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 September 30, 2002
or
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
Commission File No. 000-33197
WARP TECHNOLOGY HOLDINGS, INC.
------------------------------
(Name of Small Business Issuer in its Charter)
Nevada 88-0467845
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State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organization
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 issuers classes of common
equity, as of the latest practicable date: As of November 12, 2002, there were
60,129,080 shares of Common Stock, par value $.00001 per share, outstanding
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
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, presentations by the
Company or its management and oral statements) 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 Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 9
2
WARP Technology Holdings, Inc.
Consolidated Balance Sheets
September 30, June 30,
2002 2002*
-----------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,289,633 $ 1,184,652
Accounts receivable -- 68,000
Prepaid expenses and other 178,922 160,473
Due from stockholder -- 19,000
-----------------------------
Total current assets 1,468,555 1,432,125
Property and equipment, net 91,785 97,367
Other assets 50,690 3,500
-----------------------------
Total assets $ 1,611,030 $ 1,532,992
=============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 295,288 $ 149,286
Accrued expenses 258,314 408,142
Deferred revenue 253,000 56,667
Capital lease obligation, current -- --
-----------------------------
Total current liabilities 806,602 614,095
Long-term liabilities:
Deferred rent -- --
Capital lease obligation -- --
-----------------------------
Total liabilities 806,602 614,095
-----------------------------
Stockholders' equity:
Common stock, $.00001 par value; 100,000,000
shares authorized, 57,145,360 and
60,745,360 shares issued and outstanding
at June 30, 2002 and September 30, 2002,
respectively 608 572
Additional paid-in capital 15,632,518 14,868,554
Accumulated deficit (14,828,698) (13,950,229)
-----------------------------
Total stockholders' equity 804,428 918,897
-----------------------------
Total liabilities and stockholders' equity $ 1,611,030 $ 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.
3
WARP Technology Holdings, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30,
2002 2001
-----------------------------
Revenue $ 59,667 $ --
Expenses
Product development 169,828 840,635
Sales, marketing and business development 206,731 5,169
General and administrative 566,824 567,370
-----------------------------
Total expenses 943,383 1,413,174
-----------------------------
Interest and dividend income 5,247 13,259
-----------------------------
Net loss $ (878,469) (1,399,915)
=============================
Basic and diluted net loss per share $ (.02) $ (.07)
=============================
Weighted-average number common
shares--basic and diluted 57,817,887 19,981,630
=============================
See accompanying notes.
4
WARP Technology Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
2002 2001
--------------------------
Operating activities ($ 878,469) ($1,399,915)
Net loss
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 18,773 69,276
Deferred rent -- (29,991)
Changes in operating assets and
liabilities:
Accounts receivable 68,000 20,364
Prepaid expenses and other (18,449) (43,687)
Accounts payable and accrued expenses (3,826) (17,012)
Write-off of stockholder loan -- 7,600
Deferred revenue 196,333 --
--------------------------
Net cash used in operating activities (617,638) (1,393,365)
--------------------------
Investing activities
Security deposits (2,500) 9,330
Purchase of property and equipment (13,191) (4,819)
Repayment of stockholder loan 19,000 --
Advances (44,000) --
Other assets (690) --
--------------------------
Net cash (used in) provided by investing activities (41,381) 4,511
--------------------------
Financing activities
Proceeds from issuance of common stock, net of
issuance costs 764,000 --
Principal payments on capital lease obligation -- (6,593)
Restricted cash -- 5,691
--------------------------
Net cash provided by financing activities 764,000 (902)
--------------------------
Net increase (decrease) in cash 104,981 (1,389,756)
Cash--beginning of period 1,184,652 2,647,200
--------------------------
Cash--end of period $ 1,289,633 $ 1,257,444
==========================
See accompanying notes.
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 1.3813632 shares of AMI's common stock, or
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 July 1, 2001.
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 pursuant to Chapter 92A of the Nevada
Revised Statutes of the State of Nevada ("the Upstream Merger"). The Upstream
Merger became effective on August 21, 2002, when the Company filed Articles of
Merger, and as authorized by Section 92A.180 of the Nevada Revised Statutes of
the State of Nevada, the Company changed its name from Abbott Mines, Ltd. to
WARP Technology Holdings, Inc.
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 Solutions is developing products that permit secure and
private transactions over the Internet.
Blue Suit Consulting ("Blue Suit"), a wholly-owned subsidiary of WARP, was
established in July 2000, for the purpose of performing temporary and permanent
recruitment services. Effective April 2001, management ceased the operations of
Blue Suit.
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
intercompany 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.
Change of Year End
During 2002, the Company announced a fiscal year end change from December 31 to
June 30.
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 postcontract 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 August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
144"), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations, for a disposal of a segment of a business. SFAS 144 is
effective for fiscal years beginning after December 15, 2001, with earlier
application encouraged. The Company adopted SFAS 144 on January 1, 2002. The
statement did not have a significant impact on the Company's financial position
or results of operations.
8
Note 2. Summary of Significant Accounting Policies (continued)
Impact of Recent Accounting Pronouncements (continued)
In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44 and
64, Amendment of SFAS No. 13 and Technical Corrections as of April 2000. SFAS
No. 145 revises the criteria for classifying the extinguishment of debt as
extraordinary and the accounting treatment of certain lease modifications. SFAS
No. 145, which became effective on July 1, 2002, did not have any impact on the
Company's consolidated financial statements.
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 June 2002, the Company issued 10,364,408 shares of common stock for gross
proceeds of approximately $2,300,000 in cash and the conversion of approximately
$237,000 of bridge notes obtained in 2002.
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.
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. ("Spider Software"), a Canadian corporation. The completion of the
transaction contemplated by this MOU will be subject to, among other things,
satisfactory completion of financial and legal due diligence by the Company and
Spider Software as well as the completion of final transaction documentation in
a form acceptable by the parties. In connection with the MOU, and in
anticipation of the completion of the transaction contemplated by this MOU, the
Company has advanced to Spider Software $44,000 in order to finance the ongoing
operations of Spider Software.
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.
On May 24, 2002 (the "Closing Date") the Company acquired WARP
Solutions, Inc. ("WARP") in a share exchange transaction. This resulted in the
former WARP stockholders owning the majority of the outstanding shares of the
common stock of the Company. For financial reporting purposes, the transaction
was accounted for as a reverse acquisition, and WARP was treated as the
acquiring entity for accounting purposes.
Although the Company 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 the Company in
exchange for $690 in net assets. Under the purchase method of accounting, the
historical results of WARP have been carried forward and the Company'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. Results of operations after the Closing Date include the results of both
companies on a consolidated basis.
Plan of Operations
The Company's plan of operation is to develop, manage and market the
products of WARP, its direct subsidiary. WARP has developed a unique and
proprietary technology which accelerates the processing speed of dynamic content
requests, and improves the efficiency of an internet or intranet network's
infrastructure that handles such requests. WARP's technology is incorporated
into a network appliance that moves the processing of dynamic content requests
away from the core of an enterprises' network infrastructure to the edge of that
infrastructure. By doing so, WARP's technology and product 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.
WARP believes that it can extend the core technology of the WARP 2063,
our current product offering, to deliver similar functionality and efficiency to
wireless transaction processing over the next twenty-four months as part of its
Global Transaction Enabled Network ("GTEN") strategy. There can be no assurances
however that WARP will have the financial or manpower resources necessary to
develop and or market the WARP 2063, GTEN or any future products for wireless
solutions.
10
WARP believes that there is a growing market for its technology and
product. With broadband connectivity being more common, the volume of
transactions being processed over networks is increasing. WARP believes that the
increase in the number of broadband connections and the related increase in
transaction processing have contributed to application congestion in the
applications layers and database layers of network enabled applications. WARP
believes that the WARP 2063 can help relieve such application congestion by
increasing a network's efficiency through better management of the flow and
processing of dynamic transaction requests.
The market for the WARP 2063 and other application acceleration
technology is new and undeveloped. As a result, WARP believes that there is the
potential for reasonable growth in this market for the next five years. At
present, the WARP 2063 is still considered to be an early stage product. WARP
believes that the product will require at least an additional twelve months of
customer requested feature enhancements to reach maturity. We believe, despite
the relative immaturity of our product, that we have and will continue to be
able to attract customers to the WARP 2063 because of its potential performance
and cost saving benefits.
The WARP 2063 is one component in the technology portfolio that WARP
plans to develop. WARP's planned technology portfolio will consist of five
components, all of which are at the alpha stage or higher in terms of
development. The WARP 2063 Application Pre-Processor is one of the five
components. WARP chose to lead with the WARP 2063 because of its marketability
and the readiness of its technology. WARP has branded its technology portfolio
GTEN. The GTEN network offering will be comprised of:
o WARP 2063 Application Pre-Processor - currently available for
sale.
o WARP 2063 Edge Transaction Accelerator - currently going into
beta cycle.
o WARP 2063 Edge Transaction Router - slated to go into beta cycle
in mid 2003
o WARP 2063 Transaction Session Manager - in beta cycle, planned
productization in 2003
o WARP Performance Cluster - alpha stage.
The central philosophy behind WARP's technology strategy is to optimize
the server stack, and then to distribute the stack in order to optimize the
network. To that extent, all of the GTEN components are designed to address
prevalent unaddressed bottlenecks in networks.
WARP has decided to use wholesale resellers ("channel sales") as the
main distribution method for the WARP 2063. Such wholesale channels as Systems
Integrators, Managed Service Providers and Value Added Resellers will be the
main distribution vehicles for the WARP 2063. The Company has established
reseller relationships in Europe and Asia for distribution of the WARP 2063.
WARP recently entered into reseller agreements with Macnica Networks and CDI
Technologies. Macnica Networks is a leading technology distributor for the
Japanese market and CDI Technologies is a leading distributor for South Korea.
Additionally, WARP has reseller agreements with Cable & Wireless Europe and NTT
Verio Europe. WARP is currently focused on continuing the expansion of its
channel reseller network in North America, Asia and Europe.
11
Between July 2000 and April 2001, WARP operated, through a subsidiary
called Blue Suit Consulting, a personnel consulting business specializing in
outsourcing its customer's computer technology personnel. In April 2001, WARP
ceased all operations at Blue Suit Consulting and since that date it has been an
inactive subsidiary of WARP with no employees, revenue or operations.
Results of Operations
Three months ended September 30, 2002 vs. 2001:
----------------------------------------------
During the three months ended September 30, 2002, the Company sold six WARP 2063
units to a channel reseller pursuant to a distribution agreement, for $256,000,
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, $43,000 was recognized in the consolidated
statements of operations for the three months ended September 30, 2002 and the
balance of $213,000, recorded as deferred revenue. The additional $17,000 of
revenue recognized during the three months ended September 30, 2002 represents
deferred revenue for an agreement in effect at June 30, 2002, of which $40,000
is still deferred at September 30, 2002.
There were no revenues during the three months ended September 30, 2001.
Product development costs were approximately $170,000 for the three months ended
September 30, 2002 compared to approximately $841,000 for the three months ended
September 30, 2001. The decrease was due primarily to the 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 $207,000
for the three months ended September 30, 2002 compared to approximately $5,000
for the three months ended September 30, 2001. The increase was due primarily to
an increased marketing effort by the Company.
General and administrative expenses were approximately $567,000 for the three
months ended September 30,2002 compared to approximately $567,000 for the three
months ended September 30, 2001. Although aggregate general and administrative
expenses did not change, the component parts thereof consisted of an increase in
consulting expenses of approximately $72,000 and an increase in travel and
entertainment of approximately $70,000, offset by decreases in professional
fees, insurance, and various other expenses of $28,000, $24,000 and $70,000,
respectively.
During the three months ended September 30, 2002 the Company had net interest
income of approximately $5,000 compared to net interest income of approximately
$13,000 for the three months ended September 30, 2001. The decrease is the
result of a decrease in cash balances available for investment.
12
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 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 three months ended September 30,
2002 was approximately $618,000 consisting primarily of the net loss of
$878,000, offset by an increase in deferred revenue of $196,000 and a decrease
in accounts receivable of $68,000.
Net cash used in investing activities during the three months ended September
30, 2002 of $41,000 consisted of the payment of a $44,000 advance in connection
with the proposed acquisition of Spider Software, Inc. by the Company and the
purchase of property and equipment of $13,000, offset by the repayment of a
stockholder loan.
Net cash provided by financing activities during the three months ended
September 30, 2002 of $764,000 representing the net proceeds from the issuance
of common stock.
As of September 30, 2002, the Company had working capital of $662,000, as
compared to $818,000 at June 30, 2002. The Company's cash and cash equivalents
were $1,299,000 at September 30, 2002, compared to $1,185,000 at June 30, 2002.
In September 2002, the Company closed the offering of 3,600,000 restricted
shares of its common stock in a private transaction for gross proceeds of
$900,000.
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 anticipates that during its 2003 fiscal year it will need to raise
over $2,000,000 million to support its working capital needs and to continue to
execute the requirements of the business plan, of which the Company has raised
$1,200,000 as of November 5, 2002.
13
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. The Company has no firm commitments from any
other sources to provide additional equity or debt financing. As such, there can
be no assurance that sufficient funds will be raised. Moreover, any equity
financing would result in dilution to then existing shareholders and any
additional debt financing may result in higher interest expense.
Although there can be no assurances, the Company believes that its current cash
and anticipated proceeds from equity transactions and operating cash flows, will
be sufficient to meet the Company's requirements for working capital and capital
expenditures through the end of fiscal 2003.
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 postcontract 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 first quarter ended September 30, 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.
14
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is not a party to any material legal proceedings.
ITEM 2. Changes In Securities And Use Of Proceeds.
On or about September 13, 2002, the Company closed an offering of
3,600,000 shares of its common stock in a private transaction with gross
proceeds to the Company from the sale equaling $900,000 (the "September Private
Placement"). All of the shares sold in the September Private Placement were
offered and sold to accredited investors (as defined in Rule 501 of Regulation
D). The purchase price of the September 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 $136,000
in connection with the September Private Placement. The shares of common stock
issued in the September 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 September 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 September 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.
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.
15
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
Number 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.
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.
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.
16
(b) Reports on Form 8-K:
The following reports on Form 8-K have been filed during the time
period covered by this report:
On August 7, 2002, the Company filed an Amendment to Current Report on
Form 8-K/A to amend the Current Report on Form 8-K which was filed on June 10,
2002. The August 7, 2002 Form 8-K/A contained financial statements of the
business acquired and pro forma financial information.
On September 3, 2002, the Company filed a Current Report on Form 8-K
which disclosed that on August 21, 2002 it had closed the upstream merger of its
subsidiary WARP Technology Holdings, Inc. with and into the Company and thereby
changed the Company's name to WARP Technology Holdings, Inc. In this September
3, 2002 Form 8-K, the Company also reported that on August 29, 2002 it changed
its independent accountant from Williams & Webster P.S. to Ernst & Young LLP.
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.
November 13, 2002
WARP TECHNOLOGY HOLDINGS INC
By: /s/ Karl Douglas
---------------------------
Karl Douglas, CEO and President
Principle Executive Officer
as Registrant's duly authorized
officer
17
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 September 30, 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 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: November 13, 2002
By /s/ Karl Douglas
---------------------------------
Karl Douglas, Chief Executive Officer
and President
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 September 30, 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: November 13, 2002
By /s/ John Gnip
----------------------------------
John Gnip, Chief Operating Officer
EXHIBIT INDEX
The following Exhibits are filed herewith:
Exhibit
Number Description of Document
------ -----------------------
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.
18