UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
MARCH 14, 2000
K-9 PROTECTION, INC.
(Exact name of registrant as specified in its charter)
Nevada 000-27007 88-047481
(State of (Commission (I.R.S. Employer
organization) File Number) Identification No.)
8730 W. Sunset Blvd., Penthouse East, Los Angeles, CA 90069
(Address of principal executive offices)
Registrant's telephone number, including area code (310) 360-7490
Registrant's Attorney: Daniel G. Chapman, Esq., 2080 E. Flamingo
Rd., Suite 112, Las Vegas, (702) 650-5660
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 14, 2000, the Company was acquired through a
reorganization agreement with First Miracle Group, Inc. The Board
of Directors approved the purchase of the Company by First
Miracle Group, Inc.
ITEM 5. OTHER EVENTS
As of March 14, 2000, the Company will change its corporate
address to 8730 W. Sunset Blvd., Penthouse East, Los Angeles, CA
90069.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial Statements of Business Acquired
Unaudited Financials for the nine period ended January 31,
1999
Consolidated Balance Sheet
January 31, 1999
Canadian Dollars
ASSETS
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Current Assets:
Cash $
8,095
Accounts receivable
289,156
Capitalized film production
costs 590,097
Accounts receivable - other
302,340
Inventory
305,055
Deferred taxes - Current
858,974
Total Current Assets
2,353,717
Other Assets:
Investment in film series
7,048,310
Amortization
(489,135)
Total Other Assets
6,559,175
Total Assets $
8,912,892
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Consolidated Balance Sheet (continued)
January 31, 1999
Canadian Dollars
LIABILITIES AND SHAREHOLDERS' EQUITY
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Current Liabilities:
Other accrued payable $
356,365
Amounts due shareholders
120,026
Notes payable
712,177
Income taxes payable
28,382
Reserve for discontinued operations
95,922
Total Current Liabilities
1,312,872
Long-Term Liabilities:
Convertible Promissory Notes
357,925
Total long-term Liabilities
357,925
Minority interest
1,238,000
Shareholders' Equity:
Common stock, unlimited shares
authorized,
109,815,869 issued and outstanding
16,754,73
4
Accumulated deficit
(10,240,3
79)
Currency translation loss
(313,401)
6,200,954
Less subscriptions receivable
(196,859)
Total Shareholders' Equity
6,004,095
Total Liabilities & Shareholders' $
Equity 8,912,892
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1st Miracle Group, Inc.
Consolidated Statement of Operations
For the Three, Six and Nine Months Ended January 31, 1999
Canadian Dollars
Continuing Operations
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Three Six months Nine months
months ended ended
ended
July 31, October January 31,
1998 31, 1998 1999
Revenues:
Sales $ $ $
- - -
Returns And Allowances
- - -
- - -
Operating Expenses:
Occupancy 41474
- 41,153
Personnel 169174
- 167,863
General and administrative 455438
231,472 357,121
Marketing 314950
- 312,510
Depreciation and 253747
amortization 83,927 167,854
Total Operating Expenses
315,399 1,046,50 1,234,783
1
Loss from Operations
(315,399 (1,046,5 (1,234,78
) 01) 3)
Other Income (Expense):
Other income
890 890 897
Interest finance charges
(11,990) (11,990) (32,127)
Total Other Income
(Expense) (11,100) (11,100) (31,230)
Income (Loss) Before
Taxes (326,499 (1,057,6 (1,266,01
) 01) 3)
Income Taxes
- - -
Net Loss from Operations
(326,499 (1,057,6 (1,266,01
) 01) 3)
Net Loss $ $ $
(326,499 (1,057,6 (1,266,01
) 01) 3)
Basic and Fully Diluted
Loss Per
Share From Operations $ $ $
(0.003) (0.011) (0.011)
Basic and Fully Diluted $ $ $
Loss Per Share (0.003) (0.011) (0.012)
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1st Miracle Group, Inc.
Consolidated Statement of Operations (continued)
For the Three, Six and Nine Months Ended January 31, 1999
Canadian Dollars
Discontinued Operations
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Three Six months Nine months
months ended ended
ended
July 31, October January 31,
1998 31, 1998 1999
Revenues:
Memberships $ $ $
829,731 1,690,300 1,690,300
Services
- 84,168 84,168
829,731 1,774,468 1,774,468
Operating Expenses:
Occupancy
469,319 1,065,988 1,065,988
Personnel
380,973 1,159,673 1,159,673
General and
administrative 570,745 958,007 958,007
Depreciation and
amortization 13,189 182,841 182,841
Total Operating
Expenses 1,434,226 3,366,509 3,366,509
Loss from Operations
(604,495) (1,592,041 (1,592,04
) 1)
Other Income (Expense):
Interest finance
charges (33,121) (100,713) (100,713)
Other income
- 11,113 11,113
Gain on sale of 1,858,752 1,858,752
athletic club assets 1,858,752
Loss on note payable (1,053,586 (1,053,58
conversion (1,053,58 ) 6)
6)
Total Other Income
(Expense) 772,045 715,566 715,566
Income (Loss) Before Taxes
167,550 (876,475) (876,475)
Income Taxes - Deferred
(92,850) (92,850) (92,850)
Net Income (Loss) $ $ $
74,700 (969,325) (969,325)
Basic and Fully Diluted
Loss Per
Share From Operations $ $ $
(0.006) (0.016) (0.014)
Basic and Fully Diluted
Income (Loss)
Per Share $ $ $
0.001 (0.010) (0.009)
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1st Miracle Group, Inc.
Consolidated Statement of Cash Flows
For the Nine Months Ended January 31, 1999
Canadian Dollars
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Operating Activities:
Net $
loss (2,235,338)
Adjustments to reconcile net income
to net cash provided by operating
activi
ties:
Depreciation and amortization
253,747
(Increase) decrease in:
Membership contracts receivable-
athletic clubs sale 1,137,065
Security deposits-athletic clubs sale
161,073
Deferred tax assets-athletic clubs
sales 1,138,086
Accounts receivable
293,255
Inventory
(16,144)
Account receivable-other, athletic
clubs sale (302,340)
2,410,995
Increase (decrease) in:
Accounts payable
(337,508)
Accrued liabilities
250,690
Change in income tax payable
1,502
Deferred revenue - current
(2,058,025)
Leases payable - current, on
disposition of athletic clubs (266,363)
Deferred tax liabilities - long-term
(1,094,844)
(3,504,548)
Net cash used by operating
activities (3,075,144)
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1st Miracle Group, Inc.
Consolidated Statement of Cash Flows, continued
For the Nine Months Ended January 31, 1998
Canadian Dollars
January 31, 1999
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Investing Activities:
Additions to investment in $
film series (4,521,780)
Disposition of assets on
sale of athletic clubs 2,405,521
Goodwill disposition on
sale of athletic clubs 719,169
Disposition of liabilities
on sale of athletic clubs (487,945)
Net cash used by
investing (1,885,035)
activities
Financing Activities:
Change in shareholder
loans 1,047
Proceeds from promissory
notes payables 439,541
Sale of stock, net
4,455,785
Currency translation loss
(1,054)
Net cash provided
by financing 4,895,319
activities
Net increase (decrease) in
cash (64,860)
Cash, beginning
72,955
Cash, ending $
8,095
Supplemental Cash Flow
Disclosure:
Conversion of $
Promissory Notes to 275,000
Common Stock
Cash paid during the
year for interest 112,703
</TABLE>
Audited Financials for the years ended April 30, 1999 and 1998
To the Board of Directors and Shareholders
of 1st Miracle Group, Inc.
We have audited the accompanying balance sheets of 1st Miracle
Group, Inc., a Canadian Corporation, as of April 30, 1999 and
1998, and the related statements of operations, changes in
shareholders' equity, and cash flows for each of the fiscal years
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes 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.
As discussed in Note 7 to the financial statements, the Company
has become aware that it should have registered certain of its
securities in accordance with Securities and Exchange Commission
requirements in order to have these shares freely traded in the
United State. Also, the Company has issued shares relying upon an
Ontario Securities Commission exemption from prospectus
requirements permitting non-Ontario residents to purchase shares
of the Company without the filing of a prospectus ("Offshore
Exemption"). While this exemption was available to the Company,
there is no certainty that the Company complied with the
exemption in all respects. The ultimate outcome of these matters
cannot be determined presently. Accordingly, no provision for any
liability that may result from the resolution of this issue has
been made in the accompanying financial statements.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of 1st Miracle Group, Inc. as of April 30, 1999 and 1998,
and the results of its operations and its cash flows for each of
the years in the two-year period in conformity with generally
accepted accounting principles in the United States. The differences
between United States and Canadian generally accepted accounting
principles are noted in footnote 15.
Berg & Co.
San Francisco, CA
October 5, 1999
//Berg & Company//
1st Miracle Group, Inc.
Consolidated Balance Sheets
April 30, 1999 and 1998
Canadian Dollars
ASSETS
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1999 1998
Current Assets:
Cash $ 1,094,419 $ 72,955
Membership contracts receivable -
1,137,065
Capitalized film production costs 2,646,173
590,097
Accounts receivable 507,605
582,411
Inventory -
288,911
Prepaid taxes 1,628 -
Deferred taxes - Current -
255,234
Total Current Assets 4,249,825
2,926,673
Property and Equipment:
Equipment -
2,652,024
Leasehold improvements -
1,586,481
Furniture & fixtures -
467,187
-
4,705,692
Less accumulated depreciation and - (2,300,171
amortization )
-
Total Property and Equipment 2,405,521
Other Assets:
Deferred income tax, non-current -
1,741,826
Deposits -
161,073
Goodwill -
719,169
Investment in film series 146,100 1,288,530
Accumulated amortization -
(235,388)
Total Other Assets 146,100 3,675,210
Total Assets $ 4,395,925 $ 9,007,404
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
1st Miracle Group, Inc.
Consolidated Balance Sheets (continued)
April 30, 1999 and 1998
Canadian Dollars
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
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1999 1998
Current Liabilities:
Accounts payable $ - $
344,300
Other accrued payable 200,847
105,676
Amounts due shareholders 100,239
118,979
Notes payable -
48,357
Convertible Promissory Notes 146,100
204,017
Leases payable -
266,363
Deferred income - 2,058,02
5
Income taxes payable 14,026
26,880
Reserve for discontinued operations 97,888
95,922
Total Current Liabilities 559,100 3,268,51
9
Long-Term Liabilities:
Notes payable -
508,205
Convertible Promissory Notes 365,250
351,135
Deferred tax liabilities - 1,094,84
4
Total Long-Term Liabilities 365,250 1,954,18
4
Shareholders' Equity:
Common stock, no stated par value,
unlimited shares
authorized, 152,741,721 and
71,263,403 shares issued 19,366,97 12,298,9
and outstanding 6 48
Accumulated deficit (15,908,6
95) (8,005,0
41)
Currency translation loss 13,294
(312,347)
3,471,575
3,981,56
0
Less subscriptions receivable -
(196,859)
Total Shareholders' Equity (Deficit) 3,471,575
3,784,70
1
Total Liabilities & Shareholders' $ 4,395,925 $ 9,007,40
Equity (Deficit) 4
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
1st Miracle Group, Inc.
Consolidated Statements of Operations
April 30, 1999 and 1998
Canadian Dollars
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Year ended Year ended
April 30, April 30,
1999 1998
Continuing Operations:
Revenues:
$ 344,881 $ 3,589,19
Sales 4
Net sales (returns) (529,490) (229,690
)
(184,609) 3,359,50
4
Production expenses (2,862,99 (410,828
9) )
(3,047,60 2,948,6
8) 76
Operating Expenses:
Occupancy 847
36,448
Personnel 173,579
66,036
General and administrative 1,051,58
0 2,809,74
0
Bank Charges 4,162
537
Depreciation and amortization 253,176
165,240
Total Operating Expenses 1,483,34
4 3,078,00
1
Loss from Operations (4,530,95
2) (129,325
)
Other Income 13,171 -
Interest expense (111,978) -
Reserve for contingency (86,651) -
Currency translation gain (loss) 325,641
(248,583
)
140,183 (248,583
)
Income (Loss) Before Taxes (4,390,76
9) (377,908
)
Income Taxes 29,050
68,023
Loss after income taxes from (4,361,71
Operations 9) (309,885
)
Extraordinary Loss, Net of Tax Benefit - (898,724
of $191,199 )
Net Loss from continuing $ (4,361,71 $ (1,208,6
operations 9) 09)
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(continued)
1st Miracle Group, Inc.
Consolidated Statements of Operations (continued)
April 30, 1999 and 1998
Canadian Dollars
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Year ended Year ended
April 30, April 30,
1999 1998
Discontinued Operations:
Revenues:
Memberships $ 1,684,136 $
3,495,033
Services 84,685
288,639
1,768,821
3,783,672
Operating Expenses:
Occupancy 1,907,393
1,812,319
Personnel 2,435,633
2,535,214
General and administrative 2,230,624
782,988
Depreciation and amortization 183,854
588,924
Total Operating Expenses 6,757,504
5,719,445
Loss from Operations (4,988,683)
(1,935,773)
Other Income (Expense):
Loss on sale of Garden Racquetball (169,771) -
and
Athletic Club, Inc.
Gain on sale of health club assets 2,245,222
Interest finance charges (101,270)
(94,415)
Other income 16,654
(200,667)
Currency translation gain (loss) -
-
Total Other Income (Expense) 1,990,835
(295,082)
Income (Loss) Before Taxes (2,997,848)
(2,230,855
)
Income Taxes (93,365)
(557,984)
Reserve For Loss Contingencies On
Discontinued (125,081) (94,104)
Operations
Net Loss from Discontinued $ (3,216,294) $
Operations (2,882,943
)
Net Loss $ (7,578,013) $ (4,091,552
)
Basic and Fully Diluted Loss Per $ (0.074) $ (0.067)
Share
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1st Miracle Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
April 30, 1999 and 1998
Canadian Dollars
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Total
Currency
Capital Shareholder
Accumulate Translat s'
d ion
Stock Deficit Gain Equity
(Loss)
Balance, May 1, $ $ $ $
1997 3,130,92 (4,162,0 (63,764 (1,094,916
2 74) ) )
Shares issued
9,168,02 - - 9,168,026
6
Subscriptions
Receivable (196,859 - - (196,859)
)
Net gain (loss)
- (3,842,9 (248,58 (4,091,550
67) 3) )
Balance, April 30, $ $ $ $
1998 12,102,0 (8,005,0 (312,34 3,784,701
89 41) 7)
Balance, May 1, $12,102,0 $(8,005,0 $(312,34 $ 3,784,701
1998 89 41) 7)
Shares issued 7,264,88 - - 7,264,887
7
Net gain (loss) - (7,903,6 325,641 (7,578,013
54) )
Balance, April 30, $19,366,9 $(15,908, $ 13,294 $ 3,471,575
1999 76 695)
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
1st Miracle Group, Inc.
Consolidated Statements of Cash Flows
April 30, 1999 and 1998
Canadian Dollars
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1999 1998
Operating Activities:
Net loss $ (7,903,6 $(3,842,9
54) 67)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 437,030
828,111
(Increase) decrease in:
Membership contracts receivable 1,137,06
5 (424,492
)
Security deposits 161,073
(19,579)
Deferred tax assets 1,997,06
0 (590,337
)
Accounts receivable 74,806
(582,411
)
Inventory 288,911
(288,911
)
Capitalized film production (2,056,0 (590,097
costs 76) )
Prepaid taxes (1,628) -
1,601,21 (2,495,8
1 27)
Increase (decrease) in:
Accounts payable (337,508
) 67,215
Accrued liabilities 95,172
(220,719
)
Reserve for discontinued 1,966
operations 95,922
Income tax payable (12,854)
26,880
Deferred revenue - current (2,058,0
25) -
Leases payable - current -
38,860
Deferred revenue - long-term -
499,832
Deferred tax liabilities - long- (1,094,8
term 44) 851,664
(3,406,0
93) 1,359,65
4
Net cash used by operating (9,271,5 (4,151,0
activities 06) 29)
Investing Activities:
Changes to leasehold improvements 1,586,48
1 (658,951
)
Sale (purchase) of equipment,
furniture and
fixtures 146,622 (1,407,7
05)
Goodwill 719,169
(719,169
)
Minority interest (1,238,0 -
00)
Investment in film series 2,380,43 (1,288,5
0 30)
Net cash provided (used) by 3,594,70 (4,074,3
investing activities 2 55)
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(continued)
1st Miracle Group, Inc.
Consolidated Statements of Cash Flows (continued)
April 30, 1999 and 1998
Canadian Dollars
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Financing Activities:
Repayments to shareholder advances (18,740)
(80,388)
Repayments of notes payables (57,917)
(Debentures) (1,086,6
17)
Proceeds from (payments on) (549,239
promissory notes ) 735,731
Sale of stock, net 7,264,88
6 8,971,16
8
Leases payable (266,363 -
)
Currency translation gain (loss) 325,641
(248,583
)
Net cash provided by financing 6,698,26
activities 8 8,291,31
1
Net increase (decrease) in cash 1,021,46
4 65,927
Cash, beginning 72,955
7,028
Cash, ending $ 1,094,41 $
9 72,955
Supplemental Cash Flow
Disclosure:
Conversion of Promissory Notes $ 1,176,00 $ 810,300
to Common Stock 0
Cash paid during the year for 134,645
interest 94,415
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1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
1. Summary of Significant Accounting Policies
A. General Description of Business
1ST Miracle Group, Inc., (FMG), incorporated in Ontario,
Canada, is a holding company that wholly owns 1140066
Ontario, Ltd.; Magic Entertainment, Inc.; Miracle Pictures,
Inc.; Speedway Junkie, Inc.; Escape From Grizzly Mountain,
Inc.; Delta Force, Inc.; After Sex, Inc.; and Strike on
Osyrak, Inc.
FMG produces movies and television entertainment. The
Company has reached strategic alliances with other
production companies to produce films. The Company has
acquired numerous screen rights to novels and original
screenplays. During the year ended April 30, 1999, FMG
concluded the production of two motion pictures.
1140066 Ontario, Ltd. is the holding company for California
Athletic Clubs, Inc., a Delaware corporation. California
Athletic Clubs, Inc., through its four wholly owned
subsidiaries, operated six fitness centers in the state of
California. FMG discontinued operating all of the fitness
centers as of October 22, 1998 (See
Note 8).
B. Basis of Presentation and Organization
These financial statements are the financial statements of
1st Miracle Group, Inc., (the Company), a publicly traded
company listed and traded on the Canadian Dealing Network
and on the NASDAQ Over the Counter Bulletin Board. During
the year ended April 30, 1999, the Company changed its focus
from operating fitness centers in Northern California to
producing motion pictures and television series.
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All inter-
company transactions have been eliminated. Certain
reclassifications have been made to the 1998 financial
statements in order for them to conform to the 1999
presentation.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
1. Summary of Significant Accounting Policies (continued)
C. Cash and Cash Equivalents
For purposes of cash flows, the Company considers all highly
liquid investments purchased with a maturity of three months
or less to be cash equivalents.
D. Property and Equipment
Property and equipment are recorded at cost and are
depreciated over the estimated useful lives of the assets
using the straight-line method. The cost and related
accumulated depreciation of all property and equipment
retired or otherwise disposed of are removed from the
accounts. Any gain or loss is recognized in the current
year. Various accelerated methods are used for tax
purposes.
Maintenance and repair costs are charged to expense as
incurred, and renewals and improvements that extend the
useful lives of the assets are added to the property and
equipment.
Leasehold improvements are amortized over the term of the
lease.
E. Income Taxes -- United States
The Company accounts for its income taxes using the
Financial Accounting Standards Board Statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires the establishment of a deferred tax asset or
liability for the recognition of future deductible or
taxable amounts and operating loss and tax credit
carryforwards. The Company files its federal and state tax
returns on a cash basis. Deferred tax expense or benefit is
recognized as a result of timing differences between the
recognition of assets and liabilities for book and tax
purposes during the year.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
1. Summary of Significant Accounting Policies (continued)
E. Income Taxes -- United States (continued)
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to
be recovered or settled. Deferred tax assets are recognized
for deductible temporary differences and operating loss and
tax credit carryforwards, and then a valuation allowance is
established to reduce that deferred tax asset if it is "more
likely than not" that the related tax benefits will not be
realized.
F. Deferred Revenue
The Company sold club memberships to the general public
under contracts with terms of one or two years. Advance
payments on membership contracts are amortized over the
terms of the memberships.
G. Membership Contracts Receivable
Membership contracts not paid in advance were recorded as
accounts receivable, and the revenue was deferred until
earned.
H. Capitalized Film Costs
The Company capitalizes film costs and amortizes them using
a projection of anticipated revenues. Any subsequent change
in the revenue estimate is reflected as an adjustment to
current earnings.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
1. Summary of Significant Accounting Policies (continued)
I. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles 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. Actual results
could differ from those estimates.
Management made estimates that affect reserves for
discontinued operations, projected film revenue, deferred
income, deferred income tax assets and reserve for
discontinued operations. Any adjustments applied to
estimates are recognized in the year in which such
adjustments are determined.
J. Earnings per Share
The Company follows SFAS No. 128, "Earnings per Share,"
which establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with
publicly held common stock or potential common stock. SFAS
No. 128 replaces the presentation of primary EPS with "basic
EPS," and fully diluted EPS with "diluted EPS." It also
requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Basic EPS is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. The
dilutive EPS calculation gives effect to all dilutive
potential common shares, such as stock options or warrants,
that were outstanding during the period. Shares issued
during the period and shares repurchased by the Company are
weighted for the portion of the period that they were
outstanding for both basic and diluted EPS calculations.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
1. Summary of Significant Accounting Policies (continued)
K. Segments of an Enterprise and Related Information
The Company follows SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No.
131 requires that a public business enterprise report
financial and descriptive information about its reportable
operating segments on the basis that is used internally for
evaluating segment performance and deciding how to allocate
resources to segments. The Company has reported its health
and fitness center operations as discontinued operations,
and the results of its entertainment operations as
continuing operations.
Accounting by Producers and Distributors of Film
In October 1998, AcSEC issued a proposed SOP that would
result in the rescission of FASB Statement No. 53, Financial
Reporting by Producers and Distributors of Motion Picture
Films. An entity that previously was subject to the
requirements of FASB Statement 53 would follow the guidance
in a proposed AICPA Statement of Position, Accounting by
Producers and Distributors of Film. The proposed Statement
would be effective for financial statements for fiscal years
beginning after December 15, 1999. Earlier application of
FASB's standard would be permitted only upon early adoption
of the proposed Statement of Position when issued as final.
The SEC's proposal would require film companies to write off
marketing and advertising costs, typically in the first
three months following a film's release, or as incurred for
films released on television or home video. Moreover, the
proposed rule would require film companies to spread out
revenues from the sale of movie syndication rights to
television over the syndication period. In addition, the
proposal would limit the amortization period for film
production costs to ten years. The Company intends to adopt
the proposed guidelines when they are issued as final.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
2. Deferred Income Taxes
The net deferred tax asset (liability) included in the
accompanying balance sheets as of April 30, 1999 and 1998
are as follows:
<TABLE>
<S> <C> < <C>
C
>
1999 1998
Deferred tax asset, $ - $ 255,234
current
Deferred tax asset, non- - 1,741,82
current 6
Deferred tax liability, - (1,094,8
non-current 44)
$ - $ 902,216
</TABLE>
The provision for income taxes is comprised of the
following:
<TABLE>
<S> <C> < <C>
C
>
1999 1998
Current $ 13,978 $ 26,880
Expense
Deferred 875,33 303,394
Expense 6
$ 889,31 $ 330,274
4
</TABLE>
The Company has no significant book tax differences that
would give a rise to deferred taxes. The Company has loss
carryforwards of approximately $4,600,000 from continuing
operations, which may be used to offset future United States
income taxes and which begin to expire in 2010.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
2. Deferred Income Taxes (continued)
Due to the uncertainty surrounding the realization of
deferred tax assets, the Company has recorded a valuation
allowance against its net deferred tax asset.
<TABLE>
<S> <C>
1999
Net operating loss $ 4,600,000
carryforwards
Valuation allowance (4,600,00
0)
Net deferred tax asset $ --
</TABLE>
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
3. Convertible Promissory Notes
<T
ab
le
>
<S [C] [C] < [C]
> C
>
1999 1998
a Promissory note payable (US
) $75,000), due on demand with $ -- $ 107,378
interest at 7.5% per quarter
convertible at $0.20 per
share
b) Promissory note payable (US
$40,000), due on demand with -- 57,268
interest at 7.5% per quarter
convertible at $0.20 per
share
c) Promissory note payable (US
$25,000), due on demand with -- 35,792
interest at 7.5% per quarter
convertible at $0.20 per
share
d) Promissory note payable (US
$2,500), due on demand with -- 3,579
interest at 7.5% per quarter
convertible at $0.20 per
share
e Promissory note payable (US
) $250,000), due on demand, 365,250 351,135
including interest at 10%
f) Promissory note payable (US
$50,000), due August 2001, 73,050 --
including interest at 7.5%,
the conversion price is
$0.04 per share
Promissory note payable (US
g) $50,000), due on demand, 73,050 --
including interest at 7.5%,
the conversion price is
$0.04 per share
$ 511,350 $ 555,152
Current promissory notes (146,100 (204,01
) 7)
Balance long term $ 365,250 $ 351,135
<
/T
ab
le
>
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
3. Convertible Promissory Notes (continued)
Annual maturities of promissory notes for the five years
ending April 30 are as follows:
<TABLE>
<S> < <C>
C
>
1999 $ --
2000 --
2001 365,250
2002 --
$ 365,250
</TABLE>
The promissory note (note `e') can be converted into common
shares of the Company at a price equal to the US$ equivalent
of 65% of the 5 day weighted average of the common shares,
provided that the conversion price shall not be less than
the US$ equivalent of C$0.75 or more than the US$ equivalent
of C$1.25.
These promissory notes can be secured by general security
agreements, registered against the Company for a 3-year
period by the Company's counsel on the Purchaser's behalf in
the Province of Ontario. Renewals of registration shall be
the Purchaser's sole responsibility.
The promissory notes (notes `f' and `g') were converted into
common stock by each of the note holders subsequent to year-
end.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
4. Common Stock
Common stock transactions for the years ended April 30, 1999
and 1998 are as follows:
<TABLE>
<S> <C> < <C>
C
>
1999 1998
Common Stock Common Stock
Number Number
of of Amount
Issued Amount Issued
Shares Shares
Balance, 71,263,4 $ 12,298,9 22,561,1 $ 3,130,92
beginning 03 48 49 2
Issuance for
acquisitions -- -- 10,734,0 1,970,00
00 0
Sale of new 58,421,3 6,209,14 32,942,9 6,387,72
stock 87 1 54 6
Shares issued as
payment for 3,702,00 304,000 -- --
expenses 0
Shares issued as
payment of 478,000 78,602 -- --
interest
expenses
Shares
reacquired and (2,100,0 (1,241,8 -- --
retired 00) 50)
Conversion of
promissory notes 20,976,9 1,718,13 5,025,30 810,300
31 5 0
Balance, ending 152,741, $ 19,366,9 71,263,4 $ 12,298,9
721 76 03 48
</TABLE>
The Company has outstanding warrants issued to some of its
shareholders, which are convertible into 14,758,866 shares
of common stock. The warrants are not dilutive based on
their exercise price, and they expire in May 1999.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
5. Common Stock Transactions
During Fiscal 1999, the Company's Board of Directors
authorized the cancellation of treasury stock (2,100,000
shares) acquired through the sale of its wholly owned
subsidiary, Garden Racquetball and Athletic Club, Inc.
(GRAC).
6. Shares Registration and Securities Matters
The Company is registered in Canada, and its shares are
traded on the Canadian Dealing Network. Shares have been
issued to United States residents that, in the view of the
Company, are exempt from Ontario prospectus requirements in
reliance on Ontario Securities Commission Interpretation No.
1, which permits shares to be issued to non-Ontario
residents exempt from regulation. The Company began trading
on the Over the Counter Bulletin Board Trading Market System
(OTCBB) in the United States during 1998. Recent changes in
the listing requirements for the OTCBB require that all
listed companies become fully reporting companies under
Security and Exchange Commission (SEC) rules and regulations
in order to maintain their OTCBB listing.
New Management of the Company has become aware that it
should have registered certain of its securities and
security transactions in accordance with U.S. Securities law
and SEC requirements in order to have the securities sold to
U.S. residents freely traded on the OTCBB and to comply with
U.S. Securities laws. Its failure to do so could result in
various penalties against the Company. Additionally, while
it is the Company's position that the shares sold to U.S.
residents complied with Canadian law, shareholders may
assert claims under U.S. law for damages. The Company is in
the process of correcting the matter of the registration of
its shares by filing the appropriate registration statement.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
6. Shares Registration and Securities Matters (continued)
The Company has also become aware that it may not have filed
timely press releases and material change reports with the
Ontario Securities Commission and may have inadvertently
failed to issue press releases relating to material changes.
The Company is currently preparing the necessary filings,
which the Company expects to file shortly to ensure that the
Company is in compliance with Ontario Securities law.
Shares may have been issued without the filing of a
prospectus in reliance on a valid exemption under the
Ontario Securities Act or in reliance on Ontario Securities
Commission Interpretation No. 1. If it is determined that
any of these issuances were not properly made, the Company
could be in violation of Ontario Securities law and subject
to sanctions by the Ontario Securities Commission and/or
civil action by its shareholders. In addition, in making
its share issuances, the Company may not have complied with
the rules of the CDN. Failure to comply with these rules
could result in the Company's quotation agreement being
revoked and subject the Company to administrative action by
the Commission.
The disposition of these regulatory issues is uncertain at
this time, and there could be a material impact on the
operations of the Company.
7. Extraordinary Loss
On December 15, 1998, the Company formed a wholly owned
subsidiary to develop motion pictures and television shows.
This subsidiary company was provided $1,089,923 in working
capital to finish several projects that were to be owned by
1st Miracle Group. These funds were misappropriated.
However, the individuals involved claimed that these
payments offset amounts due them on earlier projects that
did not involve 1st Miracle. The Company had initiated
actions to try to recover these funds. The loss of the
$1,089,923 is presented as an extraordinary item in the 1998
financial statements, net of the tax benefit of $191,199.
During 1999, the management of the Company decided to
discontinue its lawsuit to recover these funds. The legal
costs involved with pursuing the lawsuit were deemed onerous
and not an effective use of working capital.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
8. Discontinued Operations
The Company's management and its Board of Directors decided
to discontinue its operations in the Health Club business in
July 1998. To implement this decision, the Company
concluded the following transactions:
A. On August 1, 1998, the Company abandoned its
operations (including its facilities lease) in Hayward
and negotiated with the landlord to resolve its
liabilities under this lease. The Company sold the
assets of the Hayward club and used the proceeds to
settle liabilities of the Hayward Club to the extent of
available funds from the sale.
B. In October 1998, and effective as of October 20,
1998, the Company sold certain assets, (furniture,
equipment, exercise equipment, pro-shop and nutritional
product inventory, prepaid expenses, all membership
lists, accounts receivable, all leasehold rights, and
the exercise equipment located in the Fremont,
CALIFORNIA warehouse) to an unrelated corporation for
$3,164,700 (US $2,100,000). The buyer assumed certain
liabilities of California Athletic Club, Inc.,
specifically the obligations under the Sunnyvale Lease,
the San Carlos lease, the San Carlos sublease, and the
obligations to the members arising from membership
contracts at the San Carlos and Sunnyvale club
locations.
C. During August 1998, the board of directors of California
Athletic Clubs, Inc. approved the sale of 100% of its holdings in
Garden Racquetball and Athletic Club, Inc., (GRAC) to the
previous owner, who was a board member of California Athletic
Clubs, Inc. This sale was in exchange for the stock issued as
part of the original acquisition of these clubs and in lieu of
payment on a $1,280,950 (US $850,000) promissory note due the
previous owner, and included the assumption of remaining
outstanding debts and obligations of GRAC. The Company was
relieved of its obligations under facilities and equipment leases
related to the GRAC clubs.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
8. Discontinued Operations (continued)
D. On September 30, 1998, the Company completed the
sale of its 100% interest in Garden Racquetball and
Athletic Club, Inc. The result of this transaction
caused the Company to record a loss on disposition of
$168,836 (US$112,655), primarily due to the write-off
goodwill.
In consideration of the issues listed above, the Company
continues to maintain a reserve for potential loss
contingencies from discontinued operations of $219,150 (US$
150,000).
Assets from discontinued operations are as follows:
<TABLE>
<S> < <C> < < <C>
C C C
> > >
1999 1998
Assets
$ - $ 1,137,0
Membership Contract Receivable 65
Deferred Taxes - Current - 255,234
Property, Plant and Equipment - 2,405,5
21
Deferred Taxes - Non-current - 1,741,8
26
Deposits - 161,073
Total Assets $ - $ 5,700,7
19
Liabilities
Accounts Payable $ - $ 344,300
Other Accounts Payable - 105,676
Leases Payable - 266,363
Deferred Income - 2,058,0
25
Deferred Tax Liabilities - 1,094,8
44
Total Liabilities $ - $ 3,869,2
08
</TABLE>
9. Investment in Film Series
The Company acquired a 100% interest in the film, "Escape to
Grizzly Mountain," and the rights to produce more films with the
same characters from Mega Communication, Inc. (Mega). Mega
maintained a contingent interest in
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
49% of the net revenue produced by any of the films produced
in the series. A second film in the series was completed,
financed by Tomorrow Films. The Company is in current
negotiations for the creation of a television show featuring
the same characters.
The acquisition was made in exchange for 600,000 shares of
common stock at a value of $1,275,300 (US$ 900,000).
$168,435 of these costs was amortized during fiscal 1998.
Subsequent to year-end, the Company acquired the 49%
contingent interest originally held by Mega from the
Company's prior Chief Executive Officer and a Director of
one of its wholly owned subsidiaries at a cost of $100,000.
The Company has chosen to write down the carry value of its
investment in the film series to $100,000, an amount equal
to the subsequent purchase price of the 49% contingent
interest once held by Mega. Management believes that this
better reflects the current value of this investment.
A. Deferred Production Costs
<TABLE>
< <C>
<S> C
>
$ 582,411
Balance 4/30/98
Expensed during (582,411)
year
Capitalized during 2,641,061
year
Balance 4/30/99 $ 2,641,061
</TABLE>
Of the capitalized costs listed above, $2,491,420 relates to
"Speedway Junkie," which is currently in release in foreign
and domestic markets.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
10. Deferred Production Costs (continued)
During the year, an additional $1,526,615 was charged to
film production expense, noted as follows:
<TABLE>
<S> < <C> <C>
c
>
Delta Force $ 1,170,4 Rights to "Delta Force" were
33 released as part of a
separation agreement with a
prior Director of the
Company
Escape to $ 598,129 Expense series acquisition
Grizzly cost
Mountain
Other $ 512,026 Costs of scripts and other
Development development costs directly
written off
</TABLE>
11. Related Party Transactions
The following transactions occurred between the Company and
certain related parties:
A. The net of advances due shareholders and officers consists
of loans made by the Company's shareholders. The amounts are due
on demand and do not bear interest. The amounts due shareholders
in 1999 and 1998 were $100,239 and $118,979, respectively.
B. Advances from related parties that were converted to common
stock during the year ended April 30, 1999, were as follows:
<TABLE>
<S> <C> <
C <C>
>
Shares
Amount
Note payable to 13,516, $ 861,990
shareholders 931
Note payable to 3,200,0 233,760
Related Parties 00
16,716, $ 1,095,75
931 0
</TABLE>
C. On November 6, 1999, the Company issued 1,250,000 shares of
common stock to a board member of a subsidiary for past services
and for a full discharge of amounts due to a board member.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
11. Related Party Transactions (continued)
D. During 1999, the Company sold to a board member of a
subsidiary and his immediate family 16,017,427 shares of
common stock for $956,955 (US$ 655,000).
E. During Fiscal 1999, the Company issued 1,250,000 shares
of unregistered common stock to a board member of a
subsidiary of the Company's for compensation and payment of
expenses. These issuances were valued based upon a Board of
Directors designation as of the date of the transaction.
This transaction was cumulatively valued at approximately
$175,320 (US $120,000) and is reflected as a component of
general and administrative expenses in the accompanying
consolidated statement of operations.
12. Commitments and Contingencies
The Company is periodically involved in legal actions and
claims that arise as a result of events that occur in the
normal course of operations.
a. ABM Janitorial Services has made a claim in the amount of
$36,186 (US $24,768) against California Athletic Clubs, Inc. for
work performed in the California Athletic Club facilities in San
Carlos, Sunnyvale, and Hayward. The work was performed in 1998.
b. On August 20, 1999, the arbitrator awarded T.E.C.
Professional Fitness Alliance, the plaintiff, the sum of $86,930
(US $59,500). The award and judgement are only against California
Athletic Clubs, Inc. Additionally, fees of $6,574 (US $4,500) are
due the arbitrator.
c. On May 19, 1999, a former employee of California Athletic
Clubs has filed a racial discrimination, harassment and
retaliation in violation of the California Fair Employment and
Housing Act against the Company. The attorneys for the Company
determined that it is too preliminary a stage to make a detailed
evaluation form the standpoint of predicting liability. The
Company's management believes that there is minimal, if any,
exposure.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
12. Commitments and Contingencies (continued)
d. On August 18, 1999, an action was commenced by Belfair
International, Ltd., a corporation, and Menahem Golan, an
individual against the Company. The Action is pending before the
Superior Court of the State of California for the County of Los
Angeles. The suit alleges breach of contract of employment,
wrongful termination, breach of the implied covenant of good
faith and fair dealing, fraud, various torts, and a number of
other causes of action. The Company's management feels that the
lawsuit is baseless, and intend to vigorously defend the lawsuit.
The ultimate resolution of these actions is not expected to
have a material adverse effect on the Company's financial
position.
13. Going Concern Uncertainties
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going
concern. However, the Company has experienced operating
losses since 1994. During 1999, an ownership change
occurred along with the establishment of a new management
team. Management has reduced operating expenses and raised
additional capital, and is considering expansion
opportunities
with the intent of becoming profitable. Management plans to
devote resources toward handling their expansion into the
motion picture and entertainment industry.
In view of these matters, management believes that actions
presently being taken to revise the Company's operations and
to continue its motion picture activity provide the
opportunity for the Company to return to profitability. The
discontinuation of the health club operations and the sale
of distribution rights to its movies will improve the
Company's cash flow, profitability, and ability to raise
additional capital so that it can meet its strategic
objectives. The Company has received additional capital
financing after year end to the date of this report.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
14. Subsequent Events
A. On July 6, 1999, the Company entered into a lease for office
space in Los Angeles, California. The lease term is 5 years, and
payments under the lease are $15,858 per month. The Company
additionally leased residential space in Hollywood, California,
from a related party. The lease has a one-year term and monthly
payment of $4,500.
B. The prior Chief Executive Office of the Company resigned as
an operating officer and board member of the Company during June
1999. Mr. Tony Cataldo was appointed director and Chief
Executive Officer of the Company.
C. The Company was sued by one of its prior directors under an
agreement he had with the Company to produce films and video.
The Company's legal counsel is currently reviewing the case.
Management has responded with a counter suit and believes that
the Company will prevail.
D. The Company has obtained financing on several of its film
and video projects. Generally, the terms of these agreements
provide that the lender receives a return of its capital and a
preferred return on sales proceeds before the Company can receive
any share of the profits of these projects.
E. The Company entered into a "first look" agreement with a
production company. This agreement gives the Company the first
opportunity to participate in the projects that the producer is
seeking to develop. Under this agreement, the Chief Executive
Officer of the Company becomes a principal in the production
company and may independently benefit from projects developed by
the production company in which the Company does not participate.
F. The Company issued 411,040,552 shares of common stock in
various transactions, noted as follows:
1) The Company issued 237,846,379 shares for $6,783,233;
2) Two convertible notes each with face amounts of $73,050 (US$
50,000) were converted to 3,484,200 shares of stock each;
3) The Company's former Chief Executive Officer converted an
amount due to him of $87,660 (US$ 60,000) into 1,500,000 shares
of stock;
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
14. Subsequent Events (continued)
4) The current Chief Executive Officer was issued 34,400,000
shares of stock as part of his compensation agreement;
5) The two principal owners of a film production company that
is working closely with the Company on several development
projects received 26,700,000 shares of stock each (53,400,000 in
total) and a $365,250 (US$ 250,000) production budget guarantee
as compensation under a "first look" agreement. One of the
owners is a board member of one of the Company's subsidiaries;
6) A prior board member received 7,500,000 shares as part of a
settlement agreement. This agreement has become the subject of a
lawsuit brought against the Company;
7) A board member and investment banker to the Company received
28,500,000 shares of stock as compensation for his consulting and
fundraising efforts;
8) Other consultants have received a total of 10,000,000 shares
for investment banking services;
9) The principal of a film production Company received
8,000,000 shares, an option for 4,000,000 more shares at $0.06
(US$ 0.04), and a $365,250 (US$ 250,000) production budget
guarantee as a part of a "first look" agreement with the Company.
This principal joined the board of directors of the Company;
10) A director working on several film projects for the company
received an annual guarantee of $219,150 (US$ 150,000) per year
plus 3,000,000 shares and options for 3,000,000 shares with
prices ranging from $0.06 to $0.08 (US$ 0.05 and $0.07);
11) A consultant to the Company received 8,000,000 shares as
compensation for various development projects;
12) Other consultants received a combined total of 15,409,700
shares of stock from various service agreements with the Company;
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
14. Subsequent Events (continued)
B. On August 9, 1999, the Entertainment Internet, Inc.
(OTC Bulletin Board: EINI), a global provider of information
and data distribution services specifically designed for the
entertainment and media industries, and the Company
announced the signing of a definitive merger agreement.
The merger is contingent upon shareholder ratification by
both companies. EINI will be the surviving entity, and each
12 shares of MVEE will be exchanged for approximately 1
share of EINI, which will result in EINI shareholders owning
approximately 50% of the combined entity and the Company's
shareholders
owning approximately 50%. Management believes this
transaction is accretive to both EINI and the Company's
shareholders. A combination of the current management of
both companies will operate the new combined entity.
The surviving trading symbol will be MVEE. The new company
will reform as Miracle Entertainment, Inc. Mr. Mohamed
Hadid will serve as Chairman of the Board, and Anthony
Cataldo will serve as Co-Chairman and CEO of Miracle
Entertainment, Inc.
C. The Company purchased for $73,500 (US$ 50,000) from
the former President and CEO of the Company, a 24.5%
interest in the future net income of the films generally
known as "Return to Grizzly Mountain" and "Grizzly Mountain"
including, but not limited to, sequels, merchandising,
videos, cable rights, television rights satellite broadcast,
residual rights, and ancillary rights.
D. The Company purchased for $73,500 (US$ 50,000) from a board
of directors member of a subsidiary of the Company, a 24.5%
interest in the future net income of the films generally known as
"Return to Grizzly Mountain" and "Grizzly Mountain" including,
but not limited to, sequels, merchandising, videos, cable rights,
television rights satellite broadcast, residual rights, and
ancillary rights.
See Independent Auditors' Report.
1st MIRACLE GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 1999 and 1998
15. Differences between US and Canadian Generally Accepted
Accounting Principles
The Company prepares its consolidated financial statements
in accordance with Generally Accepted Accounting Principles
(GAAP) in the United States. Significant differences exist
between US GAAP and Canadian GAAP, and their effects on net
loss are described below:
For 1998 under Canadian GAAP, the benefit provided by US
income taxes and the resulting deferred tax asset would be
reduced by $416,178 to reverse the recording of net
operating loss carryforwards not meeting the Canadian
virtual certainty principle. There are no deferred tax
assets recorded in 1999.
For 1998 under Canadian GAAP, deferred income tax assets and
liabilities are converted at the historical rate rather than
the current rate. This results in a portion of the deferred
tax assets being $35,214, as opposed to $36,800. This
results in the currency translation loss's being increased
by $1,586.
Under Canadian GAAP, certain costs of raising capital are
charged directly to retained earnings rather than as an
offset to common stock. This would have resulted in an
increase to accumulated deficit of $482,283 and $429,510 in
1999 and 1998 respectively, rather than an offset to common
stock.
16. Risks Presented by the Year 2000 Issue
The Company's management does not anticipate the Year 2000
issue to have a significant impact on its operations or
financial operations.
See Independent Auditors' Report.
Unaudited Financials for the three month period ended July 31,
1999 and 1998.
1st Miracle Group, Inc.
Consolidated Balance Sheets
July 31, 1999 and 1998
Canadian Dollars
ASSETS
<TABLE>
<S> <C> <C> <C <C> <C <C <C>
> > >
1999 1998
Current Assets:
Cash $ 1,165,710 $ 284,994
Membership contracts receivable 958,737
-
Capitalized film production costs 5,109,998 1,466,982
Accounts receivable 412,266 311,746
Inventory 304,207
-
Prepaid expenses 137,218
-
Deferred taxes - Current 268,747
-
Total Current Assets 6,825,192 3,595,413
Property and Equipment:
Equipment 2,792,433
-
Leasehold improvements 1,670,476
-
Furniture & fixtures 491,921
-
4,954,830
-
Less accumulated depreciation and (2,592,600)
amortization -
Total Property and Equipment 2,362,230
-
Other Assets:
Deferred income tax, non-current 1,834,046
-
Deposits 165,424
-
Goodwill 429,152
-
Note receivable from shareholders 602,400
-
Film development rights 2,708,556
-
Investment in film projects 742,834 2,903,765
Amortization (220,896)
-
Total Other Assets 3,832,894 5,332,387
Total Assets $ 10,658,086 $ 11,290,030
//Anthony Cataldo, CEO//
</Tabl
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1st Miracle Group, Inc.
Consolidated Balance Sheets (continued)
July 31, 1999 and 1998
Canadian Dollars
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
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1999 1998
Current Liabilities:
Accounts payable $ $ 408,027
32,495
Other accrued payable 274,474 103,216
Amounts due shareholders 119,971
12,219
Notes payable 247,875
-
Convertible Promissory Notes
- -
Leases payable 239,160
-
Deferred income 2,037,621
-
Income taxes payable 28,303
14,458
Reserve for discontinued operations 100,902 101,001
Total Current Liabilities 434,548 3,285,174
Long-Term Liabilities:
Notes payable 690,361
-
Convertible Promissory Notes 376,500 159,288
Deferred tax liabilities 1,152,809
-
Total Long-Term Liabilities 376,500 2,002,458
Shareholders' Equity:
Common stock, unlimited shares
authorized
443,623,467 and 99,040,793 shares 30,303,476 16,393,041
issued and outstanding
Accumulated deficit (20,483,698) (9,837,102)
Currency translation gain/(loss) (346,260)
27,260
9,847,038 6,209,679
Less subscriptions receivable (207,281)
-
Total Shareholders' Equity (Deficit) 9,847,038 6,002,398
Total Liabilities & Shareholders' $ 10,658,086 $ 11,290,030
Equity (Deficit)
//Anthony Cataldo, CEO//
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1st Miracle Group, Inc.
Consolidated Statements of Operations
For the Three Months Ended July 31, 1999 and 1998
Canadian Dollars
Continuing Operations
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Three months ended Three months ended
July 31, 1999 July 31, 1998
Revenues:
Sale $ $
s - -
Production expenses
(4,742) -
(4,742) -
Operating Expenses:
Occupancy
441 40,226
Personnel 3,939,638
164,078
General and administrative 231,668
428,279
Othe 18,381
r -
Depreciation and amortization 220,896
82,035
Total Operating Expenses 4,411,024
714,618
Loss from Operations (4,415,766)
(714,618)
Other Income (Expense):
Interest finance charges (38,614)
-
Interest income 26,478
-
Other expense (147,100)
-
Currency translation gain 13,966
(loss) (13,904)
Total Other Income (145,270)
(Expense) (13,904)
Income (Loss) Before Taxes (4,561,036)
(728,522)
Income Taxes
- -
Net Loss From Continuing $ (4,561,036) $
Operations (728,522)
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1st Miracle Group, Inc.
Consolidated Statements of Operations (continued)
For the Three Months Ended July 31, 1999 and 1998
Canadian Dollars
Discontinued Operations
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Three months ended Three months ended
July 31, 1999 July 31, 1998
Revenues:
Memberships $ $
- 841,166
Services
- 82,271
- 923,437
Operating Expenses:
Occupancy
- 583,217
Personnel
- 761,143
General and
administrative - 378,530
Depreciation and
amortization - 165,828
Total Operating
Expenses - 1,888,718
Loss from Operations
- (965,281)
Other Income (Expense):
Interest finance charges
- (66,067)
Other income
- 10,862
Currency translation
gain (loss) - (20,009)
Total Other Income
(Expense) - (75,214)
Income (Loss) Before Taxes
- (1,040,495)
Income Taxes
- -
Net Loss from
Discontinued Operations - (1,040,495)
Net Loss $ (4,561,036) $
(1,769,017)
Basic and Fully Diluted $ $
Loss Per Share (0.016) (0.018)
Weighted Average Shares 286,445,460
Outstanding 97,056,414
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1st Miracle Group, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended July 31, 1999 and 1998
Canadian Dollars
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Three months Three months ended
ended
July 31, 1999 July 31, 1998
Operating Activities:
Net $ (4,575,003) $
loss (1,769,017)
Adjustments to reconcile net income
to net cash provided by operating
activit
ies:
Depreciation and amortization
220,896 247,863
(Increase) decrease in:
Membership contracts receivable
- 178,328
Prepaid expenses
(135,590) -
Deferred tax assets
- (105,733)
Accounts receivable
95,339 270,665
Inventory
- (15,296)
Capitalized film production costs (2,463,825)
(2,180,429)
(2,504,076)
(1,852,465)
Increase (decrease) in:
Accounts payable
32,495 70,516
Accrued liabilities
73,627 (2,459)
Reserve for discontinued
operations 3,014 5,082
Income tax payable
432 1,423
Deferred revenue - current
- 20,404
Deferred tax liabilities - long-
term - 57,965
109,568 152,931
Net cash used by operating (6,748,615)
activities (3,220,688)
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1st Miracle Group, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended July 31, 1999 and 1998
Canadian Dollars
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Three months Three months ended
ended
July 31, July 31, 1998
1999
Investing Activities:
Additions to leasehold improvements
- (83,995)
Purchases of equipment, furniture
and
fixtures
- (165,143)
Goodwi 36,151
ll
Investment in film series
(596,734) (311,691)
Investment in film development
rights (2,708,556) -
Net cash used by investing (524,678)
activities (3,305,290)
Financing Activities:
Note receivable to shareholder -
(602,400)
Conversion of notes payables (146,100) (185,149)
(Debentures)
Conversion of notes payables to (88,020) -
shareholders
Promissory notes payable
11,250 120,000
Leases Payable - (27,203)
Sale of stock, net
10,936,500 4,083,670
Currency translation gain/(loss) (33,913)
13,966
Net cash provided by
financing activities 10,125,196 3,957,405
Net increase (decrease) in cash 71,291 212,039
Cash, beginning 1,094,419 72,955
Cash, ending $ 1,165,710 $ 284,994
Supplemental Cash Flow
Disclosure:
Conversion of Promissory Notes $ 230,400 $
to Common Stock 146,000
Cash paid during the three 20,000 9,100
months for interest
Common stock issued for 2,164,122 -
compensation
Common stock issued for
acquisition of film
film development rights
2,525,562 -
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Unaudited Financials for the six month period ended October
31, 1999 and 1998
1st Miracle Group, Inc.
Consolidated Balance Sheets
October 31, 1999 and 1998
Unaudited
ASSETS
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1999 1998
Current Assets:
Cash $ 39,367 $ 48,299
Accounts receivable 402,493 318,840
Capitalized film production 4,988,865 590,097
costs
Accounts receivable - other - 308,360
Inventory - 311,129
Prepaid expenses 133,965 -
Deferred taxes - Current - 876,077
Total Current Assets 5,564,690 2,452,802
Property and Equipment:
Furniture and equipment 158,888 -
Total Property and 158,888 -
Equipment
Other Assets:
Note receivable 588,120 -
Film development rights 2,207,900 -
Investment in film projects 6,785,533 6,566,485
Other - intangibles 13,065 -
Amortization - (357,297)
Total Other Assets 9,594,618 6,209,188
Total Assets $ $ 8,661,990
15,318,196
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//Anthony Cataldo, CEO//
1st Miracle Group, Inc.
Consolidated Balance Sheets (continued)
October 31, 1999 and 1998
Unaudited
LIABILITIES AND SHAREHOLDERS' EQUITY
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1999 1998
Current Liabilities:
Accounts payable $ 757,157 $ -
Other accrued payable 393,425 126,868
Amounts due shareholders 12,219 120,420
Notes payable 1,911,390 972,043
Deferred income 199,405 -
Income taxes payable 14,115 28,947
Reserve for discontinued operations - 95,922
Total Current Liabilities 3,287,711 1,344,200
Long-Term Liabilities:
Notes payable 376,575 -
Convertible Promissory Notes - 357,925
Total Long-Term Liabilities 376,575 357,925
Minority Interest - 1,238,000
Shareholders' Equity:
Common stock, unlimited shares authorized
937,322,017 and 96,940,793 shares issued and
outstanding 34,318,329 16,542,005
Accumulated deficit (10,031,96
(22,732,33 7)
0)
Currency translation gain/(loss) 67,911 (591,314)
5,918,724
11,653,910
Less subscriptions receivable - (196,859)
Total Shareholders' Equity 5,721,865
11,653,910
Total Liabilities & Shareholders' Equity $ $ 8,661,990
15,318,196
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//Anthony Cataldo, CEO//
1st Miracle Group, Inc.
Consolidated Statements of Operations
For the Three Months Ended October 31, 1999 and 1998
Canadian Dollars
Continuing Operations
Unaudited
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Three months Three months
ended ended
October 31, October 31,
1999 1998
Revenues:
Sale $ 7,842 $ -
s
Cost of goods sold - -
7,842 -
Operating Expenses:
Occupancy 57,480 -
Personnel 1,322,264 -
General and administrative 599,498 231,472
Development 35,339 -
Depreciation and 222,534 83,927
amortization
Total Operating Expenses 2,237,115 315,399
Loss from Operations (2,229,273) (315,399)
Other Income (Expense):
Interest finance charges (9,414) (11,990)
Other income - 890
Total Other Income (9,414) (11,100)
(Expense)
Net Loss From Continuing $ (2,238,687) $ (326,499)
Operations
Basic and Fully Diluted Loss
Per Share
From Operations $ (0.002) $ (0.003)
Basic and Fully Diluted Loss (0.002) (0.003)
Per Share
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1st Miracle Group, Inc.
Consolidated Statements of Operations (continued)
For the Six Months Ended October 31, 1999 and 1998
Canadian Dollars
Continuing Operations
Unaudited
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Six months Six months
ended ended
October 31, October 31,
1999 1998
Revenues:
Sale $ 7,815 $ -
s
Cost of goods sold (4,762) -
3,053 -
Operating Expenses:
Occupancy 57,722 41,153
Personnel 4,823,685 167,863
General and administrative 1,282,345 357,121
Development 50,194 312,510
Depreciation and amortization 443,509 167,854
Total Operating Expenses 6,657,455 1,046,501
Loss from Operations (6,654,402) (1,046,501)
Other Income (Expense):
Dividend income 26,581 -
Interest finance charges (48,142) (11,990)
Miscellaneous (147,672) -
Other income - 890
Currency translation gain 54,617 -
(loss)
Total Other Income (114,616) (11,100)
(Expense)
Net Loss From Continuing $ (6,769,018) $ (1,057,601)
Operations
Basic and Fully Diluted Loss
Per
Share From Operations $ (0.007) $ (0.011)
Basic and Fully Diluted Loss (0.007) (0.003)
Per Share
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1st Miracle Group, Inc.
Consolidated Statements of Operations
For the Three Months Ended October 31, 1999 and 1998
Canadian Dollars
Discontinued Operations
Unaudited
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Three months Three months
ended ended
October 31, October 31,
1999 1998
Revenues:
Memberships $ - $ 829,731
Services - -
- 829,731
Operating Expenses:
Occupancy - 469,319
Personnel - 380,973
General and administrative - 570,745
Depreciation and amortization - 13,189
Total Operating Expenses - 1,434,226
Loss from Operations - (604,495)
Other Income (Expense):
Interest finance charges - (33,121)
Gain on sale of athletic clubs - 1,858,752
Loss on note payable conversion - (1,053,586)
Total Other Income (Expense) - 772,045
Income (Loss) Before Taxes - 167,550
Income Taxes - Deferred - (92,850)
Net Income from Discontinued - 74,700
Operations
Basic and Fully Diluted Loss Per
Share
From Operations $ - $ (0.006)
Basic and Fully Diluted Income $ - $ 0.001
Per Share
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1st Miracle Group, Inc.
Consolidated Statements of Operations (continued)
For the Six Months Ended October 31, 1999 and 1998
Canadian Dollars
Discontinued Operations
Unaudited
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Six months Six months
ended ended
October 31, October 31,
1999 1998
Revenues:
Memberships $ - $ 1,690,300
Services - 84,168
- 1,774,468
Operating Expenses:
Occupancy - 1,065,988
Personnel - 1,159,673
General and administrative - 958,007
Depreciation and amortization - 182,841
Total Operating Expenses - 3,366,509
Loss from Operations - (1,592,041)
Other Income (Expense):
Interest finance charges - (100,713)
Other income - 11,113
Gain on sale of athletic club 1,858,752
assets
Loss on note payable - (1,053,586)
conversion
Total Other Income - 715,566
(Expense)
Income (Loss) Before Taxes - (876,475)
Income Taxes - Deferred - (92,850)
Net Loss - $ (969,325)
Basic and Fully Diluted Loss
Per
Share From Operations $ - $ (0.016)
Basic and Fully Diluted Loss $ - $ (0.010)
Per Share
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1st Miracle Group, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended October 31, 1999 and 1998
Canadian Dollars
Unaudited
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Six months Six months
ended ended
October 31, October 31,
1999 1998
Operating Activities:
Net $ (6,823,635 $ (2,026,926
loss ) )
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 443,509 167,854
(Increase) decrease in:
Membership contracts receivable- - 1,137,065
athletic clubs
Security deposits-athletic clubs - 161,073
sale
Prepaid expenses (132,337) -
Deferred tax assets-athletic club - 1,120,983
sale
Accounts receivable 105,112 263,571
Inventory - (22,218)
Accounts receivable-other, athletic - (308,360)
clubs sale
Capitalized film production costs (2,342,692 -
)
(2,369,917 2,352,114
)
Increase (decrease) in:
Accounts payable 757,157 (337,508)
Accrued liabilities 192,578 21,193
Reserve for discontinued operations (97,799) -
Income tax payable - 2,067
Deferred revenue - current 199,405 (2,058,025
)
Leases payable - current, on - (266,363)
disposition of athletic clubs
Deferred tax liabilities - long-term - (1,094,844
)
1,051,341 (3,733,480
)
Net cash used by operating (7,698,702 (3,240,438
activities ) )
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1st Miracle Group, Inc.
Consolidated Statements of Cash Flows (continued)
For the Six Months Ended October 31, 1999 and 1998
Canadian Dollars
Unaudited
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Six months Six months
ended ended
October 31, October 31,
1999 1998
Investing Activities:
Additions to investment in film series (6,639,433) (4,039,955)
Dispositon of assets on sale of - 2,359,576
athletic clubs
Purchases of equipment, furniture and
fixtures (158,888) -
Note receivable (588,120)
Goodwill disposition on sale of - 719,169
athletic clubs
Disposition of liabilities on sale of (487,945)
athletic clubs
Intangible - Corporate logo (13,065) -
Investment in film development rights (2,651,409) -
Net cash used by investing (10,050,915 (1,449,155)
activities )
Financing Activities:
Note receivable from shareholder - 1,441
Conversion of notes payables (146,100) -
(Debentures)
Conversion of notes payables to (88,020) -
shareholders
Proceeds from promissory notes payable 1,911,390 699,407
Note payable - long-term 11,325
Sale of stock, net 14,951,353 4,243,056
Currency translation gain/(loss) 54,617 (278,967)
Net cash provided by financing 16,694,565 4,664,937
activities
Net increase (decrease) in cash (1,055,052) (24,656)
Cash, beginning 1,094,419 72,955
Cash, ending $ 39,367 $ 48,299
Supplemental Cash Flow Disclosure:
Conversion of Promissory Notes to $ 230,400 $ -
Common Stock
Cash paid during the period for 20,000 112,703
interest
Common stock issued for 2,164,122 -
compensation
Common stock issued for
acquisition of film
film development rights 2,525,562 -
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(a) Pro Forma Financial Information
Operations of K-9 Protection, Inc. are deminimous and pro
forma statements of operatoins are the same as submitted
by 1st Miracle Group, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized.
K-9 Protection, Inc.
By: /s/ Douglas Ansell
Douglas Ansell, Treasurer
Date: March 28, 2000
</TABLE>
