Mezzanine and Stockholders' Equity

3 Months Ended

Mar. 31, 2019

Stockholders' Equity Note [Abstract]

Mezzanine and Stockholders’ Equity

Mezzanine

APC

APC’s shareholders have entered into shareholder agreements that requires APC, under the circumstances described in those agreements, to repurchase the APC shares from the shareholders. Since 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. Except when the repurchase obligation is triggered, APC’s shares are not redeemable and it is not probable that the shares will become redeemable as of March 31, 2019 and December 31, 2018.

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 APC previously held by these shareholders. APC paid approximately $1.7 million to repurchase 1,662,571 shares of common stock (see Note 10).

Stockholders’ Equity

As of the date of this Report, 480,212 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 condensed 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.

See options and warrants section below for common stock issued upon exercise of stock options and stock purchase warrants.

Options

The Company’s outstanding stock options consisted of the following:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in millions)

Options outstanding at January 1, 2019		647,240		$	5.62		4.13	$	9.2
Options granted		45,000			18.11		-		-
Options exercised		(6,000	)		4.50		-		0.1
Options forfeited		-			-		-		-

Options outstanding at March 31, 2019		686,240		$	6.45		3.95	$	8.1

Options exercisable at March 31, 2019		641,240		$	5.27		3.64	$	8.1

During the three months ended March 31, 2019 and 2018, stock options were exercised for 6,000 and 75,000 shares, respectively, of the Company’s common stock, which resulted in proceeds of approximately $27,000 and $0.5 million, respectively. The exercise price was $4.50 per share for the exercises during the three months ended March 31, 2019 and ranged from $2.10 to $10.00 per share for the exercises during the three months ended March 31, 2018.

During the three months ended March 31, 2018, stock options were exercised pursuant to the cashless exercise provision of the option agreement, with respect to 54,536 shares of the Company’s common stock, which resulted in the Company issuing 43,201 net shares.

During the three months ended March 31, 2019, the Company granted 45,000 stock options to certain ApolloMed board members which were recognized at fair value, as determined using the Black-Scholes option pricing model and the following assumptions:

	March 31, 2019

Expected Term		3.0 years
Expected volatility		100.27 %
Risk-free interest rate		2.51 %
Market value of common stock	$	18.11
Annual dividend yield		-
Forfeiture rate		0	%

During the three months ended March 31, 2019, the Company recorded approximately $0.1 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 condensed consolidated statement of income.

Outstanding stock options granted to primary care physicians to purchase shares of APC’s common stock consisted of the following:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in millions)

Options outstanding at January 1, 2019		853,800	$	0.167		0.75	$	0.5
Options granted		-		-		-		-
Options exercised		-		-		-		-
Options expired/forfeited		-		-		-		-

Options outstanding and exercisable at March 31, 2019		853,800	$	0.167		0.50	$	0.5

The aggregate intrinsic value is calculated as the difference between the exercise price and the estimated fair value of common stock as of March 31, 2019.

Share-based compensation expense related to option awards granted to primary care physicians to purchase shares of APC’s common stock, are recognized over their respective vesting periods, and consisted of the following:

	Three Months Ended March 31,
	2019		2018
Share-based compensation expense:

General and administrative	$	202,382	$	202,382

	$	202,382	$	202,382

The remaining unrecognized share-based compensation expense of stock option awards granted to primary care physicians to purchase shares of APC’s common stock as of March 31, 2019 was $0.4 million which is expected to be recognized over the remaining term of 0.5 years.

Warrants

The Company’s outstanding warrants consisted of the following:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in millions)

Warrants outstanding at January 1, 2019		3,331,995		$	9.93		2.97	$	33.1
Warrants granted		-			-		-		-
Warrants exercised		(11,516	)		9.81		-		0.1
Warrants expired/forfeited		-			-		-		-

Warrants outstanding at March 31, 2019		3,320,479		$	9.93		2.72	$	27.9

								Weighted
				Weighted				Average
				Average				Exercise Price
Exercise Price Per		Warrants		Remaining		Warrants		Per
Share		Outstanding		Contractual Life		Exercisable		Share

$	9.00		1,075,492		1.54		1,075,492		9.00
	10.00		1,416,085		3.04		1,416,085		10.00
	11.00		828,902		3.69		828,902		11.00

$	9.00 –11.00		3,320,479		2.72		3,320,479	$	9.93

During the three months ended March 31, 2019, common stock warrants were exercised for 11,516 shares of the Company’s common stock, which resulted in proceeds of approximately $0.1 million. The exercise price ranged from $9.00 to $11.00 per share.

Treasury Stock

APC owned 1,775,561 and 1,682,110 shares of ApolloMed’s common stock as of March 31, 2019 and December 31, 2018, which are legally issued and outstanding but excluded from shares of common stock outstanding in the condensed consolidated financial statements, as such shares are treated as treasury shares for accounting purposes. Pursuant to the issuance of the Holdback Shares (see Note 13), 93,451 shares issued to APC are treated as treasury shares. The remaining treasury shares of 168,493 were repurchased from the former APCN shareholders in 2018.

Dividends

During the three months ended March 31, 2019 and 2018, APC paid dividends of $10.0 million and $2.0 million, respectively.