Investments in Other Entities

12 Months Ended

Dec. 31, 2017

Equity Method Investments and Joint Ventures [Abstract]

Investments in Other Entities

7. Investments in Other Entities

Equity Method

LaSalle Medical Associates

LaSalle Medical Associates (“LMA”) was founded by Dr. Albert Arteaga in 1996 and currently operates four neighborhood medical centers employing more than 120 dedicated healthcare professionals, treating children, adults and seniors in San Bernardino County. LMA’s patients are primarily served by Medi-Cal and they also accept Blue Cross, Blue Shield, Molina, Care 1^st, Health Net and Inland Empire Health Plan. LMA is also an IPA of independently contracted doctors, hospitals and clinics, delivering high quality care to more than 245,000 patients in Fresno, Kings, Los Angeles, Madera, Riverside, San Bernardino and Tulare Counties. During 2012, APC-LSMA and LMA entered into a share purchase agreement whereby APC-LSMA invested $5,000,000 for a 25% interest in LMA’s IPA line of business. NMM has a management services agreement with LMA. APC accounts for its investment in LMA under the equity method as APC has the ability to exercise significant influence, but not control over LMA’s operations. For the years ended December 31, 2017 and 2016, APC recorded income from this investment of $948,892 and $3,857,391, respectively, in the accompanying consolidated statements of income. During the years ended December 31, 2017 and 2016, APC also received dividends of $1,000,000 and $2,000,000, respectively, from LMA. The investment balance was $9,452,767 and $9,503,875 at December 31, 2017 and 2016, respectively.

LMA’s IPA line of business summarized balance sheets at December 31, 2017 and 2016 and summarized statements of income for the years ended December 31, 2017 and 2016 are as follows (unaudited):

Balance Sheets

December 31,	2017 (unaudited)		2016 (unaudited)
Assets
Cash and cash equivalents	$	21,065,105	$	18,441,306
Receivables, net		2,433,116		3,142,173
Other current assets		1,565,606		1,589,606
Loan receivable		1,250,000		1,250,000
Restricted cash		662,109		657,171
Total assets	$	26,975,936	$	25,080,256

Liabilities and Stockholders’ Equity

December 31,	2017 (unaudited)		2016 (unaudited)
Current liabilities	$	20,353,337	$	18,253,224
Stockholders’ equity		6,622,599		6,827,032
Total liabilities and stockholders’ equity	$	26,975,936	$	25,080,256

Statements of Income

Years ended December 31,	2017 (unaudited)		2016 (unaudited)
Revenues	$	195,143,984	$	191,530,251
Expenses		188,265,085		164,694,297
Income before provision for income taxes		6,878,899		26,835,954
Provision for income taxes		(3,083,333)		(11,406,393)
Net income	$	3,795,566	$	15,429,561

PMIOC

PMIOC was incorporated in 2004 in the state of California. PMIOC provides comprehensive diagnostic imaging services using state-of-the-art technology. PMIOC offers high quality diagnostic services such as MRI/MRA, PET/CT, CT, nuclear medicine, ultrasound, digital x-rays, bone densitometry and digital mammography at their facilities.

In July 2015, APC-LSMA and PMIOC entered into a share purchase agreement whereby APC-LSMA invested $1,200,000 for a 40% ownership in PMIOC. APC paid $564,000 cash, and APCN-ACO and AP-ACO paid an aggregate of $36,000 on behalf of APC, for this investment with the remaining $600,000 due on or before December 31, 2016, pursuant to a promissory note dated July 1, 2015. The promissory note was repaid in full in 2016.

APC and PMIOC have an Ancillary Service Contract together whereby PMIOC provides covered services on behalf of APC to enrollees of the plans of APC. Under the Ancillary Service Contract APC paid PMIOC fees of $2,286,888 and $1,797,064 for the years ended December 31, 2017 and 2016, respectively. APC accounts for its investment in PMIOC under the equity method of accounting as APC has the ability to exercise significant influence, but not control over PMIOC’s operations. During the years ended December 31, 2017 and 2016, APC recorded income from this investment of $54,265 and $19,722 respectively, in the accompanying consolidated statements of income and has an investment balance of $1,400,693 and $1,346,428 at December 31, 2017 and 2016, respectively.

Universal Care, Inc.

Universal Care, Inc. (“UCI”) is a privately held health plan that has been in operation since 1985 in order to help its members through the complexities of the healthcare system. UCI holds a license under the California Knox-Keene Health Care Services Plan Act (Knox-Keene Act) to operate as a full-service health plan. UCI contracts with the CMS under the Medicare Advantage Prescription Drug Program.

On August 10, 2015, UCAP, an entity solely owned 100% by APC with APC’s executives, Dr. Thomas Lam, Dr. Pen Lee and Dr. Kenneth Sim, as designated managers of UCAP, purchased from UCI 100,000 shares of UCI class A-2 voting common stock (comprising 48.9% of the total outstanding UCI shares, but 50% of UCI’s voting common stock) for $10,000,000. APC accounts for its investment in UCI under the equity method of accounting as APC has the ability to exercise significant influence, but not control over UCI’s operations. During the years ended December 31, 2017 and 2016, the Company recorded (loss) income from this investment of $(2,332,905) and $848,027, respectively, in the accompanying consolidated statements of income and has an investment balance of $8,609,455 and $10,942,360 at December 31, 2017 and 2016, respectively.

In 2015, the Company also advanced $5,000,000 to UCI for working capital purposes. The subordinated loan accrues interest at the prime rate plus 1%, or 5.50% and 4.75% as of December 31, 2017 and 2016, respectively, with interest to be paid monthly. Pursuant to the stock purchase agreement, the principal repayment schedule is based on certain contingent criteria, and accordingly, the entire note receivable has been classified as non-current loans receivable - related parties on the consolidated balance sheets as of December 31, 2017 and 2016 in the amount of $5,000,000.

UCI’s balance sheets at December 31, 2017 and 2016 and statements of income for the years ended December 31, 2017 and 2016 are as follows:

Balance Sheets

December 31,	2017 (unaudited)		2016 (unaudited)
Assets
Cash	$	21,872,894	$	23,155,207
Receivables, net		18,618,760		17,928,792
Other current assets		13,021,520		11,319,582
Other assets		3,754,470		2,432,338
Property and equipment, net		1,576,621		1,099,766
Total assets	$	58,844,265	$	55,935,685

Liabilities and Stockholders’ Equity (Deficit)

December 31,	2017 (unaudited)		2016 (unaudited)
Current liabilities	$	54,421,532	$	46,718,155
Other liabilities		10,051,952		8,075,977
Stockholders’ equity (deficit)		(5,629,219)		1,141,553
Total liabilities and stockholders’ equity (deficit)	$	58,844,265	$	55,935,685

Statements of Income Operations

Years ended December 31,	2017 (unaudited)		2016 (unaudited)
Revenues	$	188,389,384	$	161,289,612
Expenses		193,196,938		161,277,959
(Loss) income before benefit for income taxes		(4,807,554)		11,653
Benefit for from income taxes		(36,835)		(1,615,678)
(Loss) income before other income and discontinued operations		(4,770,719)		1,627,331
Other income		-		106,875
Total other income (loss) from discontinued operations		-		106,875
Net (loss) income	$	(4,770,719)	$	1,734,206

DMG

On May 14, 2016, David C.P. Chen M.D., Inc., a California professional corporation doing business as Diagnostic Medical Group (“DMG”), David C.P. Chen M.D., individually (collectively “Seller”) and APC-LSMA, a designated shareholder professional corporation formed on October 15, 2012, which is 100% owned by Dr. Thomas Lam (CEO of APC) and is controlled and consolidated by APC who is the primary beneficiary of this VIE, entered into a share purchase agreement whereby APC-LSMA acquired a 40% ownership interest in DMG for total cash consideration of $1,600,000.

Seller may in Seller’s sole discretion (but shall not be obligated to) use all or a portion of the purchase price proceeds to purchase shares of common stock of APC and/or NMM. The purchase price for any shares of APC and/or NMM common stock shall be at the then applicable price per share established by APC and/or NMM Board of Directors, respectively (which, as of the closing date is $1.00 per share of APC common stock and $1.00 per share of NMM common stock).

Seller used a portion of the purchase price proceeds to purchase 60,000 shares of APC common stock for the aggregate purchase price of $10,000 (the “AP Share Option”). See Note 13 for details of the accounting for the stock option.

In July 2016, APC advanced $200,000 to DMG pursuant to a promissory note agreement. The note accrued interest at 3.5% per annum and was to mature on June 30, 2018. The balance of $200,000 was paid off in 2017 and was included in loans receivable – related parties in the accompanying consolidated balance sheets as of December 31, 2016.

During 2016, APC also contributed its portion of additional capital of $40,000 to DMG for working capital purposes, which represents APC’s 40% investment portion.

APC accounts for its investment in DMG under the equity method of accounting as APC has the ability to exercise significant influence, but not control over DMG’s operations. APC recorded income from this investment of $403,713 and $43,698 in 2017 and 2016, respectively, in the accompanying consolidated statements of operations. During the year ended December 31, 2017, APC also received dividends of $240,000 from DMG. The investment balance was $1,847,411 and $1,683,698 at December 31, 2017 and 2016, respectively.

PASC

Pacific Ambulatory Surgery Center, LLC (“PASC”), a California limited liability company, is a multi-specialty outpatient surgery center that is certified to participate in the Medicare program and is accredited by the Accreditation Association for Ambulatory Health Care. PASC has entered into agreements with organizations such as healthcare service plans, independent physician practice associations, medical groups and other purchasers of healthcare services for the arrangement of the provision of outpatient surgery center services to subscribers or enrollees of such health plans. On November 15, 2016, PASC and APC, entered into a membership interest purchase agreement whereby PASC sold 40% of its aggregate issued and outstanding membership interests to APC for total consideration of $800,000.

In connection with the membership interest purchase agreement, PASC entered into a management services agreement with NMM, which requires the payment of management fees computed at predetermined percentage (as defined) of PASC revenues. The term of the management services agreement commenced on the effective date and extend for a period of 60 months thereafter, and may be extended in writing at the sole option of NMM for an additional period of 60 months following the expiration of the initial term and is automatically renewed for additional consecutive terms of three years unless terminated by either party. PASC shall not be permitted to terminate the management services agreement for any reason during the initial term and, if extended, the extended term.

APC accounts for its investment in PASC under the equity method of accounting as APC has the ability to exercise significant influence, but not control over PASC’s operations. APC recorded a loss from this investment of $186,506 and $20,296 in 2017 and 2016, respectively, in the accompanying consolidated statements of income and has an investment balance of $593,198 and $779,704 at December 31, 2017 and 2016, respectively.

Investments in other entities – equity method consisted of the following:

Years ended December 31,	2017		2016
Universal Care, Inc.	$	8,609,455	$	10,942,360
LaSalle Medical Associates – IPA Line of Business		9,452,767		9,503,875
Diagnostic Medical Group		1,847,411		1,683,698
Pacific Medical Imaging & Oncology Center, Inc.		1,400,693		1,346,428
Pacific Ambulatory Surgery Center, LLC		593,198		779,704
	$	21,903,524	$	24,256,065

During the year ended December 31, 2016, the Company recorded an impairment charge of $7,697 related to the investment from the acquisition of Apple Physicians Organization in 2008, as the amount was not determined to be recoverable.