UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)



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



For the quarterly period ended September
30, 2015



 ̈TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934



Commission File No.

000-25809



Apollo Medical Holdings, Inc.

(Exact name of registrant as specified in
its charter)



|Delaware               | 46-3837784                     
|---------------------- | -------------------------------
|State of Incorporation | IRS Employer Identification No.



700 North Brand Blvd., Suite 1400

Glendale, California 91203

(Address of principal executive offices)



(818) 396-8050

(Issuer’s telephone number)



(Former name, former address and former
fiscal year, if changed since last report)



Securities Registered Pursuant to Section
12(b) of the Act:



|Title of each Class |  | Name of each Exchange on which Registered
|------------------- |  | -----------------------------------------
|                    |  | None                                     



Securities Registered Pursuant to Section
12(g) of the Act:

Common Stock, $.001 Par Value



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:   x  Yes      ̈   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).     x  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.



|Large accelerated filer        ̈ | Accelerated filer        ̈       
|------------------------------- | --------------------------------
|                                |                                 
|Non-accelerated filer          ̈ | Smaller reporting company      x



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





As of November 10, 2015, there were 4,863,389 shares of common stock, $.001 par value per share, issued
and outstanding.













APOLLO MEDICAL HOLDINGS, INC.



INDEX TO FORM 10-Q FILING



TABLE OF CONTENTS



|                             |                                                                                                                                 | PAGE
|---------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ----
|PART I FINANCIAL INFORMATION
|                             |                                                                                                                                 |     
|Item 1.                      | Condensed Consolidated Financial Statements – Unaudited                                                                         | 3   
|                             | Balance Sheets as of September 30, 2015 and March 31, 2015                                                                      | 3   
|                             | Statements of
    Operations and Comprehensive (Loss) Income for the Three and Six Months Ended September 30, 2015 and
    2014 | 4   
|                             | Statements of Cash Flows for the Six Months Ended September 30, 2015 and 2014                                                   | 5   
|                             | Notes to Condensed Consolidated Financial Statements - Unaudited                                                                | 6   
|Item 2.                      | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                           | 30  
|Item 3.                      | Quantitative and Qualitative Disclosures about Market Risk                                                                      | 41  
|Item 4.                      | Control and Procedures.                                                                                                         | 41  
|                             |                                                                                                                                 |     
|PART II 
OTHER INFORMATION  
|                             |                                                                                                                                 |     
|Item 1.                      | Legal Proceedings                                                                                                               | 42  
|Item 2.                      | Unregistered Sales of Equity Securities and the Use of Proceeds                                                                 | 43  
|Item 3.                      | Defaults upon Senior Securities                                                                                                 | 43  
|Item 4.                      | Mine Safety Disclosures                                                                                                         | 43  
|Item 5.                      | Other Information                                                                                                               | 43  
|Item 6.                      | Exhibits                                                                                                                        | 43  











Forward-Looking Statements



This document contains “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. 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 projections of earnings,
revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any
statements concerning proposed new services or developments; any statements regarding future economic conditions or performance;
any statements of belief; and any statements of assumptions underlying any of the foregoing.



Forward-looking statements may include the words “may,”
“could,” “will,” “estimate,” “intend,” “continue,” “believe,”
“expect” or “anticipate” or other similar words. These forward-looking statements present our estimates
and assumptions only as of the date of this report. Except as required by the federal securities laws, we do not intend, and undertake
no obligation, to update any forward-looking statement.



Although we believe that the expectations reflected
in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed
in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking
statements, are subject to change and inherent risks and uncertainties. Some of the key factors impacting these risks and uncertainties
include, but are not limited to:





| | • | risks related to our ability to raise capital;
| | - | ----------------------------------------------



| | • | the ability to service the debt and maintain compliance with the financial covenants established under
the credit agreement and related financing agreements entered into with NNA of Nevada, Inc. (“NNA”) in 2014;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the impact of rigorous competition in the healthcare
industry generally;
| | - | ------------------------------------------------------------------------



| | • | the impact on our business, if any, as a result of changes
in the way market share is measured by third parties;
| | - | ----------------------------------------------------------------------------------------------------------------



| | • | our dependence on a few larger payors;
| | - | --------------------------------------



| | • | whether or not we receive an “all or nothing” annual payment from the Centers for Medicare & Medicaid Services
(“CMS”) in connection with our participation in the Medicare Shared Savings Program (the “MSSP”);
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | changes in Federal and state programs and policies regarding medial reimbursements and capitated payments for health services
we provide;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | • | the overall success of our acquisition strategy and the
integration of any acquired assets with our existing operations;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | • | industry-wide market factors and regulatory and other
developments affecting our operations;
| | - | --------------------------------------------------------------------------------------------



| | • | economic uncertainty;
| | - | ---------------------



| | • | the impact of any potential future impairment of our
assets;
| | - | ------------------------------------------------------------



| | • | risks related to changes in accounting interpretations;
and
| | - | -----------------------------------------------------------





| | • | the impact, including additional costs, of mandates and
other obligations that may be imposed upon us as a result of new federal healthcare laws, including the Affordable Care Act, the
rules and regulations promulgated thereunder and any executive action with respect thereto.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For a detailed description of these and other factors that
could cause actual results to differ materially from those expressed in any forward-looking statement, please see the section
entitled “Risk Factors,” beginning on page 26 of our Annual Report on Form 10-K/A for the year ended March 31, 2015
filed on July 27, 2015.













PART I FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



APOLLO MEDICAL HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)





|                                                                                                                                                   |  | September 30, |             |   | March 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | --------- | -
|                                                                                                                                                   |  | 2015          |             |   | 2015      |  
|ASSETS                                                                                                                                             |  |               |             |   |           |  
|                                                                                                                                                   |  |               |             |   |           |  
|CURRENT ASSETS                                                                                                                                     |  |               |             |   |           |  
|Cash and cash equivalents                                                                                                                          |  | $             | 3,924,922   |   |           | $
|Accounts receivable, net                                                                                                                           |  |               | 4,015,715   |   |           |  
|Other receivables                                                                                                                                  |  |               | 289,064     |   |           |  
|Due from affiliates                                                                                                                                |  |               | 20,052      |   |           |  
|Prepaid expenses                                                                                                                                   |  |               | 410,013     |   |           |  
|Deferred financing costs, net, current                                                                                                             |  |               | -           |   |           |  
|Total current assets                                                                                                                               |  |               | 8,659,766   |   |           |  
|                                                                                                                                                   |  |               |             |   |           |  
|Deferred financing costs, net, non-current                                                                                                         |  |               | 217,963     |   |           |  
|Property and equipment, net                                                                                                                        |  |               | 577,701     |   |           |  
|Restricted cash                                                                                                                                    |  |               | 530,000     |   |           |  
|Intangible assets, net                                                                                                                             |  |               | 1,283,163   |   |           |  
|Goodwill                                                                                                                                           |  |               | 2,168,833   |   |           |  
|Other assets                                                                                                                                       |  |               | 212,146     |   |           |  
|TOTAL ASSETS                                                                                                                                       |  | $             | 13,649,572  |   |           | $
|                                                                                                                                                   |  |               |             |   |           |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                              |  |               |             |   |           |  
|                                                                                                                                                   |  |               |             |   |           |  
|CURRENT LIABILITIES                                                                                                                                |  |               |             |   |           |  
|Accounts payable and accrued liabilities                                                                                                           |  | $             | 4,944,470   |   |           | $
|Medical liabilities                                                                                                                                |  |               | 1,337,187   |   |           |  
|Note and line of credit payable, net of discount, current portion                                                                                  |  |               | 7,282,448   |   |           |  
|Convertible notes payable, net of discount, current portion                                                                                        |  |               | 2,549,476   |   |           |  
|Warrant liability                                                                                                                                  |  |               | 1,315,846   |   |           |  
|Total current liabilities                                                                                                                          |  |               | 17,429,427  |   |           |  
|                                                                                                                                                   |  |               |             |   |           |  
|Notes payable, net of discount, non-current portion                                                                                                |  |               | -           |   |           |  
|Convertible notes payable, net of discount                                                                                                         |  |               | -           |   |           |  
|Warrant liability                                                                                                                                  |  |               | -           |   |           |  
|Deferred tax liability                                                                                                                             |  |               | 177,344     |   |           |  
|Total liabilities                                                                                                                                  |  |               | 17,606,771  |   |           |  
|                                                                                                                                                   |  |               |             |   |           |  
|COMMITMENTS AND CONTINGENCIES AND SUBSEQUENT EVENTS (NOTES 10 and 11)                                                                              |  |               |             |   |           |  
|                                                                                                                                                   |  |               |             |   |           |  
|STOCKHOLDERS' DEFICIT                                                                                                                              |  |               |             |   |           |  
|Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued                                                                        |  |               | -           |   |           |  
|Common Stock, par value $0.001; 100,000,000 shares authorized, 4,863,389 shares issued and outstanding as of September 30, 2015 and March 31, 2015 |  |               | 4,863       |   |           |  
|Additional paid-in-capital                                                                                                                         |  |               | 16,670,718  |   |           |  
|Accumulated deficit                                                                                                                                |  |               | (22,354,252 | ) |           |  
|Stockholders' deficit attributable to Apollo Medical Holdings, Inc.                                                                                |  |               | (5,678,671  | ) |           |  
|Non-controlling interest                                                                                                                           |  |               | 1,721,472   |   |           |  
|Total stockholders' deficit                                                                                                                        |  |               | (3,957,199  | ) |           |  
|                                                                                                                                                   |  |               |             |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                        |  | $             | 13,649,572  |   |           | $



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



3







APOLLO MEDICAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)





|                                                                                  |  | Three Months Ended September 30, |            |   | Six Months Ended September 30, |  
|--------------------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------ | -
|                                                                                  |  | 2015                             |            |   | 2014                           |  
|Net revenues                                                                      |  | $                                | 11,369,607 |   |                                | $
|                                                                                  |  |                                  |            |   |                                |  
|Costs and expenses                                                                |  |                                  |            |   |                                |  
|Cost of services                                                                  |  |                                  | 8,264,189  |   |                                |  
|General and administrative                                                        |  |                                  | 3,440,641  |   |                                |  
|Depreciation and amortization                                                     |  |                                  | 77,684     |   |                                |  
|Total costs and expenses                                                          |  |                                  | 11,782,514 |   |                                |  
|                                                                                  |  |                                  |            |   |                                |  
|(Loss) income from operations                                                     |  |                                  | (412,907   | ) |                                |  
|                                                                                  |  |                                  |            |   |                                |  
|Other (expense) income                                                            |  |                                  |            |   |                                |  
|Interest expense                                                                  |  |                                  | (68,818    | ) |                                |  
|Gain (loss) on change in fair value of warrant and conversion feature liabilities |  |                                  | 96,852     |   |                                |  
|Other                                                                             |  |                                  | (95,092    | ) |                                |  
|Total other expense                                                               |  |                                  | (67,058    | ) |                                |  
|                                                                                  |  |                                  |            |   |                                |  
|(Loss) income before provision for income taxes                                   |  |                                  | (479,965   | ) |                                |  
|Income tax (benefit) provision                                                    |  |                                  | (186,138   | ) |                                |  
|Net (loss) income                                                                 |  |                                  | (293,827   | ) |                                |  
|Net income attributable to non-controlling interest                               |  |                                  | (237,539   | ) |                                |  
|Net (loss) income attributable to Apollo Medical Holdings, Inc.                   |  | $                                | (531,366   | ) |                                | $
|Other comprehensive gain:                                                         |  |                                  |            |   |                                |  
|Unrealized gain on change in value of marketable securities                       |  |                                  | -          |   |                                |  
|Comprehensive (loss) income                                                       |  | $                                | (531,366   | ) |                                | $
|                                                                                  |  |                                  |            |   |                                |  
|NET LOSS PER SHARE:                                                               |  |                                  |            |   |                                |  
|BASIC                                                                             |  | $                                | (0.11      | ) |                                | $
|DILUTED                                                                           |  | $                                | (0.11      | ) |                                | $
|WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:                              |  |                                  |            |   |                                |  
|BASIC                                                                             |  |                                  | 4,863,389  |   |                                |  
|DILUTED                                                                           |  |                                  | 4,863,389  |   |                                |  





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



4







APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)





|                                                                                     |  | Six Months Ended September 30, |           
|------------------------------------------------------------------------------------ |  | ------------------------------ | ----------
|                                                                                     |  | 2015                           |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                |  |                                |           
|Net (loss) income                                                                    |  | $                              | (2,524,331
|Adjustments to reconcile net (loss) income to net cash used in operating activities: |  |                                |           
|Depreciation and amortization expense                                                |  |                                | 141,435   
|Deferred income tax                                                                  |  |                                | 6,129     
|Stock-based compensation expense                                                     |  |                                | 152,733   
|Amortization of financing costs                                                      |  |                                | 46,745    
|Amortization of debt discount                                                        |  |                                | (47,875   
|Change in fair value of warrant and conversion feature liability                     |  |                                | 116,866   
|Changes in assets and liabilities:                                                   |  |                                |           
|Accounts receivable                                                                  |  |                                | (214,131  
|Other receivables                                                                    |  |                                | (80,776   
|Due from affiliates                                                                  |  |                                | 16,345    
|Prepaid expenses and advances                                                        |  |                                | (131,091  
|Deferred financing costs                                                             |  |                                | 513,646   
|Other assets                                                                         |  |                                | 6,570     
|Accounts payable and accrued liabilities                                             |  |                                | 1,592,267 
|Medical liabilities                                                                  |  |                                | 76,638    
|Net cash used in operating activities                                                |  |                                | (328,830  
|                                                                                     |  |                                |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                |  |                                |           
|Acquisition, net of cash and cash equivalents acquired                               |  |                                | -         
|Property and equipment acquired                                                      |  |                                | (42,572   
|Net cash used in investing activities                                                |  |                                | (42,572   
|                                                                                     |  |                                |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                |  |                                |           
|Proceeds from issuance of convertible note payable                                   |  |                                | -         
|Principal payments on term note payable                                              |  |                                | (122,500  
|Contribution by non-controlling interest                                             |  |                                | -         
|Distributions to non-controlling interest                                            |  |                                | (595,418  
|Debt issuance costs                                                                  |  |                                | -         
|Net cash (used in) provided by financing activities                                  |  |                                | (717,918  
|                                                                                     |  |                                |           
|NET DECREASE IN CASH & CASH EQUIVALENTS                                              |  |                                | (1,089,320
|                                                                                     |  |                                |           
|CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD                                         |  |                                | 5,014,242 
|                                                                                     |  |                                |           
|CASH & CASH EQUIVALENTS, END OF PERIOD                                               |  | $                              | 3,924,922 
|                                                                                     |  |                                |           
|SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:                                  |  |                                |           
|Interest paid                                                                        |  | $                              | 380,748   
|Income taxes paid                                                                    |  | $                              | 32,197    
|                                                                                     |  |                                |           
|Non-Cash Financing Activities:                                                       |  |                                |           
|Holdback liability                                                                   |  | $                              | -         
|Convertible note warrant                                                             |  | $                              | -         
|Convertible note conversion feature                                                  |  | $                              | -         
|Acquisition related warrant consideration                                            |  | $                              | -         







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



5







APOLLO MEDICAL HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(UNAUDITED)



| | 1. | Description of Business
| | -- | -----------------------



Apollo Medical Holdings, Inc. (the “Company” or
“ApolloMed”) and its affiliated physician groups are a patient-centered, physician-centric, integrated healthcare delivery
company, working to provide coordinated, outcomes-based medical care in a cost-effective manner. ApolloMed has built a company and
culture that is focused on physicians providing high quality care, population management and care coordination for patients, particularly
for senior patients and patients with multiple chronic conditions.



ApolloMed serves Medicare, Medicaid and
health maintenance organization (“HMO”) patients, and uninsured patients, in California. The Company primarily provides
services to patients who are covered by private or public insurance, although the Company derives a small portion of our revenue
from non-insured patients. We provide care coordination services to each major constituent of the healthcare delivery system, including
patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician
groups and health plans.



ApolloMed’s physician network consists
of hospitalists, primary care physicians and specialist physicians primarily through ApolloMed’s owned and affiliated physician
groups. ApolloMed operates through the following subsidiaries: Apollo Medical Management, Inc. (“AMM”), Pulmonary Critical
Care Management, Inc. (“PCCM”), Verdugo Medical Management, Inc. (“VMM”), and ApolloMed Accountable Care
Organization, Inc. (“ApolloMed ACO”). Through its wholly-owned subsidiary, AMM, ApolloMed manages affiliated medical
groups, which consist of ApolloMed Hospitalists (“AMH”), a hospitalist company, ApolloMed Care Clinic (“ACC”),
Maverick Medical Group, Inc. (“MMG”), AKM Medical Group, Inc. (“AKM”), Southern California Heart Centers
(“SCHC”) and Bay Area Hospitalist Associates, A Medical Corporation (“BAHA”). Through its wholly-owned
subsidiary, PCCM, ApolloMed manages Los Angeles Lung Center (“LALC”), and through its wholly-owned subsidiary VMM,
ApolloMed manages Eli Hendel, M.D., Inc. (“Hendel”). ApolloMed also has a controlling interest in ApolloMed Palliative
Services, LLC (“APS”), which owns two Los Angeles-based companies, Best Choice Hospice Care LLC (“BCHC”)
and Holistic Health Home Health Care Inc. (“HCHHA”).



AMM, PCCM and VMM each operate as a physician
practice management company and are in the business of providing management services to physician practice corporations under long-term
management service agreements, pursuant to which AMM, PCCM or VMM, as applicable, manages all non-medical services for the affiliated
medical group and has exclusive authority over all non-medical decision making related to ongoing business operations.



ApolloMed ACO participates in the MSSP,
the goal of which is to improve the quality of patient care and outcomes through more efficient and coordinated approach among
providers. Revenues earned by ApolloMed ACO are uncertain, and, if such amounts are payable by the CMS, they will be paid on an
annual basis significantly after the time earned, and will be contingent on various factors, including achievement of the minimum
savings rate as determined by MSSP for the relevant period. Such payments are earned and made on an “all or nothing”
basis. Although ApolloMed ACO beat its total benchmark expenditures for 2014, generating $3.9 million in total savings and achieving
an ACO Quality Score of 90.4% on its Quality Performance Report, CMS has determined that ApolloMed ACO did not meet the minimum
savings threshold and therefore will not receive any incentive payment in fiscal year 2016.





6









Liquidity and Capital Resources



The unaudited condensed consolidated financial
statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
and have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in
the normal course of business.





The Company has a history of operating losses
and as of September 30, 2015 has an accumulated deficit of $22,354,252, and during the six months ended September 30, 2015 net
cash used in operating activities was $328,830.



The primary sources of liquidity as of September 30, 2015 include cash on hand of $3,924,922. Management
has established a business plan, which they believe will result in future profitability. Additionally the Company is highly dependent
on MSSP revenue, which is contingent upon the realization of program savings as determined by the CMS. Non-receipt of all or nothing
annual payments from the MSSP, as occurred during fiscal 2016, will adversely impact the liquidity of the Company.





On October 14, 2015, the Company entered
into a Securities Purchase Agreement (the “Agreement”) with Network Medical Management, Inc. (“NMM”) pursuant
to which the Company sold to NMM, and NMM purchased from the Company, in a private offering of securities, 1,111,111 investment
units (the “Units”), each unit consisting of one share of the Company’s Series A Preferred Stock (the “Preferred
Stock”) and a stock purchase warrant (the “Warrants”) to purchase one share of the Company’s common stock
(the “Common Stock”) at an exercise price of $9.00 per share. NMM paid the Company an aggregate $10,000,000 for the
Units, the proceeds of which were used by the Company primarily to repay certain outstanding indebtedness owed by the Company to
NNA of Nevada, Inc. (the Company repaid its outstanding term loan and revolving credit facility with NNA pursuant to the Credit
Agreement in the then-outstanding aggregate amount of $7,304,506, consisting of $7,282,500 principal plus $22,006 of accrued interest)
and the balance for working capital (see Note 11 to the Notes to the Condensed Consolidated Financial Statements).



Management believes that the ongoing requirements
for working capital, debt service and covenants compliance and planned capital expenditures will be adequately funded from current
sources for at least the next twelve months.





| | 2. | Summary of Significant Accounting Policies
| | -- | ------------------------------------------



Accounting Principles



These unaudited condensed consolidated
statements reflect all adjustments, consisting of normal recurring adjustments, which, in management’s opinion, are
necessary, and should be read in conjunction with the Company's Annual Report on Form 10-K/A for the fiscal year ended March
31, 2015 as filed with the SEC on July 29, 2015.





7









Principles of Consolidation



The Company’s unaudited
condensed consolidated financial statements include the accounts of (1) Apollo Medical Holdings, Inc. and its wholly owned
subsidiaries AMM, PCCM, and VMM, (2) the Company’s controlling interest in ApolloMed ACO, and APS, a newly formed
entity which provides home health and hospice medical services and owns BCHC and HCHHA and in which a non-controlling
interest in APS contributed $586,111 in cash; and (3) physician practice corporations (“PPCs”) managed under
long-term management service agreements including AMH, MMG, ACC, LALC, Hendel, AKM, SCHC and BAHA. Some states have laws that
prohibit business entities, such as ApolloMed, from practicing medicine, employing physicians to practice medicine,
exercising control over medical decisions by physicians (collectively known as the corporate practice of medicine), or
engaging in certain arrangements with physicians, such as fee-splitting. In California, the Company operates by maintaining
long-term management service agreements with the PPCs, which are each owned and operated by physicians, and which employ or
contract with additional physicians to provide hospitalist services. Under the management agreements, the Company provides
and performs all non-medical management and administrative services, including financial management, information systems,
marketing, risk management and administrative support. Each management agreement typically has a term from 10 to 20
years unless terminated by either party for cause. The management agreements are not terminable by the PPCs, except in the
case of material breach or bankruptcy of the respective PPM.



Through the management agreements and the Company’s relationship
with the stockholders of the PPCs, the Company has exclusive authority over all non-medical decision making related to the ongoing
business operations of the PPCs. Consequently, the Company consolidates the revenue and expenses of each PPC from the date of
execution of the applicable management agreement.



All intercompany balances and transactions have been eliminated
in consolidation.



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 (with limited exceptions),
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



The Company operates as one reportable segment, the healthcare
delivery segment, and implements and operates innovative health care models to create a patient-centered, physician-centric experience.
The Company reports its consolidated financial statements in the aggregate, including all activities in one reportable segment.



Revenue Recognition



Revenue consists of contracted, fee-for-service, and capitation
revenue. Revenue is recorded in the period in which services are rendered. Revenue is principally derived from the provision of
healthcare staffing services to patients within healthcare facilities. The form of billing and related risk of collection for
such services may vary by customer. The following is a summary of the principal forms of the Company’s billing arrangements
and how net revenue is recognized for each.



Contracted revenue



Contracted revenue represents revenue generated under contracts
for which the Company provides physician and other healthcare staffing and administrative services in return for a contractually
negotiated fee. Contract revenue consists primarily of billings based on hours of healthcare staffing provided at agreed-to hourly
rates. Revenue in such cases is recognized as the hours are worked by the Company’s staff and contractors. Additionally,
contract revenue also includes supplemental revenue from hospitals where the Company may have a fee-for-service contract arrangement
or provide physician advisory services to the medical staff at a specific facility. Contract revenue for the supplemental billing
in such cases is recognized based on the terms of each individual contract. Such contract terms generally either provides for
a fixed monthly dollar amount or a variable amount based upon measurable monthly activity, such as hours staffed, patient visits
or collections per visit compared to a minimum activity threshold. Such supplemental revenues based on variable arrangements are
usually contractually fixed on a monthly, quarterly or annual calculation basis considering the variable factors negotiated in
each such arrangement. Such supplemental revenues are recognized as revenue in the period when such amounts are determined to
be fixed and therefore contractually obligated as payable by the customer under the terms of the respective agreement. Additionally,
the Company derives a portion of the Company’s revenue as a contractual bonus from collections received by the Company’s
partners and such revenue is contingent upon the collection of third-party billings. These revenues are not considered earned
and therefore not recognized as revenue until actual cash collections are achieved in accordance with the contractual arrangements
for such services.



8







Fee-for-service revenue



Fee-for-service revenue represents revenue earned under contracts
in which the Company bills and collects the professional component of charges for medical services rendered by the Company’s
contracted physicians. Under the fee-for-service arrangements, the Company bills patients for services provided and receives payment
from patients or their third-party payors. Fee-for-service revenue is reported net of contractual allowances and policy discounts.
All services provided are expected to result in cash flows and are therefore reflected as net revenue in the financial statements.
Fee-for-service revenue is recognized in the period in which the services are rendered to specific patients and reduced immediately
for the estimated impact of contractual allowances in the case of those patients having third-party payor coverage. The recognition
of net revenue (gross charges less contractual allowances) from such visits is dependent on such factors as proper completion
of medical charts following a patient visit, the forwarding of such charts to the Company’s billing center for medical coding
and entering into the Company’s billing system and the verification of each patient’s submission or representation
at the time services are rendered as to the payor(s) responsible for payment of such services. Revenue is recorded based on the
information known at the time of entering of such information into the Company’s billing systems as well as an estimate
of the revenue associated with medical services.



Capitation revenue



Capitation revenue (net of capitation withheld
to fund risk share deficits) is recognized in the month in which the Company is obligated to provide services. Minor ongoing adjustments
to prior months’ capitation, primarily arising from contracted HMO‘s finalizing of monthly patient eligibility data
for additions or subtractions of enrollees, are recognized in the month they are communicated to the Company. Managed care revenues
of the Company consist primarily of capitated fees for medical services provided by the Company under a provider service agreement
(“PSA”) or capitated arrangements directly made with various managed care providers including HMO’s and management
service organizations (“MSOs”). Capitation revenue under the PSA and HMO contracts is prepaid monthly to the Company
based on the number of enrollees electing the Company as their healthcare provider. Additionally, Medicare pays capitation using
a “Risk Adjustment model,” which compensates managed care organizations and providers based on the health status (acuity)
of each individual enrollee. Health plans and providers with higher acuity enrollees will receive more and those with lower acuity
enrollees will receive less. Under Risk Adjustment, capitation is determined based on health severity, measured using patient encounter
data. Capitation is paid on an interim basis based on data submitted for the enrollee for the preceding year and is adjusted in
subsequent periods after the final data is compiled. Positive or negative capitation adjustments are made for Medicare enrollees
with conditions requiring more or less healthcare services than assumed in the interim payments. Since the Company cannot reliably
predict these adjustments, periodic changes in capitation amounts earned as a result of Risk Adjustment are recognized when those
changes are communicated by the health plans to the Company.



HMO contracts also include provisions to share in the risk
for enrollee hospitalization, whereby the Company can earn additional incentive revenue or incur penalties based upon the utilization
of hospital services. Typically, any shared risk deficits are not payable until and unless the Company generates future risk sharing
surpluses, or if the HMO withholds a portion of the capitation revenue to fund any risk share deficits. At the termination of
the HMO contract, any accumulated risk share deficit is typically extinguished. Due to the lack of access to information necessary
to estimate the related costs, shared-risk amounts receivable from the HMOs are only recorded when such amounts are known. Risk
pools for the prior contract years are generally final settled in the third or fourth quarter of the following fiscal year.



9







In addition to risk-sharing revenues, the Company also receives
incentives under “pay-for-performance” programs for quality medical care, based on various criteria. These incentives,
which are included in other revenues, are generally recorded in the third and fourth quarters of the fiscal year and are recorded
when such amounts are known.





Under full risk capitation contracts, an
affiliated hospital enters into agreements with several HMOs, pursuant to which, the affiliated hospital provides hospital, medical,
and other healthcare services to enrollees under a fixed capitation arrangement (“Capitation Arrangement”). Under
the risk pool sharing agreement, the affiliated hospital and medical group agree to establish a Hospital Control Program to serve
the enrollees, pursuant to which, the medical group is allocated a percentage of the profit or loss, after deductions for costs
to affiliated hospitals. The Company participates in full risk programs under the terms of the PSA, with health plans whereby
the Company is wholly liable for the deficits allocated to the medical group under the arrangement. The related liability is included
in medical liabilities in the accompanying consolidated balance sheets at September 30, 2015 and March 31, 2015. (See Note 2 "Medical
Liabilities" below).



Medicare Shared Savings Program Revenue



The Company through its subsidiary, ApolloMed ACO, participates
in the MSSP sponsored by CMS. The MSSP allows ACO participants to share in cost savings it generates in connection with rendering
medical services to Medicare patients. Payments to ACO participants, if any, will be calculated annually by CMS on cost savings
generated by the ACO participant relative to the ACO participants’ CMS benchmark. The MSSP is a relatively new program managed
by CMS that has an evolving payment methodology. The Company considers revenue, if any, under the MSSP, as contingent upon the
realization of program savings as determined by CMS, and are not considered earned and therefore are not recognized as revenue
until notice from CMS that cash payments are to be imminently received.



Although ApolloMed ACO beat its total benchmark expenditures
for 2014, generating $3.9 million in total savings and achieving an ACO Quality Score of 90.4% on its Quality Performance Report,
CMS has determined that the Company did not meet the minimum savings threshold and therefore will not receive any incentive payment
in fiscal year 2016.



Cash and Cash Equivalents



Cash and cash equivalents consists of highly liquid investments
with an initial maturity of three months or less at date of purchase to be cash equivalents.



Restricted Cash



Restricted cash primarily consists of cash held
as collateral to secure standby letters of credits as required by certain contracts associated with Maverick Medical Group. The
certificates have an interest rate of 0.15%.



Goodwill and Intangible Assets



Under FASB ASC 350, Intangibles – Goodwill and Other(“ASC 350”), goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment. Acquired
intangible assets with definite lives are amortized over their individual useful lives.



At least annually, management assesses whether there has been
any impairment in the value of goodwill by first comparing the fair value to the net carrying value. If the carrying value exceeds
its estimated fair value, a second step is performed to compute the amount of the impairment. 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. The fair value is evaluated based on market capitalization determined
using average share prices within a reasonable period of time near the selected testing date (i.e., fiscal year-end).



10







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.



Accounts Receivable and Allowance for
Doubtful Accounts



Accounts receivable primarily consists of amounts due from
third-party payors, including government sponsored Medicare and Medicaid programs, insurance companies, and amounts due from hospitals
and patients. Accounts receivable are recorded and stated at the amount expected to be collected.



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



Concentrations



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



|                                   |  | Three Months Ended September 30, |      |   | Six Months Ended September 30, | 
|---------------------------------- |  | -------------------------------- | ---- | - | ------------------------------ | 
|                                   |  | 2015                             |      |   | 2014                           | 
|Medicare/Medi-Cal                  |  |                                  | 32.7 | % |                                | 
|L.A Care                           |  |                                  | 16.0 | % |                                | 
|Healthnet                          |  |                                  | 11.3 | % |                                | 
|Hollywood Presbyterian             |  |                                  | *    |   |                                | 
|California Hospital Medical Center |  |                                  | *    |   |                                | 









* Represents
less than 10%

** Not a payor during this time period



Receivables from one payor amounted to
the following percentage of total accounts receivable:



|                  |  | September 30, 2015 |      |   | March 31, 2015 | 
|----------------- |  | ------------------ | ---- | - | -------------- | 
|Medicare/Medi-Cal |  |                    | 30.9 | % |                | 



Medical Liabilities



The Company is responsible for integrated care that the associated
physicians and contracted hospitals provide to its enrollees under risk-pool arrangements. The Company provides integrated care
to health plan enrollees through a network of contracted providers under sub-capitation and direct patient service arrangements,
company-operated clinics and staff physicians. Medical costs for professional and institutional services rendered by contracted
providers are recorded as cost of services in the accompanying condensed consolidated statements of operations and comprehensive
loss. Costs for operating medical clinics, including the salaries of medical personnel, are also recorded in cost of services,
while non-medical personnel and support costs are included in general and administrative expense.



An estimate of amounts due to contracted physicians, hospitals,
and other professional providers is included in medical liabilities in the accompanying condensed consolidated balance sheets.
Medical liabilities include claims reported as of the balance sheet date and estimates of incurred but not reported claims (“IBNR”).
Such estimates are developed using actuarial methods and are based on many variables, including the utilization of health care
services, historical payment patterns, cost trends, product mix, seasonality, changes in membership, and other factors. The estimation
methods and the resulting reserves are periodically reviewed and updated. Many of the medical contracts are complex in nature
and may be subject to differing interpretations regarding amounts due for the provision of various services. Such differing interpretations
may not come to light until a substantial period of time has passed following the contract implementation. The Company has a $20,000
per member professional stop-loss, none on institutional risk pools. Any adjustments to reserves are reflected in current operations.



11







The Company’s medical liabilities were as follows:



|                                                            |  | Six Months Ended September 30, 2015 |            |   | Year Ended  March 31, 2015 |  
|----------------------------------------------------------- |  | ----------------------------------- | ---------- | - | -------------------------- | -
|Balance, beginning of period                                |  | $                                   | 1,260,549  |   |                            | $
|                                                            |  |                                     |            |   |                            |  
|Incurred health care costs:                                 |  |                                     |            |   |                            |  
|Current year                                                |  |                                     | 3,308,542  |   |                            |  
|                                                            |  |                                     |            |   |                            |  
|Acquired medical liabilities (see Note 3)                   |  |                                     | -          |   |                            |  
|                                                            |  |                                     |            |   |                            |  
|Claims paid:                                                |  |                                     |            |   |                            |  
|Current year                                                |  |                                     | (2,167,473 | ) |                            |  
|Prior years                                                 |  |                                     | (993,785   | ) |                            |  
|Total claims paid                                           |  |                                     | (3,161,258 | ) |                            |  
|                                                            |  |                                     |            |   |                            |  
|Risk pool settlement                                        |  |                                     | -          |   |                            |  
|Accrual for net deficit from full risk capitation contracts |  |                                     | 19,632     |   |                            |  
|                                                            |  |                                     |            |   |                            |  
|Adjustments                                                 |  |                                     | (90,278    | ) |                            |  
|Balance , end of period                                     |  | $                                   | 1,337,187  |   |                            | $



Deferred Financing Costs



Costs relating to debt issuance have been deferred and are
amortized over the lives of the respective loans, using the effective interest method (see Note 6).



At March 31, 2015, there was approximately
$514,000 of deferred financing costs related to the Company’s anticipated public offering which was anticipated to close
during the second quarter of fiscal 2016. During the six months ended September 30, 2015, it was determined the offering would
be postponed more than 90 days and these costs, which included legal, accounting and regulatory fees, were expensed to general
and administrative expense in the six months ended September 30, 2015.



Income Taxes



Federal and state income taxes are computed at currently enacted
tax rates less tax credits using the asset and liability method. Deferred taxes are adjusted both for items that do not have tax
consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets
or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that
arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting
and income tax purposes, changes in the recognition of tax positions and any changes in the valuation allowance caused by a change
in judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to
reduce deferred tax assets to amounts expected to be realized.



The Company uses a recognition threshold of more-likely-than-not
and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the
financial statements. Once the recognition threshold is met, the tax position is then measured to determine the actual amount
of benefit to recognize in the financial statements.



12







Stock-Based Compensation



The Company maintains a stock-based compensation program for
employees, non-employees, directors and consultants, which is more fully described in Note 9. The value of stock-based awards
so measured is recognized as compensation expense on a cumulative straight-line basis over the vesting terms of the awards, adjusted
for expected forfeitures. The Company sells certain of its restricted common stock to its employees, directors and consultants
with a right (but not obligation) of repurchase feature that lapses based on performance of services in the future.



The Company accounts for share-based awards granted to persons
other than employees and directors under ASC 505-50 Equity-Based Payments to Non-Employees. As such the fair value of such
shares is periodically re-measured using an appropriate valuation model and income or expense is recognized over the vesting period.



Fair Value of Financial Instruments



The Company’s accounting for Fair Value Measurement and
Disclosures defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable
and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market
data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:



Level one — Quoted market prices in active markets for
identical assets or liabilities;



Level two — Inputs other than level one inputs that are
either directly or indirectly observable; and



Level three — Unobservable inputs developed using estimates
and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.



Determining which category an asset or liability falls within
the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.



The fair values of the Company’s financial
instruments are measured on a recurring basis. The carrying amount reported in the accompanying condensed consolidated balance
sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because
of the short-term maturity of those instruments. The carrying amount for borrowings under the Term Loan and the Convertible Notes
with NNA approximates fair value which is determined by using interest rates that are available for similar debt obligations with
similar terms at the balance sheet date.



Out of Period Correction



During the quarter ended September 30, 2015,
following a review of the terms of certain derivative instruments entered into on March 28, 2014, management determined that a
warrant liability was incorrectly valued which resulted in certain amounts being incorrectly stated in prior periods. Based on
an analysis of the resulting adjustments, management determined that the prior financial statements were not considered to be materially
misstated. Accordingly, the Company recorded an out of period correction in the current period to properly record the valuation
of its warrant liability, unamortized debt discount and deferred financing costs. The following is a summary of the out of period
correction made as of September 30, 2015:





|                                                                           |  | As of and for the three months ended June 30, 2015  (as filed, before NNA error  adjustment) |           |  | Out-of- period  correction  adjustment booked  during the three  months ended  September 30, 2015 |   |          | As of and for the three months ended June 30,  2015 (as adjusted) | 
|-------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- | --------- |  | ------------------------------------------------------------------------------------------------- | - | -------- | ----------------------------------------------------------------- | 
|Deferred financing costs                                                   |  | $                                                                                            | 235,093   |  |                                                                                                   | $ | 14,937   |                                                                   | 
|                                                                           |  |                                                                                              |           |  |                                                                                                   |   |          |                                                                   | 
|Note and line of credit payable, net of discount                           |  | $                                                                                            | 6,624,548 |  |                                                                                                   | $ | 764,208  |                                                                   | 
|                                                                           |  |                                                                                              |           |  |                                                                                                   |   |          |                                                                   | 
|Warrant liability                                                          |  | $                                                                                            | 2,308,620 |  |                                                                                                   | $ | (831,312 | )                                                                 | 
|                                                                           |  |                                                                                              |           |  |                                                                                                   |   |          |                                                                   | 
|Interest expense                                                           |  | $                                                                                            | 360,402   |  |                                                                                                   | $ | (250,453 | )                                                                 | 
|                                                                           |  |                                                                                              |           |  |                                                                                                   |   |          |                                                                   | 
|Loss on change in fair value of warrant and conversion feature liabilities |  | $                                                                                            | 213,718   |  |                                                                                                   | $ | 168,412  |                                                                   | 





13







The fair value of the warrant liability
of $1,315,846 at September 30, 2015 related to the warrants issued in connection with the 2014 NNA financing was estimated at
September 30, 2015 using the Monte Carlo valuation model which used the following inputs: term of 5.5 years, risk free rate of
1.37%, no dividends, volatility of 58.1%, share price of $5.10 per share based on the trading price of the Company’s common
stock adjusted for a marketability discount, and a 50% probability of down-round financing, after taking into account the above
adjustment.



The fair value of the warrant liability
of $2,144,496 at March 31, 2015 was estimated at March 31, 2015 using the Monte Carlo valuation model which used the following
inputs: term of 6.0 years, risk free rate of 1.53%, no dividends, volatility of 57.4%, share price of $5.00 per share based on
the trading price of the Company’s common stock adjusted for a marketability discount, and a 50% probability of down-round
financing.



Conversion feature liability



The fair value of the $388,150 conversion feature liability
(included in convertible note payable) at September 30, 2015 issued in connection with the 2014 NNA financing 8% Convertible Note
was estimated using the Monte Carlo valuation model which used the following inputs: term of 3.5 years, risk free rate of 1.0%,
no dividends, volatility of 45.5%, share price of $5.10 per share based on the trading price of the Company’s common stock
adjusted for a marketability discount, and a 100% probability that the Company will participate in a “down-round”
financing at price per share lower than the initial NNA Financing 8% Convertible Note conversion price of $10.00 per share. The
fair value of the $442,358 conversion feature liability (included in convertible note payable) at March 31, 2015 issued in connection
with the 2014 NNA financing 8% Convertible Note was estimated using the Monte Carlo valuation model which used the following inputs:
term of 4.0 years, risk free rate of 1.1%, no dividends, volatility of 47.6%, share price of $5.00 per share based on the trading
price of the Company’s common stock adjusted for a marketability discount, and a 100% probability that the Company will
participate in a “down-round” financing at price per share lower than the initial NNA Financing 8% Convertible Note
conversion price of $10.00 per share.



The carrying amounts and fair values of the Company's financial
instruments are presented below as of:



September 30, 2015



|                               |  | Fair Value Measurements |   |  |         |  
|------------------------------ |  | ----------------------- | - |  | ------- | -
|                               |  | Level 1                 |   |  | Level 2 |  
|Liabilities:                   |  |                         |   |  |         |  
|Warrant liability, as adjusted |  | $                       | - |  |         | $
|Conversion feature liability   |  |                         | - |  |         |  
|                               |  | $                       | - |  |         | $



March 31, 2015



|                             |  | Fair Value Measurements |   |  |         |  
|---------------------------- |  | ----------------------- | - |  | ------- | -
|                             |  | Level 1                 |   |  | Level 2 |  
|Liabilities:                 |  |                         |   |  |         |  
|Warrant liability            |  | $                       | - |  |         | $
|Conversion feature liability |  |                         | - |  |         |  
|                             |  | $                       | - |  |         | $



14







The following summarizes the activity of Level 3 inputs measured
on a recurring basis for the three and six months ended September 30, 2015:



|                                                                                |  | Three Months Ended September 30, 2015 |           |   | Six Months Ended September 30, 2015 |  
|------------------------------------------------------------------------------- |  | ------------------------------------- | --------- | - | ----------------------------------- | -
|                                                                                |  | Warrant Liability                     |           |   | Conversion Feature Liability        |  
|                                                                                |  |                                       |           |   |                                     |  
|Balance, beginning of period                                                    |  | $                                     | 2,308,620 |   |                                     | $
|Loss (gain) on change in fair value of warrant and conversion feature liability |  |                                       | (161,462  | ) |                                     |  
|Warrant out of period correction, as adjusted                                   |  |                                       | (831,312  | ) |                                     |  
|Balance, as adjusted, end of period                                             |  | $                                     | 1,315,846 |   |                                     | $



The change in fair value of the warrant and conversion feature
liability is included in the accompanying condensed consolidated statements of operations and comprehensive loss. The fair value
of the conversion feature liability is reflected in the accompanying consolidated balance sheet together with the carrying value
of the convertible notes.



Non-Controlling Interests



The non-controlling interests recorded in the Company’s
condensed consolidated financial statements includes the pre-acquisition equity of those PPC’s in which the Company has
determined that it has a controlling financial interest and for which consolidation is required as a result of management contracts
entered into with these entities owned by third-party physicians. The nature of these contracts provide the Company with a monthly
management fee to provide the services described above, and as such, the adjustments to non-controlling interests in any period
subsequent to initial consolidation would relate to either capital contributions or distributions by the non-controlling parties
as well as income or losses attributable to certain non-controlling interests. Non-controlling interests also represent third-party
minority equity ownership interests which are majority owned by the Company.



Basic and Diluted Earnings per Share



Basic net income (loss) per share is calculated using the weighted
average number of shares of the Company’s common stock issued and outstanding during a certain period, and is calculated
by dividing net income (loss) by the weighted average number of shares of the Company’s common stock issued and outstanding
during such period. Diluted net income (loss) per share is calculated using the weighted average number of common and potentially
dilutive common shares outstanding during the period, using the as-if converted method for secured convertible notes, and the
treasury stock method for options and warrants.



The following table sets forth the number of shares excluded
from the computation of diluted earnings per share, as their inclusion would be anti-dilutive:



|                  |  | Three Months Ended September 30, |   |  | Six Months Ended  September 30, | 
|----------------- |  | -------------------------------- | - |  | ------------------------------- | 
|                  |  | 2015                             |   |  | 2014                            | 
|                  |  |                                  |   |  |                                 | 
|Options           |  |                                  | - |  |                                 | 
|Warrants          |  |                                  | - |  |                                 | 
|Convertible Notes |  |                                  | - |  |                                 | 
|                  |  |                                  | - |  |                                 | 



15







New Accounting Pronouncements



In May 2014, the Financial Accounting Standards
Board (“FASB”) amended the FASB Accounting Standards Codification and created a new Topic ASC 606, “Revenue
from Contracts with Customers” (“ASC 606”). This amendment prescribes that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The amendment supersedes the revenue recognition requirements in
Topic 605, “Revenue Recognition,” and most industry-specific guidance throughout the Industry Topics of the
Codification. For annual and interim reporting periods the mandatory adoption date of ASC 606 is January 1, 2017, and there will
be two methods of adoption allowed, either a full retrospective adoption or a modified retrospective adoption. The FASB recently
issued ASU 2015-14 to defer the effective date of the new revenue recognition standard by one year. As such, it now takes effect
for public entities in fiscal years beginning after December 15, 2017. Accordingly the revised mandatory adoption date of ASC 606
is April 1, 2018. The Company is currently evaluating the impact of ASC 606, but at the current time does not know what impact
the new standard will have on revenue recognized and other accounting decisions in future periods, if any, nor what method of adoption
will be selected if the impact is material.



In August 2014, the FASB amended the FASB
Accounting Standards Codification and amended Subtopic 205-40, “Presentation of Financial Statements – Going Concern.”This amendment prescribes that an entity should evaluate whether there are conditions or events, considered in the aggregate,
that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that
the financial statements are issued. The amendments will become effective for the Company’s annual and interim reporting
periods beginning April 1, 2017. The Company will begin evaluating going concern disclosures based on this guidance upon adoption.



In January 2015, the FASB issued ASU No.
2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This standard update
eliminates the concept of extraordinary items from generally accepted accounting principles in the United States (U.S. GAAP) as
part of an initiative to reduce complexity in accounting standards while maintaining or improving the usefulness of the information
provided to the users of the financial statements. The presentation and disclosure guidance for items that are unusual in nature
or occur infrequently will be retained and expanded to include items that are both unusual in nature and infrequent in occurrence.
This standard update is effective for fiscal years beginning after December 15, 2015; however, earlier adoption is permitted. The
adoption of this standard update is not expected to have a significant impact on our consolidated financial statements.



In February 2015, the FASB issued ASU No.
2015-02, Amendments to the Consolidation Analysis, which is included in ASC 810, Consolidation. This update changes the
guidance with respect to the analyses that a reporting entity must perform to determine whether it should consolidate certain types
of legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The new guidance affects
the following areas: (1) limited partnerships and similar legal entities, (2) evaluating fees paid to a decision maker or a service
provider as a variable interest, (3) the effect of fee arrangements on the primary beneficiary determination, (4) the effect of
related parties on the primary beneficiary determination, and (5) certain investment funds. The guidance will be effective for
the Company's interim and annual reporting periods beginning April 1, 2016. The standard allows the Company to transition to the
new model using either a full or modified retrospective approach, and early adoption is permitted. The Company is currently evaluating
the impact this standard will have on its business practices, financial condition, results of operations, and disclosures.



In April 2015, the FASB) issued ASU 2015-03,
Interest – Imputation of Interest (Subtopic 835-30).  This ASU requires that debt issuance costs related
to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by
this ASU.  The amendments in this ASU are effective for financial statements issued for fiscal years beginning after
December 15, 2015, and interim periods within those years.  Early adoption is permitted for financial statements that
have not been previously issued and retrospective application is required for each balance sheet presented.  The adoption
of this standard update is not expected to have a significant impact on the Company’s consolidated financial statements.



Use of Estimates



The preparation of financial statements
in conformity with 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 financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ materially from these estimates under different assumptions
or conditions.



16







3.  Acquisitions





During the six months ended September 30,
2014, the Company acquired SCHC and AKM for a total cash consideration of $1,947,431, net of cash acquired of $620,960, detailed
as follows:



|SCHC                |  | $ | 2,428,391 |  
|------------------- |  | - | --------- | -
|AKM                 |  |   | 140,000   |  
|Less: cash acquired |  |   | (620,960  | )
|Total               |  | $ | 1,947,431 |  



17







The results of AKM’s operations have been included in
the Company’s condensed consolidated financial statements since May 30, 2014.



| | 4. | Intangible Assets
| | -- | -----------------



Intangible assets, net consisted of the following:



|September 30, 2015           |  | Gross Amounts |           |  | Accumulated Amortization |   |          | Net | 
|---------------------------- |  | ------------- | --------- |  | ------------------------ | - | -------- | --- | 
|Indefinite-lived assets:     |  |               |           |  |                          |   |          |     | 
|Medicare license             |  | $             | 704,000   |  |                          | $ | -        |     | 
|                             |  |               |           |  |                          |   |          |     | 
|Amortized intangible assets: |  |               |           |  |                          |   |          |     | 
|Exclusivity                  |  |               | 40,000    |  |                          |   | (20,940  | )   | 
|Non-compete                  |  |               | 185,400   |  |                          |   | (70,472  | )   | 
|Payor relationships          |  |               | 107,000   |  |                          |   | (26,750  | )   | 
|Network relationships        |  |               | 220,000   |  |                          |   | (51,333  | )   | 
|Trade name                   |  |               | 257,000   |  |                          |   | (60,742  | )   | 
|Totals                       |  | $             | 1,513,400 |  |                          | $ | (230,237 | )   | 



|March 31, 2015               |  | Gross Amounts |           |  | Accumulated Amortization |   |          | Net | 
|---------------------------- |  | ------------- | --------- |  | ------------------------ | - | -------- | --- | 
|Indefinite-lived assets:     |  |               |           |  |                          |   |          |     | 
|Medicare license             |  | $             | 704,000   |  |                          | $ | -        |     | 
|                             |  |               |           |  |                          |   |          |     | 
|Amortized intangible assets: |  |               |           |  |                          |   |          |     | 
|Exclusivity                  |  |               | 40,000    |  |                          |   | (15,940  | )   | 
|Non-compete                  |  |               | 185,400   |  |                          |   | (41,428  | )   | 
|Payor relationships          |  |               | 107,000   |  |                          |   | (16,050  | )   | 
|Network relationships        |  |               | 220,000   |  |                          |   | (29,333  | )   | 
|Trade name                   |  |               | 257,000   |  |                          |   | (33,392  | )   | 
|Totals                       |  | $             | 1,513,400 |  |                          | $ | (136,143 | )   | 



The amortization expense for the three and six months ended
September 30, 2015 was approximately $47,000 and $94,000, respectively. The amortization expense for the three and six months
ended September 30, 2014 was approximately $125,000 and $130,000 respectively.



Future amortization expense is estimated
to be as follows for the period October 1, 2105 to March 31, 2016 and for each of the five following years ending March:



|October 31, 2015 to March 31, 2016 |  | $ | 93,083  | 
|---------------------------------- |  | - | ------- | 
|2017                               |  |   | 185,001 | 
|2018                               |  |   | 146,538 | 
|2019                               |  |   | 114,658 | 
|2020                               |  |   | 39,883  | 
|Total                              |  | $ | 579,163 | 





| | 5. | Accounts Payable and Accrued
Liabilities
| | -- | ----------------------------------------



Accounts payable and accrued liabilities
consisted of the following:





|                          |  | September 30, |           |  | March 31, |  
|------------------------- |  | ------------- | --------- |  | --------- | -
|                          |  | 2015          |           |  | 2015      |  
|Accounts payable          |  | $             | 2,780,757 |  |           | $
|Physician share of MSSP   |  |               | 62,000    |  |           |  
|Accrued compensation      |  |               | 1,732,178 |  |           |  
|Income taxes payable      |  |               | 105,110   |  |           |  
|Accrued interest          |  |               | 105,131   |  |           |  
|Accrued professional fees |  |               | 159,294   |  |           |  
|                          |  | $             | 4,944,470 |  |           | $



18







| | 6. | Notes and Lines of Credit
Payable
| | -- | ---------------------------------



Notes and lines of credit payable consist of the following:



|                                                                                                                                   |  | September 30, |           |  | March 31, |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- |  | --------- | -
|                                                                                                                                   |  | 2015          |           |  | 2015      |  
|Term loan payable to NNA due March 28, 2019, net of debt discount of $217,316 (September 30, 2015) and $1,060,401 (March 31, 2015) |  | $             | 6,187,684 |  |           | $
|Line of credit payable to NNA due March 28, 2019                                                                                   |  |               | 1,000,000 |  |           |  
|Unsecured revolving line of credit due to financial institution due June 5, 2016                                                   |  |               | 94,764    |  |           |  
|                                                                                                                                   |  | $             | 7,282,448 |  |           | $



NNA Credit Agreements





On October 15, 2013, the Company entered
into a $2.0 million secured revolving credit facility (the “Revolving Credit Agreement”) with NNA, an affiliate of
Fresenius Medical Care Holdings, Inc.  On December 20, 2013 the Company entered into the First Amendment to the Credit Agreement
(the “Amended Credit Agreement”), which increased the revolving credit facility from $2 million to $4 million. The
proceeds of the Amended Credit Agreement were used by the Company to repay the $500,000 Note to SpaGus Apollo, LLC, and pay or
repay certain of the Company’s 10% Notes (see Note 7 to the Notes to the Unaudited Condensed Consolidated Financial Statements),
to refinance certain other indebtedness of the Company, and for working capital and general corporate purposes. The Amended Credit
Agreement was refinanced on March 28, 2014 in connection with 2014 NNA financing, as described in more detail immediately below.



Pursuant to the Amended Credit Agreement,
NNA has the right to designate one director and one observer to the Board of Directors; however, as of September 30, 2015, NNA
has not exercised this right.





2014 NNA Financing



On March 28, 2014, the Company entered into
a Credit Agreement (the “Credit Agreement”) pursuant to which NNA, extended to the Company (i) a $1,000,000 revolving
line of credit (the “Revolving Loan”) and (ii) a $7,000,000 term loan (the “Term Loan”). The Company drew
down the full amount of the Revolving Loan on October 23, 2014. The Term Loan and Revolving Loan was to mature on March 28, 2019,
subject to NNA’s right to accelerate payment on the occurrence of certain events. The Term Loan may be prepaid at any time
without penalty or premium. The loans made under the Credit Agreement are secured by substantially all of the Company’s assets,
and are guaranteed by the Company’s subsidiaries and consolidated medical corporations. The guarantees of these subsidiaries
and consolidated entities are in turn secured by substantially all of the assets of the subsidiaries and consolidated entities
providing the guaranty.



Concurrently with the Credit Agreement, the
Company entered into a Pledge and Security Agreement with NNA (the “Pledge and Security Agreement”), whereby all of
the issued and outstanding shares, interests or other equivalents of capital stock of a direct subsidiary of the Company (not including
any entity that carries on the practice of medicine) are considered pledged interests. Pledged interests as of the date of the
Pledge and Security Agreement include 100% of AMM, PCCM, VMM common stock and 72.77% of ApolloMed ACO common stock.





Concurrently with the Credit Agreement,
the Company entered into an Investment Agreement with NNA (the “Investment Agreement”), pursuant to which the Company
issued to NNA an 8% Convertible Note in the original principal amount of $2,000,000 (the “Convertible Note”). The Company
drew down the full principal amount of the Convertible Note on July 30, 2014 (see Note 7). The Convertible Note matures on March
28, 2019, subject to NNA’s right to accelerate payment on the occurrence of certain events. The Company may redeem amounts
outstanding under the Convertible Note on 60 days’ prior notice to NNA. Amounts outstanding under the Convertible Note are
convertible at NNA’s sole election into shares of the Company’s common stock at an initial conversion price of $10.00
per share. The Company’s obligations under the Convertible Note are guaranteed by its subsidiaries and consolidated medical
corporations.





On February 6, 2015, the Company entered
into a First Amendment and Acknowledgement (the “Acknowledgement”) with NNA, Warren Hosseinion, M.D., and Adrian Vazquez,
M.D. The Acknowledgement amended some provisions of, and/or provided waivers in connection with, each of (i) the Registration Rights
Agreement between the Company and NNA, dated March 28, 2014 (the “Registration Rights Agreement”), (ii) the Investment
Agreement, (iii) the NNA Convertible Note, and (iv) the NNA Warrants. The amendments to the Registration Rights Agreement included
amendments with respect to the timing of the filing deadline for a resale registration statement covering the sale of NNA’s
registrable securities.



19







Under the Investment Agreement, the Company issued to NNA warrants
to purchase up to 300,000 shares of the Company’s common stock at an initial exercise price of $10.00 per share and warrants
to purchase up to 200,000 shares of the Company’s common stock at an initial exercise price of $20.00 per share (collectively,
the “Warrants”).



The Company determined the fair value of the proceeds of $9.0
million in part based on the following inputs for the warrant liability: term of 7 years, risk free rate of 2.31%, no dividends,
volatility of 71.4%, share price of $4.50 per share and a 50% probability of down-round financing. The common stock issuance was
recorded at $899,739 (a discount of $1,100,261 to the face amount), the Term Loan was recorded at $5,745,637 (a discount of $1,254,363
to the face amount), and a corresponding warrant liability of $2,354,624 was recorded.



During the three months ended September 30, 2015, management
determined that the valuation of certain derivative instruments entered into on March 28, 2014, was incorrect which resulted in
certain amounts being incorrectly stated in prior periods. Accordingly, the Company recorded an out of period correction in the
current period increasing debt issuance cost and debt discount by $26,117 and $990,838, respectively, and decreasing warrant liability
and financing expense by $999,724 and $35,004, respectively, as of and for the two month period ended March 31, 2014. These out
of period corrections reflect the correct balances of the debt issuance costs, note (net of discount) and warrant liability of
NNA of $176,218, $6,685,402 and $1,354,900, respectively, as of March 31, 2014 (see Note 2 to the Notes to the Unaudited Condensed
Consolidated Financial Statements).



The Term Loan accrues interest at a rate
of 8.0% per annum. A portion of the principal amount of the Term Loan is repaid on the last business day of each calendar quarter,
which provides for quarterly payments of $87,500 in the first year, $122,500 in the second year, $122,500 in the third year, $175,000
in the fourth year, and $210,000 in the fifth year. The Term Loan reflected an original issue discount of $1,305,435 associated
with the issuance of 300,000 warrants to acquire the Company’s common stock (see Note 9 to the Notes to the Unaudited Condensed
Consolidated Financial Statements) and payment of a fee to NNA of $80,000 of which $51,072 was considered a debt discount, $7,998
was recorded to equity, and $20,930 allocated to warrant liability was immediately recorded as interest expense. The discount will
be amortized to interest expense over the expected term of the loan using the effective interest method.



The Revolving Loan bears interest at the
rate of three month LIBOR plus 6.0% per annum. The Company had borrowed $1,000,000 under the Revolving Loan at September 30, 2015
and March 31, 2015. As of September 30, 2015, there are no remaining amounts available to be borrowed under the Revolving Loan.
The Term Loan and Revolving Loan were to mature on March 28, 2019.



The Company incurred $235,119 in third
party costs related to the 2014 NNA financing, which were allocated to the related debt and equity instruments based on their
relative fair values, of which $176,218, as adjusted, after out-of-period correction as discussed in Note 2, was classified as
deferred financing costs which will be deferred and amortized over the life of the loan using the effective interest method.



The Credit Agreement and the Convertible Note provide for certain
financial covenants. On February 16, 2015, the Company and NNA agreed to amend the tangible net worth covenant computation.



In addition, the Credit Agreement and the Convertible Note
include: (1) certain negative covenants that, subject to exceptions, limit the Company’s ability to, among other things,
incur additional indebtedness, engage in future mergers, consolidations, liquidations and dissolutions, sell assets, pay dividends
and distributions on or repurchase capital stock, and enter into or amend other material agreements; and (2) certain customary
representations and warranties, affirmative covenants and events of default, which are set forth in more detail in the 2014 NNA
financing credit agreement and Convertible Note.



20











On July 7, 2015, the Company entered into
an Amendment to First Amendment and Acknowledgement (the “New Amendment”) with NNA. The New Amendment amended the Acknowledgement
and included an extension until October 15, 2015 of a deadline previously contemplated by the Acknowledgement, for the Company
to file a registration statement covering the sale of NNA’s registrable securities.



On August 18, 2015, the Company entered
into a Waiver and Consent (“Waiver”) with NNA, pursuant to which NNA waived and consented to certain provisions of
the Credit Agreement, and the Convertible Note.  The Waiver was granted by NNA until October 15, 2015. The company failed
to comply with certain financial covenants as of September 30, 2015 and did not seek a further waiver from NNA. NNA did not declare
a default and the loan was repaid from the proceeds of the financing with NMM on October 15, 2015. Since non-compliance with the
financial covenants provided for therein existed for the quarter ending September 30, 2015, all debt has been classified as current
as of September 30, 2015.



On October 14, 2015, the Company entered
into an Agreement with NMM pursuant to which the Company sold to NMM 1,111,111 units, each unit consisting of one share of Series
A Convertible Preferred Stock (the “Preferred Stock”) and one stock purchase warrant, for a total purchase price of
$10,000,000, the proceeds of which were used by the Company primarily to repay certain outstanding indebtedness owed by the Company
to NNA. (See Note 11 to the Notes to the Unaudited Condensed Consolidated Financial Statements).



Unsecured revolving line of credit



Included in “Notes and lines of credit
payable” in the accompanying consolidated balance sheet is a $100,000 revolving line of credit with MUFG Union Bank, N.A.,
of which $94,764 was outstanding at September 30, 2015 and March 31, 2015. Borrowings under the line of credit bear interest at
the prime rate (as defined) plus 4.50% (7.75% per annum at September 30, 2015 and at March 31, 2015), interest only is payable
monthly, and the line of credit matures June 5, 2016. The line of credit is unsecured.



Other lines of credit







LALC has a line of credit of $230,000 with
JPMorgan Chase Bank, N.A. as of September 30, 2015. The Company has not borrowed any amount under this line of credit as of September
30, 2015 and March 31, 2015.



BAHA has a line of credit of $150,000 with
First Republic Bank as of September 30, 2015. The Company has not borrowed any amount under this line of credit as of September
30, 2015 and March 31, 2015. The line of credit is subject to renewal on April 27, 2016.





21







Interest expense associated with the notes and lines of credit
payable consisted of the following:



|                                       |  | Three Months Ended September 30, |          |   | Six Months Ended September 30, |  
|-------------------------------------- |  | -------------------------------- | -------- | - | ------------------------------ | -
|                                       |  | 2015                             |          |   | 2014                           |  
|Interest expense                       |  | $                                | 149,070  |   |                                | $
|Amortization of loan fees and discount |  |                                  | 30,531   |   |                                |  
|Out of period adjustment               |  |                                  | (250,453 | ) |                                |  
|                                       |  | $                                | (70,852  | ) |                                | $



| | 7. | Convertible Notes Payable
| | -- | -------------------------



Convertible notes payable consist of the following:



|                                                                                                                                                               |  | September 30, |           |  | March 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- |  | --------- | -
|                                                                                                                                                               |  | 2015          |           |  | 2015      |  
|9% Senior Subordinated Convertible Notes due February 15, 2016, net of debt discount of $24,770 (September 30, 2015) and $62,182 (March 31, 2015)              |  | $             | 1,075,230 |  |           | $
|8% Senior Subordinated Convertible Note Payable to NNA due March 28, 2019, net of debt discount of $913,904 (September 30, 2015) and $985,255 (March 31, 2015) |  |               | 1,086,096 |  |           |  
|Conversion feature liability                                                                                                                                   |  |               | 388,150   |  |           |  
|                                                                                                                                                               |  | $             | 2,549,476 |  |           | $



9% Senior Subordinated Callable Convertible Promissory Notes
due February 15, 2016



The 9% Notes, issued January 31, 2013, bear
interest at a rate of 9% per annum, payable semi-annually on August 15 and February 15, and mature February 15, 2016, and are subordinated.
The principal of the 9% Notes, plus any accrued yet unpaid interest, is convertible, at any time by the holder at a conversion
price of $4.00 per share, subject to adjustment for stock splits, stock dividends and reverse stock splits, into shares of the
Company’s common stock. On 60 days’ prior notice, the 9% Notes are callable in full or in part by the Company at any
time after January 31, 2015. If the Average Daily Value of Trades (“ADVT”) during the prior 90 days as reported by
Bloomberg is greater than $100,000, the 9% Notes are callable at a price of 105% of the 9% Notes’ par value, and if the ADVT
is less than $100,000, the 9% Notes are callable at a price of 110% of the 9% Notes’ par value.





In connection with the issuance of the 9% Notes,
the holders of the 9% Notes received warrants to purchase 66,000 shares of the Company’s common stock at an exercise price
of $4.50 per share, subject to adjustment for stock splits, reverse stock splits and stock dividends, which warrants are exercisable
at any date prior to January 31, 2018, and were classified in equity. The $186,897 fair value of the 9% Notes warrants was based
on the Company’s closing stock price at the transaction date and inputs to the Black-Scholes option pricing model: term of
5.0 years, risk free rate of 0.70%, and volatility of 36.7%.



8% Convertible Note Payable to NNA



The NNA 8% Convertible Note commitment
provided for the Company to borrow up to $2,000,000. On July 31, 2014, the Company exercised its option to borrow $2,000,000,
received $2,000,000 of proceeds and recorded a debt discount of $1,065,775 related to the fair value of a conversion feature liability
and a warrant liability discussed below. Borrowings bear interest at the rate of 8.0 % per annum payable semi-annually, are due
March 28, 2019, and are convertible into shares of the Company’s common stock at an initial exercise price of $10.00 per
share, subject to adjustment for stock splits, stock dividends and reverse stock splits. The conversion price is also subject
to adjustment in the event of subsequent down-round equity financings, if any, by the Company. The conversion feature included
a non-standard anti-dilution feature that has been bifurcated and recorded as a conversion feature liability at the issuance date
of $578,155. The fair value of the conversion feature liability issued in connection with the 8% Convertible Note at September
30, 2015 was estimated using the Monte Carlo valuation model which used the following inputs: term of 3.7 years, risk free rate
of 1.3%, no dividends, volatility of 48.6%, share price of $6.90 per share based on the trading price of the Company’s common
stock adjusted for a marketability discount, and a 100% probability of down-round financing. In addition the Company was required
to issue 100,000 warrants to NNA with an initial exercise price of $10.00 per share, subject to adjustment for stock splits, stock
dividends and reverse stock splits. The conversion price will also be subject to adjustment in the event of subsequent down-round
financings, if any, by the Company. The fair value of the warrant liability related to 100,000 common shares issuable in connection
with the 8% Convertible Note as of September 30, 2015 was estimated using the Monte Carlo valuation model which used the following
inputs: term of 5.7 years, risk free rate of 1.8%, no dividends, volatility of 57.6%, share price of $6.90 per share based on
the trading price of the Company’s common stock adjusted for a marketability discount, and a 100% probability of down-round
financing.



22













From the proceeds of the transactions with
NMM (see Note 11 to the Notes to the Condensed Consolidated Financial Statements) on October 15, 2015, the Company repaid its outstanding
term loan and revolving credit facility with NNA pursuant to the Credit Agreement in the then-outstanding aggregate amount of $7,304,506,
consisting of $7,282,500 principal plus $22,006 of accrued interest.



Additionally, NNA has agreed in principle
to convert the Convertible Note and exercise all of its related Warrants (See Note 11 to the Notes to the Unaudited Condensed
Consolidated Financial Statements).



Interest expense associated with the convertible
notes payable consisted of the following:



|                                       |  | Three Months Ended September 30, |         |  | Six Months Ended September 30, |  
|-------------------------------------- |  | -------------------------------- | ------- |  | ------------------------------ | -
|                                       |  | 2015                             |         |  | 2014                           |  
|Interest expense                       |  | $                                | 66,102  |  |                                | $
|Amortization of loan fees and discount |  |                                  | 73,568  |  |                                |  
|                                       |  | $                                | 139,670 |  |                                | $



| | 8. | Income Taxes
| | -- | ------------



Deferred income taxes are provided on a
liability method whereby deferred tax assets and liabilities are recognized for temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment. Significant management judgment is required in determining the Company’s provision for income taxes
and the recoverability of the Company’s deferred tax assets. Such determination is based primarily on the Company’s
historical taxable income, with some consideration given to the Company’s estimates of future taxable income by jurisdictions
in which the Company operates and the period over which the Company’s deferred tax assets will be recoverable. Due to overall
cumulative losses incurred in recent years, the Company maintained a full valuation allowance against its deferred tax assets as
of September 30, 2015 and March 31, 2015. The Company is subject to U.S. federal income tax, as well as California state tax.



ASC No. 740 addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740, the Company
may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized
in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. ASC No. 740 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods and disclosure requirements. The Company and its subsidiaries are currently open
to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2011 and later. The
Company’s state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2010
and later. The Company does not anticipate any material unrecognized tax benefits within the next twelve months.



23







| | 9. | Stockholders’ Equity
| | -- | --------------------



Equity Incentive Plans



The Company’s amended 2010 Equity Incentive
Plan (the “2010 Plan”) allowed the Board to grant up to 1,200,000 shares of the Company’s common stock, and provided
for awards including incentive stock options, non-qualified options, restricted common stock, and stock appreciation rights. As
of September 30, 2015, there were no shares available for grant under the 2010 Plan.



On April 29, 2013 the Company’s Board
of Directors approved the Company’s 2013 Equity Incentive Plan (the “2013 Plan”), pursuant to which 500,000 shares
of the Company’s common stock were reserved for issuance thereunder and provides for awards, including incentive stock options,
non-qualified options, restricted common stock, and stock appreciation rights. The Company received approval of the 2013 Plan from
the Company’s stockholders on May 19, 2013. As of September 30, 2015 there were approximately 90,000 shares available for
future grants under the 2013 Plan.





24







Share Issuances



A summary of the Company’s
restricted stock sold to employees, directors and consultants with a right of repurchase of unlapsed or unvested shares is as
follows:





|                                                  |  |        |         |   | WeightedAverageRemainingVesting |  |     | WeightedAveragePer Share |  |   | Weighted-averagePer Share | 
|------------------------------------------------- |  | ------ | ------- | - | ------------------------------- |  | --- | ------------------------ |  | - | ------------------------- | 
|                                                  |  |        |         |   | Life                            |  |     | Intrinsic                |  |   | Grant Date                | 
|                                                  |  | Shares |         |   | (In years)                      |  |     | Value                    |  |   | Fair Value                | 
|Unvested or unlapsed shares at March 31, 2015     |  |        | 12,222  |   |                                 |  | 0.3 |                          |  | $ | 0.50                      | 
|Granted                                           |  |        | -       |   |                                 |  |     |                          |  |   |                           | 
|Vested / lapsed                                   |  |        | (12,222 | ) |                                 |  | -   |                          |  |   |                           | 
|Forfeited                                         |  |        | -       |   |                                 |  | -   |                          |  |   | -                         | 
|Unvested or unlapsed shares at September 30, 2015 |  |        | -       |   |                                 |  | -   |                          |  |   | -                         | 





Options



Stock option activity for the six months
ended September 30, 2015 is summarized below:





|                                           |  | Shares |         |  | WeightedAveragePer ShareExercisePrice |   |      | WeightedAverageRemainingLife(Years) |  |  | WeightedAveragePer ShareIntrinsicValue | 
|------------------------------------------ |  | ------ | ------- |  | ------------------------------------- | - | ---- | ----------------------------------- |  |  | -------------------------------------- | 
|Balance, March 31, 2015                    |  |        | 776,500 |  |                                       | $ | 4.69 |                                     |  |  | 7.4                                    | 
|Granted                                    |  |        | -       |  |                                       |   |      |                                     |  |  |                                        | 
|Cancelled                                  |  |        | -       |  |                                       |   |      |                                     |  |  |                                        | 
|Exercised                                  |  |        | -       |  |                                       |   |      |                                     |  |  |                                        | 
|Expired                                    |  |        | -       |  |                                       |   |      |                                     |  |  |                                        | 
|Forfeited                                  |  |        | -       |  |                                       |   |      |                                     |  |  |                                        | 
|Balance, September 30, 2015                |  |        | 776,500 |  |                                       | $ | 3.27 |                                     |  |  | 7.4                                    | 
|Vested and exercisable, September 30, 2015 |  |        | 692,556 |  |                                       | $ | 2.55 |                                     |  |  | 7.2                                    | 





ApolloMed ACO 2012 Equity Incentive Plan





On October 18, 2012, ApolloMed ACO’s Board
of Directors adopted the ApolloMed Accountable Care Organization, Inc. 2012 Equity Incentive Plan (the “ACO Plan”)
and reserved 9,000,000 shares of ApolloMed ACO’s common stock for issuance thereunder and provides for awards, including
incentive stock options, non-qualified options, restricted common stock, and stock appreciation rights. The purpose of the ACO
Plan is to encourage selected employees, directors, consultants and advisers to improve operations and increase the profitability
of ApolloMed ACO and encourage selected employees, directors, consultants and advisers to accept or continue employment or association
with ApolloMed ACO.



The following table summarizes
the stock awards under the ACO Plan during the six months ended September 30, 2015:





|                                      |  | Shares |           |  | WeightedAverageRemainingVestingLife(Years) |  |     | WeightedAveragePer ShareIntrinsicValue |  |   | WeightedAveragePer ShareFair Value | 
|------------------------------------- |  | ------ | --------- |  | ------------------------------------------ |  | --- | -------------------------------------- |  | - | ---------------------------------- | 
|Balance, March 31, 2015               |  |        | 3,752,004 |  |                                            |  | 0.1 |                                        |  | $ | 0.70                               | 
|Granted                               |  |        | -         |  |                                            |  | -   |                                        |  |   | -                                  | 
|Released                              |  |        | -         |  |                                            |  | -   |                                        |  |   | -                                  | 
|Balance, September 30, 2015           |  |        | 3,752,004 |  |                                            |  | -   |                                        |  | $ | 0.70                               | 
|Vested and exercisable, end of period |  |        | 3,712,675 |  |                                            |  |     |                                        |  |   |                                    | 





Awards of restricted stock under the ACO Plan vest (i) one-third
on the date of grant; (ii) one-third on the first anniversary of the date of grant, if the grantee has remained in service continuously
until that date; and (iii) one-third on the second anniversary of the date of grant if the grantee has remained in service continuously
until that date.



25







As of September 30, 2015, total unrecognized
compensation costs related to non-vested stock-based compensation arrangements granted under the Company’s 2010 Plan and
2013 Plan, and the ACO Plan’s and the weighted-average period of years expected to recognize those costs are as follows:





|                          |  | UnrecognizedStockCompensationCost |         |  | WeightedAverageRemainingVesting Period(Years) | 
|------------------------- |  | --------------------------------- | ------- |  | --------------------------------------------- | 
|Common stock options      |  | $                                 | 155,393 |  |                                               | 
|Restricted stock          |  | $                                 | -       |  |                                               | 
|ACO Plan restricted stock |  | $                                 | 76      |  |                                               | 





Stock-based compensation expense related to common stock and
common stock option awards is recognized over their respective vesting periods and was included in the accompanying condensed
consolidated statement of operations as follows:





|                                  |  | Three Months Ended September 30, |        |  | Six Months Ended September 30, |  
|--------------------------------- |  | -------------------------------- | ------ |  | ------------------------------ | -
|                                  |  | 2015                             |        |  | 2014                           |  
|Stock-based compensation expense: |  |                                  |        |  |                                |  
|Cost of services                  |  | $                                | 1,227  |  |                                | $
|General and administrative        |  |                                  | 67,659 |  |                                |  
|                                  |  | $                                | 68,886 |  |                                | $



Warrants



Warrants consisted of the following for the six months ended
September 30, 2015:





|                                  |  | WeightedAveragePer Share |      |  |           | 
|--------------------------------- |  | ------------------------ | ---- |  | --------- | 
|                                  |  | Intrinsic                |      |  | Number of | 
|                                  |  | Value                    |      |  | Warrants  | 
|Outstanding at March 31, 2015     |  | $                        | 0.46 |  |           | 
|Granted                           |  |                          | -    |  |           | 
|Exercised                         |  |                          | -    |  |           | 
|Cancelled                         |  |                          | -    |  |           | 
|Outstanding at September 30, 2015 |  | $                        | 0.32 |  |           | 





26









|                        |       |  |                     |  |         |                                   |  |  |                     |  |  | Weighted                |        
|----------------------- | ----- |  | ------------------- |  | ------- | --------------------------------- |  |  | ------------------- |  |  | ----------------------- | -------
|                        |       |  |                     |  |         | Weighted                          |  |  |                     |  |  | Average                 |        
|Exercise Price PerShare |       |  | WarrantsOutstanding |  |         | Average RemainingContractual Life |  |  | WarrantsExercisable |  |  | Exercise Price PerShare |        
|$                       | 1.15  |  |                     |  | 125,000 |                                   |  |  | 0.8                 |  |  |                         | 125,000
|                        | 1.15  |  |                     |  | 25,000  |                                   |  |  | 0.8                 |  |  |                         | 25,000 
|                        | 4.50  |  |                     |  | 50,000  |                                   |  |  | 0.8                 |  |  |                         | 50,000 
|                        | 5.00  |  |                     |  | 10,000  |                                   |  |  | 2.1                 |  |  |                         | 10,000 
|                        | 4.50  |  |                     |  | 82,500  |                                   |  |  | 2.3                 |  |  |                         | 82,500 
|                        | 4.00  |  |                     |  | 22,000  |                                   |  |  | 2.3                 |  |  |                         | 22,000 
|                        | 10.00 |  |                     |  | 200,000 |                                   |  |  | 5.5                 |  |  |                         | -      
|                        | 20.00 |  |                     |  | 200,000 |                                   |  |  | 5.5                 |  |  |                         | -      
|                        | 10.00 |  |                     |  | 100,000 |                                   |  |  | 5.5                 |  |  |                         | -      
|                        | 10.00 |  |                     |  | 100,000 |                                   |  |  | 2.8                 |  |  |                         | 100,000
|                        |       |  |                     |  | 914,500 |                                   |  |  | 3.8                 |  |  |                         | 414,500





In connection with the 2014 NNA financing,
NNA received warrants to purchase up to 300,000 shares of the Company’s common stock at an initial exercise price of $10.00
per share and up to 200,000 shares at an initial exercise price of $20.00 per share, subject to adjustment for stock splits, reverse
stock splits and stock dividends, and are exercisable after March 28, 2017 and before March 28, 2021. The warrants also contain
down-round protection under which the exercise price of the warrants is subject to adjustment in the event the Company issues future
common shares at a price below $9.00 per share. The Company determined that the warrants should be classified as liabilities under
ASC 815-40, which requires the Company to determine the fair value of the warrants at the transaction date and at each subsequent
reporting date (see Notes 2, 6 and 11 to the Notes to the Condensed Consolidated Financial Statements).



On July 21, 2014, in connection with the SCHC
acquisition, the Company issued warrants to purchase up to 100,000 shares of the Company’s common stock at an exercise price
of $10.00 per share. The warrants are exercisable at any time prior to July 21, 2018.



Authorized stock





At September 30, 2015 the Company is authorized
to issue up to 100,000,000 shares of common stock pursuant to its Certificate of Incorporation, as amended. The Company is required
to reserve and keep available out of the authorized but unissued shares of common stock such number of shares sufficient to effect
the conversion of all outstanding shares of the 9% Notes, the exercise of all outstanding warrants exercisable into shares of common
stock, and shares granted and available for grant under the Company’s 2013 Plan. The number of shares of common stock reserved
for these purposes is as follows at September 30, 2015:





|Common stock issued and outstanding       |  |  | 4,863,389 | 
|----------------------------------------- |  |  | --------- | 
|Conversion of 9% Notes                    |  |  | 275,000   | 
|Conversion of 8% Notes                    |  |  | 200,000   | 
|Warrants outstanding                      |  |  | 914,500   | 
|Stock options outstanding                 |  |  | 776,500   | 
|Remaining shares issuable under 2013 Plan |  |  | 90,000    | 
|                                          |  |  | 7,119,389 | 



| | 10. | Commitments
                                         and Contingencies
| | --- | ----------------------------------------------------------------------



Regulatory Matters



Laws and regulations governing the Medicare and Medicaid programs
are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future government review
and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid
programs. The Company believes that it is in compliance with all applicable laws and regulations.



Legal



On May 16, 2014, Lakeside Medical Group, Inc. and Regal Medical
Group, Inc., two independent physician associations who compete with the Company in the greater Los Angeles area, filed an action
against the Company and two affiliates of the Company, MMG and AMEH, in Los Angeles County Superior Court. The complaint alleged
that the Company and its two affiliates made misrepresentations and engaged in other acts in order to improperly solicit physicians
and patient-enrollees from Plaintiffs. The Complaint sought compensatory and punitive damages. On June 30, 2014, the Company and
its affiliates filed a motion requesting the Court to stay the court proceeding and order the parties to arbitrate this dispute
subject to existing arbitration agreements. On August 11, 2014, the Plaintiffs filed a request for dismissal without prejudice
of the action. On August 12, 2014, the Plaintiffs served the Company and its affiliates with Demands for Arbitration before Judicial
Arbitration Mediation Services in Los Angeles. The Company is currently examining the merits of the claims to be arbitrated, and
it is too early to state whether the likelihood of an unfavorable outcome is probable or remote, or to estimate the potential
loss if the outcome should be negative. The Company is aware that punitive damages previously sought in the court proceeding are
not available in arbitration. The Company and its affiliates are preparing a defense to the allegations and the Company intends
to vigorously defend the action.





27







On August 28, 2014, Lakeside Medical Group,
Inc. and Regal Medical Group, Inc., filed a similar lawsuit against Warren Hosseinion M.D., the Company’s Chief Executive
Officer. Dr. Hosseinion is defending the action and is currently being indemnified by the Company pursuant to the terms of an indemnification
agreement and the Company’s Certificate of Incorporation, as amended. The Company also has an existing Directors and Officers
insurance policy. On September 9, 2014, Dr. Hosseinion filed a motion requesting the Court to stay the court proceeding and, pursuant
to existing arbitration agreements, order the parties to arbitrate the dispute as part of the pending arbitration proceedings before
JAMS (as discussed above). On October 29, 2014, the Plaintiffs filed a request for dismissal without prejudice of the action. On
November 13, 2014, Plaintiffs served Dr. Hosseinion with Demands for Arbitration before JAMS in Los Angeles, and on November 19,
2014, the parties agreed to consolidate the two proceedings against Dr. Hosseinion with the two existing proceedings against the
Company and its affiliates. The Company continues to examine the merits of the claims to be arbitrated against Dr. Hosseinion,
and it is too early to state whether the likelihood of an unfavorable outcome is probable or remote, or to estimate the potential
loss if the outcome should be negative. The Company is aware that punitive damages previously sought in the court proceeding against
Dr. Hosseinion are not available in arbitration.



The parties involved in the proceedings described
above are currently in mediation.



In the ordinary course of the Company’s
business, the Company becomes involved in pending and threatened legal actions and proceedings, most of which involve claims of
medical malpractice related to medical services provided by the Company’s affiliated physicians. The Company believes, based
upon the Company’s review of pending actions and proceedings, that the outcome of such legal actions and proceedings will
not have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.
The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or
more of them, or any other claims that may be asserted against the Company from time to time, could have a material adverse effect
on the Company’s business, financial condition, results of operations, or cash flows in a future period.



Liability Insurance



The Company believes that the Company’s
insurance coverage is appropriate based upon the Company’s claims experience and the nature and risks of the Company’s
business. In addition to the known incidents that have resulted in the assertion of claims, the Company cannot be certain that
the Company’s insurance coverage will be adequate to cover liabilities arising out of claims asserted against the Company,
the Company’s affiliated professional organizations or the Company’s affiliated hospitalists in the future where the
outcomes of such claims are unfavorable. The Company believes that the ultimate resolution of all pending claims, including liabilities
in excess of the Company’s insurance coverage, will not have a material adverse effect on the Company’s financial position,
results of operations or cash flows; however, there can be no assurance that future claims will not have such a material adverse
effect on the Company’s business.



Although the Company currently maintains liability
insurance policies on a claims-made basis, which are intended to cover malpractice liability and certain other claims, the coverage
must be renewed annually, and may not continue to be available to the Company in future years at acceptable costs, and on favorable
terms. The Company believes that its malpractice coverage is adequate and standard for the industry.



28









| | 11. | Subsequent
                                         Events
| | --- | ----------------------------------------------------------



Securities Purchase Agreement



On October 14, 2015, Company entered into
the Agreement with NMM pursuant to which the Company sold to NMM, and NMM purchased from the Company, in a private offering of
securities, 1,111,111 units, each unit consisting of one share of the Company’s Preferred Stock and a stock purchase warrant
to purchase one share of the Company’s common stock at an exercise price of $9.00 per share. NMM paid the Company an aggregate
$10,000,000 for the Units, the proceeds of which were used by the Company primarily to repay certain outstanding indebtedness owed
by the Company to NNA and the balance for working capital.



The Preferred Stock has a liquidation preference in the amount
of $9.00 per share plus any declared and unpaid dividends. The Preferred Stock can be voted for the number of shares of Common
Stock into which the Preferred Stock could then be converted, which initially is one-for-one.



The Preferred Stock is convertible into Common Stock, at the
option of NMM, at any time after issuance at an initial conversion rate of one-for-one, subject to adjustment in the event of
stock dividends, stock splits and certain other similar transactions.



At any time prior to conversion and through the Redemption
Expiration Date, the Preferred Stock may be redeemed at the option of NMM, on one occasion, in the event that the Company’s
net revenues for the four quarters ending September 30, 2016, as reported in its periodic filings under the Securities Exchange
Act of 1934, as amended, are less than $60,000,000. In such event, the Company shall have up to one year from the date of the
notice of redemption by NMM to redeem the Preferred Stock, the Warrants and any shares of Common Stock issued in connection with
the exercise of any Warrants theretofore (collectively the “Redeemed Securities”), for the aggregate price paid therefor
by NMM, together with interest at a rate of 10% per annum from the date of the notice of redemption until the closing of the redemption.
Any mandatory conversion described in the previous paragraph shall not take place until such time as it is determined that that
conditions for the redemption of the Redeemed Securities have not been satisfied or, if such conditions exist, NMM has decided
not to have such securities redeemed.



The Warrants may be exercised at any time after issuance and
through October 14, 2020, for $9.00 per share, subject to adjustment in the event of stock dividends and stock splits. The Warrants
are not separately transferable from the Preferred Stock. The Warrants are subject to redemption in the event the Preferred Stock
is redeemed by NMM, as described above.



Pursuant to the Agreement, NMM has the right to designate to
the Nominating/Corporate Governance Committee of the Board of Directors one person to be nominated as a director of the Company.
Prior to the time of such appointment or election, one person designated by the Purchaser shall have observer status, without
a vote, on the Board of Directors.



Without the written consent of NMM, between
the Closing Date and the six month anniversary of the Closing Date, the Company shall not acquire, sell all or substantially all
of its assets to, effect a change of control, or merge, combine or consolidate with, any other Person engaged in the business of
being a MSO, ACO or IPA, or enter into any agreement with respect to any of the foregoing.



29







The securities were sold by the Company to NMM in reliance
upon the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506(b)
of Regulation D promulgated by the Securities and Exchange Commission thereunder.



Series A Convertible Preferred Stock



On October 15, 2015, the Company filed a
Certificate of Designation of Series A Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary
of State of the State of Delaware, in connection with the creation of the Preferred Stock sold to NMM on October 14, 2015.



NNA Term Loan, Revolving Credit Facility and Convertible
Note





In connection with the transactions with
NMM described above on October 15, 2015, the Company repaid, from the proceeds of the sale of the securities therein described,
its outstanding term loan and revolving credit facility with NNA pursuant to a Credit Agreement dated March 28, 2014 between the
Company and NNA in the aggregate amount of $7,304,506, consisting of principal of $7,282,500 plus $22,006 of accrued interest.







Additionally, NNA has agreed in principle
to convert the Company’s Convertible Note dated March 28, 2014 in the principal amount of $2,000,000 into 275,000 shares
of the Company’s Common Stock and exercise all of its related Common Stock Purchase Warrants dated March 28, 2014 into 325,000
shares of the Company’s Common Stock on a cashless basis. Assuming the foregoing transactions are consummated, the Company
will receive no proceeds from NNA and it will have no further indebtedness owed to NNA. The Company currently anticipates that
these transactions will be completed during the third quarter of fiscal 2016.



Amended Bylaws and Appointment of Certain Officers



On October 12, 2015, the Board of Directors of the Company
amended Section 3.1 of the Company’s Restated Bylaws to provide that the authorized number of directors shall be fixed from
time to time by the board of directors, provided that the authorized number of directors shall not be less than one.



On October 12, 2015, Warren Hosseinion, M.D. was appointed
by the Board of Directors to serve as the Secretary of Apollo Medical Holdings, Inc. effective immediately, to fill the vacancy
created by the previous resignation of Mitchell Creem from all positions he held with the Company.



Office Move



In connection with the Company’s amended lease agreement dated October 14, 2014, the Company relocated
its headquarters to a larger suite in its current office building in October 2015. The Second Amendment relocates the leased premises
from Suite No. 220 to Suite Nos. 1400, 1425 and 1450, which collectively include 16,484 rentable square feet (the “New Premises”).
The New Premises will be improved with an allowance of up to $659,360, provided by the Landlord, for construction and installation
of equipment for the New Premises. Before the improved New Premises are available, the Company shall also use Suite No. 240 on
a temporary basis. The Second Amendment also extends the term of the lease to be for approximately six years after the Company
begins operations in the New Premises and increases the Company’s initial security deposit. The Second Amendment sets the
New Premises base rent at $37,913 per month for the first year and schedules annual increases in base rent each year until the
final rental year, which is capped at $43,957 per month. However, the base rent will be abated by up to $228,049 subject to other
terms of the lease.



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/A for the year ended March 31, 2015, filed with the SEC on July 29, 2015.



In
this Quarterly Report, unless otherwise expressly stated or the context otherwise requires, “ApolloMed,” “we,”
“us” and “our” refer to Apollo Medical Holdings, Inc., a Delaware corporation, its subsidiaries and
its consolidated affiliates.  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. 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.



30







Overview



We are are a patient-centered, physician-centric,
integrated healthcare delivery company, working to provide coordinated, outcomes-based medical care in a cost-effective manner.
We have built a company and culture that is focused on physicians providing high quality care, population management and care coordination
for patients, particularly for senior patients and patients with multiple chronic conditions. We believe that we are well-positioned
to take advantage of changes in the U.S. healthcare industry as there is a growing national movement towards more results-oriented
healthcare centered on the triple aim of patient satisfaction, high-quality care and cost efficiency.



We operate in one reportable segment, the healthcare delivery
segment, and implement and operate innovative health care models to create a patient-centered, physician-centric experience. Accordingly,
we report our consolidated financial statements in the aggregate, including all of our activities in one reportable segment. We
have the following integrated, synergistic operations:



| | · | Hospitalists, which includes our contracted
    physicians who focus on the delivery of comprehensive medical care to hospitalized patients;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | An ACO, which focuses on the provision of high-quality
    and cost-efficient care to Medicare FFS patients;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | Two IPAs, which contract with physicians and
    provide care to Medicare, Medicaid, commercial and dual eligible patients on fee-for-service or risk and value based fee bases;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Clinics, which provide primary care and specialty
    care in the Greater Los Angeles area; and
| | - | -----------------------------------------------------------------------------------------------



| | · | Palliative care, home health and hospice services,
    which include, our at-home, pain management and final stages of life services.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



Our revenue streams are diversified among our various operations
and contract types, and include:



| | · | Traditional fee-for-service reimbursement,
    which is the primary revenue source for our clinics; and
| | - | -------------------------------------------------------------------------------------------------------



| | · | Risk and value-based contracts with health
    plans, IPAs, hospitals and the CMS’s MSSP, which are the primary revenue sources for our hospitalists, ACO, IPAs and
    palliative care operations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





We serve Medicare, Medicaid, HMO and uninsured patients in
California. We primarily provide services to patients that are covered by private or public insurance, although we do derive a
small portion of our revenue from non-insured patients. We provide care coordination services to each major constituent of the
healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative
sites of inpatient care, physician groups and health plans.



31







Our mission is to transform the delivery of healthcare services
in the communities we serve by implementing innovative population health models and creating a patient-centered, physician-centric
experience in a high performance environment of integrated care.



The original business owned by ApolloMed
was AMH, a hospitalist company, which was incorporated in California in June, 2001 and which began operations at Glendale Memorial
Hospital. Through a reverse merger, ApolloMed became a publicly held company in June 2008. ApolloMed was initially organized around
the admission and care of patients at inpatient facilities such as hospitals. We have grown our inpatient strategy in a competitive
market by providing high-quality care and innovative solutions for our hospital and managed care clients. In 2012, we formed an
ACO, ApolloMed ACO, and an IPA, MMG, and in 2013 we expanded our service offering to include integrated inpatient and outpatient
services through MMG. In 2014, we added several complementary operations by acquiring an IPA and outpatient primary care and specialty
clinics, as well as hospice/palliative care and home health entities.



Our physician network consists of hospitalists,
primary care physicians and specialist physicians primarily through our owned and affiliated physician groups. We operate through
the following subsidiaries: AMM, PCCM, VMM and ApolloMed ACO. Through our wholly-owned subsidiary, AMM, we manage affiliated medical
groups, which consist of AMH, ACC, MMG, AKM, SCHC, and BAHA. Through our wholly-owned subsidiary, PCCM, we manage LALC, and through
our wholly-owned subsidiary VMM, we manage Hendel. We also have a controlling interest in APS, which owns two Los Angeles-based
companies, Best Choice Hospice Care LLC and Holistic Health Home Health Care Inc. AMM, PCCM and VMM each operate as a physician
practice management company and are in the business of providing management services to physician practice corporations under long-term
management service agreements. Our ACO participates in the MSSP, the goal of which is to improve the quality of patient care and
outcomes through more efficient and coordinated approach among providers. Revenues earned by ApolloMed ACO are uncertain,
and, if such amounts are payable, they will be paid on an annual basis significantly after the time earned, and will be contingent
on various factors, including achievement of the minimum savings rate as determined by MSSP for the relevant period.



Highlights



Our recent financial highlights, as more fully discussed below,
include that for the three and six months ended September 30, 2015 (unaudited), we had:



For the three months ended September 30, 2015



| | · | Net revenue of $11.4 million, a decrease of 2.5% from $11.7 million for the three months ended September 30, 2014 which net revenue consisted of approximately $3.8 million from our hospitalists, approximately $4.4 million from our IPAs, approximately $1.6 million from our clinics, and $1.6 million from our palliative care services; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Generated loss from operations of $0.4 million, a decrease of 122.2% compared to income from operations of $1.9 million in the comparable period of 2014.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



For the six months ended September 30, 2015



| | · | Net revenue of $21.6 million, an increase of 36.9% from $15.8 million for the six months ended September 30, 2014 which net revenue consisted of approximately $7.6 million from our hospitalists, approximately $7.5 million from our IPAs, approximately $3.4 million from our clinics, and $3.1 million from our palliative care services; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Generated loss from operations of $2.1 million, a decrease of 409.2% compared to income from operations of $0.7 million in the comparable period of 2014.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



Although we exceeded our total benchmark
expenditures for 2014, generating $3.9 million in total savings and achieving an ACO Quality Score of 90.4% on its Quality Performance
Report, CMS has determined that we did not meet the minimum savings threshold and therefore will not receive the all or nothing
annual incentive payment in fiscal 2016.



32







Results of Operations



The following sets forth selected data from of our results of operations for the periods presented:



|                                                                |  | Three Months Ended September 30, |            |   | Six Months Ended September 30, |  
|--------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------ | -
|                                                                |  |                                  |            |   |                                |  
|                                                                |  | 2015                             |            |   | 2014                           |  
|Net revenues                                                    |  | $                                | 11,369,607 |   |                                | $
|                                                                |  |                                  |            |   |                                |  
|Costs and expenses                                              |  |                                  |            |   |                                |  
|Cost of services                                                |  |                                  | 8,264,189  |   |                                |  
|General and administrative                                      |  |                                  | 3,440,641  |   |                                |  
|Depreciation and amortization                                   |  |                                  | 77,684     |   |                                |  
|Total costs and expenses                                        |  |                                  | 11,782,514 |   |                                |  
|                                                                |  |                                  |            |   |                                |  
|(Loss) income from operations                                   |  |                                  | (412,907   | ) |                                |  
|                                                                |  |                                  |            |   |                                |  
|Other (expense) income                                          |  |                                  |            |   |                                |  
|Interest expense                                                |  |                                  | (68,818    | ) |                                |  
|(Loss) gain on change in fair                                   |  |                                  |            |   |                                |  
|value of warrant and conversion feature liabilities             |  |                                  | 96,852     |   |                                |  
|Other                                                           |  |                                  | (95,092    | ) |                                |  
|Total other expense                                             |  |                                  | (67,058    | ) |                                |  
|                                                                |  |                                  |            |   |                                |  
|(Loss) income before provision for income taxes                 |  |                                  | (479,965   | ) |                                |  
|Income tax (benefit) provision                                  |  |                                  | (186,138   | ) |                                |  
|Net loss                                                        |  |                                  | (293,827   | ) |                                |  
|                                                                |  |                                  |            |   |                                |  
|Net income attributable to noncontrolling interest              |  |                                  | (237,539   | ) |                                |  
|Net (loss) income attributable to Apollo Medical Holdings, Inc. |  | $                                | (531,366   | ) |                                | $





33







For the Three and Six Months Ended September 30, 2015 and
2014



Net revenues





Net revenues for the three months ended
September 30, 2015 decreased by approximately $0.3 million, from $11.7 million to $11.4 million, or 2.5%, as compared to the same
period of 2014. The decrease in revenue was primarily due to the $5.4 million ACO shared savings revenue earned during the three
months ended September 30, 2014 and no comparable revenues earned in the current period as CMS determined we did not meet the minimum
savings threshold and therefore we will not receive any incentive payment in fiscal year 2016, and a $0.5 million decrease in hospitalist
revenue, offset by an increase of $2.4 million in MMG revenues due to an increase in patient lives, an increase in incremental
revenue of $1.6 million from the acquisitions of BCHC and HCHHA, an increase of $1.4 million in revenue from consolidating BAHA
as a variable interest entity and incremental revenue of $0.2 million from AKM and SCHC.



Net revenues for the six months ended September
30, 2015 increased by approximately $5.8 million, from $15.8 million to $21.6 million, or 36.9%, as compared to the same period
of 2014. The increase in revenue was primarily due to an increase of $3.1 million in incremental revenue from the acquisitions
of BCHC and HCHHA, an increase of $2.6 million in revenue from consolidating BAHA as a variable interest entity, and an increase
of $1.9 million in incremental revenue from the acquisitions of AKM and SCHC. Furthermore, MMG revenues increased $3.9 million
from the six months ended September 30, 2014, due to an increase in patient lives. These increases were offset by the $5.4 million
loss of the ACO shared savings revenue and a $0.3 million decrease in hospitalist revenue.



Cost of services



Cost of services for the three months
ended September 30, 2015 increased by approximately $2.1 million, from $6.2 million to $8.3 million, or 34.1%, as compared to
the same period of 2014. Cost of services increased approximately $2.2 million primarily due to the incremental costs
associated with the Company’s acquisitions during fiscal 2015, of which $0.3 million resulted from the acquisitions of
AKM and SCHC and $1.0 million resulted from the acquisitions of BCHC and HCHHA. Furthermore, there was a $1.4 million
increase in MMG claim costs due to the increase in patient lives and consolidating BAHA as a variable interest entity added
$1.0 million of additional cost of services. These increases were offset by a $1.4 million decrease in the cost of the
participating physician share of the ACO savings revenue and a $0.1 million decrease in other physician related costs.



Cost of services for the six months ended
September 30, 2015 increased by approximately $6.4 million, from $9.4 million to $15.8 million, or 68.0%, as compared to the same
period of 2014. Cost of services increased approximately $3.6 million primarily due to the incremental costs associated with the
Company’s acquisitions during fiscal 2015, of which $1.8 million resulted from the acquisitions of AKM and SCHC and $1.8
million resulted from the acquisitions of BCHC and HCHHA. Furthermore, there was a $2.8 million increase in MMG claim costs due
to the increase in patient lives and consolidating BAHA as a variable interest entity added $1.8 million of additional cost of
services. These increases were offset by a $1.4 million decrease in the cost of the participating physician share of the ACO savings
revenue and a $0.4 million decrease in other physician related costs.



General and administrative



General and administrative costs for the three
months ended September 30, 2015 remained flat with the comparable period of 2014.





General and administrative costs for the
six months ended September 30, 2015 increased by approximately $2.2 million, from $5.5 million to $7.7 million, or 40.0%, as compared
to the same period of 2014. Approximately $1.8 million of the increase was due to the acquisitions of AKM and SCHC and BCHC and
HCHHA which added costs of $0.3 million and $1.5 million, respectively. Other increases included (i) $0.8 million in legal and
professional fees increased $0.8 million related to the Lakeside litigation and other corporate initiatives; (ii) $0.9 million
in additional personnel and facilities costs; and $0.7 million in general and administrative costs attributable to the consolidation
of BAHA. These increases were offset by a $1.6 million decrease in costs related to the ACO initiative, a $0.2 million decrease
in stock compensation expense, and a $0.1 million decrease in other expenses.



Depreciation and amortization



Depreciation and amortization expense for
the three months ended September 30, 2015, decreased by approximately $0.1 million, from $0.2 million to $0.1 million, or 60.0%,
as compared to the same period of 2014. This decrease was primarily due to the decrease in amortization expense which decreased
during the current quarter as a result of a March 31, 2015 reclassification from intangible assets to goodwill in connection with
the acquisition of SCHC.



Depreciation and amortization expense for
the six months ended September 30, 2015, decreased by approximately $0.1 million, from $0.2 million to $0.1 million, or 31.3%,
as compared to the same period of 2014. This decrease was primarily due to a decrease in amortization expense which decreased
as a result of a March 31, 2015, reclass from intangible assets to goodwill in connection with the acquisition of SCHC, and a
decrease in depreciation expense due to certain fixed assets becoming fully depreciated during the current year.



Operating Loss (Income)



Operating loss (income) for the three months
ended September 30, 2015, decreased by approximately $2.3 million, from $1.9 million of operating income to an operating loss of
$0.4 million, or 122.2% in the three months ended September 30, 2015, due primarily to the net impact of the decrease in revenues
and an increase in operating expenses.



Operating loss (income) for the six months
ended September 30, 2015, decreased by approximately $2.7 million, from $0.7 million of operating income to an operating loss of
$2.1 million, or 409.2%, due primarily to the net impact of the increase in revenues and an increase in operating expenses.



Interest expense



Interest expense for the three months ended
September 30, 2015, decreased by approximately $0.3 million, from $0.3 million to $0.1 million, or 79.1%, as compared to the same
period of 2014. This decrease was primarily due to the decrease in the amortization expense of the debt discount which decreased
as a result of the adjustment recorded to properly state our warrant liability, unamortized debt discount and deferred financing
costs (see note 2 – warrant liability in the Notes to our Unaudited Condensed Consolidated Financial Statements).



Interest expense for the six months ended
September 30, 2015, decreased by approximately $0.2 million, from $0.6 million to $0.4 million, or 29.2%, as compared to the same
period of 2014. This decrease was primarily due to the decrease in the amortization expense of the debt discount which decreased
as a result of the adjustment recorded to properly state our warrant liability, unamortized debt discount and deferred financing
costs (see note 2 – warrant liability in the Notes to our Unaudited Condensed Consolidated Financial Statements).



Gain on change in fair value of warrant and conversion feature
liabilities



The gain on change in fair value of warrant
and conversion feature liabilities for the three months ended September 30, 2015, decreased by approximately $0.1 million, from
$0.2 million to $0.1 million, or 36.3%, as compared to the same period of 2014. This decrease resulted from the change in the fair
value measurement of the Company’s warrant and conversion feature liabilities, which consider among other things, expected
term, the volatility of the Company’s share price, interest rates, and the probability of additional financing of the underlying
NNA Term Loan and NNA 8% Convertible Note.



The loss on change in fair value of warrant
and conversion feature liabilities for the six months ended September 30, 2015, increased by approximately $0.2 million, from a
gain of $0.1 million to a loss of $0.1 million, or 195.7%, as compared to the same period of 2014. This increase resulted from
the change in the fair value measurement of the Company’s warrant and conversion feature liabilities, which consider among
other things, expected term, the volatility of the Company’s share price, interest rates, and the probability of additional
financing of the underlying NNA Term Loan and NNA 8% Convertible Note.



34







Other



For the three and nine month periods ended
September 30, 2015, other expenses remained flat compared to the same periods of 2014.



Income tax (benefit) provision



Income tax benefit for the three months
ended September 30, 2015, increased approximately $0.3 million, from a provision of $0.1 million to a benefit of $0.2 million,
or 314.0%, as compared to the same period of 2014. For the three months ended September 30, 2015 the effective tax rate was (38.8)%
compared to 5.4% for the three months ended September 30, 2014.; The change in the effective rate is primarily attributable to
the additions of AKM (acquired May 2014), HCHHA (acquired October 2014) and BAHA (consolidated as a variable interest entity).



Income tax provision for the six months
ended September 30, 2015, increased approximately $0.2 million, from a provision of $0.1 million to a benefit of $0.1 million,
or 194.4%, as compared to the same period of 2014. For the six months ended September 30, 2015 the effective tax rate was (3.6)%
compared to 77.9% for the six months ended September 30, 2014. The change in the effective rate was primarily attributable to the
additions of AKM (acquired May 2014), HCHHA (acquired October 2014) and BAHA (consolidated as a variable interest entity).



Net income attributable to non-controlling interests



For the three and  six months ended
September 30, 2015, net income attributable to non-controlling interests remained flat as compared to the same periods of
2014.



Liquidity and Capital Resources



We had net loss of approximately $0.6
million and $2.9 million for the six months ended September 30, 2015 and 2014, respectively. We had negative cash flow from
operations of $0.3 million and $2.1 million for the six months ended September 30, 2015 and 2014, respectively. Cash flows
used in investing activities were approximately $43,000 and $2.0 million for the six months ended September 30, 2015 and
2014. Cash flows used in financing activities were $0.7 million for the six months ended September 30, 2015, compared to cash
flows provided by financing activities of $1.2 million for the six months ended September 30, 2014. We expect to have
positive cash flow from operations for the entire 2016 fiscal year. We expect to fund our working capital requirements,
capital expenditures and payments of principal and interest on outstanding indebtedness, with cash on hand, cash flows from
operations, available borrowings under our lines of credit and, if available, additional financings of equity and/or debt. We
currently anticipate that funds received from the NMM transactions, funds generated from operations, cash on hand, available
borrowings under our lines of credit and any additional financings will be sufficient to meet our anticipated cash
requirements for at least the next twelve months and for the foreseeable future.





35







To date, we have funded our operations from
internally generated cash flow and external sources, including the proceeds from the issuance of equity and debt securities, which
have provided funds for operations and growth.



We have a history of operating losses and
as of September 30, 2015 we have an accumulated deficit of $22.7 million, and during the six months ended September 30, 2015 we
used net cash of $0.3 million for our operating activities. Furthermore, during the six months ended September 30, 2015, we incurred
a loss from operations of $2.4 million.







At September 30, 2015, the Company had cash
equivalents of approximately $3.9 million compared to cash and cash equivalents of approximately $5.0 million at March 31, 2015.
At September 30, 2015, the Company had borrowings totaling $9.8 million compared to borrowings at March 31, 2015 of $9.1 million
and availability under lines of credit of approximately $380,000.



For the six months ended September 30, 2015,
cash used in operating activities was approximately $0.3 million. This was the result of net loss of $2.5 million offset by cash
provided by non-cash expenses of $0.4 million and the change in working capital of $1.7 million. Non-cash expenses primarily include
depreciation and amortization expense, stock-based compensation expense, amortization of financing costs, accretion of debt discount,
and the change in the fair value of the warrant and conversion feature liabilities. Cash provided by working capital was primarily
due to the $1.6 million increase in accounts payable and accrued liabilities and the $0.5 million decrease in deferred financing
costs. Deferred financing costs decreased as a result of the write-off of the expenses associated with our expected public offering
(See Note 2 to the Notes to the Unaudited Condensed Consolidated Financial Statements).



For the six months ended September 30, 2015,
approximately $43,000 was used in investing activities for the purchase of fixed assets.



For the six months ended September 30, 2015,
net cash used in financing activities was $0.7 million which included the $0.6 million distribution to a non-controlling interest
physician practice and $0.1 million principal payments on our notes payable.



NNA Credit Agreements



On October 15, 2013, we entered into the
$2.0 million Revolving Credit Agreement with NNA, an affiliate of Fresenius Medical Care Holdings, Inc. On December 20, 2013, we
entered into the Amended Credit Agreement, which increased the revolving credit facility from $2.0 million to $4.0 million. We
used the proceeds of the Amended Credit Agreement to repay a $500,000 Note to SpaGus Apollo, LLC, and pay or repay certain of our
10% Notes (see Note 7 to the Notes to the Unaudited Condensed Consolidated Financial Statements), to refinance certain other indebtedness,
and for working capital and general corporate purposes. The Amended Credit Agreement was refinanced on March 28, 2014 in connection
with 2014 NNA financing, as described in more detail immediately below.



Pursuant to the Amended Credit Agreement, NNA has the right
to designate one director and one observer person to the Board of Directors; however, as of September 30, 2015, NNA has not elected
to exercise this right.





2014 NNA Financing



On March 28, 2014, we entered into the Credit
Agreement pursuant to which NNA, extended to the Company (i) a $1,000,000 revolving line of credit (the “Revolving Loan”)
and (ii) a $7,000,000 term loan (the “Term Loan”). The Company drew down the full amount of the Revolving Loan on October
23, 2014. The Term Loan and Revolving Loan mature on March 28, 2019, subject to NNA’s right to accelerate payment on the
occurrence of certain events. The Term Loan may be prepaid at any time without penalty or premium. The loans extended under the
Credit Agreement are secured by substantially all of the Company’s assets, and are guaranteed by the Company’s subsidiaries
and consolidated medical corporations. The guarantees of these subsidiaries and consolidated entities are in turn secured by substantially
all of the assets of the subsidiaries and consolidated entities providing the guaranty.





36







Concurrently with the Credit Agreement,
the Company entered into the Investment Agreement with NNA, pursuant to which it issued to NNA an 8% Convertible Note in the original
principal amount of $2,000,000. The Company drew down the full principal amount of the Convertible Note on July 30, 2014.The Convertible
Note matures on March 28, 2019, subject to NNA’s right to accelerate payment on the occurrence of certain events.



On February 6, 2015, the Company entered
into the Acknowledgement with NNA, Warren Hosseinion, M.D., and Adrian Vazquez, M.D. The Acknowledgement amended some provisions
of, and/or provided waivers in connection with, each of (i) the Registration Rights Agreement between the Company and NNA, dated
March 28, 2014 (the “Registration Rights Agreement”), (ii) the Investment Agreement, (iii) the NNA Convertible Note,
and (iv) the NNA Warrants. The amendments to the Registration Rights Agreement included amendments with respect to the timing of
the filing deadline for a resale registration statement for the benefit of NNA.



Under the Investment Agreement, the Company
issued to NNA warrants to purchase up to 300,000 shares of the Company’s common stock at an initial exercise price of $10.00
per share and warrants to purchase up to 200,000 shares of the Company’s common stock at an initial exercise price of $20.00
per share.



The Term Loan accrues interest at a rate
of 8.0% per annum. A portion of the principal amount of the Term Loan is repaid on the last business day of each calendar quarter,
which provides for quarterly payments of $87,500 in the first year, $122,500 in the second year, $122,500 in the third year, $175,000
in the fourth year, and $210,000 in the fifth year. The Term Loan reflected an original issue discount of $1,305,435 associated
with the issuance of 300,00 warrants to acquire the Company’s common stock and payment of a fee to NNA of $80,000 of which
$51,072 was considered a debt discount, $7,998 was recorded to equity, and $20,930 allocated to warrant liability was immediately
recorded as interest expense. The discount will be amortized to interest expense over the expected term of the loan using the effective
interest method.



The Revolving Loan bears interest at the
rate of three month LIBOR plus 6.0% per annum. The Company had borrowed $1,000,000 under the Revolving Loan at June 30, 2015 and
March 31, 2015. As of June 30, 2015, there are no remaining amounts available to be borrowed under the Revolving Loan. The Term
Loan and Revolving Loan mature on March 28, 2019.



On May 13, 2015, we entered into the Amendment
with NNA. The Amendment amended the Acknowledgement, among the Company, NNA, Warren Hosseinion, M.D., and Adrian Vazquez, M.D.
and included an extension until June 12, 2015 of a deadline previously contemplated by the Acknowledgement, for the Company to
file a registration statement covering the sale of NNA’s registrable securities.



On July 7, 2015, we entered into the New
Amendment with NNA. The New Amendment amended Acknowledgement, among the Company, NNA, Warren Hosseinion, M.D., and Adrian Vazquez,
M.D. and included an extension until October 24, 2015 of a deadline previously contemplated by the Acknowledgement, for the Company
to file a registration statement covering the sale of NNA’s registrable securities.



On August 18, 2015, the Company entered
into a Waiver with NNA, whereby NNA waived and consented to certain provisions of the Credit Agreement and the Convertible Note.
The Waiver was granted by NNA until October 15, 2015 and since non-compliance existed for the quarter ending September 30, 2015,
all debt was classified as current as of September 30, 2015.



Securities Purchase Agreement and Repayment of NNA
Debt



On October 14, 2015, we entered into an
Agreement with NMM pursuant to which the Company sold to NMM, and NMM purchased from the Company, in a private offering of securities,
1,111,111 Units, each unit consisting of one share of the Company’s Preferred Stock and a Warrants to purchase one share
of the Company’s Common Stock at an exercise price of $9.00 per share. NMM paid the Company an aggregate $10,000,000 for
the Units, the proceeds of which were used by the Company primarily to repay certain outstanding indebtedness owed by the Company
to NNA and the balance for working capital.





37







The Preferred Stock has a liquidation preference
in the amount of $9.00 per share plus any declared and unpaid dividends. The Preferred Stock can be voted for the number of shares
of Common Stock into which the Preferred Stock could then be converted, which initially is one-for-one.



The Preferred Stock is convertible into
Common Stock, at the option of NMM, at any time after issuance at an initial conversion rate of one-for-one, subject to adjustment
in the event of stock dividends, stock splits and certain other similar transactions. The Preferred Stock is mandatorily convertible
not sooner than the earlier to occur of (i) the later of (x) January 31, 2017 or (y) 60 days after the date on which the Company
files its quarterly report on Form 10-Q for the period ending September 30, 2016 (the “Redemption Expiration Date”);
or (ii) the date on which the Company received the written, irrevocable decision of NMM not to require a redemption of the Preferred
Stock (as described in the following paragraph), in the event that the Company engages in one or more transactions resulting in
gross proceeds of not less than $5,000,000, not including the proceeds of the transaction with NMM.



At any time prior to conversion and through
the Redemption Expiration Date, the Preferred Stock may be redeemed at the option of NMM, on one occasion, in the event that the
Company’s net revenues for the four quarters ending September 30, 2016, as reported in its periodic filings under the Securities
Exchange Act of 1934, as amended, are less than $60,000,000. In such event, the Company shall have up to one year from the date
of the notice of redemption by NMM to redeem the Preferred Stock, the Warrants and any shares of Common Stock issued in connection
with the exercise of any Warrants theretofore (collectively the “Redeemed Securities”), for the aggregate price paid
therefor by NMM, together with interest at a rate of 10% per annum from the date of the notice of redemption until the closing
of the redemption. Any mandatory conversion described in the previous paragraph shall not take place until such time as it is determined
that that conditions for the redemption of the Redeemed Securities have not been satisfied or, if such conditions exist, NMM has
decided not to have such securities redeemed.



The Warrants may be exercised at any time
after issuance and through October 14, 2020, for $9.00 per share, subject to adjustment in the event of stock dividends and stock
splits. Alternatively, the Warrants may be exercised pursuant to a “cashless exercise” feature, for that number of
shares of Common Stock determined by dividing (x) the aggregate Fair Market Value (as defined in the Warrant) of the shares in
respect of which the Warrant is being converted minus the aggregate Warrant Exercise Price (as defined in the Warrant) of such
shares by (y) the Fair Market Value of one share of Common Stock. The Warrants are not separately transferable from the Preferred
Stock. The Warrants are subject to redemption in the event the Preferred Stock is redeemed by NMM, as described above.



Pursuant to the Agreement, NMM has the right
to designate to the Nominating/Corporate Governance Committee of the Board of Directors one person to be nominated as a director
of the Company. Prior to the time of such appointment or election, one person designated by the Purchaser shall have observer status,
without a vote, on the Board of Directors.



Without the written consent of NMM, between
the Closing Date and the six month anniversary of the Closing Date, the Company shall not acquire, sell all or substantially all
of its assets to, effect a change of control, or merge, combine or consolidate with, any other Person engaged in the business of
being a MSO, ACO or IPA, or enter into any agreement with respect to any of the foregoing.





38







From the proceeds of the transactions with
NMM described above on October 15, 2015, the Company repaid, from the proceeds of the sale of the securities therein described,
its outstanding term loan and revolving credit facility with NNA pursuant to a Credit Agreement dated March 28, 2014 between the
Company and NNA in the aggregate amount of $7,304,506, consisting of$7,282,500 principal plus $22,006 of accrued interest.



Additionally, NNA, has agreed in principle
to convert the Company’s Convertible Note dated March 28, 2014 in the principal amount of $2,000,000 into 275,000 shares
of the Company’s Common Stock and exercise all of its related Common Stock Purchase Warrants dated March 28, 2014 into 325,000
shares of the Company’s Common Stock on a cashless basis. Assuming the foregoing transactions are consummated, the Company
will receive no proceeds from NNA and it will have no further indebtedness owed to NNA. The Company currently anticipates that
these transactions will be completed during the third quarter of fiscal 2016.



Unsecured lines of credit



We have a $100,000 revolving line of credit
with MUFG Union Bank, N.A., of which $94,764 was outstanding at September 30, 2015 and March 31, 2015. Borrowings under the line
of credit bear interest at the prime rate (as defined) plus 4.50% (7.75% per annum at September 30, 2015 and at March 31, 2015),
interest only is payable monthly, and the line of credit matures June 5, 2016. The line of credit is unsecured.



LALC has a line of credit of $230,000 with
JPMorgan Chase Bank, N.A. as of September 30, 2015. The Company has not borrowed any amount under this line of credit as of September
30, 2015 and March 31, 2015.



BAHA has a line of credit of $150,000 with First Republic Bank
as of September 30, 2015. The Company has not borrowed any amount under this line of credit as of September 30, 2015 and March
31, 2015. The line of credit is subject to renewal on April 27, 2016.



9% Senior Subordinated Callable Convertible Promissory
Notes due February 15, 2016



Our 9% Notes, issued January 31, 2013, bear
interest at a rate of 9% per annum, payable semi-annually on August 15 and February 15, and mature February 15, 2016, and are subordinated.
The principal of the 9% Notes, plus any accrued yet unpaid interest, is convertible, at any time by the holder at a conversion
price of $4.00 per share, subject to adjustment for stock splits, stock dividends and reverse stock splits, into shares of our
common stock. On 60 days’ prior notice, the 9% Notes are callable in full or in part by the Company at any time after January
31, 2015. If the ADVT during the prior 90 days as reported by Bloomberg is greater than $100,000, the 9% Notes are callable at
a price of 105% of the 9% Notes’ par value, and if the ADVT is less than $100,000, the 9% Notes are callable at a price of
110% of the 9% Notes’ par value.



In connection with the issuance of the 9%
Notes, the holders of the 9% Notes received warrants to purchase 66,000 shares of our common stock at an exercise price of $4.50
per share, subject to adjustment for stock splits, reverse stock splits and stock dividends, which warrants are exercisable at
any date prior to January 31, 2018, and were classified in equity. The $186,897 fair value of the 9% Notes warrants was based on
the Company’s closing stock price at the transaction date and inputs to the Black-Scholes option pricing model: term of 5.0
years, risk free rate of 0.70%, and volatility of 36.7%.



8% Convertible Note Payable to NNA



The NNA 8% Convertible Note commitment provided
for us to borrow up to $2,000,000. On July 31, 2014, we exercised our option to borrow $2,000,000, received $2,000,000 of proceeds
and recorded a debt discount of $1,065,775 related to the fair value of a conversion feature liability and a warrant liability.
Borrowings bear interest at the rate of 8.0 % per annum payable semi-annually, are due March 28, 2019, and are convertible into
shares of our common stock at an initial exercise price of $10.00 per share, subject to adjustment for stock splits, stock dividends
and reverse stock splits. The conversion price is also subject to adjustment in the event of subsequent down-round equity financings,
if any. The conversion feature included a non-standard anti-dilution feature that has been bifurcated and recorded as a conversion
feature liability at the issuance date of $578,155. The fair value of the conversion feature liability issuedin connection with
the 8% Convertible Note at September 30, 2015 was estimated using the Monte Carlo valuation model which used the following inputs:
term of 3.7 years, risk free rate of 1.3%, no dividends, volatility of 48.6%, share price of $6.90 per share based on the trading
price of our common stock adjusted for a marketability discount, and a 100% probability of down-round financing. In addition, we
were required to issue 100,000 warrants to NNA with an initial exercise price of $10.00 per share, subject to adjustment for stock
splits, stock dividends and reverse stock splits. The conversion price will also be subject to adjustment in the event of subsequent
down-round financings, if any. The fair value of the warrant liability related to 100,000 common shares issuable in connection
with the 8% Convertible Note as of September 30, 2015 was estimated using the Monte Carlo valuation model which used the following
inputs: term of 5.7 years, risk free rate of 1.8%, no dividends, volatility of 57.6%, share price of $6.90 per share based on the
trading price of our common stock adjusted for a marketability discount, and a 100% probability of down-round financing.



From the proceeds of the transactions with
NMM (see Note 11 to the Notes to the Condensed Consolidated Financial Statements) on October 15, 2015, we repaid our outstanding
term loan and revolving credit facility with NNA pursuant to the Credit Agreement in the then-outstanding aggregate amount of $7,304,506,
consisting of $7,282,500 principal plus $22,006 of accrued interest.



Additionally, NNA has agreed in principle
to convert the Convertible Note dated March 28, 2014 in the principal amount of $2,000,000 into 275,000 shares of our Common Stock
and exercise all of its related Warrants. (See dated March 28, 2014 into 325,000 shares of the Company’s Common Stock. (see
Note 11 to the Notes to the Unaudited Condensed Consolidated Financial Statements). We currently anticipate that these transactions
will be completed during the third quarter of fiscal 2016.







39







Concentration of Payors



Receivables from one payor (Medicare/MediCal)
amounted to 30.9% and 22.1% of total accounts receivable as of September 30, 2015 and March 31, 2015, respectively. For the six
months ended September 30, 2015, revenues from Medicare/Medical, LA Care and Healthnet amounted to 33.8%, 14.6% and 12.4%, respectively.
We anticipate that these payors will continue to be our largest payors in future periods.



Intercompany Loans



Each of AMH, ACC, MMG, AKM and SCHC has entered
into an Intercompany Loan Agreement with AMM under which AMM has agreed to provide a revolving loan commitment to each of the affiliated
entities in an amount set forth in each Intercompany Loan Agreement. Each Intercompany Loan Agreement provides that AMM’s
obligation to make any advances automatically terminates concurrently with the termination of the Management Agreement with the
applicable affiliated entity. In addition, each Intercompany Loan Agreement provides that (i) any material breach by Dr. Hosseinion
of the applicable Physician Shareholder Agreement or (ii) the termination of the Management Agreement with the applicable affiliated
entity constitutes an event of default under the Intercompany Loan Agreement. The following tables summarize the various intercompany
loan agreements for the six months ended September 30, 2015 and for the year ended March 31, 2015:





|       |  |          |            |  |            |           |                             |  |    | Six Months Ended September 30, 2015 | 
|------ |  | -------- | ---------- |  | ---------- | --------- | --------------------------- |  | -- | ----------------------------------- | 
|Entity |  | Facility |            |  | Expiration |           | Interest Rate per
    Annum |  |    | Maximum Balance During
Period       | 
|AMH    |  | $        | 10,000,000 |  |            | 30-Sep-18 |                             |  | 10 | %                                   | 
|ACC    |  |          | 1,000,000  |  |            | 31-Jul-18 |                             |  | 10 | %                                   | 
|MMG    |  |          | 5,000,000  |  |            | 1-Feb-18  |                             |  | 10 | %                                   | 
|AKM    |  |          | 5,000,000  |  |            | 30-May-19 |                             |  | 10 | %                                   | 
|SCHC   |  |          | 5,000,000  |  |            | 21-Jul-19 |                             |  | 10 | %                                   | 
|Total  |  | $        | 26,000,000 |  |            |           |                             |  |    |                                     | 



|       |  |          |            |  |            |           |                            |  |    | Year Ended March
    31, 2015 | 
|------ |  | -------- | ---------- |  | ---------- | --------- | -------------------------- |  | -- | ----------------------------- | 
|Entity |  | Facility |            |  | Expiration |           | Interest
    Rateper Annum |  |    | MaximumBalance DuringPeriod   | 
|AMH    |  | $        | 10,000,000 |  |            | 30-Sep-18 |                            |  | 10 | %                             | 
|ACC    |  |          | 1,000,000  |  |            | 31-Jul-18 |                            |  | 10 | %                             | 
|MMG    |  |          | 5,000,000  |  |            | 1-Feb-18  |                            |  | 10 | %                             | 
|AKM    |  |          | 5,000,000  |  |            | 30-May-19 |                            |  | 10 | %                             | 
|SCHC   |  |          | 5,000,000  |  |            | 21-Jul-19 |                            |  | 10 | %                             | 
|Total  |  | $        | 26,000,000 |  |            |           |                            |  |    |                               | 



Critical Accounting Policies



Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, and potentially result in materially different results under different
assumptions and conditions.  We believe that our critical accounting policies are limited to those described in the
Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K/A for the fiscal year ended March 31, 2015.



Recently Issued Accounting Pronouncements





In May 2014, the Financial Accounting Standards
Board (“FASB”) amended the FASB Accounting Standards Codification and created a new Topic ASC 606, “Revenue
from Contracts with Customers” (“ASC 606”). This amendment prescribes that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The amendment supersedes the revenue recognition requirements in
Topic 605, “Revenue Recognition,” and most industry-specific guidance throughout the Industry Topics of the
Codification. For annual and interim reporting periods the mandatory adoption date of ASC 606 is January 1, 2017, and there will
be two methods of adoption allowed, either a full retrospective adoption or a modified retrospective adoption. The FASB recently
issued ASU 2015-14 to defer the effective date of the new revenue recognition standard by one year. As such, it now takes effect
for public entities in fiscal years beginning after December 15, 2017. Accordingly the revised mandatory adoption date of ASC 606
is April 1, 2018. The Company is currently evaluating the impact of ASC 606, but at the current time does not know what impact
the new standard will have on revenue recognized and other accounting decisions in future periods, if any, nor what method of adoption
will be selected if the impact is material.



In August 2014, the FASB amended the FASB
Accounting Standards Codification and amended Subtopic 205-40, “Presentation of Financial Statements – Going Concern.”This amendment prescribes that an entity should evaluate whether there are conditions or events, considered in the aggregate,
that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that
the financial statements are issued. The amendments will become effective for the Company’s annual and interim reporting
periods beginning April 1, 2017. The Company will begin evaluating going concern disclosures based on this guidance upon adoption.



In January 2015, the FASB issued ASU No.
2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This standard update
eliminates the concept of extraordinary items from generally accepted accounting principles in the United States (U.S. GAAP) as
part of an initiative to reduce complexity in accounting standards while maintaining or improving the usefulness of the information
provided to the users of the financial statements. The presentation and disclosure guidance for items that are unusual in nature
or occur infrequently will be retained and expanded to include items that are both unusual in nature and infrequent in occurrence.
This standard update is effective for fiscal years beginning after December 15, 2015; however, earlier adoption is permitted.
The adoption of this standard update is not expected to have a significant impact on our consolidated financial statements.



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In February 2015, the FASB issued ASU No.
2015-02, Amendments to the Consolidation Analysis, which is included in ASC 810, Consolidation. This update changes the
guidance with respect to the analyses that a reporting entity must perform to determine whether it should consolidate certain types
of legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The new guidance affects
the following areas: (1) limited partnerships and similar legal entities, (2) evaluating fees paid to a decision maker or a service
provider as a variable interest, (3) the effect of fee arrangements on the primary beneficiary determination, (4) the effect of
related parties on the primary beneficiary determination, and (5) certain investment funds. The guidance will be effective for
the Company's interim and annual reporting periods beginning April 1, 2016. The standard allows the Company to transition to the
new model using either a full or modified retrospective approach, and early adoption is permitted. The Company is currently evaluating
the impact this standard will have on its business practices, financial condition, results of operations, and disclosures.



In April 2015, the FASB) issued ASU 2015-03,
Interest – Imputation of Interest (Subtopic 835-30).  This ASU requires that debt issuance costs related
to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by
this ASU.  The amendments in this ASU are effective for financial statements issued for fiscal years beginning after
December 15, 2015, and interim periods within those years.  Early adoption is permitted for financial statements that
have not been previously issued and retrospective application is required for each balance sheet presented.  The adoption
of this standard update is not expected to have a significant impact on the Company’s consolidated financial statements.



Off Balance Sheet Arrangements



As of September 30, 2015, the Company had no off-balance sheet
arrangements.



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK



Not applicable.



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
September 30, 2015, 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 September
30, 2015.



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.  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 adequate 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 adequately 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.



41







Based on the foregoing material weaknesses,
we have determined that, as of September 30, 2015, our internal controls over our financial reporting are not effective. The Company
is taking remediating steps to address these material weaknesses. We have recently hired a full-time accountant and we are seeking
to hire a permanent Chief Financial Officer and possibly other employees or consultants, as well as realign responsibilities in
our financial and accounting review functions, to address these matters.



It should be noted that any system of controls, however well
designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition,
the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of
these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.



Changes in Internal Controls over Financial Reporting



There has been no change in our internal control over financial
reporting during the three month period ended September 30, 2015 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



In the ordinary course of our business, we become involved
in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical
services that are provided by our affiliated hospitalists. We may also become subject to other lawsuits which could involve significant
claims and/or significant defense costs. We have become involved in the following two legal matters:



On May 16, 2014, Lakeside Medical Group, Inc. and Regal Medical
Group, Inc., two independent physician associations who compete with us in the greater Los Angeles area, filed an action against
us and two of our affiliates, MMG and AMEH in Los Angeles County Superior Court. The complaint alleged that we and our two affiliates
made misrepresentations and engaged in other acts in order to improperly solicit physicians and patient-enrollees from Plaintiffs.
The Complaint sought compensatory and punitive damages. On June 30, 2014, we filed a motion requesting the Court to stay the court
proceeding and order the parties to arbitrate this dispute subject to existing arbitration agreements. On August 11, 2014, the
Plaintiffs filed a request for dismissal without prejudice of the action. On August 12, 2014, the Plaintiffs served us and our
affiliates with Demands for Arbitration before Judicial Arbitration Mediation Services (JAMS) in Los Angeles. We are currently
examining the merits of the claims to be arbitrated, and it is too early to state whether the likelihood of an unfavorable outcome
is probable or remote, or to estimate the potential loss if the outcome should be negative. We are aware that punitive damages
previously sought in the court proceeding are not available in arbitration. We are preparing a defense to the allegations and
we intend to vigorously defend the action.



On August 28, 2014, Lakeside Medical Group, Inc. and Regal
Medical Group, Inc., filed a similar lawsuit against Warren Hosseinion, our Chief Executive Officer. Dr. Hosseinion is defending
the action and is currently being indemnified by us subject to the terms of an indemnification agreement and our charter. We have
an existing Directors and Officers insurance policy. On September 9, 2014, Dr. Hosseinion filed a motion requesting the Court
to stay the court proceeding and, pursuant to existing arbitration agreements, order the parties to arbitrate the dispute as part
of the pending arbitration proceedings before JAMS (as discussed above). On October 29, 2014, the Plaintiffs filed a request for
dismissal without prejudice of the action. On November 13, 2014, Plaintiffs served Dr. Hosseinion with Demands for Arbitration
before JAMS in Los Angeles, and on November 19, 2014, we agreed to consolidate the two proceedings against Dr. Hosseinion with
the two existing proceedings against us and our other affiliates. We continue to examine the merits of the claims to be arbitrated
against Dr. Hosseinion, and it is too early to state whether the likelihood of an unfavorable outcome is probable or remote, or
to estimate the potential loss if the outcome should be negative. We are aware that punitive damages previously sought in the
court proceeding against Dr. Hosseinion are not available in arbitration.



42







The parties involved in both arbitration proceedings described
above are currently in mediation.



Other than the two specific items disclosed above, the merits
of which we continue to examine and analyze, we believe, based upon our review of pending actions and proceedings, that the outcome
of such legal actions and proceedings will not have a material adverse effect on our business, financial condition, results of
operations, or cash flows. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable
resolution of one or more of them could have a material adverse effect on our business, financial condition, results of operations,
or cash flows in a future period.



ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS



On October 14, 2015, we entered into the
Agreement with NMM pursuant to which the Company sold to NMM, and NMM purchased from the Company, in a private offering of securities,
1,111,111 Units, each unit consisting of one share of our Preferred Stock and a Warrants to purchase one share of our Common Stock
at an exercise price of $9.00 per share. NMM paid the Company an aggregate $10,000,000 for the Units, the proceeds of which were
used by the Company primarily to repay certain outstanding indebtedness owed by the Company to NNA and the balance for working
capital.



The Preferred Stock has a liquidation preference
in the amount of $9.00 per share plus any declared and unpaid dividends. The Preferred Stock can be voted for the number of shares
of Common Stock into which the Preferred Stock could then be converted, which initially is one-for-one.





The Preferred Stock is convertible into Common
Stock, at the option of NMM, at any time after issuance at an initial conversion rate of one-for-one, subject to adjustment in
the event of stock dividends, stock splits and certain other similar transactions. The Preferred Stock is mandatorily convertible
not sooner than the earlier to occur of (i) the later of (x) January 31, 2017 or (y) 60 days after the date on which the Company
files its quarterly report on Form 10-Q for the period ending September 30, 2016 (the “Redemption Expiration Date”);
or (ii) the date on which the Company received the written, irrevocable decision of NMM not to require a redemption of the Preferred
Stock (as described in the following paragraph), in the event that the Company engages in one or more transactions resulting in
gross proceeds of not less than $5,000,000, not including the proceeds of the transaction with NMM.



At any time prior to conversion and through
the Redemption Expiration Date, the Preferred Stock may be redeemed at the option of NMM, on one occasion, in the event that the
Company’s net revenues for the four quarters ending September 30, 2016, as reported in its periodic filings under the Securities
Exchange Act of 1934, as amended, are less than $60,000,000. In such event, the Company shall have up to one year from the date
of the notice of redemption by NMM to redeem the Preferred Stock, the Warrants and any shares of Common Stock issued in connection
with the exercise of any Warrants theretofore (collectively the “Redeemed Securities”), for the aggregate price paid
therefor by NMM, together with interest at a rate of 10% per annum from the date of the notice of redemption until the closing
of the redemption. Any mandatory conversion described in the previous paragraph shall not take place until such time as it is determined
that that conditions for the redemption of the Redeemed Securities have not been satisfied or, if such conditions exist, NMM has
decided not to have such securities redeemed.



The Warrants may be exercised at any time
after issuance and through October 14, 2020, for $9.00 per share, subject to adjustment in the event of stock dividends and stock
splits. Alternatively, the Warrants may be exercised pursuant to a “cashless exercise” feature, for that number of
shares of Common Stock determined by dividing (x) the aggregate Fair Market Value (as defined in the Warrant) of the shares in
respect of which the Warrant is being converted minus the aggregate Warrant Exercise Price (as defined in the Warrant) of such
shares by (y) the Fair Market Value of one share of Common Stock. The Warrants are not separately transferable from the Preferred
Stock. The Warrants are subject to redemption in the event the Preferred Stock is redeemed by NMM, as described above.



Pursuant to the Agreement, NMM has the
right to designate to the Nominating/Corporate Governance Committee of the Board of Directors one person to be nominated as a
director of the Company. Prior to the time of such appointment or election, one person designated by the Purchaser shall have
observer status, without a vote, on the Board of Directors.



Without the written consent of NMM, between
the Closing Date and the six month anniversary of the Closing Date, the Company shall not acquire, sell all or substantially all
of its assets to, effect a change of control, or merge, combine or consolidate with, any other Person engaged in the business of
being a medical service organization (MSO), accountable care organization (ACO) or independent practice association (IPA), or enter
into any agreement with respect to any of the foregoing.



The securities were sold by the Company to NMM in reliance upon
the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506(b) of Regulation
D promulgated by the Securities and Exchange Commission thereunder.





ITEM 3.  DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. MINE SAFETY DISCLOSURES



Not applicable.



ITEM 5.  OTHER INFORMATION





As previously reported in a Current Report on Form 8-K dated September
25, 2015, on September 21, 2015, Mitchell Creem resigned as Chief Financial Officer of the Company, not as a result of any disagreement
with the Board or the Company’s management. William R. Abbott, the Company’s Controller, was appointed as Interim Chief
Financial Officer.



As previously reported in a Current Report on Form 8-K dated October
16, 2015, on October 12, 2015, Warren Hosseinion, M.D. was appointed by the Board of Directors to serve as the Secretary of Apollo
Medical Holdings, Inc. effective immediately, to fill the vacancy created by the previous resignation of Mitchell Creem from all
positions he held with the Company.



Also on October 12, 2015, the Board of Directors
of the Company amended Section 3.1 of the Company’s Restated Bylaws to provide that the authorized number of directors shall
be fixed from time to time by the board of directors, provided that the authorized number of directors shall not be less than one.





ITEM 6.  EXHIBITS



|ExhibitNo. |  | Description                                                 
|---------- |  | ------------------------------------------------------------
|           |  |                                                             
|3.1*       |  | Certificate of Incorporation, as amended on October 16, 2015
|           |  |                                                             
|3.2*       |  | Restated Bylaws, as amended on October 12, 2015             
|           |  |                                                             





43







|ExhibitNo. |  | Description                                                                 
|---------- |  | ----------------------------------------------------------------------------
|           |  |                                                                             
|31.1*      |  | Certification by Chief Executive Officer                                    
|           |  |                                                                             
|31.2*      |  | Certification by Chief Financial Officer                                    
|           |  |                                                                             
|32.1*      |  | Certification by Chief Executive Officer pursuant to 18 U.S.C. section 1350.
|           |  |                                                                             
|32.2*      |  | Certification by Chief Financial Officer pursuant to 18 U.S.C. section 1350 
|           |  |                                                                             
|101.INS*   |  | XBRL Instance Document.                                                     
|           |  |                                                                             
|101.SCH*   |  | XBRL Taxonomy Extension Schema Document.                                    
|           |  |                                                                             
|101.CAL*   |  | XBRL Taxonomy Extension Calculation Linkbase Document.                      
|           |  |                                                                             
|101.DEF*   |  | XBRL Taxonomy Extension Definition Linkbase                                 
|           |  |                                                                             
|101.LAB*   |  | XBRL Taxonomy Extension Label Linkbase Document.                            
|           |  |                                                                             
|101.PRE*   |  | XBRL Taxonomy Extension Presentation Linkbase Document.                     



| |  | *    Filed herewith.
| |  | --------------------



44







SIGNATURES



Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





|                          | APOLLO MEDICAL HOLDINGS, INC.
|------------------------- | -----------------------------
|                          |                              
|                          |                              
|Dated:  November 16, 2015 | By:                          
|                          |                              
|                          |                              
|                          |                              





45