SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 10, 2003
WARP TECHNOLOGY HOLDINGS, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Nevada 000-33197 88-0467845
------------------------ --------------------- ----------------
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification
Number)
535 West 34th Street, 5th Floor, New York, New York 10001
---------------------------------------------------------
(Address of Principal Executive Offices)
(212) 962-9277
----------------------------------------------------
(Registrant's Telephone Number, including area code)
--------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
WARP Technology Holdings, Inc. (the "Registrant") hereby amends the
following items, financial statements, exhibits, or other portions of its
Current Report on Form 8-K originally filed with the Securities and Exchange
Commission (the "Commission") on January 27, 2003 (the "Form 8-K") as set forth
in the pages attached hereto.
Item 2. Acquisition or Disposition of Assets.
On January 10, 2003 (the "Closing Date"), the Registrant, through its
wholly-owned subsidiary 6043577 Canada Inc., acquired one hundred percent (100%)
of the issued and outstanding capital stock of SpiderSoftware Inc. ("Spider"),
a privately held Canadian corporation, through a share exchange transaction (the
"Transaction") pursuant to a Share Exchange Agreement (the "Exchange Agreement")
dated as of December 13, 2002, by and among the Registrant, 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 Registrant's common stock on a 1
for 1 basis, and the Registrant 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.
The foregoing description of the Exchange Agreement and the
transactions contemplated thereby is not intended to be complete and is
qualified in its entirety by the complete text of the Exchange Agreement. The
Exchange Agreement is attached as Exhibit 2.2 to the Form 8-K and is
incorporated herein by reference. The terms and conditions of the Exchange
Agreement were determined through arms-length negotiations between the parties.
Neither the preferred stock of 6043577 Canada Inc., nor the shares of
the Registrant's common stock issued upon conversion of such preferred stock
(collectively the "Consideration Shares") have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Consideration
Shares were 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.
2
Item 7. Financial Statement and Exhibits.
(a) Financial Statements of the Business Acquired
The following financial statements of the business acquired,
SpiderSoftware Inc., accompany this Amendment No. 1 to the Current Report on
Form 8-K filed with the Commission on January 27, 2003:
Index to Financial Statements of Business Acquired Page
----
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholder's Equity (Deficiency) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
(b) Pro Forma Financial Information
The following unaudited Pro Forma Consolidated Financial Statements
accompany this Amendment No. 1 to the Current Report on Form 8-K filed with the
Commission on January 27, 2003:
Index to Unaudited Pro Forma Consolidated Financial
Statements Page
----
Introduction to Unaudited Pro Forma Consolidated
Financial Statements F-20
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of December 31, 2002 F-21
Unaudited Pro Forma Condensed Consolidated Statement
of Operations for the Six Months Ended
December 31, 2002 F-22
Unaudited Pro Forma Condensed Consolidated Statement
of Operations for the Year Ended June 30, 2002 F-23
Notes to Unaudited Pro Forma Consolidated Financial
Statements F-24
(c) Exhibits.
The following Exhibits are hereby filed as part of this Amendment No. 1
to Current Report on Form 8-K:
3
Exhibit Description
2.2* Form of Share Exchange Agreement dated as of December 13, 2002
by and among WARP Technology Holdings, Inc., 6043577 Canada Inc.,
SpiderSoftware Inc., the Spider Insiders and the Persons
Identified on Schedule A thereto.
10.7* Form of Put and Call Agreement dated as of December 13, 2002,
by and among Warp Technology Holdings, Inc., 6043577 Canada Inc.,
and all of the Shareholders of SpiderSoftware Inc.
--------------------
* Previously filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, WARP Technology Holdings, Inc. has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Dated: March 17, 2003
WARP TECHNOLOGY HOLDINGS, INC.
By: /s/ Karl Douglas
-------------------------------
Karl Douglas, CEO and President
4
Consolidated Financial Statements
SpiderSoftware Inc.
(formerly known as SpiderCache Inc.)
June 30, 2002 and 2001
INDEPENDENT AUDITORS' REPORT
To the Directors of
SpiderSoftware Inc.
We have audited the consolidated balance sheets of SpiderSoftware Inc. as at
June 30, 2002 and 2001 and the consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the financial position of SpiderSoftware Inc.
as at June 30, 2002 and 2001 and the results of its operations and its cash
flows for the years then ended in accordance with accounting principles
generally accepted in the United States.
The accompanying consolidated financial statement have been prepared assuming
that SpiderSoftware Inc. will continue as a going concern. As described in note
1 to the consolidated financial statements, the Company's recurring operating
losses and working capital deficiency raise substantial doubt about its ability
to continue as a going concern. Management's plans in regards to these matters
are also described in note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Vancouver, Canada, /s/ ERNST & YOUNG LLP
February 28, 2003. Chartered Accountants
F-2
SpiderSoftware Inc.
CONSOLIDATED BALANCE SHEETS
(See Basis of Presentation - note 1)
As at June 30 (expressed in Canadian dollars)
2002 2001
$ $
----------------------------------------------------------------------------------------------------
ASSETS [note 6]
Current
Cash -- 588,900
Accounts receivable 14,217 88,849
Investment tax credits receivable [note 9] 94,500 96,425
Goods and services tax receivable 2,065 24,032
Prepaid and other assets 450 4,409
----------------------------------------------------------------------------------------------------
Total current assets 111,232 802,615
Capital assets, net [note 5] 89,176 107,320
----------------------------------------------------------------------------------------------------
200,408 909,935
====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current
Bank indebtedness 4,151 --
Accounts payable 144,869 130,382
Accrued liabilities 42,710 11,392
Deferred revenue 3,238 26,038
Convertible debenture [note 6] 182,560 --
----------------------------------------------------------------------------------------------------
Total liabilities 377,528 167,812
----------------------------------------------------------------------------------------------------
Contingencies [note 12]
Stockholders' equity (deficiency)
Common stock [note 7] 1,340,134 1,137,024
Convertible preferred shares [note 8] -- 1,000,000
Additional paid in capital 1,848,633 538,520
Accumulated deficit (3,365,887) (1,933,421)
----------------------------------------------------------------------------------------------------
Total stockholders' equity (deficiency) (177,120) 742,123
----------------------------------------------------------------------------------------------------
200,408 909,935
====================================================================================================
See accompanying notes
F-3
SpiderSoftware Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30 (expressed in Canadian dollars)
2002 2001
$ $
---------------------------------------------------------------------------------------------------
Revenues
Licenses [note 10] 85,520 145,329
Maintenance, support and services [note 10] 30,591 7,042
---------------------------------------------------------------------------------------------------
116,111 152,371
Cost of revenues
Maintenance, support and services 55,525 51,084
---------------------------------------------------------------------------------------------------
Total operating expenses 55,525 51,084
---------------------------------------------------------------------------------------------------
Gross profit 60,586 101,287
Operating expenses
Sales and marketing [notes 7[c], and 10] 738,137 1,281,218
Research and development [note 7[c] and 9] 326,808 212,090
General and administrative [note 7[c] 364,716 477,905
---------------------------------------------------------------------------------------------------
Total operating expenses 1,429,661 1,971,213
---------------------------------------------------------------------------------------------------
Loss from operations (1,369,075) (1,869,926)
Other income (expense)
Interest income 3,240 21,316
Interest expense [note 6] (79,252) --
Gain on partial extinguishment of beneficial conversion
feature [note 6] 11,901 --
Foreign exchange gain 720 17,182
---------------------------------------------------------------------------------------------------
Total other income (expense) (63,391) 38,498
---------------------------------------------------------------------------------------------------
Net loss and comprehensive loss (1,432,466) (1,831,428)
===================================================================================================
See accompanying notes
F-4
SpiderSoftware Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(expressed in Canadian dollars)
Preferred Total
Common stock stock Additional stockholders'
------------------ --------------------- paid in Accumulated equity
Shares Amount Shares Amount capital Deficit (deficiency)
# $ # $ $ $ $
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 4,500,000 (1,875) -- -- -- (101,993) (103,868)
Common stock issued for cash, net of share issue
costs of $10,604 [note 7[b]] 775,000 1,496,141 -- -- -- -- 1,496,141
Warrants issued with common shares [note 7[b]] -- (357,242) -- -- 357,242 -- --
Stock-based compensation [note 7[c]] -- -- -- -- 181,278 -- 181,278
Preferred shares issued for cash and
other consideration [note 8[b]] -- -- 2,250,000 1,000,000 -- -- 1,000,000
Net loss and comprehensive loss -- -- -- -- -- (1,831,428) (1,831,428)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001 5,275,000 1,137,024 2,250,000 1,000,000 538,520 (1,993,421) 742,123
Common stock issued for cash, net of share issue
costs of $11,410 [note 7[b]] 1,637,000 188,110 -- -- -- -- 188,110
Common stock issued with convertible debenture
[note 6] 125,000 15,000 -- -- -- -- 15,000
Stock-based compensation [note 7[c]] -- -- -- -- 527,896 -- 527,896
Value of beneficial conversion feature on
convertible debenture [note 6] -- -- -- -- 44,118 -- 44,118
Partial extinguishment of beneficial conversion
feature on convertible debenture [note 6] -- -- -- -- (11,901) -- (11,901)
Repurchase of preferred shares [note 8[b]] -- -- (2,250,000) (1,000,000) 750,000 -- (250,000)
Net loss and comprehensive loss -- -- -- -- -- (1,432,466) (1,432,466)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 7,037,000 1,340,134 -- -- 1,848,633 (3,365,887) (177,120)
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
F-5
SpiderSoftware Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30 (expressed in Canadian dollars)
2002 2001
$ $
-------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss (1,432,466) (1,831,428)
Adjustments to reconcile net loss to net cash:
Amortization of capital assets 24,454 25,945
Write-off of capital assets 6,086 --
Accretion of convertible debenture 15,000 --
Non-cash stock based compensation 527,896 181,278
Non-cash interest expense on beneficial conversion feature 44,118 --
Non-cash gain on extinguishment of beneficial conversion feature (11,901) --
Changes in operating assets and liabilities
Accounts receivable 74,632 (88,849)
Investment tax credits receivable 1,925 (96,425)
Goods and services tax receivable 21,967 (24,032)
Prepaid and other assets 3,959 (3,959)
Accounts payable 14,488 130,382
Accrued liabilities 31,317 9,067
Deferred revenue (22,800) 24,045
-------------------------------------------------------------------------------------------------------
Net cash used in operating activities (701,325) (1,673,976)
-------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of capital assets (12,396) (133,265)
-------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,396) (133,265)
-------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 199,520 1,506,745
Share issuance costs - common stock (11,410) (10,604)
Proceeds from issuance of convertible preferred stock -- 600,000
Repurchase of convertible preferred stock (250,000) --
Proceeds from bridge loans -- 300,000
Proceeds from issuance of convertible debenture 250,000 --
Repayment of convertible debenture (67,440) --
Bank indebtedness 4,151 --
-------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 124,821 2,396,141
-------------------------------------------------------------------------------------------------------
(Decrease) increase in cash (588,900) 588,900
Cash, at the beginning of the year 588,900 --
-------------------------------------------------------------------------------------------------------
Cash, at the end of the year -- 588,900
=======================================================================================================
Supplementary information
Cash interest paid 28 --
Cash interest received 3,776 21,316
=======================================================================================================
See accompanying notes
F-6
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of business
SpiderSoftware Inc. ("Spider" or the "Company") is an information technology
company whose SpiderCache software and SpiderBox appliance products allow
companies to decrease the time to serve static and dynamically created web
pages. This reduces the wait time experienced by users and facilitates the
support of a greater number of concurrent users on a given site, both on
internal networks and internet business sites.
The Company was incorporated under the Canada Business Corporation Act on June
22, 2000. On July 30, 2001, the Company changed its name from SpiderCache Inc.
to SpiderSoftware Inc. The Company is headquartered in Vancouver, British
Columbia.
Basis of presentation
The consolidated financial statements have been prepared by management in
accordance with accounting principles generally recognized in the United States
on a going concern basis, which contemplates the realization of assets and the
discharge of liabilities in the normal course of business for the foreseeable
future.
The Company incurred a loss of $1,432,466 for the year ended June 30, 2002 [2001
- $1,831,428] and has a working capital deficiency and stockholders' deficiency
of $266,296 and $177,120 as at June 30, 2002 respectively. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management has been able, thus far, to finance the operations through a
series of equity private placements, debenture financing and bridge loans.
However, there are no assurances that the Company will be successful in
obtaining future financing.
The ability of the Company to continue as a going concern is uncertain and
dependant upon achieving a profitable level of operations and on the ability of
the Company to obtain necessary financing to fund ongoing operations [see note
13]. These consolidated financial statements do not give effect to any
adjustments to the amounts of and classification of assets and liabilities which
would be necessary should the Company be unable to continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies used in the
preparation of these consolidated financial statements:
Basis of consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned U.S. subsidiary, SpiderSoftware Corporation. The
U.S. subsidiary has been inactive since incorporation and has no material assets
or liabilities. All intercompany balances and transactions have been eliminated
upon consolidation.
F-7
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Management believes that the estimates utilized in preparing its consolidated
financial statements are reasonable and prudent; however, actual results could
differ from these estimates.
Capital assets
Capital assets are recorded at cost less accumulated amortization. Capital
assets are amortized using the following estimated useful lives:
Computer software 1 year
Computer hardware 3 years
Furniture and fixtures 5 years
Revenue recognition
Licensing revenues are derived from sales of software licenses. Maintenance,
support and services revenues consist of technical support, training, consulting
and maintenance.
Spider generally recognizes licensing revenues, whether sold direct or through
distributors or resellers, upon product delivery, provided persuasive evidence
of an arrangement exists, fees are fixed or determinable and the resulting
receivable is deemed collectible by management. In instances where payments are
subject to extended payment terms, revenues are not recognized until the
payments become due.
Revenues from technical support and maintenance are recognized ratably over the
term of the arrangement, generally one year. Revenues from training and
consulting are generally recognized as the services are performed.
In the normal course of its business, the Company provides software licenses,
maintenance, support and services in exchange for goods and services. The
revenues thus earned are recorded on the basis of the fair value of the products
and services provided.
Deferred revenue represents amounts from customers under license, maintenance
and service arrangements for which the criteria to recognize revenue has not
been satisfied. These amounts relate primarily to provision of technical support
and maintenance arrangements with future deliverables.
F-8
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Developed technology
The Company applies Statement of Financial Accounting Standards No. 86 ("SFAS
86"), "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed" to software technologies developed internally or purchased.
Internal development costs are included in research and development and are
expensed as incurred. SFAS 86 requires the capitalization of certain internal
development costs once technological feasibility is established, which for the
Company, generally occurs upon the completion of a working model. As the time
period between the completion of a working model and the general availability of
software has been short, no capitalization of internal development costs has
occurred.
Investment tax credits and government grants
Investment tax credits and government grants related to current research and
development expenses are recorded as a reduction to these expenses for the
period in which a reasonable estimate of the amount can be made and
collectibility is reasonably assured. Investment tax credits and government
grants related to the acquisition of capital assets are deducted from the cost
of the related capital assets with any amortization calculated on the net
amount.
Advertising expense
The cost of advertising is expensed as incurred.
Foreign currency translation
Trade transactions completed in foreign currencies are reflected in Canadian
dollars at the rates prevailing at the time of the transactions. Monetary assets
and liabilities denominated in foreign currencies are reflected in the financial
statements in equivalent Canadian dollars at the rate of exchange prevailing at
the balance sheet date. The resulting differences between the translated amounts
at the original transaction date and the balance sheet are charged to income as
they arise.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements using
the intrinsic value method in accordance with the provisions of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees"
("APB 25") and complies with the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Under APB 25, compensation expense for employees is based on the
difference, if any, between fair value of the Company's stock and the exercise
price on the date of the grant. The Company accounts for stock issued to
non-employees at fair value in accordance with SFAS 123. The Company uses the
Black-Scholes option pricing model to determine the fair value of stock options
granted to non-employees.
F-9
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Income taxes
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are recognized with respect to the
future tax consequences attributable to differences between the tax basis of
assets and liabilities and their carrying amounts for financial statement
purposes. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
3. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables.
Revenue to one customer comprised 14% of total revenues for the year ended June
30, 2002 and 12% of accounts receivable as at June 30, 2002 respectively [2001 -
one customer comprised 52% of total revenues and 79% of accounts receivable
respectively].
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments, including accounts receivable,
investment tax credits receivable, goods and services tax receivable, accounts
payable, accrued liabilities, and convertible debenture, approximated fair value
because of their short term nature.
5. CAPITAL ASSETS
Accumulated Net book
Cost amortization value
$ $ $
----------------------------------------------------------------------------------------------------
June 30, 2002
Computer software 14,306 13,318 988
Computer hardware 80,812 22,199 58,613
Furniture and fixtures 40,908 11,333 29,575
----------------------------------------------------------------------------------------------------
136,026 46,850 89,176
====================================================================================================
June 30, 2001
Computer software 14,306 8,178 6,128
Computer hardware 85,340 12,801 72,539
Furniture and fixtures 33,619 4,966 28,653
----------------------------------------------------------------------------------------------------
133,265 25,945 107,320
====================================================================================================
F-10
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
6. CONVERTIBLE DEBENTURE
On July 25, 2001, the Company received $250,000 from Seraphim Ventures Inc., an
existing shareholder in exchange for a convertible debenture and 125,000 fully
paid common shares.
The proceeds have been allocated to the convertible debenture and the common
shares based on their relative fair value of each security at the time of
issuance. Accordingly, $235,000 was allocated to the convertible debenture and
$15,000 was allocated to the common shares. The fair value of common shares at
the time of issuance of the 125,000 common shares was estimated by the Company's
Board of Directors to be $0.12 per common share. The carrying value of the
convertible debenture will be accreted to its principal amount to its earliest
maturity date (see below).
In addition, the convertible debenture is convertible at a discount of 15% to
the subscription price paid by investors for equity securities issued in
connection with a private placement for an aggregate amount of not less than
$1,000,000, subject to anti-dilution provisions as outlined in the convertible
debenture agreement.
The holder of the debenture may convert the principal sum and all accrued
interest into fully paid common shares at any time after the earliest of January
31, 2002, a $1,000,000 financing or event of default (as defined in the
debenture agreement). Should a $1,000,000 financing not have occurred by January
31, 2002, the debenture is convertible into common shares at a discount of 15%
to the lowest price that common shares have been issued in the period that the
debenture has been outstanding. As a result of the discounted conversion price,
the Company recorded a beneficial conversion feature of $44,118 as a non-cash
interest expense in the year ended June 30, 2002.
The convertible debenture bears interest at 10% per annum and is repayable on
the earliest of January 31, 2002, a $1,000,000 financing or event of default (as
defined in the debenture agreement).
The Company may, at any time, repay up to $125,000 owing under the debenture.
During the year ended June 30, 2002, the Company repaid $67,440 of the amount
owing on the convertible debenture. As a result of the partial repayment of the
amounts owed on the convertible debenture, the Company recorded a gain on
partial extinguishment of the beneficial conversion of $11,901.
Interest expense relating to amounts outstanding on the debenture during the
year ended June 30, 2002 amounted to $20,106 [2001 - $nil].
The convertible debenture is secured by intellectual property owned by, licensed
to or used by the Company.
F-11
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
7. COMMON STOCK
a] Authorized
The Company has authorized an unlimited number of voting common shares with no
par value.
b] Issued and outstanding
Number of
Shares Amount
# $
-----------------------------------------------------------------------------------------------------
Balance, June 30, 2000 4,500,000 (1,875)
Issued for cash [i] 775,000 1,506,745
Share issue costs -- (10,604)
Warrants issued with common shares [i] -- (357,242)
-----------------------------------------------------------------------------------------------------
Balance, June 30, 2001 5,275,000 1,137,024
Issued for cash [note 6] 1,762,000 214,520
Share issue costs -- (11,410)
-----------------------------------------------------------------------------------------------------
Balance, June 30, 2002 7,037,000 1,340,134
=====================================================================================================
The common shares are entitled to one vote per share.
[i] On December 1, 2000, in conjunction with the sale of 275,000 shares of
common stock at US$3 per share to certain investors for US$825,000
(CAD$1,256,745), the Company issued warrants to purchase 137,500 shares of
its common stock at an exercise price of US$3 per share. The gross proceeds
from the sale of common stock has been allocated to the common stock and
the warrants based on the relative fair value of common stock and the
warrants at the time of issuance. Accordingly $899,503 was allocated to
common stock and $357,242 was allocated to the warrants. The fair value of
the warrants was estimated using the Black-Scholes option pricing model.
The warrants expired unexercised on November 30, 2001.
c] Stock options
Stock Option Plan
The Company established a Stock Option Plan (the "Plan") on June 22, 2000,
whereby options to purchase shares of the Company's stock may be granted to
executive officers and directors, employees and consultants. The Company has
reserved 1,000,000 of common shares under the Plan.
The exercise price of the options is determined by the Board of Directors but
generally will be at least equal to the fair value of the common shares on the
grant date. The options vest as determined by the Board, and expire no later
than five years from the date of grant.
F-12
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
7. COMMON STOCK (cont'd.)
c] Stock options (cont'd.)
Any stock options that do not vest as the result of a grantee leaving the
Company are forfeited and the common shares underlying them are returned to the
reserve. Stock option activity is summarized as follows:
Weighted
Number of average
options exercise price
# $
------------------------------------------------------------------------------
Balance, June 30, 2000 -- --
Granted 302,500 0.45
------------------------------------------------------------------------------
Balance, June 30, 2001 302,500 0.45
Granted 320,500 0.22
Cancelled (210,000) 0.33
------------------------------------------------------------------------------
Balance, June 30, 2002 413,000 0.33
------------------------------------------------------------------------------
At June 30, 2002, 587,000 shares were available under the Plan for future
grants.
The following table summarizes information about stock options outstanding and
exercisable as at June 30, 2002:
Options outstanding Options exercisable
---------------------------------- -----------------------------------
Range of Number of Number of
Exercise common shares Remaining common shares Remaining
Prices issuable contractual life issuable contractual life
$ # (years) # (years)
--------------------------------------------------------------------------------------
0.12 188,000 4.44 188,000 4.44
0.50 225,000 3.88 118,750 3.86
--------------------------------------------------------------------------------------
413,000 4.13 306,750 4.25
--------------------------------------------------------------------------------------
Stock-based compensation
For the years ended June 30, the Company incurred non-cash stock-based
compensation expense reported in the consolidated statements of operations as
follows:
2002 2001
$ $
--------------------------------------------------------------------------
Sales and marketing 211,158 78,601
Research and development 211,158 68,451
General and administrative 105,580 34,226
--------------------------------------------------------------------------
527,896 181,278
--------------------------------------------------------------------------
The Company incurred a non-cash stock-based compensation expense of $527,896 in
2002 as a result of stock options granted to employees with an exercise price
less than the market price of the common stock on the date of grant [2001 -
$171,128].
The Company incurred non-cash stock-based compensation of $10,150 in 2001 as a
result of 35,000 stock options granted to consultants in exchange for services.
The stock options granted were valued on the commitment date using the
Black-Scholes valuation model. The value attributable to the stock options was
recorded as a sales and marketing expense.
F-13
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
7. COMMON STOCK (cont'd.)
c] Stock options (cont'd.)
Pro forma disclosure of the stock-based compensation
The following pro forma information shows the results of operations as if
stock-based awards granted to employees had been accounted for using the fair
value method.
The fair value of the Company's stock-based awards granted during the year was
estimated using the Black-Scholes option pricing model using the following
assumptions:
2002 2001
---------------------------------------------------------------------------
Volatility 65.5% 90.7%
Expected life of options 2 years 2 years
Dividend yield 0.0% 0.0%
Risk free interest rate 4.14% 5.43%
---------------------------------------------------------------------------
For pro forma purposes, the estimated fair value of the Company's stock-based
awards is amortized over the vesting period of the underlying options.
The pro forma net loss and comprehensive loss for each year is as follows:
2002 2001
$ $
-------------------------------------------------------------------------------
Net loss and comprehensive loss 1,432,466 1,831,428
Compensation expense 66,674 65,984
-------------------------------------------------------------------------------
Pro forma net loss and comprehensive loss 1,499,140 1,897,412
-------------------------------------------------------------------------------
F-14
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
8. CONVERTIBLE PREFERRED SHARES
a] Authorized
The Company has authorized an unlimited amount of preferred shares at no par
value.
Each preferred share is convertible, at the option of the holder at any time,
into one fully paid common share of the Company on a one-to-one basis. The
conversion price is the original issue price, subject to adjustments which
protect against share volume dilution which include if the Company issues common
shares, options, rights or warrants for less than the preferred share original
issue price; dividends or other distributions on common shares payable in
additional common shares or securities of the Company other than common shares;
and stock splits or consolidation of common or preferred shares.
All holders of preferred shares are entitled to receive notice and to attend all
meetings of the shareholders of the Company (except meetings at which only
holders of another specified class or series of shares of the Company are
entitled to vote separately as a class or series) and each has voting rights
equivalent to those that the holder would have "as if" they were converted to
common shares on that date.
If the common shares issuable upon the conversion of preferred shares are
changed into the same or a different number of shares of any class of stock,
whether by capital reorganization, reclassification, subdivision or
consolidation of stock or otherwise, a share dividend on common shares, or the
issuance of an option, right or warrant, any preferred shares have the right to
convert into the kind and amount of shares receivable upon such reorganization,
reclassification, subdivision or consolidation of stock or otherwise.
In addition, the preferred shares will convert to common shares on occurrence of
the Company receiving aggregate proceeds from one or more financings of not less
than US$25,000,000, the election by a majority of the holders of preferred
shares to convert into common shares, or an initial public offering.
The preferred shares have preferential rights upon liquidation, ranking senior
to all other classes of shares.
F-15
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
8. CONVERTIBLE PREFERRED SHARES (cont'd.)
b] Issued
2002 2001 2002 2001
# # Class $ $
--------------------------------------------------------------------------------
-- 2,250,000 Class A preferred shares -- 1,000,000
--------------------------------------------------------------------------------
Pursuant to a preferred shares subscription agreement dated August 30, 2000 and
amended October 6, 2000 (the "Preferred Shares Agreement"), the Company issued
2,250,000 Class A preferred shares at $0.4444 per share to Itemus Inc. for the
following consideration:
----------------------------------------------------------------------------
$
Consideration provided
Cash paid 600,000
Settlement of bridge loans previously advanced 300,000
Settlement of demand promissory note 100,000
----------------------------------------------------------------------------
1,000,000
----------------------------------------------------------------------------
At the time of the transaction, one of the directors of the Company was also a
director of Itemus Inc. and one director was a director of a subsidiary of
Itemus Inc.
On June 22, 2000, the Company acquired in-process research and development from
Itemus Inc. As consideration to acquire this in-process research and
development, the Company issued a $100,000 demand promissory note. Interest on
amounts outstanding was calculated and payable semi-annually at 8% per annum.
Pursuant to the Preferred Shares Agreement, the demand promissory note was
settled in exchange for preferred shares. The accrued interest of $2,324 was
forgiven.
On July 23, 2001, the Company repurchased all outstanding preferred shares for a
total cash consideration of $250,000. The $750,000 excess of the carrying value
over the amount paid to repurchase the preferred shares has been recorded as
additional paid-in capital.
F-16
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
9. RESEARCH AND DEVELOPMENT
2002 2001
$ $
-------------------------------------------------------------------------------
Research and development expenses 415,601 316,869
Investment tax credits (47,250) (96,425)
Government grants (41,543) (8,354)
-------------------------------------------------------------------------------
326,808 212,090
-------------------------------------------------------------------------------
As at June 30, 2002, the Company has accrued an investment tax credit receivable
of $94,500 which has not yet been received. The investment tax credits are
subject to review and audit by Canada Customs and Revenue Agency ("CCRA").
Although the Company has used its best judgment and understanding of the related
income tax legislation in determining the amounts and timing of investment tax
credits, it is possible that the amounts could change by a material amount in
the near term depending on a review and audit by CCRA.
10. ADVERTISING EXPENSE
Advertising expense paid in cash included in sales and marketing expense,
totalled $26,894 and $135,063 in the years ending June 30, 2002 and 2001
respectively.
Advertising expense incurred by entering into non-monetary transactions included
in sales and marketing expenses, totaled $nil and $78,930 in the years ending
June 30, 2002 and 2001 respectively. In exchange for advertising the Company's
products and services, the Company gave third parties license, maintenance,
support and services.
The non-monetary transactions were recorded based on the fair value of the
products and services provided. $nil and $7,275 was included in license revenue
and maintenance, support and service revenue respectively in the year ended June
30, 2002 (June 30, 2001 - $68,727 and $2,928 respectively).
F-17
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
11. INCOME TAXES
The Company is subject to federal and provincial income taxes in Canada.
At June 30, 2002, the Company has non-capital losses for Canadian income tax
purposes of approximately $2,332,000, which are available to carryforward to
reduce future years' taxable income. As the Company has a December 31st taxation
year-end, these income tax losses expire as follows:
$
----------------------------------------------------------------------------
December 31, 2007 640,000
December 31, 2008 1.690,000
December 31, 2009 2,000
----------------------------------------------------------------------------
2,332,000
----------------------------------------------------------------------------
Non-capital losses noted above are restricted by Canadian tax law due to the
acquisition of the Company as described in note 13 and may not be available for
use in future years pursuant to provisions of the Income Tax Act.
Net future tax assets are as follows:
2002 2001
$ $
-------------------------------------------------------------------------------
Loss carryforwards 831,000 554,000
Research and development deductions and credits 28,000 22,300
Share issue costs and financing fees 9,700 3,300
Capital assets (3,700) (5,200)
Other 24,000 25,600
-------------------------------------------------------------------------------
889,000 600,000
Future tax asset valuation allowance (889,000) (600,000)
-------------------------------------------------------------------------------
Net future tax assets -- --
-------------------------------------------------------------------------------
Management believes there is sufficient uncertainty regarding the realization of
future tax assets such that a full valuation allowance has been provided.
12. CONTINGENCIES
The Company is subject to litigation in the ordinary course of its business.
While the Company believes that the ultimate outcome of these matters will not
have a material adverse effect on the Company, the outcome of these matters is
not determinable and negative outcomes may adversely effect the Company's
financial position, liquidity or results of operations.
F-18
SpiderSoftware Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001 (expressed in Canadian dollars)
13. SUBSEQUENT EVENTS
[i] Subsequent to June 30, 2002, the Company issued 410,000 additional common
shares to employees, directors and a company controlled by a director and
shareholder for services rendered. The Company also issued 140,000 shares
to professional advisors for services rendered.
[ii] Subsequent to June 30, 2002, the Company raised US$250,000 (CAD$392,211) in
additional bridge loan financing from WARP Technology Holdings, Inc.
secured by promissory notes.
[iii] On January 10, 2003, WARP Technology Holdings, Inc. through its
wholly-owned subsidiary 6043577 Canada Inc., acquired 100% of the issued
and outstanding capital stock of the Company through a share exchange
transaction pursuant to a share exchange agreement (the "Exchange
Agreement"). Pursuant to the Exchange Agreement, Spider shareholders were
issued 1,500,000 shares of the preferred stock of 6043577 Canada Inc.,
which in turn is convertible into common shares of WARP Technology
Holdings, Inc. on a 1 for 1 basis and WARP Technology Holdings, Inc.
forgave the outstanding promissory notes of US$250,000 in exchange for 100%
of the issued and outstanding capital stock of the Company.
[iv] As part of the Exchange Agreement, it was agreed with the convertible
debenture holder that $54,034 of the debt (including accrued interest)
would be forgiven. The remaining amount of $128,526, which is subject to
10% interest per annum, is to be repaid by April 30, 2003.
F-19
INTRODUCTION TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited condensed consolidated financial information sets forth
the consolidated financial position and consolidated results of operations of
Warp Technology Holding, Inc. ("Warp") and SpiderSoftware Inc. ("Spider")
assuming the combination was accounted for using the purchase method of
accounting and that the combination was consummated (i) on December 31, 2002 for
the unaudited pro forma condensed consolidated balance sheet and (ii) as of the
beginning of the earliest period presented in the unaudited pro forma condensed
statements of operations. Accordingly, the assets acquired and liabilities
assumed have been recorded at their estimated fair values and useful lives,
which are subject to further adjustment based on future events and future
analysis.
The unaudited pro forma information consolidates Warp's historical consolidated
balance sheet as of December, 31, 2002 with the consolidated balance sheet of
Spider as of December 31, 2002, and Warp's historical consolidated statements of
operations for the fiscal year ended June 30, 2002 and the six months ended
December 31, 2002 with the historical consolidated statements of operations of
Spider for the twelve months ended June 30, 2002 and the six months ended
December 31, 2002 respectively.
The pro forma condensed consolidated balance sheet and statements of operations
have been prepared by the management of Warp. The following unaudited pro forma
condensed consolidated information is presented for illustration purposes only.
It is not necessarily indicative of the financial position or results of
operations that would actually have been reported had the combination been in
effect during those periods or may be reported in the future. The statements
should be read in conjunction with Warp's historical financial statements and
notes thereto included in filings with the SEC and Spider's financial
statements, which have been included in this report.
F-20
Warp Technology Holdings, Inc.
Unaudited Proforma Condensed Consolidated Balance Sheet
December 31, 2002
Canadian $ Conversion US $ Proforma Proforma
Warp Spider Rate Spider Adjustments Consolidated
----------------------------------------------------------------------------------------------
Cash and Cash Equivalents $563,962 $64,505 0.63 $40,638 - $604,600
Account Receivable 579,422 109,389 0.63 68,915 - 648,337
Inventory 166,000 - - - - 166,000
Prepaids 25,342 - 0.63 - - 25,342
Deferred Product Cost 82,066 - - - - 82,066
----------------------------------------------------------------------------------------------
Total Current Assets 1,416,792 173,894 109,553 - - 1,526,345
Property and Equipment, net 72,293 76,854 0.63 48,418 - 120,711
Advances to Spider 250,000 - - - 1 (250,000) -
Goodwill - - - - 2 4,770,034 4,770,034
Other Assets 7,065 - - - - 7,065
----------------------------------------------------------------------------------------------
Total Assets $1,746,150 $250,748 $157,971 $4,520,034 $6,424,155
==============================================================================================
Current Liabilities
Accounts Payable $287,197 $38,117 0.63 $24,014 - $311,211
Loan from Warp Solutions 392,211 - 250,000 1 (250,000) -
Debentures- current 128,526 0.63 80,971 - 80,971
Accrued Expenses 171,932 46,240 0.63 29,131 - 201,063
Deferred Revenues 745,692 4,647 0.63 2,928 - 748,620
Interest Payable 20,106 0.63 12,667 - 12,667
----------------------------------------------------------------------------------------------
Current liabilites 1,204,821 629,847 399,711 (250,000) 1,354,532
Preferred Stock - - - 2 15 15
Common Stock 629 1,505,134 0.63 948,234 2 (948,234) 629
Additional Paid in Capital 32,940,496 2,082,324 0.63 1,311,864 2 3,216,415 37,468,775
Deferred Compensation (11,666,667) - - (11,666,667)
Accumulated Deficit (20,733,129) (3,966,557) 0.63 (2,501,838)1,2 2,501,838 (20,733,129)
----------------------------------------------------------------------------------------------
Total Stockholders' Equity
(Deficiency) 541,329 (379,099) (241,740) 4,770,034 5,069,623
----------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity
(Deficiency) $1,746,150 $250,748 $157,971 $4,520,034 $6,424,155
==============================================================================================
F-21
Warp Technology Holdings, Inc.
Unaudited Proforma Consolidated Statement of Operations
For the Six Months Ended December 31,2002
Canadian $ Conversion US $ Proforma Proforma
Warp Spider Rate Spider Adjustments Consolidated
-------------------------------------------------------------------------------------------------
Revenue $146,398 $ 43,958 0.64 $ 28,133 $ 174,531
Product Cost 32,951 11,453 0.64 7,330 40,281
Product Development 252,326 146,106 0.64 93,508 345,834
Sales & Marketing 336,256 161,437 0.64 103,320 439,576
General and Administrative 1,183,301 136,454 0.64 87,331 1,270,632
Non Cash Compensation 5,133,333 233,691 0.64 149,562 5,282,895
-------------------------------------------------------------------------------------------------
Net Loss before Interest Expense (6,791,769) (645,183) (412,918) - (7,204,687)
Interest Income (Expenses) 8,868 (9,441) 0.64 (6,042) 2,826
Other Income 53,953 0.64 34,530 34,530
-------------------------------------------------------------------------------------------------
Net Loss $ (6,782,901) $ (600,671) $ (384,430) - ($7,167,331)
=================================================================================================
Basic and diluted
net loss per share (0.11) - - (0.11)
=================================================================================================
Weighted-average number
common shares-basic
and diluted 60,471,882 - - 62,861,556
=================================================================================================
F-22
Warp Technology Holdings, Inc.
Unaudited Consolidated Proforma for the year ended June 30, 2002
Consolidated Statement of operations
Canadian $ Conversion US $ Proforma Proforma
Warp Spider Rate Spider Adjustments Consolidated
-----------------------------------------------------------------------------------------------
Revenue $11,333 $116,111 0.64 $74,311 $85,644
Product Cost - 55,525 0.64 35,536 35,536
Product Development 1,586,427 326,808 0.64 209,157 1,795,584
Sales & Marketing 179,082 738,137 0.64 472,408 651,490
General and Administrative 3,208,073 364,716 0.64 233,418 3,441,491
-----------------------------------------------------------------------------------------------
Net Loss before Interest Expense (4,962,249) (1,369,075) (876,208) (5,838,457)
Interest Income (Expenses) (3,064) (76,012) 0.64 (48,647) (51,711)
Other Income 12,621 0.64 8,077 8,077
-----------------------------------------------------------------------------------------------
Net Loss ($4,965,313) ($1,432,466) ($916,778) ($5,882,091)
===============================================================================================
Basic and diluted
net loss per share (0.21) - - (0.23)
===============================================================================================
Weighted-average number
common shares-basic
and diluted 23,617,003 - - 25,117,003
===============================================================================================
F-23
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Adjustments
(1) Reflects Warp's purchase of Spider for $250,000 in cash, through the
forgiveness of the promisory note, and 1,500,000 shares of the preferred stock
of Registrant's subsidiary, 6043577 Canada, Inc., with a combined estimated
value of $4,021,500, as of the transaction date of January 10,2003, and 81,853
fully vested stock options valued at approximately $257,000. We are in the
process of obtaining an independent third party valuation thus the purchase
price and the allocation of the purchase price are subject to change.
(2) To reflect the elimination of $250,000 of cash advanced to Spider from
Warp prior to the transaction date.
F-24