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, 2014
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 $520,382 as of December 31, 2013, 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 100,878,825 shares outstanding of the registrant's Common Stock
as of September 26, 2014.
TABLE OF CONTENTS
PART 1
ITEM 1 Business 2
ITEM 2 Properties 7
ITEM 3 Legal Proceedings 7
ITEM 4 Mine Safety Disclosures 7
PART II
ITEM 5 Market for Common Equity, Related Stockholder Matters,
and Issuer Purchases of Equity Securities 7
ITEM 6 Selected Financial Data 8
ITEM 7 Management's Discussion and Analysis or Plan of Operation 9
ITEM 8 Financial Statements and Supplementary Data 15
ITEM 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 33
ITEM 9A Controls and Procedures 33
ITEM 9B Other Information 34
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance 35
ITEM 11 Executive Compensation 37
ITEM 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 43
ITEM 13 Certain Relationships and Related Transactions, and
Director Independence 44
ITEM 14 Principal Accounting Fees and Services 44
ITEM 15 Exhibits, Financial Statement Schedules 44
SIGNATURES 46
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PART I
ITEM 1. BUSINESS
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COMPANY HISTORY
Warp 9, Inc. ("Warp 9," "we," "us," "our," 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 mobile and e-commerce solutions for midsize online
sellers, in the retail and business to business ("B2B") industries. Our
solutions and services are designed to help multi-channel retailers maximize
digital commerce revenues by applying our technologies and solutions for mobile
e-commerce, desktop e-commerce, e-mail marketing, social media and other digital
avenues. Offered as an outsourced and fully managed SaaS model, our solutions
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 graphic design,
store management, new feature development, promotion management, search engine
optimization ("SEO"), Social Media management, merchandizing, integration to
third party payment processing and fulfillment systems, analytics, custom
reporting, and strategic consultation.
We believe our products and services allow our clients to lower costs and
focus on promoting and marketing their brand, product line and website while
leveraging the investments we have made in technology and infrastructure to
operate a dynamic digital presence.
INDUSTRY OVERVIEW
GROWTH OF MOBILE AND DIGITAL COMMERCE
We believe there are a number of factors that are contributing to the
growth of mobile and digital commerce, including the following: (i)
accessibility and adoption of smartphone devices throughout the world ; (ii)
rapid advancements in high-speed internet and 4G cellular networks making the
internet more available, reliable, and efficient; (iii) shoppers are more
comfortable with the process of browsing and buying products from their mobile
devices; (iv) the functionality of both mobile and desktop e-commerce sites
continues to improve, a greater range of mobile payment options are available,
and special offers and shipping discounts are making online shopping more
attractive; (v) businesses are placing more emphasis on their digital commerce
strategies as mobile and desktop commerce can reach a larger audience at a
comparatively lower cost than the methods used to drive traffic to traditional
brick-and-mortar retail stores. As a result of these growth drivers, we believe
retailers and wholesalers 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 outsourcing mobile and desktop
e-commerce development and management 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 a mobile and desktop e-commerce service provider to
accelerate growth of an online business; and (v) allowing businesses to focus on
their specific core competencies.
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TECHNOLOGY PRODUCTS
Our three core solutions are mobile e-commerce, desktop e-commerce and
managed hosting. We have assembled other complementary services, such as social
media management, graphic design, to deliver a fully integrated solution for a
successful e-commerce operation.
MOBILE E-COMMERCE - WARPMOBILE MAGENTO
Our WarpMobile Magento product offerings are designed and engineered to
maximize mobile conversions and sales for our customers. With over three years
of mobile commerce experience working on some of the world's biggest brands, we
believe we provide online sellers with the highest level of mobile
functionality, performance and ease of use in the industry, allowing customers
to focus on their core online businesses, rather than on technical
implementations. WarpMobile Magento is a streamlined mobile solution that allows
Magento merchants of any size to have a powerful mobile commerce website in a
matter of a few short weeks.
DESKTOP E-COMMERCE - MAGENTO
Warp 9's e-commerce solutions are focused on what we believe to be the
fastest-growing open-source e-commerce platform in the world-Magento. Magento (a
division of eBay) has experienced, highlighted by use of 240,000 businesses
globally -- a 60 percent increase from 2013 to 2014. Warp 9 offers full-service
Magento implementation, hosting and management solutions for both retailers and
B2B wholesalers. We believe our deep Magento and e-commerce experience allows us
to drive customer growth through ongoing development and new feature
implementation, tracking and support.
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
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.
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 are not
limited to e-commerce web page development, new feature development, testing,
bug fixing, product catalog management, social media management, SEO, e-mail
marketing management, 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 the Magento
platform. 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 enterprise resource planning ("ERP") and
inventory management systems. This is all done by maximally using the feature
set contained within Magento.
MERCHANDIZING AND PROMOTIONS DESIGN
Warp 9 and the Magento platform support 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
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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 implements solutions that capture 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
social media campaigns, 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 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
Warp 9 has a variety of revenue-generated models. We charge fixed or
variable implementation fees to design, build and launch websites. In addition,
we have both month-to-month and annual hosting contracts that provide steady and
reliable income. Our professional services are billed at hourly or monthly
rates, depending on the customer's needs. We believe this flexibility allows us
to attract customers while maximizing profits based on billable hours.
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
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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 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.
SALES AND MARKETING
Our objective is to be the leading Magento mobile commerce provider in the
market. To achieve this objective, we intend to enhance, promote and support the
idea that Warp 9's Magento mobile commerce solutions are the most powerful and
affordable options that require the least amount of time to get to market. With
over three years of mobile commerce experience working on some of the world's
biggest brands, we believe Warp 9 understands what a successful mobile commerce
website is in terms of customer experience, merchant management and growth, and
technological implementation.
We currently market our e-commerce solutions directly to existing Magento
merchants, merchants looking for an enhanced e-commerce platform, as well as
through channel partnerships with other industry leaders. We focus our efforts
on generating awareness of the Warp 9 brand and capabilities and establishing
our position as a leader in the Magento mobile and e-commerce space.
During the client sales process, our staff delivers demonstrations,
presentations, proposals and contracts. Many new customers have come from email
marketing, direct sales, and word-of-mouth referrals. Our direct sales efforts
are aimed at senior marketing and information technology ("IT") executives
within a retailer or B2B company who are looking to create or expand their
mobile and e-commerce operations. 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
have established and continue to explore channel partnerships to expand our
customer base. Prospective channel partners include existing Magento development
companies, hosting providers, ERP vendors, and e-commerce marketing
professionals. With the growing maturity of multi-channel mobile and desktop
e-commerce strategies, many of the robust backend systems providers are looking
for robust mobile and desktop e-commerce solutions, such as what Warp 9
provides.
COMPETITION
The market for e-commerce solutions is highly competitive, especially as it
reaches maturity. We compete with emerging mobile commerce technologies and
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:
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o In-house development of e-commerce capabilities using tools or
applications from companies such as Art Technology Group, Netsuite,
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
Demandware, 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.
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 26, 2014, we had nine full time employees, one of whom is
employed in an administrative position, one in a sales and marketing position,
and seven 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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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 OTCQB 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, 2014 HIGH LOW
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First Quarter ended September 30, 2013 $0.0189 $0.0100
Second Quarter ended December 31, 2013 $0.0200 $0.0092
Third Quarter ended March 31, 2014 $0.0180 $0.0100
Fourth Quarter ended June 30, 2014 $0.0344 $0.0106
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
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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.
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.
-7-
As of June 30, 2014, there were approximately 300 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, 2014, there were 100,878,825 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, 2014, the Company did not issue any
warrants to purchase shares of the Company's stock.
EQUITY COMPENSATION PLAN INFORMATION
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;
(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
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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
We are a provider of mobile and e-commerce solutions for midsize online
sellers, in the retail and business to business ("B2B") industries. Our
solutions and services are designed to help multi-channel retailers maximize
digital commerce revenues by applying our technologies and solutions for mobile
e-commerce, desktop e-commerce, e-mail marketing, social media and other digital
avenues. Offered as an outsourced and fully managed Software-as-a-Service
("SaaS") model, our solutions 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 graphic design, store management, new feature development,
promotion management, search engine optimization ("SEO"), Social Media
management, merchandizing, integration to third party payment processing and
fulfillment systems, analytics, custom reporting, and strategic consultation.
We believe our products and services allow our clients to lower costs and
focus on promoting and marketing their brand, product line and website while
leveraging the investments we have made in technology and infrastructure to
operate a dynamic digital presence.
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 mobile and desktop development. During the fiscal year ending June 30,
2014, these products accounted for approximately 19% of our gross revenue.
During the fiscal year ending June 30, 2014, professional services accounted for
approximately 79% 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.
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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 ASC 605-10-25, that 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.
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, 2014 and 2013, 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.
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. ASC Topic 820 established a three-tier
fair value hierarchy which prioritizes the inputs used in measuring fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1measurements) and the lowest
priority to unobservable inputs (level 3 measurements). These tiers include:
o Level 1, defined as observable inputs such as quoted prices for
identical instruments in active markets;
o Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable such as quoted
prices for similar instruments in active markets or quoted prices for
identical or similar instruments in markets that are not active; and
o Level 3, defined as unobservable inputs in which little or no market
data exists, therefore requiring an entity to develop its own
assumptions, such as valuations derived from valuation techniques in
which one or more significant inputs or significant value drivers are
unobservable.
We measure certain financial instruments at fair value on a recurring
basis. Assets and liabilities measured at fair value on a recurring basis are as
follows at June 30, 2014:
-11-
For the year ended June 30, 2014 Total (Level 1) (Level 2) (Level 3)
----------------- -------------- ---------------- --------------
Assets $ - $ - $ - $ -
----------------- -------------- ---------------- --------------
Total assets measured at fair value $ - $ - $ - $ -
----------------- -------------- ---------------- --------------
Liabilities
Derivative liability 2,169,051 - - 2,169,051
Convertible notes, net of discount 150,536 - - 150,536
----------------- -------------- ---------------- --------------
Total liabilities measured at fair value $ 2,319,587 $ - $ - $ 2,319,587
================= ============== ================ ==============
Assets and liabilities measured at fair value on a recurring basis are as
follows at June 30, 2013:
Total (Level 1) (Level 2) (Level 3)
----------------- -------------- ---------------- --------------
Assets $ - $ - $ - $ -
----------------- -------------- ---------------- --------------
Total assets measured at fair value $ - $ - $ - $ -
----------------- -------------- ---------------- --------------
Liabilities
Derivative liability - - - -
Convertible notes, net of discount 126,984 - - 126,984
----------------- -------------- ---------------- --------------
Total liabilities measured at fair value $ 126,984 $ - $ - $ 126,984
================= ============== ================ ==============
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Management reviewed accounting pronouncements issued during the year ended
June 30, 2014, and adopted the following pronouncement:
The Company adopted ASC 815 "Accounting for Derivative Instruments and
Hedging Activities". This pronouncement addresses the accounting for derivative
instruments including certain derivative instruments embedded in other
contracts, and hedging activities. Derivative instruments that meet the
definition of assets and liabilities should be reported in the financial
statements at fair value, and any gain or loss should be recognized in current
earnings. The adoption of this pronouncement had a material effect on the
financial statements of the Company.
-12-
RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2014 AS COMPARED TO THE YEAR
ENDED JUNE 30, 2013
REVENUE
Total revenue for the twelve month period ended June 30, 2014 decreased by
$39,924 to $966,239, compared to $1,006,162 in the prior year, a decrease of 4%.
The decrease is primarily due to a reduction in recurring fees for hosting and
professional services.
COST OF REVENUE
The cost of revenue for the twelve month period ended June 30, 2014
increased by $35,669 or approximately 18% to $238,449, compared to $202,780 for
the twelve month period ended June 30, 2013. The increase in the cost of revenue
was primarily due to higher developer cost, partially offset by a decrease due
to a change in our cloud hosting architecture.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses for the twelve months
ended June 30, 2014 increased by $68,521, or approximately 6% to $1,179,013,
compared to $1,110,492 for the twelve month period ended June 30, 2013. The
increase in SG&A expenses was primarily due to an increase in rent, salary,
cloud-based tools and advertising expenses, partially offset by decreases in
health benefits.
RESEARCH AND DEVELOPMENT
Research and development expenses for the twelve months ended June 30, 2014
decreased by $13,307, or approximately 100% to zero, compared to $13,307 for the
twelve months ended June 30, 2013. 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,
2014 increased by $19,252, or approximately 82% to $42,747, compared to $23,495
for the twelve months ended June 30, 2013. The increase was due to certain data
center fixed assets being disposed during the move to our current location.
OTHER INCOME AND EXPENSE
Total other income (expense) for the twelve months ended June 30, 2014
decreased by $1,929,886, or approximately 5,903% to expense of $1,897,191,
compared to income of $32,695 for the twelve months ended June 30, 2013. The
decrease was primarily due to the recognition of a loss on changes in derivative
liability during the year ended June 30, 2014.
NET (LOSS)
For the twelve months ended June 30, 2014, Warp 9's consolidated net loss
increased by $2,080,305, to $2,414,147, compared to a consolidated net loss of
$333,842 for the twelve months ended June 30, 2013. This increase in net loss is
primarily due to a loss on changes in derivative liability.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2014 the Company had a cash balance of $50,041 compared to
$12,636 as of June 30, 2013. Warp 9 had net working capital deficit (i.e. the
difference between current assets and current liabilities) of ($2,416,687) as of
June 30, 2014, compared to a net working capital deficit of ($377,733) at June
30, 2013.
Cash flow used by operating activities was $322,638 for the year ended June
30, 2014, compared to $175,543 used for the year ended June 30, 2013. Operating
cash flow was negative during the year due to a net operating loss.
-13-
Cash flow provided by investing activities was $5,043 for the year ended
June 30, 2014, compared to cash flow used of $4,925 in the year ended June 30,
2013. Cash flow from investing activities provided during the year ended June
30, 2014 was primarily the result of selling excess computer equipment.
Cash flow provided by financing activities was $355,000 for the year
ended June 30, 2014, compared to $130,000 provided for the year ended June 30,
2013. The increase is primarily due to additional borrowings during the year
ended June 30, 2014.
For the twelve months ended June 30, 2014, 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, 2014 AND 2013
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 21-32
-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
subsidiary as of June 30, 2014 and 2013, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 audit to obtain reasonable assurance about whether the
consolidated 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 consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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
subsidiary as of June 30, 2014 and 2013, 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 26, 2014
-16-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 2014 June 30, 2013
--------------- ---------------
ASSETS
CURRENT ASSETS
Cash $ 50,041 $ 12,636
Accounts Receivable, net 101,393 62,887
Prepaid and Other Current Assets 5,440 1,343
--------------- ---------------
TOTAL CURRENT ASSETS 156,874 76,866
--------------- ---------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 10,533 83,288
Computer Equipment 23,982 266,789
Computer Software 1,904 14,840
Leasehold Improvements - 18,696
--------------- ---------------
36,419 383,613
Less accumulated depreciation (24,033) (333,215)
--------------- ---------------
NET PROPERTY AND EQUIPMENT 12,386 50,398
--------------- ---------------
OTHER ASSETS
Lease Deposit 5,955 8,244
Licensing fees - 5,000
--------------- ---------------
TOTAL OTHER ASSETS 5,955 13,244
--------------- ---------------
TOTAL ASSETS $ 175,215 $ 140,508
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 69,946 $ 176,871
Accrued Expenses 134,611 91,966
Accrued Interest 11,932 7,948
Deferred Income 3,300 -
Deferred Operating Lease Liability - 6,117
Convertible Notes Payable, current, net 140,008 126,984
Derivative Liability 2,169,051 -
Note Payable, Other 37,867 37,867
Customer Deposit 6,846 6,846
--------------- ---------------
TOTAL CURRENT LIABILITIES 2,573,561 454,599
--------------- ---------------
LONG TERM LIABILITIES
Convertible Notes Payable, net 10,528 -
Accrued Expenses, long term 222,153 -
--------------- ---------------
TOTAL LONG TERM LIABILITIES 232,681 -
--------------- ---------------
TOTAL LIABILITIES 2,806,242 454,599
--------------- ---------------
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;
100,878,825 and 96,135,126 Shares Issued and Outstanding , respectively 100,879 96,135
Additional Paid In Capital 7,466,090 7,373,623
Accumulated Deficit (10,197,996) (7,783,849)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) (2,631,027) (314,091)
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $ 175,215 $ 140,508
=============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
-17-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
June 30, 2014 June 30, 2013
---------------- ----------------
REVENUE $ 966,239 $ 1,006,162
COST OF SERVICES 238,449 202,780
---------------- ----------------
GROSS PROFIT 727,790 803,382
---------------- ----------------
OPERATING EXPENSES
Selling, general and administrative expenses 1,179,013 1,110,492
Research and development - 13,307
Stock option expense 22,986 21,010
Depreciation and amortization 42,747 23,495
---------------- ----------------
TOTAL OPERATING EXPENSES 1,244,746 1,168,304
---------------- ----------------
LOSS FROM OPERATIONS BEFORE OTHER INCOME AND TAXES (516,956) (364,921)
---------------- ----------------
OTHER INCOME/(EXPENSE)
Other income 15,678 29,094
Gain on sale of fixed assets 9,778 2,500
Gain/(Loss) on extinguishment of debt (6,367) 8,807
Loss on changes in derivative liability (1,869,301) -
Interest expense (46,979) (7,706)
---------------- ----------------
TOTAL OTHER INCOME (EXPENSE) (1,897,191) 32,695
---------------- ----------------
LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (2,414,147) (332,226)
---------------- ----------------
PROVISION FOR INCOME (TAXES)/BENEFIT
Income taxes paid - (1,616)
Income tax (provision)/benefit - -
---------------- ----------------
PROVISION FOR INCOME (TAXES)/BENEFIT - (1,616)
---------------- ----------------
NET LOSS $ (2,414,147) $ (333,842)
================ ================
LOSS PER SHARE
BASIC AND DILUTED $ (0.02) $ (0.00)
================ ================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 100,384,960 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, 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)
Stock compensation expense - - - - 22,986 - 22,986
Note conversion - - 4,743,699 4,744 14,231 - 18,975
Net loss - - - - - (2,414,147) (2,414,147)
Discount on Note - - - - 55,250 - 55,250
----------- ----------- -------------- ----------- ------------- -------------- --------------
Balance, June 30, 2014 - $ - 100,878,825 $ 100,879 $ 7,466,090 $ (10,197,996) $ (2,631,027)
=========== =========== ============== =========== ============= ============== ==============
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, 2014 June 30, 2013
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,414,147) $ (333,842)
Adjustment to reconcile net loss to net cash
(used) by operating activities
Depreciation and amortization 42,747 23,496
Bad debt expense - (27,502)
Cost of stock compensation recognized 22,986 21,010
Contributed services - 12,000
Amortization of debt discount 20,477 542
Gain on sale of fixed assets (9,778) (2,500)
Loss/(Gain) on settlement of debt 6,367 (8,807)
Loss on change in derivative liability 1,869,301 -
Change in assets and liabilities:
(Increase) Decrease in:
Accounts receivable (38,506) 57,955
Prepaid and other assets (10,052) 10,449
Other assets 5,000 12,000
Increase (Decrease) in:
Accounts payable 46,770 94,534
Accrued expenses 139,014 5,583
Deferred income 3,300 (32,853)
Other liabilities (6,117) (7,608)
------------- --------------
NET CASH (USED) IN OPERATING ACTIVITIES (322,638) (175,543)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,735) (7,425)
Proceeds from sale of fixed assets 9,778 2,500
------------- --------------
NET CASH PROVIDED/(USED) IN INVESTING ACTIVITIES 5,043 (4,925)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 355,000 130,000
------------- --------------
NET CASH PROVIDED IN FINANCING ACTIVITIES 355,000 130,000
------------- --------------
NET INCREASE/(DECREASE) IN CASH 37,405 (50,468)
CASH, BEGINNING OF YEAR 12,636 63,104
------------- --------------
CASH, END OF YEAR $ 50,041 $ 12,636
============= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 66 $ 578
============= ==============
Taxes paid $ 3,828 $ 2,989
============= ==============
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, 2014 AND 2013
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
We are a provider of mobile and e-commerce solutions for midsize online
sellers, in the retail and business to business ("B2B") industries. Our
solutions and services are designed to help multi-channel retailers
maximize digital commerce revenues by applying our technologies and
solutions for mobile e-commerce, desktop e-commerce, e-mail marketing,
social media and other digital avenues. Offered as an outsourced and fully
managed Software-as-a-Service ("SaaS") model, our solutions allow customers
to focus on their core business, rather than technical implementations and
software and hardware architecture, design, and maintenance. We believe our
products and services allow our clients to lower costs and focus on
promoting and marketing their brand, product line and website while
leveraging the investments we have made in technology and infrastructure to
operate a dynamic digital presence.
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, 2014. 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, 2014 and 2013 are $24,907 and $24,907
respectively.
-21-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
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, 2014 and 2013 was $3,300 and
zero, respectively.
For the fiscal year ended, June 30, 2014, monthly recurring fees for mobile
and desktop e-commerce development account for 19% of the Company's total
revenues, professional services account for 79% and the remaining 2% of
total revenues are from resale of third party products and services.
For the fiscal year ended, June 30, 2013, monthly recurring fees for mobile
and desktop e-commerce development account for 24% of the Company's total
revenues, professional services account for 72% and the remaining 4% 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 cloud hosting architecture
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 cloud
hosting architecture, contractors involved in the production process and
certain third party internet marketing charges.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Total research and
development costs were zero and $13,307 for the years ended June 30, 2014
and 2013, respectively.
-22-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
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 $22,137 and $498 for the years ended
June 30, 2014 and 2013, 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, 2014 and 2013, 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.
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. ASC Topic 820 established a
three-tier fair value hierarchy which prioritizes the inputs used in
measuring fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (level 1measurements) and the lowest priority to unobservable
inputs (level 3 measurements). These tiers include:
o Level 1, defined as observable inputs such as quoted prices for
identical instruments in active markets;
o Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable such as
quoted prices for similar instruments in active markets or quoted
prices for identical or similar instruments in markets that are
not active; and
o Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its
own assumptions, such as valuations derived from valuation
techniques in which one or more significant inputs or significant
value drivers are unobservable.
We measure certain financial instruments at fair value on a recurring
basis. Assets and liabilities measured at fair value on a recurring basis
are as follows at June 30, 2014:
For the year ended June 30, 2014 Total (Level 1) (Level 2) (Level 3)
----------------- -------------- ---------------- --------------
Assets $ - $ - $ - $ -
----------------- -------------- ---------------- --------------
Total assets measured at fair value $ - $ - $ - $ -
----------------- -------------- ---------------- --------------
Liabilities
Derivative liability 2,169,051 - - 2,169,051
Convertible notes, net of discount 150,536 - - 150,536
----------------- -------------- ---------------- --------------
Total liabilities measured at fair value $ 2,319,587 $ - $ - $ 2,319,587
================= ============== ================ ==============
-23-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Assets and liabilities measured at fair value on a recurring basis are as
follows at June 30, 2013:
Total (Level 1) (Level 2) (Level 3)
--------------- -------------- ---------------- --------------
Assets $ - $ - $ - $ -
--------------- -------------- ---------------- --------------
Total assets measured at fair value $ - $ - $ - $ -
--------------- -------------- ---------------- --------------
Liabilities
Derivative liability - - - -
Convertible notes, net of discount 126,984 - - 126,984
--------------- -------------- ---------------- --------------
Total liabilities measured at fair value $ 126,984 $ - $ - $ 126,984
=============== ============== ================ ==============
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 $42,747 and $23,495 for the years ended June 30,
2014 and 2013, 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, 2014,
included compensation expense for the stock-based payment awards granted
prior to, but not yet vested, as of June 30, 2014 based on the grant date
fair value estimated. Stock-based compensation expense recognized in the
statement of operations for the year ended June 30, 2014 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
-24-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
actual forfeitures differ from those estimates. The stock-based
compensation expense recognized in the consolidated statements of
operations during the year ended June 30, 2014 and 2013 was $22,986 and
$21,010, 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
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, 2014, 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, 2014, and no pronouncements were adopted during the
period.
The Company adopted ASC 815 "Accounting for Derivative Instruments and
Hedging Activities". This pronouncement addresses the accounting for
derivative instruments including certain derivative instruments embedded in
other contracts, and hedging activities. Derivative instruments that meet
the definition of assets and liabilities should be reported in the
financial statements at fair value, and any gain or loss should be
recognized in current earnings. The adoption of this pronouncement had a
material effect on the financial statements of the Company.
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, 2014 and 2013, the outstanding principal and accrued
interest balance was $49,799 and $45,815, respectively. The total
outstanding and accrued interest balance of $11,932 is currently due.
On March 25, 2013, the Company entered into 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
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 on September 25, 2015.
On May 23, 2014, the lender converted $17,000 of the $100,000 outstanding
balance and accrued interest of $1,975 into 4,743,699 shares of common
stock. The balance of the March 2013 Note, as of June 30, 2014 is $83,000.
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
-25-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
3. NOTES PAYABLE (Continued)
advanced an additional $20,000 on June 3, 2013, an additional $25,000 on
July 2, 2013, an additional $10,000 on September 3, 2013 and an additional
$35,000 on February 18, 2014, for a total draw of $100,000. 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. The Company recognized a
discount on the May 2013 Note in the amount of $20,000, due to the
beneficial conversion feature. This discount is being recognized over
twelve months, beginning on the date of each tranche payment. For the year
ended June 30, 2014, the Company included $14,605 in interest expense
related to the discount. The Company recorded debt discount of $56,000
related to the conversion feature of the May 2013 Note, along with
derivative liabilities. The May 2013 Note bears interest at a rate of 10%
per year and matures on November 16, 2014.
On March 4, 2014, the Company entered into a convertible promissory note
("the March 2014 Note") in the amount of $250,000, at which time an initial
advance of $25,000 was received to cover operational expenses. The lender
advanced an additional $20,000 on March 17, 2014 and an additional $30,000
on April 2, 2014, for a total draw of $75,000. The terms of the March 2014
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) $0.012 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 Company recorded debt discount of
$75,000 related to the beneficial conversion feature of the March 2014
Note, along with derivative liabilities. This discount is recognized over
18 months, beginning on the date of each tranche payment. For the year
ended June 30, 2014, the Company included $4,461 in interest expense
related to the discount. The March 2014 Note bears interest at a rate of
10% per year and matures 18 months from the effective date of each advance.
On April 16, 2014, the Company entered into a convertible promissory note
("the April 2014 Note") in the amount of $300,000, at which time an initial
advance of $40,000 was received to cover operational expenses. The lender
advanced an additional $55,000 on April 30, 2014, an additional $40,000 on
May 16, 2014, an additional $40,000 on June 2, 2014 and an additional
$35,000 on June 30, 2014, for a total draw of $210,000. The terms of the
April 2014 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) $0.012 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 Company recorded debt discount of
$210,000 related to the conversion feature of the April 2014 Note, along
with derivative liabilities. This discount is recognized over 18 months,
beginning on the date of each tranche payment. For the year ended June 30,
2014, the Company included $1,410 in interest expense related to the
discount. The April 2014 Note bears interest at a rate of 10% per year and
matures 18 months from the effective date of each advance.
ASC Topic 815 provides guidance applicable to convertible debt issued by
the Company in instances where the number into which the debt can be
converted is not fixed. For example, when a convertible debt converts at a
discount to market based on the stock price on the date of conversion, ASC
Topic 815 requires that the embedded conversion option of the convertible
debt be bifurcated from the host contract and recorded at their fair value.
In accounting for derivatives under accounting standards, the Company
recorded a liability of $2,169,051 representing the estimated present value
of the conversion feature considering the historic volatility of the
Company's stock, and a discount of $339,981 representing the imputed
interest associated with the embedded derivative. The discount is amortized
over the life of the convertible debt, and the derivative liability is
adjusted periodically according to stock price fluctuations. At the time of
conversion, any remaining derivative liability will be charged to
additional paid-in capital.
For purpose of determining the fair market value of the derivative
liability, the Company used Black Scholes option valuation model. The
significant assumptions used in the Black Scholes valuation of the
derivative are as follows:
-26-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
3. NOTES PAYABLE (Continued)
Stock price on the valuation dates $ 0.0261
Conversion price for the debt $ 0.004 - 0.012
Dividend yield 0%
Years to maturity 3 months - 18 months
Risk free rate 0.07% - 0.29%
Expected volatility 142.45% - 155.33%
Following is the five year maturity schedule for our convertible notes
payable:
Year ended June 30, Amount Due
------------------- ------------------
2015 $ 183,000
2016 $ 285,000
2017 $ -
2018 $ -
2019 $ -
4. RELATED PARTIES
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 expired on June
30, 2014 and was not 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, 2014 and 2013, 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, 2014 and 2013, 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.
-27-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
6. DEFERRED TAX BENEFIT (Continued)
Net deferred tax assets consist of the following components as of June 30,
2014 and 2013:
June 30, 2014 June 30, 2013
---------------- -----------------
Deferred tax assets:
NOL carryforward $ 2,560,300 $ 2,349,100
R&D carryforward 113,100 300
Capital loss carryforward 11,000 12,000
Accrued vacation payable 23,500 8,600
Allowance for doubtful accounts 9,700 9,700
Contribution carryforward 200 200
Related party accruals - 1,000
Deferred tax liabilities:
Depreciation (2,700) (12,500)
Valuation allowance (2,715,100) (2,368,400)
---------------- -----------------
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, 2014 and
2013 due to the following:
June 30, 2014 June 30, 2013
---------------- ----------------
Book income $ (941,500) $ (130,200)
Nondeductible expenses 747,400 8,700
Accrued vacation payable (15,000) (2,200)
Allowance for bad debt - (10,700)
Depreciation 10,100 (1,400)
Excess loss on disposal over book (15,500) -
Contributed services - 4,700
R&D credit - 100
Related party accruals (1,000) 1,000
Valuation allowance 215,500 130,000
---------------- ----------------
Income tax expense $ - $ -
================ ================
At June 30, 2014, the Company had net operating loss carryforwards of
approximately $6,565,000, that may be offset against future taxable income
from the year 2013 through 2032. No tax benefit has been reported in the
June 30, 2014 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
On May 23, 2014, the lender converted $17,000 out of the $100,000 balance
along with accrued interest of $1,975 into 4,743,699 shares of common
stock. No transactions effecting capital stock were noted during the year
ended June 30, 2013.
-28-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
8. STOCK OPTIONS AND WARRANTS
On July 10, 2003, the Company adopted the Warp 9, Inc. Stock Option Plan
for Directors, Executive Officers, and Employees of and Key Consultants to
the Company. This Plan, may issue 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, 2014 June 30, 2013
------------------------ -----------------------
Weighted Weighted
average average
exercise exercise
Options price Options price
------------- --------- ------------ ---------
Outstanding -beginning of year 13,508,000 $ 0.005 3,578,000 $ 0.01
Granted - $ - 12,500,000 $ 0.005
Exercised - $ - - $ -
Forfeited (508,000) $ 0.005 (2,570,000) $ 0.007
------------- --------- ------------ ---------
Outstanding - end of year 13,000,000 $ 0.005 13,508,000 $ 0.005
============ ========== ============= =========
Exercisable at the end of year 8,170,776 $ 0.005 4,101,184 $ 0.005
============ ========== ============= =========
Weighted average fair value of
options granted during the year $ - $ 0.005
========== =========
-29-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
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, 2014 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
------------------- ------------------ ------------------
$ 0.005 12,500,000 5.12
$ 0.004 500,000 7.29
------------------
13,000,000
==================
WARRANTS
During the years ended June 30, 2014 and 2013, 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, 2014 June 30, 2013
------------------------ -----------------------
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, 2014 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
------------------- ------------------ ------------------
$ 0.003 28,019,163 1.77
-30-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
9. CONCENTRATIONS
For the year ended June 30, 2014, the Company had one major customer who
represented approximately 37% of total revenue. For the year ended June 30,
2013, the Company had two major customers who represented 33% and 13%,
respectively, of total revenue. At June 30, 2014 and 2013, accounts
receivable from four customers represented approximately 46% and 84% 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
On August 26, 2013, the Company signed a 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.
Years Ending
June 30, Rent Payment
------------ ------------
2015 $53,760
2016 $13,182
Total lease expense for the years ended June 30, 2014 and 2013 was $97,191
and $151,148, 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.
On May 21, 2014, the Company entered into a settlement agreement with the
landlord of our previous location, to make monthly payments on past due
rent of $227,052. Under the terms of the agreement, the Company will make
monthly payments of $350 on a reduced balance of $40,250. Upon payment of
$40,250, the Company will record a gain on extinguishment of debt of
$186,802. As of June 30, 2014, the Company recorded the outstanding balance
under this settlement agreement as a long term notes payable, with the
current portion of the debt recorded in accrued expenses.
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. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
During the year ended June 30, 2014, we had the following non-cash
financing activities:
o Decreased notes payable, Wings Fund by $18,975, increased common stock
by $4,744 and additional paid-in capital by $14,231 for common shares
as a result of a partial conversion of the March 2013 Note.
-31-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014 AND 2013
12. 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 September 5, 2014, the Company entered into a convertible promissory
note ("the September 2014 Note") in the amount of $250,000, at which time
an initial advance of $40,000 was received to cover operational expenses.
The lender advanced an additional $10,000 on September 17, 2014, for a
total draw of $50,000. The terms of the September 2014 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 September 2014 Note bears interest at a rate of 10% per year
and matures 18 months from the effective date of each advance.
-32-
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, 2014, 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, 2014.
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, 2014. 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, 2014, 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, 2014,
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, 2014 has not been audited by our independent registered public
accounting firm by virtue of our exemption from such requirement as a smaller
reporting company.
-33-
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.
-34-
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, 2014:
NAME AGE POSITION
---------------------- --- -------------------------------------
Andrew Van Noy 31 Chief Executive Officer, President
and Chairman
Gregory Boden 43 Chief Financial Officer, Corporate
Secretary, and Director
Zachary Bartlett 33
Vice President of Operations and
Director
Andrew Van Noy, age 31, 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 43, 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.
-35-
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 32, 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.
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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, 2014.
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, 2014
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.
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
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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, 2014, 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.
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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
Our 2003 Stock Option Plan for Directors, Officers, Employees and Key
Consultants (the "2003 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 terminated upon the expiration of the remaining options granted under
the 2003 Plan on May 24, 2014. In the future, we plan to establish a new
management stock option plan pursuant to which stock options may be authorized
and granted to our executive officers, directors, employees and key consultants.
We expect to authorize up to 10% of our issued and outstanding Common Stock for
future issuance under such plan. 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, 2014, no stock options granted under the Plan
remain outstanding and the Plan terminated. As of June 30, 2014, 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 paid time off 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, 2014 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)..... 2014 $ -0- $ -0- $ -0- $ -0- $ -0-
Former Chairman of the Board,
former Chief Executive Officer,
former President, former
Interim Chief Financial
Officer, and former Corporate 2013 $ 12,000 $ -0- $ -0- $ -0- $ 12,000
Secretary
---------------------------------------------------------------------------------------------------------------
Andrew Van Noy (3)......... 2014 $ 136,200 $ -0- $ -0- $ -0- $ 136,200
Chief Executive Officer, 2013 $ 125,000 $ -0- $ 26,500 $ -0- $ 151,500
President, and Director
---------------------------------------------------------------------------------------------------------------
Gregory Boden (4).......... 2014 $ 69,700 $ -0- $ -0- $ -0- $ 69,700
Chief Financial Officer,
Corporate Secretary, and
Director 2013 $ 58,750 $ -0- $ 13,250 $ -0- $ 72,000
---------------------------------------------------------------------------------------------------------------
Zachary Bartlett (5)....... 2014 $ 112,160 $ -0- $ -0- $ -0- $ 112,160
Vice President of Operations
and Director 2013 $ 102,000 $ -0- $ 26,500 $ -0- $ 128,500
---------------------------------------------------------------------------------------------------------------
(1) The amounts in this column reflect the grant-date fair value of stock
options with respect to the years ended June 30, 2013 and 2014, 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) 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. Mr. Beifuss was compensated at a rate of $8,000 per month.
(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. Mr. Van
Noy's base compensation was increased to $132,000 per year beginning on
January 1, 2013 and $140,400 per year beginning January 1, 2014.
(4) Mr. Boden has been the Chief Financial Officer of the Company since April
24, 2012. Mr. Boden's compensation during the fiscal year ended June 30,
2013 was $60,000 per year. Mr. Boden's compensation was increased to
$80,400 per year, beginning January 1, 2014.
(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. Mr. Bartlett's compensation was increased to $116,160 per year on
January 1, 2014.
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, 2014.
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OPTION AWARDS
-------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
NUMBER OF SECURITIES UNDERLYING
UNDERLYING UNEXERCISED UNEXERCISED OPTIONS OPTION EXERCISE OPTION EXPIRATION
NAME OPTIONS EXERCISABLE UNEXERCISABLE PRICE DATE
-------------------------------------------------------------------------------------------------------------
Gregory Boden (1) 339,726 160,274 $0.004 October 12, 2021
Chief Financial 1,566,210 933,790 $0.0053 August 13, 2019
Officer and
Corporate Secretary
-------------------------------------------------------------------------------------------------------------
Andrew Van Noy (2) 3,132,420 1,867,580 $0.0053 August 13, 2019
Chief Executive
Officer and
President
-------------------------------------------------------------------------------------------------------------
Zachary Bartlett (3) 3,132,420 1,867,580 $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.
-41-
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, 2014.
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, 2014
and June 30, 2013.
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
Our 2003 Stock Option Plan for Directors, Officers, Employees and Key
Consultants (the "2003 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 terminated upon the expiration of the remaining options granted under
the 2003 Plan on May 21, 2014. In the future, we plan to establish a new
management stock option plan pursuant to which stock options may be authorized
and granted to our executive officers, directors, employees and key consultants.
We expect to authorize up to 10% of our issued and outstanding Common Stock for
future issuance under such plan.
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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 26, 2014. 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 26, 2014 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
100,878,825 outstanding shares of common stock. Except as otherwise listed
below, the address of each person is c/o Warp 9, Inc., 1933 Cliff Drive, Suite
11, Santa Barbara, California 93109. 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 2,398,685 2.3%
Director, Chief Financial Officer, and
Corporate Secretary (2)
Andrew VanNoy 3,808,219 3.8%
Chairman, Chief Executive Officer, and
President (3)
Zachary Bartlett 27,726,871 27.5%
Director and Vice President of
Operations (4)
All current Executive Officers as a Group 33,933,775 33.6%
Thunder Innovations, LLC 14,893,905 14.8%
297 Kingsbury Grade, #100, Box 4470
Stateline, NV 89449
William E. Beifuss 3,404,863 3.4%
6500 Hollister Ave., Suite 120
Santa Barbara, CA 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 2,346,603 shares which may be purchased by Mr. Boden pursuant to
stock options that are exercisable within 60 days of September 26, 2014.
(3) Includes 3,808,219 shares which may be purchased by Mr. Van Noy pursuant to
stock options that are exercisable within 60 days of September 26, 2014.
(4) Includes 3,808,219 shares which may be purchased by Mr. Bartlett pursuant
to stock options that are exercisable within 60 days of September 26, 2014.
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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, 2014, and review of the interim financial
statements included in quarterly reports on Form 10-Q for the periods ended
September 30, 2013, December 31, 2013, and March 31, 2014.
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.
TAX FEES
Our auditors billed the Company $1,075 for tax preparation services during
the fiscal year ended June 30, 2014.
Our auditors billed the Company $1,446 for tax preparation services during
the fiscal year ended June 30, 2013.
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)
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)
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)
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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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DATED: September 26, 2014 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 26, 2014
--------------------------------------
Andrew Van Noy,
Chief Executive Officer, President
(Principal Executive Officer)
By: /s/ Gregory Boden Dated: September 26, 2014
--------------------------------------
Gregory Boden, Chief Financial Officer
(Principal Financial/accounting Officer)
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