “qualifying special-purpose
entity” and changes the requirements for derecognizing financial assets. The new
authoritative accounting guidance also requires additional disclosures about all
continuing involvements with transferred financial assets including information
about gains and losses resulting from transfers during the period. The new
authoritative accounting guidance under ASC Topic 860 will be effective January
1, 2010 and is not expected to have a significant impact on the Company’s
financial statements.
Stock-based
compensation
On
October 17, 2006 the Company adopted SFAS No. 123R (ASC 718),,
“Share-Based Payment, an Amendment of FASB Statement No. 123.” As of the date of
this report the Company has no stock based incentive plan in
effect.
Basic
and Diluted Earnings Per Share
Earnings
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128) (ASC 260),,
“Earnings per share”. SFAS No. 128 superseded Accounting Principles Board
Opinion No.15 (APB 15). Net income (loss) per share for all periods presented
has been restated to reflect the adoption of SFAS No. 128. Basic net income per
share is based upon the weighted average number of common shares outstanding.
Diluted net income (loss) per share is based on the assumption that all dilutive
convertible shares and stock options were converted or exercised. Dilution is
computed by applying the treasury stock method. Under this method, options and
warrants are assumed to be exercised at the beginning of the period (or at the
time of issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the
period.
Cash
and Cash Equivalents and Concentration of Cash
The
Company considers all short-term investments with an original maturity of three
months or less to be cash equivalents.
Cash and
cash equivalents at January 31, 2010, include cash in bank representing the
Company’s current operating account and $650,160 in a brokerage money market
account, representing the net proceeds of the private placement completed
in
October
2009.
Property
and Equipment
Property
and Equipment is recorded at cost and depreciated using the straight- line
method over the estimated useful lives of the respective assets. Cost and
related accumulated depreciation on assets retired or disposed of are removed
from the accounts and any resulting gains or losses are credited or charged to
income. Computers and Software are depreciated over 3 years. Furniture and
Fixtures are depreciated over 8 years. Machinery and Equipment are depreciated
over 3 years.
Income
Taxes
The
Company utilizes SFAS No. 109 (ASC 740), “Accounting for Income Taxes,” which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
Revenue
Recognition
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.
The
estimation and the reporting of patient responsibility revenues is highly
subjective and depends on the payer mix, contractual reimbursement rates,
collection experiences, judgment and other factors. The Company’s fee
arrangements are with various payers, including managed care organizations,
hospitals, insurance companies, individuals, Medicare and Medicaid.
3.
Uncertainty
of ability to continue as a going concern
The
Company's 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. However, the Company has an accumulated deficit of $1,241,031 as of
January 31, 2010. Net Cash Flow used by Operating Activities for the twelve
months ended January 31, 2010 was $338,141.
The
financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
To date
the Company has funded its operations from both internally generated cash flow
and external sources, and the proceeds available from the private placement
provide funds for near-term operations and growth. The Company will pursue
additional external capitalization opportunities, as necessary, to fund its
long-term goals and objectives.
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, Accounts Receivable totals $457,517,
net of a provision for bad debt expense of $110,976, and represents amounts
invoiced by AMH. Accounts Receivable was $255,665, net of the provision for bad
debt expense of $11,465, on January 31, 2009.
Other
receivables total $23,483 and represent amounts due the Company from two
officers.
Due from
affiliate totals $2,850 and $2,050 as of January 31, 2010 and January 31, 2009,
respectively, and represents amounts due from AMA, an unconsolidated Affiliate
of the Company.
Prepaid
Expenses of $30,165 and $25,025 as of January 31, 2010 and January 31, 2009,
respectively, are amounts prepaid for medical malpractice insurance and
Director’s and Officer’s insurance.
8. Prepaid
financing cost
Unamortized
financing cost of $114,063 as of January 31, 2010 represents the unamortized
financing cost associated with 10%
Senior Subordinated Callable Convertible Notes due January 31, 2013, $125,000
paid by the Company on the closing of the placement on October 16, 2009 (see
Note 11). There was no Prepaid commission as of January 31, 2009.
9.
Property
and Equipment
Property
and Equipment consists of the following as of :
|
|
|
January 31,
2010
|
|
|
January 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Property and Equipment
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
|
|
|
|
|
|
Net
Property and Equipment
|
|
|
|
|
|
|
|
|
Depreciation
expense was $35,704 and $19,780 for the twelve month periods ended January 31,
2010 and 2009, respectively.
10.
Accounts
Payable and Accrued Liabilities
Accounts
payable and accrued liabilities consist of the following as of:
|
|
|
31-Jan-10
|
|
|
31-Jan-09
|
|
|
Accounts
payable
|
|
$ |
32,460 |
|
|
$ |
30,599 |
|
|
D&O
insurance payable
|
|
|
8,210 |
|
|
|
- |
|
|
Accrued
interest
|
|
|
|
|
|
|
507 |
|
|
Accrued
professional fees
|
|
|
22,141 |
|
|
|
20,267 |
|
|
Accrued
payroll and income taxes
|
|
|
41,441 |
|
|
|
13,768 |
|
|
Accrued
shares to be issued for note conversion
|
|
|
- |
|
|
|
200,000 |
|
|
Accrued
shares issued for services
|
|
|
- |
|
|
|
84,000 |
|
|
Total
|
|
$ |
104,252 |
|
|
$ |
349,141 |
|
The
Company’s long-term debt consisted of the following at January 31, 2010 and
January 31, 2009
|
|
|
January 31,
2010
|
|
January 31,
2009
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
Senior Subordinated Convertible Notes due January 31,
2013
|
|
|
|
|
|
|
10% Convertible
Notes due December 12, 2009
|
|
|
|
|
|
|
10% Convertible
Notes due December 23, 2009
|
|
|
|
|
|
|
8% Convertible
Notes due March 31, 2009
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
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|
|
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|
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|
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|
|
|
|
|
|
|
|
|
$ |
|
|
Wells
Fargo Business Credit line
The
Company entered into a new line of credit agreement with Wells Fargo Bank
replacing a previous line of credit that was converted to an amortizing loan.
See “Wells Fargo Business Loan”. Under the terms of the agreement, the Company
may borrow up to $70,000 through a revolving credit line at an interest rate of
eight percent. The loan is collateralized by all machinery, equipment,
furniture, accounts, inventory and general intangibles of AMH and personally
guaranteed by the CEO of the Company. As of January 31, 2010, the Company had no
borrowings under the Business Credit Line. Interest expense of $667 was recorded
for the twelve months ended January 31, 2010.
Wells
Fargo Business Loan
On
January 5, 2006, the Company entered into a SBA line of credit loan with Wells
Fargo Bank. The line of credit provided borrowings up $200,000 and matured on
February 10, 2009. The loan is collateralized by all machinery, equipment,
furniture, accounts, inventory and general intangibles of AMH and personally
guaranteed by the CEO of the Company. The interest rate was the bank’s prime
rate plus 2 percentage points.
On
February 3, 2009, the outstanding balance of $198,000 was converted into a four
year amortizing Business Loan at an interest rate of prime plus 2%. The Business
Loan maturity date was extended to February 10, 2013 and all collateral and
guarantors remained the same. On October 27, 2009, the Company paid off the
outstanding balance of $167,865 in full. As of January 31, 2010, the Company had
no borrowings under the Business Loan. Interest expense of $7,834 related to the
SBA loan was recorded during the twelve months ended January 31,
2010.
Subordinated
Borrowings
10%
Senior Subordinated Callable Convertible Notes due January 31, 2013
On
October 16, 2009, the Company issued $1,250,000 of its 10% Senior Subordinated
Callable Convertible Notes. The net proceeds of $1,100,000 will be used for the
repayment of existing debt, acquisitions, physician recruitment and other
general corporate purposes. The notes bear interest at a rate of 10% annually,
payable semi annually on January 31 and July 31. The Notes mature and become due
and payable on January 31, 2013 and rank senior to all other unsecured debt of
the Company.
The 10%
Notes were sold through an Agent in the form of a Unit. Each Unit was comprised
of one 10% Senior Subordinated Callable Note with a par value $25,000, and one
five-year warrant to purchase 25,000 shares of the Company’s common stock. The
purchase price of each Unit was $25,000, resulting in gross proceeds of
$1,250,000.
In
connection with the placement of the subordinated notes, the Company paid a
commission of $125,000 and $25,000 of other direct expenses. The agent also
received five-year warrants to purchase up to 250,000 shares of the Common Stock
at an initial exercise price of $0.25 per share. The agent also received 100,000
shares of restricted common stock for pre-transaction advisory services and due
diligence. The commission of $125,000 paid at closing, is accounted for as
prepaid expense and will be amortized over a forty-month period through January
31, 2013, the maturity date of the notes. The $25,000 of other direct expenses
were paid at closing and reported as financing costs in the Operating Statement.
In addition, financing costs included $4,000 related to the value of the 100,000
shares granted to the Placement Agent. Interest expense of $36,458 was recorded
in the year ended January 31, 2010.
The 10%
Notes are convertible any time prior to January 31, 2013. The initial conversion
rate is 200,000 shares of the Company’s common stock per $25,000 principal
amount of the 10% Notes (Subject to certain events). This represents an initial
conversion price of $0.125 per share of the Company’s common stock.
On or
after January 31, 2012, the Company may, at its option, upon 60 days notice to
both the Note-holder’s and the placement agent, redeem all or a portion of the
notes at a redemption price in cash equal to 102% of the principal amount of the
notes to be redeemed plus accrued and unpaid interest to, but excluding, the
redemption date.
The
Warrants attached to the Units are exercisable into shares of Common Stock at an
initial exercise price of $0.125. The Warrants have a five-year term and
expire on October 31, 2014. These warrants were estimated to have a fair value
of $2,653 using the Black-Scholes pricing model which was recorded as
unamortized warrant discount on granted date and $2,418 as of January 31,
2010.
In
connection with this offering, the Company also issued warrants to purchase
250,000 shares of our common stock to the placement agent which were estimated
to have a fair value of $2,200 using the Black-Scholes pricing model and was
recorded as unamortized warrant discount on granted date. These warrants have an
exercise price of $0.25 per share, are exercisable immediately upon issuance and
expire five years after the date of issuance.
10% Convertible Notes due between October 7, 2009 and
December 12, 2009
Between
October 7, 2008 and December 12, 2008 the Company issued $210,000 of its 10%
Convertible Notes with attached Warrants. The notes bear interest at a rate of
10% annually, mature and become due twelve months from the date of issuance
ranging from October 7, 2009 and December 12, 2009. The conversion rate is
1,333.333 shares of the Company’s common stock per $1,000 principal amount of
the Notes . As of January 31, 2009, the Company received notices to convert
$200,000 of notes into shares of the Company’s common stock. The remaining
balance of $10,000 was paid in full, with interest, on December 28,
2009.
The
Company recorded interest expense of $912 in the year ended January 31, 2010,
and $137 for the twelve months ended January 31, 2009, related to these
Convertible Notes.
Each Note
Holder also received 666.67 Warrants per $1,000 principal amount of the Notes
purchased. These Warrants are exercisable into shares of Common Stock at an
exercise price of $1.50. The Warrants have a three-year term and expire on the
third year anniversary of the respective notes. These warrants were estimated to
have a fair value of $379 using the Black-Scholes pricing model, which was fully
amortized as interest expense during the year ended January 31,
2009.
10%
Convertible Notes due December 25, 2009
On
December 25, 2008, the Company issued $23,000 of its 10% Convertible Notes and
Warrants to relatives of the CEO of the Company. The notes bear interest at a
rate of 10% annually. The Notes mature and become due twelve months from the
date of issuance and are due on December 25, 2009. The conversion rate is
1,333.333 shares of the Company’s common stock per $1,000 principal amount of
the Notes (Subject to certain events). These notes were paid off in full with
interest on December 28, 2009.
The
Company recorded interest expense of $2,098 and zero for the twelve months ended
January 31, 2010 and January 31, 2009, respectively.
Each Note
Holder also received 666.67 Warrants per $1,000 principal amount of the Notes
purchased. These Warrants are exercisable into shares of Common Stock at an
initial exercise price of $1.50. The Warrants have a three-year term and expire
on December 25, 2011.These warrants were estimated to have a fair value of $68
using the Black-Scholes pricing model.
8%
Convertible Notes due December 25, 2009
On July
28, 2008, the Company issued $70,000 in the form of a notes payable to a
relative of the CEO of the Company. The Note carried no interest rate and the
Company agreed to pay a $5,000 origination fee to be paid at the time of pay
off. The maturity date on this Note was October 1, 2008. 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 with the note holder. 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 eight 8%
and the note is initially convertible into 214,285 shares of common stock. The
Company paid the note in full, with accumulated interest, on October 22, 2009.
The Company recorded interest expense of $4,323 and $99 for the twelve months
ended January 31, 2010 and January 31, 2009, respectively.
The
following table represents the principal repayments of all the outstanding debt
as of January 31, 2010:
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|
|
|
|
|
|
|
|
|
$ |
- |
|
|
2012
|
|
|
- |
|
|
|
|
|
1,250,000 |
|
|
2014
|
|
|
- |
|
|
2015
|
|
|
- |
|
12.
Related Party Transactions
During
the twelve months ended January 31, 2010 and 2009, the Company generated revenue
of $395,135 and $38,750, 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.
On July
28, 2008, the Company issued $70,000 in the form of a note payable to a relative
of the CEO of the Company. The Note carried no interest rate and the Company
agreed to pay a $5,000 origination fee to be paid at the time of pay off. The
maturity date on this Note was October 1, 2008. 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 with the note holder. 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 eight 8% and the
note is initially convertible into 214,285 shares of common stock. The Company
paid the note in full, with accumulated interest, on October 22,
2009.
Also,
during the fourth quarter 2009, the Company issued Convertible Notes in amounts
aggregating to $23,000 to two relatives of Warren Hosseinion, the Company’s CEO
(Note 11). These two notes were paid in full, with accrued interest, on December
28, 2009.
13 Non-Controlling
Interest
The
Company recorded AMH owner ship interest in the accompanying financial
statements as Non-Controlling Interest of $228,115 at January 31, 2010 and
January 31, 2009.
The
Company issued a total of 1,171,108 common shares in the twelve months ended
January 31, 2010, including 266,665 shares in the second quarter ended July 31,
2009, 826,666 in the third quarter ended October 31, 2009, and 77,777
shares in the fourth quarter ended January 31, 2010. The 266,665 shares were
issued on May 14, 2009 to nine holders of convertible notes that had exercised
their conversion rights. Of the 826,666 shares, 716,666 were issued to officers
and directors, 100,000 shares were issued to the Placement Agent for advisory
services and 10,000 shares were issued to an employee. The 77,777 shares issued
in the fourth quarter were to Suresh Nihalani, a Director of the
Company.
During
the year ended January 2009, the Company issued a total of 329,798 shares for
services and financing arrangements. This total included 268,687 shares for
legal, accounting and advisory services, 50,000 shares as a financing fee on a
note payable, and 11,111 shares to Suresh Nihalani, under his director
agreement.
On
October 27, 2008, the Company entered into a Board of Director’s Agreement with
Suresh Nihalani. The Company issued a stock award of 400,000 shares to Mr.
Nihalani, under the terms of the Director’s Agreement, which shares are to be
issued ratably over a thirty-six month period commencing December 2008. Mr.
Nihalani was issued 11,111 shares under this agreement in the year ended
January 31, 2009 and an additional 144,443 shares in the year ended January 31,
2010.
During
the period from February 1, 2007 to July 31, 2007, Apollo Medical issued 364,000
shares to investors for a total cash value $182,000. As part of issuance of
shares for cash the Company granted 91,000 stock warrants to investors. During
the period from February 1, 2008 to July 31, 2008, Apollo Medical issued 670,000
shares to investors for a total cash value $335,000. As part of issuance of
shares for cash the Company granted 167,500 stock warrants to
investors.
As the
result of the merger on June 13, 2008, the former shareholders of Apollo Medical
received 20,933,490 shares of the Company’s common stock in exchange for all the
issued and outstanding shares of Apollo Medical. Certain former shareholders of
Apollo Medical received 470,470 warrants in exchange for warrants granted to
them in previous fund raising.
Warrants
outstanding:
|
|
|
Aggregate
intrinsic value
|
|
|
Number of
warrants
|
|
Outstanding
at January 31, 2009
|
|
|
|
|
|
|
|
|
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|
Outstanding
at January 31, 2010
|
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|
|
|
|
|
|
|
|
Exercise Price
|
|
Warrants
outstanding
|
|
|
Weighted
average
remaining
contractual life
|
|
|
Warrants
exercisable
|
|
|
Weighted
average
exercise price
|
|
| $ |
1.100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
1.500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
0.250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
0.250
|
|
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|
In
conjunction with the completion of the private placement on October 16, 2009, as
described in Note 12, the Company issued a total of 1,500,000 warrants. Of this
amount, 1,250,000 warrants were issued to the holders of the Convertible Notes
and 250,000 warrants were granted to the placement agent. The 1,250,000 warrants
held by the note holders are exercisable into shares of Common Stock at an
initial exercise price of $0.125. The Warrants have a five-year term and
expire on October 31, 2014. The 250,000 warrants conveyed to the placement agent
also have a five-year term, expire on October 31, 2014, and are exercisable at
$0.25 per share.
15.
Commitments
and Contingency
On March
15, 2009, the Company entered into a Consulting Agreement with Kaneohe Advisors
LLC (Kyle Francis) under which Mr. Francis would become the Company’s Executive
Vice President, Business Development and Strategy. Under the terms of the
Agreement, Mr. Francis will be paid $8,000 per month. In addition, Mr. Francis
received 350,000 shares of restricted stock at the date of the Agreement and is
entitled to 350,000 additional restricted shares on the first and second
anniversaries of the Agreement, provided the Agreement is not terminated. The
initial 350,000 shares, along with 50,000 shares granted to Mr. Francis in the
year ended January 2009, were issued in the third quarter ended October 31,
2009. On March 15, 2010, the second anniversary of the Consulting Agreement, Mr.
Francis was granted an additional 350,000 shares.
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 $.10 per share when
and if the Company is to adopt a stock compensation plan.
On
October 27, 2008, the Company entered into a Board of Director’s Agreement with
Suresh Nihalani. The Company will issue a stock award of 400,000 shares to Mr.
Nihalani, under the terms of the Director’s Agreement, which shares will be
issued ratably over a thirty-six month period commencing December 2008. The
shares will be released to Mr. Nihalani on a monthly basis during his tenure as
a Director. The distribution of shares will continue as long as Mr. Nihalani
serves on the Board, but will cease when Mr. Nihalani is no longer is a
Director. Mr. Nihalani was issued 11,111 shares under this agreement in the year
ended January 31, 2009 and an additional 144,443 shares in the year ended
January 31, 2010.
The
Company received a claim for $250,000 relating to amounts purportedly owed by
the Company as a result of the initial reverse acquisition transaction. This
dispute relates to the initial letter dated June 3, 2008. The terms of the
letter of intent call for, among other things, the payment of cash of $250,000
within 60 days of closing. The letter of intent states, however, that it is
intended to serve as a memorandum of the Parties current discussions, and that a
definitive transaction agreement will follow. The letter of intent further
states that both parties acknowledge that all provisions of the letter of intent
are non binding, and that no contract or agreement providing for a transaction
shall be deemed to exist unless and until a final agreement has been negotiated
and executed. The final merger agreement that was executed contains a clause
that it is the “entire agreement” and thus supersedes all previous agreements
including the letter of intent; moreover, management contends that there are no
additional amounts owed under the final merger agreement. The Company has not
accrued for any amount asserted in the above claim as the attorney of the
Company has advised that the claim is in its early stage and the outcome of this
matter could not be predicted at this stage.