SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1998
or
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 333-28861
MIRAGE HOLDINGS, INC.
(Name of small business issuer as specified in its charter)
NEVADA 95-4627685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3000 W. OLYMPIC BLVD., SUITE 2235, SANTA MONICA, CA 90404
(Address of principal executive offices) (Zip code)
(310) 264-3939 / (310) 264-3942
(Issuer's telephone/facsimile numbers, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
(None)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B, is not contained in this form and no disclosure will be continued, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
the Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $170,934.
As of October 6, 1998, Registrant had 2,515,065 shares of its $.001 par value
Common Stock issued and outstanding. As of October 6, 1998 the aggregate market
value of the common stock held by non-affiliates was $2,556,334. This
calculation is based upon the closing sales price of $4 9/32 per share on
October 8, 1998.
TABLE OF CONTENTS AND CROSS REFERENCE SHEET
PAGE
PART I
Item 1 Description of Business 1
Item 2 Description of Property 3
Item 3 Legal Proceedings 3
Item 4 Submission of Matters to a Vote of Security Holders 4
PART II
Item 5 Market for Common Equity and Related Stockholder
Matters 4
Item 6 Management's Discussion and Analysis 4
Item 7 Financial Statements 7
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 7
Item 10 Executive Compensation 8
Item 11 Security Ownership of Certain Beneficial Owners and Management 10
Item 12 Certain Relationships and Related Transactions 11
PART IV
Item 13 Exhibits and Reports on Form 8-K 11
PART I
ITEM 1 - BUSINESS
GENERAL
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 2335, 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.
The idea was to fill this niche in the apparel market by importing
these fashions. The economic feasibility of this idea was studied by conducting
market research over a period of one year. The results were very encouraging.
The study identified two main areas of profitability: the existing affluent
market segment of Indian and Pakistani people who are always thirsty of new
fashions from their countries, as well as the growing demand in the mainstream
American market of designs that are different than the usual.
The Company is also pursuing other business opportunities in the
United States and Canada which arise out of its relationships with the Indian
and Pakistan communities. India ranks as one of the ten largest emerging markets
in the world, according to the U.S. Department of Commerce. India has been
called the "Silicon Valley of the East" and houses many high-tech corporations,
including Motorola and Hewlett Packard. (National Geographic, May 1997.) The
Company anticipates that such opportunities may arise in the software and
entertainment industries.
On March 30, 1997, the Company purchased 10% of the outstanding
capital stock of Network Solutions (PVT) Limited, a software development firm in
Lahore, Pakistan ("NetSol"), in exchange for the payment of $275,000. NetSol was
incorporated in Pakistan on August 22, 1996, under the Companies Ordinance,
1984, as a private Company limited by shares. 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. Effective September 15, 1998, the Company
increased its ownership of NetSol to 51% of NetSol's outstanding capital stock
and 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 purchase price for
the increased interest in NetSol and the interest in NetSol UK of $500,000 plus
490,000 shares of common stock of the Company.
Network Solutions Pvt., Ltd. ("NetSol") was launched as a software
development Company in late 1995. The Company was incorporated in Lahore,
Pakistan with limited capital and three founders behind it. The principal
officer, Mr. Salim Ghauri, returned from Australia after over 18 years of
experience in the IT industry. He established NetSol with three employees in
1995. Today, the Company has over 60 employees and consultants worldwide.
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NetSol Business:
NetSol has three divisions which are separate profit and costs
centers.
1. Software Development. NetSol has developed several leasing
finance products creating a market within the finance industry. Currently,
NetSol has developed a fully integrated leasing finance package, which is a
series of seven products that can be marketed as a fully integrated system.
2. Resource and Consulting Group. Highly qualified skilled IT
professionals from all over the world consult blue-chip clients. NetSol created
a database for all IT professionals such as Visual basis programmers, Oracle
based developers, Lotus certified Personnel and Internet developers and
designers.
3. Project Management Group. Currently, NetSol is working on several
projects of which some are in final development stage to manage several projects
at once.
Customers:
Some of NetSol's customers include the following:
Mercedes Benz Finance - Singapore
Tung-Yang Leasing Company - Taiwan
Mercedes Benz Leasing - Thailand
Mercedes Benz Finance, Ltd. - United Kingdom
Mercedes Benz Finance - Australia
Mercedes Benz accounts for a substantial majority of NetSol's
revenues.
The Company recently underwent an Initial Public Offering ("IPO")
and to date raised the minimum of $1,287,500 (the "Minimum Offering"). The net
proceeds of the Minimum Offering to the Company were approximately $1,037,625.
The Company believes that the funds generated by the IPO, together with its
current resources will be sufficient to fund working capital and capital
requests for at least 12 months from the date of the Prospectus used for the IPO
which was May 1, 1998. The IPO continues until the maximum offering of
$2,800,000 is raised or until terminated by the Company, whichever occurs first.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the Company's use of proceeds from the Minimum Offering.
INDUSTRY BACKGROUND
The United States is India's largest single trading partner. Between
1987 and 1993, United States exports rose 11% annually, slightly faster than
United States import growth, which measured 10% a year. India's exports to the
United States increased 15% in 1994 and management of the Company expects that
India's exports will probably remain strong in subsequent years. In 1994,
India's exports totaled $24 billion, of which $5.3 billion in goods was exported
to the United States. Annual growth rates of 5% to 10% are expected between 1995
and 2000. (U.S. GLOBAL TRADE OUTLOOK: 1995 - 2000, U.S. Dept. of Commerce.)
Pakistan's single largest trading partner is also the United States.
Pakistan's total exports in 1993 were $6.7 billion. (1997 INFORMATION PLEASE
ALMANAC, ATLAS, AND YEARBOOK, Houghton Mifflin Company, Boston and New York,
1997.)
2
[CHART]
OPERATIONS
The Company currently operates in Los Angeles County, California.
However, the Company hopes to expand its sales and operation to other cities in
the United States.
ADMINISTRATION
OFFICE FACILITIES - The Company currently leases an approximately
2,000 square feet office facility in Santa Monica, California. The
month-to-month lease requires monthly payments of approximately $2,250. The
Company has closed its facility in Artesia, California due to low inventory and
transition in to the software business. The Diamond Bar store is currently being
subleased, again due to low inventory and transition into the software industry.
EMPLOYEES - The Company currently employs two full time employees
and one consultant on an "as needed" basis. In the near future, the Company
plans on hiring additional employees as needed based on the Company's growth
rate.
COMPETITION
In the software industry, NetSol's competition are EdWhite
Associates, a British based Company, Data Scan and Decision Systems, both
American companies.
ITEM 2 - PROPERTIES
The Company currently leases approximately 2,000 square feet office
facility in Santa Monica, California. The month-to-month lease requires monthly
payments of approximately $2,250. The Company has closed its facility in
Artesia, California due to low inventory and transition in to the software
business. The Diamond Bar store is currently being subleased, again due to low
inventory and transition into the software industry.
ITEM 3 - LEGAL PROCEEDINGS
To the knowledge of management, there is no material litigation pending or
threatened against the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
3
No matter was submitted to a vote of the Company's Security holders
during the fourth quarter ending June 30, 1998.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION - The Company's Common Stock has been quoted
on the over-the-counter bulletin board ("OTC/BB"), under the symbol MGHI, since
September 24, 1998 at prices ranging from 2 1/2 to 6. The Company's Warrants
have been quoted on the OTC/BB under the symbol MIRGW, since September 24, 1998
at prices ranging from 23/32 to 31/32.
(b) STOCKHOLDERS - As of October 6, 1998, the Company had 74 holders
of record of the Company's Common Stock and 48 holders of record of the
Company's Warrants. This does not include the holders that have their shares
held in a depository trust in "street" name. As of October 6, 1998, 2,515,065
shares have been issued and outstanding.
(c) DIVIDENDS - The Company has not paid cash dividends on its
Common Stock in the past and does not anticipate doing so in the foreseeable
future. The Company currently intends to retain future earnings, if any, to fund
the development and growth of its business.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS
USE OF PROCEEDS
The Company conducted a public offering ("Offering") filed with the
Securities and Exchange Commission ("SEC") on June 9, 1997. The Offering was
declared effective as of April 27, 1998. The Company closed the Minimum Offering
on September 16, 1998.
Due to the extreme delay in going effective (10 months from the date
of effectiveness) and the closing of the Minimum Offering (5 months from the
date of effectiveness), the use of proceeds from the Offering has significantly
changed.
Gross Proceeds $1,385,647
Less:
OFFERING EXPENSES
Underwriting Fees and Expenses $ 180,133
Attorneys Fees and Expenses $ 47,736
Accountants Fees and Expenses $ 75,000
----------
Total Offering Expenses $ 302,869
NOTES PAYABLE $ 320,000
GENERAL AND ADMINISTRATIVE EXPENSES $ 208,765
NETSOL ACQUISITION $ 500,000
Total Proceeds Used $1,331,634
Amount of Proceeds Remaining $ 53,400
4
Management of the Company anticipates that the remaining $53,400 in
proceeds will be spent on accounts payable of the Company.
RESULTS OF OPERATIONS
Because of the soft retail market, low inventory and dropped sales, the
management of the Company began to investigate other avenues the Company
could pursue. The Management of the Company was provided with an opportunity
to invest in Network Solutions (PVT) Limited and NetSol (U.K.) Ltd., related
computer software companies. This acquisition will provide the Company with
the opportunity to increase revenues and earnings.
OVERVIEW
Year Ended Year Ended
June 30, 1998 June 30, 1997
Net sales $ 168,835 $ 212,972
Cost of goods sold 133,860 149,501
Gross profit 34,975 63,471
Selling, general & administrative expenses 620,454 389,723
Other Income -0- 36,361
Net Loss (585,479) (289,891)
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
Net Sales. Net sales from continued operations deceased by $44,137 from
the fiscal year end June 30, 1997 ("fiscal 1997") to fiscal year ended June
30, 1998 ("fiscal 1998"). Total sales of the Company's apparel business
decreased to $133,860 in fiscal 1998 from $149,501 in fiscal 1997.The
decrease in sales and revenues in primarily due to prolonged public offering
process, closing down one store and dropping inventory. The Company
anticipates continuing fiscal 1998 showing increase in both sales and
revenues with its recent acquisition of NetSol.
Cost of Goods Sold. The cost of sales decreased in fiscal 1998 to
$133,860 from $149,501. This drop was primarily due to the Company's closing of
one store, low inventory and supplies as a result of the store's closure.
Expenses. Expenses in fiscal 1998 increased to $620,454 from
$389,723 in fiscal 1997. The increase was primarily due to the cost of the
public offering and the legal, accounting and filing fees associated with that.
Other Income. The Company did not have other income in fiscal 1998 as
opposed to the income received in fiscal 1997 of $36,361.
5
NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the net loss
applicable to common stockholders by the weighted average number of common
shares outstanding during the year. All common stock equivalents have been
excluded from the computations because their effect would be anti-dilutive.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued a
new statement titled "Accounting for Stock-Based Compensation" (SFAS 123). The
new statement is effective for fiscal years beginning after December 15, 1995.
SFAS 123 encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options, and other equity instruments to
employees based on fair value. Companies that do not adopt the fair value
accounting rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity instruments with
non-employees for goods or services must be accounted for on the fair value
method. For transactions with employees, the Company currently does not intend
to adopt the fair value accounting under SFAS 123, and will be subject only to
the related disclosure requirements.
YEAR 2000. The Company has begun to address possible remedial
efforts in connection with its computer software that could be affected by the
year 2000 problem. The year 2000 problem is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any programs that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company has been informed by the suppliers of
substantially all of the Company's software that all of those suppliers'
software that is used by the Company is Year 2000 compliant. The Company has no
internally generated software. After reasonable investigation, the Company has
not yet identified any Year 2000 problems but will continue to monitor the
issue. However, there can be no assurances that Year 2000 problems will not
occur with respect to the Company's computer systems. The Year 2000 problem may
impact other entities with which the Company transacts business, and the Company
cannot predict the effect of the year 2000 problem on such entities.
LIQUIDITY, CAPITAL RESOURCES AND CAPITAL EXPENDITURES
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its capital
requirements through partners' contributions of cash in the cumulative amount
of $165,738 since April 17, 1995 (inception) to December 31, 1996.
On February 26, 1997, the Company issued an unsecured note to
Manhattan West, Inc. in exchange for loans in the principal amount of
$46,997. The note is due quarterly starting on May 26, 1997 and bears
interest at the rate of 10% per annum. The note contains a conversion feature
whereby Manhattan West, Inc. may, at any time, convert the balance due and
owing to it into share of Common Stock of the Company at the rate of $0.45
per share. As of the date of this Memorandum, the balance due on the note is
$46,997 plus accrued interest.
At December 31, 1996, the Company had outstanding current
liabilities of $109,503. The Company anticipates satisfying its current
liabilities in the ordinary course of business from revenues and notes
receivable.
Capital expenditures during the period from inception through
December 31, 1996 were $54,516. Over the next 12 months, the Company plans to
upgrade its management information system, telecommunications system, and office
equipment to accommodate anticipated growth plans. The Company
6
anticipates these upgrades and acquisitions may require estimated
expenditures in excess of $100,000 over the next 12 months.
The Company does not believe that inflation has had a significant
impact on its operations since inception of the Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for the year ended June
30, 1998 were $620,454 (average of $51,704.50 per month) as compared to
$389,723 for the fiscal year ended June 30, 1997 (average of $32,476 per
month). The increase is, in part, due to opening of a new store in Diamond
Bar.
PART II - OTHER INFORMATION
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements that constitute Item 7 are
included at the end of this report beginning on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current
directors and executive officers of the Company, the principal offices and
positions with the Company held by each person and the date such person
became a director or executive officer of the Company. The executive officers
of the Company are elected annually by the Board of Directors. Each year the
stockholders elect the board of directors. The executive officers serve terms
of one year or until their death, resignation or removal by the Board of
Directors. In addition, there was no arrangement or understanding between any
executive officer and any other person pursuant to which any person was
selected as an executive officer.
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
Najeeb U. Ghauri 43 President, Secretary, and Director
Gill Champion 55 Vice President, Chief Financial Officer, and Director
Irfan Mustafa 46 Director
NAJEEB U. GHAURI is the President, Secretary, and Director of the
Company since 1997. Mr. Ghauri is responsible for the Company's corporate
finance, managing the day-to-day operations of the Company and is principally
responsible for the Company's development of production. Prior to joining the
Company, Mr. Ghauri was Territory Management for Arco Petroleum Products
Company since 1987. Mr. Ghauri received his B.S. degree in
Management/Economics from Eastern Illinois University in 1980, and his M.B.A.
in
7
Marketing Management from Claremont Graduate School in 1983. As of October,
1998, Mr. Ghauri became the Chief Financial Officer for Network Solutions
(Pvt) Limited.
GILL CHAMPION is the Vice President, Chief Financial Officer, and Director
of the Company since 1997. Mr. Champion is primarily responsible for the
marketing and distribution strategies of the Company as well as raising capital.
Prior to joining Mirage, Mr. Champion was the Chief Executive Officer of
American Cinema Stores, Inc., a public Company. from 1990 through 1996 where he
established domestic and international sales and marketing channels for licensed
entertainment products. Mr. Champion received his B.A. degree from New York
University.
IRFAN MUSTAFA is a Director of the Company since 1997. Mr. Mustafa is
currently a leader in the Executive Designate Program with Pepsi-Cola Company.
Mr. Mustafa has been with Pepsi-Cola since 1990. Mr. Mustafa received his M.B.A.
from IMD in Lousanne, Switzerland; also an another M.B.A. from Institute of
Business Administration in Karachi, Pakistan and a B.S.C. in Economics from
Pinajab University in Lahore, Pakistan.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
The following disclosure is based solely upon a review of the Forms
3 and 5 and any amendments thereto furnished to the Company during the Company's
fiscal year ended June 30, 1998. Based on this review, the following persons who
were directors, officers and beneficial owners of more than 10% of the Company's
outstanding Common Stock during such fiscal year filed late reports on Forms 3
and 5.
Najeeb U. Ghauri filed one late report on Form 3 and has not filed
form 5 as of the date of this filing. Irfan Mustafa, Gill Champion, Clearwater
Investments, and Whittington Investments, Ltd. have not filed their Form 3's or
Form 5's as of the date of this report.
ITEM 10-EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation
information for services rendered in all capacities during each of the last two
fiscal years by the Officers of the Company. No executive officer's salary and
bonus exceeded $100,000 in Fiscal 1998. The following information for the
Officers and Directors include the dollar value of base salaries, bonus awards,
the number of stock options granted and certain other compensation, if any,
whether paid or deferred.
8
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------
Name and Principal Position Year Annual Awards(2)
Compensation(1) ---------------------------
Restricted Securities
Stock Underlying
Awards(3) Options(4)
- ----------------------------------------------------------------------------------------------------------
Najeeb U. Ghauri, President and
Secretary of Mirage Holdings, Inc. 1998 $91,150 200,000 50,000
- ----------------------------------------------------------------------------------------------------------
Gill Champion, Vice President and
Chief Financial Officer of Mirage
Holdings, Inc. 1998 $91,149 50,000 50,000
- ----------------------------------------------------------------------------------------------------------
All Officers as a Group (2 persons) 1998 $182,299 250,000 100,000
- ----------------------------------------------------------------------------------------------------------
- ----------------------------
(1) No officers received or will receive any bonus or other annual
compensation other than salaries during fiscal 1997. The table does
not include any amounts for personal benefits extended to officers
of the Company, such as the cost of automobiles, life insurance and
supplemental medical insurance, because the specific dollar amounts
of such personal benefits cannot be ascertained. Management believes
that the value of non-cash benefits and compensation distributed to
executive officers of the Company individually or as a group during
fiscal year 1996 did not exceed the lesser of $50,000 or ten percent
of such officers' individual cash compensation or, with respect to
the group, $50,000 times the number of persons in the group or ten
percent of the group's aggregate cash compensation.
(2) No officers received or will receive any long term incentive plan
(LTIP) payouts or other payouts during fiscal 1998.
(3) All stock awards are shares of Common Stock of the Company.
(4) All securities underlying options are shares of Common Stock of the
Company.
EMPLOYMENT AGREEMENTS
OPTION GRANTS IN THE LAST FISCAL YEAR
Set forth below is information relating to grants of stock options
to the Officers of the Company pursuant to the Company's Stock Option Plans
during the fiscal year ended June 30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------
Name Number of Percent of total Exercise price Expiration
securities options granted to ($/Sh) date
underlying options employees in fiscal
granted year
- ------------------------------------------------------------------------------------------------------------------------
Najeeb U. Ghauri 50,000 42% $0.01 May 12,
per share 2002
- ------------------------------------------------------------------------------------------------------------------------
Gill Champion 50,000 42% $0.01 May 12,
per share 2002
- ------------------------------------------------------------------------------------------------------------------------
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COMPENSATION OF DIRECTORS
Directors of the Company do not receive any cash compensation, but
are entitled to reimbursement of their reasonable expenses incurred in
attending Directors' Meetings. In addition, the Company has granted to its
three directors 20,000 options to purchase common stock of the Company under
the Company's Incentive and Nonstatutory Stock Option Plan each.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock, its only class of
outstanding voting securities as of September 21, 1998, by (i) each person
who is known to the Company to own beneficially more than 10% of the
outstanding Common Stock with the address of each such person, (ii) each of
the Company's directors and officers, and (iii) all officers and directors as
a group:
- ---------------------------------------------------------- -------------------- ------------------------------
PERCENTAGE
NAME NUMBER OF SHARES(1) BENEFICIALLY OWNED
- ---------------------------------------------------------- -------------------- ------------------------------
Whittington Investments, Ltd.
Suite M2 Charlotte House
P.O. Box N4825
Nassau, Bahamas 993,400(2) 39.1%
- ---------------------------------------------------------- -------------------- ------------------------------
Clearweather Investments 387,565(3) 14.0%
- ---------------------------------------------------------- -------------------- ------------------------------
Najeeb U. Ghauri 250,000(4) 9.7%
- ---------------------------------------------------------- -------------------- ------------------------------
Irfan Mustafa 120,000(5) 4.7%
- ---------------------------------------------------------- -------------------- ------------------------------
Gill Champion 100,000(6) 3.9%
- ---------------------------------------------------------- -------------------- ------------------------------
All officers and directors as a group (3 persons) 470,000 17.8%
- ---------------------------------------------------------- -------------------- ------------------------------
- ------------
* Less than one percent
(1) Except as otherwise indicated, the Company believes that the
beneficial owners of Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities.
Shares of Common Stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding
for purposes of computing the percentage of the person holding such
options or warrants, but are not deemed outstanding for purposes of
computing the percentage of any other person.
(2) Includes 23,000 Warrants for shares of Common Stock of the
Company at an exercise price of $.75 for a term of five years from
the date of purchase of April 10, 1997.
(3) Includes 259,500 Warrants for shares of Common Stock of
the Company at an exercise price of $.75 for a term of five years
from the date of purchase of April 10, 1997.
(4) Includes 50,000 options issued under the Company's stock
option plan exercisable at $0.01 for five years from May 12, 1997.
(5) Includes 20,000 options issued under the Company's stock
option plan exercisable at $0.01 for five years from May 12, 1997.
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(6) Includes 50,000 options issued under the Company's stock option plan
exercisable at $0.01 for five years from May 12, 1997.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 30, 1997, the Company purchased 10% of the outstanding
capital stock of Network Solutions (PVT) Limited, a software development firm
in Lahore, Pakistan ("NetSol"), and on September 15, 1998, the Company
increased its ownership interest in NetSol to 51% of the outstanding capital
stock. See "Business of the Company" for a full description of this
transaction. The Company also acquired 43% in NetSol U.K. The Chief Executive
Officer, President, and Director of NetSol is Salim Ghauri; a Director of
NetSol is Shahab Ghauri; and another Director of NetSol is Naeem Ghauri; all
brothers of Najeeb U. Ghauri, President, Secretary, and a Director of the
Company. The Company believes that its investment with NetSol was on terms at
least as favorable to the Company as would be obtainable in arm's length
dealings with unrelated third persons. It is further the Company's intention
that all future transactions between the Company and NetSol will be on terms
at least as favorable to the Company as would be obtainable in arm's-length
dealings with unrelated third persons. However, the ongoing familial
relationship between management of the Company and management of NetSol could
result in conflicts of interest between the Company and NetSol, which could
result in actions taken by the Company that do not fully reflect the
interests of all shareholders of the Company. In order to minimize any
conflict of interest, the fairness and reasonableness of any material
transaction between the Company and NetSol in the future will be subject to
approval by a majority of the independent members of the Board of Directors
of the Company or by an independent firm selected by such members.
The Company's management believes that the terms of these
transactions are no less favorable to the Company than would have been
obtained from an unaffiliated third party in similar transactions. All future
transactions with affiliates will be on terms no less favorable than could be
obtained from unaffiliated third parties, and will be approved by a majority
of the disinterested directors.
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
1 Underwriting Agreement(1)
3 Articles of Incorporation of Mirage Holdings, Inc., a Nevada
corporation, dated March 18, 1997(1)
3.2 Bylaws of Mirage Holdings, Inc., dated March 18, 1997(1)
4 Lock-Up Agreement (form)(1)
10.1 Lease Agreement, dated August 1, 1995(1)
10.2 Lease Agreement, dated September 19, 1996(1)
10.3 Lease Agreement, dated March 12, 1997(1)
10.4 Company Stock Option Plan, dated April 1, 1997(1)
10.5 Employment Agreement, dated May 15, 1997 between Mirage
Holdings, Inc. and Najeeb U. Ghauri(1)
10.6 Employment Agreement, dated May 15, 1997 between Mirage
Holdings, Inc. and Gill Champion(1)
- ------------
(1) Incorporated by reference to Registration Statement No. 333-28861 on
Form SB-2.
11
10.7 Lease Agreement, dated September 7, 1998 for Santa Monica,
California executive offices (as incorporated herein)
10.8 Acquisition Agreement, dated September 15, 1998 by and between
Company and NetSol (as incorporated herein
21 A list of all subsidiaries of the Company (as incorporated herein)
24.1 Consent of Stonefield Josephson & Company
12
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MIRAGE HOLDINGS, INC.
Date: October 12 , 1998 By:/s/ Najeeb U. Ghauri
----------------------- -----------------------
Najeeb U. Ghauri
President and Secretary
Date: October 12 , 1998 By:/s/ Gill Champion
----------------------- --------------------
Gill Champion
Chief Financial Officer and
Vice President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Date: October 12 , 1998 By:/s/ Najeeb U. Ghauri
----------------------- -----------------------
Najeeb U. Ghauri
President and Secretary
Date: October 12 , 1998 By:/s/ Gill Champion
---------------------- --------------------
Gill Champion
Chief Financial Officer and
Vice President
Date: October 12 , 1998 By:/s/ Irfan Mustafa
---------------------- --------------------
Irfan Mustafa
Director
13
MIRAGE HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statement of Stockholders' Deficiency F-4
Consolidated Statements of Cash Flows F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-13
Board of Directors
Mirage Holdings, Inc.
Santa Monica, California
We have audited the accompanying consolidated balance sheet of Mirage
Holdings, Inc. as of June 30, 1998, and the related consolidated statements
of operations, stockholders' deficiency and cash flows for the years ended
June 30, 1998 and 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit 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 consolidated 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 audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mirage
Holdings, Inc. as of June 30, 1998, and the results of its consolidated
operations and its cash flows for the years ended June 30, 1998 and 1997 in
conformity with generally accepted accounting principles.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
October 9, 1998
F-1
MIRAGE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET - JUNE 30, 1998
ASSETS
OTHER ASSETS:
Investment $ 275,000
Deferred offering costs 203,813
---------
$ 478,813
---------
---------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 352,738
Notes payable 338,700
Loan payable, related party 118,910
---------
Total current liabilities $ 810,348
STOCKHOLDERS' DEFICIENCY:
Common stock; $.001 par value, 25,000,000 shares
authorized, 1,774,065 shares issued and outstanding 1,774
Additional paid-in capital 542,061
Accumulated deficiency (875,370)
---------
Total stockholders' deficiency (331,535)
---------
$ 478,813
---------
---------
See accompanying independent auditors' report and notes to financial statements.
F-2
MIRAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended
June 30, 1998 June 30, 1997
------------- -------------
NET SALES $ 168,835 $ 212,972
COST OF SALES 133,860 149,501
----------- -----------
GROSS PROFIT 34,975 63,471
OPERATING EXPENSES 620,454 389,723
----------- -----------
LOSS FROM OPERATIONS (585,479) (326,252)
OTHER INCOME -- 36,361
NET LOSS $ (585,479) $ (289,891)
----------- -----------
----------- -----------
NET LOSS PER SHARE:
Basic $ (0.33) $ (0.22)
----------- -----------
----------- -----------
Diluted $ (0.26) $ (0.21)
----------- -----------
----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 1,774,065 1,297,005
----------- -----------
----------- -----------
Diluted 2,291,065 1,385,605
----------- -----------
----------- -----------
See accompanying independent auditors' report and notes to financial statements.
F-3
MIRAGE HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED JUNE 30, 1998
Total
Common stock Additional stockholders'
------------ paid-in equity/
Shares Amount capital Deficiency (deficiency)
------- --------- --------- ---------- -------------
Balance at July 1, 1996 895,000 $ 895 $ 9,266 $ -- $ 10,161
Capital contributions 86,400 86,400
Issuance of common stock for cash 564,065 564 244,760 -- 245,324
Issuance of common stock for
services 355,000 355 177,145 177,500
Issuance of warrants for cash
(convertible to common stock) 44,450 44,450
Net loss for the year ended
June 30, 1997 (289,891) (289,891)
---------- --------- --------- --------- ---------
Balance at June 30, 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)
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
See accompanying independent auditors' report and notes to financial statements.
F-4
MIRAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
Year ended Year ended
June 30, 1998 June 30, 1997
------------- -------------
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net loss $ (585,479) $ (289,891)
----------- -----------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization 1,814 7,254
Gain (loss) on sale of marketable securities 13,587 (36,219)
Non-cash compensation expense -- 177,500
Bad debts 46,051 --
Loss on impairment of property and equipment 43,867 --
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable 4,009 4,040
Inventory 46,891 15,724
INCREASE (DECREASE) IN LIABILITIES--
accounts payable and accrued expenses 316,058 27,254
----------- -----------
Total adjustments 472,277 195,553
----------- -----------
Net cash used for operating activities (113,202) (94,338)
----------- -----------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Proceeds from note receivable 113,104 --
Purchase of investments (75,000) (334,455)
Purchase of property, plant and equipment (3,736) (9,570)
----------- -----------
Net cash provided by (used for) investing activities 34,368 (344,025)
----------- -----------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Issuance of common stock and warrants, net -- 289,774
Redemption of common stock (20,000) --
Proceeds from notes payable, net 224,050 135,183
Deferred offering costs (163,813) (40,000)
Capital contributions -- 86,400
----------- -----------
Net cash provided by financing activities 40,237 471,357
----------- -----------
NET INCREASE (DECREASE) IN CASH (38,597) 32,994
CASH AND CASH EQUIVALENTS, beginning of period 33,079 85
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ (5,518) $ 33,079
----------- -----------
----------- -----------
See accompanying independent auditors' report and notes to financial statements.
F-5
MIRAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
Year ended Year ended
June 30, 1998 June 30, 1997
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
interest expense $ 33,918 $ 5,202
----------- -----------
----------- -----------
NON-CASH FINANCING ACTIVITY:
During the year ended June 30, 1997, the Company issued 355,000
shares of common stock at a value of $177,500 for services rendered.
See accompanying independent auditors' report and notes to financial statements.
F-6
MIRAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND 1997
(1) GENERAL:
Mirage Holdings, Inc. was incorporated under the laws of the State of
Nevada on March 18, 1997. Mirage Collection, Inc., a wholly-owned
subsidiary of Mirage Holdings, Inc., began business as a partnership
July 1, 1995, and was reorganized into a corporation in the State of
Nevada pursuant to Internal Revenue Code Section 351 on April 1, 1997.
Accordingly, the accompanying consolidated financial statements have
been presented as though the acquisition of Mirage Collection, Inc.
occurred at the beginning of the period (July 1, 1996).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY:
The operating subsidiary of the Company was formed for the
purpose of marketing unique fashions. The subsidiary Company
specializes in the marketing of fashions targeted toward the
segment where discriminating customers are always looking
for unique and innovative products.
PRINCIPLES OF CONSOLIDATION:
The accompanying financial statements include the accounts
of the Company and its wholly-owned subsidiary, Mirage
Collection, Inc. All material intercompany accounts have
been eliminated in consolidation.
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.
FAIR VALUE:
Unless otherwise indicated, the fair values of all reported
assets and liabilities which represent financial
instruments, none of which are held for trading purposes,
approximate carrying values of such amounts.
See accompanying independent auditors' report.
F-7
MIRAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CASH EQUIVALENTS:
For purposes of the statement of cash flows, cash
equivalents include all highly liquid debt instruments with
original maturities of three months or less which are not
securing any corporate obligations.
NET INCOME (LOSS) PER SHARE:
The Company has adopted Statement of Financial Accounting
Standard No. 128, Earnings per Share ("SFAS No. 128"), which
is effective for annual and interim financial statements
issued for periods ending after December 15, 1997. SFAS No.
128 was issued to simplify the standards for calculating
earnings per share ("EPS") previously in APB No. 15,
Earnings Per Share. SFAS No. 128 replaces the presentation
of primary EPS with a presentation of basic EPS. The new
rules also require dual presentation of basic and diluted
EPS on the face of the statement of operations.
For the years ended June 30, 1998 and 1997, the per share
data is based on the weighted average number of common and
common equivalent shares outstanding, and are calculated in
accordance with Staff Accounting Bulletin of the Securities
and Exchange Commission (SAB) No. 98 whereby common stock,
options or warrants to purchase common stock or other
potentially dilutive instruments issued for nominal
consideration must be reflected in basic and diluted per
share calculations for all periods in a manner similar to a
stock split, even if anti-dilutive. Accordingly, in
computing basic earnings per share, nominal issuances of
common stock are reflected in a manner similar to a stock
split or dividend. In computing diluted earnings per share,
nominal issuances of common stock and potential common stock
are reflected in a manner similar to a stock split or
dividend.
ACCOUNTING FOR STOCK-BASED COMPENSATION:
During October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, which applies
the fair-value method of accounting for stock-based
compensation plans. In accordance with this recently issued
standard, the Company expects to continue to account for
stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees. Proforma information regarding net income and
earnings per share under the fair-value method has not been
presented as the amounts are immaterial.
See accompanying independent auditors' report.
F-8
MIRAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES:
Deferred income taxes are reported using the liability
method. Deferred tax assets are recognized for deductible
temporary differences and deferred tax liabilities are
recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date
of enactment.
As of June 30, 1998, the Company had net federal and state
operating loss carryforwards totaling approximately $876,000
expiring in various years through 2018. Deferred tax assets
resulting for the net operating losses are reduced in full
by a valuation allowance.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF:
On April 1, 1997, the Company adopted the provision of FASB
No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. This statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amounts of the assets exceed the
fair values of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value
less costs to sell. Adoption of this statement did not have a
material impact on the Company's financial position, results
of operations or liquidity.
(3) BASIS OF PRESENTATION:
On April 1, 1997, the Company entered into an acquisition agreement
whereby the Company acquired 100% of the outstanding capital stock of
Mirage Collection, Inc. ("Collection"), a Nevada Corporation. In full
consideration and exchange for the Collection stock, the Company
issued and delivered 895,000 shares of its restricted common stock.
Accordingly, the accompanying financial statements present the
combined operating results of both entities for the entire year
accounted for as a reorganization of businesses under common control
in a manner similar to pooling of interest accounting.
Upon completion of the merger and acquisition agreement, Collections'
stockholder became a director and stockholder of the Company.
See accompanying independent auditors' report.
F-9
MIRAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
A summary is as follows:
Fees relating to initial public offering $ 152,431
Accrued expenses 87,909
Accrued consulting fees 55,000
Accrued interest 43,811
Other 13,587
--------------------
$ 352,738
--------------------
--------------------
Included in accounts payable and accrued expenses is a book overdraft
of $5,518.
(5) NOTES PAYABLE:
A summary is as follows:
Note payable, stockholder, unsecured, payable on demand,
with interest at approximate Prime Base Rate (8.50%)
plus 2%. $ 37,500
Note payable, unsecured, payable on demand, with interest
at approximate Prime Base Rate (8.50%) to a party
related to a stockholder of Mirage Holdings, Inc. 21,200
Note payable, unsecured, payable on demand, with interest
at approximate Prime Base Rate (8.50%) plus 2%. 60,000
Note payable, unsecured, payable on demand, with interest
at approximate Prime Base Rate (8.50%) plus 2%. 50,000
Note payable, stockholder, unsecured, payable on demand,
with interest at approximate Prime Base Rate (8.50%)
plus 2%. 50,000
Note payable, unsecured, payable on demand, with interest
at approximate Prime Base Rate (8.50%) plus 2%. 20,000
Note payable, unsecured, payable on demand, with interest
at approximate Prime Base Rate (8.50%) plus 2%. 40,000
Note payable, unsecured, payable on demand, with interest
at approximate Prime Base Rate (8.50%) plus 2%. 40,000
Note payable, unsecured, payable on demand, with interest
at approximate Prime Base Rate (8.50%) plus 2%. 20,000
--------------------
338,700
Less current maturities 338,700
--------------------
$ -
--------------------
--------------------
Interest expense amounted to $33,918 and $5,202 for the years ended
June 30, 1998 and 1997, respectively.
See accompanying independent auditors' report.
F-10
MIRAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
(6) LOAN PAYABLE, RELATED PARTY:
The loan payable, related party bears interest at 10% per annum.
Knightrider Investments, Ltd., a related party through a common
stockholder, is the holder of the loan.
(7) INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN:
On April 1, 1997, the Company adopted an Incentive and Nonstatutory
Stock Option Plan (the "Plan") for its employees and consultants under
which a maximum of 500,000 options may be granted to purchase common
stock of the Company. Two types of options may be granted under the
Plan: (1) Incentive Stock Options (also know as Qualified Stock
Options) which may only be issued to employees of the Company and
whereby the exercise price of the option is not less than the fair
market value of the common stock on the date it was reserved for
issuance under the Plan; and (2) Nonstatutory Stock Options which may
be issued to either employees or consultants of the Company and
whereby the exercise price of the option is less than the fair market
value of the common stock on the date it was reserved for issuance
under the plan. Grants of options may be made to employees and
consultants without regard to any performance measures. All options
listed in the summary compensation table ("Securities Underlying
Options") were issued pursuant to the Plan. An additional 20,000
Incentive Stock Options were issued to a non-officer-stockholder of
the Company. All options issued pursuant to the Plan vest over an 18
month period from the date of the grant per the following schedule:
33% of the options vest on the date which is six months from the date
of the grant; 33% of the options vest on the date which is 12 months
from the date of the grant; and 34% of the options vest on the date
which is 18 months from the date of the grant. All options issued
pursuant to the Plan are nontransferable and subject to forfeiture. As
of June 30, 1998, the Company has issued 120,000 Incentive Stock
Options with an exercise price of $0.01 per share, of which all have
vested but have not been exercised.
Proforma net income and earnings per share, as if the fair value
method of accounting were used, has not been presented because the
amounts are immaterial for the periods presented.
(8) PRIVATE PLACEMENT:
On April 10, 1997, the Company commenced a private placement (the
"Private Placement") of 564,065 shares of the Company's common stock
at a purchase price of $0.50 per share (the "Private Placement Stock")
and 444,500 warrants, each warrant to purchase one share of the
Company's common stock at an exercise price of $0.75 for a term of
five years at a purchase price of $0.10 per warrant (the "Private
Placement Warrants"). The Private Placement was exempt from the
registration provisions of the Act by virtue of Section 4(2) of the
Act, as transactions by an issuer not involving any public offering.
The securities issued pursuant to the Private Placement were
restricted securities as defined in Rule 144. The offering generated
gross proceeds of approximately $326,500.
See accompanying independent auditors' report.
F-11
MIRAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
(9) INVESTMENT:
On March 30, 1997, the Company purchased 10% of the outstanding
capital stock of Network Solutions (PVT) Limited, a software
development firm in Lahore, Pakistan ("NetSol PVT"), in exchange for
the payment of $200,000. The cash consideration of $200,000 was paid
by the Company from the net proceeds of the Private Placement. NetSol
was incorporated in Pakistan on August 22, 1996, under the Companies
Ordinance 1984, as a private company limited by shares. The principal
business of NetSol is the development and export of software. A
stockholder of the Company is a related party to the officers of
NetSol. The Company has given additional cash consideration of $75,000
pursuant to a stock purchase agreement dated September 15, 1998 (see
note 12). Management believes that the fair value exceeds its recorded
amount, although such amount is not practically determinable.
(10) COMMITMENTS:
The Company leases a 1,150 square feet showroom in Diamond Bar,
California. The lease expires on September 30, 2001 and requires
monthly payments of approximately $1,150. Prior to its termination,
the Company has an option to renew the lease for an additional
five-year term at the then fair market value of the property.
The following is a schedule by years of future minimum rental payments
required under this operating lease that has a noncancellable lease
term in excess of one year as of June 30, 1998:
Year ending June 30,
1999 $ 13,800
2000 13,800
2001 10,350
--------------------
$ 37,950
--------------------
--------------------
Rent expense amounted to $65,916 and $46,759 for the years ended June
30, 1998 and 1997, respectively.
(11) DEFERRED ACQUISITION COSTS:
The Company is in the registration process of a proposed public
offering. Deferred stock offering costs of $203,813 will be charged
against the proceeds of the proposed public offering when it becomes
effective (see note 12).
See accompanying independent auditors' report.
F-12
MIRAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1998 AND 1997
(12) SUBSEQUENT EVENTS:
During September 1998, the Company entered into a stock purchase
agreement with NetSol PVT, (see note 9) and NetSol (U.K.) Limited
("NetSol UK"), a United Kingdom Corporation. 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 Company completed the sale of its minimum offering of shares in
its initial public offering on September 16,1998. The minimum offering
generated gross proceeds of $1,385,647.
See accompanying independent auditors' report.
F-13