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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
( ) For the transition period from __________ to __________
Commission file number: 333-28861
MIRAGE HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 95-4627685
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3000 WEST OLYMPIC BOULEVARD, SUITE 2235, SANTA MONICA, CA 90404
(Address of principal executive offices) (Zip Code)
(310) 264-3939 / (310) 451-3953
(Issuer's telephone/facsimile numbers, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
---- ----
The issuer had 2,583,465 shares of its $.001 par value Common Stock
issued and outstanding as of November 18, 1998.
Transitional Small Business Disclosure Format (check one)
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Yes No X
---- ----
MIRAGE HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION
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<CAPTION>
PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1998 3
Comparative Unaudited Consolidated Statements of
Operations for the Three Months Ended September
30, 1998 and 1997 4
Comparative Unaudited Consolidated Statements of
Cash Flow for the Three Months Ended September 30,
1998 and 1997 5
Consolidated Statement of Stockholder's Equity 6
Notes to the Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 9
(b) Reports on Form 8-K 9
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2
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MIRAGE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash $ 448,293
Accounts receivable 855,256
Other receivables 87,459
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Total current assets 1,391,008
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION 175,981
OTHER ASSETS:
Deposits 4,393
Goodwill 3,179,946
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Total other assets 3,184,339
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$ 4,751,328
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,165,084
Notes payable 130,400
Current maturities of obligations under capital lease 6,427
Loans payable, related party 18,910
Loans payable, stockholders 193,172
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Total current liabilities 1,513,993
OBLIGATIONS UNDER CAPITALIZED LEASES, less current maturities 10,290
MINORITY INTEREST 137,882
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value, 25,000,000 shares authorized,
2,515,065 shares issued and outstanding 2,515
Additional paid-in capital 4,047,093
Accumulated deficiency (960,445)
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Total stockholders' equity 3,089,163
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$ 4,751,328
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</TABLE>
See notes to financial statements.
3
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MIRAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months Three months
ended ended
September 30, September 30,
1998 1997
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<S> <C> <C>
(unaudited) (unaudited)
NET SALES $ 1,336,834 $ 55,605
COST OF SALES - 32,099
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GROSS PROFIT 1,336,834 23,506
OPERATING EXPENSES 1,314,256 101,664
OTHER INCOME 25,197 38,919
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NET INCOME BEFORE INCOME ALLOCATED
TO MINORITY INTERESTS 47,775 (39,239)
MINORITY INTEREST INCOME (132,850) -
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NET LOSS $ (85,075) $ (39,239)
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NET LOSS PER SHARE:
Basic ($0.04) ($0.02)
Diluted ($0.03) ($0.02)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 1,893,450 1,774,065
Diluted 2,553,500 2,210,665
</TABLE>
See notes to financial statements.
4
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MIRAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Three months Three months
ended ended
September 30, September 30,
1998 1997
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<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net loss $ (85,075) $ (39,239)
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ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization 8,516 1,814
Gain(loss) on sale of marketable securities - (38,919)
Minority interest income 132,850 -
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (349,335) (249)
Other receivables (26,938) -
Loan receivable - (57,116)
Inventory - 15,480
INCREASE (DECREASE) IN LIABILITIES -
accounts payable and accrued expenses 155,884 (13,575)
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Total adjustments (79,023) (92,565)
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Net cash provided by (used for) operating activities (164,098) (131,804)
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CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Proceeds from (payments on) notes receivable
(Purchase) sale of investments (196,812) 79,999
Purchase of property, plant and equipment (60,307) -
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Net cash provided by (used for) investing activities (257,119) 79,999
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CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Issuance of common stock and warrants, net 982,273 -
Proceeds from (payments on) notes payable, net (208,300) 40,000
Payments on loan payable, related party (100,000) -
Deferred offering costs 203,813 -
Payments on capital lease obligations (2,758) -
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NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES: 875,028 40,000
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NET INCREASE (DECREASE) IN CASH 453,811 (11,805)
CASH AND EQUIVALENTS, beginning of year (5,518) 33,079
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CASH AND EQUIVALENTS, end of year $ 448,293 $ 21,274
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
interest expense $ 9,382 $ 8,675
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of 490,000 shares of common
stock per stock purchase agreement $ 2,523,500 $ -
</TABLE>
See notes to financial statements.
5
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MIRAGE HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Additional stockholders'
Common stock paid-in Accumulated equity/
Shares Amount capital Deficiency (deficiency)
--------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1997 1,814,065 $ 1,814 $ 562,021 $ (289,891) $ 273,944
Redemption of common stock
issued through private offering (40,000) (40) (19,960) - (20,000)
Net loss for the year ended June 30, 1998 (585,479) (585,479)
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Balance at June 30, 1998 1,774,065 1,774 542,061 (875,370) (331,535)
Common stock and warrants sold through
initial public offering 251,000 251 982,022 - 982,273
Issuance of common stock relating to
a stock purchase agreement 490,000 490 2,523,010 - 2,523,500
Net loss for the three months
ended September 30, 1998 (unaudited) (85,075) (85,075)
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Balance at September 30, 1998 (unaudited) 2,515,065 $ 2,515 $ 4,047,093 $ (960,445) $ 3,089,163
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</TABLE>
See notes to financial statements.
6
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NOTES TO FINANCIAL STATEMENTS - MIRAGE HOLDINGS, INC. 10QSB, ITEM 1.
PRINCIPLES OF CONSOLIDATION:
The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiary, Mirage Collection, Inc. and its majority owned
subsidiaries of Network Solutions (Pvt) Limited and Netsol (U.K.) Limited,
which are sister companies. All material intercompany accounts have been
eliminated in consolidation.
BUSINESS COMBINATION:
During September 1998, the Company entered into a stock purchase agreement
with Network Solutions Pvt Limited ("Netsol Pvt"), and NetSol (U.K.) Limited
("NetSol UK"), a United Kingdom Corporation and sister company. As
consideration, the Company will pay an aggregate purchase price of $ 775,000
plus 490,000 common shares of the Company in exchange for 51% of the issued
and outstanding stock of NetSol Pvt and 43% of the issued and outstanding
stock of NetSol UK.
The acquisition has been accounted for as a purchase transaction and,
accordingly, the fair value of the Company's stock that was issued was
allocated to assets and liabilities based on estimated fair value as of the
acquisition date. The excess value of the Company's stock over and above the
value of the net assets received has been recorded as goodwill to be
amortized on the straight-line basis over 15 years. No amortization has been
recorded in the consolidated financial statements for the period ended
September 30, 1998.
INITIAL PUBLIC OFFERING:
The Company completed the sale of its minimum offering of shares in its
initial public offering on September 16, 1998. The minimum offering was for
251,000 shares of common stock and 929,825 warrants, which generated gross
proceeds of $1,385,647. Deferred offering costs relating to the initial
public offering have been netted against additional paid-in capital.
MINORITY INTEREST:
The minority interest shown on the accompanying balance sheet represents the
minority stockholders share of the estimated fair value as of the acquisition
date and the minority interest share of earnings for the period ended
September 30, 1998.
7
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PART I - FINANCIAL INFORMATION
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
Mirage Holdings, Inc. ("Company") was incorporated under the laws of
the state of Nevada on March 18, 1997. The Company's address is 3000 West
Olympic Boulevard, Suite 2235, Santa Monica, California 90404 and its telephone
number is (310) 264-3939. Mirage Collection, Inc. ("Mirage Collection"), a
wholly owned subsidiary of Mirage Holdings, Inc., began business as a
partnership in July, 1995, and was reorganized into a corporation in the State
of Nevada pursuant to Internal Revenue Code Section 351 on April 1, 1997. The
Company was formed to market and sell fashions targeted towards the segment
where discriminating customers are always looking for unique and innovative
products. The origin of these designs is mainly from India and Pakistan but not
limited to these countries.
While the fashion industry has slowed, the Company entered into the
technology industry in 1998 with the purchase of a majority interest in Network
Solutions (PVT) Limited, a software development firm in Lahore, Pakistan
("NetSol"). The principal business of NetSol is the development and export of
software. Through its affiliation with NetSol, the Company can assist NetSol in
marketing its software development services to North American and European
clients. The Company also purchased 43% of the outstanding capital stock of
NetSol (U.K.) Limited, a corporation organized under the laws of the United
Kingdom ("NetSol UK"), which is a sister company to NetSol. The Company paid a
total purchase price for the interest in NetSol and NetSol UK of $775,000 plus
490,000 shares of common stock of the Company.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 as compared to the Three Months Ended
September 30, 1997.
NET SALES
Net sales of $1,336,834 for the first quarter of fiscal 1999, which ended
September 30, 1998, were more than the sales of the same quarter for the
previous year of $55,605 by $1,281,229. The sales increase is solely attributed
to the 51% acquisitions of NetSol and NetSol UK in March 1997 and September
1998, respectively. Management believes the combination of a software
development company centralized in Europe and Asia produced the increased sales.
COST OF SALES AND GROSS PROFIT
The gross profit was $1,336,834 in the quarter ending September 30, 1998 in
comparison with $23,506 for the same quarter the previous year. The cost of
sales for the period ending September 30, 1997 was $32,099. For this year's
first quarter, there was no costs of sales since the increased sales are
attributed solely to the sales of NetSol and NetSol UK.
OPERATING EXPENSES
Operating expenses were $1,314,256 of net sales during the quarter ending
September 30, 1998. This compares with $101,664 for the quarter ending September
30, 1997.
8
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Operating expenses for the quarter ending September 30, 1998 increased
$1,212,592 compared to the same time period in 1997. The difference was
primarily due to an increase in expenses due to the acquisition of NetSol which
increased profits but also increased expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital expenditures and
operating expenses, including labor costs, raw materials purchases, and funding
of accounts receivable. The Company's primary sources of cash have been from
operations of NetSol and the recent public offering conducted.
Accounts receivable was $855,256 in the quarter ending September 30, 1998. Other
receivables in the quarter ending September 30, 1998, were $87,459. There were
no accounts receivable in the same quarter of the previous year due to the
nature of the Company's business at that time. During fiscal year 1998, the
Company's retail operation was under the cash and carry method of accounting
and the Company did not have any specific type of accounts receivable.
The increase in the receivables is due to the increase in sales volume with the
acquisition of NetSol.
The Company's current plans require additional capital expenditures for the
remainder of the year of approximately $240,000. Year to date, the Company has
expended approximately $60,300. The Company believes the additional funds
received from the sale of shares and warrants from the initial Public Offering
will generate sufficient capital to finance its operations and anticipated
capital expenditures through fiscal 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 26, 1998 the Company's Board of Directors terminated Mr. Gill
Champion as the Company's Chief Financial Officer. There is currently a dispute
between Mr. Champion and the Company regarding the status of certain options and
shares of the Company's stock.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company did not receive any additional proceeds from its Public
Offering since its Annual Report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
(27) Financial Data Schedule
9
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(B) REPORTS ON FORM 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MIRAGE HOLDINGS, INC.
(Registrant)
Date: November 23, 1998 /s/ Najeeb U. Ghauri
------------------------------------------
NAJEEB U. GHAURI
President, Chief Executive Officer, Chief
Financial Officer, and Secretary
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> AUG-30-1999 AUG-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 448,293 0
<SECURITIES> 0 0
<RECEIVABLES> 942,715 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,391,008 0
<PP&E> 184,497 0
<DEPRECIATION> 8,516 0
<TOTAL-ASSETS> 4,751,328 0
<CURRENT-LIABILITIES> 1,513,993 0
<BONDS> 0 0
0 0
0 0
<COMMON> 2,515 0
<OTHER-SE> 3,086,648 0
<TOTAL-LIABILITY-AND-EQUITY> 4,751,328 0
<SALES> 1,336,834 55,605
<TOTAL-REVENUES> 1,336,834 55,605
<CGS> 0 32,099
<TOTAL-COSTS> 0 32,099
<OTHER-EXPENSES> 1,412,527 54,070
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,382 8,675
<INCOME-PRETAX> (85,075) (39,239)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (85,075) (39,239)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (85,075) (39,239)
<EPS-PRIMARY> (.04) (.02)
<EPS-DILUTED> (.03) (.02)
</TABLE>
