MRGE Mirage Energy Corporation (PK)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Except for historical information, this report contains certain forward-looking statements. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed herein as well as in the “Current Business” and "Risk Factors" sections in our Form 8-K, as filed on January 27, 2017. You should carefully review the risks described in our documents we file from time to time with the Securities and Exchange Commission (“SEC”). You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

All references in this Form 10-Q to the “Company,” “Mirage Energy,” “we,” “us,” or “our” are to Mirage Energy Corporation.

Corporate Overview

Company’s Plans 

The Company has proposed to develop an integrated natural gas pipeline system in Texas and Mexico. The purpose of these pipelines will be to transport and store natural gas in an underground natural gas storage facility, which the Company proposes to permit and develop in northern Mexico. The Company believes that it has made substantial progress toward these goals with its preliminary project engineering designs and high level meetings with representatives of various Mexican regulatory agencies. 

Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three Months ended April 30, 2018 and 2017

Revenues

Three month period ended April 30, 2018

For the three (3) month period ended April 30, 2018, we generated no revenue and incurred a net loss of $343,470.

Our net loss of $343,470 for the three (3) month period ended April 30, 2018 was the result of operating expenses of $228,243 and other expense (comprised of interest expense) of $115,227. Our operating expenses consisted of $208,854 in general and administrative expenses, and $19,389 in professional fees.

Three month period ended April 30, 2017  

For the three (3) month period ended April 30, 2017, we generated no revenue and incurred a net loss of $508,802. 

Our net loss of $508,802 for the three (3) month period ended April 30, 2017 was the result of operating expenses of $505,788 and other expense (comprised of interest expense) of $3,014. Our operating expenses consisted of $467,278 in general and administrative expenses, and $38,510 in professional fees.

Costs and Expenses  

Our primary costs going forward are related to engineering, travel, professional fees, and legal fees associated with our proposed pipeline and natural gas storage activities in Mexico.

For the three (3) months ended April 30, 2018 and April 30, 2017, total general and administrative expenses were $228,243 and $505,788, respectively.

For the three (3) months ended April 30, 2018, we had $208,854 in general and administrative expenses compared to $467,278 in general and administrative expenses for the three (3) months ended April 30, 2017. The $258,424 decrease in general and administrative expenses was primarily due to the reduction in spending related to director compensation.

The professional fees for the three (3) months ending April 30, 2018 and April 30, 2017 were $19,389 and $38,510, respectively. The $19,121 decrease was primarily related to a reduction in legal fees and transfer agent costs.

The executive compensation for the three (3) months ending April 30, 2018 and April 30, 2017 was $116,500 and $116,500, respectively. No change was due to same executives on the payroll during this quarter with no change in compensation amounts.

Liquidity and Capital Resources  

Cash Flows  

Operating Activities  

For the nine (9) month period ended April 30, 2018, net cash used in operating activities was $175,172. The negative cash flow for the nine (9) months ended April 30, 2018 related to our net loss of $1,043,440, a decrease in prepaid expenses of $1,019, adjusted for depreciation of $1,185, an increase of $83,500 in convertible debt due to default, a change of $121,391 in convertible debt due to fair market value, an increase of $185,679 in accounts payable, an increase of $13,494 in accrued expenses and an increase of $419,500 in accrued salaries and payroll taxes – related parties.

For the nine (9) month period ended April 30, 2017, net cash used in operating activities was $221,517. The negative cash flow for the nine (9) months ended April 30, 2017 related to our net loss of $990,085, an increase in prepaid expenses of $4,084, adjusted for depreciation of $1,186, an increase of $46,991 in accounts payable, and an increase of $32,399 in accrued expenses.

Investing Activities 

For the nine (9) months ended April 30, 2018 net cash used in investing activities was nil.

For the nine (9) months ended April 30, 2017 net cash used in investing activities was $44,941. The negative cash flow from investing activities for such period was comprised of loans receivable – officer in the amount of $11,000 and project development costs of $33,941.

Financing Activities 

For the nine (9) months ended April 30, 2018, net cash provided by financing activities was $168,578. The positive cash flow from financing activities for such period was comprised of an increase in proceeds from related party loan and convertible debt and increase in repayment of related party loan.

For the nine (9) months ended April 30, 2017, net cash provided from financing activities was $189,744. The positive cash flow from financing activities for such period was comprised of an increase in loans payable from related parties and proceeds from sale of common stock.

Liquidity 

To date, we have funded our operations primarily with capital provided and loans provided by related parties, salaries accrued to related parties and accounts payable along with sale of convertible debentures. 

As of April 30, 2018, Mirage Energy Corporation had $5,182 in cash on hand and prepaid expenses of $540. Since Mirage Energy Corporation was unable to reasonably project its future revenue, it must presume that it will not generate any revenue during the next twelve (12) to twenty-four (24) months. We therefore will need to obtain additional debt or equity funding in the next two (2) – three (3) months, but there can be no assurances that such funding will be available to us in sufficient amounts or on reasonable terms.

The Company’s audited financial statements for the year ended July 31, 2017 contain a “going concern” qualification. As discussed in Note 3 of the Notes to Financial Statements, the Company has incurred losses and has not demonstrated the ability to generate cash flows from operations to satisfy its liabilities and sustain operations. Because of these conditions, our independent auditors have raised substantial doubt about our ability to continue as a going concern. 

Our financial objective is to make sure the Company has the cash and debt capacity to fund on-going operating activities, investments and growth. We intend to fund future capital needs through our current cash position, additional credit facilities, future operating cash flow and debt or equity financing. We are continually evaluating these options to make sure we have capital resources to meet our needs.

Existing capital resources are insufficient to support continuing operations of the Company over the next 12 months.

Management makes no assurances that adequate capital resources will be available to support continuing operations over the next 12 months. Management plans to pursue additional capital funding through multiple sources.

For the nine months ended April 30, 2018, the Company has funded operations of $175,172 through loan proceeds of $209,000 and proceeds from related parties’ loan payable of $27,700. The $209,000 loan proceeds are from sale of convertible notes. The Company plans to raise additional funds through various sources to support ongoing operations during 2018.

While no assurances can be given regarding the achievement of future results as actual results may differ materially, management anticipates adequate capital resources to support continuing operations over the next 12 months through the combination of infused capital through exercised warrants, infused capital through non-public private placement and existing cash reserves.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which 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.

Revenue Recognition

The Company intends to recognize revenues when earned which shall be as products are shipped and services are delivered to customers or distributors. The Company shall also record accounts receivable for revenue earned but not yet collected.

Income Taxes

Income taxes are provided based upon the liability method of accounting pursuant to FASB ASC 740-10-25 Income Taxes – Recognition. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by FASB ASC 740-10-25-5.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

At July 31, 2017, the Company had net operating loss carry forwards of approximately ($794,945), which will begin to expire in 2036 and are calculated at an expected blended tax rate of approximately 26%.

“FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2015, the Company has not taken any tax positions that would require disclosure under FASB ASC 740.

Pursuant to FASB ASC 740, income taxes are provided for based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by FASB ASC 740 to allow recognition of such assets.

Earnings (Loss) Per Share (“EPS”)

FASB ASC 260, Earnings Per Share provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Basic and diluted losses per share were the same at the reporting dates as there were no common stock equivalents considered dilutive and outstanding.

Derivative Instruments

FASB ASC 815, Derivatives and Hedging establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk; or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

Impairment of Long-Lived Assets

Long-lived assets of the Company, including the Technology Rights, are reviewed for impairment when changes in circumstances indicate their carrying value has become impaired, pursuant to guidance established in the FASB ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Management considers assets to be impaired if the carrying amount of an asset exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the asset will be written down to fair value, and a loss is recorded as the difference between the carrying value and the fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

Fair Value of Financial Instruments

The Company’s financial instruments as defined by FASB ASC 825-10-50 include cash, trade accounts receivable, and accounts payable and accrued expenses.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Inflation

It is our opinion that inflation has not had a material effect on our operations.