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 September 30, 2009
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
--------------------------------- ------------------------------------------
(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 November 11, 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 September 30, 2009 (unaudited) and June 30, 2009 3
(audited)
Consolidated Statements of Income for the Three Months ended September 30, 2009 and 4
September 30, 2008 (unaudited)
Consolidated Statement of Shareholders' Equity for the Three Months ended September 30, 5
2009 (unaudited)
Consolidated Statements of Cash Flows for the Three Months ended September 30, 2009 and 6
September 30, 2008 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4T. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
-1-
PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
-2-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2009 June 30, 2009
------------------- -------------------
ASSETS
CURRENT ASSETS
Cash $ 1,042,325 $ 849,508
Accounts Receivable, net 172,106 324,668
Prepaid and Other Current Assets 13,585 11,804
Current Portion of Deferred Tax Asset 147,954 165,167
------------------- -------------------
TOTAL CURRENT ASSETS 1,375,970 1,351,147
------------------- -------------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 89,485 89,485
Computer Equipment 514,450 511,889
Commerce Server 50,000 50,000
Computer Software 16,754 9,476
------------------- -------------------
670,689 660,850
Less accumulated depreciation (628,968) (621,829)
------------------- -------------------
NET PROPERTY AND EQUIPMENT 41,721 39,021
------------------- -------------------
OTHER ASSETS
Lease Deposit 9,033 9,749
Restricted Cash 93,000 93,000
Internet Domain, net 849 891
Long Term Deferred Tax Asset 1,768,981 1,762,727
------------------- -------------------
TOTAL OTHER ASSETS 1,871,863 1,866,367
------------------- -------------------
TOTAL ASSETS $ 3,289,554 $ 3,256,535
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 68,801 $ 70,573
Credit Cards Payable 438 254
Accrued Expenses 62,486 87,194
Note Payable, Other 33,916 33,916
Customer Deposit 39,386 48,431
Deferred income 63,333 -
Capitalized Leases, Current Portion 4,657 8,138
------------------- -------------------
TOTAL CURRENT LIABILITIES 273,017 248,506
------------------- -------------------
LONG TERM LIABILITIES
Note payable, Other 38,461 46,542
------------------- -------------------
TOTAL LONG TERM LIABILITIES 38,461 46,542
------------------- -------------------
TOTAL LIABILITIES 311,478 295,048
------------------- -------------------
SHAREHOLDERS' EQUITY
Common Stock, $0.001 Par Value;
495,000,000 Authorized Shares;
340,579,815 Shares Issued and Outstanding 340,579 340,579
Additional Paid In Capital 6,899,853 6,897,311
Accumulated Deficit (4,262,356) (4,276,403)
------------------- -------------------
TOTAL SHAREHOLDERS' EQUITY 2,978,076 2,961,487
------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,289,554 $ 3,256,535
=================== ===================
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 Three Months Ended
September 30, 2009 September 30, 2008
-------------------- --------------------
REVENUE $ 386,071 $ 467,865
COST OF SERVICES 37,026 37,736
-------------------- --------------------
GROSS PROFIT 349,045 430,129
-------------------- --------------------
OPERATING EXPENSES
Selling, general and administrative expenses 328,416 346,732
Research and development 5,000 16,615
Stock option expense 2,542 2,950
Depreciation and amortization 7,181 16,513
-------------------- --------------------
TOTAL OPERATING EXPENSES 343,139 382,810
-------------------- --------------------
INCOME FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) 5,906 47,319
-------------------- --------------------
OTHER INCOME/(EXPENSE)
Interest Income 10,065 -
Other Income 11,250 13,883
Interest Expense (2,215) (5,185)
-------------------- --------------------
TOTAL OTHER INCOME (EXPENSE) 19,100 8,698
-------------------- --------------------
INCOME FROM OPERATIONS BEFORE PROVISION FOR TAXES 25,006 56,017
PROVISION FOR INCOME (TAXES)/BENEFIT
Income (taxes)/benefit (10,959) (46,187)
-------------------- --------------------
NET INCOME 14,047 9,830
==================== ====================
BASIC EARNINGS PER SHARE $ 0.00 $ 0.00
==================== ====================
DILUTED EARNINGS PER SHARE $ 0.00 $ 0.00
==================== ====================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC 340,579,815 340,579,815
==================== ====================
DILUTED 340,579,815 340,928,884
==================== ====================
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, 2009 340,579,815 $ 340,579 $ 6,897,311 $ (4,276,403) $ 2,961,487
Stock compensation expense (unaudited) - - 2,542 - 2,542
Net income for the three months ended
September 30, 2009 (unaudited) - - - 14,047 14,047
--------------- -------------- --------------- -------------- ---------------
Balance, September 30, 2009 (unaudited) 340,579,815 $ 340,579 $ 6,899,853 $ (4,262,356) $ 2,978,076
=============== ============== =============== ============== ===============
The accompanying notes are an integral part of these financial statements
-5-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,047 $ 9,830
Adjustment to reconcile net income to net cash
used in operating activities
Depreciation and amortization 7,181 16,512
Bad debt expense (105,240) (34,777)
Cost of stock compensation recognized 2,542 2,950
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts receivable 257,802 (14,743)
Prepaid and other assets (1,781) 493
Deferred tax benefit 10,959 40,137
Deposits 716 -
Increase (Decrease) in:
Accounts payable (1,588) 24,053
Accrued expenses (24,708) (7,708)
Deferred Income 63,333 (2,333)
Corporate income tax provision - 4,450
Other liabilities (9,045) (13,179)
------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 214,218 25,685
------------------ ------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (9,839) (1,303)
------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES (9,839) (1,303)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable - (37,500)
Payments on notes payable, other (8,081) (10,027)
Payments on capitalized leases (3,481) (8,644)
Proceeds from line of credit - 535
Proceeds from issuance of common stock, net of cost - (200)
------------------ ------------------
NET CASH USED BY FINANCING ACTIVITIES (11,562) (55,836)
------------------ ------------------
NET INCREASE/(DECREASE) IN CASH 192,817 (31,454)
CASH, BEGINNING OF PERIOD 849,508 680,649
------------------ ------------------
CASH, END OF PERIOD $ 1,042,325 $ 649,195
================== ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 1,554 $ 5,185
================== ==================
Taxes paid $ - $ 1,600
================== ==================
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the three months ended September 30, 2009 and 2008, the Company
recognized stock compensation expense of $2,542 and $2,950, respectively.
The accompanying notes are an integral part of these financial statements
-6-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2009
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 three month
period ended September 30, 2009 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2010. For further
information refer to the financial statements and footnotes thereto
included in the Company's Form 10K for the year ended June 30, 2009.
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
------------------------
The Company addressed 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 transactions are accounted for
using a fair-value-based method and recognized as expenses in our statement
of income. There was no material impact on the Company's financial
statement of operations.
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 three months ended
September 30, 2009, included compensation expense for the stock-based
payment awards granted prior to, but not yet vested, as of September 30,
2009 based on the grant date fair value estimated. in Stock-based
compensation expense recognized in the statement of income for the three
months ended September 30, 2009 is based on awards ultimately expected to
vest, it has been reduced for estimated forfeitures. Forfeitures are
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 three months ended September 30, 2009 and 2008 are
$2,542 and $2,950 respectively.
Recent Accounting Pronouncements
--------------------------------
In June 2009, the FASB issued guidance under Accounting Standards
Codification ("ASC") Topic 105, "Generally Accepted Accounting Principles"
(SFAS No. 168, The FASB Accounting Standards Codification TM and the
Hierarchy of Generally Accepted Accounting Principles). This guidance
establishes the FASB ASC as the single source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws
are also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168
and the ASC are effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The ASC supersedes all
existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the ASC
has become non-authoritative. Following SFAS 168, the FASB will no longer
issue new standards in the form of Statements, FSPs, or EITF Abstracts.
Instead, the FASB will issue Accounting Standards Updates, which will serve
only to update the ASC, provide background information about the guidance,
and provide the bases for conclusions on the change(s) in the ASC. We
adopted ASC 105 effective for our financial statements issued as of
September 30, 2009. The adoption of this guidance did not have an
-7-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2009
Recent Accounting Pronouncements (continued)
--------------------------------------------
impact on our financial statements but will alter the references to
accounting literature within the consolidated financial statements.
In August 2009, the FASB issued guidance under Accounting Standards Update
("ASU") No. 2009-05, "Measuring Liabilities at Fair Value". This guidance
clarifies how the fair value a liability should be determined. This
guidance is effective for the first reporting period after issuance. We
will adopt this guidance for our year ending December 31, 2009. We do not
expect the adoption of this guidance to have a material impact on our
financial statements
3. CAPITAL STOCK
At September 30, 2009 and 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.
4. STOCK OPTIONS AND WARRANTS
On July 10, 2003, the Company adopted the Warp 9, Inc. Stock Option Plan
for Directors, Executive Officers, and Employees of and Key Consultants to
the Company. This Plan, may issue 25,000,000 shares of common stock.
Options granted under the Plan could be either Incentive Options or
Nonqualified Options, and are administered by the Company's Board of
Directors. Each options may be exercisable in full or in installment and at
such time as designated by the Board. Notwithstanding any other provision
of the Plan or of any Option agreement, each option are to expire on the
date specified in the Option agreement, which date are to be no later than
the tenth anniversary of the date on which the Option was granted (fifth
anniversary in the case of an Incentive Option granted to a
greater-than-10% stockholder). The purchase price per share of the Common
Stock under each Incentive Option are to be no less than the Fair Market
Value of the Common Stock on the date the option was granted (110% of the
Fair Market Value in the case of a greater-than-10% stockholder). The
purchase price per share of the Common Stock under each Nonqualified Option
were to be specified by the Board at the time the Option was granted, and
could be less than, equal to or greater than the Fair Market Value of the
shares of Common Stock on the date such Nonqualified Option was granted,
but were to be no less than the par value of shares of Common Stock. The
plan provided specific language as to the termination of options granted
hereunder.
The Company used the historical industry index to calculate volatility,
since the Company's stock history did not represent the expected future
volatility of the Company's common stock. The fair value of options granted
was determined using the Black Scholes method with the following
assumptions:
Period Ended
9/30/2009
--------------------
Risk free interest rate 3.2% - 5.07%
Stock volatility factor 0.31 -0.53
Weighted average expected option life 4 years
Expected dividend yield none
-8-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2009
4. STOCK OPTIONS AND WARRANTS (Continued)
A summary of the Company's stock option activity and related information
follows:
Period ended
September 30, 2009
--------------------------------
Weighted
average
exercise
Options price
----------------- --------------
Outstanding -beginning of year 12,400,000 $ 0.02
Granted - -
Exercised - -
Forfeited (800,000) (0.11)
----------------- --------------
Outstanding - end of year 11,600,000 $ 0.01
================= ==============
Exercisable at the end of year 9,128,390 $ 0.01
================= ==============
Weighted average fair value of
options granted during the year $ -
==============
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options, which do not have vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
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
financial statements of operations during the period ended September 30,
2009, included compensation expense for the stock-based payment awards
granted prior to, but not yet vested, as of September 30, 2009 based on the
grant date fair value estimated, and compensation expense for the
stock-based payment awards granted subsequent to September 30, 2009, based
on the grant date fair value estimated. We account for forfeitures as they
occur. The stock-based compensation expense recognized in the statement of
operations during the period ended September 30, 2009 is $2,542.
The weighted average remaining contractual life of options outstanding
issued under the plan as of September 30, 2009 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
------------------- ------------------ ------------------
$ 0.07 100,000 4.25
$ 0.08 50,000 2.25
$ 0.01 10,950,000 4.36
$ 0.02 500,000 5.72
------------------
11,600,000
==================
-9-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2009
5. 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 2006.
The Company accounts for uncertainty in tax positions by recognition in the
financial statements.
The Company's policy is to recognize interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating
expenses.
6. SUBSEQUENT EVENT
Management has evaluated subsequent events through November 13, 2009, the
date the financial statements were available to be issued, and has
determined there are no subsequent events to be reported.
-10-
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, reducing revenue and increasing
costs;
(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;
(k) aspects of the Company's business are not proprietary
and in general the Company is subject to inherent
competition;
(l) further dilution of existing shareholders ownership
in Company; and
(m) uncollectible accounts and the need to incur expenses
to collect amounts owed to the Company.
-11-
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 with greater distribution in the near future.
-12-
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.
-13-
RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO
THE THREE-MONTHS ENDED SEPTEMBER 30, 2008
REVENUE
Total revenue for the three-month period ended September 30, 2009
decreased by ($81,794) to $386,071 from $467,865 in the prior year, representing
a decrease of 21%. The overall decrease in revenue was primarily the result of a
decrease in recurring monthly fees and professional services booked in the
quarter as a result of the slowing economic environment.
COST OF REVENUE
The cost of revenue for the three-month period ended September 30, 2009
decreased by ($710) to $37,026 as compared to $37,736 for the three-month period
ended September 30, 2008. The overall decrease was primarily due to the decrease
in sales commissions and costs incurred for vendor obtained services by the
Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses decreased by
($18,316) during the three months ended September 30, 2009 to $328,416 as
compared to $346,732 for the three-month period ended September 30, 2008. The
decrease in SG&A expenses was primarily due to the recognition of certain bad
debt in 2009 combined with decreases of other ongoing vendor provided
professional services and employee expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased by ($11,615) during the
three months ended September 30, 2009 to $5,000 as compared to $16,615 for the
three months ended September 30, 2008. The decrease is due to an overall
decrease in employee expense.
DEPRECIATION AND AMORTIZATION
Expenses related to depreciation and amortization were $7,181 for the
three months ended September 30, 2009 as compared to $16,513 for the three
months ended September 30, 2008. The decrease in depreciation and amortization
is due to the elimination of capital leases and a decrease in the depreciation
of other equipment.
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OTHER INCOME AND EXPENSE
Total other income and expense for the three months ended September 30,
2009 was positive $19,100 as compared to positive $8,698 for the same period of
the prior year. The change is primarily due to an increase in other income
associated with interest.
NET INCOME
For the three months ended September 30, 2009, the consolidated net
income rose to $14,047 as compared to the consolidated net income of $9,830 for
the three months ended September 30, 2008. The increase in consolidated net
income is primarily due to a decrease in consolidated expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at September 30, 2009 of $1,042,325 as compared to
cash of $649,195 as of September 30, 2008. The increase in cash is primarily due
to the collection of outstanding accounts receivables resulting in an increase
of current assets. The Company had net working capital (i.e. the difference
between current assets and current liabilities) of $1,102,953 at September 30,
2009 as compared to a net working capital of $690,498 at September 30, 2008.
Cash flow provided by operating activities was $214,218 for the three
months ended September 30, 2009 as compared to cash provided by operating
activities of $25,685 during the three months ended September 30, 2008. The
increase in cash flow provided by operating activities was primarily due to
collection of outstanding accounts receivable balances.
Cash flow used in investing activities was ($9,839) for the three
months ended September 30, 2009 as compared to cash used in investing activities
of ($1,303) during the three months ended September 30, 2008.
Cash flow used by financing activities was ($11,562) for the three
months ended September 30, 2009 as compared to net cash used by financing
activities of ($55,836) for the three months ended September 30, 2008. The
decrease in cash flow used by financing activities was due to the retirement of
a note payable.
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 September 30, 2009 (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 September 30, 2009.
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.
-16-
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no current legal proceedings as of this time.
The Company may file additional collection actions and be involved in
other litigation 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.
-17-
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 8-K 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 8-K 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 September 30, 2009 regarding the termination of
the Exchange Agreements with HyperSolar, Inc., a Nevada
corporation.
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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: November 16, 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: November 16, 2009
---------------------------------------------------
Louie Ucciferri, Corporate Secretary,
Acting Chief Financial Officer
(Principal Financial / Accounting Officer)
By: \s\Harinder Dhillon Dated: November 16, 2009
---------------------------------------------------
Harinder Dhillon, Chief Executive Officer and
President (Principal Executive Officer)
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