ITEM 4.01 CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Previous independent registered public accounting firm
On September 4, 2013, Capital Group Holdings, Inc. (the “Company”) was notified by Semple, Marchal and Cooper, LLP, Certified Public Accountants (SMC) of its decision to resign as the Company’s independent registered public accounting firm. Subsequent to the notice of resignation by SMC, the Company and its board of directors entered into negotiations with SMC regarding its outstanding fees due and fee quote for the current year’s audit ending June 30, 2013. These negotiations continued up and through September 11, 2013 for which both the Company and SMC reached an impasse. The Company’s board of directors acknowledged the decision by SMC to resign and not stand for re-election as the Company’s independent registered public accounting firm and that acknowledgement was made at a duly authorized meeting of the board of directors on September 11, 2013. SMC was initially engaged by the Company on April 3, 2012 to audit the years ended June 30, 2010 and 2011, and review quarterly filings due therein. On August 8, 2012 SMC was engaged to audit the year ended June 30, 2012 and review the quarterly filings therein. SMC did not perform any accounting, auditing or consulting services for the Company after September 4, 2013 at which time SMC deems it was no longer independent.
The Company believes in accordance with American Institute of CPA’s Code of Professional Conduct ET Section 191 - Ethics Rulings on Independence, Integrity, and Objectivity – “Independence is considered to be impaired if, when the report on the client's current year is issued, billed or unbilled fees, or a note receivable arising from such fees, remain unpaid for any professional services provided more than one year prior to the date of the report.” Company’s management believes that independence became impaired upon reaching the one year anniversary of outstanding invoices for previously issued reports.
SMC’s report on the Company’s consolidated financial statements for the fiscal years ended June 30, 2010, 2011 and 2012 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principle, except that the report of SMC on the Company’s financial statements for fiscal years 2010, 2011 and 2012 contained an explanatory paragraph, which noted that there was substantial doubt about the Company’s ability to continue as a going concern.
During the fiscal years ended June 30, 2010, 2011 and 2012, and subsequent interim periods ended September 30, 2012, December 31, 2012 and March 31, 2013, through the date of resignation September 4, 2013, there were no disagreements between the Company and SMC except for the matter surrounding the accounting treatment of common stock price guarantee disclosed in Form 8-K/A filed December 27, 2012.
A comparison of the original and amended terms are provided as follows and the original Form 8-K as reported:
As filed on November 19, 2012 Form 8-K (Amendment #1):
Under the terms of the sale the trading price of both the purchase and bonus shares, totaling 10,600,000 shares, contains a stock price guarantee that provides for the following:
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1.
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Stock Price Guarantee for Year #1, if by September 5, 2013, the closing price of the common stock of Capital Group Holdings, Inc. has not been equal to or exceeding $2.00 for 20 consecutive trading days, Capital Group Holdings, Inc., shall issue to Sellers such number of additional restricted shares of its common stock as to make up the difference between $10,000,000 (5,000,000 purchase shares X $2.00) and the actual closing price of the common stock. (For example, if the actual closing price of the common stock was $1.00, Sellers would be issued 5,000,000 additional shares).
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The same price guarantee applies to the 5,600,000 common shares issued under the one-time bonus; however, the date of the guarantee is June 30, 2013.
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2.
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Stock Price Guarantee for Year # 2, if by September 5, 2014, the closing price of the Common stock of Capital Group Holdings, Inc., has not been equal to or exceeding $ 3.00 for 20 consecutive trading days, Capital Group Holdings, Inc. shall issue to Sellers such number of additional restricted shares of its common stock as to make up the difference between $15,000,000 (5,000,000 purchase shares X $3.00) and the actual closing price of the common stock, (For example, if the actual closing price of the common stock was $ 2.00, Sellers would be issued 2,500,000 additional shares).
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The same price guarantee applies to the 5,600,000 common shares issued under the one-time bonus; however, the date of the guarantee is June 30, 2014.
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As filed on December 24, 2012 Form 8-K (Amendment #1):
On September 3, 2012, we effectuated the closing of the Asset Purchase Agreement (the “Agreement”) with One Health Urgent Care, Inc., an Arizona corporation, and our wholly owned subsidiary (“One Health”); MCS Ventures I, PC., MCS Ventures II, PC., MCS Ventures III, PC., MCS Ventures IV, PC., MCS Ventures V, PC., MCS Ventures VI, PC. and MCS Ventures VII, PC (the “Sellers”). The Agreement was amended on November 30, 2012, with the original September 3, 2012, effective date. Pursuant to the amended Agreement, One Health has agreed to purchase the assets, certain liabilities and operations of the Sellers for 10,000,000 “Purchase Shares” of our common stock. In addition, under a separate employment agreement, we committed to issue an additional 10,600,000 “Bonus Shares” of our common stock as a one-time stock bonus upon the execution of the employment agreement.
Under the terms of the Agreement the trading price of both the Purchase Shares and Bonus Shares, totaling 20,600,000 shares, contains a stock price guarantee as follows:
(i) Stock Price Guarantee for Year #1: If by September 5, 2013, the Closing Price of our common stock has not been equal to or exceeding $1.00 for 20 consecutive trading days immediately prior, we are required to issue to Sellers such number of additional restricted shares of its common stock as to make up the difference between $10,000,000 (10,000,000 purchase shares X $1.00) and the actual Closing Price of the common stock multiplied by 10,000,000 shares. (For example if the actual Closing Price of the common stock was $.80 Sellers would be issued 2,500,000 additional shares. ($10 million – $8 million [$0.80 X 10,000,000 = $8,000,000] = $2 million shortfall; $2,000,000/$0.80 per share = 2,500,000 additional shares).
(ii) Stock Price Guarantee for Year # 2: If by September 5, 2014, the Closing Price of our common stock has not been equal to or exceeding $1.50 for 20 consecutive trading days immediately prior, we are required to issue to Sellers such number of additional restricted shares of its common stock as to make up the difference between $15,000,000 (10,000,000 purchase shares X $1.50) and the actual Closing Price of the common stock multiplied by 10,000,000 shares. (For example if the actual Closing Price of the common stock was $ 1.00 Sellers would be issued 5,000,000 additional shares).
(iii) Floor Price. The Stock Price Guarantee has a minimum floor price limiting the amount of stock to be issued to compensate Sellers for certain price fluctuations. For Year #1, the Floor Price is $0.53 cents per share. For Year #2, the Floor Price is $0.20 per share.
(iv) Stock Price Guarantee Dates. For Year #1, the Stock Price Guarantee date is September 5, 2013 for the Purchase Shares and June 30, 2013 for the Bonus Shares. For Year #2, the Stock Price Guarantee date is September 5, 2014, for the Purchase Shares and June 30, 2014, for the Bonus Shares.
SMC upon further examination and review of the original terms of the agreement was not satisfied with the Company’s recording of its contingent share payment and obligation as “Variable Share Settled Earn-out – equity classified” for financial statement purposes. In accordance with Accounting Standards Codification 805 (which incorporates FAS 141(R), Business Combinations), is the US Standard on M&A (mergers & acquisitions), and Accounting Standards Codification 810 (which incorporates FAS 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51), is the US Standard on consolidations (collectively the "M&A Standards"), the Company modified its negotiated agreement with the sellers and Dr. Blumhoff to establish a floor for the common stock price guarantee.
The Company and its management amended the common stock price guarantee to reflect the intentions of both parties to the agreement. Pursuant to matter described above (1) the Company’s board of directors had discussed the matter with SMC, and (2) the Company’s board of directors have authorized SMC to respond fully to any inquiries of a successor accountant, if and when a successor accountant is chosen. No other matters surrounding accounting treatment of principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to SMC’s satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their report on the financial statements of the Company for such years.
During fiscal year ended June 30, 2012, and subsequent interim period through the date of resignation, September 4, 2013, there were no other reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.
The Company provided SMC with a copy of this disclosure set forth under this Item 4.01 and requested SMC to furnish a letter addressed to the Securities & Exchange Commission stating whether or not it agrees with the above statements.
A revised copy of this letter from SMC is attached as an exhibit.
