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CGHC > SEC Filings for CGHC > Form 10-Q on 14-Feb-2013All Recent SEC Filings

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Form 10-Q for CAPITAL GROUP HOLDINGS, INC.


14-Feb-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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:

· our current lack of working capital;

· inability to raise additional financing;

· 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;

· deterioration in general or regional economic conditions;

· adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

· inability to efficiently manage our operations;

· inability to achieve future sales levels or other operating results; and

· 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 our annual Form 10-K filed with the SEC on October 15, 2012.

Throughout this Report references to "we", "our", "us", "Capital Group Holdings", "Capital Group", "CGH", "OneHealthPassTM ", "OHP", "OneHealth", "OneHealth Urgent Care", "OHUC", "the Company", and similar terms refer to, Capital Group Holdings, Inc. and its subsidiaries.

Company History

We were incorporated under the laws of the state of Minnesota in 1980 as Implant Technologies, Inc. On September 19, 2007, the Company filed a certificate of amendment to the Company's Articles of Incorporation changing its name to Oasis Online Technologies, Corp.

We changed our name to Capital Group Holdings, Inc. on October 29, 2010, from Oasis Online Technologies Corp to more accurately reflect our corporate philosophy as an acquirer and operator of innovative health and wellness organizations.

On September 3, 2012, the Company and its wholly owned subsidiary OneHealth Urgent Care, Inc., an Arizona corporation, ("OneHealth UC") completed the acquisition of Alliance Urgent Care by acquiring all of the assets, liabilities, and operations of combined entities owning Alliance Urgent Care; including the Alliance Urgent Care, LLC from MCS Ventures I through VII ("Sellers). (See Note 2 to the financial statements) OneHealth Urgent Care now operates 7 urgent care clinics through its wholly owned subsidiary Alliance Urgent Care ("AUC"). One Health UC has plans for expansion into additional states.

Capital Group Holdings, Inc.

Capital Group Holdings, Inc. ( OTCQB : CGHC ) ("Capital Group") is an acquirer and operator of innovative health and wellness organizations that have strong market presence, brand awareness, and talented management teams working towards achieving exceptional performance over time. The Company, through its subsidiaries, currently operates seven (7) urgent care clinics ("OneHealth Urgent Care," "OneHealth UC") in metropolitan Phoenix, Arizona and will soon launch its telemedicine services through its subsidiary OneHealthPass™ ("OHP"). OneHealthPass™ is a direct-to-consumer medical membership program that provides members with 24/7/365 access to board-certified physicians via telephone or internet. Capital Group is positioning these companies to provide immediate access to medical services to the public in an effort to avoid any delay in access to physicians and to provide a significantly lower cost for high quality, patient-centric healthcare.

Our customers can reach a physician any time, day or night, can access basic medical services, and have the ability to receive sound medical advice and treatment for the most common minor medical issues. Our network of independent board-certified physicians may, at their discretion, provide prescriptions for treatment that can be retrieved immediately at the member's local pharmacy. Should a member need to be examined in person, they can be examined at one of our local urgent care clinics, or be referred elsewhere such as the ER, a primary care doctor, or even a specialist. Capital Group's strategy of partnering OHP with OneHealth Urgent Care is unique. The linkage will allow us to direct our new OHP members to our urgent care clinics instead of competitor clinics when they get sick, thus significantly extending our membership services, promoting customer loyalty, and reducing the inherent liabilities associated with our competitor's that do not operate actual medical facilities.

Management believes that the strategy of combining a direct to consumer telemedicine membership program with our network of urgent care facilities in the Metro Phoenix area, and elsewhere, will allow the Company to treat patients faster, more effectively, and at lower overall cost. Management believes that this strategy is currently unique in the healthcare industry and will help the Company separate itself from its competitors while providing stable monthly recurring revenue in addition to in-clinic patient fees.

OneHealth Urgent Care

OneHealth Urgent Care ("OneHealth UC" or "OHUC") presently serving the greater metro Phoenix community, operates 7 urgent care clinics that provide walk-in, extended hour access for acute illness and injury care.

OneHealth Urgent Care customers experience an average service time (check-in to check-out) of under 40 minutes (better than industry average), versus more than four hours, on average, for ER wait times. The cost of an urgent care visit is one-sixth the cost of an ER visit. OHUC provides care on a walk-in basis between 8 am and 8 pm, the hours which account for 80% of ER visits.

Prior to acquisition, Alliance Urgent Care's (AUC) performance has exceeded expectations. AUC revenues exceeded $5.4 million in 2011, growing at least 30% since 2010.

To achieve that growth rate, AUC added an average of 1-2 clinics per year, which became profitable after a 13-18 month time period. Although the Company did not own AUC during this time, this historical performance along with the continuity of AUC senior leadership in the person of Dr. Michael Blumhoff, M.D. gives management the belief that new clinics opened will provide similar steady, predictable results as the existing clinics.

Management believes that a new clinic reaches break even when it obtains an average of 35 patients per day over 13-18 months. The Phoenix location presently sees an average of 26 patients per day, while the Queen Creek location sees an average of 15 patients per day, both of which have been improving month over month. Therefore, management believes that both the Phoenix clinic's growth and the Queen Creek clinic's growth to profitability are well within the norms for the industry.

Additional OneHealth Urgent Care facts include:

· Opened 7th clinic in October 2012

· Emphasis on providing a patient-centric experience

· 99% customer satisfaction

· Always staffed with a licensed, board certified providers, most of whom are physicians

· Ability to deal with high acuity medical conditions

· 40 min door-to-door time or less for 90% of patients

· Equipped with digital x-ray, lab, Electrocardiogram (EKG)

· Branded, with passive and active marketing and advertising campaigns

OneHealth Urgent Care's formula for opening clinics is to locate new clinic in cities with high ER volume, strong demographics and busy primary care physicians. OneHealth Urgent Care is actively seeking prospective site locations for de novo clinics in Arizona and Nevada and has generated potential leads for acquisitions in Arizona, California and Nevada. OneHealth Urgent Care operates billing and collection process that have overseen significant improvement over time. Using Electronic Medical Records ("EMR"), electronic submissions whenever possible, and sending out claims within 24 hours helps expedite insurance payments. There are numerous processes in place to ensure accuracy of bills going out and tracking of all incoming payments, resulting in rapid posting, supported by vigorous, detailed policies for following up on denied claims. All billing and collections are processed in-house.

Management believes that the comprehensive marketing plan that Capital Group deploys will allow OneHealth Urgent Care to grow at an accelerated rate. Management plans for OneHealth Urgent Care to deliver a far-reaching direct-to-consumer television campaign designed to create approximately three million impressions per month in its operating areas, presently metropolitan Phoenix, Arizona. This campaign will be managed separate from the DRTV for OneHealthPassTM, with both designed to complement each other through cobranding of the OneHealth brand. In addition to DRTV advertising, management intends to optimize the online presence of OneHealth Urgent Care through various means including an SEO (search engine optimization) campaign and social media marketing. The SEO campaign together with the DTRV campaign and social media will be designed to significantly increase the number of patients seen per day in our clinics.

OneHealthPass™

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 24/7/365 telephone consultations with in-state 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.

OHP is a membership program that provides access to board-certified physicians via the telephone and internet. Membership is billed monthly and members may utilize the service at any time. Should our members require additional consultations, there is a small surcharge that is added to their billing to accommodate additional consultations. OneHealthPass™ will offer the following features:

· Immediate access to consultations 24/7/365

· Treatment for non-emergency ailments (cold & flu, allergies, sinus problems, bronchitis, etc.)

· Telephonic or live video consultations over a broadband connection

· Highly secure HIPAA compliant electronic health record (EHR) storage and retrieval

· 24-hour customer service agents

· Integration with Urgent Care charting software

Capital Group plans to aggressively market OneHealthPass™ direct to consumers via local television and internet marketing campaigns. The Company plans to leverage the exposure of television advertising with a complex, information-driven Search Engine Optimization ("SEO") campaign to educate prospective members on the benefits of OneHealthPass™. Our Direct Response Television ("DRTV") program is anticipated to create millions of impressions and a significant number of new OneHealthPassTM memberships. We believe that having access to physicians via the telephone and web, as well as access to nearby urgent care centers can provide them with services to address many of their basic healthcare needs. OneHealthPassTM was created to lead Capital Group's growth by providing broad access to telehealth services in conjunction with new urgent care clinics in each new state.

Once marketing tests are completed, management plans for a roll out in its primary market, Phoenix Arizona in conjunction with its urgent care group. Management believes that the advertising for both OneHealth Urgent Care in conjunction with OneHealth Pass™ will lead to higher consumer acceptance due to cross branding as well as the fact that a customer can see our physical locations on prominent street corners in the metropolitan area.

Management believes that the steady incremental growth from the urgent care group will be, over time supplemented by exponential growth from the tele-medicine sector.

Competitive Landscape

The Patient Protection and Affordable Care Act "PPACA", colloquially known as ObamaCare, brings with it significant changes across the healthcare industry in general, as well as in the segments in which we compete, urgent care and telemedicine. According to Whitehouse.gov, the PPACA was signed into law on March 23, 2010, and allows "all Americans to make health insurance choices that work from them while guaranteeing access to care for our most vulnerable". While there is a lot of confusion about the PPACA and how it will impact healthcare in general, one thing is almost certain: the number of Americans with health insurance will increase between now, and especially in 2014 as new features of the PPACA roll out, including the individual mandate.

In a recent publication, Lou Ellen Horwitz, executive director of the Urgent Care Associate of America stated "although urgent care isn't specifically mentioned anywhere in the legislation, the open access that all urgent care centers have should make them a natural entry point for the newly insured-especially in areas where many primary care practices aren't accepting new patients."

The PPACA is arguably the most significant and comprehensive reform to the U.S. healthcare system since Medicare/Medicaid in the 1960s. Even with that fact, we have little data with which to work from in determining the likely impacts on our business. However, the Commonwealth of Massachusetts has since 2006 operated under a similar state-only healthcare reform law. While the Massachusetts law and the PPACA are dissimilar in several material aspects, the Massachusetts law did cause previously uninsured people to be able to obtain health insurance, in what management believes to be a similar manner to what we expect from the PPACA. Therefore, we believe we may see similar results nationwide from the PPACA as what has been observed in Massachusetts since 2006.

We believe that in 2014 when all U.S. citizens will be required to obtain health insurance, we will see an increase in emergency room visits nationwide to a level similar to what is presently occurring in Massachusetts. Given that emergency room care is typically more expensive to the patient, even with insurance, than urgent care or primary care visits, urgent care centers provide an attractive alternative to newly insured patients.

Urgent Care

As one of the fastest-growing segments of the American healthcare system, urgent care services have grown in size and market acceptance. Urgent care companies including NextCare Urgent Care, Fast-Med Urgent Care, and other locally-owned urgent care clinics may provide significant competition. The following macroeconomic trends support continued urgent care sector growth:

· Increasing ER volume and declining number of ERs

· Growing costs and lesser access

· Health reform adding millions of newly insured Americans to the system

· Aging population requiring more healthcare Industry conditions are favorable:

· Clear value to both patients and payors - better quality of care, lower costs, greater access

· Industry is fragmented

· Lack of customer focus in the industry

· Large and relatively untapped parts of Southwest

In summary, Management believes that the PPACA will result in an increased number of urgent care visits, across the board. However, while the number of patients visiting urgent care centers is likely to increase as a result of the new law and the corresponding increase in the number of people with health insurance of some kind, Management believes that there could potentially be downward pressure on the amount that insurance carriers reimburse. Meaning that the overall size of the pie will increase, but the value of each individual slice could potentially decrease.

With regards to telemedicine, the American Telemedicine Association concluded that the PPACA "will have an impact on the development and adoption of telehealth. The [Supreme Court ruling affirming the majority of the PPACA] will further accelerate the deployment rate for telemedicine, mHealth, and remote healthcare technologies." Management concurs with this assessment, and believes that there will be continued growth in acceptance from both medical professionals and consumers of the telemedicine concept.

As the demand for telehealth grows, companies such as Teladoc, ConsultADoctor, WhiteGlove Health, and MDLiveCare may gain market share. Like OneHealthPassTM, these companies generally offer 24/7 access to a doctor via phone, email, and video, as well as online lab testing and results, prescriptions via phone, and a professional online personal health manager.

OneHealthPassTM is starting with a small-scale retail entry into the telehealth market; it is focused on the individual managing his or her own personal health. By managing individual customer access, as opposed to large groups, we maintain relationships with our customers, and can offer a myriad of telehealth services without the significant cost of enterprise-level development costs and integration that larger companies must incur.

The Company's sales and marketing plan is targeted towards acquiring individual memberships for OHP as opposed to targeting large employer and/or association groups (payors). We are looking to acquire individual membership accounts for 2 main reasons: 1. Avoid any issues that could arise with insurance regulators who may construe OHP as exhibiting features of an insurance product and 2. The Company should realize significantly higher margins because of retail pricing for individuals as opposed to the current wholesale pricing models employed by our competition that primarily sell plans based upon large groups. The OHP pricing model has a base membership fee and an adjusting "utilization" fee month by month based upon the number of actual consultations that are performed. Our competition typically charges a very nominal fee (or none at all) to the payor and then charges consultation fees to the individual group member obtaining the consultation. We feel this model requires an extraordinary amount of operating capital to become profitable because revenue is based upon actual consultations performed at very slim margins whereas OHP customers are billed a recurring monthly fee and accrue consultations over time as they pay their monthly membership fees.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report. References in the following discussion and throughout this quarterly report to "we", "our", "us", "Capital Group Holdings", "Capital Group", "CGHC", "the Company", "Alliance Urgent Care", "AUC", "One Health Urgent Care", "OHUC", and similar terms refer to, Capital Group Holdings, Inc. and subsidiaries 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 continues to pursue avenues of generating cash or revenues during the next twelve months from the date of issuance of this Form 10-Q. The Company is pursuing financing to market and build the infrastructure for One Health Pass Inc. Management believes that with the current market demand and growth in Telemedicine services, along with our planned marketing and infrastructure development, the Company will generate positive cash flow from operations when our telehealth services are brought to market. However, there is no assurance that the Company will be successful in these efforts.

The acquisition of the Alliance Urgent Care operations and locations is key in that it changes some of the Company's dynamics when it comes to seeking funding. Through this acquisition, the Company has moved from a development stage business to a fully functioning operating company. From the date of acquisition, AUC has produced positive cash flows from operations sufficient to retire almost all of the debt the newly acquired unit has produced during its creation and expansion. It immediately gives the Company access to a working line of credit for $1,250,000 that expires in May 2013. As of this filing the amount available under the line of credit was approximately $306,000.

In addition, the acquisition, which was completed on September 3, 2012, occurred just prior to the beginning of AUC's most productive time period. Historically, most of AUC's revenues and positive cash flow has been produced during the winter months. While there is no assurance that this will continue to be the case, management believes that the Phoenix, Arizona metropolitan area, wherein the subsidiary operates, is undergoing an economic recovery.

Presently, 100% of the Company's revenue is generated by the urgent care operation. In the future, the Company expects to see significant revenue from its telemedicine subsidiary, OHP. Management believes that bringing together telemedicine and urgent care under the same corporate umbrella, both with OneHealth branding, generates significant opportunities not only from a marketing and brand-building perspective, but also as a differentiator; we believe that this is the first time telemedicine has been combined with brick-and-mortar urgent care facilities in this manner.

While there is no assurance that the Company will be able to obtain sufficient cash flow from operations or to obtain additional financing management believes that it will be successful. To date, the Company has utilized some of the subsidiary's capital resources to continue its expansion projects, and management believes that based upon the size of current operations, OneHealth UC should continue to generate positive cash flow from operations and management believes that this trend will continue. The Company is currently in negotiations with several potential investment sources for equity investment and/or debt financing for the Company. If successful, these will satisfy our long-term operations and capital expenditure plans. There are no guarantees that such negotiations will be successful to obtain additional funding for our long-term goals. While management remains hopeful that one or more transactions will proceed, no assurances can be expressed that the Company will be successful in these negotiations. It is expected though those current levels of funding will continue from our newly acquired business.

Results of Operations

THREE MONTH PERIOD ENDED DECEMBER 31, 2012 COMPARED TO THE THREE MONTH PERIOD ENDED DECEMBER 31, 2011

The revenues reported for the quarter ended December 31, 2012 of $1,736,029 represent the revenues of the urgent care centers. There were no revenues for the quarter ended December 31, 2011 as the Company was still in the development stage at that point.

On a reporting basis the Company reported a net loss for the quarter of $695,858 which represents an increase of approximately $550,800 from the same quarter in 2011. The increase is primarily attributable to the increased ongoing professional fees needed for the Company's public filings, the acceleration of certain expenses associated with cancelled or amended contracts, increased operating expenses for our two new clinics whose revenues have not yet stabilized as well as expenses associated with the new initiatives regarding marketing for OneHealthPass™.

On a pro forma basis for the three months ended December 31, 2012, OneHealth Urgent Care is reporting its first full three month quarterly revenues which were $1,736,029, versus $1,278,604 for AUC for the same period last year before it was acquired. This represents an increase of $457,425. This increase of approximately 36% is primarily accounted for by revenues from the Company's two newest clinics which were not in operation in this same quarter last year, as well as income from increases in patient visits in the other clinics.

Operating income from OHUC improved by approximately 10% of revenue. This is an increase of $125,302 for the second quarter ending December 31, 2012 over the same period last year for AUC. For the period ended December 31, 2012 income before taxes was $16,586 versus a loss of $108,716 in the period ending December 31, 2011. This improvement was primarily due to the increased revenue mentioned above and an overall reduction in costs related to economies of scale. Management expects these numbers to improve as the two newest clinics stabilize and begin to generate increased revenue and profits over time.

SIX MONTH PERIOD ENDED DECEMBER 31, 2012 COMPARED TO THE SIX MONTH PERIOD ENDED
DECEMBER 31, 2011

The revenues reported for the six month period ended December 31, 2012 of $2,244,454 represents the revenues of the urgent care centers. There were no revenues for the six month period ended December 31, 2011 as the Company was still in the development stage at that point.

On a reporting basis the Company reported a net loss for six month period ended December 31, 2012 of $1,292,202 which represents an increase of approximately $976,000 from the same quarter in 2011. The increase is primarily attributable to the increased ongoing professional fees needed for the Company's public filings, the acceleration of certain expenses associated with cancelled or amended contracts, increased operating expenses for our two new clinics whose revenues have not yet stabilized as well as expenses associated with the new initiatives regarding marketing for OneHealthPass™.

On a pro forma basis OneHealth Urgent Care reported revenue for the six months ended December 31, 2012 was $2,244,454 versus $2,386,603 for AUC in the same period the prior year, for an decrease in revenue of $142,054 or 5.9%. The net loss decreased by $49,000 from a net loss of $313,000 in the six month period ended December 31, 2011 versus a net loss of $264,000 in the current six month period. This represents a 15.7% improvement.

Over the last twelve months OneHealth Urgent Care opened two new clinics, the . . .

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