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, 2010
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
6500 HOLLISTER AVENUE, SUITE 120, 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[_X_] No[__]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
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 12, 2010 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, 2010 (unaudited) and June 30, 2010 (audited) 3
Consolidated Statements of Operations for the Three Months ended September 30, 2010 and 4
September 30, 2009 (unaudited)
Consolidated Statement of Shareholders' Equity for the Three Months ended September 30, 5
2010 (unaudited)
Consolidated Statements of Cash Flows for the Three Months ended September 30, 2010 and 6
September 30, 2009 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4T. Controls and Procedures 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. (Removed and Reserved) 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------
-2-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2010 June 30, 2010
------------------- -------------------
ASSETS
CURRENT ASSETS
Cash $ 572,267 $ 733,737
Accounts Receivable, net 224,166 121,494
Prepaid and Other Current Assets 10,330 11,888
Current Portion of Deferred Tax Asset 150,663 162,500
------------------- -------------------
TOTAL CURRENT ASSETS 957,426 1,029,619
------------------- -------------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 89,485 89,485
Computer Equipment 625,032 625,032
Computer Software 20,033 20,033
Leasehold Improvements 18,696 19,746
------------------- -------------------
753,246 754,296
Less Accumulated Depreciation (661,100) (654,435)
------------------- -------------------
NET PROPERTY AND EQUIPMENT 92,146 99,861
------------------- -------------------
OTHER ASSETS
Lease Deposit 8,244 16,449
Internet Domain, net 1,693 1,753
Long Term Deferred Tax Asset 1,876,003 1,874,539
------------------- -------------------
TOTAL OTHER ASSETS 1,885,940 1,892,741
------------------- -------------------
TOTAL ASSETS $ 2,935,512 $ 3,022,221
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 47,516 $ 74,049
Credit Cards Payable 1,845 2,664
Accrued Expenses 61,826 61,600
Deferred Income 10,333 20,667
Deferred Operating Lease Liability 1,554 -
Note Payable, Other 36,909 37,082
Customer Deposit 34,198 34,198
------------------- -------------------
TOTAL CURRENT LIABILITIES 194,181 230,260
------------------- -------------------
LONG TERM LIABILITIES
Note Payable, Other - 2,778
------------------- -------------------
TOTAL LONG TERM LIABILITIES - 2,778
------------------- -------------------
TOTAL LIABILITIES 194,181 233,038
------------------- -------------------
SHAREHOLDERS' EQUITY
Common Stock, $0.001 Par Value;
495,000,000 Authorized Shares;
340,579,815 and 340,579,815 Shares Issued and Outstanding,
respectively 340,579 340,579
Additional Paid In Capital 6,938,970 6,906,525
Accumulated Deficit (4,538,218) (4,457,921)
------------------- -------------------
TOTAL SHAREHOLDERS' EQUITY 2,741,331 2,789,183
------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,935,512 $ 3,022,221
=================== ===================
The accompanying notes are an integral part of
these consolidated financial statements
-3-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30, 2010 September 30, 2009
--------------------- --------------------
REVENUE $ 246,592 $ 386,071
COST OF SERVICES 19,226 37,026
--------------------- --------------------
GROSS PROFIT 227,366 349,045
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OPERATING EXPENSES
Selling, general and administrative expenses 278,919 328,416
Research and development 19,044 5,000
Stock option expense 139 2,542
Depreciation and amortization 6,725 7,181
--------------------- --------------------
TOTAL OPERATING EXPENSES 304,827 343,139
--------------------- --------------------
INCOME FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) (77,461) 5,906
--------------------- --------------------
OTHER INCOME/(EXPENSE)
Interest income 7,636 10,065
Other income 1,000 11,250
Interest expense (1,099) (2,215)
--------------------- --------------------
TOTAL OTHER INCOME (EXPENSE) 7,537 19,100
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INCOME FROM OPERATIONS BEFORE PROVISION FOR TAXES (69,924) (25,006)
--------------------- --------------------
PROVISION FOR INCOME (TAXES)/BENEFIT
Income tax (provision)/benefit (10,373) (10,959)
--------------------- --------------------
PROVISION FOR INCOME (TAXES)/BENEFIT (10,373) (10,959)
--------------------- --------------------
NET INCOME/(LOSS) $ (80,297) $ 14,047
===================== ====================
BASIC AND DILUTED EARNINGS PER SHARE $ (0.00) $ 0.00
===================== ====================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 340,579,815 340,579,815
===================== ====================
The accompanying notes are an integral part of
these consolidated financial statements
-4-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
--------------- ------------ -------------- -------------- --------------
Balance, June 30, 2010 340,579,815 $340,579.43 $6,906,525.46 $(4,457,921.00) $ 2,789,182.90
Stock compensation expense (Unaudited) - - 139 - 139
Contributed Services (Unaudited) - - 32,306 - 32,306
Net income for the three months
ended September 30, 2010 (Uuaudited) - - - (80,297) (80,297)
--------------- ------------ -------------- --------------- --------------
Balance, September 30, 2010 (Unaudited) 340,579,815 $ 340,579 $ 6,938,970 $ (4,538,218) $ 2,741,331
=============== ============ ============== =============== ==============
The accompanying notes are an integral part of
these consolidated financial statements
-5-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
September 30, 2010 September 30, 2009
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ (80,297) $ 14,047
Adjustment to reconcile net income/(loss) to net cash
provided/(used) by operating activities
Depreciation and amortization 6,725 7,181
Bad debt expense (29,871) (105,240)
Cost of stock compensation recognized 139 2,542
Contributed Services 32,306 -
Change in assets and liabilities:
(Increase) Decrease in:
Accounts receivable (72,801) 257,802
Prepaid and other assets 1,558 (1,781)
Deferred tax asset 10,373 10,959
Restricted cash - 716
Deposits 8,205 -
Increase (Decrease) in:
Accounts payable (26,302) (1,588)
Accrued expenses 226 (24,708)
Deferred income (10,334) 63,333
Deferred operating lease liability 1,554 -
Other liabilities - (9,045)
------------------ ------------------
NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES (158,519) 214,218
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (9,839)
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NET CASH USED IN INVESTING ACTIVITIES - (9,839)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable (2,951) (8,081)
Payments on capitalized leases - (3,481)
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NET CASH USED IN FINANCING ACTIVITIES (2,951) (11,562)
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NET INCREASE/(DECREASE) IN CASH (161,470) 192,817
CASH, BEGINNING OF PERIOD 733,737 849,508
------------------ ------------------
CASH, END OF PERIOD $ 572,267 $ 1,042,325
================== ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 391 $ 1,554
================== ==================
Taxes paid $ - $ -
================== ==================
The accompanying notes are an integral part of
these consolidated financial statements
-6-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2010
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 months
ended September 30, 2010 are not necessarily indicative of the results that
may be expected for the year ending June 30, 2011. For further information
refer to the financial statements and footnotes thereto included in the
Company's Form 10K for the year ended June 30, 2010.
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, 2010, included compensation expense for the stock-based
payment awards granted prior to, but not yet vested, as of September 30,
2010 based on the grant date fair value estimated. Stock-based compensation
expense recognized in the statement of income for the three months ended
September 30, 2010 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, 2010 and 2009 are $139 and $2,542
respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Management reviewed accounting pronouncements issued during the three
months ended September 30, 2010, and no pronouncements were adopted during
the period.
3. CAPITAL STOCK
-------------
At September 30, 2010 and 2009, 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.
-7-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2010
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 option 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 is 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
9/30/2010
--------------------
Risk free interest rate 3.01% - 5.07%
Stock volatility factor 0.31 -186.29
Weighted average expected option life 4 years
Expected dividend yield none
A summary of the Company's stock option activity and related information
follows:
Period Ended 09/30/2010
--------------------------------
Weighted
average
exercise
Options price
----------------- --------------
Outstanding -beginning of period 3,240,000 $ 0.01
Granted - -
Exercised - -
Forfeited (200,000) (0.01)
----------------- --------------
Outstanding - end of period 3,040,000 $ 0.01
================= ==============
Exercisable at the end of period 2,979,246 $ 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.
-8-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2010
4. STOCK OPTIONS AND WARRANTS (Continued)
--------------------------------------
The weighted average remaining contractual life of options outstanding
issued under the plan as of September 30, 2010 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
------------------- ------------------ ------------------
$ 0.070 100,000 3.25
$ 0.080 50,000 1.26
$ 0.010 2,790,000 1.41
$ 0.008 100,000 7.59
------------------
3,040,000
==================
5. SUBSEQUENT EVENT
----------------
Management has evaluated subsequent events according to ASC Topic 855 as of
the date of the financial statements and has determined there are no
subsequent events to be reported.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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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.
-10-
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 developed and deployed new products based on a
proprietary virtual publishing technology. These new products 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 have built-in integration for e-commerce
transactions through our ICS product and other transaction based activities.
Accordingly, 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 sold this solution on a limited
basis while we continue to refine the product and technology. We believe there
could be many markets for our virtual catalog and magazine technology and we
expect to test market these new products in the future.
-11-
Research and development ("R&D") efforts have been focused both on
updating our flagship ICS e-commerce platform as well as developing new products
and on updating our current products with new features. In the planning phase of
our development efforts, 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. Management believes that in
order to compete successfully, it must dedicate a greater allocation of
resources to research and development. Updating our platform, creating new
products and revamping the current products must be part of the ongoing
operational practice in order to compete successfully. There can be no assurance
that management will be able successfully devote the resources needed for this
research and development and that it will be able to compete successfully.
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.
-12-
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2009
REVENUE
Total revenue for the three months ended September 30, 2010 decreased
by ($139,479) to $246,592 compared to $386,071 for the same prior period. The
decrease in revenue was primarily the result of the decrease in recurring
monthly fees caused by client terminations combined with a reduction of online
marketing services due to budget cut-backs by our clients. The client
terminations were due to both i) the financial environment affecting the
clients' fiscal health and in turn, Warp 9's revenue stream from those clients
and ii) increased competition in the e-commerce software space and the perceived
competitive nature of the ICS product-line.
COST OF REVENUE
The cost of revenue for the three months ended September 30, 2010
decreased by ($17,800) to $19,226 compared to $37,026 for the same prior period
The overall decrease was primarily due to the decrease in sales commissions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the three
months ended September 30, 2010 decreased ($49,497) to $278,919 compared to
$328,416 for the same prior period. For the quarter, the decrease was due
primarily to a decrease in staffing and a decrease in legal expenses
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended September
30, 2010 increased $14,044 to $19,044 as compared to $5,000 for the same prior
period. The overall increase was due to increased staffing expense associated
with research and development to update our e-commerce platform and new products
and features.
NET INCOME/(LOSS)
The consolidated net loss for the three months ended September 30, 2010
was ($80,297) compared to the consolidated net income of $14,047 for the same
prior period. For the quarter, the loss is mainly attributable to a reduction in
gross revenue, an increase in research and development expense, an increase in a
provision for income tax and a non-cash expense recognition for Executive
Compensation in the amount of $32,306.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital (i.e. the difference between
current assets and current liabilities) of $763,245 at September 30, 2010 as
compared to a net working capital of $799,359 at June 30, 2010. The decrease in
net working capital at September 30, 2010 was caused by a reduction in revenue
and net income during the three months ended September 30, 2010.
Cash flow used in operating activities was ($158,519) for the three
months ended September 30, 2010 as compared to cash flow provided by operating
activities of $214,218 for the same prior period. The decrease in cash flow of
($372,737) used in operating activities was primarily due to a reduction in
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income to a net loss and the absence of the collection of a large non-recurring
receivable in the prior period.
Cash flow used in investing activities was $0.00 for the three months
ended September 30, 2010 as compared to cash flow used in investment activities
of ($9,839) for the same prior period. The increase in cash flow of $9,839 from
investing activities is due to the purchase of equipment during the prior
period.
Cash flow used by financing activities was ($2,951) for the three
months ended September 30, 2010 as compared to ($11,562) for the same prior
period. The decrease of ($8,611) in cash flow used by financing activities was
primarily due to the maturity of capital leases and payments toward a note
payable.
While we expect that our capital needs in the foreseeable future will
be met by cash-on-hand and projected positive cash flow, there is no assurance
that the Company will generate enough positive cash flows or 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 could become difficult for the Company to
obtain business leases and other equipment 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.
OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------
Not Applicable.
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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 in the reports that
it files under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer that it files under the Exchange Act is accumulated and communicated to
the issuer's management, including its principal executive officer and principal
financial officers, or persons performing similar functions as appropriate to
allow timely decisions regarding required disclosure. The Company's Chairman,
Interim Chief Executive Officer, and Acting Chief Financial Officer are
responsible for establishing and maintaining disclosure controls and procedures
for the Company.
Management has evaluated the effectiveness of the Company's disclosure
controls and procedures as of September 30, 2010 (under the supervision and with
the participation of the Company's Chairman, interim 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,
Interim Chief Executive Officer, and Acting Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are effective as
of September 30, 2010.
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. After evaluating the Company's internal controls over financial
reporting, the Company's Chairman, Interim Chief Executive Officer, and Acting
Chief Financial Officer have concluded that the internal controls over financial
reporting are effective as of September 30, 2010.
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 third 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
--------------------------
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. (REMOVED AND RESERVED)
--------------------------------
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 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) None
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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 15, 2010 WARP 9, INC.
-----------------------------------------------------
(Registrant)
By: \s\William E. Beifuss
----------------------------------------------------
William E. Beifuss, Interim 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 15, 2010
---------------------------------------------------
Louie Ucciferri, Corporate Secretary,
Acting Chief Financial Officer
(Principal Financial / Accounting Officer)
By: \s\William E. Beifuss Dated: November 15, 2010
---------------------------------------------------
William E. Beifuss, Interim Chief Executive
Officer and President (Principal Executive
Officer)
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