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Apollo Medical

ameh · NASDAQ Healthcare
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FY2019 Annual Report · Apollo Medical
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SECURITIES & EXCHANGE COMMISSION EDGAR FILING

Apollo Medical Holdings, Inc.

Form: 10-K 

Date Filed: 2020-03-16

Corporate Issuer CIK:   1083446

© Copyright 2020, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the terms of use.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ý

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended  December 31, 2019

OR

❑

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                      to                 .

Commission file number:  001-37392

Apollo Medical Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of
incorporation or organization)

95-4472349

(I.R.S. Employer
Identification No.)

1668 S. Garfield Avenue, 2nd Floor, Alhambra, California 91801
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:   (626) 282-0288

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share

AMEH

Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   ❑  No  ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes   ❑  No  ý

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

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

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

Large accelerated filer   ❑
Non-accelerated filer   ❑

Accelerated filer   ☑
Smaller reporting company ❑

Emerging growth company ❑

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

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

The aggregate market value of common stock held by non-affiliates of the registrant, as of June 30, 2019, the last day of the registrant’s most recently completed second fiscal
quarter, was approximately $480.1 million (based on the closing price for shares of the registrant’s common stock as reported by the NASDAQ Capital Market on June 28, 2019).

As of  March 2, 2020, there were 52,804,187 shares of common stock of the registrant, $0.001 par value per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2020 annual meeting of the stockholders of the registrant are incorporated herein by reference in Part III of this Annual
Report on Form 10-K to the extent stated herein. Such Proxy Statement will be filed with the Securities and Exchange Commission (the “SEC”) within 120 days of the registrant’s
fiscal year ended December 31, 2019.

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Table of Contents

Apollo Medical Holdings, Inc.
Form 10-K
Fiscal Year Ended December 31, 2019

ITEM

ITEM 1

ITEM 1A

ITEM 1B

ITEM 2

ITEM 3

ITEM 4

ITEM 5

ITEM 6
ITEM 7

ITEM 7A

ITEM 8
ITEM 9

ITEM 9A
ITEM 9B

ITEM 10

ITEM 11

ITEM 12
ITEM 13

ITEM 14

Introductory Note

Note About Forward-Looking Statements

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

PART I

PART II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance

Executive Compensation

PART III

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence

Principal Accounting Fees and Services

ITEM 15
ITEM 16

Exhibits and Financial Statement Schedules
Form 10-K Summary

PART IV

2

Page

3

3

5

5

20

43

43

43

43

44

44

45
47

66

67
128

128
131

132
132

132

132
132

132

133

133
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The following abbreviations or acronyms that may be used in this document shall have the adjacent meanings set forth below:

Glossary

AIPBP
AMG

AMH
AMM

APC

BAHA
CDSC

CQMC
CSI

DMG

HSMSO
ICC

LMA
MMG

MPP

NGACO
NMM

PASC
PMIOC

SCHC

Tag-2
UCAP

UCI

All-Inclusive Population-Based Payments
AMG, a Professional Medical Corporation

ApolloMed Hospitalists
Apollo Medical Management, Inc

Allied Pacific of California IPA

Bay Area Hospitalist Associates
Concourse Diagnostic Surgery Center, LLC

Critical Quality Management Corp
College Street Investment LP, a California limited partnership

Diagnostic Medical Group

Health Source MSO Inc. a California corporation
AHMC International Cancer Center, a Medical Corporation

LaSalle Medical Associates
Maverick Medical Group Inc

Medical Property Partners

Next Generation Accountable Care Organization
Network Medical Management Inc

Pacific Ambulatory Health Care, LLC
Pacific Medical Imaging and Oncology Center Inc

Southern California Heart Centers

Tag-2 Medical Investment Group LLC
Universal Care Acquisition Partners, LLC

Universal Care, Inc

INTRODUCTORY NOTE

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

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of
operations  and  financial  performance.  This  discussion  should  be  read  in  conjunction  with  the  consolidated  financial  statements  and  notes  thereto  appearing
elsewhere herein, and with our prior filings with the Securities and Exchange Commission (the “SEC”).

The Centers for Medicare & Medicaid Services (“CMS”) has not reviewed any statements contained in this Report, including statements describing the

participation of APA ACO, Inc. (“APAACO”) in the next generation accountable care organization (“NGACO”) model.

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

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This  Annual  Report  on  Form  10-K  contains  “forward-looking  statements”  within  the  meaning  of  the  Private  Securities  Litigation  Reform  Act  of  1995,
Section  27A  of  the  Securities  Act  of  1933,  as  amended  (the  “Securities  Act”),  and  Section  21E  of  the  Securities  Exchange  Act  of  1934,  as  amended  (the
“Exchange  Act”).  All  statements  other  than  statements  of  historical  fact  are  “forward-looking  statements”  for  purposes  of  federal  and  state  securities  laws,
including,  but  not  limited  to,  any  statements  about  our  business,  financial  condition,  operating  results,  plans,  objectives,  expectations  and  intentions,  any
projections  of  earnings,  revenue  or  other  financial  items,  such  as  our  projected  capitation  from  CMS  and  our  future  liquidity;  any  statements  of  any  plans,
strategies and objectives of management for future operations such as the material opportunities that we believe exist for our

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company;  any  statements  concerning  proposed  services,  developments,  mergers  or  acquisitions;  any  statements  regarding  the outlook  on  our  NGACO  or
strategic transactions; any statements regarding management’s view of future expectations and prospects for us; any statements about prospective adoption of
new accounting standards or effects of changes in accounting standards; any statements regarding future economic conditions or performance; any statements
of belief; any statements of assumptions underlying any of the foregoing; and other statements that are not historical facts. Forward-looking statements may be
identified  by  the  use  of  forward-looking  terms  such  as  “anticipate,”  “could,”  “can,”  “may,”  “might,”  “potential,”  “predict,”  “should,”  “estimate,”  “expect,”  “project,”
“believe,”  “think,”  “plan,”  “envision,”  “intend,”  “continue,”  “target,”  “seek,”  “contemplate,”  “budgeted,”  “will,”  “would,”  and  the  negative  of  such  terms,  other
variations  on  such  terms  or  other  similar  or  comparable  words,  phrases  or  terminology.  These  forward-looking  statements  present  our  estimates  and
assumptions only as of the date of this Annual Report on Form 10-K and are subject to change.

Forward-looking statements involve risks and uncertainties and are based on the current beliefs, expectations and certain assumptions of management.
Some or all of such beliefs, expectations and assumptions may not materialize or may vary significantly from actual results. Such statements are qualified by
important economic, competitive, governmental and technological factors that could cause our business, strategy, or actual results or events to differ materially
from  those  in  our  forward-looking  statements.  Although  we  believe  that  the  expectations  reflected  in  our  forward-looking  statements  are  reasonable,  actual
results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations,
as well as any forward-looking statements, are subject to change and significant risks and uncertainties that could cause actual condition, outcomes and results to
differ materially from those indicated by such statements.

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PART I

Item 1.

Business

Overview

We, together with our affiliated physician groups and consolidated entities, are a physician-centric integrated population health management company
providing coordinated, outcomes-based medical care in a cost-effective manner and serving patients in California, the majority of whom are covered by private or
public insurance provided through Medicare, Medicaid and health maintenance organizations (“HMOs”), with a small portion of our revenue coming 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. Our physician network consists of primary care
physicians,  specialist  physicians  and  hospitalists.  We  operate  primarily  through  Apollo  Medical  Holdings,  Inc.  (“ApolloMed”)  and  the  following  subsidiaries:
Network Medical Management (“NMM”), Apollo Medical Management, Inc. (“AMM”), APAACO and Apollo Care Connect, Inc. (“Apollo Care Connect”), and their
consolidated entities, including consolidated VIEs.

Led  by  a  management  team  with  several  decades  of  experience,  we  have  built  a  company  and  culture  that  is  focused  on  physicians  providing  high-
quality medical care, population health management and care coordination for patients. We are well-positioned to take advantage of the growing trends in the
U.S.  healthcare  industry  towards  value-based  and  results-oriented  healthcare  focusing  on  the  triple  aim  of  patient  satisfaction,  high-quality  care  and  cost
efficiency.

Through our NGACO model and a network of independent practice associations (“IPAs”) with more than  7,000 contracted physicians, which physician
groups  have  agreements  with  various  health  plans,  hospitals  and  other  HMOs,  we  are  responsible  for  coordinating  the  care  for  over 980,000  patients  in
California,  as  of  December  31,  2019.  These  covered  patients  are  comprised  of  managed  care  members  whose  health  coverage  is  provided  through  their
employers or who have acquired health coverage directly from a health plan or as a result of their eligibility for Medicaid or Medicare benefits. Our managed
patients  benefit  from  an  integrated  approach  that  places  physicians  at  the  center  of  patient  care  and  utilizes  sophisticated  risk  management  techniques  and
clinical protocols to provide high-quality, cost effective care. To implement a patient-centered, physician-centric experience, we also have other integrated and
synergistic operations, including (i) management service organizations (“MSOs”) that provide management and other services to our affiliated IPAs, (ii) outpatient
clinics and (iii) hospitalists that coordinate the care of patients in hospitals.

In December 2017, we completed a business combination with NMM, a California corporation formed in 1994 (the “Merger”). As a result of the Merger,
NMM became a wholly owned subsidiary of ApolloMed, following which former NMM shareholders owned more than 80% of the issued and outstanding shares
of ApolloMed’s common stock, after completing the Merger. The combined company operates under the Apollo Medical Holdings name. NMM is the larger entity
in  terms  of  assets,  revenues  and  earnings.  In  addition,  as  of  the  closing  of  the  Merger,  the  majority  of  the  board  of  directors  of  the  combined  company  was
comprised of former NMM directors and directors nominated for election by NMM. Accordingly, ApolloMed is considered to be the legal acquirer (and accounting
acquiree), whereas NMM is considered to be the accounting acquirer (and legal acquiree).

Our affiliated medical groups provide hospitalist services at multiple acute-care hospitals, long-term acute care facilities and outpatient clinics. ApolloMed
and  its  subsidiaries,  and  consolidated  VIEs,  generate  revenue  by  providing  administrative,  medical  management  and  clinical  services  to  affiliated  IPAs  and
medical  groups.  The  administrative  services  cover  billing,  collection,  accounting,  administrative,  quality  assurance,  marketing,  compliance  and  education.  In
addition, our NGACO, APA ACO, which served over 29,000 beneficiaries in 2019, is eligible to receive periodic advance payments from CMS for managing care
for aligned beneficiaries.

We implement and operate different innovative health care models, primarily including the following integrated operations:

•

•

•

IPAs, which contract with physicians and provide care to Medicare, Medicaid, commercial and dual-eligible patients on a risk- and value-based
fee basis;

MSOs, which provide management, administrative and other support services to our affiliated physician groups such as IPAs;

APAACO, which participates in the Medicare Shared Savings Program (the “MSSP”) sponsored by CMS and focuses on providing high-quality
and cost-efficient care to Medicare fee-for-service (“FFS”) patients;

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•

•

•

Outpatient  clinics  providing  specialty  care,  including  an  ambulatory  surgery  center  and  a  specialty  clinic  that  focuses  on  cardiac  care  and
diagnostic testing;

Hospitalists, which include our employed and contracted physicians who focus on the delivery of comprehensive medical care to hospitalized
patients; and

A  cloud-based  population  health  management  IT  platform,  which  includes  digital  care  plans,  a  case  management  module,  connectivity  with
multiple healthcare tracking devices and integrated clinical data.

We  operate  under  one  reportable  segment,  the  healthcare  delivery  segment.  Our  revenue  streams  are  diversified  among  our  various  operations  and

contract types, and include:

•

•

•

•

Capitation payments, including payments made by CMS from the NGACO Model;

Risk pool settlements and incentives;

Management fees, including stipends from hospitals and percentages of collections; and

FFS reimbursements.

ApolloMed’s common stock is listed on the NASDAQ Capital Market and traded under the symbol “AMEH.”

Organization

Subsidiaries

We operate through our subsidiaries, including:

•

•

•

•

NMM;

AMM;

APAACO; and

Apollo Care Connect.

Each of NMM and AMM operates as an MSO and is in the business of providing management services to physician practice corporations under long-
term  management  and/or  administrative  services  agreements  (“MSAs”),  pursuant  to  which  the  MSO  manages  certain  non-medical  services  for  the  physician
groups and have exclusive authority over all non-medical decision making related to ongoing business operations. The MSAs generally provide for management
fees that are recognized as earned based on a percentage of revenue or cash collections generated by the physician practices.

APAACO  has  participated  in  the  NGACO  Model  of  CMS  since  January  2017.  The  NGACO  Model  is  a  CMS  program  that  allows  provider  groups  to

assume higher levels of financial risk and potentially achieve a higher reward from participating in this new attribution-based risk sharing model.

Apollo Care Connect provides a cloud and mobile-based population health management platform, with an emphasis on chronic care management and
high-risk  patient  management  in  addition  to  a  comprehensive  platform  for  total  patient  engagement.  Features  include  a  personal  health  assistant  that  allows
patients to view their health data and interact with their physician and care managers, and evidence-based digital care plans that leverage our expertise in clinical
care, care coordination and medical risk management to deliver value-based care.

Variable Interest Entities

If  an  entity  is  determined  to  be  a  VIE,  we  evaluate  whether  we  are  the  primary  beneficiary.  The  primary  beneficiary  analysis  is  a  qualitative  analysis
based on power and benefits. We consolidate a VIE if we have both power and benefits – that is, (i) we have the power to direct the activities of a VIE that most
significantly  influence  the  VIE’s  economic  performance,  and  (ii)  we  have  the  obligation  to  absorb  losses  of,  or  the  right  to  receive  benefits  from,  the  VIE  that
could potentially be significant to the VIE. See Note 18 – “Variable Interest Entities (VIEs)” to our consolidated financial statements for information on our entities

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that qualify as consolidated VIEs. If we have a variable interest in a VIE but are not the primary beneficiary, we may account for our investment using the equity
method of accounting (see Note 6 – “Investments in Other Entities”).

Some  states  have  laws  that  prohibit  business  entities  with  non-physician  owners  from  practicing  medicine,  which  are  generally  referred  to  as  the
corporate  practice  of  medicine  laws.  States  that  have  corporate  practice  of  medicine  laws  require  only  physicians  to  practice  medicine,  exercise  control  over
medical decisions or engage in certain arrangements with other physicians, such as fee-splitting. California is a corporate practice of medicine state.

Therefore, in addition to our subsidiaries, we mainly operate by maintaining long-term MSAs with our affiliated IPAs, which are owned and operated by a
network of independent primary care physicians and specialists, and which employ or contract with additional physicians to provide medical services. Under such
agreements, we provide and perform non-medical management and administrative services, including financial management, information systems, marketing,
risk management and administrative support.

NMM  has  entered  into  MSAs  with  several  affiliated  IPAs,  including  Allied  Physicians  of  California  IPA  d.b.a.  Allied  Pacific  of  California  IPA  (“APC”),
Alpha Care Medical Group, Inc. (“Alpha Care”), and Accountable Health Care, IPA (“Accountable Health Care”). APC, Alpha Care, and Accountable Health Care
contract with various HMOs or licensed health care service plans, each of which pays a fixed capitation payment. In return, APC, Alpha Care, and Accountable
Health Care arrange for the delivery of health care services by contracting with physicians or professional medical corporations for primary care and specialty
care  services.  APC,  Alpha  Care,  and  Accountable  Health  Care  assume  the  financial  risk  of  the  cost  of  delivering  health  care  services  in  excess  of  the  fixed
amounts  received.  The  risk  is  subject  to  stop-loss  provisions  in  contracts  with  HMOs.  Some  risk  is  transferred  to  the  contracted  physicians  or  professional
corporations.  The  physicians  in  the  IPA  are  exclusively  in  control  of,  and  responsible  for,  all  aspects  of  the  practice  of  medicine  for  enrolled  patients.  In
accordance with relevant accounting guidance, APC, Alpha Care, and Accountable Health Care, have been determined to be VIEs of NMM, as NMM is their
primary  beneficiary  with  the  ability,  through  majority  representation  on  the  APC  Joint  Planning  Board  and  otherwise,  to  direct  the  activities  (excluding  clinical
decisions) that most significantly affect their economic performance.

Through AMM, we manage a number of our affiliates pursuant to their long-term MSAs, including: ApolloMed Hospitalists (“AMH”), a physician group that
provides hospitalist, intensivist and physician advisor services and Southern California Heart Centers (“SCHC”), a specialty clinic that focuses on cardiac care
and diagnostic testing.  Each of AMH and SCHC are VIEs of AMM as it has been determined that AMM is the primary beneficiary of such entities. Concourse
Diagnostic Surgery Center, LLC (“CDSC”) is an ambulatory surgery center in City of Industry, California. The facility is Medicare Certified and accredited by the
Accreditation Association for Ambulatory Healthcare. CDSC is consolidated as a VIE by APC as it was determined that APC has a controlling financial interest in
CDSC and is the primary beneficiary of CDSC. AHMC International Cancer Center (“ICC”) provides comprehensive, compassionate post-cancer-diagnosis care
and  a  wide  range  of  support  services.  ICC  was  determined  to  be  a  VIE  of  APC  and  is  consolidated  by  APC  as  it  was  determined  that  APC  is  the  primary
beneficiary of ICC through its power and obligation to absorb losses and rights to receive benefits that could potentially be significant to ICC.

APC,  Alpha  Care,  Accountable  Health  Care,  AP-AMH,  AMH,  SCHC,  CDSC  and  ICC  are  therefore  consolidated  in  the  accompanying  financial

statements.

Investments

We  invested  in  several  entities  in  the  healthcare  industry  through  APC,  our  VIE.  Universal  Care  Acquisition  Partners,  LLC  (“UCAP”),  a  wholly  owned
subsidiary of APC, holds a 48.9% ownership interest and 50% voting interest in Universal Care, Inc. (“UCI”), a private full-service health plan that contracts with
CMS under Medicare Advantage. Pacific Ambulatory Surgery Center, LLC (“PASC”), in which APC had a 40% non-controlling ownership interest, was a multi-
specialty  outpatient  surgery  center  that  was  certified  to  participate  in  the  Medicare  program  and  accredited  by  the  Accreditation  Association  for  Ambulatory
Health Care. As of December 31, 2019, APC also holds a 32.50% ownership interest in ApolloMed.

Due to laws prohibiting a California professional corporation which has more than one shareholder (such as APC) from being a shareholder in another
California  professional  corporation,  APC  cannot  directly  own  shares  in  other  professional  corporations  in  which  APC  has  invested.  An  exception  to  this
prohibition,  however,  permits  a  professional  corporation  that  has  only  one  shareholder  to  own  shares  in  another  professional  corporation.  In  reliance  on  this
exception, APC-LSMA, a designated shareholder professional corporation solely owned by Dr. Thomas Lam and controlled by APC, holds controlling and non-
controlling  ownership  interests  in  several  medical  corporations.  APC-LSMA  holds  controlling  interests  in  Alpha  Care  and  Accountable  Health  Care  and  non-
controlling  interests  in  the  IPA  line  of  business  of  LaSalle  Medical  Associates  (“LMA”),  Pacific  Medical  Imaging  and  Oncology  Center,  Inc.  (“PMIOC”),  and
Diagnostic Medical Group (“DMG”). The IPA line of business of LMA operates six neighborhood medical centers and serves patients across Fresno, Kings, Los
Angeles, Madera, Riverside, San

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Bernardino  and  Tulare  Counties  in  California  and  is  managed  by  NMM  through  an  MSA.  PMIOC  offers  comprehensive  diagnostic  imaging  services  at  its
facilities. DMG, operates complete outpatient imaging centers to improve the detection and treatment of heart disease.

Our Industry

Industry Overview

U.S.  healthcare  spending  has  increased  steadily  over  the  past  20  years.  According  to  CMS,  the  estimated  total  U.S.  healthcare  expenditures  are
expected to grow by 5.5% from 2018 to 2027 and to reach $6.0 trillion by 2027. Health spending is projected to grow 0.8% faster than the U.S. gross domestic
product over the 2018-2027 projection period, and as a result, the healthcare share of gross domestic product is expected to rise from 17.9% in 2017 to 19.4% by
2027. Medicare spending increased 6.4% to $750.2 billion and Medicaid spending increased by 3.0% to $597.4 billion in 2018, which accounted for 21% and
16%  of  total  health  expenditures,  respectively.  Private  health  insurance  spending  increased  5.8%  to  $1.2  trillion  in  2018,  accounting  for  34%  of  total  health
expenditures.  Growth  in  Medicare  (7.4%)  and  Medicaid  (5.5%)  are  both  substantial  contributors  to  the  rate  of  national  health  expenditure  growth  for  the
projection period. Both trends reflect the impact of an aging population, but in different ways. For Medicare, projected enrollment growth is a primary driver; for
Medicaid, it is an increasing projected share of aged and disabled enrollees.

Managed care health plans were developed in the U.S. primarily during the 1980s, in an attempt to mitigate the rising cost of providing health care to
populations  covered  by  health  insurance.  These  managed  care  health  plans  enroll  members  through  their  employers  in  connection  with  federal  Medicare
benefits or state Medicaid programs. As a result of the prevalence of these health plans, many seniors now becoming eligible for Medicare have been interacting
with managed care companies through their employers for the last 30 years. Individuals now turning 65 are likely more familiar with the managed care setting
than previous Medicare populations. The healthcare industry, however, is highly regulated by various government agencies and heavily relies on reimbursement
and  payments  from  government  sponsored  programs  such  as  Medicare  and  Medicaid.  Companies  in  the  healthcare  industry  therefore  have  to  organize  and
operate around, and face challenges from, idiosyncratic laws and regulations.

Many health plans recognize both the opportunity for growth from adding members as well as the potential risks and costs associated with managing
additional  members.  In  California,  many  health  plans  subcontract  a  significant  portion  of  the  responsibility  for  managing  patient  care  to  integrated  medical
systems such as us and our affiliated physician groups. These integrated health care systems offer a comprehensive medical delivery system and sophisticated
care  management  know-how  and  infrastructure  to  more  efficiently  provide  for  the  health  care  needs  of  the  population  enrolled  with  that  health  plan.  While
reimbursement models for these arrangements vary around the U.S., health plans often prospectively pay the integrated health care system a fixed capitation
payment,  which  is  often  based  on  a  percentage  of  the  amount  received  by  the  health  plan.  Capitation  payments  to  integrated  health  care  systems,  in  the
aggregate, represent a prospective budget from which the system manages care-related expenses on behalf of the population enrolled with that system. To the
extent that these systems manage such expenses under the capitated levels, the system realizes an operating profit. On the other hand, if the expenses exceed
projected  levels,  the  system  will  realize  an  operating  deficit.  Since  premiums  paid  represent  a  substantial  amount  per  person,  there  is  a  significant  revenue
opportunity  for  an  integrated  medical  system  that  is  able  to  effectively  manage  health  care  costs  for  the  capitated  arrangements  entered  into  by  its  affiliated
physician groups.

Industry Trends and Demand Drivers

We  believe  that  the  healthcare  industry  is  undergoing  a  significant  transformation  and  the  demand  for  our  offerings  is  driven  by  the  confluence  of  a

number of fundamental healthcare industry trends, including:

Shift  to  Value-Based  and  Results-Oriented  Models.   According  to  the  2018  National  Health  Expenditure  Projections  prepared  by  CMS,  healthcare
spending in the U.S. is projected to have increased 4.6% on a year-over-year basis to $3.6 trillion in 2018, representing 17.7% of U.S. Gross Domestic Product
(“GDP”). CMS projects healthcare spending in the U.S. to increase at an average rate of 5.5% per year for 2018-27 and to reach approximately $6.0 trillion by
2027. To address this expected significant rise in healthcare costs, the U.S. healthcare market is seeking more efficient and effective methods of delivering care.
It is argued that the fee-for-service reimbursement model has played a major role in increasing the level and growth rate of healthcare spending. In response,
both  the  public  and  private  sectors  are  shifting  away  from  the  fee-for-service  reimbursement  model  toward  value-based,  capitated  payment  models  that  are
designed to incentivize value and quality at an individual patient level. The number of Americans covered by capitated payment programs continues to increase,
which drives more coordinated and outcomes-based patient care.

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Increasingly Patient-Centered. More patients want to take a more active and informed role in how their own healthcare is delivered. This transformation
results in the healthcare marketplace becoming increasingly patient-centered and requires providers to deliver team-based, coordinated and accessible care to
stay competitive.

Added Complexity. In the healthcare space, more sophisticated technology has been employed, new diagnostics and treatments have been introduced,
research and development has expanded, and regulations have multiplied. This expanding complexity drives a growing and continuous need for integrated care
delivery systems.

Integration of Healthcare Information. Across the healthcare landscape, a significant amount of data is being created every day, driven by patient care,
payment systems, regulatory compliance, and record keeping. As the amount of healthcare data continues to grow, it becomes increasingly important to connect
disparate data and apply insights in a targeted manner in order to better achieve the goals of higher quality and more efficient care.

Integrated Medical Systems

Integrated medical systems that are able to pool a large number of patients, such as our Company and our affiliated physician groups, are positioned to
take  advantage  of  industry  trends,  meet  patient  and  government  demands,  and  benefit  from  cost  advantages  resulting  from  their  scale  of  operation  and
integrated approach of care delivery. In addition, integrated medical systems with years of managed care experience can leverage their expertise and sizeable
medical data to identify specific treatment strategies and interventions, improve the quality of medical care and lower cost. Many integrated medical systems have
also established physician performance metrics that allow them to monitor quality and service outcomes achieved by participating physicians in order to reward
efficient, high quality care delivered to members and initiate improvement efforts for physicians whose performance can be enhanced.

IPAs and MSOs

An IPA is an association of independent physicians, or other organization that contracts with independent physicians, and provides services to HMOs,
which are medical insurance groups that provide health services generally for a fixed annual fee, on a negotiated per capita rate, flat retainer fee, or negotiated
FFS  basis.  Because  of  the  prohibition  against  corporate  practice  of  medicine  under  certain  state  laws,  MSOs  are  formed  to  provide  management  and
administrative support services to affiliated physician groups such as IPAs. These services include payroll, benefits, human resource services, physician practice
billing, revenue cycle services, physician practice management, administrative oversight, coding and other consulting services.

NGACOs and MSSP ACOs

CMS established the NGACO Model to test whether health outcomes will improve and Medicare Parts A and B expenditures for Medicare beneficiaries
will decrease if ACOs (1) accept a higher level of financial risk compared to the existing MSSP model, and (2) are permitted to select certain innovative Medicare
payment arrangements and offer certain additional benefit enhancements to their assigned Medicare beneficiaries. As a result, ACOs generally assume higher
levels of financial risk and reward under the NGACO Model. CMS also established the MSSP to improve the care quality and reduce costs for beneficiaries in the
Medicare  FFS  program.  MSSP  promotes  accountability,  facilitates  coordination  and  cooperation  among  care  providers,  and  encourages  investment  in
infrastructure and redesign of care processes.

Outpatient Clinics

Ambulatory surgery centers and other outpatient clinics are healthcare facilities that specialize in performing outpatient surgeries, ambulatory treatments
and diagnostic and other services in local communities. As medical care has increasingly been delivered in clinic settings, many integrated medical systems also
operate  healthcare  facilities  primarily  focused  on  the  diagnosis  and/or  care  of  outpatients,  including  those  with  chronic  conditions  such  as  heart  disease  and
diabetes, to cover the primary healthcare needs of local communities.

Hospitalists

Hospitalists are doctors specialized in the care of patients in the hospital. Hospitalists assume the inpatient care responsibilities otherwise provided by
primary care or other attending physicians and are reimbursed through the same billing procedures as other physicians. Hospitalists tend to focus exclusively on
inpatient care. By practicing in the same facilities, hospitalists perform consistent functions, interact regularly with the same healthcare professionals and thus are
familiar with specific and unique hospital processes, which can result in greater efficiency, less process variability and better outcomes. Through managing the
treatment of a large number of patients with similar clinical needs, hospitalists generally develop practice expertise

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in  both  the  diagnosis  and  treatment  of  common  conditions  that  require  hospitalization.  For  these  reasons,  hospitalists  have  an  increasingly  important  role  in
improving care quality. According to the Society of Hospital Medicine, in the U.S., the number of hospitalists grew in the past decade from a few hundred to more
than 60,000 by 2018.

Population Health Management

Population health management (“PHM”) is a central trend within healthcare delivery, which includes the aggregation of patient data across multiple health
information technology resources, the analysis of that data into a single, actionable patient record, and the actions through which care providers can improve
both  clinical  and  financial  outcomes.  PHM  seeks  to  improve  the  health  outcomes,  by  monitoring  and  identifying  individual  patients,  aggregating  data,  and
providing a comprehensive clinical picture of each patient. Using that data, providers can track, and hopefully improve, clinical outcomes while lowering costs. A
successful PHM platform requires a robust care and risk management infrastructure, a cohesive delivery system, and a well-managed partnership network.

Our Business Operations

IPAs

Each  of  our  affiliated  IPAs  is  comprised  of  a  network  of  independent  primary  care  physicians  and  specialists  who  collectively  care  for  patients  and
contract with HMOs to provide physician services to their enrollees typically under capitated arrangements. Under the capitated model, a HMO pays the IPA a
capitation payment and assigns it the responsibility for providing physician services required by patients. The IPA physicians are exclusively in control of, and
responsible for, all aspects of the practice of medicine for enrolled patients. Most of the HMO agreements have an initial term of two years renewing automatically
for successive one-year terms. The HMO agreements generally allow either party to terminate the HMO agreements without cause typically with a four to six
months advance notice and provide for a termination for cause by the HMO at any time.

MSOs

Our  MSOs  generally  provide  services  to  our  affiliated  IPAs  or  ACOs  under  long-term  MSAs,  pursuant  to  which  they  manage  certain  non-medical
services  for  the  physician  groups  and  have  exclusive  authority  over  all  non-medical  decision  making  related  to  ongoing  business  operations.  These  services
include but are not limited to:

Physician recruiting;
Physician and health plan contracting;

•
•
• Medical management, including utilization management and quality assurance;
•
• Member services, including annual wellness evaluations; and
•

Provider relations;

Pre-negotiating contracts with specialists, labs, imaging centers, nursing homes and other vendors.

NGACO

On January 18, 2017, CMS announced that APAACO was approved to participate in the NGACO Model and APAACO began operations under this new
model. We have devoted, and expect to continue to devote, significant effort and resources, financial and otherwise, to the NGACO Model. APAACO is now in its
fourth year of participation under its Participation Agreement with CMS.

In  advance  of  its  participation  in  the  NGACO  Model,  APAACO  entered  into  agreements  with  over  750  medical  care  providers,  including  physicians,
hospitals,  nursing  facilities  and  multiple  labs,  radiology  centers,  outpatient  surgery  centers,  dialysis  clinics  and  other  service  providers.  APAACO  negotiated
discounted rates and such providers agreed to receive 100% of their claims for beneficiaries reimbursed by APAACO.

Among many requirements to be eligible to participate in the NGACO Model, ACOs must have at least 10,000 assigned Medicare beneficiaries and must
maintain  that  number  throughout  each  performance  year.  APAACO  started  its  2017  performance  year  with  more  than  29,000  aligned  Medicare  FFS
beneficiaries.  Its  aligned  beneficiaries  total  approximately  30,000  in  2018  and  approximately  29,000  in  2019,  respectively.  This  number  may  decrease  if
beneficiaries join a managed care plan, pass away or move out of the service area.

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Under  the  Participation  Agreement,  APAACO  must  require  its  participants  and  preferred  providers  to  make  medically  necessary  covered  services
available  to  beneficiaries  in  accordance  with  applicable  laws,  regulations  and  guidance,  and  APAACO  and  its  participants  may  not  participate  in  any  other
Medicare shared savings initiatives.

There are different levels of financial risk and reward that an ACO may select under the NGACO Model, and the extent of risk and reward may be limited
on a percentage basis. The NGACO Model offers two risk arrangement options. In Arrangement A, the ACO takes 80% of Medicare Part A and Part B risk. In
Arrangement  B,  the  ACO  takes  100%  of  Medicare  Part  A  and  Part  B  risk.  Under  each  risk  arrangement,  the  ACO  can  cap  aggregate  savings  and  losses
anywhere between 5% to 15%. The cap is elected annually by the ACO. APAACO has opted for Risk Arrangement A and a shared savings and losses cap of
5%.

The NGACO Model offers four payment mechanisms:

•
•
•

•

Payment Mechanism #1: Normal FFS.
Payment Mechanism #2: Normal FFS plus Infrastructure payments of $6 Per Beneficiary Per Month (“PBPM”).
Payment  Mechanism  #3:  Population-Based  Payments  (“PBP”).  PBP  provide  ACOs  with  a  monthly  payment  to  support  ongoing  ACO  activities.  ACO
participants and preferred providers must agree to percentage payment fee reductions, which are then used to estimate a monthly PBP to be received by
the ACO.
Payment Mechanism #4: All-Inclusive Population-Based Payments (“AIPBP”). Under this mechanism, CMS will estimate the total annual expenditures of
the ACO’s aligned beneficiaries and pay that projected amount in PBPM payments. ACOs in AIPBP may have alternative compensation arrangements
with their providers, including 100% FFS, discounted FFS, capitation or case rates.

APAACO  opted  for,  and  was  approved  by  CMS  effective  on  April  1,  2017  to  participate  in,  the  AIPBP  track,  which  is  the  most  advanced  risk-taking
payment  model.  When  approved,  APAACO  was  the  only  ACO  participating  in  the  AIPBP  track,  out  of  44  ACOs  approved  for  the  NGACO  Model  in  the  U.S.
Under the AIPBP track, CMS estimates the total annual expenditures for APAACO’s beneficiaries and then pays that projected amount to APAACO on a PBPM
basis. APAACO is responsible for paying all Part A and Part B costs for in-network participating providers and preferred providers with whom it has contracted.
Between April and December 2017, this resulted in APAACO receiving approximately $9.3 million per month from CMS.

In  October  2017,  CMS  notified  the  Company  that  it  would  not  be  renewed  for  participation  in  the  AIPBP  mechanism  of  the  NGACO  Model  for
performance year 2018 due to certain alleged deficiencies in performance. The Company submitted a reconsideration request and received an official decision
from CMS in December 2017 that reversed the prior decision against the Company’s continued participation in the AIPBP mechanism. As a result, the Company
was eligible for receiving monthly AIPBP at a rate of approximately $7.3 million per month from CMS that started in February 2018. Effective October 1, 2018,
CMS reduced our AIPBP to approximately $5.5 million per month based on the estimated total annual expenditures APAACO expected to incur. The monthly
AIPBP received by the Company for performance year 2019 were approximately $8.3 million per month for the period beginning April 1, 2019 through August
30,  2019.  Subsequently,  CMS  adjusted  the  monthly  AIPBP  to  approximately $3.7  million  for  the  period  starting  September  1,  2019  based  on  CMS'  updated
estimate of total claims to be incurred.

The Company was notified by CMS that under the NGACO alternative payment arrangement, the Company was paid excess amounts of approximately
$34.5  million  related  to  the  first  performance  year  (January  1,  2017  through  December  31,  2017)  and  approximately  $7.8  million  related  to  the  second
performance year (February 1, 2018 through December 31, 2018) with 18 month run outs. The excess amount for the first performance year was paid by the
Company on December 4, 2018, the excess for the second performance year was paid in February 2020.

Our Revenue Streams

Our revenue reflected in the accompanying consolidated financial statements includes revenue generated by our subsidiaries and consolidated entities.
Revenue  generated  by  consolidated  entities,  however,  does  not  necessarily  result  in  available  or  distributable  cash  for  ApolloMed.  Our  revenue  streams  flow
from various multi-year renewable contractual arrangements that vary by type of business operation as follows:

Capitation Revenue

Our  capitation  revenue  consists  primarily  of  capitated  fees  for  medical  services  we  provide  under  capitated  arrangements  made  directly  with  various
managed  care  providers  including  HMOs.  Capitation  revenues  are  typically  prepaid  monthly  to  us  based  on  the  number  of  enrollees  selecting  us  as  their
healthcare  provider.  Capitation  is  a  fixed  payment  amount  per  patient  per  unit  of  time  paid  in  advance  for  the  delivery  of  health  care  services,  whereby  the
service providers are generally liable for excess medical costs. The actual amount paid is determined by the ranges of services provided, the number of patients
enrolled, and the

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period of time during which the services are provided. Capitation rates are generally based on local costs and average utilization of services. Because Medicare
pays  capitation  using  a  “risk  adjustment  model,”  which  compensates  managed  care  providers  based  on  the  health  status  (acuity)  of  each  individual  enrollee,
managed care providers with higher acuity enrollees receive more, and those with lower acuity enrollees receive less, capitation that can be allocated to service
providers. Under the risk adjustment model, capitation is paid on an interim basis based on enrollee data submitted for the preceding year and is adjusted in
subsequent periods after the final data is compiled.

Per  member  per  month  (“PMPM”)  managed  care  contracts  generally  have  a  term  of  one  year  or  longer.  All  managed  care  contracts  have  a  single
performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the
contract.  The  transaction  price  for  PMPM  contracts  is  variable  as  it  primarily  includes  PMPM  fees  associated  with  unspecified  membership  that  fluctuates
throughout  the  term  of  the  contract.  In  certain  contracts,  PMPM  fees  also  include  adjustments  for  items  such  as  performance  incentives,  performance
guarantees and risk shares.

Risk Pool Settlements and Incentives

Capitation arrangements are supplemented by risk sharing arrangements. We have two different types of capitation risk sharing arrangements: full risk

and shared risk arrangements.

We enter into full risk capitation arrangements with certain health plans and local hospitals, which are administered by a related party, where the hospital
is responsible for providing, arranging and paying for institutional risk. We are responsible for providing, arranging and paying for professional risk. Under a full
risk  pool  sharing  agreement,  we  generally  receive  a  percentage  of  the  net  surplus  from  the  affiliated  hospital’s  risk  pools  with  HMOs  after  deductions  for  the
affiliated hospital’s costs. Advance settlement payments are typically made quarterly in arrears if there is a surplus. Risk pool settlements under arrangements
with  health  plans  and  hospitals  are  recognized  using  the  most  likely  amount  methodology  and  amounts  are  only  included  in  revenue  to  the  extent  that  it  is
probable  that  a  significant  reversal  of  cumulative  revenue  will  not  occur  once  any  uncertainty  is  resolved.  The  assumptions  for  medical  loss  ratios  (“MLR”),
incurred but not reported (“IBNR”) completion factor and constraint percentages were used by management in applying the most likely amount methodology.

Under  capitation  arrangements  with  certain  HMOs,  we  participate  in  one  or  more  shared  risk  arrangements  relating  to  the  provision  of  institutional
services to enrollees (shared risk arrangements) and thus can earn additional revenue or incur losses based upon the enrollee utilization of institutional services.
Shared risk capitation arrangements are entered into with certain health plans, which are administered by the health plan, where we are responsible for rendering
professional services, but the health plan does not enter into a capitation arrangement with a hospital and therefore the health plan retains the institutional risk.
Shared risk deficits, if any, are not payable until and unless (and only to the extent of any) risk sharing surpluses are generated. At the termination of the HMO
contract, any accumulated deficit will be extinguished.

In addition to risk-sharing revenues, we also receive incentives under “pay-for-performance” programs for quality medical care, based on various criteria.
As  an  incentive  to  control  enrollee  utilization  and  to  promote  quality  care,  certain  HMOs  have  designed  quality  incentive  programs  and  commercial  generic
pharmacy  incentive  programs  to  compensate  us  for  our  efforts  to  improve  the  quality  of  services  and  to  promote  the  efficient  and  effective  use  of  pharmacy
supplemental  benefits  provided  to  HMO  members.  The  incentive  programs  track  specific  performance  measures  and  calculate  payments  to  us  based  on  the
performance measures.

Generally, for the foregoing arrangements, the final settlement is dependent on each distinct day’s performance within the annual measurement period,

but cannot be allocated to specific days until the full measurement period has occurred and performance can be assessed.

Management Fee Income

Management  fee  income  encompasses  fees  paid  for  management,  physician  advisory,  healthcare  staffing,  administrative  and  other  non-medical
services provided by us to IPAs, hospitals and other healthcare providers. Such fees may be in the form of billings at agreed-upon hourly rates, percentages of
revenue or fee collections, or amounts fixed on a monthly, quarterly or annual basis. The revenue may include variable arrangements measuring factors such as
hours staffed, patient visits or collections per visit against benchmarks, and, in certain cases, may be subject to achieving quality metrics or fee collections.

NGACO Revenue

Through  APAACO,  we  participate  in  the  AIPBP  track  of  the  NGACO  Model  sponsored  by  CMS.  Under  the  NGACO  Model,  CMS  grants  us  a  pool  of

patients to manage (direct care and pay providers) based on a budgetary benchmark established

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with  CMS.  We  are  ultimately  responsible  for  managing  the  medical  costs  for  these  beneficiaries.  The  beneficiaries  will  receive  services  from  physicians  and
other medical service providers that are both in-network and out-of-network. Under the AIPBP track, CMS estimates an average of monthly expenditures for the
previous calendar year for APAACO’s aligned beneficiaries and pays that projected amount to us in monthly installments, and we are responsible for all Part A
and Part B costs for in-network participating providers and preferred providers contracted by us to provide services to the aligned beneficiaries. Claims from out-
of-network providers are processed and paid by CMS, our shared savings or losses in managing the services provided by out-of-network providers are generally
determined on an annual basis after reconciliation with CMS. Pursuant to our risk share agreement with CMS, we will be eligible to receive the surplus or be
liable  for  the  deficit  according  to  the  budgetary  benchmark  established  by  CMS  based  on  our  efficiency  or  lack  thereof,  in  managing  how  the  beneficiaries
aligned to us by CMS are served by in-network and out-of-network providers. Our shared savings or losses on providing such services are both capped by CMS.
We recognize such savings or deficit upon substantial completion of reconciliation and determination of the amounts.

Under the AIPBP agreement we received $0.9 million and $5.9 million in risk pool savings related to the 2018 and 2017 performance years, respectively,
and have recognized such amounts as revenue in the risk pool settlements and incentives in the accompanying consolidated statements of income for the years
ended December 31, 2019 and 2018, respectively.

In  October  2017,  CMS  notified  the  Company  that  it  would  not  be  renewed  for  participation  in  the  AIPBP  mechanism  of  the  NGACO  Model  for
performance year 2018 due to certain alleged deficiencies in performance. The Company submitted a reconsideration request and received an official decision
from CMS in December 2017 that reversed the prior decision against the Company’s continued participation in the AIPBP mechanism. As a result, the Company
was eligible to receive monthly AIPBP at a rate of approximately $7.3 million per month from CMS beginning in February 2018. Effective October 1, 2018, CMS
reduced our AIPBP to approximately $5.5 million per month based on the estimated total annual expenditures APAACO expected to incur. The monthly AIPBP
received  by  the  Company  for  performance  year  2019  was  approximately $8.3  million  per  month  for  the  period  from  April  1,  2019  through  August  30,  2019.
Subsequently, CMS adjusted the AIPBP to approximately $3.7 million for the period starting September 1, 2019 based on CMS' updated estimate of total claims
to be incurred.

Fee For Service Revenue

FFS  revenue  represents  revenue  earned  under  contracts  in  which  we  bill  and  collect  the  professional  component  of  charges  for  medical  services
rendered by our contracted physicians and employed physicians. Under the FFS arrangements, we bill, and receive payments from, the hospitals and third-party
payors for physician staffing and further bill patients or their third-party payors for patient care services provided. 

Our Key Payors

We have a few key payors that represent a significant portion of our net revenue. For the years ended December 31, 2019, 2018 and 2017, four payors

accounted for an aggregate of 51.6%, 61.5% and 54.6% of our total net revenue, respectively.

Our Strengths and Advantages

The following are some of the material opportunities that we believe exist for our company.

Combination of Clinical, Administrative and Technology Capabilities

We believe our key strength lies in our combined clinical, administrative and technology capabilities. While many companies separately provide clinical,
MSO or technology support services, to our knowledge there are currently very few organizations like us that provide all three types of services to over 980,000
patients as of December 31, 2019.

Diversification

Through our subsidiaries, consolidated affiliates and invested entities, we have been able to reduce our business risk and increase revenue opportunities
by diversifying our service offerings and expanding our ability to manage patient care across a horizontally integrated care network. Our revenue is spread across
our operations. Additionally, with our ability to monitor and manage care within our wide network, we are an attractive business partner to health plans, hospitals,
IPAs and other medical groups seeking to provide better care at lower costs.

Strong Management Team

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Our management team has, collectively, several decades of experience managing physician practices, risk-based organizations, health plans, hospitals
and health systems, a deep understanding of the healthcare marketplace and emerging trends, and a vision for the future of healthcare delivery led by physician-
driven healthcare networks.

A Robust Physician Network

As of December 31, 2019, our physician network consisted of over  7,000 contracted physicians, including primary care physicians, specialist physicians

and hospitalists, through our affiliated physician groups and ACOs.

Cultural Affinities with Patients

In addition to delivering premium health care, we believe in the importance of providing services that are sensitive to the needs of local communities,
including their cultural affinities. This value is shared by physicians within our affiliated IPAs and medical groups, and promotes patient comfort in communicating
with care providers.

Long-Standing Relationships with Partners

We  have  developed  long-standing  relationships  with  and  have  earned  trust  from  multiple  health  plans,  hospitals,  IPAs  and  other  medical  groups  that

have helped to generate recurring contractual revenue for us.

Comprehensive and Effective Healthcare Management Programs

We offer comprehensive and effective healthcare management programs to patients. We have developed expertise in population health management
and care coordination, and in proper medical coding, which results in improved Risk Adjustment Factor (“RAF”) scores and higher payments from health plans,
and  in  improving  quality  metrics  in  both  inpatient  and  outpatient  settings  and  thus  patient  satisfaction  and  CMS  scores.  Using  our  own  proprietary  risk
assessment scoring tool, we have also developed our own protocol for identifying high-risk patients.

Competition

The healthcare industry is highly competitive and fragmented. We compete for customers across all of our services with other health care management
companies including MSOs and healthcare providers such as local, regional and national networks of physicians, medical groups and hospitals, many of which
are substantially larger than us and have significantly greater financial and other resources, including personnel, than we have.

IPAs

Our  affiliated  IPAs  compete  with  other  IPAs,  medical  groups  and  hospitals,  many  of  which  have  greater  financial,  personnel  and  other  resources
available  to  them.  In  the  greater  Los  Angeles  area,  such  competitors  include  Regal  Medical  Group  and  Lakeside  Medical  group,  which  are  part  of  Heritage
Provider Network (“Heritage”), as well as HealthCare Partners, which was recently acquired by UnitedHealth Group.

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ACOs

Our NGACO, APAACO, competes with sophisticated provider groups in the creation, administration, and management of ACOs, including MSSP ACOs
and NGACOs, many of which have greater financial, personnel and other resources available to them. In the greater Los Angeles area, major competitors of
APAACO include Heritage California ACO and DaVita Medical ACO California.

Outpatient Clinics

Our  outpatient  clinics  compete  with  large  ambulatory  surgery  centers  and/or  diagnostic  centers  such  as  Foothill  Cardiology  (California  Heart  Medical
Group), RadNet and Envision Healthcare, many of which have greater financial, personnel and other resources available to them, as well as smaller clinics that
have ties to local communities. HealthCare Partners also has its own urgent care centers, clinics and diagnostic centers.

Hospitalists

Because individual physicians may provide hospitalist services if they have necessary credentials and privileges, the markets for hospitalist services are
highly  fragmented.  Our  affiliated  hospitalist  groups  face  competition  primarily  from  numerous  small  inpatient  practices  in  existing  and  expanding  markets,  but
also compete with large physician groups, many of which have greater financial, personnel and other resources available to them. Some of such competitors
operate on a national level, including EmCare, Team Health and Sound Physicians.

Regulatory Matters

As  a  healthcare  company,  our  operations  and  relationships  with  healthcare  providers  such  as  hospitals,  other  healthcare  facilities,  and  healthcare
professionals  are  subject  to  extensive  and  increasing  regulation  by  numerous  federal,  state,  and  local  government  agencies  including  the  Office  of  Inspector
General  (“OIG”),  the  Department  of  Justice,  CMS  and  various  state  authorities.  These  laws  and  regulations  often  are  interpreted  broadly  and  enforced
aggressively.  Imposition  of  liabilities  associated  with  a  violation  of  any  of  these  healthcare  laws  and  regulations  could  have  a  material  adverse  effect  on  our
business, financial condition or results of operations. We cannot guarantee that our practices will not be subject to government scrutiny or be found to violate
certain  healthcare  laws.  Government  investigations  and  prosecutions,  even  if  we  are  ultimately  found  to  be  without  fault,  can  be  costly  and  disruptive  to  our
business.  Moreover,  changes  in  healthcare  legislation  or  government  regulation  may  restrict  our  existing  operations,  limit  our  expansion  or  impose  additional
compliance requirements and costs, any of which could have a material adverse effect on our business, financial condition or results of operations. Below are
brief descriptions of some, but not all, of such laws and regulations that affect our business operations.

Corporate Practice of Medicine

Our  consolidated  financial  statements  include  our  subsidiaries  and  VIEs.  Some  states  have  laws  that  prohibit  business  entities  with  non-physician
owners, such as ApolloMed and its subsidiaries, from practicing medicine, employing physicians to practice medicine, exercising control over medical decisions
by  physicians;  which  are  generally  referred  to  as  corporate  practice  of  medicine  laws.  States  that  have  corporate  practice  of  medicine  laws  require  only
physicians  to  practice  medicine,  exercise  control  over  medical  decisions  or  engage  in  certain  arrangements,  such  as  fee-splitting,  with  physicians.  In  these
states, a violation of the corporate practice of medicine prohibition constitutes the unlawful practice of medicine, which is a public offense punishable by fines and
other  criminal  penalties.  In  addition,  any  physician  who  participates  in  a  scheme  that  violates  the  state’s  corporate  practice  of  medicine  prohibition  may  be
punished for aiding and abetting a lay entity in the unlawful practice of medicine.

California is a corporate practice of medicine state and we operate by maintaining long-term MSAs with our affiliated IPAs and medical groups, each of
which is owned and operated by physicians only, and employs or contracts with additional physicians to provide medical services. Under such MSAs, our wholly
owned  MSOs  are  contracted  to  provide  non-medical  management  and  administrative  services  such  as  financial  and  risk  management  as  well  as  information
systems,  marketing  and  administrative  support  to  the  IPAs  and  medical  groups.  The  MSAs  typically  have  an  initial  term  of  3-30  years  and  are  generally  not
terminable by our affiliated IPAs and medical groups except in the case of bankruptcy, gross negligence, fraud, or other illegal acts by the contracting MSO.

Through the MSAs and the relationship with the physician owners of our medical affiliates, we have exclusive authority over all non-medical decisions
related to the ongoing business operations of those affiliates. Consequently, ApolloMed consolidates the revenue and expenses of such affiliates as their primary
beneficiary from the date of execution of the applicable MSA. When necessary, our Co-Chief Executive Officers, Dr. Kenneth Sim and Dr. Thomas Lam, serve as
nominee shareholders, of affiliated

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medical  practices  on  ApolloMed's  behalf,  in  order  to  comply  with  corporate  practice  of  medicine  laws  and  certain  accounting  rules  applicable  to  consolidated
financial reporting by our affiliates as VIEs.

Under these arrangements our MSOs perform only non-medical functions, do not represent to offer medical services, and do not exercise influence or
control over the practice of medicine by physicians. The California Medical Board, as well as other state’s regulatory bodies, has taken the position that MSAs
that confer too much control over a physician practice to MSOs may violate the prohibition against corporate practice of medicine. Some of the relevant laws,
regulations, and agency interpretations in California and other states that have corporate practice prohibitions have been subject to limited judicial and regulatory
interpretation. Moreover, state laws are subject to change and regulatory authorities. Other parties, including our affiliated physicians, may assert that, despite
these arrangements, ApolloMed and its subsidiaries are engaged in the prohibited corporate practice of medicine or that such arrangements constitute unlawful
fee-splitting between physicians and non-physicians. If this occurred, we could be subject to civil or criminal penalties, our MSAs could be found legally invalid
and unenforceable in whole or in part, and we could be required to restructure arrangements with our affiliated IPAs and medical groups. If we were required to
change  our  operating  structures  due  to  determination  that  a  corporate  practice  of  medicine  violation  existed,  such  a  restructuring  might  require  revising  our
MSOs’ management fees.

False Claims Acts

The False Claims Act, 31 U.S.C. §§ 3729 - 3733, imposes civil liability on individuals or entities that submit false or fraudulent claims for payment to the
federal government. The False Claims Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly
or recklessly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement
or used a false record to get a claim for payment approved. Private parties may initiate qui tam whistleblower lawsuits against any person or entity under the
False Claims Act in the name of the federal government and may share in the proceeds of a successful suit. The federal government has used the False Claims
Act to prosecute a wide variety of alleged false claims and fraud allegedly perpetrated against Medicare and state healthcare programs. By way of illustration,
these prosecutions may be based upon alleged coding errors, billing for services not rendered, billing services at a higher payment rate than appropriate, and
billing  for  care  that  is  not  considered  medically  necessary.  The  federal  government  and  a  number  of  courts  have  taken  the  position  that  claims  presented  in
violation of certain other statutes, including the federal Anti-Kickback Statute or the Stark Law, can also be considered a violation of the False Claims Act based
on the theory that a provider impliedly certifies compliance with all applicable laws, regulations, and other rules when submitting claims for reimbursement.

Penalties for False Claims Act violations include fines ranging from $5,500 to $11,000 for each false claim, plus up to three times the amount of damages
sustained  by  the  government.  A  False  Claims  Act  violation  may  provide  the  basis  for  the  imposition  of  administrative  penalties  as  well  as  exclusion  from
participation in governmental healthcare programs, including Medicare and Medicaid. In addition to the provisions of the False Claims Act, which provide for civil
enforcement, the federal government also can use several criminal statutes to prosecute persons who are alleged to have submitted false or fraudulent claims to
the government for payments.

A number of states including California have enacted laws that are similar to the federal False Claims Act. Under Section 6031 of the Deficit Reduction
Act  of  2005  (“DRA”),  as  amended,  if  a  state  enacts  a  false  claims  act  that  is  at  least  as  stringent  as  the  federal  statute  and  that  also  meets  certain  other
requirements, the state will be eligible to receive a greater share of any monetary recovery obtained pursuant to certain actions brought under the state’s false
claims act. As a result, more states are expected to enact laws that are similar to the federal False Claims Act in the future along with a corresponding increase
in state false claims enforcement efforts. In addition, section 6032 of the DRA requires entities that make or receive annual Medicaid payments of $5.0 million or
more from any one state to provide their employees, contractors and agents with written policies and employee handbook materials on federal and state False
Claims Acts and related statues.

Anti-Kickback Statutes

The federal Anti-Kickback Statute is a provision of the Social Security Act of 1972 that prohibits as a felony offense the knowing and willful offer, payment,
solicitation or receipt of any form of remuneration in return for, or to induce, (1) the referral of a patient for items or services for which payment may be made in
whole or part under Medicare, Medicaid or other federal healthcare programs, (2) the furnishing or arranging for the furnishing of items or services reimbursable
under Medicare, Medicaid or other federal healthcare programs or (3) the purchase, lease, or order or arranging or recommending the purchasing, leasing or
ordering of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The Patient Protection and Affordable Care Act
(“ACA”) amended section 1128B of the Social Security Act to make it clear that a person need not have actual knowledge of the statute, or specific intent to
violate the statute, as a predicate for a violation. The OIG, which has the authority to impose administrative sanctions for violation of the statute, has adopted as
its standard for review a judicial interpretation

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which concludes that the statute prohibits any arrangement where even one purpose of the remuneration is to induce or reward referrals. A violation of the Anti-
Kickback Statute is a felony punishable by imprisonment, criminal fines of up to $25,000, civil fines of up to $50,000 per violation and three times the amount of
the unlawful remuneration. A violation also can result in exclusion from Medicare, Medicaid or other federal healthcare programs. In addition, pursuant to the
changes  of  the  ACA,  a  claim  that  includes  items  or  services  resulting  from  a  violation  of  the  Anti-Kickback  Statute  is  a  false  claim  for  purposes  of  the  False
Claims Act.

Due  to  the  breadth  of  the  Anti-Kickback  Statute’s  broad  prohibitions,  statutory  exceptions  exist  that  protect  certain  arrangements  from  prosecution.  In
addition, the OIG has published safe harbor regulations that specify arrangements that are deemed protected from prosecution under the Anti-Kickback Statute,
provided all applicable criteria are met. The failure of an activity to meet all of the applicable safe harbor criteria does not necessarily mean that the particular
arrangement violates the Anti-Kickback Statute, but these arrangements may be subject to scrutiny and prosecution by enforcement agencies. We may be less
willing than some competitors to take actions or enter into arrangements that do not clearly satisfy the OIG safe harbors and suffer a competitive disadvantage.

Some states have enacted statutes and regulations similar to the Anti-Kickback Statute, but which may be applicable regardless of the payor source for
the patient. These state laws may contain exceptions and safe harbors that are different from and/or more limited than those of the federal law and that may vary
from state to state. For example, California has adopted the Physician Ownership and Referral Act of 1993 (“PORA”). PORA makes it unlawful for physicians,
surgeons and other licensed professionals to refer a person for certain health care services if they have a financial interest with the person or entity that receives
the referral. While PORA also provides certain exemptions from this prohibition, failure to fit within an exemption in violation of PORA can lead to a misdemeanor
offense that may subject a physician to civil penalties and disciplinary action by the Medical Board of California.

We cannot assure that the applicable regulatory authorities will not determine that some of our arrangements with physicians violate the federal Anti-
Kickback Statute or other applicable laws. An adverse determination could subject us to different liabilities, including criminal penalties, civil monetary penalties
and  exclusion  from  participation  in  Medicare,  Medicaid  or  other  health  care  programs,  any  of  which  could  have  a  material  adverse  effect  on  our  business,
financial condition or results of operations.

Stark Laws

The  federal  Stark  Law,  42  U.S.C.  1395nn,  also  known  as  the  physician  self-referral  law,  generally  prohibits  a  physician  from  referring  Medicare  and
Medicaid patients to an entity (including hospitals) providing ‘‘designated health services,’’ if the physician or a member of the physician’s immediate family has a
‘‘financial relationship’’ with the entity, unless a specific exception applies. Designated health services include, among other services, inpatient hospital services,
outpatient  prescription  drug  services,  clinical  laboratory  services,  certain  imaging  services  (e.g.,  MRI,  CT,  ultrasound),  and  other  services  that  our  affiliated
physicians may order for their patients. The prohibition applies regardless of the reasons for the financial relationship and the referral; and therefore, unlike the
federal Anti-Kickback Statute, intent to violate the law is not required. Like the Anti-Kickback Statute, the Stark Law contains statutory and regulatory exceptions
intended to protect certain types of transactions and arrangements. Unlike safe harbors under the Anti-Kickback Statute with which compliance is voluntary, an
arrangement must comply with every requirement of a Stark Law exception or the arrangement is in violation of the Stark Law.

Because the Stark Law and implementing regulations continue to evolve and are detailed and complex, while we attempt to structure its relationships to
meet an exception to the Stark Law, there can be no assurance that the arrangements entered into by us with affiliated physicians and facilities will be found to
be  in  compliance  with  the  Stark  Law,  as  it  ultimately  may  be  implemented  or  interpreted.  The  penalties  for  violating  the  Stark  Law  can  include  the  denial  of
payment  for  services  ordered  in  violation  of  the  statute,  mandatory  refunds  of  any  sums  paid  for  such  services  and  civil  penalties  of  up  to  $15,000  for  each
violation,  double  damages,  and  possible  exclusion  from  future  participation  in  the  governmental  healthcare  programs.  A  person  who  engages  in  a  scheme  to
circumvent the Stark Law’s prohibitions may be fined up to $100,000 for each applicable arrangement or scheme.

Some states have enacted statutes and regulations against self-referral arrangements similar to the federal Stark Law, but which may be applicable to
the referral of patients regardless of their payor source and which may apply to different types of services. These state laws may contain statutory and regulatory
exceptions that are different from those of the federal law and that may vary from state to state. An adverse determination under these state laws and/or the
federal  Stark  Law  could  subject  us  to  different  liabilities,  including  criminal  penalties,  civil  monetary  penalties  and  exclusion  from  participation  in  Medicare,
Medicaid or other health care programs, any of which could have a material adverse effect on our business, financial condition or results of operations.

Health Information Privacy and Security Standards

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The privacy regulations Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended, contain detailed requirements concerning
the  use  and  disclosure  of  individually  identifiable  patient  health  information  (“PHI”)  by  entities  like  our  MSOs  and  affiliated  IPAs  and  medical  groups.  HIPAA
covered entities must implement certain administrative, physical, and technical security standards to protect the integrity, confidentiality and availability of certain
electronic health information received, maintained, or transmitted. HIPAA also implemented standard transaction code sets and standard identifiers that covered
entities must use when submitting or receiving certain electronic healthcare transactions, including billing and claim collection activities.

Violations of the HIPAA privacy and security rules may result in civil and criminal penalties, including a tiered system of civil money penalties that range
from  $100  to  $50,000  per  violation,  with  a  cap  of  $1.5  million  per  year  for  identical  violations.  A  HIPAA  covered  entity  must  also  promptly  notify  affected
individuals where a breach affects more than 500 individuals and report annually any breaches affecting fewer than 500 individuals.

State  attorneys  general  may  bring  civil  actions  on  behalf  of  state  residents  for  violations  of  the  HIPAA  privacy  and  security  rules,  obtain  damages  on
behalf of state residents and enjoin further violations. Many states also have laws that protect the privacy and security of confidential, personal information, which
may be similar to or even more stringent than HIPAA. Some of these state laws may impose fines and penalties on violators and may afford private rights of
action to individuals who believe their personal information has been misused.

We expect increased federal and state privacy and security enforcement efforts.

Knox-Keene Act and State Insurance Laws

The  Knox-Keene  Health  Care  Service  Plan  Act  of  1975  (Health  and  Safety  Code  Section  1340,  et  seq.),  as  amended  (the  “Knox-Keene  Act”),  is  the
California  law  that  regulates  managed  care  plans.  Neither  our  MSOs  nor  their  managed  medical  groups  and  IPAs  hold  a  Knox-Keene  license.  Some  of  the
medical  groups  and  IPAs  that  have  entered  into  MSAs  with  our  MSOs  have  historically  contracted  with  health  plans  and  other  payors  to  receive  capitation
payments  and  assumed  the  financial  responsibility  for  professional  services.  In  many  of  these  cases,  the  health  plans  or  other  payors  separately  enter  into
contracts with hospitals that receive payments and assume some type of contractual financial responsibility for their institutional services. In some instances, our
affiliated  medical  groups  and  IPAs  have  been  paid  by  their  contracting  payor  for  the  financial  outcome  of  managing  the  care  costs  associated  with  both  the
professional and institutional services received by patients and have recognized a percentage of the surplus of institutional revenues less institutional expense
as  the  medical  groups’  and  IPAs’  net  revenues  and  has  been  responsible  for  a  percentage  of  any  short-fall  in  the  event  that  institutional  expenses  exceed
institutional revenues. While our MSOs and their managed medical groups and IPAs are not contractually obligated to pay claims to hospitals or other institutions
under these arrangements, if it is determined that our MSOs or the medical groups and IPAs have been inappropriately taking financial risk for institutional and
professional services without Knox-Keene licenses as a result of their hospital and physician arrangements, we may be required to obtain limited Knox-Keene
licenses  to  resolve  such  violations  and  we  could  be  subject  to  civil  and  criminal  liability,  any  of  which  could  have  a  material  adverse  effect  on  our  business,
financial condition or results of operations.

In addition, some states require ACOs to be registered or otherwise comply with state insurance laws. Our ACOs do not currently take financial risk, and
are therefore not registered with any state insurance agency. If it is determined that we have been inappropriately operating an ACO without state registration or
licensure, we may be required to obtain such registration or licensure to resolve such violations and we could be subject to liability, which could have a material
adverse effect on our business, financial condition or results of operations.

Environmental and Occupational Safety and Health Administration Regulations

We are subject to federal, state and local regulations governing the storage, use and disposal of waste materials and products. Although we believe that
our safety procedures for storing, handling and disposing of these materials and products comply with the standards prescribed by law and regulation, we cannot
eliminate the risk of accidental contamination or injury from those hazardous materials. In the event of an accident, we could be held liable for any damages that
result and any liability could exceed the limits or fall outside the coverage of our insurance policies, which we may not be able to maintain on acceptable terms,
or  at  all.  We  could  incur  significant  costs  and  the  attention  of  our  management  could  be  diverted  to  comply  with  current  or  future  environmental  laws  and
regulations.  Federal  regulations  promulgated  by  the  Occupational  Safety  and  Health  Administration  impose  additional  requirements  on  us  including  those
protecting employees from exposure to elements such as blood-borne pathogens. We cannot predict the frequency of compliance, monitoring, or enforcement
actions to which we may be subject as those regulations are being implemented, which could adversely affect our operations.

Other Federal and State Healthcare Laws

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We are also subject to other federal and state healthcare laws that could have a material adverse effect on our business, financial condition or results of
operations.  The  Health  Care  Fraud  Statute  prohibits  any  person  from  knowingly  and  willfully  executing,  or  attempting  to  execute,  a  scheme  to  defraud  any
healthcare  benefit  program,  which  can  be  either  a  government  or  private  payor  plan.  Violation  of  this  statute,  even  in  the  absence  of  actual  knowledge  of  or
specific intent to violate the statute, may be charged as a felony offense and may result in fines, imprisonment or both. The Health Care False Statement Statute
prohibits, in any matter involving a federal health care program, anyone from knowingly and willfully falsifying, concealing or covering up, by any trick, scheme or
device,  a  material  fact,  or  making  any  materially  false,  fictitious  or  fraudulent  statement  or  representation,  or  making  or  using  any  materially  false  writing  or
document knowing that it contains a materially false or fraudulent statement. A violation of this statute may be charged as a felony offense and may result in
fines, imprisonment or both. Under the Civil Monetary Penalties Law of the Social Security Act, a person (including an organization) is prohibited from knowingly
presenting  or  causing  to  be  presented  to  any  United  States  officer,  employee,  agent,  or  department,  or  any  state  agency,  a  claim  for  payment  for  medical  or
other items or services where the person knows or should know (a) the items or services were not provided as described in the coding of the claim, (b) the claim
is a false or fraudulent claim, (c) the claim is for a service furnished by an unlicensed physician, (d) the claim is for medical or other items or service furnished by
a person or an entity that is in a period of exclusion from the program, or (e) the items or services are medically unnecessary items or services. Violations of the
law may result in penalties of up to $10,000 per claim, treble damages, and exclusion from federal healthcare programs. In addition, the OIG may impose civil
monetary  penalties  against  any  physician  who  knowingly  accepts  payment  from  a  hospital  (as  well  as  against  the  hospital  making  the  payment)  as  an
inducement to reduce or limit medically necessary services provided to Medicare or Medicaid program beneficiaries. Further, except as permitted under the Civil
Monetary Penalties Law, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration that the person knows or should know is likely
to influence the beneficiary’s selection of a particular provider of Medicare or Medicaid payable items or services may be liable for civil money penalties of up to
$10,000 for each wrongful act.

In  addition  to  the  state  laws  previously  described,  we  may  also  be  subject  to  other  state  fraud  and  abuse  statutes  and  regulations  if  we  expand  our
operations beyond California. Many states have adopted a form of anti-kickback law, self-referral prohibition, and false claims and insurance fraud prohibition.
The scope of these laws and the interpretations of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad
discretion. Generally, state laws reach to all healthcare services and not just those covered under a governmental healthcare program. A determination of liability
under any of these laws could result in fines and penalties and restrictions on our ability to operate in these states. We cannot assure that our arrangements or
business practices will not be subject to government scrutiny or be found to violate applicable fraud and abuse laws.

Licensure, Certification, Accreditation and Related Laws and Guidelines

Our  clinical  personnel  are  subject  to  numerous  federal,  state  and  local  licensing  laws  and  regulations,  relating  to,  among  other  things,  professional
credentialing  and  professional  ethics.  Clinical  professionals  are  also  subject  to  state  and  federal  regulation  regarding  prescribing  medication  and  controlled
substances. Our affiliated physicians and hospitalists must satisfy and maintain their individual professional licensing in each state where they practice medicine,
including California, and many states require that nurse practitioners and physician assistants work in collaboration with or under the supervision of a physician.
Each state defines the scope of practice of clinical professionals through legislation and through the respective Boards of Medicine and Nursing. Activities that
qualify as professional misconduct under state law may subject our clinical personnel to sanctions, or to even lose their license and could, possibly, subject us to
sanctions as well. Some state boards of medicine impose reciprocal discipline, that is, if a physician is disciplined for having committed professional misconduct
in one state where he or she is licensed, another state where he or she is also licensed may impose the same discipline even though the conduct occurred in
another  state.  Since  we  and  our  affiliated  medical  groups  perform  services  at  hospitals  and  other  healthcare  facilities,  we  may  indirectly  be  subject  to  laws,
ethical guidelines and operating standards of professional trade associations and private accreditation commissions (such as the American Medical Association
and The Joint Commission) applicable to those entities. Penalties for non-compliance with these laws and standards include loss of professional license, civil or
criminal  fines  and  penalties,  loss  of  hospital  admitting  privileges,  and  exclusion  from  participation  in  various  governmental  and  other  third-party  healthcare
programs. In addition, our affiliated facilities are subject to state and local licensing regulations ranging from the adequacy of medical care, to compliance with
building codes and environmental protection laws. Our ability to operate profitably will depend, in part, upon our ability and the ability of our affiliated physicians
and  facilities  to  obtain  and  maintain  all  necessary  licenses  and  other  approvals  and  operate  in  compliance  with  applicable  health  care  and  other  laws  and
regulations  that  evolve  rapidly.  We  provide  home  health,  hospice  and  palliative  care,  which  require  compliance  with  additional  regulatory  requirements. 
Reimbursement for palliative care and house call services is generally conditioned on clinical professionals providing the correct procedure and diagnosis codes
and  properly  documenting  both  the  service  and  the  medical  necessity  for  the  service.  Incorrect  or  incomplete  documentation  and  billing  information,  or  the
incorrect selection of codes for the level and type of service provided, could result in non-payment for services rendered or lead to allegations of billing fraud. We
must  also  comply  with  laws  relating  to  hospice  care  eligibility,  development  and  maintenance  of  care  plans  and  coordination  with  nursing  homes  or  assisted
living facilities where patients live.

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Professional Liability and Other Insurance Coverage

Our business has an inherent and significant risk of claims of medical malpractice against us and our affiliated physicians. We and our affiliated physician
groups pay premiums for third-party professional liability insurance that provides indemnification on a claims-made basis for losses incurred related to medical
malpractice litigation in order to carry out our operations. Our physicians are required to carry first dollar coverage with limits of liability equal to not less than $1.0
million for claims based on occurrence up to an aggregate of $3.0 million per year. Our IPAs purchase stop-loss insurance, which will reimburse them for claims
from service providers on a per enrollee basis. The specific retention amount per enrollee per policy period is $60,000 to $75,000 for professional coverage. We
also maintain worker’s compensation, director and officer, and other third-party insurance coverage subject to deductibles and other restrictions that we believe
are in accordance with industry standards. While we believe that our insurance coverage is adequate based upon claims experience and the nature and risks of
our business, we cannot be certain that our insurance coverage will be adequate to cover liabilities arising out of pending or future claims asserted against us or
our affiliated physician groups in the future where the outcomes of such claims are unfavorable. The ultimate resolution of pending and future claims in excess of
our insurance coverage, may have a material adverse effect on our business, financial position, results of operations or cash flows.

Employees

As of December 31, 2019, ApolloMed and its subsidiaries had 555 employees, of whom 547 were full-time and 8 were part-time, and our consolidated
VIEs employed 141 physicians and other staff. We had a broader physician network which, as of December 31, 2019, comprised of 36 additional physicians as
independent contractors to provide medical services. None of our employees is a member of a labor union, and we have not experienced any work stoppage.
We believe we enjoy a good working relationship with our staff.

Available Information

We  maintain  a  website  at  www.apollomed.net  and  make  available  there,  free  of  charge,  our  periodic  reports  filed  with  the  Securities  and  Exchange
Commission  (SEC),  as  soon  as  is  reasonably  practicable  after  filing.  The  SEC  maintains  a  website  at  http://www.sec.gov  that  contains  reports,  proxy  and
information statements, and other information regarding issuers such as us that file electronically with the SEC.

Item 1A.    Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the
other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Part II, Item 7, and our consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and
uncertainties  described  below  may  not  be  the  only  ones  we  face.  If  any  of  the  risks  actually  occur,  our  business,  financial  condition,  operating  results  and
prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your
investment.

Risks Relating to Our General Business and Operations.

The Company, AP-AMH and APC, recently consummated a series of interrelated transactions that may expose the Company and its

subsidiaries and VIEs to additional risks including the inability to repay a significant loan made in connection with such transactions.

On September 11, 2019, the Company, AP-AMH, and APC, concurrently consummated a series of interrelated transactions (collectively, the “APC
Transactions”). As disclosed elsewhere in this Annual Report on Form 10-K and in the Company’s other reports on file with the SEC, the APC Transactions
included the following agreements and transactions: (i) the Company made a $545.0 million ten-year secured loan to AP-AMH; (ii) AP-AMH used all of the
proceeds of that loan to purchase 1,000,000 shares of Series A Preferred Stock of APC; (iii) the Company obtained the funds to make the AP-AMH Loan (x) by
entering into a $290.0 million senior secured credit facility (the “Credit Facility”) with SunTrust Bank, in its capacity as administrative agent for various lenders,
and then immediately drawing down $250.0 million in cash, and (y) by selling $300.0 million shares of the Company’s common stock to APC, the purchase price
of which was offset against $300.0 million of AP-AMH’s purchase price for its APC Preferred Stock. NMM guaranteed the obligations of the Company under the
Credit Facility, and both the Company and NMM have granted the lenders a security interest in all of their assets, including, without limitation, in all stock and
other equity issued by their subsidiaries (including the shares of NMM) and all rights with respect to the AP-AMH Loan.

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The APC Transactions may expose the Company, its subsidiaries and its VIEs to additional risks, including without limitation, the following: AP-AMH may
never be able to repay the AP-AMH Loan; even if AP-AMH does not, or cannot repay the loan, the Company will be obligated to pay principal and interest on the
$290.0 million Credit Facility; in connection with the Credit Facility, the lenders were granted a first priority perfected security interest over all of the assets of the
Company and its subsidiaries, and such lenders have the right to foreclose on those assets if the Company defaults on its obligations under the Credit Facility; a
disconnect could arise between APC achieving net income, declaring and paying dividends to AP-AMH, and AP-AMH making its required payments to the
Company, which disconnect could materially impact the Company's financial results and its ability to make its required payments under the Credit Facility; APC
may be prohibited from paying, or may be unable to pay the dividends on its Series A Preferred Stock, including under the California Corporations Code;
regulators could determine that the current, post-APC Transactions consolidated structure amounts to the Company violating California’s corporate practice of
medicine doctrine; and the Company may be deemed an investment company, which could impose burdensome compliance requirements on the Company and
restrict its future activities.

The “Risk Factors” section of the definitive proxy statement of the Company’s board of directors that the Company filed with the SEC on July 31, 2019

(the “Proxy Statement”) described these and certain other risks related to the APC Transactions that could arise if the APC Transactions are consummated.
Since the APC Transactions have now closed, the APC Transactions-related risk factors described in the “Risk Factors” portion of the Proxy Statement, including
the risks described in the Proxy Statement under the headings listed below, are hereby incorporated herein by reference:

•

AP-AMH may never be able to repay the AP-AMH Loan.

• Whether or not AP-AMH pays us, we will be obligated to pay principal and interest on the secured senior credit facility we are entering into in order

to make the AP-AMH Loan.

•

•

•

•

•

•

•

•

The terms of the credit agreement we will need to secure could restrict our operations, particularly our ability to respond to changes in our business
or to take specified actions, and an event of default under such credit agreement could harm our business.

In connection with the credit facility, the creditor will have a first priority perfected security interest over all of our assets and those of our subsidiaries,
and such creditor would be able to foreclose on our assets if we default on our obligations under the credit facility and security agreement.

AP-AMH will be required to fund APC losses and deficits but may not have the funds to do so.

There may be a timing disconnect between APC achieving net income subject to the Series A Dividend, declaring and paying dividends to AP-AMH
and AP-AMH’s payments to the Company, and any failure to pay or late payment of dividends could materially impact our financial results.

The impact of the APC Transactions may prove to be negative in future periods.

If there is a change in accounting principles or the interpretation thereof affecting our anticipated accounting treatment for the APC Transactions, it
could impact our earnings per share.

The Series A Dividends payable to AP-AMH must be declared by the APC board, and that board could fail to do so.

APC may be prohibited from paying or unable to pay the Series A Dividends, including under the California Corporations Code, which could cause
the APC Transactions structure to collapse.

• We may have no recourse against AP-AMH if it is unable to make its payments to the Company and NMM.

•

•

•

The entitlement to receive the Series A Dividend will not necessarily mean that AP-AMH will be distributing all of the net income from APC’s
Healthcare Services business and assets.

Regulators could determine that the post-APC Transactions consolidated structure amounts to the Company violating California’s corporate practice
of medicine doctrine.

The Company could be subject to the California Finance Lenders Law as a result of the AP-AMH Loan.

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• We may be deemed an investment company, which could impose on us burdensome compliance requirements and restrict our activities.

If our internal controls over financial reporting are not considered effective, our business and stock price could be adversely affected.

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of
each fiscal year, and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report on Form
10-K for that fiscal year. Section 404 also requires our independent registered public accounting firm to attest to, and report on, management’s assessment of our
internal controls over financial reporting. Our management, including our principal executive officer and principal financial officer, does not expect that our internal
controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable,
not  absolute,  assurance  that  the  control  system’s  objectives  will  be  met.  Further,  the  design  of  a  control  system  must  reflect  the  fact  that  there  are  resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud involving a company have been, or will be, detected. The design of any
system  of  controls  is  based  in  part  on  certain  assumptions  about  the  likelihood  of  future  events,  and  we  cannot  assure  you  that  any  design  will  succeed  in
achieving its stated goals under all potential future conditions. Over time, controls may become ineffective because of changes in conditions or deterioration in
the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud
may occur and not be detected. We cannot assure you that we or our independent registered public accounting firm will not identify a material weakness in our
internal controls in the future. A material weakness in our internal controls over financial reporting would require management and our independent registered
public  accounting  firm  to  consider  our  internal  controls  as  ineffective.  If  our  internal  controls  over  financial  reporting  are  not  considered  effective,  we  may
experience a loss of public confidence, which could have an adverse effect on our business and on the market price of our common stock.

We may need to raise additional capital to grow, which might not be available.

We may in the future require additional capital to grow our business and may have to raise additional funds by selling equity, issuing debt, borrowing,
refinancing  our  existing  debt,  or  selling  assets  or  subsidiaries.  These  alternatives  may  not  be  available  on  acceptable  terms  to  us  or  in  amounts  sufficient  to
meet our needs. The failure to obtain any required future financing may require us to reduce or curtail certain existing operations.

Our net operating loss carryforwards and certain other tax attributes will be subject to limitations.

If  a  corporation  undergoes  an  “ownership  change”  within  the  meaning  of  Section  382  of  the  Internal  Revenue  Code  of  1986,  as  amended,  its  net
operating  loss  carryforwards  and  certain  other  tax  attributes  arising  from  before  the  ownership  change  are  subject  to  limitations  on  use  after  the  ownership
change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds 50
percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Merger likely resulted in an ownership change for us and,
accordingly, our net operating loss carryforwards and certain other tax attributes will be subject to use limitations after the Merger. Additional ownership changes
in the future could result in additional limitations on our net operating loss carryforwards. Consequently, we may not be able to utilize a material portion of our net
operating  loss  carryforwards  and  other  tax  attributes,  to  offset  our  tax  liabilities,  which  could  have  a  material  adverse  effect  on  our  cash  flows  and  results  of
operations.

Uncertain or adverse economic conditions could adversely impact us.

A downturn in economic conditions could have a material adverse effect on our results of operations, financial condition, business prospects and stock
price.  Historically,  government  budget  limitations  have  resulted  in  reduced  spending.  Given  that  Medicaid  is  a  significant  component  of  state  budgets,  an
economic downturn would put continued cost containment pressures on Medicaid outlays for healthcare services in California. The existing federal deficit and
continued  deficit  spending  by  the  federal  government  can  lead  to  reduced  government  expenditures  including  for  government-funded  programs  in  which  we
participate such as Medicare. An economic downturn and sustained unemployment may also impact the number of enrollees in managed care programs and the
profitability  of  managed  care  companies,  which  could  result  in  reduced  reimbursement  rates.  Although  we  attempt  to  stay  informed,  any  sustained  failure  to
identify and respond to these trends could have a material adverse effect on our results of operations, financial condition, business and prospects.

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Our operations and financial results could be adversely effected by a national or localized outbreak of a highly contagious disease or other

public health crisis, and a pandemic outside of the United States could also adversely impact our business.

An  epidemic  outbreak  or  other  public  health  crisis  nationally  or  the  markets  where  we  operate  could  adversely  affect  our  operations  and  financial
results.  For example, the recent outbreak of the 2019 Novel Coronavirus (COVID-19), which has been declared a global pandemic, has caused governments
and the private sector to take a number of drastic measures to contain the spread of the coronavirus, including the suspension of classes at various colleges and
universities,  the  cancellation  of  public  events  and  other  nonessential  mass  gatherings  and  the  implementation  of  workplace  telecommuting  policies.    Such
measures  may  have  a  substantial  impact  on  employee  attendance  or  productivity,  which  in  turn  may  adversely  affect  our  operations,  including  our  ability  to
effectively provide MSO services to our affiliated IPAs and contracted physician groups in compliance with regulatory requirements.  An extended outbreak may
also result in disruptions to critical infrastructures and our supply chains and the supply chains of our affiliated IPAs and contracted physician groups, including
the supply of pharmaceuticals and medical supplies.  The duration and extent of the impact from the coronavirus outbreak depends on future developments that
cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions. If we are
not able to respond to and manage the impact of such events effectively, our business could be harmed.

We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative

effect on our financial condition, results of operations and stock price.

There can be no assurances that all material issues that may be present in our operations, including from prior to the Merger, have been uncovered, or
that factors outside of our control will not later arise. As a result, we may be forced to write-down or write-off assets, restructure operations, or incur impairment
or  other  charges  that  could  result  in  losses.  Unexpected  risks  may  arise  and  previously  known  risks  may  materialize  in  a  manner  not  consistent  with  each
company’s preliminary risk analysis. Even though these charges may not have an immediate impact on our liquidity, the fact that we report charges of this nature
could contribute to negative market perceptions about us or our securities and may make our future financing difficult to obtain on favorable terms or at all.

From time to time, our intangible assets are subject to impairment testing. Under current accounting standards, our goodwill, including acquired goodwill,
is  tested  for  impairment  on  an  annual  basis  and  may  be  subject  to  impairment  losses  as  circumstances  change  (e.g.,  after  an  acquisition).  If  we  record  an
impairment loss, it could have a material adverse effect on our results of operations for the year in which the impairment is recorded. 

A prolonged disruption of or any actual or perceived difficulties in the capital and credit markets may adversely affect our future access to

capital, our cost of capital and our ability to continue operations.

Our operations and performance depend primarily on California and U.S. economic conditions and their impact on purchases of, or capitated rates for,
our healthcare services, and our business is significantly exposed to risks associated with government spending and private payor reimbursement rates. As a
result of the global financial crisis that began in 2008, general economic conditions deteriorated significantly. Although the markets have improved significantly,
the overall economic recovery since that time has been uneven. Declines in consumer and business confidence as well as private and government spending,
together with significant reductions in the availability and increases in the cost of credit and volatility in the capital and credit markets, have adversely affected
the business and economic environment in which we operate and our profitability. Market disruption, increases in interest rates and/or sluggish economic growth
in any future period could adversely affect our patients’ spending habits, private payors’ access to capital and governmental budgetary processes, which, in turn,
could result in reduced revenue for us. The continuation or recurrence of any of these conditions may adversely affect our cash flows, results of operations and
financial  condition.  As  economic  uncertainty  may  continue  in  future  periods,  our  patients,  private  payors  and  government  payors  may  alter  their  purchasing
activities of healthcare services. Our patients may scale back healthcare spending, and private and government payors may reduce reimbursement rates, which
may  also  cause  delay  or  cancellation  of  consumer  spending  for  discretionary  and  non-reimbursed  healthcare.  This  uncertainty  may  also  affect  our  ability  to
prepare accurate financial forecasts or meet specific forecasted results, and we may be unable to adequately respond to or forecast further changes in demand
for healthcare services. Volatility and disruption of capital and credit markets may adversely affect our access to capital and increase our cost of capital. Should
current economic and market conditions deteriorate, our ability to finance ongoing operations and our expansion may be adversely affected, we may be unable
to raise necessary funds, our cost of debt or equity capital may increase significantly and future access to capital markets may be adversely affected.

If there is a change in accounting principles or the interpretation thereof affecting consolidation of VIEs, it could impact our consolidation of

total revenues derived from our affiliated physician groups.

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Our financial statements are consolidated and include the accounts of our majority-owned subsidiaries and various non-owned affiliated physician groups
that  are  VIEs,  which  consolidation  is  effectuated  in  accordance  with  applicable  accounting  rules  promulgated  by  the  Financial  Accounting  Standards  Board
(“FASB”). Such accounting rules require that, under some circumstances, the VIE consolidation model be applied when a reporting enterprise holds a variable
interest (e.g., equity interests, debt obligations, certain management and service contracts) in a legal entity. Under this model, an enterprise must assess the
entity in which it holds a variable interest to determine whether it meets the criteria to be consolidated as a VIE. If the entity is a VIE, the consolidation framework
next  identifies  the  party,  if  one  exists,  that  possesses  a  controlling  financial  interest  in  the  VIE,  and  then  requires  that  party  to  consolidate  as  the  primary
beneficiary. An enterprise’s determination of whether it has a controlling financial interest in a VIE requires that a qualitative determination be made, and is not
solely  based  on  voting  rights.  If  an  enterprise  determines  the  entity  in  which  it  holds  a  variable  interest  is  not  subject  to  the  VIE  consolidation  model,  the
enterprise should apply the traditional voting control model which focuses on voting rights.

In  our  case,  the  VIE  consolidation  model  applies  to  our  controlled,  but  not  owned,  physician  affiliated  entities.  Our  determination  regarding  the
consolidation of our affiliates, however, could be challenged, which could have a material adverse effect on our operations. In addition, in the event of a change
in accounting rules or FASB’s interpretations thereof, or if there were an adverse determination by a regulatory agency or a court or a change in state or federal
law relating to the ability to maintain present agreements or arrangements with our affiliated physician groups, we may not be permitted to continue to consolidate
the revenues of our VIEs.

Breaches  or  compromises  of  our  information  security  systems  or  our  information  technology  systems  or  infrastructure  could  result  in
exposure of private information, disruption of our business and damage to our reputation, which could harm our business, results of operation and
financial condition.

As a routine part of our business, we utilize information security and information technology systems and websites that allow for the secure storage and
transmission of proprietary or private information regarding our patients, employees, vendors and others, including individually identifiable health information. A
security breach of our network, hosted service providers, or vendor systems, may expose us to a risk of loss or misuse of this information, litigation and potential
liability.  Hackers  and  data  thieves  are  increasingly  sophisticated  and  operate  large-scale  and  complex  automated  attacks,  including  on  companies  within  the
healthcare  industry.  Although  we  believe  that  we  take  appropriate  measures  to  safeguard  sensitive  information  within  our  possession,  we  may  not  have  the
resources or technical sophistication to anticipate or prevent rapidly-evolving types of cyber-attacks targeted at us, our patients, or others who have entrusted us
with  information.  Actual  or  anticipated  attacks  may  cause  us  to  incur  costs,  including  costs  to  deploy  additional  personnel  and  protection  technologies,  train
employees,  and  engage  third-party  experts  and  consultants.  We  invest  in  industry  standard  security  technology  to  protect  personal  information.  Advances  in
computer  capabilities,  new  technological  discoveries,  or  other  developments  may  result  in  the  technology  used  by  us  to  protect  personal  information  or  other
data being breached or compromised. In addition, data and security breaches can also occur as a result of non-technical failures. To our knowledge, we have not
experienced  any  material  breach  of  our  cybersecurity  systems.  If  we  or  our  third-party  service  providers  systems  fail  to  operate  effectively  or  are  damaged,
destroyed, or shut down, or there are problems with transitioning to upgraded or replacement systems, or there are security breaches in these systems, any of
the aforementioned could occur as a result of natural disasters, software or equipment failures, telecommunications failures, loss or theft of equipment, acts of
terrorism,  circumvention  of  security  systems,  or  other  cyber-attacks,  we  could  experience  delays  or  decreases  in  service,  and  reduced  efficiency  of  our
operations.  Additionally,  any  of  these  events  could  lead  to  violations  of  privacy  laws,  loss  of  customers,  or  loss,  misappropriation  or  corruption  of  confidential
information, trade secrets or data, which could expose us to potential litigation, regulatory actions, sanctions or other statutory penalties, any or all of which could
adversely affect our business, and cause it to incur significant losses and remediation costs.

We rely on complex software systems and hosted applications to operate our business, and our business may be disrupted if we are unable

to successfully or efficiently update these systems or convert to new systems.

We are increasingly dependent on technology systems to operate our business, reduce costs, and enhance customer service. These systems include
complex software systems and hosted applications that are provided by third parties. Software systems need to be updated on a regular basis with patches, bug
fixes and other modifications. Hosted applications are subject to service availability and reliability of hosting environments. We also migrate from legacy systems
to  new  systems  from  time  to  time.  Maintaining  existing  software  systems,  implementing  upgrades  and  converting  to  new  systems  are  costly  and  require
personnel and other resources. The implementation of these systems upgrades and conversions is a complex and time-consuming project involving substantial
expenditures  for  implementation  activities,  consultants,  system  hardware  and  software,  often  requires  transforming  our  current  business  and  processes  to
conform to new systems, and therefore, may take longer, be more disruptive, and cost more than forecast and may not be successful. If the implementation is
delayed or otherwise is not successful, it may hinder our business operations and negatively affect our financial condition and results of operations. There are
many factors that may materially and adversely affect the schedule, cost, and execution of the implementation process, including, without limitation,

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problems in the design and testing of new systems; system delays and malfunctions; the deviation by suppliers and contractors from the required performance
under  their  contracts  with  us;  the  diversion  of  management  attention  from  our  daily  operations  to  the  implementation  project;  reworks  due  to  unanticipated
changes in business processes; difficulty in training employees in the operation of new systems and maintaining internal control while converting from legacy
systems to new systems; and integration with our existing systems. Some of such factors may not be reasonably anticipated or may be beyond our control.

Some of our agreements for services or products have limited terms, and we may be unable to renew such agreements and may lose access

to such services or products.

We  have  various  agreements  with  a  number  of  third  parties  that  provide  products  or  services  to  us.  These  agreements  often  require  reoccurring
payments for continued access and have limited terms. We will be required to renegotiate the terms of these agreements from time to time, and may be unable
to renew such agreements on favorable terms. If any such agreement cannot be renewed or can only be renewed on terms materially worse for us, we may lose
access to the service or product, and our business and operating results may be adversely affected.

We may be unable to renew our leases on favorable terms or at all as our leases expire, which could adversely affect our business, financial

condition and results of operations.

We operate several leased premises. There is no assurance that we will be able to continue to occupy such premises in the future. For example, we
currently rent our corporate headquarters on a month-to-month basis. We could thus spend substantial resources to meet the current landlords’ demands or look
for other premises. We may be unable to timely renew such leases or renew them on favorable terms, if at all. If any current lease is terminated or not renewed,
we  may  be  required  to  relocate  our  operations  at  substantial  costs  or  incur  increased  rental  expenses,  which  could  adversely  affect  our  business,  financial
condition and results of operations.

We currently derive 100% of revenues in California and are vulnerable to changes in that state.

We only operate in California. Any material changes with respect to consumer preferences, taxation, reimbursements, financial requirements or other
aspects  of  the  healthcare  delivery  in  California  or  the  state’s  economic  conditions  could  have  an  adverse  effect  on  our  business,  results  of  operations  and
financial condition.

Our success depends, to a significant degree, upon our ability to adapt to the ever-changing healthcare industry and continued development

of additional services.

Although  we  expect  to  provide  a  broad  and  competitive  range  of  services,  there  can  be  no  assurance  of  acceptance  of  current  services  by  the
marketplace. Our ability to procure new contracts may be dependent upon the continuing results achieved at the current facilities, upon pricing and operational
considerations,  and  the  potential  need  for  continuing  improvement  to  our  existing  services.  Moreover,  the  markets  for  our  new  services  may  not  develop  as
expected nor can there be any assurance that we will be successful in marketing any such services.

Risks Relating to Our Growth Strategy and Business Model.

Our growth strategy may not prove viable and we may not realize expected results.

Our business strategy is to grow rapidly by building a network of medical groups and integrated physician networks and is significantly dependent on
locating and acquiring, partnering or contracting with medical practices to provide health care delivery services. We seek growth opportunities both organically
and through acquisitions of or alliances with other medical service providers. As part of our growth strategy, we regularly review potential strategic opportunities.
Identifying and establishing suitable strategic relationships are time-consuming and costly. There can be no assurance that we will be successful. We cannot
guarantee that we will be successful in pursuing such strategic opportunities or assure the consequences of any strategic transactions. If we fail to evaluate and
execute strategic transactions properly, we may not achieve anticipated benefits and may incur increased costs.

Our strategic transactions involve a number of risks and uncertainties, including that:

• We  may  not  be  able  to  successfully  identify  suitable  strategic  opportunities,  complete  desired  strategic  transactions,  or  realize  their  expected
benefits. In addition, we compete for strategic transactions with other potential players, some of whom may have greater resources than we do. This
competition may intensify due to the ongoing consolidation in the healthcare industry, which may increase our costs to pursue such opportunities.

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• We may not be able to establish suitable strategic relationships and may fail to integrate them into our business. We cannot be certain of the extent
of any unknown, undisclosed or contingent liabilities of any acquired business, including liabilities for failure to comply with applicable laws. We may
incur  material  liabilities  for  past  activities  from  strategic  relationships.  Also,  depending  on  the  location  of  the  strategic  transactions,  we  may  be
required to comply with laws and regulations that may differ from those of California, the state in which we currently operate.

• We may form strategic relationships with medical practices that operate with lower profit margins as compared with ours or which have a different
payor mix than our other practice groups, which would reduce our overall profit margin. Depending upon the nature of the local market, we may not
be able to implement our business model in every local market that we enter, which could negatively impact our revenues and financial condition.

• We  may  incur  substantial  costs  to  complete  strategic  transactions,  integrate  strategic  relationships  into  our  business,  or  expand  our  operations,
including  hiring  more  employees  and  engaging  other  personnel,  to  provide  services  to  additional  patients  that  we  are  responsible  for  managing
pursuant to the new relationships. If such relationships terminate or diminish before we can realize their expected benefits, any costs that we have
already incurred may not be recovered.

•

If we finance strategic transactions by issuing our equity securities or securities convertible thereto, our existing stockholders could be diluted. If we
finance strategic transactions with debt, it could result in higher leverage and interest costs for us.

If we are not successful in our efforts to identify and execute strategic transactions on beneficial terms, our ability to implement our business plan and
achieve our targets could be adversely affected.

The process of integrating strategic relationships also involves significant risks including:

•
•
•
•
•

•
•

difficulties in coping with demands on management related to the increased size of our business;
difficulties in not diverting management’s attention from our daily operations;
difficulties in assimilating different corporate cultures and business practices;
difficulties in converting other entities’ books and records and conforming their practices to ours;
difficulties in integrating operating, accounting and information technology systems of other entities with ours and in maintaining uniform procedures,
policies and standards, such as internal accounting controls;
difficulties in retaining employees who may be vital to the integration of the acquired entities; and
difficulties in maintaining contracts and relationships with payors of other entities.

We may be required to make certain contingent payments in connection with strategic transactions from time to time. The fair value of such payments is
re-evaluated periodically based on changes in our estimate of future operating results and changes in market discount rates. Any changes in our estimated fair
value are recognized in our results of operations. The actual payments, however, may exceed our estimated fair value. Increases in actual contingent payments
compared to the amounts recognized may have an adverse effect on our financial condition.

There  can  be  no  assurance  that  we  will  be  able  to  effectively  integrate  strategic  relationships  into  our  business,  which  may  negatively  impact  our
business model, revenues, results of operations and financial condition. In addition, strategic transactions are time-intensive, requiring significant commitment of
our  management’s  focus.  If  our  management  spends  too  much  time  on  assessing  potential  opportunities,  completing  strategic  transactions  and  integrating
strategic  relationships,  our  management  may  not  have  sufficient  time  to  focus  on  our  existing  operations.  This  diversion  of  attention  could  have  material  and
adverse consequences on our operations and profitability.

Obligations in our credit or loan documents could restrict our operations, particularly our ability to respond to changes in our business or to
take  specified  actions.  An  event  of  default  could  harm  our  business,  and  creditors  having  security  interests  over  our  assets  would  be  able  to
foreclose on our assets.

The terms of our credit agreements and other indebtedness from time to time require us to comply with a number of financial and other obligations, which
may  include  maintaining  debt  service  coverage  and  leverage  ratios  and  maintaining  insurance  coverage,  that  impose  significant  operating  and  financial
restrictions on us, including restrictions on our ability to take actions that may be in our interests. These obligations may limit our flexibility in our operations, and
breaches of these obligations could result in defaults under the agreements or instruments governing the indebtedness, even if we had satisfied our payment
obligations. Moreover, if we defaulted on these obligations, creditors having security interests over our assets could exercise various remedies,

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including foreclosing on and selling our assets. Unless waived by creditors, for which no assurance can be given, defaulting on these obligations could result in a
material adverse effect on our financial condition and ability to continue our operations.

We may encounter difficulties in managing our growth, and the nature of our business and rapid changes in the healthcare industry makes it

difficult to reliably predict future growth and operating results.

We  may  not  be  able  to  successfully  grow  and  expand.  Successful  implementation  of  our  business  plan  will  require  management  of  growth,  including
potentially rapid and substantial growth, which could result in an increase in the level of responsibility for management personnel and strain on our human and
capital  resources.  To  manage  growth  effectively,  we  will  be  required,  among  other  things,  to  continue  to  implement  and  improve  our  operating  and  financial
systems, procedures and controls and to expand, train and manage our employee base. If we are unable to implement and scale improvements to our existing
systems and controls in an efficient and timely manner or if we encounter deficiencies, we will not be able to successfully execute our business plans. Failure to
attract  and  retain  sufficient  numbers  of  qualified  personnel  could  also  impede  our  growth.  If  we  are  unable  to  manage  our  growth  effectively,  it  will  have  a
material adverse effect on its business, results of operations and financial condition.

The  evolving  nature  of  our  business  and  rapid  changes  in  the  healthcare  industry  makes  it  difficult  to  anticipate  the  nature  and  amount  of  medical
reimbursements,  third  party  private  payments  and  participation  in  certain  government  programs  and  thus  to  reliably  predict  our  future  growth  and  operating
results.

We could experience significant losses under capitation contracts if our expenses exceed revenues.

Under  a  capitation  contract,  a  health  plan  typically  prospectively  pays  an  IPA  periodic  capitation  payments  based  on  a  percentage  of  the  amount
received  by  the  health  plan.  Capitation  payments,  in  the  aggregate,  represent  a  prospective  budget  from  which  an  IPA  manages  care-related  expenses  on
behalf of the population enrolled with that IPA. If our affiliated IPAs are able to manage care-related expenses under the capitated levels, we realize operating
profits from capitation contracts. However, if care-related expenses exceed projected levels, our affiliated IPAs may realize substantial operating deficits, which
are not capped and could lead to substantial losses. Additionally, factors beyond our control such as natural disasters, the potential effects of climate change,
major epidemics, pandemics or newly emergent viruses (such as the 2019 novel coronavirus, COVID-19) could reduce our ability to effectively manage the costs
of providing health care.

If our agreements with affiliated physician groups are deemed invalid or are terminated under applicable law, our results of operations and

financial condition will be materially impaired.

There are various state laws, including laws in California, regulating the corporate practice of medicine which prohibit us from directly owning medical
professional entities. These prohibitions are intended to prevent unlicensed persons from interfering with or inappropriately influencing a physician’s professional
judgment. These and other laws may also prevent fee-splitting, which is the sharing of professional service income with non-professional or business interests.
The interpretation and enforcement of these laws vary significantly from state to state. We currently derive revenues from MSAs or similar arrangements with our
affiliated IPAs, whereby we provide management and administrative services to them. If these agreements and arrangements were held to be invalid under laws
prohibiting the corporate practice of medicine and other laws or if there are new laws that prohibit such agreements or arrangements, a significant portion of our
revenues will be lost, resulting in a material adverse effect on our results of operations and financial condition.

The arrangements we have with our VIEs are not as secure as direct ownership of such entities.

Because of corporate practice of medicine laws, we entered into contractual arrangements to manage certain affiliated physician practice groups, which
allow us to consolidate those groups for financial reporting purposes. We do not have direct ownership interests in any of our VIEs and are not able to exercise
rights as an equity holder to directly change the members of the boards of directors of these entities so as to affect changes at the management and operational
level. Under our arrangements with our VIEs, we must rely on their equity holders to exercise our control over the entities. If our affiliated entities or their equity
holders fail to perform as expected, we may have to incur substantial costs and expend additional resources to enforce such arrangements.

Any failure by our affiliated entities or their owners to perform their obligations under their agreements with us would have a material adverse

effect on our business, results of operations and financial condition.

Our affiliated physician practice groups are owned by individual physicians who could die, become incapacitated or become no longer affiliated with us.

Although our MSAs with these affiliates provide that they will be binding on successors of

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current owners, as the successors are not parties to the MSAs, it is uncertain in case of the death, bankruptcy or divorce of a current owner whether his or her
successors would be subject to such MSAs.

Our revenues and operations are dependent on a limited number of key payors.

Our  operations  are  dependent  on  a  concentrated  number  of  payors.  Four  payors  accounted  for  an  aggregate  of  51.6%  and 61.5%  of  our  total  net
revenue for the years ended December 31, 2019  and 2018, respectively. We believe that a majority of our revenues will continue to be derived from a limited
number of key payors, which may terminate their contracts with us or our physicians credentialed by them upon the occurrence of certain events. They may also
amend  the  material  terms  of  the  contracts  under  certain  circumstances.  Failure  to  maintain  such  contracts  on  favorable  terms,  or  at  all,  would  materially  and
adversely affect our results of operations and financial condition.

An exodus of our patients could have a material adverse effect on our results of operations. We may also be impacted by a shift in payor mix

including eligibility changes to government and private insurance programs.

A material decline in the number of patients that we and our affiliated physician groups serve, whether a government or a private entity is paying for their
healthcare,  could  have  a  material  adverse  effect  on  our  results  of  operations  and  financial  condition,  which  could  result  from  increased  competition,  new
developments in the healthcare industry or regulatory overhauls. In light of the repeal of the individual mandate requirement under the Patient Protection and
Affordable  Care  Act  of  2010  (also  known  as  Affordable  Care  Act  or  Obamacare)  via  the  Tax  Cuts  and  Jobs  Act  of  2017,  starting  in  2019,  some  people  are
expected to lose their health insurance and thus may not continue to afford services by our managed medical groups. In addition, due to potential decreased
availability of healthcare through private employers, the number of patients who are uninsured or participate in governmental programs may increase. A shift in
payor mix from managed care and other private payors to government payors or the uninsured may result in a reduction in our rates of reimbursement or an
increase  in  our  uncollectible  receivables  or  uncompensated  care,  with  a  corresponding  decrease  our  net  revenue.  Changes  in  the  eligibility  requirements  for
governmental programs could also change the number of patients who participate in such programs or the number of uninsured patients. For those patients who
remain with private insurance, changes in those programs could increase patient responsibility amounts, resulting in a greater risk for uncollectible receivables.
Such events could have a material adverse effect on our business, results of operations and financial condition.

Our future growth could be harmed if we lose the services of our key management personnel.

Our success depends to a significant extent on the continued contributions of our key management personnel, particularly our Executive Chairman and
Co-Chief Executive Officer, Dr. Sim, and our Co-Chief Executive Officer and President, Dr. Lam, for the management of our business and implementation of our
business strategy. The loss of their services could have a material adverse effect on our business, financial condition and results of operations.

If  having  our  key  management  personnel  serving  as  nominee  equity  holders  of  our  VIEs  is  invalid  under  applicable  laws,  or  if  we  lost  the

services of key management personnel for any reason, it could have a material adverse impact on our results of operations and financial condition.

There  are  various  state  laws,  including  laws  in  California,  regulating  the  corporate  practice  of  medicine  which  prohibits  us  from  owning  various
healthcare  entities.  These  corporate  practice  of  medicine  prohibitions  are  intended  to  prevent  unlicensed  persons  from  interfering  with  or  inappropriately
influencing a physician’s professional judgment. The interpretation and enforcement of these laws vary significantly from state to state. As a result, many of our
affiliated physician practice groups are either wholly-owned or primarily owned by Dr. Lam as the nominee shareholder for our benefit. If these arrangements
were held to be invalid under applicable laws, which may change from time to time, a significant portion of our consolidated revenues would be affected, which
may  result  in  a  material  adverse  effect  on  our  results  of  operations  and  financial  condition.  Similarly,  if  Dr.  Lam  died,  was  incapacitated  or  otherwise  was  no
longer affiliated with us, our relationships and arrangements with those VIEs could be in jeopardy, and our business could be adversely affected.

We are dependent in part on referrals from third parties and preferred provider status with payors.

Our  business  relies  in  part  on  referrals  from  third  parties  for  our  services.  We  receive  referrals  from  community  medical  providers,  emergency
departments,  payors,  and  hospitals  in  the  same  manner  as  other  medical  professionals  receive  patient  referrals.  We  do  not  provide  compensation  or  other
remuneration to referral sources for referring patients to us. A decrease in these referrals due to competition, concerns about our services and other factors could
result in a significant decrease in our revenues and adversely impact our financial condition. Similarly, we cannot assure that we will be able to obtain or maintain
preferred provider status

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with  significant  third-party  payors  in  the  communities  where  we  operate.  If  we  are  unable  to  maintain  our  referral  base  or  our  preferred  provider  status  with
significant third-party payors, it may negatively impact our revenues and financial performance.

Partner facilities may terminate agreements with our affiliated physician groups or reduce their fees.

Our  hospitalist  physician  services  net  revenue  is  derived  from  contracts  directly  with  hospitals  and  other  inpatient  and  post-acute  care  facilities.  Our
current  partner  facilities  may  decide  not  to  renew  contracts  with,  impose  unfavorable  terms  on,  or  reduce  fees  paid  to  our  affiliated  physician  groups.  Any  of
these  events  may  impact  the  ability  of  our  affiliated  physician  groups  to  operate  at  such  facilities,  which  would  negatively  impact  our  revenues,  results  of
operations and financial condition.

Many of our agreements with hospitals and medical groups have limited durations, may be terminated without cause by them, and prohibit us

from acquiring physicians or patients from or competing with them.

Many of our agreements with hospitals and medical groups are limited in their terms or may be terminated without cause by providing advance notice. If
such agreements are not renewed or terminated, we would lose the revenue generated by them. Any such events could have a material adverse effect on our
results  of  operations,  financial  condition  and  future  business  plans.  Because  many  of  such  agreements  with  hospitals  and  medical  groups  prohibit  us  from
acquiring physicians or patients from or competing with them, our ability to hire physicians, attract patients or conduct business in certain areas may be limited
in some cases.

Our  business  model  depends  on  numerous  complex  management  information  systems,  and  any  failure  to  successfully  maintain  these
systems or implement new systems could undermine our ability to receive payments and otherwise materially harm our operations and may result in
violations of healthcare laws and regulations.

We  depend  on  a  complex,  specialized,  integrated  management  information  system  and  standardized  procedures  for  operational  and  financial
information,  as  well  as  for  our  billing  operations.  We  may  be  unable  to  enhance  existing  management  information  systems  or  implement  new  management
information  systems  when  necessary.  We  may  experience  unanticipated  delays,  complications  or  expenses  in  implementing,  integrating  and  operating  our
systems. Our management information systems may require modifications, improvements or replacements that may require both substantial expenditures as well
as interruptions in operations. Our ability to create and implement these systems depends on the availability of technology and skilled personnel. Our failure to
successfully implement and maintain all of our systems could undermine our ability to receive payments and otherwise have a material adverse effect on our
business, results of operations and financial condition. Our failure to successfully operate our billing systems could also lead to potential violations of healthcare
laws and regulations.

Risks Relating to the Healthcare Industry.

The healthcare industry is highly competitive.

We compete directly with national, regional and local providers of inpatient healthcare for patients and physicians. There are many other companies and
individuals  currently  providing  health  care  services,  many  of  which  have  been  in  business  longer  and/or  have  substantially  more  resources.  Since  there  are
virtually  no  substantial  capital  expenditures  required  for  providing  health  care  services,  there  are  few  financial  barriers  to  entry  the  healthcare  industry.  Other
companies  could  enter  the  healthcare  industry  in  the  future  and  divert  some  or  all  of  our  business.  On  a  national  basis,  our  competitors  include,  but  are  not
limited  to,  Team  Health,  EmCare,  DaVita  Medical  Group  and  Heritage,  each  of  which  has  greater  financial  and  other  resources  available  to  them.  We  also
compete with physician groups and privately-owned health care companies in local markets. In addition, our relationships with governmental and private third-
party payors are not exclusive and our competitors have established or could seek to establish relationships with such payors to serve their covered patients.
Competitors  may  also  seek  to  compete  with  us  for  acquisitions,  which  could  have  the  effect  of  increasing  the  price  and  reducing  the  number  of  suitable
acquisitions, which would have an adverse impact on our growth strategy. Individual physicians, physician groups and companies in other healthcare industry
segments, including those with which we have contracts, and some of which have greater financial, marketing and staffing resources, may become competitors in
providing health care services, and this competition may have a material adverse effect on our business operations and financial position.

We therefore may be unable to compete successfully and even after we expend significant resources.

New physicians and other providers must be properly enrolled in governmental healthcare programs before we can receive reimbursement

for their services, and there may be delays in the enrollment process.

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Each time a new physician joins us or our affiliated groups, we must enroll the physician under our applicable group identification number for Medicare
and Medicaid programs and for certain managed care and private insurance programs before we can receive reimbursement for services the physician renders
to beneficiaries of those programs. The estimated time to receive approval for the enrollment is sometimes difficult to predict and, in recent years, the Medicare
program carriers often have not issued these numbers to our affiliated physicians in a timely manner. These practices result in delayed reimbursement that may
adversely affect our cash flows.

Hospitals where our affiliated physicians provide services may deny privileges to our physicians.

In general, our affiliated physicians may only provide services in a hospital where they have maintained certain credentials, also known as privileges,
which are granted by the medical staff according to the bylaws of the hospital. The medical staff could decide that our affiliated physicians can no longer receive
privileges to practice there. Such a decision would limit our ability to furnish services at the hospital, decrease the number of our affiliated physicians, or preclude
us from entering new hospitals. In addition, hospitals may attempt to enter into exclusive contracts for certain physician services, which would reduce our access
to patient populations within the hospital.

We may be impacted by eligibility changes to government and private insurance programs.

Due to potential decreased availability of healthcare through private employers, the number of patients who are uninsured or participate in governmental
programs may increase. A shift in payor mix from managed care and other private payors to government payors or the uninsured may result in a reduction in our
rates of reimbursement or an increase in our uncollectible receivables or uncompensated care, with a corresponding decrease in our net revenue. Changes in
the eligibility requirements for governmental programs also could increase the number of patients who participate in such programs or the number of uninsured
patients.  Even  for  those  patients  who  remain  with  private  insurance,  changes  in  those  programs  could  increase  patient  responsibility  amounts,  resulting  in  a
greater risk of uncollectible receivables for us. These factors and events could have a material adverse effect on our business, results of operations and financial
condition.

Changes associated with reimbursements by third-party payors may adversely affect our operations.

The  medical  services  industry  is  undergoing  significant  changes  with  government  and  other  third-party  payors  that  are  taking  measures  to  reduce
reimbursement rates or, in some cases, denying reimbursement altogether. There is no assurance that government or other third-party payors will continue to
pay for the services provided by our affiliated medical groups. Furthermore, there has been, and continues to be, a great deal of discussion and debate about the
repeal  and  replacement  of  existing  government  reimbursement  programs,  such  as  the  ACA.  As  a  result,  the  future  of  healthcare  reimbursement  programs  is
uncertain,  making  long-term  business  planning  difficult  and  imprecise.  The  failure  of  government  or  other  third  party  payors  to  cover  adequately  the  medical
services provided by us could have a material adverse effect on our business, results of operations and financial condition.

Our business may be significantly and adversely affected by legislative initiatives aimed at or having the effect of reducing healthcare costs associated
with  Medicare  and  other  government  healthcare  programs  and  changes  in  reimbursement  policies.  In  order  to  participate  in  the  Medicare  program,  we  must
comply with stringent and often complex enrollment and reimbursement requirements. These programs generally provide for reimbursement on a fee-schedule
basis rather than on a charge-related basis. As a result, we cannot increase our revenue by increasing the amount that we and our affiliates charge for services.
To the extent that our costs increase, we may not be able to recover the increased costs from these programs. In addition, cost containment measures in non-
governmental  insurance  plans  have  generally  restricted  our  ability  to  recover,  or  shift  to  non-governmental  payors,  these  increased  costs.  In  attempts  to  limit
federal and state spending, there have been, and we expect that there will continue to be, a number of proposals to limit or reduce Medicare reimbursement for
various  services.  For  example,  the  Medicare  Access  and  CHIP  Reauthorization  Act  of  2015  made  numerous  changes  to  Medicare,  Medicaid,  and  other
healthcare related programs, including new systems for establishing annual updates to Medicare rates for physicians’ services.

We may have difficulty collecting payments from third-party payors in a timely manner.

We derive significant revenue from third-party payors, and delays in payment or refunds to payors may adversely impact our net revenue. We assume
the financial risks relating to uncollectible and delayed payments. In particular, we rely on some key governmental payors. Governmental payors typically pay on
a  more  extended  payment  cycle,  which  could  require  us  to  incur  substantial  expenses  prior  to  receiving  corresponding  payments.  In  the  current  healthcare
environment, as payors continue to control expenditures for healthcare services, including through revising their coverage and reimbursement policies, we may
continue to experience difficulties in collecting payments from payors that may seek to reduce or delay such payments. If we are not timely paid in full or if we
need to refund some payments, our revenues, cash flows and financial condition could be adversely affected.

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Decreases in payor rates could adversely affect us.

Decreases  in  payor  rates,  either  prospectively  or  retroactively,  could  have  a  significant  adverse  effect  on  our  revenues,  cash  flows  and  results  of

operations.

Federal and state laws may limit our ability to collect monies owed by patients.

We  use  third-party  collection  agencies  whom  we  do  not  control  to  collect  from  patients  any  co-payments  and  other  payments  for  services  that  our
physicians provide. The federal Fair Debt Collection Practices Act of 1977 (the “FDCPA”) restricts the methods that third-party collection companies may use to
contact and seek payment from consumer debtors regarding past due accounts. State laws vary with respect to debt collection practices, although most state
requirements  are  similar  to  those  under  the  FDCPA.  Therefore,  such  agencies  may  not  be  successful  in  collecting  payments  owed  to  us  and  our  affiliated
physician groups. If practices of collection agencies utilized by us are inconsistent with these standards, we may be subject to actual damages and penalties.
These factors and events could have a material adverse effect on our business, results of operations and financial condition.

We  have  established  reserves  for  our  potential  medical  claim  losses  which  are  subject  to  inherent  uncertainties  and  a  deficiency  in  the

established reserves may lead to a reduction in our assets or net incomes.

We establish reserves for estimated IBNR claims. IBNR 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 our contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of various services.
Such interpretations may not come to light until a substantial period of time has passed. The inherent difficulty in interpreting contracts and estimating necessary
reserves  could  result  in  significant  fluctuations  in  our  estimates  from  period  to  period.  Our  actual  losses  and  related  expenses  therefore  may  differ,  even
substantially, from the reserve estimates reflected in our financial statements. If actual claims exceed our estimated reserves, we may be required to increase
reserves, which would lead to a reduction in our assets or net income.

Competition for qualified physicians, employees and management personnel is intense in the healthcare industry, and we may not be able to

hire and retain qualified physicians and other personnel.

We  depend  on  our  affiliated  physicians  to  provide  services  and  generate  revenue.  We  compete  with  many  types  of  healthcare  providers,  including
teaching,  research  and  government  institutions,  hospitals  and  other  practice  groups,  for  the  services  of  clinicians  and  management  personnel.  The  limited
number of residents and other licensed providers on the job market with the expertise necessary to provide services within our business makes it challenging to
meet  our  hiring  needs  and  may  require  us  to  train  new  employees,  contract  temporary  physicians,  or  offer  more  attractive  wage  and  benefit  packages  to
experienced  professionals,  which  could  decrease  our  profit  margins.  The  limited  number  of  available  residents  and  other  licensed  providers  also  impacts  our
ability to renew contracts with existing physicians on acceptable terms. As a result, our ability to provide services could be adversely affected. Even though our
physician turnover rate has remained stable over the last three years, if the turnover rate were to increase significantly, our growth could be adversely affected.
Moreover,  unlike  some  of  our  competitors  who  sometimes  pay  additional  compensation  to  physicians  who  agree  to  provide  services  exclusively  to  that
competitor, our affiliated IPAs have historically not entered into such exclusivity agreements and have allowed our affiliated physicians to affiliate with multiple
IPAs. This practice may place us at a competitive disadvantage regarding the hiring and retention of physicians relative to those competitors who do enter into
such exclusivity agreements.

Our  risk-sharing  arrangements  with  health  plans  and  hospitals  could  result  in  costs  exceeding  the  corresponding  revenues,  which  could

reduce or eliminate any shared risk profitability for us.

Under certain risk-sharing arrangements with health plans and hospitals, we are responsible for a portion of the cost of services that are not capitated.
These  risk-sharing  arrangements  generally  allocate  deficits  to  the  respective  parties  when  the  cost  of  services  exceeds  the  related  revenue,  and  permit  the
parties to share surplus amounts when actual cost is less than the related revenue. The amount of non-capitated costs could be affected by factors beyond our
control, such as changes in treatment protocols, new technologies, longer lengths of stay by the patient and inflation. To the extent that the cost is higher than
anticipated,  the  related  revenue  may  not  be  sufficient  to  cover  the  cost  that  we  are  partially  responsible  for,  which  could  adversely  affect  our  results  of
operations.  Additionally,  factors  beyond  our  control  such  as  natural  disasters,  the  potential  effects  of  climate  change,  major  epidemics,  pandemics  or  newly
emergent viruses (such as the 2019 novel coronavirus, COVID-19) could reduce our ability to effectively manage the costs of providing health care.

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The healthcare industry is increasingly reliant on technology, which could increase our risks.

The role of technology is greatly increasing in the delivery of healthcare, which makes it difficult for traditional physician-driven companies, such as us, to
adopt  and  integrate  electronic  health  records,  databases,  cloud-based  billing  systems  and  many  other  technology  applications  in  the  delivery  of  healthcare
services. Additionally, consumers are using mobile applications and care and cost research in selecting and usage of healthcare services. We may need to incur
significant costs to implement these technology applications and comply with applicable laws. For example, the nature of our business and the requirements of
healthcare privacy laws impose significant obligations on us to maintain privacy and protection of patient medical information. We rely on employees and third
parties  with  technology  knowledge  and  expertise  and  could  be  at  risk  if  technology  applications  are  not  properly  established,  maintained  or  secured.  Any
cybersecurity incident, even unintended, could expose us to significant fines and remediation costs and materially impair our business operations and financial
position.

If we are unable to effectively adapt to changes in the healthcare industry, including changes to laws and regulations regarding or affecting

the U.S. healthcare reform, our business may be harmed.

Due to the importance of the healthcare industry in the lives of all Americans, federal, state, and local legislative bodies frequently pass legislation and
promulgate regulations relating to healthcare reform or that affect the healthcare industry. As has been the trend in recent years, it is reasonable to assume that
there will continue to be increased government oversight and regulation of the healthcare industry in the future. We cannot assure our stockholders as to the
ultimate content, timing or effect of any new healthcare legislation or regulations, nor is it possible at this time to estimate the impact of potential new legislation or
regulations on our business. It is possible that future legislation enacted by Congress or state legislatures, or regulations promulgated by regulatory authorities at
the federal or state level, could adversely affect our business or could change the operating environment of the hospitals and other facilities where our affiliated
physicians provide services. It is possible that the changes to the Medicare, Medicaid or other governmental healthcare program reimbursements may serve as
precedent  to  possible  changes  in  other  payors’  reimbursement  policies  in  a  manner  adverse  to  us.  Similarly,  changes  in  private  payor  reimbursements  could
lead  to  adverse  changes  in  Medicare,  Medicaid  and  other  governmental  healthcare  programs  which  could  have  a  material  adverse  effect  on  our  business,
financial condition and results of operations.

Although we do not anticipate that a single-payer national health insurance system will be enacted by the current Congress, several legislative initiatives
have  been  proposed  by  members  of  Congress  and  presidential  candidates  that  would  establish  some  form  of  a  single  public  or  quasi-public  agency  that
organizes healthcare financing, but under which healthcare delivery would remain private. If enacted, such a system could adversely affect our business.

Risks Relating to NGACO.

The success of our emphasis on the NGACO Model is uncertain.

In January 2017, CMS approved APAACO, our subsidiary, to participate in the NGACO Model. To position us to participate in the NGACO Model and
meet its requirements, we have invested significant resources in reshaping our business and organizations and in establishing related infrastructure, and expect
to continue to devote, significant financial and other resources to the NGACO Model. These efforts have required us to refocus away from certain other parts of
our historic business and revenue streams, which will receive less emphasis and could result in reduced revenue from these activities for us. For example, we
have converted physicians and patients from our MSSP ACOs to our NGACO. It is unknown whether this strategic decision will be eventually successful.

The NGACO Model has certain political risks and is undergoing changes.

If the Patient Protection and the ACA is amended, repealed, declared unconstitutional or replaced, or if Center for Medicare and Medicaid Innovation
(“CMMI”) is terminated, the NGACO Model program could be discontinued or significantly altered. In addition, CMS and CMMI leadership could be changed and
influenced  by  Congress  and/or  the  current  Trump  Administration,  and  may  elect  to  combine  any  existing  programs,  including  bundled  payments,  which  could
greatly alter the NGACO Model program. The rules regarding NGACOs have also been altered and may be further altered in the future. Any material change to
the NGACO requirements and governing rules or the discontinuation of the program as a whole could create significant uncertainties for us and alter our strategic
direction, thereby increasing financial risks for our stockholders.

There  are  uncertainties  regarding  the  design  and  administration  of  the  NGACO  Model  and  CMS’  initial  financial  reports  to  NGACO

participants, which could negatively impact our results of operations.

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Due  to  the  newness  of  the  NGACO  Model,  and  due  to  being  the  only  participant  in  the  AIPBP  track,  we  are  subject  to  initial  program  challenges
including, but not limited to, process design, data and other related aspects. We rely on CMS for design, oversight and governance of the NGACO Model. If CMS
cannot provide accurate data, claims benchmarking and calculations, make timely payments and conduct periodic process reviews, our results of operations and
financial condition could be materially and adversely affected. CMS relies on various third parties to effect the NGACO program, including other departments of
the U.S. government, such as CMMI. CMS also relies on multiple third party contractors to manage the NGACO Model program, including claims and auditing.
As a result, there is the potential for errors, delays and poor communication among the differing entities involved, which are beyond the control of us. As CMS is
implementing extensive reporting protocols for the NGACO Model, CMS has indicated that because of inherent biases in reporting the results, its initial financial
reports under the NGACO Model may not be indicative of final results of actual risk-sharing and revenues which we receive. Were that to be the case, we might
not report accurately our revenues for relevant periods, which could result in adjustment in a later period when we receive final results from CMS. We and our
contracted providers have experienced various apparent errors in the NGACO Model, resulting in some providers terminating their relationships with us, and the
resolution  of  these  issues  and  impact  on  us  remains  uncertain.  If  we  continue  to  experience  such  issues  or  new  issues  emerge,  this  could  have  a  material
adverse effect on our results of operations on a consolidated basis.

We chose to participate in the AIPBP mechanism, which entails certain special risks.

Under the AIPBP mechanism, CMS estimates the total annual Part A and Part B Medicare expenditures of our assigned Medicare beneficiaries and pay
us  that  projected  amount  in  per  beneficiary  per  month  payments.  We  chose  “Risk  Arrangement  A,”  comprising  80%  risk  for  Part  A  and  Part  B  Medicare
expenditures and a shared savings and losses cap of 5% (or a 4% effective shared savings and losses cap when factoring in 80% risk impact). Our benchmark
Medicare Part A and Part B expenditures for beneficiaries for the 2019 performance year are approximately $410.0 million, and under “Risk Arrangement A” of
the AIPBP mechanism we could therefore have profits or be liable for losses of up to 4% of such benchmarked expenditures, or approximately $16.4 million.
While performance can be monitored throughout the year, end results for the 2019 performance year will not be known until mid-2020.

AIPBP operations and benchmarking calculations are complex and could result in uncertainties for us.

AIPBP  operations  and  benchmarking  calculations  are  complex  and  can  lead  to  errors  in  the  application  of  the  NGACO  Model,  which  could  create
reimbursement  delays  to  our  contracted,  in-network  providers  and  adversely  affect  our  performance  and  results  of  operations.  For  example,  we  discovered  a
feature  in  the  AIPBP  claim  processing  system  that  does  not  allow  us  to  break  down  certain  claims  amounts  by  individual  patient  codes.  This  has  created
confusion  for  our  in-network  providers  in  reconciling  payments,  causing  some  providers  to  terminate  their  agreements  with  us.  This  feature  and  other
complexities  within  the  AIPBP  mechanism  could  also  create  uncertainties  for  our  operations  including  under  agreements  with  our  contracted,  in-network
providers 

The  NGACO  Model  requires  significant  capital  reserves  for  program  participation,  which  could  negatively  impact  our  working  capital  and

substantially increase our capital requirements. 

NGACOs must provide a financial guarantee to CMS. Our financial guarantee generally must be in an amount of 2% of our benchmark Medicare Part A
and Part B expenditures. Because our benchmark Medicare Part A and Part B expenditures for beneficiaries assigned to us for the 2019 performance year was
approximately $410.0 million, we established and submitted an irrevocable standby letter of credit on August 14, 2019 for $8.2 million with respect to that year. If
we reach the maximum of our shared losses for a performance year, CMS may increase the risk reserve amount for future performance years, which will put
restraints on our working capital and liquidity. If we reach the maximum of our shared losses of $16.4 million for the 2019 performance year, we will need to pay
another $8.2 million to CMS and CMS may increase the future risk reserve amount. The $6.6 million standby letter of credit relating to the 2018 performance
year remains open until twelve months after the settlement period of October 2019.

We may suffer losses and not generate savings through our participation in the NGACO Model.

Through  the  NGACO  Model,  CMS  provides  an  opportunity  to  provider  groups  that  are  willing  to  assume  higher  levels  of  financial  risk  and  reward,  to
participate in this new attribution-based risk sharing model. The NGACO Model uses a prospectively-set cost benchmark, which is established prior to the start of
each  performance  year.  The  benchmark  is  based  on  various  factors,  including  baseline  expenditures  with  the  baseline  updated  each  year  to  reflect  the
NGACO’s participant list for the given year. Our 2019 performance year baseline is based on calendar year 2018 expenditures that are risk adjusted and trended.
A discount is then applied that incorporates regional and national efficiency. The benchmarked expenditures therefore could potentially underestimate our actual
expenditures for assigned Medicare beneficiaries and there can be no assurance that we could successfully

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adjust such benchmarked expenditures. Under the NGACO Model, we are responsible for savings and losses related to care received by assigned patients by
covering  claims  from  physicians,  nurses  and  other  medical  professionals.  If  claim  costs  exceed  the  benchmarked  expenditures,  or  the  baseline  years  are
statistical  anomalies,  we  could  experience  losses,  which  could  be  significant.  Among  other  things,  this  could  result  from  factors  beyond  our  control  such  as
natural disasters, the potential effects of climate change, major epidemics, pandemics or newly emergent viruses (such as the 2019 novel coronavirus, COVID-
19)  As  we  are  providing  care  coordination  through  APAACO,  but  do  not  provide  direct  patient  care,  our  influence  could  be  limited.  Because  of  our  limited
influence, it is possible that we may not be able to control care providers’ behavior, utilization, and costs. As a result, we may not be able to generate savings
through  our  participation  in  the  NGACO  Model  to  cover  our  administrative  and  care  coordination  operating  costs,  and  any  savings  generated,  if  at  all,  will  be
earned in arrears and uncertain in both timing and amount.

We  do  not  control,  but  are  responsible  for  savings  and  losses  related  to,  care  received  by  assigned  patients  at  out-of-network  providers,

which could negatively impact our ability to control claim costs.

Medicare beneficiaries in the NGACO Model are not required to receive care from a specified network of contracted providers and facilities, which could
make it difficult for us to control the financial risks of those beneficiaries. CMS notified us that its Medicare beneficiaries historically had received approximately
62%  of  care  at  non-contracted,  out-of-network  (“OON”)  providers.  While  we  are  not  responsible  for  directly  paying  claims  for  OON  providers,  we  may  have
difficulty managing patient care and costs in relation to such OON providers as compared to contracted, in-network providers, which, could adversely impact our
financial results as we are responsible for savings and losses of assigned beneficiaries, irrespective of whether they are using in-network or OON providers. In
addition, even if we are successful in encouraging more assigned patients to receive care from our contracted, in-network providers, there is the possibility that
the monthly AIPBP from CMS will be insufficient to cover our expenditures, since the AIPBP is generally based on historical in-network/out-of-network ratios. If
CMS fails to monitor the in-network/OON provider ratio for our assigned patients on a frequent basis or CMS’ reconciliation payments to us are not timely made,
this could result in negative cash flows for us, especially if increased payments will need to be made to our contracted, in-network providers.

Third parties used by us could hinder our performance.

We use third parties to perform certain administrative and care coordination tasks. We have contracted with participating Part A and Part B providers and
sometimes with discounted rates. This could, however, create operational and performance risk; for example, if a third party does not perform its responsibilities
properly. In addition, such providers could increase their current rates or discontinue their agreements with us.

We face competition from traditional MSSP ACOs and other NGACOs

Managed care providers experienced in coordinating care for populations of patients compete with each other to be selected by CMS to participate in
the  NGACO  Model.  Since  MSSP  and  pioneer  ACOs  began  in  2012,  the  number  of  Medicare  ACOs  continues  to  rise  and  have  grown  to  several  hundred
nationwide but there are still a growing number of ACOs in different program types that compete with us for resources and patients.

Our continued participation in the NGACO Model cannot be guaranteed.

APAACO and CMS entered into a Next Generation ACO Model Participation Agreement (the “Participation Agreement”) with a term of two performance
years  through  December  31,  2018.  Subsequently  CMS  and  APAACO  has  renewed  the  Participation  Agreement  for  an  additional  year  with  the  option  for  a
second renewal year through December 31, 2020. In addition, the Participation Agreement may be terminated sooner by CMS as specified therein and CMS has
the  flexibility  to  alter  or  change  the  program  over  time.  Among  many  requirements  to  be  eligible  to  participate  in  the  NGACO  Model,  we  must  have  at  least
10,000 aligned Medicare beneficiaries and must maintain that number throughout each performance year. Although we started the 2019 performance year with
more than 29,000 aligned Medicare beneficiaries, there can be no assurance that we will maintain the required number of assigned Medicare beneficiaries. If
that  number  were  not  maintained,  we  would  become  ineligible  for  the  NGACO  Model.  In  addition,  we  are  required  to  comply  with  all  applicable  laws  and
regulations regarding provider-based risk-bearing entities. If these laws or regulations change, for example, to require a Knox-Keene license in California, which
we  do  not  currently  have,  we  could  be  required  to  cease  our  NGACO  operations.  We  could  be  terminated  from  the  NGACO  Model  at  any  time  if  we  do  not
continue  to  comply  with  the  NGACO  participation  requirements.  In  October  2017,  CMS  notified  us  that  our  participation  in  the  AIPBP  mechanism  for
performance  year  2018  would  not  be  renewed  due  to  alleged  deficiencies  in  performance  by  us.  We  submitted  a  request  for  reconsideration  to  CMS.  In
December 2017, we received the official decision on our reconsideration request that CMS reversed the prior decision against our continued participation in the
AIPBP mechanism. As a result, we were again eligible to receive monthly AIPBP from CMS. We, however, will need to continue to comply with all terms and
conditions in the Participation Agreement and various regulatory requirements to be eligible to participate in the AIPBP

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mechanism and/or NGACO Model. If future compliance or performance issues arise, we may lose our current eligibility and may be subject to CMS’ enforcement
or  contract  actions,  including  our  potential  inability  to  participate  in  the  AIPBP  mechanism  (where  the  payment  mechanism  would  default  to  traditional  fee  for
service) or dismissal from the NGACO Model, which would have a material adverse effect on our revenues and cash flows. In addition, the payments from CMS
to us will decrease if the number of beneficiaries assigned to our NGACO declines, or the contracted providers terminate their relationships with us, which could
have a material adverse effect on our results of operations on a consolidated basis.

Risks Relating to Regulatory Compliance.

Laws  regulating  the  corporate  practice  of  medicine  could  restrict  the  manner  in  which  we  are  permitted  to  conduct  our  business  and  the

failure to comply with such laws could subject us to penalties and restructuring.

Some  states  have  laws  that  prohibit  business  entities  from  practicing  medicine,  employing  physicians  to  practice  medicine,  exercising  control  over
medical decisions by physicians (also known collectively as the corporate practice of medicine) or engaging in some arrangements, such as fee-splitting, with
physicians.  In  some  states  these  prohibitions  are  expressly  stated  in  a  statute  or  regulation,  while  in  other  states  the  prohibition  is  a  matter  of  judicial  or
regulatory interpretation. California is one of the states that prohibit the corporate practice of medicine.

In  California,  we  operate  by  maintaining  contracts  with  our  affiliated  physician  groups  which  are  each  owned  and  operated  by  physicians  and  which
employ or contract with additional physicians to provide physician services. Under these arrangements, we or our subsidiaries provide management services,
receive  a  management  fee  for  providing  management  services,  do  not  represent  to  offer  medical  services,  and  do  not  exercise  influence  or  control  over  the
practice of medicine by the physicians or the affiliated physician groups.

In  addition  to  the  above  management  arrangements,  in  certain  instances,  we  have  contractual  rights  relating  to  the  transfer  of  equity  interests  in  our
affiliated  physician  groups  under  physician  shareholder  agreements  that  we  entered  into  with  the  controlling  equity  holder  of  such  affiliated  physician  groups.
However, even in such instances, such equity interests cannot be transferred to or held by us or by any non-professional organization. Accordingly, we do not
directly own any equity interests in any affiliated physician groups in California. In the event that any of these affiliated physician groups or their equity holders fail
to comply with these management or ownership transfer arrangements, these arrangements are terminated, we are unable to enforce such arrangements, or
these arrangements are invalidated under applicable laws, there could be a material adverse effect on our business, results of operations and financial condition
and we may have to restructure our organization and change our arrangements with our affiliated physician groups, which may not be successful.

The healthcare industry is intensely regulated at the federal, state, and local levels and government authorities may determine that we fail to

comply with applicable laws or regulations and take actions against us.

As a company involved in providing healthcare services, we are subject to numerous federal, state and local laws and regulations. There are significant
costs  involved  in  complying  with  these  laws  and  regulations.  If  we  are  found  to  have  violated  any  applicable  laws  or  regulations,  we  could  be  subject  to  civil
and/or  criminal  damages,  fines,  sanctions  or  penalties,  including  exclusion  from  participation  in  governmental  healthcare  programs,  such  as  Medicare  and
Medicaid, and we may be required to change our method of operations and business strategy. These consequences could be the result of our current conduct or
even conduct that occurred a number of years ago, including prior to the completion of the Merger. We could incur significant costs to defend ourselves if we
become the subject of an investigation or legal proceeding alleging a violation of these laws and regulations. We cannot predict whether a federal, state or local
government  will  determine  that  we  are  not  operating  in  accordance  with  law,  or  whether,  when  or  how  the  laws  will  change  in  the  future  and  impact  our
business. The following is a non-exhaustive list of some of the more significant healthcare laws and regulations that could affect us:

•

•

•

the False Claims Act, that provide for penalties against entities and individuals which knowingly or recklessly make claims to Medicare, Medicaid,
and other governmental healthcare programs, as well as third-party payors, that contain or are based upon false or fraudulent information;

a  provision  of  the  Social  Security  Act,  commonly  referred  to  as  the  “Anti-Kickback  Statute,”  that  prohibits  the  knowing  and  willful  offering,
payment,  solicitation  or  receipt  of  any  bribe,  kickback,  rebate  or  other  remuneration,  in  cash  or  in  kind,  in  return  for  the  referral  or
recommendation of patients for items and services covered, in or in part, by federal healthcare programs such as Medicare and Medicaid;

a provision of the Social Security Act, commonly referred to as the Stark Law or physician self-referral law, that (subject to limited exceptions)
prohibits physicians from referring Medicare patients to an entity for the provision

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•

•

•

•

•

•

•

•

•

•

•

•

•

of  specific  “designated  health  services”  if  the  physician  or  a  member  of  such  physician’s  immediate  family  has  a  direct  or  indirect  financial
relationship with the entity, and prohibits the entity from billing for services arising out of such prohibited referrals;

a provision of the Social Security Act that provides for criminal penalties on healthcare providers who fail to disclose known overpayments;

a provision of the Social Security Act that provides for civil monetary penalties on healthcare providers who fail to repay known overpayments
within  60  days  of  identification  or  the  date  any  corresponding  cost  report  was  due,  if  applicable,  and  also  allows  improper  retention  of  known
overpayments to serve as a basis for False Claims Act violations;

provisions of the Social Security Act (emanating from the DRA) that require entities that make or receive annual Medicaid payments of $5 million
or  more  from  a  single  Medicaid  program  to  provide  its  employees,  contractors  and  agents  with  written  policies  and  employee  handbook
materials  on  federal  and  state  false  claims  acts  and  related  statutes,  that  establish  a  new  Medicaid  Integrity  Program  designed  to  enhance
federal and state efforts to detect Medicaid fraud, waste, and abuse, and that increase financial incentives for both states and individuals to bring
fraud and abuse claims against healthcare companies;

state law provisions pertaining to anti-kickback, self-referral and false claims issues;

provisions  of,  and  regulations  relating  to,  HIPAA  that  provide  penalties  for  knowingly  and  willfully  executing  a  scheme  or  artifice  to  defraud  a
health-care benefit program or falsifying, concealing or covering up a material fact or making any material false, fictitious or fraudulent statement
in connection with the delivery of or payment for healthcare benefits, items or services;

provisions  of  HIPAA  and  the  Health  Information  Technology  for  Economic  and  Clinical  Health  Act  of  2009  (“HITECH”)  limiting  how  covered
entities, business associates and business associate sub-contractors may use and disclose PHI and the security measures that must be taken in
connection with protecting that information and related systems, as well as similar or more stringent state laws;

federal  and  state  laws  that  provide  penalties  for  providers  for  billing  and  receiving  payments  from  a  governmental  healthcare  program  for
services  unless  the  services  are  medically  necessary  and  reasonable,  adequately  and  accurately  documented,  and  billed  using  codes  that
accurately reflect the type and level of services rendered;

state  laws  that  provide  for  financial  solvency  requirements  relating  to  risk-bearing  organizations  (“RBOs”),  plan  operations,  plan-affiliate
operations  and  transactions,  plan-provider  contractual  relationships  and  provider-affiliate  operations  and  transactions,  such  as  California
Business & Professions Code Section 1375.4 (§ 1375.4; Cal. Code Regs., tit. 28, § 1300.75.4 et seq.);

federal  laws  that  provide  for  administrative  sanctions,  including  civil  monetary  penalties  for,  among  other  violations,  inappropriate  billing  of
services to federal healthcare programs, payments by hospitals to physicians for reducing or limiting services to Medicare or Medicaid patients,
or employing or contracting with individuals or entities who/which are excluded from participation in federal healthcare programs;

federal  and  state  laws  and  policies  that  require  healthcare  providers  to  enroll  in  the  Medicare  and  Medicaid  programs  before  submitting  any
claims for services, to promptly report certain changes in its operations to the agencies that administer these programs, and to re-enroll in these
programs when changes in direct or indirect ownership occur or in response to revalidation requests from Medicare and Medicaid;

state  laws  that  prohibit  general  business  entities  from  practicing  medicine,  controlling  physicians’  medical  decisions  or  engaging  in  certain
practices, such as splitting fees with physicians;

state laws that require timely payment of claims, including §1371.38, et al, of the California Health & Safety Code, which imposes time limits for
the payment of uncontested covered claims and required health care service plans to pay interest on uncontested claims not paid promptly within
the required time period;

laws in some states that prohibit non-domiciled entities from owning and operating medical practices in such states; and

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•

•

federal and state laws and regulations restricting the techniques that may be used to collect past due accounts from consumers, such as our
patients, for services provided to the consumer.

state laws that require healthcare providers that assume professional and institutional risk (i.e., global risk) to either obtain a license under the
Knox-Keene  Health  Care  Service  Plan  Act  of  1975  or  receive  an  exemption  from  the  Department  of  Managed  Healthcare  ("DMHC")  for  the
contract(s) under which the entity assumes global risk.

Any violation or alleged violation of any of these laws or regulations by us or our affiliates could have a material adverse effect on our business, financial

condition and results of operations.

Changes in healthcare laws could create an uncertain environment and materially impact us. We cannot predict the effect that the ACA (also
known as Obamacare) and its implementation, amendment, or repeal and replacement, may have on our business, results of operations or financial
condition.

Any  changes  in  healthcare  laws  or  regulations  that  reduce,  curtail  or  eliminate  payments,  government-subsidized  programs,  government-sponsored
programs, and/or the expansion of Medicare or Medicaid, among other actions, could have a material adverse effect on our business, results of operations and
financial condition.

For example, the ACA dramatically changed how healthcare services are covered, delivered, and reimbursed. The ACA requires insurers to accept all
applicants,  regardless  of  pre-existing  conditions,  cover  an  extensive  list  of  conditions  and  treatments,  and  charge  the  same  rates,  regardless  of  pre-existing
condition  or  gender.  The  ACA  and  the  Health  Care  and  Education  Reconciliation  Act  of  2010  (collectively,  the  “Health  Care  Reform  Acts”)  also  mandated
changes specific to home health and hospice benefits under Medicare. In 2012, the U.S. Supreme Court upheld the constitutionality of the ACA, including the
“individual  mandate”  provisions  of  the  ACA  that  generally  require  all  individuals  to  obtain  healthcare  insurance  or  pay  a  penalty.  However,  the  U.S.  Supreme
Court also held that the provision of the ACA that authorized the Secretary of the U.S. Department of Health and Human Services (“HHS”) to penalize states that
choose  not  to  participate  in  the  expansion  of  the  Medicaid  program  by  removing  all  of  its  existing  Medicaid  funding  was  unconstitutional.  In  response  to  the
ruling, a number of state governors opposed its state’s participation in the expanded Medicaid program, which resulted in the ACA not providing coverage to
some low-income persons in those states. In addition, several bills have been, and are continuing to be, introduced in U.S. Congress to amend all or significant
provisions of the ACA, or repeal and replace the ACA with another law. In December 2017, the individual mandate was repealed via the Tax Cuts and Jobs Act
of  2017.  Afterwards,  legal  and  political  challenges  as  to  the  constitutionality  of  the  remaining  provisions  of  the  ACA  resumed.  Just  as  the  fate  of  the  ACA  is
uncertain, so is the future of care organizations established under the ACA such as ACOs and NGACOs. Under its NGACO Participation Agreement with CMS,
our operations are always subject to the nation’s healthcare laws, as amended, repealed or replaced from time to time.

The net effect of the ACA on our business is subject to numerous variables, including the law’s complexity, lack of complete implementing regulations
and interpretive guidance, gradual and potentially delayed implementation or possible amendment, as well as the uncertainty as to the extent to which states will
choose to participate in the expanded Medicaid program. The continued implementation of provisions of the ACA, the adoption of new regulations thereunder
and  ongoing  challenges  thereto,  also  added  uncertainty  about  the  current  state  of  U.S.  healthcare  laws  and  could  negatively  impact  our  business,  results  of
operations and financial condition.

Healthcare providers could be subject to federal and state investigations and payor audits.

Due to our and our affiliates’ participation in government and private healthcare programs, we are from time to time involved in inquiries, reviews, audits
and  investigations  by  governmental  agencies  and  private  payors  of  our  business  practices,  including  assessments  of  our  compliance  with  coding,  billing  and
documentation requirements. Federal and state government agencies have active civil and criminal enforcement efforts against healthcare companies, and their
executives and managers. The DRA, which provides a financial incentive to states to enact their own false claims acts, and similar laws encourage investigations
against healthcare companies by different agencies. These investigations could also be initiated by private whistleblowers. Responding to audit and investigative
activities are costly and disruptive to our business operations, even when the allegations are without merit. If we are subject to an audit or investigation, a finding
could be made that we or our affiliates erroneously billed or were incorrectly reimbursed, and we may be required to repay such agencies or payors, may be
subjected to pre-payment reviews, which can be time-consuming and result in non-payment or delayed payments for the services we or our affiliates provide,
and may be subject to financial sanctions or required to modify our operations.

Controls designed to reduce inpatient services and associated costs may reduce our revenues.

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Controls  imposed  by  Medicare,  Medicaid  and  private  payors  designed  to  reduce  admissions  and  lengths  of  stay,  commonly  referred  to  as  “utilization
review,”  have  affected  and  are  expected  to  continue  to  affect  our  operations.  Federal  law  contains  numerous  provisions  designed  to  ensure  that  services
rendered by hospitals and other care providers to Medicare and Medicaid patients meet professionally recognized standards and are medically necessary and
that claims for reimbursement are properly filed. These provisions include a requirement that a sampling of admissions of Medicare and Medicaid patients must
be reviewed by quality improvement organizations, which review the appropriateness of Medicare and Medicaid patient admissions and discharges, the quality
of care provided, and the appropriateness of cases of extraordinary length of stay or cost on a post-discharge basis. Quality improvement organizations may
deny  payment  for  services  or  assess  fines  and  also  have  the  authority  to  recommend  to  the  HHS  that  a  provider  is  in  substantial  noncompliance  with  the
standards of the quality improvement organization and should be excluded from participation in the Medicare program. The ACA potentially expands the use of
prepayment review by Medicare contractors by eliminating statutory restrictions on its use, and, as a result, efforts to impose more stringent cost controls are
expected  to  continue.  Utilization  review  is  also  a  requirement  of  most  non-governmental  managed  care  organizations  and  other  third-party  payors.  Inpatient
utilization, average lengths of stay and occupancy rates continue to be negatively affected by payor-required preadmission authorization and utilization review
and  by  third  party  payor  pressure  to  maximize  outpatient  and  alternative  healthcare  delivery  services  for  less  acutely  ill  patients.  Although  we  are  unable  to
predict  the  effect  these  controls  and  any  changes  thereto  may  have  on  our  operations,  significant  limits  on  the  scope  of  our  services  reimbursed  and  on
reimbursement rates and fees could have a material, adverse effect on our business, financial position and results of operations.

We do not have any Knox-Keene license.

The Knox-Keene Health Care Service Plan Act of 1975 was passed by the California State Legislature to regulate California managed care plans and is
currently administered by the DMHC. A Knox-Keene Act license is required to operate a health care service plan, e.g., an HMO, or an organization that accepts
global risk, i.e., accepts full risk for a patient population, including risk related to institutional services, e.g., hospital, and professional services. Applying for and
obtaining such a license is a time consuming and detail-oriented undertaking. We currently do not hold any Knox-Keene license. If the DMHC were to determine
that we have been inappropriately taking risk for institutional and professional services as a result of our various hospital and physician arrangements without
having any Knox-Keene license, we may be required to obtain a Knox-Keene license and could be subject to civil and criminal liability, any of which could have a
material adverse effect on our business, results of operations and financial condition.

A  Knox-Keene  Act  license or  exemption  from  licensure,  where  applicable,  is  required  to  operate  a  health  care  service  plan,  e.g.,  an  HMO,  or  an
organization that accepts global risk, i.e., accepts full risk for a patient population, including risk related to institutional services, e.g., hospital, and professional
services.

If our affiliated physician groups are not able to satisfy California financial solvency regulations, they could become subject to sanctions and

their ability to do business in California could be limited or terminated.

The  DMHC  has  instituted  financial  solvency  regulations.  The  regulations  are  intended  to  provide  a  formal  mechanism  for  monitoring  the  financial
solvency  of  a  RBO  in  California,  including  capitated  physician  groups.  Under  current  DMHC  regulations,  our  affiliated  physician  groups,  as  applicable,  are
required to, among other things:

•

•

Maintain,  at  all  times,  a  minimum  “cash-to-claims  ratio”  (which  means  the  organization’s  cash,  marketable  securities,  and  certain  qualified
receivables, divided by the organization’s total unpaid claims liability) of 0.75; and

Submit  periodic  reports  to  the  DMHC  containing  various  data  and  attestations  regarding  their  performance  and  financial  solvency,  including
IBNR calculations and documentation and attestations as to whether or not the organization (i) was in compliance with the “Knox-Keene Act”
requirements  related  to  claims  payment  timeliness,  (ii)  had  maintained  positive  tangible  net  equity  (“TNE”),  and  (iii)  had  maintained  positive
working capital.

In the event that a physician group is not in compliance with any of the above criteria, it would be required to describe in a report submitted to the DMHC
the reasons for non-compliance and actions to be taken to bring it into compliance. Under such regulations, the DMHC can also make some of the information
contained in the reports public, including, but not limited to, whether or not a particular physician organization met each of the criteria. In the event any of our
affiliated physician groups are not able to meet certain of the financial solvency requirements, and fail to meet subsequent corrective action plans, it could be
subject to sanctions, or limitations on, or removal of, its ability to do business in California. There can be no assurance that our affiliated physician groups, such
as our IPAs, will remain in compliance with DMHC requirements or be able to timely and

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adequately rectify non-compliance. To the extent that we need to provide additional capital to our affiliated physician groups in the future in order to comply with
DMHC regulations, we would have less cash available for other parts of our operations.

Our revenue will be negatively impacted if our physicians fail to appropriately document their services.

We  rely  upon  our  affiliated  physicians  to  appropriately  and  accurately  complete  necessary  medical  record  documentation  and  assign  appropriate
reimbursement  codes  for  their  services.  Reimbursement  is  conditioned  upon,  in  part,  our  affiliated  physicians  providing  the  correct  procedure  and  diagnosis
codes  and  properly  documenting  the  services  themselves,  including  the  level  of  service  provided  and  the  medical  necessity  for  the  services.  If  our  affiliated
physicians  have  provided  incorrect  or  incomplete  documentation  or  selected  inaccurate  reimbursement  codes,  this  could  result  in  nonpayment  for  services
rendered  or  lead  to  allegations  of  billing  fraud.  This  could  subsequently  lead  to  civil  and  criminal  penalties,  including  exclusion  from  government  healthcare
programs, such as Medicare and Medicaid. In addition, third-party payors may disallow, in whole or in part, requests for reimbursement based on determinations
that certain amounts are not covered, services provided were not medically necessary, or supporting documentation was not adequate. Retroactive adjustments
may change amounts realized from third-party payors and result in recoupments or refund demands, affecting revenue already received.

Primary care physicians may seek to affiliate with our and our competitors’ IPAs at the same time.

It is common in the medical services industry for primary care physicians to be affiliated with multiple IPAs. Our affiliated IPAs therefore may enter into
agreements  with  physicians  who  are  also  affiliated  with  our  competitors.  However,  some  of  our  competitors  at  times  have  agreements  with  physicians  that
require the physician to provide exclusive services. Our affiliated IPAs often have no knowledge, and no way of knowing, whether a physician is subject to an
exclusivity agreement without being informed by the physician. Competitors have initiated lawsuits against us alleging in part interference with such exclusivity
arrangements, and may do so in the future. An adverse outcome from any such lawsuit could adversely affect our business, cash flows and financial condition.

If we inadvertently employ or contract with an excluded person, we may face government sanctions.

Individuals and entities can be excluded from participating in the Medicare and Medicaid programs for violating certain laws and regulations, or for other
reasons such as the loss of a license in any state, even if the person retains other licensure. This means that the excluded person and others are prohibited
from  receiving  payments  for  such  person’s  services  rendered  to  Medicare  or  Medicaid  beneficiaries,  and  if  the  excluded  person  is  a  physician,  all  services
ordered (not just provided) by such physician are also non-covered and non-payable. Entities which employ or contract with excluded individuals are prohibited
from billing the Medicare or Medicaid programs for the excluded individual’s services, and are subject to civil penalties if it does. The U.S. Department of Health
and Human Services Office of the Inspector General maintains a list of excluded persons. Although we have instituted policies and procedures to minimize such
risks,  there  can  be  no  assurance  that  we  will  not  inadvertently  hire  or  contract  with  an  excluded  person,  or  that  our  employees  or  contracts  will  not  become
excluded  in  the  future  without  our  knowledge.  If  this  occurs,  we  may  be  subject  to  substantial  repayments  and  civil  penalties,  and  the  hospitals  at  which  we
furnish services may also be subject to repayments and sanctions, for which they may seek recovery from us, which could adversely affect our business, cash
flows and financial condition.

Compliance with federal and state privacy and data security laws is expensive, and we may be subject to government or private actions due

to privacy and security breaches.

We must comply with various federal and state laws and regulations governing the collection, dissemination, access, use, security and confidentiality of
PHI,  including  HIPAA  and  HITECH.  As  part  of  our  medical  record  keeping,  third-party  billing,  and  other  services,  we  collect  and  maintain  PHI  in  paper  and
electronic format. Privacy and data security laws and regulations thus could have a significant effect on the manner in which we handle healthcare-related data
and communicates with payors. In addition, compliance with these standards could limit our ability to offer services, thereby negatively impacting the business
opportunities  available  to  us.  Despite  our  efforts  to  prevent  privacy  and  security  breaches,  it  may  still  occur.  If  any  non-compliance  with  such  laws  and
regulations results in privacy or security breaches, we could be subject to monetary fines, suits, penalties or sanctions. As a result of the expanded scope of
HIPAA  through  HITECH,  we  may  incur  significant  costs  in  order  to  minimize  the  amount  of  “unsecured  PHI”  that  we  handle  and  retain  and/or  to  implement
improved administrative, technical or physical safeguards to protect PHI. We may have to demonstrate and document our compliance efforts, even if there is a
low  probability  that  PHI  has  been  compromised,  in  order  to  overcome  the  presumption  that  an  impermissible  use  or  disclosure  of  PHI  results  in  a  reportable
breach.  We  may  incur  significant  costs  to  notify  the  relevant  individuals,  government  entities  and,  in  some  cases,  the  media,  in  the  event  of  a  breach  and  to
provide appropriate remediation and monitoring to mitigate any potential damage.

We may be subject to liability for failure to fully comply with applicable corporate and securities laws.

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We are subject to various corporate and securities laws. Any failure to comply with such laws could cause government agencies to take action against
us,  which  could  restrict  our  ability  to  issue  securities  and  result  in  fines  or  penalties.  Any  claim  brought  by  such  an  agency  could  also  cause  us  to  expend
resources  to  defend  ourselves,  divert  the  attention  of  our  management  from  our  business  and  could  significantly  harm  our  business,  operating  results  and
financial condition, even if the claim is resolved in our favor.

A plaintiffs’ securities law firm announced that it was investigating ApolloMed and its pre-Merger board of directors for potential federal law violations and
breaches  of  fiduciary  duties  in  connection  with  the  Merger.  This  investigation  purportedly  focused  on  whether  ApolloMed  and  its  board  of  directors  violated
federal securities laws or breached their fiduciary duties to ApolloMed’s stockholders by failing to properly value the Merger and failing to disclose all material
information in connection with the Merger. As of filing of this Annual Report on Form 10-K, no lawsuit has been filed against us by that firm.

We  cannot  preclude  the  possibility  that  claims  or  lawsuits  brought  relating  to  any  alleged  securities  law  violations  or  breaches  of  fiduciary  duty  in
connection with the Merger could potentially require significant time and resources to defend and/or settle and distract our management and board of directors
from focusing on our business.

We may face lawsuits not covered by insurance and related expenses may be material. Our failure to avoid, defend and accrue for claims and

litigation could negatively impact our results of operations or cash flows.

We  are  exposed  to  and  become  involved  in  various  litigation  matters  arising  out  of  our  business,  including  from  time  to  time,  actual  or  threatened
lawsuits.  Malpractice  lawsuits  are  common  in  the  healthcare  industry.  The  medical  malpractice  legal  environment  varies  greatly  by  state.  The  status  of  tort
reform,  availability  of  non-economic  damages  or  the  presence  or  absence  of  other  statutes,  such  as  elder  abuse  or  vulnerable  adult  statutes,  influence  the
incidence  and  severity  of  malpractice  litigation.  We  may  also  be  subject  to  other  types  of  lawsuits,  such  as  those  initiated  by  our  competitors,  stockholders,
employees, service providers, contractors or by government agencies, including when we terminate relationships with them, which may involve large claims and
significant defense costs. Many states have joint and several liabilities for providers who deliver care to a patient and are at least partially liable. As a result, if one
provider  is  found  liable  for  medical  malpractice  for  the  provision  of  care  to  a  particular  patient,  all  other  providers  who  furnished  care  to  that  same  patient,
including possibly us and our affiliated physicians, may also share in the liability, which could be substantial individually or in aggregate.

The defense of litigation, including fees of legal counsel, expert witnesses and related costs, is expensive and difficult to forecast accurately. Such costs
may be unrecoverable even if we ultimately prevail in litigation and could consume a significant portion of our limited capital resources. To defend lawsuits, it may
also be necessary for us to divert officers and other employees from our normal business functions to gather evidence, give testimony and otherwise support
litigation  efforts.  If  we  lose  any  material  litigation,  we  could  face  material  judgments  or  awards  against  them.  An  unfavorable  resolution  of  one  or  more  of  the
proceedings in which we are involved now or in the future could have a material adverse effect on our business, cash flows and financial condition. We may also
in the future find it necessary to file lawsuits to recover damages or protect our interests. The cost of such litigation could also be significant and unrecoverable,
which may also deter us from aggressively pursuing even legitimate claims.

We currently maintain malpractice liability insurance coverage to cover professional liability and other claims for certain hospitalists and clinic physicians.
All of our affiliated physicians are required to carry first dollar coverage with limits of coverage equal to $1,000,000 for all claims based on occurrence up to an
aggregate of $3,000,000 per year. We cannot be certain that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against
us, our affiliated professional organizations or our affiliated physicians. Liabilities incurred by us or our affiliates in excess of our insurance coverage, including
coverage  for  professional  liability  and  other  claims,  could  have  a  material  adverse  effect  on  our  business,  financial  condition,  and  results  of  operations.  Our
professional liability insurance coverage generally must be renewed annually and may not continue to be available to us in future years at acceptable costs and
on favorable terms, which could increase our exposure to litigation.

We may also be subject to laws and regulations not specifically targeting the healthcare industry.

Certain  regulations  not  specifically  targeting  the  healthcare  industry  also  could  have  material  effects  on  our  operations.  For  example,  the  California
Finance Lenders Law (the “CFLL”), Division 9, Sections 22000-22780 of the California Financial Code, could be applied to us as a result of our various affiliate
and subsidiary loans and similar arrangements. If a regulator were to take the position that such loans were covered by the California Finance Lenders Law, we
could be subject to regulatory action which could impair our ability to continue to operate and may have a material adverse effect on our profitability and business
as  we  currently  do  not  hold  a  CFLL  licensure.  Pursuant  to  an  exemption  under  the  CFLL,  a  person  may  make  five  or  fewer  commercial  loans  in  a  12-month
period without a CFLL licensure if the loans are “incidental” to the business of the person. This exemption, however, creates some uncertainty as to which loans
could be deemed as incidental to our business. In addition, a person without

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a CFLL licensure may also make a single commercial loan in a 12-month period without the loan being “incidental” to such person’s business but this single-loan
exemption is currently set to expire on January 1, 2022.

Risks Relating to the Ownership of ApolloMed’s Common Stock.

We have to meet certain requirements in order to remain as a NASDAQ-listed public company.

As a public company, ApolloMed is required to comply with various regulatory and reporting requirements, including those required by the SEC. After
ApolloMed  uplisted  to  NASDAQ  in  December  2017,  it  is  also  subject  to  NASDAQ  listing  rules.  Complying  with  these  requirements  is  time-consuming  and
expensive. No assurance can be given that ApolloMed can continue to meet the SEC reporting and NASDAQ listing requirements.

ApolloMed’s common stock may continue to be thinly traded and its market price may be subject to fluctuations and volatility. Stockholders

may be unable to sell their shares at a profit and might incur losses.

The trading price of ApolloMed’s common stock was volatile and may continue to be so from time to time. The price at which ApolloMed’s common stock
trades  could  be  subject  to  significant  fluctuation  and  may  be  affected  by  a  variety  of  factors,  including  the  trading  volume,  our  results  of  operations,  the
announcement and consummation of certain transactions, our ability or inability to raise additional capital and the terms thereof, and therefore could fluctuate,
and decline, significantly. Other factors that may cause the market price of ApolloMed’s common stock to fluctuate include:

•

•

•

•

•

•

•

•

•

•

•

•

•

•

variations  in  our  operating  results,  such  as  actual  or  anticipated  quarterly  and  annual  increases  or  decreases  in  revenue,  gross  margin  or
earnings;

changes  in  our  business,  operations  or  prospects,  including  announcements  relating  to  strategic  relationships,  mergers,  acquisitions,
partnerships, collaborations, joint ventures, capital commitments, or other events by us or our competitors;

announcements of acquisitions, dispositions and other corporate transactions as well as financings and other capital raising transactions;

developments, conditions or trends in the healthcare industry;

changes in the economic performance or market valuations of other healthcare-related companies;

general  market  conditions  or  domestic  or  international  macroeconomic  and  geopolitical  factors  unrelated  to  our  performance  or  financial
condition, including economic or political instability, wars, civil unrest, terrorism, epidemics (including the recent novel coronavirus (COVID-19))
outbreak and natural disasters.

sales  of  stock  by  ApolloMed’s  stockholders  generally  and  ApolloMed’s  larger  stockholders,  including  insiders,  in  particular,  including  sale  or
distributions of large blocks of common stock by our executives and directors;

volatility and limitations in trading volumes of ApolloMed’s common stock and the stock market;

approval, maintenance and withdrawal of our and our affiliates’ certificates, permits, registration, licensure, certification and accreditation by the
applicable regulatory or other oversight bodies;

our financing activities, including our ability to obtain financings and prices that we sell our equity securities, including notes convertible to and
warrants to purchase shares of ApolloMed’s common stock;

failures to meet external expectations or management guidance;

changes in our capital structure and cash position;

analyst research reports on ApolloMed’s common stock, including analysts’ recommendations and changes in recommendations, price targets,
and withdrawals of coverage;

departures and additions of our key personnel, including our officers or directors;

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•

•

•

disputes and litigations related to intellectual properties, proprietary rights, and contractual obligations;

changes in applicable laws, rules, regulations, or accounting practices and other dynamics; and

other events or factors, many of which may be out of our control.

There may continue to be a limited trading market for ApolloMed’s common stock. A lack of an active market may contribute to stock price volatility or
supply/demand imbalances, make an investment in ApolloMed’s common stock less attractive to certain investors, impair the ability of ApolloMed’s stockholders
to  sell  shares  at  the  time  they  desire  or  at  a  price  that  they  consider  favorable.  The  lack  of  an  active  market  may  also  reduce  the  fair  market  value  of
ApolloMed’s common stock, impair our ability to raise capital by selling shares of ApolloMed’s common stock or use such stock as consideration to attract and
retain talent or engage in business transactions.

If analysts do not report about us, or negatively evaluate us, ApolloMed’s stock price could decline.

The trading market for ApolloMed’s common stock will rely in part on the availability of research and reports that third-party analysts publish about us.
There are many large companies active in the healthcare industry, which make it more difficult for us to receive widespread coverage. Furthermore, if one or
more of the analysts who do cover us downgrade ApolloMed’s common stock, its price would likely decline. If one or more of these analysts cease coverage of
us, we could lose market visibility, which in turn could cause ApolloMed’s stock price to decline.

Our current principal stockholders, executive officers and directors have significant influence over our operations and strategic direction and
they  could  cause  us  to  take  actions  with  which  other  stockholders  might  not  agree  and  could  delay,  deter  or  prevent  a  change  of  control  or  a
business combination with respect to us.

As of December 31, 2019, our executive officers, directors, five percent or greater stockholders and their respective affiliated entities in the aggregate
own approximately 43.4% of our outstanding common stock. As a result, these stockholders, who are entitled to vote their shares in their own interests, acting
together,  exert  a  significant  degree  of  influence  over  our  management  and  affairs  and  over  matters  requiring  stockholder  approval,  including  the  election  of
directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change of control,
merger, consolidation, sale of all or substantially all of our assets or other corporate transactions that other stockholders may view as beneficial, or conversely
this concentrated control could result in the consummation of a transaction that other stockholders may not support. This may harm the value of our shares and
discourage investors from investing in us.

Provisions under Delaware law and ApolloMed’s charter and bylaws could deter takeover attempts or attempts to remove its board members

or management that might otherwise be beneficial to its stockholders.

ApolloMed  is  subject  to  Section  203  of  the  Delaware  General  Corporation  Law,  which  makes  the  acquisition  of  ApolloMed  and  the  removal  of  its
incumbent  officers  and  directors  more  difficult  for  potential  acquirers  by  prohibiting  stockholders  holding  15%  or  more  of  its  outstanding  voting  stock  from
acquiring it without the consent of its board of directors for at least three years from the date they first hold 15% or more of the voting stock. These provisions
and others that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in ApolloMed’s control or management, including
transactions in which ApolloMed’s stockholders might otherwise receive a premium for their shares over then current market prices. These provisions may also
limit the ability of ApolloMed’s stockholders to approve transactions that they may deem to be in their best interests.

Additionally,  ApolloMed’s  charter  and  bylaws  contain  additional  provisions,  such  as  the  authorization  for  its  board  of  directors  to  issue  one  or  more
classes of preferred stock and determine the rights, preferences and privileges of the preferred stock, which could cause substantial dilution to a person or group
that attempts to acquire ApolloMed on terms not approved by the board, and the ownership requirement for ApolloMed’s stockholders to call special meetings,
that could deter, discourage or make it more difficult for a change in control of ApolloMed or for a third party to acquire ApolloMed, even if such a change in
control could be deemed in the interest of ApolloMed’s stockholders or if such an acquisition would provide ApolloMed’s stockholders with a substantial premium
for their shares over the market price of ApolloMed’s common stock.

As  such,  these  provisions  could  discourage  a  potential  acquirer  from  acquiring  us  or  otherwise  attempting  to  obtain  our  control  and  increase  the

likelihood that our incumbent directors and officers will retain their positions.

We may issue additional equity securities in the future, which may result in dilution to existing investors.

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If ApolloMed issues additional equity securities, its existing stockholders may experience substantial dilution. ApolloMed may sell equity securities and
may  issue  convertible  notes  and  warrants  in  one  or  more  transactions  at  prices  and  manners  as  we  may  determine  from  time  to  time,  including  at  prices  (or
exercise prices) below the market price of ApolloMed’s common stock, for capital raising purposes, including in any debt financing, registered offering or private
placement, and new investors could have superior rights such as liquidation and other preferences. To attract and retain the right talent, ApolloMed may also
issue equity awards under its equity compensation plans to its officers, other employees, directors and consultants from time to time. ApolloMed may also issue
additional shares of its common stock or other securities that are convertible into or exercisable for common stock in connection with future acquisitions or for
other  business  purposes.  In  addition,  the  exercise  or  conversion  of  outstanding  options  or  warrants  to  purchase  shares  of  ApolloMed’s  stock  may  result  in
dilution to its existing stockholders upon any such exercise or conversion.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

Our  corporate  headquarters  is  located  in  Alhambra,  California,  where  we  lease  and  occupy  approximately  35,000  square  feet  of  office  spaces  in  two
neighboring  buildings  from  an  entity  that  shares  certain  common  ownership  with  ApolloMed.  The  current  lease  for  our  headquarters  is  on  a  month-to-month
basis and requires monthly rental payment of approximately $84,000.

We lease approximately 47,500 square feet of space in Monterey Park, California. The lease has a term of 5 years and requires monthly rental payments

of approximately $69,000 per month.

We  lease  approximately  8,800  square  feet  of  space  in  San  Gabriel,  California,  which  is  the  primary  office  for  SCHC.  The  base  rent  for  the  space  is

approximately $33,000 per month, subject to adjustments, and for a term expiring in 2024 (or subject to the terms of the lease, in 2021).

We  also  maintain  other  office  and  warehouse  spaces  located  in  Monterey  Park,  Alhambra,  City  of  Industry,  Arcadia  and  El  Monte,  California.  These
leases require monthly rent payments ranging from approximately $2,300 to $30,000 and have terms that expire between January 2020 and, subject to options to
extend provided thereunder, February 2031.

We believe our existing facilities are in good condition and are suitable and adequate for our current requirements. Based on current information and
subject to future events and circumstances, we anticipate that we may extend leases on our various facilities as necessary, as they expire, and lease additional
facilities to accommodate possible future growth.

Item 3.

Legal Proceedings

Certain  of  the  pending  or  threatened  legal  proceedings  or  claims  in  which  we  are  involved  are  discussed  under  “Note  13  -  “Commitments  and

Contingencies,” to our consolidated financial statements in this Annual Report on Form 10-K, which disclosure is incorporated by reference herein.

Item 4.

Mine Safety Disclosures

Not applicable.

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PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The information presented below is our historical data and not necessarily indicative of our future financial condition or results of operations.

ApolloMed’s common stock is listed on the NASDAQ Capital Market, under the symbol, “AMEH.”

Record Holders

As of March 2, 2020, there were approximately 545 holders of record of ApolloMed’s common stock based on its transfer agent’s report. Because many
shares of ApolloMed’s common stock are held by brokers and other nominees on behalf of stockholders, including in trust, we are unable to estimate the total
number of stockholders represented by these record holders.

Dividends

To date we have not paid any cash dividends on ApolloMed’s common stock and we do not contemplate the payment of cash dividends thereon in the
foreseeable future. Our future dividend policy will depend on our earnings, capital requirements, financial condition, and other factors relevant to our ability to pay
dividends.

Recent Sales of Unregistered Securities

Below sets forth the Company’s equity securities sold by it during the fiscal year ended December 31, 2019 that were not registered under the Securities

Act of 1933, as amended (the “Securities Act”):

During the three months ended December 31, 2019, the Company issued an aggregate of 27,851 shares of common stock and received approximately

$255,843 from the exercise of certain warrants at an exercise price ranging from $9.00 - $10.00 per share.

The  foregoing  issuances  were  exempt  from  the  registration  provisions  of  the  Securities  Act,  pursuant  to  Section  4(a)(2)  thereof,  and/or  Regulation  D

promulgated thereunder.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Period

Common Stock

November 2019

December 2019

(a)
Total
number
of shares
(or units)
purchased

(b)
Average price
paid per share
(or unit)

(c)
Total number of shares (or units)
purchased as part of publicly
announced plans or programs

(d)
Maximum number (or approximate dollar
value) of shares (or units) that may yet be
purchased under the plans or programs

109,203

297,089

$

$

17.59

18.17

N/A

N/A

N/A

N/A

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Performance Measurement Comparison

The following chart compares the cumulative total return of our common stock with the cumulative total return of the Russell 3000 Index and the S&P

500 Healthcare Index, from December 31, 2014 to December 31, 2019.

We believe the Russell 3000 Index is an appropriate independent broad market index, since it measures the performance of similar sized companies in
numerous sectors. In addition, we believe the S&P 500 Healthcare Index is an appropriate third party published industry index since it measures the
performance of healthcare companies.

Company/Index

ApolloMed
Russell 3000 Index
S&P 500 Healthcare

Base Period
12/31/2014

1.00
1.00
1.00

12/31/2015

12/31/2016

12/31/2017

12/31/2018

12/31/2019

0.06
—
0.07

0.67
0.13
0.04

4.33
0.37
0.27

3.41
0.30
0.35

3.11
0.70
0.63

Indexed Returns

Years Ending

Item 6.

Selected Financial Data

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and

Results of Operations” and the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.

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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
    
APOLLO MEDICAL HOLDINGS, INC.

 CONSOLIDATED STATEMENTS OF INCOME

2019

2018

2017

2016

2015

Years ended December 31,

Revenue

Capitation, net
Risk pool settlements and incentives

Management fee income
Fee-for-service, net

Other income

$

454,168,024   $
51,097,661  

344,307,058   $
100,927,841  

272,921,240   $
44,598,373  

247,639,181   $
22,641,884  

247,244,135
37,656,242

34,668,358  
15,475,264  

5,208,790  

49,742,755  
19,703,999  

5,226,099  

26,983,695  
7,449,249  

4,403,373  

24,774,941  
9,163,970  

1,714,939  

20,834,222
6,437,354

952,752

Total revenue

560,618,097  

519,907,752  

356,355,930  

305,934,915  

313,124,705

Operating expenses

Cost of services
General and administrative expenses

Depreciation and amortization
Provision for doubtful accounts

Impairment of goodwill and intangible assets

467,804,899  
41,482,375  

18,280,198  
(1,363,363)  

1,994,000  

361,132,111  
43,353,787  

19,303,179  
3,887,647  

3,798,866  

273,453,287  
26,249,532  

19,075,353  
—  

2,431,791  

255,048,120  
20,759,436  

18,114,440  
—  

324,306  

238,088,985
22,277,282

9,085,312
—

—

Total expenses

528,198,109  

431,475,590  

321,209,963  

294,246,302  

269,451,579

Income from operations

32,419,988  

88,432,162  

35,145,967  

11,688,613  

43,673,126

Other (expense) income

Income (loss) from equity method investments

Interest expense
Interest income

Change in fair value of derivative instrument
Gain on settlement of preexisting note receivable from
ApolloMed
Gain from investments – fair value adjustments

(6,900,859)  

(4,733,256)  
2,023,873  

—  

—  
—  

(8,125,285)  

(1,112,541)  

4,748,542  

1,206,654

(560,515)  
1,258,638  

(79,689)  
1,015,204  

(61,589)  
504,696  

(44,886)  

1,722,221  

—  

—  
—  

921,938  
13,697,018  

168,102  

—  
—  

(209,929)
208,917

(833,333)

—
—

Other income

3,030,203  

1,622,131  

233,726  

1,931,635

Total other (expense) income, net

(6,580,039)  

(5,805,031)  

14,565,146  

7,147,596  

2,303,944

Income before provision for income taxes

25,839,949  

82,627,131  

49,711,113  

18,836,209  

45,977,070

Provision for income taxes

8,166,632  

22,359,640  

3,886,785  

8,816,412  

19,297,447

Net income

17,673,317  

60,267,491  

45,824,328  

10,019,797  

26,679,623

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Net income (loss) attributable to noncontrolling interests

3,556,772  

49,432,489  

20,022,486  

(1,433,730)  

13,862,522

Net income attributable to Apollo Medical Holdings,
Inc.

Earnings per share – basic

Earnings per share – diluted

Weighted average shares of common stock
outstanding – basic

Weighted average shares of common stock
outstanding – diluted

$

$

$

14,116,545   $

10,835,002   $

25,801,842   $

11,453,527   $

12,817,101

0.41   $

0.33   $

1.01   $

0.03   $

0.39   $

0.29   $

0.90   $

0.03   $

0.05

0.05

34,708,429  

32,893,940  

25,525,786  

360,634,339  

256,619,159

36,403,279  

37,914,886  

28,661,735  

367,945,833  

263,734,916

 CONSOLIDATED BALANCE SHEET DATA

2019

2018

2017

2016

2015

December 31,

Cash and cash equivalents
Working capital
Total assets

$

103,189,328   $
223,644,503  
728,713,347  

106,891,503   $
100,843,145  
512,999,049  

99,749,199   $
34,557,563  
490,635,793  

54,824,580   $
30,530,467  
349,998,962  

59,014,715
32,439,944
362,486,567

Long-term debt, net of current portion and deferred
financing costs
Total shareholders’ equity

232,172,134  
192,335,148  

—  
181,544,152  

—  
164,183,426  

—  
(391,694)  

—
8,180,159

Item 7.

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 audited consolidated financial statements and the notes thereto
included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

In this section, “we,” “our,” “ours” and “us” refer to Apollo Medical Holdings, Inc.( “ApolloMed”) and its consolidated subsidiaries and affiliated entities, as
appropriate, including its consolidated variable interest entities (“VIEs”).

Overview

We  together  with  our  affiliated  physician  groups  and  consolidated  entities  are  a  physician-centric  integrated  population  health  management  company
working to provide coordinated, outcomes-based medical care in a cost-effective manner and serving patients in California, the majority of whom are covered by
private or public insurance such as Medicare, Medicaid and health maintenance organizations (“HMOs”), with a small portion of our revenue coming 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. Our physician network consists of primary care
physicians, specialist physicians and hospitalists. We operate primarily through the following subsidiaries of ApolloMed: Network Medical Management (“NMM”),
Apollo Medical Management, Inc. (“AMM”), APA ACO, Inc. (“APAACO”) and Apollo Care Connect, Inc. (“Apollo Care Connect”), and their consolidated entities.

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Through our next generation accountable organization (“NGACO”) model and our network of independent practice associations (“IPAs”) with more than
7,000 contracted physicians, which physical groups have agreements with various health plans, hospitals and other HMOs, we were responsible for coordinating
the  care  for  over 980,000  patients  in  California  as  of  December  31,  2019.  These  covered  patients  are  comprised  of  managed  care  members  whose  health
coverage is provided through their employers or who have acquired health coverage directly from a health plan or as a result of their eligibility for Medicaid or
Medicare benefits. Our managed patients benefit from an integrated approach that places physicians at the center of patient care and utilizes sophisticated risk
management  techniques  and  clinical  protocols  to  provide  high-quality,  cost  effective  care.  To  implement  a  patient-centered,  physician-centric  experience,  we
also have other integrated and synergistic operations, including (i) MSOs that provide management and other services to our affiliated IPAs, (ii) outpatient clinics
and (iii) hospitalists.

On  December  8,  2017,  ApolloMed  completed  its  business  combination  with  NMM  (the  “Merger”).  The  combination  of  ApolloMed  and  NMM  brought
together two complementary healthcare organizations to form one of the nation’s largest integrated population health management companies. As a result of the
Merger, NMM became a wholly-owned subsidiary of ApolloMed and the former NMM shareholders received a majority of the issued and outstanding common
stock of ApolloMed. For accounting purposes NMM was considered the accounting acquirer and accordingly, as of the closing of the Merger, NMM’s historical
results of operations replaced ApolloMed’s historical results of operations for periods prior to the Merger, and the results of operations of both companies are
included in the accompanying consolidated financial statements for periods following the Merger.

2019 Highlights

On May 31, 2019, Allied Physicians of California, a Professional Medical Corporation, a California professional medical corporation (“APC”), through its
consolidated  VIE,  APC-LSMA,  acquired  Alpha  Care  Medical  Group,  an  IPA  that  has  been  operating  in  California  since  1993  as  a  risk  bearing  organization
engaged in providing professional services under capitation arrangements with its contracted health plans through a provider network consisting of primary care
and specialty care physicians. Alpha Care specializes in delivering high-quality healthcare to over 174,000 enrollees, as of December 31, 2019, and focuses on
Medi-Cal, Medicaid, Commercial, Medicare and Dual Eligible members in the Riverside and San Bernardino counties of Southern California.

Accountable Health Care is a California based IPA that has served the local community in the greater Los Angeles County area through a network of
physicians and health care providers for more than 20 years. Accountable Health Care currently has a network of over 400  primary  care  physicians  and  700
specialty care physicians, and five community and regional hospital medical centers that provide quality health care services to more than  84,000 members of
three  federally  qualified  health  plans  and  multiple  product  lines,  including  Medi-Cal,  Commercial,  Medicare  and  the  California  Healthy  Families  program.  On
August 30, 2019, APC and APC-LSMA, acquired the remaining 75% of outstanding shares of capital stock of Accountable Health Care that were not already
owned by APC and APC-LSMA.

AP-AMH  Medical  Corporation  ("AP-AMH")  was  formed  on  May  7,  2019  as  a  designated  shareholder  professional  corporation.  Dr.  Thomas  Lam,  a
shareholder,  and  the  Chief  Executive  Officer  and  Chief  Financial  Officer  of  APC  and  Co-Chief  Executive  Officer  and  President  of  ApolloMed,  is  the  sole
shareholder of AP-AMH. ApolloMed makes all the decisions on behalf of AP-AMH and funds and receives all the distributions from its operations. ApolloMed has
the right to receive benefits from the operations of AP-AMH and has the option, but not the obligation, to cover losses. AP-AMH's sole function and only activity is
to  act  as  the  nominee  shareholder  for  ApolloMed's  investments  in  APC.  Therefore,  AP-AMH  is  controlled  and  consolidated  by  ApolloMed  as  the  primary
beneficiary of this VIE.

On September 11, 2019, ApolloMed completed the following series of transactions with its affiliates, AP-AMH and APC:

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

2. AP-AMH purchased  1,000,000 shares of APC Series A Preferred Stock for an aggregate consideration of  $545.0 million in a private placement. Under
the terms of the APC Certificate of Determination of Preferences of Series A Preferred Stock (the "Certificate of Determination"), AP-AMH is entitled to
receive preferential, cumulative dividends that accrue on a daily basis and that are equal to the sum of (i) APC's net income from Healthcare Services (as
defined in the Certificate

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of  Determination),  plus  (ii)  any  dividends  received  by  APC  from  certain  of  APC's  affiliated  entities,  less  (iii)  any  Retained  Amounts  (as  defined  in  the
Certificate of Determination). During the year ended December 31, 2019, APC distributed $8.9 million to ApolloMed as preferred returns.

3. APC  purchased  15,015,015  shares  of  the  Company's  common  stock  for  total  consideration  of  $300.0  million  in  private  placement.  In  connection
therewith, the Company granted APC certain registration rights with respect to the Company's common stock that APC purchased, and APC agreed that
APC votes in excess of 9.99% of the Company's then outstanding shares will be voted by proxy given to the Company's management, and that those
proxy  holders  will  cast  the  excess  votes  in  the  same  proportion  as  all  other  votes  cast  on  any  specific  proposal  coming  before  the  Company's
stockholders.

4. The Company licensed to AP-AMH the right to use certain tradenames for certain specified purposes for a fee equal to a percentage of the aggregate

gross revenues of AP-AMH. The license fee is payable out of any Series A Preferred Stock dividends received by AP-AMH from APC.

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

As of a result of the transaction, APC's ownership in ApolloMed increased to  32.50% at December 31, 2019 from 4.82% at December 31, 2018.

531 W. College

On April 23, 2019, NMM and APC entered into an agreement whereby NMM assigned and APC assumed NMM’s 25% membership interest in 531 W. College
LLC  for  approximately  $8.3  million.  Subsequently,  APC  has  a  50%  ownership  in  531  W.  College  LLC  with  a  total  investment  balance  of  approximately  $16.1
million.

Acquisitions

AMG

On  September  10,  2019,  APC  and  APC-LSMA  purchased  all  of  the  shares  of  all  shareholders  of  AMG,  a  professional  medical  corporation  ("AMG")  for  $1.6
million. AMG is a network of family practice clinics operating out of three main locations in Southern California. AMG provides professional and post-acute care
services to Medicare, Medi-Cal/Medicaid, and Commercial patients through its networks of doctors and nurse practitioners.

Other

On October 2, 2019, the Company entered into a new MSA, effective January 1, 2020, to provide select management services, via a subcontract agreement, to
an  IPA.  The  IPA  currently  serves  approximately  145,000  members  in  the  following  three  main  markets  within  Southern  California:  South  Los  Angeles,  San
Fernando  Valley,  and  Antelope  Valley.  The  majority  of  the  members  are  enrolled  in  Medi-Cal,  with  members  also  enrolled  in  Medicare  Advantage  and
Commercial health plans, and are supported by a network of hundreds of primary care physicians and nearly a thousand specialists.

On December 31, 2019, Universal Care Acquisition Partners, LLC (“UCAP”), a wholly-owned subsidiary of APC, and other sellers entered into a stock purchase
agreement  with  Bright  Health  Company  of  California,  Inc.  (“Bright”)  to  sell  to  Bright  all  of  the  shares  of  capital  stock  of  Universal  Care,  Inc.,  a  California
corporation  doing  business  as  Brand  New  Day  (“UCI”). UCAP  has  a  48.9%  ownership  interest  in  UCI. The  sale  is  subject  to  certain  closing  conditions  and
pending completion.

Recent Developments    

Refer to 2019 highlights for significant developments that occurred during the year ended December 31, 2019.

Key Financial Measures and Indicators

Operating Revenues

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Our  revenue  primarily  consists  of  capitation  revenue,  risk  pool  settlements  and  incentives,  NGACO  AIPBP  revenue,  management  fee  income,  MSSP
surplus revenue and fee-for-services (“FFS”) revenue. Revenue is recorded in the period in which services are rendered. The form of billing and related risk of
collection for such services may vary by type of revenue and the customer.

Operating Expenses

Our largest expenses consist of the cost of patient care paid to contracted physicians, the cost of information technology equipment and software and
the cost of hiring staff to provide management and administrative support services to our affiliated physician groups, as further described below. These services
include payroll, benefits, human resource services, physician practice billing, revenue cycle services, physician practice management, administrative oversight,
coding services, and other consulting services.

Results of Operations

As noted above, although ApolloMed was the legal acquirer in the Merger, for accounting purposes, NMM is considered the accounting acquirer and ApolloMed
is the accounting acquiree. Accordingly, (i) the financial statements included in this Annual Report, and the description of our results of operations set forth below
for  the  period  in  2017  prior  to  the  Merger  reflect  the  operations  of  NMM  and  its  consolidated  entities  and  VIEs,  and  (ii)  the  financial  statements  and  the
description  of  our  results  of  operations  for  2019  and  2018  reflect  the  combined  operations  of  ApolloMed  and  NMM  and  their  consolidated  VIEs.  Because  the
financial results for 2017 exclude the results of ApolloMed, the results of operations in 2019 and 2018 are not directly comparable to our results of operations in
2017.

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2019 Compared to 2018

Our consolidated operating results for the year ended December 31, 2019, as compared to the year ended December 31, 2018 were as follows:

Apollo Medical Holdings, Inc.
Consolidated Statements of Income

Years Ended December 31,

2019

2018

$ Change

% Change

Revenue

Capitation, net

Risk pool settlements and incentives
Management fee income
Fee-for-services, net

Other income

Total revenue

Operating expenses

Cost of services

General and administrative expenses
Depreciation and amortization

Provision for doubtful accounts
Impairment of goodwill and intangibles assets

Total expenses

Income from operations

Other (expense) income

Loss from equity method investments

Interest expense
Interest income

Other income

Total other expense, net

Income before provision for income taxes

Provision for income taxes

Net income

Net income attributable to noncontrolling interests

Net income attributable to Apollo Medical Holdings, Inc.

Net Income

$

454,168,024   $

344,307,058   $

109,860,966  

51,097,661  
34,668,358  
15,475,264  

5,208,790  

100,927,841  
49,742,755  
19,703,999  

5,226,099  

(49,830,180)  
(15,074,397)  
(4,228,735)  

(17,309)  

560,618,097  

519,907,752  

40,710,345  

467,804,899  

361,132,111  

106,672,788  

41,482,375  
18,280,198  

(1,363,363)  
1,994,000  

43,353,787  
19,303,179  

3,887,647  
3,798,866  

(1,871,412)  
(1,022,981)  

(5,251,010)  
(1,804,866)  

528,198,109  

431,475,590  

96,722,519  

32,419,988  

88,432,162  

(56,012,174)  

(6,900,859)  

(4,733,256)  
2,023,873  

3,030,203  

(6,580,039)  

25,839,949  
8,166,632  

(8,125,285)  

(560,515)  
1,258,638  

1,622,131  

(5,805,031)  

82,627,131  
22,359,640  

1,224,426  

(4,172,741)  
765,235  

1,408,072  

(775,008)  

(56,787,182)  
(14,193,008)  

17,673,317   $

60,267,491   $

(42,594,174)  

3,556,772  

49,432,489  

(45,875,717)  

14,116,545   $

10,835,002   $

3,281,543  

$

$

32 %

(49)%
(30)%
(21)%

— %

8 %

30 %

(4)%
(5)%

(135)%
(48)%

22 %

(63)%

(15)%

744 %
61 %

87 %

13 %

(69)%
(63)%

(71)%

(93)%

30 %

Our net income in 2019 was  $17.7 million, as compared to $60.3 million in 2018, a decrease of  $42.6 million or 71%.

Physician Groups and Patients

As of December 31, 2019 and 2018, the total number of affiliated physician groups we managed was 13 groups and 11 groups, respectively, and the

total number of patients for whom we managed the delivery of healthcare services was 914,000 and 992,100, respectively.

Revenue

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Our  revenue  in  2019  was  $560.6  million,  as  compared  to $519.9  million  in  2018,  an  increase  of  $40.7  million  or 8%.  The  increase  in  revenue  was

primarily attributable to the following:

(i) an increase of $109.9 million in capitation revenue due to the acquisitions of Alpha Care and Accountable Health Care which were acquired as of May
31,  2019  and  August  30,  2019,  respectively,  resulting  in  our  recognition  of  approximately  $79.2  million  and  $17.2  million  in  revenue,  respectively,  from  these
acquired IPAs, in addition to capitation revenue growth at APC of $22.4 million. These increase was offset by the delayed commencement by the Centers for
Medicare & Medicaid Services ("CMS") of APAACO's 2019 Next Generation ACO performance year from January 1, 2019, to April 1, 2019 which resulted in
decreased revenue of approximately $8.9 million.

(ii) a decrease of $49.9 million in risk pool revenue due to the refinement of the assumptions used to estimate the amount of net surplus expected to be
received from the risk pool of our affiliated hospitals. Our estimated risk pool receivable is calculated based on reports received from our hospital partners and on
management's estimate of the Company's portion of any estimated risk pool surpluses in which payments have not been received. The actual risk pool surpluses
are settled approximately 18 months later.

(iii) a decrease in management fee income of $15.1 million, primarily due to the acquisition of Accountable Health Care and a decrease in the number of
patients served by some of our affiliated physician groups, including Golden Shore Medical Group, which contributed approximately $3.8 million in management
fee income for the year ended December 31, 2018, that ceased operations on January 31, 2019 as their primary health plan canceled their contract.

(iv) a decrease in FFS revenue of  $4.2 million, primarily due to our wind down of affiliated medical groups, Bay Area Hospitalist Associates ("BAHA"),

AKM Medical Group, Inc. ("AKM"), and Maverick Medical Group, Inc. ("MMG").

Cost of Services

Expenses related to cost of services in 2019 were  $467.8 million,  as  compared  to $361.1 million  in  2018,  an  increase  of  $106.7  million  or 30%.  The
increase was due to a $100.4 million increase in medical claims, capitation and other health services expenses driven by the Alpha Care and Accountable Health
Care acquisitions, a $2.8 million increase in management fee expense paid to a third party MSO during Alpha Care's transition, and an increase of $3.5 million
in personnel costs to support the continued growth in the depth and breadth of our operations.

General and Administrative Expenses

General and administrative expenses in 2019 were  $41.5 million, as compared to $43.4 million in 2018, a decrease of  $1.9 million or 4%. The decrease

was primarily due to a reduction in professional services costs of $2.0 million.

Depreciation and Amortization

Depreciation  and  amortization  expense  was  $18.3  million  and $19.3  million  for  the  years  ended  December  31,  2019  and  2018,  respectively.  These

amounts included depreciation of property and equipment and the amortization of intangible assets.

Provision for Doubtful Accounts

During the year ended December 31, 2019, we released reserves related to certain management fees in the amount of $3.8 million as the collectability
of  the  outstanding  amount  was  no  longer  in  doubt.  These  reserves  related  to  Accountable  Health  Care  and  were  no  longer  necessary  as  a  result  of  our
acquisition of the company. As such our provision for doubtful accounts was a negative $1.4 million.

Impairment of Goodwill and Intangible Assets

Impairment of goodwill and intangible assets was  $2.0 million for the year ended December 31, 2019, as compared to  $3.8 million  for  the  year  ended
December 31, 2018. During 2019, we impaired intangible assets related to Medicare licenses obtained as part of the Merger. In 2018, we impaired the goodwill
related  to  MMG.  We  will  no  longer  utilize  the  Medicare  licenses  and  MMG  has  been  wound  down.  Accordingly,  we  do  not  expect  to  receive  future  economic
benefits from such assets and goodwill.

Loss from Equity Method Investments

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Loss from equity method investments in 2019 was  $6.9 million, as compared to $8.1 million in 2018, a decrease of  $1.2 million,  or 15%.  The  decrease
was primarily due to equity losses related to our investments in LMA's IPA line of business, Accountable Health Care, UCI, MWN Community Hospital, LLC, and
531 W. College LLC of $2.8 million, $2.5 million, $1.2 million, $0.2 million and $0.2 million, respectively, which was offset by equity earnings of  $0.3 million  from
our  investment  in  Diagnostic  Medical  Group  ("DMG")  for  the  year  ended  December  31,  2019.  In  addition,  during  the  year  ended  December  31,  2019  we
recognized an impairment loss of $0.3 million related to our investment in Pacific Ambulatory Surgery Center, LLC ("PASC") as we do not expect to recover our
investment. This is compared to equity losses of $6.0 million, $2.4  million,  $0.4  million  and $0.3  million  allocated  from  our  investments  in  UCI,  LSMA,  531  W.
College, LLC and PASC, respectively, which were offset by income of $1.0 million allocated from our investment in DMG for the year ended 2018.

Interest Expense

Interest expense in 2019 was  $4.7 million as compared to interest expense of  $0.6 million in 2018. The increase was primarily due to interest incurred

from a new credit facility we secured in September 2019 to fund growth, primarily through acquisitions.

Interest Income

Interest income in 2019 was  $2.0 million as compared to $1.3 million in 2018, an increase of $0.7 million or  61%. The increase in interest income was a

result of additional cash held in money market, certificates of deposit accounts and increased loan receivables issued in 2019.

Other Income

Other income was $3.0 million for 2019 as compared to  $1.6 million in 2018, an increase of  $1.4 million or 87%. The increase was primarily attributable

to the assumption of a loan receivable as a result of the Accountable Health Care acquisition.

Provision for Income Taxes

Provision  for  income  taxes  was  $8.2  million  in  2019,  as  compared  to  $22.4  million  in  2018,  a  decrease  of  $14.2  million  or 63%.  This  decrease  was

primarily attributable to a decrease in the amount of pre-tax income in 2019 as compared to 2018.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was  $3.6 million for the year ended December 31, 2019, as compared to  $49.4  million  for  the  year
ended December 31, 2018, a decrease of $45.8 million or 93%. This decrease was primarily due to reduced net income generated from APC mainly attributable
to a decrease in risk pool revenue as a result of the refinement of the assumptions used to estimate the amount of net surplus expected to be received from the
risk pools of our affiliated hospitals and our completion of a series of transactions with APC as further described in "2019 Highlights" above, which resulted in
preferred, cumulative dividends from APC being allocated to AP-AMH.

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2018 Compared to 2017

Our consolidated operating results for the year ended December 31, 2018, as compared to the year ended December 31, 2017 were as follows:

Apollo Medical Holdings, Inc.
Consolidated Statements of Income

Years Ended December 31,

2018

2017

$ Change

% Change

Revenue

Capitation, net

Risk pool settlements and incentives
Management fee income
Fee-for-services, net

Other income

Total revenue

Operating expenses

Cost of services

General and administrative expenses
Depreciation and amortization

Provision for doubtful accounts
Impairment of goodwill and intangibles assets

Total expenses

Income from operations

Other (expense) income

Loss from equity method investments

Interest expense
Interest income

Change in fair value of derivative instrument
Gain on settlement of preexisting note receivable from ApolloMed

Gain from investments - fair value adjustments
Other income

Total other (expense) income, net

Income before provision for income taxes

Provision for income taxes

Net income

Net income attributable to noncontrolling interests

Net income attributable to Apollo Medical Holdings, Inc.

Net Income

$

$

$

344,307,058   $

272,921,240   $

71,385,818  

100,927,841  
49,742,755  
19,703,999  

5,226,099  

44,598,373  
26,983,695  
7,449,249  

4,403,373  

56,329,468  
22,759,060  
12,254,750  

822,726  

519,907,752  

356,355,930  

163,551,822  

361,132,111  

273,453,287  

43,353,787  
19,303,179  

3,887,647  
3,798,866  

26,249,532  
19,075,353  

—  
2,431,791  

87,678,824  

17,104,255  
227,826  

3,887,647  
1,367,075  

431,475,590  

321,209,963  

110,265,627  

88,432,162  

35,145,967  

53,286,195  

(8,125,285)  

(560,515)  
1,258,638  

—  
—  

—  
1,622,131  

(1,112,541)  

(79,689)  
1,015,204  

(44,886)  
921,938  

13,697,018  
168,102  

(7,012,744)  

(480,826)  
243,434  

44,886  
(921,938)  

(13,697,018)  
1,454,029  

(5,805,031)  

14,565,146  

(20,370,177)  

82,627,131  

22,359,640  

49,711,113  

3,886,785  

32,916,018  

18,472,855  

60,267,491   $

45,824,328   $

14,443,163  

49,432,489  

20,022,486  

29,410,003  

10,835,002   $

25,801,842   $

(14,966,840)  

26 %

126 %
84 %
165 %

19 %

46 %

32 %

65 %
1 %

100 %
56 %

34 %

152 %

630 %

603 %
24 %

(100)%
(100)%

(100)%
865 %

(140)%

66 %

475 %

32 %

147 %

(58)%

Our net income in 2018 was $60.3 million, as compared to $45.8 million in 2017, an increase of $14.5 million or 32%.

Physician Groups and Patients

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As of December 31, 2018 and 2017, the total number of affiliated physician groups we managed was 11 groups, respectively, and the total number of

patients for whom we managed the delivery of healthcare services was 992,100 and 795,960, respectively.

Revenue

Our revenue in 2018 was $519.9 million, as compared to $356.4 million in 2017, an increase of $163.5 million or 46%. The increase in revenue was

attributable to the following:

(i)  an  increase  of  $71.4  million  in  capitation  revenue  due  to  increases  in  membership  and  capitation  rates,  as  well  as,  revenue  received  from  CMS

associated with APAACO,

(ii) an increase of $56.3 million in risk pool revenue due to favorable healthcare utilization trends and the recognition of full risk pool, as well as shared

risk revenue arrangements with certain health plans,

(iii) an increase in management fee income of $22.8 million, which was mainly driven by an increase in the number of patients served by our affiliated
physician groups that were primarily driven by Accountable Health Care (effective December 2017) and Golden Shore Medical Group (effective January 1, 2018),
and

(iv)  an  increase  in  FFS  revenue  of  $12.2  million,  which  was  mainly  due  to  increased  surgery  center  income  from  the  increase  in  patients  and  fees
received,  as  well  as  revenue  generated  from  our  hospitalist  and  heart  center  services  and  increases  in  other  income  of  $0.8  million.  ApolloMed’s  operations
acquired in the Merger accounted for $91.7 million of such increase.

Cost of Services

Expenses related to cost of services in 2018 were $361.1 million, as compared to $273.5 million in 2017, an increase of $87.6 million, or 32%. Of this
increase,  $97.1  million  was  attributable  to  the  net  increase  in  medical  claims,  primarily  driven  by  APAACO  and  MMG,  capitation  and  other  health  services
expense, $22.2 million was attributable to increased personnel costs and related benefits and $5.3 million related to increased outsourced and temporary labor.
This was offset by decreases in provider bonuses of $35.7 million, which were discretionary and provider share based compensation expense of $1.3 million.

General and Administrative Expenses

General  and  administrative  expenses  in  2018  were  $43.4  million,  as  compared  to  $26.2  million  in  2017,  an  increase  of  $17.2  million,  or  65%.  The
increase was attributable to a $1.0 million increase in legal fees, $0.8 million increase in legal settlement costs, $0.8 million increase in technology expenses,
$0.8  million  increase  in  accounting  expenses,  a  $2.9  million  increase  in  other  operating  expenses,  $2.0  million  increase  related  to  ICC  operations  and  $8.9
million increase related to ApolloMed’s operations acquired in the Merger.

Depreciation and Amortization

Depreciation  and  amortization  expense  in  2018  was  $19.3  million,  as  compared  to  $19.1  million  in  2017,  an  increase  of  $0.2  million,  or  1%.  The

increase was attributable to additional property and equipment purchased during 2018 and the addition of intangible assets from the Merger.

Provision for Doubtful Accounts

Provision  for  doubtful  accounts  was  $3.9  million  for  the  year  ended  December  31,  2018.  During  2018,  the  Company  recorded  an  allowance  against
certain  management  fees  receivable  based  on  management’s  assessment  of  collectability.  There  was  no  provision  for  doubtful  accounts  for  the  year  ended
December 31, 2017.

Impairment of Goodwill and Intangible Assets

Impairment of goodwill and intangible assets was $3.8 million for the year ended December 31, 2018, as compared to $2.4 million in 2017. During 2018,
we  impaired  the  goodwill  related  to  MMG  as  this  IPA  was  no  longer  utilized  and  therefore were  no  longer  expected  to  provide  any  future  economic  benefit.
During 2017, we impaired the remaining intangible assets balance of APCN-ACO and AP-ACO that were acquired in 2016, as these member relationships were
no longer utilized by ApolloMed and therefore were no longer expected to provide any future economic benefit.

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Loss from Equity Method Investments

Loss from equity method investments in 2018 was $8.1 million, as compared to $1.1 million in 2017. This was mainly due to the losses of $6.0 million,
$2.4 million, $0.4 million and $0.3 million allocated from our investments in UCI, LSMA, 531 W. College and PASC, respectively, offset by income of $1.0 million
allocated from our investment in DMG.

Interest Expense

Interest  expense  in  2018  was  $0.6  million  as  compared  to  interest  expense  of  $0.1  million  in  2017.  The  increase  was  mainly  driven  by  increased

drawdown on our line of credit.

Interest Income

Interest income in 2018 was $1.3 million for 2018, as compared to $1.0 million in 2017, an increase of $0.3 million or 24%, mainly due to more cash held

in money market accounts which resulted in more interest earned and the interest from notes receivable.

Change in Fair Value of Derivative Instrument

Change in fair value of derivative instrument in 2017 was $45,000 due to fluctuations of ApolloMed’s stock price. ApolloMed did not have any derivative

instruments in 2018.

Gain on Settlement of Preexisting Note Receivable from ApolloMed

Gain on settlement of preexisting note receivable between NMM and ApolloMed prior to the Merger was $0.9 million in 2017, there was no comparable

amount in 2018.

Gain from investments – fair value adjustments

Gain from investments – fair value adjustment was $13.7 million in 2017. ApolloMed’s preferred stock (previously accounted for under the cost method)
was $8.6 million and gain from NMM’s noncontrolling interest in APAACO (previously accounted for under the equity method) was $5.1 million as a result of the
fair value adjustment related to the Merger. There was no comparable amount in 2018.

Other Income

Other income was $1.6 million for 2018 as compared to $0.2 million in 2017, an increase of $1.4 million or 865%. The increase was primarily attributable

to dividends received from our investment in DMG and rental income from our sublet properties.

Provision for Income Taxes

Provision for income taxes was $22.4 million for 2018, as compared to $3.9 million in 2017, an increase of $18.5 million or 475%. This increase was

primarily attributable to the increase in the amount of pre-tax income in 2018 as compared to 2017.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was $49.4 million for the year ended December 31, 2018, as compared to $20.0 million for the year
ended December 31, 2017, an increase of $29.4 million or 147%. This increase was primarily due to net income generated from APC mainly attributable to its
increased revenue due to favorable healthcare utilization trends and the recognition of full risk pool surplus.

Liquidity and Capital Resources

Cash, cash equivalents and investment in marketable securities at December 31, 2019 totaled $219.7 million. Working capital totaled $223.7 million at

December 31, 2019, compared to $100.8 million at December 31, 2018, an increase of $122.9 million, or 122%.

We  have  historically  financed  our  operations  primarily  through  internally  generated  funds.  We  generate  cash  primarily  from  capitations,  risk  pool

settlements and incentives, fees for medical management services provided to our affiliated physician

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groups, as well as FFS reimbursements. We generally invest cash in money market accounts, which are classified as cash and cash equivalents. We believe we
have sufficient liquidity to fund our operations at least through March 2021.

Our cash and cash equivalents and restricted cash decreased by $3.6 million from  $107.6 million at December 31, 2018 to $104.0 million at December
31,  2019.  Cash  provided  by  operating  activities  during  the  year  ended  December  31,  2019  was $13.7  million,  as  compared  to $25.5  million  during  the  year
ended December 31, 2018. The cash generated from operations during the year ended December 31, 2019 is a function of net income of $17.7 million,  adjusted
for  the  following  non-cash  operating  activities:  depreciation  and  amortization  of $18.8  million,  impairment  of  intangible  assets  of  $2.0  million,  share-based
compensation of $1.5 million and loss from equity method investments of  $6.9 million, which were offset by a reduction in our provision for doubtful accounts of
$1.4 million, gain related to assumption of loan receivables of $2.2 million and a reduction in deferred tax liability of  $6.8 million. Our cash provided by operating
activities includes a net decrease in operating assets and liabilities of $22.8 million.

Cash  used  in  investing  activities  during  the  year  ended  December  31,  2019  was  $180.6  million,  as  compared  to  cash  used  by  investing  activities  of
$25.2  million  during  the  year  ended  December  31,  2018.  This  increase  was  primarily  attributable  to  purchases  of  marketable  securities  of  $115.4  million,
payments for business acquisitions, net of cash acquired of $49.4 million, advances on loans receivable of  $11.4 million, investments made in our equity method
investments and investments in privately held entities of $3.6 million and purchases of property and equipment of $1.0 million, which were offset with dividends
received of $0.2 million during the year ended December 31, 2019.

Cash provided in financing activities during the year ended December 31, 2019 was  $163.3 million, as compared to $11.2 million used during the year
ended December 31, 2018. The increase was primarily attributable to proceeds from borrowings on the line of credit and long term debt of $289.6 million and
proceeds from exercise of stock options and warrants of $3.1 million, common stock offering of $0.8 million, which were offset by dividend payments of $61.7
million, repayments of bank loans totaling $55.0 million, repurchase of common shares totaling  $7.6 million, cost related to debt and equity issuances of $5.8
million, and repayment of capital lease obligations totaling $0.1 million.

Credit Facilities

Credit Facility

The Company's credit facility consisted of the following:

Term Loan A
Revolver Loan

Total Debt

Less: current portion of debt
Less: unamortized financing cost

 Long-term debt

The following table presents scheduled maturities of the Company's credit facility as of  December 31, 2019:

57

December 31, 2019

$

187,625,000
60,000,000

247,625,000

(9,500,000)
(5,952,866)

$

232,172,134

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2020

2021
2022

2023
2024

 Total

Credit Agreement

$

Amount

9,500,000

10,687,500
14,250,000

15,437,500
197,750,000

$

247,625,000

O n September  11,  2019,  the  Company  entered  into  a  secured  credit  agreement  (the  “Credit  Agreement”)  with  SunTrust  Bank,  in  its  capacity  as
administrative agent for the lenders (in such capacity, the “Agent”), as a lender, an issuer of letters of credit and as a swingline lender, and Preferred Bank, which
is affiliated with one of the Company's board members, JPMorgan Chase Bank, N.A., MUFG Union Bank, N.A., Royal Bank of Canada, Fifth Third Bank and City
National Bank, as lenders (the “Lenders”). In connection with the closing of the Credit Agreement, the Company, its subsidiary, NMM, and the Agent entered into
a Guaranty and Security Agreement (the “Guaranty and Security Agreement”), pursuant to which, among other things, NMM guaranteed the obligations of the
Company under the Credit Agreement.

The  Credit  Agreement  provides  for  a  five-year  revolving  credit  facility  to  the  Company  of $100.0  million  ("Revolver  Loan"),  which  includes  a  letter  of
credit  subfacility  of  up  to $25.0  million.  As  of  December  31,  2019  the  Company  has  outstanding  letters  of  credit  totaling  $14.8  million  and  the  Company  has
$25.2  million  available  under  the  revolving  credit  facility.  The  Credit  Agreement  also  provides  for  a  term  loan  of $190.0  million,  ("Term  Loan  A").  The  unpaid
principal amount of the term loan is payable in quarterly installments on the last day of each fiscal quarter commencing on December 31, 2019. The principal
payment for each of the first eight fiscal quarters is $2.4 million, for the following eight fiscal quarters thereafter is  $3.6 million and for the following three fiscal
quarters thereafter is $4.8 million. The remaining principal payment on the term loan is due on  September 11, 2024.

The proceeds of the term loan and up to  $60.0 million of the revolving credit facility may be used to (i) finance a portion of the  $545.0 million loan made
by the Company to AP-AMH, concurrently with the closing of the Credit Agreement (the “AP-AMH Loan”) as described in the May 13, 2019, Current Report and
the August 29, 2019, Current Report, (ii) refinance certain indebtedness of the Company and its subsidiaries and, indirectly, APC, (iii) pay transaction costs and
expenses arising in connection with the Credit Agreement, the AP-AMH Loan and certain other related transactions and (iv) provide for working capital, capital
expenditures and other general corporate purposes. The remainder of the revolving credit facility will be used to finance future acquisitions and investments and
to provide for working capital needs, capital expenditures and other general corporate purposes.

The  Company  is  required  to  pay  an  annual  facility  fee  of  0.20%  to 0.35%  on  the  available  commitments  under  the  Credit  Agreement,  regardless  of
usage, with the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. The Company is also required to pay customary fees as
specified in a separate fee agreement between the Company and SunTrust Robinson Humphrey, Inc., the lead arranger of the Credit Agreement.

Amounts borrowed under the Credit Agreement will bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency
deposits for the corresponding deposits of U.S. dollars appearing on Reuters Screen LIBOR01 Page (“LIBOR”), adjusted for any reserve requirement in effect,
plus a spread of from 2.00% to 3.00%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of  1.00%  to
2.00%, as determined on a quarterly basis based on the Company’s leverage ratio. The base rate is defined in a manner such that it will not be less than LIBOR.
As of December 31, 2019 the interest rate on the Credit Agreement was 4.54%. The Company will pay fees for standby letters of credit at an annual rate equal
to 2.00%  to 3.00%, as determined on a quarterly basis based on the Company’s leverage ratio, plus facing fees and standard fees payable to the issuing bank
on the respective letter of credit. Loans outstanding under the Credit Agreement may be prepaid at any time without penalty, except for LIBOR breakage costs
and expenses. If LIBOR ceases to be reported, the Credit Agreement requires the Company and the Agent to endeavor to establish a commercially reasonable
alternative rate of interest and until they are able to do so, all borrowings must be at the base rate.

The Credit Agreement requires the Company and its subsidiaries to comply with various affirmative covenants, including, without limitation, furnishing
updated financial and other information, preserving existence and entitlements, maintaining properties and insurance, complying with laws, maintaining books
and records, requiring any new domestic subsidiary meeting

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a materiality threshold specified in the Credit Agreement to become a guarantor thereunder and paying obligations. The Credit Agreement requires the Company
and its subsidiaries to comply with, and to use commercially reasonable efforts to the extent permitted by law to cause certain material associated practices of the
Company, including APC, to comply with, restrictions on liens, indebtedness and investments (including restrictions on acquisitions by the Company), subject to
specified  exceptions.  The  Credit  Agreement  also  contains  various  other  negative  covenants  binding  the  Company  and  its  subsidiaries,  including,  without
limitation, restrictions on fundamental changes, dividends and distributions, sales and leasebacks, transactions with affiliates, burdensome agreements, use of
proceeds, maintenance of business, amendments of organizational documents, accounting changes and prepayments and modifications of subordinated debt.

The  Credit  Agreement  requires  the  Company  to  comply  with  two  key  financial  ratios,  each  calculated  on  a  consolidated  basis.  The  Company  must
maintain a maximum consolidated leverage ratio of not greater than 3.75 to 1.00 as of the last day of each fiscal quarter. The maximum consolidated leverage
ratio  decreases  by 0.25 each year, until it is reduced to  3.00 to 1.00 for each fiscal quarter ending after  September  30,  2022.  The  Company  must  maintain  a
minimum consolidated interest coverage ratio of not less than 3.25 to 1.00 as of the last day of each fiscal quarter. As of  December 31, 2019, the Company was
in compliance with the covenants relating to its credit facility.

Pursuant to the Guaranty and Security Agreement, the Company and NMM have granted the Lenders a security interest in all of their assets, including,
without  limitation,  all  stock  and  other  equity  issued  by  their  subsidiaries  (including  NMM)  and  all  rights  with  respect  to  the  AP-AMH  Loan.  The  Guaranty  and
Security Agreement requires the Company and NMM to comply with various affirmative and negative covenants, including, without limitation, covenants relating
to maintaining perfected security interests, providing information and documentation to the Agent, complying with contractual obligations relating to the collateral,
restricting the sale and issuance of securities by their respective subsidiaries and providing the Agent access to the collateral.

The Credit Agreement contains events of default, including, without limitation, failure to make a payment when due, default on various covenants in the
Credit  Agreement,  breach  of  representations  or  warranties,  cross-default  on  other  material  indebtedness,  bankruptcy  or  insolvency,  occurrence  of  certain
judgments  and  certain  events  under  the  Employee  Retirement  Income  Security  Act  of  1974  aggregating  more  than $10.0  million,  invalidity  of  the  loan
documents, any lien under the Guaranty and Security Agreement ceasing to be valid and perfected, any change in control, as defined in the Credit Agreement,
an event of default under the AP-AMH Loan, failure by APC to pay dividends in cash for any period of two consecutive fiscal quarters, failure by AP-AMH to pay
cash interest to the Company, or if any modification is made to the Certificate of Determination or the Special Purpose Shareholder Agreement that directly or
indirectly restricts, conditions, impairs, reduces or otherwise limits the payment of the Series A Preferred dividend by APC to AP-AMH. In addition, it will constitute
an  event  of  default  under  the  Credit  Agreement  if  APC  uses  all  or  any  portion  of  the  consideration  received  by  APC  from  AP-AMH  on  account  of  AP-AMH’s
purchase  of  Series  A  Preferred  Stock  for  any  purpose  other  than  certain  specific  approved  uses  described  in  the  following  sentence,  unless  not  less  than
50.01%  of  all  holders  of  common  stock  of  APC  at  such  time  approve  such  use;  provided  that  APC  may  use  up  to  $50.0  million  in  the  aggregate  of  such
consideration  for  any  purpose  without  any  requirement  to  obtain  such  approval  of  the  holders  of  common  stock  of  APC.  The  approved  uses  include  (i)  any
permitted investment, (ii) any dividend or distribution to the holders of the common stock of APC, (iii) any repurchase of common stock of APC, (iv) paying taxes
relating to or arising from certain assets and transactions, or (v) funding losses, deficits or working capital support on account of certain non-healthcare assets in
an  amount  not  to  exceed $125.0  million.  If  any  event  of  default  occurs  and  is  continuing  under  the  Credit  Agreement,  the  Lenders  may  terminate  their
commitments, and may require the Company and its guarantors to repay outstanding debt and/or to provide a cash deposit as additional security for outstanding
letters of credit. In addition, the Agent, on behalf of the Lenders, may pursue remedies under the Guaranty and Security Agreement, including, without limitation,
transferring pledged securities of the Company’s subsidiaries in the name of the Agent and exercising all rights with respect thereto (including the right to vote
and to receive dividends), collect on pledged accounts, instruments and other receivables (including the AP-AMH Loan), and all other rights provided by law or
under the loan documents and the AP-AMH Loan.

In  the  ordinary  course  of  business,  certain  of  the  Lenders  under  the  Credit  Agreement  and  their  affiliates  have  provided  to  the  Company  and  its
subsidiaries  and  the  associated  practices,  and  may  in  the  future  provide,  (i)  investment  banking,  commercial  banking  (including  pursuant  to  certain  existing
business  loan  and  credit  agreements  being  terminated  in  connection  with  entering  into  the  Credit  Agreement),  cash  management,  foreign  exchange  or  other
financial  services,  and  (ii)  services  as  a  bond  trustee  and  other  trust  and  fiduciary  services,  for  which  they  have  received  compensation  and  may  receive
compensation in the future.

Deferred Financing Costs

The  Company  recorded  deferred  financing  costs  of $6.4  million  related  to  the  issuance  of  the  Credit  Facility.  This  amount  was  recorded  as  a  direct
reduction of the carrying amount of the related debt liability. The deferred financing costs related to the term loan will be amortized over the life of the Credit
Facility using the effective interest rate method. The deferred financing costs related to the revolver will be amortized using the straight line method over the term
of the revolver. During the year ended

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December 31, 2019, $0.5 million of amortization relating to deferred financing costs is included under "Depreciation and Amortization" of the cash flow statement.

Effective Interest Rate

The Company’s average effective interest rate on its total debt during the years ended  December 31, 2019, 2018 and 2017 was 3.39%, 4.72% and

2.27%, respectively.

Bank Loans

In December 2010, ICC obtained a loan of  $4.6 million from a financial institution. The loan bears interest based on the Wall Street Journal “prime rate”
or 5.50% per annum, as of December 31, 2018. The loan is collateralized by the medical equipment ICC owns and guaranteed by one of ICC’s shareholders.
The loan matured on December 31, 2018 and final payment was made in January 2019.

Lines of Credit – Related Party

NMM Business Loan

On June 14, 2018, NMM amended its promissory note agreement with Preferred Bank, which is affiliated with one of the Company’s board members,
(“NMM Business Loan Agreement”), which provides for loan availability of up to $20.0 million with a maturity date of  June 22, 2020. One of the Company’s board
members is the chairman and CEO of Preferred Bank. The NMM Business Loan Agreement was amended on September 1, 2018  to  temporarily  increase  the
loan  availability  from $20.0 million  to $27.0 million  for  the  period  from  September 1, 2018 through January 31, 2019 ,  further  extended  to October  31,  2019  to
facilitate  the  issuance  of  an  additional  standby  letter  of  credit  for  the  benefit  of  CMS.  The  interest  rate  is  based  on  the  Wall  Street  Journal  “prime  rate”  plus
0.125%, or 5.625%, as of  December 31, 2018. The loan was guaranteed by Apollo Medical Holdings, Inc. and is collateralized by substantially all of the assets
of NMM. The amounts outstanding as of June 30, 2019 of $5.0 million was fully repaid on September 11, 2019.

On September 5, 2018, NMM entered into a non-revolving line of credit agreement with Preferred Bank, which is affiliated with one of the Company’s
board members, (“NMM Line of Credit Agreement”) which provides for loan availability of up to $20.0 million  with  a  maturity  date  of  September  5,  2019.  This
credit facility was subsequently amended on April 17, 2019  and July 29, 2019 to reduce the loan availability from  $20.0 million  to $16.0 million  and  from  $16.0
million to $2.2 million, respectively. The interest rate is based on the Wall Street Journal “prime rate” plus  0.125%, or 4.875%, as of  December 31, 2019. The line
of  credit  is  guaranteed  by  Apollo  Medical  Holdings,  Inc.  and  is  collateralized  by  substantially  all  assets  of  NMM.  NMM  obtained  this  line  of  credit  to  finance
potential acquisitions. Each drawdown from the line of credit is converted into a five-year  term  loan  with  monthly  principal  payments  plus  interest  based  on  a
five-year amortization schedule.

On September 11, 2019, the NMM Business Loan Agreement, dated as of  June 14, 2018, between NMM and Preferred Bank, as amended, and the Line
of  Credit  Agreement,  dated  as  of September  5,  2018,  between  NMM  and  Preferred  Bank,  as  amended,  was  terminated  in  connection  with  the  closing  of  the
Credit Facility. Certain letters of credit issued by Preferred Bank under the Line of Credit Agreement were terminated and reissued under the Credit Agreement.
These  outstanding  letters  of  credit  totaled $14.8  million  as  of December  31,  2019  and  the  Company  has  $10.2  million  available  under  the  letter  of  credit
subfacility.

APC Business Loan

On June 14, 2018,  APC  amended  its  promissory  note  agreement  with  Preferred  Bank,  which  is  affiliated  with  one  of  the  Company’s  board  members,
(“APC  Business  Loan  Agreement”)  which  provides  for  loan  availability  of  up  to $10.0  million  with  a  maturity  date  of  June  22,  2020.  This  credit  facility  was
subsequently  amended  on April 17, 2019  and June 11, 2019  to  increase  the  loan  availability  from  $10.0  million  to $40.0  million  and  extend  the  maturity  date
through December 31, 2020. On August 1, 2019 and September 10, 2019, this credit facility was further amended to increase loan availability from  $40.0 million
t o $43.8  million,  and  decrease  loan  availability  from  $43.8  million  to $4.1  million,  respectively.  This  decrease  further  limited  the  purpose  of  the  indebtedness
under APC Business Loan Agreement to the issuance of standby letters of credit, and added as a permitted lien the security interest in all of its assets granted
by  APC  in  favor  of  NMM  under  a  Security  Agreement  dated  on  or  about  September  11,  2019  securing  APC’s  obligations  to  NMM  under,  and  as  required
pursuant to, that certain Management Services Agreement dated as of July 1, 1999, as amended. The interest rate is based on the Wall Street Journal “prime
rate”  plus 0.125%,  or 4.875%  and 5.625%,  as  of  December  31,  2019  and December  31,  2018,  respectively.  As  of  December  31,  2019  there  is  no  additional
availability under this line of credit.

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Standby Letters of Credit

On March 3, 2017, APAACO established an irrevocable standby letter of credit with Preferred Bank, which is affiliated with one of the Company’s board
members,  (through  the  NMM  Business  Loan  Agreement)  for $6.7  million  for  the  benefit  of  CMS.  The  letter  of  credit  expired  on  December  31,  2018  and  was
automatically extended without amendment for additional one - year periods from the present or any future expiration date, unless notified by the institution to
terminate prior to 90 days from any expiration date. APAACO may continue to draw from the letter of credit for one year following the bank’s notification of non-
renewal. As of December 31, 2019, CMS has released the Company from this obligation.

O n October  2,  2018,  APAACO  established  a  second  irrevocable  standby  letter  of  credit  with  Preferred  Bank,  which  is  affiliated  with  one  of  the
Company’s board members, (through the NMM Business Loan Agreement) for $6.6 million for the benefit of CMS. The letter of credit expires on December 31,
2019 and is automatically extended without amendment for additional one - year periods from the present or any future expiration date, unless notified by the
institution  to  terminate  prior  to  90  days  from  any  expiration  date.  APAACO  may  continue  to  draw  from  the  letter  of  credit  for  one  year  following  the  bank’s
notification  of  non-renewal.  This  standby  letter  of  credit  was  subsequently  amended  on August  14,  2019  to  increase  the  amount  from  $6.6  million  to $14.8
million and extended the expiration date to  December 31, 2020 while all other terms and conditions remained unchanged. In connection with the closing of the
Credit Facility, this letter of credit was terminated and reissued under the Credit Agreement.

APC  established  irrevocable  standby  letters  of  credit  with  a  financial  institution  for  a  total  of  $0.3  million  for  the  benefit  of  certain  health  plans.  The
standby  letters  of  credit  are  automatically  extended  without  amendment  for  additional  one-year  periods  from  the  present  or  any  future  expiration  date,  unless
notified by the institution in advance of the expiration date that the letter will be terminated.

Alpha Care established irrevocable standby letters of credit with Preferred Bank, which is affiliated with one of the Company’s board members, under the
APC Business Loan Agreement for a total of $3.8 million for the benefit of certain health plans. The standby letters of credit are automatically extended without
amendment for additional one-year periods from the present or any future expiration date, unless notified by the institution in advance of the expiration date that
the letter will be terminated.

Intercompany Loans

Each  of  AMH,  MMG,  BAHA,  ACC,  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  the  shareholder  of  record  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. All the intercompany loans have been eliminated in consolidation.

Entity

Facility

Year Ended December 31, 2019

Interest rate
per
Annum

Maximum
Balance
During
Period

Ending
Balance

Principal
Paid
During
Period

Interest Paid
During Period

AMH

ACC
MMG
AKM

SCHC
BAHA

  $

10,000,000  

10%   $

5,798,674   $

5,798,674   $

770,000   $

1,000,000  
3,000,000  
5,000,000  

5,000,000  
250,000  

10%  
10%  
10%  

10%  
10%  

1,288,643  
3,395,588  
—  

4,710,385  
4,065,992  

1,283,078  
3,395,588  
—  

4,710,385  
4,065,992  

5,565  
—  
—  

—  
—  

  $

24,250,000    

  $

19,259,282   $

19,253,717   $

775,565   $

—

—
—
—

—
—

—

Contractual Obligations

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The following summarizes our contractual obligations as of December 31, 2019:

Operating leases
Finance leases

Debt
Interest on debt

Total contractual obligations

Critical Accounting Policies and Estimates

Total

$

$

Less than One
Year

One to Three
Years

Three to Five
Years

More than Five
Years

17,570,789   $
554,935  

3,781,174   $
118,920  

5,087,961   $
237,840  

3,918,273   $
198,175  

4,783,381
—

247,625,000  
60,000,000  

9,500,000  
12,000,000  

24,937,500  
24,000,000  

213,187,500  
24,000,000  

—
—

325,750,724   $

25,400,094   $

54,263,301   $

241,303,948   $

4,783,381

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S.  GAAP”),  which  require  management  to  make  a  number  of  estimates  and  assumptions  relating  to  the  reported  amount  of  assets  and  liabilities  and  the
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and to the reported amounts of revenues and expenses during
the period. The Company bases its estimates on historical experience and on various other assumptions that the Company believes are reasonable under the
circumstances.  Changes  in  estimates  are  recorded  if  and  when  better  information  becomes  available.  Actual  results  could  significantly  differ  from  those
estimates under different assumptions and conditions. The Company believes that the accounting policies discussed below are those that are most important to
the presentation of its financial condition and results of operations and that require its management’s most difficult, subjective and complex judgments.

Principles of Consolidation

The consolidated balance sheets as of December 31, 2019 and 2018 and consolidated statements of income for the years ended  December 31, 2019, 2018 and
2017 include the accounts of ApolloMed, its consolidated subsidiaries NMM, AMM, APAACO and Apollo Care Connect, including ApolloMed's consolidated VIE,
AP-AMH, NMM’s subsidiaries, APCN-ACO and AP-ACO, NMM’s consolidated VIE, APC, APC’s subsidiary, UCAP, and APC’s consolidated VIEs, CDSC, APC-
LSMA and ICC, and APC-LSMA's consolidated subsidiaries Alpha Care and Accountable Health Care.

Use of Estimates

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

Receivables and Receivables – Related Parties

The  Company’s  receivables  are  comprised  of  accounts  receivable,  capitation  and  claims  receivable,  risk  pool  settlements  and  incentive  receivables,

management fee income and other receivables. Accounts receivable are recorded and stated at the amount expected to be collected.

The  Company’s  receivables  –  related  parties  are  comprised  of  risk  pool  settlements  and  incentive  receivables,  management  fee  income  and  other

receivables. Receivables – related parties are recorded and stated at the amount expected to be collected.

Capitation and claims receivable relate to each health plan’s capitation, which is received by the Company in the month following the month of service.

Risk pool settlements and incentive receivables mainly consist of the Company’s full risk pool

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receivable that is recorded quarterly based on reports received from our hospital partners and management’s estimate of the Company’s portion of the estimated
risk pool surplus for open performance years. Settlement of risk pool surplus or deficits occurs approximately 18 months after the risk pool performance year is
completed.  Other  receivables  include  fee-for-services  (“FFS”)  reimbursement  for  patient  care,  certain  expense  reimbursements,  and  stop  loss  insurance
premium reimbursements from IPAs.

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  analyzes  the  ultimate  collectability  of  accounts  receivable  after  certain  stages  of  the
collection  cycle  using  a  look-back  analysis  to  determine  the  amount  of  receivables  subsequently  collected  and  adjustments  are  recorded  when  necessary.
Reserves are recorded primarily on a specific identification basis.

Amounts are recorded as a receivable when the Company is able to determine amounts receivable under applicable contracts and/or agreements based
on information provided and collection is reasonably likely to occur. The Company continuously monitors its collections of receivables and its policy is to write off
receivables  when  they  are  determined  to  be  uncollectible.  As  of December  31,  2019  and 2018,  the  Company's  allowance  for  doubtful  accounts  were
approximately $2.9 million and approximately $4.3 million, respectively.

Fair Value Measurements

The  Company’s  financial  instruments  consist  of  cash  and  cash  equivalents,  restricted  cash,  investment  in  marketable  securities,  receivables,  loans
receivable – related parties, accounts payable, certain accrued expenses, capital lease obligations, bank loan, line of credit – related party, and long-term debt.
The carrying values of the financial instruments classified as current in the accompanying consolidated balance sheets are considered to be at their fair values,
due  to  the  short  maturity  of  these  instruments.  The  carrying  amount  of  the  loan  receivables  –  related  parties,  net  of  current  portion,  bank  loan,  capital  lease
obligations line of credit - related party, and long-term debt approximate fair value as they bear interest at rates that approximate current market rates for debt
with similar maturities and credit quality. The FASB ASC 820, Fair Value Measurement (“ASC 820”), applies to all financial assets and financial liabilities that are
measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair
value measurements. ASC 820 establishes a fair value hierarchy for disclosures of the inputs to valuations used to measure fair value.

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

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

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

Level 3—Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be

based on the best information available, including the Company’s own data.

Business Combinations

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

Investments in Other Entities

Variable interest model

We  perform  a  primary  beneficiary  analysis  on  all  our  identified  variable  interest  entities,  which  comprises  a  qualitative  analysis  based  on  power  and
economics. We consolidate a VIE if both power and benefits belong to us – that is, we (i) have the power to direct the activities of a VIE that most significantly
influence  the  VIE’s  economic  performance  (power),  and  (ii)  have  the  obligation  to  absorb  losses  of,  or  the  right  to  receive  benefits  from,  the  VIE  that  could
potentially be significant to the VIE (benefits). We consolidate VIEs whenever it is determined that we are the primary beneficiary.

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Equity Method

We account for certain investments using the equity method of accounting when it is determined that the investment provides us the ability to exercise
significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting
stock  of  the  investee  of  between  20%  and  50%,  although  other  factors,  such  as  representation  on  the  investee’s  board  of  directors,  are  considered  in
determining  whether  the  equity  method  of  accounting  is  appropriate.  Under  the  equity  method  of  accounting,  the  investment,  originally  recorded  at  cost,  is
adjusted to recognize our share of net earnings or losses of the investee and is recognized in the consolidated statements of income under “Income from equity
method  investments”  and  also  is  adjusted  by  contributions  to  and  distributions  from  the  investee.  Equity  method  investments  are  subject  to  impairment
evaluation. During the period ended December 31, 2019, the Company recognized an impairment loss of approximately $0.3 million related to its investment in
PASC as the Company does not believe it will recover its investment balance. Such impairment loss is included in loss from equity method investment in the
accompanying consolidated statements of income. No impairment loss was recognized on equity method investments for the years ended December 31, 2018
and 2017.

Noncontrolling Interests

The  Company  consolidates  entities  in  which  the  Company  has  a  controlling  financial  interest.  The  Company  consolidates  subsidiaries  in  which  the
Company holds, directly or indirectly, more than 50% of the voting rights, and variable interest entities (VIEs) in which the Company is the primary beneficiary.
Noncontrolling  interests  represent  third-party  equity  ownership  interests  (including  certain  VIEs)  in  the  Company’s  consolidated  entities.  The  amount  of  net
income attributable to noncontrolling interests is disclosed in the consolidated statements of income.

Mezzanine Equity

Based on the shareholder agreements for APC, in the event of a disqualifying event, as defined in the agreements, APC could be required to repurchase
the shares from their respective shareholders based on certain triggers outlined in the shareholder agreements. As the redemption feature of the shares is not
solely within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as mezzanine or temporary equity. Accordingly,
the Company recognizes noncontrolling interests in APC as mezzanine equity in the consolidated financial statements. APC’s shares were not redeemable and it
was not probable that the shares would become redeemable as of December 31, 2019 and 2018.

Revenue Recognition

The  Company  adopted  Accounting  Standards  Update  (“ASU”)  2014-09,  “Revenue  from  Contracts  with  Customers  (Topic  606)”,  using  the  modified
retrospective  method  on  January  1,  2108.  Modified  retrospective  adoption  required  entities  to  apply  the  standard  retrospectively  to  the  most  current  period
presented  in  the  financial  statements,  requiring  the  cumulative  effect  of  the  retrospective  application  as  an  adjustment  to  the  opening  balance  of  retained
earnings and noncontrolling interests at the date of initial application. Revenue from substantially all of the Company’s contracts with customers continues to be
recognized  over  time  as  services  are  rendered.  The  2017  comparative  information  has  not  been  restated  and  continues  to  be  reported  under  the  accounting
standards in effect for that period (“ASC 605”) (See Note 16).

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.

On  December  22,  2017,  the  U.S.  government  enacted  comprehensive  tax  legislation  known  as  the  Tax  Cuts  and  Jobs  Act  (the  "TCJA").  The  TCJA

established new tax laws that took effect in 2018, including, but not limited to (1) reduction of the U.S.

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federal corporate tax rate from a maximum of  35%  to 21%; (2) elimination of the corporate alternative minimum tax; (3) a new limitation on deductible interest
expense; (4) the transition tax; (5) limitations on the deductibility of certain executive compensation; (6) changes to the bonus depreciation rules for fixed asset
additions; and (7) limitations on net operating losses generated after December 31, 2018, to 80% of taxable income.

ASC  Topic  740,  Income  Taxes  (“ASC  740”),  requires  the  effects  of  changes  in  tax  laws  to  be  recognized  in  the  period  in  which  the  legislation  is
enacted. However, due to the complexity and significance of the TCJA’s provisions, the SEC staff issued Staff Accounting Bulletin (“SAB 118”), which provides
guidance  on  accounting  for  the  tax  effects  of  the  TCJA.  SAB  118  provides  a  measurement  period  that  should  not  extend  beyond  one  year  from  the  TCJA
enactment date for companies to complete the accounting under ASC 740.

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.

At  least  annually,  at  the  Company’s  fiscal  year  end,  or  sooner,  if  events  or  changes  in  circumstances  indicate  that  an  impairment  has  occurred,  the
Company  performs  a  qualitative  assessment  to  determine  whether  it  is  more  likely  than  not  that  the  fair  value  of  each  reporting  unit  is  less  than  its  carrying
amount  as  a  basis  for  determining  whether  it  is  necessary  to  complete  quantitative  impairment  assessments  for  each  of  the  Company’s  three  main  reporting
units, (1) management services, (2) IPA, and (3) ACO. The Company is required to perform a quantitative goodwill impairment test only if the conclusion from
the qualitative assessment is that it is more likely than not that a reporting unit’s fair value is less than the carrying value of its assets. Should this be the case, a
quantitative  analysis  is  performed  to  identify  whether  a  potential  impairment  exists  by  comparing  the  estimated  fair  values  of  the  reporting  units  with  their
respective carrying values, including goodwill.

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

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

Effect of New Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASC 842”), which amends the existing accounting standards for leases to
increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. Most
prominent among the changes in the standard is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating
leases.  Under  the  standard,  disclosures  are  required  to  meet  the  objective  of  enabling  users  of  financial  statements  to  assess  the  amount,  timing,  and
uncertainty of cash flows arising from leases.

The Company adopted ASC 842 effective January 1, 2019 on a modified retrospective using the following practical expedients as permitted under the
transition  guidance  within  the  new  standard;  (i)  not  reassess  whether  any  expired  or  existing  contracts  are  or  contain  leases;  not  reassess  the  lease
classification for any expired or existing leases; not reassess initial direct costs for existing leases; and (ii) use hindsight in determining the lease term and in
assessing impairment of the entity’s right-of-use assets. The Company has also implemented additional internal controls to enable future preparation of financial
information in accordance with ASC 842.

The standard had a material impact on our consolidated balance sheets, but did not materially impact our consolidated results of operations and had no
impact  on  cash  flows.  The  most  significant  impact  was  the  recognition  of  right-of-use  assets  of $9.0  million  and  lease  liabilities  of  $8.9  million  for  operating
leases, while our accounting for finance leases remained substantially unchanged. The 2018 comparative information has not been restated and continues to be
reported under the accounting standards in effect for that period (ASC 840). See Note 19 for further details.

The Company elected to adopt the standard using the “package of practical expedients”, which permits it not to reassess under the new standard its
prior conclusions about lease identification, lease classification, and initial direct costs, and the use-of-hindsight in determining the lease term and in assessing
impairment of right-of-use assets. In addition, the new standard provides

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practical expedients for an entity’s ongoing accounting that the Company anticipates making, comprised of the following: (1) the election for classes of underlying
asset to not separate non-lease components from lease components, and (2) the election for short-term lease recognition exemption for all leases that qualify.

See “Recent Accounting Pronouncements” under “Note 2 — Basis of Presentation and Summary of Significant Accounting Policies.”

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in

financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Borrowings under our Credit Agreement exposed us to interest rate risk. As of December 31, 2019, we had  $247.6 million in outstanding borrowings

under our Credit Agreement. Amount borrowed under the Credit Agreement bears interest at an annual rate equal to either, at the Company's option, (a) the rate
for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on Reuters Screen LIBOR01 Page ("LIBOR"), adjusted for any reserve
requirement in effect, plus a spread of 2.00% to 3.00%, as determined on a quarterly basis based on the Company's leverage ratio, or (b) a base rate, plus a
spread of 1.00% to 2.00%, as determined on a quarterly basis based on the Company's leverage ratio. The base rate is defined in a manner such that it will not
be less than LIBOR. The Company will pay fees for standby letters of credit at an annual rate equal to 2.00% to 3.00%, as determined on a quarterly basis
based on the Company’s leverage ratio, plus facing fees and standard fees payable to the issuing bank on the respective letter of credit. A hypothetical 1%
change in our interest rates would have increased or decreased our interest expense for the years ended December 31, 2019 by $2.5 million.

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Item 8.

Financial Statements and Supplementary Data

Index to the Consolidated Financial Statements

Page

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2019 and 2018

Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Mezzanine and Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017

Notes to the Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Apollo Medical Holdings, Inc.
Alhambra, California

Opinion on the Consolidated Financial Statements

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Apollo  Medical  Holdings,  Inc.  (the  “Company”)  as  of  December  31,  2019  and  2018,  the
related consolidated statements of income, mezzanine and shareholders’ equity, and cash flows for each of the three years in the period ended December 31,
2019,  and  the  related  notes  (collectively  referred  to  as  the  “consolidated  financial  statements”).  In  our  opinion,  the  consolidated  financial  statements  present
fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal
control  over  financial  reporting  as  of  December  31,  2019,  based  on  criteria  established  in Internal  Control  -  Integrated  Framework  (2013)  issued  by  the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 16, 2020 expressed an unqualified opinion thereon.

Change in Accounting Method Related to Leases and Revenue

As discussed in Notes 2 and 19 to the consolidated financial statements, the Company changed its method for accounting for leases effective January 1, 2019
as a result of the adopting Accounting Standards Codification (“ASC”) 842 - Leases.

As  discussed  in  Notes  2  and  16  to  the  consolidated  financial  statements,  the  Company  changed  its  method  for  recognizing  revenue  from  contracts  with
customers effective January 1, 2018 as a result of adopting ASC 606 - Revenue from Contracts with Customers.

Basis for Opinion

These  consolidated  financial  statements  are  the  responsibility  of  the  Company’s  management.  Our  responsibility  is  to  express  an  opinion  on  the  Company’s
consolidated  financial  statements  based  on  our  audits.  We  are  a  public  accounting  firm  registered  with  the  PCAOB  and  are  required  to  be  independent  with
respect  to  the  Company  in  accordance  with  the  U.S.  federal  securities  laws  and  the  applicable  rules  and  regulations  of  the  Securities  and  Exchange
Commission and the PCAOB.

We  conducted  our  audits  in  accordance  with  the  standards  of  the  PCAOB.  Those  standards  require  that  we  plan  and  perform  the  audit  to  obtain  reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2014.

Los Angeles, California

March 16, 2020

68

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APOLLO MEDICAL HOLDINGS, INC.

 CONSOLIDATED BALANCE SHEETS

Assets

Current assets

Cash and cash equivalents
Restricted cash

Investment in marketable securities
Receivables, net

Receivables, net – related parties
Other receivables

Prepaid expenses and other current assets
Loans receivable
Loans receivable - related parties

Total current assets

Noncurrent assets

Land, property and equipment, net
Intangible assets, net

Goodwill
Loans receivable – related parties
Investments in other entities – equity method

Investments in privately held entities
Restricted cash

Operating lease right-of-use assets
Other assets

Total noncurrent assets

Total assets

69

December 31,

December 31,

2019

2018

  $

103,189,328   $

75,000  

116,538,673  
11,003,563  

48,136,313  
16,885,448  

10,315,093  
6,425,000  
16,500,000  

106,891,503
—

1,127,102
7,734,631

48,721,325
1,003,133

7,385,098
—
—

329,068,418  

172,862,792

12,129,901  
103,011,849  

238,505,204  
—  
28,427,455  

896,000  
746,104  

14,247,727  
1,680,689  

12,721,082
86,875,883

185,805,880
17,500,000
34,876,980

405,000
745,470

—
1,205,962

399,644,929  

340,136,257

  $

728,713,347   $

512,999,049

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APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

Liabilities, Mezzanine Equity and Shareholders’ Equity

Current liabilities

Accounts payable and accrued expenses
Fiduciary accounts payable

Medical liabilities
Income taxes payable
Bank loan

Dividend payable
Finance lease liabilities

Operating lease liabilities
Current portion of long term debt

Total current liabilities

Noncurrent liabilities

Lines of credit - related party

Deferred tax liability
Liability for unissued equity shares
Finance lease liabilities, net of current portion

Operating lease liabilities, net of current portion
Long-term debt, net of current portion and deferred financing costs

Total noncurrent liabilities

Total liabilities

Commitments and Contingencies  (Note 13)

Mezzanine equity

December 31,

December 31,

2019

2018

  $

27,279,579   $
2,027,081  

58,724,682  
4,528,867  
—  

271,279  
101,741  

2,990,686  
9,500,000  

25,075,489
1,538,598

33,641,701
11,621,861
40,257

—
101,741

—
—

105,423,915  

72,019,647

—  

18,269,448  
—  
415,519  

11,372,597  
232,172,134  

13,000,000

19,615,935
1,185,025
517,261

—
—

262,229,698  

34,318,221

367,653,613  

106,337,868

Noncontrolling interest in Allied Physicians of California, a Professional Medical Corporation ("APC")

168,724,586  

225,117,029

Shareholders’ equity

Series A Preferred stock, par value $0.001; 5,000,000 shares authorized (inclusive of Series B Preferred stock);

1,111,111 issued and zero outstanding

Series B Preferred stock, par value $0.001; 5,000,000 shares authorized (inclusive of Series A Preferred stock);

555,555 issued and zero outstanding

Common stock, par value $0.001; 100,000,000 shares authorized, 35,908,057 and 34,578,040 shares
outstanding, excluding 17,458,810 and 1,850,603 Treasury shares, at December 31, 2019 and 2018,
respectively

Additional paid-in capital

Retained earnings

Noncontrolling interest

Total shareholders’ equity

70

—  

—  

—

—

35,908  
159,608,293  

31,904,748  

34,578
162,723,051

17,788,203

191,548,949  

180,545,832

786,199  

998,320

192,335,148  

181,544,152

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Total liabilities, mezzanine equity and shareholders’ equity

  $

728,713,347   $

512,999,049

See accompanying notes to consolidated financial statements.

71

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
   
   
APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Revenue

Capitation, net

Risk pool settlements and incentives
Management fee income
Fee-for-service, net

Other income

Total revenue

Operating expenses

Cost of services

General and administrative expenses
Depreciation and amortization
Provision for doubtful accounts

Impairment of goodwill and intangible assets

Total expenses

Income from operations

Other (expense) income

Loss from equity method investments
Interest expense

Interest income
Change in fair value of derivative instrument

Gain on settlement of preexisting note receivable from ApolloMed
Gain from investments – fair value adjustments

Other income

Years ended December 31,

2019

2018

2017

  $

454,168,024   $

344,307,058   $

272,921,240

51,097,661  
34,668,358  
15,475,264  

5,208,790  

100,927,841  
49,742,755  
19,703,999  

5,226,099  

44,598,373
26,983,695
7,449,249

4,403,373

560,618,097  

519,907,752  

356,355,930

467,804,899  

361,132,111  

273,453,287

41,482,375  
18,280,198  
(1,363,363)  

1,994,000  

43,353,787  
19,303,179  
3,887,647  

3,798,866  

26,249,532
19,075,353
—

2,431,791

528,198,109  

431,475,590  

321,209,963

32,419,988  

88,432,162  

35,145,967

(6,900,859)  
(4,733,256)  

2,023,873  
—  

—  
—  

(8,125,285)  
(560,515)  

1,258,638  
—  

—  
—  

3,030,203  

1,622,131  

(1,112,541)
(79,689)

1,015,204
(44,886)

921,938
13,697,018

168,102

Total other (expense) income, net

(6,580,039)  

(5,805,031)  

14,565,146

Income before provision for income taxes

25,839,949  

82,627,131  

49,711,113

Provision for income taxes

Net income

8,166,632  

22,359,640  

3,886,785

17,673,317  

60,267,491  

45,824,328

Net income attributable to noncontrolling interests

3,556,772  

49,432,489  

20,022,486

Net income attributable to Apollo Medical Holdings, Inc.

Earnings per share – basic

Earnings per share – diluted

  $

  $

  $

14,116,545   $

10,835,002   $

25,801,842

0.41   $

0.33   $

0.39   $

0.29   $

1.01

0.90

Weighted average shares of common stock outstanding – basic

34,708,429  

32,893,940  

25,525,786

Weighted average shares of common stock outstanding – diluted

36,403,279  

37,914,886  

28,661,735

See accompanying notes to consolidated financial statements .

72

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APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF MEZZANINE AND SHAREHOLDERS’ EQUITY

Mezzanine
Equity –
Noncontrolling
Interest in APC

Common Stock Outstanding

Shares

Amount

Additional
Paid-in Capital

Retained
Earnings
(Accumulated
Deficit)

Noncontrolling
Interest

Shareholders'
Equity

Balance at December 31, 2016

$

162,855,554  

25,067,953

  $

87,954,346   $

(773,311)   $

381,617   $

87,587,720

18,472,212

—  

—  

25,801,842  

1,550,274  

(1,523,550)

(132,752)

(133)  

(1,652,153)  

Net income

Shares repurchased

Shares issued for cash and exercise of

options

Share-based compensation

Distribution of derivative assets - warrants

Noncontrolling interest capital change

Dividends

Reclassification of liability for unissued

shares to equity

Effect of share exchange in Merger

Shares issued upon conversion of Alliance

Note

266,000

809,528

—  

—  

(8,750,000)

232,254

—  
—  

—  
—  

—  
—  

—  

508,135

6,109,205

520,081

Balance at December 31, 2017

172,129,744  

32,304,876

ASC 606 Adoption

Net income

Purchase price adjustment from Merger

7,351,434

47,889,877

—  

—  

—  
—  

Repurchase of treasury shares

(1,263,554)

(168,493)

Shares issued for exercise of options and

warrants

Share-based compensation

Noncontrolling interest capital change

Dividends

Acquisition of additional shares in

consolidated entity

Release of 50% holdback shares

Balance at December 31, 2018

Net income

200,000

809,528

—  

(2,000,000)

—  

—  
225,117,029  

1,807,747

884,259

37,593  
—  

—  

—  

1,519,805

34,578,040

—  

Repurchase of treasury shares

(283,300)

(601,581)

Shares issued for exercise of options and

warrants

Share-based compensation

Stock subscription

Shares issued in connection with business

acquisition

Cost of equity issuance of preferred shares

Noncontrolling interest capital change

Dividends

—  

607,146

754,998

414,250

(878,309)

—  

(60,000,000)

Reclassification of options liability to equity

1,185,025

418,619

1,599

—  

—  
—  

—  
—  
—  

25,068   $
—  

233  

—  
—  

—  
—  

508  
6,109  

520  

32,305  
—  

—  
—  
(168)  

884  

37  
—  

—  

—  

1,520  
34,578  

—  
(601)  

418  
2  

—  

—  
—  

—  
—  
—  

2,059,300  

1,933,588  
—  

—  
—  

1,237,142  
61,273,274  

5,375,695  

158,181,192  
—  

—  
868,000  
(3,783,921)  

3,995,796  

631,524  
—  

—  

2,831,980  

(1,520)  
162,723,051  

—  
(7,285,784)  

3,232,824  
939,713  

—  

—  
—  

—  
—  
—  

(1,511)  

—  

—  

—  
(5,294,000)  

—  
(18,000,000)  

—  
—  

—  

1,734,531  
1,002,468  

10,835,002  
—  
4,216,202  

—  

—  
—  

—  

—  

—  
17,788,203  

14,116,545  
—  

—  
—  

—  

—  
—  

—  
—  
—  

—  

—  

—  

—  
—  

859,430  
(1,697,923)  

—  
3,142,000  

27,352,116

(1,652,286)

2,059,533

1,933,588

(5,294,000)

859,430

(19,697,923)

1,237,650

64,421,383

—  

5,376,215

4,235,398  
—  

1,542,612  
—  
—  

—  

—  
27,500  

164,183,426

1,002,468

12,377,614

868,000

432,113

3,996,680

631,561

27,500

(1,975,010)  

(1,975,010)

(2,832,180)  

—  
998,320  

1,749,025  
—  

—  
—  

—  

—  
—  

(200)

—

181,544,152

15,865,570

(7,286,385)

3,233,242

939,715

—

—

—

27,500  
(1,988,646)  
—  

—  

27,500

(1,988,646)

—

—

159,608,293   $

31,904,748   $

786,199   $

192,335,148

Issuance of 50% holdback shares

Balance at December 31, 2019

$

—  
168,724,586  

1,511,380

35,908,057

  $

1,511  
35,908   $

73

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APOLLO MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
Loss on disposal of property and equipment

Impairment of goodwill and intangible assets
Provision for doubtful accounts

Share-based compensation
Gain on loan assumption

Unrealized (gain) loss from investment in equity securities
Gain on settlement of preexisting note receivable from ApolloMed
Gain from investments – fair value adjustments

Change in fair value of derivative instrument
Loss from equity method investments

Deferred tax
Changes in operating assets and liabilities, net of acquisition amounts:

Receivable, net
Receivable, net – related parties
Other receivable

Prepaid expenses and other current assets
Right-of-use assets

Other assets
Accounts payable and accrued expenses
Fiduciary accounts payable

Capitation incentives payable
Medical liabilities

Income taxes payable
Operating lease liabilities

Years ended December 31,

2019

2018

2017

  $

17,673,317   $

60,267,491   $

45,824,328

18,753,270  
—  

1,994,000  
(1,363,363)  

1,546,861  
(2,250,000)  

(9,119)  
—  
—  

—  
6,900,859  

(6,800,919)  

10,713,803  
(1,435,306)  
(15,079,346)  

(2,755,599)  
2,479,862  

(572,213)  
(4,883,243)  
488,483  

—  
(2,391,459)  

(7,092,994)  
(2,243,511)  

19,303,179  
41,784  

3,798,866  
3,887,647  

1,441,089  
—  

25,005  
—  
—  

—  
8,125,285  

19,075,353
—

2,431,791
—

2,743,116
—

(86,005)
(921,938)
(13,697,018)

44,886
1,112,541

(8,345,235)  

(20,675,807)

(263,191)  
(28,363,108)  
—  

(2,813,564)  
—  

2,446  
(22,669,230)  
—  

(21,500,000)  
4,134,209  

8,423,366  
—  

4,108,970
6,593,783
—

1,260,064
—

(220,925)
(3,687,022)
—

1,878,355
5,661,313

388,138
—

Net cash provided by operating activities

13,673,383  

25,496,039  

51,833,923

Cash flows from investing activities

Cash acquired from Merger

Cash received from consolidation of VIE
Purchases of marketable securities
Proceeds from loan receivable

Advances on loans receivable
Dividends received from equity method investments

Proceeds on sale of investments in a privately held entity
Payments for business acquisitions, net of cash acquired

Purchases of investments in privately held entities
Purchases of investments – equity method

—  

—  
(115,402,452)  
—  

(11,425,000)  
240,000  

—  
(49,402,514)  

(491,000)  
(3,108,000)  

—  

—  
(9,013)  
—  

(7,500,000)  
607,411  

—  
—  

(405,000)  
(16,706,152)  

37,112,775

228,287
(5,283)
200,000

(10,000,000)
1,240,000

25,000
—

—
—

74

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Purchases of property and equipment

Net cash (used in) provided by investing activities

(1,041,670)  

(1,170,064)  

(180,630,636)  

(25,182,818)  

(2,084,770)

26,716,009

Cash flows from financing activities

Dividends paid

Change in noncontrolling interest capital
Borrowings on long-term debt
Borrowings on line of credit

Advances by NMM to ApolloMed prior to the Merger
Repayments on long-term debt

Repayments on bank loan, and lines of credit
Payment of capital lease obligations

Proceeds from exercise of stock options included in liabilities
Proceeds from exercise of stock options and warrants
Proceeds from common stock offering

Repurchase of common shares
Cost of debt and equity issuances

(61,717,367)  

27,500  
250,000,000  
39,600,000  

—  
(2,375,000)  

(52,640,258)  
(101,741)  

—  
3,123,709  
754,998  

(7,569,685)  
(5,771,444)  

(17,758,808)  

(10,447,923)

27,300  
8,000,000  
—  

—  
—  

(495,134)  
(98,735)  

—  
3,996,677  
200,000  

(5,047,643)  
—  

—
5,000,000
—

(9,000,000)
—

—
(102,348)

425,025
164,797
2,160,736

(3,175,836)
—

Net cash provided by (used in) financing activities

163,330,712  

(11,176,343)  

(14,975,549)

Net (decrease) increase in cash, cash equivalents and restricted cash

(3,626,541)  

(10,863,122)  

63,574,383

Cash, cash equivalents and restricted cash, beginning of year

107,636,973  

118,500,095  

54,925,712

Cash, cash equivalents and restricted cash, end of year

  $

104,010,432   $

107,636,973   $

118,500,095

Supplemental disclosures of cash flow information

Cash paid for income taxes

Cash paid for interest

  $

20,200,000   $
4,257,536  

23,642,662   $
462,336  

24,362,223
51,043

Supplemental disclosures of non-cash investing and financing activities

Cashless exercise of stock options
Dividend declared included in dividend payable

APC stock issued in exchange for AMG
Deferred tax liability adjusted to goodwill

Reclassification of liability for equity shares
Purchase price adjustment for acceleration of vested stock options

Conversion of loan receivable to investment in Accountable Health Care, IPA
Reclassification of dividends related to share repurchase
Reclassification of APS noncontrolling interest to equity related to purchase of additional
shares
Distribution of warrants to former NMM shareholders
Issuance of common stock upon conversion of debt and accrued interest

Reclassification of liability for unissued common shares payable to equity
Non-cash purchase consideration for acquisition – fair value of equity consideration to
pre-Merger ApolloMed shareholders

75

  $

—   $

271,279  

414,250  
6,334,368  

1,185,025  
—  

—  
—  

—  
—  
—  

—  

—  

109   $
—  

—  
1,110,456  

—  
868,000  

5,000,000  
4,216,202  

2,832,180  
—  
—  

—  

—  

—
—

—
—

—
—

—
—

—
5,294,000
5,376,215

1,237,650

61,092,050

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Non-cash purchase consideration for acquisition – fair value of preferred stock held by
former NMM shareholders
Non-cash purchase consideration for acquisition – fair value of NMM’s 50% share of
APAACO

Non-cash purchase consideration for acquisition – acceleration of unvested stock
compensation

—  

—  

—  

—  

—  

—  

19,118,000

5,129,000

187,333

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the
total amounts of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows.

Cash and cash equivalents
Restricted cash – long-term - letters of credit
Restricted cash – short-term

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

Years Ended December 31,

2019

2018

103,189,328   $
746,104  
75,000  

106,891,503   $
745,470  
—  

2017

99,749,199
745,235
18,005,661

104,010,432   $

107,636,973   $

118,500,095

$

$

See accompanying notes to consolidated financial statements.

76

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

1.

Description of Business

Apollo Medical Holdings, Inc. (“ApolloMed”) entered into an Agreement and Plan of Merger dated as of December 21, 2016 (as amended on March 30, 2017 and
October  17,  2017)  (the  “Merger  Agreement”)  with  Apollo  Acquisition  Corp.,  a  California  corporation  and  wholly-owned  subsidiary  of  ApolloMed,  (“Merger
Subsidiary”), Network Medical Management, Inc. (“NMM”), and Kenneth Sim, M.D., in his capacity as the representative of the shareholders of NMM, pursuant to
which  Merger  Subsidiary  merged  with  and  into  NMM,  with  NMM  as  the  surviving  corporation  (the  “Merger”).  The  Merger  closed  and  became  effective  on
December  8,  2017  (the  “Closing”)  (see  Note  3).  As  a  result  of  the  Merger,  NMM  is  now  a  wholly-owned  subsidiary  of  ApolloMed  and  the  former  NMM
shareholders own a majority of the issued and outstanding common stock of ApolloMed and control of the board of directors of ApolloMed. Effective as of the
Closing, ApolloMed’s board of directors approved a change in ApolloMed’s fiscal year end from March 31 to December 31 to correspond with NMM’s fiscal year
end prior to the Merger.

The combined company, following the Merger, together with its affiliated physician groups and consolidated entities (collectively, the “Company”) is a physician-
centric  integrated  population  health  management  company  working  to  provide  coordinated,  outcomes-based  medical  care  in  a  cost-effective  manner  and  to
patients in California, the majority of whom are covered by private or public insurance such as Medicare, Medicaid and health maintenance organization (“HMO”)
plans, with a portion of the Company’s revenue coming from non-insured patients. The Company provides care coordination services to each major constituent
of  the  healthcare  delivery  system,  including  patients,  families,  primary  care  physicians,  specialists,  acute  care  hospitals,  alternative  sites  of  inpatient  care,
physician groups and health plans. The Company’s physician network consists of primary care physicians, specialist physicians and hospitalists. The Company
operates primarily through the following subsidiaries of ApolloMed: NMM, Apollo Medical Management, Inc. (“AMM”), APA ACO, Inc. (“APAACO”) and Apollo
Care Connect, Inc. (“Apollo Care Connect”), and their consolidated entities.

NMM  was  formed  in  1994  as  a  management  service  organization  (“MSO”)  for  the  purposes  of  providing  management  services  to  medical  companies  and
independent  practice  associations  (“IPAs”).  The  management  services  cover  primarily  billing,  collection,  accounting,  administrative,  quality  assurance,
marketing, compliance and education.

Allied Physicians of California IPA, a Professional Medical Corporation d.b.a. Allied Pacific of California (“APC”) was incorporated on August 17, 1992 for the
purpose of arranging health care services as an IPA. APC has contracts with various HMOs or licensed health care service plans as defined in the California
Knox-Keene Health Care Service Plan Act of 1975. Each HMO negotiates a fixed amount per member per month (“PMPM”) that is to be paid to APC. In return,
APC  arranges  for  the  delivery  of  health  care  services  by  contracting  with  physicians  or  professional  medical  corporations  for  primary  care  and  specialty  care
services. APC assumes the financial risk of the cost of delivering health care services in excess of the fixed amounts received. Some of the risk is transferred to
the contracted physicians or professional corporations. The risk is also minimized by stop-loss provisions in contracts with HMOs.

On  July  1,  1999,  APC  entered  into  an  amended  and  restated  management  and  administrative  services  agreement  with  NMM  (initial  management  services
agreement was entered into in 1997) for an initial fixed term of 30 years. In accordance with relevant accounting guidance, APC is determined to be a VIE as
NMM  is  the  primary  beneficiary  with  the  ability  to  direct  the  activities  that  most  significantly  affect  APC’s  economic  performance  through  its  majority
representation of the APC Joint Planning Board. Accordingly, APC is consolidated by NMM.

AP-AMH Medical Corporation (“AP-AMH”) was formed on May 7, 2019 as a designated shareholder professional corporation. Dr. Thomas Lam, a shareholder,
and the Chief Executive Officer and Chief Financial Officer of APC and Co-Chief Executive Officer of ApolloMed, is the sole shareholder of AP-AMH. ApolloMed
makes all the decisions on behalf of AP-AMH and funds and receives all the distributions from its operations. ApolloMed has the right to receive benefits from the
operations  of  AP-AMH  and  has  the  option,  but  not  the  obligation,  to  cover  its  losses.  AP-AMH's  sole  function  and  only  activity  is  to  act  as  the  nominee
shareholder  for  ApolloMed's  investments  in  APC.  Therefore,  AP-AMH  is  controlled  and  consolidated  by  ApolloMed  as  the  primary  beneficiary  of  this  variable
interest entity (“VIE”).

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

On September 11, 2019, ApolloMed completed the following series of transactions with its affiliates, AP-AMH and APC:

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

2. AP-AMH purchased  1,000,000 shares of APC Series A Preferred Stock for aggregate consideration of  $545.0 million in a private placement. Under the
terms  of  the  APC  Certificate  of  Determination  of  Preferences  of  Series  A  Preferred  Stock  (the  "Certificate  of  Determination"),  AP-AMH  is  entitled  to
receive preferential, cumulative dividends that accrue on a daily basis and that are equal to the sum of (i) APC's net income from Healthcare Services (as
defined  in  the  Certificate  of  Determination),  plus  (ii)  any  dividends  received  by  APC  from  certain  of  APC's  affiliated  entities,  less  (iii)  any  Retained
Amounts  (as  defined  in  the  Certificate  of  Determination).  During  the  year  ended  December  31,  2019,  APC  distributed $8.9  million  to  ApolloMed  as
preferred returns.

3. APC  purchased  15,015,015  shares  of  the  Company's  common  stock  for  total  consideration  of  $300.0  million  in  private  placement.  In  connection
therewith, the Company granted APC certain registration rights with respect to the Company's common stock that APC purchased, and APC agreed that
APC votes in excess of 9.99% of the Company's then outstanding shares will be voted by proxy given to the Company's management, and that those
proxy  holders  will  cast  the  excess  votes  in  the  same  proportion  as  all  other  votes  cast  on  any  specific  proposal  coming  before  the  Company's
stockholders.

4. The Company licensed to AP-AMH the right to use certain tradenames for certain specified purposes for a fee equal to a percentage of the aggregate

gross revenues of AP-AMH. The license fee is payable out of any Series A Preferred Stock dividends received by AP-AMH from APC.

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

As of a result of the transaction, APC's ownership in ApolloMed increased to  32.50% at December 31, 2019 from 4.82% at December 31, 2018.

Concourse Diagnostic Surgery Center, LLC (“CDSC”) was formed on March 25, 2010 in the state of California. CDSC is an ambulatory surgery center in City of
Industry, California, is organized by a group of highly qualified physicians, and the surgical center utilizes some of the most advanced equipment in Eastern Los
Angeles County and San Gabriel Valley. The facility is Medicare Certified and accredited by the Accreditation Association for Ambulatory Healthcare, Inc. As of
December 31, 2019 APC's ownership percentage in CDSC’s capital stock was 45.01%. CDSC is consolidated as a VIE by APC as it was determined that APC
has a controlling financial interest in CDSC and is the primary beneficiary of CDSC.

APC-LSMA Designated Shareholder Medical Corporation ("APC-LSMA") was formed on October 15, 2012 as a designated shareholder professional corporation.
Dr. Thomas Lam, a shareholder and the Chief Executive Officer and Chief Financial Officer of APC and Co-Chief Executive Officer of ApolloMed, is a nominee
shareholder of APC-LSMA. APC makes all investment decisions on behalf of APC-LSMA, funds all investments and receives all distributions from the
investments. APC has the obligation to absorb losses and right to receive benefits from all investments made by APC-LSMA. APC-LSMA’s sole function is to act
as the nominee shareholder for APC in other California medical professional corporations. Therefore, APC-LSMA is controlled and consolidated by APC as the
primary beneficiary of this VIE. The only activity of APC-LSMA is to hold the investments in medical corporations, including the IPA lines of business of LaSalle
Medical Associates (“LMA”), Pacific Medical Imaging and Oncology Center, Inc. (“PMIOC”), Diagnostic Medical Group (“DMG”) and AHMC International Cancer
Center, a Medical Corporation (“ICC”). APC-LSMA also holds a 100% ownership interest in Maverick Medical Group, Inc. (“MMG”), Alpha Care Medical Group,
Inc. (“Alpha Care”), Accountable Health Care IPA, a Professional Medical Corporation ("Accountable Health Care"), and AMG, a Professional Medical
Corporation ("AMG").

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Alpha  Care,  an  IPA,  was  acquired  100%  by  APC-LSMA  on  May  31,  2019  for  an  aggregate  purchase  price  of  $45.1  million  in  cash,  has  been  operating  in
California since 1993 and is a risk bearing organization engaged in providing professional services under capitation arrangements with its contracted health plans
through a provider network consisting of primary care and specialty care physicians. Alpha Care specializes in delivering high-quality healthcare to over 174,000
enrollees, as of December 31, 2019, and focuses on Medi-Cal/Medicaid, Commercial, Medicare and Dual Eligible members in the Riverside and San Bernardino
counties of Southern California (see Note 3).

Accountable Health Care is a California based IPA that has served the local community in the greater Los Angeles County area through a network of physicians
and health care providers for more than 20 years. Accountable Health Care currently has a network of over 400 primary care physicians and  700 specialty care
physicians, and five community and regional hospital medical centers that provide quality health care services to more than  84,000 members of three  federally
qualified health plans and multiple product lines, including Medi-Cal, Commercial, Medicare and the California Healthy Families program. On August 30, 2019,
APC and APC-LSMA acquired the remaining outstanding shares of capital stock they did not already own (comprising 75%) for $7.3 million in cash (see Note 3
and Note 6).

AMG is a network of family practice clinics operating in  three main locations in Southern California. AMG provides professional and post-acute care services to
Medicare, Medi-Cal/Medicaid, and Commercial patients through its networks of doctors and nurse practitioners. On September 10, 2019, APC-LSMA acquired
100% of the aggregate issued and outstanding shares of capital stock of AMG for  $1.2 million in cash and  $0.4 million of APC common stock (see Note 3).

Universal Care Acquisition Partners, LLC (“UCAP”), a  100% owned subsidiary of APC, was formed on June 4, 2014, for the purpose of holding the investment in
Universal Care, Inc. (“UCI”).

APAACO, a wholly-owned subsidiary of ApolloMed, has participated in the next generation accountable care organization (“NGACO") model of the Centers for
Medicare & Medicaid Services (“CMS”) since January 2017. The NGACO Model is a new CMS program that allows provider groups to assume higher levels of
financial risk and potentially achieve a higher reward from participating in this new attribution-based risk sharing model. In addition to APAACO, NMM and AMM
previously operated three accountable care organizations (“ACOs”) that participated in the Medicare Shared Savings Program (“MSSP”), the goal of which was
to improve the quality of patient care and outcomes through more efficient and coordinated approach among providers. MSSP revenues are uncertain, and, if
such  amounts  are  payable  by  CMS,  they  will  be  paid  on  an  annual  basis  significantly  after  the  time  earned,  and  are  contingent  on  various  factors,  including
achievement of the minimum savings rate for the relevant period. Such payments are earned and made on an “all or nothing” basis.

AMM,  a  wholly-owned  subsidiary  of  ApolloMed,  manages  affiliated  medical  groups,  consisting  of  ApolloMed  Hospitalists  (“AMH”),  a  hospitalist  company  and
Southern  California  Heart  Centers  (“SCHC”).  AMH  provides  hospitalist,  intensivist  and  physician  advisor  services.  SCHC  is  a  specialty  clinic  that  focuses  on
cardiac care and diagnostic testing.

Apollo Care Connect, a wholly-owned subsidiary of ApolloMed, provides a cloud and mobile-based population health management platform that includes digital
care plans, a case management module, connectivity with multiple healthcare tracking devices and the ability to integrate with multiple electronic health records
to capture clinical data.

2.

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).

Principles of Consolidation

The consolidated balance sheets as of December 31, 2019 and 2018 and consolidated statements of income for the years ended  December 31, 2019, 2018 and
2017 include the accounts of ApolloMed, its consolidated subsidiaries NMM, AMM, APAACO, and Apollo Care Connect, including ApolloMed's consolidated VIE,
AP-AMH, NMM’s subsidiaries, APCN-ACO and AP-ACO, NMM’s consolidated VIE, APC, APC’s subsidiary, UCAP, and APC’s consolidated VIEs, CDSC, APC-
LSMA, ICC, and APC-LSMA's consolidated subsidiaries Alpha Care and Accountable Health Care.

All material intercompany balances and transactions have been eliminated in consolidation.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Use of Estimates

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

Variable Interest Entities

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

•

•

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

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

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

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

•

•

•

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

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

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

•

•

•

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

•

•

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

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

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

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

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

Variable interest model

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative
analysis based on power and economics. The Company consolidates a VIE if both power and benefits belongs to the Company – that is, the Company (i) has
the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of,
or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined
that the Company is the primary beneficiary. Refer Note 18 – “Variable Interest Entities (VIEs)” to the consolidated financial statements for information on the
Company’s  consolidated  VIE.  If  there  are  variable  interests  in  a  VIE  but  the  Company  is  not  the  primary  beneficiary,  the  Company  may  account  for  the
investment using the equity method of accounting, refer to Note 6 – “Investments in Other Entities” for entities that qualify as VIEs but the Company is not the
primary beneficiary.

Business Combinations

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

Reportable Segments

The Company operates under  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.

Reclassifications

Certain amounts disclosed in prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had
no material effect on net income, cash flows or total assets.

Cash and Cash Equivalents

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

The Company maintains its cash in deposit accounts with several banks, which at times may exceed Federal Deposit Insurance Corporation (“FDIC”) insured
limits.  The  Company  believes  it  is  not  exposed  to  any  significant  credit  risk  on  its  cash  and  cash  equivalents.  As  of December  31,  2019  and 2018,  the
Company’s  deposit  accounts  with  banks  exceeded  the  FDIC’s  insured  limit  by  approximately $226.5  million,  which  included  approximately  $116.5  million  in
certificates  of  deposit  that  was  treated  as  marketable  securities  (see  section  below)  and $118.6  million,  respectively.  The  Company  has  not  experienced  any
losses to date and performs ongoing evaluations of these financial institutions to limit the Company’s concentration of risk exposure.

Restricted Cash

Restricted  cash  consists  of  cash  held  as  collateral  to  secure  standby  letters  of  credits  as  required  by  certain  contracts.  As  of  December  31,  2019  and
December 31, 2018, there was  $0.1 million and $0, respectively, included in restricted cash short-term in the accompanying consolidated balance sheets.

Investments in Marketable Securities

The  appropriate  classification  of  investments  is  determined  at  the  time  of  purchase  and  such  designation  is  reevaluated  at  each  balance  sheet  date.  As  of
December 31, 2019 and 2018, marketable securities in the amount of approximately  $116.5 million and $1.1 million, consist of certificates of deposit with various
financial  institutions  with  maturity  dates  from  four  months  to  twenty-four  months  (see  fair  value  measurements  of  financial  instruments  below).  Investments  in
certificates of deposits are classified as Level 1 investments in the fair value hierarchy.

Receivables and Receivables – Related Parties

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

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

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

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

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

Amounts  are  recorded  as  a  receivable  when  the  Company  is  able  to  determine  amounts  receivable  under  these  contracts  and/or  agreements  based  on
information provided and collection is reasonably likely to occur. The Company continuously monitors its collections of receivables and its policy is to write off
receivables  when  they  are  determined  to  be  uncollectible.  As  of December  31,  2019  and 2018,  the  Company's  allowance  for  doubtful  accounts  were
approximately $2.9 million and approximately $4.3 million, respectively.

Concentrations of Risks

The  Company  disaggregates  revenue  from  contracts  by  service  type  and  payor  type.  This  level  of  detail  provides  useful  information  pertaining  to  how  the
Company  generates  revenue  by  significant  revenue  stream  and  by  type  of  direct  contracts.  The  consolidated  statements  of  income  present  disaggregated
revenue by service type. All of the revenues are generated from healthcare delivery in the state of California. The following table presents disaggregated revenue
generated by each payor type:

Commercial
Medicare

Medicaid
Other third parties

Revenue

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

Payor A
Payor B
Payor C

Payor D
Payor E

Payor F

82

Years Ended December 31,

2019

2018

2017

$107,339,950  
226,001,659  

192,595,964  
34,680,524  

$113,000,115  
226,353,120  

134,904,142  
45,650,375  

$116,947,692
120,448,509

92,590,894
26,368,835

$

560,618,097   $

519,907,752   $

356,355,930

Years Ended December 31,

2019

2018

2017

13.6%  
13.4%  
*%  

*%  
11.7%  

12.9%  

14.6%  
18.7%  
*%  

14.1%  
14.1%  

*%  

14.1%
18.1%
11.1%

11.3%
*%

*%

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

*

Less than 10% of total net revenues

The Company had major payors that contributed to the following percentages of gross receivables:

Payor G
Payor H

Land, Property and Equipment, Net

As of December 31,

2019

2018

30.4%  
36.0%  

34.1%
42.2%

Land is carried at cost and is not depreciated as it is considered to have an infinite useful life.

Property  and  equipment,  including  leasehold  improvements,  are  carried  at  cost  less  accumulated  depreciation  and  amortization.  Depreciation  is  provided
principally on the straight-line method over the estimated useful lives of the assets ranging from three to ten years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the terms of the respective leases or the expected useful lives of those improvements.

Maintenance and repairs are charged to expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation and amortization is
removed from the accounts, and any related gain or loss is included in the determination of consolidated net income.

Fair Value Measurements of Financial Instruments

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

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

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

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

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

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

The carrying amounts and fair values of the Company’s financial instruments as of  December 31, 2019 are presented below:

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Assets

Money market accounts*
Marketable securities – certificates of deposit

Marketable securities – equity securities

Total

Fair Value Measurements

Level 1

Level 2

Level 3

Total

  $

50,731,008   $

116,468,555  

70,118  

  $

167,269,681   $

—   $
—  

—  

—   $

—   $
—  

—  

50,731,008
116,468,555

70,118

—   $

167,269,681

The carrying amounts and fair values of the Company’s financial instruments as of  December 31, 2018 are presented below:

Assets

Money market accounts*
Marketable securities – certificates of deposit
Marketable securities – equity securities

Total

*

Included in cash and cash equivalents

Fair Value Measurements

Level 1

Level 2

Level 3

Total

  $

85,500,745   $
1,066,103  
60,999  

  $

86,627,847   $

—   $
—  
—  

—   $

—   $
—  
—  

85,500,745
1,066,103
60,999

—   $

86,627,847

There were no Level 2 or Level 3 inputs measured on a recurring or non-recurring basis for the years ended  December 31, 2019 and 2018.

There  have  been  no  changes  in  Level  1,  Level  2,  or  Level  3  classifications  and  no  changes  in  valuation  techniques  for  these  assets  for  the  year  ended
December 31, 2019.

Intangible Assets and Long-Lived Assets

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

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

Finite-lived intangibles and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset  may  not  be  recoverable.  If  the  expected  future  cash  flows  from  the  use  of  such  assets  (undiscounted  and  without  interest  charges)  are  less  than  the
carrying  value,  a  write-down  would  be  recorded  to  reduce  the  carrying  value  of  the  asset  to  its  estimated  fair  value.  Fair  value  is  determined  based  on
appropriate valuation techniques. The Company determined that there was no impairment of its finite-lived intangible or long-lived assets during the year ended
December 31, 2019 and 2018. For the year ended December 31, 2017 the Company wrote off the remaining carrying value of the intangible assets of APCN-
ACO  and  AP-ACO  of $2.4 million (included in impairment of goodwill and intangible assets in the accompanying consolidated statement of income), as these
member relationships are no longer utilized by an entity controlled by NMM and therefore do not provide any future economic benefit.

Goodwill and Indefinite-Lived 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.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

At least annually, at the Company’s fiscal year end, or sooner if events or changes in circumstances indicate that an impairment has occurred, the Company
performs a qualitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a
basis  for  determining  whether  it  is  necessary  to  complete  quantitative  impairment  assessments  for  each  of  the  Company’s three  main  reporting  units  (1)
management  services,  (2)  IPA,  and  (3)  ACO.  The  Company  is  required  to  perform  a  quantitative  goodwill  impairment  test  only  if  the  conclusion  from  the
qualitative assessment is that it is more likely than not that a reporting unit’s fair value is less than the carrying value of its assets. Should this be the case, a
quantitative  analysis  is  performed  to  identify  whether  a  potential  impairment  exists  by  comparing  the  estimated  fair  values  of  the  reporting  units  with  their
respective carrying values, including goodwill.

The impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. If the carrying
value of a reporting unit exceeds the reporting unit's fair value, an impairment loss is recognized for the difference. The fair values of goodwill are determined
using valuation techniques based on estimates, judgments and assumptions management believes are appropriate in the circumstances.

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

The  Company  wrote  off  indefinite-lived  intangible  assets  of  approximately  $2.0  million  related  to  Medicare  licenses,  acquired  as  part  of  the  Merger,  and
approximately $3.8 million of goodwill related to MMG during the years ended  December 31, 2019 and December 31, 2018, respectively, as the Company will
no longer utilized these assets and therefore these assets will not provide any future economic benefits. The write-offs are included in impairment of goodwill
and  intangible  assets  in  the  accompanying  consolidated  statements  of  income  (refer  to  Note  3  and  5).  There  was  no  impairment  of  indefinite-lived  intangible
assets for the year ended December 31, 2017.

Investments in Other Entities – Equity Method

Equity Method

The Company accounts for certain investments using the equity method of accounting when it is determined that the investment provides the Company with the
ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership
interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s board of directors, are
considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at
cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee and is recognized in the accompanying consolidated statements of
income under “Loss from equity method investments” and also is adjusted by contributions to and distributions from the investee. Equity method investments are
subject  to  impairment  evaluation.  During  the  years  ended December  31,  2019,  the  Company  recognized  an  impairment  loss  of  approximately  $0.3  million
related to its investment in PASC as the Company does not believe it will recover its investment balance. Such impairment loss is included in loss from equity
method investments in the accompanying consolidated statements of income. There was no impairment loss recorded related to equity method investments for
the years ended December 31, 2018 and 2017.

Medical Liabilities

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

An  estimate  of  amounts  due  to  contracted  physicians,  hospitals,  and  other  professional  providers  is  included  in  medical  liabilities  in  the  accompanying
consolidated balance sheets. Medical liabilities include claims reported as of the balance sheet date and estimated IBNR claims. Such estimates are developed
using actuarial methods and are based on numerous variables, including the utilization of 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

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

services. Such differing interpretations may not come to light until a substantial period of time has passed following the contract implementation.

During  the  year  ended December  31,  2017,  as  APAACO’s  NGACO  program  was  new  and  there  was  insufficient  claims  history,  the  medical  liabilities  for  the
NGACO  program  were  estimated  and  recorded  at 100%  of  the  revenue  less  actual  claims  processed  for  or  paid  to  in-network  providers.  The  Company  was
notified  by  CMS  that  under  the  NGACO  alternative  payment  arrangement  the  Company  was  paid  an  excess  amount  of  approximately $34.5  million  and $7.8
million related to the first performance year (January 1, 2017 through  December 31, 2017) and second performance year (February 1, 2018 through December
31, 2018) with 18 month claims run outs, respectively. The excess amount for the first performance year was paid by the Company on December 4, 2018, the
excess  for  the  second  performance  year  will  be  paid  in  February  2020  and  have  been  accrued  in  accounts  payable  and  accrued  expense  account  in  the
accompanying consolidated balance sheet as of December 31, 2019 and 2018. The excess amount related to the first performance year was previously accrued
as  part  of  the  medical  liabilities  accrual  on December 31, 2017.  In 2018  and 2019,  the  Company  had  sufficient  claims  history  and  was  able  to  estimate  such
IBNR amount using the aforementioned method.

Revenue Recognition

The  Company  receives  payments  from  the  following  sources  for  services  rendered:  (i)  commercial  insurers;  (ii)  the  federal  government  under  the  Medicare
program administered by CMS; (iii) state governments under the Medicaid and other programs; (iv) other third party payors (e.g., hospitals and IPAs); and (v)
individual patients and clients.

On  January  1,  2018,  the  Company  adopted  the  new  revenue  recognition  standard  Accounting  Standards  Update  (“ASU”)  2014-09,  “Revenue  from  Contracts
with Customers (Topic 606)”, using the modified retrospective method. Modified retrospective adoption requires entities to apply the standard retrospectively to
the most current period presented in the financial statements, requiring the cumulative effect of the retrospective application as an adjustment to the opening
balance  of  retained  earnings  and  noncontrolling  interests  at  the  date  of  initial  application.  Revenue  from  substantially  all  of  the  Company’s  contracts  with
customers  continues  to  be  recognized  over  time  as  services  are  rendered.  The  Company  has  elected  to  apply  the  modified  retrospective  method  only  to
contracts  not  completed  as  of  January  1,  2018.  The  2017  comparative  information  has  not  been  restated  and  continues  to  be  reported  under  the  accounting
standards in effect for that period (“ASC 605”) (See Note 16).

Under the new revenue standard, the Company has elected to apply the following practical expedients and optional exemptions:

•

•

•

•

•

Recognize  incremental  costs  of  obtaining  a  contract  with  amortization  periods  of  one  year  or  less  as  expense  when  incurred.  These  costs  are
recorded within general and administrative expenses.

Recognize revenue in the amount of consideration to which the Company has a right to invoice the customer if that amount corresponds directly with
the value to the customer of the Company’s services completed to date.

Exemptions from disclosing the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii)
contracts for which revenue is recognized in the amount of consideration to which the Company has a right to invoice for services performed, and (iii)
contracts for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to
transfer a distinct service that forms part of a single performance obligation.

Use  a  portfolio  approach  for  the  fee-for-service  (FFS)  revenue  stream  to  group  contracts  with  similar  characteristics  and  analyze  historical  cash
collections trends.

No adjustment is made for the effects of a significant financing component as the period between the time of service and time of payment is typically
one year or less.

Nature of Services and Revenue Streams

Revenue  primarily  consists  of  capitation  revenue,  risk  pool  settlements  and  incentives,  NGACO  All-Inclusive  Population-Based  Payments  (“AIPBP”)  revenue,
management fee income, and FFS revenue. Revenue is recorded in the period in which services are rendered or the period in which the Company is obligated
to provide services. The form of billing and related risk of collection for such services may vary by type of revenue and the customer. The following is a summary
of the principal forms of the Company’s billing arrangements and how revenue is recognized for each.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Capitation, net

Managed  care  revenues  of  the  Company  consist  primarily  of  capitated  fees  for  medical  services  provided  by  the  Company  under  a  capitated  arrangement
directly made with various managed care providers including HMOs. Capitation revenue is typically prepaid monthly to the Company based on the number of
enrollees selecting the Company as their healthcare provider. Under both ASC 605 and ASC 606, capitation revenue is recognized in the month in which the
Company  is  obligated  to  provide  services  to  plan  enrollees  under  contracts  with  various  health  plans.  Minor  ongoing  adjustments  to  prior  months’  capitation,
primarily arising from contracted HMOs finalizing their monthly patient eligibility data for additions or subtractions of enrollees, are recognized in the month they
are communicated to the Company. 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 a monthly 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.

PMPM managed care contracts generally have a term of  one year or longer. All managed care contracts have a single performance obligation that constitutes a
series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for PMPM
contracts  is  variable  as  it  primarily  includes  PMPM  fees  associated  with  unspecified  membership  that  fluctuates  throughout  the  contract.  In  certain  contracts,
PMPM fees also include adjustments for items such as performance incentives, performance guarantees and risk shares. The Company generally estimates the
transaction price using the most likely methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant
reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM transaction price relates specifically to
the  Company’s  efforts  to  transfer  the  service  for  a  distinct  increment  of  the  series  (e.g.  day  or  month)  and  is  recognized  as  revenue  in  the  month  in  which
members are entitled to service.

Risk Pool Settlements and Incentives

APC  enters  into  full  risk  capitation  arrangements  with  certain  health  plans  and  local  hospitals,  which  are  administered  by  a  third  party,  where  the  hospital  is
responsible for providing, arranging and paying for institutional risk and APC is responsible for providing, arranging and paying for professional risk. Under a full
risk pool sharing agreement, APC generally receives a percentage of the net surplus from the affiliated hospital’s risk pools with HMOs after deductions for the
affiliated  hospitals  costs.  Advance  settlement  payments  are  typically  made  quarterly  in  arrears  if  there  is  a  surplus.  Under  ASC  605,  the  Company  has
historically  recognized  revenue  from  risk  pool  settlements  under  arrangements  with  health  plans  and  hospitals  when  such  amounts  are  known  as  the  related
revenue amounts were not deemed to be fixed and determinable until that time. Under ASC 606, risk pool settlements under arrangements with health plans and
hospitals are recognized using the most likely amount methodology and amounts are only included in revenue to the extent that it is probable that a significant
reversal  of  cumulative  revenue  will  not  occur  once  any  uncertainty  is  resolved.  The  assumptions  for  historical  MLR,  IBNR  completion  factor  and  constraint
percentages were used by management in applying the most likely amount methodology.

Under capitated arrangements with certain HMOs APC participates in one or more shared risk arrangements relating to the provision of institutional services to
enrollees (shared risk arrangements) and thus can earn additional revenue or incur losses based upon the enrollee utilization of institutional services. Shared
risk  capitation  arrangements  are  entered  into  with  certain  health  plans,  which  are  administered  by  the  health  plan,  where  APC  is  responsible  for  rendering
professional services, but the health plan does not enter into a capitation arrangement with a hospital and therefore the health plan retains the institutional risk.
Shared risk deficits, if any, are not payable until and unless (and only to the extent of any) risk sharing surpluses are generated. At the termination of the HMO
contract, any accumulated deficit will be extinguished.

Under ASC 605, the Company has historically recognized revenue from risk pool settlements under arrangements with HMOs when such amounts are known.
Under ASC 606, risk pool settlements under arrangements with HMOs are recognized, using the most likely methodology, and only included in revenue to the
extent that it is probable that a significant reversal of cumulative revenue will not occur. Given the lack of access to the health plans’ data and control over the
members  assigned  to  APC,  the  adjustments  and/or  the  withheld  amounts  are  unpredictable  and  as  such  APC’s  risk  share  revenue  is  deemed  to  be  fully
constrained until APC is notified of the amount by the health plan. Risk pools for the prior contract years are generally final settled in the third or fourth quarter of
the following year.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

In  addition  to  risk-sharing  revenues,  the  Company  also  receives  incentives  under  “pay-for-performance”  programs  for  quality  medical  care,  based  on  various
criteria.  As  an  incentive  to  control  enrollee  utilization  and  to  promote  quality  care,  certain  HMOs  have  designed  quality  incentive  programs  and  commercial
generic pharmacy incentive programs to compensate the Company for our efforts to improve the quality of services and efficient and effective use of pharmacy
supplemental benefits provided to HMO members. The incentive programs track specific performance measures and calculate payments to the Company based
on the performance measures. Under ASC 605, the Company has historically recognized incentives under “pay-for-performance” programs when such amounts
are  known  as  the  related  revenue  amounts  were  not  deemed  to  be  fixed  and  determinable  until  that  time.  Under  ASC  606,  incentives  under  “pay-for-
performance” programs are recognized using the most likely methodology. However, as the Company does not have sufficient insight from the health plans on
the  amount  and  timing  of  the  shared  risk  pool  and  incentive  payments  these  amounts  are  considered  to  be  fully  constrained  and  only  recorded  when  such
payments are known and/or received.

Generally,  for  the  foregoing  arrangements,  the  final  settlement  is  dependent  on  each  distinct  day’s  performance  within  the  annual  measurement  period  but
cannot  be  allocated  to  specific  days  until  the  full  measurement  period  has  occurred  and  performance  can  be  assessed.  As  such,  this  is  a  form  of  variable
consideration estimated at contract inception and updated through the measurement period (i.e. the contract year), to the extent the risk of reversal does not
exist and the consideration is not constrained.

NGACO AIPBP Revenue

APAACO and CMS entered into a Next Generation ACO Model Participation Agreement (the “Participation Agreement”) with an initial term of 
years through December 31, 2018, which has been extended for another  two renewal years.

two  performance

For  each  performance  year,  the  Company  shall  submit  to  CMS  its  selections  for  risk  arrangement;  the  amount  of  the  profit/loss  cap;  alternative  payment
mechanism; benefits enhancements, if any; and its decision regarding voluntary alignment under the NGACO Model. The Company must obtain CMS consent
before voluntarily discontinuing any benefit enhancement during a performance year.

Under the NGACO Model, CMS aligns beneficiaries to the Company to manage (direct care and pay providers) based on a budgetary benchmark established
with  CMS.  The  Company  is  responsible  for  managing  medical  costs  for  these  beneficiaries.  The  beneficiaries  will  receive  services  from  physicians  and  other
medical service providers that are both in-network and out-of-network. The Company receives capitation from CMS on a monthly basis to pay claims from in-
network providers. The Company records such capitation received from CMS as revenue as the Company is primarily responsible and liable for managing the
patient  care  and  for  satisfying  provider  obligations,  is  assuming  the  credit  risk  for  the  services  provided  by  in-network  providers  through  its  arrangement  with
CMS, and has control of the funds, the services provided and the process by which the providers are ultimately paid. Claims from out-of-network providers are
processed  and  paid  by  CMS  and  the  Company’s  shared  savings  or  losses  in  managing  the  services  provided  by  out-of-network  providers  are  generally
determined  on  an  annual  basis  after  reconciliation  with  CMS.  Pursuant  to  the  Company’s  risk  share  agreement  with  CMS,  the  Company  will  be  eligible  to
receive the savings or be liable for the deficit according to the budget established by CMS based on the Company’s efficiency or lack thereof, respectively, in
managing how the beneficiaries aligned to the Company by CMS are served by in-network and out-of-network providers. The Company’s savings or losses on
providing such services are both capped by CMS, and are subject to significant estimation risk, whereby payments can vary significantly depending upon certain
patient characteristics and other variable factors. Accordingly, the Company recognizes such surplus or deficit upon substantial completion of reconciliation and
determination of the amounts. Under both ASC 605 and ASC 606, the Company records NGACO capitation revenues monthly, as that is when the Company is
obligated  to  provide  services  to  its  members.  Excess,  over  claims  paid  plus  an  estimate  for  the  related  IBNR  (see  Note  9),  monthly  capitation  received  are
deferred and recorded as a liability until actual claims are paid or incurred. CMS will determine if there were any excess capitation paid for the performance year
and the excess is refunded to CMS.

For  each  performance  year,  CMS  shall  pay  the  Company  in  accordance  with  the  alternative  payment  mechanism,  if  any,  for  which  CMS  has  approved  the
Company; the risk arrangement for which the Company has been approved by CMS; and as otherwise provided in the Participation Agreement. Following the
end  of  each  performance  year  and  at  such  other  times  as  may  be  required  under  the  Participation  Agreement,  CMS  will  issue  a  settlement  report  to  the
Company setting forth the amount of any shared savings or shared losses and the amount of other monies. If CMS owes the Company shared savings or other
monies,  CMS  shall  pay  the  Company  in  full  within 30  days  after  the  date  on  which  the  relevant  settlement  report  is  deemed  final,  except  as  provided  in  the
Participation Agreement. If the Company owes CMS shared losses or other monies owed as a result of a final settlement, the Company shall pay CMS in full
within 30 days after the relevant settlement report is deemed final. If the Company fails to pay the amounts due to CMS in full within  30 days after the date of a
demand  letter  or  settlement  report,  CMS  shall  assess  simple  interest  on  the  unpaid  balance  at  the  rate  applicable  to  other  Medicare  debts  under  current
provisions of law and applicable

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

regulations. In addition, CMS and the U.S. Department of the Treasury may use any applicable debt collection tools available to collect any amounts owed by the
Company.

The  Company  participates  in  the  AIPBP  track  of  the  NGACO  Model.  Under  the  AIPBP  track,  CMS  estimates  the  total  annual  expenditures  for  APAACO’s
assigned patients and pays that projected amount to the Company in monthly installments, and the Company is responsible for all Part A and Part B costs for in-
network participating providers and preferred providers contracted by the Company to provide services to the assigned patients.

As APAACO does not have sufficient insight into the financial performance of the shared risk pool with CMS because of unknown factors related to IBNR, risk
adjustment factors, stop loss provisions, among other factors, an estimate cannot be developed. Due to these limitations, APAACO cannot determine the amount
of  surplus  or  deficit  that  will  probably  not  be  reversed  in  the  future  and  therefore  this  shared  risk  pool  revenue  is  considered  fully  constrained.  The  Company
received $0.9 million and $5.9 million in risk pool savings, related to the  2018 and 2017 performance year, respectively, and have recognized it as revenue in risk
pool settlements and incentives in the accompanying consolidated statements of income for the year ended December 31, 2019 and 2018, respectively.

In October 2017, CMS notified the Company that it would not be renewed for participation in the AIPBP mechanism of the NGACO Model for performance year
2018  due  to  certain  alleged  deficiencies  in  performance.  The  Company  submitted  a  reconsideration  request.  In  December  2017,  the  Company  received  the
official decision on its reconsideration request that CMS reversed the prior decision against the Company’s continued participation in the AIPBP mechanism. As
a result, beginning in February 2018, the Company was eligible to receive monthly AIPBP at a rate of approximately $7.3  million  per  month  from  CMS,  which
was  reduced  to $5.5  million  per  month  beginning  October  1,  2018.  The  Company  will  need  to  continue  to  comply  with  all  terms  and  conditions  in  the
Participation  Agreement  and  various  regulatory  requirements  to  be  eligible  to  participate  in  the  AIPBP  mechanism  and/or  NGACO  Model.  The  Company
continues to be eligible in receiving AIPBP under the NGACO Model for performance year 2019, with the effective date of the performance year beginning April
1, 2019. The monthly AIPBP received by the Company for performance year 2019 was approximately $8.3 million per month for the period from April 1, 2019
through  August  30,  2019.  Subsequently,  CMS  adjusted  the  AIPBP  to  approximately $3.7  million  for  the  period  starting  September  1,  2019  based  on  CMS'
updated estimate of total claims to be incurred. The Company has received approximately $56.1 million in total AIPBP for the year ended  December 31, 2019  of
which $56.1 million has been recognized as revenue. The Company also recorded assets of approximately  $6.5 million related to recoverable claims paid during
the year ended December 31, 2019 which will be administered following instructions from CMS, a receivable of  $8.5 million related to IBNR incurred,  $3.0 million
related to final settlement of the 2017 performance year, and $0.9 million related to the Company's shared risk earnings for the 2018 performance year. These
balances are included in “Other receivables” in the accompanying consolidated balance sheet.

Management Fee Income

Management  fee  income  encompasses  fees  paid  for  management,  physician  advisory,  healthcare  staffing,  administrative  and  other  non-medical  services
provided by the Company to IPAs, hospitals and other healthcare providers. Such fees may be in the form of billings at agreed-upon hourly rates, percentages
of revenue or fee collections, or amounts fixed on a monthly, quarterly or annual basis. The revenue may include variable arrangements measuring factors such
as hours staffed, patient visits or collections per visit against benchmarks, and, in certain cases, may be subject to achieving quality metrics or fee collections.
Under both ASC 605 and ASC 606, such variable 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. The Company’s MSA revenue also includes
revenue sharing payments from the Company’s partners based on their non-medical services.

The  Company  provides  a  significant  service  of  integrating  the  services  selected  by  the  Company’s  clients  into  one  overall  output  for  which  the  client  has
contracted. Therefore, such management contracts generally contain a single performance obligation. The nature of the Company’s performance obligation is to
stand ready to provide services over the contractual period. Also, the Company’s performance obligation forms a series of distinct periods of time over which the
Company stands ready to perform. The Company’s performance obligation is satisfied as the Company completes each period’s obligations.

Consideration from management contracts is variable in nature because the majority of the fees are generally based on revenue or collections, which can vary
from period to period. The Company has control over pricing. Contractual fees are invoiced to the Company’s clients generally monthly and payment terms are
typically due within 30 days. The variable consideration in the Company’s management contracts meets the criteria to be allocated to the distinct period of time
to which it relates because (i) it

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

is due to the activities performed to satisfy the performance obligation during that period and (ii) it represents the consideration to which the Company expects to
be entitled.

The Company’s management contracts generally have long terms (e.g.,  ten years), although they may be terminated earlier under the terms of the respective
contracts.  Since  the  remaining  variable  consideration  will  be  allocated  to  a  wholly  unsatisfied  promise  that  forms  part  of  a  single  performance  obligation
recognized  under  the  series  guidance,  the  Company  has  applied  the  optional  exemption  to  exclude  disclosure  of  the  allocation  of  the  transaction  price  to
remaining performance obligations.

Fee-for-Service Revenue

FFS 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 and employed physicians. Under the FFS arrangements, the Company bills, and receive payments from, the
hospitals and third-party payors for physician staffing and further bills patients or their third-party payors for patient care services provided. Under both ASC 605
and ASC 606, FFS revenue related to the patient care services is reported net of contractual allowances and policy discounts and are recognized in the period in
which the services are rendered to specific patients. All services provided are expected to result in cash flows and are therefore reflected as net revenue in the
financial  statements.  The  recognition  of  net  revenue  (gross  charges  less  contractual  allowances)  from  such  services  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.

The Company is responsible for confirming member eligibility, performing program utilization review, potentially directing payment to the provider and accepting
the financial risk of loss associated with services rendered, as specified within the Company’s client contracts. The Company has the ability to adjust contractual
fees with clients and possess the financial risk of loss in certain contractual obligations. These factors indicate the Company is the principal and, as such, the
Company records gross fees contracted with clients in revenues.

Consideration from FFS arrangements is variable in nature because fees are based on patient encounters, credits due to clients and reimbursement of provider
costs,  all  of  which  can  vary  from  period  to  period.  Patient  encounters  and  related  episodes  of  care  and  procedures  qualify  as  distinct  goods  and  services,
provided simultaneously together with other readily available resources, in a single instance of service, and thereby constitute a single performance obligation for
each  patient  encounter  and,  in  most  instances,  occur  at  readily  determinable  transaction  prices.  As  a  practical  expedient,  the  Company  adopted  a  portfolio
approach  for  the  FFS  revenue  stream  to  group  contracts  with  similar  characteristics  and  analyze  historical  cash  collections  trends.  The  contracts  within  the
portfolio  share  the  characteristics  conducive  to  ensuring  that  the  results  do  not  materially  differ  under  the  new  standard  if  it  were  to  be  applied  to  individual
patient contracts related to each patient encounter. Accordingly, there was not a change in the Company's method to recognize revenue under ASC 606 from
the previous accounting guidance.

Estimating net FFS revenue is a complex process, largely due to the volume of transactions, the number and complexity of contracts with payors, the limited
availability at times of certain patient and payor information at the time services are provided, and the length of time it takes for collections to fully mature. These
expected collections are based on fees and negotiated payment rates in the case of third-party payors, the specific benefits provided for under each patient's
healthcare plans, mandated payment rates in the case of Medicare and Medicaid programs, and historical cash collections (net of recoveries) in combination
with expected collections from third party payors.

The relationship between gross charges and the transaction price recognized is significantly influenced by payor mix, as collections on gross charges may vary
significantly,  depending  on  whether  and  with  whom  the  patients  the  Company  provides  services  to  in  the  period  are  insured  and  the  Company's  contractual
relationships with those payors. Payor mix is subject to change as additional patient and payor information is obtained after the period services are provided. The
Company periodically assesses the estimates of unbilled revenue, contractual adjustments and discounts, and payor mix by analyzing actual results, including
cash  collections,  against  estimates.  Changes  in  these  estimates  are  charged  or  credited  to  the  consolidated  statement  of  income  in  the  period  that  the
assessment  is  made.  Significant  changes  in  payor  mix,  contractual  arrangements  with  payors,  specialty  mix,  acuity,  general  economic  conditions  and  health
care  coverage  provided  by  federal  or  state  governments  or  private  insurers  may  have  a  significant  impact  on  estimates  and  significantly  affect  the  results  of
operations and cash flows.

Contract Assets

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Typically, revenues and receivables are recognized once the Company has satisfied its performance obligation. Accordingly, the Company’s contract assets are
comprised of receivables and receivables – related parties. Generally, the Company does not have material amounts of other contract assets.

The Company's billing and accounting systems provide historical trends of cash collections and contractual write-offs, accounts receivable aging and established
fee  adjustments  from  third-party  payors.  These  estimates  are  recorded  and  monitored  monthly  as  revenues  are  recognized.  The  principal  exposure  for
uncollectible fee for service visits is from self-pay patients and, to a lesser extent, for co-payments and deductibles from patients with insurance.

Contract Liabilities (Deferred Revenue)

Contract  liabilities  are  recorded  when  cash  payments  are  received  in  advance  of  the  Company’s  performance,  or  in  the  case  of  the  Company’s  NGACO,  the
excess  of  AIPBP  capitation  received  and  the  actual  claims  paid  or  incurred.  The  Company’s  contract  liability  balance  was $8.9  million  and $9.1  million  as  of
December 31, 2019 and December 31, 2018, respectively, and is presented within the “Accounts Payable and Accrued Expenses” line item of the accompanying
consolidated balance sheets. Approximately $0.5 million of the Company’s contracted liability accrued in  2018 has been recognized as revenue during the year
ended December 31, 2019.

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.

Basic and Diluted Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income attributable to common shareholders by the weighted average number of common shares
outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares outstanding plus the
effect of dilutive securities outstanding during the periods presented, using treasury stock method. See Note 17 for a discussion of shares treated as treasury
shares for accounting purposes.

The  weighted-average  number  of  common  shares  outstanding  (the  denominator  of  the  EPS  calculation)  during  the  period  in  which  the  reverse  acquisition
occurred (2017) was computed as follows:

a) The  number  of  common  shares  outstanding  from  the  beginning  of  that  period  to  the  acquisition  date  was  computed  on  the  basis  of  the  weighted-
average number of common shares of the legal acquiree (accounting acquirer - NMM) outstanding during the period multiplied by the exchange ratio
established in the Merger.

b) The number of common shares outstanding from the acquisition date to the end of that period was the actual number of common shares of the legal

acquirer (the accounting acquire -ApolloMed) outstanding during that period.

Noncontrolling Interests

The  Company  consolidates  entities  in  which  the  Company  has  a  controlling  financial  interest.  The  Company  consolidates  subsidiaries  in  which  the  Company
holds,  directly  or  indirectly,  more  than 50%  of  the  voting  rights,  and  variable  interest  entities  (VIEs)  in  which  the  Company  is  the  primary  beneficiary.
Noncontrolling  interests  represent  third-party  equity  ownership  interests  (including  certain  VIEs)  in  the  Company’s  consolidated  entities.  The  amount  of  net
income attributable to noncontrolling interests is disclosed in the consolidated statements of income.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Mezzanine Equity

Based on the shareholder agreements for APC, in the event of a disqualifying event, as defined in the agreements, APC could be required to repurchase the
shares from their respective shareholders based on certain triggers outlined in the shareholder agreements. As the redemption feature of the shares is not solely
within the control of APC, the equity of APC does not qualify as permanent equity and has been classified as mezzanine or temporary equity. Accordingly, the
Company recognizes noncontrolling interests in APC as mezzanine equity in the consolidated financial statements. APC’s shares are not redeemable and it is
not probable that the shares will become redeemable as of December 31, 2019 and 2018.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASC 842”), which amends the existing accounting standards for leases to increase
transparency  and  comparability  among  organizations  by  requiring  the  recognition  of  right-of-use  assets  and  lease  liabilities  on  the  balance  sheet.  Most
prominent among the changes in the standard is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating
leases.  Under  the  standard,  disclosures  are  required  to  meet  the  objective  of  enabling  users  of  financial  statements  to  assess  the  amount,  timing,  and
uncertainty of cash flows arising from leases.

The Company adopted ASC 842 effective January 1, 2019 on a modified retrospective basis using the following practical expedients as permitted under the
transition guidance within the new standard; (i) not reassess whether any expired or existing contracts are or contain leases; not reassess the lease
classification for any expired or existing leases; not reassess initial direct costs for existing leases; and (ii) use hindsight in determining the lease term and in
assessing impairment of the entity’s right-of-use assets. The Company has also implemented additional internal controls to enable future preparation of financial
information in accordance with ASC 842.

The standard had a material impact on our consolidated balance sheets, but did not materially impact our consolidated results of operations and had no impact
on cash flows. The most significant impact was the recognition of right-of-use assets of $9.0 million and lease liabilities of  $8.9 million for operating leases on the
date of adoption, while our accounting for finance leases remained substantially unchanged. The 2018 comparative information has not been restated and
continues to be reported under the accounting standards in effect for that period (ASC 840). See Note 19 for further details.

In addition, the Company elected practical expedients for ongoing accounting that is provided by the new standard comprised of the following: (1) the election for
classes of underlying asset to not separate non-lease components from lease components, and (2) the election for short-term lease recognition exemption for all
leases under 12 months term.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments”
(“ASU  2016-13”).  The  new  standard  requires  entities  to  measure  all  expected  credit  losses  for  financial  assets  held  at  the  reporting  date  based  on  historical
experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 became effective on January 1, 2020. Based on the composition of the
Company's investment portfolio and historical credit loss activity of receivables, the adoption of ASU 2016-13 is not expected to have a material impact on its
consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260): Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging
(Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily
Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU
2017-11”). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with
down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no
longer  precludes  equity  classification  when  assessing  whether  the  instrument  is  indexed  to  an  entity’s  own  stock.  The  amendments  also  clarify  existing
disclosure requirements for equity-classified instruments. The amendments in Part 1 of this update are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. If an entity early adopts the amendments
in  an  interim  period,  any  adjustments  should  be  reflected  as  of  the  beginning  of  the  fiscal  year  that  includes  that  interim  period.  The  Company  adopted  ASU
2017-11 on January 1, 2019. The adoption of ASU 2017-11 did not have a material impact on the Company’s consolidated financial statements.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

In  October  2018,  the  FASB  issued  ASU  No.  2018-17,  “Consolidation  (Topic  810):  Targeted  Improvements  to  Related  Party  Guidance  for  Variable  Interest
Entities” (“ASU 2018-17”). This ASU reduces the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). A VIE
is an organization in which consolidation is not based on a majority of voting rights. The new guidance supersedes the private company alternative for common
control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements. The amendments in this ASU are effective for fiscal
years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-17 is not expected to have a material impact
on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"). This ASU
simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the
methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendments in this
ASU  are  effective  for  fiscal  years  beginning  after  December  15,  2020,  and  interim  periods  within  those  fiscal  years.  The  Company  is  currently  assessing  the
impact of the adoption of ASU 2019-12 will have on the Company's consolidated financial statements.

In January 2020, the FASB issued ASU No. 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323),
and  Derivatives  and  Hedging  (Topic  815)"  ("ASU  2020-01").  This  ASU  clarifies  the  interaction  between  accounting  for  equity  securities,  equity  method
investments  and  certain  derivative  instruments.  This  amendment  in  this  ASU  are  effective  for  fiscal  years  beginning  after  December  15,  2020,  and  interim
periods  within  those  fiscal  years.  The  Company  is  currently  assessing  the  impact  of  the  adoption  of  ASU  2020-01  will  have  on  the  Company's  consolidation
financial statements.

With  the  exception  of  the  new  standards  discussed  above,  there  have  been  no  other  new  accounting  pronouncements  that  have  significance,  or  potential
significance, to the Company’s financial position, results of operations and cash flows.

3.

Business Combination and Goodwill

On December 8, 2017, (the “Effective Time”) the merger (the “Merger”) of ApolloMed’s wholly-owned subsidiary, Apollo Acquisition Corp., with Network Medical
Management,  Inc.  was  completed,  in  accordance  with  the  terms  and  conditions  of  the  Agreement  and  Plan  of  Merger,  dated  as  of  December  21,  2016  (as
amended  on  March  30,  2017  and  October  17,  2017),  by  and  among  the  Company,  Merger  Sub,  NMM  and  Kenneth  Sim,  M.D.,  as  the  NMM  shareholders’
representative. As a result of the Merger, NMM now is a wholly-owned subsidiary of ApolloMed and former NMM shareholders own a majority of the issued and
outstanding common stock of the Company and control the Board of ApolloMed. As of the Effective Time, the Company’s board of directors approved a change
in the Company’s fiscal year end from March 31 to December 31.

Pursuant to the Merger Agreement, at the Effective Time, each issued and outstanding share of NMM common stock converted into the right to receive (i) such
number  of  fully  paid  and  nonassessable  shares  of  ApolloMed’s  common  stock  that  resulted  in  the  NMM  shareholders  having  a  right  to  receive  an  aggregate
number  of  shares  of  ApolloMed’s  common  stock  that  represented 82%  of  the  total  issued  and  outstanding  shares  of  ApolloMed  common  stock  immediately
following the Effective Time, with no NMM dissenting shareholder interests as of the Effective Time (the “exchange ratio”), plus (ii) an aggregate of  2,566,666
ApolloMed’s  common  stock,  with no  NMM  dissenting  shareholder  interests  as  of  the  Effective  Time,  and  (iii)  common  stock  warrants  to  purchase  a  pro-rata
portion of an aggregate of 850,000 shares of common stock of ApolloMed, exercisable at  $11.00 per share and warrants to purchase an aggregate of  900,000
shares of common stock of ApolloMed at $10.00 per share. At the Effective Time, pre-Merger ApolloMed stockholders held their existing shares of ApolloMed’s
common  stock.  At  the  Effective  Time,  ApolloMed  held  back 10%  of  the  total  number  of  shares  of  ApolloMed’s  common  stock  issuable  to  pre-Merger  NMM
shareholders  in  the  Merger  to  secure  indemnification  of  ApolloMed  and  its  affiliates  under  the  Merger  Agreement.  Separately,  indemnification  of  pre-Merger
NMM  shareholders  under  the  Merger  Agreement  was  made  by  the  issuance  by  ApolloMed  to  pre-Merger  NMM  shareholders  of  new  additional  shares  of
common stock (capped at the same number of shares of ApolloMed’s common stock as are subject to the holdback for the indemnification of ApolloMed). These
holdback shares will be held for a period of up to 24 months after the closing of the Merger (to be distributed on a pro-rata basis to former NMM shareholders),
during  which  ApolloMed  may  seek  indemnification  for  any  breach  of,  or  noncompliance  with,  any  provision  of  the  Merger  agreement,  by  NMM.  Half  of  these
shares will be issued on the first and second anniversary of the Effective Time respectively. As of December 31, 2019 all holdback shares had been released.

For purposes of calculating the exchange ratio, (A) the aggregate number of shares of ApolloMed common stock held by the NMM shareholders immediately
following the Effective Time excluded (i) any shares of ApolloMed common stock owned by NMM shareholders immediately prior to the Effective Time, (ii) the
Series A warrant and Series B warrant issued by ApolloMed to NMM to purchase ApolloMed common stock (the “ApolloMed Warrants”) and (iii) any shares of
ApolloMed common stock issued or

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

issuable to NMM shareholders pursuant to the exercise of the ApolloMed Warrants, and (B) the total number of issued and outstanding shares of ApolloMed
common  stock  immediately  following  the  Effective  Time  excluded 520,081  shares  of  ApolloMed  common  stock  issued  or  issuable  under  a  Convertible
Promissory  Note  to  Alliance  Apex,  LLC  (“Alliance”),  whose 50%  member  and  manager  is  a  member  of  ApolloMed’s  board  of  directors,  for  $5.0  million  and
accrued interest pursuant to the Securities Purchase Agreement between ApolloMed and Alliance dated as of March 30, 2017.

The consideration for the transaction was  18% of the total issued and outstanding shares of ApolloMed common stock, or  6,109,205 (immediately following the
Merger).

In addition, the fair value of NMM’s  50% interest in APAACO, an entity that was owned  50% by ApolloMed and  50% by NMM, was remeasured at fair value as of
the Effective Time and added to the consideration transferred to ApolloMed as a result of NMM relinquishing its equity investment in APAACO in order to obtain
control of ApolloMed. The fair value of NMM’s noncontrolling interest in APAACO was $5.1 million.

Total purchase consideration consisted of the following:

Equity consideration (1)
Fair value of ApolloMed preferred stock held by NMM (2)

Fair value of NMM’s noncontrolling interest in APAACO (3)
Fair value of the outstanding ApolloMed stock options (4)

Total purchase consideration

(1) Equity consideration

$

$

61,092,050
19,118,000

5,129,000
1,055,333

86,394,383

Immediately following the Effective Time, pre-merger ApolloMed stockholders continued to hold an aggregate of  6,109,205 shares of ApolloMed common
stock.

The equity consideration, which represents a portion of the consideration deemed transferred to the pre-Merger ApolloMed stockholders in the Merger, is
calculated  based  on  the  number  of  shares  of  the  combined  company  that  the  pre-Merger  ApolloMed  stockholders  would  own  as  of  the  closing  of  the
Merger.

Number of shares of the combined company that would be owned by pre-Merger ApolloMed stockholders  (*)  
Multiplied by the price per share of ApolloMed’s common stock  (**)  

Equity Consideration

6,109,205
10.00

61,092,050

$

$

(*)

(**)

Represents the number of shares of the combined company that pre-Merger ApolloMed stockholders would own at closing of the Merger.

Represents the closing price of ApolloMed’s common stock on December 8, 2017.

(2) Fair value of ApolloMed’s preferred shares held by NMM

NMM currently owns all the shares of ApolloMed Series A preferred stock and Series B preferred stock, which were acquired prior to the Merger.  As part
of the Merger, the ApolloMed Series A preferred stock and Series B preferred stock are remeasured at fair value and included as part of the consideration
transferred to ApolloMed. The fair value of the Series A preferred stock and Series B preferred stock is reflective of the liquidation preferences, claims of
priority and conversion option values thereof. In aggregate, the Series A preferred stock and Series B preferred stock were valued to be $19.1 million.  The
valuation methodology was based on an Option Pricing Method ("OPM") which utilized the observable publicly traded common stock price in valuing the
Series  A  preferred  stock  and  the  Series  B  preferred  stock  within  the  context  of  the  capital  structure  of  the  Company.  OPM  assumptions  included  an
expected term of 2 years, volatility rate of  37.9%, and a risk-free rate of  1.8%. The fair value of the liquidation preference for the Series A preferred stock
and the Series B preferred stock was determined to be $12.7 million and the fair value of the conversion option was determined to be  $6.4 million  or  an
aggregate total fair value of $19.1 million.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

(3) Fair value of NMM’s 50% share of APA ACO Inc.

Prior  to  the  Merger,  APAACO  was  owned  50%  by  ApolloMed  and  50%  NMM.  NMM’s  noncontrolling  interest  in  APAACO  has  been  remeasured  at  fair
value as of the closing date and is added to the consideration transferred to ApolloMed as a result of NMM relinquishing its equity investment in APAACO
in  order  to  obtain  control  of  ApolloMed.  The  fair  value  of  NMM’s  noncontrolling  interest  in  APAACO  has  been  estimated  to  be $5.1  million  using  the
discounted cash flow method and NMM recorded a gain on investment for the same amount to reflect the fair value of this investment prior the Merger.

(4) Fair value of the ApolloMed outstanding stock options

The fair value of the outstanding ApolloMed stock options is included in consideration transferred in accordance with ASC 805. The outstanding ApolloMed
stock options are expected to vest in conjunction with the Merger due to a pre-existing change-of-control provision associated with the awards. There is no
future service requirement.

The following table sets forth the final allocation of the purchase consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of
ApolloMed and MMG (see “MMG Transaction” below), with the excess recorded as goodwill:

Assets acquired

Cash and cash equivalents
Accounts receivable, net

Other receivables
Prepaid expenses
Property, plant and equipment, net
Restricted cash
Fair value of intangible assets acquired

Deferred tax assets
Other assets
Goodwill
Accounts payable and accrued liabilities
Medical liabilities

Line of credit
Convertible note payable, net
Convertible note payable - related party
Noncontrolling interest

Net assets acquired

Total purchase consideration

Balance Sheet

36,367,555
7,261,588

3,211,028
249,193
1,114,332
745,220
14,984,000

2,498,417
217,241
86,197,395
(8,632,893)
(39,353,540)

(25,000)
(5,376,215)
(9,921,938)
(3,142,000)

86,394,383

86,394,383

$

$

$

During  the  year  ended December  31,  2018,  goodwill  related  to  the  Merger  increased  by  $0.7  million  due  to  the  $0.9  million  increase  in  the  fair  value  of  the
outstanding ApolloMed stock options, which was partially offset by the $0.2 million decrease in the related deferred tax asset with a commensurate adjustment
recorded to additional paid in capital. In addition, during the year ended December 31, 2018, goodwill and deferred tax assets decreased by  $0.9 million resulting
from an adjustment associated with the allocation of the Merger transaction costs. As a result, in aggregate, during the year ended December 31, 2018,  goodwill
decreased by $0.2 million.

Convertible Note Payable – Related Party

On  March  30,  2017,  ApolloMed  issued  a  Convertible  Promissory  Note  to  Alliance  Apex,  LLC  (“Alliance  Note”)  for  $5.0  million.  Alliance’s 50%  member  and
manager is a member of ApolloMed’s board of directors. The Alliance Note was due and payable to Alliance Apex, LLC on (i) March 31, 2018, or (ii) the date on
which the Change of Control Transaction is terminated, whichever occurs first. As a result of the Merger, the Alliance Note together with the accrued and unpaid
interest, automatically converted

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

into shares of the Company’s common stock, at a conversion price of  $10.00 per share (see Note 12). The Alliance Note was guaranteed by NMM prior to its
conversion.

Pro Forma Combined Historical Results

The pro forma combined historical results, as if ApolloMed had been acquired as of January 1, 2017, are estimated as follows (unaudited):

Net revenues
Net income attributable to Apollo Medical Holdings, Inc.
Weighted average common shares outstanding:

Basic

Earnings per share:

Basic

Weighted average common shares outstanding:

Diluted

Earnings per share:

Diluted

Year Ended
December 31, 2017

$
$

$

$

478,873,780
9,982,706

25,525,786

0.39

28,661,735

0.35

The  pro  forma  information  has  been  prepared  for  comparative  purposes  only  and  does  not  purport  to  be  indicative  of  what  would  have  occurred  had  the
acquisition actually been made at such date, nor is it necessarily indicative of future operating results.

Alpha Care Medical Group, Inc.

On May 31, 2019, APC and APC-LSMA completed their acquisition of  100% of the capital stock of Alpha Care from Dr. Kevin Tyson for an aggregate purchase
price of approximately $45.1 million in cash, subject to post-closing adjustments. As part of the transaction the Company deposited  $2.0 million into an escrow
account for potential post-closing adjustments. As of December 31, 2019 no post-closing adjustment is expected to be paid to Dr. Tyson and the full amount of
the escrow account is expected to be returned to the Company. As such, the escrow amount is presented within Prepaid expenses and other current assets in
the accompanying consolidated balance sheet.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed, as of the acquisition date:

Assets acquired

Cash and cash equivalents
Accounts receivable, net

Other current assets
Network relationship intangible assets
Goodwill
Accounts payable
Deferred tax liabilities

Medical liabilities

Net assets acquired

Cash paid

Accountable Health Care, IPA

Preliminary
Balance Sheet

3,568,554
10,335,664

4,360,850
22,636,000
28,585,209
(2,776,631)
(6,334,368)

(15,319,714)

45,055,564

45,055,564

$

$

$

On  August  30,  2019,  APC  and  APC-LSMA,  acquired  the  remaining  outstanding  shares  of  capital  stock  they  did  not  already  own  (comprising  75%)  in
Accountable Health Care in exchange for $7.3 million in cash. In addition to the payment of  $7.3 million APC assumed all assets and liabilities of Accountable
Health Care, including loans payable to NMM and APC of $15.4 million, which has been eliminated upon consolidation. Including the  25% investment valued at
$2.4 million already owned by APC the total purchase price was  $25.1 million (see Note 6).

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed, as of the acquisition date:

Assets acquired

Cash and cash equivalents
Accounts receivable, net
Other current assets
Network relationship intangible assets

Goodwill
Accounts payable
Medical liabilities
Subordinated loan

Net assets acquired

Equity investment contributed
Cash paid

Preliminary
Balance Sheet

581,965
5,150,060
198,056
11,411,000

23,018,675
(3,211,349)
(12,154,726)
(15,327,013)

9,666,668

2,416,668
7,250,000

$

$

$
$

The Company also completed one additional acquisition (AMG) on September 10, 2019 for total consideration of  $1.6 million,  of  which  $0.4 million  was  in  the
form  of  APC  common  stock.  The  business  combination  did  not  meet  the  quantitative  thresholds  to  require  separate  disclosures  based  on  the  Company's
consolidated net assets, investments and net income.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Pro Forma Financial Information for All 2019 Acquisitions

The  following  unaudited  pro  forma  supplemental  information  is  based  on  estimates  and  assumptions  that  ApolloMed  believes  are  reasonable.  However,  this
information is not necessarily indicative of the Company's consolidated results of income in future periods or the results that actually would have been realized if
ApolloMed  and  the  acquired  businesses  had  been  combined  companies  during  the  periods  presented.  These  pro  forma  results  exclude  any  savings  or
synergies that would have resulted from these business acquisitions had they occurred on January 1, 2018. This unaudited pro forma supplemental information
includes incremental intangible asset amortization and other charges as a result of the acquisitions, net of the related tax effects.

The  supplemental  information  on  an  unaudited  pro  forma  financial  basis  presents  the  combined  results  of  ApolloMed  and  its  2019  acquisitions  as  if  each
acquisition had occurred on January 1, 2018:

Revenue
Net income
Net income attributable to Apollo Medical Holdings, Inc.

EPS - Basic
EPS - Diluted

Year Ended
December 31, 2019
(unaudited)

Year Ended
December 31, 2018
(unaudited)

  $
  $
  $

  $
  $

658,010,954   $
10,867,496   $
7,310,724   $

0.21   $
0.20   $

726,074,752
58,879,491
9,447,002

0.29
0.25

The acquisitions were accounted for under the acquisition method of accounting. The fair value of the consideration for the acquired company was allocated to
acquired  tangible  and  intangible  assets  and  liabilities  based  upon  their  fair  values.  The  excess  of  the  purchase  consideration  over  the  fair  value  of  the  net
tangible and identifiable intangible assets acquired were recorded as goodwill. The determination of the fair value of assets and liabilities acquired requires the
Company to make estimates and use valuation techniques when market value is not readily available. The results of operations of the company acquired have
been  included  in  the  Company's  financial  statements  from  the  respective  dates  of  acquisition.  Transaction  costs  associated  with  business  acquisitions  are
expensed as they are incurred.

At  the  time  of  acquisition,  the  Company  estimates  the  amount  of  the  identifiable  intangible  assets  based  on  a  valuation  and  the  facts  and  circumstances
available  at  the  time.  The  Company  determines  the  final  value  of  the  identifiable  intangible  assets  as  soon  as  information  is  available,  but  not  more  than  12
months from the date of acquisition.

Goodwill is not deductible for tax purposes.

The following is a summary of goodwill activity for the years ended  December 31, 2019 and 2018:

Balance at January 1, 2018
Adjustments
Impairment - (MMG)

Balance at December 31, 2018
Acquisitions

Balance at December 31, 2019

Amount

189,847,202
(242,456)
(3,798,866)

185,805,880
52,699,324

238,505,204

$

$

$

During December 31, 2018, the Company wrote off the remaining goodwill balance of MMG of  $3.8  million  (included  in  impairment  of  goodwill  and  intangible
assets in the accompanying consolidated statements of income), as MMG was no longer utilized and therefore did not provide any future economic benefit.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

4.

Land, Property and Equipment, Net

Land, property and equipment, net consisted of:

Land
Buildings
Computer software

Furniture and equipment
Construction in progress
Leasehold improvements

December 31, 2019   December 31, 2018

$

3,300,000   $
2,357,709  
3,088,508  

12,584,619  
167,248  
6,654,993  

3,300,000
2,326,189
2,929,317

11,786,345
144,008
6,236,189

28,153,077  

26,722,048

Less accumulated depreciation and amortization

(16,023,176)  

(14,000,966)

Land, property and equipment, net

$

12,129,901   $

12,721,082

As  of  December  31,  2019  and  2018,  the  Company  had  finance  leases  totaling  $0.5  million  and $0.6  million,  respectively,  included  in  Land,  property  and
equipment, net in the accompanying consolidated balance sheets.

Depreciation expense was  $2.0 million, $2.2 million and $1.6 million for the years ended  December 31, 2019, 2018, and 2017, respectively, which is included in
depreciation and amortization in the accompanying consolidated statements of income.

5.

Intangible Assets, Net

At December 31, 2019, intangible assets, net consisted of the following:

Useful
Life
(Years)

Gross
January 1, 2019

Additions

Impairment/
Disposal

Gross
December 31,
2019

Accumulated
Amortization

Net
December 31, 2019

N/A

  $

1,994,000   $

—   $

(1,994,000)   $

—   $

—   $

—

Indefinite Lived Assets:

Medicare license

Amortized Intangible Assets:

Network relationships

11-15

Management contracts

Member relationships

Patient management platform

Tradename/trademarks

15

12

5

20

109,883,000  
22,832,000  
6,696,000  

2,060,000  
1,011,000  

34,047,000  
—  
—  

—  
—  

—  
—  
—  

—  
—  

143,930,000  
22,832,000  
6,696,000  

2,060,000  
1,011,000  

(60,524,996)  
(9,676,381)  
(2,352,133)  

(858,329)  
(105,312)  

83,405,004

13,155,619

4,343,867

1,201,671

905,688

  $

144,476,000   $

34,047,000   $

(1,994,000)   $

176,529,000   $

(73,517,151)   $

103,011,849

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

At December 31, 2018, intangible assets, net consisted of the following:

Useful
Life
(Years)

Gross
January 1,
2018

Additions

Impairment/
Disposal

Gross
December 31, 2018  

Accumulated
Amortization

Net
December 31, 2018

N/A

  $

1,994,000   $

—   $

—   $

1,994,000   $

—   $

1,994,000

Indefinite Lived Assets:

Medicare license

Amortized Intangible

Assets:

Network relationships

11-15

Management contracts

Member relationships

Patient management

platform

Tradename/trademarks

15

12

5

20

109,883,000  

22,832,000  
6,696,000  

2,060,000  
1,011,000  

—  

—  
—  

—  
—  

—  

—  
—  

—  
—  

109,883,000  

(48,361,773)  

22,832,000  
6,696,000  

(7,447,581)  
(1,289,667)  

2,060,000  
1,011,000  

(446,333)  
(54,763)  

61,521,227

15,384,419

5,406,333

1,613,667

956,237

  $

144,476,000   $

—   $

—   $

144,476,000   $

(57,600,117)   $

86,875,883

Amortization  expense  was $16.3  million,  $17.1  million  and $17.5  million  (including $0.3  million,  $0.4  million  and $0.4  million  of  amortization  expense  for
exclusivity  incentives)  for  the  years  ended December  31,  2019,  2018,  and  2017,  respectively,  which  is  included  in  depreciation  and  amortization  in  the
accompanying consolidated statements of income.

During the year ended December 31, 2019, the Company wrote off indefinite-lived intangible assets of  $2.0 million related to Medicare licenses it acquired as
part of the Merger. The Company will no longer utilize these licenses and as such the Company will not receive future economic benefits.

Future amortization expense is estimated to be as follows for the years ending  December 31:

2020

2021
2022
2023
2024

Thereafter

100

$

Amount

16,026,000

14,542,000
12,673,000
10,842,000
9,830,000

39,099,000

$

103,012,000

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

6.

Investments in Other Entities

Equity Method

Investments in other entities – equity method consisted of the following:

Universal Care, Inc.

LaSalle Medical Associates – IPA Line of Business
Diagnostic Medical Group
Pacific Medical Imaging & Oncology Center, Inc.
Pacific Ambulatory Surgery Center, LLC

Accountable Health Care IPA
531 W. College, LLC
MWN, LLC

LaSalle Medical Associates - IPA Line of Business

December 31, 2019

December 31, 2018

  $

1,438,199   $

6,396,706  
2,334,083  
1,395,878  
—  

—  
16,697,898  
164,691  

2,635,945

7,054,888
2,257,346
1,359,494
285,198

4,977,957
16,273,152
33,000

  $

28,427,455   $

34,876,980

LMA  was  founded  by  Dr.  Albert  Arteaga  in  1996  and  currently  operates  six  neighborhood  medical  centers  through  its  network  of  more  than  2,300  PCP  and
Specialists providers, treating children, adults and seniors in San Bernardino County. LMA’s patients are primarily served by Medi-Cal and they also accept Blue
Cross, Blue Shield, Molina, Care 1st, Health Net and Inland Empire Health Plan. LMA is also an IPA of independently contracted doctors, hospitals and clinics,
delivering high quality care to more than 310,000 patients in Fresno, Kings, Los Angeles, Madera, Riverside, San Bernardino and Tulare Counties. During 2012,
APC-LSMA and LMA entered into a share purchase agreement whereby APC-LSMA invested $5.0 million for a  25% interest in LMA’s IPA line of business. NMM
has a management services agreement with LMA. APC accounts for its investment in LMA under the equity method as APC has the ability to exercise significant
influence, but not control over LMA’s operations. For the year ended December 31, 2019, APC recorded a net loss of  $2.8 million from its investment in LMA as
compared  to  net  loss  of $2.4 million  for  the  year  ended  December 31, 2018,  in  the  accompanying  consolidated  statements  of  income.  During  the  year  ended
December  31,  2019,  the  Company  contributed $2.1  million  to  LMA  as  part  of  its  25%  interest.  The  investment  balance  was $6.4  million  and $7.1  million  at
December 31, 2019 and 2018, respectively.

LMA’s IPA line of business unaudited summarized balance sheets at  December 31, 2019 and 2018 and unaudited summarized statements of operations for the
years ended December 31, 2019 and 2018 are as follows:

Balance Sheets

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Assets

Cash and cash equivalents

Receivables, net
Other current assets
Loan receivable
Restricted cash

Total assets

Liabilities and Stockholders’ (Deficit) Equity
Current liabilities

December 31, 2019
(unaudited)

December 31, 2018
(unaudited)

  $

6,345,195   $

5,123,228  
3,526,319  
2,250,000  
683,358  

18,444,702

2,897,337
5,459,442
1,250,000
667,414

17,928,100  

28,718,895

  $

23,529,745   $

26,837,814

Stockholders’ (deficit) equity

(5,601,645)  

1,881,081

Total liabilities and stockholders’ (deficit) equity

  $

17,928,100   $

28,718,895

Statements of Operations

Revenues
Expenses

Loss from operations

Other Income

Year Ended
December 31, 2019
(unaudited)

Year Ended
December 31, 2018
(unaudited)

  $

194,020,435   $
205,153,162  

239,031,485
251,738,193

(11,132,727)  

(12,706,708)

—  

173,356

Loss before income tax benefit

(11,132,727)  

(12,533,352)

Income tax benefit

Net loss

Pacific Medical Imaging and Oncology Center, Inc.

—  

(3,334,332)

  $

(11,132,727)   $

(9,199,020)

PMIOC  was  incorporated  in  2004  in  the  state  of  California.  PMIOC  provides  comprehensive  diagnostic  imaging  services  using  state-of-the-art  technology.
PMIOC  offers  high  quality  diagnostic  services  such  as  MRI/MRA,  PET/CT,  CT,  nuclear  medicine,  ultrasound,  digital  x-rays,  bone  densitometry  and  digital
mammography at their facilities.

In July 2015, APC-LSMA and PMIOC entered into a share purchase agreement whereby APC-LSMA invested  $1.2 million for a  40% ownership in PMIOC.

APC and PMIOC have an Ancillary Service Contract together whereby PMIOC provides covered services on behalf of APC to enrollees of the plans of APC.
Under the Ancillary Service Contract APC paid PMIOC fees of $2.7 million and $2.5 million for the years ended  December 31, 2019 and 2018, respectively. APC
accounts  for  its  investment  in  PMIOC  under  the  equity  method  of  accounting  as  APC  has  the  ability  to  exercise  significant  influence,  but  not  control  over
PMIOC’s operations. During the year ended December 31, 2019, APC recorded net income of  $36,384 from its investment as compared to net loss of  $41,199
for the

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

year ended December 31, 2018 in the accompanying consolidated statements of income and has an investment balance of  $1.4 million  at December  31,  2019
and 2018, respectively.

Universal Care, Inc.

UCI is a privately held health plan that has been in operation since 1985 in order to help its members through the complexities of the healthcare system. UCI
holds a license under the California Knox-Keene Health Care Services Plan Act (Knox-Keene Act) to operate as a full-service health plan. UCI contracts with the
CMS under the Medicare Advantage Prescription Drug Program.

On August 10, 2015, UCAP, an entity solely owned  100% by APC with APC’s executives, Dr. Thomas Lam, Dr. Pen Lee and Dr. Kenneth Sim, as designated
managers, purchased from UCI 100,000 shares of UCI class A-2 voting common stock (comprising  48.9% of the total outstanding UCI shares, but  50% of UCI’s
voting common stock) for $10 million. APC accounts for its investment in UCI under the equity method of accounting as APC has the ability to exercise significant
influence, but not control over UCI’s operations.

During  the  years  ended December  31,  2019  and 2018,  APC  recorded  losses  from  this  investment  of  $1.2  million  and $6.0  million,  respectively,  in  the
accompanying consolidated statements of income and has an investment balance of $1.4 million and $2.6 million at December 31, 2019 and 2018, respectively.

UCI’s unaudited balance sheets at December 31, 2019 and 2018 and unaudited statements of operations for the years ended  December 31, 2019 and 2018 are
as follows:

Balance Sheets

Assets

Cash
Receivables, net
Other current assets
Other assets

Property and equipment, net

Total assets

Liabilities and stockholders’ deficit

Current liabilities
Other liabilities
Stockholders’ deficit

Total liabilities and stockholders’ deficit

December 31, 2019
(unaudited)

December 31, 2018
(unaudited)

  $

  $

  $

  $

33,889,962   $
63,843,009  
38,280,156  
882,243  

4,021,341  

27,812,520
46,978,703
18,670,350
661,621

2,786,996

140,916,711   $

96,910,190

128,330,389   $
33,132,948  
(20,546,626)  

89,731,133
25,024,043
(17,844,986)

140,916,711   $

96,910,190

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Year Ended
December 31, 2019
(unaudited)

Year Ended
December 31, 2018
(unaudited)

  $

500,374,910   $
502,566,659  

(2,191,749)  

257,628  

326,719,634
335,242,582

(8,522,948)

3,692,818

  $

(2,449,377)   $

(12,215,766)

Statements of Operations

Revenues
Expenses

Loss before income tax provision

Income tax provision

Net loss

Diagnostic Medical Group

APC accounts for its  40% investment in DMG, under the equity method of accounting as APC-LSMA, a designated shareholder professional corporation, has the
ability to exercise significant influence, but not control over DMG’s operations. APC recorded income from this investment of $0.3 million and $1.0 million  in 2019
a n d 2018,  respectively,  in  the  accompanying  consolidated  statements  of  income.  During  the  years  ended  December  31,  2019  and 2018,  APC  received
dividends of $0.2 million and $0.6 million, respectively, from DMG. The investment balance was  $2.3 million December 31, 2019 and 2018, respectively.

Pacific Ambulatory Surgery Center, LLC

Pacific  Ambulatory  Surgery  Center,  LLC  (“PASC”),  a  California  limited  liability  company,  is  a  multi-specialty  outpatient  surgery  center  that  is  certified  to
participate  in  the  Medicare  program  and  is  accredited  by  the  Accreditation  Association  for  Ambulatory  Health  Care.  PASC  has  entered  into  agreements  with
organizations  such  as  healthcare  service  plans,  independent  practice  associations,  medical  groups  and  other  purchasers  of  healthcare  services  for  the
arrangement  of  the  provision  of  outpatient  surgery  center  services  to  subscribers  or  enrollees  of  such  health  plans.  APC  accounts  for  its 40%  investment  in
PASC under the equity method of accounting as APC has the ability to exercise significant influence, but not control over PASC’s operations.

During the year ended December 31, 2019, the Company recognized an impairment loss of  $0.3 million related to its investment in PASC as the Company does
not  believe  it  will  recover  its  investment  balance.  Such  impairment  loss  is  included  in  loss  from  equity  method  investment  in  the  accompanying  consolidated
statement of income.

During the year ended December 31, 2018, APC recorded a loss from this investment of  $0.3 million, in the accompanying consolidated statements of income
and has an investment balance of $0.3 million at December 31, 2018.

Accountable Health Care, IPA

Accountable Health Care is a California professional medical corporation that has served the local community in the greater Los Angeles County area through a
network  of  physicians  and  health  care  providers  for  more  than  20  years.  Accountable  currently  has  a  network  of  over 400  primary  and 700  specialty  care
physicians, and five community and regional hospital medical centers that provide quality health care services to more than  84,000 members of three  federally
qualified health plans and multiple product lines, including Medi-Cal, Commercial, Medicare and Healthy Families.

On September 21, 2018, APC and NMM each exercised their option to convert their respective  $5.0 million loans into shares of Accountable capital stock (see
Note 7). As a result, APC’s $5.0 million loan was converted into a  25% equity interest with the remaining  $5.0 million loan held by NMM to be converted into an
equity  interest  that  will  be  determined  based  on  a  third  party  valuation  of  Accountable’s  current  enterprise  value.  On  August  30,  2019,  APC  and  APC-LSMA
entered into separate agreements with Dr. Jayatilaka to acquire the remaining outstanding shares of capital stock (comprising 75%) of Accountable Health Care
in exchange for $7.3 million in cash. In addition to the payment of  $7.3 million, APC assumed all liabilities and assets of Accountable Health Care (See Note 3
and Note 7).

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Notes to Consolidated Financial Statements

The Company recognized a gain of approximately  $1.8 million as a result of the transaction, which represented the difference between the fair value of the  25%
ownership  held  and  the  Company's  basis  at  the  time  of  acquisition.  Such  gain  is  included  in  loss  from  equity  method  investment  in  the  accompanying
consolidated statements of income for the year ended December 31, 2019.

Effective  September  1,  2019,  Accountable  Health  Care's  financial  result  is  included  in  the  consolidated  balance  sheets  and  the  consolidated  statements  of
income for the year ended December 31, 2019.

531 W. College LLC

In  June  2018,  College  Street  Investment  LP,  a  California  limited  partnership  (“CSI”),  a  related  party,  APC  and  NMM,  entered  into  an  operating  agreement  to
govern the limited liability company, 531 W. College, LLC and the conduct of its business, and to specify their relative rights and obligations. CSI, APC and NMM,
each owns 50%, 25% and 25%, respectively, of member units based on initial capital contributions of  $16.7 million, $8.3 million, and  $8.3 million, respectively.

On  June  29,  2018,  531  W.  College,  LLC  closed  its  purchase  of  a  non-operational  hospital  located  in  Los  Angeles  from  Societe  Francaise  De  Bienfaisance
Mutuelle De Los Angeles, a California nonprofit corporation, for a total purchase price of $33.3 million. In June 2018, APC, NMM and AMHC Healthcare, Inc. on
behalf  of  CSI,  wired $8.3  million,  $8.3  million  and $16.7  million,  respectively  into  an  escrow  account  for  the  benefit  of  531  W.  College,  LLC  to  purchase  the
hospital pursuant to the Purchase Agreement. The transaction closed on June 28, 2018. On April 23, 2019, NMM and APC entered into an agreement whereby
NMM  assigned  and  APC  assumed  NMM's 25%  membership  interest  in  531  W.  College,  LLC  for  approximately  $8.3  million.  Subsequently,  APC  has
a 50% ownership in 531 W. College LLC with a total investment balance of approximately  $16.1 million.

APC accounts for its investment in 531 W. College, LLC under the equity method of accounting as APC has the ability to exercise significant influence, but not
control over the operations of this joint venture. APC’s investment is presented as an investment of equity method in the accompanying consolidated balance
sheets as of December 31, 2019 and 2018.

During  the  years  ended December  31,  2019  and 2018,  NMM  and  APC  recorded  losses  from  its  investment  in  531  W.  College  LLC  of  $0.2  million  and $0.4
million, respectively, in the accompanying consolidated statements of income. During the year ended December 31, 2019, APC contributed  $0.7 million  to  531
W. College, LLC as part of its 50%  interest. The accompanying consolidated balance sheet includes the related investment balance of $16.7 million  and $16.3
million, respectively, related to APC's investment at December 31, 2019 and APC's and NMM's investment at December 31,  2018.

531 W. College LLC’s unaudited balance sheet at and unaudited statement of operations for the years ended  December 31, 2019 and 2018 are as follows:

Balance Sheet

Assets

Cash

Other current assets
Other assets
Property and equipment, net

Total assets

Liabilities and Stockholders’ Equity

Current liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

December 31, 2019
(unaudited)

December 31, 2018
(unaudited)

  $

  $

  $

  $

139,436   $

16,500  
70,000  
33,581,438  

158,088

16,137
70,000
33,394,792

33,807,374   $

33,639,017

1,061,577   $

32,745,797  

1,007,413

32,631,604

33,807,374   $

33,639,017

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Year Ended
December 31, 2019
(unaudited)

Year Ended
December 31, 2018
(unaudited)

  $

—   $

1,010,423  

(1,010,423)  

474,617  

  $

(535,806)   $

—
875,771

(875,771)

162,451

(713,320)

Statement of Operations

Revenues
Expenses

Loss from operations

Other income

Net loss

MWN LLC

On December 18, 2018, NMM along with 6 Founders LLC, a California limited liability company doing business as Pacific6 Enterprises (“Pacific6”), and Health
Source  MSO  Inc.,  a  California  corporation  (“HSMSO”)  entered  into  an  operating  agreement  to  govern  MWN  Community  Hospital,  LLC  and  the  conduct  of  its
business and to specify their relative rights and obligations. NMM, Pacific6, and HSMSO each owns 33.3% of membership shares based on each member’s initial
capital contributions of $3,000 and working capital contributions of  $30,000. NMM invested an additional $ 0.3 million, as part of its  33.3% interest, for working
capital purpose. As of December 31, 2019 and 2018, NMM’s investment balance of $ 0.2 million and $ 33,000 are included in investments in other entities - equity
method in the accompanying consolidated balance sheet.

Investment in privately held entities

MediPortal, LLC

In May 2018, APC purchased  270,000 membership interests of MediPortal LLC, a New York limited liability company, for  $0.4 million  or $1.50 per membership
interest, which represented approximately 2.8% ownership. APC also received a  5-year warrant to purchase 270,000 membership interests. A 5-year option to
purchase an additional 380,000 membership interests and a  5-year warrant to purchase 480,000 membership interests are contingent upon the portal completion
date, which has not been completed as of December 31, 2019. As APC does not have the ability to exercise significant influence, and lacks control, over the
investee, this investment is accounted for using a measurement alternative which allows the investment to be measured at cost, adjusted for observable price
changes and impairments, with changes recognized in net income. During the year ended December 31, 2019 there were no observable price changes to our
investment.

AchievaMed

On July 1, 2019, NMM and AchievaMed, Inc. a California corporation ("AchievaMed") entered into an agreement in which NMM would purchase up to  50% of the
aggregate shares of capital stock of AchievaMed over a period of time not to exceed five years. As a result of this transaction, NMM invested  $0.5 million  for  a
10%  interest.  The  related  investment  balance  of $0.5 million  is  included  in  "Investment  in  a  privately  held  entities"  in  the  accompanying  consolidated  balance
sheet  as  of December  31,  2019.  As  NMM  does  not  have  the  ability  to  exercise  significant  influence,  and  lacks  control,  over  the  investee,  this  investment  is
accounted for using a measurement alternative which allows the investment to be measured at cost, adjusted for observable price changes and impairments,
with changes recognized in net income. During the year ended December 31, 2019 there were no observable price changes to our investment.

7.

Loans Receivable and Loans Receivable – Related Parties

Loan Receivable

Dr. Albert Arteaga

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

On June 28, 2019, APC entered into a convertible secured promissory note with Dr. Albert H. Arteaga, M.D. ("Dr. Arteaga"), Chief Executive Officer of LMA, to
loan $6.4 million to Dr. Arteaga. Interest on the loan accrues at a rate that is equal to the prime rate plus 1% (5.75% as of December 31, 2019)  and  payable  in
monthly installments of interest only on the first day of each month until the maturity date of June 28, 2020, at which time, all outstanding principal and accrued
interest thereon shall be due and payable in full. The note is secured by certain shares of LMA common stock held by Dr. Arteaga.

At  any  time  on  or  before  June  28,  2020,  and  upon  written  notice  by  APC  to  Dr.  Arteaga,  APC  has  the  right,  but  not  the  obligation,  to  convert  the  entire
outstanding principal amount of this note into shares of LMA common stock which equal 21.25% of the aggregate then-issued and outstanding shares of LMA
common stock to be held by APC's designee, which may include APC-LSMA. If converted, APC-LSMA and APC's designee will collectively own 46.25% of the
equity of LMA with the remaining 53.75% to be owned by Dr. Arteaga. The entire note receivable has been classified under loans receivable - related parties in
the consolidated balance sheet in the amount of $6.4 million as of December 31, 2019.

Loans Receivable - Related Parties

Accountable Health Care IPA

On August 30, 2019, APC and APC-LSMA acquired the remaining outstanding shares of capital stock they did not already own (comprising  75%) in Accountable
Health Care in exchange for $7.3 million in cash. In addition to the payment of  $7.3 million APC assumed all assets and liabilities of Accountable Health Care,
these  liabilities  include  the  loan  payable  due  to  NMM  of $5.0  million  and  the  remaining  loan  receivable  of  $7.3  million  originally  to  be  paid  to  George  M.
Jayatilaka,  M.D.  As  a  result  of  the  net  loans  assumed,  APC  recognized  a  gain  of $2.3  million  recorded  in  other  income  in  the  accompanying  consolidated
statement of income for the year ended December 31, 2019. All loan payables and receivables has been eliminated upon consolidation (see Note 3 and Note 6).

Universal Care, Inc.

In  2015,  APC  advanced $5.0 million on behalf of UCAP to UCI for working capital purposes. On June 29, 2018, November 28, 2018 and December 13, 2019
APC advanced an additional $2.5 million, $5.0 million and $4.0 million, respectively. The loans accrue interest at the prime rate plus  1%, or 5.75% and 6.50%, as
of December 31, 2019  and 2018, respectively, with interest to be paid monthly. The entire note receivable has been classified under loans receivable - related
parties in the consolidated balance sheets in the amount of $16.5 million and $12.5 million as of December 31, 2019 and 2018, respectively. As part of the stock
purchase agreement to sell UCI, between UCAP, Bright Health Company of California, Inc., a California corporation, Bright Health, Inc., a Delaware corporation,
and UCI, the outstanding loans receivable will be repaid prior to close of the transaction, which is subject to certain closing conditions, including but not limited
to, certain regulatory or governmental filings and approvals having been made or obtained, and receipt of various third party consents.

8.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

Accounts payable
Capitation payable

Subcontractor IPA payable
Professional fees
Due to related parties
Contract liabilities
Accrued compensation

9.

Medical Liabilities

107

  December 31, 2019   December 31, 2018

  $

6,914,680   $
2,812,652  

3,360,282  
1,837,434  
225,000  
8,891,966  
3,237,565  

4,481,544
300,000

2,532,750
2,251,741
1,488,313
9,024,235
4,996,906

  $

27,279,579   $

25,075,489

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Medical liabilities consisted of the following:

Balance, beginning of year
Acquired (see Note 3)

Claims paid for previous year
Claims paid on acquired liabilities
Incurred health care costs
Claims paid for current year

Payment to CMS
Adjustments

Balance, end of year

10.

Credit Facility, Bank Loan and Lines of Credit - Related Party

Credit Facility

The Company's credit facility consisted of the following:

Term Loan A
Revolver Loan

Total Debt

Less: current portion of debt
Less: unamortized financing cost

 Long-term debt

The following table presents scheduled maturities of the Company's credit facility as of  December 31, 2019:

2020
2021
2022
2023

2024

 Total

Credit Agreement

  December 31, 2019  

December 31,
2018

  $

33,641,701   $
27,474,440  

(33,396,932)  
(25,236,286)  
274,670,676  
(218,564,072)  

—  
135,155  

63,972,318
—

(36,549,348)
—
209,002,961
(167,537,480)

(34,464,826)
(781,924)

  $

58,724,682   $

33,641,701

December 31, 2019

$

$

$

187,625,000
60,000,000

247,625,000

(9,500,000)
(5,952,866)

232,172,134

Amount

9,500,000
10,687,500
14,250,000
15,437,500

197,750,000

$

247,625,000

On September 11, 2019, the Company entered into a secured credit agreement (the “Credit Agreement”) with SunTrust Bank, in its capacity as administrative
agent for the lenders (in such capacity, the “Agent”), as a lender, an issuer of letters of credit and as swingline lender, and Preferred Bank, which is affiliated with
one of the Company's board members, JPMorgan Chase Bank, N.A.,

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

MUFG Union Bank, N.A., Royal Bank of Canada, Fifth Third Bank and City National Bank, as lenders (the “Lenders”). In connection with the closing of the Credit
Agreement,  the  Company,  its  subsidiary,  NMM,  and  the  Agent  entered  into  a  Guaranty  and  Security  Agreement  (the  “Guaranty  and  Security  Agreement”),
pursuant to which, among other things, NMM guaranteed the obligations of the Company under the Credit Agreement.

The  Credit  Agreement  provides  for  a  five-year  revolving  credit  facility  to  the  Company  of $100.0  million  ("Revolver  Loan"),  which  includes  a  letter  of  credit
subfacility  of  up  to $25.0 million.  As  of  December  31,  2019  the  Company  has  outstanding  letters  of  credit  totaling  $14.8  million  and  the  Company  has  $25.2
million available under the revolving credit facility. The Credit Agreement also provides for a term loan of  $190.0 million, ("Term Loan A"). The unpaid principal
amount of the term loan is payable in quarterly installments on the last day of each fiscal quarter commencing on December 31, 2019. The principal payment for
each  of  the  first  eight  fiscal  quarters  is $2.4  million,  for  the  following  eight  fiscal  quarters  thereafter  is  $3.6  million  and  for  the  following  three  fiscal  quarters
thereafter is $4.8 million. The remaining principal payment on the term loan is due on  September 11, 2024.

The proceeds of the term loan and up to $60.0 million of the revolving credit facility may be used to (i) finance a portion of the  $545.0 million loan made by the
Company to AP-AMH Medical Corporation, a California professional medical corporation (“AP-AMH”), concurrently with the closing of the Credit Agreement (the
“AP-AMH Loan”) as described in the May 13, 2019, Current Report and the August 29, 2019, Current Report, (ii) refinance certain indebtedness of the Company
and its subsidiaries and, indirectly, APC, (iii) pay transaction costs and expenses arising in connection with the Credit Agreement, the AP-AMH Loan and certain
other related transactions and (iv) provide for working capital, capital expenditures and other general corporate purposes. The remainder of the revolving credit
facility  will  be  used  to  finance  future  acquisitions  and  investments  and  to  provide  for  working  capital  needs,  capital  expenditures  and  other  general  corporate
purposes.

The Company is required to pay an annual facility fee of  0.20%  to 0.35% on the available commitments under the Credit Agreement, regardless of usage, with
the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. The Company is also required to pay customary fees as specified in
a separate fee agreement between the Company and SunTrust Robinson Humphrey, Inc., the lead arranger of the Credit Agreement.

Amounts  borrowed  under  the  Credit  Agreement  will  bear  interest  at  an  annual  rate  equal  to  either,  at  the  Company’s  option,  (a)  the  rate  for  Eurocurrency
deposits for the corresponding deposits of U.S. dollars appearing on Reuters Screen LIBOR01 Page (“LIBOR”), adjusted for any reserve requirement in effect,
plus a spread of from 2.00% to 3.00%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of  1.00%  to
2.00%, as determined on a quarterly basis based on the Company’s leverage ratio. As of December 31, 2019 the interest rate on the Credit Agreement was
4.54%. The base rate is defined in a manner such that it will not be less than LIBOR. The Company will pay fees for standby letters of credit at an annual rate
equal to 2.00% to 3.00%, as determined on a quarterly basis based on the Company’s leverage ratio, plus facing fees and standard fees payable to the issuing
bank on the respective letter of credit. Loans outstanding under the Credit Agreement may be prepaid at any time without penalty, except for LIBOR breakage
costs  and  expenses.  If  LIBOR  ceases  to  be  reported,  the  Credit  Agreement  requires  the  Company  and  the  Agent  to  endeavor  to  establish  a  commercially
reasonable alternative rate of interest and until they are able to do so, all borrowings must be at the base rate.

The Credit Agreement requires the Company and its subsidiaries to comply with various affirmative covenants, including, without limitation, furnishing updated
financial  and  other  information,  preserving  existence  and  entitlements,  maintaining  properties  and  insurance,  complying  with  laws,  maintaining  books  and
records, requiring any new domestic subsidiary meeting a materiality threshold specified in the Credit Agreement to become a guarantor thereunder and paying
obligations. The Credit Agreement requires the Company and its subsidiaries to comply with, and to use commercially reasonable efforts to the extent permitted
by  law  to  cause  certain  material  associated  practices  of  the  Company,  including  APC,  to  comply  with,  restrictions  on  liens,  indebtedness  and  investments
(including restrictions on acquisitions by the Company), subject to specified exceptions. The Credit Agreement also contains various other negative covenants
binding the Company and its subsidiaries, including, without limitation, restrictions on fundamental changes, dividends and distributions, sales and leasebacks,
transactions with affiliates, burdensome agreements, use of proceeds, maintenance of business, amendments of organizational documents, accounting changes
and prepayments and modifications of subordinated debt.

The Credit Agreement requires the Company to comply with  two key financial ratios, each calculated on a consolidated basis. The Company must maintain a
maximum  consolidated  leverage  ratio  of  not  greater  than 3.75  to  1.00  as  of  the  last  day  of  each  fiscal  quarter.  The  maximum  consolidated  leverage  ratio
decreases by 0.25 each year, until it is reduced to  3.00 to 1.00 for each fiscal quarter ending after  September 30, 2022. The Company must maintain a minimum
consolidated  interest  coverage  ratio  of  not  less  than 3.25  to  1.00  as  of  the  last  day  of  each  fiscal  quarter.  As  of  December  31,  2019,  the  Company  was  in
compliance with the covenants relating to its credit facility.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Pursuant to the Guaranty and Security Agreement, the Company and NMM have granted the Lenders a security interest in all of their assets, including, without
limitation, all stock and other equity issued by their subsidiaries (including NMM) and all rights with respect to the AP-AMH Loan. The Guaranty and Security
Agreement  requires  the  Company  and  NMM  to  comply  with  various  affirmative  and  negative  covenants,  including,  without  limitation,  covenants  relating  to
maintaining perfected security interests, providing information and documentation to the Agent, complying with contractual obligations relating to the collateral,
restricting the sale and issuance of securities by their respective subsidiaries and providing the Agent access to the collateral.

The Credit Agreement contains events of default, including, without limitation, failure to make a payment when due, default on various covenants in the Credit
Agreement,  breach  of  representations  or  warranties,  cross-default  on  other  material  indebtedness,  bankruptcy  or  insolvency,  occurrence  of  certain  judgments
and certain events under the Employee Retirement Income Security Act of 1974 aggregating more than $10.0 million, invalidity of the loan documents, any lien
under the Guaranty and Security Agreement ceasing to be valid and perfected, any change in control, as defined in the Credit Agreement, an event of default
under the AP-AMH Loan, failure by APC to pay dividends in cash for any period of two consecutive fiscal quarters, failure by AP-AMH to pay cash interest to the
Company, or if any modification is made to the Certificate of Determination or the Special Purpose Shareholder Agreement that directly or indirectly restricts,
conditions,  impairs,  reduces  or  otherwise  limits  the  payment  of  the  Series  A  Preferred  dividend  by  APC  to  AP-AMH.  In  addition,  it  will  constitute  an  event  of
default  under  the  Credit  Agreement  if  APC  uses  all  or  any  portion  of  the  consideration  received  by  APC  from  AP-AMH  on  account  of  AP-AMH’s  purchase  of
Series  A  Preferred  Stock  for  any  purpose  other  than  certain  specific  approved  uses  described  in  the  following  sentence,  unless  not  less  than 50.01%  of  all
holders of common stock of APC at such time approve such use; provided that APC may use up to $50.0 million in the aggregate of such consideration for any
purpose without any requirement to obtain such approval of the holders of common stock of APC. The approved uses include (i) any permitted investment, (ii)
any dividend or distribution to the holders of the common stock of APC, (iii) any repurchase of common stock of APC, (iv) paying taxes relating to or arising from
certain assets and transactions, or (v) funding losses, deficits or working capital support on account of certain non-healthcare assets in an amount not to exceed
$125.0 million. If any event of default occurs and is continuing under the Credit Agreement, the Lenders may terminate their commitments, and may require the
Company and its guarantors to repay outstanding debt and/or to provide a cash deposit as additional security for outstanding letters of credit. In addition, the
Agent, on behalf of the Lenders, may pursue remedies under the Guaranty and Security Agreement, including, without limitation, transferring pledged securities
of the Company’s subsidiaries in the name of the Agent and exercising all rights with respect thereto (including the right to vote and to receive dividends), collect
on pledged accounts, instruments and other receivables (including the AP-AMH Loan), and all other rights provided by law or under the loan documents and the
AP-AMH Loan.

In the ordinary course of business, certain of the Lenders under the Credit Agreement and their affiliates have provided to the Company and its subsidiaries and
the associated practices, and may in the future provide, (i) investment banking, commercial banking (including pursuant to certain existing business loan and
credit agreements being terminated in connection with entering into the Credit Agreement), cash management, foreign exchange or other financial services, and
(ii) services as a bond trustee and other trust and fiduciary services, for which they have received compensation and may receive compensation in the future.

Deferred Financing Costs

The Company recorded deferred financing costs of $6.4 million related to the issuance of the Credit Facility. This amount was recorded as a direct reduction of
the carrying amount of the related debt liability. The deferred financing costs related to the term loan will be amortized over the life of the Credit Facility using the
effective interest rate method. The deferred financing costs related to the revolver will be amortized using the straight line method over the term of the revolver.
During the year ended December 31, 2019, $0.5 million of amortization relating to deferred financing costs is included under "Depreciation and Amortization" of
the cash flow statement.

Effective Interest Rate

The Company’s average effective interest rate on its total debt during the years ended  December 31, 2019, 2018 and 2017 was  3.39%, 4.72%, and  2.27%,
respectively.

Bank Loan

In December 2010, ICC obtained a loan of  $4.6 million from a financial institution. The loan bears interest based on the Wall Street Journal “prime rate” or  5.50%
per annum, as of December 31, 2018. The loan was collateralized by the medical equipment ICC owns and guaranteed by one of ICC’s shareholders. The loan
matured on December 31, 2018 and final payment was made in January 2019.

Lines of Credit – Related Party

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

NMM Business Loan

On June 14, 2018, NMM amended its promissory note agreement with Preferred Bank, which is affiliated with one of the Company’s board members, (“NMM
Business  Loan  Agreement”),  which  provides  for  loan  availability  of  up  to $20.0  million  with  a  maturity  date  of  June  22,  2020.  One  of  the  Company’s  board
members is the chairman and CEO of Preferred Bank. The NMM Business Loan Agreement was amended on September 1, 2018  to  temporarily  increase  the
loan  availability  from $20.0 million  to $27.0 million  for  the  period  from  September 1, 2018 through January 31, 2019 ,  further  extended  to October  31,  2019  to
facilitate  the  issuance  of  an  additional  standby  letter  of  credit  for  the  benefit  of  CMS.  The  interest  rate  is  based  on  the  Wall  Street  Journal  “prime  rate”  plus
0.125%, or 5.625%, as of  December 31, 2018. The loan was guaranteed by Apollo Medical Holdings, Inc. and is collateralized by substantially all of the assets
of NMM. The amounts outstanding as of June 30, 2019 of $5.0 million was fully repaid on September 11, 2019.

O n September  5,  2018,  NMM  entered  into  a  non-revolving  line  of  credit  agreement  with  Preferred  Bank,  which  is  affiliated  with  one  of  the  Company’s  board
members, (“NMM Line of Credit Agreement”) which provides for loan availability of up to $20.0 million  with  a  maturity  date  of  September  5,  2019.  This  credit
facility was subsequently amended on April 17, 2019 and July 29, 2019 to reduce the loan availability from  $20.0 million  to $16.0 million  and  from  $16.0  million
to $2.2 million, respectively. The interest rate is based on the Wall Street Journal “prime rate” plus  0.125%,  or 4.875%,  as  of  December 31, 2019.  The  line  of
credit is guaranteed by Apollo Medical Holdings, Inc. and is collateralized by substantially all assets of NMM. NMM obtained this line of credit to finance potential
acquisitions. Each drawdown from the line of credit is converted into a five-year term loan with monthly principal payments plus interest based on a  five-year
amortization schedule.

On September 11, 2019,  the  NMM  Business  Loan  Agreement,  dated  as  of  June  14,  2018,  between  NMM  and  Preferred  Bank,  as  amended,  and  the  Line  of
Credit Agreement, dated as of September 5, 2018, between NMM and Preferred Bank, as amended, was terminated in connection with the closing of the Credit
Facility. Certain letters of credit issued by Preferred Bank under the Line of Credit Agreement was terminated and reissued under the Credit Agreement. These
outstanding letters of credit totaled $14.8 million as of December 31, 2019 and the Company has  $10.2 million available under the letter of credit subfacility.

APC Business Loan

O n June  14,  2018,  APC  amended  its  promissory  note  agreement  with  Preferred  Bank,  which  is  affiliated  with  one  of  the  Company’s  board  members,  (“APC
Business Loan Agreement”) which provides for loan availability of up to $10.0 million with a maturity date of  June 22, 2020. This credit facility was subsequently
amended  on April  17,  2019  and June  11,  2019  to  increase  the  loan  availability  from  $10.0  million  to $40.0  million  and  extend  the  maturity  date  through
December 31, 2020. On August 1, 2019 and September 10, 2019, this credit facility was further amended to increase loan availability from  $40.0 million to $43.8
million, and decrease loan availability from  $43.8 million  to $4.1 million, respectively. This decrease further limited the purpose of the indebtedness under APC
Business Loan Agreement to the issuance of standby letters of credit, and added as a permitted lien the security interest in all of its assets granted by APC in
favor of NMM under a Security Agreement dated on or about September 11, 2019 securing APC’s obligations to NMM under, and as required pursuant to, that
certain Management Services Agreement dated as of July 1, 1999, as amended. The interest rate is based on the Wall Street Journal “prime rate” plus 0.125%,
or 4.875% and 5.625%, as of  December 31, 2019  and December 31, 2018, respectively. As of December 31, 2019 there is no additional availability under this
line of credit.

Standby Letters of Credit

O n March  3,  2017,  APAACO  established  an  irrevocable  standby  letter  of  credit  with  Preferred  Bank,  which  is  affiliated  with  one  of  the  Company’s  board
members,  (through  the  NMM  Business  Loan  Agreement)  for $6.7  million  for  the  benefit  of  CMS.  The  letter  of  credit  expired  on  December  31,  2018  and  was
automatically extended without amendment for additional one - year periods from the present or any future expiration date, unless notified by the institution to
terminate prior to 90 days from any expiration date. APAACO may continue to draw from the letter of credit for one year following the bank’s notification of non-
renewal. As of December 31, 2019, CMS has released the Company from this obligation.

On October 2, 2018, APAACO established a second irrevocable standby letter of credit with Preferred Bank, which is affiliated with one of the Company’s board
members,  (through  the  NMM  Business  Loan  Agreement)  for $6.6  million  for  the  benefit  of  CMS.  The  letter  of  credit  expires  on  December  31,  2019  and  is
automatically extended without amendment for additional one - year periods from the present or any future expiration date, unless notified by the institution to
terminate prior to 90 days from any expiration date. APAACO may continue to draw from the letter of credit for one year following the bank’s notification of non-
renewal. This standby letter of credit was subsequently amended on August 14, 2019  to  increase  amount  from $6.6  million  to $14.8  million  and  extended  the
expiration date to December 31, 2020 with all other terms and conditions to remain unchanged. In connection with the closing of the Credit Facility, this letter of
credit was terminated and reissued under the Credit Agreement.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

APC established irrevocable standby letters of credit with a financial institution for a total of  $0.3 million for the benefit of certain health plans. The standby letters
of  credit  are  automatically  extended  without  amendment  for  additional one-year  periods  from  the  present  or  any  future  expiration  date,  unless  notified  by  the
institution in advance of the expiration date that the letter will be terminated.

Alpha  Care  established  irrevocable  standby  letters  of  credit  with  Preferred  Bank  under  the  APC  Business  Loan  Agreement  for  a  total  of  $3.8  million  for  the
benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or
any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.

11.

Income Taxes

Provision for income taxes consisted of the following:

Current

Federal
State

Deferred

Federal

State

Years ended December 31,

2019

2018

2017

$

9,034,736   $
5,924,933  

21,058,703   $
9,646,172  

19,219,251
5,336,885

14,959,669  

30,704,875  

24,556,136

(3,508,348)  

(3,284,689)  

(5,954,666)  

(18,718,113)

(2,390,569)  

(1,951,238)

(6,793,037)  

(8,345,235)  

(20,669,351)

Total provision for income taxes

$

8,166,632   $

22,359,640   $

3,886,785

The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based
on  differences  between  the  financial  statement  and  tax  bases  of  assets  and  liabilities  using  enacted  tax  rates.  As  of December  31,  2019,  the  Company  had
Federal and California net operating loss carryforwards of approximately $45.6 million  and $61.3 million, respectively. The Federal and California net operating
loss carryforwards will expire at various dates from 2026 through 2039;  however,  $23.1 million of the Federal operating loss does not expire and will be carried
forward indefinitely. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's net operating loss and credit carryforwards may be limited
if a cumulative change in ownership of more than 50% occurs within any three years' period since the last ownership change. The Company had a change in
control under these Sections with the completion of the Merger. The Company has performed an analysis of the limitation on the NOLs acquired with the Merger
and has determined it will be able to utilize all of the net operating losses (“NOLs”) before they expire.

Significant components of the Company's deferred tax assets (liabilities) as of  December 31, 2019  and December 31, 2018 are shown below. During the year
ended December 31, 2019, the Company recorded a non-cash reclassification  $0.9 million of deferred tax liabilities to income tax payable related to utilization of
NOLs. A valuation allowance of $8.2 million and $3.4 million as of December 31, 2019  and December 31, 2018, respectively, has been established against the
Company's deferred tax assets related to loss entities the Company cannot consolidate under the Federal consolidation rules, as realization of these assets is
uncertain.

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Deferred tax assets (liabilities)

State taxes
Stock options
Accrued payroll and related cost
Accrued hospital pool deficit

Allowance for bad debts
Investment in other entities
Net operating loss carryforward
Lease liability
Property and equipment

Acquired intangible assets
Right-of-use assets
Risk Pool Receivable
Other

Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

$

2019

2018

1,110,659   $
1,293,164  
277,682  
188,075  

544,028  
2,977,431  
13,849,685  
3,567,302  
(927,011)  

(29,195,045)  
(3,544,315)  
(1,623,049)  
1,403,446  

1,886,010
1,660,664
238,633
168,413

1,124,917
884,922
6,414,256
—
(1,286,087)

(24,084,892)
—
(2,434,573)
(792,781)

Net deferred tax liabilities before valuation allowance

(10,077,948)  

(16,220,518)

Valuation allowance

Net deferred tax liabilities

Tax valuation allowance

Beginning balance

Charged (credited) to tax expense
Charged to goodwill

Ending balance

(8,191,500)  

(3,395,417)

$

(18,269,448)   $

(19,615,935)

2019

2018

$

3,395,417   $

3,224,517

1,085,842  
3,710,241  

8,191,500  

170,900
—

3,395,417

On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA establishes
new tax laws that will take effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35%  to 21%;  (2)
elimination of the corporate alternative minimum tax; (3) a new limitation on deductible interest expense; (4) the Transition Tax; (5) limitations on the deductibility
of  certain  executive  compensation;  (6)  changes  to  the  bonus  depreciation  rules  for  fixed  asset  additions:  and  (7)  limitations  on  NOLs  generated  after
December 31, 2018, to 80% of taxable income.

ASC  740,  Income  Taxes,  requires  the  effects  of  changes  in  tax  laws  to  be  recognized  in  the  period  in  which  the  legislation  is  enacted.  However,  due  to  the
complexity and significance of the TCJA’s provisions, the SEC staff issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for the
tax  effects  of  the  TCJA.  SAB  118  provides  a  measurement  period  that  should  not  extend  beyond  one  year  from  the  TCJA  enactment  date  for  companies  to
complete the accounting under ASC 740.

During the first nine months of 2018, the Company recorded provisional amounts for certain enactment-date effects of the TCJA, for which the accounting had
not been finalized, by applying the guidance in SAB 118. The Company recorded a decrease in its deferred tax assets and deferred tax liabilities of $6.6  million
and $16.3  million,  respectively,  with  a  corresponding  net  adjustment  to  deferred  income  tax  benefit  of  $9.7  million  for  the  year  ended  December  31,  2017.
Accordingly,  the  Company  completed  its  accounting  for  the  tax  effects  of  the  TCJA  in  2018  and  did  not  recognize  any  material  adjustments  to  the  2018
provisional income tax expense.

The provision for income taxes differs from the amount computed by applying the federal income tax rate as follows for the years ended  December 31:

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Tax provision at U.S. Federal statutory rates
State income taxes net of federal benefit
Non-deductible permanent items
Non-taxable entities
Stock-based compensation

Change in valuation allowance
Entity Conversion
Change in rate
Other

Effective income tax rate

Years ended December 31,

2019

2018

2017

21.0 %  
8.1
3.3
(2.7)
(1.5)

13.7
(10.5)

—  
0.2

21.0 %  

6.7
1.3
(0.7)
(1.8)

—  
0.5
—  
0.1

35.0 %
4.4
(9.7)
(1.9)
0.9

(2.9)
—
(19.4)
1.4

31.6 %  

27.1 %  

7.8 %

The  Company's  effective  tax  rate  is  different  from  the  federal  statutory  rate  of  21%  due  primarily  to  state  taxes,  share-based  compensation  and  permanent
adjustments.  As  of December 31, 2019  and 2018, the Company does not have any unrecognized tax benefits related to various federal and state income tax
matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company is subject to U.S. federal income tax as well as income tax in California. The Company and its subsidiaries' state and Federal income tax returns
are open to audit under the statute of limitations for the years ended December 31, 2015  through December 31, 2018 and for the years ended  December  31,
2016 through December 31, 2018, respectively. The Company does not anticipate material unrecognized tax benefits within the next 12 months.

12.    Mezzanine and Shareholders’ Equity

APC

As the redemption feature (see Note 2) of the shares is not solely within the control of APC, the equity of APC does not qualify as permanent equity and has
been classified as noncontrolling interests in mezzanine or temporary equity. APC’s shares were not redeemable and it was not probable that the shares would
become redeemable as of December 31, 2019, 2018 and 2017.

On September 10, 2019, APC-LSMA, a holding company of APC, acquired  100% of the aggregate issued and outstanding shares of capital stock of AMG for
$1.2 million in cash and  $0.4 million of APC common stock.

On  September  11,  2019,  AP-AMH  purchased  1,000,000  shares  of  APC  Series  A  Preferred  Stock  for  aggregate  consideration  of  $545.0  million  in  a  private
placement. This investment was eliminated in consolidation. In relation to the issuance of APC Series A Preferred Stock, APC incurred $0.9 million in cost (see
Note 1).

Shareholders’ Equity

Preferred Stock – Series A

On October 14, 2015, ApolloMed entered into an agreement with NMM pursuant to which ApolloMed sold to NMM, and NMM purchased from ApolloMed, in a
private offering of securities, 1,111,111 units, each unit consisting of one share of ApolloMed’s Preferred Stock (the “Series A”) and a common stock warrant (a
“Series A Warrant”) to purchase one share of ApolloMed’s common stock at an exercise price of $9.00 per share. NMM paid ApolloMed an aggregate of  $10.0
million for the units, the proceeds of which were used by ApolloMed primarily to repay certain outstanding indebtedness owed by ApolloMed to NNA of Nevada
and the balance for working capital.

As  required  by  ASC  805-10-25-10,  NMM,  who  was  the  accounting  acquirer,  remeasured  its  previously  held  interest  in  ApolloMed’s  (the  accounting  acquiree)
Series A at its acquisition-date fair value of $12.7 million and was added to the consideration transferred

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

in the exchange. As part of the Merger between NMM and ApolloMed (see Note 3), the fair value of  $12.7 million of such shares of Series A were included in
purchase  price  consideration.  The  valuation  methodology  was  based  on  an  Option  Pricing  Method  ("OPM")  which  utilized  the  observable  publicly  traded
common stock price in valuing the Series A preferred stock within the context of the capital structure of the Company. OPM assumptions included an expected
term of 2 years, volatility rate of  37.9%, and a risk-free rate of  1.8%.

At December 31, 2019 and 2018, this investment was eliminated in consolidation due to the merger between ApolloMed and NMM (see Note 3).

Preferred Stock – Series B

On March 30, 2016, ApolloMed entered into an agreement with NMM pursuant to which ApolloMed sold to NMM, and NMM purchased from ApolloMed, in a
private offering of securities, 555,555 units, each unit consisting of one share of ApolloMed’s Series B Preferred Stock (“Series B”) and a common stock warrant
(a “Series B Warrant”) to purchase one share of ApolloMed’s common stock at an exercise price of $10.00 per share. NMM paid ApolloMed an aggregate  $5.0
million for the units.

As required by ASC 805-10-25-10, NMM, who was the accounting acquirer, remeasured its previously held interest in ApolloMed’s (the acquiree) Series B at its
acquisition-date fair value of $6.4 million, and was added to the consideration transferred in the exchange. As part of the Merger between NMM and ApolloMed
(see Note 3), the fair value of $6.4 million of such shares of Series B were included in purchase price consideration. The valuation methodology was based on
an OPM which utilized the observable publicly traded common stock price in valuing the Series B preferred stock within the context of the capital structure of the
Company. OPM assumptions included an expected term of 2 years, volatility rate of  37.9%, and a risk-free rate of  1.8%.

NMM recorded a gain of approximately  $8.6 million to reflect the fair values of the Series A and Series B prior to the Merger date, which is included in gain from
investments in the accompanying consolidated statement of income for the year ended December 31, 2017.

At December 31, 2019 and 2018, this investment was eliminated in consolidation due to the merger between ApolloMed and NMM (see Note 3).

2017 Share Issuances and Repurchases

Prior to the Merger date, NMM received cash in the aggregate amount of approximately  $0.3  million  from  the  exercise  of  stock  options  to  purchase 102,199
shares  of  NMM  common  stock  at $2.44  per  share.  In  accordance  with  relevant  accounting  guidance,  the  amounts  collected  through  December  7,  2017  were
reflected as a long-term liability for unissued equity shares as of December 7, 2017 based on the terms of the forfeiture feature of the option, as noted above. In
connection  with  the  merger,  the  amount  included  in  long-term  liability  of  approximately $1.2  million  for  unissued  equity  shares  were  reclassified  to  equity  to
reflect the issuance of 508,133 shares of NMM common stock, which also resulted in the acceleration of the unvested portion of stock options in the amount of
approximately $0.8 million which was recorded as share-based compensation expense in the consolidated statements of income.

Prior  to  the  Merger  date,  an  option  (non-exclusivity)  was  exercised  for  the  purchase  of  102,641  shares  of  NMM  common  stock  at $1.46  per  share  for  gross
proceeds of approximately $0.2 million.

Prior to the Merger date, NMM sold an aggregate of  129,651 shares of common stock at $14.61 per share for aggregate proceeds of approximately  $1.9 million.

Prior to the Merger date, an aggregate of  109,123 shares of NMM common stock were repurchased for approximately  $1.6 million at a price of  $14.61 per share.
An  aggregate  of 23,628 shares of NMM common stock were repurchased for  $0.1 million  at  a  price  of  $2.44 per share. Such share repurchases reduced the
number of shares issued and outstanding as they were subsequently retired.

On December 8, 2017, ApolloMed completed its business combination with NMM following the satisfaction or waiver of the conditions set forth in the Merger
Agreement, pursuant to which Merger Subsidiary merged with and into NMM, with NMM surviving as a wholly owned subsidiary of ApolloMed (see Note 3).

In connection with the Merger and as of the effective time of the Merger (the “Effective Time”):

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

•

•

•

each  issued  and  outstanding  share  of  NMM  common  stock  was  converted  into  the  right  to  receive  such  number  of  shares  of  common  stock  of
ApolloMed that results in the former NMM shareholders who did not dissent from the Merger (“former NMM Shareholders”) having a right to receive an
aggregate of 30,397,489 shares of common stock of ApolloMed, subject to the  10% holdback pursuant to the Merger Agreement;

ApolloMed issued to former NMM Shareholders each former NMM Shareholder’s pro rata portion of (i) warrants to purchase an aggregate of  850,000
shares  of  common  stock  of  ApolloMed,  exercisable  at $11.00  per  share,  and  (ii)  warrants  to  purchase  an  aggregate  of  900,000  shares  of  common
stock of ApolloMed, exercisable at $10.00 per share; and

ApolloMed  held  back  an  aggregate  of 3,039,749  shares  of  common  stock  issuable  to  former  NMM  Shareholders,  representing  10%  of  the  total
number of shares of ApolloMed common stock issuable to former NMM Shareholders, to secure indemnification rights of AMEH and its affiliates under
the  Merger  Agreement  (the  “Holdback  Shares”).  The  Holdback  Shares  were  issued  and  outstanding  as  of December  31,  2019.  The  first  tranche  of
1,519,805 shares were issued in December 2018 and the remaining  1,511,380 were issued in December 2019, net of shares repurchase (see Note
13).

The shares of common stock issuable to former NMM shareholders in the exchange were  25,675,630 (net of 10% holdback and Treasury Shares) (see Note 3).
The 10% holdback shares will be released to all the former NMM shareholders based on their respective pro rata ownership interest in NMM at the Effective
Time  without  regard  to  whether  the  former  NMM  shareholders  are  providing  any  services  to  the  Company  at  the  time  of  this  distribution.  This  holdback
accommodation  was  made  as  indemnification  protection  to  the  accounting  acquiree  (ApolloMed),  and  as  such,  is  not  considered  compensatory.  At  the  time
when  these  holdback  shares  were  issued  to  the  former  NMM  shareholders,  the  Company  recorded  the  stock  issuance  with  a  reduction  to  additional  paid-in
capital to properly reflect the shares outstanding. 

Upon consummation of the Merger, the Company issued  520,081 shares its common stock with a fair value of approximately  $5.4 million from the conversion of
the Alliance Note and accrued interest.

Common Stock

As of the date of this Report,  535,392 holdback shares have not been issued to certain former NMM shareholders who were NMM shareholders at the time of
closing of the Merger, as they have yet to submit properly completed letters of transmittal to ApolloMed in order to receive their pro rata portion of ApolloMed
common  stock  and  warrants  as  contemplated  under  the  Merger  Agreement.  Pending  such  receipt,  such  former  NMM  shareholders  have  the  right  to  receive,
without interest, their pro rata share of dividends or distributions with a record date after the effectiveness of the Merger. The consolidated financial statements
have  treated  such  shares  of  common  stock  as  outstanding,  given  the  receipt  of  the  letter  of  transmittal  is  considered  perfunctory  and  the  Company  is  legally
obligated to issue these shares in connection with the Merger.

On March 21, 2018, the Company issued  37,593 shares of the Company’s common stock to the Company’s Chief Operating Officer for prior services rendered.
The stock price on the date of issuance was $16.80 per share, which resulted in the Company recording  $0.6 million  of  share-based  compensation  expense.
See options and warrants section below for common stock issued upon exercise of stock options and stock purchase warrants.

Equity Incentive Plans

In connection with the Merger (see Note 3), the Company assumed ApolloMed’s 2010 Equity Incentive Plan (the “2010 Plan”) pursuant to which  500,000 shares
of  the  Company’s  common  stock  were  reserved  for  issuance  thereunder.  The  2010  Plan  provides  for  awards  including  incentive  stock  options,  non-qualified
options, restricted common stock, and stock appreciation rights. As of December 31, 2019, there were no shares available for grant.

In connection with the Merger (see Note 3), the Company assumed ApolloMed’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. The Company received approval of the 2013 Plan from the Company’s stockholders
on May 19, 2013. The Company issues new shares to satisfy stock option and warrant exercises under the 2013 Plan. As of December 31, 2019, there were no
shares available for future grants under the 2013 Plan.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

In  connection  with  the  Merger  (see  Note  3),  the  Company  assumed  ApolloMed’s  2015  Equity  Incentive  Plan  (the  “2015  Plan”),  pursuant  to  which  1,500,000
shares of the Company’s common stock were reserved for issuance thereunder. In addition, shares that are subject to outstanding grants under the Company’s
2010 Plan and 2013 Plan but that ordinarily would have been restored to such plans reserve due to award forfeitures and terminations will roll into and become
available for awards under the 2015 Plan. The 2015 Plan provides for awards, including incentive stock options, non-qualified options, restricted common stock,
and stock appreciation rights. The 2015 Plan was approved by ApolloMed’s stockholders at ApolloMed’s 2016 annual meeting of stockholders that was held on
September  14,  2016.  As  of December  31,  2019,  2018  and 2017,  there  were  approximately  0.5  million,  0.9  million  and 1.0  million  shares  available  for  future
grants under the 2015 Plan, respectively.

Options

The Company’s outstanding stock options consisted of the following:

Options outstanding at January 1, 2017
Options assumed in the Merger (see Note 3)
Options granted

Options exercised
Options forfeited

Options outstanding at December 31, 2017
Options granted
Options exercised

Options forfeited

Options outstanding at December 31, 2018
Options granted
Options exercised

Options forfeited

Options outstanding at December 31, 2019

Options exercisable at December 31, 2019

Shares

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Term
(Years)

Aggregate
Intrinsic
Value
(in millions)

—   $

1,141,040  
—  

—  
—  

1,141,040   $
155,000  
(639,800)  

(9,000)  

647,240   $
279,698  
(241,214)  

(78,378)  

607,346   $

439,776   $

—  
3.95  
—  

—  
—  

3.95  
9.85  
4.11  

3.41  

5.62  
17.24  
6.09  

17.62  

9.22  

4.58  

—   $

5.85  
—  

—  
—  

5.79   $
—  
—  

—  

4.13   $
—  
—  

—  

3.42   $

2.09   $

—
22.6
—

—
—

22.6
—
9.8

—

9.2
—
2.7

—

5.6

5.6

During the year ended December 31, 2019  and 2018, stock options were exercised for  241,214  and 488,464 shares, respectively, of the Company’s common
stock, which resulted in proceeds of approximately $1.5 million and $1.8 million, respectively. The exercise prices ranged from  $1.50 to $10.00 per share for the
exercises during the year ended December 31, 2019 and ranged from  $0.01 to $10.00 per share for the exercises during the year ended  December 31, 2018.

During the year ended December 31, 2018, stock options were exercised pursuant to the cashless exercise provision of the option agreement, with respect to
151,346 shares of the Company’s common stock, which resulted in the Company issuing  109,438 net shares. During the year ended December 31, 2019,  no
stock options were exercised pursuant the cashless exercise provision.

During  the  year  ended December  31,  2019,  the  Company  granted  145,228  and 56,092  five  year  stock  options  to  certain  ApolloMed  board  members  and
executives, respectively, with exercise price ranging from $15.35  - $18.11  and $18.91, respectively, which were recognized at fair value, as determining using
the Black-Scholes option pricing model and following:

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019

Expected Term
Expected volatility

Risk-free interest rate
Market value of common stock
Annual dividend yield
Forfeiture rate

Board Members

Executives

3.0 years

3.0 years

90.50% - 100.27%  

1.60% - 2.51%  

$15.35 - $18.11

  $

—%  
0%  

84.42%

1.65%

18.91

—%
0%

During the year ended December 31, 2019, the Company recorded approximately  $0.9 million of share-based compensation expense associated with the
issuance of restricted shares of common stock and vesting of stock options which is included in General and administrative expenses in the accompanying
consolidated statement of income.

Stock Options Issued Under Primary Care Physician Agreements

On October 1, 2014, NMM and APC entered into an Exclusivity Amendment Agreement as part of the Primary Care Physician Agreement to issue stock options
to purchase shares of NMM and APC common stock.

The medical providers agreed to exclusivity to APC for health enrollees in consideration per provider of an exclusivity incentive in the amount of  $25,000  (or
$15,000 if already a preferred provider). The stock options were granted from the date of agreement through May 1, 2015 and are treated as issuances to non-
employees. The exercise price of the stock options was $2.44 (for NMM pre-merger) and  $0.17 (for APC) per share and providers were able to exercise anytime
between August 1, 2015 and October 1, 2019, as long as the providers continue to provide services pursuant to the terms of the agreement through October 1,
2019. If the agreement is terminated by the provider with or without cause, the exclusivity incentive and any capitation payment above standard rates made in
accordance with the terms of the agreement shall be fully repaid to APC by the terminating medical provider. In addition, any unexercised share options held by
the terminating medical provider will be forfeited on effective date of termination, and any share options that have been exercised will be bought back by NMM
and APC at the original purchase price.

As  of December  31,  2018  and 2017,  a  total  of  7,110,150  APC  stock  options  were  exercised  for  the  purchase  of  shares  of  common  stock  that  resulted  in
aggregate proceeds received by APC of $1.2 million. In accordance with relevant accounting guidance the options are reflected as long-term liability for unissued
equity shares as of December 31, 2018 and 2017 of $1.2 million based on the features noted above. As of December 31, 2019, the liability totaling  $1.2  million
was reclassified to the appropriate equity account as the contingency to repurchase these options expired on October 1, 2019.

The stock options under the Exclusivity Amendment Agreement were accounted for at fair value, as determined using the Black-Scholes option pricing model
and the following assumptions:

Expected term
Expected volatility

Risk-free interest rate
Market value of common stock
Annual dividend yield
Forfeiture rate

118

Years ended December 31,

2018

2017

0.75 years
38.10% - 41.60%  

0.93 - 1.75 years

38.10% - 41.60%

1.64% - 1.86%  
$0.52 - $0.76  
2.23% - 3.53%  
0% - 6.8%  

1.64% - 1.86%
$0.52 - $0.76
2.23% - 3.53%
0% - 6.8%

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Outstanding stock options granted to primary care physicians to purchase shares of APC’s common stock consisted of the following:

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term
(Years)

Aggregate
Intrinsic
Value

1.1
—
(0.6)

—

0.5
—
—

—

0.5
—
—

(0.5)

—

Options outstanding at January 1, 2017
Options granted
Options exercised

Options forfeited

Options outstanding at December 31, 2017
Options granted
Options exercised

Options forfeited

Options outstanding at December 31, 2018
Options granted
Options exercised

Options forfeited

Shares

1,910,400   $

—  
(1,056,600)  

—  

853,800   $

—  
—  

—  

853,800   $

—  
—  

(853,800)  

0.167  
—  
0.167  

—  

0.167  
—  
—  

—  

0.167  
—  
—  

0.167  

2.75   $
—  
—  

—  

1.75   $
—  
—  

—  

0.75   $
—  
—  

—  

Options outstanding and exercisable at December 31, 2019

—   $

—  

—   $

The aggregate intrinsic value is calculated as the difference between the exercise price and the estimated fair value of common stock as of  December 31, 2018
and 2017.

Share-based  compensation  expense  related  to  option  awards  granted  to  primary  care  physicians  with  Exclusivity  Agreements  to  purchase  shares  of  APC’s
common stock, are recognized over their respective vesting periods, and consisted of the following:

Share-based compensation expense:
General and administrative

Years ended December 31,

2019

2018

2017

$

$

607,146   $

607,146   $

809,528   $

809,528   $

2,113,116

2,113,116

The Company has no unrecognized share based compensation stock option awards granted in connection with the Exclusivity Amendment Agreements as of
December 31, 2019.

Warrants

Common stock warrants, to purchase 1,111,111 shares of ApolloMed common stock, issued to NMM in connection with the Series A Preferred Stock investment
in  ApolloMed  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. As part of the Merger between NMM and ApolloMed (see Note 3), such warrants were distributed to former NMM shareholders on a
pro-rata basis utilizing the percentage of shares of NMM held by each shareholder prior to the merger date.

Common stock warrants, to purchase 555,555 shares of ApolloMed common stock, issued to NMM in connection with the Series B Preferred Stock investment
in  ApolloMed  may  be  exercised  at  any  time  after  issuance  and  through  March  30,  2021,  for $10.00  per  share,  subject  to  adjustment  in  the  event  of  stock
dividends and stock splits. As part of the Merger between NMM and ApolloMed

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

(see  Note  3),  such  warrants  were  distributed  to  former  NMM  shareholders  on  a  pro-rata  basis  utilizing  the  percentage  of  shares  of  NMM  held  by  each
shareholder prior to the Merger date.

The Company’s outstanding warrants consisted of the following:

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term
(Years)

Aggregate
Intrinsic
Value
(In Millions)

—
1.8
—

52.0
—
3.0
—

33.1
—
1.60
—

26.7

9.00
10.00
11.00

9.96

Warrants outstanding at January 1, 2017
Warrants assumed in the Merger
Warrants granted (see Note 3)

Shares

—   $

1,898,541  
1,750,000  

Warrants granted
Warrants exercised
Warrants forfeited

Warrants granted
Warrants exercised
Warrants forfeited

Warrants outstanding at December 31, 2017

3,648,541   $

—  
(286,357)  
(30,189)  

Warrants outstanding at December 31, 2018

3,331,995   $

—  
(177,405)  
—  

Warrants outstanding at December 31, 2019

3,154,590   $

—  
9.06  
10.49  

9.75  
—  
7.84  
4.50  

9.93  
—  
9.32  
—  

9.96  

—   $

2.69  
5.00  

3.74   $
—  
—  
—  

2.97   $
—  
—  
—  

2.01   $

Exercise Price Per
Share

Warrants
Outstanding

$

9.00  
10.00  
11.00  

948,498  
1,386,083  
820,009  

$ 9.00 –11.00  

3,154,590  

Weighted
Average
Remaining
Contractual Life

Warrants
Exercisable

Weighted
Average
Exercise Price
Per
Share

0.79  
2.30  
2.94  

2.01  

948,498   $

1,386,083  
820,009  

3,154,590   $

During  the  years  ended December  31,  2019  and 2018,  common  stock  warrants  were  exercised  for  177,405  and 286,357  shares  of  the  Company’s  common
stock, respectively which resulted in proceeds of approximately $1.7 million  and $2.2 million, respectively. The exercise price ranged from  $9.00  to $11.00  per
share during year ended December 31, 2019 and $4.00 to $11.00 per share during year ended December 31, 2018.

Dividends

During  the  years  ended December  31,  2019,  2018  and 2017,  NMM  paid  dividends  of  $0,  $13.8  million  and $0,  respectively.  The  dividends  paid  in  the  year
ended December 31, 2018 was declared in  December 31, 2017 as part of the merger between ApolloMed and NMM and was classified as restricted cash (see
Note 3).

During the years ended December 31, 2019, 2018 and 2017, APC paid dividends of  $60 million, $2.0 million and $8.75 million, respectively.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

During the years ended December 31, 2019, 2018 and 2017, CDSC paid distributions of $2.6 million, $2.0 million and $1.7 million, respectively.

Treasury Stock

APC owns 17,290,317 shares of ApolloMed's common stock as of  December 31, 2019 and 1,682,110 shares of ApolloMed’s common stock as of December 31,
2018  and 2017,  respectively,  which  are  legally  issued  and  outstanding  but  excluded  from  shares  of  common  stock  outstanding  in  the  consolidated  financial
statements, as such shares are treated as treasury shares for accounting purposes (see Note 1).

During  the  year  ended  December  31,  2019,  APC  established  a  brokerage  account  to  invest  excess  capital  in  the  equity  market.  The  brokerage  account  is
managed  directly  by  an  independent  investment  committee  of  the  APC  board,  for  which  Dr.  Kenneth  Sim  and  Dr.  Thomas  Lam  has  been  excluded.  As  of
December 31, 2019 the brokerage account only held shares of ApolloMed, as such the brokerage account totaling $7.3 million  has  been  recorded  as  treasury
shares.

On  December  18,  2018  the  Company  entered  into  a  settlement  agreement  and  mutual  release  with  former  APCN  shareholders  to  repurchase  all  the  equity
interests  in  ApolloMed  and  APC  previously  held  by  these  shareholders  pursuant  to  the  stipulation.  Total  common  shares  repurchased  was 168,493  and
1,662,571 from ApolloMed and APC, respectively (See Note 13).

13.

Commitments and Contingencies

Regulatory Matters

Laws and regulations governing the Medicare program and healthcare generally are complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing.
While no regulatory inquiries have been made, 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 Medi-Cal programs.

As  a  risk-bearing  organization,  the  Company  is  required  to  follow  regulations  of  the  DMHC.  The  Company  must  comply  with  a  minimum  working  capital
requirement,  tangible  net  equity  (“TNE”)  requirement,  cash-to-claims  ratio  and  claims  payment  requirements  prescribed  by  the  DMHC.  TNE  is  defined  as  net
assets less intangibles, less non-allowable assets (which include amounts due from affiliates), plus subordinated obligations. At December 31, 2019  and 2018,
APC, Alpha Care and Accountable Health Care were in compliance with these regulations.

Many  of  the  Company’s  payor  and  provider  contracts  are  complex  in  nature  and  may  be  subject  to  differing  interpretations  regarding  amounts  due  for  the
provision of medical services. Such differing interpretations may not come to light until a substantial period of time has passed following contract implementation.
Liabilities for claims disputes are recorded when the loss is probable and can be estimated. Any adjustments to reserves are reflected in current operations.

Standby Letters of Credit

As part of the APAACO participation with CMS, the Company must provide a financial guarantee to CMS, the guarantee generally must be in an amount of  2%
of our benchmark Medicare Part A and Part B expenditures. The Company has established irrevocable standby letters of credit with Preferred Bank, which is
affiliated with one of the Company’s board members, of $8.2 million and $6.6 million for the  2019 and 2018 performance years, respectively (see Note 10).

APC established irrevocable standby letters of credit with a financial institution for a total of  $0.3 million for the benefit of certain health plans. The standby letters
of  credit  are  automatically  extended  without  amendment  for  additional one-year  periods  from  the  present  or  any  future  expiration  date,  unless  notified  by  the
institution in advance of the expiration date that the letter will be terminated (see Note 10).

Alpha  Care  established  irrevocable  standby  letters  of  credit  with  Preferred  Bank  under  the  APC  Business  Loan  Agreement  for  a  total  of  $3.8  million  for  the
benefit of certain health plans. The standby letters of credit are automatically extended without amendment for additional one-year periods from the present or
any future expiration date, unless notified by the institution in advance of the expiration date that the letter will be terminated.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Litigation

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of its business. The resolution of any
claim  or  litigation  is  subject  to  inherent  uncertainty  and  could  have  a  material  adverse  effect  on  the  Company’s  financial  condition,  cash  flows  or  results  of
operations.

Prospect Medical Systems

On or about March 23, 2018 and April 3, 2018, a Demand for Arbitration and an Amended Demand for Arbitration were filed by Prospect Medical Group, Inc. and
Prospect Medical Systems, Inc. (collectively, “Prospect”) against MMG, ApolloMed and AMM with Judicial Arbitration Mediation Services in California, arising out
of MMG’s purported business plans, seeking damages in excess of $5.0 million, and alleging breach of contract, violation of unfair competition laws, and tortious
interference  with  Prospect’s  current  and  future  economic  relationships  with  its  health  plans  and  their  members.  MMG,  ApolloMed  and  AMM  dispute  the
allegations  and  intend  to  vigorously  defend  against  this  matter.  The  resolution  of  this  matter  and  any  potential  range  of  loss  in  excess  of  any  current  accrual
cannot  be  reasonably  determined  or  estimated  at  this  time  primarily  because  the  matter  has  not  been  fully  arbitrated  and  presents  unique  regulatory  and
contractual interpretation issues.

APCN Shareholders

On  December  18,  2018  the  Company  entered  into  a  settlement  agreement  and  mutual  release  with  former  APCN  shareholders  to  repurchase  all  the  equity
interests in ApolloMed and APC previously held by these shareholders pursuant to the stipulation. ApolloMed and APC paid approximately $4.2 million  and $1.7
million,  respectively,  to  repurchase 168,493  and 1,662,571  shares  of  common  stock  of  each  company,  respectively.  The  Company  recognized  approximately
$0.8  million  of  legal  settlement  liability  based  on  the  settlement  amount  which  exceeded  the  fair  value  of  the  repurchased  ApolloMed  and  APC  shares  of
common stock and warrants.

Liability Insurance

The  Company  believes  that  its  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  its  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.  Contracted
physicians are required to obtain their own insurance coverage.

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.

14.

Related Party Transactions

On November 16, 2015, UCAP entered into a subordinated note receivable agreement with UCI, a  48.9% owned equity method investee (See Note 6), in the
amount  of $5.0  million.  On  June  28,  2018  and  November  28,  2018,  UCAP  entered  into  two  new  subordinated  note  receivable  agreements  with  UCI  in  the
amount of $2.5 million and $5.0 million, respectively (see Note 7).

During the years ended December 31, 2019 and 2018, NMM earned approximately  $17.3 million  and $21.6 million, respectively, in management fees, of which
$2.0 million  and $0.8 million, remained outstanding, respectively, from LMA, which is accounted for under the equity method based on  25%  equity  ownership
interest held by APC (see Note 6).

During the years ended December 31, 2019 and 2018, APC paid approximately  $2.7 million and $2.5 million, respectively, to PMIOC for provider services, which
is accounted for under the equity method based on 40% equity ownership interest held by APC (see Note 6).

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

During the years ended December 31, 2019 and 2018, APC paid approximately  $7.8 million and $7.0 million, respectively, to DMG for provider services, which is
accounted for under the equity method based on 40% equity ownership interest held by APC (see Note 6).

During the year ended December 31, 2019 and 2018, APC paid approximately  $0.4 million and $0.3 million, respectively, to Advance Diagnostic Surgery Center
for services as a provider. Advance Diagnostic Surgery Center shares common ownership with certain board members of APC.

During the years ended December 31, 2019 and 2018, NMM paid approximately  $1.1 million and $1.0 million to Medical Property Partners (“MPP”) for an office
lease. MPP shares common ownership with certain board members of NMM (see Note 19).

During the years ended December 31, 2018, APC paid approximately  $0.2 million to Tag-2Medical Investment Group, LLC (“Tag-2”) for an office lease. Tag-2
shares common ownership with a board member of APC.

During  the  years  ended December  31,  2019  and 2018,  the  Company  paid  approximately  $0.5  million  and $0.4  million,  respectively,  to  Critical  Quality
Management Corp (“CQMC”) for an office lease. CQMC shares common ownership with certain board members of APC (see Note 19).

During the years ended December 31, 2019  and 2018,  SCHC  paid  approximately $0.4 million  and $0.5  million,  respectively,  to  Numen,  LLC  (“Numen”)  for  an
office lease. Numen is owned by a shareholder of APC (see Note 19).

The Company has agreements with HSMSO, Aurion Corporation (“Aurion”), and AHMC Healthcare (“AHMC”) for services provided to the Company. One of the
Company’s board members is an officer of AHMC, HSMSO and Aurion. Aurion is also partially owned by one of the Company’s board members. The following
table sets forth fees incurred and income received related to AHMC, HSMSO and Aurion Corporation:

AHMC – Risk pool revenue
HSMSO – Management fees, net
Aurion – Management fees

Receipts, Net

Years ended December 31,

2019

49,300,000   $
(1,700,000)  
(300,000)  

2018

68,200,000
(2,600,000)
(317,000)

47,300,000   $

65,283,000

$

$

The Company and AHMC has a risk sharing agreement with certain AHMC hospitals to share the surplus and deficits of each of the hospital pools. During the
years ended December 31, 2019 and 2018 the Company has recognized risk pool revenue under this agreement of  $49.3 million and $68.2 million respectively,
of which $40.4 million and $44.2 million, respectively, remain outstanding as of  December 31, 2019 and 2018, respectively.

During the years ended December 31, 2019 and 2018, APC paid an aggregate of approximately  $22.0 million and $35.2 million, respectively, to shareholders of
APC for provider services, which included approximately $8.8 million and $13.5 million, respectively, to shareholders who are also officers of APC.

During the year ended December 31, 2019, NMM paid approximately  $0.2 million to an Apollo board member for consulting services.

In  addition,  affiliates  wholly-owned  by  the  Company’s  officers,  including  our  Co-CEO,  Dr.  Lam,  are  reported  in  the  accompanying  consolidated  statements  of
income on a consolidated basis, together with the Company’s subsidiaries, and therefore, the Company does not separately disclose transactions between such
affiliates and the Company’s subsidiaries as related party transactions.

For equity method investments, loans receivable and line of credits from related parties, see Notes 6, 7 and 10, respectively.

15.

Employee Benefit Plan

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

NMM  has  a  qualified  401(k)  plan  that  covers  substantially  all  employees  who  have  completed  at  least  six  months  of  service  and  meet  minimum  age
requirements. Participants may contribute a portion of their compensation to the plan, up to the maximum amount permitted under Section 401(k) of the Internal
Revenue  Code.  Participants  become  fully  vested  after six  years  of  service.  NMM  matches  a  portion  of  the  participants’  contributions.  NMM’s  matching
contributions for the years ended December 31, 2019 and 2018 were approximately $0.2 million.

16.

Revenue Recognition

At the adoption of Topic 606, the cumulative effect of initially applying the new revenue standard is required to be presented as an adjustment to the opening
balance of retained earnings. This cumulative effect amount was determined to be related to the full risk pool arrangements of APC, a variable interest entity
(see  Note  18).  Due  to  uncertainty  surrounding  the  settlement  of  the  related  IBNR  reserve,  under  ASC  Topic  605,  the  Company  has  historically  recognized
revenue from full risk pool settlements under arrangements with hospitals when such amounts are known as the related revenue amounts were not deemed to
be fixed and determinable until that time. Under ASC Topic 606, the transaction price includes an assessment of variable consideration; therefore, full risk pool
settlements under these arrangements are recognized using the most likely method and amounts are only included in revenue to the extent that it is probable
that  a  significant  reversal  of  cumulative  revenue  will  not  occur  once  any  uncertainty  is  resolved.  The  assumptions  for  historical  medical  loss  ratios,  IBNR
completion  factors  and  constraint  percentages  were  used  by  management  in  applying  the  most  likely  method.  Accordingly,  the  Company  has  estimated  an
additional amount of revenue to recognize the expected amount that is most likely to be paid upon settlement of each of the open full risk pool fiscal year, which
amount was included in the adoption date adjustment to retained earnings. Therefore, the cumulative net effect of initially applying Topic 606 in the amount of
$10.2 million, which is comprised of  $11.6 million of additional revenue, offset by  $1.4 million  in  related  management  fee  expense,  has  been  presented  as  an
adjustment  to  the  opening  balance  of  the  mezzanine  equity,  “Noncontrolling  interest  in  Allied  Pacific  of  California  IPA.”  Consequently,  as  a  result  of  APC
recording  additional  receivables,  NMM  recorded  a  corresponding  entry  of $1.4  million  to  retained  earnings  related  to  management  fee  income.  These
adjustments were offset by an aggregate adjustment to deferred tax liability of $3.2 million.

17.

Earnings Per Share

Basic  net  income  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  by  the  weighted  average  number  of  shares  of  the  Company’s  common  stock  issued  and  outstanding
during  such  period.  Diluted  net  income  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 preferred stock and the treasury stock method for options and common stock warrants.

Pursuant to the Merger Agreement, ApolloMed held back  10% of the shares of its common stock that were issuable to NMM shareholders (“Holdback Shares”) to
secure indemnification of ApolloMed and its affiliates under the Merger Agreement. The Holdback Shares will be held for a period of up to 24 months,  with 50%
issued on the first anniversary of the merger and the remaining 50% issued on the second anniversary, after the closing of the Merger (to be distributed on a
pro-rata basis to former NMM shareholders), during which ApolloMed may seek indemnification for any breach of, or noncompliance with, any provision of the
Merger Agreement, by NMM. The Holdback Shares are excluded from the computation of basic earnings per share, but included in diluted earnings per share.
As of December 31, 2019, APC held  17,290,317 shares of ApolloMed's common stock and as of  December 31, 2018 and 2017, APC held  1,682,110  shares  of
ApolloMed’s  common  stock,  which  are  treated  as  treasury  shares  for  accounting  purposes  and  not  included  in  the  number  of  shares  of  common  stock
outstanding used to calculate earnings per share (see Note 12). The noncontrolling interests in APC are allocated their share of ApolloMed’s income from APC’s
ownership of ApolloMed common stock and this is included in the net income attributable to noncontrolling interests on the consolidated statements of income.
Therefore, none of the shares of ApolloMed held by APC are considered outstanding for the purposes of basic or diluted earnings per share computation.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Below is a summary of the earnings per share computations:

Earnings per share – basic
Earnings per share – diluted
Weighted average shares of common stock outstanding – basic

Weighted average shares of common stock outstanding – diluted

Below is a summary of the shares included in the diluted earnings per share computations:

Weighted average shares of common stock outstanding – basic
10% shares held back pursuant to indemnification clause
Stock options
Warrants
Restricted stock units

Weighted average shares of common stock outstanding – diluted

18.     Variable Interest Entities (VIEs)

Years ended December 31,

2019

2018

2017

  $
  $

0.41   $
0.39   $

0.33   $
0.29   $

34,708,429  

32,893,940  

36,403,279  

37,914,886  

1.01
0.90
25,525,786

28,661,735

Years ended December 31,

2019

2018

2017

34,708,429  
—  
295,672  
1,384,078  
15,100  

32,893,940  
2,935,512  
459,440  
1,625,994  
—  

36,403,279  

37,914,886  

25,525,786
3,039,749
44,716
51,484
—

28,661,735

A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of
the following three characteristics: decision-making rights, the obligation to absorb losses, or the right to receive the expected residual returns of the entity. The
primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s
economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE.

The  Company  follows  guidance  on  the  consolidation  of  VIEs  that  requires  companies  to  utilize  a  qualitative  approach  to  determine  whether  it  is  the  primary
beneficiary of a VIE. See Note 2 to the accompanying consolidated financial statements for information on how the Company determines VIEs and its treatment.

The following table includes assets that can only be used to settle the liabilities of APC and the creditors of APC have no recourse to the Company. These assets
and liabilities, with the exception of the investment in a privately held entity and amounts due to affiliate, which are eliminated upon consolidation with NMM, are
included in the accompanying consolidated balance sheets.

Assets

Current assets

Cash and cash equivalents
Restricted cash – short-term
Investment in marketable securities
Receivables, net

Receivables, net – related party
Other receivables
Prepaid expenses and other current assets
Loans receivable

125

December 31,

2019

2018

  $

87,110,226   $
75,000  
123,948,391  
9,300,076  

42,976,262  
743,757  
7,403,057  
6,425,000  

71,726,342
—
1,066,103
4,512,000

44,651,502
—
3,647,654
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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Loans receivable - related parties

Total current assets

Noncurrent assets

Land, property and equipment, net
Intangible assets, net
Goodwill
Loans receivable – related parties

Investments in other entities – equity method
Investment in privately held entities
Restricted cash – long-term
Operating lease right-of-use assets
Other assets

Total noncurrent assets

Total assets

Current liabilities

Accounts payable and accrued expenses
Fiduciary accounts payable
Medical liabilities

Income taxes payable
Dividend payable
Amount due to affiliate
Bank loan, short-term

Finance lease liabilities
Operating lease liabilities

Total current liabilities

Noncurrent liabilities

Deferred tax liability
Liability for unissued equity shares
Finance lease liabilities, net of current portion

Operating lease liabilities, net of current portion

Total noncurrent liabilities

Total liabilities

19.

Leases

16,500,000  

—

294,481,769  

125,603,601

9,546,924  
81,439,224  
108,912,763  
—  

28,486,593  
4,725,000  
746,104  
4,750,944  
1,056,828  

9,602,228
58,984,420
56,213,450
12,500,000

26,707,404
4,725,000
745,470
—
839,085

239,664,380  

170,317,057

  $

534,146,149   $

295,920,658

  $

11,186,808   $
2,027,081  
49,019,200  

4,529,667  
271,279  
28,057,793  
—  

101,741  
1,088,260  

6,378,751
1,538,598
24,983,110

11,621,861
—
11,505,680
40,257

101,741
—

96,281,829  

56,169,998

14,058,528  
—  
415,519  

3,741,811  

15,693,159
1,185,025
517,261

—

18,215,858  

17,395,445

  $

114,497,687   $

73,565,443

The Company has operating and finance leases for corporate offices, doctors’ offices, and certain equipment. These leases have remaining lease terms of  1
month  to 5 years, some of which may include options to extend the leases for up to  10 years, and some of which may include options to terminate the leases
within one year. As of December 31, 2019 and December 31, 2018, assets recorded under finance leases were  $0.5 million  and $0.6  million,  respectively,  and
accumulated depreciation associated with finance leases was $0.3 million and $0.2 million, respectively.

Also, the Company rents or subleases certain real estate to third parties, which are accounted for as operating leases.

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Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The components of lease expense were as follows:

Operating lease cost

Finance lease cost

Amortization of lease expense
Interest on lease liabilities

Sublease income

Total lease cost, net

Other information related to leases was as follows:

Supplemental Cash Flows Information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases

Right-of-use assets obtained in exchange for lease liabilities:

Operating leases
Finance leases

Weighted Average Remaining Lease Term

Operating leases
Finance leases

Weighted Average Discount Rate

Operating leases
Finance leases

127

Year Ended December 31,
2019

$

$

$

5,437,078

101,741
17,179

(414,704)

5,141,294

Year Ended December 31,
2019

$

5,254,079
17,179
101,741

16,727,589
—

Year Ended December 31,
2019

6.48 years
4.67 years

6.11%
3.00%

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Apollo Medical Holdings, Inc.

Notes to Consolidated Financial Statements

Future minimum lease payments under non-cancellable leases as of  December 31, 2019 were as follows:

Years ending December 31,

Operating Leases   Finance Leases

2020
2021
2022

2023
2024
Thereafter

Total future minimum lease payments

Less: imputed interest

Total lease obligations

Less: current portion

Long-term lease obligations

$

3,781,174   $
2,711,802  
2,376,159  

2,130,226  
1,788,047  
4,783,381  

17,570,789  
3,207,506  

14,363,283  
2,990,686  

$

11,372,597   $

118,920
118,920
118,920

118,920
79,255
—

554,935
37,675

517,260
101,741

415,519

As of December 31, 2019, the Company does not have additional operating and finance leases that have not yet commenced.

Supplemental Information for Comparative Periods

As of December 31, 2018, prior to the adoption of ASC 842, future minimum payments under operating leases having initial or remaining non-cancellable lease
terms in excess of one year were as follows:

Years ending December 31,

2019
2020
2021

2022
2023
Thereafter

Total future minimum lease payments

Operating Leases   Finance Leases

$

2,848,000   $
2,267,000  
783,000  

487,000  
489,000  
243,000  

119,000
119,000
119,000

119,000
119,000
79,000

7,117,000  

674,000

Rent expense for leases for the years ended December 31, 2018 and 2017 was approximately  $4.3 million and $2.4 million, respectively. 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As  of  December  31,  2019,  we  carried  out  an  evaluation,  under  the  supervision  and  with  the  participation  of  our  management,  including  our  Co-Chief
Executive  Officers  and  Chief  Financial  Officer,  of  the  effectiveness  of  the  design  and  operation  of  our  disclosure  controls  and  procedures.  Based  on  that
evaluation,  our  management,  including  Co-Chief  Executive  Officers  and  Chief  Financial  Officer,  concluded  that  our  disclosure  controls  and  procedures  were
effective as of December 31, 2019.

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Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting
is  defined  in  Rule  13a-15(f)  or  15d-15(f)  promulgated  under  the  Securities  Exchange  Act  of  1934,  as  amended,  as  a  process  designed  by,  or  under  the
supervision  of,  the  Company's  principal  executive  and  principal  financial  officers  and  effected  by  the  Company's  board  of  directors,  management  and  other
personnel,  to  provide  reasonable  assurance  regarding  the  reliability  of  financial  reporting  and  the  preparation  of  financial  statements  for  external  purposes  in
accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance  of  records  that  in  reasonable  detail  accurately  and  fairly  reflect  the  transactions  and  dispositions  of  the  assets  of  the  Company;  (ii)  provide
reasonable  assurance  that  transactions  are  recorded  as  necessary  to  permit  preparation  of  consolidated  financial  statements  in  accordance  with  generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of the
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Our management, with the participation of our Co-Chief Executive Officers and Chief Financial Officer, assessed the effectiveness of our internal control
over financial reporting as of December 31, 2019, the end of our fiscal year. Our management based its assessment on criteria established in Internal Control—
Integrated  Framework  (2013)  issued  by  the  Committee  of  Sponsoring  Organizations  of  the  Treadway  Commission.  Our  management's  assessment  included
evaluation and testing of the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall
control environment.

Based on our management's assessment, our management has concluded that our internal control over financial reporting was effective as of December

31, 2019. Our management communicated the results of its assessment to the Audit Committee of our Board of Directors.

Our independent registered public accounting firm, BDO USA, LLP, audited our consolidated financial statements for the fiscal year ended December
31, 2019 included in this Annual Report on Form 10-K, and has issued an audit report with respect to the effectiveness of the Company's internal control over
financial reporting, a copy of which is included below in this Annual Report on Form 10-K.

Remediation of Material Weakness in Internal Control over Financial Reporting

As of December 31, 2018, management determined that our internal control over financial reporting was not effective due to a material weakness in
the Company's internal control over the review of completeness and accuracy of data included in the full risk pool reports provided by an external party based on
which material amounts of revenue were recognized. During the year ended December 31, 2019, we have implemented controls that have effectively addressed
the material weakness identified in prior year's audit. The Company has designed new procedures to obtain reliance on the completeness and accuracy of the
information included in full risk pool reports prepared for the Company by an external party. The Company has successfully tested the new control environment.

Changes in Internal Control Over Financial Reporting

Other than the controls implemented to remediate the material weakness from prior years audit, there have been no changes in our internal control over
financial reporting during our fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Apollo Medical Holdings, Inc.
Alhambra, California

Opinion on Internal Control over Financial Reporting

We  have  audited  Apollo  Medical  Holdings,  Inc.’s  (the  “Company’s”)  internal  control  over  financial  reporting  as  of  December  31,  2019,  based  on  criteria
established  in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO
criteria”) In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on
the COSO criteria.

We  also  have  audited,  in  accordance  with  the  standards  of  the  Public  Company  Accounting  Oversight  Board  (United  States)  (“PCAOB”),  the  consolidated
balance sheets of Apollo Medical Holdings, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, mezzanine
and shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as
the “consolidated financial statements”) and our report dated March 16, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The  Company’s  management  is  responsible  for  maintaining  effective  internal  control  over  financial  reporting  and  for  its  assessment  of  the  effectiveness  of
internal  control  over  financial  reporting,  included  in  the  accompanying  the  accompanying  Item  9A,  Management’s  Annual  Report  on  Internal  Control  over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit  included  obtaining  an  understanding  of  internal  control  over  financial  reporting,  assessing  the  risk  that  a  material  weakness  exists,  and  testing  and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting  includes  those  policies  and  procedures  that  (1)  pertain  to  the  maintenance  of  records  that,  in  reasonable  detail,  accurately  and  fairly  reflect  the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because  of  its  inherent  limitations,  internal  control  over  financial  reporting  may  not  prevent  or  detect  misstatements.  Also,  projections  of  any  evaluation  of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

Los Angeles, California

March 16, 2020

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Item 9B. Other Information

None.

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Item 10.

Directors, Executive Officers and Corporate Governance

PART III

The information required by this Item will be contained in the Company’s Proxy Statement for the 2020 Annual Meeting to be filed with the SEC not later

than 120 days following the end of the Company’s fiscal year ended December 31, 2019, which information is incorporated herein by reference.

Item 11.

Executive Compensation

The information required by this Item will be contained in the Company’s Proxy Statement for the 2020 Annual Meeting to be filed with the SEC not later

than 120 days following the end of the Company’s fiscal year ended December 31, 2019, which information is incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be contained in the Company’s Proxy Statement for the 2020 Annual Meeting to be filed with the SEC not later

than 120 days following the end of the Company’s fiscal year ended December 31, 2019, which information is incorporated herein by reference.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this Item will be contained in the Company’s Proxy Statement for the 2020 Annual Meeting to be filed with the SEC not later

than 120 days following the end of the Company’s fiscal year ended December 31, 2019, which information is incorporated herein by reference.

Item 14.

Principal Accounting Fees and Services

The information required by this Item will be contained in the Company’s Proxy Statement for the 2020 Annual Meeting to be filed with the SEC not later

than 120 days following the end of the Company’s fiscal year ended December 31, 2019, which information is incorporated herein by reference.

132

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Item 15.

Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Annual Report on Form 10-K:

1. Consolidated financial statements

PART IV

The consolidated financial statements and notes thereto contained herein are as listed on the “Index to Consolidated Financial Statements” in Part
II, Item 8 of this Annual Report on Form 10-K.

2.

Financial Statement Schedules

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in
this Annual Report on Form 10-K.

3.

Exhibits required by Item 601 of Regulation S-K.

Exhibit No.

2.1†

2.2

2.3

2.4

3.1

3.2

3.3

3.4

3.5

Description

Agreement  and  Plan  of  Merger,  dated  December  21,  2016,  among  Apollo  Medical  Holdings,  Inc.,  Network  Medical  Management,  Inc.,
Apollo Acquisition Corp. and Kenneth Sim, M.D. (incorporated herein by reference to Annex A to the joint proxy statement/prospectus filed
pursuant to Rule 424(b)(3) on November 15, 2017 that is a part of a Registration Statement on Form S-4).

Amendment  to  the  Agreement  and  Plan  of  Merger,  dated  March  30,  2017,  among  Apollo  Medical  Holdings,  Inc.,  Network  Medical
Management,  Inc.,  Apollo  Acquisition  Corp.  and  Kenneth  Sim,  M.D.  (incorporated  herein  by  reference  to  Annex  A  to  the  joint  proxy
statement/prospectus filed pursuant to Rule 424(b)(3) on November 15, 2017 that is a part of a Registration Statement on Form S-4).

Amendment No. 2 to the Agreement and Plan of Merger, dated October 17, 2017, among Apollo Medical Holdings, Inc., Network Medical
Management,  Inc.,  Apollo  Acquisition  Corp.  and  Kenneth  Sim,  M.D.  (incorporated  herein  by  reference  to  Annex  A  to  the  joint  proxy
statement/prospectus filed pursuant to Rule 424(b)(3) on November 15, 2017 that is a part of a Registration Statement on Form S-4).

Stock purchase agreement dated March 15, 2019 (incorporated herein by reference to Exhibit 2.4 to the Company’s Quarterly Report on
Form 10-Q filed on May 10, 2019).

Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
on January 21, 2015).

Certificate of Amendment of Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on April 27, 2015).

Certificate of Amendment of Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on December 13, 2017).

Certificate of Amendment of Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed June 21, 2018).

Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on November 16,
2015).

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Exhibit No.

Description

3.6

3.7

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

10.1

10.2

10.3*

Amendment to Sections 3.1 and 3.2 of Article III of Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Current
Report on Form 8-K filed on December 13, 2017).

Amendment to Sections 3.1 and 3.2 of Article III of Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Current
Report on Form 8-K filed on June 21, 2018).

Certificate of Designation of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on October 19, 2015).

Amended and Restated Certificate of Designation of Apollo Medical Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on April 4, 2016).

Form of Certificate for Common Stock of Apollo Medical Holdings, Inc., par value $0.001 per share (incorporated herein by reference to
Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

Form of Warrant issued as Merger Consideration pursuant to the Merger Agreement for the purchase of Common Stock of Apollo Medical
Holdings, Inc., exercisable at $11.00 per share (incorporated herein by reference to Exhibit 4.3 to the Company’s Annual Report on Form
10-K filed on April 2, 2018).

Form of Warrant issued as Merger Consideration pursuant to the Merger Agreement for the purchase of Common Stock of Apollo Medical
Holdings, Inc., exercisable at $10.00 per share (incorporated herein by reference to Exhibit 4.4 to the Company’s Annual Report on Form
10-K filed on April 2, 2018).

Common Stock Purchase Warrant (“Series A Warrant”) dated October 14, 2015, originally issued by Apollo Medical Holdings, Inc. to
Network Medical Management, Inc. to purchase 1,111,111 shares of common stock and subsequently issued as Merger Consideration
pursuant to the Merger Agreement (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on
October 19, 2015).

Form of Assignment of Series A Warrant as Merger Consideration pursuant to the Merger Agreement (incorporated herein by reference to
Exhibit 4.6 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

Common Stock Purchase Warrant (“Series B Warrant”) dated March 30, 2016, originally issued by Apollo Medical Holdings, Inc. to
Network Medical Management, Inc. to purchase 555,555 shares of common stock and subsequently issued as Merger Consideration
pursuant to the Merger Agreement (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on
April 4, 2016).

Form of Assignment of Series B Warrant as Merger Consideration pursuant to the Merger Agreement (incorporated herein by reference to
Exhibit 4.8 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

Description of Registered Securities

2010 Equity Incentive Plan of the Company (incorporated herein by reference to Appendix A to Schedule 14C Information Statement filed
on August 17, 2010).

2013  Equity  Incentive  Plan  of  the  Company  (incorporated  herein  by  reference  to  Exhibit  10.13  to  the  Company’s  Annual  Report  on
Form 10-K filed on May 8, 2014).

2015 Equity Incentive Plan of the Company. (incorporated herein by reference to Exhibit 10.3 to the Company’s Annual Report on Form
10-K filed on April 2, 2018).

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Exhibit No.

10.4+

Board of Directors Agreement dated May 22, 2013 by and between Apollo Medical Holdings, Inc., and David Schmidt (incorporated herein
by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed on May 8, 2014).

Description

10.5+

10.6+

10.7+

10.8+

10.9+

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

Board  of  Directors  Agreement  between  Apollo  Medical  Holdings,  Inc.  and  Thomas  S.  Lam,  M.D.  dated  January  19,  2016  (incorporated
herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 19, 2016.

Board of Directors Agreement dated January 12, 2016 between Apollo Medical Holdings, Inc. and Mark Fawcett (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on February 2, 2016).

Form  of  Board  of  Directors  Agreement  (incorporated  herein  by  reference  to  Exhibit  10.1  to  the  Company’s  Current  Report  on  Form  8-K
filed on December 13, 2017).

Form of Director Proprietary Information Agreement (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed on December 13, 2017).

Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed
on December 13, 2017).

Investment  Agreement,  between  Apollo  Medical  Holdings,  Inc.  and  NNA  of  Nevada,  Inc.,  dated  March  28,  2014  (incorporated  herein  by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 31, 2014).

Registration  Rights  Agreement,  between  Apollo  Medical  Holdings,  Inc.  and  NNA  of  Nevada,  Inc.,  dated  March  28,  2014  (incorporated
herein by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed on March 31, 2014).

First  Amendment  and  Acknowledgement,  dated  February  6,  2015,  among  Apollo  Medical  Holdings,  Inc.,  NNA  of  Nevada,  Inc.,  Warren
Hosseinion, M.D. and Adrian Vazquez, M.D. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed on February 11, 2015).

Amendment to the First Amendment and Acknowledgement, dated May 13, 2015, among Apollo Medical Holdings, Inc., NNA of Nevada,
Inc.,  Warren  Hosseinion,  M.D.  and  Adrian  Vazquez,  M.D.  (incorporated  herein  by  reference  to  Exhibit  10.1  to  the  Company’s  Current
Report on Form 8-K filed on May 15, 2015).

Amendment  to  the  First  Amendment  and  Acknowledgement,  dated  July  7,  2015,  among  Apollo  Medical  Holdings,  Inc.,  NNA  of  Nevada,
Inc.,  Warren  Hosseinion,  M.D.  and  Adrian  Vazquez,  M.D.  (incorporated  herein  by  reference  to  Exhibit  10.1  to  the  Company’s  Current
Report on Form 8-K filed on July 10, 2015).

Second  Amendment  and  Conversion  Agreement  dated  November  17,  2015  among  Apollo  Medical  Holdings,  Inc.,  NNA  of  Nevada,  Inc.,
Warren Hosseinion, M.D. and Adrian Vazquez, M.D. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on November 19, 2015).

Third Amendment between Apollo Medical Holdings, Inc. and NNA of Nevada, Inc., dated June 28, 2016 (incorporated herein by reference
to Exhibit 10.71 to the Company’s Annual Report on Form 10-K filed on June 29, 2016).

Fourth  Amendment  between  Apollo  Medical  Holdings,  Inc.  and  NNA  of  Nevada,  Inc.,  dated  April  26,  2017  (incorporated  herein  by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 28, 2017).

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Exhibit No.

10.18

Fifth Amendment between Apollo Medical Holdings, Inc. and NNA of Nevada, Inc., dated July 26, 2017 (incorporated herein by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 28, 2017).

Description

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29*

10.30+

Sixth  Amendment  between  Apollo  Medical  Holdings,  Inc.  and  NNA  of  Nevada,  Inc.,  dated  March  16,  2018  (incorporated  herein  by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 20, 2018).

Stock Option Agreement, between Warren Hosseinion, M.D. and Apollo Medical Holdings, Inc., dated March 28, 2014 (incorporated herein
by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K/A filed on April 3, 2014).

Stock Option Agreement, between Adrian Vazquez, M.D. and Apollo Medical Holdings, Inc., dated March 28, 2014 (incorporated herein by
reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K/A filed on April 3, 2014).

Physician Shareholder Agreement, granted and delivered by Warren Hosseinion, M.D., in favor of Apollo Medical Management, Inc. and
Apollo Medical Holdings, Inc., for the account of ApolloMed Hospitalists, dated March 28, 2014 (incorporated herein by reference to Exhibit
10.24 to the Company’s Current Report on Form 8-K/A filed on April 3, 2014).

Second  Amendment  to  Lease  Agreement  dated  October  14,  2014  by  and  between  Apollo  Medical  Holdings,  Inc.  and  EOP-700  North
Brand, LLC (incorporated herein by reference to Exhibit 10.5 on Quarterly Report on Form 10-Q filed on November 14, 2014).

Lease  Agreement,  dated  July  22,  2014,  by  and  between  Numen,  LLC  and  Apollo  Medical  Management,  Inc.  (incorporated  herein  by
reference to Exhibit 10.01 to the Company’s Current Report on Form 8-K/A filed on December 8, 2014).

Lease Agreement, dated August 1, 2002, by and between Network Medical Management, Inc. and Medical Property Partner. (incorporated
herein by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

Lease Agreement, dated August 1, 2002, by and between Network Medical Management, Inc. and Medical Property Partner. (incorporated
herein by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

Lease Agreement Addendum, dated February 1, 2013, by and between Network Medical Management, Inc. and Medical Property Partner.
(incorporated herein by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

Change in Terms Agreement and Business Loan Agreement, dated April 9, 2016, by and between Network Medical Management, Inc. and
Preferred Bank. (incorporated herein by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

Change in Terms Agreement and Business Loan Agreement, dated April 7, 2017, by and between Network Medical Management, Inc. and
Preferred Bank. (incorporated herein by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

Employment  Agreement  dated  December  20,  2016  between  Apollo  Medical  Management,  Inc.  and  Adrian  Vazquez,  M.D.  (incorporated
herein by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed on December 22, 2016).

136

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Exhibit No.

10.31+

Amended and Restated Hospitalist Participation Service Agreement made as of June 29, 2016 by and between ApolloMed Hospitalists, a
Medical Corporation, and Warren Hosseinion, M.D. (incorporated herein by reference to Exhibit 10.69 to the Company’s Annual Report on
Form 10-K filed on June 29, 2016).

Description

10.32+

10.33

10.34

10.35*

10.36+

10.37+

10.38+

10.39+

10.40

10.41

10.42

10.43

Amended and Restated Hospitalist Participation Service Agreement made as of June 29, 2016 by and between ApolloMed Hospitalists, a
Medical  Corporation,  and  Adrian  Vazquez,  M.D.  (incorporated  herein  by  reference  to  Exhibit  10.70  to  the  Company’s  Annual  Report  on
Form 10-K filed on June 29, 2016).

Next Generation ACO Model Participation Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on January 20, 2017).

Form  of  Stockholder  Lock-Up  Agreement  (incorporated  herein  by  reference  to  Annex  D  to  the  joint  proxy  statement/prospectus  filed
pursuant to Rule 424(b)(3) on November 15, 2017 that is a part of a Registration Statement on Form S-4).

Convertible Secured Promissory Note made as of October 13, 2017 by George M. Jayatilaka, M.D. (incorporated herein by reference to
Exhibit 10.40 to the Company’s Annual Report on Form 10-K filed on April 2, 2018).

Offer  Letter,  dated  June  5,  2018,  between  Apollo  Medical  Holdings,  Inc.  and  Eric  Chin  (incorporated  by  reference  to  Exhibit  10.1  to  the
Company’s Quarterly Report on Form 10-Q filed on August 14, 2018).

Board of Directors Agreement, dated June 21, 2018, between Apollo Medical Holdings, Inc. and Ernest A. Bates, M.D. (incorporated herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 26, 2018).

Board of Directors Agreement, dated January 11, 2019, between Apollo Medical Holdings, Inc. and Linda Marsh. (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 17, 2019).

Board of Directors Agreement, dated January 11, 2019, between Apollo Medical Holdings, Inc. and John Chiang. (incorporated herein by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 17, 2019).

Loan Agreement, dated May 10, 2019, by and between Apollo Medical Holdings, Inc., a Delaware corporation and AP-AMH Medical
Corporation, a California professional medical corporation (incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on May 13, 2019).

Tradename Licensing Agreement, dated May 10, 2019, by and between Apollo Medical Holdings, Inc., a Delaware corporation and AP-
AMH Medical Corporation, a California professional medical corporation (incorporated herein by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed on May 13, 2019).

Administrative Services Agreement, dated May 10, 2019, by and between Network Medical Management, Inc., a California corporation and
AP-AMH Medical Corporation, a California professional medical corporation (incorporated herein by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed on May 13, 2019).

Physician Shareholder Agreement, dated May 10, 2019, by and between Thomas Lam, M.D., Apollo Medical Holdings, Inc., a Delaware
corporation, Network Medical Management, Inc., a California corporation, and AP-AMH Medical Corporation, a California professional
medical corporation (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on May 13,
2019).

137

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Exhibit No.

10.44

Series A Preferred Stock Purchase Agreement, dated May 10, 2019, by and between AP-AMH Medical Corporation, a California
professional medical corporation and Allied Physicians of California, a Professional Medical Corporation, a California professional medical
corporation (incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on May 13, 2019).

Description

10.45

10.46

10.47

10.48

10.49

10.50

10.51

10.52

10.53

10.54

10.55

Special Purpose Shareholder Agreement, dated May 10, 2019, by and between Allied Physicians of California, a Professional Medical
Corporation, a California professional medical corporation and AP-AMH Medical Corporation, a California professional medical corporation
(incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on May 13, 2019).

Stock Purchase Agreement, dated May 10, 2019, by and between Allied Physicians of California, a Professional Medical Corporation, a
California professional medical corporation and Apollo Medical Holdings, Inc., a Delaware corporation (incorporated herein by reference to
Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on May 13, 2019).

Form of Amendment to Stockholder Lock-up Agreement (incorporated herein by reference to Exhibit 10.10 to the Company’s Quarterly
Report on Form 10-Q filed on August 9, 2019).

First Amendment to the Stock Purchase Agreement dated August 26, 2019, by and between Allied Physicians of California, a California
Professional Medical Corporation and Apollo Medical Holdings, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on August 29, 2019).

First Amendment to the Series A Preferred Stock Purchase Agreement dated August 26, 2019, by and between Allied Physicians of
California, a California Professional Medical Corporation and AP-AMH Medical Corporation, a Professional Medical Corporation
(incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 29, 2019).

First Amendment to the Loan Agreement dated August 26, 2019, by and between Apollo Medical Holdings, Inc. and AP-AMH Medical
Corporation, a Professional Medical Corporation (incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on
Form 8-K filed on August 29, 2019).

Credit Agreement dated as of September 11, 2019, by and among Apollo Medical Holdings, Inc., as Borrower, the Lenders from time to
time party thereto, and SunTrust Bank, in its capacity as administrative agent for the Lenders, as issuing bank and as swingline lender
(incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 12, 2019).

Guaranty and Security Agreement dated as of September 11, 2019, by and among Apollo Medical Holdings, Inc., as Borrower, and
Network Medical Management, Inc., as Guarantor, in favor of SunTrust Bank, as administrative agent for the Secured Parties (incorporated
herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on September 12, 2019).

Second Amendment to Series A Stock Purchase Agreement dated as of September 9, 2019, by and between Allied Physicians of
California, a Professional Medical Corporation and AP-AMH Medical Corporation, a California professional medical corporation
(incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on September 12, 2019).

First Amendment to Special Purpose Shareholder Agreement, dated as of September 11, 2019, by and between Allied Physicians of
California, a Professional Medical Corporation and AP-AMH Medical Corporation, a California professional medical corporation
(incorporated herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on September 12, 2019).

First Amendment to Tradename Licensing Agreement, dated as of September 10, 2019, by and between Apollo Medical Holdings, Inc., a
Delaware corporation, and AP-AMH Medical Corporation, a California professional medical corporation (incorporated herein by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K filed on September 12, 2019).

138

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit No.

Description

10.56

10.57

10.58

10.59

10.60

10.61

10.62+

First Amendment to Administrative Services Agreement, dated as of September 10, 2019, by and between Network Medical Management,
Inc., a California corporation, and AP-AMH Medical Corporation, a California professional medical corporation (incorporated herein by
reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on September 12, 2019).

Security Agreement, dated as of September 11, 2019, by and between Apollo Medical Holdings, Inc., a Delaware corporation, and AP-AMH
Medical Corporation, a California professional medical corporation (incorporated herein by reference to Exhibit 10.7 to the Company’s
Current Report on Form 8-K filed on September 12, 2019).

Certificate of Determination of Preferences of Series A Preferred Stock of Allied Physicians of California, a Professional Medical
Corporation (incorporated herein by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on September 12, 2019).

Voting and Registration Rights Agreement, dated as of September 11, 2019, by and between Apollo Medical Holdings, Inc., a Delaware
corporation, and Allied Physicians of California, a Professional Medical Corporation (incorporated herein by reference to Exhibit 10.9 to the
Company’s Current Report on Form 8-K filed on September 12, 2019).

Second Amendment to Loan Agreement, dated September 11, 2019, by and between Apollo Medical Holdings, Inc., a Delaware
corporation and AP-AMH Medical Corporation, a California professional medical corporation (incorporated herein by reference to Exhibit
10.10 to the Company's Current Report on Form 8-K filed on September 12, 2019).

Form of Amendment to Stockholder Lock-up Agreement entered into on or about September 26, 2019 (incorporated herein by reference to
Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2019).

Board of Directors Agreement, dated September 29, 2019, with Matthew Mazdyasni (incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on September 30, 2019).

14.1*

The Company's Code of Ethics.

21.1*

Subsidiaries of Apollo Medical Holdings, Inc.

23.1*

Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.

24.1*

Power of Attorney (included on the signatures page of this Annual Report on Form 10-K).

31.1*

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3*

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32**

Certification  of  Principal  Executive  Officers  and  Principal  Financial  Officer  Pursuant  to  18  U.S.C.  Section  1350,  as  Adopted  Pursuant  to
Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*

XBRL Instance Document

139

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit No.

Description

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

*    Filed herewith

**    Furnished herewith

+    Management contract or compensatory plan, contract or arrangement

†    The schedules and exhibits thereof have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be
furnished to the SEC upon request.

Item 16.

Form 10-K Summary

None.

140

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

APOLLO MEDICAL HOLDINGS, INC.

Date: March 16, 2020

By:

/s/ Kenneth Sim, M.D.  

Kenneth Sim, M.D.
Executive Chairman and Co-Chief Executive Officer
(Principal Executive Officer)

Date: March 16, 2020

By:

/s/ Thomas Lam, M.D.  

Thomas Lam, M.D.
Co-Chief Executive Officer and President
(Principal Executive Officer)

141

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints, jointly and severally, Kenneth Sim,
M.D., and Thomas Lam, M.D., and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and
in  his  name,  place  and  stead,  in  any  and  all  capacities,  to  sign  any  and  all  amendments  to  this  Annual  Report  on  Form  10-K,  and  to  file  the  same,  with  all
exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURE

TITLE

Executive Chairman, Co-Chief Executive Officer (Principal
Executive Officer) and Director 

DATE

March 16, 2020

By:

/s/ Kenneth Sim, M.D

Kenneth Sim, M.D

By:

/s/ Thomas Lam, M.D.

Thomas Lam, M.D.

By:

/s/ Eric Chin

Eric Chin

President, Co-Chief Executive Officer (Principal Executive
Officer) and Director

March 16, 2020

Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)

March 16, 2020

By:

/s/ Ernest Bates, M.D.

Director

Ernest Bates, M.D.

By:

/s/ John Chiang

Director

John Chiang

By:

/s/ Michael Eng

Director

Michael Eng

By:

/s/ Mark Fawcett

Director

Mark Fawcett 

By:

/s/ Mitchell Kitayama

Director 

Mitchell Kitayama

By:

/s/ Linda Marsh

Director

Linda Marsh

By:

/s/ Matthew Mazdyasni

Director

Matthew Mazdyasni

By:

/s/ David Schmidt

Director

David Schmidt

By:

/s/ Li Yu

Li Yu

Director

142

March 16, 2020

March 16, 2020

March 16, 2020

March 16, 2020

March 16, 2020

March 16, 2020

March 16, 2020

March 16, 2020

March 16, 2020

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

Exhibit 4.10

The following description sets forth certain terms and provisions of our securities that are registered under Section 12 of the Securities Exchange Act of
1934, as amended. This description also summarizes relevant provisions of the General Corporation Law of Delaware (the “DGCL”). The following description is
a  summary  and  does  not  purport  to  be  complete.  It  is  subject  to,  and  qualified  in  its  entirety  by  reference  to,  the  applicable  provisions  of  the  DGCL  and  our
restated  certificate  of  incorporation,  as  amended  (our  “Certificate  of  Incorporation”),  and  our  restated  bylaws,  as  amended  (our  “Bylaws”),  each  of  which  is
incorporated  by  reference  as  an  exhibit  to  the  Annual  Report  on  Form  10-K  of  which  this  Exhibit  4.12  is  a  part.  We  encourage  you  to  read  our  Certificate  of
Incorporation, our Bylaws, and the applicable provisions of the DGCL for additional information.

General

We  have  100,000,000  shares  of  common  stock,  par  value  $0.001  per  share,  and  5,000,000  shares  of  preferred  stock,  par  value  $0.001  per  share,
authorized  for  issuance,  of  which  1,111,111  shares  are  designated  as  Series  A  convertible  preferred  stock  and  555,555  shares  are  designated  as  Series  B
convertible  preferred  stock.  As  of March  2,  2020,  there  were  52,804,187  shares  of  common  stock,  issued  and  outstanding  and  1,111,111  shares  of  Series  A
preferred stock issued, none of which are outstanding, and 555,555 shares of Series B preferred stock issued, none of which are outstanding.

Only  our  common  stock  is  registered  under  Section  12  of  the  Securities  Exchange  Act  of  1934,  as  amended. Our  common  stock  is  listed  on  the

NASDAQ Capital Market under the symbol “AMEH.”

Common Stock

Voting

Holders of our common stock are entitled to one vote for each share for the election of directors and on all other matters submitted to a stockholder vote.

Holders of our common stock do not have cumulative voting rights.

Dividends

Subject to the rights of preferred stockholders, if any, holders of our common stock are entitled to share in all dividends that our board of directors, in its
discretion, declares from legally available funds. Holders of our shares of Series A preferred stock and Series B preferred stock are entitled to receive dividends,
out of legally available assets, on parity with the holders of our shares of common stock.

Liquidation

In the event of a liquidation, dissolution or winding up, each outstanding share of our common stock entitles its holder to participate pro rata in all assets that
remain after payment of all liabilities and the liquidation preferences of any of our outstanding shares of Series A preferred stock and Series B preferred stock.
The Series A preferred stock and the Series B preferred stock each have a liquidation preference in the amount of $9.00 per share plus any declared and unpaid
dividends.

Other Rights

Our common stock has no pre-emptive, subscription or conversion rights and there are no redemption provisions applicable to our common stock.

Anti-Takeover Provisions

The following provisions of our Certificate of Incorporation and our Bylaws, could have the effect of delaying or discouraging another party from acquiring

control of us and could encourage persons seeking to acquire control of us to first negotiate with our board of directors:

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
•
•
•
•
•

our Bylaws prohibit our stockholders from filling board vacancies
our Bylaws require holders of no less than one-then of all shares entitled to vote at a meeting to call a special meeting of stockholders.
our Bylaws provide that our board of directors will establish the authorized number of directors from time to time;
our Certificate of Incorporation does not permit cumulative voting in the election of directors; and
our Certificate of Incorporation permits our board of directors to determine the rights, privileges and preferences of any new series of preferred stock,
some of which could impede the ability of a person to acquire control of our company.

In addition, we are subject to the provisions of Section 203 of the DGCL. Section 203 prohibits a publicly held Delaware corporation from engaging in a

"business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder. Subject to specified exceptions, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's voting stock.

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
APOLLO MEDICAL HOLDINGS, INC.

CODE OF ETHICS

(adopted April 19, 2018)

Introduction

The  Board  of  Directors  of  Apollo  Medical  Holdings,  Inc.  (the  “Company”)  has  adopted  this  Code  of  Ethics  (this  “Code”)  for  its  directors,  officers  and
other  employees  (individually,  an  “Apollo  Party”  and  collectively,  “Apollo  Parties”). As  used  herein,  any  principal  executive  officer,  principal  financial  officer,
principal accounting officer or controller, or persons performing similar functions are sometimes also referred to as the “Senior Financial Officers.”

This Code has been reasonably designed to deter wrongdoing and to promote:

•

•

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

Full,  fair,  accurate,  timely  and  understandable  disclosure  in  reports  and  documents  that  a  registrant  files  with,  or  submits  to,  the  Securities  and
Exchange Commission and in other public communications made by the Company;

•    Compliance with applicable governmental laws, rules and regulations;

•    The prompt internal reporting to an appropriate person or persons identified in this

Code of violations of this Code; and

•    Accountability for adherence to this Code.

I. Honest and Ethical Conduct

Apollo  Parties  are  expected  to  act  and  perform  their  duties  ethically,  honestly  and  with  the  utmost  integrity.  Honest  conduct  is  free  from  fraud  and
deception. Ethical conduct conforms to accepted professional standards and includes the ethical handling of actual and apparent conflicts of interest between
personal and professional relationships, as discussed in greater detail below.

II. Compliance with Laws, Rules and Regulations

It  is  the  policy  of  the  Company  to  comply  with  all  applicable  laws,  rules  and  regulations,  and  it  is  the  personal  responsibility  of  each  Apollo  Party  to
adhere  to  all  standards  and  restrictions  imposed  by  these  laws,  rules  and  regulations.  In  particular,  each  Apollo  Party  will  adhere  to  all  laws,  rules  and
regulations relating to accounting and auditing matters. Any Apollo Party with questions about applicability or interpretation of any law, rule or regulation should
contact a member of the Company’s upper management.

In performing their job duties, Apollo Parties are expected to use good judgment to act, at all times and in all ways, in the best interests of the Company.
A “conflict of interest” exists where an Apollo Party’s personal interest, or the interest of a family member, comes into conflict with or interferes with the best
interests of the Company. For example, a conflict of interest may occur when an Apollo Party or family member receives a personal benefit as a result of the
Apollo Party’s position with the Company. A conflict of interest may also arise from an Apollo Party’s business

III. Conflicts of Interest

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

or  personal  relationship  with  a  competitor,  supplier,  customer,  business  partner  or  other  Apollo  Party  if  the  relationship  impairs  the  Apollo  Party’s  objective
business judgment, or from the receipt of gifts or services in certain situations.

Any Apollo Party who is aware of a conflict of interest, or is concerned that a conflict of interest might develop, must discuss the matter with a supervisor
or  a  member  of  the  Company’s  upper  management  promptly.  Senior  Financial  Officers  may,  in  addition,  discuss  the  matter  with  the  Audit  Committee  of  the
Board of Directors of the Company (the “Audit Committee”).

IV. Insider Trading

Federal  and  state  laws  prohibit  trading  in  securities  by  persons  who  have  material  information  that  is  not  generally  known  or  available  to  the  public.
Apollo Parties may not (a) trade in stock or other securities while in possession of material nonpublic information, (b) pass such information on to others without
the express authorization of the Company, or (c) recommend to others that they trade in stock or other securities of any company based on material nonpublic
information.

The Company has adopted an Insider Trading Policy to implement this policy and assist in compliance with insider trading laws. All Apollo Parties are
required  to  review  and  follow  the  Company’s  Insider  Trading  Policy,  and  certain  Apollo  Parties  must  comply  with  designated  blackout  periods  for  trading
described in the Insider Trading Policy when trading in Company securities.

The Company provides equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment of any kind.

V. Discrimination and Harassment

VI. Health and Safety

The Company strives to provide a clean, safe and healthy work environment to all Apollo

Parties. Each Apollo Party is responsible for maintaining a safe and healthy workplace for all other Apollo Parties by following safety and health rules and
practices, and reporting any accidents or injuries, and any unsafe equipment, practices or conditions.

VII. Bribery; Payments to Government Personnel

Apollo Parties may not bribe anyone for any reason, whether in dealings with governments or in the private sector. The United States Foreign Corrupt
Practices Act, and similar laws in other countries, prohibit offering or giving anything of value to government officials in order to secure business. Apollo Parties
may not make any illegal payments to government personnel, whether directly or through a third party, and should contact a member of upper management for
guidance when conducting business with government officials of any country.

VIII. Recordkeeping, Reporting and Financial Integrity

The Company’s books, records, accounts and financial statements must be appropriately maintained in reasonable detail at all times, and must properly
reflect the Company’s transactions and conform to the Company’s system of internal controls and applicable law. The Company’s public financial reports must
contain full, fair, accurate, timely and understandable disclosure, as required by law.

IX. Additional Provisions Applicable to Senior Financial Officers

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

Senior  Financial  Officers  are  responsible  for  ensuring  that  the  disclosures  in  the  Company’s  periodic  reports  are  full,  fair,  accurate,  timely,  and
understandable,  as  required  by  law.  In  doing  so,  Senior  Financial  Officers  must  take  all  such  action  reasonably  necessary  to  (I)  establish and comply with
disclosure controls a n d procedures, a s well a s accounting and  financial controls, that a r e designed t o ensure that a l l material information related t o the
Company is made known to them; (ii) confirm that the Company’s periodic reports comply with the requirements of Sections 13(a) and/or 15(d) of the Securities
Exchange Act of 1934; and (iii) ensure that the information in the Company’s periodic reports fairly presents in all material respects the financial condition and
results of operations of the Company.

Senior Financial Officers shall not knowingly (I) make, or permit or direct any other person to make, materially false or misleading entries in the financial
statements or records of the Company or any of its subsidiaries; (ii) sign, or permit or direct another person to sign, a document containing materially false and
misleading information; or (iv) falsely respond, or fail to respond, to specific inquiries from the Company’s independent auditor or outside counsel.

Apollo Parties shall take all appropriate actions to stop known misconduct by fellow

Apollo Parties that violate this Code. Apollo Parties shall report any known or suspected misconduct to their supervisors or a member of the Company’s upper
management, or, in the case of misconduct by a Senior Financial Officer, to the Chair of the Audit Committee.

Apollo Parties are encouraged to report any breach of this Code. The Company will not retaliate or allow retaliation for any reports made in good faith.

X. Internal Reporting

XI. Accountability

All Apollo Parties will be held strictly accountable for adherence to this Code. Questions concerning this Code may be directed to a member of upper
management or the Audit Committee. Violations of this Code may result in disciplinary action, including termination, and if warranted, legal proceedings. This
Code is a statement of certain fundamental principles that govern the Apollo Parties in the conduct of the Company’s business. It does not create any rights in
any employee, customer, supplier, competitor, stockholder or any other person or entity. The Audit Committee will investigate violations and appropriate action
will be taken in the event of any violation of this Code.

The Board of Directors shall have the sole authority to approve any waiver or deviation from this Code for any Apollo Party, and any amendment or
waiver of this Code shall be promptly disclosed as required by law. Specifically, any waiver or modification of this Code for a Senior Financial Officer will be
promptly disclosed to stockholders as required by law, regulation or rule of a stock exchange on which the Company’s securities are traded.

XII. Waivers and Amendments

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

Subsidiaries

Exhibit 21.1

Entity

Jurisdiction of Incorporation

Network Medical Management, Inc.

Apollo Medical Management, Inc.

APAACO, Inc.

Apollo Care Connect, Inc.

ApolloMed Accountable Care Organization, Inc.*

Allied Pacific Hospice, LLC

Allied Physicians ACO, LLC

APCN-ACO, Inc.

99 Medical Equipment, Healthcare Supplies & Wheelchair Center

Apollo Palliative Services, LLC

Best Choice Hospice Care, LLC

Holistic Care Home Health Agency, Inc.

Pulmonary Critical Care Management, Inc.

Verdugo Medical Management, Inc.

*

80% ownership

California

Delaware

Delaware

Delaware

California

California

California

California

California

California

California

California

California

California

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consent of Independent Registered Public Accounting Firm

Apollo Medical Holdings, Inc.
Alhambra, California

We hereby consent to the incorporation by reference in the Registration Statements on Form S-4 (No. 333-219898), Form S-8 (No. 333-217719, 333-153138,
333-221915 and 333-221900), and Form S-3 (No. 333-228432, 333-229895 and 333-231109) of Apollo Medical Holdings, Inc. (“Company”) of our reports dated
March 16, 2020, relating to the consolidated financial statements, and the effectiveness of the Company’s internal control over financial reporting, which appear
in this Form 10-​K.

/s/ BDO USA, LLP
Los Angeles, California

March 16, 2020

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 31.1

I, Kenneth Sim, M.D., certify that:

1.

2.

3.

4.

(a)

(b)

(c)

(d)

I have reviewed this annual report on Form 10-K of Apollo Medical Holdings, Inc.;

Based  on  my  knowledge,  this  report  does  not  contain  any  untrue  statement  of  a  material  fact  or  omit  to  state  a  material  fact  necessary  to  make  the
statements  made,  in  light  of  the  circumstances  under  which  such  statements  were  made,  not  misleading  with  respect  to  the  period  covered  by  this
report;

Based  on  my  knowledge,  the  financial  statements,  and  other  financial  information  included  in  this  report,  fairly  present  in  all  material  respects  the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The  registrant’s  other  certifying  officer(s)  and  I  are  responsible  for  establishing  and  maintaining  disclosure  controls  and  procedures  (as  defined  in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:

Designed  such  disclosure  controls  and  procedures,  or  caused  such  disclosure  controls  and  procedures  to  be  designed  under  our  supervision,  to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide  reasonable  assurance  regarding  the  reliability  of  financial  reporting  and  the  preparation  of  financial  statements  for  external  purposes  in
accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

DATE:

March 16, 2020

/s/ Kenneth Sim, M.D.

Kenneth Sim, M.D.

Executive Chairman and
Co-Chief Executive Officer
(Principal Executive Officer)

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 31.2

I, Thomas Lam, M.D., certify that:

1.

2.

3.

4.

(a)

(b)

(c)

(d)

I have reviewed this annual report on Form 10-K of Apollo Medical Holdings, Inc.;

Based  on  my  knowledge,  this  report  does  not  contain  any  untrue  statement  of  a  material  fact  or  omit  to  state  a  material  fact  necessary  to  make  the
statements  made,  in  light  of  the  circumstances  under  which  such  statements  were  made,  not  misleading  with  respect  to  the  period  covered  by  this
report;

Based  on  my  knowledge,  the  financial  statements,  and  other  financial  information  included  in  this  report,  fairly  present  in  all  material  respects  the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The  registrant’s  other  certifying  officer(s)  and  I  are  responsible  for  establishing  and  maintaining  disclosure  controls  and  procedures  (as  defined  in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:

Designed  such  disclosure  controls  and  procedures,  or  caused  such  disclosure  controls  and  procedures  to  be  designed  under  our  supervision,  to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide  reasonable  assurance  regarding  the  reliability  of  financial  reporting  and  the  preparation  of  financial  statements  for  external  purposes  in
accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

DATE:

March 16, 2020

/s/ Thomas Lam, M.D.

Thomas Lam, M.D.

Co-Chief Executive Officer and President
(Principal Executive Officer)

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 31.3

I, Eric Chin, certify that:

1.

2.

3.

4.

(a)

(b)

(c)

(d)

I have reviewed this annual report on Form 10-K of Apollo Medical Holdings, Inc.;

Based  on  my  knowledge,  this  report  does  not  contain  any  untrue  statement  of  a  material  fact  or  omit  to  state  a  material  fact  necessary  to  make  the
statements  made,  in  light  of  the  circumstances  under  which  such  statements  were  made,  not  misleading  with  respect  to  the  period  covered  by  this
report;

Based  on  my  knowledge,  the  financial  statements,  and  other  financial  information  included  in  this  report,  fairly  present  in  all  material  respects  the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The  registrant’s  other  certifying  officer(s)  and  I  are  responsible  for  establishing  and  maintaining  disclosure  controls  and  procedures  (as  defined  in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:

Designed  such  disclosure  controls  and  procedures,  or  caused  such  disclosure  controls  and  procedures  to  be  designed  under  our  supervision,  to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide  reasonable  assurance  regarding  the  reliability  of  financial  reporting  and  the  preparation  of  financial  statements  for  external  purposes  in
accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.

DATE:

March 16, 2020

/s/ Eric Chin

Eric Chin
Chief Financial Officer
(Principal Executive Officer)

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

 
 
 
 
 
 
 
 
 
 
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERS AND PRINCIPAL FINANCIAL OFFICER

Exhibit 32

PURSUANT TO

18 U.S.C. SECTION 1350.

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I,  Kenneth  Sim,  M.D.,  certify,  pursuant  to  18  U.S.C.  Section  1350,  as  adopted  pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act  of  2002,  that  the
Annual Report on Form 10-K of Apollo Medical Holdings, Inc. for the year ended December 31, 2019, fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial
condition and results of operations of Apollo Medical Holdings, Inc.

DATE:

March 16, 2020

/s/ Kenneth Sim, M.D.

Kenneth Sim, M.D.

Executive Chairman and
Co-Chief Executive Officer
(Principal Executive Officer)

I,  Thomas  Lam,  M.D.,  certify,  pursuant  to  18  U.S.C.  Section  1350,  as  adopted  pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act  of  2002,  that  the
Annual Report on Form 10-K of Apollo Medical Holdings, Inc. for the year ended December 31, 2019, fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial
condition and results of operations of Apollo Medical Holdings, Inc.

DATE:

March 16, 2020

/s/ Thomas Lam, M.D.

Thomas Lam, M.D.
Co-Chief Executive Officer and President

(Principal Executive Officer)

I, Eric Chin, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report
on  Form  10-K  of  Apollo  Medical  Holdings,  Inc.  for  the  year  ended December  31,  2019,  fully  complies  with  the  requirements  of  Section  13(a)  or  15(d)  of  the
Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition
and results of operations of Apollo Medical Holdings, Inc.

DATE:

March 16, 2020

/s/ Eric Chin

Eric Chin
Chief Financial Officer
(Principal Financial Officer)

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.