SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
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 31, 2005
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)
151 Railroad Avenue, Greenwich, Connecticut 06830
(Address of Principal Executive Offices)
(203) 422-2950
(Registrant's Telephone Number, including area code)
--------------------------------------------------------------------------------
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
--------------------------------------------------------------------------------
Warp Technology Holdings, Inc. (the "Company" or "Warp") hereby amends its
Current Report on Form 8-K filed February 4, 2005 to provide the required
financial statements of the Company relating to the acquisition by the Company
of Gupta Technologies, LLC ("Gupta") as described in such Current Report.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
The following financial statements of Gupta, the acquired business, are
submitted at the end of this Amendment to Current Report on Form 8-K/A, and are
filed herewith and incorporated herein by reference:
Financial Statements Page
-------------------- ----
Consolidated Financial Statements, Gupta Technologies, LLC, F-1
for the Years ended December 31, 2004 and 2003.
(b) Pro forma financial information.
The following pro forma financial information of Gupta, the acquired
business, and the Company is submitted at the end of this Amendment to Current
Report on Form 8-K/A, and is filed herewith and incorporated herein by
reference:
Pro Forma Financial Information Page
-------------------------------- ----
Warp Technology Holdings, Inc. and Gupta Technologies, LLC F-23
Unaudited Pro Forma Consolidated Condensed Financial
Statements
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: March 17, 2005
WARP TECHNOLOGY HOLDINGS, INC.
By: /s/ Ernest C. Mysogland
------------------------------
Name: Ernest C. Mysogland
Title: Executive Vice President,
Chief Legal Officer and Secretary
CONSOLIDATED FINANCIAL STATEMENTS
Gupta Technologies, LLC
Years ended December 31, 2004 and 2003
with Report of Independent Auditor's
F-1
Gupta Technologies, LLC
Consolidated Financial Statements
CONTENTS
Report of Independent Auditor's................................... F-3
Audited Consolidated Financial Statements
Consolidated Balance Sheet as of December 31, 2004................ F-4
Consolidated Statements of Operations for the years ended
December 31, 2004 and 2003........................................ F-5
Consolidated Statements of Member's Equity........................ F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2004 and 2003....................................... F-7
Notes to Consolidated Financial Statements........................ F-8
F-2
Report of Independent Auditor's
We have audited the accompanying consolidated balance sheet of Gupta
Technologies, LLC and subsidiaries (the "Company") as of December 31, 2004, and
the consolidated statements of operations, members equity, and cash flows for
the years ended December 31, 2004 and 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gupta
Technologies, LLC and subsidiaries as of December 31, 2004, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2004 and 2003 in conformity with accounting principles
generally accepted in the United States.
MAHONEY COHEN & COMPANY, CPA, P.C.
March 4, 2005
New York, NY
F-3
Gupta Technologies, LLC
Consolidated Balance Sheet
2004
------------
ASSETS
Current assets:
Cash and cash equivalents $ 354,875
Accounts receivable, net of allowances of
$ 74,095 3,292,195
Due from affiliates 13,380
Prepaid expenses and other current assets 415,265
-----------
Total current assets 4,075,715
Property and equipment, net 156,691
Other long-term assets 72,556
Intangible assets, net 4,198,002
-----------
Total assets $ 8,502,964
===========
LIABILITIES AND MEMBER'S DEFICIT
Current liabilities:
Accounts payable $ 531,131
Accrued compensation and related benefits 1,069,872
Other accrued liabilities 593,938
Due to Platinum Equity, LLC and affiliates 1,659,283
Deferred revenues 4,863,480
-----------
Total current liabilities 8,717,704
Commitments and contingencies
Member's deficit (214,740)
-----------
Total liabilities and member's deficit $ 8,502,964
===========
See accompanying notes.
F-4
Gupta Technologies, LLC
Consolidated Statements of Operations
YEARS ENDED DECEMBER 31,
2004 2003
------------ --------------
Revenues:
Products $ 6,847,490 $ 6,486,921
Services 8,960,306 9,401,735
------------ --------------
Total revenues 15,807,796 15,888,656
Cost of revenues:
Cost of products 214,536 268,152
Cost of services 885,151 1,005,487
Amortization of developed technology 395,400 395,400
------------ --------------
Total cost of revenues 1,495,087 1,669,039
------------ --------------
Gross margin 14,312,709 14,219,617
Operating expenses:
Selling, general, and administrative expenses 7,910,077 7,963,236
Selling, general, and administrative expenses
incurred from affiliates 106,578 216,752
Research and development expenses 2,631,304 2,676,542
Depreciation and amortization 994,433 1,064,410
Management fees to Platinum Equity, LLC 3,319,042 7,513,090
------------ --------------
Total operating expenses 14,961,434 19,434,030
------------ --------------
Loss from operations (648,725) (5,214,413)
Other income (expense):
Interest income 2,467 8,028
Foreign exchange (loss) gain (62,094) 199,310
Other income, net 15,990 54,333
------------ --------------
Loss before provision for income taxes (692,362) (4,952,742)
Provision for income taxes 287,675 302,850
------------ --------------
Net loss $ (980,037) $ (5,255,592)
============ ==============
See accompanying notes.
F-5
Gupta Technologies, LLC
Consolidated Statements of Member's Equity
ACCUMULATED
OTHER TOTAL
MEMBER'S RETAINED COMPREHENSIVE MEMBER'S
CAPITAL EARNINGS (LOSS)INCOME EQUITY
------------ ------------- ------------- --------------
Balance at January 1, 2003 $ 2,420,343 $ 1,194,932 $ (24,690) $ 3,590,585
Comprehensive loss:
Net loss - (5,255,592) - (5,255,592)
Unrealized gain from foreign
currency translation:
Foreign currency translation
adjustment-current period - - 238,679 238,679
Reclassification adjustment to statement of
operations - - 70,609 70,609
------------- --------------
309,288 309,288
------------- --------------
Comprehensive loss (4,946,304)
Contribution 2,000,000 - - 2,000,000
------------ ------------- ------------- --------------
Balance at December 31, 2003 $ 4,420,343 $ (4,060,660) $ 284,598 $ 644,281
Comprehensive loss:
Net loss - (980,037) - (980,037)
Unrealized gain from foreign currency
translation:
Foreign currency translation
adjustment-current period - - 111,577 111,577
Reclassification adjustment to statement of
operations - - 9,439 9,439
------------- --------------
121,016 121,016
------------- --------------
Comprehensive loss (859,021)
------------ ------------- ------------- --------------
Balance at December 31, 2004 $ 4,420,343 $ (5,040,697) $ 405,614 $ (214,740)
------------ ------------- ------------- --------------
See accompanying notes.
F-6
Gupta Technologies, LLC
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31
2004 2003
----------- -------------
OPERATING ACTIVITIES
Net loss $ (980,037) $ (5,255,592)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 55,133 125,110
Amortization of intangible assets 1,334,700 1,334,700
Loss on disposal of property and equipment 983 4,670
Changes in operating assets and liabilities:
Accounts receivable (249,857) 917,948
Prepaid expenses and other assets (196,502) 62,188
Accounts payable and accrued liabilities 1,270 (66,011)
Due to affiliates 192,565 1,386,000
Deferred revenues (592,068) (677,261)
----------- -------------
Net cash used in operating activities (433,813) (2,168,248)
INVESTING ACTIVITIES
Purchases of property and equipment (83,633) (107,955)
----------- -------------
Net cash used in investing activities (83,633) (107,955)
FINANCING ACTIVITY
Member contributions - 2,000,000
----------- -------------
Effect of currency translation on cash 135,576 303,869
----------- -------------
Net (decrease) increase in cash and cash equivalents (381,870) 27,666
Cash and cash equivalents at beginning of year 736,745 709,079
----------- -------------
Cash and cash equivalents at end of year $ 354,875 $ 736,745
=========== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes $ 207,868 $ 432,510
=========== =============
Cash paid for interest $ 11 $ 829
=========== =============
See accompanying notes.
F-7
Gupta Technologies, LLC
Notes to Consolidated Financial Statements
December 31, 2004
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
As of December 31, 2004, Gupta Technologies, LLC ("Gupta" or the "Company") was
a single member limited liability company, with 100% of its membership interests
owned by Gupta Holdings, LLC ("Member"), a wholly-owned subsidiary of Platinum
Equity, LLC ("Platinum"). On January 31, 2005, the Company was acquired by Warp
Technology Holdings, Inc. (OTC BB: WARP). (See note 8)
The Member had acquired certain assets of Centura Software Corporation
("Centura") on February 21, 2001 ("Platinum Acquisition"). These assets included
two main software product lines (as well as other related products): (i)
SQLBase, an embeddable, low-administration database, and (ii) Team Developer, a
rapid application development tool. Pursuant to the Platinum Acquisition, the
Member also acquired certain domestic and international offices of Centura,
including operations in the United Kingdom, Australia, Germany, the Netherlands
(including branches in Denmark and Belgium), Austria, and Mexico. Effective as
of February 21, 2001, the Member contributed all of the acquired assets to the
Company and the Company began operating as Gupta Technologies, and thereafter
changed the names of its active foreign subsidiaries accordingly. In or prior to
2002, the operations of the Danish and Belgian branches of the Netherlands'
subsidiary were terminated. In 2003 the Austrian subsidiary was liquidated then
de-registered, and the Netherlands subsidiary was liquidated then dissolved. The
Netherlands and Austrian subsidiaries completely ceased all operations in or
prior to 2002, and remained inactive thereafter. The Australian subsidiary is
currently in the final stages of liquidation. The costs associated with all
liquidations have been minimal.
Gupta develops, markets, and supports software products that enable software
programmers to create enterprise class applications on both the Windows and
Linux operating systems.
F-8
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less, when purchased, to be cash equivalents.
In addition, the Company typically maintains cash and cash equivalents at
commercial banks. At times, bank account balances exceed FDIC insurance limits.
Generally, the FDIC insures depositor funds up to $100,000.
CONCENTRATION OF CREDIT RISK AND CERTAIN OTHER RISKS
Financial instruments that subject the Company to concentrations of credit risk
include trade receivables. The Company sells its products and services primarily
to value-added resellers, independent software vendors, and end-users on a
worldwide basis. Credit is extended based on an ongoing evaluation of the
customer's financial condition and, generally, collateral is not required. The
Company maintains allowances for potential credit losses based on management's
evaluation of the customer's financial condition, past collection history, and
age of the accounts receivable balances. As of December 31, 2004, the Company's
allowance for doubtful accounts was $74,095. Historically, losses have been
within the range of management's expectations.
F-9
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 2004, the respective carrying values of the Company's financial
instruments, including receivables, accounts payable, and accrued liabilities,
approximated their fair values. The fair value estimates presented herein were
based on market or other information available to management. The use of
different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair value amounts.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standard No. 130, Reporting Comprehensive
Income, ("SFAS 130") establishes standards for reporting and displaying
comprehensive net income and its components in member's equity. However, it has
no impact on the Company's net income as presented in these consolidated
financial statements. SFAS 130 requires foreign currency translation adjustments
to be included in comprehensive income. The components of accumulated other
comprehensive income relate entirely to currency translation adjustments.
PROPERTY AND EQUIPMENT
Property and equipment recorded as part of the Platinum Acquisition was recorded
at fair value. Property and equipment acquired subsequent to the date of the
acquisition is recorded at cost. Significant renewals and betterments to
property and equipment are capitalized and maintenance and repairs that do not
improve or extend the lives of the assets are expensed as incurred. When assets
are sold, replaced, or otherwise retired, the cost and related accumulated
depreciation or amortization is eliminated from the accounts in the year of
disposal and the related gains and losses are included in income. Depreciation
or amortization is computed on the straight-line method over three years, the
estimated useful lives of the assets.
F-10
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Identified intangible assets as of December 31, 2004, consisted of the
following:
DECEMBER 31, 2004
--------------------------------------
GROSS
CARRYING ACCUMULATED INTANGIBLE
AMOUNT AMORTIZATION ASSETS, NET
----------- ------------ -----------
Customer relationships $ 6,575,002 $ 3,620,800 $ 2,954,202
Developed technology 2,768,000 1,524,200 1,243,800
----------- ------------ -----------
$ 9,343,002 $ 5,145,000 $ 4,198,002
=========== ============ ===========
All of the Company's identified intangible assets are subject to amortization.
Amortization expense of identified intangibles included the following for each
of the years ended December 31, 2004 and December 31, 2003:
Customer relationships $ 939,300
Developed technology 395,400
------------
$ 1,334,700
============
Amortization of intangible assets is computed using the straight-line method
over seven years, the useful lives of the assets.
The Company expects to incur amortization expense of $1,334,700 for each year
ending December 31, 2005 through 2007 and $193,902 for the year ending December
31, 2008.
F-11
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues are derived from the licensing of software, maintenance contracts,
training, and other consulting services.
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position ("SOP") 97-2, Software
Revenue Recognition, as amended. In arrangements that include rights to multiple
software products and/or services, the Company allocates and defers revenue for
the undelivered items, based on vendor-specific objective evidence of fair
value, and recognizes the difference between the total arrangement fee and the
amount deferred for the undelivered items as revenue. In arrangements in which
the Company does not have vendor-specific objective evidence of fair value of
maintenance, and maintenance is the only undelivered item, the Company
recognizes the total arrangement fee ratably over the contractual maintenance
term.
Software license revenues are recognized upon receipt of a purchase order and
delivery of software, provided that the license fee is fixed or determinable; no
significant production, modification, or customization of the software is
required; and collection is considered probable by management. For licensing of
the Company's software through its indirect sales channel, revenue is recognized
when the distributor sells the software to its end-users, including value-added
resellers. For licensing of the Company's software to independent software
vendors, revenue is recognized upon shipment to the independent software
vendors.
Service revenue for maintenance contracts is deferred and recognized ratably
over the term of the agreement. Revenue from training and other consulting
services is recognized as the related services are performed.
At December 31, 2004, the Company recorded deferred revenue of $4,863,480,
primarily for customer upfront payments on maintenance contracts and
arrangements for which the Company is recognizing the total arrangement fee
ratably over the contractual maintenance term.
F-12
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST OF REVENUE
Cost of revenue includes costs related to product and service revenue and
amortization of acquired developed technology. Cost of product revenue includes
material, packaging, shipping, and other production costs. Cost of service
revenue includes salaries, benefits, and overhead costs associated with
employees providing maintenance and technical support, training, and consulting
services. Third-party consultant fees are also included in cost of service
revenue.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets and intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of the asset to the future
net undiscounted cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the future discounted cash flows compared to the carrying amount of
the asset.
INCOME TAXES
The Company is a single member limited liability company and is treated as a
disregarded entity for federal income tax purposes and, therefore, is not liable
for United States ("U.S.") federal income taxes. As a limited liability company
treated as a disregarded entity, the Company's taxable income is included in the
income tax returns of the Member. However, some states do not recognize the
disregarded entity status and, therefore, the Company will continue to be taxed
as a C corporation in those states. Additionally, there are certain states in
the U.S. that assess a fee against limited liability companies. Accordingly, for
those various states, the Company utilizes the liability method to determine the
provision for income taxes.
The Company has or had foreign subsidiaries based in the United Kingdom,
Australia, Germany, the Netherlands, Denmark, Belgium, and Mexico and is,
therefore, responsible for paying certain foreign income taxes. As a result,
there is an income tax provision of $287,675 and $302,850 for the years ended
December 31, 2004 and 2003, respectively.
F-13
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSLATION OF FOREIGN CURRENCY
The local currency is the functional currency for the Company's international
subsidiaries and as such, assets and liabilities are translated into U.S.
dollars at year-end exchange rates. Income and expense items are translated at
average exchange rates during the year. Any translation adjustments resulting
from this process are shown as a separate component of accumulated other
comprehensive loss. Gains and losses resulting from foreign currency
transactions are included in income currently. In the event of sale or complete
or substantial liquidation of an investment in a foreign entity, the foreign
currency translation adjustment related to that entity is reclassified from
comprehensive income to the statement of operations for that period.
SHIPPING AND HANDLING COSTS
Costs to ship products from the Company's warehouse facilities to customers are
recorded as a component of cost of revenues in the consolidated statement of
income.
ADVERTISING EXPENSE
The Company expenses the costs of advertising when incurred. Advertising expense
were $250,534 and $260,119 for the years ended December 31, 2004 and 2003,
respectively.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development expenses are charged to operations as incurred.
Research and development expenses were $2,631,304 and $2,676,542 for the years
ended December 31, 2004 and 2003, respectively. Software development costs,
which are required to be capitalized pursuant to Statement of Financial
Accounting Standards No. 86, Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed, have been insignificant.
F-14
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board ("FASB") Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, was issued in January 2003, and a
revised interpretation of FIN 46 ("FIN 46-R") was issued in December 2003. FIN
46 applies to any business enterprise that has a controlling interest,
contractual relationship or their business relationship with a variable interest
entities ("VIE") and establishes guidance for the consolidation of VIEs that
function to support the activities of the primary beneficiary. FIN 46 was
effective immediately for enterprises with VIEs created after January 31, 2003,
and will be effective January 1, 2005 for enterprises with VIEs created before
February 1, 2003. The Company believes it has no investments in, or contractual
or other business relationships with, VIEs. Therefore, the Company expects that
the adoption of FIN 46 will not have any effect on its financial position or the
results of its operations.
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which
establishes standards for transactions in which an entity exchanges its equity
instruments for goods or services. This standard requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant date fair value of the award. This
eliminates the exception to account for such awards using the intrinsic method
previously allowable under APB Opinion No. 25. SFAS No. 123 (R) will be
effective for the interim period beginning July 1, 2005. The Company is the
process of evaluating the impact to its financial statements. We believe the
adoption will not materially effect the Company's income statement.
F-15
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 20, Accounting for Nonmonetary
Transactions." The amendments made by SFAS No. 153 are based on the principle
that exchanges of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the narrow exception
for nonmonetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of nonmonetary asset that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. This statement shall be applied prospectively and is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Earlier application is permitted for nonmonetary asset exchanges occurring
in fiscal periods beginning after the date of issuance. The Company does not
anticipate that the adoption of SFAS No. 153 will have a significant impact on
the Company's overall results of operations or financial position.
F-16
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
3. PROPERTY AND EQUIPMENT
At December 31, 2004, property and equipment consisted of the following:
Computer equipment $ 307,365
Machinery and equipment 49,085
Furniture and fixtures 43,679
Construction in progress 75,934
-------------
476,063
Accumulated depreciation and amortization (319,372)
-------------
Property and equipment, net $ 156,691
=============
4. RELATED-PARTY TRANSACTIONS
MANAGEMENT FEES AND EXPENSE REIMBURSEMENTS
At December 31, 2004, the Company is party to a management agreement with
Platinum that requires Platinum to provide the Company with financial,
management and strategic services. The Company incurred management fees of
$3,319,042 and $7,513,090 to Platinum in 2004 and 2003, respectively.
Expenses incurred by Platinum on behalf of the Company were $99,449 and $205,649
during 2004 and 2003, respectively. Such expense reimbursements are recorded in
general and administrative expenses incurred from affiliates in the accompanying
consolidated statements of operations. At December 31, 2004, the Company had
$1,646,862 payable to Platinum for management fees, expense reimbursements and a
$300,000 short-term promissory note whose maturity date is November 15, 2005
with an interest rate of 2.37% per annum.
F-17
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
4. RELATED-PARTY TRANSACTIONS (CONTINUED)
TRANSACTIONS WITH AFFILIATES
The Company enters into certain transactions with companies that are owned
directly or indirectly by Platinum. Sales to affiliates were $12,993 and $21,774
during the years ended December 31, 2004 and 2003, respectively. Purchases from
affiliates were $7,129 and $11,103 during the years ended December 31, 2004 and
2003, respectively, and were included in selling, general, and administrative
expenses incurred from affiliates in the consolidated statements of operations.
Amounts due from affiliates at December 31, 2004 were $13,380. Amounts due to
affiliates at December 31, 2004 were $12,421.
5. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
In October 2002, Gupta Technologies, S.A. de C.V. ("Gupta Mexico" (Gupta
Technologies, LLC's Mexican subsidiary)) was sued by a division of the Mexico
City government ("GDF") alleging that Gupta had not fulfil1ed its obligations
under a consulting services agreement with GDF. The GDF suit seeks a return of
approximately $880,000 in fees paid by GDF, together with penalties, interest,
and other damages in the amount of approximately $11,000 per day since October
11, 2000. In November 2002, Gupta Mexico filed its answer, which points out that
the agreement contains a liquidated damages provision limiting GDF's damages to
10% of the value of the agreement, and contains a counterclaim seeking
$1,300,000 in damages. In November 2003, the court issued its ruling in favor of
Gupta Mexico, (a) that Gupta Mexico did not have to return any money, and (b)
ordering the GDF to pay 1.9 million Pesos to Gupta Mexico (approximately US
$170,000). The GDF appealed this ruling and won in April 2003, when the court of
appeals reversed the trial court and issued an order (i) rescinding the
agreement between Gupta Mexico and the GDF, (ii) requiring Gupta Mexico to
return money to the GDF (including interest from the filing date of the
complaint), and (iii) requiring the GDF to return to Gupta Mexico all that it
had received under the contract. In sum, Gupta Mexico was ordered to pay the GDF
7,662,647.82 Pesos, plus interest at 9% annually (per the current exchange rate,
this amounts to approximately US $673,000).
F-18
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL PROCEEDINGS (CONTINUED)
In April 2004, Gupta Mexico filed an Amparo review and, in September 2004, the
Mexico City court of appeals issued its decision on remand that the GDF has no
right to a refund of the money paid, and that Gupta Mexico does not have the
right to collect the balance of the contract (Gupta Mexico's counterclaim).
Gupta Mexico appealed that decision insofar as it was denied the right to
collect the balance of the contract; the GDF did not appeal. On January 28,
2005, the federal circuit court reversed the appeals court for the second time
and remanded the case. The company is currently awaiting ruling of the appeals
court. It is unlikely that Gupta Mexico will obtain a final ruling that orders
the GDF to pay Gupta Mexico the amount of the counterclaims.
The Company is subject to certain other asserted claims arising in the ordinary
course of business. The Company intends to vigorously assert its rights and
defend itself in any litigation that may arise from such claims. While the
ultimate outcome and resolution of these matters could affect the results of
operations in future periods, and while there can be no assurance with respect
thereto, management believes after final disposition, any financial impact to
the Company would not be material to the Company's consolidated financial
position.
F-19
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES
The Company has operating leases for certain office facilities and equipment.
Rental expense for the years ended December 31, 2004 and 2003 was approximately
$412,000 and $522,000, respectively. Future minimum lease payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 31, 2004, are as follows:
2005 $ 480,000
2006 382,000
2007 204,000
2008 126,000
2009 111,000
Thereafter 28,000
-----------
Total minimum lease payments $ 1,331,000
===========
In December 2003, the Company subleased its facility in Seattle for the
remaining term of the lease. Rental income related to the sublease is expected
to be approximately $27,000 for the year ended December 31, 2005. As the
sublease rental income is less than the Company's obligation over the remaining
term of the lease, the Company recorded a loss of approximately $57,000 in
December 2003.
6. EMPLOYEE BENEFITS
The Company maintains a qualified defined contribution plan for the benefit of
all employees. The Company's plan is part of Platinum's defined contribution
plan. Platinum's plan allows participating companies to have different
contribution and vesting formula. Participants may elect to defer up to 19% of
their wages (subject to the annual limitations imposed by Section 402 of the
Internal Revenue Code). The Company matches participant contributions at the
rate of 50% of the first 6% of salary contributed. The Company's total
contribution to the plan was $91,383 and $92,863 for the years ended December
31, 2004 and 2003, respectively.
F-20
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
7. GEOGRAPHIC INFORMATION
The Company sells its products to customers primarily through direct sales to
independent software vendors and end-users in North America and through
distributors and value added resellers in the rest of the world. For the year
ended December 31, 2004 and 2003, the geographic breakdown of revenues was as
follows:
YEAR ENDED DECEMBER 31, 2004
--------------------------------------------------
PRODUCT SERVICE TOTAL
------------ ------------ ------------
North America $ 1,832,330 $ 3,263,782 $ 5,096,112
Europe, Africa and the Middle East 4,238,583 4,904,882 9,143,465
Asia Pacific 582,009 613,425 1,195,434
Latin America 194,568 178,217 372,785
------------ ------------ ------------
Total $ 6,847,490 $ 8,960,306 $ 15,807,796
============ ============ ============
YEAR ENDED DECEMBER 31, 2003
--------------------------------------------------
PRODUCT SERVICE TOTAL
------------ ------------ ------------
North America $ 1,766,839 $ 3,813,486 $ 5,580,325
Europe, Africa and the Middle East 3,803,731 4,815,686 8,619,417
Asia Pacific 773,397 572,824 1,346,221
Latin America 142,954 199,739 342,693
------------ ------------ ------------
Total $ 6,486,921 $ 9,401,735 $ 15,888,656
============ ============ ============
One Customer, a distributor, accounted for 20% and 17% of the Company's revenue
for the years ended December 31, 2004 and 2003, respectively. The same customer
accounted for 28% of accounts receivable at December 31, 2004.
F-21
Gupta Technologies, LLC
Notes to Consolidated Financial Statements (continued)
8. SUBSEQUENT EVENT
On January 31, 2005, the Company was purchased by Warp Technology Holdings,
Inc. Under the terms of the Purchase Agreement, the buyer paid $21,000,000 to
Gupta Holdings, LLC for 100% of the member's interest of the Company. The
purchase price consisted of (i) Fifteen Million Seven Hundred Fifty Thousand
Dollars ($15,750,000); (ii) a $750,000 Senior Note and related Senior Lender
Warrant; (iii) $1,500,000 subordinated note (iv) a $2,000,000 Series C Note; and
(v) a $1,000,000 Secured Promissory Note.
Upon the sale of the Company, Platinum forgave $774,692 of management fees and
loans that were outstanding at December 31, 2004.
F-22
WARP TECHNOLOGIES HOLDINGS, INC.
GUPTA TECHNOLOGIES, LLC
UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
On January 31, 2005, Warp Technology Holdings, Inc. (the "Company" or "Warp")
completed its previously announced acquisition of Gupta Technologies, LLC
("Gupta"). The purchase price was $21 million, plus transaction costs. The
purchase price was funded by debt, and seller financed notes. Approximately
$10.5 million of the debt incurred will automatically convert into Series C
Preferred Stock upon the effectiveness of an amendment to the Company's Articles
of Incorporation as described in the Current Report on Form 8-K filed by the
Company on February 4, 2005.
This unaudited pro forma information should be read in conjunction with the
consolidated financial statements of Warp included in our Annual Report filed on
Form 10-KSB for the year ended June 30, 2004 and our Quarterly Report filed on
Form 10-QSB for the three months ended December 31, 2004 filed on February 22,
2005. In addition, this pro forma information should be read in conjunction with
the financial statements for Gupta for the years ended December 31, 2004 and
2003, included within this Amendment to Current Report on Form 8-K/A.
The following unaudited pro forma statement of operations for the year ended
June 30, 2004 has been prepared in accordance with accounting principles
generally accepted in the United States to give effect to the January 31, 2005
acquisition of Gupta as if the transaction occurred on July 1, 2003. The pro
forma statement of operations combines the results of operations of Warp for the
year ended June 30, 2004 with the results of operations of Gupta for the year
ended June 30, 2004. Pro forma adjustments include interest on debt relating to
the Gupta acquisition, additional amortization of intangibles, management fees
paid to Platinum Equity, LLC ("Platinum") and amortization of financing costs.
Platinum is the sole owner of Gupta Holdings, LLC which was, at December 31,
2004, the sole owner of Gupta.
The following unaudited pro forma statement of operations for the six months
ended December 31, 2004 has been prepared in accordance with accounting
principles generally accepted in the United States to give effect to the January
31, 2005 acquisition of Gupta as if the transaction occurred on July 1, 2004.
Such pro forma statement of operations combines the results of operations of
Warp for the six months ended December 31, 2004 with the results of operations
of Gupta for the six months ended December 31, 2004. Pro forma adjustments
include interest on debt relating to the Gupta acquisition, additional
amortization of intangibles, management fees paid to Platinum and amortization
of financing costs.
The following unaudited pro forma balance sheet: has been prepared in accordance
with accounting principals generally accepted in the United States; gives effect
to the January 31, 2005 acquisition of Gupta and the financing raised in
connection with the acquisition as if the acquisition and financing occurred on
December 31, 2004; and combines the consolidated balance sheet of Warp as of
December 31, 2004, which is included in the
F-23
Company's Quarterly Report filed on Form 10-QSB for the three months ended
December 31, 2004 with the Gupta balance sheet as of December 31, 2004, which is
included in the financial statements for Gupta for the year ended December 31,
2004 included within this Amendment to Current Report on Form 8-K/A.
Under the purchase method of accounting, the estimated cost of approximately $21
million to acquire Gupta, plus transaction costs, will be allocated to Gupta's
underlying net assets in proportion to their respective fair values. As more
fully described in the notes to the pro forma consolidated condensed financial
statements, a preliminary allocation of the excess of the purchase price over
the book value of the net assets acquired has been made to intangible assets
(customer relationships and developed technologies). These items are expected to
be amortized over seven years. At this time, the work needed to provide the
basis for estimating these fair values, and amortization periods, has not been
completed. As a result, the final allocation of the excess of purchase price
over the book value of the net assets acquired could differ materially.
Accordingly, a change in the amortization period would impact the amount of
annual amortization expense.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisition of Gupta been
consummated as of the dates specified above.
F-24
WARP TECHNOLOGY HOLDINGS,INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
DECEMBER 31, 2004
(UNAUDITED)
PROFORMA ADJUSTMENTS
--------------------------------
PURCHASE WARP
WARP (A) GUPTA (B) FINANCING ACCOUNTING PRO FORMA
----------- ----------- ------------- ------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 220,648 $ 354,875 $ 14,374,900 C $ (13,750,000)E $ 1,200,423
Accounts receivable, net 84,648 3,292,195 3,376,843
Advance to Gupta Holding, LLC 3,500,000 (3,500,000)E -
Other current assets 219 428,645 404,876
----------- ----------- ------------- ------------- ------------
Total current assets 3,805,515 4,075,715 (17,250,00) 4,982,142
Property and equipment, net 30,097 156,691 186,788
Other long-term assets 72,556 985,000 D 1,081,544
Goodwill, net 3,893,294 3,893,294
Intangibles, net 157,917 4,198,002 17,491,338 E 21,847,257
----------- ----------- ------------- ------------- ------------
Total assets $ 7,886,823 $ 8,502,964 $ 15,359,900 $ 241,338 $ 31,991,025
=========== =========== ============= ============= ============
LIABILITIES AND SHAREHOLDERS ' EQUITY
Current liabilities:
Accounts payable $ 611,010 $ 531,131 $ $ $ 1,142,141
Accrued compensation and related
benefits 429,000 1,069,872 1,498,872
Other accrued liabilities 184,085 593,938 985,000 D 1,525,000 E 3,288,023
Payables to Platinum Equity, LLC and 1,659,283 (774,000.00)E 885,283
Affiliates
Note payable to Gupta Holdings, LLC 1,500,000 1,500,000
Subordinated debt 2,500,000 C 2,500,000
Loan payable to ISIS 712,495 712,495
Bridge loan 1,237,605 149,900 C 1,387,505
Senior debt 6,100,000 C 750,000 E 6,850,000
Series C debt 5,475,000 C 3,000,000 E 8,475,000
Deferred revenues 23,456 4,863,480 (4,474,402)E 412,534
----------- ----------- ------------- ------------- ------------
Total current liabilities 4,697,651 8,717,704 15,209,900 26,598 28,651,853
----------- ----------- ------------- ------------- ------------
Shareholders' equity: -
Preferred stock (Canadian subsidiary) 4 4
-
Series B-2 preferred stock 1,474,500 150,000 C 1,624,500
Series B preferred stock 2,915,100 2,915,100
Common stock to be issued relating
interest and -
Penalties on Series B and B-2 preferred
stock 559,053 559,053
Common stock 10 10
Additional paid-in capital 43,656,046 43,656,046
Deferred compensation (1,288,010) (1,288,010)
Member's deficit (214,740) 214,740 F -
Accumulated Deficit (44,149,75) - (44,149,758)
Accumulated other comprehensive loss 22,227 - 22,227
----------- ----------- ------------- ------------- ------------
Total shareholders' equity and member's
deficit 3,189,172 (214,740) 150,000 214,740 3,339,172
----------- ----------- ------------- ------------- ------------
Total liabilities and shareholders'
equity $ 7,886,823 $ 8,502,964 $ 15,359,900 $ 241,338 $ 31,991,025
=========== =========== ============= ============= ============
- - - - -
See the accompanying notes to unaudited pro forma consolidated condensed
financial statements
F-25
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(A) Reflects the historical financial position of Warp at December 31,
2004.
(B) Reflects the historical financial position of Gupta at December 31,
2004.
(C) The following represents the financing raised by Warp in January
2005 in order to complete the acquisition of Gupta:
Subordinated Notes $ 2,500,000
Bridge Loan 149,900
Senior Notes 6,100,000
Series C Notes 5,475,000
Series B-2 stock 150,000
-----------
Total Capital Raised $14,374,900
===========
(D) The Company has accrued $985,000 for financing costs in connection
with the financing raised, and is included in other assets as
deferred financing costs.
(E) The following represents the acquisition of Gupta and the
preliminary allocation of the purchase price: The final allocation
of the purchase price will be determined based on a comprehensive
final evaluation of the fair value of Gupta's tangible and
intangible assets acquired and liabilities assumed.
Calculation of Purchase Price:
Cash $ 13,750,000
Advances to Gupta Holding LLC made prior to December 31, 2004 3,500,000
Senior debt 750,000
Series C debt 3,000,000
Transaction costs -accrued 1,525,000
------------
Total purchase price $ 22,525,000
============
F-26
Allocation of Purchase Price:
Assets
Gupta historical assets $ 8,502,964
Write-up of intangibles assets consisting of developed
technologies and customer relationships 17,491,338
Liabilities
Gupta historical liabilities (8,717,704)
Adjustment of deferred revenues to fair market value 4,474,402
Forgiveness of payables to Platinum 774,000
------------
Total purchase price $ 22,525,000
------------
F-27
WARP TECHNOLOGY HOLDINGS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 2004
(UNAUDITED)
PROFORMA WARP
WARP (G) GUPTA (H) ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
Net revenue $ 264,520 $ 7,637,658 $ $ 7,902,178
----------- ----------- ----------- -----------
Expenses:
Product cost (53,758) (694,282) (267,072)J (1,015,112)
Product development (112,723) (1,335,120) (1,447,843)
Sales and marketing (476,575) (2,519,387) (2,995,962)
General and administrative (675,641) (1,521,565) (2,197,206)
Amortization (469,650) (614,817)J (1,084,467)
Management fees (1,584,870) 1,584,870 K -
Non-cash compensation (542,742) - (542,742)
----------- ----------- ----------- -----------
Total operating expenses (1,861,439) (8,124,874) 702,981 (9,283,332)
----------- ----------- ----------- -----------
Loss from operations (1,596,919) (487,216) 702,981 (1,381,154)
Interest expense, net (45,679) (26,579) (859,750)L (1,425,008)
(493,000)M
----------- ----------- ----------- -----------
Loss before provision for
income taxes (1,642,598) (513,795) (649,769) (2,806,162)
Provision for income taxes - (255,255) (255,255)
----------- ----------- ----------- -----------
Net loss $(1,642,598) $ (769,050) $ (649,769) $(3,061,417)
=========== =========== =========== ===========
Computation of loss
applicable to Common
Shareholders
Net loss before beneficial
conversion preferred
dividends $(1,642,598) $ (769,050) $ (649,769) $(3,061,417)
Beneficial conversion -
preferred dividends (2,810,465) (2,810,465)
----------- ----------- ----------- -----------
Loss attributable to common
stockholders $(4,453,063) $ (769,050) $ (649,769) $(5,871,882)
=========== =========== =========== ===========
Basic and diluted loss per
share Proforma $ (6.05)
===========
Weighted average shares
outstanding Proforma 971,115
===========
See the accompanying notes to unaudited pro forma consolidated condensed
financial statements
F-28
WARP TECHNOLOGY HOLDINGS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2004
(UNAUDITED)
PROFORMA WARP
WARP (G) GUPTA (I) ADJUSTMENTS PRO FORMA
------------ ----------- ------------- ------------
Net revenue $ 882,121 $15,793,423 $ $ 16,675,544
------------ ----------- ------------- ------------
Expenses:
Product cost (425,334) (1,605,443) (534,143)J (2,564,920)
Product development (811,725) (2,693,744) (3,505,469)
Sales and marketing (2,310,055) (5,298,546) (7,608,601)
General and administrative (2,461,130) (3,628,702) (6,089,832)
Amortization (939,300) (1,229,634)J (2,168,934)
Platinum management fees (5,439,638) 5,439,638 K -
Non-cash compensation (6,007,255) - (6,007,255)
------------ ----------- ------------- ------------
Total operating expenses (12,015,499) (19,605,373) 3,675,861 (27,945,011)
------------ ----------- ------------- ------------
Loss from operations (11,133,378) (3,811,950) 3,675,861 (11,269,467)
Interest (expense) income 63,073 2,549 (1,719,500)L (2,638,878)
(985,000)M
------------ ----------- ------------- ------------
Loss before provision for
income taxes (11,070,305) (3,809,401) 971,361 (13,908,345)
Provision for income taxes (308,276) (308,276)
------------ ----------- ------------- ------------
Net loss $(11,070,305) $(4,117,677) $ 971,361 $(14,216,621)
============ =========== ============= ============
Computation of loss
applicable to
Common Shareholders
Net loss before beneficial
conversion -Preferred
dividends $ 11,070,305 $(4,117,677) $ 971,361 $(14,216,621)
Beneficial conversion -
Preferred dividends (1,623,046) (1,623,046)
------------ ----------- ------------- ------------
Loss attributable to common
stockholders $(12,693,351) $(4,117,677) $ 971,361 $(15,839,667)
============ =========== ============= ============
Basic and diluted loss per
share Proforma $ (20.86)
============
Weighted average shares
outstanding Proforma 765,551
============
See the accompanying notes to unaudited pro forma consolidated condensed
financial statements
F-29
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS (UNAUDITED)
G. Reflects Warp historical statement of operations for the six months ended
December 31, 2004 and the year ended June 30, 2004.
H. Reflects Gupta historical statement of operations for the six months ended
December 31, 2004 including various reclassifications to conform to Warp's
financial statement presentation.
I. Reflects the historical operations of Gupta for the year ended June 30,
2004. In order to conform Gupta's fiscal year end from a calendar year end to
Warp's June 30 year end, Gupta's historical operating result have been derived
from the combination of Gupta's last six months historical operating results for
the year ended December 31, 2003 and the first six months historical operating
results for the year ended December 31, 2004.
J. To record the increased amortization of intangibles for the year ended
June 30, 2004 of customer relationships and developed technology of $1,229,634
and $534,143 (included in product cost), respectively. To record the increased
amortization of intangibles for the six months ended December 31, 2004 for
customer relationships and developed technology of $614,817 and $267,072
(included in product cost), respectively.
K. Elimination of Platinum fees of $5,439,639 and $1,584,870 for the year
ended June 30, 2004 and for the six months ended December 31, 2004 ,
respectively as Gupta will operate on its own and will not incur these costs.
L. Record interest expense of $1,719,500 and $ 859,750 for the year ended
June 30, 2004 and for the six months ended December 31, 2004 , respectively, on
the debt raised by Warp in connection with the Gupta transaction.
M. To Record amortization of deferred financing cost over a one year period
of $985,000 and $493,000 for the year ended June 30, 2004 and for the six months
ended December 31, 2004, respectively, which is included in interest expense.
F-30