Acquisitions

12 Months Ended

Mar. 31, 2016

Business Combinations [Abstract]

Acquisition

3. Acquisitions

Acquired Technology

In January 2016, Apollo Care Connect acquired certain assets from Healarium Inc., a third party entity, and was determined to be a purchase of assets. According to the asset purchase agreement, as amended, the Company agreed to issue 275,000 shares of common stock with a fair value of $1,512,500 in exchange for the technology with a fair value of approximately $1.3 million, plus $200,000 in cash. The technology 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. The acquired technology was placed into service in April 2016 and will be amortized over its estimated useful life of five years.

Business Combinations

Apollo Palliative Services LLC and Affiliates Acquisitions

On October 27, 2014, AMM made an initial capital contribution of $613,889 (the “Initial Contribution”) to ApolloMed Palliative (“APS”) in exchange for 51% of the membership interests of ApolloMed Palliative. ApolloMed Palliative used the Initial Contribution, in conjunction with funds contributed by other investors in ApolloMed Palliative, to finance the closing payments for the acquisitions described immediately below. In connection with this arrangement, the Company entered into a consulting agreement with one of ApolloMed Palliative’s members. The consulting agreement has a 6 year term, and provides for the member to receive $15,000 in cash per month, and for the member to be eligible to receive stock-based awards under the Company’s 2013 Equity Incentive Plan as determined by the Company’s Board of Directors. Immediately prior to closing the transactions described below, and as condition precedent to ApolloMed Palliative closing the transactions, the selling equity owners in each transaction described below contributed specific equity interests to ApolloMed Palliative in return for interests in ApolloMed Palliative pursuant to contributions agreements.

Best Choice Hospice Care LLC

Subject to the terms and conditions of that certain Membership Interest Purchase Agreement (the “BCHC Agreement”), dated October 27, 2014, by and among ApolloMed Palliative, the Company, the members of BCHC, and BCHC, ApolloMed Palliative agreed to purchase all of the remaining membership interests in BCHC for $900,000 in cash and $230,862 of equity consideration in APS, subject to reduction if BCHC’s working capital was less than $145,000 as of the closing of the transaction. APS agreed to pay a contingent payment of up to a further $400,000 (the “BCHC Contingent Payment”) to one seller and one employee of BCHC. The BCHC Contingent Payment will be paid in two installments of $100,000 to each of the seller and the employee within sixty days of each of the first and second anniversaries of the transaction, and is contingent upon, as of each applicable date, the seller’s and the employee’s employment, as applicable, continuing or having been terminated without cause and, for the employee, meeting certain productivity targets. The Company absolutely, unconditionally and irrevocably guaranteed payment of the BCHC Contingent Payment if ApolloMed Palliative fails to make any payment. The contingent payments were accounted for as post-combination compensation consideration and will be accrued ratably over the two year term of the agreement. For the years ended March 31, 2016 and 2015, $50,525 and $109,848 were expensed and as of March 31, 2016 and 2015 $41,667 and $109,848 were included in accounts payable and accrued liabilities, respectively.

The Company accounted for the acquisition as a business combination using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the purchase date and be recorded on the balance sheet. The process for estimating the fair values of identifiable intangible assets involves the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The value of the 16% equity interest in APS of $230,862 was determined by aggregating the fair value of BCHC and HCHHA “refer below” which are the only assets in APS and applying the 16% ownership interest in APS to the aggregated amount. The acquisition-date fair value of the consideration transferred was as follows:

Cash consideration	$	900,000
Fair value of equity consideration		230,862
Working capital adjustment		(106,522)
	$	1,024,340

Transaction costs are not included as a component of consideration transferred and were expensed as incurred. The related transaction costs expensed for the year ended March 31, 2015 were approximately $110,000 and are included in general and administrative expenses in the consolidated statements of operations.

Under the acquisition method of accounting, the total purchase price was allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values, with the remainder allocated to goodwill. Goodwill is deductible for tax purposes. The final allocation of the total purchase price to the net assets acquired and liabilities assumed and included in the Company’s consolidated balance sheet at March 31, 2015 is as follows:

Cash and cash equivalents	$	77,020
Accounts receivable		253,193
Prepaid expenses and other current assets		467
Property and equipment		7,130
Identifiable intangible assets		532,000
Goodwill		398,467
Total assets acquired		1,268,277
Accounts payable and accrued liabilities		243,937
Total liabilities assumed		243,937
Net assets acquired	$	1,024,340

The intangible assets acquired consisted of the following:

	Life (Yrs.)	Additions
Medicare license	Indefinite	$	462,000
Trade name	5		51,000
Non-compete agreements	5		19,000
		$	532,000

The fair value of the Medicare license was determined based on the present value of a five year projected opportunity cost of not being able to operate with a Medicare license using a discount rate of 13%. The trade name was computed using the relief from royalty method, assuming a 1% royalty rate, and the non-compete agreements were valued using a with-and-without method.

Holistic Health Home Health Care Inc.

Subject to the terms and conditions of that certain Stock Purchase Agreement (the “HCHHA Agreement”), dated October 27, 2014, by and among ApolloMed Palliative, the sole shareholder of HCHHA, and HCHHA, ApolloMed Palliative agreed to purchase all of the remaining shares of HCHHA for $300,000 in cash and $43,286 of equity consideration in APS, subject to reduction if HCHHA’s working capital was less than $50,000 as of the closing of the transaction. ApolloMed Palliative agreed to pay a contingent payment of up to a further $150,000 (the “HCHHA Contingent Payment”). The HCHHA Contingent Payment will be paid in two installments of $75,000 to the seller within sixty days of each of the first and second anniversaries of the transaction, and is contingent upon, as of each applicable date, the seller’s employment continuing or having been terminated without cause and the seller meeting certain productivity targets. The contingent payments were accounted for as compensation consideration and will be accrued ratably over the term of the agreement. For the years ended March 31, 2016 and 2015, $79,147 and  $41,245 were expensed and as of March 31, 2016 and 2015, $31,250 and $41,245 were included in accounts payable and accrued liabilities, respectively.

The Company accounted for the acquisition as a business combination using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the purchase date and be recorded on the balance sheet. The process for estimating the fair values of identifiable intangible assets involves the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The value of the 3% equity interest in APS of $43,286 was determined by aggregating the fair value of BCHC and HCHHA which are the only assets in APS and applying the 3% ownership interest in APS to the aggregated amount. The acquisition-date fair value of the consideration transferred was as follows:

Cash consideration	$	300,000
Fair value of equity consideration		43,286
Working capital adjustment		(21,972)
	$	321,314

Transaction costs are not included as a component of consideration transferred and were expensed as incurred. The related transaction costs expensed for the year ended March 31, 2015 were approximately $16,000 and are included in general and administrative expenses in the consolidated statements of operations.

Under the acquisition method of accounting, the total purchase price was allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values, with the remainder allocated to goodwill. Goodwill is not deductible for tax purposes.

The final allocation of the total purchase price to the net assets acquired and liabilities assumed and included in the Company’s consolidated balance sheet at March 31, 2015 is as follows:

Cash and cash equivalents	$	(37,087)
Accounts receivable		149,599
Property and equipment		3,035
Identifiable intangible assets		284,000
Goodwill		268,989
Total assets acquired		668,536
Accounts payable and accrued liabilities		232,570
Deferred tax liability		114,652
Total liabilities assumed		347,222
Net assets acquired	$	321,314

The intangible assets acquired consisted of the following:

	Life (Yrs.)	Additions
Medicare license	Indefinite	$	242,000
Trade name	5		38,000
Non-compete agreements	5		4,000
		$	284,000

The fair value of the Medicare license was determined based on the present value of a five year projected opportunity cost of not being able to operate with a Medicare License using a discount rate of 16.0%. The trade name was computed using the relief from royalty method, assuming a 1% royalty rate, and the non-compete agreements were valued using a with-and-without method.

SCHC

On July 22, 2014, pursuant to a Stock Purchase Agreement dated as of July 21, 2014 (the “Purchase Agreement”) by and among the SCHC, a Medical Corporation that provides professional medical services in Los Angeles County, California, the shareholders of SCHC (the “Sellers”) and a Company affiliate, SCHC Acquisition, A Medical Corporation (the “Affiliate”), solely owned by Dr. Warren Hosseinion as physician shareholder and the Chief Executive Officer of the Company, the Affiliate acquired all of the outstanding shares of capital stock of SCHC from the Sellers. The purchase price for the shares was (i) $2,000,000 in cash, (ii) $428,391 to pay off and discharge certain indebtedness of SCHC (iii) warrants to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $10.00 per share and (iv) a contingent amount of up to $1,000,000 payable, if at all, in cash. The acquisition was funded by an intercompany loan from AMM, which also provided an indemnity in favor of one of the Sellers relating to certain indebtedness of SCHC that remained outstanding following the closing of the acquisition. Following the acquisition of SCHC, the Affiliate was merged with and into SCHC, with SCHC being the surviving corporation. The indebtedness of SCHC was paid off following the acquisition and did not remain outstanding as of December 31, 2014.

In connection with the acquisition of SCHC, AMM entered into a management services agreement with the Affiliate on July 21, 2014. As a result of the Affiliate’s merger with and into SCHC, SCHC is now the counterparty to this management services agreement and bound by its terms. Pursuant to the management services agreement, AMM will manage all non-medical services for SCHC, will have exclusive authority over all non-medical decision making related to the ongoing business operations of SCHC, and is the primary beneficiary of SCHC, and the financial statements of SCHC will be consolidated as a variable interest entity with those of the Company from July 21, 2014.

The Company accounted for the acquisition as a business combination using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the purchase date and be recorded on the balance sheet. The process for estimating the fair values of identifiable intangible assets involves the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The acquisition-date fair value of the consideration transferred was as follows:

Cash consideration	$	2,428,391
Fair value of warrant consideration		132,000
	$	2,560,391

The fair value of the warrant consideration of $132,000 was classified as equity. and was determined using the Black-Scholes option pricing model using the following inputs: share price of $5.40 (adjusted for a lack of control discount), exercise price of $1.00, expected term of 4 years, volatility of 54% and a risk free interest rate of 1.35%.

A contingent payment obligation of $1,000,000 was considered a post-combination transaction and therefore is recorded as post-combination compensation expense over the term of the arrangement and not as purchase consideration. The compensation expense will be accrued in each reporting period based upon achievement of certain physician productivity measures through June 30, 2016. Approximately $470,000 and $375,000 has been expensed during the years ended March 31, 2016 and 2015 of which $0 and $125,000 was included in accounts payable and accrued liabilities as of March 31, 2016 and 2015, respectively.

Transaction costs are not included as a component of consideration transferred and were expensed as incurred. The related transaction costs expensed for the year ended March 31, 2015 were approximately $124,000, and are included in general and administrative expenses in the consolidated statements of operations.

Under the acquisition method of accounting, the total purchase price was allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values, with the remainder allocated to goodwill. Goodwill is not deductible for tax purposes. The final allocation of the total purchase price to the net assets acquired and liabilities assumed and included in the Company’s consolidated balance sheet at March 31, 2015 is as follows:

Cash and cash equivalents	$	264,601
Accounts receivable		750,433
Receivable from affiliate		67,714
Prepaid expenses and other current assets		82,430
Property and equipment		607,315
Identifiable intangible assets		416,000
Goodwill		922,734
Other assets		66,762
Total assets acquired		3,177,989
Accounts payable and accrued liabilities		134,426
Note payable to financial institution		463,582
Deferred tax liability		19,590
Total liabilities assumed		617,598
Net assets acquired	$	2,560,391

The intangible assets acquired consisted of the following:

	Life (Yrs.)	Additions
Network relationships	5	$	220,000
Trade name	5		102,000
Non-compete agreements	3		94,000
		$	416,000

The network relationships were valued using the multi-period excess earnings method based on projected revenue and earnings over a 5 year period. The trade name was computed using the relief from royalty method, assuming a 1% royalty rate, and the non-compete agreements were valued using a with-and-without method.

AKM

In May 2014, AMM entered into a management services agreement with AKM Acquisition Corp, Inc. (“AKMA”), a newly-formed provider of physician services and an affiliate of the Company owned by Dr. Warren Hosseinion as a physician shareholder, to manage all non-medical services for AKMA. AMM has exclusive authority over all non-medical decision making related to the ongoing business operations of AKMA and is the primary beneficiary; consequently, AMM consolidated the revenue and expenses of AKMA from the date of execution of the management services agreements. On May 30, 2014, AKMA entered into a stock purchase agreement (the “AKM Purchase Agreement”) with the shareholders of AKM Medical Group, Inc. (“AKM”), a Los Angeles, CA-based independent practice association. Immediately following the closing, AKMA merged with and into AKM, with AKM being the surviving entity and assuming the rights and obligations under the management services agreement. Under the AKM Purchase Agreement all of the issued and outstanding shares of capital stock of AKM were acquired for approximately $280,000, of which $140,000 was paid at closing and $136,822 (the “Holdback Liability”) is payable, if at all, subject to the outcome of incurred but not reported risk-pool claims and other contingent claims that existed at the acquisition date.

Under the AKM Purchase Agreement, former shareholders of AKM are entitled to be paid the Holdback Amount of up to approximately $376,000 within 6 months of the Closing Date. No later than 30 days after the six month period, AKM will prepare a closing statement which will state the actual cash position (as defined) (“Actual Cash Position”) of AKM. If the actual cash position of AKM is less than $461,104 (the “Target Amount”), the former shareholders of AKM will pay the difference between the Target Amount and the Actual Cash Position, which will be deducted from the Holdback Amount, but in no case will exceed the amount previously paid to the former shareholders of AKM in connection with the transaction. If the Actual Cash Position exceeds the Target Amount, then that difference will be added to the Holdback Amount. Any indemnification payment made by the former shareholders of AKM will also be paid from the Holdback Amount; if the Holdback Amount is insufficient, the former shareholders of AKM are liable for paying the balance, which cannot exceed amounts previously paid to the former shareholders of AKM under the AKM Purchase Agreement. The Company determined the fair value was determined based on the cash consideration discounted at the Company's cost of debt.

The Company accounted for the acquisition as a business combination using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the purchase date and be recorded on the balance sheet. The process for estimating the fair values of identifiable intangible assets involves the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates.  The acquisition-date fair value of the consideration transferred was as follows:

Cash consideration	$	140,000
Holdback consideration paid to seller		140,000
Working capital adjustment paid to seller		236,236
Total purchase consideration	$	516,236

Under the acquisition method of accounting, the total purchase price was allocated to AKM’s net tangible assets based on their estimated fair values as of the closing date, with the remainder allocated to goodwill. Goodwill is not deductible for tax purposes.

The allocation of the total purchase price to the net assets acquired and included in the Company’s consolidated balance sheet is as follows:

Cash consideration	$	140,000
Holdback consideration		376,236
Total consideration	$	516,236
Cash and cash equivalents	$	356,359
Marketable securities		389,094
Accounts receivable		31,193
Prepaid expenses and other current assets		26,311
Intangibles		213,000
Goodwill		83,943
Accounts payable and accrued liabilities		(40,439)
Deferred tax liability		(84,847)
Medical payables		(458,378)
Net assets acquired	$	516,236

The intangible assets acquired consisted of the following:

	Life (Yrs.)	Additions
Payor relationships	5	$	107,000
Trade name	4		66,000
Non-compete agreements	3		40,000
		$	213,000

During the fourth quarter of fiscal 2016, management determined that the remaining carrying value of the goodwill and intangible assets was not recoverable (see Note 4).

Transaction costs are not included as a component of consideration transferred and were expensed as incurred. The related transaction costs expensed for the year ended March 31, 2015 were approximately $37,000.

During fiscal 2016, the Company combined the operations of AKM into those of MMG.

 

Pro Forma Financial Information

The results of operations for BCHC, HCHHA, AKM and SCHC are included in the consolidated statements of operations from the acquisition date of each. The pro forma results of operations are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisitions occurred at the beginning of the years presented or the results which may occur in the future. The following unaudited pro forma results of operations for the year ended March 31, 2015 assume the BCHC, HCHHA, AKM and SCHC acquisitions had occurred on April 1, 2014:

	Year Ended March 31, 2015
	(Unaudited)
Net revenue	$	37,036,240
Net loss	$	(2,244,224)
Basic and diluted loss per share	$	(0.46)

From the applicable closing date to March 31, 2015, revenues and net loss related to AKM, SCHC, BCHC and HCHHA included the accompanying consolidated statements of operations were $7,149,889 and $(568,269), respectively.