UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2012
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-17064
CAPITAL GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Minnesota | | 41-1430130 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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16624 North 90th Street Suite 200 Scottsdale, AZ | | 85260 |
(Address of principal executive offices) | | (Zip Code) |
Registrant's telephone number: (480) 998-2100
Securities registered under Section 12(b) of the Act:
none
Securities registered under Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the voting and nonvoting common equity (based upon the closing price on the OTC Bulletin Board on December 31, 2011) held by non-affiliates was approximately $16.7 million.
The number of shares of common stock ($0.01 par value) outstanding as of September 30, 2012 was 62,651,121.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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CAPITAL GROUP HOLDINGS, INC.
FOR THE FISCAL YEAR ENDED
JUNE 30, 2012
Index to Report
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PART I | Page |
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Item 1. | Business | 5 |
Item 1A. | Risk Factors | 14 |
Item 2. | Properties | 18 |
Item 3. | Legal Proceedings | 18 |
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PART II |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder | 18 |
| Matters and Issuer Purchases of Equity Securities | |
Item 6. | Selected Financial Data | 19 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and | 20 |
| Results of Operations | |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 23 |
Item 8. | Financial Statements and Supplementary Data | 23 |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 39 |
Item 9A. | Controls and Procedures | 39 |
Item 9B. | Other Information | 40 |
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PART III | |
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Item 10. | Directors, Executive Officers, and Corporate Governance | 40 |
Item 11. | Executive Compensation | 42 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 44 |
Item 13. | Certain Relationships and Related Transactions, and Director | 45 |
| Independence | |
Item 14 | Principal Accounting Fees and Services | 45 |
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PART IV | |
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Item 15. | Exhibits and Financial Statement Schedules | 46 |
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FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not intend, and undertake no obligation, to update any forward-looking statement. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:
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our current lack of working capital;
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inability to raise additional financing;
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the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;
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deterioration in general or regional economic conditions;
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adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
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inability to efficiently manage our operations;
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inability to achieve future sales levels or other operating results; and
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the unavailability of funds for capital expenditures.
For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Item 1A. Risk Factors” in this document.
Throughout this Annual Report references to “we”, “our”, “us”, “Capital Group Holdings”, “Capital Group”, “CGHC”, “the Company”, and similar terms refer to, Capital Group Holdings, Inc.
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PART I
ITEM 1. BUSINESS
Capital Group Holdings, Inc. is an acquirer and operator of fundamentally-sound companies that are market accepted, scalable and demonstrate a quantifiable value proposition. Our focus is Health and Wellness organizations that have a strong market presence, brand awareness and talented and dedicated management teams with the potential to achieve exceptional performance over time. Capital Group Holdings lends its operational support, management approach and financial resources to these companies to achieve improvements in both bottom-line growth and positioning in the marketplace. Capital Group Holdings currently operates two wholly owned subsidiaries; OneHealthPass, Inc and OneHealth Urgent Care, Inc. (incorporated August 2012) www.CapitalGroupHoldings.com
OneHealthPass™ (OHP)
Is a wholly owned subsidiary of Capital Group Holdings, Inc. OneHealthPass™ is bringing to market a suite of patient-centric telehealth services. OHP contracts with physician networks to provide 24/7 telephone consultations to board-certified physicians. OHP is designed to become an industry standard telehealth platform for the management and administration of patient-centric telemedicine programs. The OHP platform is developed as a central hub so members can access OHP and 3rd party medical services and products that can be managed from virtually anywhere utilizing the telephone, wireless networks and the Internet. OHP is currently researching additional strategic marketing agreements and acquisition candidates. www.OneHealthPass.com
Business Developments
We intend to offer a suite of secure, online products that provide consumers with the tools to more effectively manage their health and wellness as well as the ability to manage their personal health records, from all of their healthcare providers whether paper-based or digital. We are part of a trend where people are increasingly trusting on-line services as a way for them to store and manage critical, sensitive information such as medical records, financial records and vital documents.
Products and Services
Our suite of secure, web-based products all are built on an open source technology that allows users, including consumers, affinity groups, membership organizations, small businesses, physicians and health care professionals to easily store and organize information. Our consumer products are built around our trademarked “OneHealthPass” Brand. Our planned site will consist of www.OneHealthPass.com.
OneHealthPass is an easy-to-use, secure web-based Personal Health Record system, or “PHR”, which allows documents, images and voice mail messages to be transmitted in and out of our system using a variety of methods, including fax, voice and file upload. OneHealthPass converts documents it receives by fax into Adobe's Portable Digital Format, or PDF, file. These files, as well as voice files and any other uploaded files are stored in the consumer's personal account, which is secured by a unique user ID and password combination. A notification is sent to up to three user e-mail addresses (including to e-mail enabled cell and smart phones) whenever a new record is received.
Users can then access their files via the Internet and take advantage of an intuitive, customized filing system that allows them to categorize, annotate and file their records for easy access, organization and retrieval. Users can then print, download, e-mail or fax their records from their account, giving our customers greater
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control over their own personal health records and other information, which they can share with health care providers and others as they move through the continuum of care.
We plan to initially sell our OneHealthPass Telemedicine product primarily direct to consumers through a direct response advertising campaign.
We recognize the critical nature of managing an individuals' health information requires that our products and advances be implemented with the utmost care to protect the privacy and confidentiality of our customers' data. The Health Insurance Portability and Accountability Act of 1996, commonly referred to as HIPAA, requires covered entities to protect the privacy and confidentiality of protected health information, or PHI, of their patients and customers. Although we are not a covered entity (as that term is defined in HIPAA), we consider it important to take into account the Privacy and Security Standards and other requirements of HIPAA when implementing our products and services and believe that we meet and/or exceed current HIPAA standards.
The Health Information Technology for Economic and Clinical Health Act, commonly referred to as HITECH, enacted on February 17, 2009 as part of the American Recovery and Reinvestment Act, expanded HIPAA's reach beyond that of just covered entities. Now, business associates, defined as an entity that performs a function, activity, or service on behalf of a covered entity and that requires use or access to the information of the covered entities, and vendors of Personal Health Records that use or access information, must also comply with the Privacy and Security Standards of HIPAA. One of the key obligations under HITECH is the requirement to notify individuals when there has been (or there is a strong possibility of) a breach of the individual's information.
While we only rarely function as a business associate to a covered entity, we continue to meet and/or exceed the current HIPAA standards. Further, as a vendor of PHRs, we are implementing policies and procedures and reviewing our relationships with all necessary parties to ensure our compliance with HITECH and its associated regulations.
We plan to continue to take advantage of the burgeoning consumer health information market and leverage recent federal legislation, including the HITECH Act. We believe that the health care reform legislation recently passed by Congress and signed by the President into law represents a significant behavioral shift in how consumers manage their health care because of the requirement that everyone have insurance. We also believe that as medical costs and insurance costs increase, and benefits decrease, healthcare consumers will require greater control over their personal (and their family's) health information.
OneHealthPass, with its dynamic PHR, enable consumers to store their important medical records and data in one central and secure place where they can manage those records and control how they are accessed and shared. While every healthcare consumer in the U.S., as well as other countries that are focused on health information technology, are potential users of our OneHealthPass Platform, we believe that the product has most appeal to these particular market niches:
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The chronically ill and their families who share information among many doctors; this "co-morbid population" represents a disproportionate share of U.S. health care costs;
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Individuals with Health Savings Accounts who need to carefully manage their eligible expenses over the course of a year;
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Consumers with "senior" parents who, in their role as caregivers, want to be sure they have current medical information readily available to react quickly in case of parental illness;
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Consumers with newborns who will be able to build a complete medical file for the newborn, which can last the newborn's entire life;
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Employees who are forced to change doctors and other providers when their employer changes health insurance and who therefore need to manage the transfer of medical information to their new providers;
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Travelers and businesspeople working overseas who want to ensure that they always have access to their medical records in the event of an emergency.
Our Products
Telemedicine Services The Company intends to contract with strategic alliance partners throughout the country to provide access to our members and customers with the best and broadest market coverage for telemedicine services.
Specialist referral services typically involves a specialist assisting a general practitioner in rendering a diagnosis. This may involve a patient "seeing" a specialist over a live, remote consult or the transmission of diagnostic images and/or video along with patient data to a specialist for viewing later. Recent surveys have shown a rapid increase in the number of specialty and subspecialty areas that have successfully used telemedicine. Radiology continues to make the greatest use of telemedicine with thousands of images "read" by remote providers each year. Other major specialty areas include: dermatology, ophthalmology, mental health, cardiology and pathology. According to reports and studies, almost 50 different medical subspecialties have successfully used telemedicine.
The patient consultations use telecommunications to provide medical data, which may include audio, still or live images, between a patient and a health professional for use in rendering a diagnosis and treatment plan. This might originate from a remote clinic to a physician's office using a direct transmission link or may include communicating over the Web.
Remote patient monitoring uses devices to remotely collect and send data to a monitoring station for interpretation. Such "home telehealth" applications might include a specific vital sign, such as blood glucose or heart ECG or a variety of indicators for homebound patients. Such services can be used to supplement the use of visiting nurses.
Medical education provides continuing medical education credits for health professionals and special medical education seminars for targeted groups in remote locations.
Consumer medical and health information includes the use of the Internet for consumers to obtain specialized health information and on-line discussion groups to provide peer-to-peer support.
Benefits of Telemedicine
Telemedicine has been growing rapidly because it offers three fundamental benefits:
Improved Access For over 40 years, telemedicine has been used to bring healthcare services to patients in distant locations. Not only does telemedicine improve access to patients but it also allows physicians and health facilities to expand their reach, beyond their own offices.
Cost Efficiencies Reducing or containing the cost of healthcare is one of the most important reasons for funding and adopting telehealth technologies. Telemedicine has been shown to reduce the cost of healthcare
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and increase efficiency through better management of chronic diseases, shared health professional staffing, reduced travel times, and fewer or shorter hospital stays.
Patient Demand Consumers want telemedicine. The greatest impact of telemedicine is on the patient, their family and their community. Using telemedicine technologies reduces travel time and related stresses to the patient. Over the past 15, years study after study has documented patient satisfaction and support for telemedical services. Such services offer patients the access to providers that might not be available otherwise as well as medical services without the need to travel long distances.
OneHealthPass Additional Features
OneHealthPass will offer users multiple ways to enter their personal medical information, including by voice or digital file upload. We believe this capability makes OneHealthPass easier to use than other products in the marketplace and makes our product's information storage features more accessible to potential customers. In addition to the core document conversion, storage and retrieval capabilities, OneHealthPass provides a layer of useful, value-added interactive tools to help users better manage their personal and/or their families' medical records. These tools include:
Ability to Attach Received Faxes to e-mail Notifications Users can elect to have records attached to the notification e-mail they receive when a new medical record is received into their account. This capability is intended to save users the extra step of logging into their account to view new records, which we believe creates a higher level of convenience and usability.
Health History Users can enter their personal health history, including information about doctors (such as a doctor's name, address and specialty), vaccinations and immunizations, hospitalizations/surgeries, allergies and medical conditions that may affect ongoing healthcare.
Appointment Calendar Feature Users are able to take advantage of a calendar feature to schedule and generate reminders about upcoming doctor and other health-related appointments. These reminders appear when a user logs into his or her OneHealthPass PHR account and also can be sent to the user's e-mail address (or e-mail enabled cell phone) and imported into Microsoft Outlook.
Prescription History and Refill Reminder Feature Users are able to enter their prescriptions, pharmacies and refill dates into their OneHealthPass accounts. The system generates reminders about refills, which are visible to users when they log into their accounts and are sent to their e-mail addresses (or e-mail enabled cell phone).
Drug Information and Interaction Database Users can check for potential interactions across multiple prescriptions and over the counter drugs with this comprehensive database, licensed from Multum. When each user adds a new drug to their MMR PHR prescription history, they can quickly determine if that medication has any kind of negative interaction with other prescriptions they take. This tool is especially vital because drug interactions kill as many as 100,000 Americans each year and consumers who see multiple providers are especially at risk.
Voice Reminders and Messaging We believe our OneHealthPass Records PHR product may create more efficient communication between doctors and patients. In addition to using a patient's personal OneHealthPass Records PHR telephone number to fax health information to a patient's secure on-line account, people can use the telephone number to leave a voice message, such as an appointment reminder, in a secure voice mailbox that is only accessible by the OneHealthPass PHR user. Users can also take advantage of this feature to leave themselves a reminder message such as for a doctor appointment or
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prescription refill reminder. Our OneHealthPass PHR product is designed to send a user a notification via e-mail when he or she receives a voice message. This gives users a helpful tool that they can access remotely.
Secondary Passwords on Selected File Folders Users can assign a second password to four of the file folders in their OneHealthPass PHR account. This feature creates an additional layer of security for personal vital or medical documents that a OneHealthPass PHR user does not want a doctor to have access to in the event that the user has given the doctor access to the account, or if the user does not want other family members to be able to see selected information.
Emergency Log-In For Physicians and Other Emergency Response Personnel Users can create a special password, discretely associated with each family member, which doctors and other emergency response personnel can use to gain access to the particular family member's medical records in the event of a medical emergency. This password grants access to an account but does not allow any additions, changes or deletions to be made to the account. In addition, users can decide which records a doctor will be able to see in an emergency situation. Users can write this password on an emergency sticker they receive when they enroll in our OneHealthPass PHR service, which can be affixed to a driver's license or personal ID. Users can even include a photograph in their emergency profile.
Health Information Library Users have access to an interactive audio and visual encyclopedia, licensed from a third-party, of over 2,000 health information topics presented in both English and Spanish.
U.S. Healthcare Market
On March 23, 2010, President Obama signed into law a major overhaul of the United States health care and health insurance industries. As part of this overhaul, we anticipate that there will be an increased demand for the cost savings inherent in the use of electronic medical records, particularly the benefits to patients by having a personal health record. Also on February 17, 2009, President Obama signed into law the American Reinvestment and Recovery Act of 2009, or the ARRA, representing the largest government-driven investment in electronic healthcare technologies. Within ARRA, the Health Information Technology for Economic and Clinical Health Act, or HITECH, provisioned more than $19 billion in incentives to healthcare organizations that modernize their medical records systems through the widespread use of health information technology, or HIT. Throughout the process of healthcare reform, the challenge to rein in healthcare expenses will continue to be the nation's long-term fiscal challenge and this creates opportunities for HIT solutions that are shown to create greater efficiencies in care, safety and costs.
Our marketing strategy for our OneHealthPass calls for focus on four sales channels:
Direct to Consumer Marketing We intend to continue to focus on marketing our OneHealthPass directly to consumers via both on-line and off-line advertising vehicles. OneHealthPass is currently available to individuals on a monthly or annual subscription basis.
Corporate Sales and Employee Benefit Offering We are pursuing the human resources and benefits market to secure agreements or strategic arrangements providing for companies to offer our product to their employees and members. We believe the user-friendly nature of OneHealthPass makes it readily acceptable to employees and gives companies a low cost way to demonstrate their employee-friendliness.
Affinity Groups and Membership Organizations OneHealthPass can be bundled with other health or travel-related services. For example, a travel accident insurance company can include our OneHealthPass in its suite of emergency medical and repatriation services for travelers going abroad. We believe giving users the ability to access their medical records in an emergency situation overseas may add considerable value to
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an insurance company's travel insurance policies. Additionally, an affinity group, such as an alumni association, may offer OneHealthPass as a recruitment or renewal tool.
Private Label Branding OneHealthPass is designed to allow site pages to be customized with a corporate, affinity group or membership organization logo and content that is specific to that entity. The technology built into OneHealthPass also is designed to allow companies, groups or organization to instantly communicate with hundreds or even thousands of employees in the event of an announcement or emergency situation.
OneHealth Urgent Care, Inc. (OneHealth)
OneHealth is a wholly owned subsidiary of Capital Group Holdings, Inc. OneHealth (incorporated August 2012) provides medical care through its wholly owned subsidiary Alliance Urgent Care LLC (acquired on September 3rd, 2012), which is a progressive urgent care organization based in Arizona. Using state of the art technology, a virtually paperless environment and electronic health records (CCHIT certified) coupled with caring Doctors, board certified providers and staff, Alliance is able to consistently beat the national average for patient wait times. Alliance maintained a nearly 100% patient satisfaction rating throughout 2011. For patient convenience we provide on-site lab testing and x-ray imaging. Alliance accepts credit cards (Visa, MasterCard and Discover) as well as all major insurance providers including; Aetna, Blue Cross/Blue Shield, Cigna, Medicare and Medicaid, United Healthcare, TriCare, Banner Health Plan, Arizona Foundation, HealthNet, and many others. Alliance, though internally funded, has grown from 1 clinic in 2007 to 6 presently and plans to open additional clinics in the next 12 months. All of the clinics are conveniently located in the Phoenix, Arizona Metropolitan Area. Alliance plans to bring its unique brand of speedy, caring, patient friendly clinics to other states in the near future. www.AllianceUrgentCare.com
Company History & Historic Events
The Company was incorporated under the laws of the state of Minnesota in 1980. The Company was formed for the purpose of developing and marketing medical products. In connection with its corporate purposes, the Company made a registered public offering of its common stock, which became effective October 25, 1982, and closed on December 12, 1982. The offering was made pursuant to a registration statement under the Securities Act of 1933 filed with the Securities and Exchange Commission (the “SEC”) on Form S-18.
In April 1991, the Company ceased operations. The Company was involuntarily dissolved by the State of Minnesota effective June 15, 1995. On April 26, 2006 the State of Minnesota reinstated the Company’s corporate charter.
In April 2006, Tom Bach, the sole remaining member of the Company’s Board of Directors (the “Board”), appointed new directors, Michael Friess, Sanford Schwartz and John Venette and then resigned as an officer and director of the Company. The Board then appointed Michael Friess as President and Chief Executive Officer of the Company and John Venette as Secretary, Treasurer and Chief Financial Officer of the Company.
On November 17, 2006 the company held a shareholder meeting to amend the Articles of Incorporation and to increase the authorized common stock of the Company to eight hundred million (800,000,000) pre-reverse split shares and to elect Michael Friess, Sanford Schwartz and John Venette to serve on the Board.
On December 4, 2006, the Company issued 80,000,000 pre reverse-split shares of its common stock to two individuals, (Sanford Schwartz and Michael Friess), for $10,000 cash payment and a $10,000 note payable to the Company, which was collected in full.
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Pursuant to a Stock Purchase Agreement, effective July 10, 2007, two of the Company's directors, Michael Friess and Sanford Schwartz, sold 80,000,000 pre reverse-split shares (approximately 80.48% of the total issued and outstanding shares) of the Company's common stock to Big Eye Capital, Inc., resulting in a change in control of the Company.
On July 10, 2007, in connection with that Stock Purchase Agreement with Big Eye Capital, Inc., the Company received a letter of resignation from Michael Friess resigning as an officer and director of the Company and a letter of resignation from Sanford Schwartz resigning as a director of the Company, both effective immediately. Following receipt of these letters of resignation, the Board named Erik J. Cooper as the Chairman, President and Chief Executive Officer while John H. Venette remained as a director as well as the Chief Financial Officer, Treasurer and Secretary.
On September 19, 2007, the Company filed a certificate of amendment to the Company’s Articles of Incorporation with the Secretary of State of the State of Minnesota to (i) change its name from Implant Technologies, Inc. to Oasis Online Technologies, Corp, and (ii) give notice of an eight-for-one reverse stock split of the shares of the Company’s common stock.
Upon effectiveness of the one-for-eight reverse stock split, all issued and outstanding shares of the Company’s common stock, as of the effective date, were reduced from 99,438,464 shares prior to the reverse split to 12,430,162 shares following the reverse stock split. No fractional shares were issued. In lieu of issuing fractional shares, the Company issued to any stockholder who otherwise would have been entitled to receive a fractional share as a result of the reverse stock split an additional full share of its Common Stock. The number of authorized shares of common stock of the Company was reduced by the same eight for one ratio so that the authorized common stock of the Company is one hundred million (100,000,000) shares. The name change became effective and the Company began using the new name on September 19, 2007. The reverse split became effective on September 26, 2007. All references in the accompanying financial statements to the number of shares of common stock and per share amounts have been retroactively adjusted to reflect the reverse stock split.
On October 22, 2007, in a share exchange agreement, the Company issued 990,000 post-split shares of its common stock in exchange for 99,000 freely trading registered shares of Immunosyn Corporation, a Delaware corporation, from Argyll Equities, LLC. This was recorded as investments at fair value and equity for the stock issued.
Continued execution on operating plan subsequent to December 31, 2007
The Company continued to execute on the strategy and operating plan developed during the three months ended December 31, 2007 which transitioned the company from a shell company to a development stage company with the following major events:
The Company advanced TranSend International, Inc. $59,900 with accrued interest of $1,092. The line advanced to TranSend along with the accrued interest was written off to bad debt in December 2008 as it was determined that the amount would be uncollectible. The bad debt was later applied to the acquisition of a 5-year exclusive Master License for Transend's PocketServer software.
The Company entered into a revenue sharing agreement with SVC Cards, Inc., pursuant to which SVC has agreed to enter into distribution agreements with the Company so that the Company can market SVC financial products to the Company customers and contacts in October 2007.
The Company raised significant equity capital for the continued operations and execution of the operating plan.
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The Company incurred significant liabilities for the further research and development of markets for the licenses and products identified in the operating plan developed during the three months ended December 31, 2007.
The Company entered into material loan agreements for the placement of convertible notes payable to secure additional funding.
The Company contracted with a development team to continue developing the Company’s platform technology which will be used by the Company to deliver its health and wellness products to its customers.
The Company has secured over $1,000,000 of debt and equity financing pursuant to the operating and strategy plan developed during the three months ended December 31, 2007 and executed on during that time and over the following four years.
We initiated the acquisition of a pharmacy for cash and stock, which was later rescinded as the Company determined the acquisition was not in the best interest of our shareholders.
The Company initiated strategic alliances and agreements to develop the OneHealthPassTM Platform, technology and telemedicine services.
Significant Operations
On November 1, 2007, the Company entered into a lease agreement directly adjacent to Transend International in Mesa, AZ. The Company immediately began collaborating with Transend's management and development teams in order to attempt to secure a contract with Mastercard International to participate in their OneSmart Mastercard program. The OneSmart Mastercard was to feature a suite of applications and the Pocketserver application was to be offered on the smart-chips.
The Company acquired the Master License Agreement from Transend International as settlement for advance payments that were made to Transend pursuant to the Line of Credit Funding Agreement entered into on April 23, 2008, in anticipation of an acquisition of Transend by the Company. After thorough due diligence that was performed between April 23, 2008 and November 5, 2008 by the Company on Transend, it was determined that acquiring Transend was not in the best interest of the Company as Transend was experiencing a rapid decline in revenues due to losing a primary customer.
After acquiring the Pocketserver license pursuant to the November 5, 2008 agreement with Transend, the Company began developing 2 new applications based on the pocketserver software and utilizing the development team from Transend. The Development took place from November 2008 to April 2009.
The following is a description of two of the applications that were being developed using the Pocketserver technology license:
AmberCard AmberCard is a smart-card and USB application which stores high resolution images and data which can be used to quickly retrieve and disseminate critical time-sensitive information on abducted children. The application highly compresses the images so that they can be put on very small storage devices (such as a 32k EMV smart chip) which are fully encrypted and require 2-factor authentication protocols to unlock. The information is stored on the chip via a USB smart-card reader which is connected to the user’s personal computer and/or a USB dongle which contains an internal processing chip. The application would be used to store children's images and information on a card or USB device which can be carried by a parent at all times. The Company still has possession and retains all the rights to the software.
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Smart ID Card The Smart ID card was a proof-of-concept development which stored a person's image and personal and travel information securely on the card (again using 2 factor authentication protocols for security) which could be used for quick retrieval of the data. The card would be useful for travelers as well as within closed groups (such as secure business environments) where ID would have to be presented and data collected simply by inserting the card into a reader so identity could be verified and any other corresponding information could be obtained simply by inserting the card into a reader. The Company still has possession and retains all the rights to the software.
On October 24, 2008, the Company entered into a revenue sharing agreement with SVC cards where the Pocketserver technology would be placed on the cards and the Company would share revenue with SVC on their cards that are marketed by the Company. No revenue was recognized pursuant to this agreement as SVC cards experienced a financial decline and was not operational long after.
Throughout much of fiscal year 2009, the Company had limited operations as it was unable to secure the required capital to execute its business plan and had to seek other business opportunities.
In January 2010, the Company identified a market in the telemedicine industry to pursue. In September 2010 the Company entered into an agreement with a provider of telemedicine to market services under OneHealthPass. This agreement was later cancelled with no additional obligation and replaced with an agreement with a strategic alliance partner in September 2011 to increase the quality and reliability of the service.
In January 2010, the Company identified a market for the use of the proprietary technology from past development efforts on developed applications. The Company determined that the information that was stored on these applications could be managed by a centralized system. Based on this concept and technology, the company commenced developing the Platform, a dynamic Personal Health Record (PHR), as one of the backbone components of OneHealthPass.
In April and May 2010, the company contracted with developers, some of whom have worked on the original application and the Company’s technology. This new development team’s efforts were geared to developing the OneHealthPass Platform which is the user’s interface and backend technology for the Company’s telemedicine offering, manage patient history, and interface with our strategic alliance partner’s systems.
In September 2011, the Company produced the OneHealthPass corporate video, and started production of an advertisement for direct response advertising.
The Company has entered into talks with a direct response agency to manage a direct response advertising campaign.
The Company has entered into talks with a call center to manage inbound customer calls for the direct response campaign.
With all of the agreements in place and sufficient development of the OneHealthPass Platform, the Company has commenced the marketing of OneHealthPass and will continue developing the Platform and managing the direct response advertising campaign throughout 2012.
On September 3rd, 2012 the Company acquired Alliance Urgent Care, Inc, with its 6 clinic locations and took over the operations of Alliance Urgent Care which treated 66,000 patients in 2011.
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ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk, and should not be made by anyone who cannot afford to lose their entire investment. You should consider carefully the risks set forth in this section, together with the other information contained in this report, before making a decision to invest in our common stock. Our business, operating results and financial condition could be seriously harmed and you could lose your entire investment if any of the following risks were to occur.
Risks Related to Our Business
We are a development stage company with limited operating history, no revenue and have to rely on our ability to raise capital to fund operations and there can be no assurance we will ever reach profitability or be able to continue to raise capital to fund operations.
Capital Group commenced limited operations in September of 2007, therefore, we have limited operating history on which to make an investment decision. Accordingly, the Company has a limited operating history and the business strategy may not be successful. Failure to implement the business strategy could materially adversely affect our business, financial condition and results of operations. Through June 30, 2012, the Company’s business has not shown a profit in operations and has generated no revenues. There can be no assurance we will achieve or attain profitability or be able to raise sufficient capital to stay in business. If we cannot achieve operating profitability or raise capital, we may not be able to meet our working capital requirements, which could have a material adverse effect on our business operating results and financial condition resulting in the loss of an investors’ entire investment in us.
We need substantial additional capital to grow and fund our present and planned business and business strategy.
Our current and planned operations contemplate funding in the future. Failure to meet funding milestones may have a significant adverse effect on our growth and anticipated revenues and we may have to curtail our business strategy. If we receive less funding than planned, we will have to revise our business model and reduce proposed plans. Without significant funding, we will not be able to execute on our business operations and may be forced to cease operations. At this time, there can be no assurance we will be able to obtain the funding we need and even if we obtain such funding that it will be on terms and conditions favorable to us and our existing shareholders. Without funding we will not be able to proceed with planned operations or meet existing obligations.
Our independent registered public accounting firm’s report states that there is substantial doubt that we will be able to continue as a going concern. Our possible inability to stay in business could result in a total loss on investment by our shareholders.
Our accompanying financial statements have been prepared assuming that we will continue as a “going concern.” As discussed in Note 1 to the Company’s June 30, 2012 consolidated financial statements, we have no revenues, the Company is in its development stage, has minimal business operations, has recurring losses and has negative working capital and a stockholders’ deficit. These issues raise substantial doubt about our ability to continue as a “going concern.” Our ability to stay in business will, in part, depend on our ability to raise additional funding. Management is attempting to raise capital, secure strategic alliances, and to operate the business strategy however, there is no assurance that these funds will be obtained. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Our internal systems and operations are untested and may not be adequate and could adversely affect our ability to continue our planned business.
Our internal systems and operations are new and unproven at scale. Subscriber growth could place unanticipated strain on our systems used to efficiently manage and operate our planned services. This could
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have a material adverse effect upon our business, results of operations and financial condition and could force us to halt our planned operations or continued expansion of those planned operations, causing us to lose any opportunity to gain significant anticipated market share in our industry. Our ability to compete effectively and to manage future growth will require us to continue to improve our operational systems, our organization and our financial and management controls, reporting systems and procedures. We may fail to make these improvements effectively. Additionally, our efforts to make these improvements may divert the focus of our personnel and we may not be able to effectively continue our planned operations, which may materially and adversely affect our business, results of operations and financial condition.
Our inability to attract and maintain key personnel required to implement our business strategy could adversely affect our ability to continue our current and planned business resulting in slower growth.
We are trying to grow our effort to provide services and we are still hiring key positions and integrating personnel at all levels into a cohesive team. If executives or other new hires integrate poorly, perform badly, or do not have the anticipated experience or skill sets required, our current and planned business endeavors could be harmed. Planned personnel, management practices and controls may also prove to be inadequate to provide services, acquire customers and partners and operate the business, and any gaps or failures may have a material adverse affect on our business, financial condition and results of operations.
Increased competition may have an adverse affect on our ability to continue our current and planned business operations and result in our going out of business and may have a material adverse affect on our business, financial condition and results of operations.
We may see increased competition in our markets. We do not have an exclusive relationship with our providers and other providers may attempt to provide similar services over similar infrastructure. The competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and devote greater resources to develop, promote and sell their products or services. In addition, increased competition could result in reduced subscriber fees, reduced margins and loss of market share, any of which could harm our business. We cannot guarantee that we can compete successfully against current or future competitors, many of which have substantially more capital, existing brand recognition, resources and access to additional financing. All these competitive pressures may result in increased marketing costs, or loss of market share or otherwise may materially and adversely affect our business, results of operations and financial condition.
Our inability to patent, protect and update our technology may result in our inability to effectively compete in our selected industry.
We use technology advancements of our own and from suppliers to provide a more advanced service with more efficient economics. Technology advancement is very fast paced in digital media and can lead to changing standards and new modes of providing services. The advancement of other technology not available to or usable within our operations could make our current or future products or services obsolete or non-competitive. Keeping pace with the introduction of new standards and technological developments could result in additional costs or prove difficult or impossible. The failure to keep pace with these changes and to continue to enhance and improve the responsiveness, functionality and features of our services could harm our ability to attract and retain users.
Our operating results could be impaired if we become subject to burdensome government regulation and legal uncertainties, all of which would increase our cash requirements which may materially and adversely affect our business, results of operations and financial condition.
The telemedicine industry is relatively new and it is possible that a number of laws and regulations may be adopted with respect to the telemedicine, relating to:
·
HIPAA;
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·
pricing;
·
insurance;
·
copyrights; and
·
characteristics and quality of products and services.
An increase in laws and regulations could contribute to a decline in the growth of the industry and could decrease demand for our products and services and increase our cost of doing business. Moreover, the applicability of existing laws to telemedicine is uncertain with regard to many issues. Our business, financial condition and results of operations could be seriously impaired by any new legislation or regulation. The application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to telemedicine and other services which may materially and adversely affect our business, results of operations and financial condition.
We provide access to physicians through our services agreements with telemedicine providers. Access provided to our customers could be withdrawn, or prices for providing services could become cost prohibitive.
We do not own the physician network that provides telemedicine services to our customers. We pay the providers a fee for the rights to provide their services to subscribers. The providers of the services may withdraw their rights, revoke rights, refuse rights, or increase the cost of their services, which may materially and adversely affect our business, results of operations and financial condition.
Planned acquisitions come with various risks, along with dilution to our shareholders, which could negatively affect our stock prices and may materially and adversely affect our business, results of operations and financial condition.
Acquisitions, mergers and joint ventures entered into by us may have an adverse affect on our business. We expect to engage in acquisitions, mergers or joint ventures as part of our long-term business strategy. These transactions involve significant challenges and risks including that the transaction does not advance our business strategy, that we do not realize a satisfactory return on our investment, or that we experience difficulty in the integration of new assets, employees, business systems, and technology, or diversion of management's attention from our other businesses. These events may materially and adversely affect our business, results of operations and financial condition (See acquisition subsequent event in Note 11 to the financial statements).
The current and future state of the economy may materially and adversely affect our business, results of operations and financial condition.
Our business may be adversely affected by changes in domestic economic conditions, including inflation or deflation, changes in consumer preferences, changes in consumer spending rates, personal bankruptcy and the ability to collect our customer accounts. Changes in economic conditions may adversely affect the demand for our products and make it more difficult to collect customer accounts, thereby negatively affecting our business, operating results and financial condition. The recent disruptions in credit and other financial markets and deterioration of national and global economic conditions could, among other things, impair the financial condition of some of our future customers and suppliers, thereby increasing future customer bad debts or non-performance by suppliers. If we experience bad debts or slow paying from future customers in significant quantities, our cash flow will be limited and our ability to pay our own obligations will be questionable. As a small business these issues will affect us more than our larger competitors putting financial strain on our business and threatening our survival particularly since we have limited capital to rely on to overcome cash flow issues of slow paying customers. If our future customers are unable to pay or pay slowly it may materially and adversely affect our business, results of operations and financial condition.
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Future stock issuances could severely dilute our current shareholders’ interests.
Our Board of Directors has the authority to issue up to 100,000,000 authorized shares of our common stock or stock warrants to acquire such common stock. The future issuance of common stock may result in dilution in the percentage of our common stock held by our existing stockholders. Also, any stock we sell in the future may be valued on an arbitrary basis by us and the issuance of shares of common stock for future services, acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our existing stockholders.
On September 3, 2012, the Company effectuated the closing of the Asset Purchase Agreement (See Note 11 - Subsequent Events). The Company is obligated to issue additional shares not to exceed an approximate total valuation of $15,000,000 if certain stock price guarantees are not met over the first three years following the Closing. This future issuance of common stock may result in dilution in the percentage of our common stock held by our existing stockholders.
We do not expect to pay dividends in the near future.
We do not expect to declare or pay any dividends on our common stock in the foreseeable future. The declaration and payment in the future of any cash or stock dividends on the common stock will be at the discretion of our Board of Directors and will depend upon a variety of factors, including our ability to service our outstanding indebtedness, if any, and to pay dividends on securities ranking senior to the common stock, our future earnings, if any, capital requirements, financial condition and such other factors as our Board of Directors may consider to be relevant from time to time. Our earnings, if any, are expected to be retained for use in expanding our business.
Risks Related to Our Common Stock
Our common stock is classified as a “penny stock” under SEC Rules and Regulations, which means there is a very limited trading market for our shares.
Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 of the SEC. Penny stocks are stocks (i) with a price of less than five dollars per share; (ii) that are not traded on a “recognized” national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) in issuers with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years); or $5,000,000 (if in continuous operation for less than three years); or with average revenues of less than $6,000,000 for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 of the SEC require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.”
Moreover, Rule 15g-9 of the SEC requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker dealer to (i) obtain from the investor information concerning his, her or its financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor, and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in our common stock to resell their shares to third parties or to otherwise dispose of such shares.
Due to the substantial instability in our common stock price, you may not be able to sell your shares at a profit or at all, and as a result, any investment in our shares could be totally lost.
The public market for our common stock is very limited. As with the market for many other small companies, any market price for our shares is likely to continue to be very volatile. Our common stock has
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very limited volume and as a “penny stock,” many brokers will not trade in our stock limiting our stocks’ liquidity. As such it may be difficult to sell shares of our common stock.
Our common stock has a limited trading history, and it will be difficult to determine any market trends or prices for our shares and additional shares that become available under Rule 144 could cause the price of our stock to decrease.
Our common stock currently is quoted on the OTC Pink Sheets, under the symbol “CGHC.” However, with very little trading history, a trading market that does not represent an “established trading market,” volatility in the bid and asked prices and the fact that our common stock is very thinly traded, you could lose all or a substantial portion of your funds if you make an investment in us. Additionally as more shares become available for resale, it is likely there will be negative pressures on our stock price. The sale or potential sale of shares of our common stock that may become publicly tradable under Rule 144 in the future may have a severe adverse impact on any market that develops for our common stock, and you may lose your entire investment or be unable to resell any shares in us that you purchase.
ITEM 2. PROPERTIES
We currently maintain offices at 16624 North 90th Street, Suite 200, Scottsdale, Arizona, 85260. The rent during the first six months is abated, rent is $4,811 per month for months 7-24, for months 25-36 rent is $4,956, for months 37-48 rent is $5,103, for months 49-66 rent is $5,256, with a security deposit of $15,000. Under the terms of the lease agreement, the Company was responsible for its share of normal operating costs, including maintenance expenses, property taxes and insurance. We do not believe that we will need to obtain additional office space at any time in the foreseeable future, approximately 12 months, until our business plan is more fully implemented.
ITEM 3. LEGAL PROCEEDINGS
The Company is presently not party to any legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock was traded under our former name Implant Technologies, Inc. on the OTC Bulletin Board over-the-counter market from June 2007 to September 2007 under the symbol "IMLT” Effective September 19, 2007 the Company changed its name to Oasis Online Technologies Corp. and effective September 26, 2007 the quotation symbol was changed to “OOLN” where our stock traded on the OTC bulletin Board over-the-counter market. On July 15, 2009 the company was delinquent on its SEC filings and was removed from the OTC Bulletin Board and moved to the Pink Sheets. In November 2010 the Company changed its name to Capital Group Holdings, Inc and the stock has traded on the OTC Pink Sheets over-the-counter since November 1, 2010 under the symbol “CGHC”. The following table sets forth the high and low bid prices for our common stock on the OTC Bulletin Board over-the-counter market from July 1, 2009. The source of these quotations are OTCBB.com quarterly market summary. The bid prices are inter-dealer prices, without retail markup, markdown or commission, and may not reflect actual transactions.
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| | |
Quarter Ending | High Bid | Low Bid |
| | |
September 30, 2010 | $0.30 | $0.01 |
| | |
December 31, 2010 | $1.01 | $0.10 |
| | |
March 31, 2011 | $0.60 | $0.20 |
| | |
June 30, 2011 | $0.65 | $0.33 |
| | |
September 30, 2011 | $0.60 | $0.14 |
| | |
December 31, 2011 | $0.50 | $0.05 |
| | |
March 31, 2012 | $0.42 | $0.06 |
| | |
June 30, 2012 | $0.40 | $0.05 |
Holders of Common Stock
As of September 30, 2012, the closing price for the Company’s common stock on the OTC Bulletin Board was $0.08 per share. We had 1509 stockholders of record of the 62,651,121 shares outstanding.
Dividends
The payment of dividends is subject to the discretion of the Company’s Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid nor declared any dividends on our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements do not anticipate paying any dividends in the foreseeable future.
We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:
·
our financial condition;
·
earnings;
·
need for funds
·
capital requirements;
·
prior claims of preferred stock to the extent issued and outstanding; and
·
other factors, including any applicable laws.
Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide the information required by this Item.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report. References in the following discussion and throughout this annual report to “we”, “our”, “us”, “Capital Group Holdings”, “Capital Group”, “CGHC”, “the Company”, and similar terms refer to, Capital Group Holdings, Inc. and subsidiary unless otherwise expressly stated or the context otherwise requires. This discussion contains forward-looking statements that involve risks and uncertainties. Capital Group Holdings Inc’s actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this filing.
Management of the Company is pursuing avenues of generating cash or revenues during the next twelve months from the date of issuance of this report. The Company is pursuing its relationships and strategic alliances including marketing to provide access to the market for telemedicine services. The Company also continues to pursue financing to market and build the infrastructure for OneHealthPass. Management also believes that with the current market demand and growth in Telemedicine services, alliances in place and planned marketing and infrastructure development, the Company will generate cash from revenues when the products are brought to market in the next twelve months from the date of issuance of this report.
On September 3, 2012, the Company effectuated the closing of the Asset Purchase Agreement (See Note 11 - Subsequent Events). OneHealth Urgent Care, Inc. (OneHealth) is a wholly owned subsidiary of Capital Group Holdings, Inc. OneHealth (incorporated August 2012) provides medical care through its wholly owned subsidiary, Alliance Urgent Care LLC., which is a progressive urgent care organization in Arizona.
There is no assurance that the Company will be able to obtain cash flow from operations or to obtain additional financing. If these are not available to the Company, the Company may not be able to continue operations. While management remains hopeful that one or more transactions will proceed, no assurances can be expressed as to the Company’s continuing viability in the absence of revenues. Current funding has come from equity investments and the Company is currently in negotiations with several investment sources for equity investment in the Company, which if successful, will satisfy long-term operations and capital expenditures. There are no guarantees that such negotiations will be successful.
Results of Operations
YEAR ENDED JUNE 30, 2012 COMPARED TO THE YEAR ENDED JUNE 30, 2011
During the year ended June 30, 2012, we incurred a net loss of $685,024 compared to net loss of $4,657,246 for the year ended June 30, 2011. The decrease in our net loss for the year ended June 30, 2012 over the comparable period of the prior year is primarily due to approximately $2,022,000 of investor relation and introduction fees associated with the raising of capital in 2011. In 2012 the compensation costs decreased by $914,238 from fiscal 2011, as the Company employed additional corporate officers and employees to develop and deploy platform technology in 2011. The costs associated with rescinded purchases decreased by $132,799 in the year ended June 30, 2012 compared to 2011 as there were no transactions or due diligence on contemplated transactions in 2012. Legal and consulting fees declined by $204,606 as there were no transactions and less fundraising activity in 2012. Software development and temporary staffing costs decreased by approximately $240,000 in 2012 as the Company did not have the capital funding to continue the development and deployment of the platform technology in 2012. Interest expense decreased by $227,730 due to the conversion of notes payable in 2011 and the Company did not issue convertible notes payable in 2012. The remaining approximately $230,900 decrease in net loss in 2012 was due to a decrease in travel expenses, rent, and office and utility expenses. For the year ending June 30, 2012 business and development activities were scaled back from the same period in 2011 due to the lack of capital and funding resources.
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Liquidity and Capital Resources
Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of stock and by borrowings.
Operating expenses for the Company have been paid by the issuance of stock and stock subscriptions. At June 30, 2012 the Company had a deficit in working capital (current liabilities in excess of current assets) of approximately $1,100,000. The working capital deficit at June 30, 2011 was approximately $889,000. The increase in working capital deficit when compared to June 30, 2011 was principally due to an increase in accounts payable and payroll liabilities. The payroll liabilities are related to unpaid salaries due to both corporate offices at the Company.
Since inception, we have financed our cash flow requirements through issuance of common stock and notes payable. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending generation of revenues. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings to the extent available or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient revenues from sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan.
At June 30, 2012, the current assets decreased by approximately $6,800 when compared to June 30, 2011 due to the amortization of prepaid expenses partially offset by an increase in cash.
During the twelve months ended June 30, 2012, the current liabilities increased by approximately $210,000 when compared to June 30, 2011 current liabilities. The primary reason for the increase was the increase in accrued payroll liabilities and accounts payable. The payroll liabilities are related to unpaid salaries due to both corporate officers at the Company.
We anticipate that we may incur operating losses during the next twelve months. The Company’s lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. These factors raise substantial doubt about our ability to continue as a going concern. To address these risks, we must, among other things, increase our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
Going Concern
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. Since we have not generated any revenue, we have negative cash flows from operations, and negative working capital, the Company’s independent registered public accounting firm has included a reference to the substantial doubt about our ability to continue as a going concern in connection with our consolidated financial statements for the year ended June 30, 2012. Our total accumulated deficit at June 30, 2012 was $11,430,401.
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These consolidated financial statements have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and that our assets will be realized, and liabilities settled in the ordinary course of business. If we are unable to obtain additional financing we may cease operations and not be able to execute on operating plans. Accordingly, these consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.
The Company had not been compliant with SEC reporting deadlines, but management has opted to make the necessary filings to be become compliant with the Securities and Exchange Commission (SEC) reporting guidelines to allow the Company to raise capital in order to execute on the Company’s business strategy. Management is attempting to raise capital, secure strategic alliances, and to operate the business strategy, however there is no assurance that these will be obtained.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, and expenses and the disclosure of contingent assets and liabilities. We use assumptions that we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. We believe there have been no significant changes in accounting policies during the year ended June 30, 2012. We believe the following represent our most critical accounting policies.
Valuation of Deferred Tax Assets
The Company regularly evaluates its ability to recover the reported amount of deferred income tax assets considering several factors, including an estimate of the likelihood that the Company will generate sufficient taxable income in future years in which temporary differences reverse and net operating loss carry forwards may be used. Due to the uncertainties related to, among other things, the extent and timing of future taxable income, the Company offset its net deferred tax assets by an equivalent valuation allowance as of June 30, 2012 and 2011.
Use of Estimates
The preparation of the consolidated financial statements in conformity with United States 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are used for, but not limited to, useful lives of property and equipment, fair value of equity instruments, and valuation of deferred tax assets. Actual results could differ from those estimates.
Fair Value of Equity Instruments
The Company measures a debt discount based on estimated fair values of all warrants issued with convertible notes payable. The discount is calculated by using level 3 fair value measurement as discussed in note 5 of the financial statements and is amortized over the life of the warrants. The discount, when amortized, is recognized in the financial statements as interest expense.
The Company uses the Black-Scholes pricing model to estimate the fair value of warrants. The Black-Scholes model requires the use of highly subjective and complex assumptions, including the warrant’s expected term and the price volatility of the underlying stock. The expected term of warrants is based on the
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contractual term of the warrants. Expected volatility is based on historical volatility over the expected life of the warrants.
All other issuances of common stock as consideration for goods or services received were accounted for based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more readily measurable. Such fair value is measured at an appropriate date and capitalized or expensed as if the Company had paid cash for the goods or services.
For purposes of determining the fair values of warrants using the Black-Scholes option pricing model, the Company used the following assumptions in the year ended June 30, 2011, there were no warrants issued in 2012:
| | | | |
| | Year ending June 30, |
| | 2011 | |
Expected volatility | | 239.79% | |
Risk-free interest rate | | 0.83% | |
Warrant life | | 3 | |
Expected dividends | | 0% | |
Given an active trading market for its common stock, the Company estimated the volatility of stock based on week ending closing prices over a historical period of not less than one year. As a result, depending on how the market perceives any news regarding the Company or its earnings, as well as market conditions in general, it could have a material impact on the volatility used in computing the value we place on these equity instruments.
Recently Issued Accounting Standards
The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item in not applicable as we are currently considered a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Semple, Marchal & Cooper, LLP [Letterhead]
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Capital Group Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Capital Group Holdings, Inc. (a development stage company) as of June 30, 2012 and 2011 and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended and for the period from April 26, 2006 (date of inception of the development stage) through June 30, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 2012 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capital Group Holdings, Inc. at June 30, 2012 and 2011, and the results of their operations, changes in stockholders’ deficit, and its cash flows for the years then ended and for the period from April 26, 2006 (date of inception of the development stage) through June 30, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a negative cash flow from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Semple, Marchal & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
October 15, 2012
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