FORM 10-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: June 30, 2013
COMMISSION FILE NUMBER 0-13215
WARP 9, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 30-0050402
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(State of Incorporation) (I.R.S. Employer Identification No.)
1933 Cliff Dr., Suite 11, Santa Barbara, California 93109
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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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK OTC
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes |_| No |X|
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes |_| No |X|
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 preceding 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
|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.
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|
The aggregate market value of voting stock held by non-affiliates of
the registrant was approximately $841,359 as of December 31, 2012, the last
business day of the registrant's most recently completed second fiscal quarter
(computed by reference to the last sale price of a share of the registrant's
Common Stock on that date as reported by OTC Bulletin Board).
There were 96,135,126 shares outstanding of the registrant's Common
Stock as of September 27, 2013.
TABLE OF CONTENTS
PART 1
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ITEM 1 Business 2
ITEM 2 Properties 8
ITEM 3 Legal Proceedings 8
ITEM 4 Mine Safety Disclosures 8
PART II
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ITEM 5 Market for Common Equity, Related Stockholder Matters,
and Issuer Purchases of Equity Securities 8
ITEM 6 Selected Financial Data 9
ITEM 7 Management's Discussion and Analysis or Plan of Operation 10
ITEM 8 Financial Statements and Supplementary Data 15
ITEM 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 30
ITEM 9A Controls and Procedures 30
ITEM 9B Other Information 31
PART III
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ITEM 10 Directors, Executive Officers, and Corporate Governance 32
ITEM 11 Executive Compensation 34
ITEM 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 40
ITEM 13 Certain Relationships and Related Transactions, and
Director Independence 41
ITEM 14 Principal Accounting Fees and Services 41
ITEM 15 Exhibits, Financial Statement Schedules 41
SIGNATURES 43
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PART I
ITEM 1. BUSINESS
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COMPANY HISTORY
Warp 9, Inc. ("Warp 9" or the "Company") is a Nevada corporation
formerly known as Roaming Messenger, Inc., formerly known as Latinocare
Management Corporation ("LMC"). On August 24, 2006, the Company's board of
directors and majority shareholders voted to change the name of the Company from
Roaming Messenger, Inc. to Warp 9, Inc. to reflect a new strategic plan of
focusing primarily on the business of the Company's wholly owned subsidiary,
Warp 9, Inc., a Delaware corporation that is an e-commerce Software-as-a-Service
("SaaS") provider.
GENERAL
We are 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 e-commerce, 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 recurring 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.
On October 23, 2007, we licensed our patent-pending mobile technology
and certain trademarks on a non-exclusive basis to Zingerang Software. Under the
terms of the agreement, Warp 9 will retain ownership of the technology and
trademarks, as well as any improvements and derivatives created by Zingerang
Software. Warp 9 is entitled to receive royalties based on revenues from sales
if any, generated by Zingerang Software. This agreement allows us to enhance and
augment our technology and intellectual property portfolio without using direct
resources, and still allows us to seek other licensing options in the future. To
date, we have not yet generated any revenue from our licensing efforts.
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INDUSTRY OVERVIEW
GROWTH OF E-COMMERCE
We believe there are a number of factors that are contributing to the
growth of e-commerce: (i) adoption of the Internet continues to increase
globally; (ii) broadband technology is becoming more widely available and the
adoption of broadband for Internet use is increasing at a rapid rate; (iii)
Internet users are increasingly comfortable with the process of buying products
online; (iv) the functionality of online stores continues to improve, a greater
range of payment options are available, and special offers and shipping
discounts are making online shopping more attractive; (v) businesses are placing
more emphasis on their online stores as they can reach a larger audience at a
comparatively lower cost than the methods used to drive traffic to traditional
brick-and-mortar retail stores or sell through printed paper catalogs. As a
result of these growth drivers, retailers and catalogers have begun to build
large, global customer bases that can be reached cost-effectively, potentially
resulting in higher sales and profitability.
OPPORTUNITIES FOR OUTSOURCED E-COMMERCE
We believe there are advantages to outsourced e-commerce that will
continue to make solutions like those of Warp 9 an attractive alternative to
building and maintaining this capability in-house. These advantages include: (i)
eliminating the substantial up-front and ongoing costs of computer hardware,
network infrastructure and specialized application software and personnel; (ii)
reducing the time it takes to get online stores live and productive; (iii)
shifting the ongoing technology, financial, regulatory and compliance risks to a
proven service provider; (iv) leveraging the expertise of an e-commerce service
provider to accelerate growth of an online business; and (v) allowing businesses
to focus on their specific core competencies.
TECHNOLOGY PRODUCTS
We primarily offer four proprietary software systems to our customers -
e-commerce, e-mail marketing, virtual catalog publishing, and virtual magazine
publishing. It is our product development goal to create other complementary
systems to deliver a fully integrated platform for a successful e-commerce
operation.
WARP 9 TOTAL COMMERCE PLATFORM (WARP 9 TCP)
The Warp 9 Total Commerce Platform ("Warp 9 TCP"), our flagship
product, is an enterprise-grade software system that enables catalogers and
retailers to expand their operation to the Internet with minimal investment,
overhead and risk. The TCP platform is a much more robust, scalable and flexible
platform, than previously offered through Warp 9 ICS. A business does not need
to invest in new hardware or software in order to utilize the Warp 9 TCP,
because it is offered as a fully managed online e-commerce system hosted in our
internet datacenter. With a range of easy to use and highly customizable
features for product presentation as well store management, Warp 9 TCP satisfies
many of the current and next generation requirements of catalogers and
retailers. We charge our customers a recurring monthly fee for using the Warp 9
TCP software based on 12, 24 and 36 month term agreements. There are various
pricing packages for Warp 9 TCP, depending on the customer's desired level of
scalability and reliability.
Warp 9 TCP is designed with a highly scalable enterprise architecture
that allows us to provide our customers with maximum performance and system
uptime. As our customer base or transaction volume grows, we simply add new
servers, CPUs, memory and bandwidth without substantial changes to the TCP
software. The high end version of the Warp 9 TCP offering operates on a cluster
of load balanced and fault-tolerant servers in our onsite datacenter. If a
server in the cluster fails for any reason, the architecture shifts the traffic
to other available servers, thus minimizing downtime and disruption to our
customers' mission critical e-commerce websites.
WARP 9 E-MAIL MARKETING SYSTEM (WARP 9 EMS)
Warp 9 E-mail Marketing System ("Warp 9 EMS") is a web-based e-mail
campaign and list management system designed for high performance and
reliability. EMS's sophisticated technology allow our clients to send targeted
e-mail campaigns that help grow, retain and maximize the lifetime value of their
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customers. Through content personalization and list segmentation, campaign
efforts result in higher response rates, higher conversion rates and improved
customer loyalty. E-mail marketing systems, such as Warp 9 EMS, enable
unprecedented response times that are not achievable through traditional forms
of direct marketing. TCP customers can also purchase EMS to complement their
online e-commerce strategy.
WARP 9 MOBILE
Warp 9 Mobile allows a company to extend the reach of existing
e-commerce stores, into mobile devices. Current TCP customers utilize a direct
link to the e-commerce site fully managed by Warp 9, providing an end-to-end
e-commerce solution. Companies that would like to implement a mobile solution,
without replacing the existing e-commerce platform, can utilize Warp 9 Mobile
through the use of proxy server technology. Warp 9 designs and manages the
mobile site, which is an extension of the desktop site, without the need to
migrate to Warp 9 TCP. The flexibility of these two options allows Warp 9 to
offer a mobile solution to companies looking expansion into mobile.
PROFESSIONAL SERVICES
Our customers are not technology companies and have varying internal
expertise in the areas of e-commerce, online marketing and web technologies. To
provide a complete solution to our customers, we also offer professional
services to help our customers maximize the use of our technology or other
online e-commerce technologies. Professional services include but not limited to
e-commerce web page template development, e-mail campaign content creation,
custom system configuration, graphic design, management of online marketing
programs, and integration to backend business systems.
SITE DESIGN AND DEVELOPMENT
We offer our clients site design services that utilize our experience
and expertise to create efficient and effective online stores powered by Warp 9
TCP. Our e-commerce solutions can be deployed quickly for our clients and
implemented in a variety of ways from simple shopping websites to complex
systems that integrate to backend inventory management systems. This is all done
by maximally using the feature set of Warp 9 TCP.
MERCHANDIZING AND PROMOTIONS DESIGN
The Warp 9 TCP technology platform supports a wide range of
merchandising activities. On an ongoing basis, we help our clients create
effective promotional activities, up-sell, cross-sell as well as promote
featured products during any phase of the shopping process. By doing so, our
professional services team continues to work with our clients to deliver
targeted offers designed to increase conversion ratios and average order size.
We have also developed an algorithm that can help our clients automate the
upsell/cross-sell opportunities. Additionally, we have created a new advertising
feature that allows our clients to easily add graphical elements with interior
or exterior links to assist with instantaneous promotion of featured products.
ADVANCED REPORTING AND ANALYTICS
Warp 9 TCP captures a great deal of information about sales and visitor
activities in its database. We provide our clients access to a collection of
standard and customizable reports as well as create any report they need for
their individual business making decisions. For example, we can create custom
reports to help our clients analyze the average orders size of one design versus
another. This enables our clients to track and analyze sales, products,
transactions and customer behavior to further refine their market strategies to
increase sales.
STRATEGIC MARKETING SERVICES
We offer a wide range of strategic marketing services designed to
increase customer acquisition, retention and lifetime value. Through a
combination of web analytics, analytic-based statistical testing and
optimization, our team of strategic marketing consultants develop, deliver and
manage programs such as paid search advertising, search engine optimization,
affiliate marketing, store optimization and e-mail optimization for our clients.
We believe our ability to capture and analyze integrated traffic and commerce
data enhances the value of our strategic marketing services as we can precisely
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determine the effectiveness of specific marketing activities, website changes,
and other actions taken by our clients. We are also working on providing this
beneficial sales data in real-time and in a more customizable format.
REVENUE MODEL
We charge our customers a recurring monthly fee, based on term
contracts, to use the Warp 9 TCP product under a Software-as-a-Service ("SaaS")
model. Unlike traditional software companies that sell software on a perpetual
license where quarterly and annual revenues are very difficult to predict, our
SaaS model spreads the collection of contracts over several quarters or years
and makes our revenues more predictable for a longer period of time.
The Company also generates incremental revenue by offering additional
products such as Warp 9 EMS, professional web production, graphic design,
marketing, and other consulting services to support Warp 9 products and
generally to aid in the operations of our customers' e-commerce activities.
BENEFITS TO CLIENTS
Our complete solution of providing robust technology along with
complementary professional services delivers many benefits to our customers.
REDUCED TOTAL COST OF OWNERSHIP AND RISK
Utilizing our technology and services, businesses can dramatically
reduce or eliminate upfront and ongoing hardware, software, maintenance and
support costs associated with developing, customizing, deploying and upgrading
an in-house e-commerce solution. They can have a global e-commerce presence
without assuming the costs and risks of developing it themselves and take
immediate advantage of the investments we continually make in our e-commerce
systems and associated services. Our commitment to the latest technologies and
e-commerce functionality helps ensure that our clients maintain pace with
industry advances.
REVENUE GROWTH
Through our services consultants, we help our clients grow their
businesses by applying our technology and experience to (i) increase the
acquisition, retention and lifetime value of new customers; (ii) extending their
businesses into new geographic markets; and (iii) expanding the visibility and
sales of their products through new online sales channels. We have developed
substantial expertise in online marketing and merchandising, which we apply to
help our clients increase traffic to their online stores, and improve order
close ratios, average order sizes and repeat purchases, all of which are
designed to generate higher revenues for our clients' businesses and greater
revenue for Warp 9.
DEPLOYMENT SPEED
Businesses can reduce the time required to develop an e-commerce
presence by utilizing our outsourced business model. Typically, a new client can
have an online store live much more quickly than if they decided to build, test
and deploy the e-commerce capability in-house. Once they are operational on our
platform, clients can utilize our remote control toolset to make real-time
changes to their online store, allowing them to address issues and take
advantage of opportunities without technical assistance.
FOCUS ON CORE COMPETENCY
By utilizing our outsourced e-commerce model, businesses can focus on
developing, marketing and selling their products rather than devoting time and
resources to building and maintaining an e-commerce infrastructure. Management
can focus their time on their core business while ensuring they have access to
the latest technologies, tools and expertise for running a successful e-commerce
operation.
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SALES AND MARKETING
Our objective is to be the leading provider of outsourced e-commerce
solutions for retail operations and online catalogs. To achieve this objective,
we intend to enhance, promote and support the idea that Warp 9 is the complete
provider of the necessary technology platform and professional services to
effectively conduct a serious e-commerce operation.
We currently market our e-commerce solutions directly to clients and
prospective clients. We focus our efforts on generating awareness of the Warp 9
brand and capabilities and establishing our position as a competitor in the
e-commerce space.
During the client sales process, our staff delivers demonstrations,
presentations, collateral material, return-on-investment analyses, proposals and
contracts A great deal of our new customers have come from direct sales, trade
shows, and word-of-mouth referrals. Our direct sales efforts are aimed at senior
marketing and IT executives within a retailer or catalog company who are looking
to create or expand their e-commerce operation. Because of our long history in
e-commerce, prospective clients quite often look for us at trade shows to learn
more about Warp 9. Word-of-mouth referrals have been very valuable to us and we
intend to continue nurturing our customer and industry relationships to maximize
these referrals.
In addition to our direct sales efforts, trade shows, and referrals, we
intend to explore a channel partner strategy to expand our customer base.
Prospective channel partners include consultants and designers in the catalog
industry, as well as backend order fulfillment systems providers and providers
of complementary services or products. With the growing maturity of
multi-channel e-commerce strategies, many of the robust backend systems
providers are looking for robust front-end e-commerce system, like Warp 9 TCP,
to deliver a fully integrated online/offline solution to their clients.
COMPETITION
The market for e-commerce solutions is highly competitive, especially
as it reaches maturity. We compete with e-commerce solutions that our customers
develop themselves or contract with third parties to develop. We also compete
with other outsourced e-commerce providers. The competition we encounter
includes:
o In-house development of e-commerce capabilities using tools or
applications from companies such as Art Technology Group,
Broadvision, and IBM;
o E-Commerce capabilities custom-developed by companies such as
IBM Global Services, and Accenture, Inc.;
o Other providers of outsourced e-commerce solutions, such as
WebLinc, Volusion, UniteU, MarketLive, etc.;
o Companies that provide technologies, services or products that
support a portion of the e-commerce process, such as payment
processing, including CyberSource Corporation, PayPal
Corporation and Authorize.net;
o High-traffic branded websites that generate a substantial
portion of their revenue from e-commerce and may offer or
provide to others the means to offer their products for sale,
such as Amazon.com, Inc.; and
o Web hosting, web services and infrastructure companies that
offer portions of our solution and are seeking to expand the
range of their offering, such as Network Solutions, LLC,
Akamai Technologies, Inc., Yahoo! Inc., eBay Inc. and
Hostopia.com Inc.
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PATENTS AND PATENT APPLICATIONS
Our intellectual property portfolio consists of the following patents,
which primarily relate to the Roaming Messenger technology:
SELF CONTAINED BUSINESS TRANSACTION CAPSULES
A self-contained business transaction capsule, or eCapsule, is a small
electronic capsule that contains all the necessary data and logic to complete a
business transaction. The eCapsule is a "thin" and "lightweight" small
computer-readable file that is device independent. The eCapsule allows a
business, for example, to encapsulate an individual product or offer into an
intelligent object that is capable of completing entire transactions. The
eCapsule includes data about the product or service being provided, such as the
product price, a textual description, or options for the product or service (a
transaction description). The eCapsule also includes transaction logic or
business logic capable of completing the transaction, such as billing and
shipping information, order routing information, order status information,
shipping status information, and any other transaction rules necessary to
process the transaction. Moreover, the eCapsule is adapted to be broadcasted to,
and stored on, a portable electronic device, such as a mobile wireless-enabled
device, like a cellular telephone, a personal digital assistant (PDA) or a
laptop computer. This patent was issued on September 12, 2006.
A METHOD OF AND INSTRUCTION SET FOR EXECUTING OPERATIONS ON A DEVICE
This invention relates to executable instructions and, more
particularly, to instructions that are executable on a device that receives a
mobile agent. This patent application discloses the actual implementation of the
Roaming Messenger device engine and messenger instruction sets and modes of
execution. The application for this patent was filed on December 7, 2004 and was
issued on December 30, 2008.
GOVERNMENT REGULATION
We are subject to various federal, state, and local laws affecting
e-commerce and communication businesses. The Federal Trade Commission and
equivalent state agencies regulate advertising and representations made by
businesses in the sale of their products, which apply to us. We are also subject
to government laws and regulations governing health, safety, working conditions,
employee relations, wrongful termination, wages, taxes and other matters
applicable to businesses in general.
EMPLOYEES
As of September 27, 2013, we had eight full time employees, one of whom
is employed in an administrative position, one in a sales and marketing
position, and six technical employees in technical product maintenance
positions.
All of our employees have executed agreements that impose nondisclosure
obligations on the employee and assign to us (to the extent permitted by
California law) all copyrights and other inventions created by the employee
during his employment with us. Additionally, we have a trade secret protection
policy in place that management believes to be adequate to protect our
intellectual property and trade secrets.
SEASONALITY
We do not anticipate that our business will be substantially affected
by seasonality.
TRADEMARKS
We have registered trademarks for Roaming Messenger(R) and Warp 9(R).
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ITEM 2. PROPERTIES
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During the year ended June 30, 2013, the Company maintained its offices
in approximately 5,251 square feet of office space at 6500 Hollister Avenue,
Suite 120, Santa Barbara, California 93117 for approximately $8,046 per month,
pursuant to a five year lease agreement which commenced on May 25, 2010. In
addition, the Company was responsible for its pro-rata share of Common Area
Maintenance fees. On August 26, 2013, the Company signed a lease for
approximately 2,534 square feet of office space at 1933 Cliff Dr., Suite 11,
Santa Barbara, California 93109 for approximately $4,308 per month, pursuant to
a two year lease agreement which commences on October 1, 2013. In addition, the
Company is responsible for its pro-rata share of common area maintenance fees.
ITEM 3. LEGAL PROCEEDINGS
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The Company may be involved in legal actions and claims arising in the
ordinary course of business, from time to time, none of which at this time are
considered to be material to the Company's business or financial condition.
The Company may file additional collection actions and be involved in
other litigation in the future.
ITEM 4. MINE SAFETY DISCLOSURES.
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Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
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COMMON STOCK
The Company's common stock trades on the OTC Bulletin Board Market
under the symbol "WNYN." The range of high and low bid quotations for each
fiscal quarter within the last two fiscal years was as follows:
Year Ended June 30, 2013 HIGH LOW
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First Quarter ended September 30, 2012 $0.0170 $0.0040
Second Quarter ended December 31, 2012 $0.1790 $0.0063
Third Quarter ended March 31, 2013 $0.0171 $0.0122
Fourth Quarter ended June 30, 2013 $0.0250 $0.0100
Year Ended June 30, 2012 HIGH LOW
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First Quarter ended September 30, 2011 $0.0170 $0.0050
Second Quarter ended December 31, 2011 $0.0120 $0.0011
Third Quarter ended March 31, 2012 $0.0200 $0.0091
Fourth Quarter ended June 30, 2012 $0.0200 $0.0070
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The above quotations reflect inter-dealer prices, without retail
markup, mark-down, or commission and may not necessarily represent actual
transactions.
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The Company is authorized to issue 495,000,000 shares of common stock,
par value $0.001 per share, and 5,000,000 shares of preferred stock, par value
$0.001 per share. 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.
As of June 30, 2013, there were approximately 304 record holders of the
Company's common stock, not including shares held in "street name" in brokerage
accounts, which are unknown. As of June 30, 2013, there were 96,135,126 shares
of common stock outstanding on record.
DIVIDENDS
The Company has not declared or paid any cash dividends on its common
stock and does not anticipate paying dividends for the foreseeable future.
WARRANTS
During the fiscal year ended June 30, 2013, the Company did not issue
any warrants to purchase shares of the Company's stock.
EQUITY COMPENSATION PLAN INFORMATION
Effective July 10, 2003, the Company adopted the Warp 9, Inc. 2003
Stock Option Plan for Directors, Officers, Employees and Key Consultants (the
"Plan") authorizing the issuance of up to 5,000,000 shares of the Company's
common stock pursuant to the grant and exercise of up to 5,000,000 stock
options. The Plan has been approved by the holders of the outstanding shares of
the Company. The following table sets forth certain information regarding the
Plan as of June 30, 2013:
NUMBER OF NUMBER OF
SECURITIES SECURITIES
TO BE ISSUED WEIGHTED-AVERAGE REMAINING AVAILABLE
UPON EXERCISE OF EXERCISE PRICE FOR FUTURE ISSUANCE
OUTSTANDING STOCK OF OUTSTANDING UNDER EQUITY
OPTIONS STOCK OPTIONS COMPENSATION PLANS
----------------- ---------------- --------------------
Equity compensation 508,000 $0.0047 4,492,000
plans approved by
security holders
On August 13, 2012, we granted nonqualified stock options to purchase
up to 2,500,000 shares of our common stock to Greg Boden, our Chief Financial
Officer, at an exercise price of $0.0053 per share exercisable for a period of
seven years from the date of grant in consideration for his services to us.
These stock options vest at a rate of 1/36 per month commencing on the date of
grant until all of the options are vested.
On August 13, 2012, we granted nonqualified stock options to purchase
up to 5,000,000 shares of our common stock to Andrew Van Noy, our Chief
Executive Officer, at an exercise price of $0.0053 per share exercisable for a
period of seven years from the date of grant in consideration for his services
to us. These stock options vest at a rate of 1/36 per month commencing on the
date of grant until all of the options are vested.
On August 13, 2012, we granted nonqualified stock options to purchase
up to 5,000,000 shares of our common stock to Zachary Bartlett, our Vice
President of Operations, at an exercise price of $0.0053 per share exercisable
for a period of seven years from the date of grant in consideration for his
services to us. These stock options vest at a rate of 1/36 per month commencing
on the date of grant until all of the options are vested.
ITEM 6. SELECTED FINANCIAL DATA.
-------------------------------
None.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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CAUTIONARY STATEMENTS
This Form 10-K contains financial projections and other
"forward-looking statements," as that term is used in federal securities laws,
about Warp 9 Inc.'s ("Warp 9," "we," "us," or the "Company") financial
condition, results of operations, and business. These statements include, among
others:
o statements concerning the potential for benefits that Warp 9
may experience from its business activities and certain
transactions it contemplates or has completed; and
o statements of Warp 9's expectations, future plans and
strategies, anticipated developments, and other matters that
are not historical facts. These statements may be made
expressly in this Form 10-K. You can find many of these
statements by looking for words such as "believes," "expects,"
"anticipates," "estimates," or similar expressions used in
this Form 10-K. These forward-looking statements are subject
to numerous assumptions, risks, and uncertainties that may
cause the Company's actual results to be materially different
from any future results expressed or implied by the Company in
those statements. The most important facts that could prevent
the Company from achieving its stated goals include, but are
not limited to, the following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its
business, and inability to raise additional capital
or financing to implement its business plans;
(e) failure to further commercialize its technology or to
make sales;
(f) reduction in demand for the Company's products and
services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by
outside parties;
(i) insufficient revenues to cover operating costs; and
(j) failure of the relicensing 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.
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
-10-
more shares, warrants and stock options, the exercise of outstanding warrants
and stock options.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. The Company cautions you not to place undue reliance
on the statements, which speak only as of the date of this Form 10-K. 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 the Company 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-K or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our
condensed consolidated financial statements and notes to those statements. In
addition to historical information, the following discussion and other parts of
this quarterly report contain forward-looking information that involves risks
and uncertainties.
CURRENT OVERVIEW
Warp 9 is a provider of e-commerce software platforms and services for
the retail and catalog industries. Our suite of software platforms are designed
to help multi-channel retailers maximize the Internet channel by applying our
technologies for e-commerce, 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 e-commerce operation.
We charge our customers a recurring 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.
The Warp 9 TCP, our new flagship product, is an enterprise-grade
software system that enables catalogers and retailers to expand their operation
to the Internet with minimal investment, overhead, and risk. The Warp 9 TCP
platform is a much more robust, scalable, and flexible platform, than previously
offered through Warp 9 ICS. A business does not need to invest in new hardware
or software in order to utilize the Warp 9 TCP, because it is offered as a fully
managed online e-commerce system hosted in our internet datacenter. With a range
of easy to use and highly customizable features for product presentation as well
store management, we believe that the Warp 9 TCP satisfies many of the current
and next generation requirements of catalogers and retailers. We charge our
customers a recurring monthly fee for using the Warp 9 TCP software based on 12,
24, and 36 month term agreements. There are various pricing packages for Warp 9
TCP, depending on the customer's desired level of scalability and reliability.
Warp 9 TCP is designed with a highly scalable enterprise architecture
that we believe allows us to provide our customers with maximum performance and
system uptime. As our customer base or transaction volume grows, we are able to
add new servers, CPUs, memory, and bandwidth without substantial changes to the
Warp 9 TCP software. The high end version of the Warp 9 TCP offering operates on
a cluster of load balanced and fault-tolerant servers in our onsite datacenter.
If a server in the cluster fails for any reason, the architecture shifts the
traffic to other available servers, thus minimizing downtime and disruption to
our customers' mission critical e-commerce websites.
-11-
Research and development 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 and we are sometimes able to capitalize on these opportunities by
bundling features for greater value and/or increased fees and revenue.
A significant portion of the Company's revenues are from monthly
recurring fees for Warp 9 TCP, Warp 9 ICS, and Warp 9 Mobile products. During
the fiscal year ending June 30, 2013, these products accounted for approximately
34% of our gross revenue. Monthly recurring fees are generally variable with the
growth of a client's online revenues. Therefore, when our customers sell more
online, our revenues and profit margin increase without a dramatic increase in
costs. During the fiscal year ending June 30, 2013, professional services
accounted for approximately 62% of our gross 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 has 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 YEAR ENDED JUNE 30, 2013 AS COMPARED TO THE YEAR
ENDED JUNE 30, 2012
REVENUE
Total revenue for the twelve month period ended June 30, 2013 increased
by $99,198 to $1,006,162, compared to $906,964 in the prior year, an increase of
11%. The increase is primarily due to higher revenue for mobile websites on the
Moovweb platform.
COST OF REVENUE
The cost of revenue for the twelve month period ended June 30, 2013
decreased by $48,757 or approximately 19% to $202,780, compared to $251,537 for
the twelve month period ended June 30, 2012. The decrease in the cost of revenue
was primarily due to a decrease in the cost of outside contractors and a
decrease in commissions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses for the twelve
months ended June 30, 2013 increased by $8,234, or approximately 0.8% to
$1,110,492, compared to $1,102,258 for the twelve month period ended June 30,
2012. The increase in SG&A expenses was primarily due to an increase in salary
expense, but partially offset by decreases in advertising, bad debt expense, and
health benefits (due to lower headcount).
RESEARCH AND DEVELOPMENT
Research and development expenses for the twelve months ended June 30,
2013 decreased by $105,856, or approximately 89% to $13,307, compared to
$119,163 for the twelve months ended June 30, 2012. The decrease was due to a
focus away from platform development and onto the widely used, open-source
platform, Magento.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for the twelve months ended June
30, 2013 decreased by $2,393, or approximately 9% to $23,495, compared to
$25,888 for the twelve months ended June 30, 2012. The decrease was due to many
of the Company's fixed assets becoming fully depreciated as of June 30, 2013,
resulting in no current year depreciation expense being recognized for those
assets. This decrease was partially offset by depreciation of new fixed assets
acquired during the current year.
OTHER INCOME AND EXPENSE
Total other income (expense) for the twelve months ended June 30, 2013
increased by $11,178, or approximately 52% to income of $32,695, compared to
income of $21,517 for the twelve months ended June 30, 2012. The increase was
primarily due to the recognition of a gain on extinguishment of debt and a gain
on the sale of certain fixed assets.
NET (LOSS)
For the twelve months ended June 30, 2013, Warp 9's consolidated net
loss decreased by $240,893, to $333,842, compared to a consolidated net loss of
$574,735 for the twelve months ended June 30, 2012. This decrease in net loss is
primarily due to an increase in mobile development sales and an overall decrease
in costs.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2013 the Company had a cash balance of $12,636 compared
to $63,104 as of June 30, 2012. Warp 9 had net working capital deficit (i.e. the
difference between current assets and current liabilities) of ($377,733) as of
June 30, 2013, compared to a net working capital deficit of ($110,972) at June
30, 2012.
-13-
Cash flow used by operating activities was $173,043 for the year ended
June 30, 2013, compared to $502,266 used for the year ended June 30, 2012.
Operating cash flow was negative during the year due to a net operating loss.
Cash flow used by investing activities was $7,425 for the year ended
June 30, 2013, compared to $10,028 provided in the year ended June 30, 2012,
primarily as a result of additional computer equipment purchased in the current
year.
Cash flow provided by financing activities was $130,000 for the year
ended June 30, 2013, compared to zero used for the year ended June 30, 2012. The
increase is primarily due to an investment by Wings Fund, Inc. into the Company.
For the twelve months ended June 30, 2013, the Company's capital needs
have primarily been met from cash balances on hand.
While Warp 9 expects that its capital needs in the foreseeable future
may be met by cash-on-hand and projected positive cash-flow, there is no
assurance that the Company will be able to generate enough positive cash flow 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 equipment leases and other business financing. There is no
assurance that Warp 9 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.
-14-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF WARP 9, INC.
-------------------------------------------------------------------
WARP 9, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2013 AND 2012
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONTENTS
PAGE
Report of Independent Registered Public Accounting Firm 16
Consolidated Balance Sheets 17
Consolidated Statements of Operations 18
Consolidated Statements of Shareholders' Equity (Deficit) 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21-29
-15-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Warp 9, Inc.
We have audited the accompanying consolidated balance sheets of Warp 9, Inc. and
subsidiaries as of June 30, 2013 and 2012, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Warp 9, Inc. and
subsidiaries as of June 30, 2013 and 2012, and the results of their operations
and their cash flows for the years then ended, in conformity with U.S. generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company does not generate significant revenue and has
negative cash flows from operations. This raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ HJ ASSOCIATES & CONSULTANTS, LLP
HJ Associates & Consultants, LLP
Salt Lake City, Utah
September 27, 2013
-16-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 2013 June 30, 2012
--------------- ---------------
ASSETS
CURRENT ASSETS
Cash $ 12,636 $ 63,104
Accounts Receivable, net 62,887 93,340
Prepaid and Other Current Assets 1,343 11,792
--------------- ---------------
TOTAL CURRENT ASSETS 76,866 168,236
--------------- ---------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 83,288 83,288
Computer Equipment 266,789 260,179
Computer Software 14,840 14,025
Leasehold Improvements 18,696 18,696
--------------- ---------------
383,613 376,188
Less accumulated depreciation (333,215) (310,992)
--------------- ---------------
NET PROPERTY AND EQUIPMENT 50,398 65,196
--------------- ---------------
OTHER ASSETS
Lease Deposit 8,244 8,244
Internet Domain, net - 1,273
Licensing fees 5,000 17,000
--------------- ---------------
TOTAL OTHER ASSETS 13,244 26,517
--------------- ---------------
TOTAL ASSETS $ 140,508 $ 259,949
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 176,871 $ 91,144
Accrued Expenses 91,966 86,383
Accrued Interest 7,948 3,964
Deferred Income - 32,853
Deferred Operating Lease Liability 6,117 5,636
Notes Payable, Wings Fund, net 126,984 -
Note Payable, Other 37,867 37,867
Customer Deposit 6,846 21,361
--------------- ---------------
TOTAL CURRENT LIABILITIES 454,599 279,208
--------------- ---------------
TOTAL LIABILITIES 454,599 279,208
--------------- ---------------
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 7,373,623 7,334,613
Accumulated Deficit (7,783,849) (7,450,007)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) (314,091) (19,259)
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $ 140,508 $ 259,949
=============== ===============
The accompanying notes are an integral part of
these consolidated financial statements
-17-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended
June 30, 2013 June 30, 2012
---------------- ---------------
REVENUE $ 1,006,162 $ 906,964
COST OF SERVICES 202,780 251,537
---------------- ---------------
GROSS PROFIT 803,382 655,427
---------------- ---------------
OPERATING EXPENSES
Selling, general and administrative expenses 1,110,492 1,102,258
Research and development 13,307 119,163
Stock option expense 21,010 2,708
Depreciation and amortization 23,495 25,888
---------------- ---------------
TOTAL OPERATING EXPENSES 1,168,304 1,250,017
---------------- ---------------
LOSS FROM OPERATIONS BEFORE OTHER INCOME AND TAXES (364,921) (594,590)
---------------- ---------------
OTHER INCOME/(EXPENSE)
Other income 29,094 23,523
Gain on sale of fixed assets 2,500 -
Gain on extinguishment of debt 8,807 -
Interest expense (7,706) (2,006)
---------------- ---------------
TOTAL OTHER INCOME (EXPENSE) 32,695 21,517
---------------- ---------------
LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (322,226) (573,073)
---------------- ---------------
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 $ (333,842) $ (574,735)
================ ===============
EARNINGS PER SHARE
BASIC AND DILUTED $ (0.00) $ (0.01)
================ ===============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 96,135,126 96,135,126
================ ===============
The accompanying notes are an integral part of
these consolidated financial statements
-18-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/DEFICIT)
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Value Shares Value Capital Deficit Total
----------- ----------- --------------- ---------- ----------- ------------- --------------
Balance, June 30, 2011 - $ - 96,135,126 $ 96,135 $7,299,905 $ (6,875,272) $ 520,768
Stock compensation expense - - - - 2,708 - 2,708
Contributed services - - - - 32,000 - 32,000
Net loss - - - - - (574,735) (574,735)
----------- ----------- --------------- ---------- ----------- ------------- --------------
Balance, June 30, 2012 - - 96,135,126 96,135 7,334,613 (7,450,007) (19,259)
Stock compensation expense - - - - 21,010 - 21,010
Contributed services - - - - 12,000 - 12,000
Net loss - - - - - (333,842) (333,842)
Discount on Note - - - - 6,000 - 6,000
----------- ----------- --------------- ---------- ----------- ------------- --------------
Balance, June 30, 2013 - $ - 96,135,126 $ 96,135 $7,373,623 $ (7,783,849) $ (314,091)
=========== =========== =============== ========== =========== ============= ==============
The accompanying notes are an integral part of
these consolidated financial statements
-19-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
June 30, 2013 June 30, 2012
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (333,842) $ (574,735)
Adjustment to reconcile net loss to net cash
provided/(used) by operating activities
Depreciation and amortization 23,496 25,888
Bad debt expense (27,502) 41,000
Cost of stock compensation recognized 21,010 2,708
Contributed services 12,000 32,000
Amortization of debt discount 542 -
Gain on sale of fixed assets (2,500) -
Gain on settlement of debt (8,807) -
Change in assets and liabilities:
(Increase) Decrease in:
Accounts receivable 57,955 (66,071)
Prepaid and other assets 10,449 13,596
Other assets 12,000 12,000
Increase (Decrease) in:
Accounts payable 94,534 19,896
Accrued expenses 5,583 (6,463)
Deferred income (32,853) 843
Other liabilities (7,608) (2,928)
-------------- --------------
NET CASH PROVIDED/(USED) IN OPERATING ACTIVITIES (175,543) (502,266)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,425) (10,028)
Proceeds from sale of fixed assets 2,500 -
-------------- --------------
NET CASH PROVIDED/(USED) IN INVESTING ACTIVITIES (4,925) (10,028)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 130,000 -
-------------- --------------
NET CASH PROVIDED/(USED) IN FINANCING ACTIVITIES 130,000 -
-------------- --------------
NET DECREASE IN CASH (50,468) (512,294)
CASH, BEGINNING OF YEAR 63,104 575,398
-------------- --------------
CASH, END OF YEAR $ 12,636 $ 63,104
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 578 $ 197
============== ==============
Taxes paid $ 2,989 $ 2,237
============== ==============
The accompanying notes are an integral part of
these consolidated financial statements
-20-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013 AND 2012
1. ORGANIZATION AND LINE OF BUSINESS
ORGANIZATION
Warp 9, Inc. (the "Company") is a Nevada corporation formerly known as
Roaming Messenger, Inc., formerly known as Latinocare Management
Corporation ("LMC"). On August 24, 2006, the Company's board of directors
and a majority of shareholders voted to change the name of the Company from
Roaming Messenger, Inc. to Warp 9, Inc. to reflect a new strategic plan of
focusing primarily on the business of the Company's wholly owned
subsidiary, Warp 9, Inc., a Delaware corporation. The Company, based in
Goleta, California, began operations on October 1, 1999. The Company is a
provider of fully hosted web based e-commerce software products.
LINE OF BUSINESS
Warp 9, Inc. is a provider of e-commerce platforms and services for the
catalog and retail industry. Its suite of software platforms is designed to
help online retailers maximize the Internet channel by applying advanced
technologies for online catalogs, e-mail marketing campaigns, and
interactive visual merchandising. Offered on a fully managed
Software-as-a-Service model, Warp 9 products allow customers to focus on
their core business, rather than technical implementations.
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. The Company has obtained funds from its shareholders since
its inception through June 30, 2013. It is Management's plan to generate
additional working capital from increasing sales from its new Warp 9 Total
Commerce Platform ("TCP") and Warp 9 Mobile service offerings, and then
continue to pursue its business plan and purposes.
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.
The Consolidated Financial Statements include the Company and its
majority-owned subsidiary ("Warp 9, Inc., a Delaware corporation"). All
significant inter-company transactions are eliminated in consolidation.
ACCOUNTS RECEIVABLE
The Company extends credit to its customers, who are located nationwide.
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 June 30, 2013 and 2012 are $24,907 and $52,408
respectively.
-21-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements. Significant estimates made in preparing these financial
statements include the allowance for doubtful accounts, the estimate of
useful lives of property and equipment, the deferred tax valuation
allowance, and the fair value of stock options and warrants. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
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 professional services and site development fees.
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 June 30, 2013 and 2012 was zero and
$32,853, respectively.
For the fiscal year ended, June 30, 2013, monthly recurring fees for TCP,
ICS and mobile services account for 34% of the Company's total revenues,
professional services account for 62% and the remaining 4% of total
revenues are from resale of third party products and services.
For the fiscal year ended, June 30, 2012, monthly recurring fees for TCP,
ICS and mobile services account for 61% of the Company's total revenues,
professional services account for 22% and the remaining 17% of total
revenues are from resale of third party products and services.
RETURN POLICY
On all service offerings such as web based e-commerce products there are no
returns. Monthly fees are assessed and revenue is recognized at the end of
every month, after service has been provided. Some higher paying customers
may have service level agreements where we guarantee system uptime such as
99.9% of the time per month. If we fall below the agreed upon level of
uptime, we shall credit one day of service fee for each hour our system is
down up to a maximum of one monthly fee. This guarantee only covers
downtime as a result of failure in the Company's hardware, software or
gross negligence. Historically, the Company has not had to issue any
credits for such returns.
COST OF REVENUE
Cost of revenue includes the direct costs of operating the Company's
network, including telecommunications charges and third party internet
marketing charges.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Total research and
development costs were $13,307 and $119,163 for the years ended June 30,
2013 and 2012, respectively.
-22-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ADVERTISING COSTS
The Company expenses the cost of advertising and promotional materials when
incurred. Total advertising costs were $498 and $25,116 for the years ended
June 30, 2013 and 2012, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities are carried
at cost, which approximates their fair value, due to the relatively short
maturity of these instruments. As of June 30, 2013 and 2012, the Company's
capital lease obligations and notes payable have stated borrowing rates
that are consistent with those currently available to the Company and,
accordingly, the Company believes the carrying value of these debt
instruments approximates their fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and are depreciated or amortized
using the straight-line method over the following estimated useful lives:
Furniture, fixtures & equipment 7 Years
Computer equipment 5 Years
Commerce server 5 Years
Computer software 3 - 5 Years
Leasehold improvements Length of the lease
Depreciation expenses were $23,495 and $25,888 for the years ended June 30,
2013 and 2012, respectively.
CONCENTRATIONS OF BUSINESS AND CREDIT RISK
The Company operates in a single industry segment. The Company markets its
services to companies and individuals in many industries and geographic
locations. The Company's operations are subject to rapid technological
advancement and intense competition in the telecommunications industry.
Accounts receivable represent financial instruments with potential credit
risk. The Company typically offers its customers credit terms. The Company
makes periodic evaluations of the credit worthiness of its enterprise
customers and other than obtaining deposits pursuant to its policies, it
generally does not require collateral. In the event of nonpayment, the
Company has the ability to terminate 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.
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 year ended June 30, 2013,
included compensation expense for the stock-based payment awards granted
prior to, but not yet vested, as of June 30, 2013 based on the grant date
fair value estimated. Stock-based compensation expense recognized in the
statement of operations for the year ended June 30, 2013 is based on awards
ultimately expected to vest, or 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 year ended June 30, 2013 and 2012 was
$21,010 and $2,708, respectively.
EARNINGS PER SHARE
Earnings per Share require the Company to calculate earnings per share
based on basic and diluted earnings per share, as defined. Basic earnings
per share exclude dilution and are computed by dividing net income by the
-23-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
weighted average number of shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if stock
options and warrants to issue common stock were exercised or converted into
common stock. For the year ended June 30, 2013, since the Company reported
a net loss, the additional diluted shares would have had an anti-dilutive
effect. Therefore, all additional shares that would have been included in
the diluted earnings per share calculation were excluded, and the basic and
diluted earnings per share numbers are identical.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry-forwards. The measurement of deferred
tax assets and liabilities is based on provisions of applicable tax law.
The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance based on the amount of tax benefits that, based on
available evidence, is not expected to be realized.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Management reviewed accounting pronouncements issued during the twelve
months ended June 30, 2013, and no pronouncements were adopted during the
period.
RECLASSIFICATION
Certain balance sheet and statement of operations amounts for the year
ended June 30, 2012 were reclassified to conform to the presentation for
the year ended June 30, 2013.
3. NOTES PAYABLE
At June 30, 2007, the Company reclassified an accounts payable account to a
vendor in the amount of $154,429 to a note payable. The monthly payment on
the note is $3,342 per month and bears annual interest at the rate of 10%
per annum. At June 30, 2013 and 2012, the outstanding principal and accrued
interest balance was $45,815 and $41,831, respectively. The total
outstanding and accrued interest balance of $45,815 is currently due.
On March 25, 2013, the Company signed a convertible promissory note ("the
March 2013 Note") in the amount of $100,000, at which time an initial
advance of $50,000 was received to cover operational expenses. The lender,
Wings Fund, Inc., advanced an additional $20,000 on April 16, 2013, an
additional $15,000 on May 1, 2013 and an additional $15,000 on May 16,
2013, for a total draw of $100,000. The terms of the March 2013 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 March 2013 Note bears interest at a rate of 10% per year and
matures one year from the effective date of each advance.
On May 16, 2013, the Company signed a convertible promissory note ("the May
2013 Note") in the amount of $100,000, at which time an initial advance of
$10,000 was received to cover operational expenses. The lender, Wings Fund,
Inc., advanced an additional $20,000 on June 3, 2013 and an additional
$25,000 on July 2, 2013, for a total draw of $55,000. The terms of the May
2013 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. At the time of issuance, the Company
recognized a discount on the May 2013 Note in the amount of $6,000, due to
the beneficial conversion feature. This discount will be recognized over
twelve months, beginning on May 16, 2013. For the year ended June 30, 2013,
the Company included $542 in interest expense related to the discount. The
May 2013 Note bears interest at a rate of 10% per year and matures one year
from the effective date of each advance.
-24-
4. RELATED PARTIES
During the fiscal year ended June 30, 2013, the Company received a total of
$130,000 from Wings Fund, Inc., an affiliate of the Company, pursuant to
the March 2013 Note and the May 2013 Note. See footnote 3 for details
regarding the March 2013 Note and the May 2013 Note.
During the fiscal year ended June 30, 2012, the Company signed a licensing
agreement with PageTransformer, to obtain expertise in the area of mobile
app and mobile web development. This licensing agreement expires in the
year ended June 30, 2014 and will not be renewed. The two founders of
PageTransformer, Andrew VanNoy and Zachary Bartlett, are our current Chief
Executive Officer and our current Vice President of Operations,
respectively. Other than the original licensing fee paid to
PageTransformer, the Company has not made any subsequent payments to
PageTransformer under the licensing agreement.
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 2009.
Deferred income taxes have been provided by temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. To the extent allowed by
GAAP, we provide valuation allowances against the deferred tax assets for
amounts when the realization is uncertain. Included in the balances at June
30, 2013 and 2012, are no tax positions for which the ultimate
deductibility is highly certain, but for which there is uncertainty about
the timing of such deductibility. Because of the impact of deferred tax
accounting, other than interest and penalties, the disallowance of the
shorter deductibility period would not affect the annual effective tax rate
but would accelerate the payment of cash to the taxing authority to an
earlier period.
The Company's policy is to recognize interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating
expenses. During the periods ended June 30, 2013 and 2012, the Company did
not recognize interest and penalties.
6. DEFERRED TAX BENEFIT
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carry-forwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of June 30,
2013 and 2012:
-25-
6. DEFERRED TAX BENEFIT (continued)
2013 2012
---------------- -----------------
Deferred Tax Assets:
NOL Carryforward $ 2,349,100 $ 2,207,500
Depreciation (12,500) 7,500
R&D Carryforward 300 11,100
Capital Loss Carryforward 12,000 11,800
Accrued Vacation Payable 8,600 6,500
Allowance for Doubtful Accounts 9,700 20,500
Related party accruals 1,000 -
Contribution Carryforward 200 200
Valuation Allowance (2,368,400) (2,265,100)
---------------- -----------------
Net Deferred Tax Asset $ - $ -
================ =================
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal and state income tax rate of 39% to pretax
income from continuing operations for the years ended June 30, 2013 and
2012 due to the following:
2013 2012
---------------- ----------------
Book Income $ (130,200) $ (224,000)
Nondeductible expenses 8,700 1,000
Accrued Vacation Payable (2,200) 6,000
Allowance for Bad Debt (10,700) 16,000
Depreciation (1,400) (4,500)
Contributed Services 4,700 12,500
R&D Credit 100 4,500
Related party accruals 1,000 -
Valuation Allowance 130,000 188,500
---------------- ----------------
Income Tax Expense $ - $ -
================ ================
At June 30, 2013, the Company had net operating loss carryforwards of
approximately $6,023,000, that may be offset against future taxable income
from the year 2012 through 2031. No tax benefit has been reported in the
June 30, 2013 consolidated financial statements since the potential tax
benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986,
net operating loss carryforwards for Federal income tax reporting purposes
are subject to annual limitations. Should a change in ownership occur, net
operating loss carryforwards may be limited as to use in future years.
7. CAPITAL STOCK
No transactions effecting capital stock were noted during the years ended
June 30, 2013 or June 30, 2012.
8. STOCK OPTIONS AND WARRANTS
On July 10, 2003, the Company adopted the Warp 9, Inc. Stock Option Plan
for Directors, Executive Officers,
-26-
8. STOCK OPTIONS AND WARRANTS (continued)
and Employees of and Key Consultants to the Company. This Plan, may issue
5,000,000 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
during the year ended June 30, 2013, was determined using the Black Scholes
method with the following assumptions:
Year Ended
6/30/2013
-------------------
Risk free interest rate 6.00%
Stock volatility factor 171
Weighted average expected option life 7 years
Expected dividend yield none
A summary of the Company's stock option activity and related information
follows:
Year ended Year ended
June 30, 2013 June 30, 2012
-------------------------------- -------------------------------
Weighted Weighted
average average
exercise exercise
Options price Options price
----------------- -------------- ---------------- --------------
Outstanding -beginning of year 3,578,000 $ 0.01 608,000 $ 0.06
Granted 12,500,000 $ 0.005 3,500,000 $ 0.004
Exercised - $ - - $ -
Forfeited (2,570,000) $ 0.007 (530,000) $ 0.05
----------------- -------------- ---------------- --------------
Outstanding - end of year 13,508,000 $ 0.005 3,578,000 $ 0.01
================= ============== ================ ==============
Exercisable at the end of year 4,101,184 $ 0.005 703,430 $ 0.017
================= ============== ================ ==============
Weighted average fair value of
options granted during the year $ 0.005 $ 0.004
============== ==============
-27-
8. STOCK OPTIONS AND WARRANTS (continued)
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.
The weighted average remaining contractual life of options outstanding, as
of June 30, 2013 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
------------------- ------------------ ------------------
$ 0.050 8,000 5.08
$ 0.005 12,500,000 6.12
$ 0.004 1,000,000 8.29
------------------
13,508,000
==================
WARRANTS
During the years ended June 30, 2013 and 2012, the Company issued no
warrants for services. A summary of the Company's warrant activity and
related information follows:
Year End Year End
June 30, 2013 June 30, 2012
-------------------------------- -------------------------------
Weighted Weighted
average average
exercise exercise
Options price Options price
------------------ ------------- ------------------ ------------
Outstanding -beginning of year 28,019,163 $ 0.003 28,019,163 $ 0.003
Granted - - - -
Exercised - - - -
Forfeited - - - -
------------------ ------------- ------------------ ------------
Outstanding - end of year 28,019,163 $ 0.003 28,019,163 $ 0.003
================== ============= ================== ============
The weighted average remaining contractual life of warrants outstanding as
of June 30, 2013 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
------------------- ------------------ ------------------
$ 0.003 28,019,163 2.77
9. CONCENTRATIONS
For the year ended June 30, 2013, the Company had two major customers who
represented approximately 46% of total revenue. For the year ended June 30,
2012, the Company had three major customers who represented
-28-
9. CONCENTRATIONS (continued)
approximately 55% of total revenue. At June 30, 2013 and 2012, accounts
receivable from four customers represented approximately 84% and 75% of
total accounts receivable, respectively. The customers comprising the
concentrations within the accounts receivable are not the same customers
that comprise the concentrations with the revenues discussed above.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
During the year ended June 30, 2013, the Company leased approximately 5,251
square feet of office space at 6500 Hollister Avenue, Suite 120, Santa
Barbara, California 93117 for approximately $8,046 per month, pursuant to a
five year lease agreement which commenced on May 25, 2010. Because the
landlord was able to rent the previous space quickly, the Company did not
recognize a termination penalty for vacating the space early. On August 26,
2013, the Company signed a new two year lease commencing on October 1, 2013
for approximately 2,534 square feet of office space at 1933 Cliff Dr.,
Suite 11, Santa Barbara, California 93109 for approximately $4,308 per
month. The following is a schedule, by years, of future minimum rental
payments required under the operating lease. The new lease expires in 2015.
Years Ending
June 30, Rent Payment
-----------------------------------------------
2014 $ 63,393
2015 $ 53,760
Total lease expense for the years ended June 30, 2013 and 2012 was $151,148
and $152,198, respectively. The Company is also required to pay its pro
rata share of taxes, building maintenance costs, and insurance in according
to the lease agreement.
LEGAL MATTERS
The Company may be involved in legal actions and claims arising in the
ordinary course of business, from time to time, none of which at the time
are considered to be material to the Company's business or financial
condition.
11. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to ASC TOPIC 855 as of
the date of the financial statements and has determined that the following
subsequent events are reportable.
On July 2, 2013, the Company received an additional advance on the May 2013
Note from Wings Fund, Inc, in the amount of $25,000 to help fund
operations. This amount was not included in the total amount due on the May
2013 Note, as of June 30, 2013.
On August 26, 2013, the Company signed a lease agreement for approximately
2,534 square feet of office space located at 1933 Cliff Dr., Suite 11,
Santa Barbara, CA 93109, , pursuant to a two year lease agreement for
approximately $4,308 per month, which commences on October 1, 2013. In
addition, the Company is responsible for its pro-rata share of common area
maintenance fees.
-29-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
--------------------------------------------------------------------------------
None.
ITEM 9A. CONTROLS AND PROCEDURES
--------------------------------
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain a system of disclosure controls and procedures that is
designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosures.
As of June 30, 2013, our management, including our principal executive
officer and principal financial officer, had evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) pursuant to Rule 13a-15(b) under the
Exchange Act. Based upon and as of the date of the evaluation, our principal
executive officer and principal financial officer concluded that information
required to be disclosed is recorded, processed, summarized, and reported within
the specified periods and is accumulated and communicated to management,
including our principal executive officer and principal financial officer, to
allow for timely decisions regarding required disclosure of material information
required to be included in our periodic SEC reports. Based on the foregoing, our
management determined that our disclosure controls and procedures were effective
as of June 30, 2013.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). The design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote. All internal control
systems, no matter how well designed, have inherent limitations. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
We carried out an evaluation, under the supervision and with the
participation of our principal executive officer and principal financial
officer, of the effectiveness of our internal controls over financial reporting
as of June 30, 2013. In making this assessment, our management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in "Internal Control-Integrated Framework." Based on this
assessment, management believes that, as of June 30, 2013, our internal control
over financial reporting was effective based on those criteria. There have been
no changes in internal control over financial reporting since June 30, 2013,
that has materially affected or is reasonably likely to materially affect our
internal control over financial reporting.
NO ATTESTATION REPORT BY INDEPENDENT REGISTERED ACCOUNTANT
The effectiveness of our internal control over financial reporting as
of June 30, 2013 has not been audited by our independent registered public
accounting firm by virtue of our exemption from such requirement as a smaller
reporting company.
-30-
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 fiscal year that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
The Company's management does not expect that its disclosure controls
or its internal control over financial reporting will prevent or detect all
error and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system's
objectives will be met. The design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision
making can be faulty and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual acts of some
persons, by collusion of two or more people, or management override of the
controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls effectiveness to
future periods are subject to risks. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.
ITEM 9B. OTHER INFORMATION
--------------------------
None.
-31-
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
----------------------------------------------------------------
The following table lists the executive officers and directors of the
Company as of June 30, 2013:
NAME AGE POSITION
---------------------- ---- --------------------------------------------
Andrew Van Noy 30 Chief Executive Officer, President
and Chairman
Gregory Boden 42 Chief Financial Officer, Corporate
Secretary, and Director
Zachary Bartlett 32 Vice President of Operations and Director
Andrew Van Noy, age 30, has been a director of the Company since
November 17, 2012. Mr. Van Noy has been the President of the Company since April
24, 2012 and the Chief Executive Officer of the Company since August 13, 2012.
He was the Vice President of Sales and Marketing of the Company from May 1, 2011
to November 17, 2012 and Executive Vice President of the Company from November
17, 2012 to April 24, 2012. Mr. Van Noy came to the Company with experience in
the private equity and investment banking industry, where he served from April
2006 to December 2008 as Director of Velocity of Money, a boutique real estate
Private Equity firm, and managed over $300 million of transactions at Morgan
Stanley's global banking headquarters in Salt Lake City, Utah. From January 2009
to April 2011, Mr. Van Noy served as the Vice President of Sales and Marketing
for PageTransformer, a company which provided web and software development for
iPad, iPhone, and Android devices.
Mr. Van Noy's qualifications:
o Leadership Experience - Mr. Van Noy has held various
leadership and executive positions including Executive Vice
President, President, and Chief Executive Officer of the
Company.
o Industry Experience - Mr. Van Noy helped lead the re-branding
and re-structuring of the Company, including the launch of the
new Warp 9 TCP. In addition, Mr. Van Noy led the Company to a
strategic partnership with the industry leading mobile
commerce technology provider, Moovweb, to offer cutting edge
mobile commerce website technology to its customers.
Gregory Boden, age 42, has been a director of the Company since
November 17, 2011 and the Corporate Secretary of the Company since February 11,
2013. On April 24, 2012 Mr. Boden was appointed Chief Financial Officer of the
Company. From June 1, 2011 to March 1, 2012, Mr. Boden served as an independent
contractor assisting the Company in accounting and financial reporting matters.
In addition to his position as Chief Financial Officer, Mr. Boden has served
since January 1, 2011 as the President of Bountiful Capital, LLC, a Santa
Barbara based private equity company. Prior to joining the Company, from
September 2006 to October 2009, Mr. Boden worked in public accounting in the
audit practice of KPMG, LLP, after which, from October 2009 to December 2010, he
and managed the franchise accounting, treasury and cash application departments
of Select Staffing, a nationwide staffing company.
Mr. Boden's qualifications:
o Leadership experience - Mr. Boden has managed teams ranging
from three to 50 people in various industries and backgrounds.
In public accounting, Mr. Boden supervised the planning and
day-to-day execution of audits of large public, private and
governmental entities.
o Industry experience - Mr. Boden worked for several years in
the telecommunications industry for AT&T and WorldCom (now
Verizon Business) selling voice, data, internet, and data
center services. He leverages his industry expertise while
assisting in the planning and operation of the Company's data
center and overall sales strategy.
-32-
o Finance experience - Mr. Boden has been assisting the Company
with accounting and financial reporting matters since June 1,
2011, and for several years outside the Company. He is a
Certified Public Accountant, licensed in the state of
California and has been instrumental in streamlining the
accounting and financial reporting processes of the Company.
Mr. Boden served as the Treasurer of the Los Padres Council of
the Boy Scouts of America from June 2010 until December 2012.
In that position, he oversaw the monthly financial reporting
and assists office staff with implementation of proper
internal control structures and complicated accounting
matters.
Zachary Bartlett, age 31, has been the Vice President of Operations of
the Company since July 2012. Prior to joining the Company, Mr. Bartlett was the
Creative Director of Crowbar Studios, Inc., a graphic design and web development
firm founded by Mr. Bartlett in 2008. From 2004 to 2008, he held the position of
Art and Brand consultant at Demon International, a snowboard accessories
company. In 2009, Mr. Bartlett was one of the founders of Page Transformer,
Inc., a company that provided web and software development for iPad, iPhone, and
Android devices. Mr. Bartlett received his Bachelor of Fine Arts degree in
graphic design from Brigham Young University in 2004.
Mr. Bartlett's qualifications:
o Industry experience - Mr. Bartlett worked for several years in
the web development industry for Crowbar Studios, Inc. and
Demon International
o Design Experience - Mr. Bartlett has a degree in graphic
design from Brigham Young University and has further developed
these skills as he has provided graphic design and web
development services to both consumer and business customers.
His current role at the Company requires Mr. Bartlett to use
these skills to oversee various projects related to web and
app development.
No director is required to make any specific amount or percentage of
his business time available to us. Our officer intends to devote such amount of
his time to our affairs as is required or deemed appropriate by us.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the Nevada General Corporation Law and the Company's Articles of
Incorporation, as amended, the Company's directors will have no personal
liability to the Company or its stockholders for monetary damages incurred as
the result of the breach or alleged breach by a director of his "duty of care".
This provision does not apply to the directors' (i) acts or omissions that
involve intentional misconduct or a knowing and culpable violation of law, (ii)
acts or omissions that a director believes to be contrary to the best interests
of the corporation or its shareholders or that involve the absence of good faith
on the part of the director, (iii) approval of any transaction from which a
director derives an improper personal benefit, (iv) acts or omissions that show
a reckless disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its shareholders, (v) acts or omissions
that constituted an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its shareholders, or
(vi) approval of an unlawful dividend, distribution, stock repurchase or
redemption. This provision would generally absolve directors of personal
liability for negligence in the performance of duties, including gross
negligence.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
BOARD COMMITTEES
The Board of Directors has not had an Audit Committee since February
2006 when Tom Djokovich, the sole member of the Audit Committee, resigned from
the Company's Board of Directors for personal reasons. Since then, the Company
has not reappointed an Audit Committee.
-33-
AUDITOR INDEPENDENCE
HJ Associates & Consultants, LLP ("HJ") has been the Company's
principal auditing accountant firm since August 2006. HJ provided other
non-audit services to the Company. The Company's Board of Directors has
considered whether the provisions of non-audit services are compatible with
maintaining HJ independence.
REPORT OF THE AUDIT COMMITTEE
In February 2006, the sole member of the Company's Audit Committee
resigned from the Board of Directors for personal reasons. The Company has not
reformed the Audit Committee since that time. Accordingly the Company has not
received any reports from an Audit Committee during the fiscal year ended June
30, 2013. The Company's full Board of Directors is presently performing the
functions of an Audit Committee until a new Audit Committee is formed in the
future.
CODE OF CONDUCT
The Company has adopted a Code of Conduct that applies to all of its
directors, officers and employees. Any waiver of the provisions of the Code of
Conduct for executive officers and directors may be made only by the Audit
Committee when formed or the full Board of Directors and, in the case of a
waiver for members of the Audit Committee, by the Board of Directors. Any such
waivers will be promptly disclosed to the Company's shareholders.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and certain persons who own more than 10% of a registered class of
the Company's equity securities (collectively, "Reporting Persons"), to file
reports of ownership and changes in ownership ("Section 16 Reports") with the
Securities and Exchange Commission (the "SEC"). Reporting Persons are required
by the SEC to furnish the Company with copies of all Section 16 Reports they
file. Based solely on its review of the copies of such Section 16 Reports
received by it, or written representations received from certain Reporting
Persons, all Section 16(a) filing requirements applicable to the Company's
Reporting Persons during and with respect to the fiscal year ended June 30, 2013
have been complied with on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis describes the
material elements of compensation for our executive officers identified in the
Summary Compensation Table ("Named Executive Officers"), and executive officers
that we may hire in the future. As more fully described below, our board of
directors makes all decisions for the total direct compensation of our executive
officers, including the Named Executive Officers. We do not have a compensation
committee, so all decisions with respect to management compensation are made by
the whole board.
COMPENSATION PROGRAM OBJECTIVES AND REWARDS
Our compensation philosophy is based on the premise of attracting,
retaining, and motivating exceptional leaders, setting high goals, working
toward the common objectives of meeting the expectations of customers and
stockholders, and rewarding outstanding performance. Following this philosophy,
in determining executive compensation, we consider all relevant factors, such as
the competition for talent, our desire to link pay with performance in the
future, the use of equity to align executive interests with those of our
stockholders, individual contributions, teamwork and performance, and each
executive's total compensation package. We strive to accomplish these objectives
by compensating all executives with total compensation packages consisting of a
combination of competitive base salary and incentive compensation.
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To date, we have not applied a formal compensation program to determine
the compensation of the Named Executives Officers. In the future, as we and our
management team expand, our board of directors expects to add independent
members, form a compensation committee comprised of independent directors, and
apply the compensation philosophy and policies described in this section of the
10K.
The primary purpose of the compensation and benefits described below is
to attract, retain, and motivate highly talented individuals when we do hire,
who will engage in the behaviors necessary to enable us to succeed in our
mission while upholding our values in a highly competitive marketplace.
Different elements are designed to engender different behaviors, and the actual
incentive amounts which may be awarded to each Named Executive Officer are
subject to the annual review of the board of directors. The following is a brief
description of the key elements of our planned executive compensation structure.
o Base salary and benefits are designed to attract and retain
employees over time.
o Incentive compensation awards are designed to focus employees
on the business objectives for a particular year.
o Equity incentive awards, such as stock options and non-vested
stock, focus executives' efforts on the behaviors within the
recipients' control that they believe are designed to ensure
our long-term success as reflected in increases to our stock
prices over a period of several years, growth in our
profitability and other elements.
o Severance and change in control plans are designed to
facilitate a company's ability to attract and retain
executives as we compete for talented employees in a
marketplace where such protections are commonly offered. We
currently have not given separation benefits to any of our
Name Executive Officers.
BENCHMARKING
We have not yet adopted benchmarking but may do so in the future. When
making compensation decisions, our board of directors may compare each element
of compensation paid to our Named Executive Officers against a report showing
comparable compensation metrics from a group that includes both publicly-traded
and privately-held companies. Our board believes that while such peer group
benchmarks are a point of reference for measurement, they are not necessarily a
determining factor in setting executive compensation as each executive officer's
compensation relative to the benchmark varies based on scope of responsibility
and time in the position. We have not yet formally established our peer group
for this purpose.
THE ELEMENTS OF WARP 9'S COMPENSATION PROGRAM
BASE SALARY
Executive officer base salaries are based on job responsibilities and
individual contribution. The board reviews the base salaries of our executive
officers, including our Named Executive Officers, considering factors such as
corporate progress toward achieving objectives (without reference to any
specific performance-related targets) and individual performance experience and
expertise. None of our Named Executive Officers have employment agreements with
us. Additional factors reviewed by the board of directors in determining
appropriate base salary levels and raises include subjective factors related to
corporate and individual performance. For the year ended June 30, 2013, all
executive officer base salary decisions were approved by the board of directors.
Our board of directors determines base salaries for the Named Executive
Officers at the beginning of each fiscal year, or during the year if needed, and
the board proposes new base salary amounts, if appropriate, based on its
evaluation of individual performance and expected future contributions. We have
a 401(k) Plan, to which the Company does not make contributions, but if we adopt
such a policy in the future, base salary would be the only element of
compensation that would be used in determining the amount of contributions
permitted under the 401(k) Plan.
-35-
INCENTIVE COMPENSATION AWARDS
The Named Executives have not been paid bonuses and our board of
directors has not yet established a formal compensation policy for the
determination of bonuses. If our revenue grows and bonuses become affordable and
justifiable, we expect to use the following parameters in justifying and
quantifying bonuses for our Named Executive Officers and other officers of Warp
9: (1) the growth in our revenue, (2) the growth in our earnings before
interest, taxes, depreciation and amortization, as adjusted ("EBITDA"), and (3)
our stock price. The board has not adopted specific performance goals and target
bonus amounts for any of our fiscal years, but may do so in the future.
EQUITY INCENTIVE AWARDS
Effective July 10, 2003, our board of directors adopted the Warp 9,
Inc. 2003 Stock Option Plan for Directors, Officers, Employees and Key
Consultants (the "Plan") authorizing the issuance of up to 5,000,000 shares of
our common stock pursuant to the grant and exercise of up to 5,000,000 stock
options. The Plan has been approved by the holders of our outstanding shares. We
believe that stock option awards motivate our employees to work to improve our
business and stock price performance, thereby further linking the interests of
our senior management and our stockholders. The board considers several factors
in determining whether awards are granted to an executive officer, including
those previously described, as well as the executive's position, his or her
performance and responsibilities, and the amount of options, if any, currently
held by the officer and their vesting schedule. Our policy prohibits backdating
options or granting them retroactively. As of June 30, 2013, 508,000 stock
options granted under the Plan remain outstanding. As of June 30, 2013,
13,000,000 stock options granted outside of the Plan are outstanding.
BENEFITS AND PREREQUISITES
At this stage of our business we have limited benefits and no
prerequisites for our employees other than health insurance and vacation
benefits that are generally comparable to those offered by other small private
and public companies or as may be required by applicable state employment laws.
We may adopt retirement plans and confer other fringe benefits for our executive
officers in the future if our business grows sufficiently to enable us to afford
them.
SEPARATION AND CHANGE IN CONTROL ARRANGEMENTS
We do not have any employment agreements with our Named Executive
Officers or any other executive officer or employee of Warp 9. None of them are
eligible for specific benefits or payments if their employment or engagement
terminates in a separation or if there is a change of control.
EXECUTIVE OFFICER COMPENSATION
The following summary compensation table sets forth certain information
concerning compensation paid to the Company's Chief Executive Officer and its
most highly paid executive officers (the "Named Executive Officers") whose total
annual salary and bonus for services rendered in all capacities for the fiscal
year ended June 30, 2013 was $100,000 or more.
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SUMMARY COMPENSATION TABLE
FISCAL OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1) COMPENSATION TOTAL
------------------------------------------------------------------------------------------------------------------
William E. Beifuss (2)..... 2013 $12,000 -0- -0- -0- $12,000
Former Chairman of the Board, 2012 $64,000 -0- -0- -0- $64,000
former Chief Executive Officer,
former President, former
Interim Chief Financial
Officer, and former Corporate
Secretary
Andrew Van Noy (3)......... 2013 $125,000 -0- $26,500 -0- $151,500
Chief Executive Officer, 2012 $89,000 -0- -0- $12,808 $101,808
President, and Director
Gregory Boden (4).......... 2013 $58,750 -0- $13,250 -0- $72,000
Chief Financial Officer, 2012 $30,000 -0- $2,000 -0- $32,000
Corporate Secretary, and
Director
Zachary Bartlett (5)....... 2013 $102,000 -0- $26,500 -0- $128,500
Vice President of Operations 2012 $54,475 -0- -0- -0- $54,475
and Director
------------------------------------------------------------------------------------------------------------------
(1) The amounts in this column reflect the grant-date fair value of stock
options with respect to the years ended June 30, 2012 and 2013, in
accordance with applicable accounting guidance related to stock based
compensation. For a description of the assumptions used in determining the
value of the options, see the notes to the consolidated financial
statements.
(2) Mr. Beifuss received $1 per year in consideration for his services as an
executive officer of the Company until December 2010. From January 2011 to
March 31, 2012, his compensation was increased to $8,000 per month for his
services as the President and Chief Executive Officer of the Company.
Beginning March 1, 2012, Mr. Beifuss forfeited his salary. Mr. Beifuss did
not receive any compensation for his services as the Chairman of the Board
of Directors of the Company. During the fiscal year ended June 30, 2012,
Mr. Beifuss held the position of President until April 24, 2012 and during
the fiscal year ended June 30, 2013, he held the position of Chief
Executive Officer until August 13, 2012.
(3) Mr. Van Noy has been the President of the Company since April 24, 2012 and
the Chief Executive Officer of the Company since August 13, 2012. During
the fiscal year ended June 30, 2012, part of Mr. Van Noy's compensation was
commission-based, for new business he brought into the Company. Total
commission earned during the fiscal year ended June 30, 2012 was $12,808.
For the fiscal year ended June 30, 2013, no such arrangement existed. Mr.
Van Noy's base compensation was increased to $120,000 per year, beginning
on July 16, 2012, and to $132,000 per year beginning on January 1, 2013.
(4) Mr. Boden has been the Chief Financial Officer of the Company since April
24, 2012. From June 1, 2011 to April 24, 2012, Mr. Boden provided
accounting and financial reporting assistance to the Company both as a
non-executive employee and as an independent contractor. Mr. Boden's
compensation during the fiscal year ended June 30, 2012, both as an
employee and a contractor, was $2,500 per month. Mr. Boden's compensation
was increased to $60,000 per year, beginning on July 16, 2012.
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(5) Mr. Bartlett has been the Vice President of Operations for the Company
since July 2012. As Vice President of Operations his compensation was
$96,000 per year until January 1, 2013, when it was raised to $108,000 per
year. Prior to becoming the Vice President of Operations of the Company,
Mr. Bartlett was an independent contractor to the Company, for which he was
paid total compensation of $4,000 per month until April 30, 2012, $6,000
per month until May 31, 2012, and then $8,000 per month until June 30,
2012.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information with respect to unexercised
stock options, stock that has not vested, and equity incentive plan awards held
by the Company's executive officers at June 30, 2013.
OPTION AWARDS
-------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES NUMBER OF SECURITIES
UNDERLYING UNDERLYING
UNEXERCISED OPTIONS UNEXERCISED OPTIONS OPTION EXERCISE OPTION EXPIRATION
NAME EXERCISABLE UNEXERCISABLE PRICE DATE
-------------------------------------------------------------------------------------------------------------
Gregory Boden (1) 214,746 285,254 $0.004 October 12, 2021
Chief Financial 732,877 1,767,123 $0.0053 August 13, 2019
Officer and
Corporate Secretary
Andrew Van Noy (2) 1,465,753 3,534,247 $0.0053 August 13, 2019
Chief Executive
Officer and
President
Zachary Bartlett (3) 1,465,753 3,534,247 $0.0053 August 13, 2019
Vice President of
Operations
-------------------------------------------------------------------------------------------------------------
(1) On October 12, 2011, Mr. Boden received stock options to purchase 500,000
shares of common stock, at an exercise price of $0.004 per share
exercisable for a period of ten years from the date of grant. These stock
options vest at a rate of 1/48 per month commencing on the date of grant
until all of the options are vested. On August 13, 2012, Mr. Boden received
stock options to purchase 2,500,000 shares of common stock, at an exercise
price of $0.0053 per share exercisable for a period of seven years from the
date of grant. These stock options vest at a rate of 1/36 per month
commencing on the date of grant until all of the options are vested.
(2) On August 13, 2012, Mr. Van Noy received stock options to purchase
5,000,000 shares of common stock, at an exercise price of $0.0053 per share
exercisable for a period of seven years from the date of grant. These stock
options vest at a rate of 1/36 per month commencing on the date of grant
until all of the options are vested.
(3) On August 13, 2012, Mr. Bartlett received stock options to purchase
5,000,000 shares of common stock, at an exercise price of $0.0053 per share
exercisable for a period of seven years from the date of grant. These stock
options vest at a rate of 1/36 per month commencing on the date of grant
until all of the options are vested.
-38-
OPTION EXERCISES AND STOCK VESTED
None of the Company's executive officers exercised any stock options or
acquired stock through vesting of an equity award during the fiscal year ended
June 30, 2013.
DIRECTOR COMPENSATION
The Company's directors did not receive any compensation for their
services rendered to the Company as directors during the fiscal years ended June
30, 2013 and June 30, 2012.
EMPLOYMENT AGREEMENTS
The Company has not entered into any employment agreements with its
executive officers to date. The Company may enter into employment agreements
with them in the future.
STOCK OPTION PLAN
On July 10, 2003, the Board of Directors of the Company adopted the
2003 Stock Option Plan for Directors, Executive Officers, Employees and Key
Consultants of the Company (the "2003 Plan"). The 2003 Plan was ratified by the
shareholders of the Company by written consent effective August 25, 2003. The
2003 Plan authorizes the issuance of up to 5,000,000 shares of the Company's
common stock pursuant to the grant and exercise of up to 5,000,000 stock
options. To date, 508,000 options to purchase 508,000 shares of common stock at
a volume weighted average price of $0.0047 per share granted under the 2003 Plan
are outstanding. To date, no options have been exercised.
-39-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------
The following table sets forth the names of our executive officers and
directors and all persons known by us to beneficially own 5% or more of the
issued and outstanding common stock of Warp 9 at September 27, 2013. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a
person and the percentage of ownership of that person, shares of common stock
subject to options held by that person that are currently exercisable or become
exercisable within 60 days of September 27, 2013 are deemed outstanding even if
they have not actually been exercised. Those shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person. The percentage ownership of each beneficial owner is based on 96,135,126
outstanding shares of common stock. Except as otherwise listed below, the
address of each person is c/o Warp 9, Inc., 6500 Hollister Avenue, Suite 120,
Santa Barbara, California 93117. Except as indicated, each person listed below
has sole voting and investment power with respect to the shares set forth
opposite such person's name.
NUMBER OF SHARES PERCENTAGE
NAME, TITLE AND ADDRESS BENEFICIALLY OWNED (1) OWNERSHIP
----------------------------------- ---------------------- ----------
Gregory Boden 1,508,107 1.6%
Director, Chief Financial Officer,
and Corporate Secretary (2)
Andrew VanNoy 2,150,685 2.2%
Chairman, Chief Executive Officer,
and President (3)
Zachary Bartlett 2,150,685 2.2%
Director and Vice President of
Operations (4)
All current Executive Officers as 5,809,477 6.0%
a Group
Wings Fund, Inc. 31,403,691 32.67%
5662 Calle Real #115
Santa Barbara, California 93117
William E. Beifuss 3,404,863 3.54%
6500 Hollister Ave., Suite 120
Santa Barbara, CA 93117
Jonathan Lei 17,393,905 18.09%
7127 Hollister Avenue, #25A
Santa Barbara, California 93117
-----------------------------------
(1) Except as pursuant to applicable community property laws, the persons named
in the table have sole voting and investment power with respect to all
shares of common stock beneficially owned.
(2) Includes 1,341,438 shares which may be purchased by Mr. Boden pursuant to
stock options that are exercisable within 60 days of September 27, 2013.
(3) Includes 2,150,685 shares which may be purchased by Mr. Van Noy pursuant to
stock options that are exercisable within 60 days of September 27, 2013.
-40-
(4) Includes 2,150,685 shares which may be purchased by Mr. Bartlett pursuant
to stock options that are exercisable within 60 days of September 27, 2013.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
--------------------------------------------------------------------------------
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-----------------------------------------------
HJ Associates & Consultants, LLP ("HJ") has been the Company's
principal auditing accountant firm since August 2006. HJ provided other
non-audit services to the Company. The Company's Board of Directors has
considered whether the provisions of non-audit services are compatible with
maintaining HJ independence.
AUDIT FEES
An aggregate of $29,500 was billed by our auditors for the following
professional services: audit of the annual financial statement of the Company
for the fiscal year ended June 30, 2013, and review of the interim financial
statements included in quarterly reports on Form 10-Q for the periods ended
September 30, 2012, December 31, 2012, and March 31, 2013.
An aggregate of $32,306 was billed by our auditors for the following
professional services: audit of the annual financial statement of the Company
for the fiscal year ended June 30, 2012, and review of the interim financial
statements included in quarterly reports on Form 10-Q for the periods ended
September 30, 2011, December 31, 2011, and March 31, 2012.
TAX FEES
Our auditors billed the Company $1,446 for tax preparation services
during the fiscal year ended June 30, 2013.
Our auditors billed the Company $1,010 for tax preparation services
during the fiscal year ended June 30, 2012.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
---------------------------------------------------
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------------------------------------------------
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Specimen Certificate for Common Stock (1)
4.2 Non-Qualified Employee Stock Option Plan (2)
4.3 Convertible Debenture dated December 28, 2005 (3)
4.4 Form of $0.08 Warrant (3)
4.5 Form of $0.10 Warrant (3)
4.6 Form of $0.12 Warrant (3)
5.1 Opinion of Sichenzia Ross Friedman Ference LLP(3)
10.1 First Agreement and Plan of Reorganization between
Latinocare Management Corporation, a Nevada
corporation, and Warp 9, Inc., a Delaware corporation
(4)
10.2 Second Agreement and Plan of Reorganization between
Latinocare Management Corporation, a Nevada
corporation, and Warp 9, Inc., a Delaware corporation
(5)
10.3 Exchange Agreement and Representations for
shareholders of Warp 9, Inc.(4)
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10.4 Securities Purchase Agreement dated as of March 28,
2005 between Roaming Messenger, Inc. and Wings Fund,
Inc.(6)
10.5 Periodic Equity Investment Agreement dated as of
March 28, 2005 between Roaming Messenger, Inc. and
Wings Fund, Inc.(6)
10.6 Registration Rights Agreement dated as of March 28,
2005 between Roaming Messenger, Inc. and Wings Fund,
Inc.(6)
10.7 Securities Purchase Agreement dated December 28, 2005
between the Company and Cornell Capital Partners LLP
(3)
10.8 Investor Registration Rights Agreement dated December
28, 2005 (3)
10.9 Insider Pledge and Escrow Agreement dated December
28, 2005 by and among the Company, Cornell and David
Gonzalez as escrow agent (3)
10.10 Security Agreement dated December 28, 2005 by and
between the Company and Cornell (3)
10.11 Escrow Agreement Dated December 28, 2005 by and among
the Company, Cornell and David Gonzalez, as Escrow
Agent (3)
10.12 Irrevocable Transfer Agent Instructions (3)
10.13 Exclusive Technology License Agreement, dated
September 18, 2006 (8)
10.14 Subscription Agreement with Zingerang Inc., dated
September 18, 2006 (8)
10.15 Termination of License Agreement with Carbon
Sciences, Inc., dated April 2, 2007 (9)
10.16 Completion of Securities Purchase Agreement dated
December 28, 2005 between the Company and Cornell
Capital Partners LLP (10)
21.1 List of Subsidiaries (7)
31.1 Section 302 Certification of Principal Executive
Officer
31.2 Section 302 Certification of Principal
Financial/Accounting Officer
32.1 Section 906 Certification of Principal Executive
Officer
32.2 Section 906 Certification of Principal
Financial/Accounting Officer
----------------------
(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 in the
Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 29, 2005.
(4) Incorporated by reference from the exhibits included with the
Company's prior Report on Form SC 14F1 filed with the Securities
and Exchange Commission, dated April 8, 2003.
(5) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 8K filed with the Securities and
Exchange Commission, dated May 30, 2003.
(6) Incorporated by reference to exhibits filed with the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission dated March 30, 2005.
(7) Incorporated by reference to the exhibits filed with the Company's
prior Annual Report on Form 10-KSB/A filed with the Securities and
Exchange Commission, dated October 12, 2007.
(8) Incorporated by reference to exhibits filed with the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission, dated September 22, 2005.
(9) Incorporated by reference to exhibits filed with the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission, dated May 8, 2007.
(10) Incorporated by reference to exhibits filed with the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission, dated June 10, 2008.
-42-
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: September 27, 2013 WARP 9, INC.
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: September 27, 2013
---------------------------------------
Andrew Van Noy,
Chief Executive Officer, President
(Principal Executive Officer)
By: /s/ Gregory Boden Dated: September 27, 2013
---------------------------------------
Gregory Boden, Chief Financial Officer
(Principal Financial/accounting Officer)
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