UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q





(MARK ONE)





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





FOR THE QUARTERLY PERIOD ENDED April 30, 2011





OR





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





COMMISSION FILE NUMBER:000-25809





APOLLO MEDICAL HOLDINGS, INC.


(Exact name of registrant as specified in its charter)





Delaware

20-8046599(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification Number)





450 N. Brand Blvd., Suite 600


Glendale, California 91203


(Address of principal executive offices)





(818) 396-8050


Issuer’s telephone number:





(Former Name or Former Address, if Changed Since Last Report)





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





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ̈Yes ̈ No





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.





Large accelerated filer ̈
Accelerated filer ̈Non-accelerated filer ̈
Smaller reporting companyx





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





As of June 20, 2011, there were 28,985,774 shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.








APOLLO MEDICAL HOLDINGS, INC.





INDEX TO FORM 10-Q FILING





FOR THE THREE  MONTHS ENDED APRIL 30, 2011 AND 2010





TABLE OF CONTENTS





PAGEPART IFINANCIAL INFORMATIONItem 1.
Financial Statements – UnauditedCondensed Consolidated Balance Sheet As of  April 30, 2011 and January 31, 2011
3Condensed Consolidated Statements of Operations For the Three months  ended April 30, 2011  and 2010
4Condensed Consolidated Statements of Cash Flows For the Three months ended April 30, 2011 and 2010
5Notes to Condensed Consolidated Financial Statements
6-13Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14-16Item 3.
Quantitative and Qualitative Disclosures about Market Risk
16Item 4.
Control and Procedures.
16PART IIOTHER INFORMATIONItem 1.
Legal Proceedings
17Item 1A
Risk Factors
17Item 2.
Unregistered Sales of Equity Securities and the Use of Proceeds
17Item 3.
Defaults upon Senior Securities
17Item 4.
Submission of Matters to a Vote of Security Holders
17Item 5.
Other Information
17Item 6.
Exhibits
17-18




2


APOLLO MEDICAL HOLDINGS, INC.


CONSOLIDATED BALANCE SHEETS


(UNAUDITED)





April 30,

2011


January 31,

2011CURRENT ASSETSCash and cash equivalents

$
281,869


$
397,101Accounts receivable, net


692,403



704,971Receivable from officers


24,873



24,873Due from affiliate


4,700



3,900Prepaid expenses


17,227



29,138Prepaid financing cost, current


37,500



37,500Total current assets


1,058,572



1,197,483Prepaid financing cost, long term


29,688



39,063Property and equipment – net


18,300



21,593Intangible assets


577,500



-TOTAL ASSETS

$
1,684,060


$
1,258,139LIABILITIES AND STOCKHOLDERS' DEFICIT:CURRENT LIABILITIES:Accounts payable and accrued liabilities

$
99,562


$
92,745Contingent consideration payable (see Note 16)


367,500



-Total current liabilities


467,062



92,745Convertible notes


1,248,789



1,248,588Total liabilities


1,715,851



1,341,333STOCKHOLDERS' 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, 28,985,774 and 27,635,774 shares issued and outstanding as on April 30, 2011 and January 31, 2011, respectively


28,986



27,636Additional paid-in-capital


1,337,401



1,058,418Accumulated deficit


(1,626,293
)


(1,397,363
)Total


(259,906



(311,309
)Non-controlling interest


228,115



228,115Total stockholders' deficit


(31,791
)


(83,194
)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$
1,684,060


$
1,258,139





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


3




APOLLO MEDICAL HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE THREE MONTH PERIODS ENDED APRIL 30, 2011 AND 2010


(UNAUDITED)





For the three month periods ended April 30,2011


2010REVENUES

$
1,039,693


$
802,885COST OF SERVICES


947,489



674,686GROSS REVENUE


92,204



128,199OPERATING EXPENSES:General and administrative


276,355



85,192Depreciation


3,293



3,006Total operating expenses


279,648



88,198PROFIT/(LOSS) FROM OPERATIONS


(187,444
)


40,001OTHER  EXPENSES:Interest expense


(31,574
)


(31,523
)Financing cost


(9,375
)


(9,375
)Other expense


1,063



854Total other expenses


(39,886
)


(40,044
)LOSS BEFORE INCOME TAXES


(227,330
)


(43
)Provision for income tax


1,600



800NET LOSS

$
(228,930
)

$
(843
)WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING,BASIC AND DILUTED


28,648,134



27,229,655*BASIC AND DILUTED NET LOSS PER SHARE

$
(0.01
)

$
(0.00
)





*Weighted average number of shares used to compute basic and diluted loss per share is the same since the effect of dilutive securities is anti-dilutive.





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


4


APOLLO MEDICAL HOLDINGS, INC.


CONSOLIDATED STATEMENT OF CASH FLOWS


FOR THE THREE MONTH PERIODS ENDED APRIL 30, 2011 AND 2010


(UNAUDITED)





For three month periods ended April 30,2011


2010CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(228,930
)

$
(843
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation


3,293



3,006Bad debt expense


-



(60,647
)Issuance of shares for services


63,000



30,066Non-cash stock option expense


7,333



-Amortization of debt discount


201



202Changes in assets and liabilities:Accounts receivable


12,568



(135,510
)Prepaid financing cost


9,375



9,376Prepaid expenses


11,911



7,344Accounts payable and accrued liabilities


6,817



(8,824
)Net cash used in operating activities


(114,432
)


(155,830
)CASH FLOWS FROM INVESTING ACTIVITIES:Property and equipment


-



(4,568
)Due from related parties


(800
)


(800
)Net cash used in investing


(800
)


(5,368
)NET DECREASE IN CASH & CASH EQUIVALENTS


(115,232
)


(161,197
)CASH & CASH EQUIVALENTS, BEGINNING BALANCE


397,101



665,737CASH & CASH EQUIVALENTS, ENDING BALANCE

$
281,869


$
504,540SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATIONInterest paid during the quarter

$
123


$
71Taxes paid during the quarter

$
1,600


$
1,600NONCASH FINANCING ACTIVITIESCommon stock issue for acquisition of AHI (see Note 16)

$
210,000


$
-Contingent consideration payable (see Note 16)

$
367,500


$
-





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


5




APOLLO MEDICAL HOLDINGS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





1.
Description of Business and Merger





Apollo Medical Holdings, Inc. (“Apollo” or the “Company”) is a leading provider of hospitalist services in the Greater Los Angeles, California area. Hospitalist medicine is organized around the admission and care of patients in an inpatient facility such as a hospital or skilled nursing facility and is focused on providing, managing and coordinating the care of hospitalized patients. Apollo Medical Holdings, Inc. operates as a medical management holding company that focuses on managing the provision of hospital-based medicine through a wholly owned subsidiary-management company, Apollo Medical Management, Inc. (“AMM”). Through AMM, the Company manages affiliated medical groups, which presently consist of ApolloMed Hospitalists (“AMH”) and Apollo Medical Associates (“AMA”).  AMM operates as a Physician Practice Management Company (“PPM”) and is in the business of providing management services to Physician Practice Companies (“PPC”) under Management Service Agreements.





On February 15, 2011, the Company completed a merger ("Merger"), whereby Aligned Healthcare Group, Inc. became a wholly-owned subsidiary of Apollo Medical Holdings, Inc. The Merger was effected pursuant to Stock Purchase Agreement, dated February 15, 2011, by and among Aligned Healthcare Group – California, Inc., Raouf Khalil, Jamie McReynolds, M.D. BJ Reese and BJ Reese & Associates, LLC, under which the Company acquired all of the issued and outstanding shares of capital stock (the “Acquisition”) of Aligned Healthcare, Inc., a California corporation (“AHI”), from AHI’s shareholders.  AHI is engaged in the business of operating 24-hour physician call centers and provides specialized care management services (See Note 16).





2.
Summary of Significant Accounting Policies





Basis of Presentation





The accompanying unaudited condensed consolidated financial statements have been prepared by Apollo in accordance with U.S. generally accepted accounting principles for interim financial statements.  The statements consist solely of the management company, Apollo Medical Holdings, Inc. prior to August 1, 2008.  Commencing with the Company’s third quarter on August 1, 2008, and concurrent with the execution of the Management Services Agreement, the statements reflect the consolidation of AMM, AMH and AHI, in accordance with EITF 97-2, Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Management Entities and Certain Other Entities with Contractual Management Agreements.  In management’s opinion, all adjustments, consisting of normal recurring adjustments necessary for the fair presentation of the results of the interim periods are reflected herein. Operating results for the three month period ended April 30, 2011 are not necessarily indicative of future financial results.





The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all of the information that is included in the annual financial statements and notes of the Company. The condensed consolidated financial statements and notes presented herein should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2011.





Basis of Consolidation





The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.





Use of Estimates





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.


6





Intangible Assets





Definite-life intangible assets are regularly reviewed for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Impairment is assessed by comparing the carrying amount of an asset with its expected future net undiscounted cash flows from use plus its residual value. If such an asset is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value, generally determined on a discounted cash flow basis.





Reclassification





Certain comparative amounts have been reclassified to conform to the three month periods ended April 30, 2011 and 2010.





Fair Value of Financial Instruments





ASC Codification Topic 820 – Fair Value Measurements and Disclosures, requires disclosure of fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as April 30, 2011. The respective carrying value of certain on-balance sheet financial instruments approximated their fair values.





These financial instruments include cash and cash equivalents, accounts payable and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.





Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. We follow a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:





•
Level 1:  Quoted prices in active markets for identical assets or liabilities.





•
Level 2:  Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.





•
Level 3:  Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.





Credit and Supply Risk





The Company’s case rate and capitation revenues, reported by Apollo’s affiliate, AMH, are governed by contractual agreements with medical groups/IPA’s and hospitals.  As a result, receivables from this business are generally fully collected. The Company does face issues related to the timing of these collections, and the Company must assess the level of earned but uncollected revenue to which it is entitled at each period end. The Company does face collection issues with regard to its fee-for-service revenues. One is the estimation of the amount to be received from each billing since the Company invoices on a Medicare schedule and each of many providers remits payment on a reduced schedule.  The Company has to estimate the amount it will ultimately receive from each billing and properly record revenue. The Company’s three largest contracts accounted for 41.8%, 23.2% and 9.9%, respectfully in the three months ended April 30, 2011.





Recently Issued Accounting Pronouncements





In December 2010, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2010-29, Business Combinations, Disclosure of Supplementary Pro Forma Information for Business Combinations(“ASU 2010-29”), which provides clarification regarding pro forma revenue and earnings disclosure requirements for business combinations.  The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose only revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period.  The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.  The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  Early adoption is permitted.  The Company adopted ASU 2010-29 during the first interim reporting period of 2011 as it relates to pro-forma disclosure of the Company’s acquisitions.  The adoption of ASU 2010-29 did not have a material impact on the Company’s consolidated financial statements.





ASU No. 2010-28, Intangibles — Goodwill and Other, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts(“ASU 2010-28”) was issued in December 2010.  The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.  For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists.  In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted.  The Company adopted ASU 2010-28 for the quarter ending March 31, 2011.


7





Employee Stock Options and Stock-based Compensation





The Company’s  2010 Equity Incentive Plan (the “Plan”) provides for the granting of the following types of awards to persons who are employees, officers, consultants, advisors, or directors of our Company or any of its affiliates:





Under the Plan, the Company may issue a variety of equity vehicles to provide flexibility in implementing equity awards, including incentive stock options, nonqualified stock options, restricted stock grants and stock appreciation rights. The exercise price of stock options offered under the Plan shall not be less than the fair market value of the Company’s common stock on the date of the grant.  The exercise price of an ISO granted to any person who owns, directly or by attribution under the Code (currently Section 424(d)), stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any affiliate (a “10% Stockholder”) shall in no event be less than 110% of the fair market value (determined in accordance with Section 6.1.10) of the stock covered by the option at the time the option is granted.





Subject to the adjustment provisions of the Plan that are applicable in the event of a stock dividend, stock split, reverse stock split or similar transaction, up to 5,000,000 shares of common stock may be issued under the Plan.  Options granted under the Plan generally vest over a three-year period and generally expire five years from the date of grant.





All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values.





Stock options and warrants issued as compensation for services to be provided to the Company by non-employees are accounted for based upon the fair value of the services provided or the estimated fair value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided. This expense is a non-cash charge and has no impact on the Company’s available cash or working capital.





There were no stock options issued or exercised during the three months ended April 30, 2011 or 2010.  The Company issues new shares to satisfy stock option exercises.





Basic and Diluted Earnings Per Share





In accordance with ASC Topic 260, “Earnings Per Share,” basic net 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 loss by the weighted average number of shares of the Company’s common stock issued and outstanding during such period. Diluted net 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.


8


Cash and Cash Equivalents





Cash and cash equivalents at April 30, 2011 was  $281,869 and included cash in bank representing the Company’s current operating account and $264,868 in a brokerage money market account.





Revenue Recognition





The Company recognizes Case Rate, Hourly and Capitation revenue when persuasive evidence of an arrangement exists, service has been rendered, the service rate is fixed or determinable, and collection is reasonably assured.  Fee for Service revenues are recorded at amounts reasonably assured to be collected. The determination of reasonably assured collections is based on historical Fee for Service collections as a percent of billings. The provisions are adjusted to reflect actual collections in subsequent periods.





The estimation and the reporting of patient responsibility revenues is highly subjective and depends on the payer mix, contractual reimbursement rates, collection experiences, judgment and other factors.  The Company’s fee arrangements are with various payers, including managed care organizations, hospitals, insurance companies, individuals, Medicare and Medicaid.





3.  Uncertainty of ability to continue as a going concern





The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of $1,626,293 as of April 30, 2011. In addition, the Company has a total stockholders’ deficit of $31,791 and a negative net cash flow operating activities for the twelve months ended April 30, 2011 of $114,432.





The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.





To date the Company has funded its operations from both internally generated cash flow and external sources, and the proceeds available from the private placement of convertible notes  which have provided funds for near-term operations and growth. The Company will pursue additional external capitalization opportunities, as necessary, to fund its long-term goals and objectives.  Management has taken action to strengthen the Company's working capital position and generate sufficient cash to meet its operating needs through January 31, 2012 and beyond. The Company also anticipates generating more revenue through new hospitalist, care management contracts and mergers and acquisitions. No assurances can be made that management will be successful in achieving its plan. If the Company is not able to raise substantial additional capital in a timely manner, the Company may be forced to cease operations.





4.  Accounts Receivable





Accounts Receivable is stated at the amount management expects to collect from outstanding balances. An allowance for doubtful accounts is provided for those accounts receivable considered to be uncollectible, based upon historical experience and management's evaluation of outstanding accounts receivable at each quarter end. As of April 30, 2011, Accounts Receivable totals $692,403, net of a provision for bad debt expense of $34,746, and represents amounts invoiced by AMH. Accounts Receivable was $704,971, net of the provision for bad debt expense of $34,746, on January 31, 2011.





5.  Other Receivables





Other receivables total $24,872 and represent amounts due the Company from two officers. These balances are due on demand, non-interest bearing and are unsecured.





6.  Due from affiliate





Due from affiliate totals $4,700 and $3,900 as of April 30, 2011 and January 31, 2011, respectively, and represents amounts due from AMA, an unconsolidated Affiliate of the Company.  These balances are due on demand, non-interest bearing and are unsecured.





7.  Prepaid Expenses





Prepaid Expenses of $17,228 and $29,138 as of April 30, 2011 and January 31, 2011, respectively, are amounts prepaid for medical malpractice insurance and Director’s and Officer’s insurance.


9


8.  Prepaid Financing Cost





Unamortized financing cost of $67,188 on April 30, 2011 and $76,563 as of January 31, 2011 represent the financing cost associated with 10% Senior Subordinated Callable Convertible Notes due January 31, 2013, $125,000 paid by the Company on the closing of the placement on October 16, 2009 (see Note 11).





9. Property and Equipment





Property and Equipment consists of the following as of :





April 30,

2011


January 31,

2011Website

$
4,568


$
4,568Computers


13,912



13,912Software


155,039



155,039Machinery and equipment


50,815



50,815Gross Property and Equipment


224,334



224,334Less accumulated depreciation


(206,034
)


(202,741
)Net Property and Equipment

$
18,300


$
21,593





Depreciation expense was $3,293 and $3,006 for the three month periods ended April 30, 2011 and 2010, respectively.





10.  Accounts Payable and Accrued Liabilities





Accounts payable and accrued liabilities consist of the following as of:





April 30,

2011


January 31,

2011Accounts payable

$
49,507


$
35,815D&O insurance payable


2,749



10,913Accrued interest


31,250



-Accrued professional fees


10,000



5,483Accrued payroll and income taxes


6,056



40,534Total

$
99,562


$
92,745




11.  Long-term Debt





The Company’s long-term debt consisted of the following:





April 30,


January 30,2011


2011Subordinated Borrowings:10% Senior Subordinated Convertible Notes due January 31, 2013

$
1,248,789


$
1,248,588Total long-term debt

$
1,248,789


$
1,248,588Less: Current PortionTotal

$
1,248,789


$
1,248,588





Subordinated Borrowings





10% Senior Subordinated Callable Convertible Notes due January 31, 2013


On October 16, 2009, the Company issued $1,250,000 of its 10% Senior Subordinated Callable Convertible Notes. The net proceeds of $1,100,000 will be used for the repayment of existing debt, acquisitions, physician recruitment and other general corporate purposes. The notes bear interest at a rate of 10% annually, payable semi annually on January 31 and July 31. The Notes mature and become due and payable on January 31, 2013 and rank senior to all other unsecured debt of the Company.


10





The 10% Notes were sold through an Agent in the form of a Unit. Each Unit was comprised of one 10% Senior Subordinated Callable Note with a par value of $25,000, and one five-year warrant to purchase 25,000 shares of the Company’s common stock. The purchase price of each Unit was $25,000, resulting in gross proceeds of $1,250,000.





In connection with the placement of the subordinated notes, the Company paid a commission of $125,000 and $25,000 of other direct expenses. The agent also received five-year warrants to purchase up to 250,000 shares of the Common Stock at an initial exercise price of $0.25 per share. The agent also received 100,000 shares of restricted common stock for pre-transaction advisory services and due diligence. The commission of $125,000 paid at closing, is accounted for as prepaid financing cost and will be amortized over a forty-month period through January 31, 2013, the maturity date of the notes. The $25,000 of other direct expenses were paid at closing and reported as financing costs in the Operating Statement in the year ended January 31, 2010. In addition, financing costs included $4,000 related to the value of the 100,000 shares granted to the Placement Agent.





The 10% Notes are convertible any time prior to January 31, 2013. The initial conversion rate is 200,000 shares of the Company’s common stock per $25,000 principal amount of the 10% Notes (Subject to certain events). This represents an initial conversion price of $0.125 per share of the Company’s common stock.





On or after January 31, 2012, the Company may, at its option, upon 60 days notice to both the Noteholders and the placement agent, redeem all or a portion of the notes at a redemption price in cash equal to 102% of the principal amount of the notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.





The Warrants attached to the Units are exercisable into shares of Common Stock at an initial exercise price of $0.125.  The Warrants have a five-year term and expire on October 31, 2014. These warrants were estimated to have a fair value of $2,653 using the Black-Scholes pricing model which was recorded as unamortized warrant discount on granted date and $1,211 as of April 30, 2011.





In connection with this offering, the Company also issued warrants to purchase 250,000 shares of our common stock to the placement agent which were estimated to have a fair value of $2,200 using the Black-Scholes pricing model and was recorded as unamortized warrant discount on granted date. These warrants have an exercise price of $0.25 per share, are exercisable immediately upon issuance and expire five years after the date of issuance.





The Company recorded interest expense of $ 31,250 and $31,250 related to these notes for the three months ended April 30, 2011 and 2010.





12.  Related Party Transactions





During the three months ended April 30, 2011 and 2010, the Company generated revenue of $110,000 and $105,000, respectively, by providing management services to ApolloMed Hospitalists (AMH), an affiliated company with common ownership interest. Commencing August 1, 2008, the management services fee income reported by AMM was eliminated in consolidation against similar costs recorded at AMH.





During the three months ended April 30, 2011, the Company  issued 350,000 shares valued at $63,000 to the chief financial officer for consulting service. (see Note 15)





13.  Non-Controlling Interest





The Company recorded AMH ownership interest in the accompanying financial statements as Non-Controlling Interest of $228,115 at April 30, 2011 and January 31, 2011.





14.  Stockholder’s Equity





In the first quarter ended April 30, 2011, the Company issued 1,350,000 common shares, bringing the total outstanding shares to 28,985,774.  A total of 350,000 shares were issued to Kanehoe Advisors and 1,000,000 shares were issued in connection with the acquisition of Aligned Healthcare Group, Inc. (see Note 16).  The 1,350,000 shares were valued at $273,000 based on the fair value of shares at issuance date.





The Company issued a total of 594,446 common shares in the twelve months ended January 31, 2011, including 383,333 shares in the first quarter ended April 30, 2010 and 211,113 shares issued in the second quarter ended July 31, 2010. Of the 594,446 shares issued, 244,446 were issued to officers and directors and 350,000 shares were issued to Kanehoe Advisors. The total shares of 594,446 were valued at $47,378 based on the fair value of shares at issuance dates.


11




Warrants outstanding:





No warrants were issued by the Company in the quarter ended April 30, 2011.





Aggregate

intrinsic value


Number of

warrantsOutstanding at January 31, 2011

$
—



1,655,333Granted


—



-Exercised


—



—Cancelled


—



—Outstanding at April 30, 2011

$
—



1,655,323





Exercise Price


Warrants

outstanding


Weighted

average

remaining

contractual life


Warrants

exercisable


Weighted

average

exercise price$
1.500



155,333



0.49



155,333


$
1.50$
0.250



1,250,000



3.51



1,250,000


$
0.25$
0.250



250,000



3.51



250,000


$
0.25




Options outstanding:





Stock option transactions under the Company’s stock option plans for the three months ended April 30, 2011 are summarized below:





Shares


Weighted

Average

Per Share

Exercise

Price

Weighted Average

Remaining

Contractual Term

Aggregate

Intrinsic ValueBalance, January 31, 2011


1,150,000


$
0.15




-Granted


-



-Exercised


-



-Expired


-



-Forfeited


-



-Balance, April 30, 2011


1,150,000


$
0.15

9.6 years

$
55,500Exercisable, April 30, 2011


666,616


$
0.15

9.6 years

$
55,500





The Company did not issue any stock options during the three months ended April 30, 2011 and 2010, respectively.





15. Commitments and Contingency





On March 15, 2009, the Company entered into a Consulting Agreement with Kaneohe Advisors LLC (Kyle Francis) under which Mr. Francis became the Company’s Executive Vice President, Business Development and Strategy. Under the terms of the Agreement, Mr. Francis is compensated at a rate of $8,000 per month. In addition, Mr. Francis received 350,000 shares of restricted stock at the date of the Agreement and is entitled to 350,000 additional restricted shares on the first and second anniversaries of the Agreement, provided the Agreement is not terminated. The initial 350,000 shares, along with 50,000 shares granted to Mr. Francis in the year ended January 2009, were issued in the third quarter ended October 31, 2009. On March 15, 2011, the second anniversary of the Consulting Agreement, Mr. Francis was granted an additional 350,000 shares. Mr. Francis was named Chief Financial Officer on December 31, 2010. Mr. Francis shares was increased to $11,000 per month.





On October 27, 2008, the Company entered into a Board of Director’s Agreement with Suresh Nihalani. The Company will issue a stock award of 400,000 shares to Mr. Nihalani, under the terms of the Director’s Agreement, which shares will be issued ratably over a thirty-six month period commencing December 2008. The shares will be released to Mr. Nihalani on a monthly basis during his tenure as a Director. The distribution of shares will continue as long as Mr. Nihalani serves on the Board, but will cease when Mr. Nihalani is no longer a Director. Mr. Nihalani was issued 11,111 shares under this agreement in the year ended January 31, 2009 and an additional 144,443 shares in the year ended January 31, 2010.


12





16. Acquisition





On February 15, 2011, Apollo Medical Holdings, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Aligned Healthcare Group – California, Inc., Raouf Khalil, Jamie McReynolds, M.D. BJ Reese and BJ Reese & Associates, LLC, under which the Company acquired all of the issued and outstanding shares of capital stock and associated Intellectual property and related intangibles (the “Acquisition”) of Aligned Healthcare, Inc., a California corporation (“AHI”), from AHI’s shareholders. Upon the signing of the Purchase Agreement, 1,000,000 shares of the Company’s common stock became issuable (the “Initial Shares”) and are included in the number of shares outstanding. In addition, if the gross revenues of AHI and an affiliated entity (the “Aligned Division”) exceed $1,000,000 on or before February 1, 2012, then the Company will be obligated to issue an additional 1,000,000 shares of common stock (the “Contingent Shares”). Moreover, the Company will be obligated to issue up to an additional 3,500,000 shares of common stock (the “Earn-Out Shares” and, collectively with the Initial Shares and the Contingent Shares, the “Shares”) over a three year period following closing based on the EBITDA generated by the Aligned Division during that time. If, prior to February 15, 2012, AHI has not entered into an agreement for the provision of certain services to a hospital or certain other health organizations that has a term of at least one year and provides aggregate net revenues to AHI of at least $1,000,000, the Company will have the right to repurchase all of the Initial Shares for $0.05 per share, at which time the Company’s obligation to issue any further Shares would terminate.





Based on our internal estimate of contingent shares to be issued as part of this agreement, we estimated that the total fair value of the common stock shares issued and contingently issuable for this transaction on the acquisition date was $577,500.




The Company has recognized a liability based on the acquisition date fair value of the acquisition-related contingent consideration based on the probability of the achievement of the targets. Based on the Company’s estimation, an initial liability of $367,500 (1,750,000 shares) was recorded. Changes in the fair value of the acquisition-related contingent consideration during the measurement period, including changes from events after the acquisition date, such as changes in the Company’s estimate of the revenue and net income expected to be achieved and changes in their stock price, are being recognized as an adjustment to the purchase price in the period in which the estimated fair value changes. The accompanying consolidated financial statements include the financial results of these companies from the date of acquisition.




The estimated fair values of net assets acquired and presented below are preliminary and are based on the information that was available as of the acquisition date and prior to the filing of this Quarterly Report on Form 10-Q. The Company believes that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, the Company is awaiting the finalization of certain third-party valuations to finalize those fair values. Thus, the preliminary measurements of fair value set forth below are subject to change. The Company expects to finalize the valuation and complete the purchase price allocations as soon as practicable, but no later than one year from the respective acquisition date.




The following table summarizes the preliminary determination of the purchase price and fair value of AHI’s assets acquired and liabilities assumed at the date of acquisition:





Purchase price calculation:Common stock issued (1,000,000 shares)

$
210,000Contingent consideration (1,750,000 shares of common stock)


367,500Fair value of total consideration


577,500Allocation of purchase price:Intellectual property and technical know-how

$
577,500





AHI’s operations commenced immediately prior to the Company’s acquisition, as the result pro forma information is not presented.  During the quarter ended April 30, 2011, AHI incurred a net loss of $33,621, which is included in the consolidated net loss reported by the Company.  Pro forma basic and earnings per share for the three months ended April 30, 2011 and 2010 are $(0.01) and $(0.00), respectively.


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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The following management’s discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report. In addition, reference is made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our most recent Annual Report on Form 10-K for the year ended January  31, 2011, filed with the Securities and Exchange Commission ( SEC) on May 16, 2011.





In this Quarterly Report, unless otherwise expressly stated or the context otherwise requires, “Apollo,” “we,” “us” and “our” refer to Apollo Medical Holdings, Inc,, a Delaware corporation, and its wholly-owned subsidiary-management company, Apollo Medical management, Inc., and affiliated medical groups.  Our affiliated professional organizations are separate legal entities that provide physician services in California and with which we have management agreements. For financial reporting purposes we consolidate the revenues and expenses of all our practice groups that we own or manage because we have a controlling financial interest in these practices based on applicable accounting rules and as described in our accompanying financial statements. Also, unless otherwise expressly stated or the context otherwise requires, “our affiliated hospitalists” refer to physicians employed or contracted by either our wholly-owned subsidiaries or our affiliated professional organizations. References to “practices” or “practice groups” refer to our subsidiary-management company and the affiliated professional organizations of Apollo that provide medical services, unless otherwise expressly stated or the context otherwise requires.





The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and the future results of Apollo  that are based on management’s current expectations, estimates, projections, and assumptions about our business. Words such as “may,” “will,” “could,” “should,” “target,” “potential,” “project,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “sees,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to, those discussed in our most recent Annual Report on Form 10-K, including the section entitled “Risk Factors”, as well as those discussed from time to time in the Company’s other SEC filings and reports. In addition, such statements could be affected by general industry and market conditions. Such forward-looking statements speak only as of the date of this Quarterly Report or, in the case of any document incorporated by reference, the date of that document, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report, or for changes made to this document by wire services or Internet service providers. If we update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect to other forward-looking statements.





Overview





We are a leading provider of hospitalist services in the Greater Los Angeles, California area. Hospitalist medicine is organized around the admission and care of patients in an inpatient facility such as a hospital or skilled nursing facility and is focused on providing, managing and coordinating the care of hospitalized patients.




Acquisitions




During the three months ended April 30, 2011, we entered into a stock purchase agreement with Aligned Healthcare Group. Upon the signing of the Purchase Agreement, 1,000,000 shares of the Company’s common stock became issuable (the “Initial Shares”) and are included in the number of shares outstanding. In addition, if the gross revenues of AHI and an affiliated entity (the “Aligned Division”) exceed $1,000,000 on or before February 1, 2012, then the Company will be obligated to issue an additional 1,000,000 shares of common stock (the “Contingent Shares”). Moreover, the Company will be obligated to issue up to an additional 3,500,000 shares of common stock (the “Earn-Out Shares” and, collectively with the Initial Shares and the Contingent Shares, the “Shares”) over a three year period following closing based on the EBITDA generated by the Aligned Division during that time.




In connection with this acquisition, the Company recorded intellectual property and technical know-how of $577,500. Total transaction costs of $37,901 were expensed as incurred during the three months ended April 30, 2011.


14





Results of Operations and Operating Data





Three Months Ended April 30, 2011 vs. Three Months Ended April 30, 2010





Net revenues for the three months ended April 30, 2011 of $1,039,693 increased $236,808, or 29 percent, over net revenues of $802,885 reported for the three months ended April 30, 2010. Net revenues are comprised of  net billings by AMH under the various fee structures from health plans, medical groups/IPA’s and hospitals, and income from service fee agreements. Increase was attributable to new hospital contracts, increased same-market area growth and expansion of services with existing medical group clients at new hospitals.





Physician practice salaries, benefits and other expenses for the three months ended April 30, 2011 were $947,489, at 91% of net revenues compared to $674,686 for the three months ended April 30, 2010, at 84% of net revenues.  Cost of Services includes the payroll and consulting costs of the physicians, all payroll related costs, costs for all medical malpractice insurance and physician privileges. Increases in physician costs were attributable to start-up losses at new hospital contracts and expansions of services at existing hospitals in the quarter and the hiring of new physicians to support new contracts.





General and administrative expenses include all salaries, benefits, supplies and operating expenses, not specifically related to the day-to-day operations of our physician group practices, including billing and collections functions,  and our corporate management and overhead. General and administrative expenses were $276,355, at 27% of net revenues, for the three months ended April 30, 2011. General and Administrative expenses were $85,192 for the three months ended April 30, 2010, at 11% of net revenues. The increase in expense is primarily the result of increased costs to support the continuing growth of our operations, new office equipment, and severance pay for one employee in the quarter. In addition, the Company experienced start-up losses of $33,621 at AHI during the three months ended April 30, 2011. The Company incurred non-cash compensation expenses of $63,000, related to the issuance of shares for service during the three months ended April 30, 2011, compared to $30,066 of such non-cash costs during the three months ended April 30, 2010.   In addition, the Company had no change in its bad debt reserve calculation for the three months ended April 30, 2011 compared to favorable write-down of its bad debt reserve of $60,647 in the first quarter of 2010.





Depreciation and amortization expense was $3,293 for the three months ended April 30, 2011, and $3,006 for the comparable three-month period in 2010.





The Company reported a loss from operations of $187,444 for the three months ended April 30, 2011, compared to a profit from operations of $40,001 recorded in the same period of 2010. Net revenues in 2011 continued to benefit from the addition of contracts with hospitals, IPAs and Health plans and the hiring of several additional physicians.  The decrease in operating profits for the three months ended April 30, 2011 is primarily related to increased physician costs to support new contracts and transaction and start-up costs related to the acquisition of AHI.





Interest expense and amortization of financing costs totaled $40,949 for the three months ended April 30, 2011,  compared to interest and financing costs of $40,898 for the three months ended April 30, 2010. Interest expense and financing costs in 2011 included interest on the subordinated borrowings of $31,574, and the amortization of financing costs of $9,375, related to these notes. Interest expense for the three months ended April 30, 2010 of $40,898 represents interest expense paid on the subordinated borrowings of $31,523, and the amortization of financing costs of $9,375, related to subordinated notes.  Net Loss was $228,930 for the three months ended April 30, 2011, compared to a net loss of $843 for the three months ended April 30, 210.  The increase in the net loss for the three months ended April 30, 2011 is primarily related to increased physician costs to support new contracts and transaction and start-up costs related to the acquisition of AHI.





Liquidity and Capital Resources





At April 30, 2011, the Company had cash and cash equivalents of $281,869, compared to cash and cash equivalents of  $397,101 at  January 31, 2011. The cash balance at April 30, 2011 included $264,868 in a money market brokerage account.  There were no short-term borrowings at April 30, 2011 or January 31, 2011.   Long-term borrowings totaled $1,248,789 as of April 30, 2011 and  $1,248,588 on January 31, 2011.





Net cash used in operating activities totaled $114,432 in the three months ended April 30, 2011, compared to net cash used in operations of $155,830 for the comparable three months ended April 30, 2010.  The decrease in accounts receivable and increase in and increase in accounts payable, is the primary cause for the decrease in cash used for operating activities and transaction and start-up losses related with acquisition of AHI for the three months ended April 30, 2010.





Net cash used in operating activities for the three months ended April 30, 2010 of $114,432 was comprised of a net loss of $228,930 for the three month period.  Adjustments for non-cash charges which include depreciation, bad debt expense, shares issued for service and amortization of commission cost and debt discount, used $73,827.  In addition, net changes in operating assets and liabilities provided cash of $40,671.





During the three months ended April 30, 2011, the Company advanced $800 to an affiliated Company.  The Company invested $4,568 to develop a web site and an $800 advance to an affiliated Company in the first quarter of 2010.


15





Liquidity





We continue to search for investment opportunities and anticipate that funds generated from operations, together with our current cash on hand and funds available under our revolving credit agreement will be sufficient to finance our working capital requirements and fund anticipated acquisitions, contingent acquisition consideration and capital expenditures.





Off Balance Sheet Arrangements





As of April 30, 2011, we had no off-balance sheet arrangements.





Recently Adopted and New Accounting Pronouncements





See Note 2 to the Condensed Consolidated Financial Statements for information regarding recently adopted and new accounting pronouncements.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The Company does not hold any derivative instruments and does not engage in any hedging activities.





ITEM 4.  CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures.





In connection with the preparation of this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures, as of April 30, 2011, in accordance with Rules 13a-15(b) and 15d-15(b) of the Exchange Act.





Based on that evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures were not effective as of April 30, 2011.





We have identified the following three material weaknesses in our disclosure controls and procedures:





1.          We do not have written documentation of our internal control policies and procedures.  Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act.  Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures, and concluded that the control deficiency that resulted represented a material weakness.





2.          We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures, and concluded that the control deficiency that resulted represented a material weakness.





3.          We do not have review and supervision procedures for financial reporting functions. The review and supervision function of internal control relates to the accuracy of financial information reported. The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information. Due to our size and nature, review and supervision may not always be possible or economically feasible.  Management evaluated the impact of our significant number of audit adjustments, and concluded that the control deficiency that resulted represented a material weakness.





Based on the foregoing materials weaknesses, we have determined that, as of April 30, 2011, that our disclosure controls and procedures are insufficient.  The Company continues to take steps to improve the timeliness and accuracy of its financial information, including the hiring of additional employees to facilitate proper segregation of duties.  Our management is responsible for establishing and maintaining adequate disclosure controls and procedures, as defined in Rule 15d-15(e) under the Exchange Act, and for assessing the effectiveness of our disclosure controls and procedures. It should be noted that any system of controls and procedures, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.  Therefore, even those systems determined to be effective can only provide reasonable assurance of achieving their control objectives.


16


Changes in Internal Controls over Financial Reporting





There has been no change in our internal control over financial reporting during our most recently completed fiscal quarter (i.e., the three-month period ended April 30, 2011) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





PART II – OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS





The Company is not a party to any litigation and, to its knowledge, no action, suit or proceeding has been threatened against the company.





ITEM 1A. RISK FACTORS


Not Applicable





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





On February 15, 2011, Apollo Medical Holdings, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Aligned Healthcare Group – California, Inc., Raouf Khalil, Jamie McReynolds, M.D. BJ Reese and BJ Reese & Associates, LLC, under which the Company acquired all of the issued and outstanding shares of capital stock (the “Acquisition”) of Aligned Healthcare, Inc., a California corporation (“AHI”), from AHI’s shareholders. Upon the signing of the Purchase Agreement, 1,000,000 shares of the Company’s common stock was issued as a private placement pursuant to Section 4(2). Stock Purchase Agreement was filed as an exhibit to Current Form 8-K filed on February 22, 2011 and incorporated herein by reference.





On March 15, 2011, the Company issued 350,000 shares to Kaneohe Advisors LLC (Kyle Francis). The shares were issued as a private placement pursuant to Section 4(2). See Note 15





ITEM 3.  DEFAULTS UPON SENIOR SECURITIES





None





ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None





ITEM 5.  OTHER INFORMATION





None





ITEM 6.  EXHIBITS





Exhibit Number

Description3.1

Certificate of Incorporation (filed as an exhibit to Registration Statement on Form 10 filed on April 19, 1999, and incorporated herein by reference).3.2

Certificate of Ownership (filed as an exhibit to Current Report on Form 8-K filed on July 15, 2008, and incorporated herein by reference).3.3

Bylaws (filed as an exhibit to Registration Statement on Form 10 filed on April 19, 1999, and incorporated herein by reference).4.1

Form of 10% Senior Subordinated Convertible Note, dated October 16, 2009. (filed as an exhibit on Annual Report on Form 10-K on May 14, 2010, and incorporated herein by reference).4.2

Form of Investor Warrant, dated October 16, 2009, for the purchase of 25,000 shares of common stock. (filed as an exhibit on Annual Report on Form 10-K on May 14, 2010, and incorporated herein by reference).10.8

Aligned Healthcare, Inc. Stock Purchase Agreement (filed as an exhibit to Current Form 8-K filed on February 22, 2011 and incorporated herein by reference).




17





31.1

Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.31.2

Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.32.1

Certification by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.32.2

Certification by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.




18




SIGNATURES





In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





APOLLO MEDICAL HOLDINGS, INC.Dated:  June 20, 2011
By:
/s/ Warren HosseinionWarren HosseinionChief Executive Officer and DirectorDated:  June 20, 2011
By:
/s/ Kyle FrancisKyle FrancisChief Financial Officer




19