Business Combination and Goodwill (Tables)

12 Months Ended

Dec. 31, 2019

Schedule of Total Purchase Consideration

Total purchase consideration consisted of the following:



Equity consideration (1)	$	61,092,050
Fair value of ApolloMed preferred stock held by NMM (2)	19,118,000
Fair value of NMM’s noncontrolling interest in APAACO (3)	5,129,000
Fair value of the outstanding ApolloMed stock options (4)	1,055,333
Total purchase consideration	$	86,394,383


(1)	Equity consideration

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 (*)	6,109,205
Multiplied by the price per share of ApolloMed’s common stock (**)	$	10.00
Equity Consideration	$	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.


(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.

Summary of Estimated Fair Values of Assets Acquired and Liabilities Assumed

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:



	Balance Sheet
Assets acquired
Cash and cash equivalents	$	36,367,555
Accounts receivable, net	7,261,588
Other receivables	3,211,028
Prepaid expenses	249,193
Property, plant and equipment, net	1,114,332
Restricted cash	745,220
Fair value of intangible assets acquired	14,984,000
Deferred tax assets	2,498,417
Other assets	217,241
Goodwill	86,197,395
Accounts payable and accrued liabilities	(8,632,893		)
Medical liabilities	(39,353,540		)
Line of credit	(25,000		)
Convertible note payable, net	(5,376,215		)
Convertible note payable - related party	(9,921,938		)
Noncontrolling interest	(3,142,000		)
Net assets acquired	$	86,394,383

Total purchase consideration	$	86,394,383

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed, as of the acquisition date:



	Preliminary Balance Sheet
Assets acquired
Cash and cash equivalents	$	581,965
Accounts receivable, net	5,150,060
Other current assets	198,056
Network relationship intangible assets	11,411,000
Goodwill	23,018,675
Accounts payable	(3,211,349		)
Medical liabilities	(12,154,726		)
Subordinated loan	(15,327,013		)
Net assets acquired	$	9,666,668

Equity investment contributed	$	2,416,668
Cash paid	$	7,250,000

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed, as of the acquisition date:



	Preliminary Balance Sheet
Assets acquired
Cash and cash equivalents	$	3,568,554
Accounts receivable, net	10,335,664
Other current assets	4,360,850
Network relationship intangible assets	22,636,000
Goodwill	28,585,209
Accounts payable	(2,776,631		)
Deferred tax liabilities	(6,334,368		)
Medical liabilities	(15,319,714		)
Net assets acquired	$	45,055,564

Cash paid	$	45,055,564

Summary of Pro Forma Information

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:



	Year Ended December 31, 2019 (unaudited)		Year Ended December 31, 2018 (unaudited)

Revenue	$	658,010,954	$	726,074,752
Net income	$	10,867,496	$	58,879,491
Net income attributable to Apollo Medical Holdings, Inc.	$	7,310,724	$	9,447,002
EPS - Basic	$	0.21	$	0.29
EPS - Diluted	$	0.20	$	0.25

The pro forma combined historical results, as if ApolloMed had been acquired as of January 1, 2017, are estimated as follows (unaudited):



	Year Ended December 31, 2017
Net revenues	$	478,873,780
Net income attributable to Apollo Medical Holdings, Inc.	$	9,982,706
Weighted average common shares outstanding:
Basic	25,525,786
Earnings per share:
Basic	$	0.39
Weighted average common shares outstanding:
Diluted	28,661,735
Earnings per share:
Diluted	$	0.35

Schedule of Carrying Value of Goodwill

The following is a summary of goodwill activity for the years ended December 31, 2019 and 2018:



	Amount

Balance at January 1, 2018	$	189,847,202
Adjustments	(242,456		)
Impairment - (MMG)	(3,798,866		)
Balance at December 31, 2018	$	185,805,880
Acquisitions	52,699,324

Balance at December 31, 2019	$	238,505,204