August 9, 2023 - 10-Q/A: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)


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

For the quarterly period ended March 31, 2023


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

For the transition period from ___ to ___.

Commission File No. 001-37392

Apollo Medical Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware			95-4472349
(State or Other Jurisdiction			(I.R.S. Employer
of Incorporation)			Identification Number)

1668 S. Garfield Avenue, 2nd Floor, Alhambra, California 91801

(Address of principal executive offices and zip code)

(626) 282-0288

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share

AMEH

Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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


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

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

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

As of May 2, 2023, there were 57,547,215 shares of common stock of the registrant, $0.001 par value per share, issued and outstanding.

Explanatory Note

Apollo Medical Holdings, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (“Form 10-Q Amendment No. 1”) to amend the Quarterly Report on Form 10-Q (“Original Filing”) for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on May 10, 2023. This Form 10-Q Amendment No. 1 amends the Original Filing to include restated unaudited consolidated financial statements for the periods presented in Part I, Item 1 of the Original Filing primarily as a result of errors related to the Company’s tax provision as well as other immaterial items (refer to Note 1 – “Restatement of Prior Financial Information” to our unaudited consolidated financial statements under Item 1 in this Form 10-Q Amendment No. 1 for additional information). In connection with the tax provision errors identified, management has re-evaluated its disclosure controls and procedures and concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2023 due to a material weakness in internal control over financial reporting related to the ineffective design of controls related to income taxes.

Restatement of Prior Financial Information.

As previously summarized in our Current Report on Form 8-K filed with the SEC on August 7, 2023, in the second quarter of 2023, the Company began a review of the tax implications of intercompany dividends and the rationale for conclusions with respect to which entities were (or should have been) included in consolidated tax returns, and related accounting matters. In connection with such review, the Company identified unintentional errors in its accounting for the income tax effects of certain intercompany dividends and certain net operating losses. Specifically, the Company failed to accrue for income tax expense on certain intercompany dividends. Although the Company accrued taxes on the income generated by the subsidiary that made the intercompany dividend, the additional taxes due by the subsidiary entitled to the dividend were not accrued. Also, based on a review of historical tax filings, the Company concluded that its previous determination regarding the realizability of certain net operating losses was incorrect resulting in an overstatement of the valuation allowance with respect to such net operating losses. The errors resulted in a net understatement of income tax expense in prior periods and also had an impact on purchase accounting (goodwill) as a portion of the deferred tax assets affected by the errors pertained to acquisitions made in 2019. The Company has determined that the adjustments as of March 31, 2023 and December 31, 2022, and for the three months ended March 31, 2023 and 2022 were material and require restatement. The Company is evaluating changes to its tax structure to reduce the current effective tax rate and amount of cash taxes.

On August 4, 2023, the Audit Committee of the Board of Directors of the Company, based on the recommendation of, and after consultation with, the Company’s management, concluded that the Company’s previously issued unaudited consolidated financial statements included in the Original Filing should no longer be relied upon. Similarly, related earnings releases, press releases, shareholder communications, investor presentations or other communications describing relevant portions of the financial statements in the Original Filing should no longer be relied upon. The Company previously filed an amendment to the Annual Report on Form 10-K for the year ended December 31, 2022, restating the applicable financial statements.

This Amendment sets forth the Original Filing, as modified and superseded where necessary to reflect the restatement and the related internal control considerations. Accordingly, the following items included in the Original Filing have been amended:

•Part I

◦Item 1 - Consolidated Financial Statements

▪to reflect the restatement in our Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

▪to reflect the restatement in our Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022

▪to reflect the restatement in our Consolidated Statements of Mezzanine and Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022

▪to reflect the restatement in our Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022

▪to reflect the restatement in certain Notes to our Consolidated Financial Statements

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

▪to revise “Results of Operations”, “Reconciliation of Net Income to EBITDA and Adjusted EBITDA”, and “Liquidity and Capital Resources” as a result of the restatement

◦Item 4 - Controls and Procedures

▪to amend for a material weaknesses in our internal control over financial reporting associated with the Company’s tax provision

•Part II

◦Item 6 - Exhibits

▪provide updated Certifications of Principal Executive Officers and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed or furnished as Exhibits 31.1, 31.2, 31.3, and 32

In accordance with applicable SEC rules, this Form 10-Q Amendment No. 1 also includes an updated signature page.

Except as described above, this Form 10-Q Amendment No. 1 does not amend, update or change any other disclosures in the Original Filing. In addition, the information contained in this Form 10-Q Amendment No. 1 does not reflect events occurring after the Original Filing and does not modify or update the disclosures therein, except to reflect the effects of the restatement. This Form 10-Q Amendment No. 1 should be read in conjunction with the Company’s other filings with the SEC.

APOLLO MEDICAL HOLDINGS, INC.

INDEX TO FORM 10-Q FILING

TABLE OF CONTENTS


		PAGE
	Introductory Note	7
	Note About Forward-Looking Statements	7

	PART I FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Restated)	7
	Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 (Restated)	8
	Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022 (Restated)	11
	Consolidated Statements of Mezzanine and Stockholders ’ Equity for the Three Months Ended March 31, 2023 and 2022 (Restated)	12
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Restated)	13
	Notes to Consolidated Financial Statements (Restated)	15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Restated)	57
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	68
Item 4.	Controls and Procedures (Restated)	69

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	71
Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	71
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	72

Glossary

The following abbreviations or acronyms that may be used in this document shall have the adjacent meanings set forth below:


120 Hellman			120 Hellman LLC
Accountable Health Care			Accountable Health Care IPA, a Professional Medical Corporation
AAMG			All-American Medical Group
AHMC			AHMC Healthcare Inc.
AIPBP			All-Inclusive Population-Based Payments
AKM			AKM Medical Group, Inc.
Alpha Care			Alpha Care Medical Group, Inc.
AMG			AMG, a Professional Medical Corporation
AMG Properties			AMG Properties, LLC
AMH			ApolloMed Hospitalists, a Medical Corporation
AMM			Apollo Medical Management, Inc.
AP-AMH			AP-AMH Medical Corporation
AP-AMH 2			AP-AMH 2 Medical Corporation
APAACO			APA ACO, Inc.
APC			Allied Physicians of California, a Professional Medical Corporation
APCMG			Access Primary Care Medical Group
APC-LSMA			APC-LSMA Designated Shareholder Medical Corporation
BAHA			Bay Area Hospitalist Associates
CAIPA MSO			CAIPA MSO, LLC
CDSC			Concourse Diagnostic Surgery Center, LLC
CMS			Centers for Medicare & Medicaid Services
DMHC			California Department of Managed Healthcare
DMG			Diagnostic Medical Group of Southern California
GPDC			Global and Professional Direct Contracting
HSMSO			Health Source MSO Inc., a California corporation
ICC			AHMC International Cancer Center, a Medical Corporation
IPA			independent practice association
Jade			Jade Health Care Medical Group, Inc.
LMA			LaSalle Medical Associates
MMG			Maverick Medical Group, Inc.
MPP			Medical Property Partners, LLC
MSSP			Medicare Shared Savings Program
NGACO			Next Generation Accountable Care Organization
NMM			Network Medical Management, Inc.
PMIOC			Pacific Medical Imaging and Oncology Center, Inc.
SCHC			Southern California Heart Centers
Sun Labs			Sun Clinical Laboratories
Tag 6			Tag-6 Medical Investments Group, LLC
Tag 8			Tag-8 Medical Investments Group, LLC
UCAP			Universal Care Acquisition Partners, LLC
UCI			Universal Care, Inc.
VIE			variable interest entity
ZLL			ZLL Partners, LLC

INTRODUCTORY NOTE

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

The Centers for Medicare & Medicaid Services (“CMS”) have not reviewed any statements contained in this Report, including statements describing the participation of APA ACO, Inc. (“APAACO”) in the Global and Professional Direct Contracting Model or the ACO Realizing Equity, Access, and Community Health Model.

Trade names and trademarks of ApolloMed and its subsidiaries referred to herein, and their respective logos, are our property. This Quarterly Report on Form 10-Q may contain additional trade names and/or trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names and/or trademarks, if any, to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any statements about our business, financial condition, operating results, plans, objectives, expectations, and intentions, any projections of earnings, revenue, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), Adjusted EBITDA, or other financial items, such as our projected capitation from CMS and our future liquidity; any statements of any plans, strategies, and objectives of management for future operations, such as the material opportunities that we believe exist for our Company; any statements concerning proposed services, developments, mergers, or acquisitions; any statements regarding the outlook on the GPDC Model, ACO REACH Model, or strategic transactions; any statements regarding management’s view of future expectations and prospects for us; any statements about prospective adoption of new accounting standards or effects of changes in accounting standards; any statements regarding our efforts to remediate the material weakness in our internal control over financial reporting and the timing of remediation; any statements regarding potential changes to our tax structure; any statements regarding future economic conditions or performance; any statements of belief; any statements of assumptions underlying any of the foregoing; and other statements that are not historical facts. Forward-looking statements may be identified by the use of forward-looking terms, such as “anticipate,” “could,” “can,” “may,” “might,” “potential,” “predict,” “should,” “estimate,” “expect,” “project,” “believe,” “think,” “plan,” “envision,” “intend,” “continue,” “target,” “seek,” “contemplate,” “budgeted,” “will,” or “would,” and the negative of such terms, other variations on such terms or other similar or comparable words, phrases, or terminology. These forward-looking statements present our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and are subject to change.

Forward-looking statements involve risks and uncertainties and are based on the current beliefs, expectations, and certain assumptions of management. Some or all of such beliefs, expectations, and assumptions may not materialize or may vary significantly from actual results. Such statements are qualified by important economic, competitive, governmental, and technological factors that could cause our business, strategy, or actual results or events to differ materially from those in our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2023, including the risk factors discussed under the heading “Risk Factors” in Part I, Item IA thereof. Although we believe the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change, and significant risks and uncertainties that could cause actual conditions, outcomes, and results to differ materially from those indicated by such statements.

PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


	March 31, 2023		December 31, 2022
	(Unaudited)
	As restated (see Note 1)		As restated
Assets

Current assets
Cash and cash equivalents	$	274,613	$	288,027
Investments in marketable securities	4,114		5,567
Receivables, net	76,005		49,631
Receivables, net – related parties	74,877		65,147
Income taxes receivable	—		—
Other receivables	1,929		1,834
Prepaid expenses and other current assets	22,170		14,798
Loans receivable	973		996
Loan receivable – related party	—		2,125

Total current assets	454,681		428,125

Non-current assets
Land, property, and equipment, net	113,361		108,536
Intangible assets, net	77,675		76,861
Goodwill	269,406		269,053
Income taxes receivable, non-current	15,943		15,943


Investments in other entities – equity method	43,108		40,299
Investments in privately held entities	896		896
Operating lease right-of-use assets	18,431		20,444
Other assets	5,441		6,056

Total non-current assets	544,261		538,088

Total assets(1)	$	998,942	$	966,213

Liabilities, mezzanine equity and equity

Current liabilities

Accounts payable and accrued expenses	$	49,486	$	49,562
Fiduciary accounts payable	8,976		8,065
Medical liabilities	98,396		81,255
Income taxes payable	11,289		4,279
Dividend payable	664		664
Finance lease liabilities	579		594


	March 31, 2023		December 31, 2022
	(Unaudited)
	As restated (see Note 1)		As restated
Operating lease liabilities	3,234		3,572
Current portion of long-term debt	621		619


Total current liabilities	173,245		148,610

Non-current liabilities
Deferred tax liability	14,363		14,217
Finance lease liabilities, net of current portion	1,136		1,275
Operating lease liabilities, net of current portion	18,164		19,915
Long-term debt, net of current portion and deferred financing costs	204,944		203,389
Other long-term liabilities	21,806		20,260

Total non-current liabilities	260,413		259,056

Total liabilities(1)	433,658		407,666

Commitments and contingencies (Note 13)

Mezzanine equity
Non-controlling interest in Allied Physicians of California, a Professional Medical Corporation	14,277		14,237

Stockholders’ equity
Series A Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series B Preferred stock); 1,111,111 issued and zero outstanding	—		—
Series B Preferred stock, $0.001 par value per share; 5,000,000 shares authorized (inclusive of all preferred stock, including Series A Preferred stock); 555,555 issued and zero outstanding	—		—
Common stock, $0.001 par value per share; 100,000,000 shares authorized, 46,488,443 and 46,575,699 shares issued and outstanding, excluding 10,569,340 and 10,299,259 treasury shares, as of March 31, 2023 and December 31, 2022, respectively	47		47
Additional paid-in capital	352,697		360,097
Retained earnings	195,549		182,417

Total stockholders’ equity	548,293		542,561

Non-controlling interest	2,714		1,749

Total equity	551,007		544,310

Total liabilities, mezzanine equity and equity	$	998,942	$	966,213

The accompanying notes are an integral part of these unaudited consolidated financial statements.

(1)The Company’s consolidated balance sheets include the assets and liabilities of its consolidated VIEs. The consolidated balance sheets include total assets that can be used only to settle obligations of the Company’s consolidated VIEs totaling $529.3 million and $523.7 million as of March 31, 2023 and December 31, 2022, respectively, and total liabilities of the Company’s consolidated VIEs for which creditors do not have recourse to the general credit of the primary beneficiary of $129.4 million and $131.8 million as of March 31, 2023 and December 31, 2022, respectively. The VIE balances do not include $375.6 million of investment in affiliates and $34.0 million of amounts due from affiliates as of March 31, 2023 and $304.8 million of investment in affiliates and $30.3 million of amounts due from affiliates as of December 31, 2022 as these are eliminated upon consolidation and not presented within the consolidated balance sheets. See Note 17 — “Variable Interest Entities (VIEs)” for further detail.

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended March 31,
	2023		2022
	As restated (see Note 1)		As restated (see Note 1)
Revenue
Capitation, net	$	300,204	$	222,060
Risk pool settlements and incentives	13,462		18,075
Management fee income	9,896		10,473
Fee-for-service, net	12,062		11,095
Other income	1,620		1,555

Total revenue	337,244		263,258

Operating expenses
Cost of services, excluding depreciation and amortization	289,397		220,730
General and administrative expenses	21,182		11,943
Depreciation and amortization	4,292		4,374

Total expenses	314,871		237,047

Income from operations	22,373		26,211

Other (expense) income
Income from equity method investments	2,484		1,433
Interest expense	(3,269)		(1,073)
Interest income	3,009		46
Unrealized loss on investments	(6,392)		(8,962)
Other income	1,204		613

Total other expense, net	(2,964)		(7,943)

Income before provision for income taxes	19,409		18,268

Provision for income taxes	6,921		6,818

Net income	12,488		11,450

Net loss attributable to non-controlling interest	(644)		(2,314)

Net income attributable to Apollo Medical Holdings, Inc.	$	13,132	$	13,764

Earnings per share – basic	$	0.28	$	0.31

Earnings per share – diluted	$	0.28	$	0.30

The accompanying notes are an integral part of these unaudited consolidated financial statements.

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)


	Mezzanine Equity – Non-controlling Interest in APC							Retained Earnings
			Common Stock Outstanding			Additional Paid-in Capital				Non-controlling Interest	Stockholders’ Equity
			Shares	Amount
Balance at January 1, 2023 (restated)	$	14,237	46,575,699	$	47	$	360,097	$	182,417		$	1,749	$	544,310
Net (loss) income (restated)	(1,729)		—	—		—		13,132			1,085		14,217



Shares issued for vesting of restricted stock awards	—		57,825	—		(109)		—			—		(109)
Shares issued for exercise of options and warrants	—		125,000	—		1,250		—			—		1,250
Purchase of treasury shares	—		(270,081)	—		(9,539)		—			—		(9,539)
Share-based compensation	—		—	—		3,445		—			—		3,445


Dividends	—		—	—		—		—			(120)		(120)
Transfer of common control entities (restated)	1,769		—	—		(2,447)		—			—		(2,447)
Balance at March 31, 2023 (restated)	$	14,277	46,488,443	$	47	$	352,697	$	195,549		$	2,714	$	551,007


	Mezzanine Equity – Non-controlling Interest in APC							Retained Earnings
			Common Stock Outstanding			Additional Paid-in Capital				Non-controlling Interest		Stockholders’ Equity
			Shares	Amount
Balance at January 1, 2022 (restated)	$	56,535	44,630,873	$	45	$	310,876	$	137,246	$	5,940	$	454,107
Net (loss) income (restated)	(3,252)		—	—		—		13,764		938		14,702
Purchase of non-controlling interest	—		—	—		—		—		(200)		(200)
Sale of non-controlling interest	—		—	—		—		—		36		36
Share buy back	(230)		—	—		—		—		—		—
Shares issued for vesting of restricted stock awards	—		81,779	—		—		—		—		—
Shares issued for exercise of options and warrants	—		124,735	—		1,573		—		—		1,573
Share-based compensation	—		—	—		3,055		—		—		3,055
Issuance of shares for business acquisition	—		18,756	—		1,000		—		—		1,000
Cancellation of restricted stock awards	—		(11,084)	—		(457)		—		—		(457)
Dividends	—		—	—		—		—		(1,178)		(1,178)
Balance at March 31, 2022 (restated)	$	53,053	44,845,059	$	45	$	316,047	$	151,010	$	5,536	$	472,638

The accompanying notes are an integral part of these unaudited consolidated financial statements.

APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Three Months Ended March 31,
	2023		2022
	As restated (see Note 1)		As restated (see Note 1)
Cash flows from operating activities
Net income	$	12,488	$	11,450
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,292		4,374
Amortization of debt issuance cost	237		237
Share-based compensation	3,445		3,055

Unrealized loss on investments	5,755		10,556
Income from equity method investments	(2,484)		(1,433)

Unrealized loss (gain) on interest rate swaps	637		(1,593)
Deferred tax	283		2,179

Changes in operating assets and liabilities, net of business combinations:
Receivables, net	(26,373)		(44,673)
Receivables, net – related parties	(9,730)		(6,865)
Other receivables	(94)		(3,613)
Prepaid expenses and other current assets	(506)		4,170
Right-of-use assets	2,013		672
Other assets	(23)		2,016
Accounts payable and accrued expenses	(4,517)		3,735
Fiduciary accounts payable	911		(4,229)
Medical liabilities	17,141		39,974
Income taxes payable/receivable	6,333		4,671
Operating lease liabilities	(2,088)		(645)

Net cash provided by operating activities	7,720		24,038

Cash flows from investing activities
Payments for business acquisition, net of cash acquired	—		(999)
Proceeds from repayment of loans receivable – related parties	2,141		19
Purchase of marketable securities	(1,000)		(21)
Purchase of investment – equity method	(325)		—

Purchases of property and equipment	(6,027)		(17,489)
Deposit for purchase of property	(8,824)		—

Distribution from investment - equity method	—		200
Contribution to investment - equity method	—		(1,435)
Net cash used in investing activities	(14,035)		(19,725)

Cash flows from financing activities
Dividends paid	(120)		(1,178)
Repayment of long-term debt	(153)		(52)
Payment of finance lease obligations	(154)		(141)
Proceeds from the exercise of stock options and warrants	1,250		1,573
Repurchase of shares	—		(230)


	Three Months Ended March 31,
	2023		2022
	As restated (see Note 1)		As restated (see Note 1)
Repurchase of treasury shares	(9,539)		—
Proceeds from sale of non-controlling interest	—		38
Purchase of non-controlling interest	—		(200)
Borrowings on loans	1,617		722


Net cash (used in) provided by financing activities	(7,099)		532

Net (decrease) increase in cash and cash equivalents	(13,414)		4,845

Cash and cash equivalents beginning of period	288,027		233,097

Cash and cash equivalents end of period	$	274,613	$	237,942

Supplementary disclosures of cash flow information

Cash paid for interest	2,991		845

Supplemental disclosures of non-cash investing and financing activities

Non-cash business acquisition	$	3,844	$	—
Fixed asset obtained in exchange for finance lease liabilities	$	—	$	398
Common stock issued in business combination	$	—	$	1,000

The accompanying notes are an integral part of these unaudited consolidated financial statements.

APOLLO MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Restatement of Prior Financial Information

In connection with a review of Apollo Medical Holdings, Inc.’s (the “Company” or “ApolloMed”) tax implications of intercompany dividends and the rationale for conclusions with respect to which entities were (or should have been) included in consolidated tax returns, and related accounting matters, the Company identified errors in its accounting for the income tax effects of certain intercompany dividends and certain net operating losses. Specifically, the Company failed to accrue for income tax expense on certain intercompany dividends. Although the Company accrued taxes on the income generated by the subsidiary that made the intercompany dividend, the additional taxes due by the subsidiary entitled to the dividend were not accrued. Also, based on a review of historical tax filings, the Company concluded that its previous determination regarding the realizability of certain net operating losses was incorrect resulting in an overstatement of the valuation allowance with respect to such net operating losses. The errors resulted in a net understatement of income tax expense in prior periods and also had an impact on purchase accounting (goodwill) as a portion of the deferred tax assets affected by the errors pertained to acquisitions made in 2019. The Company has restated herein its consolidated financial statements at March 31, 2023 and December 31, 2022 and for each of the three months ended March 31, 2023 and 2022, in accordance with Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, for the matters discussed above as well as other immaterial items. The Company previously restated its consolidated balance sheet as of December 31, 2022 in its Form 10-K/A for the year ended December 31, 2022, filed with the Securities and Exchange Commission on August 9, 2023.

The effect of the error corrections are as follows (in thousands, except per share amounts):


	March 31, 2023		Adjustments		March 31, 2023
	As previously reported				As restated

CONSOLIDATED BALANCE SHEETS

Receivables, net	$	79,003	$	(2,998)	$	76,005
Income taxes receivable	$	9	$	(9)	$	—
Total current assets	$	457,688	$	(3,007)	$	454,681
Goodwill	$	276,028	$	(6,622)	$	269,406
Income taxes receivable, non-current	$	—	$	15,943	$	15,943
Total non-current assets	$	534,940	$	9,321	$	544,261
Total assets	$	992,628	$	6,314	$	998,942

Medical liabilities	$	101,394	$	(2,998)	$	98,396
Income taxes payable	$	—	$	11,289	$	11,289
Total current liabilities	$	164,954	$	8,291	$	173,245
Deferred tax liability	$	3,695	$	10,668	$	14,363
Total non-current liabilities	$	249,745	$	10,668	$	260,413
Total liabilities	$	414,699	$	18,959	$	433,658

Non-controlling interest in Allied Physicians of California, a Professional Medical Corporation ("APC")	$	14,729	$	(452)	$	14,277

Retained earnings	$	207,300	$	(11,751)	$	195,549
Non-controlling interest	$	3,156	$	(442)	$	2,714
Total stockholders’ equity	$	563,200	$	(12,193)	$	551,007


	Three months ended March 31, 2023		Adjustments		Three months ended March 31, 2023
	As previously reported				As restated

CONSOLIDATED STATEMENTS OF INCOME

Provision for income taxes	$	5,102	$	1,819	$	6,921
Net income	$	14,307	$	(1,819)	$	12,488
Net income attributable to noncontrolling interests	$	(315)	$	(329)	$	(644)
Net income attributable to Apollo Medical Holdings, Inc.	$	14,622	$	(1,490)	$	13,132
Earnings per share – basic	$	0.31	$	(0.03)	$	0.28
Earnings per share – diluted	$	0.31	$	(0.03)	$	0.28


	March 31, 2023		Adjustments		March 31, 2023
	As previously reported				As restated

CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY

Mezzanine Equity – Non-controlling Interest in APC - Net loss	$	(1,400)	$	(329)	$	(1,729)
Retained Earnings (Accumulated Deficit) - Net income	$	14,622	$	(1,490)	$	13,132
Mezzanine Equity – Non-controlling Interest in APC	$	14,729	$	(452)	$	14,277
Retained Earnings (Accumulated Deficit)	$	207,300	$	(11,751)	$	195,549
Non-controlling interest	$	3,156	$	(442)	$	2,714
Stockholders’ Equity	$	563,200	$	(12,193)	$	551,007


	Three months ended March 31, 2023		Adjustments		Three months ended March 31, 2023
	As previously reported				As restated

CONSOLIDATED STATEMENTS OF CASH FLOWS

Net income	$	14,307	$	(1,819)	$	12,488
Deferred tax	$	790	$	(507)	$	283
Income taxes payable/receivable	$	4,007	$	2,326	$	6,333


	December 31, 2022		Adjustments		December 31, 2022
	As previously reported				As restated

CONSOLIDATED BALANCE SHEETS

Receivables, net	$	52,629	$	(2,998)	$	49,631
Income taxes receivable	$	4,015	$	(4,015)	$	—
Total current assets	$	435,138	$	(7,013)	$	428,125
Goodwill	$	275,675	$	(6,622)	$	269,053
Income taxes receivable, non-current	$	—	$	15,943	$	15,943
Total non-current assets	$	528,767	$	9,321	$	538,088
Total assets	$	963,905	$	2,308	$	966,213

Medical liabilities	$	84,253	$	(2,998)	$	81,255
Income taxes payable	$	—	$	4,279	$	4,279
Total current liabilities	$	147,329	$	1,281	$	148,610
Deferred tax liability	$	3,042	$	11,175	$	14,217
Total non-current liabilities	$	247,881	$	11,175	$	259,056
Total liabilities	$	395,210	$	12,456	$	407,666

Non-controlling interest in Allied Physicians of California, a Professional Medical Corporation ("APC")	$	13,682	$	555	$	14,237

Retained earnings	$	192,678	$	(10,261)	$	182,417
Non-controlling interest	$	2,191	$	(442)	$	1,749
Total stockholders' equity	$	555,013	$	(10,703)	$	544,310


	Three months ended March 31, 2022		Adjustments		Three months ended March 31, 2022
	As previously reported				As restated

CONSOLIDATED STATEMENTS OF INCOME

Provision for income taxes	$	6,195	$	623	$	6,818
Net income	$	12,073	$	(623)	$	11,450
Net income attributable to noncontrolling interests	$	(2,191)	$	(123)	$	(2,314)
Net income attributable to Apollo Medical Holdings, Inc.	$	14,264	$	(500)	$	13,764
Earnings per share – basic	$	0.32	$	(0.01)	$	0.31
Earnings per share – diluted	$	0.31	$	(0.01)	$	0.30


	March 31, 2022		Adjustments		March 31, 2022
	As previously reported				As restated

CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY

Mezzanine Equity – Non-controlling Interest in APC - Net loss	$	(3,129)	$	(123)	$	(3,252)
Retained Earnings (Accumulated Deficit) - Net income	$	14,264	$	(500)	$	13,764
Mezzanine Equity – Non-controlling Interest in APC	$	52,151	$	902	$	53,053
Retained Earnings (Accumulated Deficit)	$	157,893	$	(6,883)	$	151,010
Non-controlling interest
Stockholders’ Equity	$	479,521	$	(6,883)	$	472,638


	Three months ended March 31, 2022		Adjustments		Three months ended March 31, 2022
	As previously reported				As restated

CONSOLIDATED STATEMENTS OF CASH FLOWS

Net income	$	12,073	$	(623)	$	11,450
Deferred tax	$	1,985	$	194	$	2,179
Income taxes payable/receivable	$	4,241	$	430	$	4,671

The remainder of the notes to the Company’s consolidated financial statements have been updated and restated, as applicable, to reflect the impacts of the restatement described above.

2. Description of Business

Overview

ApolloMed is a leading physician-centric, technology-powered, risk-bearing healthcare company. Leveraging its proprietary end-to-end technology solutions, ApolloMed operates an integrated healthcare delivery platform that enables providers to participate successfully in value-based care arrangements, thus empowering them to deliver high-quality care to patients in a cost-effective manner. ApolloMed was merged with Network Medical Management (“NMM”) in December 2017 (the “2017 Merger”). As a result of the 2017 Merger, NMM became a wholly owned subsidiary of ApolloMed, and the former NMM shareholders own a majority of the issued and outstanding common stock of ApolloMed and maintain control of the board of directors. Unless the context dictates otherwise, references in these notes to the financial statements, the “Company,” “we,” “us,” “our,” and similar words are references to ApolloMed and its consolidated subsidiaries and affiliated entities, as appropriate, including its consolidated variable interest entities (“VIEs”).

Headquartered in Alhambra, California, ApolloMed’s subsidiaries and VIEs include management services organizations (“MSOs”), affiliated independent practice associations (“IPAs”), an accountable care organization (“ACO”) participating in the ACO Realizing Equity, Access, and Community Health (“ACO REACH”) model, and clinical operations. Together, ApolloMed provides value-based care enablement services and care delivery with our consolidated care partners. The Company provides care coordination services to each major constituent of the healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician groups, and health plans. The Company’s physician network consists of primary care physicians, specialist physicians, and hospitalists.

The Company’s reportable segments changed from one to three in the first quarter of 2023 as a result of certain changes to the information regularly provided to the Company’s chief operating decision makers (“CODMs”) when reviewing the Company’s performance as well as an effort to provide additional transparency to investors and other financial statement users. The three segments are as follows:

Care Enablement

Our Care Enablement segment is an integrated, end-to-end clinical and administrative platform, powered by our proprietary technology suite, which provides operational, clinical, financial, technology, management, and strategic services in order to enable success in the delivery of high-quality, value-based care for providers and payers. We provide solutions to providers, including independent physicians, provider and medical groups, and accountable care organizations, and payers, including health plans and other risk-bearing organizations. Our platform meets providers and payers where they are, with a wide spectrum of solutions across the total cost of care risk spectrum, ranging from solutions for fee-for-service entities to global risk-bearing entities, and across patient type, including Medicare, Medicaid, commercial, and exchange-insured patients. This segment includes our wholly owned subsidiaries which operate as management services organizations, NMM and Apollo Medical Management (“AMM”), which enter into long-term management and/or administrative services agreements with providers and payers. By leveraging our care enablement platform, providers and payers can improve their ability to deliver high-quality care to their patients and achieve better patient outcomes.

On January 27, 2022, the Company acquired 100% of the capital stock of Orma Health, Inc., and Provider Growth Solutions, LLC (together, “Orma Health”) (see Note 4 — “Business Combinations and Goodwill”). Orma Health’s real-time Clinical AI platform ingests data from multiple sources and utilizes advanced risk-stratification models to identify patients for various clinical programs, including remote patient monitoring (“RPM”), mental health support, chronic care management, and more. Its clinical platform is also deeply integrated with Orma Health’s proprietary RPM ecosystem, which consists of smart health devices and a suite of technology tools to manage patient health.

Care Partners

Our Care Partners segment is focused on building and managing high-quality and high-performance provider networks by partnering with, empowering, and investing in strong provider partners with a shared vision for coordinated care delivery. By leveraging our unique care enablement platform and ability to recruit, empower, and incentivize physicians to effectively manage total cost of care, we are able to organize partnered providers into successful multi-payer risk-bearing organizations which take on varying levels of risk based on total cost of care across membership in all lines of business, including Medicare, Medicaid, commercial, and exchange. Through our network of IPAs, ACOs, and Restricted Knox-Keen licensed health plan, our healthcare delivery entities are responsible for coordinating and delivering high quality care to our patients.

Our consolidated IPAs consist of the following: (i) Allied Physicians of California, a Professional Medical Corporation d.b.a. Allied Pacific of California IPA (“APC”), (ii) Alpha Care Medical Group, Inc. (“Alpha Care”), (iii) Accountable Health Care IPA, a Professional Medical Corporation (“Accountable Health Care”), (iv) Jade Health Care Medical Group, Inc. (“Jade”), (v) Access Primary Care Medical Group (“APCMG”), and (vi) All American Medical Group (“AAMG”). The Company’s ACO operates under the APA ACO, Inc. (“APAACO”) brand and participates in the Centers for Medicare & Medicaid Services (“CMS”) program that allows provider groups to assume higher levels of financial risk and potentially achieve a higher reward from participation in the program’s attribution-based risk-sharing model.

APC was incorporated in 1992 for the purpose of arranging healthcare services as an IPA. APC is owned by California-licensed physicians and professional medical corporations, and contracts with various health maintenance organizations (“HMOs”) and other licensed healthcare service plans, as defined in the California Knox-Keene Health Care Service Plan Act of 1975. Each HMO negotiates a fixed amount per member per month (“PMPM”) that is to be paid to APC. In return, APC arranges for the delivery of healthcare services by contracting with physicians or professional medical corporations for primary care and specialty care services. APC assumes the financial risk of the cost of delivering healthcare services in excess of the fixed amounts received. Some of the risk is transferred to the contracted physicians or professional corporations. The risk is subject to stop-loss provisions in contracts with HMOs.

In July 1999, APC entered into an amended and restated management and administrative services agreement with NMM (the initial management services agreement was entered into in 1997) for an initial fixed term of 30 years. Under this management arrangement, NMM performs only non-medical administrative services, does not represent that it offers medical services, and does not exercise influence or control over the practice of medicine by APC or its physicians. In accordance with relevant accounting guidance, APC is determined to be a VIE of the Company and is consolidated by NMM.

AP-AMH Medical Corporation (“AP-AMH”) and AP-AMH 2 Medical Corporation (“AP-AMH 2”) was formed in May 2019 and July 2021, respectively, as a designated shareholder professional corporation. Dr. Thomas Lam, a shareholder and the Chief Executive Officer and Chief Financial Officer of APC and Co-Chief Executive Officer of ApolloMed, is the sole shareholder of AP-AMH and AP-AMH 2. In accordance with relevant accounting guidance, AP-AMH and AP-AMH 2 are determined to be VIEs of ApolloMed and are consolidated by ApolloMed.

In September 2019, ApolloMed completed the following series of transactions with its affiliates, AP-AMH and APC:

1.A $545.0 million loan to AP-AMH, pursuant to a 10-year secured loan agreement (the “AP-AMH Loan”). The loan bears interest at a rate of 10% per annum simple interest, is not prepayable (except in certain limited circumstances), requires quarterly payments of interest only in arrears, and is secured by a first-priority security interest in all of AP-AMH’s assets. To the extent that AP-AMH is unable to make any interest payment when due because it has received dividends on the APC Series A Preferred Stock insufficient to pay in full such interest payment, then the outstanding principal amount of the loan will be increased by the amount of any such accrued but unpaid interest, and any such increased principal amounts will bear interest at the rate of 10.75% per annum simple interest.

2.A $545.0 million private placement, where AP-AMH purchased 1,000,000 shares of APC Series A Preferred Stock which entitle AP-AMH to receive preferential, cumulative dividends that accrue on a daily basis.

3.A $300.0 million private placement, where APC purchased 15,015,015 shares of the Company’s common stock and in connection therewith, the Company granted APC certain registration rights with respect to the purchased shares.

4.ApolloMed licensed to AP-AMH the right to use certain tradenames for specified purposes for a fee equal to a percentage of the aggregate gross revenues of AP-AMH. The license fee is payable out of any Series A Preferred Stock dividends received by AP-AMH from APC.

5.Through its subsidiary, NMM, the Company agreed to provide certain administrative services to AP-AMH for a fee equal to a percentage of the aggregate gross revenues of AP-AMH. The administrative fee is also payable out of any APC Series A Preferred Stock dividends received by AP-AMH from APC.

As part of the series of transactions, in September 2019, APC and AP-AMH entered into a Second Amendment to the Series A Preferred Stock Purchase Agreement clarifying the term excluded assets (“Excluded Assets”). Excluded Assets means (i) assets received from the sale of shares of the Series A Preferred equal to the Series A Purchase Price, (ii) the assets of the Company that are not Healthcare Services Assets, including the Company’s equity interests in Apollo Medical Holdings, Inc., and any entity that is primarily engaged in the business of owning, leasing, developing, or otherwise operating real estate, (iii) any assets acquired with the proceeds of the sale, assignment, or other disposition of any of the assets described in clauses (i) or (ii), and (iv) any proceeds of the assets described in clauses (i), (ii), and (iii).

APC’s ownership in ApolloMed was 18.06% as of March 31, 2023 and 18.12% as of December 31, 2022.

APC-LSMA Designated Shareholder Medical Corporation (“APC-LSMA”) was formed in October 2012 as a designated shareholder professional corporation. Dr. Thomas Lam, a stockholder and the Chief Executive Officer and Chief Financial Officer of APC and Co-Chief Executive Officer of ApolloMed, is a nominee shareholder of APC-LSMA. APC makes all investment decisions on behalf of APC-LSMA, funds all investments and receives all distributions from the investments. APC has the obligation to absorb losses and the right to receive benefits from all investments made by APC-LSMA. APC-LSMA’s sole function is to act as the nominee shareholder for APC in other California medical professional corporations. Therefore, APC-LSMA is controlled and consolidated by APC as the primary beneficiary of this VIE. The only activity of APC-LSMA is to hold the investments in medical corporations, including the IPA lines of business of LaSalle Medical Associates (“LMA”), Pacific Medical Imaging and Oncology Center, Inc. (“PMIOC”), Diagnostic Medical Group of Southern California (“DMG”), and AHMC International Cancer Center, a Medical Corporation (“ICC”). APC-LSMA also holds a 100% ownership interest in Maverick Medical Group, Inc. (“MMG”), Alpha Care, and Accountable Health Care.

Alpha Care, an IPA acquired by the Company in May 2019, has been operating in California since 1993 as a risk-bearing organization engaged in providing professional services under capitation arrangements with its contracted health plans through a provider network consisting of primary care and specialty care physicians. Alpha Care specializes in delivering high-quality healthcare to its enrollees and focuses on Medi-Cal/Medicaid, Commercial, and Medicare and Dual Eligible members in the Riverside and San Bernardino counties of Southern California.

Accountable Health Care is a California-based IPA that has served the local community in the greater Los Angeles County area through a network of physicians and healthcare providers for more than 20 years. Accountable Health Care provides quality healthcare services to its members through four federally qualified health plans and multiple product lines, including Medi-Cal, Commercial, and Medicare.

In July 2021, AP-AMH 2, a VIE of the Company, purchased an 80% equity interest (on a fully diluted basis) in Access Primary Care Medical Group (“APCMG”), a primary care physicians’ group focused on providing high-quality care to patients in the northern California cities of Daly City and San Francisco. As a result, APCMG is consolidated by the Company. As part of the transaction, the Company may pay APCMG additional consideration contingent on APCMG’s financial performance for fiscal year 2022 (“APCMG contingent consideration”). The APCMG contingent consideration will be met if gross revenue and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) targets exceed a threshold for fiscal year 2022. The Company determined the fair value of the contingent consideration using a probability-weighted model that includes significant unobservable inputs (Level 3). Specifically, the Company considered various scenarios of gross revenue and EBITDA and assigned probabilities to each such scenario in determining fair value. As of March 31, 2023, the contingent consideration is valued at $1.0 million and was included within accounts payable and accrued expenses in the accompanying consolidated balance sheets.

On April 19, 2022, the AP-AMH 2 acquired 100% of the capital stock of Jade (see Note 4 — “Business Combinations and Goodwill”). Jade is a primary and specialty care physicians’ group focused on providing high-quality care to its patients in the San Francisco Bay Area in Northern California.

On October 31, 2022, AP-AMH 2, a VIE of the Company, acquired 100% of the equity interest in AAMG (see Note 4 — “Business Combinations and Goodwill”). AAMG is an IPA operating in Northern California. The purchase price consists of cash funded upon close of the transaction and additional cash and stock consideration contingent on AAMG meeting financial metrics for fiscal years 2023 and 2024.

APAACO began participating in the Next Generation Accountable Care Organization (“NGACO”) Model of CMS in January 2017. The NGACO Model was a CMS program that allowed provider groups to assume higher levels of financial risk and potentially achieve a higher reward from participating in this new attribution-based risk-sharing model. With the termination of the NGACO Model on December 31, 2021, APAACO applied, and was selected by CMS to participate as a Direct Contracting Entity (“DCE”) in the standard track of CMS’s GPDC Model for Performance Year 2022 (“PY22”), beginning January 1, 2022. CMS has since redesigned the GPDC Model in response to the current Administration’s health care priorities, including their commitment to advancing health equity, stakeholder feedback, and participant experience, and renamed the GPDC Model to ACO Realizing Equity, Access, and Community Health (“ACO REACH”) Model. The ACO REACH Model began participation on January 1, 2023.

Care Delivery

Our Care Delivery segment is a patient-centric, data-driven care delivery organization focused on delivering high-quality and accessible care to all patients. Our care delivery organization includes primary care, multi-specialty care, and ancillary care services. This segment includes our primary care clinics, operating under the AMG, a Professional Medical Corporation (“AMG”) and Valley Oaks Medical Group (“VOMG”) brands, our multi-specialty care clinics and medical groups, operating under the ApolloMed Hospitalists, a Medical Corporation (“AMH”), Southern California Heart Centers, a Medical Corporation (“SCHC”), and AllCare Women’s Health brands, and our ancillary service providers, operating under the 1 World Medicine Urgent Care Corporation (“1 World”), DMG, Concourse Diagnostic Surgery Center, LLC (“CDSC”), and Sun Clinical Laboratories (“Sun Labs”) brands.

AMG is a network of family practice clinics operating out of three main locations in Southern California. AMG provides professional and post-acute care services to Medicare, Medi-Cal/Medicaid, and commercial patients through its network of doctors and nurse practitioners. On February 23, 2023, AP-AMH 2 purchased 100% of the shares of capital stock of AMG from APC-LSMA.

AMH, a consolidated VIE of AMM, provides hospitalist, intensivist, and physician advisory services. SCHC, a consolidated VIE of AMM, is a specialty clinic that focuses on cardiac care and diagnostic testing.

CDSC was formed in March 2010 in the state of California. CDSC is an ambulatory surgery center in City of Industry, California, organized by a group of highly qualified physicians, which utilizes some of the most advanced equipment in the eastern part of Los Angeles County and the San Gabriel Valley. The facility is Medicare-certified and accredited by the Accreditation Association for Ambulatory Healthcare. As of March 31, 2023, APC owned 44.00% of CDSC’s capital stock. In accordance with relevant accounting guidance, CDSC is determined to be a VIE of APC and is consolidated by APC.

AP-AMH 2 purchased a 100% equity interest in 1 World and Eleanor Leung M.D., a Professional Medical Corporation from APC-LSMA. As a result of these purchases, these entities are consolidated entities of AP-AMH 2. 1 World is an urgent care center and Eleanor Leung M.D. provides specialized care for women’s health operating as AllCare Women’s Health.

DMG is a professional medical California corporation and a complete outpatient imaging center. APC accounted for its 40% investment in DMG under the equity method of accounting. In October 2021, DMG entered into an administrative services agreement with a subsidiary of the Company, causing the Company to reevaluate the accounting for the Company’s investment in DMG. Based on the reevaluation and in accordance with relevant accounting guidance, DMG is determined to be a VIE of the Company and is consolidated by the Company. In addition, APC-LSMA is obligated to purchase the remaining equity interest within three years from the effective date. The purchase of the remaining equity value is considered a financing obligation with a carrying value of $8.5 million as of March 31, 2023. As the financing obligation is embedded in the non-controlling interest, the non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets.

In August 2021, Apollo Medical Holdings, Inc. acquired 49% of the aggregate issued and outstanding shares of capital stock of Sun Labs for an aggregate purchase price of $4.0 million. Sun Labs is a Clinical Laboratory Improvement Amendments certified full-service lab that operates across the San Gabriel Valley in Southern California. In accordance with relevant accounting guidance, Sun Labs is determined to be a VIE of the Company and is consolidated by the Company. The Company is obligated to purchase the remaining equity interest within three years from the effective date. The purchase of the remaining equity value is considered a financing obligation with a carrying value of $7.3 million and $5.8 million as of March 31, 2023 and December 31, 2022, respectively. For the three months ended March 31, 2023, the change in the fair value of this obligation is $1.4 million and is presented in unrealized loss on investments in the accompanying consolidated statement of income. As the financing obligation is embedded in the non-controlling interest, the non-controlling interest is recognized in other long-term liabilities in the accompanying consolidated balance sheets.

On October 14, 2022, a sole equity holder acquired 100% of the equity interest in Valley Oaks Medical Group (“VOMG”). Under the terms of the Physician Equity Holder Agreement (the “Equity Agreement”) between ApolloMed and the equity holder, ApolloMed may designate a third party who is permitted under Nevada law to be an owner or equity holder of VOMG with the right (the “Acquisition Right”) (a) to acquire equity holder’s equity interest or (b) to acquire from VOMG. The Acquisition Right shall be exercisable by ApolloMed and equity holder shall be obligated to assign and transfer the equity interest or to cause VOMG to issue new equity interests (as applicable) to ApolloMed. As a result of the arrangement and in accordance with relevant accounting guidance, VOMG is determined to be a VIE of ApolloMed and is consolidated by the Company (see Note 4 — “Business Combinations and Goodwill”). VOMG owns nine primary care clinics consisting of seven in Nevada and two in Texas. The purchase price consists of cash funded upon close of the transaction and additional cash consideration contingent on VOMG meeting financial metrics for fiscal years 2023 and 2024.

Our other affiliates are not included as a reportable segment and primarily consist of real estate operations.

APC owns a 100% equity interest in each of Medical Property Partners, LLC (“MPP”), AMG Properties, LLC (“AMG Properties”), and ZLL Partners, LLC (“ZLL”) and a 50% interest in each of One MSO, LLC (“One MSO”). These entities own buildings that are currently leased to tenants. MPP, AMG Properties, and ZLL are 100% owned subsidiaries of APC and are included in the consolidated financial statements. One MSO is accounted for as an equity method investment, as APC has the ability to exercise significant influence, but not control over, the operations of the entity. On August 31, 2022, using cash comprised solely of Excluded Assets, APC acquired the remaining 50% interest in Tag-8 Medical Investment Group, LLC (“Tag 8”) and Tag-6 Medical Investment Group, LLC (“Tag 6”) for $4.1 million and $4.9 million, respectively. As a result, Tag 8 and Tag 6 are 100% owned subsidiaries of APC and are included in the consolidated financial statements. Tag 6 owns a building that is currently leased to tenants and Tag 8 owns vacant land that is being developed. APC is a guarantor of Tag 8’s loan with MUFG Union Bank N.A. and APC paid off Tag 6’s loan when the remaining 50% equity interest of Tag 6 was acquired. As a result of these events, and in accordance with relevant accounting guidance, Tag 8 and Tag 6 are VIEs and consolidated by APC. These entities are deemed Excluded Assets that are solely for the benefit of APC and its shareholders. As such, any income pertaining to APC’s interests in these properties has no impact on the Series A Dividend payable by APC to AP-AMH Medical Corporation, and consequently will not affect net income attributable to ApolloMed.

3. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated balance sheet at December 31, 2022 has been derived from the Company’s audited consolidated financial statements, but does not include all annual disclosures required by generally accepted accounting principles in the United States of America (“U.S. GAAP”). The accompanying unaudited consolidated financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, have been prepared in accordance with U.S. GAAP for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022, as filed with the SEC on August 9, 2023. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made to make the consolidated financial statements not misleading as required by Regulation S-X, Rule 10-01. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any future periods.

Principles of Consolidation

The consolidated balance sheets as of March 31, 2023 and December 31, 2022, and the consolidated statements of income for the three months ended March 31, 2023 and 2022, include (i) ApolloMed, ApolloMed’s consolidated subsidiaries, NMM, AMM, APAACO, Orma Health Inc, and Provider Growth Solutions, LLC and its VIEs, AP-AMH, AP-AMH 2, Sun Labs, DMG, and Valley Oaks Medical Group (“VOMG”); (ii) AP-AMH 2’s consolidated subsidiaries, APCMG, Jade, AAMG, AMG, 1 World, and Eleanor Leung M.D., a Professional Medical Corporation; (iii) AMM’s consolidated VIEs, SCHC and AMH; (iv) NMM’s VIE, APC;(v) APC’s consolidated subsidiaries, Universal Care Acquisition Partners, LLC (“UCAP”), MPP, AMG Properties, ZLL, ICC, 120 Hellman LLC (“120 Hellman”) and its VIEs, CDSC, APC-LSMA, Tag 8, and Tag 6; and (vi) APC-LSMA’s consolidated subsidiaries, Alpha Care and Accountable Health Care.

Use of Estimates

The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include collectability of receivables, recoverability of long-lived and intangible assets, business combination and goodwill valuation and impairment, accrual of medical liabilities (incurred but not reported (“IBNR”) claims), determination of full-risk and shared-risk revenue and receivables (including constraints, completion factors and historical margins), income tax-valuation allowance, share-based compensation, and right-of-use assets and lease liabilities. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates and assumptions.

Variable Interest Entities

On an ongoing basis, as circumstances indicate the need for reconsideration, the Company evaluates each legal entity that is not wholly owned by the Company in accordance with the consolidation guidance. The evaluation considers all of the Company’s variable interests, including equity ownership, as well as management services agreements. To fall within the scope of the consolidation guidance, an entity must meet both of the following criteria:

•The entity has a legal structure that has been established to conduct business activities and to hold assets; such entity can be in the form of a partnership, limited liability company, or corporation, among others; and

•The Company has a variable interest in the legal entity; i.e., variable interests that are contractual, such as equity ownership, or other financial interests that change with changes in the fair value of the entity’s net assets.

If an entity does not meet both criteria above, the Company applies other accounting guidance, such as the cost or equity method of accounting. If an entity does meet both criteria above, the Company evaluates such entity for consolidation under either the variable interest model if the legal entity meets any of the following characteristics to qualify as a VIE, or under the voting model for all other legal entities that are not VIEs.

A legal entity is determined to be a VIE if it has any of the following three characteristics:

•The entity does not have sufficient equity to finance its activities without additional subordinated financial support;

•The entity is established with non-substantive voting rights (i.e., where the entity deprives the majority economic interest holder(s) of voting rights); or

•The equity holders, as a group, lack the characteristics of a controlling financial interest. Equity holders meet this criterion if they lack any of the following:

•The power, through voting rights or similar rights, to direct the activities of the entity that most significantly influence the entity’s economic performance, as evidenced by:

•Substantive participating rights in the day-to-day management of the entity’s activities; or

•Substantive kick-out rights over the party responsible for significant decisions;

•The obligation to absorb the entity’s expected losses; or

•The right to receive the entity’s expected residual returns.

If the Company determines that any of the three characteristics of a VIE are met, the Company will conclude that the entity is a VIE and evaluate it for consolidation under the variable interest model.

Variable Interest Model

If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company; that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (economics). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary. Refer to Note 17 — “Variable Interest Entities (VIEs)” to the consolidated financial statements for information on the Company’s consolidated VIEs. If there are variable interests in a VIE, but the Company is not the primary beneficiary, the Company may account for the investment using the equity method of accounting.

Business Combinations

The Company uses the acquisition method of accounting for all business combinations, which requires assets and liabilities of the acquiree to be recorded at fair value, to measure the fair value of the consideration transferred, including contingent consideration, to be determined on the acquisition date, and to account for acquisition-related costs separately from the business combination.

Reportable Segments

As of March 31, 2023, the Company operates in three reportable segments: Care Enablement, Care Partners, and Care Delivery. Refer to Note 19 — “Segments” to the consolidated financial statements for information on the Company’s segments.

Cash and Cash Equivalents

The Company’s cash and cash equivalents primarily consist of money market funds and certificates of deposit. The Company considers all highly liquid investments that are both readily convertible into known amounts of cash and mature within ninety days from their date of purchase to be cash equivalents.

The Company maintains its cash in deposit accounts with several banks, which at times may exceed the insured limits of the Federal Deposit Insurance Corporation (“FDIC”). The Company believes it is not exposed to any significant credit risk with respect to its cash and cash equivalents. As of March 31, 2023 and December 31, 2022, the Company’s deposit accounts with banks exceeded the FDIC’s insured limit by approximately $306.5 million and $324.7 million, respectively. The Company has not experienced any losses to date and performs ongoing evaluations of these financial institutions to limit the Company’s concentration of risk exposure.

Investments in Marketable Securities

Investments in marketable securities consist of equity securities and certificates of deposit with various financial institutions. The appropriate classification of investments is determined at the time of purchase, and such designation is reevaluated at each balance sheet date.

Certificates of deposit are reported at par value, plus accrued interest, with maturity dates greater than ninety days. As of March 31, 2023 and December 31, 2022, certificates of deposit amounted to approximately $1.0 million and $0, respectively. Investments in certificates of deposit are classified as Level 1 investments in the fair value hierarchy.

Equity securities are reported at fair value. These securities are classified as Level 1 in the valuation hierarchy, where quoted market prices from reputable third-party brokers are available in an active market and unadjusted. Equity securities with low trading volume are determined to not have an active market with buyers and sellers ready to trade. Accordingly, we classify such equity securities as Level 2 in the valuation hierarchy, and their valuation is based on weighted average share prices from observable market data.

Equity securities held by the Company are primarily comprised of common stock of a payor partner that completed its initial public offering (“IPO”) in June 2021 and Nutex Health Inc. (formerly known as Clinigence Holdings, Inc.) (“Nutex”). The common stock of a payor partner was acquired as a result of UCAP selling its 48.9% ownership interest in Universal Care, Inc. (“UCI”) in April 2020. In September 2021, ApolloMed and Nutex entered into a stock purchase agreement in which ApolloMed purchased shares of common stock, warrants, and potentially additional shares of common stock if certain metrics are not met (such additional shares, “contingent equity securities”) for $3.0 million. The common stock is included in investments in marketable securities in the accompanying consolidated balance sheets. In May 2022, the Company exercised the warrants and subsequently recognized the shares within investments in marketable securities in the accompanying consolidated balance sheet. In March 2023, the contingent equity securities were settled and the Company received additional Nutex common stock. The additional common stock received from the contingent equity securities are included in investments in marketable securities in the accompanying consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, the equity securities were approximately $3.1 million and $5.6 million, respectively, in the accompanying consolidated balance sheets. Gains and losses recognized on equity securities sold are recognized in the accompanying consolidated statements of income under other income. The components comprising total gains and losses on equity securities are as follows (in thousands) for the periods listed below:


	Three Months Ended March 31,
	2023		2022

Total losses recognized on equity securities	$	(4,353)	$	(10,600)
Gains recognized on equity securities sold	—		—
Unrealized losses recognized on equity securities held at end of period	$	(4,353)	$	(10,600)

Receivables, Receivables – Related Parties, Other Receivables and Loan Receivable - Related Party

The Company’s receivables are comprised of accounts receivable, capitation and claims receivable, risk pool settlements, incentive receivables, management fee income, and other receivables. Accounts receivable are recorded and stated at the amount expected to be collected.

The Company’s receivables – related parties are comprised of risk pool settlements, management fee income, incentive receivables, and other receivables. Receivables – related parties are recorded and stated at the amount expected to be collected.

The Company’s loan receivable and loan receivable – related party consists of promissory notes that accrue interest per annum. As of March 31, 2023, promissory notes are expected to be collected within 12 months.

Capitation and claims receivables relate to each health plan’s capitation and are received by the Company in the month following the month of service. Risk pool settlements and incentive receivables mainly consist of the Company’s full risk pool receivable that is recorded quarterly based on reports received from the Company’s hospital partners and management’s estimate of the Company’s portion of the estimated risk pool surplus for open performance years. Settlement of risk pool surplus or deficits occurs approximately 18 months after the risk pool performance year is completed. Other receivables consist of receivables from fee-for-services (“FFS”) reimbursement for patient care, certain expense reimbursements, transportation reimbursements from the hospitals, and stop-loss insurance premium reimbursements.

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer creditworthiness, current economic trends, and changes in customer payment patterns to evaluate the adequacy of these reserves. The Company also regularly analyzes the ultimate collectability of accounts receivable after certain stages of the collection cycle using a look-back analysis to determine the amount of receivables subsequently collected and adjustments are recorded when necessary. Reserves are recorded primarily on a specific identification basis.

Receivables are recorded when the Company is able to determine amounts receivable under applicable contracts and agreements based on information provided and collection is reasonably likely to occur. In regard to the credit loss standard, the Company continuously monitors its collections of receivables and our expectation is that the historical credit loss experienced across our receivable portfolio is materially similar to any current expected credit losses that would be estimated under the current expected credit losses (“CECL”) model.

Concentrations of Credit Risks

The Company disaggregates revenue from contracts by service type and payor type. This level of detail provides useful information pertaining to how the Company generates revenue by significant revenue stream and by type of direct contracts. The consolidated statements of income present disaggregated revenue by service type. The following table presents disaggregated revenue generated by payor type for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022

Commercial	$	40,019	$	42,140
Medicare	216,310		133,659
Medicaid	67,339		71,663
Other third parties	13,576		15,796
Revenue	$	337,244	$	263,258

The Company had major payors that contributed the following percentages of net revenue:


	Three Months Ended March 31,
	2023		2022

Payor A	*		10.6	%
Payor B	41.5	%	30.4	%

*Less than 10% of total net revenues

The Company had major payors that contributed to the following percentages of receivables and receivables – related parties:


	As of March 31, 2023		As of December 31, 2022

Payor B (restated)	32.0	%	25.0	%
Payor C (restated)	45.0	%	50.0	%

Fair Value Measurements of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, fiduciary cash, investment in marketable securities, receivables, loans receivable, accounts payable, certain accrued expenses, finance lease obligations, and long-term debt. The carrying values of the financial instruments classified as current in the accompanying consolidated balance sheets are considered to be at their fair values, due to the short maturity of these instruments. The carrying amounts of finance lease obligations and long-term debt approximate fair value as they bear interest at rates that approximate current market rates for debt with similar maturities and credit quality.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement (“ASC 820”), applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 establishes a fair value hierarchy for disclosure of the inputs to valuations used to measure fair value.

This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 — Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.

The carrying amounts and fair values of the Company’s financial instruments as of March 31, 2023, are presented below (in thousands):


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Assets
Money market accounts*	$	84,828	$	—	$	—	$	84,828
Marketable securities – certificates of deposit	1,000		—		—		1,000
Marketable securities – equity securities	3,114		—		—		3,114
Interest rate swaps	—		2,527		—		2,527
Total assets	$	88,942	$	2,527	$	—	$	91,469

Liabilities
APCMG contingent consideration	$	—	$	—	$	1,000	$	1,000
AAMG cash contingent consideration (see Note 4)	—		—		5,851		5,851
VOMG contingent consideration (see Note 4)	—		—		17		17
Total liabilities	$	—	$	—	$	6,868	$	6,868

* Included in cash and cash equivalents

The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2022, are presented below (in thousands):


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Assets
Money market accounts*	$	135,235	$	—	$	—	$	135,235
Marketable securities – equity securities	5,567		—		—		5,567
Contingent equity securities	—		—		1,900		1,900
Interest rate swaps	—		3,164		—		3,164
Total assets	$	140,802	$	3,164	$	1,900	$	145,866

Liabilities
APCMG contingent consideration	$	—	$	—	$	1,000	$	1,000
AAMG cash contingent consideration (see Note 4)	—		—		5,851		5,851
VOMG contingent consideration (see Note 4)	—		—		17		17
Total liabilities	$	—	$	—	$	6,868	$	6,868

* Included in cash and cash equivalents

There have been no changes in Level 1, Level 2, or Level 3 classification and no changes in valuation techniques for these assets for the three months ended March 31, 2023.

Intangible Assets and Long-Lived Assets

Intangible assets with finite lives include network-payor relationships, management contracts, member relationships, subscriber relationships, and developed technology and are stated at cost, less accumulated amortization and impairment losses. These intangible assets are amortized using the accelerated method based on the discounted cash flow rate or using the straight-line method.

Intangible assets with finite lives also include a patient management platform, as well as trade names and trademarks, whose valuations were determined using the cost to recreate method and the relief from royalty method, respectively. These assets are stated at cost, less accumulated amortization and impairment losses, and are amortized using the straight-line method.

Finite-lived intangibles and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the expected future cash flows from the use of such assets (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the carrying value of the asset to its estimated fair value. Fair value is determined based on appropriate valuation techniques. The Company determined that there was no impairment of its finite-lived intangible or long-lived assets during the three months ended March 31, 2023 and 2022.

Goodwill and Indefinite-Lived Intangible Assets

Under ASC 350, Intangibles – Goodwill and Other, goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment.

At least annually, at the Company’s fiscal year-end, or sooner if events or changes in circumstances indicate that an impairment has occurred, the Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments for each of the Company’s four reporting units (i) MSOs, (ii) IPAs, (iii) ACOs, and (iv) Clinics. The Company is required to perform a quantitative goodwill impairment test only if the conclusion from the qualitative assessment is that it is more likely than not that a reporting unit’s fair value is less than the carrying value of its assets. Should this be the case, a quantitative analysis is performed to identify whether a potential impairment exists by comparing the estimated fair values of the reporting units with their respective carrying values, including goodwill.

An impairment loss is recognized if the implied fair value of the asset being tested is less than its carrying value. In this event, the asset is written down accordingly. The fair values of goodwill are determined using valuation techniques based on estimates, judgments, and assumptions management believes are appropriate in the circumstances.

At least annually, indefinite-lived intangible assets are tested for impairment. Impairment for intangible assets with indefinite lives exists if the carrying value of the intangible asset exceeds its fair value. The fair values of indefinite-lived intangible assets are determined using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances.

The Company had no impairment of its goodwill or indefinite-lived intangible assets during the three months ended March 31, 2023 and 2022.

Investments in Other Entities — Equity Method

The Company accounts for certain investments using the equity method of accounting when it is determined that the investment provides the Company with the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee and is recognized in the accompanying consolidated statements of income under “Income (loss) from equity method investments” and also is adjusted by contributions to, and distributions from, the investee.

Equity method investments are subject to impairment evaluation. There was no impairment loss recorded related to equity method investments for the three months ended March 31, 2023 and 2022.

Investments in Privately Held Entities

The Company accounts for certain investments using the cost method of accounting when it is determined that the investment provides the Company with little or no influence over the investee. Under the cost method of accounting, the investment is measured at cost, adjusted for observable price changes and impairments, with changes recognized in net income. The investments in privately held entities that do not report net asset value are subject to qualitative assessment for indicators of impairments.

Medical Liabilities

APC, Alpha Care, Accountable Health Care, APCMG, Jade and AAMG (the “consolidated IPAs”) and APAACO are responsible for integrated care that the associated physicians and contracted hospitals provide to their enrollees. The consolidated IPAs and APAACO provide integrated care to HMOs, Medicare, and Medi-Cal enrollees through a network of contracted providers under sub-capitation and direct patient service arrangements. Medical costs for professional and institutional services rendered by contracted providers are recorded as cost of services expenses in the accompanying consolidated statements of income.

An estimate of amounts due to contracted physicians, hospitals, and other professional providers is included in medical liabilities in the accompanying consolidated balance sheets. Medical liabilities include claims reported as of the balance sheet date and estimated IBNR claims. Such estimates are developed using actuarial methods and are based on numerous variables, including the utilization of healthcare services, historical payment patterns, cost trends, product mix, seasonality, changes in membership, and other factors. The estimation metho

Form: 10-Q/A

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