Edgar Filing: WARP TECHNOLOGY HOLDINGS INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the Fiscal Quarter Ended September 30, 2004

[ ] Transition report under Section 13 or 15(d) of the Exchange Act

Commission File No. 000-33197

WARP TECHNOLOGY HOLDINGS, INC.
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(Name of Small Business Issuer in its Charter)

Nevada 88-0467845
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number

151 Railroad Avenue, Greenwich, CT 06830
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(Address of principal executive office)

Issuer's telephone number: (203) 422-2950

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) been
subject to such filing requirements for the past ninety (90) days.
Yes [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 1, 2004, there were
97,111,483 shares of Common Stock, par value $.00001 per share, outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

PART I

FINANCIAL INFORMATION

Forward-Looking Information

Certain statements in this Form 10-QSB of WARP Technology Holdings, Inc.
(the "Company") may constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include those relating to future opportunities, the outlook of
customers, the reception of new products and technologies, and the success of
new initiatives. In addition, such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results expressed or implied by such forward-looking statements.
Such factors include: (i) demand for the Company's products; (ii) the actions of
current and potential new competitors; (iii) changes in technology; (iv) the
nature and amount of the Company's revenues and expenses; and (v) overall
economic conditions and other risks detailed from time to time in the Company's
periodic earnings releases and reports filed with the Securities and Exchange
Commission (the "Commission"), as well as the risks and uncertainties discussed
in the Company's Annual Report on Form 10-KSB filed with the Commission on
October 13, 2004 (the "Form 10-KSB").

ITEM 1. Financial Statements.

Table of Contents

Page

Consolidated Balance Sheets 3

Consolidated Statements of Operations 4

Consolidated Statements of Cash Flows 5

Notes to Consolidated Financial Statements 6

WARP Technology Holdings, Inc.
Consolidated Balance Sheets

September 30, June 30,
2004 2004
------------ ------------
(Unaudited) (Audited)

Assets
Current assets:
Cash $ 35,877 $ 115,491
Accounts receivable 27,730 117,847
Prepaid expenses and other 14,059 15,850
Deferred product cost - 14,028
------------ ------------
Total current assets 77,666 263,216

Property and equipment, net 33,706 36,312
Intangible assets, net 205,417 252,917
Goodwill 3,893,294 3,893,294
------------ ------------
Total assets $ 4,210,083 $ 4,445,739
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 613,445 $ 672,105
Accrued expenses 345,532 336,496
Deferred revenue 31,631 155,826
Deferred compensation 444,000 444,000
------------ ------------
Total current liabilities 1,434,608 1,608,427

Commitments and contingencies - -

Stockholders' equity:

Preferred stock (Canadian subsidiary) 4 4
Preferred stock, $.00001 par value; 50,000,000
shares authorized, of which of which 18,234 have been designated as Series
B 10% Cumulative Convertible Preferred Stock, and of which 4,000 have been
designated as Series B-2 Preferred Stock
Series B 10% Cumulative Convertible Preferred Stock; 2,915 shares
issued and outstanding at September 30, 2004 and June 30, 2004
(Liquidation value $2,915,100) 2,915,100 2,915,100
Common stock to be issued relating to interest
and penalties on Series B 10% Cumulative Convertible
Preferred Stock (5,299,790 and 3,638,650 shares) 475,996 392,939
Series B-2 Preferred stock; 750 shares issued and
outstanding at September 30, 2004
(Liquidation value $750,000) 750,000 --
Common stock, $.00001 par value; 500,000,000
shares authorized, and 97,111,483
shares issued and outstanding at September 30,
2004 and June 30, 2004 971 971
Additional paid-in capital 43,476,085 40,121,816
Deferred compensation (1,625,155) (891,833)
Accumulated other comprehensive loss (29,359) (4,990)
Accumulated deficit (43,188,167) (39,696,695)
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Total stockholders' equity 2,775,475 2,837,312
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Total liabilities and stockholders' equity $ 4,210,083 $ 4,445,739
============ ============

See accompanying notes to the consolidated financial statements.

WARP Technology Holdings, Inc.
Consolidated Statements of Operations
(Unaudited)

Three Months Ended
September 30,
2004 2003
------------ -------------

Revenue $ 157,881 $ 55,196

Product cost 14,028 8,378
Product development 77,066 68,695
Sales, marketing and business development 253,182 631,916
General and administrative 551,767 528,427
Non-cash compensation and consulting fees 415,597 1,322,581
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Loss before interest income (1,153,759) (2,504,801)

Interest income 695 382
------------ ------------
Net loss $ (1,153,064) $ (2,504,419)
============ ============

Computation of loss Applicable to Common Shareholders

Net loss before beneficial conversion and
preferred dividends $ (1,153,064) $ (2,504,419)

Beneficial conversion and preferred dividends (2,338,408) --
------------ ------------
Loss attributable to common stockholders $ (3,491,472) $ (2,504,419)
============ ============
Basic and diluted net loss per share attributable
to common stockholders $ (0.04) $ (0.04)
============ ============

Weighted-average number common shares--basic and diluted 97,111,483 67,262,586
============ ============

See accompanying notes to the consolidated financial statements.

WARP Technology Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

Three Months Ended
September 30,
2004 2003
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Operating activities
Net loss $(1,153,064) $(2,504,419)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 52,303 69,726
Non cash compensation and consulting 415,597 1,322,581
Changes in operating assets and liabilities:
Accounts receivable 90,420 (271,068)
Inventory and prepaid expenses 1,799 (97,847)
Accounts payable and accrued expenses (50,930) (78,059)
Deferred compensation payable (12,000)
Deferred revenue (124,581) 343,110
Deferred product cost 14,028 (50,866)
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Net cash used in operating activities (754,428) $(1,278,842)
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Investing activities
Repayment of advances (154,069)
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Net cash used in investing activities - (154,069)
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Financing activities
Prepayment of subscription 260,080
Payment on stockholder loan (75,000)
Proceeds from issuance of preferred and common
stock, net of issuance costs 700,000 920,940
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Net cash provided by financing activities 700,000 1,106,020
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Effect of exchange rate changes on cash (25,186) (7,153)
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Net decrease in cash (79,614) (334,044)
Cash--beginning of period 115,491 360,064
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Cash--end of period $ 35,877 $ 26,020
=========== ===========

See accompanying notes to consolidated financial statements.

WARP Technology Holdings, Inc.

Notes To Consolidated Financial Statements

Note 1. Description of Business

Warp Technology Holdings, Inc. (collectively with its subsidiaries, the
"Company") is a Nevada corporation with its principal executive office in
Greenwich, Connecticut. The Company operates in the United States, Canada and
the U.K. through its subsidiaries, WARP Solutions, Inc. a Delaware corporation,
Warp Solutions, Ltd. a U.K. corporation, 6043577 Canada, Inc., a Canadian
corporation, and Spider Software, Inc., a Canadian corporation.

The Company is an information technology company that produces a series of
application acceleration products that improve the speed and efficiency of
transactions and information requests that are processed over the internet and
intranet network systems. The Company's GTEN suite of software products and
technologies are designed to accelerate network applications, reduce network
congestion, and reduce the cost of expensive server deployments for enterprises
engaged in high volume network activities.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 2004
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2005. For further information, refer to the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended June 30, 2004.

The Company has incurred recurring operating losses since its inception. As of
September 30, 2004 the Company had an accumulated deficit of approximately
$43,188,000 and at September 30, 2004 had insufficient capital to fund all of
its obligations. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effect of the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.

The Company's continuation as a going concern is dependant upon receiving
additional financing. In August 2004 the Company entered into a Series B-2
Preferred Stock Purchase Agreement (the "B-2 Purchase Agreement") for the sale
of 1,600 shares of Series B-2 Preferred stock for an aggregate purchase price of
$1,600,000. As of September 30, 2004, the Company has received $750,000, and
expects to receive the remaining $850,000 in the final closing under the B-2
Purchase Agreement. The Company anticipates that during its 2005 fiscal year it
will need to raise over $1,500,000 above the amounts received or to be received
under the B-2 Purchase Agreement, in order to support its working capital needs
and to continue to execute the requirements of its business plan. In addition,
the Company anticipates that it will be necessary to raise more than $23,000,000
in additional financing in connection with the funding requirements in
connection with the acquisition of Gupta Technologies, LLC (as discussed below),
and to support its working capital needs through the anticipated closing of the
acquisition. Management of the Company is currently in a process of trying to
secure additional capital. There can be no assurance that the Company will be
successful in this capital raise or other attempts to raise sufficient capital.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Warp
Technology Holdings, Inc. and its wholly-owned subsidiaries (collectively the
"Company"). All inter-company 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 of America requires management to make
estimates and assumptions that affect the amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of financial
statements and the reported amount of revenue and expenses during the period.
Actual results could differ from those estimates.

Revenue Recognition

Pursuant to AICPA Statement of Position ("SOP") 97-2, Software Revenue
Recognition, the Company recognizes revenues from the sale of the WARP 2063e
product when persuasive evidence of a contractual arrangement exists, delivery
has occurred, the fee is fixed or determinable and collection is probable. The
Company's software licenses generally are marketed with certain post-contract
customer support ("PCS") and other obligations, which may include maintenance,
delivery of unspecified upgrades, and warranties regarding service response
times. Revenue under PCS agreements are recognized ratably over the term of the
agreement. Under SOP 97-2, the Company must allocate revenue to each element
based on vendor specific objective evidence ("VSOE") of each element's fair
value. Accordingly, revenue from license agreements is being recognized ratably
over the term of the PCS agreement. In January 2004 the Company has discontinued
marketing the 2063e product. Licensing revenues from Spider are recognized upon
product delivery, provided persuasive evidence of an arrangement exists, fees
are fixed or determinable and the resulting receivable is deemed collectible by
management.

Intangible Assets and Goodwill

Intangible assets are primarily comprised of trademark, software, non-compete
agreements and workforce assembly. Goodwill represents acquisition costs in
excess of the net assets of businesses acquired. In accordance with SFAS 142,
"Goodwill and Other Intangible Assets" no amortization of goodwill is necessary
and goodwill is tested for impairment on an annual basis. All other intangibles
are being amortized over their estimated useful life of two to three years.

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 attributable to common stockholders by
the weighted-average common shares outstanding during the period. Diluted loss
per share is calculated by dividing net loss attributable to common stockholders
by the weighted-average common shares outstanding. The dilutive effect of
preferred stock, warrants and options convertible into an aggregate of
approximately 191,327,000, respectively, and 12,032,000 common shares as of
September 30, 2004 and September 30, 2003 are not included, as the inclusion of
such would be anti-dilutive for all periods presented.

Options and Warrants

Options and warrants issued to non-employees were valued utilizing the
Black-Scholes pricing model.

Note 2. Summary of Significant Accounting Policies (continued)

Stock-Based Compensation

Stock-based compensation is accounted for by using the intrinsic value-based
method in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No.
123, Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The provisions of SFAS No. 148 are effective for financial statements
for fiscal years and interim periods ending after December 15, 2002. The Company
has adopted the disclosure provisions of SFAS No. 148. SFAS No. 148 did not
require the Company to change to the fair value method of accounting for
stock-based compensation. Accordingly, the Company only records compensation
expense for any stock options granted with an exercise price that is less than
the fair market value of the underlying stock at the date of grant.

The following table details the effect on net loss and loss per share had
stock-based compensation expense been recorded based on the fair value method
under SFAS No. 123, as amended.

Three Months Ended
September 30,
2004 2003
------------ ------------

Net loss, as reported $ (1,153,064) $ (2,504,419)
Add: Total stock-based employee
compensation expense included in
reported net loss 319,523 1,322,581
Deduct: Total stock-based employee
compensation expense determined
under fair value method for all awards (374,613) (1,354,070)
------------ ------------

Net loss, pro forma $ (1,097,974) $ (2,535,908)
Beneficial conversion and preferred dividends (2,338,408) --
Net Loss attributable to common stockholders-
Pro forma $ (3,436,382) $ (2,535,908)

Basic and diluted net loss per share, as reported $ (.04) $ (.04)
Basic and diluted net loss per share, pro forma $ (.04) $ (.04)

Product Development Costs

Product development costs incurred in the process of developing product
improvements and enhancements or new products are charged to expense as
incurred. Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon the completion of a working model. Costs incurred by the Company between
the completion of the working model and the point at which the product is ready
for general release has been insignificant.

Note 2. Summary of Significant Accounting Policies (continued)

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.

Foreign Currency

The functional currency of the Company's international subsidiaries is the local
currency. The financial statements of these subsidiaries are translated to
United States dollars using period-end rates of exchanges for assets and
liabilities, and average rates of exchanges for the period for revenues and
expenses. Translation gains (losses) are recorded in accumulated other
comprehensive income (losses) as a component of stockholders' equity. Net gain
and losses resulting from foreign exchange transactions are included in
operations and were not significant during the period presented.

Segment Information

The Company operates in one segment.

Note 3. Stockholders' Equity

Common and Preferred Stock

On September 30, 2003, the Company completed an offering of 975,940 shares of
its Series A 8% Cumulative Convertible Preferred Stock (the "A Shares") with
gross proceeds to the Company from the sale equaling $975,940. All of the A
Shares sold in this offering were offered and sold to accredited investors in a
transaction exempt from the registration requirements of the Securities Act,
pursuant to Section 4(2) of that Act. No general solicitation was made in
connection with the sale of the A Shares. Pursuant to a "most favored nation"
provision of the A Shares offering, the holders of the A Shares were entitled to
receive the better terms of any offering that was completed subsequent to the
closing of the A Shares offering. As a result, the Company has cancelled all
975,940 A Shares which were to be issued and has instead issued 975.94 B Shares
to the A Share subscribers. The A Share subscribers also received warrants with
the same terms as the B Share subscribers. The conversion to common stock of all
the B Shares issued to the A Share subscribers will result in the Company
issuing approximately 5,422,000 shares of common stock to the A Share
subscribers. Pursuant to a registration rights agreement between the Company and
the B Share subscribers, the Company was obligated to register the shares of
common stock issuable upon conversion of the B Shares within 45 days of issuance
of the B Shares. This registration rights agreement contained a penalty
provision that required the Company to issue the number of shares of common
stock equal to 2% of the shares of common stock issuable upon conversion of the
B Shares for each 30 day period until such shares were registered. When the
March Form S-2 was declared effective, the Company was obligated to issue an
aggregate of 1,242,698 shares of common stock pursuant to this penalty
provision. Exercise of all the warrants held by the A Share subscribers will
result in the issuance of approximately 2,711,000 shares of common stock to the
A Share subscribers. The Company recorded approximately $271,000 as beneficial
conversion relating to this transaction because the fair market value of the
common stock was greater than the conversion price. The March Form S-2, declared
effective on March 31, 2004, covered the common shares issuable upon the
conversion of the B Shares and warrants held by the A Share subscribers. The
Company recorded approximately $60,000 for fees relating to this private
placement.

Note 3. Stockholders' Equity (continued)

On November 4, 2003, the Company completed an offering of 2,647.78 shares of
Series B 10% Cumulative Convertible Preferred Stock (the "B Shares") with gross
proceeds to the Company from the sale equaling $2,647,780. All of the B Shares
sold in this offering were offered and sold to accredited investors in a
transaction exempt from the registration requirements of the Securities Act,
pursuant to Section 4(2) of that Act. No general solicitation was made in
connection with the sale of the B Shares. The B Shares have a cumulative
dividend of 10% per year, which is payable in cash or stock at the time of
conversion. Each B Share is convertible into approximately 5,556 shares of the
common stock of the Company. The conversion to common stock of all the B Shares
sold in the offering will result in the Company issuing approximately 14,710,000
shares of common stock to the B Share subscribers. The B Share subscribers also
received warrants to purchase a number of common shares equal to 50% of the
common shares such subscriber would receive upon the conversion of their B
Shares to common shares. The exercise price of the warrants is $.33 per share of
common stock. Exercise of all the warrants held by the B Share subscribers would
result in the issuance of approximately 7,355,000 shares of common stock. The
Company recorded approximately $736,000 as beneficial conversion relating to
this transaction because the fair market value of the common stock was greater
than the conversion price. The March Form S-2, declared effective on March 31,
2004, covered the common shares issuable upon the conversion of the B Shares and
warrants sold in this offering. However, the Company was not able to get the
March Form S-2 declared effective before the passing of certain deadlines and as
such the Company is required to pay a penalty equivalent to 6% of the common
shares underlying the B Shares sold in this offering. The Company has recorded a
charge of approximately $276,000 relating to this penalty (including the penalty
relating to the Series A subscribers described above) in March 2004. In
addition, the Company incurred approximately $325,000 of dividends of which
approximately $75,000 relates to the quarter ended September 30, 2004, to the
Series B shareholders. The Company has not issued approximately 5,299,790 of
common shares for the penalty and dividend. Under certain anti-dilution
protection rights of the Series B Preferred Stock, the conversion price will
adjust from time to time if the Company issues any shares of Common Stock, or
options, warrants, or other securities convertible or exchangeable into Common
Stock, at a purchase price below the conversion price then in effect. In August
2004, the Company completed its first closing of the Series B-2 offering at an
effective price of $0.05 per common share. As a result of the Series B-2
financing, the conversion price of the Series B Stock was reduced from $0.18 to
$0.05, and the Company recorded a stock dividend to the Series B shareholders
for approximately 29,077,000 of common stock valued at approximately $1,499,000.
The Company paid approximately $262,000 in finders' fees relating to this
private placement.

In December 2003, the Company issued 5,000,000 shares of common stock to Blue &
Gold Enterprises LLC ("Blue & Gold") as consideration for financial consulting
services provided by Mr. Steven Antebi pursuant to the Consulting Agreement
dated December 2003 between the Company and Mr. Antebi. The shares issued to Mr.
Antebi were restricted shares on the date of issuance. The April Form S-2,
declared effective on April 29, 2004, registered the shares of common stock
issued to Mr. Antebi under his consulting agreement. In connection with this
agreement the Company recorded approximately $950,000 as non-cash compensation.

On February 10, 2004, the Company closed an offering of 1,600,000 restricted
shares of its common stock and 800,000 warrants to purchase common stock in a
private transaction for gross proceeds of $288,000 in cash. The exercise price
of the warrants is $.33 per share of common stock and the exercise price is only
payable with cash. The March Form S-2, declared effective on March 31, 2004,
registered the shares sold in this offering and the common stock issuable upon
the exercise of the warrants sold in this offering. The Company paid
approximately $28,000 in placement agent fees relating to this private
placement.

Note 3. Stockholders' Equity (continued)

On February 10, 2004, the Company completed an offering of 1,058 shares of
Series B 10% Cumulative Convertible Preferred Stock (the "B Shares") with gross
proceeds to the Company from the sales equaling $1,058,000. The B Shares had a
purchase price of $1,000.00 per share. The purchase price of the B Shares was
paid in cash. The B Shares have a cumulative dividend of 10% per year, which is
payable in cash or stock at the time of conversion at the election of the
Company. Each B Share is convertible into approximately 5,556 shares of the
common stock of the Company. The conversion to common stock of all the B Shares
sold in the offering will result in the Company issuing approximately 5,877,800
shares of common stock to the B Share subscribers. The B Share subscribers also
received warrants to purchase a number of common shares equal to 50% of the
common shares such subscriber would receive upon the conversion of their B
Shares to common shares. The exercise price of the warrants is $.33 per share of
common stock and the exercise price is only payable with cash. Exercise of all
the warrants held by the B Share subscribers would result in the issuance of
approximately 2,938,900 shares of common stock. The Company recorded
approximately $235,000 as beneficial conversion relating to this transaction
because the fair market value of the common stock was greater than the
conversion price. The Company paid approximately $106,000 in placement agent
fees relating to this private placement. Under certain anti-dilution protection
rights of the Series B Preferred Stock, the conversion price will adjust from
time to time if the Company issues any shares of Common Stock, or options,
warrants, or other securities convertible or exchangeable into Common Stock, at
a purchase price below the conversion price then in effect. In August 2004, the
Company completed its first closing of the Series B-2 offering at an effective
price of $0.05 per common share. As a result of the Series B-2 financing, the
conversion price of the Series B Stock was reduced from $0.18 to $0.05, and the
Company recorded a stock dividend to the Series B shareholders for approximately
12,129,000 of common stock valued at approximately $606,000.

In March 2004, several holders of the preferred stock of 6043577 Canada, Inc., a
wholly-owned subsidiary of the Company established to complete the acquisition
of Spider, converted their preferred stock to shares of the Company's common
stock. Such conversions resulted in the issuance of 1,073,446 shares of common
stock.

In 2004, holders of 1,766.62 shares of the Company's Series B 10% Cumulative
Convertible Preferred Stock ("B Shares") converted their B Shares into shares of
the Company's common stock. Such conversions resulted in the issuance of
9,814,556 shares of common stock. The 9,814,556 common shares issued on the
conversions is derived from the B Shares' $.18 conversion price. In connection
with the conversion and additional 330,548 shares were issued as payment of the
B Shares 10% cumulative dividend, and 408,982 shares were issued as payment of a
6% penalty for the failure by the Company to cause its March Form S-2 (as
defined below) to be declared effective in a timely manner.

On March 12, 2004, the Company approved the issuance of 97,608 shares of common
stock to Bradley L. Steere, Esq. as consideration for legal services rendered to
the Company in the amount of approximately $18,500.

On March 12, 2004, the Company approved the issuance of 32,639 shares of common
stock to Mr. Wesley Ramjeet as consideration for professional accounting
services rendered to the Company in the amount of approximately $5,900.

On March 12, 2004, the Company approved the issuance of 555,554 shares of common
stock to Mr. Malcolm Coster pursuant to the terms and conditions of his
Employment Contract as compensation for services rendered by Mr. Coster to the
Company in the amount of approximately $111,000 as its interim Chief Executive
Officer.

Note 3. Stockholders' Equity (continued)

On March 29, 2004, the Company issued 5,000,000 shares of common stock to Noah
Clark as consideration for financial consulting services beginning April 1,
2004, to be provided by Mr. Clark pursuant to the Consulting Agreement dated
March 26, 2004 between the Company and Mr. Clark (the "Consulting Agreement").
The Company recognized approximately $950,000 of expense relating to this
agreement. The shares issued to Mr. Clark were restricted shares on the date of
issuance. On April 26, 2004, the Company filed an Amendment Number 1 to a
Registration Statement on Form S-2 originally filed on April 4, 2004
(hereinafter referred to as the "April Form S-2"), which covered the shares of
common stock issued to Mr. Clark under his consulting agreement. On April 29,
2004, the April Form S-2 was declared effective by the Securities and Exchange
Commission (File No. 333-114296).

On April 22, 2004 the Company approved the issuance of 1,498,177 shares of
common stock to employees. In connection with this issuance the Company recorded
compensation of approximately $195,000.

On August 4, 2004, the Company entered into a Series B-2 Preferred Stock
Purchase Agreement (the "Purchase Agreement"). The Purchase Agreement related to
the sale of 1,600 shares (the "Series B-2 Preferred Shares") of the Company's
authorized but unissued shares of Preferred Stock, $0.00001 par value per share,
designated Series B-2 Preferred Stock (the "Series B-2 Preferred Stock") at a
purchase price of $1,000 per share, and warrants, exercisable over five (5)
years, to purchase an aggregate of 1,600 shares of Series B-2 Preferred Stock at
an exercise price of $1,000 per share (the "Warrants" and together with the
shares of Series B-2 Preferred Stock, collectively, the "Securities") to
investors. The aggregate purchase price for the Securities is $1,600,000, of
which $750,000 was received by the Company by September 30, 2004 for 750 shares
of Series B-2 with Warrants to acquire an additional 750 shares of Series B-2
Preferred Stock. The Company incurred approximately $8,000 in dividends for the
fiscal quarter ended September 30, 2004 to the Series B-2 shareholders.

Under the terms of the Purchase Agreement, the remaining $850,000 purchase price
is to be paid at a final closing in which 850 shares of Series B-2 Preferred
Stock were to be issued together with Warrants to acquire an additional 850
shares of Series B-2 Preferred Stock. A holder of shares of Series B-2 Preferred
Stock may convert such shares into shares of Common Stock in accordance with the
terms thereof. In addition, if, upon the expiration of five (5) years from the
date of issuance, there remain any shares of Series B-2 Stock which have not
been converted, such shares shall automatically convert into shares of Common
Stock. The number of shares of Common Stock receivable upon conversion shall be
equal to the Series B-2 Face Amount, which is initially equal to the per share
purchase price of $1,000, plus any accrued but unpaid dividends, divided by the
conversion price, which is initially set at $0.05. Under certain anti-dilution
protection rights of the Series B-2 Preferred Stock, the conversion price will
adjust from time to time if the Company issues any shares of Common Stock, or
options, warrants, or other securities convertible or exchangeable into Common
Stock, at a purchase price below $0.05 per share, and will also be adjusted for
any stock splits or similar corporate actions. Under the current conversion
price, each share of Series B-2 Preferred Stock is convertible into 20,000
shares of Common Stock. Accordingly, the Company recorded approximately $150,000
as beneficial conversion relating to this transaction because the fair market
value of the common stock was greater than the conversion price. The Company
recorded approximately $50,000 for fees relating to this private placement.

Note 3. Stockholders' Equity (continued)

Stock Options

In November 2002 the Company's Board of Directors approved and adopted the Warp
Technology Holdings, Inc. 2002 Stock Incentive plan (the "2002 Plan") as a means
through which the Company and its subsidiaries may attract, retain and
compensate employees and consultants. In fiscal 2003, the Board of Directors
issued 7,098,000 options to certain employees of the Company under the 2002
Plan. Of those options, 1,833,333 vested on the date of grant and the remainder
vest over a two-year period. Such options have a term of ten years and have an
exercise price of $.25 per share. For financial statement purposes the Company
recorded deferred compensation of $18,996,000, representing the difference
between the market price of the Company's stock and $.25 on the date of grant.
The amount recognized as expense for the period ending September 30, 2004 and
2003 was $284,500 and $1,186,333 respectively.

In fiscal 2003, the Company granted 420,000 options to employees at an exercise
price of $.25 per share. Under the terms of employment the Company has agreed to
compensate employees holding these options upon exercise, the difference between
one dollar and cash realized from the exercise price of $.25 of each option up
to one dollar in cash or stock. The total amount is capped at $400,000 and
expired in December 2003. As of September 30, 2004 the Company recorded a
liability of $200,000.

In fiscal 2003 the Company's Board of Directors granted 1,500,000 options to
consultants at an exercise price of $.25 per share. As of September 30, 2004 all
1,500,000 of these options have been vested. Under the terms of employment the
Company agreed to compensate certain consultants for 1,450,000 of these options
upon exercise the difference between one dollar and cash realized from the
exercise of each option up to one dollar in cash or stock. The total amount is
capped at $294,000 and expired in December 2003. As of September 30, 2004, the
Company recorded a liability of $244,000.

In fiscal 2004, the Board of Directors granted 4,513,000 options to certain
employees of the Company under the 2002 Plan. Of those options, 2,256,500 vested
on the date of grant and the remainder vest over a two-year period. Such options
have a term of ten years and have an exercise price of $.13 per share, the fair
market price of the stock on the date of grant.

On August 4, 2004,the Company amended its 2002 Employee Stock Plan to increase
the total number of shares authorized for issuance under the plan to a total of
77,661,098 shares of Common Stock, and to reserve such shares for issuance under
the plan.

On August 4, 2004 the Company granted its executive officers, Rodney A.
Bienvenu, Jr., Gus Bottazzi, Ernest C. Mysogland and Michael D. Liss, certain
options to acquire shares of Common Stock. The total number of shares subject to
these options is 46,879,865. In addition, the Company granted ISIS certain
non-qualified options to acquire 20,091,371 shares of Common Stock. All such
options have an exercise price of $0.0675 per share. The exercise of such
options is subject to the achievement of certain vesting and milestone terms
(subject in each case to the terms of the optionee's stock option agreement).
Any of the above-described options not previously exercisable shall be vested
and exercisable on the fifth anniversary of the initial closing of the B-2
Financing. In connection, with the options granted to ISIS the Company recorded
deferred compensation of approximately $1,053,000 that will be amortized over
five years from the date of grant. The Company recognized approximately $35,000
of expense for the quarter ended September 30, 2004 relating to the ISIS
options.

Note 3. Stockholders' Equity (continued)

Warrants

During 2000, in conjunction with the sale of its Series B Convertible Preferred
Stock to certain investors, WARP Solutions, Inc. ("WARP") issued warrants to
purchase 1,063,650 shares of its common stock at an exercise price of $0.905 per
share. The warrants expire on the fifth anniversary of issuance. In fiscal 2003
certain holders of these warrants converted 733,410 of these warrants in a
cashless exercise for 543,880 shares of the Company's common stock.

On August 1, 2000, WARP issued warrants to purchase 110,509 shares of its common
stock to an outside consultant for services rendered. The warrants have an
exercise price of $0.905 per share and expire on the fifth anniversary of
issuance.

In connection with the February, 2003 private placement the Company issued
420,930 warrants to purchase shares of its common stock at an exercise price of
$.10 per share. The warrants expire on the fifth anniversary of issuance. In
fiscal 2004, 135,000 of these warrants were exercised, the Company received
approximately, $13,500.

In January 2004, the Company issued 1,500,000 warrants to Mr. Ray Musson and
Killick & Co. as a settlement for not registering previously sold shares. The
warrants have a (5) five-year term, an exercise price of $.36 per share and no
cashless exercise provision. The Company recorded as expense $180,000 relating
to this warrants issuance. The March Form S-2, declared effective on March 31,
2004, registered the shares of common stock issuable upon the exercise of the
warrants issued to Mr. Musson and Killick & Co.

On March 5, 2004, the Company initiated a warrant exchange program (the
"Program") applicable to all of the Company's outstanding warrants (collectively
the "Original Warrants"). The Program was an opportunity for the Company's
warrant holders to choose whether they wanted to keep their Original Warrants or
exchange them for new warrants (the "Exchanged Warrants"). The Exchanged
Warrants had an exercise price of $0.15 per share, as compared to the Original
Warrants, which have exercise prices of $0.36, $0.33, $0.25, or $0.18 per share,
and were required to be exercised immediately after their issuance. The Program
closed on March 18, 2004, and resulted in the exchange of 4,302,387 Original
Warrants for Exchanged Warrants. The immediate exercise of the Exchanged
Warrants caused the issuance by the Company of 4,302,387 shares of common stock
for gross proceeds to the Company of $645,358. The Company recorded
approximately $132,000 as a beneficial conversion dividend relating to this
transaction because the fair market value of the common stock was greater than
the conversion price.

In April 2004,the Company issued warrants to purchase 860,000 shares of common
stock at an exercise price of $0.25 per share to Lighthouse Capital Ltd and
warrants to purchase 150,000 shares of common stock at an exercise price of
$0.25 to Peter Bailey in payment of services provided by Lighthouse Capital Ltd
to the Company under the terms of a consulting agreement. In connection with
this issuance the Company recorded an expense of approximately $105,000.

In August 2004, the Company issued 2,000,000 warrants to Malcolm Coster at an
exercise price of $0.18 per share for services performed. In connection with
this issuance the Company recorded an expense of approximately $96,000.

In September 2004, the Company agreed to issue 3,520,000 warrants to purchase
Common Stock at an exercise price of $0.05 per share issued to Griffin
Securities, Inc. for advisory services provided to the Company.

Note 4. Related Party Transactions

The Company has certain contractual relationships with ISIS Capital Management,
LLC ("ISIS") which were entered into in connection with the Company's Series B-2
Preferred Stock financing (as previously described in, and included as exhibits
to, the Company's Form 8-K dated August 4, 2004). In addition, certain
individuals are members of ISIS and directors or officers of the Company.

ISIS is a limited liability company whose managing members are Rodney A.
Bienvenu, Jr. ("Bienvenu"), the Company's Chief Executive Officer and Chairman
of the Company's Board of Directors, and Ernest C. Mysogland ("Mysogland"), the
Executive Vice President and Chief Legal Officer of the Company. ISIS is the
managing member of ISIS Acquisition Partners II LLC ("IAP II"). IAP II is a
stockholder of the Company having purchased shares of the Company's Series B-2
Preferred Stock (the "Series B-2 Preferred Stock"), pursuant to that certain
Series B-2 Preferred Stock Purchase Agreement (the "Series B-2 Purchase
Agreement"), as of August 4, 2004, between and among the Company and the Persons
listed on Schedule 1.01 thereto. In addition, pursuant to that certain
Stockholders Agreement, dated as of August 4, 2004, between and among the
Company, the holders of the Series B-2 Preferred Stock and such other
Stockholders as named therein (the "Stockholders Agreement"), IAP and other
Series B-2 Stockholders have certain rights to designate directors of the
Company. Further, ISIS and the Company entered into a Consulting Agreement,
dated as of August 4, 2004, pursuant to which the Company will pay ISIS for
services requested of ISIS from time to time, including, without limitation,
research services, at ISIS's regular rates or at the cost incurred by ISIS to
provide such services, and will reimburse ISIS for any costs incurred by ISIS on
behalf of the Company.

Furthermore, as discussed below, the Company and ISIS entered into that certain
Purchase Agreement Assignment and Assumption, pursuant to which the Company
acquired all of the rights and assumed all of the liabilities of the Purchaser
under that certain Membership Interest Purchase Agreement to acquire Gupta
Technologies, LLC.

Recent Accounting Pronouncements

There were no recently issued accounting standards that the Company believes
will have a material effect on its financial position, its results of operations
or its cash flows.

Note 5. Legal Proceedings

Two former consultants to the Company who provided services to the Company's
U.K. subsidiary, Warp Solutions, Ltd., have made claims against the Company
under U.K. law, contending that they were employees under such laws, were
unfairly dismissed, and, therefore, entitled to certain benefits and rights. The
total claim is estimated to be approximately $180,000. The Company has received
a preliminary judgment from a U.K. Employment Tribunal determining that two
former consultants were employees within the (U.K.) Employment Rights Act. The
Company has appealed from this determination and intends to contest it
vigorously. The Company has accrued $50,000 relating to this claim.

Note 6. Subsequent Events

As reported on the Company's Form 8-K filed on October 15, 2004, the Company
entered into a material agreement related to the acquisition of Gupta
Technologies, LLC ("Gupta"), a software company producing secure,
small-footprint, embeddable databases and enterprise application development
tools.

Note 6. Subsequent Events (continued)

The Company entered into that certain Purchase Agreement Assignment and
Assumption (the "Assignment"), as of October 13, 2004, by and between ISIS
Capital Management, LLC ("ISIS") and Warp Technology Holdings, Inc. Under the
Assignment, the Company acquired all of the rights and assumed all of the
liabilities of the Purchaser under that certain Membership Interest Purchase
Agreement (as amended by the Extension, the "Purchase Agreement") made and
entered into as of September 2, 2004, by and between ISIS Capital Management,
LLC (as the "Purchaser") and Gupta Holdings, LLC (the "Seller"). The Purchase
Agreement was amended by that certain Extension Agreement (the "Extension"), by
and between ISIS and the Seller, dated as of September 27, 2004, which was
amended by that certain Amendment No. 1 To Extension Agreement made by and
between ISIS and the Seller, as of the 13th day of October, 2004 (together, as
amended, the "Extension").

As the Company is organized under the laws of the State of Nevada, and as
Bienvenu and Mysogland have financial interests in, and are members of ISIS, the
Company's entering into the Assignment may be subject to restrictions on
transactions involving interested directors or officers applicable to Nevada
corporations. The Company has approved the Assignment and the transactions
contemplated thereunder in accordance with applicable requirements of Nevada
law, including Nevada Revised Statutes section 78.140. The Company currently has
two directors, Bienvenu and Gus Bottazzi ("Bottazzi"). As disinterested
director, Bottazzi may approve the Assignment and the contemplated transactions.
Bottazzi has approved the Assignment, finding the Assignment and contemplated
transactions to be fair to the Company, and with knowledge of the financial
interests, commonality of directorships and memberships, and other aspects of
the relationships between Bienvenu, Mysogland, ISIS and the Company.

Under the Assignment, Warp acquired all of the rights, and assumed all of the
obligations, of the Purchaser under the Purchase Agreement. The Purchase
Agreement relates to the sale by the Seller of all of the membership interests
in Gupta. Upon the closing of the purchase and sale under the Purchase Agreement
(the "Closing"), Gupta will become a wholly owned subsidiary of Warp. In
addition, Gupta's wholly owned subsidiaries will become indirect subsidiaries of
Warp upon the Closing.

The purchase price for the acquisition of Gupta is $20,000,000. The purchase
price will be subject to a mutual working capital adjustment for any shortfall
or excess in the net working capital of Gupta on the Closing date compared to
the net working capital shown on the unaudited pro forma consolidated balance
sheet of Gupta dated May 31, 2004 (the "Balance Sheet").

The Purchase Agreement requires that, upon Closing, the Purchaser have
sufficient funds to satisfy the working capital requirements of Gupta.

The purchase and sale of the membership interests in Gupta is subject to the
satisfaction or waiver of certain closing conditions, including the accuracy of
the representations and warranties of the Purchaser and the Seller (except to
the extent that any failures of representations to be accurate would not
reasonably be expected to have a material adverse effect on Gupta), the absence
of any order prohibiting the consummation of the transactions, and the
performance, in all material respects, of all obligations to be satisfied prior
to closing.

In contemplation of the assignment to Warp, ISIS negotiated for an extension of
the Closing date (originally scheduled for September 30, 2004) until October 15,
2004, and paid the Seller $1,000,000 in exchange for such right. On October 13,
2004, the Company paid to the Seller $1,000,000 in order to extend the Closing
date until November 1, 2004. The Company is in the process of negotiating a
further extension. Said payments are non-refundable; however, said
payments reduce the purchase price due at Closing. The purchase price due at
Closing shall be increased by interest, accruing at the rate of ten percent per
annum, on the amount of any unpaid purchase price from September 30, 2004 to the
Closing date.

Note 6. Subsequent Events (continued)

Under the Assignment, the Company agreed to repay ISIS (or its assignees), for
the $1,000,000 ISIS paid to the Seller. the Company has issued certain notes to
ISIS evidencing such obligations in the principal amount of $1,000,000. The
notes have the same terms as those under the Bridge Notes issued to investors as
described below. Furthermore, upon the acquisition of Gupta, in consideration of
the assignment, and services in connection with due diligence, financing
contacts and structure, for its efforts in negotiating the terms of the
acquisition (including the specific right to assign the Purchase Agreement to
the Company), and undertaking the initial obligation regarding the purchase of
Gupta, the Company shall pay ISIS and its investors, as allocated by ISIS, a
transaction fee equal to $1,250,000, payable either in cash or, at the election
of ISIS, in Series B-2 Securities, or senior debt or senior equity issued in
connection with the Gupta financing. ISIS will also be reimbursed by the Company
for any amounts it has incurred in connection with the negotiation and
consummation of the transaction.

In connection with the Gupta transaction, the Company is pursuing financing from
debt and equity investors to raise capital for the amounts due, or which may
become due, under the Purchase Agreement including amounts for the payment of
the remainder of the purchase price, any anticipated adjustments to the purchase
price, any subsequent extension payments, interest, working capital for the
Company including Gupta and other subsidiaries, transaction costs and expenses.
The Company anticipates that it will be necessary to raise more than $23,000,000
in connection with these funding requirements, and to support its working
capital needs through the anticipated Closing of the acquisition.

The Company has negotiated proposed terms with equity and debt financing sources
for a significant portion of the funding required in connection with the Gupta
transaction. Nevertheless, the Company has no firm commitments from any sources
to provide additional equity or debt financing as of the date hereof, and there
can be no assurance that sufficient funds will be raised to finance the Gupta
transaction. In the event the Gupta transaction is not completed, there can be
no assurance that sufficient funds will be raised to finance the operations of
the Company through fiscal 2005. Moreover, any equity financing will likely
result in dilution to the existing shareholders and any debt financing would
result in higher interest expenses.

On October 13, 2004, the Company issued certain promissory notes (the "Bridge
Notes") to investors in exchange for loans in the aggregate principal amount of
$1,000,000, the proceeds of which were used to fund the payment made on October
13, 2004 to the Seller as described above. All of these sales of securities were
made in reliance upon the exemption from the registration provisions of the
Securities Act of 1933, as amended (the "Securities Act"), set forth in Sections
4(2) thereof and the rules and regulations under the Securities Act, including
Regulation D, as transactions by an issuer not involving any public offering
and/or sales to a limited number of purchasers who were acquiring such
securities for their own account for investment purposes and not with a view to
the resale or distribution thereof.

On November 12, 2004, the Company filed a Current Report on Form 8-K which
disclosed the Company's one hundred for one (100:1) reverse stock split. The
reverse split will become effective as of the opening of business on November
18, 2004. The changes in authorized and outstanding stock of the Company are not
reflected in the financial statements.

ITEM 2. Management's Discussion And Analysis Or Plan Of Operation.

The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read together with the Company's financial statements and the notes to
financial statements, which are included in this report, and with the Company's
Form 10-KSB.

Results of Operations

During the three months ending September 30, 2004 the Company recognized
approximately $157,000 of revenues compared to approximately $55,000 for the
three months ended September 30, 2003. The increase in revenue was due primarily
to more amortization of deferred revenue in 2004.

Cost of sales for three months ended September 30, 2004 was approximately
$14,000 as compared to $8,000 for the three months ended September 30, 2003. The
increase in cost of sales was due to the Company's increased revenues.

Product development costs were approximately $77,000 for the three months ended
September 30, 2004 as compared to approximately $69,000 for the three months
ended September 30, 2003. The increase was due primarily to salary increases.

Sales and marketing costs were approximately $253,000 for the three months ended
September 30, 2004 as compared to approximately $631,000 for the three months
ended September 30, 2003. In 2004 the Company reduced its headcount and cut its
sales and marketing budget to reduce its cash spending.

General and administrative expense was approximately $552,000 for the three
months ended September 30, 2004 as compared to approximately $528,000 for the
three months ended September 30, 2003. The increase was due primarily to
increase in professional fees and severance costs.

Non-cash compensation and consulting fees, for the three months ended September
30, 2004 was approximately $416,000 as compared to approximately $1,323,000 for
the three months ended September 30, 2003. The decrease in non-cash compensation
primarily relates to the decrease in amortization expenses from the issuance of
options granted in 2002.

Net Operating Loss Carry forwards

At September 30, 2004, the Company has net operating loss carry forwards of
approximately $22,587,000, which may be used to reduce taxable income in future
years through the year 2024. Due to uncertainty surrounding the realization of
the favorable tax attributes in future returns, WARP has placed a full valuation
allowance against its net deferred tax asset. At such time as it is determined
that it is more likely than not that the deferred tax asset is realizable, the
valuation allowance will be reduced. Furthermore, the net operating loss carry
forward may be subject to further limitation pursuant to Section 382 of the
Internal Revenue Code.

Liquidity and Capital Resources

To date, the Company has financed its operations primarily through the sale of
equity securities and debt. As of September 30, 2004, the Company had
approximately $36,000 in cash. The Company has never been profitable and expects
to continue to incur operating losses in the future. The Company will need to
generate significant revenues to achieve profitability and to be able to
continue to operate. The Company's consolidated financial statements for June
30, 2004 had been prepared on the assumption that the Company will continue as a
going concern. The Company's independent auditors issued their audit report for
the June 30, 2004 financial statements dated September 28, 2004 that includes an
explanatory paragraph stating that the Company's recurring losses and
accumulated deficit, among other things, raise substantial doubt about the
Company's ability to continue as a going concern. The Company's historical sales
have never been sufficient to cover its expenses and it has been necessary to
rely upon financing from the sale of equity securities and debt to sustain
operations.

The Company's ultimate future capital requirements will depend on many factors,
including cash flow from operations, customer acquisition, continued progress in
research and development programs, competing technological and market
developments, and the Company's ability to successfully market its products. The

Company has no firm commitments from any sources to provide additional equity or
debt financing. As such, there can be no assurance that sufficient funds will be
raised to finance the operations of the Company through fiscal 2005. Moreover,
any equity financing could result in dilution to the existing shareholders and
any debt financing would result in higher interest expense.

Related Party Transactions

Recent Accounting Pronouncements

There were no recently issued accounting standards that the Company believes
will have a material effect on its financial position, its results of operations
or its cash flows.

Legal Proceedings

Subsequent Events

The Purchase Agreement requires that, upon Closing, the Purchaser have
sufficient funds to satisfy the working capital requirements of Gupta.

Under the Assignment, the Company agreed to repay ISIS (or its assignees), for
the $1,000,000 ISIS paid to the Seller. The Company has issued certain notes to
ISIS evidencing such obligations in the principal amount of $1,000,000. The
notes have the same terms as those under the Bridge Notes issued to investors as
described below. Furthermore, upon the acquisition of Gupta, in consideration of
the assignment, and services in connection with due diligence, financing
contacts and structure, for its

efforts in negotiating the terms of the acquisition (including the specific
right to assign the Purchase Agreement to the Company), and undertaking the
initial obligation regarding the purchase of Gupta, the Company shall pay ISIS
and its investors, as allocated by ISIS, a transaction fee equal to $1,250,000,
payable either in cash or, at the election of ISIS, in Series B-2 Securities, or
senior debt or senior equity issued in connection with the Gupta financing. ISIS
will also be reimbursed by the Company for any amounts it has incurred in
connection with the negotiation and consummation of the transaction.

Critical Accounting Policies

Revenue Recognition

Pursuant to AICPA Statement of Position ("SOP") 97-2, Software Revenue
Recognition, the Company recognizes revenues from software licenses when
persuasive evidence indicates a contractual arrangement exists, delivery has
occurred, the fee is fixed or determinable and collection is probable. The
Company's software licenses generally are marketed with certain post contract
customer support ("PCS") and other obligations, which may include maintenance,
delivery of unspecified upgrades, and warranties regarding service response
times. Revenue under PCS agreements is recognized ratably over the term of the
agreement. Under SOP 97-2, the Company must allocate revenue to each element
based on vendor specific objective evidence ("VSOE") of each element's fair
value. Since the Company has just begun to market its products, VSOE of the fair
value of each element has not been clearly established. Accordingly, revenue
from license agreements is being recognized ratably over the term of the PCS
agreement.

Licensing revenue from Spider Software and Data Reactor is recognized upon
product delivery provided persuasive evidence of an arrangement exists, fees are
fixed or determinable and the resulting receivable is deemed collectible by
management.

Goodwill and Impairment

The Company reviews goodwill when events or changes in circumstances indicate
that the carrying amount of goodwill may not be recoverable. We also review
goodwill as required by SFAS No. 142, "Goodwill and Other Intangible Assets",
which requires that goodwill be tested annually using a two-step process. The
first is to identify any potential impairment by comparing the carrying value of
the company to the fair market value. If a potential impairment is identified,
the second step is to compare the implied fair value of goodwill with its
carrying amount to measure the impairment loss. The Company's fair value is
determined by the price in the public market. A significant decrease in the
market price could result in an unexpected impairment charge to goodwill, which
could have a negative impact on our operating results. The annual impairment
test completed during the fourth quarter of fiscal year ended June 30, 2004
indicated that our goodwill is not impaired.

Controls And Procedures

Within 90 days prior to the date of this Quarterly Report on Form 10-QSB for the
fiscal quarter ended September 30, 2004, the Company carried out an evaluation,
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and President, the principal
executive officer, and the Company's principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rule 13a-15(d) and 15(e) of the Securities Exchange
Act of 1934 (the "Exchange Act"). Based upon that evaluation, the principal
executive and principal financial officer concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
There were no significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

PART II
OTHER INFORMATION

ITEM 2. Changes In Securities And Small Business Issuer Purchases of Equity
Securities

The following information relates to sales of unregistered securities by
the Company during the first quarter of fiscal 2005 ended September 30, 2004.
All of these sales of securities were made in reliance upon the exemption from
the registration provisions of the Securities Act of 1933, as amended (the
"Securities Act"), set forth in Sections 4(2) thereof and the rules and
regulations under the Securities Act, including Regulation D, as transactions by
an issuer not involving any public offering and/or sales to a limited number of
purchasers who were acquiring such securities for their own account for
investment purposes and not with a view to the resale or distribution thereof.

The Company entered into a Series B-2 Preferred Stock Purchase Agreement (the
"Purchase Agreement"), as of August 4, 2004. The Purchase Agreement related to
the sale of 1,600 shares (the "Series B-2 Preferred Shares") of the Company's
authorized but unissued shares of Preferred Stock, $0.00001 par value per share,
designated Series B-2 Preferred Stock (the "Series B-2 Preferred Stock") at a
purchase price of $1,000 per share, and warrants, exercisable over five (5)
years, to purchase an aggregate of 1,600 shares of Series B-2 Preferred Stock at
an exercise price of $1,000 per share (the "Warrants" and together with the
shares of Series B-2 Preferred Stock, collectively, the "Securities") to the
Investors. The aggregate purchase price for the Securities is $1,600,000, of
which $750,000 was received by the Company by September 30, 2004 for 750 shares
of Series B-2 with Warrants to acquire an additional 750 shares of Series B-2
Preferred Stock. Under the terms of the Series B-2 Purchase Agreement, the
remaining $850,000 purchase price is to be paid at a final closing in which 850
shares of Series B-2 Preferred Stock were to be issued together with Warrants to
acquire an additional 850 shares of Series B-2 Preferred Stock. A holder of
shares of Series B-2 Preferred Stock may convert such shares into shares of
Common Stock in accordance with the terms thereof. In addition, if, upon the
expiration of five (5) years from the date of issuance, there remain any shares
of Series B-2 Stock which have not been converted, such shares shall
automatically convert into shares of Common Stock. The number of shares of
Common Stock receivable upon conversion shall be equal to the Series B-2 Face
Amount, which is initially equal to the per share purchase price of $1,000, plus
any accrued but unpaid dividends, divided by the conversion price, which is
initially set at $0.05. Under certain anti-dilution protection rights of the
Series B-2 Preferred Stock, the conversion price will adjust from time to time
if the Company issues any shares of Common Stock, or options, warrants, or other
securities convertible or

exchangeable into Common Stock, at a purchase price below $0.05 per share, and
will also be adjusted for any stock splits or similar corporate actions. Under
the current conversion price, each share of Series B-2 Preferred Stock is
convertible into 20,000 shares of Common Stock. Accordingly, the Company
recorded approximately $150,000 as beneficial conversion relating to this
transaction because the fair market value of the common stock was greater than
the conversion price. The Company recorded approximately $50,000 for fees
relating to this private placement.

The Series B Stock has conversion rights similar to those of the Series B-2
Preferred Stock. Prior to the Financing, the shares of Series B Stock were
convertible into shares of Common Stock at a conversion price of $0.18 per share
of Common Stock. The effect of the Financing was that the conversion price of
the Series B Stock was reduced to $0.05, which is equivalent to the conversion
price of the Series B-2 Preferred Stock. Accordingly, each share of outstanding
Series B Stock is now convertible into an amount of shares of Common Stock equal
to the original purchase price per share of Series B Stock, which was $1,000 per
share, plus any accrued but unpaid dividends (which accrue at 10% per annum),
divided by the adjusted conversion price of $0.05.

Subsequent to the end of the first quarter of fiscal 2005 ended September 30,
2004, on October 13, 2004, the Company issued certain promissory notes (the
"Bridge Notes") to investors in exchange for loans in the aggregate principal
amount of $1,000,000, the proceeds of which were used to fund the payment made
on October 13, 2004 by the Company to the Gupta Holdings, LLC (the "Seller")
under the Gupta Purchase Agreement, as described above. All of these sales of
securities were made in reliance upon the exemption from the registration
provisions of the Securities Act of 1933, as amended (the "Securities Act"), set
forth in Sections 4(2) thereof and the rules and regulations under the
Securities Act, including Regulation D, as transactions by an issuer not
involving any public offering and/or sales to a limited number of purchasers who
were acquiring such securities for their own account for investment purposes and
not with a view to the resale or distribution thereof.

The Bridge Notes have the following material terms:

Security. The Bridge Notes are secured by a first priority security interest in
the assets of the Company.

Interest. Interest accrues at the rate of 12% per annum, payable quarterly in
arrears.

Maturity. The Bridge Notes mature on the fifth anniversary of their issuance.

Prepayment. The Company may prepay the Bridge Notes at any time.

Mandatory Conversion. Contemporaneously with the closing of the Gupta Purchase
Agreement, the Bridge Notes shall be automatically converted into i) senior
convertible preferred stock (the "Senior Equity") issued by the Company in
connection with the financing of the Gupta acquisition, and/or senior debt (the
"Senior Debt"), in the form of instruments having substantially identical terms
as the instruments issued by the Company to the lead equity investor ("Equity
Lead") and the lead debt investor (the "Debt Lead") (other than for provisions
specifically applicable only to the Equity Lead and/or the Debt Lead); or ii)
the Company's Series B-2 Convertible Preferred Stock ("B-2 Stock") and related
Series B-2 Warrants ("B-2 Warrants") (collectively, the "B-2 Securities"). If
the holder of a Bridge Note elects not to convert into B-2 Securities, the
combination of Senior Debt and/or Senior Equity into which the Bridge Notes
shall convert shall be determined by the Company.

Optional Conversion. In the event that the closing of the Gupta Purchase
Agreement does not occur by the closing date thereunder ("Drop Date"), the
Bridge Note holder shall have the right at any time thereafter, at its sole
option, to convert the Bridge Note into i) any existing class of equity security
of the Company, or ii) any other instrument or instruments issued by the Company
in connection with any later capital raising activities of the Company.

Acceleration. In the event that closing of the Gupta Purchase Agreement does not
occur by the Drop Date, the holders of the Bridge Notes may elect to accelerate
all amounts due under the Bridge Notes.

ITEM 5. Other Information.

In conjunction with the first closing of the Series B-2 Financing, on
August 4, 2004, Warp hired certain persons as officers. Rodney A. Bienvenu, Jr.
became Chief Executive Officer of the Company, as well as becoming a director of
the Company and Chairman of the Board of Directors. In addition, Ernest C.
Mysogland became Executive Vice President and Chief Legal Officer of the
Company. Further, as of such date, Gus Bottazzi resigned as Chief Executive
Officer, but continues to serve as President of the Company and a director. In
addition to his role as President, Mr. Bottazzi serves the Company as its
Principal Financial Officer. Michael D. Liss continues to serve the Company as
Chief Operating Officer.

In connection with the Financing, as of August 4, 2004, Malcolm D. Coster,
resigned as Chairman of the Board, and as a director. Mr. Coster also resigned
as the Company's Principal

Financial Officer. Mr. Coster has agreed to consult with the Company on certain
matters through December 31, 2004.

In connection with the Financing, as of August 4, 2004, Greg Parker
resigned as a director of the Company.

Neither the resignation of Mr. Coster nor the resignation of Mr. Parker as
directors was due to any disagreement with the Company on any matter relating to
the Company's operations, policies or practices.

ITEM 6. Exhibits And Reports On Form 8-K.

(a) Exhibits:

The following documents heretofore filed by the Company with the
Securities and Exchange Commission are hereby incorporated by reference:

Exhibit
Number Description Of Document
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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. Incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K filed by the Company on June 10,
2002.

2.2* Form of Share Exchange Agreement dated as of December 13, 2002 by
and among WARP Technology Holdings, Inc., 6043577 Canada Inc.,
Spider Software Inc., the Spider Insiders and the Persons Identified
on Schedule A thereto. Incorporated by reference to Exhibit 2.2 to
the Current Report on Form 8-K filed by the Company on January 25,
2003.

3.1* Articles of Incorporation of WARP Technology Holdings, Inc.
Incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form SB-2 (Registration No. 333-46884) filed by the
Company on August 28, 2000 as amended (the "Registration
Statement").

3.2* By-laws of WARP Technology Holdings, Inc. Incorporated by reference
to Exhibit 3.2 to the Registration Statement.

3.3* The form of the Articles of Merger of Abbott Mines Limited and WARP
Technology Holdings, Inc. Incorporated by reference to Exhibit 3.5
to the Current Report on Form 8-K filed by the Company on September
3, 2002.

3.4* Form of Certificate of Amendment to Articles of Incorporation of
WARP Technology Holdings, Inc. filed with the Secretary of State of
the State of Nevada on September 12, 2003. Incorporated by reference
to Exhibit 3.4 of the Annual Report on Form 10-KSB filed by the
Company on October 14, 2003.

3.5* Form of Charter of the Audit Committee of the Board of Directors of
WARP Technology Holdings, Inc. as adopted by the Unanimous Consent
of the Board of Directors of the Company in May 2003 which governs
the make-up, powers and responsibilities of the Audit Committee of
the Board of Directors. Incorporated by reference to Exhibit 3.5 of
the Annual Report on Form 10-KSB filed by the Company on October 14,
2003.

3.6* Form of Certificate Of Designations, Preferences And Rights Of
Series A 8% Cumulative Convertible Preferred Stock Of Warp
Technology Holdings, Inc. as filed with the Secretary of State of
the State of Nevada on October 1, 2003. Incorporated by reference to
Exhibit 3.6 to the Quarterly Report on Form 10-QSB filed by the
Company on November 14, 2003.

3.7* Form of Certificate Of Designations, Preferences And Rights Of
Series B 10% Cumulative Convertible Preferred Stock Of Warp
Technology Holdings, Inc. as filed with the Secretary of State of
the State of Nevada on October 1, 2003. Incorporated by reference to
Exhibit 3.7 to the Quarterly Report on Form 10-QSB filed by the
Company on November 14, 2003.

3.8* Certificate of Designations, Preferences, and Rights of Series B-2
Preferred Stock, as filed with the Secretary of State of the State
of Nevada on August 4, 2004. Incorporated by reference to Exhibit
10.02 to the Current Report on Form 8-K filed by the Company on
August 20, 2004.

3.9* Certificate of Change Pursuant to Nevada Revised Statutes Sec.
78.209, effecting 100 for 1 reverse split effective November 18,
2004, as filed with the Secretary of State of the State of Nevada on
November 8, 2004. Incorporated by reference to Exhibit 3.9 to the
Current Report on Form 8-K filed by the Company on November 12,
2004.

4.01* Form of Warrant to Purchase Shares of Series B-2 Preferred Stock.
Incorporated by reference to Exhibit 4.01 to the Current Report on
Form 8-K filed by the Company on August 20, 2004.

4.02# Form of Bridge Note issued October 13, 2004, by the Company.

10.3* The form of the Financial Consulting Agreement dated March 5, 2002
between WARP Solutions, Inc. and Lighthouse Capital, Inc.
Incorporated by reference to Exhibit 10.3 to the Annual Report on
Form 10-KSB filed by the Company on October 7, 2002.

10.4* The form of the Financial Consulting Agreement dated May 16, 2002
between the Company and Lighthouse Capital, Inc. Incorporated by
reference to Exhibit 10.4 to the Annual Report on Form 10-KSB filed
by the Company on October 7, 2002.

10.5* Form of Master Distributor Agreement between Macnica Networks
Company and WARP Solutions, Inc. dated as of August 1, 2002.
Incorporated by reference to Exhibit 10.5 to the Annual Report on
Form 10-KSB filed by the Company on October 7, 2002.

10.6* Form of Master Distributor Agreement between CDI Technologies, Inc.
and WARP Solutions, Inc. dated as of September 1, 2002. Incorporated
by reference to Exhibit 10.6 to the Annual Report on Form 10-KSB
filed by the Company on October 7, 2002.

10.8* The WARP Technology Holdings, Inc. 2002 Stock Incentive Plan.
Incorporated by reference to Exhibit 10.8 to the Quarterly Report on
Form 10-QSB filed by the Company on February 14, 2003.

10.9* Form of Stock Option Grant agreement for options granted pursuant to
The WARP Technology Holdings, Inc. 2002 Stock Incentive Plan.
Incorporated by reference to Exhibit 10.9 to the Quarterly Report on
Form 10-QSB filed by the Company on February 14, 2003.

10.10* Form of Strategic Alliance Agreement dated as of April 7, 2003
between Mirror Image Internet, Inc. and WARP Solutions, Inc.
Incorporated by reference to Exhibit 10.10 to the Quarterly Report
on Form 10-QSB filed by the Company on May 16, 2003.

10.11* Form of iMimic/OEM Software License Agreement dated April 2003
between iMimic Networking, Inc. and WARP Technology Holdings, Inc.
Incorporated by reference to Exhibit 10.11 to the Quarterly Report
on Form 10-QSB filed by the Company on May 16, 2003.

10.12* Form of Consulting Agreement between WARP Technology Holdings, Inc.
and Dr. David Milch dated as of August 1, 2003. Incorporated by
reference to Exhibit 3.4 of the Annual Report on Form 10-KSB filed
by the Company on October 14, 2003.

10.13* Form of Consulting Agreement between WARP Technology Holdings, Inc.
and Mr. Steven Antebi which was executed by the parties thereto on
December 23, 2003. Incorporated by reference to Exhibit 10.13 to the
Quarterly Report on Form 10-QSB filed by the Company on February 12,
2004.

10.14* Form of Employment Agreement between WARP Technology Holdings, Inc.
and Mr. Malcolm Coster which was executed by the parties thereto on
November 17, 2003. Incorporated by reference to Exhibit 10.14 to the
Quarterly Report on Form 10-QSB filed by the Company on February 12,
2004.

10.15* Form of Consulting Agreement between WARP Technology Holdings, Inc.
and Mr. Noah Clark which was executed by the parties thereto on
March 29, 2004. Incorporated by reference to Exhibit 10.13 to the
Quarterly Report on Form 10-QSB filed by the Company on May 17,
2004.

10.16* Series B-2 Preferred Stock Purchase Agreement entered into as of
August 4, 2004 between and among the Company and the Persons listed
on Schedule 1.01 thereto. Incorporated by reference to Exhibit 10.01
to the Current Report on Form 8-K filed by the Company on August 20,
2004.

10.17* Stockholders Agreement, dated as of August 4, 2004, between and
among Warp, the holders of the Series B-2 Preferred Stock and such
other Stockholders as named therein. Incorporated by reference to
Exhibit 10.03 to the Current Report on Form 8-K filed by the Company
on August 20, 2004.

10.18* Form of Employment Agreement between WARP Technology Holdings, Inc.
and Mr. Ron Bienvenu which was executed by the parties thereto on
August 4, 2004. Incorporated by reference to Exhibit 10.18 of the
Annual Report on Form 10-KSB filed by the Company on October 13,
2004.

10.19* Form of Employment Agreement between WARP Technology Holdings, Inc.
and Mr. Gus Bottazzi which was executed by the parties thereto on
August 4, 2004. Incorporated by reference to Exhibit 10.19 of the
Annual Report on Form 10-KSB filed by the Company on October 13,
2004.

10.20* Form of Employment Agreement between WARP Technology Holdings, Inc.
and Mr. Ernest Mysogland which was executed by the parties thereto
on August 4, 2004. Incorporated by reference to Exhibit 10.20 of the
Annual Report on Form 10-KSB filed by the Company on October 13,
2004.

10.21* Form of Employment Agreement between WARP Technology Holdings, Inc.
and Mr. Michael David Liss which was executed by the parties thereto
on August 4, 2004. Incorporated by reference to Exhibit 10.21 of the
Annual Report on Form 10-KSB filed by the Company on October 13,
2004.

10.22* Form of Incentive Stock Option Agreement between WARP Technology
Holdings, Inc. and Mr. Ron Bienvenu which was executed by the
parties thereto on August 4, 2004. Incorporated by reference to
Exhibit 10.22 of the Annual Report on Form 10-KSB filed by the
Company on October 13, 2004.

10.23* Form of Incentive Stock Option Agreement between WARP Technology
Holdings, Inc. and Mr. Gus Bottazzi which was executed by the
parties thereto on August 4, 2004. Incorporated by reference to
Exhibit 10.23 of the Annual Report on Form 10-KSB filed by the
Company on October 13, 2004.

10.24* Form of Incentive Stock Option Agreement between WARP Technology
Holdings, Inc. and Mr. Ernest Mysogland which

was executed by the parties thereto on August 4, 2004. Incorporated
by reference to Exhibit 10.24 of the Annual Report on Form 10-KSB
filed by the Company on October 13, 2004.

10.25* Form of Incentive Stock Option Agreement between WARP Technology
Holdings, Inc. and Mr. Michael David Liss which was executed by the
parties thereto on August 4, 2004. Incorporated by reference to
Exhibit 10.25 of the Annual Report on Form 10-KSB filed by the
Company on October 13, 2004.

10.26* Form of Consulting Agreement between WARP Technology Holdings, Inc.
and ISIS Capital Management, LLC which was executed by the parties
thereto on August 4, 2004. Incorporated by reference to Exhibit
10.26 of the Annual Report on Form 10-KSB filed by the Company on
October 13, 2004.

10.27* Form of Stock Option Agreement between WARP Technology Holdings,
Inc. and ISIS Capital Management, LLC which was executed by the
parties thereto on August 4, 2004. Incorporated by reference to
Exhibit 10.27 of the Annual Report on Form 10-KSB filed by the
Company on October 13, 2004.

10.28# Amendment to Employment Agreement, dated as of August 4, 2004
between Warp Technology Holdings, Inc. and Malcolm Coster.

10.29# Registration Rights Agreement, dated as of August 4, 2004 between
Warp Technology Holdings, Inc. and Malcolm Coster.

10.30# Agreement between WARP Technology Holdings, Inc. and Griffin
Securities, Inc. dated September 13, 2004.

10.31# Purchase Agreement Assignment and Assumption (the "Assignment"), as
of October 13, 2004, by and between ISIS Capital Management, LLC and
Warp Technology Holdings, Inc.

10.32# Agreement between Warp Technology Holdings, Inc. and Duncan Capital
LLC dated September 20, 2004.

22.1* Subsidiaries of the Company. Incorporated by reference to Exhibit
22.1 of the Annual Report on Form 10-KSB filed by the Company on
October 13, 2004.

31.1# Certification of Periodic Report pursuant to Section 302 of the
Sarbanes Oxley Act of 2002.

31.2# Certification of Periodic Report pursuant to Section 302 of the
Sarbanes Oxley Act of 2002.

32.1# Certification pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

32.2# Certification pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

* Incorporated herein by reference.

# Filed herewith.

(b) Reports on Form 8-K:

The following reports on Form 8-K have been filed during the time period
covered by this report:

On August 17, 2004, the Company filed a Current Report on Form 8-K which
disclosed a press release issued that day concerning the completion of the
Series B-2 Preferred Stock financing and the corresponding management changes.

On August 20, 2004, the Company filed a Current Report on Form 8-K which
disclosed the completion of the Series B-2 Preferred Stock financing, the terms
of the financing, and other related events.

On October 15, 2004, the Company filed a Current Report on Form 8-K which
disclosed the Company's entering into a material agreement related to the
acquisition of Gupta Technologies, LLC.

On November 12, 2004, the Company filed a Current Report on Form 8-K which
disclosed the Company's one hundred for one (100:1) reverse stock split.

In addition, in September, 2004, the Company entered into agreements with two
investment banking firms, Griffin Securities, Inc. and Duncan Capital LLC, to
advise the Company on the Company's proposed private placements of equity and
debt securities. The agreements provide for success fees to be paid by the
Company to the investment banking firms ranging two percent to ten percent of
the proceeds of financings to the extent such proceeds were invested by parties
introduced to the Company by such firms. Such fees also include warrants to
purchase stock in the Company, equal to a percentage of the amount raised by the
Company from sources introduced by such firms. The agreements also include
customary terms regarding reimbursement of expenses, indemnification by the
Company for liabilities resulting from the Company's offerings, and provisions
regarding the development of offering materials. Copies of the two agreements
are included as Exhibits 10.30 and 10.32 hereto and are filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

November 12, 2004

WARP TECHNOLOGY HOLDINGS, INC.

By: /s/ Rodney A. Bienvenu, Jr.
-----------------------------------
Rodney A. Bienvenu, Jr., CEO, Chairman
as Registrant's duly authorized officer

EXHIBIT INDEX

The following Exhibits are filed herewith:

Exhibit
Number Description of Document
------ -----------------------