10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on June 18, 2010
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(MARK
ONE)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934
FOR THE
QUARTERLY PERIOD ENDED April 30, 2010
OR
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934
COMMISSION
FILE NUMBER: 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
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
Number)
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|
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450
N. Brand Blvd., Suite 600
Glendale,
California 91203
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||
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(Address
of principal executive offices)
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(818)
507-4617
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Issuer’s
telephone number:
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(Former
Name or Former Address, if Changed Since Last Report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes x No ¨ .
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, 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 the registrant was required to submit
and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
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Large
accelerated filer ¨
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Accelerated
filer ¨
|
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Non-accelerated
filer ¨
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Smaller
reporting company x
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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 ¨ No x
As of
June 10, 2010, there were 27,424,661 shares of the registrant’s common stock,
$0.001 par value per share, issued and outstanding.
APOLLO
MEDICAL HOLDINGS, INC.
INDEX
TO FORM 10-Q FILING
FOR THE
THREE MONTHS ENDED APRIL 30, 2010 AND 2009
TABLE
OF CONTENTS
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PAGE
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PART
I
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FINANCIAL
INFORMATION
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Item
1.
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Financial
Statements – Unaudited
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|
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Condensed
Consolidated Balance Sheet As of April 30, 2010 and January 31,
2010
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3
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Condensed
Consolidated Statements of Operations For the Three
months ended April 30, 2010 and 2009
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4
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Condensed
Consolidated Statements of Cash Flows For the Three months ended April 30,
2010 and 2009
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5
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|
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Notes
to Condensed Consolidated Financial Statements
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6-13
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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14-17
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Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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18
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Item
4.
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Control
and Procedures.
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18
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PART
II
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OTHER
INFORMATION
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Item
1.
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Legal
Proceedings
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19
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Item
2.
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Unregistered
Sales of Equity Securities and the Use of Proceeds
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19
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Item
3.
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Defaults
upon Senior Securities
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19
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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19
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Item
5.
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Other
Information
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19
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Item
6.
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Exhibits
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19
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2
APOLLO
MEDICAL HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
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As of April 30, 2010
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As of January 31, 2010
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|||||||
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ASSETS
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||||||||
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CURRENT
ASSETS
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||||||||
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Cash
and cash equivalents
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$ | 504,540 | $ | 665,737 | ||||
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Accounts
receivable, net
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653,672 | 457,517 | ||||||
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Receivable
from officers
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23,483 | 23,483 | ||||||
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Due
from affiliate
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3,650 | 2,850 | ||||||
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Prepaid
expenses
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22,821 | 30,165 | ||||||
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Total
current assets
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1,208,166 | 1,179,751 | ||||||
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Deferred
commission cost
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104,687 | 114,063 | ||||||
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Property
and equipment - net
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13,189 | 11,627 | ||||||
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TOTAL
ASSETS
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$ | 1,326,042 | $ | 1,305,441 | ||||
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LIABILITIES
AND STOCKHOLDERS' DEFICIT:
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||||||||
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CURRENT
LIABILITIES:
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||||||||
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Accounts
payable and accrued liabilities
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$ | 95,426 | $ | 104,252 | ||||
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Total
current liabilities
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95,426 | 104,252 | ||||||
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Convertible
notes, net
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1,247,784 | 1,247,582 | ||||||
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Total
liabilities
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1,343,210 | 1,351,834 | ||||||
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STOCKHOLDERS'
DEFICIT:
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||||||||
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Preferred
stock, par value $0.001 ; 5,000,000 shares authorized;
none issued
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- | - | ||||||
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Common
Stock, par value $0.001; 100,000,000 shares authorized, 27,424,661
and 27,041,328 shares issued and outstanding as on April 30, 2010
and January 31, 2010
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27,424 | 27,041 | ||||||
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Additional
paid-in-capital
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969,166 | 939,483 | ||||||
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Accumulated
deficit
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(1,241,873 | ) | (1,241,031 | ) | ||||
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Total
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(245,283 | ) | (274,508 | ) | ||||
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Non-controlling
interest
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228,115 | 228,115 | ||||||
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Total
stockholders' deficit
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(17,168 | ) | (46,393 | ) | ||||
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
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$ | 1,326,042 | $ | 1,305,441 | ||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
3
APOLLO
MEDICAL HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE
THREE MONTH PERIODS ENDED APRIL 30, 2010 AND 2009
(UNAUDITED)
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For the three month periods ended April 30,
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||||||||
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2010
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2009
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|||||||
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REVENUES
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$ | 802,885 | $ | 501,183 | ||||
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COST
OF SERVICES
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674,686 | 419,554 | ||||||
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GROSS
REVENUE
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128,199 | 81,629 | ||||||
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Operating
expenses:
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||||||||
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General
and administrative
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85,192 | 172,562 | ||||||
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Depreciation
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3,006 | 10,338 | ||||||
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Total
operating expenses
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88,198 | 182,900 | ||||||
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PROFIT/(LOSS)
FROM OPERATIONS
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40,001 | (101,272 | ) | |||||
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OTHER EXPENSES:
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||||||||
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Interest
expense
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31,523 | 4,849 | ||||||
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Financing
cost
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9,375 | - | ||||||
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Other
expense
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(854 | ) | - | |||||
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Total
other expenses
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40,044 | 4,849 | ||||||
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LOSS
BEFORE INCOME TAXES
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(43 | ) | (106,121 | ) | ||||
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Provision
for income tax
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800 | 800 | ||||||
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NET
LOSS
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$
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(843 | ) |
$
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(106,921 | ) | ||
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WEIGHTED
AVERAGE SHARES OF COMMON STOCK OUTSTANDING,
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||||||||
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BASIC
AND DILUTED
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27,229,655 | 25,870,220 | ||||||
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*BASIC
AND DILUTED NET LOSS PER SHARE
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$ | (0.00 | ) | $ | (0.00 | ) | ||
*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 unaudited condensed
consolidated financial statements
4
APOLLO
MEDICAL HOLDINGS, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR THE
THREE MONTH PERIODS ENDED APRIL 30, 2010 AND 2009
(UNAUDITED)
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For three month periods ended April 30,
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||||||||
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2010
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2009
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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||||||||
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Net
loss
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$ | (843 | ) | $ | (106,921 | ) | ||
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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||||||||
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Depreciation
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3,006 | 10,338 | ||||||
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Bad
debt expense
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(60,647 | ) | 462 | |||||
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Issuance
of shares for services
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30,066 | - | ||||||
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Shares
to be issued for service
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- | 94,500 | ||||||
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Amortization
of deferred commission cost
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9,376 | - | ||||||
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Amortization
of debt discount
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202 | - | ||||||
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Changes
in assets and liabilities:
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||||||||
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Accounts
receivable
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(135,510 | ) | (14,045 | ) | ||||
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Prepaid
financing cost
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- | 7,062 | ||||||
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Prepaid
expenses
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7,344 | - | ||||||
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Accounts
payable and accrued liabilities
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(8,824 | ) | (8,860 | ) | ||||
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Net
cash used in operating activities
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(155,830 | ) | (17,464 | ) | ||||
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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||||||||
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Property
and equipment
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(4,568 | ) | - | |||||
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Due
from related parties
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(800 | ) | - | |||||
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Net
cash used in investing
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(5,368 | ) | - | |||||
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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||||||||
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Payments
of notes payable
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- | (7,477 | ) | |||||
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Net
cash used in financing activities
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- | (7,477 | ) | |||||
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NET
DECREASE IN CASH & CASH EQUIVALENTS
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(161,197 | ) | (24,941 | ) | ||||
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CASH
& CASH EQUIVALENTS, BEGINNING BALANCE
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665,737 | 84,161 | ||||||
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CASH
& CASH EQUIVALENTS, ENDING BALANCE
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$ | 504,540 | $ | 59,220 | ||||
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SUPPLEMENTARY
DISCLOSURES OF CASH FLOW INFORMATION
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||||||||
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Interest
paid during the quarter
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$ | 71 | $ | 2,582 | ||||
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Taxes
paid during the quarter
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$ | 1,600 | $ | 1,600 | ||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
5
APOLLO
MEDICAL HOLDINGS, INC.
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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1.
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Description of
Business
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Apollo
Medical Holdings, Inc. (“Apollo” or the “Company”) is 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 an inpatient
facility such as a hospital or skilled nursing facility and is focused on
providing, managing and coordinating the care of hospitalized patients. Apollo
Medical Holdings, Inc. 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.
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2.
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Summary of Significant Accounting
Policies
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Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared by Apollo in accordance with U.S. generally accepted accounting
principles for interim financial statements. The 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. In management’s opinion, all adjustments, consisting of
normal recurring adjustments necessary for the fair presentation of the results
of the interim periods are reflected herein. Operating results for the three
month period ended April 30, 2010 are not necessarily indicative of future
financial results.
The
condensed consolidated financial statements and notes are presented as permitted
by Form 10-Q and do not contain all of the information that is included in the
annual financial statements and notes of the Company. The condensed consolidated
financial statements and notes presented herein should be read in conjunction
with the financial statements and notes included in the Company’s Annual Report
on Form 10-K for the year ended January 31, 2010.
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.
Reclassification
Certain
comparative amounts have been reclassified to conform to the three month periods
ended April 30, 2010 and 2009.
Fair
Value of Financial Instruments
Statement
of financial accounting standard No. 107(ASC 825), Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for assets and liabilities qualifying as financial
instruments are a reasonable estimate of fair value.
6
Credit
and Supply Risk
The
Company’s case rate and capitation revenues, reported by Apollo’s affiliate,
AMH, are governed by contractual agreements with medical groups/IPA’s and
hospitals. As a result, receivables from this business are generally
fully collected. The Company does face issues related to the timing of these
collections, and the Company must assess the level of earned but uncollected
revenue to which it is entitled at each period end. The Company does face
collection issues with regard to its fee-for-service revenues. One is the
estimation of the amount to be received from each billing since the Company
invoices on a Medicare schedule and each of many providers remits payment on a
reduced schedule. The Company has to estimate the amount it will
ultimately receive from each billing and properly record revenue. With a wide
variety of contract terms and providers, the Company’s revenue is not
concentrated or dependent on a specific contract. No individual
contract with our clients provides more than 15 percent of reported
revenues.
Recently
Issued Accounting Pronouncements
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
January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The amendments in this update are effective for interim and annual
periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The adoption of this ASU did not have a material
impact on its consolidated financial statements.
7
In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If
an entity has previously adopted SFAS No. 160 as of the date the amendments in
this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or annual
reporting period ending on or after December 15, 2009. The amendments in this
update should be applied retrospectively to the first period that an entity
adopted SFAS No. 160. The adoption of this ASU did not have a material
impact on the Company’s consolidated financial statements.
In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The Company is currently evaluating the impact of this ASU, however, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.
In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP. The amendment is effective for interim and annual reporting periods in
fiscal year ending after June 15, 2010. The Company does not expect the adoption
of this ASU to have a material impact on the Company’s consolidated 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.
8
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
Cash and
cash equivalents at April 30, 2010 was $504,540 and included cash in
bank representing the Company’s current operating account and $486,216 in a
brokerage money market account. The $18,324 balance in the Company's
operating account is insured by the FDIC.
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 $1,241,873 as of
April 30, 2010. Net Cash Flow used by Operating Activities for the three months
ended April 30, 2010 was $155,830.
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.
4. Accounts
Receivable
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 April 30, 2010, Accounts Receivable totals $653,672, net
of a provision for bad debt expense of $50,329, and represents amounts invoiced
by AMH. Accounts Receivable was $457,517, net of the provision for bad debt
expense of $110,976, on January 31, 2010.
5. Other
Receivables
Other
receivables total $23,483 and represent amounts due the Company from two
officers.
9
6. Due
from affiliate
Due from
affiliate totals $3,650 and $2,850 as of April 30, 2010 and January 31, 2010,
respectively, and represents amounts due from AMA, an unconsolidated Affiliate
of the Company.
7.
Prepaid Expenses
Prepaid
Expenses of $22,821 and $30,165 as of April 30, 2010 and January 31, 2010,
respectively, are amounts prepaid for medical malpractice insurance and
Director’s and Officer’s insurance.
8. Deferred
Commission Cost
Unamortized
financing cost of $104,687 on April 30, 2010 and $114,063 as of January 31, 2010
represent the 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).
9.
Property and Equipment
Property
and Equipment consists of the following as of :
|
April 30,2010
|
January 31, 2010
|
|||||||
|
Website
|
$ | 4,568 | $ | |||||
|
Computers
|
13,912 | 13,912 | ||||||
|
Software
|
138,443 | 138,443 | ||||||
|
Machinery
and equipment
|
50,815 | 50,815 | ||||||
|
Gross
Property and Equipment
|
207,738 | 203,170 | ||||||
|
Less
accumulated depreciation
|
(194,549 | ) | (191,543 | ) | ||||
|
Net
Property and Equipment
|
$ | 13,189 | $ | 11,627 | ||||
Capital
expenditures totaled $4,568 at AMM in the quarter ended April 30, 2010 for the
development of a Company web site.
Depreciation
expense was $3,006 and $10,338 for the three month periods ended April 30, 2010
and 2009, respectively.
10
|
10.
|
Accounts
Payable and
Accrued Liabilities
|
Accounts
payable and accrued liabilities consist of the following as of:
|
April 30, 2010
|
January 31, 2010
|
|||||||
|
Accounts
payable
|
$ | 30,778 | $ | 32,460 | ||||
|
D&O
insurance payable
|
2,751 | 8,210 | ||||||
|
Accrued
interest
|
31,250 | |||||||
|
Accrued
professional fees
|
22,141 | |||||||
|
Accrued
payroll and income taxes
|
30,647 | 41,441 | ||||||
|
Total
|
$ | 95,426 | $ | 104,252 | ||||
11.
Long-term Debt
The
Company’s long-term debt consisted of the following at April 30, 2010 and
January 31, 2010
|
April 30,
|
January 30,
|
|||||||
|
2010
|
2010
|
|||||||
|
Subordinated
Borrowings:
|
||||||||
|
10%
Senior Subordinated Convertible Notes due January 31, 2013
|
$ | 1,247,784 | $ | 1,247,582 | ||||
|
Total
long-term debt
|
$ | 1,247,784 | $ | 1,247,582 | ||||
|
Less:
Current Portion
|
_
|
_
|
||||||
|
Total
|
$ | 1,247,784 | $ | 1,247,582 | ||||
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.
11
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 financing cost 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 the year ended January 31, 2010. In addition, financing costs
included $4,000 related to the value of the 100,000 shares granted to the
Placement Agent.
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 $2,216 as of April 30,
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.
The
Company recorded interest expense of $ 31,250 related to these notes for the
three months ended April 30, 2010. No interest related to these
subordinated borrowings was reported for the quarter ended April 30,
2009.
12.
Related Party Transactions
During
the four months ended April 30, 2010 and 2009, the Company generated revenue of
$105,000 and $56,491, 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.
13. Non-Controlling
Interest
The
Company recorded AMH owner ship interest in the accompanying financial
statements as Non-Controlling Interest of $228,115 at April 30, 2010 and January
31, 2010.
14.
Stockholder’s Equity
In the
first quarter ended April 30, 2010, the Company issued 383,333 common shares,
bringing the total outstanding shares to 27,424,661 at April 30,
2010. A total of 350,000 shares were issued to Kanehoe Advisors and
33,333 shares were issued to Suresh Nihalani, a director. The total shares of
383,333 were valued at $30,066 based on the fair value of shares at issuance
dates.
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 shares 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.
12
Warrants
outstanding:
No
warrants were issued by the Company in the quarter ended April 30,
2010.
|
Aggregate
intrinsic value
|
Number of
warrants
|
|||||||
|
Outstanding
at January 31, 2010
|
$ | — | 2,125,803 | |||||
|
Granted
|
— | - | ||||||
|
Exercised
|
— | — | ||||||
|
Cancelled
|
— | — | ||||||
|
Outstanding
at April 30, 2010
|
$ | — | 2,125,803 | |||||
|
Exercise Price
|
Warrants
outstanding
|
Weighted
average
remaining
contractual life
|
Warrants
exercisable
|
Weighted
average
exercise price
|
|||||||||||||
|
$
|
1.100 | 470,470 | 0.54 | 470,470 | $ | 1.10 | |||||||||||
|
$
|
1.500 | 155,333 | 1.49 | 155,333 | $ | 1.50 | |||||||||||
|
$
|
0.250 | 1,250,000 | 4.50 | 1,250,000 | $ | 0.25 | |||||||||||
|
$
|
0.250 | 250,000 | 4.50 | 250,000 | $ | 0.25 | |||||||||||
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 first anniversary of the Consulting Agreement, Mr.
Francis was granted an additional 350,000 shares (see Note 14).
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 33,333 shares in the quarter just ended on
April 30, 2010 (see Note 14)
13
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
following management’s discussion and analysis should be read in conjunction
with the unaudited condensed consolidated financial statements and the notes
thereto included in this Quarterly Report. In addition, reference is made to our
audited consolidated financial statements and notes thereto and related
Management’s Discussion and Analysis of Financial Condition and Results of
Operations included in our most recent Annual Report on Form 10-K for the year
ended January 31, 2009, filed with the Securities and Exchange Commission
( SEC) on May 18, 2009.
In
this Quarterly Report, unless otherwise expressly stated or the context
otherwise requires, “Apollo,” “we,” “us” and “our” refer to Apollo Medical
Holdings, Inc,, a Delaware corporation, and its wholly-owned
subsidiary-management company, Apollo Medical management, Inc., and affiliated
medical groups. Our affiliated professional organizations are
separate legal entities that provide physician services in California and
with which we have management agreements. For financial reporting purposes we
consolidate the revenues and expenses of all our practice groups that we own or
manage because we have a controlling financial interest in these practices based
on applicable accounting rules and as described in our accompanying financial
statements. Also, unless otherwise expressly stated or the context otherwise
requires, “our affiliated hospitalists” refer to physicians employed or
contracted by either our wholly-owned subsidiaries or our affiliated
professional organizations. References to “practices” or “practice groups” refer
to our subsidiary-management company and the affiliated professional
organizations of Apollo that provide medical services, unless otherwise
expressly stated or the context otherwise requires.
The
following discussion contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 regarding future events and
the future results of Apollo that are based on management’s current
expectations, estimates, projections, and assumptions about our business. Words
such as “may,” “will,” “could,” “should,” “target,” “potential,” “project,”
“expects,” “anticipates,” “intends,” “plans,” “believes,” “sees,” “estimates”
and variations of such words and similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult
to predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements due to
numerous factors, including, but not limited to, those discussed in our most
recent Annual Report on Form 10-K, including the section entitled “Risk
Factors”, as well as those discussed from time to time in the Company’s other
SEC filings and reports. In addition, such statements could be affected by
general industry and market conditions. Such forward-looking statements speak
only as of the date of this Quarterly Report or, in the case of any document
incorporated by reference, the date of that document, and we do not undertake
any obligation to update any forward-looking statement to reflect events or
circumstances after the date of this Report, or for changes made to this
document by wire services or Internet service providers. If we update or correct
one or more forward-looking statements, investors and others should not conclude
that we will make additional updates or corrections with respect to other
forward-looking statements.
Overview
We 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 an inpatient facility such as a hospital or skilled nursing facility
and is focused on providing, managing and coordinating the care of hospitalized
patients.
14
Results
of Operations and Operating Data
Three
Months Ended April 30, 2010 vs. Three Months Ended April 30, 2009
Net
revenues for the three months ended April 30, 2010 of $802,885 increased
$301,702, or 60 percent, over net revenues of $501,183 reported for the three
months ended April 30, 2009. Net revenues are comprised of net
billings by AMH under the various fee structures from health plans, medical
groups/IPA’s and hospitals, and income from service fee agreements. Increase was
attributable to new hospital contracts, increased same-market area growth and
expansion of services with existing medical group clients at new
hospitals.
Physician
practice salaries, benefits and other expenses for the three months ended
April 30, 2010 were $674,686, at 84% of net revenues compared to
$419,554 for the three months ended April 30, 2009, at 84% of net
revenues. 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. Increase in physician costs were
attributable to start-up losses at new hospital contracts and expansions of
services at new hospitals in the quarter.
15
General
and administrative expenses include all salaries, benefits, supplies and
operating expenses, not specifically related to the day-to-day operations of our
physician group practices, including billing and collections
functions, and our corporate management and overhead. General and
administrative expenses were $85,192, at 11% of net revenues, for the three
months ended April 30, 2010. General and Administrative expenses were $172,562
for the three months ended April 30, 2009, at 34% of net revenues. In
the first quarter of 2010, the Company recorded non-cash compensation expenses
of $30,066, related to the issuance of shares for service, compared to $94,500
of such non-cash costs in the first quarter of 2009. In addition, the
Company recorded a favorable write-down of its bad debt reserve of $60,647
compared to $462 increase in bad debt reserve in first quarter of
2009.
Depreciation
and amortization expense was $3,006 for the three months ended April 30, 2010,
and $10,338 for the comparable three-month period in 2009.
The
Company reported a profit from operations of $40,001 for the three months
ended April 30, 2010, compared to a loss from operations of
$101,272 recorded in the same period of 2009. Net revenues in 2010
continued to benefit from the addition of contracts with hospitals and the
hiring of several additional physicians. In addition, the operating
profit in 2010 benefitted from the lower non-cash compensation
costs.
Interest
expense and amortization of financing costs totaled $40,044 for the three months
ended April 30, 2010, compared to interest and financing costs of
$4,849 in the three months ended April 30, 2009. Interest expense and financing
costs in 2010 included interest on the subordinated borrowings of $31,523, and
the amortization of financing costs of $9,375, related to these notes. Interest
expense in the three months ended April 30, 2009 of $4,849 represents interest
expense paid on the SBA loan with Wells Fargo Bank, and interest expense accrued
at AMM for the related party notes.
Net Loss
was $843 for the three months ended April 30, 2010, compared to a net loss
of $106,921 for the three months ended April 30, 2009. The
reduction in the net loss was the result of the factors discussed
above.
Liquidity
and Capital Resources
At April
30, 2010, the Company had cash and cash equivalents of $504,540, compared to
cash and cash equivalents of $665,737 at January 31, 2010.
The cash balance at April 30, 2010 included $486,216 in a money market brokerage
account. There were no short-term borrowings at April 30, 2010 or
January 31, 2010. Long-term borrowings totaled $1,247,784 as of
April 30, 2010 and $1,247,582 on January 31, 2010.
16
Net cash
used in operating activities totaled $155,830 in the three months ended April
30, 2010, compared to net cash used in operations of $17,464 for the comparable
three months ended April 30, 2009. The significantly larger increase
in accounts receivable, primarily related to new
contracts in the first quarter of 2010, was responsible for the
decrease in the operating cash flow.
Net cash
used in operating activities for the three months ended April 30, 2010 of
$155,830 was comprised of a net loss of $843 for the three month
period. Adjustments for non-cash charges which include depreciation,
bad debt expense, shares issued for service and amortization of commission cost
and debt discount, used $17,997. In addition, net changes in
operating assets and liabilities used cash of $136,990
The
Company invested $4,568 to develop a Web Site and an $800 advance to an
affiliated Company in the first quarter of 2010. We did not spend any
cash for investing activities in the comparable three-month period of
2009.
For the
three months ended April 30, 2010, the Company did not spend any for financing
activities. In the first quarter of 2009, ended April 30, 2009, net cash used in
financing activities totaled $7,477 and consisted of principal pay downs on the
Company's SBA loan with Wells Fargo Bank.
Credit
Facility and Liquidity
The
Company's Business Line with Wells Fargo Bank provides a revolving line of
credit of $70,000, and is linked to the AMH bank account. The line can be used
for short-term working capital needs and provides overdraft protection. The line
cannot be used for letters of credit. There were no borrowings under this
facility during the three months ended April 30, 2010.
We
continue to search for investment opportunities and anticipate that funds
generated from operations, together with our current cash on hand and funds
available under our revolving credit agreement will be sufficient to finance our
working capital requirements and fund anticipated acquisitions, contingent
acquisition consideration and capital expenditures.
Off
Balance Sheet Arrangements
As of
April 30, 2010, we had no off-balance sheet arrangements.
Recently
Adopted and New Accounting Pronouncements
See Note
2 to the Condensed Consolidated Financial Statements for information regarding
recently adopted and new accounting pronouncements.
17
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
Company does not hold any derivative instruments and does not engage in any
hedging activities.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures.
In
connection with the preparation of this Quarterly Report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Principal Financial and Accounting
Officer, of the effectiveness of our disclosure controls and procedures, as of
April 30, 2010, in accordance with Rules 13a-15(b) and 15d-15(b) of the Exchange
Act.
Based on
that evaluation, our Chief Executive Officer and Principal Financial and
Accounting Officer have concluded that our disclosure controls and procedures
were not effective as of April 30, 2010.
We have
identified the following three material weaknesses in our disclosure controls
and procedures:
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 April 30,
2010, that our disclosure controls and procedures are
insufficient. The Company continues to take steps to improve the
timeliness and accuracy of its financial information, including the hiring of
additional employees to facilitate proper segregation of duties. Our
management is responsible for establishing and maintaining adequate disclosure
controls and procedures, as defined in Rule 15d-15(e) under the Exchange Act,
and for assessing the effectiveness of our disclosure controls and procedures.
It should be noted that any system of controls and procedures, 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. Therefore, even those systems determined to be effective can
only provide reasonable assurance of achieving their control
objectives.
18
Changes
in Internal Controls over Financial Reporting
There has
been no change in our internal control over financial reporting during our most
recently completed fiscal quarter (i.e., the three-month period ended April 30,
2010) that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART
II – OTHER INFORMATION
ITEM
1. 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
1A. Not Applicable
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5. OTHER INFORMATION
None
ITEM
6. EXHIBITS
|
Exhibit Number
|
|
Description
|
|
31.1
|
Certification
by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
of the Exchange Act.
|
|
|
31.2
|
Certification
by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
of the Exchange Act.
|
|
|
32.1
|
Certification
by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
|
|
|
32.2
|
Certification
by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United States Code.
|
19
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
APOLLO
MEDICAL HOLDINGS, INC.
|
||
|
Dated:
June 18, 2010
|
By:
|
/s/
Warren Hosseinion
|
|
Warren
Hosseinion
|
||
|
Chief
Executive Officer and Director
|
||
|
Dated:
June 18, 2010
|
By:
|
/s/
A. Noel DeWinter
|
|
A.
Noel DeWinter
|
||
|
Chief
Financial Officer and Principal Accounting
Officer
|
||
20