UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For Quarterly Period Ended September 30, 2007
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act For the
Transition period from _______________ to ______________
FOR QUARTER ENDED SEPTEMBER 30, 2007
COMMISSION FILE NUMBER 0-13215
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WARP 9, INC.
---------------------------
(Exact name of Registrant as Specified in its Charter)
NEVADA 30-0050402
- ----------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
50 Castilian Dr., Suite 101, Santa Barbara, California 93117
(Address of principal executive offices) (Zip Code)
(805) 964-3313
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
- ----------------------- --------------------------
COMMON STOCK OTC
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the proceeding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
As of October 24, 2007 the number of shares outstanding of the
registrant's only class of common stock was 256,518,893.
Transitional Small Business Disclosure Format (check one):
Yes No X
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TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 2007 (unaudited)...................................... 3
Consolidated Statements of Operations for the Three Months ended September 30, 2007
and 2006 (unaudited)................................................................................ 4
Consolidated Statements of Shareholders' Deficit (unaudited)......................................... 5
Consolidated Statements of Cash Flows for the Three Months ended
September 30, 2007 and 2006 (unaudited).............................................................. 6
Notes to Consolidated Financial Statements (unaudited)............................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................ 11
Item 3 Controls and Procedures.............................................................................. 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................................................... 15
Item 2. Changes in Securities................................................................................ 16
Item 3. Defaults upon Senior Securities...................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 16
Item 5. Other Information.................................................................................... 16
Item 6. Exhibits and Reports on Form 8-K..................................................................... 17
Signatures.................................................................................................... 18
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WARP9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2007
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 518,342
Accounts Receivable, net 329,029
Prepaid and Other Current Assets 9,231
--------------
TOTAL CURRENT ASSETS 856,602
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PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 89,485
Computer Equipment 501,593
Commerce Server 50,000
Computer Software 9,476
--------------
650,554
Less accumulated depreciation (510,201)
--------------
NET PROPERTY AND EQUIPMENT 140,353
--------------
OTHER ASSETS
Lease Deposit 9,749
Restricted Cash 93,000
Internet Domain, net 1,190
Investment-Carbon Sciences, Inc. 1,250
Loan Costs 49,050
--------------
TOTAL OTHER ASSETS 154,239
--------------
TOTAL ASSETS $ 1,151,194
==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable $ 97,862
Credit Cards Payable 7,602
Accrued expenses 256,493
Bank Line of Credit 27,916
Deferred Income 32,000
Note Payable 10,000
Customer Deposit 43,030
Derivative Liability-Debenture 296,281
Capitalized Leases, Current Portion 32,851
--------------
TOTAL CURRENT LIABILITIES 804,035
--------------
LONG TERM LIABILITIES
Note payable, Other 162,981
Note payable, C.Smith 144,403
Convertible Debenture 705,000
Beneficial Conversion Feature (115,471)
Capitalized Leases 22,677
--------------
TOTAL LONG TERM LIABILITIES 919,590
--------------
TOTAL LIABILITIES 1,723,625
SHAREHOLDERS' DEFICIT
Common stock, $0.001 par value;
495,000,000 authorized shares;
245,282,938 shares issued and outstanding 245,283
Additional paid in capital 6,504,737
Accumulated deficit (7,322,451)
--------------
TOTAL SHAREHOLDERS' DEFICIT (572,431)
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,151,194
==============
The accompanying notes are an integral part of these financial statements
3
WARP9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
2007 2006
-------------- --------------
REVENUE $ 604,494 $ 432,676
COST OF SERVICES 39,225 96,416
-------------- --------------
GROSS PROFIT 565,269 336,260
OPERATING EXPENSES
Selling, general and administrative expenses 415,762 513,830
Research and development 1,740 107,377
Depreciation and amortization 46,134 39,639
-------------- --------------
TOTAL OPERATING EXPENSES 463,636 660,846
-------------- --------------
INCOME (LOSS) FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) 101,633 (324,586)
OTHER INCOME/(EXPENSE)
Interest income 7,027 30,620
Interest expense (81,916) (62,917)
-------------- --------------
TOTAL OTHER INCOME (EXPENSE) (74,889) (32,297)
-------------- --------------
INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR TAXES 26,744 (356,883)
PROVISION FOR INCOME TAXES - -
-------------- --------------
NET INCOME (LOSS) 26,744 (356,883)
============== ==============
BASIC AND DILUTED LOSS PER SHARE $ 0.00 $ (0.00)
============== ==============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 235,095,554 197,266,575
============== ==============
The accompanying notes are an integral part of these financial statements
4
WARP9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS DEFICIT
(Unaudited)
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
---------------- ----------- ------------- ------------- --------------
Balance, June 30, 2007 227,910,128 $ 227,910 $ 6,251,506 $ (7,349,195) $ (869,779)
Issuance of common stock in August 2007, note 6
Convertible debenture (unaudited) 11,009,174 11,009 108,991 - 120,000
Issuance of common stock in September 2007, note 6
Convertible debenture (unaudited) 6,363,636 6,364 63,636 - 70,000
Derivative liability (unaudited) - - 73,940 - 73,940
Stock option expense (unaudited) - - 6,709 - 6,709
Stock issuance cost (unaudited) - - (45) - (45)
Net Income (unaudited) - - - 26,744 26,744
---------------- ----------- ------------- ------------- --------------
Balance, September 30, 2007 (unaudited) 245,282,938 $ 245,283 $ 6,504,737 $ (7,322,451) $ (572,431)
================ =========== ============= ============= ==============
The accompanying notes are an integral part of these financial statements
5
WARP9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
September 30
2007 2006
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 26,744 $ (356,883)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 20,033 22,721
Conversion feature recorded as interest expense 35,941 29,861
Cost of stock options recognized 6,709 30,688
Amortization of loan costs 26,101 16,875
Derivative expense 21,926 12,658
(Increase) Decrease in:
Accounts receivable (102,799) (210,969)
Prepaid and other assets (1,152) (5,205)
Increase (Decrease) in:
Accounts payable 59,499 33,915
Accrued expenses 35,218 31,248
Deferred Income 32,000 130,667
Other liabilities (276) (67,360)
--------------- ---------------
NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES 159,944 (331,784)
--------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of stock for investment - (10,000)
Purchase of property and equipment (345) (1,537)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (345) (11,537)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note payable (3,000) (3,000)
Payments on notes payable, other (47,526) -
Payments on capitalized leases (7,527) (12,914)
Proceeds from line of credit (15,000) 75,342
Proceeds from issuance of common stock, net of cost (45) (198)
--------------- ---------------
NET CASH (USED)/ PROVIDED BY FINANCING ACTIVITIES (73,098) 59,230
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 86,501 (284,091)
CASH, BEGINNING OF PERIOD 431,841 387,180
--------------- ---------------
CASH, END OF PERIOD $ 518,342 $ 103,089
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 4,067 $ 6,812
=============== ===============
Taxes paid $ - $ -
=============== ===============
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the three months ended September 30, 2007, the Company issued
17,372,810 shares of common stock at a fair value of $190,000 for the
convertible debenture. During the three months ended September 30, 2006, the
Company issued 10,696,641 shares of common stock at a fair value of $95,000
for the convertible debenture.
The accompanying notes are an integral part of these financial statements
6
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2007
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all normal recurring adjustments considered necessary for a fair
presentation have been included. Operating results for the three month
period ended September 30, 2007 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2008. For further
information refer to the financial statements and footnotes thereto
included in the Company's Form 10K-SB/A for the year ended June 30, 2007.
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.
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's losses and negative cash flows from operations
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, additional cash infusion.
STOCK-BASED COMPENSATION
As of June 30, 2006, the Company adopted Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" (FAS) No. 123R, that addresses
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 statement eliminates the ability to account
for share-based compensation transactions, as we formerly did, using the
intrinsic value method as prescribed by Accounting Principles Board, or
APB, Opinion No. 25, "Accounting for Stock Issued to Employees," and
generally requires that such transactions be accounted for using a
fair-value-based method and recognized as expenses in our statement of
income. The adoption of (FAS) No. 123R by the Company had no material
impact on the statement of income.
7
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2007
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK-BASED COMPENSATION (CONTINUED)
The Company adopted FAS 123R using the modified prospective method which
requires the application of the accounting standard as of June 30, 2006.
Our financial statements as of and for the three months ended September 30,
2007 reflect the impact of adopting FAS 123R. In accordance with the
modified prospective method, the financial statements for prior periods
have not been restated to reflect, and do not include, the impact of FAS
123R.
Stock-based compensation expense recognized during the period is based on
the value of the portion of stock-based payment awards that is ultimately
expected to vest. Stock-based compensation expense recognized in the
consolidated statement of operations during the three months ended
September 30, 2007, included compensation expense for the stock-based
payment awards granted prior to, but not yet vested, as of September 30,
2007 based on the grant date fair value estimated in accordance with the
pro forma provisions of FAS 148, and compensation expense for the
stock-based payment awards granted subsequent to September 30, 2007, based
on the grant date fair value estimated in accordance with FAS 123R. As
stock-based compensation expense recognized in the statement of income for
the three months ended September 30, 2007 is based on awards ultimately
expected to vest, it has been reduced for estimated forfeitures, FAS 123R
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. In the pro forma information required under FAS 148 for the
periods prior to the year ended June 30, 2007, we accounted for forfeitures
as they occurred. The stock-based compensation expense recognized in the
consolidated statement of operations during the three months ended
September 30, 2007 is $6,709.
2006
----------------
Net income/(loss) as reported $ (356,883)
Add: Stock based employee compensation expense -
included in net reported loss, net of related tax effect
Deduct: Stock based employee compensation expense -
determined under fair value based method for all awards,
net of related tax effect
----------------
Pro forma net income/loss) $ (356,883)
================
Basic and diluted pro forma loss per share
As reported $ 0.00
================
Proforma $ 0.00
================
8
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2007
3. CAPITAL STOCK
At September 30, 2007, the Company's authorized stock consists of
495,000,000 shares of common stock, par value $0.001 per share. The Company
is also authorized to issue 5,000,000 shares of preferred stock with a par
value of $0.001. During the three months ended September 30, 2007, the
Company issued 17,372,810 shares of common stock ranging from $0.0109 per
share to $0.0110 per share for the conversion of the debenture with a value
of $190,000.
4. CONVERTIBLE DEBENTURES
On December 28, 2005, we consummated a securities purchase agreement with
Cornell Capital Partners L.P. providing for the sale by us to Cornell of
our 10% secured convertible debentures in the aggregate principal amount of
$1,200,000 of which the first installment of $400,000 was advanced
immediately. The net amount of the first installment received by the
Company was $295,500 after paying total fees of $92,500, which included
legal, structuring, due diligence, commitment fees, and prior liability of
$12,000. An interest expense of $100,000, representing the value of the
conversion feature in accordance to EITF 00-27 was recorded for the first
installment. Under EITF 00-27, the Company records a beneficial conversion
cost associated with the convertibility feature of the security that equals
the value of any discount to market available at the time of conversion.
This beneficial conversion cost is recorded at the time the convertible
security is first issued and is amortized over the stated terms.
Holders of the debentures may convert at any time amounts outstanding under
the debentures into shares of our common stock at a conversion price per
share equal to the lesser of (i) $0.15 or (ii) 80% of the lowest volume
weighted average price of our common stock during the five trading days
immediately preceding the conversion date as quoted by Bloomberg, LP.
Cornell has agreed not to short any of the shares of Common Stock. EITF
00-19 is applicable to debentures issued by the Company in instances where
the number of shares into which a debenture can be converted is not fixed.
For example, when a debenture converts at a discount to market based on the
stock price on the date of conversion. In such instances, EITF 00-19
requires that the embedded conversion option of the convertible debentures
be bifurcated from the host contract and recorded at their fair value. In
accounting for derivatives under EITF 00-19, the Company records a
liability representing the estimated present value of the conversion
feature considering the historic volatility of the Company's stock, and a
discount representing the imputed interest associated with the beneficial
conversion feature. The discount is then amortized over the life of the
debentures and the derivative liability is adjusted periodically according
to stock price fluctuations. At the time of conversion, any remaining
derivative liability is charged to additional paid-in capital. For purpose
of determining derivative liability, the Company uses Black Scholes
modeling for computing historic volatility.
We have the right to redeem a portion or all amounts outstanding under the
debenture prior to the maturity date at a 20% redemption premium provided
that the closing bid price of our common stock is less than $0.15. In
addition, in the event of redemption, we are required to issue to Cornell
50,000 shares of common stock for each $100,000 redeemed.
9
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2007
4. CONVERTIBLE DEBENTURES (Continued)
We also issued to Cornell five-year warrants to purchase 1,500,000,
4,000,000 and 4,000,000 shares of Common Stock at $0.08, $0.10 and $0.12
per share, respectively.
The second installment of $350,000 ($295,000 net of fees) was advanced on
January 27, 2006. An interest expense of $87,500 was incurred, representing
the value of the conversion feature in accordance to EITF 00-27.
The last installment of $450,000 ($395,000 net of fees) was advanced on May
9, 2006, after the registration statement was declared effective by the
Securities and Exchange Commission. An interest expense of $112,500,
representing the value of the conversion feature in accordance to EITF
00-27, was incurred at the receipt of this first installment.
The debentures mature on the third anniversary of the date of issuance, and
the Company is not required to make any payments until the maturity dates.
Interest is accrued at 10% per annum on the principal balance outstanding.
At September 30, 2007, the outstanding balance of the debentures were
$705,000 and the interest accrued was $160,806.
5. SUBSEQUENT EVENTS
During the month of October 2007, the Company issued 11,235,955 shares of
common stock for the conversion of the debenture with a fair value of
$100,000.
On October 23, 2007, we licensed our patent-pending mobile technology and
certain trademarks, on a non-exclusive basis to Zingerang Software. Under
the terms of the agreement, Warp 9 will retain ownership of the technology
and trademarks, as well as any improvements and derivatives created by
Zingerang Software. Warp 9 is entitled to receive royalties based on
revenues from sales if any, generated by Zingerang Software. This agreement
allows us to enhance and augment our technology and Intellectual Property
portfolio without using direct resources, and still allows us to seek other
licensing options in the future.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
This Form 10-QSB may contain "forward-looking statements," as that term
is used in federal securities laws, about Warp 9, Inc.'s financial
condition,results of operations and business. These statements include, among
others:
o statements concerning the potential benefits that Warp 9, Inc. ("W9" or
the "Company") may experience from its business activities and certain
transactions it contemplates or has completed; and
o statements of W9's expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical
facts. These statements may be made expressly in this Form 10-QSB. You
can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates," "opines," or similar
expressions used in this Form 10-QSB. These forward-looking statements
are subject to numerous assumptions, risks and uncertainties that may
cause W9's actual results to be materially different from any future
results expressed or implied by W9 in those statements. The most
important facts that could prevent W9 from achieving its stated goals
include, but are not limited to, the following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its business, and
inability to raise additional capital or financing to
implement its business plans;
(e) failure to commercialize its technology or to make sales;
(f) changes 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 re-licensing or other commercialization of the
Roaming Messenger technology to produce revenues or profits.
11
There is no assurance that the Company will be profitable, the Company
may not be able to successfully develop, manage or market its products and
services, the Company may not be able to attract or retain qualified executives
and technology personnel, the Company may not be able to obtain customers forits
products or services, the Company's products and services may become obsolete,
government regulation may hinder the Company's business, additional dilution in
outstanding stock ownership may be incurred due to the issuance of more shares,
warrants and stock options, or the exercise of outstanding warrants and stock
options, and other risks inherent in the Company's businesses.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. W9 cautions you not to place undue reliance on the
statements, which speak only as of the date of this Form 10-QSB. The cautionary
statements contained or referred to in this section should be considered in
connection with any subsequent written or oral forward-looking statements that
W9 or persons acting on its behalf may issue. The Company does not undertake any
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this Form 10-QSB, or to reflect the
occurrence of unanticipated events.
CURRENT OVERVIEW
Warp 9 is a provider of e-commerce software platforms and services for
the catalog and retail industry. Our suite of software platforms are designed to
help multi-channel retailers maximize the Internet channel by applying our
technologies for online catalogs, e-mail marketing campaigns, and interactive
visual merchandising. Offered as an outsourced and fully managed
Software-as-a-Service ("SaaS") model, our products allow customers to focus on
their core business, rather than technical implementations and software and
hardware architecture, design, and maintenance. We also offer professional
services to our clients which include online catalog design, merchandizing and
optimization, order management, e-mail marketing campaign development,
integration to third party payment processing and fulfillment systems,
analytics, custom reporting and strategic consultation.
Our products and services allow our clients to lower costs and focus on
promoting and marketing their brand, product line and website while leveraging
the investments we have made in technology and infrastructure to operate a
dynamic online internet presence.
We charge our customers a monthly fee for using our e-commerce software
based on a Software-as-a-Service model. These fees include fixed monthly
charges, and variable fees based on the sales volume of our clients' e-commerce
websites. Unlike traditional software companies that sell software on a
perpetual license where quarterly and annual revenues are quite difficult to
predict, our SaaS model spreads the collection of contract revenue over several
quarters or years and makes our revenues more predictable for a longer period of
time.
While the Warp 9 Internet Commerce System (ICS) is our flagship and
highest revenue product, we have been developing and deploying new products
based a proprietary virtual publishing technology that we have developed. These
new products will allow for the creation of interactive web versions of paper
12
catalogs and magazines where users can flip through pages with a mouse and click
on products or advertisements. These magazines or catalogs will have built-in
integration for e-commerce transactions through our ICS product and other
transaction based activities. This means that when shoppers click on a product,
they are taken to the e-commerce product page where they can add that product to
their shopping cart for purchasing. Clients utilizing this technology have
discovered when exposing consumers to the virtual catalogs, a higher average
order size and significant increase in rate of conversion result. We have been
selling this solution on a limited basis as a professional service while we
refine the product and technology. We believe there are many markets for our
virtual catalog and magazine technology and we intend to market test these new
products in the near future.
On October 23, 2007, we licensed our patent-pending mobile technology
and certain trademarks, on a non-exclusive basis to Zingerang Software. Under
the terms of the agreement, Warp 9 will retain ownership of the technology and
trademarks, as well as any improvements and derivatives created by Zingerang
Software. Warp 9 is entitled to receive royalties based on revenues from sales
if any, generated by Zingerang Software. This agreement allows us to enhance and
augment our technology and Intellectual Property portfolio without using direct
resources, and still allows us to seek other licensing options in the future.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2007
COMPARED TO THE SAME PERIOD IN 2006
REVENUE
Total revenue for the three-month period ended September 30, 2007
increased by $171,818 to $604,494 from $432,676 in the prior year, representing
an increase of 40%. The increase in revenue was primarily the result of (i) an
increase in monthly fees from our e-commerce software as a result of new Warp 9
SaaS clients, and (ii) a general increase in professional services from having
more customers.
COST OF REVENUE
The cost of revenue for the three-month period ended September 30, 2007
decreased by ($57,191) to $39,225 as compared to $96,416 for the three-month
period ended September 30, 2006. As a percentage of revenue, cost of revenue
decreased for the period ended September 30, 2007 to 7% as compared to 22% for
the three-month period ended September 30, 2006. The decrease was primarily due
to the elimination of the pass-through internet marketing expense, which was
partially offset by costs associated with the increased sales of Warp 9
e-commerce software products and services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses decreased by
($98,068) during the three months ended September 30, 2007 to $415,762 as
compared to $513,830 for the three-month period ended September 30, 2006. The
decrease in SG&A expenses was primarily due to the elimination of expenses
associated with the Roaming Messenger operations.
13
RESEARCH AND DEVELOPMENT
Research and development expenses decreased by ($105,637) during the
three months ended September 30, 2007 to $1,740 as compared to $107,377 for the
three months ended September 30, 2006. The decrease is primarily due to the
elimination of research and development costs relating to the Roaming Messenger
operations.
DEPRECIATION AND AMORTIZATION
Expenses related to depreciation and amortization was $46,134 for the
three months ended September 30, 2007 as compared to $39,639 for the prior year.
The increase is primarily due to amortization of loan costs related to the
Cornell convertible debenture.
OTHER INCOME AND EXPENSE
Total other income and expense for the three months ended September 30,
2007 was ($74,889) as compared to ($32,297) for the prior year. The change is
primarily due to an increase in the derivative liability valuation and interest
expense related to the Cornell convertible debenture.
NET LOSS
For the three months ended September 30, 2007, our consolidated net
income was $26,744 as compared to a consolidated net loss of ($356,883) for the
three months ended September 30, 2006. We achieved a net income primarily due to
a general increase in customers and sales of Warp 9 e-commerce products and
services, and the elimination of costs previously associated with the Roaming
Messenger operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at September 30, 2007 of $518,342 as compared to
cash of $103,089 as of September 30, 2006. The Company had net working capital
(i.e. the difference between current assets and current liabilities) of $52,567
at September 30, 2007 as compared to a net working capital deficit of
($1,073,405) at September 30, 2006.
Cash flow provided by operating activities was $159,944 for the three
months ended September 30, 2007 as compared to cash used for operating
activities of ($331,784) during the three months ended September 30, 2006.
Cash flow used in investing activities was ($345) for the three months
ended September 30, 2007 as compared to cash used in investing activities of
($11,537) during the three months ended September 30, 2006.
Cash flow used by financing activities was ($73,098) for the three
months ended September 30, 2007 as compared to cash provided by financing
activities of $59,230 for the three months ended September 30, 2006.
14
For the three months ended September 30, 2007, our capital needs have
primarily been met from positive cash-flow.
While we expect that our capital needs in the foreseeable future will
be met by cash-on-hand and positive cash-flow, there is no assurance that the
Company will have sufficient capital to finance its growth and business
operations, or that such capital will be available on terms that are favorable
to the Company or at all. There is no assurance that we would be able to obtain
additional working capital through the private placement of common stock or from
any other source.
OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chairman, Chief Executive Officer, and Acting Chief
Financial Officer has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this quarterly report and, based on this evaluation, has concluded that the
disclosure controls and procedures are effective.
The Company's Board of Directors adopted Internal Controls Policies and
Procedures that included Internal Controls Accounting Policy and Procedures,
Approval Authority Limits and Check Signing Authority Policy effective January
1, 2007 in accordance with Sarbanes Oxley.
The Company's Board of Directors adopted the Code of Conduct that
applies to all of the directors, officers and employees of the Company on
September 24, 2007.
There have been no changes in the Company's internal control over
financial reporting that occurred during the Company's first fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
15
ITEM 2. CHANGES IN SECURITIES
During the three months ended September 30, 2007, the Company issued
17,372,810 shares of common stock ranging from $0.0109 per share to $0.011 per
share for the conversion of the Cornell debenture with an outstanding balance
reduction of $190,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Effective as of October 23, 2007, the Company signed a Nonexclusive
Technology License Agreement (the "License Agreement") with Zingerang Software,
Inc., a California corporation ("Zingerang"). The Company granted a
non-exclusive, worldwide, sub-licensable, non-transferable, royalty-bearing
right and license to make, have made, import, use, offer for sale, sell,
reproduce, distribute, display, perform or otherwise exploit the Company's
Roaming Messenger(R) technology, Roaming Messenger(R) and eCapsule(R)
trademarks, and patent application numbers 20060165030, 20060123396, and
20030110097 (collectively, the "Roaming Messenger Technology") for a period of
five years. Warp 9 is entitled to receive royalties based on a percentage of
gross sales and retain ownership of the technology and trademarks, as well asany
improvements and derivatives created by Zingerang.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Specimen Certificate for Common Stock (1)
4.2 Non-Qualified Employee Stock Option Plan (2)
10.1 First Agreement and Plan of Reorganization between
Latinocare Management Corporation, a Nevada
corporation, and Warp 9, Inc., a Delaware corporation (3)
10.2 Second Agreement and Plan of Reorganization between
Latinocare Management Corporation, a Nevada corporation,
and Warp 9, Inc., a Delaware corporation (4)
10.3 Exchange Agreement and Representations for Shareholders
of Warp 9, Inc.(3)
10.4 Termination and Assignment (5)
31.1 Section 302 Certification
32.1 Section 906 Certification
- ------------------------
(1) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 10-KSB filed with the
Securities and Exchange Commission, dated March 31, 2002.
(2) Incorporated by reference from the exhibits included in the
Company's Information Statement filed with the Securities and
Exchange Commission, dated August 1, 2003.
(3) Incorporated by reference from the exhibits included with the
Company's prior Report on Form SC 14F1 filed with the
Securities and Exchange Commission, dated April 8, 2003.
(4) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 8K filed with the Securities
and Exchange Commission, dated May 30, 2003.
(5) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 8K filed with the Securities
and Exchange Commission, dated May 7, 2007.
(b) The following is a list of Current Reports on Form 8-K filed by the
Company during and subsequent to the quarter for which this report is
filed.
(1) Form 8-K Report filed with the Securities and Exchange
Commission on September 21, 2007 regarding written notice from
Magellan's International Travel Corporation of their decision
not to renew current agreements which expire November 16,
2007.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 13, 2007 WARP 9, INC.
By: \s\ Harinder Dhillon
---------------------------------------------
Harinder Dhillon, Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: \s\ Louie Ucciferri Dated: November 13, 2007
--------------------------------------
Louie Ucciferri, Chairman Corporate
Secretary, Acting Chief Financial Officer
(Principal Financial / Accounting Officer)
By: \s\ Harinder Dhillon Dated: November 13, 2007
--------------------------------------
Harinder Dhillon, Chief Executive Officer
and President (Principal Executive Officer)
18