Accounts payable

APOLLO MEDICAL HOLDINGS, INC. – 10-K – Management report and analysis of the financial situation and operating results

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.

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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

Apollo Medical Holdings, Inc. is a leading physician-centric,
technology-powered, risk-bearing healthcare management company. Leveraging its
proprietary population health management and healthcare delivery platform,
ApolloMed operates an integrated, value-based healthcare model, which aims to
empower the providers in its network to deliver the highest quality of care to
its patients in a cost-effective manner. We, together with our affiliated
physician groups and consolidated entities, provide coordinated outcomes-based
medical care in a cost-effective manner.

Through our NGACO model and our network of IPAs we were responsible for
coordinating the care for approximately 1.2 million patients primarily in
California as of December 31, 2021. These covered patients are comprised of
managed care members whose health coverage is provided either through their
employers, acquired 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.

On December 8, 2017, ApolloMed completed its business combination with NMM
(i.e., the "2017 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 2017
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 2017 Merger, NMM's historical results
of operations replaced ApolloMed's historical results of operations for periods
prior to the 2017 Merger, and the results of operations of both companies are
included in the accompanying consolidated financial statements for periods
following the 2017 Merger.

2021 Highlights

Shared savings of Medicare and Medicaid Service Centers for 2020
Performance year

Following the end of each performance year and at such other times as may be
required under the NGACO Participation Agreement between APAACO and CMS (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. 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 claims, risk adjustment factors, and 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 likely be recognized
in the future and therefore this shared-risk pool revenue is considered fully
constrained until it is settled. The settlement for the 2020 performance year
was finalized in October 2021 and the Company recognized $21.8 million related
to savings as revenue in risk pool settlements and incentives in the
accompanying consolidated statements of income for the year ended December 31,
2021.

Modified and updated credit agreement

On June 16, 2021, the Company entered into the Amended Credit Agreement. The
Amended Credit Agreement and Amended Credit Facility thereunder provides for a
five-year revolving credit facility to the Company of $400.0 million, which
includes a letter of credit sub-facility of up to $25.0 million and a swingline
loan sub-facility of $25.0 million. The Amended Credit Facility will be used to,
among other things, refinance certain existing indebtedness of the Company and
certain subsidiaries, finance certain future acquisitions and investments, and
provide for working capital needs and other general corporate purposes. Under
the Amended Credit Agreement, the Guaranty and Security Agreement (the "Guaranty
and Security Agreement") between the Company, NMM, and Truist Bank remains in
effect, pursuant to which, among other things, NMM guarantees the obligations of
the Company under the Amended Credit Agreement and the lenders under the Amended
Credit Agreement have a security interest over all of the assets of the Company
and NMM. As of December 31, 2021, the Company had $180.0 million outstanding
under the Amended Credit Facility.
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Acquisitions of businesses and assets

Advertising

Tag 8

In December 2020, using cash comprised solely of Excluded Assets, APC purchased
a 50% interest in Tag-8 Medical Investment Group, LLC ("Tag 8"). Tag 8 has
vacant land, which they plan to develop in the future. In April 2021, Tag 8
entered into a loan agreement with MUFG Union Bank N.A. with APC as their
guarantor, causing the Company to reevaluate the accounting for the Company's
investment in Tag 8. Based on the reevaluation and in accordance with relevant
accounting guidance, it was concluded that Tag 8 is a VIE and is consolidated by
APC.

APCMG

In July 2021, AP-AMH 2 Medical Corporation ("AP-AMH 2"), a VIE of the Company,
purchased an 80% equity interest (on a fully diluted basis) in Access Primary
Care Medical Group ("APCMG"), a primary care physicians' group focused on
providing high-quality care to senior patients in the northern California cities
of Daly City and San Francisco. As a result, APCMG is consolidated by the
Company. As part of the transaction, the Company paid $1.0 million in cash and
the remaining $1.0 million will be paid out in cash as a contingent
consideration related to APCMG's financial performance for fiscal year 2022.

Sun Laboratories

In August 2021, Apollo Medical Holdings, Inc. acquired 49% of the aggregate
issued and outstanding shares of capital stock of Sun Clinical Laboratories
("Sun Labs") for an aggregate purchase price of $4.0 million. Sun Labs is a
Clinical Laboratory Improvement Amendments-certified full-service lab that
operates across the San Gabriel Valley in Southern California. In accordance
with relevant accounting guidance, Sun Labs is determined to be a VIE of the
Company and is consolidated by the Company.

DMG

In October 2021, DMG entered into an administrative services agreement with a
subsidiary of the Company, causing the Company to reevaluate the accounting for
the Company's investment in DMG. Based on the reevaluation and in accordance
with relevant accounting guidance, DMG is determined to be a VIE of the Company
and is consolidated by the Company.




Recent Developments

Jade Health Care Medical Group (“Jade Health“)

In December 2021, the Company announced that AP-AMH 2 has entered into a
definitive agreement to acquire 100% of the capital stock of Jade Health Care
Medical Group ("Jade Health"), a primary and specialty care physicians' group
focused on providing high-quality care to its local communities. The Company
anticipates closing this transaction by the end of the second quarter of 2022
and will fund the transaction from cash on hand.

Orma Health, Inc.and Supplier Growth Solutions LLC (together, “Orma Health“)

In January 2022, the Company announced that it acquired 100% of the capital
stock of Orma Health, Inc., and Provider Growth Solutions, LLC (together, "Orma
Health") in accordance with an agreement between ApolloMed, Orma, and certain
equity holders of Orma Health. Through its suite of AI-driven solutions, Orma
Health currently serves over 4,000 aligned Medicare beneficiaries in a Direct
Contracting Entity ("DCE") and over 2,500 patients in California, Nevada,
Arizona, and Texas through its remote patient monitoring ("RPM") platform.

Direct Contract Template

APAACO has applied for the GPDC Model for Performance Year 2022 ("PY22") with
CMS releasing the PY22 GPDC Model Participants at
https://innovation.cms.gov/media/document/gpdc-model-participant-summary. CMS
has redesigned the GPDC Model in response to Administration priorities,
including their commitment to advancing health equity,
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stakeholder feedback, and participant experience. They have renamed the GPDC
Model to ACO Realizing Equity, Access, and Community Health ("ACO REACH") Model.
The ACO REACH Model will begin participation on January 1, 2023.

Main financial measures and indicators

operating income

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

Functionnary costs

Our largest expenses consist of the cost of: (1) patient care paid to contracted
physicians; (2) information technology equipment and software and; (3) hiring
staff to provide management and administrative support services to our
affiliated physician groups, as further described in the following sections.
These services include payroll, benefits, physician practice billing, revenue
cycle services, physician practice management, administrative oversight, coding
services, and other consulting services.


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Operating results

2021 Compared to 2020

Our consolidated operating results for the year ended December 31, 2021like
compared to the year ended December 31, 2020 were the following:

                         Apollo Medical Holdings, Inc.
                Consolidated Statements of Income (in thousands)

                                                              Years Ended December 31,
                                                              2021                    2020             $ Change             % Change
Revenue
Capitation, net                                       $     593,224               $ 557,326          $  35,898                      6  %
Risk pool settlements and incentives                        111,627                  77,367             34,260                     44  %
Management fee income                                        35,959                  34,850              1,109                      3  %
Fee-for-services, net                                        26,564                  12,683             13,881                    109  %
Other income                                                  6,541                   4,954              1,587                     32  %
Total revenue                                               773,915                 687,180             86,735                     13  %
Operating expenses
Cost of services, excluding depreciation and
amortization                                                596,142                 539,211             56,931                     11  %
General and administrative expenses                          62,077                  49,116             12,961                     26  %
Depreciation and amortization                                17,517                  18,350               (833)                    (5) %

Total expenses                                              675,736                 606,677             69,059                     11  %
Income from operations                                       98,179                  80,503             17,676                     22  %
Other (expense) income
Income (loss) from equity method investments                 (4,306)                  3,694             (8,000)                  (217) %
Gain on sale of equity method investment                      2,193                  99,839            (97,646)                   (98) %
Interest expense                                             (5,394)                 (9,499)             4,105                    (43) %
Interest income                                               1,571                   2,813             (1,242)                   (44) %
Unrealized loss on investments                              (10,745)                      -            (10,745)                   100  %
Other (expense) income                                       (3,750)                  1,077             (4,827)                  (448) %
Total other (expense) income, net                           (20,431)                 97,924           (118,355)                  (121) %
Income before provision for income taxes                     77,748                 178,427           (100,679)                   (56) %
Provision for income taxes                                   28,454                  56,107            (27,653)                   (49) %
Net income                                            $      49,294               $ 122,320          $ (73,026)                   (60) %

Net (loss) income attributable to noncontrolling
interests                                                   (24,564)                 84,454           (109,018)                  (129) %
Net income attributable to Apollo Medical Holdings,
Inc.                                                  $      73,858               $  37,866          $  35,992                     95  %



Net Income

Our net profit in 2021 was $49.3 millioncompared to $122.3 million in 2020,
a decrease of $73.0 million or 60%.

Physician and patient groups

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From December 31, 2021 and 2020, the total number of affiliated physicians
groups we managed were 12 groups and 14 groups, respectively, and the total
number of patients for whom we managed the delivery of health services was
1.2 million and 1.1 million, respectively.

Income

Our total revenue in 2021 was $773.9 million, as compared to $687.2 million in
2020, an increase of $86.7 million or 13%. The increase in total revenue was
primarily attributable to the following:

(i) An overall increase of $35.9 million in capitation revenue primarily driven
by membership growth at APC and Alpha Care and higher average capitation rate at
APC. APC and Alpha Care contributed additional capitation revenue of
approximately $38.2 million and $7.0 million, respectively. This was offset with
a decrease in capitation revenue of $11.5 million at Accountable Health Care due
to decreased membership.

(ii) An increase of $34.3 million in risk pool settlements and incentives
revenue due to an increase of $14.7 million in shared savings generated from our
full risk pool arrangements driven by reduced utilization at ApolloMed's partner
hospitals resulting from the suspension of non-emergency medical procedures in
early 2020 when the COVID-19 pandemic first began, revenues from ApolloMed's
partner hospitals reflect a 15-18 month lag, $13.1 million from health plan
incentives and settlements from various payor partners, which was mainly
attributable to increased membership and timing of settlements, $4.5 million
resulting from a settlement with a health plan within our full risk pool
arrangement, and a $2.0 million increase in the shared savings settlement earned
from ApolloMed's participation in an ACO related to performance year 2020 as
compared to prior year.

(iii) An increase of $13.9 million in fee-for-services revenue attributable to
fees generated from Sun Labs and DMG totaling $7.2 million due to the
consolidation of Sun Labs in August 2021 and DMG in October 2021. In addition,
there was an increase of $5.4 million from increased visits to our surgery and
heart centers, which were partially closed in the prior year due COVID-19.

Cost of services, excluding depreciation and amortization

Expenses related to cost of services, excluding depreciation and amortization,
in 2021 were $596.1 million, as compared to $539.2 million in 2020, an increase
of $56.9 million or 11%. The overall increase was due to an increase in medical
claims incurred of $33.4 million, $12.1 million in additional costs as a result
of the consolidation of Sun Labs in August 2021 and DMG in October 2021, and
$8.3 million in increased sub-capitation payments due to a new oncology vendor
joining in November 2020.

General and administrative expenses

General and administrative expenses in 2021 were $62.1 million, as compared to
$49.1 million in 2020, an increase of $13.0 million or 26%. This increase was
primarily due to an $8.9 million increase in personnel-related costs to support
the continued growth in the depth and breadth of our operations and $2.7 million
in one time cost related to vendor settlement and execution of the Amended
Credit Facility agreement.

Depreciation and amortization

Depreciation and amortization expense was $17.5 million and $18.4 million for
the years ended December 31, 2021 and 2020, respectively. These amounts included
depreciation of property and equipment and the amortization of intangible
assets.

Other (expenses) income

Other (expense) income represents income, or loss, from equity method
investments, gain, or loss, on sale of equity method investment, interest
expense, interest income, unrealized loss on investments, and other (expense)
income. Our total other expense in 2021 was $20.4 million compared to other
income of $97.9 million in 2020, a decrease of $118.4 million. The decrease in
other income was due to a decrease of $97.6 million resulting from the gain on
sale of equity method investment in 2020, unrealized loss on investments of
$10.7 million, and a decrease in income from equity method investments of $8.0
million.
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the $97.6 million the decrease in the sale of equity-accounted investments is mainly
driven by a $99.6 million gain from the sale of UCI in 2020 compared to a
$2.2 million gain from the sale of a 21.25% stake in LMA in 2021.

The $10.7 million unrealized loss on investments is primarily driven by an
unrealized loss of $12.1 million due to fluctuations in the stock price of a
payor partner in which we hold shares in. These shares are recorded as
marketable securities and deemed an Excluded Assets that are solely for the
benefit of APC and its shareholders. Any resulting gain or loss does not impact
net income attributable to Apollo Medical Holdings, Inc. The unrealized loss was
partial offset by an unrealized gain of $1.3 million due to fluctuations in the
stock price of our equity holdings in Clinigence.

The $8.0 million decrease in income from equity method investments was primarily
due to the sale of UCI in April 2020. For the nine months ended September 30,
2020, UCI contributed equity earnings of $3.6 million. The additional decrease
is from our investment in LMA. The Company incurred a loss of $5.8 million from
LMA as a result of increased claims expense for the year ended December 31, 2021
as compared to equity earnings of $0.3 million for the year ended December 31,
2020. The loss was partially offset by increases in income from One MSO, Tag 6,
and CAIPA MSO of $0.5 million, $0.3 million, and $0.3 million, respectively.

Provision for income taxes

The provision for income taxes has been $28.5 million in 2021, compared to $56.1
million
in 2020, a decrease of $27.7 million or 49%. It was mainly
attributable to lower pre-tax income in 2021, compared to 2020, due to
to the factors described above.

Net income (loss) attributable to non-controlling interests

Net loss attributable to non-controlling interests was $24.6 million in 2021, as
compared to net income of $84.5 million in 2020, a decrease of $109.0 million.
The decrease was primarily due to unrealized loss on investment recognized for
the year ended December 31, 2021 related to a payor partner as compared to the
gain on sale of UCI in April 2020.
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2020 vs. 2019

Our consolidated operating results for the year ended December 31, 2020like
compared to the year ended December 31, 2019 were the following:

                         Apollo Medical Holdings, Inc.
                Consolidated Statements of Income (in thousands)

                                                              Years Ended December 31,
                                                              2020                    2019             $ Change             % Change
Revenue
Capitation, net                                       $     557,326               $ 454,168          $ 103,158                     23  %
Risk pool settlements and incentives                         77,367                  51,098             26,269                     51  %
Management fee income                                        34,850                  34,668                182                      1  %
Fee-for-services, net                                        12,683                  15,475             (2,792)                   (18) %
Other income                                                  4,954                   5,209               (255)                    (5) %
Total revenue                                               687,180                 560,618            126,562                     23  %
Operating expenses
Cost of services, excluding depreciation and
amortization                                                539,211                 467,805             71,406                     15  %
General and administrative expenses                          49,116                  41,482              7,634                     18  %
Depreciation and amortization                                18,350                  18,280                 70                      0  %
Provision for doubtful accounts                                   -                  (1,363)             1,363                   (100) %
Impairment of goodwill and intangibles assets                     -                   1,994             (1,994)                  (100) %
Total expenses                                              606,677                 528,198             78,479                     15  %
Income from operations                                       80,503                  32,420             48,083                    148  %
Other income (expense)
Loss from equity method investments                           3,694                  (6,901)            10,595                   (154) %
Gain on sale of equity method investment                     99,839                       -             99,839                    100  %
Interest expense                                             (9,499)                 (4,733)            (4,766)                   101  %
Interest income                                               2,813                   2,024                789                     39  %
Other income                                                  1,077                   3,030             (1,953)                   (64) %
Total other income (expense), net                            97,924                  (6,580)           104,504                         *
Income before provision for income taxes                    178,427                  25,840            152,587                    591  %
Provision for income taxes                                   56,107                   8,167             47,940                    587  %
Net income                                            $     122,320               $  17,673          $ 104,647                    592  %

Net income attributable to non-controlling interests 84,454

           3,557             80,897                         *

Net income attributable to Apollo Medical Holdings,
Inc.

                                                  $      37,866               $  14,116          $  23,750                    168  %


* Percentage change over 1000%

Net revenue

Our net profit in 2020 was $122.3 millioncompared to $17.7 million in 2019,
an augmentation of $104.6 million or 592%.

Physician and patient groups

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From December 31, 2020 and 2019, the total number of affiliated physicians
groups we managed were 14 groups and 13 groups, respectively, and the total
number of patients for whom we managed the delivery of health services was
1.1 million and 0.9 million, respectively.

Income

Our total revenue in 2020 was $687.2 million, as compared to $560.6 million in
2019, an increase of $126.6 million or 23%. The increase in total revenue was
primarily attributable to the following:

(i) An overall increase of $103.2 million in capitation revenue primarily driven
by the acquisition of Alpha Care and Accountable Health Care in August 2019 and
September 2019, respectively. For the full year ended December 31, 2020, Alpha
Care and Accountable Health Care contributed additional capitation revenues of
$52.4 million and $29.0 million, respectively. In addition, capitation revenue
at APC increased by $16.4 million due to increased rates from incentives being
met and increased patient lives under management. Lastly, capitation revenue at
APAACO increased by $5.3 million as a result of organic growth and expansion of
the ACO program.

(ii) An increase of $26.3 million in risk pool settlements and incentives
revenue due to the settlement of the 2019 ACO Performance Year, resulting in a
shared-risk settlement of $19.8 million recognized during the third quarter of
2020, as compared to $0.9 million in shared-risk settlement related to the 2018
performance year and recognized during the year ended December 31, 2019. In
addition, during the year ended December 31, 2020, risk pool revenues increased
by $6.2 million primarily driven by reduced hospital costs as a result of
COVID-19.

(iii) A decrease in fees-for-services revenue of $2.8 million primarily due to
the COVID-19 pandemic that resulted in the closure of our surgery centers and
heart center from March 2020 to May 2020 and fewer procedures completed in 2020.

Cost of services, excluding depreciation and amortization

Expenses related to cost of services, excluding depreciation and amortization,
in 2020 were $539.2 million, as compared to $467.8 million in 2019, an increase
of $71.4 million or 15%. The increase was due primarily to the acquisitions of
Alpha Care and Accountable Health Care in May 2019 and September 2019,
respectively, which provided for a full year of costs for the year ended
December 31, 2020. Cost of services, excluding depreciation and amortization,
related to Alpha Care and Accountable Health Care contributed $52.2 million and
$28.0 million, respectively, to the overall increase. Furthermore, there was an
$8.6 million increase at our APAACO entity resulting from a full year of
services in the 2020 performance year as compared to nine months of services
under the 2019 performance year due to the delayed commencement by CMS of
APAACO's 2019 Next Generation ACO performance year from January 1, 2019 to April
1, 2019. Lastly, cost of sales increased by $5.6 million at NMM to support the
continued growth of the Company. These increases were offset by a reduction in
claims costs totaling approximately $25.1 million as a result of the COVID-19
pandemic, which caused a decrease in office visits and a reduction in
non-emergency procedures. We do not expect similar decreases in claims costs as
a result of COVID-19 to occur again in fiscal 2021.

General and administrative expenses

General and administrative expenses in 2020 were $49.1 million, as compared to
$41.5 million in 2019, an increase of $7.6 million or 18%. This increase was
primarily due to $4.5 million in additional provider bonuses and $2.4 million
from share-based compensation related to stock options and restricted stock
awards granted in 2020 and 2019.

Depreciation and amortization

Depreciation and amortization expense was $18.4 million and $18.3 million for
the years ended December 31, 2020 and 2019, respectively. These amounts included
depreciation of property and equipment and the amortization of intangible
assets.

Allowance for doubtful accounts

During the year ended December 31, 2019, we released reserves related to certain
management fees in the amount of approximately $1.4 million as collectability of
the outstanding amount was no longer in doubt. These reserves were related to
various preacquisition obligations of Accountable Health Care and were no longer
necessary as a result of our acquisition of Accountable Health Care.
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Impairment of Good will and intangible assets

There was no impairment of goodwill and intangible assets for the year ended
December 31, 2020, as compared to $2.0 million for the year ended December 31,
2019, which related to a write-off of Medicare licenses that were acquired as
part of the 2017 Merger between ApolloMed and NMM.

Other income (expenses)

Other income (expense) represents income, or loss, from equity method
investments, interest expense, interest income, gain on sale of equity method
investment, and other income. Total other income in 2020 was income of $97.9
million compared to other expense of $6.6 million in 2019, an increase of $104.5
million. The increase in other income was primarily due to a $99.8 million gain
on sale of our UCI equity method investment and an increase of $10.6 million
from income from equity method investments. This was partially offset by an
increase of $4.8 million in interest expense.

The increase of $10.6 million in income from equity method investments was
primarily due to equity earnings recognized related to Universal Care Inc, of
$3.6 million compared to a loss of $1.2 million in 2019. During the year ended
December 31, 2020, we recognized equity earnings from our investment of LSMA of
$0.3 million as compared to an equity loss of $2.8 million in 2019. Further, we
recognized an equity loss of $2.5 million related to our investment in
Accountable Health Care during the year ended December 31, 2019, which was
acquired in August 2019 and is now a consolidated entity of APC.

The increase in interest expense of $4.8 million was primarily due to interest
incurred from a new credit facility we secured in September 2019 to fund growth,
primarily through acquisitions.

Provision for income taxes

The provision for income taxes has been $56.1 million in 2020, compared to $8.2
million
in 2019, an increase of $47.9 million or 587%. It was mainly
attributable to the increase in profit before tax in 2020, compared to 2019, due to
to the factors described above.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests was $84.5 million in 2020,
as compared to $3.6 million in 2019, an increase of $80.9 million. The increase
was primarily due to the sale of UCI in April 2020 where the gain, net of tax,
remained strictly with the APC Excluded Assets and increased consolidated net
income generated in the current period, which resulted in additional income
allocated to the non-controlling interest.


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Orientation 2022

ApolloMed anticipates full-year 2022 total revenue of between $1.03 billion and
$1.08 billion, based on the Company's existing business, current view of
existing market conditions, and assumptions for the year ending December 31,
2022.

The Company is providing projections for total revenue only at this time due to
uncertainties related to its participation in a Centers for Medicare & Medicaid
Services Innovation Center ("CMMI") innovation model, ongoing investment in
staff to support future growth, and certain investments that depend on
unpredictable macroeconomic factors.



Reconciliation of net income with EBITDA and adjusted EBITDA

                                                               Year Ended
                                                              December 31,
 (in thousands)                                        2021                 2020

Net (loss) income                                   $  49,294            $ 122,320
Interest expense                                        5,394                9,499
Interest income                                        (1,571)              (2,813)
(Benefit from) provision for income taxes              28,454               56,107
Depreciation and amortization                          17,517               18,350
EBITDA                                              $  99,088            $ 203,463

Loss (income) from equity method investments        $   4,306            $  

(3,694)

Other expense (income)                                 11,222   (1)         

(1,077)

Unrealized loss on investments                         12,137               

Gain on sale of equity method investment                    -              (99,839)
Provider bonus payments                                 7,220                6,500
Stock-based compensation                                6,745                3,383
APC excluded assets costs                              10,325                2,000
Net loss adjustment for recently acquired IPAs         23,147               19,192
Adjusted EBITDA                                     $ 174,190            $ 129,928



(1) Other expense (income) excludes the impact of fair value of certain equity
securities held by the Company and the gain resulting from the consolidation of
an equity method investment as of December 31, 2021.

Use of Non-GAAP Financial Measures

This Annual Report on Form 10-K contains the non-GAAP financial measures EBITDA
and adjusted EBITDA, of which the most directly comparable financial measure
presented in accordance with generally accepted accounting principles ("GAAP")
is net income. These measures are not in accordance with, or an alternative to,
U.S. GAAP, and may be different from other non-GAAP financial measures used by
other companies. The Company uses adjusted EBITDA as a supplemental performance
measure of our operations, for financial and operational decision-making, and as
a supplemental means of evaluating period-to-period comparisons on a consistent
basis. Adjusted EBITDA is calculated as earnings before interest, taxes,
depreciation, and amortization, excluding income from equity method investments,
provider bonuses, impairment of intangibles, provision of doubtful accounts, and
other income earned that is not related to the Company's normal operations.
Adjusted EBITDA also excludes the effect on EBITDA of certain IPAs we recently
acquired.
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The Company believes the presentation of these non-GAAP financial measures
provides investors with relevant and useful information as it allows investors
to evaluate the operating performance of the business activities without having
to account for differences recognized because of non-core or non-recurring
financial information. When GAAP financial measures are viewed in conjunction
with non-GAAP financial measures, investors are provided with a more meaningful
understanding of ApolloMed's ongoing operating performance. In addition, these
non-GAAP financial measures are among those indicators the Company uses as a
basis for evaluating operational performance, allocating resources, and planning
and forecasting future periods. Non-GAAP financial measures are not intended to
be considered in isolation, or as a substitute for, GAAP financial measures. To
the extent this release contains historical or future non-GAAP financial
measures, the Company has provided corresponding GAAP financial measures for
comparative purposes. The reconciliation between certain GAAP and non-GAAP
measures is provided above.

Cash and capital resources

Cash, cash equivalents, and investment in marketable securities at December 31,
2021 totaled $286.5 million. Working capital totaled $283.4 million at
December 31, 2021, compared to $223.6 million at December 31, 2020, an increase
of $59.8 million.

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 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 February 2023.

Our cash and cash equivalents and restricted cash increased by $39.1 million
from $194.0 million at December 31, 2020 to $233.1 million at December 31, 2021.
Cash provided by operating activities during the year ended December 31, 2021
was $70.3 million, as compared to $46.2 million during the year ended
December 31, 2020. Cash provided by operating activities during the year ended
December 31, 2021 was due to net income of $49.3 million with adjustments to
reconcile net income to net cash provided by operating activities. For the year
ended December 31, 2021 adjustments from depreciation and amortization of $17.5
million, share-based compensation of $6.7 million, unrealized loss on
investments of $10.8 million, impairment of beneficial interest of $15.7
million, loss from equity method investments of $4.3 million, $4.1 million
change in accounts payable and accrued expenses and fiduciary payable, $5.3
million change in medical liabilities, and $2.7 million change in prepaid
expenses and other current assets increased cash provided by operating
activities. This was offset by adjustments from gain on sale of equity method
investment of $2.2 million, gain on consolidation of equity method investment of
$2.8 million, gain on purchase of warrants of $1.1 million, gain on contingent
equity securities of $4.3 million, $27.0 million change in receivable, net,
receivable, net - related parties, and other receivable, and $5.2 million change
in other assets and income taxes payable. This is compared to cash provided by
operating activities during the year ended December 31, 2020 as a result of net
income of $122.3 million adjusted to reconcile net income to net cash provided
by operating activities. Adjustments from depreciation and amortization of $18.4
million, share-based compensation of $3.4 million, $15.6 million change in
receivable, net, receivable, net - related parties, and other receivable, and
$15.8 million change in accounts payable and accrued expenses and fiduciary
payable increased cash provided by operating activities. This was offset by
adjustments from income from equity method investments of $3.7 million, gain on
sale of UCI equity method investments of $99.8 million, $6.4 million change in
prepaid expenses and other current assets, $14.5 million change in other assets,
medical liabilities, and income taxes payable.

Cash provided by investing activities during the year ended December 31, 2021
was $16.5 million, as compared to cash provided by investing activities of $95.5
million during the year ended December 31, 2020. Cash provided by investing
activities during the year ended December 31, 2021 was primarily due to proceeds
from sale of marketable securities of $67.6 million, proceeds from sale of
equity method investment totaling $6.4 million, and cash recognized from
consolidation of VIE of $5.9 million. These were offset by purchases of equity
method investments of $13.6 million, purchases of property and equipment of
$19.2 million, payments for business acquisition, net of cash acquired of $2.6
million, and purchases of marketable securities of $28.0 million. This is
compared to cash provided in investing activities for the year ended
December 31, 2020 primarily due to proceeds of marketable securities of $50.6
million, proceeds from sale of equity method investment totaling $52.7 million,
and proceeds from repayment of loans receivable of $16.5 million. These were
offset by purchases of equity method investments of $10.0 million, payments for
business acquisitions of $11.4 million, and purchases of marketable securities
of $1.8 million.
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Cash used in financing activities during the year ended December 31, 2021 was
$47.7 million, as compared to cash used in financing activities of $51.7 million
for the year ended December 31, 2020. Cash used in financing activities during
the year ended December 31, 2021 was primarily attributable to repayment of
Credit Facility and other debt of $238.3 million, the payments of dividends
totaling $31.1 million, payment of debt issuance cost related to the Amended
Credit Facility of $0.7 million, distribution to noncontrolling interests of
$1.5 million, and repurchases of shares totaling $5.7 million. This was offset
by proceeds from the exercise of stock options and warrants of $9.1 million,
borrowings on the Amended Credit Facility of $180.0 million, borrowings on Tag
8's Construction Loan of $0.6 million, and proceeds from sale of shares of $40.1
million. This is compared to cash used in financing activities for the year
ended December 31, 2020 for payments of dividends totaling $51.3 million,
repayment on our term loan totaling $9.5 million, distribution to
non-controlling interests of $1.0 million, and repurchases of shares totaling
$0.5 million. Cash used was offset with the proceeds from the exercise of stock
options and warrants of $10.8 million.

Assets excluded

In September 2019, APC and AP-AMH entered into the Second Amendment to Series A
Preferred Stock Purchase Agreement clarifying the term Excluded Assets.
"Excluded Assets" means (i) assets received from the sale of shares of the
Series A Preferred equal to the Series A Purchase Price, (ii) the assets of the
Company that are not Healthcare Services Assets, including the Company's equity
interests in Universal Care, Inc., Apollo Medical Holdings, Inc., and any entity
that is primarily engaged in the business of owning, leasing, developing, or
otherwise operating real estate, (iii) any assets acquired with the proceeds of
the sale, assignment, or other disposition of any of the assets described in
clauses (i) or (ii), and (iv) any proceeds of the assets described in clauses
(i), (ii), and (iii).

The Excluded Assets as of December 31, 2021, are primarily comprised of assets
and liabilities from operating real estate and proceeds from the sale of UCI.
Any dividends issued to APC shareholders are paid using cash from Excluded
Assets. Excluded Assets consisted of the following (in thousands):

                                                                                          December 31,
                                                               December 31, 2021              2020

Cash and cash equivalents                                    $           62,540          $     38,773
Investment in marketable securities                                      49,066                66,534
Land, property and equipment, net                                        42,114                24,466
Loan receivable - related parties                                         4,000                 4,145
Investments in other entities - equity method                            24,969                25,847
Investment in privately held entities                                         -                36,179
Other receivable and assets                                                 936                15,723
Other liabilities                                                        (1,178)                    -
Long-term debt                                                           (7,645)               (7,580)

Total excluded assets                                        $          174,802          $    204,087


Credit Facilities

The Company’s debt balance consisted of the following (in thousands):

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                                                   December 31, 2021
               Revolver loan                      $          180,000
               Real estate loans                               7,396
               Construction loan                                 569
               Total debt                                    187,965

               Less: current portion of debt                    (780)
               Less: unamortized financing cost               (4,268)

                Long-term debt                    $          182,917


  The following are the future commitments of the Company's debt for the years
                       ending December 31 (in thousands):

                                                  Amount
                         2022                   $     780
                         2023                         215
                         2024                         222
                         2025                       6,748
                         2026 and thereafter      180,000

                          Total                 $ 187,965


The Amended Credit Agreement requires the Company to comply with two
financial ratios, each calculated on a consolidated basis.

         Coverage Ratios (1)                      Requirement             December 31, 2021
Consolidated leverage ratio               Less than 3.75 to 1.00            

1.16

Consolidated interest coverage ratio Greater than 3.25 to 1.00

25.44

(1) All commitment ratio titles use terms as defined in the respective debt
The agreements.

Refer to Note 10 - "Credit Facility, Bank Loans, and Lines of Credit" to our
consolidated financial statements under Item 8 in this Annual Report on Form
10-K for additional information on the Amended Credit Agreement.

Deferred financing costs

In September 2019, the Company recorded deferred financing costs of $6.5 million
related to its entry into the Credit Facility. In June 2021, the Company
recorded additional deferred financing costs of $0.7 million related to its
entry into the Amended Credit Facility. Deferred financing costs are recorded as
a direct reduction of the carrying amount of the related debt liability using
straight-line amortization. The remaining unamortized deferred financing costs
related to the Credit Facility and the new costs related to the Amended Credit
Facility are amortized over the life of the Amended Credit Facility.

Effective interest rate

The Company's average effective interest rate on its total debt during the years
ended December 31, 2021, 2020, and 2019 was 2.06%, 3.48%, and 3.39%,
respectively. Interest expense in the consolidated statements of income included
amortization of deferred debt issuance costs for the years ended December 31,
2021, 2020, and 2019 of $1.2 million, $1.4 million, and $0.5 million,
respectively.

Home loans

At December 31, 2020using cash composed solely of Excluded Assets, APC
bought a 100% stake in MPP, AMG properties, and ZLL. Following the
purchase, the Company assumed $6.4 million, $0.7 millionand $0.7 million of

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existing loans held by MPP, AMG Properties, and ZLL, respectively, on the day of
acquisition. Refer to Note 10 - "Credit Facility, Bank Loans, and Lines of
Credit" to our consolidated financial statements under Item 8 in this Annual
Report on Form 10-K for additional information.

Ready to build

In April 2021, Tag 8 entered into a construction loan agreement with MUFG Union
Bank N.A. ("Construction Loan") that allows Tag 8 to borrow up to $10.7 million.
Tag 8 is a VIE consolidated by the Company. Refer to Note 10 - "Credit Facility,
Bank Loans, and Lines of Credit" to our consolidated financial statements under
Item 8 in this Annual Report on Form 10-K for additional information.

Lines of credit – Related party

On September 10, 2019, APC amended its promissory note agreement with Preferred
Bank ("APC Business Loan Agreement"), which is affiliated with one of the
Company's board members, to modify loan availability to $4.1 million. 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.

Stand-by letters of credit

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.

Business-to-business loans

Each of AMH, Maverick Medical Group, Inc. ("MMG"), Bay Area Hospitalist
Associates ("BAHA"), AKM Medical Group, Inc. ("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.
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                                                                                       Year Ended December 31, 2021 (in thousands)
                                                                           Maximum
                                                                           Balance                               Principal
                           Intercompany          Interest Rate Per          During             Ending           Paid During        Interest Paid
     Entity              Credit Facility               Annum                Period            Balance             Period           During Period

AMH                     $        10,000                      10  %       $   6,588          $   6,588          $        -          $        -
MMG                               3,000                      10  %           3,663              3,663                   -                   -
AKM                               5,000                      10  %               -                  -                   -                   -
SCHC                              5,000                      10  %           5,362              5,362                   -                   -
BAHA                                250                      10  %           4,066              3,945                   -                   -
                        $        23,250                                  $  19,679          $  19,558          $        -          $        -


Significant Accounting Policies and Estimates

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles 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 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. Our significant
accounting policies are described in Note 2 - "Basis of Presentation and Summary
of Significant Accounting Policies" to our consolidated financial statements
under Item 8 in this Annual Report on Form 10-K.

Principles of consolidation

The consolidated balance sheets as of December 31, 2021 and 2020 and
consolidated statements of income for the years ended December 31, 2021, 2020,
and 2019 include the accounts of (1) ApolloMed, ApolloMed's consolidated
subsidiaries, NMM, AMM, and APAACO, and its VIEs, AP-AMH, AP-AMH 2, Sun Labs,
and DMG; (2) AP-AMH 2's consolidated subsidiary, APCMG; (3) AMM's VIEs, SCHC and
AMH; (4) NMM's VIE, APC; (5) APC's consolidated subsidiaries, Universal Care
Acquisition Partners, LLC ("UCAP"), MPP, AMG Properties, ZLL, and its VIEs,
CDSC, APC-LSMA, ICC, and Tag 8; and (6) APC-LSMA's consolidated subsidiaries,
Alpha Care, Accountable Health Care, and AMG.

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. 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 (IBNR claims), determination of
full-risk and shared-risk revenue and receivables (including constraints,
completion factors and historical margins), income tax valuation allowance,
share-based compensation, and right-of-use assets and lease liabilities.
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

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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 include the pool of risks
settlements and incentives receivable, income from management fees and other
receivables. Receivables from related parties are recognized and valued at the amount
should 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 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.

  Receivables are recorded when the Company is able to determine amounts
receivable under applicable contracts and agreements based on information
provided and collection is reasonably likely to occur. In regards to the credit
loss standard, the Company continuously monitors its collections of receivables
and our expectation is that the historical credit loss experienced across our
receivable portfolio is materially similar to any current expected credit losses
that would be estimated under the current expected credit losses ("CECL") model.

Fair value measurements

The Company's financial instruments include 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 organizes entries into three main levels as follows:

Level 1 inputs are unadjusted quoted prices in active markets for
assets or liabilities accessible on the valuation 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 which market
participants would use to price the asset or liability. These entries would be
based on the best information available, including the Company’s own data.

Business combinations

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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.

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,
as well as trade names and 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 are 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.

Good will and intangible assets

Under FASB ASC 350, Intangibles – Good will and others (“ASC 350”), goodwill and
intangible assets with an indefinite useful life are reviewed at least once a year
deficiency.

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 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.

Accumulation of medical liabilities

APC, Alpha Care, Accountable Health Care, and APAACO are responsible for
integrated care that the associated physicians and contracted hospitals provide
to their enrollees. APC, Alpha Care, Accountable Health Care, and APAACO 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, excluding depreciation
and amortization, expense in the accompanying consolidated statements of income.
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  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 healthcare services, historical payment patterns, cost trends,
product mix, seasonality, changes in membership, and other factors. The
estimation methods and the resulting accrual 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
services. Such differing interpretations may not come to light until a
substantial period of time has passed following the contract implementation.

Risk pool regulations 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. The Company's 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 factors, 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.

  The Company's 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 fully settled in the third or fourth
quarter of the following year.
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 its 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. The Company's 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.

Share-based compensation

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The Company maintains a stock-based compensation program for employees,
non-employees, directors and consultants. The value of share-based awards, such
as options, is recognized as compensation expense on a cumulative straight-line
basis over the vesting period of the awards, adjusted for forfeitures as they
occur. From time to time, the Company issues shares of its common stock to its
employees, directors, and consultants, which shares may be subject to the
Company's repurchase right (but not obligation) that lapses based on time-based
and performance-based vesting schedules. The fair value of options granted are
determined using the Black-Scholes option pricing model and include several
assumptions, including expected term, expected volatility, expected dividends,
and risk-free rates. The expected term is presumed to be the midpoint between
the vesting date and the end of the contractual term. The expected stock price
volatility is determined based on an average of historical volatility. The
expected dividend yield is based on the Company's expected dividend payouts. The
risk-free interest rate is based on the U.S. Constant Maturity curve over the
expected term of the option at the time of grant.

Leases

The Company determines if an arrangement is a lease at its inception. The
expected term of the lease used for computing the lease liability and
right-of-use asset and determining the classification of the lease as operating
or financing may include options to extend or terminate the lease when it is
reasonably certain that the Company will exercise that option. 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. The present value of the lease payments is calculated using a rate
implicit in the lease, when readily determinable. However, as most of the
Company's leases do not provide an implicit rate, the Company uses its
incremental borrowing rate to determine the present value of the lease payments
for the majority of its leases

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.

Investment in other entities – 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, 2021, the Company recognized no
impairment loss.

Non-controlling 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 VIEs in
which the Company is the primary beneficiary. Non-controlling interests
represent third-party equity ownership interests (including certain VIEs) in the
Company's consolidated entities. The amount of net income attributable to
non-controlling 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 non-controlling 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, 2021 and 2020.
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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, 2018. 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
non-controlling 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.

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 consolidated 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 consolidated
financial statements.

Effect of new accounting standards

See “Recent Accounting Pronouncements” under Note 2 – “Basis of
Presentation and summary of the main accounting methods” to our consolidated financial statements
financial statements under Item 8 of this Annual Report on Form 10-K for
Further information.