UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For Quarterly Period Ended March 31, 2007
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act For the
Transition period from _______________ to ______________
FOR QUARTER ENDED MARCH 31, 2007
COMMISSION FILE NUMBER 0-13215
-----------
WARP 9, INC.
-------------------------
(Exact name of Registrant as Specified in its Charter)
NEVADA 30-0050402
----------- ------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
50 Castilian Dr., Suite 101, Santa Barbara, California 93117
(Address of principal executive offices) (Zip Code)
(805) 964-3313
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------------ ------------------------
COMMON STOCK OTC
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the proceeding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------------- -----------
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
As of May 11, 2007 the number of shares outstanding of the registrant's
only class of common stock was 227,910,128.
Transitional Small Business Disclosure Format (check one):
Yes No X
-------------- -----------
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheet as of March 31, 2007 (unaudited)....................................................... 3
Statements of Operations for the Three Months and Nine Months ended March 31, 2007
and 2006 (unaudited)................................................................................. 4
Consolidated Statements of Shareholders' Deficit (unaudited)......................................... 5
Statements of Cash Flows for the Nine Months ended March 31, 2007 and 2006 (unaudited)............... 6
Notes to Consolidated Financial Statements (unaudited)............................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................ 10
Item 3 Controls and Procedures.............................................................................. 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................................................... 15
Item 2. Changes in Securities................................................................................ 15
Item 3. Defaults upon Senior Securities...................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 16
Item 5. Other Information.................................................................................... 16
Item 6. Exhibits and Reports on Form 8-K..................................................................... 17
Signatures.................................................................................................... 18
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WARP9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 2007
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 248,203
Accounts Receivable, net 346,872
Prepaid and Other Current Assets 31,612
--------------
TOTAL CURRENT ASSETS 626,687
--------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 89,485
Computer Equipment 501,248
Commerce Server 50,000
Computer Software 9,476
--------------
650,209
Less accumulated depreciation (470,242)
--------------
NET PROPERTY AND EQUIPMENT 179,967
--------------
OTHER ASSETS
Lease Deposit 9,749
Restricted Cash 93,000
Internet Domain, net 1,276
Investment-Zingerang 10,000
Loan Costs 127,292
--------------
TOTAL OTHER ASSETS 241,317
--------------
TOTAL ASSETS $ 1,047,971
==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable $ 195,968
Credit Cards Payable 57,861
Accrued expenses 222,578
Bank Line of Credit 52,916
Deferred Income 4,000
Note Payable 16,000
Customer Deposit 39,325
Derivative Liability-Debenture 488,056
Capitalized Leases, Current Portion 32,161
--------------
TOTAL CURRENT LIABILITIES 1,108,865
--------------
LONG TERM LIABILITIES
Note Payable, other 237,981
Convertible Debenture 895,000
Beneficial Conversion Feature (174,159)
Capitalized Leases 38,165
--------------
TOTAL LONG TERM LIABILITIES 996,987
--------------
TOTAL LIABILITIES 2,105,852
--------------
SHAREHOLDERS' DEFICIT
Common stock, $0.001 par value;
495,000,000 authorized shares;
227,910,128 shares issued and outstanding 227,911
Additional paid in capital 6,271,294
Accumulated deficit (7,557,086)
--------------
TOTAL SHAREHOLDERS' DEFICIT (1,057,881)
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,047,971
==============
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
WARP9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, 2007 March 31, 2006 March 31, 2007 March 31, 2006
------------------------------- -------------------------------
REVENUE $ 771,989 $ 399,885 $ 2,108,419 $ 1,255,956
COST OF SERVICES 146,679 85,286 452,850 351,672
------------------------------- -------------------------------
GROSS PROFIT 625,310 314,599 1,655,569 904,284
OPERATING EXPENSES
Selling, general and administrative expenses 497,015 519,472 1,527,412 1,649,729
Research and development 1,395 106,377 108,772 319,131
Depreciation and amortization 41,680 24,847 121,893 72,212
------------------------------- -------------------------------
TOTAL OPERATING EXPENSES 540,090 650,696 1,758,077 2,041,072
------------------------------- -------------------------------
INCOME/(LOSS) FROM OPERATIONS BEFORE
OTHER INCOME (EXPENSES) 85,220 (336,097) (102,508) (1,136,788)
OTHER INCOME/(EXPENSE)
Interest Income 957 35,583 26,698 53,327
Other Income 22,407 - 53,657 -
Interest Expense (82,179) (96,270) (199,271) (217,897)
------------------------------- -------------------------------
TOTAL OTHER INCOME (EXPENSE) (58,815) (60,687) (118,916) (164,570)
------------------------------- -------------------------------
INCOME/(LOSS) FROM OPERATIONS BEFORE
PROVISION FOR TAXES 26,405 (396,784) (221,424) (1,301,358)
PROVISION FOR INCOME TAXES - (1,922) - (1,922)
------------------------------- -------------------------------
NET INCOME/(LOSS) 26,405 (398,706) (221,424) (1,303,280)
=============================== ===============================
BASIC AND DILUTED LOSS PER SHARE $ 0.00 $ (0.00) $ (0.00) $ (0.01)
=============================== ===============================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 216,786,532 186,571,482 207,806,367 184,013,178
=============================== ===============================
Theaccompanying notes are an integral part of these
consolidated financial statements.
-4-
WARP9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
(Unaudited)
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
-------------- ----------- ------------- ------------- -------------
Balance, June 30, 2006 189,803,146 $189,803 $ 5,886,360 $(7,335,662) $(1,259,499)
Issuance of common stock in September 2006, note 6
Convertible debenture (unaudited) 10,696,641 10,697 84,303 - 95,000
Derivative liability (unaudited) - - 49,236 - 49,236
Stock issuance cost (unaudited) - - (198) -
(198)
Stock compensation, net (unaudited) - - 30,688 - 30,688
Issuance of common stock in December 2006, note 6
Convertible debenture (unaudited) 16,286,745 16,287 73,713 - 90,000
Derivative liability (unaudited) - - 48,421 - 48,421
Stock compensation, net (unaudited) - - 9,695 - 9,695
Stock issuance cost (unaudited) - - (298) -
(298)
Issuance of common stock in March 2007, note 6
Convertible debenture (unaudited) 11,123,596 11,124 48,876 - 60,000
Derivative liability (unaudited) - - 31,042 - 31,042
Stock compensation, net (unaudited) - - 9,695 - 9,695
Stock issuance cost (unaudited) - - (239) -
(239)
Net Loss for the nine months ended March 31, 2007 (unaudited) - - - (221,424) (221,424)
-------------- ----------- ------------- ------------- -------------
Balance, March 31, 2007 (unaudited) 227,910,128 $227,911 $ 6,271,294 $(7,557,086) $(1,057,881)
============== =========== ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
WARP9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
2007 2006
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (221,424) $ (1,303,280)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 71,141 72,355
Gain on Settlement - (24,000)
Issuance of common shares and warrants for services (735) 163,193
Conversion feature recorded as interest expense 86,605 187,500
Amortization of loan costs 50,625 10,764
Cost of stock compensation recognized 50,078 -
Derivative expense 17,949 -
(Increase) Decrease in:
Accounts receivable (185,802) 8,434
Prepaid and other assets (7,593) (12,879)
Increase (Decrease) in:
Accounts payable 24,477 13,037
Accrued expenses 66,488 -
Deferred Income (57,333) -
Other liabilities (24,841) 72,299
--------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (130,365) (812,577)
--------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of stock for investment (10,000) -
Purchase of property and equipment (3,702) (42,074)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (13,702) (42,074)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note payable (9,000) -
Payments on capitalized leases (38,484) (40,040)
Proceeds from line of credit 52,574 99,658
Proceeds from convertible debenture - 590,500
Proceeds from issuance of common stock, net of cost - 284,784
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,090 934,902
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (138,977) 80,251
CASH, BEGINNING OF PERIOD 387,180 237,529
--------------- ---------------
CASH, END OF PERIOD $ 248,203 $ 317,780
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 12,884 $ 30,397
=============== ===============
Taxes paid $ - $ 1,922
=============== ===============
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the nine months ended March 31, 2007, the Company issued 38,107,082
shares of common stock at a fair value of $245,000 for the convertible
debenture. During the nine months ended March 31, 2006, the Company issued
common stock valued at $32,000 for services, of which common stock valued
at $24,000 was recalled due to a settlement of a law suit.
The accompanying notes are an integral part of these
consolidated financial statements.
-6-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2007
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all normal recurring adjustments considered necessary for a fair
presentation have been included. Operating results for the nine months
ended March 31, 2007 are not necessarily indicative of the results that may
be expected for the year ending June 30, 2007. For further information
refer to the financial statements and footnotes thereto included in the
Company's Form 10K-SB for the year ended June 30, 2006.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Warp 9, Inc. is
presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in
the United States of America and have been consistently applied in the
preparation of the financial statements.
GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course
of business. The accompanying financial statements do not reflect any
adjustments that might result if the Company is unable to continue as a
going concern. The Company's losses and negative cash flows from operations
raise substantial doubt about the Company's ability to continue as a going
concern. The ability of the Company to continue as a going concern and
appropriateness of using the going concern basis is dependent upon, among
other things, additional cash infusion.
STOCK-BASED COMPENSATION
As of June 30, 2006, the Company adopted Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" (FAS) No. 123R, that addresses
the accounting for share-based payment transactions in which an enterprise
receives employee services in exchange for either equity instruments of the
enterprise or liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of
such equity instruments. The statement eliminates the ability to account
for share-based compensation transactions, as we formerly did, using the
intrinsic value method as prescribed by Accounting Principles Board, or
APB, Opinion No. 25, "Accounting for Stock Issued to Employees," and
generally requires that such transactions be accounted for using a
fair-value-based method and recognized as expenses in our statement of
income. The adoption of (FAS) No. 123R by the Company had no material
impact on the statement of income.
The Company adopted FAS 123R using the modified prospective method which
requires the application of the accounting standard as of June 30, 2006.
Our financial statements as of and for the nine months ended March 31, 2007
reflect the impact of adopting FAS 123R. In accordance with the modified
prospective method, the financial statements for prior periods have not
been restated to reflect, and do not include, the impact of FAS 123R.
Stock-based compensation expense recognized during the period is based on
the value of the portion of stock-based payment awards that is ultimately
expected to vest. Stock-based compensation expense recognized in the
consolidated statement of operations during the nine months ended March 31,
2007, included compensation expense for the stock-based payment awards
granted prior to, but not yet vested, as of March 31, 2007 based on the
grant date fair value estimated in accordance with the pro forma provisions
of FAS 148, and compensation expense for the stock-based payment awards
granted subsequent to March 31, 2007, based on the grant date fair value
estimated in accordance with FAS 123R. As stock-based compensation expense
recognized in the statement of income for the nine months ended March 31,
2007 is based on awards ultimately expected to vest, it has been reduced
for estimated forfeitures, FAS 123R requires forfeitures to be
-7-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK-BASED COMPENSATION (CONTINUED)
estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. In the pro forma
information required under FAS 148 for the periods prior to the year ended
June 30, 2006, we accounted for forfeitures as they occurred. The
stock-based compensation expense recognized in the consolidated statement
of operations during the nine months ended March 31, 2007 is $50,078.
2007 2006
------------ ------------
Net loss as reported $ (321,424) $ (247,830)
Add: Stock based employee compensation expense
included in net reported loss, net of related tax effect - -
Deduct: Stock based employee compensation expense
determined under fair value based method for all awards,
net of related tax effect - -
------------ ------------
Pro forma net loss $ (321,424) $ (247,830)
============ ============
Basic and diluted pro forma loss per share
As reported $ (0.00) $ (0.00)
============ ============
Proforma $ (0.00) $ (0.00)
============ ============
3. CAPITAL STOCK
At March 31, 2007, the Company's authorized stock consists of 495,000,000
shares of common stock, par value $0.001 per share. The Company is also
authorized to issue 5,000,000 shares of preferred stock with a par value of
$0.001. The rights, preferences and privileges of the holders of the
preferred stock will be determined by the Board of Directors prior to
issuance of such shares. During the nine months ended March 31, 2007, the
Company issued 38,106,982, shares of common stock ranging from $0.0046 per
share to $0.0089 per share for the conversion of the debenture with a value
of $245,000.
4. CONVERTIBLE DEBENTURES
On December 28, 2005, we consummated a securities purchase agreement with
Cornell Capital Partners L.P. providing for the sale by us to Cornell of
our 10% secured convertible debentures in the aggregate principal amount of
$1,200,000 of which the first installment of $400,000 was advanced
immediately. The net amount of the first installment received by the
Company was $295,500 after paying total fees of $92,500 which included
legal, structuring, due diligence, commitment fees, and prior liability of
$12,000. An interest expense of $100,000, representing the value of the
conversion feature in accordance to EITF 00-27 was recorded for the first
installment. Under EITF 00-27, the Company records a beneficial conversion
cost associated with the convertibility feature of the security that equals
the value of any discount to market available at the time of conversion.
This beneficial conversion cost is recorded at the time the convertible
security is first issued and is amortized over the stated terms.
-8-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2007
4. CONVERTIBLE DEBENTURES (Continued)
Holders of the debentures may convert at any time amounts outstanding under
the debentures into shares of our common stock at a conversion price per
share equal to the lesser of (i) $0.15 or (ii) 80% of the lowest volume
weighted average price of our common stock during the five trading days
immediately preceding the conversion date as quoted by Bloomberg, LP.
Cornell has agreed not to short any of the shares of Common Stock. EITF
00-19 is applicable to debentures issued by the Company in instances where
the number of shares into which a debenture can be converted is not fixed.
For example, when a debenture converts at a discount to market based on the
stock price on the date of conversion. In such instances, EITF 00-19
requires that the embedded conversion option of the convertible debentures
be bifurcated from the host contract and recorded at their fair value. In
accounting for derivatives under EITF 00-19, the Company records a
liability representing the estimated present value of the conversion
feature considering the historic volatility of the Company's stock, and a
discount representing the imputed interest associated with the beneficial
conversion feature. The discount is then amortized over the life of the
debentures and the derivative liability is adjusted periodically according
to stock price fluctuations. At the time of conversion, any remaining
derivative liability is charged to additional paid-in capital. For purpose
of determing derivative liability, the Company uses Black Scholes modeling
for computing historic volatility.
We have the right to redeem a portion or all amounts outstanding under the
debenture prior to the maturity date at a 20% redemption premium provided
that the closing bid price of our common stock is less than $0.15. In
addition, in the event of redemption, we are required to issue to Cornell
50,000 shares of common stock for each $100,000 redeemed.
We also issued to Cornell five-year warrants to purchase 1,500,000,
4,000,000 and 4,000,000 shares of Common Stock at $0.08, $0.10 and $0.12
per share, respectively.
The second installment of $350,000 ($295,000 net of fees) was advanced on
January 27, 2006. An interest expense of $87,500 was incurred, representing
the value of the conversion feature in accordance to EITF 00-27.
The last installment of $450,000 ($395,000 net of fees) was advanced on May
9, 2006, after the registration statement was declared effective by the
Securities and Exchange Commission. An interest expense of $112,500,
representing the value of the conversion feature in accordance to EITF
00-27, was incurred at the receipt of this first installment.
The debentures mature on the third anniversary of the date of issuance, and
the Company is not required to make any payments until the maturity dates.
Interest is accrued at 10% per annum on the principal balance outstanding.
At March 31, 2007, the outstanding balance of the debentures was $895,000
and the interest accrued was $117,240.
5. SUBSEQUENT EVENTS
During the month of April 2007, the Company terminated its license
agreement with Zingerang, Inc. which required Zingerang to pay royalties
for the use of certain technology licensed from the Company. As a result of
the cancellation of this agreement the Company wrote off a $50,000
receivable balance that was due to the Company under the terms of the
agreement. This write off has been reflected in the accompanying financial
statements.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
This Form 10-QSB may contain "forward-looking statements," as that term
is used in federal securities laws, about Warp 9, Inc.'s financial condition,
results of operations and business. These statements include, among others:
o statements concerning the potential benefits that Warp 9, Inc. ("W9" or
the "Company") may experience from its business activities and certain
transactions it contemplates or has completed; and
o statements of W9's expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical
facts. These statements may be made expressly in this Form 10-QSB. You
can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates," "opines," or similar
expressions used in this Form 10-QSB. These forward-looking statements
are subject to numerous assumptions, risks and uncertainties that may
cause W9's actual results to be materially different from any future
results expressed or implied by W9 in those statements. The most
important facts that could prevent W9 from achieving its stated goals
include, but are not limited to, the following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its
business, inability to raise additional capital or
financing to implement its business plans;
(e) failure to commercialize its technology or to make
sales;
(f) changes in demand for the Company's products and
services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by
outside parties;
(i) insufficient revenues to cover operating costs;
(j) failure to re-license or otherwise successfully
commercialize the Roaming Messenger technology.
There is no assurance that the Company will be profitable, the Company
may not be able to successfully develop, manage or market its products and
-10-
services, the Company may not be able to attract or retain qualified executives
and technology personnel, the Company may not be able to obtain customers for
its products or services, the Company's products and services may become
obsolete, government regulation may hinder the Company's business, additional
dilution in outstanding stock ownership may be incurred due to the issuance of
more shares, warrants and stock options, or the exercise of outstanding warrants
and stock options, and other risks inherent in the Company's businesses.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. W9 cautions you not to place undue reliance on the
statements, which speak only as of the date of this Form 10-QSB. The cautionary
statements contained or referred to in this section should be considered in
connection with any subsequent written or oral forward-looking statements that
W9 or persons acting on its behalf may issue. The Company does not undertake any
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this Form 10-QSB, or to reflect the
occurrence of unanticipated events.
CURRENT OVERVIEW
Warp 9 is a provider of e-commerce software platforms and services for
the catalog and retail industry. Our suite of software platforms are designed to
help multi-channel retailers maximize the Internet channel by applying our
technologies for online catalogs, e-mail marketing campaigns, and interactive
visual merchandising. Offered as an outsourced and fully managed
Software-as-a-Service ("SaaS") model, our products allow customers to focus on
their core business, rather than technical implementations and software and
hardware architecture, design, and maintenance. We also offer professional
services to our clients which include online catalog design, merchandizing and
optimization, order management, e-mail marketing campaign development,
integration to third party payment processing and fulfillment systems,
analytics, custom reporting and strategic consultation.
Our products and services allow our clients to lower costs and focus on
promoting and marketing their brand, product line and website while leveraging
the investments we have made in technology and infrastructure to operate a
dynamic online internet presence.
We charge our customers a monthly fee for using our e-commerce software
based on a Software-as-a-Service model. These fees include fixed monthly
charges, and variable fees based on the sales volume of our clients' e-commerce
websites. Unlike traditional software companies that sell software on a
perpetual license where quarterly and annual revenues are quite difficult to
predict, our SaaS model spreads the collection of contract revenue over several
quarters or years and makes our revenues more predictable for a longer period of
time.
To date, almost all of our revenues are generated from Warp 9
e-commerce products and services. However, we also licensed our patented mobile
messaging technology on an exclusive basis to one licensee, which was terminated
effective April 2, 2007. The Company has re-acquired the entire Roaming
Messenger technology, but does not in the foreseeable future plan to restart the
Roaming Messenger business. Instead, the Company currently plans to re-license
-11-
the Roaming Messenger technology to a new licensee yet to be identified. There
is no assurance that the Company will be able to find a new licensing candidate
or license the Roaming Messenger technology on terms satisfactory to it or at
all.
The quarter ended March 31, 2007 was the second highest revenue quarter
in the history of the Company. The primary reasons for this revenue increase
were: (i) increases in monthly fees due to higher sales volumes by our growing
number of e-commerce clients and (ii) more professional services work from
clients such as custom marketing campaigns, augmenting website functionality,
and custom programming projects. One of the reasons for the increase in monthly
fees is because our SaaS pricing model is based in part on the sales volume of
our clients' e-commerce websites.
The results of operation for the quarter ended March 31, 2007 are the
second complete quarter of financials which solely reflect the Warp 9 e-commerce
products and services operation.
While the Warp 9 Internet Commerce System (ICS) is our flagship and
highest revenue product, we have been developing and deploying new products
based a proprietary virtual publishing technology that we have developed. These
new products will allow for the creation of interactive web versions of paper
catalogs and magazines where users can flip through pages with a mouse and click
on products or advertisements. These magazines or catalogs will have built-in
integration for e-commerce transactions through our ICS product and other
transaction based activities. This means that when shoppers click on a product,
they are taken to the e-commerce product page where they can add that product to
their shopping cart for purchasing. Clients utilizing this technology have
discovered when exposing consumers to the virtual catalogs, a higher average
order size and significant increase in rate of conversion result. We have been
selling this solution on a limited basis as a professional service while we
refine the product and technology. We believe there are many markets for our
virtual catalog and magazine technology and we intend to market test these new
products in the near future.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2007 COMPARED
TO THE SAME PERIOD IN 2006
Total revenue for the three-month period ending March 31, 2007 was
$771,989, representing an increase of 93% from the three-month period ending
March 31, 2006 of $399,885. The 93% increase in revenue was primarily due to (1)
the increase in monthly fees from our e-commerce software as a result of a
larger customer base that is experiencing higher sales volumes, and (ii) a
general increase in professional services from having more customers.
The cost of revenue for the three-month period ending March 31, 2007
was 19% as compared to 21% for the three-month period ending March 31, 2006. The
decrease in the cost of revenue is a result of the increased sales of higher
margin Warp 9 e-commerce software products and services.
Total operating expenses were $540,090 for the three months ended March
31, 2007 as compared to $650,696 for the three months ended March 31, 2006. The
-12-
change is primarily due to the virtual elimination of all operating costs
relating to the Roaming Messenger business, which was licensed to a third party
in September 2006 for operation by it on an exclusive basis. The Company
terminated the exclusive licensing agreement and re-acquired the Roaming
Messenger technology, but does not intend to restart the Roaming Messenger
business. Instead, it intends to seek another licensing candidate.
Selling, general and administrative expenses for the three month period
ended March 31, 2007 was $497,015 as compared to $519,472 for the three month
period ended March 31, 2006.
Non-cash selling, general and administrative expenses for the three
months ended March 31, 2007 totaled $9,696 for employee stock option expenses.
Research and development expenses for the three month period ended
March 31, 2007 was $1,395 compared to $106,377 for the three month period ended
March 31, 2006. This decrease is due to the elimination of research and
development costs relating to the Roaming Messenger business.
Expense related to depreciation and amortization was $41,680 for the
three months ended March 31, 2007 as compared to $24,847 for the prior year.
Total other income and expense was ($58,815) for the three months ended
March 31, 2007, as compared to ($60,687) for the three months ended March 31,
2006.
For the three months ended March 31, 2007, the Company's consolidated
net income was $26,405 as compared to a consolidated net loss of ($398,706) for
the three months ended March 31, 2006. We achieved a consolidated net income
because of the elimination of costs previously associated with the Roaming
Messenger operation, and a general increase in customers for Warp 9 e-commerce
products and services.
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2007 COMPARED TO
THE SAME PERIOD IN 2006
Total revenue for the nine-month period ending March 31, 2007 was
$2,108,419, representing an increased of 60% from the nine-month period ending
March 31, 2006 which was $1,255,956. The 60% increase in revenue was primarily
due to (i) the increase in monthly fees from our e-commerce software as a result
of a larger customer base that experienced higher sales volumes, and (ii) a
general increase in professional services from having more customers.
The cost of revenue for the nine-month period ending March 31, 2007 was
21% as compared to 28% for the nine-month period ending March 31, 2006. The
decrease in the cost of revenue is a result of the increased sales of higher
margin Warp 9 e-commerce software products and services.
Total operating expenses were $1,758,077 for the nine months ended
March 31, 2007 as compared to $2,041,072 for the nine months ended March 31,
2006. The change is primarily due to the virtual elimination of all operating
costs relating to the Roaming Messenger business which was licensed to a third
-13-
party in September 2006 for operation by it on an exclusive basis. The Company
terminated the exclusive licensing agreement and re-acquired the Roaming
Messenger technology, but does not intend to restart the Roaming Messenger
business. Instead, it intends to seek another licensing candidate.
Selling, general and administrative expenses for the nine month period
ended March 31, 2007 was $1,527,412 as compared to $1,649,729 for the nine month
period ended March 31, 2006. The difference is primarily due to a decrease in
expense in stock compensation relating to the Roaming Messenger business.
Non-cash selling, general and administrative expenses for the nine
months ended March 31, 2007 totaled $50,078 for employee stock option expenses.
Research and development expenses for the nine month period ended March
31, 2007 is $108,772 compared to $319,131 for the nine month period ended March
31, 2006. This decrease is due to the elimination of research and development
costs relating to the Roaming Messenger business in September 2006.
Expenses related to depreciation and amortization was $121,893 for the
nine months ended March 31, 2007 as compared to $72,212 for the prior year.
Total other income and expense was ($118,916) for the nine months ended
March 31, 2007, as compared to ($164,570) for the nine months ended March 31,
2006. The decrease is the result a $17,950 charge for the conversion feature, in
accordance with EITF-98-5, of the convertible debentures with Cornell Capital, a
reduction of interest expense by $40,895, and an income increase of $27,017 from
the sub-lease of office facilities.
For the nine months ended March 31, 2007, the Company's consolidated
net loss was ($221,424) as compared to a consolidated net loss of ($1,303,280)
for the nine months ended March 31, 2006.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at March 31, 2007 of $248,203 as compared to cash
of $387,180 as of March 31, 2006. The Company had net working capital deficit
(i.e. the difference between current assets and current liabilities) of
($482,178) at March 31, 2007 as compared to a net working capital deficit of
($403,985) at March 31, 2006. Cash flow utilized by operating activities was
($368,346) for the nine months ended March 31, 2007 as compared to cash utilized
for operating activities of ($812,577) during the nine months ended March 31,
2006. Cash flow used in investing activities was ($13,702) for the nine months
ended March 31, 2007 as compared to cash used in investing activities of
($42,074) during the nine months ended March 31, 2006. Cash flow provided by
financing activities was $243,071 for the nine months ended March 31, 2007 as
compared to cash provided by financing activities of $934,902 for the nine
months ended March 31, 2006.
-14-
On August 11, 2005, the Company was approved for a $100,000 revolving
line of credit from Bank of America at an interest of prime plus 4 percentage
points. This line of credit is not secured by assets of the Company. The
effective interest rate on the line of credit at March 31, 2007 was 12.25% per
annum. At March 31, 2007, $57,319 was borrowed under this line of credit.
We anticipate that we may be able to obtain additional required working
capital through the private placement of common stock to domestic accredited
investors pursuant to Regulation D of the Securities Act of 1933, as amended
(the "Act"), or to offshore investors pursuant to Regulation S of the Act. There
is no assurance that we will obtain the additional working capital that we need
through the private placement of common stock. In addition, such financing may
not be available in sufficient amounts or on terms acceptable to us.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chairman, Chief Executive Officer, and Chief Financial
Officer has evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
quarterly report and, based on this evaluation, has concluded that the
disclosure controls and procedures are effective.
The Company's Board of Directors adopted Internal Controls Policies and
Procedures that included Internal Controls Accounting Policy and Procedures,
Approval Authority Limits and Check Signing Authority Policy effective January
1, 2007 in accordance with Sarbanes Oxley.
There have been no changes in the Company's internal control over
financial reporting that occurred during the Company's third fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
During the three months ended March 31, 2007, the Company issued
11,123,596 shares of common stock ranging from $0.0050 per share to $0.0089 per
share for the conversion of the Cornell debenture with an outstanding balance
reduction of $60,000.
-15-
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Effective as of April 2, 2007, the Company terminated its Exclusive
Technology License Agreement (the "License Agreement") with Zingerang, Inc., a
Nevada corporation ("Zingerang") pursuant to which the Company had previously
granted an exclusive (including to the exclusion of the Company), worldwide,
sub-licensable, transferable, royalty-bearing right and license to make, have
made, import, use, offer for sale, sell, reproduce, distribute, display, perform
or otherwise exploit the Company's Roaming Messenger(R) technology, Roaming
Messenger(R) and eCapsule(R) trademarks, and patent application numbers
20060165030, 20060123396, and 20030110097 (collectively, the "Roaming Messenger
Technology") for a period of ten years. Pursuant to the Termination and
Assignment between the Company and Zingerang, Zingerang assigned back to the
Company all of the Roaming Messenger Technology in consideration for the Company
waiving payment of a $50,000 licensing fee owed by Zingerang to the Company.
Zingerang assigned all of its right, title and interest in and to the Roaming
Messenger Technology back to the Company, including all copyrights and patent
rights throughout the world. The Company accepted the assignment and will
explore its options to re-license the Roaming Messenger Technology to a new
licensee.
In April 2007, the Company agreed to sell back to Zingerang 35,000,000
of the 40,000,000 shares of the common stock of Zingerang owned by it for a sale
price of $0.00025 per share, representing a total sale price of $8,750. Pursuant
to its original stock purchase agreement with Zingerang, the Company agreed that
it would not sell or offer to sell any unregistered shares of Zingerang's common
stock until a date two (2) years after a Registration Statement on Form SB-2 is
filed by Zingerang and declared effective by the Securities and Exchange
Commission (the "Lock-up Term"). Upon the expiration of the Lock-up Term, the
Company will be entitled to piggyback registration rights.
-16-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- --------------------------------------------------------------
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Specimen Certificate for Common Stock (1)
4.2 Non-Qualified Employee Stock Option Plan (2)
10.1 First Agreement and Plan of Reorganization between Latinocare
Management Corporation, a Nevada corporation, and Warp 9,
Inc., a Delaware corporation (3)
10.2 Second Agreement and Plan of Reorganization between Latinocare
Management Corporation, a Nevada corporation, and Warp 9,
Inc., a Delaware corporation (4)
10.3 Exchange Agreement and Representations for Shareholders of
Warp 9, Inc.(3)
10.4 Termination and Assignment (5)
31.1 Section 302 Certification
31.2 Section 302 Certification
32.1 Section 906 Certification
32.2 Section 906 Certification
--------------------------
(1) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 10-KSB filed with the
Securities and Exchange Commission, dated March 31, 2002.
(2) Incorporated by reference from the exhibits included in the
Company's Information Statement filed with the Securities and
Exchange Commission, dated August 1, 2003.
(3) Incorporated by reference from the exhibits included with the
Company's prior Report on Form SC 14F1 filed with the
Securities and Exchange Commission, dated April 8, 2003.
(4) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 8K filed with the Securities
and Exchange Commission, dated May 30, 2003.
(5) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 8K filed with the Securities
and Exchange Commission, dated May 7, 2007.
(b) The following is a list of Current Reports on Form 8-K filed by the Company
during and subsequent to the quarter for which this report is filed.
(1) Form 8-K Report filed with the Securities and Exchange
Commission on May 7, 2007 regarding the termination of the
license agreement with Zingerang, Inc.
-17-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 21, 2007 WARP 9, INC.
By: \s\ Harinder Dhillon
-----------------------------------------
Harinder Dhillon, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: \s\ Louie Ucciferri Dated: May 21, 2007
--------------------------------------
Louie Ucciferri, Chairman, Corporate
Secretary, Acting Chief Financial Officer
(Principal Financial / Accounting Officer)
By: \s\ Harinder Dhillon Dated: May 21, 2007
--------------------------------------
Harinder Dhillon, Chief Executive Officer
and President (Principal Executive Officer)
-18-