June 29, 2000
United States Securities and Exchange Commission
Division of Corporate Finance
450 5th Street, NW
Washington, D.C. 20549
Attention: Richard Wulff
Re: 1st Miracle Group, Inc., (formerly K-9 Protection, Inc.),
File No. 0-27007 Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
This letter addresses our position regarding the disagreements with 1st Miracle
Group, Inc. management regarding accounting and financial disclosure.
1st Miracle Group, Inc. ("FMG" or "the Company") has filed Form 8-K-A on March
28, 2000, April 3, 2000, April 7, 2000, May 17, 2000 and June 19, 2000, and we
have the following comments regarding these filings with the US Securities and
Exchange Commission ("SEC"). We performed the audits of the financial statements
of 1st Miracle Group, Inc., a Canadian corporation, for the years ended April
30, 1999 and 1998. When we conducted the audits, FMG was not deemed to be a
reporting issuer pursuant to the Securities and Exchange Act of 1934 ("1934
Act"). We did not issue our audit reports on the financial statements for the
years ended April 30, 1999 and 1998 with the intention that they be included in
a publicly filed report to the SEC.
We issued a qualified opinion, an "Except for" on FMG's financial statements
for the fiscal year ended April 30, 1999. Our audit report was qualified for the
following reasons:
1. We were unable to collect sufficient competent evidential matter
regarding FMG's compliance with US and Canadian securities laws
with respect to the sale of its common stock (AU 508.40). The
Company's primary source of cash flows was through the sale of
securities, since it had discontinued its health club operations
and was in the process of developing its entertainment business.
We emphasized these transactions in an explanatory paragraph in
our audit report, and the opinion paragraph specifically referred
to the explanatory paragraph (AU 508.51.52).
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To: United States Securities and Exchange Commission
Date: June 28, 2000
Page 2
Our professional standards, specifically the third standard of
fieldwork, require that the auditor's opinion be based on
sufficient competent evidential matter. If adequate evidence is
not collected, a scope limitation occurs, and accordingly the
auditor should express a qualified opinion or issue a disclaimer
of opinion on the financial statements. In this case, the scope
limitation resulted from circumstances of the engagement rather
than restrictions imposed directly by FMG management. During the
course of our audit we requested information regarding the sale of
securities. The information we collected as of October 4, 1999,
the last day of our fieldwork, was not deemed to be sufficient to
make a determination regarding the compliance with US and Canadian
securities laws. FMG management team informed us that they needed
to file audited financial statements for the fiscal year ended
April 30, 1999 with the Ontario Securities Commission by October
8, 1999. We informed Company's management that we did not have
sufficient evidential matter (e.g., an offering memorandum,
prospectus, or securities registration documents) regarding the
legality of these common stock sales (compliance with state,
provincial and federal securities laws of the US and Canada)
during the fiscal year ended April 30, 1999 and for the period
starting on May 1, 1999 to October 4, 1999.
We made inquiries with the Company's US and Canadian securities
counsel regarding these stock issuances. Specifically, we learned
in the course of our audit that management had issued shares of
its common stock to investors in the US and Canada, without state
or federal registration, without placing any restrictive legends
on the stock certificates and to our knowledge without sufficient
supporting documentation such as disclosure documents and
subscriber information. The Company could not site us to any
specific exemption upon which it relied. FMG management informed
us that securities counsel would need more time to make a proper
assessment regarding these stock sale transactions. In our
judgment these transactions were a significant uncertainty that
had direct affect on the financial statements, and sufficient
competent evidence was lacking to support the reasonableness of
FMG management's accounting estimates.
We encountered this scope limitation because adequate evidential
matter was not available to us as of October 4, 1999 with respect
to the uncertainty, but FMG management assured us that it would
become available to us in the future. In our judgment, FMG
management did not directly cause the scope limitation, thus, we
qualified our audit opinion rather than issuing a disclaiming
opinion. Management informed us that the Company would be working
with its securities counsel to resolve these regulatory issues in
Canada and the US, and that the Company was not in position to
appropriately address these matters with the Ontario Securities
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To: United States Securities and Exchange Commission
Date: June 28, 2000
Page 3
Commission ("OSC") and the SEC as of October 4, 1999.
Additionally, we were informed that we would be provided evidence
regarding the resolution of these matters.
We informed client management, members of the Board of Directors,
and the Company's securities counsel regarding the type of
evidence needed for us to remove the qualification in our audit
report on the financial statements for the fiscal year ended April
30, 1999. As of May 11, 2000, the date we were dismissed as
independent certified public accountants, we were not provided
with adequate supporting documentation, which would result in us
removing the "except for" qualification from our report.
Since we were dismissed as the company's independent accountants,
we were and are unable to perform the necessary steps to modify
our audit report. We were also informed on May 11, 2000, that FMG
management disagrees with our accounting treatment, and it has
engaged new independent accountants to re-audit fiscal year ended
April 30, 1999.
2. On April 5, 2000, we were forwarded a letter from Richard Wulff,
chief of small business division of the SEC, to the Company, which
had accounting comments regarding FMG's financial statements. We
were unaware that our audit report on the financial statements for
the fiscal year ended April 30, 1999 would be included in any
filings with the SEC. We wrote a letter to FMG management and to
its Board of Directors informing them that we had not consented to
the use of our audit report on the financial statements for the
fiscal years ending April 30, 1999 and 1998 in any filings with
the SEC. We further informed management that the Form 8-K-A filed
on April 3, 2000 included our audit opinion but it was revised,
(i.e., the "except for" had been omitted), without our knowledge
or consent. We informed the Company that we did not modify our
audit opinion issued on October 4, 1999 on the financial
statements for the years ended April 30, 1999 and 1998, and
requested that management take appropriate actions to rectify
these errors. Additionally, we informed the Company that the
interim financial statements for the three months ending July 31,
1999, and the six months ending October 31, 1999, and the nine
months ending January 31, 2000 included in the Form 8-K-A filing
were not in conformity with generally accepted accounting
principles in regards to interim financial statements filed with
the SEC. The Company filed a Form 8-K-A on April 7, 2000, which
included our correct audit opinion.
3. On April 6, 2000 we informed FMG management and its Board of
Directors that reporting requirements under Regulation S-X and S-B
are more extensive than the GAAP reporting requirements, and that
the financial statements for the years
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To: United States Securities and Exchange Commission
Date: June 28, 2000
Page 4
ended April 30, 1999 and 1998 were prepared in accordance with
disclosure requirements for a company not subject to the reporting
requirements under the 1934 Act. The Company's common stock was
traded on the NASDAQ: OTC Bulletin Board, but it was not a
reporting issuer.
We have the following comments regarding the Company's internal controls and in
regards to the expansion in the scope of the audit.
1. In August 1999, we informed FMG management that we had to expand
the scope of the audit based on results of our audits tests. The
scope of our audit was expanded primarily in the area of
transactions involving the sale of common stock.
2. We orally informed client management and its Board of Directors of
conditions that represented deficiencies in the design or
operation of the internal control, which could adversely affect
the Company's ability to record, process, summarize, and report
financial data consistently. We informed the Company's management
on several occasions that as the Company's operations increased,
the deficiencies in internal control design would have to be
addressed. FMG management and its Board of Directors informed us
that they would be addressing these internal control issues.
We are aware that the FMG has sold additional shares of its common stock
subsequent to the date of our audit report, October 4, 1999. As of May 11, 2000,
we have not received sufficient evidence regarding the sale of securities. The
sale of securities, subsequent to April 30, 1999, may not necessarily affect the
valuations at the balance sheet date, because these transactions may not be
directly associated with assets or liabilities that existed at the balance sheet
date.
We are unable to be associated with the financial statements of FMG due to the
scope limitation imposed by FMG management, and the disclosures made in the
financial statements of FMG for the years April 30, 1999 and 1998 will need to
be modified.
/S/ BERG & COMPANY, LLP
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Berg & Company, LLP
cc: Tony Cataldo, 1st Miracle Group, Inc.
Cliff Brune, 1st Miracle Group, Inc.
V.T. Franzke, 1st Miracle Group, Inc.
Alan Goldberger, Goldstein and Morris, CPAs
Edward Loftus, SEC
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