UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For quarterly period ended March 31, 2013
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.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 30-0050402
-------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6500 HOLLISTER AVENUE, SUITE 120, SANTA BARBARA, CA 93117
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(805) 964-3313
-------------------------------------------------------------
Registrant's telephone number, including area code
-------------------------------------------------------------
(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.
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Yes[_X_] No[__]
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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[_X_] No[__]
--------------------------------------------------------------------------------
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_]
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of May 14, 2013, the number of shares outstanding of the registrant's class
of common stock was 96,135,126.
EXPLANATORY NOTE
This Amendment No. 1 to the Quarterly Report on Form 10-Q/A (the "Amendment")
amends the Quarterly Report on Form 10-Q of Warp 9, Inc. (the "Company") for the
quarter ended March 31, 2013 (the "Original Filing"), that was originally filed
with the U.S. Securities and Exchange Commission on May 14, 2013. The Amendment
is being filed to submit Exhibit 101. The Amendment revises the exhibit index
included in Part II, Item 6 of the Original Filing and Exhibit 101 (XBRL
interactive data) is included as an exhibit to the Amendment.
Except as described above, the Amendment does not modify or update the
disclosures presented in, or exhibits to, the Original Filing in any way.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
-------
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets as of March 31, 2013
(unaudited) and June 30, 2012 3
Consolidated Statements of Operations for the Three Months
and Nine Months ended March 31, 2013 and March 31, 2012
(unaudited) 4
Consolidated Statement of Shareholders' Equity/(Deficit)
for the Nine Months ended March 31, 2013 (unaudited) 5
Consolidated Statements of Cash Flows for the Nine Months
ended March 31, 2013 and March 31, 2012 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Mine Safety Disclosures 14
Item 5. Other Information 14
Item 6. Exhibits 14
Signatures 15
2
PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, 2013 June 30, 2012
----------------------- -----------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 924 $ 63,104
Accounts Receivable, net 94,021 93,340
Prepaid and Other Current Assets 10,015 11,792
----------------------- -----------------
TOTAL CURRENT ASSETS 104,960 168,236
----------------------- -----------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 83,288 83,288
Computer Equipment 267,069 260,179
Computer Software 14,840 14,025
Leasehold Improvements 18,696 18,696
----------------------- -----------------
383,893 376,188
Less accumulated depreciation (327,577) (310,992)
----------------------- -----------------
NET PROPERTY AND EQUIPMENT 56,316 65,196
----------------------- -----------------
OTHER ASSETS
Lease Deposit 8,244 8,244
Internet Domain, net 1,092 1,273
Licensing fees 8,000 17,000
----------------------- -----------------
TOTAL OTHER ASSETS 17,336 26,517
----------------------- -----------------
TOTAL ASSETS $ 178,611 $ 259,949
======================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 146,130 $ 91,144
Accrued Expenses 87,746 86,383
Accrued Interest 4,980 3,964
Deferred Income - 32,853
Deferred Operating Lease Liability 5,664 5,636
Note Payable, Other 39,839 37,867
Convertible Note Payable 50,000 -
Customer Deposit 9,461 21,361
----------------------- -----------------
TOTAL CURRENT LIABILITIES 343,820 279,208
----------------------- -----------------
TOTAL LIABILITIES 343,820 279,208
----------------------- -----------------
SHAREHOLDERS' EQUITY/(DEFICIT)
Preferred Stock, $0.001 Par Value;
5,000,000 Authorized Shares; no shares issued and outstanding - -
Common Stock, $0.001 Par Value;
495,000,000 Authorized Shares;
96,135,126 and 96,135,126 Shares Issued and Outstanding , respectively 96,135 96,135
Additional Paid In Capital 7,361,847 7,334,613
Accumulated Deficit (7,623,191) (7,450,007)
----------------------- -----------------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) (165,209) (19,259)
----------------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $ 178,611 $ 259,949
======================= =================
The accompanying notes are an integral part of these
consolidated financial statements.
3
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
-------------------------------------- --------------------------------------
March 31, 2013 March 31, 2012 March 31, 2013 March 31, 2012
------------------- ------------------ ------------------ -------------------
REVENUE $ 223,740 $ 220,406 $ 835,177 $ 628,899
COST OF SERVICES 45,135 30,408 147,464 80,773
------------------- ------------------ ------------------ -------------------
GROSS PROFIT 178,605 189,998 687,713 548,126
------------------- ------------------ ------------------ -------------------
OPERATING EXPENSES
Selling, general and administrative expenses 268,897 276,983 841,347 882,565
Research and development - 24,544 13,307 92,554
Stock option expense 5,713 894 15,234 1,815
Depreciation and amortization 5,703 5,404 16,765 17,065
------------------- ------------------ ------------------ -------------------
TOTAL OPERATING EXPENSES 280,313 307,825 886,653 993,999
------------------- ------------------ ------------------ -------------------
LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES) (101,707) (117,827) (198,939) (445,873)
------------------- ------------------ ------------------ -------------------
OTHER INCOME/(EXPENSES)
Other income 7,500 7,500 22,500 16,339
Gain on extinguishment of debt - - 8,808 -
Interest expense (1,945) (1,030) (3,937) (3,029)
------------------- ------------------ ------------------ -------------------
TOTAL OTHER INCOME/(EXPENSES) 5,555 6,470 27,371 13,310
------------------- ------------------ ------------------ -------------------
LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (96,152) (111,357) (171,568) (432,563)
------------------- ------------------ ------------------ -------------------
PROVISION FOR INCOME (TAXES)/BENEFIT
Income taxes paid - - (1,616) (1,662)
Income tax (provision)/benefit - - - -
------------------- ------------------ ------------------ -------------------
PROVISION FOR INCOME (TAXES)/BENEFIT - - (1,616) (1,662)
------------------- ------------------ ------------------ -------------------
NET LOSS $ (96,152) $ (111,357) $ (173,184) $ (434,225)
=================== ================== ================== ===================
EARNINGS PER SHARE
BASIC AND DILUTED $ (0.00) $ (0.00) $ (0.00) $ (0.00)
=================== ================== ================== ===================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 96,135,126 96,135,126 96,135,126 96,135,126
=================== ================== ================== ===================
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 NINE MONTHS ENDED MARCH 31, 2013
Preferred Stock Common Stock Additional
---------------------- --------------------------- Paid-in Accumulated
Shares Value Shares Value Capital Deficit Total
----------- ---------- -------------- ------------- ------------- -------------- ------------
Balance, June 30, 2012 - $ - 96,135,126 $ 96,135 $ 7,334,613 $ (7,450,007) $ (19,259)
Stock compensation expense (unaudited) - - - - 15,234 - 15,234
Contributed services (unaudited) - - - - 12,000 - 12,000
Net loss (unaudited) - - - - - (173,184) (173,184)
----------- ---------- -------------- ------------- ------------- -------------- ------------
Balance, March 31, 2013 (unaudited) - $ - 96,135,126 $ 96,135 $ 7,361,847 $ (7,623,191) $ (165,209)
=========== ========== ============== ============= ============= ============== ============
The accompanying notes are an integral part of these
consolidated financial statements.
5
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31, 2013 March 31, 2012
----------------------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (173,184) $ (434,225)
Adjustment to reconcile net loss to net cash
provided/(used) by operating activities
Depreciation and amortization 16,765 17,065
Bad debt expense (43,256) 11,256
Cost of stock compensation recognized 15,234 1,815
Contributed services 12,000 -
Change in assets and liabilities:
(Increase) Decrease in:
Accounts receivable 42,575 (61,867)
Prepaid and other assets 1,777 (2,388)
Other assets 9,000 9,000
Increase (Decrease) in:
Accounts payable 54,986 (23,502)
Accrued expenses 1,364 (15,261)
Deferred income (32,853) (7,257)
Other liabilities (8,884) (6,512)
----------------------- -----------------------
NET CASH PROVIDED/(USED) IN OPERATING ACTIVITIES (104,475) (511,876)
----------------------- -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal/(Purchase) of property and equipment (7,705) (7,893)
----------------------- -----------------------
NET CASH PROVIDED/(USED) IN INVESTING ACTIVITIES (7,705) (7,893)
----------------------- -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible note payable 50,000 -
----------------------- -----------------------
NET CASH PROVIDED/(USED) IN FINANCING ACTIVITIES 50,000 -
----------------------- -----------------------
NET DECREASE IN CASH (62,180) (519,769)
CASH, BEGINNING OF YEAR 63,104 575,398
----------------------- -----------------------
CASH, END OF PERIOD $ 924 $ 55,629
======================= =======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ - $ 27
======================= =======================
Taxes paid $ 475 $ 3,849
======================= =======================
The accompanying notes are an integral part of these
consolidated financial statements.
6
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2013
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all normal recurring adjustments considered necessary for a fair
presentation have been included. Operating results for the nine months
ended March 31, 2013 are not necessarily indicative of the results that may
be expected for the year ending June 30, 2013. For further information
refer to the financial statements and footnotes thereto included in the
Company's Form 10K for the year ended June 30, 2012.
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.
ACCOUNTS RECEIVABLE
The Company extends credit to its customers, who are located primarily in
California. Accounts receivable are customer obligations due under normal
trade terms. The Company performs continuing credit evaluations of its
customers' financial condition. Management reviews accounts receivable on a
regular basis, based on contracted terms and how recently payments have
been received to determine if any such amounts will potentially be
uncollected. The Company includes any balances that are determined to be
uncollectible in its allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off. The
balance of the allowance account at March 31, 2013 and June 30, 2012 are
$9,152 and $52,408, respectively.
REVENUE RECOGNITION
The Company recognizes income when the service is provided or when product
is delivered. We present revenue, net of customer incentives. Most of the
income is generated from monthly fees from clients who subscribe to the
Company's fully hosted web based e-commerce products on terms averaging
twelve months. Unless terminated accordingly with prior written notice, the
agreements automatically renew for another term.
We provide online marketing services that we purchase from third parties.
The gross revenue presented in our statement of operations is in accordance
with ASC 605-45.
We also offer professional services such as development services. The fees
for development services with multiple deliverables constitute a separate
unit of accounting in accordance with ASC 605-25, which are recognized as
the work is performed.
Upfront fees for development services or other customer services are
deferred until certain implementation or contractual milestones have been
achieved. The deferred revenue as of March 31, 2013 and June 30, 2012 was
$0 and $32,853, respectively.
For the quarter ended, March 31, 2013, monthly recurring fees for TCP, ICS
and mobile services account for 11% of the Company's total revenues,
professional services account for 86% and the remaining 3% of total
revenues are from resale of third party products and services.
For the quarter ended, March 31, 2012, monthly recurring fees for TCP, ICS
and mobile services account for 60% of the Company's total revenues,
professional services account for 23% and the remaining 17% of total
revenues are from resale of third party products and services.
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.
7
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2013
Stock-based compensation expense recognized during the period is based on
the value of the portion of stock-based payment awards that is ultimately
expected to vest. Stock-based compensation expense recognized in the
consolidated statement of operations during the nine months ended March 31,
2013, included compensation expense for the stock-based payment awards
granted prior to, but not yet vested, as of March 31, 2013 based on the
grant date fair value estimated. Stock-based compensation expense
recognized in the statement of income for the nine months ended March 31,
2013 is based on awards ultimately expected to vest, it has been reduced
for estimated forfeitures. The stock-based compensation expense recognized
in the consolidated statements of operations during the nine months ended
March 31, 2013 and 2012 are $15,234 and $1,814, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Management reviewed accounting pronouncements issued during the nine months
ended March 31, 2013, and no pronouncements were adopted during the period.
RECLASSIFICATION
Certain statement of operations amounts for the nine months ended March 31,
2012 were reclassified to conform to the presentation of the period ended
March 31, 2013.
3. LIQUIDITY AND OPERATIONS
The company had net losses of $173,184 and $434,225 for the nine months
periods ended March 31, 2013 and 2012, respectively, and net cash used in
operating activities of $104,475 and $511,876 for the same periods,
respectively.
While we expect that our capital needs in the foreseeable future will be
met by cash-on-hand and existing cash flow, there is no assurance that the
Company will generate any or sufficient 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. The Company has recently been incurring operating losses and
experiencing negative cash flow. 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.
GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course
of business. The accompanying financial statements do not reflect any
adjustments that might result if the Company is unable to continue as a
going concern. The Company does not generate significant revenue, and has
negative cash flows from operations, which raise substantial doubt about
the Company's ability to continue as a going concern. The ability of the
Company to continue as a going concern and appropriateness of using the
going concern basis is dependent upon, among other things, an additional
cash infusion. Management believes the existing shareholders and potential
prospective new investors will provide the additional cash needed to meet
the Company's obligations as they become due, and will allow the
development of its core of business.
4. CONVERTIBLE NOTE PAYABLE
On March 25, 2013, the Company signed a convertible promissory note ("the
Note") in the amount of $100,000, at which time an initial advance of
$50,000 was received to cover operational expenses. The lender advanced an
additional $20,000 on April 16, 2013. The Company may draw upon the
additional $30,000 at any time. The terms of the Note allow the lender to
convert all or part of the outstanding balance plus accrued interest, at
any time after the effective date, at a conversion price of the lower of
(a) $0.015 per share, or (b) 50% of the lowest trade price of Common Stock
recorded on any trade day after the effective date of the agreement. The
Note bears interest at a rate of 10% per year and matures one year from the
effective date of each advance.
5. CAPITAL STOCK
At March 31, 2013 and 2012, 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.
8
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
March 31, 2013
6. 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 may 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 expires on the date specified in the
Option Agreement, which date may 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 is 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 is to be specified by the Board at the
time the Option is granted, and may be less than, equal to, or greater than
the Fair Market Value of the shares of Common Stock on the date such
Nonqualified Option is granted, but may be no less than 85% of the Fair
Market Value of the Common Stock on the date of grant. The Plan provides
specific language as to the termination of options granted.
On October 12, 2011, the Company granted 3,000,000 employee qualified
(incentive) stock options, and 500,000 non-qualified stock options at a
strike price of $0.004 per share. The options vest 1/48th monthly and
expire October 12, 2021. During the six months ended December 31, 2012,
2,500,000 of these options were forfeited due to terminations.
On August 13, 2012, the Company granted 12,500,000 non-qualified stock
options at a strike price of $0.0053 per share. The options vest 1/36th
monthly and expire August 13, 2019.
A summary of the Company's stock option activity for the three months
ending March 31, 2013, and related information follows:
March 31, 2013
-----------------------------
Weighted
average
exercise
Options price
-------------- --------------
Outstanding -beginning of period 13,508,000 $ 0.005
Granted - -
Exercised - -
Forfeited - -
-------------- --------------
Outstanding - end of period 13,508,000 $ 0.005
============== ==============
Exercisable at the end of period 2,999,543 $ 0.005
============== ==============
Weighted average fair value of
options granted during the year $ 66,250
==============
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.
9
The weighted average remaining contractual life of options outstanding
issued under the plan as of March 31, 2013 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
--------------- ------------------ ---------------
$ 0.050 8,000 5.33
$ 0.005 12,500,000 6.37
$ 0.004 1,000,000 8.54
------------------
13,508,000
==================
7. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of
ASC TOPIC 855, and has determined that no such events require disclosure.
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,"
"we," "us," "our," 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) loss of customers and 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 the
Company;
(m) uncollectible accounts and the need to incur expenses to
collect amounts owed to the Company;
(n) the Company does not have an Audit Committee nor sufficient
independent directors.
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 or successfully compete, 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
W9 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.
We believe 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 SaaS 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.
Research and development 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. We also examine features that we believe will create a competitive
advantage during our sales process to clients. We believe 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. We believe 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 to successfully devote the
resources needed for this research and development and that it will be able to
compete successfully.
11
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.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2013, COMPARED TO THE
NINE MONTHS ENDED MARCH 31, 2012.
REVENUE
Total revenue for the nine months ended March 31, 2013 increased by
$206,278 to $835,177 compared to $628,899 for the same prior period. The overall
increase in revenue was primarily the result of an increase in upfront fees for
mobile e-commerce website development.
COST OF REVENUE
The cost of revenue for the nine months ended March 31, 2013 increased
by $66,691 to $147,464 compared to $80,773 for the same prior period. The
overall increase was primarily due to costs incurred to produce e-commerce
websites.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative (SG&A) expenses for the nine
months ended March 31, 2013 decreased $41,218 to $841,347 compared to $882,565
for the same prior period. The overall decrease in SG&A expenses was primarily
due to a decrease in salary expense.
RESEARCH AND DEVELOPMENT
Research and development expenses for the nine months ended March 31,
2013 decreased $79,247 to $13,307 as compared to $92,554 for the same prior
period. The decrease was due to a reduction in time devoted to the new TCP
platform and instead devoting those resources to operations and current project
production.
NET INCOME/(LOSS)
The consolidated net loss for the nine months ended March 31, 2013 was
($173,184) compared to the consolidated net loss of ($434,225) for the same
prior period. The decrease in net loss for the period was primarily due to an
increase in mobile e-commerce website upfront revenue and a reduction in SG&A
expenses.
12
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net working capital deficit (i.e. the difference
between current assets and current liabilities) of ($238,860) at March 31, 2013
as compared to a net working capital deficit of ($110,972) at June 30, 2012. The
decrease in net working capital at March 31, 2013 was caused by an increase in
accounts payable over the past year.
Cash flow used in operating activities was ($104,475) for the nine
months ended March 31, 2013 as compared to cash flow used in operating
activities of ($511,876) for the same prior period. The decrease in cash flow
used in operating activities of $407,401 was primarily due to a decrease in net
loss and accounts receivable, and an increase in accounts payable.
Cash flow used in investing activities was ($7,705) for the nine months
ended March 31, 2013 as compared to cash flow used in investment activities of
($7,893) for the same prior period. The decrease in cash flow used in investing
activities of $188 was primarily due to the decrease of equipment purchases
during the current period.
Cash flow provided in financing activities was $50,000 for the nine
months ended March 31, 2013 as compared to $0 for the same prior period. The
increase in cash flow provided in financing activities of $50,000 was due to
proceeds received by the Company from a convertible promissory note, dated March
25, 2013.
While we expect that our capital needs in the foreseeable future will
be met by cash-on-hand and existing cash flow, there is no assurance that we
will generate any or sufficient positive cash flows, or have sufficient capital,
to finance our growth and business operations, or that such capital will be
available on terms that are favorable to us or at all. The Company has recently
been incurring operating losses and experiencing negative cash flow. 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.
ITEM 4. 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 W9 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,
Chief Executive Officer, and 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 March 31, 2013 (under the supervision and with the
participation of the Company's Chairman, Chief Executive Officer, and 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
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective as of March 31, 2013.
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.
13
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, Chief Executive Officer, and Chief Financial
Officer have concluded that the internal controls over financial reporting are
effective as of March 31, 2013.
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 nine month period ended
March 31, 2013 that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-------------------------
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. MINE SAFETY DISCLOSURES
------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
-------------------------
None.
ITEM 6. EXHIBITS
----------------
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------------- --------------------------------------------------
31.1 Section 302 Certification
31.2 Section 302 Certification
32.1 Section 906 Certification
32.2 Section 906 Certification
EX-101.INS XBRL INSTANCE DOCUMENT*
EX-101.SCH XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT*
EX-101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE*
EX-101.DEF XBRL TAXONOMY EXTENSION DEFINITION LINKBASE*
EX-101.LAB XBRL TAXONOMY EXTENSION LABELS LINKBASE*
EX-101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE*
* Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive
data files on Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, and otherwise are not subject to liability under those
sections.
14
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.
WARP 9, INC.
--------------------------------------
(Registrant)
Dated: May 14, 2013 By:/s/ Andrew Van Noy
---------------------------------------
Andrew Van Noy, 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/ Andrew Van Noy Dated: May 14, 2013
--------------------------------------------------------
Andrew Van Noy, Chief Executive Officer and President
(Principal Executive Officer)
By: /s/ Gregory S. Boden
--------------------------------------------------------
Gregory S. Boden, Chief Financial Officer
(Principal Financial/Accounting Officer)
15