UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarterly Period Ended December 31, 2008
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition period from _______________ to ______________
Commission File Number: 0-13215
WARP 9, INC.
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(Exact name of registrant as specified in its charter)
California 30-0050402
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
50 Castilian Drive, Suite 101, Santa Barbara, CA 93117
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(Address of principal executive offices) (Zip Code)
(805) 964-3313
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Registrant's telephone number, including area code
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes[__] No[_X_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
Large accelerated filer [___] Accelerated filer [___]
Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes[__] No[_X_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of February 5, 2009 the number of shares outstanding of the registrant's
class of common stock was 340,579,815.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
------------------
Item 1. Consolidated Financial Statements 2
Consolidated Balance Sheets as of December 31, 2008 (unaudited) and June 30, 2008 (audited) 3
Consolidated Statements of Income for the Three and Six Months ended December 31, 2008 4
and December 31, 2007 (unaudited)
Consolidated Statement of Shareholders' Equity for the Six Months ended December 31, 2008 5
(unaudited)
Consolidated Statements of Cash Flows for the Six Months ended December 31, 2008 and 6
December 31, 2007 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4T. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
-1-
PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
-2-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, 2008 June 30, 2008
------------------- -------------------
ASSETS
CURRENT ASSETS
Cash $ 693,668 $ 680,649
Accounts Receivable, net 421,336 290,920
Prepaid and Other Current Assets 11,604 16,679
Current Portion of Deferred Tax Asset 58,100 38,849
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TOTAL CURRENT ASSETS 1,184,708 1,027,097
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PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 89,485 89,485
Computer Equipment 511,889 505,603
Commerce Server 50,000 50,000
Computer Software 9,476 9,476
------------------- -------------------
660,850 654,564
Less accumulated depreciation (588,888) (555,947)
------------------- -------------------
NET PROPERTY AND EQUIPMENT 71,962 98,617
------------------- -------------------
OTHER ASSETS
Lease Deposit 9,749 9,749
Restricted Cash 93,000 93,000
Internet Domain, net 977 1,062
Long Term Deferred Tax Asset 1,831,800 2,029,859
------------------- -------------------
TOTAL OTHER ASSETS 1,935,526 2,133,670
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TOTAL ASSETS $ 3,192,196 $ 3,259,384
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 13,282 $ 64,799
Credit Cards Payable 2,149 15,352
Accrued Expenses 144,323 88,514
Bank Line of Credit 8,451 7,916
Deferred Income - 35,333
Note Payable, Other 64,776 40,107
Note Payable, Related Party - 50,481
Customer Deposit 50,186 51,436
Corporate income tax provision 6,050 -
Capitalized Leases, Current Portion 13,249 23,183
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TOTAL CURRENT LIABILITIES 302,466 377,121
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LONG TERM LIABILITIES
Note payable, Other 29,493 74,216
Capitalized Leases 2,567 7,912
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TOTAL LONG TERM LIABILITIES 32,060 82,128
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TOTAL LIABILITIES 334,526 459,249
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SHAREHOLDERS' EQUITY
Common Stock, $0.001 Par Value;
495,000,000 Authorized Shares;
340,579,815 Shares Issued and Outstanding 340,580 340,579
Additional Paid In Capital 6,892,306 6,886,682
Accumulated Deficit (4,375,216) (4,427,126)
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TOTAL SHAREHOLDERS' EQUITY 2,857,670 2,800,135
------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,192,196 $ 3,259,384
=================== ===================
The accompanying notes are an integral part of these financial statements.
-3-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
------------------------------- ------------------------------
12/31/2008 12/31/2007 12/31/2008 12/31/2007
-------------- --------------- -------------- --------------
REVENUE $ 620,159 $ 649,172 $ 1,088,024 $ 1,253,667
COST OF SERVICES 42,159 37,207 79,895 76,431
-------------- --------------- -------------- --------------
GROSS PROFIT 578,000 611,965 1,008,129 1,177,236
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OPERATING EXPENSES
Selling, general and administrative expenses 372,928 401,884 719,660 810,937
Research and development 10,262 16,585 26,877 18,325
Depreciation and amortization 16,513 22,013 33,026 42,046
-------------- --------------- -------------- --------------
TOTAL OPERATING EXPENSES 399,703 440,482 779,563 871,308
-------------- --------------- -------------- --------------
INCOME FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) 178,297 171,483 228,566 305,928
OTHER INCOME/(EXPENSE)
Interest Income 6,603 843 10,736 1,558
Other Income 9,150 3,000 18,900 9,311
Interest Expense (8,725) (50,674) (13,910) (132,590)
Amortization of loan cost - (16,012) - (42,113)
Stock option expense (2,974) (5,938) (5,924) (12,647)
-------------- --------------- -------------- --------------
TOTAL OTHER INCOME (EXPENSE) 4,054 (68,781) 9,802 (176,481)
-------------- --------------- -------------- --------------
INCOME FROM OPERATIONS BEFORE PROVISION FOR TAXES 182,351 102,702 238,368 129,447
PROVISION FOR INCOME (TAXES)/BENEFIT
Income taxes paid - (1,600) (1,600) (1,600)
Federal income (taxes)/ benefit (114,654) - (149,645) -
State income (taxes)/ benefit (25,617) - (35,213) -
-------------- --------------- -------------- --------------
PROVISION FOR INCOME TAX BENEFIT (140,271) (1,600) (186,458) (1,600)
-------------- --------------- -------------- --------------
NET INCOME 42,080 101,102 51,910 127,847
============== =============== ============== ==============
BASIC AND DILUTED LOSS PER SHARE $ 0.00 $ 0.00 $ 0.00 $ 0.00
============== =============== ============== ==============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 340,579,815 245,282,938 340,579,815 242,009,468
============== =============== ============== ==============
The accompanying notes are an integral part of these financial statements.
-4-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
--------------- -------------- --------------- --------------- --------------
Balance, June 30, 2008 340,579,815 $ 340,580 $ 6,886,682 $ (4,427,126) $ 2,800,136
Stock issuance cost (unaudited) - - (300) - (300)
Stock compensation cost (unaudited) - - 5,924 - 5,924
Net income for the six months ended - - - 51,910 51,910
December 31, 2008 (unaudited)
--------------- -------------- --------------- --------------- --------------
Balance, December 31, 2008 (unaudited) 340,579,815 $ 340,580 $ 6,892,306 $ (4,375,216) $ 2,857,670
=============== ============== =============== =============== ==============
The accompanying notes are an integral part of these financial statements.
-5-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
12/31/2008 12/31/2007
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 51,910 $ 127,847
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 33,026 42,046
Bad debt expense (38,563) 62,716
Conversion feature recorded as interest expense - 12,647
Amortization of loan costs - 42,113
Cost of stock compensation recognized 5,924 18,174
Derivative expense - 26,249
(Increase) Decrease in:
Accounts receivable (91,853) (112,311)
Prepaid and other assets 5,075 (961)
Deferred tax benefit 178,808 -
Increase (Decrease) in:
Accounts payable (51,516) 50,031
Accrued expenses 55,809 38,548
Deferred Income (35,333) 50,000
Corporate income tax provision 6,050 -
Other liabilities (14,453) 3,240
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NET CASH PROVIDED BY OPERATING ACTIVITIES 104,884 360,339
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (6,286) (1,336)
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NET CASH PROVIDED/(USED) IN INVESTING ACTIVITIES (6,286) (1,336)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable (50,481) (6,000)
Payments on notes payable, other (20,054) (96,053)
Payments on capitalized leases (15,279) (15,319)
Proceeds from line of credit 535 (30,000)
Proceeds from issuance of common stock, net of cost (300) (132)
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NET CASH USED BY FINANCING ACTIVITIES (85,579) (147,504)
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NET INCREASE IN CASH 13,019 211,499
CASH, BEGINNING OF PERIOD 680,649 431,841
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CASH, END OF PERIOD $ 693,668 $ 643,340
================== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 13,910 $ 8,060
================== ==============
Taxes paid $ 1,600 $ -
================== ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the six months ended December 31, 2007, the Company issued 28,608,765
shares of common stock at a fair value of $290,000 for the convertible
debenture.
The accompanying notes are an integral part of these financial statements.
-6-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2008
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 six month period
ended December 31, 2008 are not necessarily indicative of the results that
may be expected for the year ending June 30, 2009. For further information
refer to the financial statements and footnotes thereto included in the
Company's Form 10K for the year ended June 30, 2008.
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.
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 six months ended December 31,
2008 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 six months ended December
31, 2008, included compensation expense for the stock-based payment awards
granted prior to, but not yet vested, as of December 31, 2008 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 December 31, 2008, 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 six months ended December 31,
2008 is based on awards ultimately expected to vest, it has been reduced
for estimated forfeitures, FAS 123R requires forfeitures to be estimated at
the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. The stock-based
compensation expense recognized in the consolidated statements of
operations during the six months ended December 31, 2008 is $5,924.
-7-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2008
3. CAPITAL STOCK
At December 31, 2008, 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 six months ended December 31, 2007, the
Company issued 28,608,765 shares of common stock ranging from $0.0089 per
share to $0.0110 per share for the conversion of the debenture with a value
of $290,000.
4. INCOME TAXES
The Company files income tax returns in the U.S. Federal jurisdiction, and
the state of California. With few exceptions, the Company is no longer
subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for years before 2004.
The Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, on September 1, 2008. FIN 48
clarifies the accounting for uncertainty in tax positions by prescribing a
minimum recognition threshold required for recognition in the financial
statements. FIN 48 also provides guidance on de-recognition, measurement
classification, interest and penalties, accounting in interim periods,
disclosure and transition.
The Company's policy is to recognize interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating
expenses.
5. SUBSEQUENT EVENTS
On January 31, 2009, Mr. Kin Ng and Mr. Louie Ucciferri, two of the
Company's board of directors resigned. Mr. Ucciferri provided a vacancy on
the Board to satisfy the independent Director requirement for the Audit
Committee.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
This Form 10-Q 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-Q. 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-Q. 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, and
inability to raise additional capital or financing to
implement its business plans;
(e) failure to further commercialize its technology or to make
sales;
(f) reduction 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 of the re-licensing or other commercialization of the
Roaming Messenger technology to produce revenues or profits;
and
(k) uncollectible accounts and the need to incur expenses to
collect amounts owed to the Company.
-9-
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
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, the exercise of outstanding warrants
and stock options, or 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-Q. 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-Q, 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.
While the Warp 9 Internet Commerce System ("ICS") is our flagship and
highest revenue product, we have been developing and deploying new products
based on a proprietary virtual publishing technology that we have developed.
These new products have allowed for the creation of interactive web versions of
paper catalogs ("VCS") and magazines ("VMS") where users can flip through pages
with a mouse and click on products or advertisements. These magazines or
catalogs have built-in integration for e-commerce transactions through our ICS
product and other transaction based activities. Clients utilizing this
technology have discovered when exposing consumers to 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 test market
these new products in greater distribution in the near future.
-10-
Research and development ("R&D") efforts have been focused both on
these new products and on updating our current products with new features. In
the planning phase of these new features, we look to direct client feedback and
feature requests; we study the e-commerce landscape to determine features that
will provide our clients with a competitive advantage in producing greater and
more effective selling; and we also examine features that will create a
competitive advantage during our sales process to clients. Emerging and
declining trends also play a role in how clients perceive what features should
be provided by which vendors. We are sometimes able to capitalize on these
opportunities by bundling features for greater value and/or increased fees and
revenue.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations, including the discussion on liquidity and capital resources, are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
management re-evaluates its estimates and judgments, particularly those related
to the determination of the estimated recoverable amounts of trade accounts
receivable, impairment of long-lived assets, revenue recognition and deferred
tax assets. We believe the following critical accounting policies require more
significant judgment and estimates used in the preparation of the financial
statements
We maintain an allowance for doubtful accounts for estimated losses
that may arise if any of our customers are unable to make required payments.
Management specifically analyzes the age of customer balances, historical bad
debt experience, customer credit-worthiness, and changes in customer payment
terms when making estimates of the uncollectability of our trade accounts
receivable balances. If we determine that the financial conditions of any of our
customers deteriorated, whether due to customer specific or general economic
issues, increases in the allowance may be made. Accounts receivable are written
off when all collection attempts have failed.
We follow the provisions of Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements" for revenue recognition and SAB
104. Under Staff Accounting Bulletin 101, four conditions must be met before
revenue can be recognized: (i) there is persuasive evidence that an arrangement
exists, (ii) delivery has occurred or service has been rendered, (iii) the price
is fixed or determinable and (iv) collection is reasonably assured.
Income taxes are accounted for under the asset and liability method.
Under this method, to the extent that we believe that the deferred tax asset is
not likely to be recovered, a valuation allowance is provided. In making this
determination, we consider estimated future taxable income and taxable timing
differences expected in the future. Actual results may differ from those
estimates.
-11-
RESULTS OF OPERATIONS FOR THE THREE-MONTHS AND SIX-MONTHS ENDED DECEMBER 31,
2008 COMPARED TO THE THREE-MONTHS AND SIX-MONTHS ENDED DECEMBER 31, 2007
REVENUE
Total revenue for the three-month period ended December 31, 2008
decreased by ($29,013) to $620,159 from $649,172 in the prior year, representing
a decrease of 4.5%. For the six-month period ended December 31, 2008, total
revenue decreased by ($165,643) to $1,088,024 from $1,253,667 in the same period
of the prior year. The overall decrease in revenue was primarily the result of a
decrease in VCS revenue and professional services booked in the 2008 quarter as
a result of the slowing economic environment. This decrease was partially offset
by a strong increase in recurring ICS monthly fees due to the increase in the
number of clients.
COST OF REVENUE
The cost of revenue for the three-month period ended December 31, 2008
increased by $4,952 to $42,159 as compared to $37,207 for the three-month period
ended December 31, 2007, and for the six-month period ended December 31, 2008,
cost of revenue increased by $3,464 to $79,895 from $76,431 in the same period
of the prior year. The overall increase was primarily due to the increase in
costs incurred for obtained vendor services by the Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses decreased by
($28,956) during the three months ended December 31, 2008 to $372,928 as
compared to $401,884 for the three-month period ended December 31, 2007. For the
six-month period ending December 31, 2008, SG&A expenses decreased by ($91,277)
to $719,660 from $810,937 for the six months ended December 31, 2007. The
decrease in SG&A expenses was primarily due to the reduction in certain bad debt
and other ongoing vendor provided professional services.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased by ($6,323) during the
three months ended December 31, 2008 to $10,262 as compared to $16,585 for the
three months ended December 31, 2007. In the six-month period ending December
31, 2008, the research and development expenses increased by $8,552 to $26,877
as compared to $18,325 for the six months ended December 31, 2007. The overall
increase is primarily due to the development of new products and new features
for the existing product line.
DEPRECIATION AND AMORTIZATION
Expenses related to depreciation and amortization were $16,513 for the
three months ended December 31, 2008 as compared to $22,013 for the three months
ended December 31, 2007, and for the six months ended December 31, 2008, the
depreciation and amortization was $33,026 as compared to $42,046 during the same
period of the prior year.
-12-
OTHER INCOME AND EXPENSE
Total other income and expense for the three months ended December 31,
2008 was $4,054 as compared to ($68,781) for the same period of the prior year,
and for the six-month period ending December 31, 2008, was $9,802 as compared to
($176,481) for the same period of the prior year. The change is primarily due to
the elimination of the derivative liability valuation and interest expense
related to the Cornell convertible debenture.
NET INCOME
Inclusive of an accounting for a provision for income tax of
($140,271), our consolidated net income was $42,080 for the three months ended
December 31, 2008, as compared to a consolidated net income of $101,102 for the
three months ended December 31, 2007. Excluding the accounting for the income
tax provision, the consolidated net income for the three months ended December
31, 2008 rose to $182,351.
For the six-month period ended December 31, 2008, the consolidated net
income was $51,910 compared to $127,847 for the six months ended December 31,
2007. The consolidated net income for the six months ended December 31, 2008
rose to $238,368 before accounting for a provision for income tax of ($186,458).
This overall increase in net income for the six months was primarily due to the
elimination of Cornell convertible debenture and a reduction in operating
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at December 31, 2008 of $693,668 as compared to
cash of $643,340 as of December 31, 2007. The Company had net working capital
(i.e. the difference between current assets and current liabilities) of $882,242
at December 31, 2008 as compared to a net working capital of $210,193 at
December 31, 2007.
Cash flow provided by operating activities was $104,884 for the six
months ended December 31, 2008 as compared to cash provided by operating
activities of $360,339 during the six months ended December 31, 2007.
Cash flow used in investing activities was ($6,286) for the six months
ended December 31, 2008 as compared to cash used in investing activities of
($1,336) during the six months ended December 31, 2007.
Cash flow used by financing activities was ($85,579) for the six months
ended December 31, 2008 as compared to net cash used by financing activities of
($147,504) for the six months ended December 31, 2007.
For the six months ended December 31, 2008, our capital needs have
primarily been met from positive cash-flow from operations.
While we expect that our capital needs in the foreseeable future will
be met by cash-on-hand and positive cash-flow, there is no assurance that the
Company will have sufficient capital to finance its growth and business
operations, or that such capital will be available on terms that are favorable
to the Company or at all. In the current financial environment, it has been
difficult for the Company to obtain equipment leases and other business
financing. There is no assurance that we would be able to obtain additional
working capital through the private placement of common stock or from any other
source.
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OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by Warp 9 is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. The Company's
Chairman, Chief Executive Officer, and Acting Chief Financial Officer are
responsible for establishing and maintaining controls and procedures for the
Company.
Management has evaluated the effectiveness of the Company's disclosure
controls and procedures as of December 31,, 2008 (under the supervision and with
the participation of the Company's Chairman, Chief Executive Officer, and Acting
Chief Financial Officer) pursuant to Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended. As part of such evaluation, management
considered the matters discussed below relating to internal control over
financial reporting. Based on this evaluation, the Company's Chairman, Chief
Executive Officer, and Acting Chief Financial Officer have concluded that the
disclosure controls and procedures are effective as of December 31, 2008.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and
maintaining adequate internal control over financial reporting, (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934). The Company's
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control objectives.
Furthermore, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate due to change in
conditions, or the degree of compliance with the policies or procedures may
deteriorate.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in the Company's internal control over
financial reporting that occurred during the Company's first fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
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PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a plaintiff in an accounts receivable lawsuit filed
against a former customer seeking to collect a past due amount of approximately
$30,000 plus legal collection costs, interest and attorneys' fees. The Company
filed the law suit in January 2009 and is currently waiting for the defendant's
response. There is no assurance that the Company's collection action will be
successful.
The Company may file additional collection actions in the future.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
---------------- -- --------------------------------------------------------------------------------------------------
EXHIBIT NO. 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
32.1 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 14F-1 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/A Report filed with the Securities and Exchange
Commission on November 24, 2008 regarding appointment of
William Edward Beifuss, Jr. and John Charles Beifuss to fill
two vacancies on the Company's Board of Directors. The
Company's Board of Directors plans to form an Audit Committee.
(2) Form 8-K Report filed with the Securities and Exchange
Commission on February 3, 2009 regarding resignation of Louie
Ucciferri from the Board of Directors to provide a vacancy for
the Audit Committee. Mr. Ucciferri will continue to serve as
the Company's Acting Chief Financial Officer.
(3) Form 8-K Report filed with the Securities and Exchange
Commission on February 5, 2009 regarding resignation of Kin Ng
from the Board of Directors.
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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: February 11, 2009 WARP 9, INC.
-----------------------------------------
(Registrant)
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: February 11, 2009
---------------------------------------------------
Louie Ucciferri, Corporate Secretary,
Acting Chief Financial Officer
(Principal Financial / Accounting Officer)
By: \s\Harinder Dhillon Dated: February 11, 2009
---------------------------------------------------
Harinder Dhillon, Chief Executive Officer and
President (Principal Executive Officer)
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