9. Stockholders’ Equity

Reverse Stock Split

On April 24, 2015, the Company filed an amendment to its articles of incorporation to effect a 1-for-10 reverse stock split of its common stock, effective April 27, 2015. All share and per share amounts relating to the common stock, stock options and warrants to purchase common stock, including the respective exercise prices of each such option and warrant, and the conversion ratio of the Notes included in the financial statements and footnotes have been retroactively adjusted to reflect the reduced number of shares resulting from this action. The par value and the number of authorized, but unissued, shares were not adjusted as a result of the reverse stock split. No fractional shares will be issued following the reverse stock split and the Company has paid cash in lieu of any fractional shares resulting from the reverse stock split.

Common Stock Placement

On March 28, 2014, the Company entered into an equity and debt investment for up to $12.0 million with NNA. As part of the investment, the Company entered into the Investment Agreement with NNA, pursuant to which the Company sold NNA 200,000 shares of the Company’s common stock (the “Purchased Shares”) at a purchase price of $10.00 per share. In addition with the issuance of common shares, the Company issued to NNA 100,000 warrants to purchase the Company’s common stock for $10.00 per share. The Company used the Monte Carlo Method to value the warrants, which used the following inputs: term of 7 years, risk free rate of 2.31%, no dividends, volatility of 71.4%, share price of $4.50 per share and a 50% probability of down-round financing. The Company determined that the fair value of the shares issued was approximately $900,000, or $868,236 after the relative fair value adjustment, which approximates $4.50 per share. The Company also entered into a registration rights agreement (“RRA”) with NNA, which the Company and NNA amended on February 6, 2015, which requires the Company to file a registration statement to register its shares with the SEC no later than June 26, 2015. Effective July 7, 2015, the Company amended the First Amendment to extend the previous registration statement deadline to October 24, 2015. The RRA requires the Company to use commercially reasonable best efforts to cause the RRA to be declared effective by the SEC. If the Initial Registration Statement is not filed with the SEC on or prior to the filing deadline, the Company must pay to NNA an amount in common stock based upon its then fair market value, as liquidated damages equal to 1.50% of the aggregate purchase price paid by NNA.

During the year ended January 31, 2014, the Company issued 18,250 shares of common stock for proceeds of $730,000.

Repurchase of Common Stock

On October 23, 2014, the Company entered into a Settlement Agreement with Raouf Khalil (“Khalil”) whereby the Company reconveyed to Khalil all of the shares of Aligned Healthcare, Inc. (“AHI”) common stock that the Company acquired from Khalil under the Stock Purchase Agreement, dated as of February 15, 2011 (the “Purchase Agreement”). In addition, in consideration of a $10,000 cash payment, Khalil reconveyed to the Company 50,000 shares of the Company’s common stock, constituting all of the remaining shares that he still owned that were issued to him under the Purchase Agreement. Following these reconveyances, the Company no longer owns any of the outstanding shares of AHI’s capital stock, and neither Khalil nor any of the other Aligned Affiliates own any shares of the Company’s capital stock.

Equity Incentive Plans

The Company’s amended 2010 Equity Incentive Plan (the “2010 Plan”) allowed the Board to grant up to 1,200,000 shares of the Company’s common stock, and provided for awards including incentive stock options, non-qualified options, restricted common stock, and stock appreciation rights. As of March 31, 2015, there were no shares available for grant.

On April 29, 2013 the Company’s Board of Directors approved the Company’s 2013 Equity Incentive Plan (the “2013 Plan”), pursuant to which 500,000 shares of the Company’s common stock were reserved for issuance thereunder. The Company received approval of the 2013 Plan from the Company’s stockholders on May 19, 2013. The Company issues new shares to satisfy stock option and warrant exercises under the 2013 Plan. As of March 31, 2015 there were approximately 48,600 shares available for future grants under the 2013 Plan.

Share Issuances

A summary of the Company’s restricted stock sold to employees, directors and consultants with a right of repurchase of unlapsed or unvested shares is as follows:

			Weighted Average Remaining Vesting		Weighted Average Per Share		Weighted- average Per Share
			Life		Intrinsic		Grant Date
	Shares		(In years)		Value		Fair Value
Unvested or unlapsed shares at January 31, 2014		101,296		1.5		-	$	4.10
Granted		-		-		-		-
Vested/lapsed		(10,555)		-		-		-
Forfeited		-		-		-		-
Unvested or unlapsed shares, beginning of period at March 31, 2014		90,741		1.3	$	-	$	4.10
Granted		-		-		-		-
Vested / lapsed		(78,519)		-		-		-
Forfeited		-		-		-		-
Unvested or unlapsed shares at March 31, 2015		12,222		0.3	$	0. 50	$	4.10

Options

In July 2014, the Company issued 56,500 options to acquire the Company’s common stock to certain employees and consultants. The Company determined that the weighted average fair value of the options of $2.80 per share using the Black-Scholes method with the following weighted-average inputs: term of 6 years, risk free rate of 1.63%, no dividends, volatility of 63.7%, exercise price of $10.00 per share, share price of $5.90 per share.

In October 2014, in connection with services provided to the Company, the Company issued to various employees and consultants options to purchase an aggregate of 7,500 shares of common stock of the Company, which options have an exercise price of $10.00 and vest evenly and monthly over a three year period. The Company determined that the weighted average fair value of the options of $1.70 per share using the Black-Scholes method with the following weighted-average inputs: term of 6 years, risk free rate of 1.62%, no dividends, volatility of 62.9%, share price of $4.30 per share.

On various dates in October, November and December 2014, in connection with services provided to the Company, the Company issued to a certain consultant options to purchase an aggregate of 1,500 shares of common stock of the Company, which options have an exercise price of $10.00 and vested upon grant. The Company determined that the weighted average fair value of the options of $1.50 per share using the Black-Scholes method with the following weighted-average inputs: term of 6 years, risk free rate of 1.62%, no dividends, volatility of 62.9%, share price of $3.90 per share.

On November 18, 2014, in connection with services provided to the Company, the Company issued options to purchase 10,000 shares of common stock of the Company to an employee, which options have an exercise price of $10.00 and vest evenly and monthly over a one year period. The Company determined that the weighted average fair value of the options of $1.80 per share using the Black-Scholes method with the following weighted-average inputs: term of 6 years, risk free rate of 1.47%, no dividends, volatility of 62.1%, share price of $4.60 per share.

On December 13, 2014, in connection with services provided to the Company, the Company issued to various physicians and consultants options to purchase 10,000 shares of common stock of the Company, which options have an exercise price of $10.00 and vest evenly and monthly over a three year period. The Company determined that the weighted average fair value of the options of $1.50 per share using the Black-Scholes method with the following weighted-average inputs: term of 6 years, risk free rate of 1.62%, no dividends, volatility of 62.9%, share price of $3.90 per share.

In December 2014, the Company issued 6,000 options to an employee. The Company determined that the weighted average fair value of the options of $1.20 using the Black Scholes method with the following inputs: term of 6 years / risk free rate of 1.47%, no dividends, volatility of 62.1%, and an exercise price of $10.00 share price of $3.46. These options vest evenly over 3 years.

In June 2014, the Company issued 40,000 options to an employee. The Company determined that the weighted average fair value of the options of $1.60 using the Black Scholes method using the following inputs: term of 6 years, risk free rate of 1.62%, no dividends, volatility factor of 62.9%, exercise price of $9.00 per share, share price of $4.00 per share. These options vest evenly over 3 years.

On various dates in January, February and March 2015, in connection with services provided to the Company, the Company issued to certain consultants and employees options to purchase an aggregate of 30,500 shares of common stock of the Company, which options have an exercise price of $10.00 and vested upon grant. The Company determined that the weighted average fair value of the options of $1.10 per share using the Black Scholes method with the following weighted average inputs: term 6 years, risk free rate of 1.48%, no dividends, weighted average volatility factor of 62.1%, share price of $3.40 per share.

Stock option activity is summarized below:

	Shares		Weighted Average Per Share Exercise Price		Weighted Average Remaining Life (Years)		Weighted Average Per Share Intrinsic Value
Balance, January 31, 2014		735,800	$	1.70		9.0	$	1.60
Granted		-		-		-		-
Cancelled		(88,767)		2.30		7.9		-
Exercised		-		-		-		-
Expired		-		-		-		-
Forfeited		(18,333)		2.10		8.5		-
Balance, March 31, 2014		628,700	$	2.00		8.7	$	1.10
Granted		162,000		10.00		-		-
Cancelled		(14,200)		-		-		-
Exercised		-		-		-		-
Expired		-		-		-		-
Forfeited		-		-		-		-
Balance, March 31, 2015		776,500	$	4.69		7.4	$	1.50
Vested and exercisable, March 31, 2015		658,306	$	2.20		5.1	$	2.40

ApolloMed ACO 2012 Equity Incentive Plan

On October 18, 2012 ApolloMed ACO’s Board of Directors adopted the ApolloMed Accountable Care Organization, Inc. 2012 Equity Incentive Plan (the “ACO Plan”) and reserved 9,000,000 shares of ApolloMed ACO’s common stock for issuance thereunder. The purpose of the ACO Plan is to encourage selected employees, directors, consultants and advisers to improve operations and increase the profitability of ApolloMed ACO and encourage selected employees, directors, consultants and advisers to accept or continue employment or association with ApolloMed ACO.

The following table summarizes the restricted stock award in the ACO Plan:

	Shares		Weighted Average Remaining Vesting Life (Years)		Weighted Average Per Share Intrinsic Value		Weighted Average Per Share Fair Value
Balance, January 31, 2014		3,752,000		1.0	$	0.02	$	0.03
Granted		-		-		-		-
Released		-		-		-		-
Balance, March 31, 2014		3,752,000		0.8	$	0.02	$	0.03
Granted		184,000		-		-		0.77
Released		(183,996)		-		-		-
Balance, March 31, 2015		3,752,004		0.1	$	0.70	$	0.07
Vested and exercisable, March 31, 2015		3,651,675

Awards of restricted stock under the ACO Plan vest (i) one-third on the date of grant; (ii) one-third on the first anniversary of the date of grant, if the grantee has remained in service continuously until that date; and (iii) one-third on the second anniversary of the date of grant if the grantee has remained in service continuously until that date.

As of March 31, 2015, total unrecognized compensation costs related to non-vested stock-based compensation arrangements granted under the Company’s 2010 and 2013 Equity Plans, and the ACO Plan’s are as follows:

Common stock options	$	246,834
Restricted stock	$	72,440
ACO Plan restricted stock	$	27,720

The weighted-average period of years expected to recognize these compensation costs is 1.7 years.

Stock-based compensation expense related to common stock and common stock option awards is recognized over their respective vesting periods and was included in the accompanying consolidated statement of operations as follows:

	Year Ended March 31, 2015		Two Months Ended March 31, 2014		Year Ended January 31, 2014
Stock-based compensation expense:
Cost of services	$	13,376	$	15,703	$	616,902
General and administrative		1,245,472		44,484		1,540,955
	$	1,258,848	$	60,187	$	2,157,857

Warrants

Warrants consisted of the following:

	Weighted Average Per Share
	Intrinsic		Number of
	Value		Warrants
Outstanding at January 31, 2014	$	0.40		314,500
Granted		-		400,000
Exercised		-		-
Cancelled		-		-
Outstanding at March 31, 2014		0.20		714,500
Granted		-		200,000
Exercised		-		-
Cancelled		-		-
Outstanding at March 31, 2015	$	0.46		914,500

				Weighted				Weighted
				average				average
Exercise Price Per		Warrants		remaining		Warrants		exercise price per
Share		outstanding		contractual life		exercisable		share
$	1.15		125,000		1.3		125,000	$	1.15

$	1.15		25,000		1.3		25,000	$	1.15

$	4.50		50,000		1.3		50,000	$	4.50

$	5.00		10,000		2.6		10,000	$	5.00

$	4.50		82,500		2.8		82,500	$	4.50

$	4.00		22,000		2.8		22,000	$	4.00

$	10.00		200,000		6.0		-	$	10.00

$	20.00		200,000		6.0		-	$	20.00

$	10.00		100,000		6.0		-	$	10.00

$	10.00		100,000		3.3		100,000	$	10.00
			914,500		4.3		414,500	$	4.60

In connection with the 2014 NNA financing, NNA received warrants to purchase up to 200,000 shares of the Company’s common stock at an exercise price of $10.00 per share and up to 200,000 shares at an exercise price of $20.00 per share, subject to adjustment for stock splits, reverse stock splits and stock dividends, and which are exercisable after March 28, 2017 and before March 28, 2021. The warrants also contained down-round protection under which the exercise price of the warrants is subject to adjustment in the event the Company issues future common shares at a price below $9.00 per share. The Company determined that the warrants should be classified as liabilities under ASC 815-40, which requires the Company to determine the fair value of the warrants at the transaction date and at each subsequent reporting date (see Notes 2 and 6). Following the funding of the Convertible Note on July 30, 2014, additional warrants to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $10.00 per share were issued and are exercisable after March 28, 2017 and before March 28, 2021 (see Note 6). On July 21, 2014, in connection with the SCHC acquisition, the Company issued warrants to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $10.00 per share. The warrants are exercisable at any date prior to July 21, 2018.

Authorized stock

At March 31, 2015 the Company was authorized to issue up to 100,000,000 shares of common stock. The Company is required to reserve and keep available out of the authorized but unissued shares of common stock such number of shares sufficient to effect the conversion of all outstanding shares of the 9% Senior Subordinated Callable Notes, the exercise of all outstanding warrants exercisable into shares of common stock, and shares granted and available for grant under the Company’s 2013 Plan. The amount of shares of common stock reserved for these purposes is as follows at March 31, 2015:

Common stock issued and outstanding		4,863,389
Conversion of 9% Notes		275,000
Conversion of 8% Notes		200,000
Warrants outstanding		914,500
Stock options outstanding		776,500
Remaining shares issuable under 2013 Equity Incentive Plan		90,000
		7,119,389