<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1
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 December 31, 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)
233 WILSHIRE BOULEVARD, SUITE 930B, SANTA MONICA, CA 90401
(Address of principal executive offices) (Zip Code)
(310) 395-4073 / (310) 656-3055
(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 2,888,465 shares of its $.001 par value Common Stock issued
and outstanding as of February 11, 1999.
Transitional Small Business Disclosure Format (check one)
Yes No X
----- -----
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MIRAGE HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE NO.
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<S> <C> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of December 31, 1998 3
Comparative Unaudited Consolidated Statements of
Operations for the Three Months Ended December 31,
1998 and 1997 4
Comparative Unaudited Consolidated Statements of
Cash Flow for the Three Months Ended December 31,
1998 and 1997 5
Consolidated Statement of Stockholders' 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 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 10
(b) Reports on Form 8-K 10
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1
MIRAGE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 298,357
Accounts receivable 728,244
Other receivables 75,681
---------------
Total current assets 1,102,282
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 193,666
OTHER ASSETS:
Deposits 5,080
Goodwill 3,118,114
---------------
Total other assets 3,123,194
---------------
$ 4,419,142
---------------
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 895,047
Notes payable 110,400
Current maturities of obligations under capital lease 6,427
Loans payable, related party 18,910
Loans payable, stockholders 193,172
---------------
Total current liabilities 1,223,956
OBLIGATIONS UNDER CAPITALIZED LEASES, less current maturities 14,169
MINORITY INTEREST 173,155
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value, 25,000,000 shares authorized,
2,768,465 shares issued and outstanding 2,768
Additional paid-in capital 4,640,556
Accumulated deficiency (1,635,462)
---------------
Total stockholders' equity 3,007,862
---------------
---------------
$ 4,419,142
---------------
---------------
</TABLE>
See notes to financial statements.
3
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MIRAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months Six months Three months Three months
ended ended ended ended
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 2,523,823 $ 87,226 $ 1,186,989 $ 31,621
COST OF SALES - 65,772 - 33,673
------------------ ------------------ ----------------- -----------------
GROSS PROFIT 2,523,823 21,454 1,186,989 (2,052)
OPERATING EXPENSES 3,081,497 280,898 1,767,241 179,234
OTHER INCOME/(EXPENSE) (34,272) 38,919 (59,469) 0
------------------ ------------------ ----------------- -----------------
NET INCOME BEFORE INCOME ALLOCATED
TO MINORITY INTERESTS (591,946) (220,525) (639,721) (181,286)
MINORITY INTEREST INCOME (168,146) - (35,296) -
------------------ ------------------ ----------------- -----------------
NET LOSS $ (760,092) $ (220,525) $ (675,017) $ (181,286)
------------------ ------------------ ----------------- -----------------
------------------ ------------------ ----------------- -----------------
NET LOSS PER SHARE:
Basic ($0.33) ($0.12) ($0.29) ($0.10)
Diluted ($0.23) ($0.09) ($0.20) ($0.08)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 2,337,180 1,814,065 2,337,180 1,814,065
Diluted 3,357,940 2,331,065 3,357,940 2,331,065
</TABLE>
See notes to financial statements.
4
<PAGE>
MIRAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Six months Six months Three months Three months
ended ended ended ended
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net loss $ (760,092) $ (220,525) $ (675,017) $ (181,286)
-------------- ------------- ------------ -----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
(USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization 79,691 1,814 71,175 -
Gain(loss) on sale of marketable securities - (38,919) - -
Non-cash compensation expense 566,000 - 566,000 -
Minority interest income 168,146 - 35,296 -
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (222,323) 1,071 127,012 1,320
Other receivables (15,160) - 11,778 -
Loan receivable - (136,550) - (79,434)
Inventory - 30,767 - 15,287
Deposits (687) - (687) -
INCREASE (DECREASE) IN LIABILITIES -
accounts payable and accrued expenses (114,153) 54,574 (270,037) 68,149
-------------- ------------- ------------ -----------
Total adjustments 461,514 (87,243) 540,537 5,322
-------------- ------------- ------------ -----------
Net cash provided by (used for) operating activities (298,578) (307,768) (134,480) (175,964)
-------------- ------------- ------------ -----------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
(Purchase) sale of investments, net (161,539) 79,999 35,273 -
Purchase of property, plant and equipment (118,752) (5,051) (58,445) (5,051)
-------------- ------------- ------------ -----------
Net cash provided by (used for) investing activities (280,291) 74,948 (23,172) (5,051)
-------------- ------------- ------------ -----------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Issuance of common stock and warrants, net 1,009,989 - 27,716 -
Proceeds from (payments on) notes payable, net (228,300) 236,008 (20,000) 196,008
Payments on loan payable, related party (100,000) - - -
Deferred offering costs 203,813 - - -
Payments on capital lease obligations (2,758) - - -
-------------- ------------- ------------ -----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES: 882,744 236,008 7,716 196,008
-------------- ------------- ------------ -----------
NET INCREASE (DECREASE) IN CASH 303,875 3,188 (149,936) 14,993
CASH AND EQUIVALENTS, beginning of period (5,518) 33,079 448,293 21,274
-------------- ------------- ------------ -----------
CASH AND EQUIVALENTS, end of period $ 298,357 $ 36,267 $ 298,357 $ 36,267
-------------- ------------- ------------ -----------
-------------- ------------- ------------ -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
interest expense $ 12,294 $ 9,827 $ 2,912 $ 6,563
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of 490,000 shares of common
stock per stock purchase agreement $2,523,500 $ - $ - $ -
Issuance of 175,000 shares of common
stock per stock purchase agreements $ 566,000 $ - $ 566,000 $ -
</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)
-------------------------------------------------------------------------------------
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 251,000 251 987,733 - 987,984
Issuance of common stock relating to
stock purchase agreements 640,000 640 2,995,510 - 2,996,150
Exercise of stock options 75,000 75 94,000 - 94,075
Exercise of warrants to convert to
common stock 28,400 28 21,252 - 21,280
Net loss for the six months
ended December 31, 1998 (unaudited) (760,092) (760,092)
-------------------------------------------------------------------------------------
Balance at December 31, 1998 (unaudited) 2,768,465 $ 2,768 $ 4,640,556 $(1,635,462) $ 3,007,862
-------------------------------------------------------------------------------------
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</TABLE>
See notes to financial statements.
6
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NOTES TO FINANCIAL STATEMENTS - MIRAGE HOLDINGS, INC. 10QSB
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. Amortization expense of $61,832 has been
recorded in the consolidated financial statements for the period ended December
31, 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. Subsequently, the Company has
sold an additional 56,667 warrants through December 31, 1998, which generated
gross proceeds of $5,667.
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 from the
acquisition date to the period ended December 31, 1998.
7
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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 233 Wilshire
Boulevard, Suite 930B, Santa Monica, California 90401 and its telephone number
is (310) 395-4073. 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 December 31, 1998 as compared to the Three Months Ended
December 31, 1997.
NET SALES
Net sales of $1,186,989 were reported for the second quarter of fiscal 1999,
which ended December 31, 1998. This is an increase of $1,155,368 from $31,621
in the same period of fiscal 1998. The sales increase is solely attributed to
the 51% acquisitions of NetSol and 47% of NetSol UK in March 1997 and September
1998, respectively. Management concludes the continued growth of NetSol and
NetSol UK produced the revenue increases. Both of these software companies have
a strong customer base in Europe and Asia Pacific regions.
The net sales of the Company for six months ended December 31, 1998 were
$2,523,823 in comparison with $87,226 for the same period the previous year.
Again, the management finds the increase in sales was solely attributable to the
51% acquisition of NetSol and NetSol UK.
OPERATING PROFITS OF NETSOL AND NETSOL UK
NetSol posted income from operation of $41,265 in the first six months ended
December 31, 1998 which is an increase form loss from operations of $128,424 in
the same period 1997. NetSol UK posted income from operation of $221,201 in the
first six months ended December 31, 1998. This was the first year in operation
for NetSol UK as it was formed in January 1998.
8
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COST OF SALES, GROSS PROFIT AND NET LOSS
The gross profit was $1,186,989 in the quarter ending December 31, 1998 in
comparison with a loss of $2,052 for the same quarter the previous year. The
gross profit for the six months ended December 31, 1998 was $2,523,823 in
comparison with $21,454. The cost of sales for the quarter ending December 31,
1998 was zero as compared to $33,673 for the same quarter last year. The cost
of sales for the six months ended in December 31, 1998 was nothing as compared
to the previous year at $65,772.
The Company issued 150,000 shares of restricted Company stock to its former
director and officer at the time of termination. Similarly, the Company issued
25,000 options to former employees of the Company with an exercise price below
the fair market value. Such issuances below the fair market value was an
expense to the Company resulting in a net loss of $675,017 for the quarter
ending in December 31, 1998. However, this is a non-cash event. This in
comparison with the same quarter in 1997, the Company experienced a net loss of
$181,286. Again, the difference of $493,731 is mainly attributed to the
issuance of shares under fair market value to previous employees of the Company.
The net loss of six months ended December 31, 1998 was $760,092 compared with
$220,525 for the same period in 1997. Again, the management concludes the
significance in the loss is due to the issuance of shares discussed above.
OPERATING EXPENSES
Operating expenses were $1,767,241 of net sales during the quarter ending
December 31, 1998. This compares with $179,234 for the quarter ending December
31, 1997.
Operating expenses for the quarter ending December 31, 1998 increased $1,588,007
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.
Accounts receivable was $127,012 in the quarter ending December 31, 1998. Other
receivables in the quarter ending December 31, 1998, was $11,778. 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 the six months ended December
31, 1998, there was an increase of $222,323 in the accounts receivable compared
with a $1,071 decrease for the same period. 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 $150,000. Year to date, the Company has
expended approximately $1,767,241. 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.
9
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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
None.
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
(b) REPORTS ON FORM 8-K:
Filed December 9, 1998 report of termination of Chief Financial
Officer and Director; appointment of new Chief Financial
Officer; and Company's movement into technology industry.
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: February 26,1999
/s/ Najeeb Ghauri
------------------------------
NAJEEB U. GHAURI
President, Chief Executive Officer, Chief
Financial Officer, and Secretary
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 298,357
<SECURITIES> 0
<RECEIVABLES> 803,925
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,102,282
<PP&E> 193,666
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,419,142
<CURRENT-LIABILITIES> 1,223,956
<BONDS> 0
0
0
<COMMON> 2,768
<OTHER-SE> 4,640,586
<TOTAL-LIABILITY-AND-EQUITY> 4,419,142
<SALES> 2,523,823
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,103,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,294
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (760,092)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.23)
</TABLE>
