UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Quarter Ended December 31, 2002
or
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
Commission File No. 000-33197
WARP TECHNOLOGY HOLDINGS, INC.
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(Name of Small Business Issuer in its Charter)
Nevada 88-0467845
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
535 West 34 Street, 5th Floor, New York, N.Y. 1001
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(Address of principal executive office)
Issuer's telephone number: (212) 962-9277
--------------
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) been
subject to such filing requirements for the past ninety (90) days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of January 15, 2003, there were
62,845,360 shares of Common Stock, par value $.00001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Page 1
PART I
FINANCIAL INFORMATION
Forward-Looking Information
Certain statements in this Form 10-QSB and elsewhere (such as in other
filings by WARP Technology Holdings, Inc. (the "Company") with the Securities
and Exchange Commission (the "Commission"), press releases or the content of the
Company's Internet web-site) may constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements include those relating to future opportunities, the
outlook of customers, the reception of new products and technologies, and the
success of new initiatives. In addition, such forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results expressed or implied by such forward-looking
statements. Such factors include: (i) demand for the Company's products; (ii)
the actions of current and potential new competitors; (iii) changes in
technology; (iv) the nature and amount of the Company's revenues and expenses;
and (v) overall economic conditions and other risks detailed from time to time
in the Company's periodic earnings releases and reports filed with the
Commission, as well as the risks and uncertainties discussed in the Company's
Annual Report on Form 10-KSB filed with the Commission on October 7, 2002 (the
"Form 10-KSB").
ITEM 1. FINANCIAL STATEMENTS.
Table of Contents Page
----------------- ----
Consolidated Balance Sheets - December 31, 2002
(unaudited) and June 30, 2002 3
Unaudited Consolidated Statements of Operations -
For three and six months ended December 31, 2002 4
Unaudited Consolidated Statements of Cash Flows -
For three and six months ended December 31, 2002 5
Notes to Consolidated Financial Statements 6 - 9
Page 2
WARP Technology Holdings, Inc.
Consolidated Balance Sheets
December 31, June 30,
2002 2002*
-----------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 563,962 $ 1,184,652
Accounts receivable 579,422 68,000
Prepaid expenses and other 191,342 160,473
Deferred product cost 82,066 --
Due from stockholder -- 19,000
-----------------------------
Total current assets 1,416,792 1,432,125
Property and equipment, net 72,293 97,367
Advances to Spider Software 250,000 --
Other assets 7,065 3,500
-----------------------------
Total assets $ 1,746,150 $ 1,532,992
=============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 287,197 $ 149,286
Accrued expenses 171,932 408,142
Deferred revenue 745,692 56,667
-----------------------------
Total liabilities - all current 1,204,821 614,095
Stockholders' equity:
Common stock, $.00001 par value;
100,000,000 shares authorized,
62,845,360 and 57,145,360 shares
issued and outstanding at
December 31, 2002 and June 30, 2002,
respectively 629 572
Additional paid-in capital 32,940,496 14,868,554
Deferred compensation (11,666,667) --
Accumulated deficit (20,733,129) (13,950,229)
-----------------------------
Total stockholders' equity 541,329 918,897
-----------------------------
Total liabilities and stockholders' equity $ 1,746,150 $ 1,532,992
=============================
*The consolidated balance sheet as of June 30, 2002 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
See accompanying notes.
Page 3
WARP Technology Holdings, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
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Revenue $ 86,731 $ -- $ 146,398 $ --
Product cost 354 32,951
Product development 115,095 644,918 252,326 1,485,553
Sales, marketing and business development 129,525 74,760 336,256 79,929
General and administrative 616,477 1,006,073 1,183,301 1,573,443
Non cash compensation 5,133,333 231,000 5,133,333 231,000
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Net loss before interest income 5,908,053 1,956,751 6,791,769 3,369,925
---------------------------------------------------------
Interest income 3,621 7,002 8,868 20,261
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Net loss $(5,904,432) (1,949,749) (6,782,901) (3,349,664)
=========================================================
Basic and diluted net loss per share $ (0.10) $ (.10) $ (0.11) $ (0.17)
=========================================================
Weighted-average number common
shares--basic and diluted 61,361,556 19,981,630 60,471,882 19,981,630
=========================================================
See accompanying notes.
Page 4
WARP Technology Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
2002 2001
---------------------------
Operating activities $(6,782,901) $(3,349,664)
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 38,265 114,456
Loss on abandonment of assets -- 227,566
Deferred rent (22,780)
Amortization of deferred compensation 5,133,333 231,000
Changes in operating assets and
Liabilities:
Accounts receivable (511,422) 30,953
Prepaid expenses and other (30,869) 50,399
Accounts payable and accrued expenses (98,299) 181,799
Deferred revenue 689,025
---------------------------
Deferred cost of sales (82,066) --
---------------------------
Net cash used in operating activities (1,644,934) (2,536,271)
---------------------------
Investing activities
Security deposits (2,875) 658
Purchase of property and equipment (13,191) (10,983)
Advances on acquisition (250,000) --
Other assets (690) --
---------------------------
Net cash used in investing activities (266,756) (10,325)
---------------------------
Financing activities
Collection of stockholder loan 19,000 --
Proceeds from issuance of common stock, net of
issuance costs 1,272,000 --
Principal payments on capital lease obligation -- (9,456)
Restricted cash -- 5,511
---------------------------
Net cash provided by (used in) financing activities 1,291,000 (3,945)
---------------------------
Net decrease in cash (620,690) (2,550,541)
Cash--beginning of period 1,184,652 2,647,200
---------------------------
Cash--end of period $ 563,962 $ 96,659
===========================
See accompanying notes.
Page 5
Notes To Consolidated Financial Statements
Note 1. Organization Merger and Description of Business
On May 24, 2002 ("the Closing Date") Abbott Mines, Ltd. ("AMI"), a Nevada
corporation, acquired the outstanding common stock of WARP Solutions,
Inc("WARP") in a Share Exchange transaction (the "Share Exchange"). The
transaction was effected by the issuance of 5.5254528 shares of AMI's common
stock after giving effect to the September Stock Dividend described below. In
connection with the Share Exchange, the officers and directors of WARP became
the officers of AMI and joined the board of directors of AMI, replacing AMI's
officers and one of the AMI directors who resigned their positions at the
Closing Date. This resulted in the former WARP stockholders owning the majority
of the outstanding shares of AMI. For financial reporting purposes, the
transaction is accounted for as a reverse acquisition, and WARP has been treated
as the acquiring entity for accounting purposes.
Although AMI is the surviving legal entity in the Share Exchange, the
transaction was accounted for as an issuance of equity by WARP, and a
recapitalization of WARP under the capital structure of AMI in exchange for $690
in net assets. Under the purchase method of accounting, the historical results
of WARP have been carried forward and AMI's operations have been included in the
financial statements commencing on the Closing Date. Accordingly, all the
historical results included are those of WARP only.
On September 20, 2002, the Company's Board of Directors declared a stock split
in the form of a dividend (the "September Stock Dividend") payable to the common
stockholders of record on September 24, 2002 (the "record date") of three shares
of common stock for each one share issued and outstanding on the record date.
The September Stock Dividend was effective and payable on October 2, 2002. All
common share amounts have been reflected in the accompanying financial
statements and related footnotes as if the Share Exchange and the September
Stock Dividend had occurred as of the beginning of all periods presented.
On August 12, 2002, the Company's Board of Directors authorized and approved the
establishment of a subsidiary in the state of Nevada with the name WARP
Technology Holdings, Inc. In addition, the Company's Board of Directors
authorized and approved the issuance of 100,000 shares of the Company's common
stock, to its attorneys for legal services.
On August 15, 2002, the Company's Board of Directors authorized and approved the
upstream merger of WARP Technology Holdings, Inc., the Company's wholly-owned
subsidiary, with and into the Company ("the Upstream Merger"). The Upstream
Merger became effective on August 21, 2002, and the Company changed its name
from Abbott Mines, Ltd. to WARP Technology Holdings, Inc.
Page 6
Note 1. Organization Merger and Description of Business (continued)
AMI was incorporated on June 26, 2000, for the purpose of acquiring, exploring
and developing mining properties. Subsequent to the Closing Date, AMI ceased all
exploration activities.
WARP was organized as a Delaware Limited Liability Company ("LLC") on July 16,
1999, for the purpose of developing Internet performance and security software.
On December 14, 1999, the LLC was reorganized as a Delaware corporation and
changed it name to WARP Solutions, Inc. WARP is creating software solutions,
which allow web-sites to handle more traffic and provide a reliable web
experience. The WARP 2063, which was completed and available for general release
in 2002, is WARP's sole product. WARP is actively selling the WARP 2063
worldwide, focusing on the United States, the United Kingdom, and the Far East.
Additionally, WARP is developing products that permit secure and private
transactions over the Internet.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of WARP
and its wholly-owned subsidiary (collectively the "Company"). All material
inter-company transactions and balances have been eliminated in consolidation.
Basis of Presentation
The Company was a development stage enterprise through December 31, 2001. In
2002, the Company began to generate revenues and ceased to be a development
stage enterprise. Accumulated losses incurred from inception through December
31. 2001 was $12,334,580.
Change of Year End
During 2002, the Company announced a fiscal year end change from December 31 to
June 30.
Reclassification
Certain financial statement items have been reclassified to conform to the
current period's presentation.
Page 7
Note 2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Pursuant to AICPA Statement of Position ("SOP") 97-2, Software Revenue
Recognition, the Company recognizes revenues from software licenses when
persuasive evidence of a contractual arrangement exists, delivery has occurred,
the fee is fixed or determinable and collection is probable. The Company's
software licenses generally are marketed with certain post-contract customer
support ("PCS") and other obligations, which may include maintenance, delivery
of unspecified upgrades, and warranties regarding service response times.
Revenue under PCS agreements are recognized ratably over the term of the
agreement. Under SOP 97-2, the Company must allocate revenue to each element
based on vendor specific objective evidence ("VSOE") of each element's fair
value. Since the Company has just begun to market its products, VSOE of the fair
value of each element has not been clearly established. Accordingly, revenue
from license agreements are being recognized ratably over the term of the PCS
agreement.
Loss Per Share
Basic and diluted net loss per share information for all periods is presented
under the requirements of SFAS No. 128, Earnings Per Share. Basic loss per share
is calculated by dividing the net loss by the weighted-average common shares
outstanding during the period. Diluted loss per share is calculated by dividing
net loss by the weighted-average common shares outstanding plus the dilutive
effect of convertible preferred stock, warrants and stock options. The dilutive
effect of preferred stock, warrants and options is not included as the inclusion
of such is anti-dilutive for all periods presented.
Segment Information
The Company operates in one segment.
Impact of Recent Accounting Pronouncements
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 provides guidance on the timing of the
recognition of costs associated with exit or disposal activities. The new
guidance requires costs associated with exit or disposal activities to be
recognized when incurred. Previous guidance required recognition of costs at the
date of commitment to an exit or disposal plan. The provisions of the statement
are to be adopted prospectively after December 31, 2002. Although SFAS No. 146
may impact the accounting for costs related to exit or disposal activities the
Company may enter into in the future, particularly the timing of recognition of
these costs, the adoption of the statement will not have an impact on the
Company's present financial condition or results of operations.
Note 3. Stockholders Equity
In September 2002, the Company closed an offering of 3,600,000 restricted shares
of its common stock in a private transaction for gross proceeds of $900,000 in
cash. The Company paid finders and placement fees in the amount of $136,000 in
connection with this transaction.
Page 8
Note 3. Stockholders Equity (continued)
In November 2002 the Company closed an offering of 2,100,000 restricted shares
of its common stock in a private transaction for gross proceeds of $575,000 in
cash. The Company paid finders and placement fees in the amount of $67,000 in
connection with this transaction.
In November 2002 the Company's Board of Directors approved and adopted the Warp
Technology Holdings, Inc. 2002 Stock Incentive plan (the "2002 Plan") and
reserved 10,000,000 shares of the Company's common stock for future issuance
under the terms of the plan. Pursuant to the 2002 Plan in November 2002 the
Company granted 6,000,000 options to employees at an exercise price of $.25 per
share. For financial statement purposes the Company recorded deferred
compensation of $16,800,000, representing the difference between the market
price of the Company's stock and $.25 on the date of grant. At the date of grant
1,833,333 of options were fully vested and immediately exercisable. Deferred
compensation is being amortized for financial reporting purposes over the
vesting period of the options. The amount recognized as expense during the three
months ended December 31, 2002 was $5,133,333.
In February 2003, the Company completed an offering of 187,500 Units for gross
proceeds equaling $2,250,000 in cash (the "February Private Placement"). Each
Unit consisted of sixteen (16) shares of the Company's common stock and a
warrant to purchase nine (9) shares of the Company's common stock at an exercise
price of $.10 per share. The Warrants are exercisable for a period of five years
from the date of grant. All of the Units sold in the February Private Placement
were offered and sold to accredited investors (as defined in Rule 501 of
Regulation D). The Company paid finders and placement fees in the amount of
$123,000 in connection with the February Private Placement. The Units and the
common stock and warrants underlying the Units issued in the November Private
Placement are restricted securities and were issued in a transaction exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) of the Securities Act. The Units and
the common stock and warrants underlying the Units issued in the November
Private Placement are subject to Rule 144 under the Securities Act and therefore
generally cannot be resold for a period of twelve months from the date of
purchase. No general solicitations were made in connection with the February
Private Placement.
Note 4. Other
On August 13, 2002 the Company entered into a memorandum of understanding (the
"MOU") to enter into a business combination transaction with Spider Software,
Inc., a Canadian corporation. In connection with the MOU, and in anticipation of
the completion of the transaction contemplated by this MOU, the Company advanced
to Spider Software $250,000 to finance the ongoing operations of Spider
Software. On January 10, 2003 the Company completed the acquisition by issuing
one million five hundred thousand shares of its common stock and converted the
$250,000 advance to be part of the purchase in exchange for all of the
outstanding capital shares of Spider Software.
Page 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read together with the Company's financial statements and the notes to
financial statements which are included in this report, and with the Company's
Form 10-KSB.
Plan of Operations
The Company's plan of operation is to develop, manage and market the
products of its subsidiaries which have developed unique and proprietary
technologies which accelerate the processing speed of dynamic content requests
and improve the efficiency of an internet or intranet network's infrastructure.
The Company's technology is incorporated into a network appliance and computer
software that move the processing of dynamic content requests away from the core
of an enterprises' network infrastructure to the edge of that infrastructure. By
doing so, the Company's technology and products should enable an enterprise to
improve the efficiency of its network infrastructure resulting in:
i) The elimination of complex transaction-processing bottlenecks,
ii) Increased response times,
iii) Lower hardware costs, and
iv) Lower wide area network costs.
Results of Operations
During the three months ended December 31, 2002, the Company sold fourteen WARP
2063 units to channel resellers pursuant to distribution agreements, for
$579,423, which is being recognized over a twelve-month period in the
consolidated statements of operations. As a result, $5,731 was recognized in the
consolidated statements of operations for the three months ended December 31,
2002 and the balance of $573,692, recorded as deferred revenue. The additional
$81,000 of revenue recognized during the three months ended December 31, 2002
represents deferred revenue for agreements in effect at June 30 and September
30, 2002, of which $172,000 is still deferred at December 31, 2002.
There were no revenues during the three months ended December 31, 2001.
During the six months ended December 31, 2002, the Company sold twenty WARP 2063
units to channel resellers pursuant to distribution agreements, for $835,422,
which is being recognized over a twelve-month period in the consolidated
statements of operations pursuant to AICPA Statement of Position 97-2, Software
Revenue Recognition. As a result, $112,398 was recognized in the consolidated
statements of operations for the six months ended December 31, 2002 and the
balance of $723,024 recorded as deferred revenue. The additional $34,000 of
revenue recognized during the six months ended December 31, 2002 represents
deferred revenue for an agreement in effect at June 30, 2002, of which $22,668
is still deferred at December 31, 2002.
Page 10
There were no revenues during the six months ended December 31, 2001.
Product development costs were approximately $115,000 for the three months ended
December 31, 2002 compared to approximately $645,000 for the three months ended
December 31, 2001. The decrease was due primarily to the substantial completion
of the development of the WARP 2063 and the Company's change in focus from
developing the WARP 2063 to marketing that product.
Product development costs were approximately $252,000 for the six months ended
December 31, 2002 compared to approximately $1,485,000 for the six months ended
December 31, 2001. The decrease was due primarily to the substantial completion
of the development of the WARP 2063 and the Company's change in focus from
developing the WARP 2063 to marketing that product.
Sales, marketing and business development expenses were approximately $130,000
for the three months ended December 31, 2002 compared to approximately $75,000
for the three months ended December 31, 2001. The increase was due primarily to
an increased marketing effort by the Company.
Sales, marketing and business development expenses were approximately $336,000
for the six months ended December 31, 2002 compared to approximately $80,000 for
the six months ended December 31, 2001. The increase was due primarily to an
increased marketing effort by the Company.
General and administrative expenses were approximately $616,000 for the three
months ended December 31, 2002 compared to approximately $1,006,000 for the
three months ended December 30, 2001. The decrease was due to management's cost
cutting initiatives primarily relating to reduced headcount and rent expense.
General and administrative expenses were approximately $1,183,000 for the six
months ended December 31, 2002 compared to approximately $1,573,000 for the six
months ended December 30, 2001. The decrease was due to management's cost
cutting initiatives primarily relating to reduced headcount and rent expense.
During the three months ended December 31, 2002 the Company had net interest
income of approximately $3,600 compared to net interest income of approximately
$7,000 for the three months ended December 31, 2001. The decrease is the result
of a decrease in cash balances available for investment.
During the six months ended December 31, 2002 the Company had net interest
income of approximately $8,900 compared to net interest income of approximately
$20,000 for the six months ended December 31, 2001. The decrease is the result
of a decrease in cash balances available for investment.
Net Operating Loss Carryforwards
At June 30, 2002, WARP had net operating loss carryforwards of approximately
$14,000,000, which may be used to reduce taxable income in future years through
the year 2022. Due to uncertainty
Page 11
surrounding the realization of the favorable tax attributes in future returns,
WARP has placed a full valuation allowance against its net deferred tax asset.
At such time as it is determined that it is more likely than not that the
deferred tax asset is realizable, the valuation allowance will be reduced.
Furthermore, the net operating loss carryforward may be subject to further
limitation pursuant to Section 382 of the Internal Revenue Code.
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily through the
sale of its capital stock and short-term borrowings.
Net cash used in operating activities for the six months ended December 31, 2002
was approximately $1,644,000 consisting primarily of the net loss of $6,743,000
offset by an increase in deferred revenue of approximately $690,000 and non-cash
compensation of approximately $5,133,000.
Net cash used in investing activities during the six months ended December 31,
2002 of $267,000 consisted of the payment of a $250,000 advance in connection
with the proposed acquisition of Spider Software, Inc. by the Company and the
purchase of property and equipment of $13,000.
Net cash provided by financing activities during the six months ended December
31, 2002 of $1,291,000 representing the net proceeds from the issuance of common
stock of approximately $1,272,000 and repayment of shareholder loan of
approximately $19,000.
As of December 31, 2002, the Company had working capital of $212,000, as
compared to $818,000 at June 30, 2002. The Company's cash and cash equivalents
were $564,000 at December 31, 2002, compared to $1,185,000 at December 31, 2002.
In February 2003, the Company completed an offering of 187,500 Units with gross
proceeds to the Company from the sale equaling $2,250,000 (the "February Private
Placement"). Each Unit consisted of sixteen (16) shares of the Company's common
stock and a warrant to purchase nine (9) shares of the Company's common stock at
an exercise price of $.10 per share.
The Company has incurred losses and negative cash flows from operations since
inception, and as such has been dependent upon raising money for short and
long-term cash needs through the sale of its capital stock in private placements
and through debt.
During 2002 and 2001, management took steps to reduce costs, including staff
reductions, salary reductions, and elimination of other employee's fringe
benefits. Even with the reduction in expenses and an expected increase in sales,
the Company anticipated that during its 2003 fiscal year it will need to raise
over $2,000,000 to support its working capital needs and to continue to execute
the requirements of the business plan. In fiscal 2003 the Company has raised
approximately $3,400,000 which management believes to be sufficient to fund its
current operations and the operations of Spider Software, it newly acquired
wholly owned subsidiary through the end of this fiscal year.
Page 12
Ultimate future capital requirements will depend on many factors, including cash
flow from operations, continued progress in research and development programs,
competing technological and market developments, and the Company's ability to
successfully market its products.
Critical Accounting Policies
Revenue Recognition
Pursuant to AICPA Statement of Position ("SOP") 97-2, Software Revenue
Recognition, the Company recognizes revenues from software licenses when
persuasive evidence of a contractual arrangement exists, delivery has occurred,
the fee is fixed or determinable and collection is probable. The Company's
software licenses generally are marketed with certain post-contract customer
support ("PCS") and other obligations, which may include maintenance, delivery
of unspecified upgrades, and warranties regarding service response times.
Revenue under PCS agreements are recognized ratably over the term of the
agreement. Under SOP 97-2, the Company must allocate revenue to each element
based on vendor specific objective evidence ("VSOE") of each element's fair
value. Since the Company has just begun to market its products, VSOE of the fair
value of each element has not been clearly established. Accordingly, revenue
from license agreements are being recognized ratably over the term of the PCS
agreement.
Product Development Costs
Product development costs incurred in the process of developing product
improvements and enhancements or new products are charged to expense as
incurred. Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon the completion of a working model.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this quarterly report on Form
10-QSB for the second quarter ended December 31, 2002, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and President, its
principal executive officer, and the Company's Chief Operating Officer, its
principal operating officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934. Based upon that evaluation, the principal
executive officer and principal operating officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company, including its consolidated
subsidiaries, that is required to be included in the Company's periodic SEC
filings. There were no significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Page 13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
In November, 2002, the Company closed an offering of 2,100,000 shares
of its common stock in a private transaction with gross proceeds to the Company
from the sale equaling $575,000 (the "November Private Placement"). All of the
shares sold in the November Private Placement were offered and sold to
accredited investors (as defined in Rule 501 of Regulation D). The purchase
price of the November Private Placement shares was paid in cash. Pursuant to the
terms of a Financial Consulting Agreement between the Company and Lighthouse
Capital, the Company paid fees in the amount of $67,000 in connection with the
November Private Placement. The shares of common stock issued in the November
Private Placement are restricted shares and were issued in a transaction exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to Section 4(2) of the Securities Act. The
shares issued in the November Private Placement are subject to Rule 144 under
the Securities Act and therefore generally cannot be resold for a period of
twelve months from the date of purchase. No general solicitations were made in
connection with the November Private Placement.
On January 10, 2003, the Company, through its wholly-owned subsidiary
6043577 Canada Inc., acquired one hundred percent (100%) of the issued and
outstanding capital stock of Spider Software, Inc. through a share exchange
transaction pursuant to the Exchange Agreement (as described further below).
Pursuant to the Exchange Agreement the Spider shareholders were issued
approximately 1,500,000 shares of the preferred stock of 6043577 Canada Inc.,
which in turn is convertible into shares of the Company's common stock on a 1
for 1 basis. Upon full conversion, the terms of the Exchange Agreement will
result in the issuance of approximately 1,500,000 shares of the Company's common
stock. Neither the preferred stock of 6043577 Canada Inc., nor the shares of the
Company's common stock to be issued upon conversion of such preferred stock
(collectively the "Consideration Shares") have been registered under the
Securities Act. The Consideration Shares were and shall be issued to the Spider
stockholders pursuant to an exemption from registration under Section 4(2) of
the Securities Act. The Consideration Shares are subject to restrictions on
transfer under the Securities Act and may only be transferred or resold pursuant
to an effective registration statement or in compliance with an exemption from
such registration. A copy of the Exchange Agreement is attached as Exhibit 2.2
to the Company's Current Report on Form 8-K filed with the Commission on January
27, 2003 and is incorporated herein by reference.
In February 2003, the Company completed an offering of 187,500 Units
with gross proceeds to the Company from the sale equaling $2,250,000 (the
"February Private Placement"). Each Unit consisted of sixteen (16) shares of the
Company's common stock and a warrant to purchase nine (9) shares of the
Company's common stock at an exercise price of $.10 per share. The Warrants are
exercisable for a period of five years from the date of grant. All of the Units
sold in the February
Page 14
Private Placement were offered and sold to accredited investors (as defined in
Rule 501 of Regulation D). The Company paid finders and placement fees in the
amount of $123,000 in connection with the February Private Placement. The Units
and the common stock and warrants underlying the Units issued in the November
Private Placement are restricted securities and were issued in a transaction
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Section 4(2) of the Securities Act.
The Units and the common stock and warrants underlying the Units issued in the
November Private Placement are subject to Rule 144 under the Securities Act and
therefore generally cannot be resold for a period of twelve months from the date
of purchase. No general solicitations were made in connection with the February
Private Placement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders
during the first quarter of the fiscal year ending June 30, 2003.
ITEM 5. OTHER INFORMATION.
2002 Stock Incentive Plan
-------------------------
On November 29, 2002, the Board of Directors of the Company approved
and adopted the WARP Technology Holdings, Inc. 2002 Stock Incentive Plan (the
"2002 Plan") and reserved 10,000,000 shares of the Company's common stock for
future issuance under the terms of the 2002 Plan. The purpose of the 2002 Plan
is to provide a means through which the Company and its subsidiaries may
attract, retain and compensate the able and talented employees and consultants
that the Company will need to execute its business plan and bring its products
to market. On November 29, 2002, the Board of Directors issued 6,000,000 options
to certain employees of the Company under the 2002 Plan. Such options have a
term of ten years and have an exercise price of $.25 per share. A copy of the
2002 Plan and a form of Stock Option Grant are attached hereto as Exhibits 10.8
and 10.9 to this Report and are incorporated herein by reference.
Formation of Foreign Subsidiary
-------------------------------
In November 2002, the Company formed WARP Solutions Ltd., a corporation
formed under the laws of Great Britain, as a wholly-owned subsidiary in order to
facilitate the Company's over-seas sales efforts, including those in Europe and
the Far East. WARP Solutions Ltd. does not have any operations or revenues but
was created as a vehicle to employ and compensate the Company's foreign
employees and consultants.
Page 15
Acquisition of Spider Software, Inc.
------------------------------------
On January 10, 2003 (the "Closing Date"), the Company, through its
wholly-owned subsidiary 6043577 Canada Inc., acquired one hundred percent (100%)
of the issued and outstanding capital stock of Spider Software, Inc. ("Spider"),
a privately held Canadian corporation, through a share exchange transaction
pursuant to a Share Exchange Agreement (the "Exchange Agreement") dated as of
December 13, 2002, by and among the Company, 6043577 Canada Inc., Spider, the
Spider Insiders and the Sellers as Identified on Schedule A thereto. Pursuant to
the Exchange Agreement the Spider shareholders were issued approximately
1,500,000 shares of the preferred stock of 6043577 Canada Inc., which in turn is
convertible into shares of the Company's common stock on a 1 for 1 basis, and
the Company forgave outstanding Spider promissory notes of approximately
$250,000, in exchange for one hundred percent (100%) of the issued and
outstanding capital stock of Spider. A copy of the Exchange Agreement is
attached as Exhibit 2.2 to the Company's Current Report on Form 8-K filed with
the Commission on January 27, 2003 and is incorporated herein by reference.
In accordance with the terms and conditions of the Exchange Agreement,
the Company caused 6043577 Canada Inc. to issue .197707 shares of the preferred
stock of 6043577 Canada Inc. for each one (1) share of Spider common stock
acquired. The Company owns 100 percent of the voting common stock of 6043577
Canada Inc. The preferred stock of 6043577 Canada Inc. has no voting rights or
other preferences but is convertible on a 1 for 1 basis into the common stock of
the Company. As a result, on the Closing Date, Spider became a wholly-owned
subsidiary of 6043577 Canada Inc. and thereby a wholly-owned subsidiary of the
Company.
Between August 2002 and the Closing Date, the Company advanced to
Spider a total of approximately $250,000 pursuant to Note Purchase Agreements in
order to provide Spider with working capital to finance its operations prior to
the closing of the Transaction. Spider issued promissory notes to the Company
for all such advances. Subsequent to the Closing Date, the Company converted the
$250,000 advance to be a part of the purchase price.
On September 20, 2002, the Company's Board of Directors declared a
stock split in the form of a dividend (the "September Stock Dividend") payable
to the common stockholders of record on September 24, 2002 (the "record date")
of three shares of common stock for each one share issued and outstanding on the
record date. The September Stock Dividend was effective and payable on October
2, 2002.
Page 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
The following documents heretofore filed by the Company with the
Securities and Exchange Commission are hereby incorporated by reference:
Exhibit
No. Description Of Document
------ --------------------------------
2.1* Form of Share Exchange Agreement dated as of May 16, 2002 by and among
Abbott Mines, Ltd., Carlo Civelli, Mike Muzylowski, WARP Solutions,
Inc., Karl Douglas, John Gnip and the Persons Identified on Schedule A
thereto. Incorporate by reference to Exhibit 2.1 to the Current Report
on Form 8-K filed by the Company on June 10, 2002.
2.2* Form of Share Exchange Agreement dated as of December 13, 2002 by and
among WARP Technology Holdings, Inc., 6043577 Canada Inc., Spider
Software Inc., the Spider Insiders and the Persons Identified on
Schedule A thereto. Incorporate by reference to Exhibit 2.2 to the
Current Report on Form 8-K filed by the Company on January 25, 2003.
3.1* Articles of Incorporation of WARP Technology Holdings, Inc.
Incorporated by reference to Exhibit 3.1 to the Registration Statement
on Form SB-2 (Registration No. 333-46884) filed by the Company on
August 28, 2000 as amended (the "Registration Statement").
3.2* By-laws of WARP Technology Holdings, Inc. Incorporated by reference to
Exhibit 3.2 to the Registration Statement.
3.3* The form of the Articles of Merger of Abbott Mines Limited and WARP
Technology Holdings, Inc. Incorporated by reference to Exhibit 3.5 to
the Current Report on Form 8-K filed by the Company on September 3,
2002.
10.8# The WARP Technology Holdings, Inc. 2002 Stock Incentive Plan.
10.9# Form of Stock Option Grant agreement for options granted pursuant to
The WARP Technology Holdings, Inc. 2002 Stock Incentive Plan.
99.1# Certification of Karl Douglas pursuant to 18 U.S.C. Section 1350.
99.2# Certification of John Gnip pursuant to 18 U.S.C. Section 1350.
---------------------
* Incorporated herein by reference.
# Filed herewith.
(b) Reports on Form 8-K:
The following reports on Form 8-K have been filed during the time
period covered by this Report:
None
Page 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
February 13, 2003
WARP TECHNOLOGY HOLDINGS, INC.
By: /s/ Karl Douglas
------------------------------------
Karl Douglas, CEO and President
Principle Executive Officer as
Registrant's duly authorized officer
Page 18
Certification of Chief Executive Officer
(Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
In connection with the Quarterly Report on Form 10-QSB of WARP Technology
Holdings, Inc. (the "Company") for the period ended December 31, 2002, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Karl Douglas, Chief Executive Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-QSB;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
4. The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the Company's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record, process,
summarize and report financial data and have identified for the Company's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal controls;
and
6. The Company's other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 13, 2003
By /s/ Karl Douglas
-------------------------------------
Karl Douglas, Chief Executive Officer
and President
Page 19
Certification of Chief Operating Officer
(Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
In connection with the Quarterly Report on Form 10-QSB of WARP Technology
Holdings, Inc. (the "Company") for the period ended December 31, 2002, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, John Gnip, Chief Operating Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-QSB;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
4. The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the Company's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record, process,
summarize and report financial data and have identified for the Company's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal controls;
and
6. The Company's other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 13, 2003
By /s/ John Gnip
----------------------------------
John Gnip, Chief Operating Officer
Page 20
EXHIBIT INDEX
The following Exhibits are filed herewith:
Exhibit
Number Description of Document
------ -----------------------
10.8 The WARP Technology Holdings, Inc. 2002 Stock Incentive Plan.
10.9 Form of Stock Option Grant agreement for options granted
pursuant to The WARP Technology Holdings, Inc. 2002 Stock
Incentive Plan.
99.1 Certification of Karl Douglas pursuant to 18 U.S.C. Section
1350.
99.2 Certification of John Gnip pursuant to 18 U.S.C. Section 1350.
Page 21