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): May 24, 2002
ABBOTT MINES LIMITED
------------------------------------------
(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 34 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)
Abbott Mines, Ltd. (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 on June
10, 2002 (the "Form 8-K") as set forth in the pages attached hereto.
Item 2. Acquisition or Disposition of Assets.
Effective May 24, 2002 (the "Closing Date"), the Registrant closed a
share exchange transaction (the "Transaction") pursuant to a Share Exchange
Agreement (the "Exchange Agreement") dated as of May 16, 2002, by and among the
Registrant, Carlo Civelli, Mike Muzylowski, WARP Solutions Inc. ("WARP"), Karl
Douglas, John Gnip and the Sellers as Identified on Schedule A thereto.
Subsequent to the Closing Date, additional WARP stockholders presented their
WARP shares to the Registrant for exchange under the Exchange Agreement. As of
July 30, 2002, the Registrant had acquired an aggregate of approximately
5,749,854 shares, or eighty-seven percent (87%), of the issued and outstanding
common stock of WARP in exchange for an aggregate of approximately 7,942,636
shares of the Registrant's Common Stock (the "Consideration Shares"). Following
the closing of the Transaction, WARP became a subsidiary of the Registrant and
the operations of WARP became the primary operations of the Registrant. The
share exchange under the Exchange Agreement is ongoing and the Registrant
anticipates that additional WARP stockholders will tender their WARP stock for
shares of the Registrant's Common Stock.
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 2.1 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.
The Consideration Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"). The Consideration Shares were
issued to the WARP stockholders pursuant to an exemption from registration under
Section 4(2) of the Securities Act, and Rule 506 of Regulation D promulgated
thereunder. The Consideration Shares are subject to restrictions on transfer and
sale 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, WARP
Solutions, Inc., accompany this Amendment No. 1 to the Current Report on Form
8-K filed with the Securities and Exchange Commission on June 10, 2002:
Index to Financial Statements of Business Acquired Page
----
Report of Independent Auditors 5
Consolidated Balance Sheets 6
Consolidated Statements of Operations 7
Consolidated Statements of Stockholders' Equity 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10
(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
Securities and Exchange Commission on June 10, 2002:
Index to Unaudited Pro Forma Consolidated Financial Statements Page
----
Introduction to Unaudited Pro Forma Consolidated Financial
Statements 22
Pro Forma Consolidated Balance Sheet as of March 31, 2002 23
Pro Forma Consolidated Statement of Operations for the
Nine Months Ended March 31, 2002 24
Pro Forma Consolidated Statement of Operations for the
Year Ended June 30, 2001 25
(c) Exhibits.
The following Exhibits are hereby filed as part of this Amendment No. 1
to Current Report on Form 8-K:
Exhibit Description
------- -----------
2.1 * Form of Share Exchange Agreement dated as of May 16, 2002 by
and among Abbott Mines, Ltd., Carlo Civelli, Mike Muzylowski,
WARP Solutions, Inc., Karl Douglas, John Gnip and the Persons
Identified on Schedule A thereto.
-----------------
* Previously filed.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Abbott Mines, Ltd. has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 6, 2002
ABBOTT MINES, LTD.
By: /s/ Karl Douglas
--------------------------------
Karl Douglas, CEO and President
4
Report of Independent Auditors
To the Stockholders of
Warp Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Warp Solutions,
Inc. (the "Company") (a development stage company) as of December 31, 2001 and
2000, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Warp Solutions,
Inc. as of December 31, 2001 and 2000 and the consolidated results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
New York, NY
June 28, 2002
5
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheets
December 31 March 31
2001 2000 2002
--------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 96,659 $ 6,512,881 $ 8,327
Accounts receivable -- 101,940 --
Inventory -- -- 27,645
Prepaid expenses and other 6,892 74,802 51,157
Due from stockholder 74,440 55,580 74,440
------------ ------------ ------------
Total current assets 177,991 6,745,203 161,569
------------ ------------ ------------
Property and equipment, net 441,082 867,097 129,500
------------ ------------ ------------
Other assets:
Restricted cash 21,553 20,652 --
Security deposit 284,902 482,818 181,400
------------ ------------ ------------
Total other assets 306,455 503,470 181,400
------------ ------------ ------------
Total assets $ 925,528 $ 8,115,770 $ 472,469
============ ============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 80,660 $ 113,121 $ 100,434
Accrued expenses 431,875 388,641 376,555
Bridge loans payable -- -- 221,975
Deferred revenue -- 90,000 --
Capital lease obligation, current 7,974 15,004 --
------------ ------------ ------------
Total current liabilities 520,509 606,766 698,964
Long-term liabilities:
Deferred rent 32,265 127,254 --
Capital lease obligation -- 6,890 --
------------ ------------ ------------
Total liabilities 552,774 740,910 698,964
------------ ------------ ------------
Stockholders' equity:
Convertible preferred stock, Series A; $.01 par value;
1,000,000 shares designated, issued and outstanding
(liquidation preference $3,000,000) 10,000 10,000 10,000
Convertible preferred stock, Series B; $.01 par value;
2,000,000 shares designated, issued and outstanding
(liquidation preference $10,000,000) 20,000 20,000 20,000
Common stock, $.01 par value; 12,000,000 shares
authorized, 3,600,000 shares issued and outstanding 36,000 36,000 36,000
Additional paid-in capital 12,641,334 12,410,334 12,641,334
Deficit accumulated during development stage (12,334,580) (5,101,474) (12,933,829)
------------ ------------ ------------
Total stockholders' equity 372,754 7,374,860 (226,495)
------------ ------------ ------------
Total liabilities and stockholders' equity $ 925,528 $ 8,115,770 $ 472,469
============ ============ ============
See accompanying notes to consolidated financial statements.
6
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Operations
Period from July 16,
1999 to March 31, 2002
Year ended December 31 Three Months Ended March 31 Cumulative During the
2001 2000 2002 2001 Development Stage
--------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Service revenue $ 155,990 $ 93,121 $ - $ 155,990 $ 249,111
--------------------------------------------------------------------------------------
Expenses
Product development 3,121,193 1,146,892 552,036 4,268,085
Sales, marketing and business
development 565,087 1,040,533 30,143 312,837 1,635,763
General and administrative 3,846,025 3,402,342 569,142 1,283,737 7,831,066
--------------------------------------------------------------------------------------
Total expenses 7,532,305 5,589,767 599,285 2,148,610 13,734,914
--------------------------------------------------------------------------------------
Interest and dividend income, net
of interest expense of $1,905,
$1,651 and $3,556, respectively (143,209) (408,232) (36) (81,271) (551,974)
--------------------------------------------------------------------------------------
Net loss $(7,233,106) $(5,088,414) $ (599,249) $(1,911,349) $ (12,933,829)
======================================================================================
Basic and diluted net loss per share $ (2.01) $ (1.41) $ (0.17)$ (0.53) $ (3.43)
======================================================================================
Weighted-average number common
shares--basic and diluted 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000
======================================================================================
See accompanying notes to consolidated financial statements.
7
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
Period from July 16, 1999 (date of inception)
to December 31, 1999 and the years ended
December 31, 2000 and 2001
and the three months ended March 31, 2002 (unaudited)
Convertible Convertible
Preferred Stock, Preferred Stock,
Series A Series B Common Stock
--------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
----------- ------------ ------------ ------------ ------------ ------------
Issuance of common stock -- $ -- -- $ -- 3,600,000 $ 36,000
Issuance of convertible preferred stock,
Series A (December 1999) 1,000,000 10,000 -- -- -- --
Costs incurred in connection with issuance -- -- -- -- -- --
Net loss for period--July 16, 1999 (date of
inception) to December 31, 1999 -- -- -- -- -- --
----------- ------------ ------------ ------------ ------------ ------------
Balance--December 31, 1999 1,000,000 10,000 -- -- 3,600,000 36,000
Issuance of convertible preferred stock,
Series B (March--July 2000) -- -- 2,000,000 20,000 -- --
Costs incurred in connection with issuance -- -- -- -- -- --
Collection of subscription receivable -- -- -- -- -- --
Warrants issued for services -- -- -- -- -- --
Net loss for the year ended December 31, 2000 -- -- -- -- -- --
----------- ------------ ------------ ------------ ------------ ------------
Balance--December 31, 2000 1,000,000 10,000 2,000,000 20,000 3,600,000 36,000
Stock-based compensation -- -- -- -- -- --
Net loss for the year ended December 31, 2001 -- -- -- -- -- --
Balance--December 31, 2001 1,000,000 10,000 2,000,000 20,000 3,600,000 36,000
----------- ------------ ------------ ------------ ------------ ------------
Net loss for quarter ended March 31, 2001 -- -- -- -- -- --
----------- ------------ ------------ ------------ ------------ ------------
Balance--March 31, 2002 1,000,000 $ 10,000 2,000,000 $ 20,000 3,600,000 $ 36,000
=========== ============ ============ ============ ============ ============
Deficit
Accumulated
Additional During the Common Stock
Paid-in Development Subscription
Capital Stage Receivable Total
------------ ------------ ------------ ------------
Issuance of common stock $ -- $ -- $ (35,999) $ 1
Issuance of convertible preferred stock,
Series A (December 1999) 2,990,000 -- -- 3,000,000
Costs incurred in connection with issuance (44,123) -- -- (44,123)
Net loss for period--July 16, 1999 (date of
inception) to December 31, 1999 -- (13,060) -- (13,060)
------------ ------------ ------------ ------------
Balance--December 31, 1999 2,945,877 (13,060) (35,999) 2,942,818
Issuance of convertible preferred stock,
Series B (March--July 2000) 9,980,000 -- -- 10,000,000
Costs incurred in connection with issuance (582,859) -- -- (582,859)
Collection of subscription receivable -- -- 35,999 35,999
Warrants issued for services 67,316 -- -- 67,316
Net loss for the year ended December 31, 2000 -- (5,088,414) -- (5,088,414)
------------ ------------ ------------ ------------
Balance--December 31, 2000 12,410,334 (5,101,474) -- 7,374,860
Stock-based compensation 231,000 -- -- 231,000
Net loss for the year ended December 31, 2001 -- (7,233,106) -- (7,233,106)
Balance--December 31, 2001 12,641,334 (12,334,580) -- 372,754
------------ ------------ ------------ ------------
Net loss for quarter ended March 31, 2001 -- (599,249) -- (599,249)
------------ ------------ ------------ ------------
Balance--March 31, 2002 $ 12,641,334 $(12,933,829) $ -- $ (226,495)
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
8
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
Period from July 16,
1999 to March 31, 2002
Year ended December 31 Three Months Ended March 31 Cumulative During the
2001 2000 2002 2001 Development Stage
--------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $ (7,233,106) $ (5,088,414) $ (599,249) $ (1,911,349) $(12,933,829)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 250,591 112,352 23,314 67,304 386,257
Loss on abandonment of assets 552,566 -- 285,092 -- 837,658
Deferred rent (94,989) 127,254 (32,265) 42,084 --
Stock-based compensation 231,000 67,316 -- -- 298,316
Changes in operating assets
and liabilities:
Accounts receivable 101,940 (101,940) -- 40,700 --
Inventory -- -- (27,645) -- (27,645)
Prepaid expenses and other 67,910 (62,969) (44,265) 15,522 (51,157)
Accounts payable and
accrued expenses 10,773 501,762 (35,546) (145,858) 476,989
Deferred revenue (90,000) 90,000 -- (90,000) --
--------------------------------------------------------------------------------
Net cash used in operating activities (6,203,315) (4,354,639) (430,564) (1,981,597) (11,013,411)
--------------------------------------------------------------------------------
Cash flows from investing activities
Security deposits (127,084) (474,712) 103,502 (211,571) (506,400)
Purchase of property and equipment (52,142) (936,833) -- (30,393) (1,001,591)
Proceeds from sale of property and
equipment -- -- 3,176 -- 3,176
--------------------------------------------------------------------------------
Net cash (used in) provided by
investing activities (179,226) (1,411,545) 106,678 (241,964) (1,504,815)
--------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issuance of common
stock -- 35,999 -- -- 36,000
Proceeds from issuance of preferred
stock, net of issuance costs -- 9,417,141 -- -- 12,373,018
Proceeds from bridge loans -- -- 221,975 -- 221,975
Payments to stockholders (18,860) (73,652) -- (1,303) (74,440)
Principal payments on capital lease
obligation (13,920) (8,106) (7,974) (3,321) (30,000)
Restricted cash (901) (20,652) 21,553 (287) --
--------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (33,681) 9,350,730 235,554 (4,911) 12,526,553
--------------------------------------------------------------------------------
Net (decrease) increase in cash (6,416,222) 3,584,546 (88,332) (2,228,472) 8,327
Cash--beginning of period 6,512,881 2,928,335 96,659 6,512,881 --
--------------------------------------------------------------------------------
Cash--end of period $ 96,659 $ 6,512,881 $ 8,327 $ 4,284,409 $ 8,327
================================================================================
Supplemental disclosure of cash
flow information
Assets acquired under capital lease $ -- $ 30,000 $ -- $ -- $ 30,000
================================================================================
See accompanying notes to consolidated financial statements.
9
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2001
1. Organization and Description of Business
Warp Solutions, LLC was organized as a Delaware Limited Liability Company
("LLC") on July 16, 1999, for the purpose of developing Internet performance and
security software. Warp Solutions is creating software solutions, which allow
web-sites to handle more traffic and provide a reliable web experience.
Additionally, Warp Solutions is developing products that permit secure and
private transactions over the Internet. On December 14, 1999, the LLC was
reorganized as a Delaware corporation and changed its name to Warp Solutions,
Inc. (the "Company").
The Company is a development stage enterprise and its efforts through December
31, 2001 have been primarily devoted to the development of its software products
and raising capital. The Company released its product in the first quarter of
2002.
Blue Suit Consulting ("Blue Suit"), a wholly-owned subsidiary of the Company,
was established in July 2000, for the purpose of performing temporary and
permanent recruitment services. Primarily all of the Company's revenues to date
relate to such services. During the year ended December 31, 2001, management
ceased the operations of Blue Suit.
2. Basis of Presentation
The Company's efforts have been devoted substantially to financial and
organization planning, raising capital and the development of its products. The
Company has not generated any revenues from its products under development
through December 31, 2001 and, accordingly, the consolidated financial
statements are presented in accordance with guidance provided by Statement of
Financial Accounting Standards ("SFAS") No. 7, Accounting and Reporting by
Development Stage Enterprises.
Expenses incurred have primarily been product development, administrative and
marketing costs. Operating losses have resulted in an accumulated deficit of
$12,334,580 as of December 31, 2001. These losses have been financed principally
by the sale of stock.
The Company's consolidated financial statements have been prepared on the basis
that the Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. For the year ended December 31, 2001, the Company reported a net loss
of approximately $7,233,000 and, as of December 31, 2001, has a working capital
deficiency of approximately $343,000. To date, the Company
10
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
2. Basis of Presentation (continued)
continues to generate significant losses. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result if the Company is
unable to continue as a going concern.
During 2001, the Company changed its product offering to a software and hardware
solution. In 2002, the Company began to generate revenues and believes that its
new product offering will yield cash flows from operations. On May 24, 2002, the
Company completed a reverse acquisition with a publicly traded company listed on
the OTC Bulletin Board. Subsequent to the transaction, the newly merged company
issued approximately 2,400,000 shares of common stock for total proceeds of
approximately $2,200,000 in cash and the conversion of approximately $237,000 of
bridge loans obtained in 2002. There can be no assurance that the Company will
attain profitable operations, generate sufficient cash flow or obtain adequate
financing.
3. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Blue Suit, which ceased operations
effective April 2001. All significant intercompany balances and transactions
have been eliminated in consolidation.
Interim Information
The unaudited interim financial statements reflect all adjustments (consisting
of normal recurring adjustments) that are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
11
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of cash and cash equivalents. From time to time,
the Company has cash balances at certain financial institutions in excess of
federally insured limits. However, the Company does not believe that it is
subject to unusual credit risk beyond the normal credit risk associated with
commercial banking relationships.
Use of Estimates
The preparation of consolidated 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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
Revenue from recruiting services for temporary staffing is on a time and
material basis and is recognized as such services are performed. Revenue from
recruiting services for permanent staffing is recognized upon completion of the
acceptance period (typically 90 days). Deferred revenue represents the
unrecognized portion of permanent staffing fees.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is provided by the straight-line method over the estimated useful
lives of the assets, ranging from two to five years. Leasehold improvements are
amortized on a straight line basis over the lesser of their estimated useful
lives or the life of the underlying lease.
Restricted Cash
In connection with the capital lease, the Company obtained an irrevocable
standby letter of credit for the benefit of the lessor. Cash collateralizing the
letter of credit at December 31, 2001, amounting to $21,553, is on deposit in an
interest-bearing account.
12
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
Product Development Costs
Product development costs incurred in the process of developing product
improvements and enhancements or new products are charged to expense as
incurred.
SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed, requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility.
Based on the Company's product development process, technological feasibility is
established upon the completion of a working model. Costs incurred by the
Company between the completion of the working model and the point at which the
product is ready for general release have been insignificant.
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.
Loss Per Share
Basic and diluted net loss per share information for all periods is presented
under the requirements of SFAS No. 128, Earnings Per Share. Basic loss per share
is calculated by dividing the net loss by the weighted-average common shares
outstanding during the period. Diluted loss per share is calculated by dividing
net loss by the weighted-average common shares outstanding plus the dilutive
effect of convertible preferred stock, warrants and stock options. The dilutive
effect of preferred stock, warrants and options is not included as the inclusion
of such is anti-dilutive for all periods presented.
13
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
The Company measures compensation expense related to the granting of stock
options and stock-based awards to employees in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, under which compensation expense, if any, is generally based on
the difference between the exercise price of an option or the amount paid for
the award, and the market price or fair value of the underlying common stock at
the date of the award. Stock-based compensation arrangements involving
non-employees are accounted for under SFAS No. 123, Accounting for Stock-Based
Compensation, and Emerging Issues Task Force Issue 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services, under which such arrangements are
accounted for based on the fair value of the option or award. As required by
SFAS 123, the Company discloses pro forma net loss information reflecting the
effect of applying SFAS 123 fair value measurement to employee arrangements.
Fair Value of Financial Instruments
For financial statement instruments, including cash and cash equivalents,
accounts receivable and accounts payable, the carrying amount approximated fair
value because of their short maturity.
Impact of Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-lived Assets ("SFAS
144"), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations, for a disposal of a segment of a business. SFAS 144 is
effective for fiscal years beginning after December 15, 2001, with earlier
application encouraged. The Company adopted SFAS 144 on January 1, 2001. The
Statement did not have a significant impact on the Company's financial position
or results of operations.
14
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
3. Summary of Significant Accounting Policies (continued)
In June 2001, the FASB issued SFAS No.'s 141 and 142, Business Combinations, and
Goodwill and Other Intangible Assets. SFAS 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. SFAS 142 concluded that purchased goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives. The
adoption of SFAS No. 142 will have no impact on the results of operations or the
financial position of the Company.
In June 1999, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000. This Statement requires the Company to measure all derivatives at
fair value and to recognize them in the balance sheet as an asset or liability,
depending on the Company's rights or obligations under the applicable derivative
contract. The Company adopted SFAS No. 133 during the first quarter of 2001.
Because the Company does not currently engage in derivative or hedging
transactions, the adoption of this new standard did not have an impact on the
results of operations or the financial position of the Company.
4. Property and Equipment
Property and equipment consists of the following:
December 31
2001 2000
-----------------------------------
Purchased software $ 95,312 $ 95,312
Computer equipment 369,889 372,190
Office equipment 35,578 35,578
Furniture and fixtures 61,478 64,305
Leasehold improvements 178,690 412,064
-----------------------------------
740,947 979,449
Less accumulated depreciation (299,865) (112,352)
-----------------------------------
$ 441,082 $ 867,097
===================================
15
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
4. Property and Equipment (continued)
Office equipment includes $30,000 of equipment under capital lease at December
31, 2001 and 2000. Accumulated depreciation of the asset under capital lease
amounted to $23,750 and $8,750 at December 31, 2001 and 2000, respectively.
5. Stockholders' Equity
Preferred Stock
The Company is authorized to issue 6,000,000 shares of preferred stock, par
value $.01 per share, of which 1,000,000 are designated as "Series A Convertible
Preferred Stock" and 2,000,000 are designated as "Series B Convertible Preferred
Stock". During 1999, the Company issued 1,000,000 shares of its Series A
Convertible Preferred Stock in exchange for $3,000,000 in cash, net of capital
issuance costs of $44,123. During 2000, the Company issued 2,000,000 shares of
its Series B Convertible Preferred Stock in exchange for $10,000,000 in cash,
net of capital issuance costs of $582,859.
The Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock rank, with respect to dividend rights and rights on liquidation,
dissolution and winding up of the affairs of the Company whether voluntary or
involuntary, (i) equal with each other and any other class or series of capital
stock of the Company subsequently created specifically ranking by its terms on
parity with the Convertible Preferred Stock; (ii) senior and prior to all of the
Company's Common Stock, $.01 par value per share; (iii) prior to any class or
series of capital stock of the Company subsequently created not specifically
ranking by its terms senior to or on parity with the Convertible Preferred
Stock; and (iv) junior to any other class or series of capital stock of the
Company subsequently created specifically ranking by its terms senior to the
Convertible Preferred Stock.
Holders of the Convertible Preferred Stock are entitled to receive a
non-cumulative annual dividend of $.20 per share, when, and if declared by the
Company's Board of Directors. Each share of the Convertible Preferred Stock is
convertible, at any time, into one share of the Company's common stock, subject
to certain antidilution adjustments, and automatically converts in the event the
Company consummates a qualified initial public offering of its common stock with
certain defined aggregate gross proceeds.
16
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
5. Stockholders' Equity (continued)
Upon any liquidation of the Company, the holders of the shares of Convertible
Preferred Stock shall first be entitled, before any distribution or payment is
made upon any junior stock, but subject to the rights of holders of any senior
securities or parity securities, to be paid, in preference to the junior stock,
an amount per share equal to (i) in the case of the Series A Convertible
Preferred Stock, $3.00 (as adjusted for stock splits, stock dividends and the
like), or (ii) in the case of the Series B Convertible Preferred Stock, $5.00
(as adjusted for stock splits, stock dividends and the like), plus in each case
an amount equal to all accrued and unpaid dividends thereon to the date of such
liquidation.
The holders of Convertible Preferred Stock are entitled to vote on all matters
on an as converted basis.
In May 2002, the holders of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock consented to the conversion of their shares into
Common Stock (see Note 8).
Common Stock
During December 1999, the Company received subscriptions for 3,600,000 shares of
its common stock. The subscriptions receivable, totaling $35,999, was received
in August 2000.
Stock Options
On December 15, 1999, the Company adopted the 1999 Warp Solutions Stock
Incentive Plan (the "1999 Plan") to allow for the granting of various equity
instruments to key employees, consultants and directors. Under the 1999 Plan,
3,000,000 shares of common stock were reserved for issuance. The Board of
Directors is responsible for determining the type of award, when and to whom
awards are granted, the number of shares and terms of the awards, and the
exercise price.
17
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
5. Stockholders' Equity (continued)
No options were granted prior to 2001. Detail information concerning the 1999
Plan for the year ended December 31, 2001 is as follows:
Weighted-
Average
Options Exercise Price
------------------------------
Options granted 1,262,706 $2.21
Options cancelled (412,332) $0.51
-------------
Options outstanding 850,374 $3.03
=============
During 2001, the Company issued an option to an employee to purchase 350,000
shares of its common stock at an exercise price below the fair value of the
underlying stock. In connection therewith, the Company recorded a non-cash
charge to operations of $231,000. Such options were cancelled in December 2001
in connection with the employee's termination of employment.
Pro forma information regarding net loss is required by SFAS No. 123, and has
been determined as if the Company had accounted for its employees' stock options
under the fair value method provided by this statement. The fair value for these
options was estimated at the date of grant using the minimum value
option-pricing model with the following weighted-average assumptions:
Assumption
----------------------------------------
Risk-free interest yield 3.56%
Dividend yield 0%
Average life 3 years
Option pricing models require the input of highly subjective assumptions.
Because the Company's employee stock has characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
18
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
5. Stockholders' Equity (continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. For the years
ended December 31, 2001 and 2000, the impact of the pro forma net loss was not
material. The weighted-average fair value of options granted below market value
and above market value during the period ended December 31, 2001 were $0.99 and
$0, respectively.
The following table summarizes information about stock options outstanding at
December 31, 2001:
Weighted-Average
Exercise Options Options Remaining
Prices Outstanding Exercisable Contractual Life
------------------------------------------------------------------------
$1.50 417,833 78,333 9.68 years
3.00 103,666 63,999 8.09 years
5.00 328,875 158,085 8.92 years
--------------------------------
850,374 300,417
================================
All outstanding options were issued above market value.
Warrants
During 2000, in conjunction with the sale of its Series B Convertible Preferred
Stock to certain investors, the Company issued warrants to purchase 192,500
shares of its common stock at an exercise price of $5 per share. The warrants
expire on the fifth anniversary of issuance.
On August 1, 2000, the Company issued warrants to purchase 20,000 shares of its
common stock to an outside consultant for services rendered. The warrants have
an exercise price of $5 per share and expire on the fifth anniversary of
issuance. The Company valued the warrants at $67,316 and, in connection
therewith, recorded a non-cash charge, which is included in general and
administrative expenses in the accompanying consolidated statement of operations
for the year ended December 31, 2000.
19
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
5. Stockholders' Equity (continued)
At December 31, 2001, the Company has reserved 3,000,000 shares for the
conversion of its Series A and Series B Preferred Stock, 1,400,000 shares for
the exercise of common stock options and 192,000 shares for the exercise of
warrants.
6. Income Taxes
The Company has a net operating loss carryforward of approximately $12,000,000
at December 31, 2001, which may be used to reduce taxable income in future years
through the year 2021, resulting in a deferred tax asset of approximately
$4,200,000. Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a full valuation
allowance against its net deferred tax asset. At such time as it is determined
that it is more likely than not that the deferred tax asset is realizable, the
valuation allowance will be reduced.
7. Commitments
Leases
The Company leased its office facilities under noncancelable operating leases
that expire through April 2005.
During the year ended December 31, 2001, the Company terminated a lease for a
portion of its office facilities. In connection therewith, leasehold
improvements of approximately $226,000 were written off and the Company
forfeited $325,000 of security deposit. The total write-off in connection with
this lease termination of approximately $551,000 was charged to general and
administrative expenses in 2001 in the accompanying consolidated statement of
operations.
In April 2002, the Company entered into a lease termination agreement for the
remaining portion of its office facilities. Pursuant to this agreement, the
Company agreed to forfeit its security deposit together with accumulated
interest (approximately $276,000 at December 31, 2001). This forfeiture,
together with the related leasehold improvements write-off, will be charged to
general and administrative expenses in 2002.
20
Warp Solutions, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements (continued)
7. Commitments (continued)
Rent expense amounted to approximately $449,000 and $365,000 for the years ended
December 31, 2001 and 2000, respectively, and $787,000 cumulatively during the
development stage.
Beginning in May 2002, the Company is leasing new office facilities on a
month-to-month basis.
8. Subsequent Event
On May 16, 2002, the holders of the Series A and Series B Convertible Preferred
Stock consented to the conversion of their shares on a one-to-one basis into
3,000,000 shares of the Company's Common Stock.
On May 24, 2002, the Company entered into a Share Exchange Agreement with Abbott
Mines, Ltd. ("AMI"), a publicly traded company with limited operations listed on
the OTC Bulletin Board. Pursuant to the agreement, AMI agreed to acquire all the
issued and outstanding common stock of the Company. Holders of the shares of the
Company's common stock received approximately 1.38 shares of AMI common stock
for each share of the Company's common stock. Also, the officers and directors
of the Company became the officers of AMI and joined the board of directors of
AMI, replacing AMI's officers and one of the AMI directors who resigned their
positions at the closing date. On May 24, 2002, holders of approximately 82% of
the Company's common stock had exchanged their shares for approximately
7,426,453 shares of AMI. This transaction was accounted for as a reverse
acquisition because the Company's stockholders own more than 50% of the shares
of AMI.
Subsequent to the closing of the AMI reverse acquisition, AMI sold approximately
2,400,000 shares of its common stock for proceeds of approximately $2,200,000 in
cash and the conversion of approximately $237,000 of bridge loans obtained in
2002.
In connection with the merger and sale of AMI common stock, the Company paid
consulting fees of $420,000.
21
Unaudited Pro Forma Consolidated Financial Statements
The following unaudited pro forma consolidated balance sheet of the Registrant
at March 31, 2002 gives effect to the Transaction and the related equity sale of
approximately 2,400,000 shares of the Registrant (the "Equity Sale"), as if the
Transaction and the Equity Sale occurred on such date. The following unaudited
pro forma consolidated statements of operations of the Registrant for the nine
months ended March 31, 2002 and the year ended June 30, 2001 give effect to the
Transaction and the Equity Sale as if they occurred at the beginning of such
periods. The unaudited pro forma consolidated financial statements should be
read in conjunction with (1) the historical financial statements of the
Registrant, including the notes thereto, which are contained in the Registrant's
quarterly report on Form 10-Q for the quarter ended March 31, 2002 and the
Registrant's Annual Report on Form 10-K for the year ended June 30, 2001, and
(2) the historical financial statements of Warp Solutions, Inc. ("WARP") as of
and for the years ended December 31, 2001 and 2000, as of and for the three
months ended March 31, 2002 and for the three months ended March 31, 2001, which
are incorporated herein by reference.
The unaudited pro forma consolidated financial statements are included for
information purposes only and are not necessarily indicative of the financial
position or operating results that would have occurred if the Transaction or
Equity Sale had been consummated as of the dates indicated, nor are they
necessarily indicative of future financial condition or operating results.
Pro forma adjustments for the Transaction reflect the issuance by the Registrant
of 7,426,453 shares of common stock, par value $.00001 per share in exchange for
5,376,165 shares of WARP. The Transaction was accounted for as a purchase of the
Registrant by WARP in a "reverse acquisition" because the existing shareholders
of the Registrant, prior to the merger, do not have voting control of the
combined entity after the merger. In a reverse acquisition, the accounting
treatment differs from the legal form of the transaction, as the continuing
legal parent company, the Registrant, is not assumed to be the acquiror and the
financial statements of the combined entity are those of the accounting acquiror
(WARP), including any comparative prior year financial statements presented by
the combined entity after the business combination. In accordance with the
reverse acquisition accounting treatment, the capital accounts of WARP as of
March 31, 2002 have been recapitalized to give effect to the merger exchange
range ratio (1.3813632 shares of the Common Stock of the Registrant for each
share of common stock of WARP).
22
Proforma Consolidated Balance Sheet
March 31, 2002
Abbott Warp Proforma Proforma
Mines Solutions Adjustments Consolidated
------------ ------------ ------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 18,967 $ 8,327 $ 2,017,000(2) $ 2,044,294
Inventory -- 27,645 27,645
Prepaid expenses and other 135 51,157 51,292
Due from stockholder -- 74,440 74,440
------------ ------------ ------------ ------------
Total current assets 19,102 161,569 2,017,000 2,197,671
------------ ------------ ------------ ------------
Property & equipment, net -- 129,500 -- 129,500
------------ ------------ ------------ ------------
Other assets:
Security deposit -- 181,400 -- 181,400
------------ ------------ ------------ ------------
Total other assets -- 181,400 -- 181,400
------------ ------------ ------------ ------------
Total assets $ 19,102 $ 472,469 $ 2,017,000 $ 2,508,571
============ ============ ============ ============
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 1,272 $ 100,434 $ 80,000(2) $ 181,706
Accrued expenses -- 376,555 376,555
Bridge loans payable -- 221,975 221,975
------------ ------------ ------------ ------------
Total current liabilities 1,272 698,964 80,000 780,236
------------ ------------ ------------ ------------
Total liabilities 1,272 698,964 80,000 780,236
------------ ------------ ------------ ------------
Stockholders' equity
Convertible preferred stock, Series A; $.01 par value;
1,000,000 shares designated, issued and outstanding
(liquidation preference $3,000,000) -- 10,000 (10,000)(1) --
Convertible preferred stock, Series B; $.01 par value; 2,000,000
shares designated, issued and outstanding (liquidation
preference $10,000,000) -- 20,000 (20,000)(1) --
Common stock, $.01 par value; 12,000,000 shares authorized
3,600,000 shares issued and outstanding -- 36,000 (36,000)(1) --
Common Stock, 100,000,000 shares authorized,
$.00001 par value; 6,031,199 shares issued and outstanding
(15,857,652 shares in pro forma) 60 -- 99(1,2) 159
Additional paid-in capital 603,060 12,641,334 1,417,611(1,2) 14,662,005
Deficit accumulated during development stage -- (12,933,829) -- (12,933,829)
Deficit accumulated during exploration stage (585,290) -- 585,290(1) --
Total stockholders' equity 17,830 (226,495) 1,937,000 1,728,335
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 19,102 $ 472,469 $ 2,017,000 $ 2,508,571
============ ============ ============ ============
(1) To record the Transaction as follows:
- Conversion of WARP's Series A and Series B convertible preferred stock
into 3,000,000 shares of WARP's common stock.
- Issuance of 7,426,453 of the Registrant's common stock in exchange for
5,376,165 shares of WARP's common stock.
- Elimination of the Registrant's equity section to reflect the reverse
acquisition.
(2) Issuance of approximately 2,400,000 shares of the Registrant's common
stock, net of related issuance costs
23
Pro Forma Consolidated Statement of Operations
Nine Months Ended March 31, 2002
Pro Forma
Abbott Mines Warp Solutions Adjustments Consolidated
------------------------------------------------------------
Service revenue $ -- $ -- $ -- $ --
Expenses
Product development -- 1,485,553 1,485,553
Sales, marketing and business development -- 110,072 110,072
General and administrative 30,733 2,372,641 2,403,374
----------- ----------- ----------- -----------
Total expenses 30,733 3,968,266 -- 3,998,999
Interest and dividend income, net of interest expense -- (20,297) (20,297)
----------- ----------- ----------- -----------
Net loss $ (30,733) $(3,947,969) $ -- $(3,978,702)
=========== =========== =========== ===========
24
Pro Forma Consolidated Statement of Operations
Year Ended June 30, 2001
Pro Forma
Abbott Mines Warp Solutions Adjustments Consolidated
------------------------------------------------------------
Service revenue $ -- $ 249,111 $ -- $ 249,111
Expenses
Product development -- 2,517,073 2,517,073
Sales, marketing and business development -- 1,259,661 1,259,661
General and administrative 55,643 4,698,086 4,753,729
----------- ----------- ----------- -----------
Total expenses 55,643 8,474,820 8,530,463
Interest and dividend income, net of interest expense -- (413,396) (413,396)
----------- ----------- ----------- -----------
Net loss $ (55,643) $(7,812,313) $ -- $(7,867,956)
=========== =========== =========== ===========
25