UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarterly Period Ended March 31, 2009
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition period from _______________ to ______________
Commission File Number: 0-13215
WARP 9, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 30-0050402
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 CASTILIAN DRIVE, SUITE 101, SANTA BARBARA, CA 93117
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(Address of principal executive offices) (Zip Code)
(805) 964-3313
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Registrant's telephone number, including area code
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes[__] No[_X_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
Large accelerated filer [___] Accelerated filer [___]
Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes[__] No[_X_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of May 11, 2009 the number of shares outstanding of the registrant's class of
common stock was 340,579,815.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
------------------
Item 1. Consolidated Financial Statements 2
Consolidated Balance Sheets as of March 31, 2009 (unaudited) and June 30, 2008 (audited) 3
Consolidated Statements of Income for the Three and Nine Months ended March 31, 2009 and 4
March 31, 2008 (unaudited)
Consolidated Statement of Shareholders' Equity for the Nine Months ended March 31, 2009 5
(unaudited)
Consolidated Statements of Cash Flows for the Nine Months ended March 31, 2009 and March 6
31, 2008 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4T. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, 2009 June 30, 2008
-------------------- --------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 724,510 $ 680,649
Accounts Receivable, net 499,602 290,920
Prepaid and Other Current Assets 12,091 16,679
Current Portion of Deferred Tax Asset 116,477 38,849
-------------------- --------------------
TOTAL CURRENT ASSETS 1,352,680 1,027,097
-------------------- --------------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 89,485 89,485
Computer Equipment 511,889 505,603
Commerce Server 50,000 50,000
Computer Software 9,476 9,476
-------------------- --------------------
660,850 654,564
Less accumulated depreciation (605,358) (555,947)
-------------------- --------------------
NET PROPERTY AND EQUIPMENT 55,492 98,617
-------------------- --------------------
OTHER ASSETS
Lease Deposit 9,749 9,749
Restricted Cash 93,000 93,000
Internet Domain, net 934 1,062
Long Term Deferred Tax Asset 1,790,359 2,029,859
-------------------- --------------------
TOTAL OTHER ASSETS 1,894,042 2,133,670
-------------------- --------------------
TOTAL ASSETS $ 3,302,214 $ 3,259,384
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 55,544 $ 64,799
Credit Cards Payable 38 15,352
Accrued Expenses 71,262 88,514
Bank Line of Credit 8,522 7,916
Deferred Income 10,667 35,333
Note Payable, Other 40,107 40,107
Note Payable, Related Party - 50,481
Customer Deposit 59,686 51,436
Capitalized Leases, Current Portion 10,747 23,183
-------------------- --------------------
TOTAL CURRENT LIABILITIES 256,573 377,121
-------------------- --------------------
LONG TERM LIABILITIES
Note payable, Other 44,135 74,216
Capitalized Leases 1,200 7,912
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TOTAL LONG TERM LIABILITIES 45,335 82,128
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TOTAL LIABILITIES 301,908 459,249
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SHAREHOLDERS' EQUITY
Common Stock, $0.001 Par Value;
495,000,000 Authorized Shares;
340,579,815 Shares Issued and Outstanding 340,579 340,579
Additional Paid In Capital 6,894,847 6,886,682
Accumulated Deficit (4,235,120) (4,427,126)
-------------------- --------------------
TOTAL SHAREHOLDERS' EQUITY 3,000,306 2,800,135
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,302,214 $ 3,259,384
==================== ====================
The accompanying notes are an integral part of these consolidated financial statements
-3-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
3/31/2009 3/31/2008 3/31/2009 3/31/2008
--------------- -------------- --------------- ---------------
REVENUE $ 485,088 $ 580,477 $ 1,573,112 $ 1,834,143
COST OF SERVICES 38,979 28,603 118,874 105,034
--------------- -------------- --------------- ---------------
GROSS PROFIT 446,109 551,874 1,454,238 1,729,109
OPERATING EXPENSES
Selling, general and administrative expenses 318,769 332,809 1,038,429 1,145,346
Research and development 5,000 13,285 31,877 31,610
Depreciation and amortization 16,513 21,474 49,539 63,519
--------------- -------------- --------------- ---------------
TOTAL OPERATING EXPENSES 340,282 367,568 1,119,845 1,240,475
--------------- -------------- --------------- ---------------
INCOME FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) 105,827 184,306 334,393 488,634
OTHER INCOME/(EXPENSE)
Interest income 7,988 12,989 18,724 12,842
Other income 11,358 4,786 30,258 15,802
Interest expense (768) (62,972) (14,678) (195,563)
Amortization of loan cost - (15,072) - (57,184)
Stock option expense (2,641) (4,422) (8,565) (17,069)
--------------- -------------- --------------- ---------------
TOTAL OTHER INCOME (EXPENSE) 15,937 (64,691) 25,739 (241,172)
--------------- -------------- --------------- ---------------
INCOME FROM OPERATIONS BEFORE PROVISION FOR TAXES 121,764 119,615 360,132 247,462
PROVISION FOR INCOME (TAXES)/BENEFIT 18,332 - (168,126) -
--------------- -------------- --------------- ---------------
NET INCOME 140,096 119,615 192,006 247,462
=============== ============== =============== ===============
BASIC AND DILUTED INCOME/(LOSS) PER SHARE $ 0.00 $ 0.00 $ 0.00 $ 0.00
=============== ============== =============== ===============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 340,579,815 245,282,938 340,579,815 243,092,689
=============== ============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements
-4-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
------------- ------------- ------------- ------------- ------------
Balance, June 30, 2008 340,579,815 $ 340,579 $ 6,886,682 $ (4,427,126) $ 2,800,135
Stock issuance cost (unaudited) - - (400) - (400)
Stock compensation cost (unaudited) - - 8,565 - 8,565
Net income for the nine months ended
March 31, 2009 (unaudited) - - - 192,006 192,006
------------- ------------- ------------- ------------- ------------
Balance, March 31, 2009 (unaudited) 340,579,815 $ 340,579 $ 6,894,847 $ (4,235,120) $ 3,000,306
============= ============= ============= ============= ============
The accompanying notes are an integral part of these consolidated financial statements
-5-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
3/31/2009 3/31/2008
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 192,006 $ 247,462
Adjustment to reconcile net income to net cash
provided in operating activities
Depreciation and amortization 49,539 63,519
Conversion feature recorded as interest expense - 89,045
Cost of stock options recognized 8,565 17,069
Amortization of loan costs - 57,184
Derivative expense - 38,817
Bad debt expense (38,562) 15,308
(Increase) Decrease in:
Accounts receivable (170,120) (101,820)
Prepaid and other assets 4,588 (4,417)
Deferred tax benefit 161,872 -
Increase (Decrease) in:
Accounts payable (24,569) 7,155
Accrued expenses (17,252) 47,216
Deferred Income (24,666) 71,667
Other liabilities 8,250 15,036
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NET CASH PROVIDED IN OPERATING ACTIVITIES 149,651 563,241
--------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (6,286) (4,355)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (6,286) (4,355)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note payable (50,481) (9,000)
Payments on notes payable, other (30,081) (143,580)
Payments on capitalized leases (19,148) (23,385)
Change in line of credit 606 (35,000)
Stock issuance cost (400) (179)
--------------- ---------------
NET CASH (USED) BY FINANCING ACTIVITIES (99,504) (211,144)
--------------- ---------------
NET INCREASE IN CASH 43,861 347,742
CASH, BEGINNING OF PERIOD 680,649 431,841
--------------- ---------------
CASH, END OF PERIOD $ 724,510 $ 779,583
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 14,678 $ 10,745
=============== ===============
Taxes paid $ 6,254 $ -
=============== ===============
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the nine months ended March 31, 2008, the Company issued 67,244,348
shares of common stock at a fair value of $425,674 for the convertible
debenture.
The accompanying notes are an integral part of these consolidated financial statements
-6-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2009
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all normal recurring adjustments considered necessary for a fair
presentation have been included. Operating results for the nine month
period ended March 31, 2009 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2009. For further
information refer to the financial statements and footnotes thereto
included in the Company's Form 10K for the year ended June 30, 2008.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Warp 9, Inc. is
presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in
the United States of America and have been consistently applied in the
preparation of the financial statements.
STOCK-BASED COMPENSATION
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.
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 nine months ended March 31, 2009
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 nine months ended March 31,
2009, included compensation expense for the stock-based payment awards
granted prior to, but not yet vested, as of March 31, 2009 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 March 31, 2009, 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 nine months ended March 31,
2009 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. The stock-based
compensation expense recognized in the consolidated statements of
operations during the nine months ended March 31, 2009 and 2008 is $8,565
and $17,069 respectively.
-7-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2009
3. CAPITAL STOCK
During the nine months ended March 31, 2009, the Company issued no shares.
During the nine months ended March 31, 2008, the Company issued 67,244,348
shares of common stock at prices ranging from of $0.0023 per share to
$0.0110 per share for the conversion of the debenture with a value of
$425,674.
4. 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 2004.
The Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, on September 1, 2008. FIN 48
clarifies the accounting for uncertainty in tax positions by prescribing a
minimum recognition threshold required for recognition in the financial
statements. FIN 48 also provides guidance on de-recognition, measurement
classification, interest and penalties, accounting in interim periods,
disclosure and transition.
The Company's policy is to recognize interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating
expenses.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
This Form 10-Q may contain "forward-looking statements," as that term
is used in federal securities laws, about Warp 9, Inc.'s financial condition,
results of operations and business. These statements include, among others:
o statements concerning the potential benefits that Warp 9, Inc.
("W9" or the "Company") may experience from its business
activities and certain transactions it contemplates or has
completed; and
o statements of W9's expectations, beliefs, future plans and
strategies, anticipated developments and other matters that
are not historical facts. These statements may be made
expressly in this Form 10-Q. You can find many of these
statements by looking for words such as "believes," "expects,"
"anticipates," "estimates," "opines," or similar expressions
used in this Form 10-Q. These forward-looking statements are
subject to numerous assumptions, risks and uncertainties that
may cause W9's actual results to be materially different from
any future results expressed or implied by W9 in those
statements. The most important facts that could prevent W9
from achieving its stated goals include, but are not limited
to, the following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its
business, and inability to raise additional capital
or financing to implement its business plans;
(e) failure to further commercialize its technology or to
make sales;
(f) reduction in demand for the Company's products and
services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by
outside parties, reducing revenue and increasing
costs;
(i) insufficient revenues to cover operating costs;
(j) failure of the re-licensing or other
commercialization of the Roaming Messenger technology
to produce revenues or profits;
(k) further dilution of existing shareholders ownership
in Company; and
(l) uncollectible accounts and the need to incur expenses
to collect amounts owed to the Company.
-9-
There is no assurance that the Company will be profitable, the Company
may not be able to successfully develop, manage or market its products and
services, the Company may not be able to attract or retain qualified executives
and technology personnel, the Company may not be able to obtain customers for
its products or services, the Company's products and services may become
obsolete, government regulation may hinder the Company's business, additional
dilution in outstanding stock ownership may be incurred due to the issuance of
more shares, warrants and stock options, the exercise of outstanding warrants
and stock options, or other risks inherent in the Company's businesses.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. W9 cautions you not to place undue reliance on the
statements, which speak only as of the date of this Form 10-Q. The cautionary
statements contained or referred to in this section should be considered in
connection with any subsequent written or oral forward-looking statements that
W9 or persons acting on its behalf may issue. The Company does not undertake any
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this Form 10-Q, or to reflect the
occurrence of unanticipated events.
CURRENT OVERVIEW
Warp 9 is a provider of e-commerce software platforms and services for
the catalog and retail industry. Our suite of software platforms are designed to
help multi-channel retailers maximize the Internet channel by applying our
technologies for online catalogs, e-mail marketing campaigns, and interactive
visual merchandising. Offered as an outsourced and fully managed
Software-as-a-Service ("SaaS") model, our products allow customers to focus on
their core business, rather than technical implementations and software and
hardware architecture, design, and maintenance. We also offer professional
services to our clients which include online catalog design, merchandizing and
optimization, order management, e-mail marketing campaign development,
integration to third party payment processing and fulfillment systems,
analytics, custom reporting and strategic consultation.
Our products and services allow our clients to lower costs and focus on
promoting and marketing their brand, product line and website while leveraging
the investments we have made in technology and infrastructure to operate a
dynamic online Internet presence.
We charge our customers a monthly fee for using our e-commerce software
based on a Software-as-a-Service model. These fees include fixed monthly
charges, and variable fees based on the sales volume of our clients' e-commerce
websites. Unlike traditional software companies that sell software on a
perpetual license where quarterly and annual revenues are quite difficult to
predict, our SaaS model spreads the collection of contract revenue over several
quarters or years and makes our revenues more predictable for a longer period of
time.
While the Warp 9 Internet Commerce System ("ICS") is our flagship and
highest revenue product, we have been developing and deploying new products
based on a proprietary virtual publishing technology that we have developed.
These new products have allowed for the creation of interactive web versions of
paper catalogs ("VCS") and magazines ("VMS") where users can flip through pages
with a mouse and click on products or advertisements. These magazines or
catalogs have built-in integration for e-commerce transactions through our ICS
product and other transaction based activities. Clients utilizing this
technology have discovered when exposing consumers to 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 test market
these new products in greater distribution in the near future.
-10-
Research and development ("R&D") 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. We are sometimes able to capitalize on these
opportunities by bundling features for greater value and/or increased fees and
revenue.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations, including the discussion on liquidity and capital resources, are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
management re-evaluates its estimates and judgments, particularly those related
to the determination of the estimated recoverable amounts of trade accounts
receivable, impairment of long-lived assets, revenue recognition and deferred
tax assets. We believe the following critical accounting policies require more
significant judgment and estimates used in the preparation of the financial
statements
We maintain an allowance for doubtful accounts for estimated losses
that may arise if any of our customers are unable to make required payments.
Management specifically analyzes the age of customer balances, historical bad
debt experience, customer credit-worthiness, and changes in customer payment
terms when making estimates of the uncollectability of our trade accounts
receivable balances. If we determine that the financial conditions of any of our
customers deteriorated, whether due to customer specific or general economic
issues, increases in the allowance may be made. Accounts receivable are written
off when all collection attempts have failed.
We follow the provisions of Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements" for revenue recognition and SAB
104. Under Staff Accounting Bulletin 101, four conditions must be met before
revenue can be recognized: (i) there is persuasive evidence that an arrangement
exists, (ii) delivery has occurred or service has been rendered, (iii) the price
is fixed or determinable and (iv) collection is reasonably assured.
Income taxes are accounted for under the asset and liability method.
Under this method, to the extent that we believe that the deferred tax asset is
not likely to be recovered, a valuation allowance is provided. In making this
determination, we consider estimated future taxable income and taxable timing
differences expected in the future. Actual results may differ from those
estimates.
-11-
RESULTS OF OPERATIONS FOR THE THREE-MONTHS AND NINE-MONTHS ENDED MARCH 31, 2009
COMPARED TO THE THREE-MONTHS AND NINE-MONTHS ENDED MARCH 31, 2008
REVENUE
Total revenue for the three-month period ended March 31, 2009 decreased
by ($95,389) to $485,088 from $580,477 in the prior year, representing a
decrease of 16.4%. For the nine-month period ended March 31, 2009, total revenue
decreased by ($261,031) to $1,573,112 from $1,834,143 in the same period of the
prior year. The overall decrease in revenue was primarily the result of a
decrease in recurring monthly fees and professional services booked in the
quarter as a result of the slowing economic environment.
COST OF REVENUE
The cost of revenue for the three-month period ended March 31, 2009
increased by $10,376 to $38,979 as compared to $28,603 for the three-month
period ended March 31, 2008, and for the nine-month period ended March 31, 2009,
cost of revenue increased by $13,840 to $118,874 from $105,034 in the same
period of the prior year. The overall increase was primarily due to the increase
in sales commissions and costs incurred for vendor obtained services by the
Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses decreased by
($14,040) during the three months ended March 31, 2009 to $318,769 as compared
to $332,809 for the three-month period ended March 31, 2008. For the nine-month
period ending March 31, 2009, SG&A expenses decreased by ($106,917) to
$1,038,429 from $1,145,346 for the nine months ended March 31, 2008. The
decrease in SG&A expenses was primarily due to the reduction in certain bad debt
and other ongoing vendor provided professional services.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased by ($8,285) during the
three months ended March 31, 2009 to $5,000 as compared to $13,285 for the three
months ended March 31, 2008. In the nine-month period ending March 31, 2009, the
research and development expenses increased by $267 to $31,877 as compared to
$31,610 for the nine months ended March 31, 2008.
DEPRECIATION AND AMORTIZATION
Expenses related to depreciation and amortization were $16,513 for the
three months ended March 31, 2009 as compared to $21,474 for the three months
ended March 31, 2008, and for the nine months ended March 31, 2009, the
depreciation and amortization was $49,539 as compared to $63,519 during the same
period of the prior year.
-12-
OTHER INCOME AND EXPENSE
Total other income and expense for the three months ended March 31,
2009 was $15,937 as compared to ($64,691) for the same period of the prior year,
and for the nine-month period ending March 31, 2009, was $25,739 as compared to
($241,172) for the same period of the prior year. The change is primarily due to
the elimination of the derivative liability valuation and interest expense
related to the Cornell convertible debenture.
NET INCOME
For the three months ended March 31, 2009, the consolidated net income
rose to $140,096 as compared to the consolidated net income of $119,605 for the
three months ended March 31, 2008. The increase in consolidated net income
includes a net increase of $18,332 due to tax loss carryforward adjustment.
For the nine months ended March 31, 2009, the consolidated income
before taxes rose to $360,132 as compared to $247,462 for the nine months ended
March 31, 2008. Inclusive of a provision for income tax of ($168,126), the
consolidated net income after taxes was $192,006 for the nine months ended March
31, 2009 as compared to $247,462 for the nine months ended March 31, 2008. The
over all increase in consolidated income for the nine months was primarily due
to the elimination of the Cornell convertible debenture and a reduction in
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at March 31, 2009 of $724,510 as compared to cash
of $779,583 as of March 31, 2008. The Company had net working capital (i.e. the
difference between current assets and current liabilities) of $1,096,107 at
March 31, 2009 as compared to a net working capital of $400,205 at March 31,
2008.
Cash flow provided by operating activities was $149,651 for the nine
months ended March 31, 2009 as compared to cash provided by operating activities
of $563,241 during the nine months ended March 31, 2008.
Cash flow used in investing activities was ($6,286) for the nine months
ended March 31, 2009 as compared to cash used in investing activities of
($4,355) during the nine months ended March 31, 2008.
Cash flow used by financing activities was ($99,504) for the nine
months ended March 31, 2009 as compared to net cash used by financing activities
of ($211,144) for the nine months ended March 31, 2008.
For the nine months ended March 31, 2009, our capital needs have
primarily been met from positive cash-flow from operations.
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. In the current financial environment, it has been
difficult for the Company to obtain equipment leases and other business
financing. There is no assurance that we would be able to obtain additional
working capital through the private placement of common stock or from any other
source.
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OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by Warp 9 is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. The Company's
Chairman, Chief Executive Officer, and Acting Chief Financial Officer are
responsible for establishing and maintaining controls and procedures for the
Company.
Management has evaluated the effectiveness of the Company's disclosure
controls and procedures as of March 31, 2009 (under the supervision and with the
participation of the Company's Chairman, Chief Executive Officer, and Acting
Chief Financial Officer) pursuant to Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended. As part of such evaluation, management
considered the matters discussed below relating to internal control over
financial reporting. Based on this evaluation, the Company's Chairman, Chief
Executive Officer, and Acting Chief Financial Officer have concluded that the
disclosure controls and procedures are effective as of March 31, 2009.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and
maintaining adequate internal control over financial reporting, (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934). The Company's
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control objectives.
Furthermore, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate due to change in
conditions, or the degree of compliance with the policies or procedures may
deteriorate.
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 first fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
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PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company pursued two accounts receivable lawsuits against former
customers to collect past due amounts and other fees. The Company collected
$32,500 from these activities. There are no current legal proceedings as of this
time.
The Company may file additional collection actions and be involved in
other litigation in the future.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- ---------------- -- ------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
- ---------------- -- ------------------------------------------------------------
3.1 Articles of Incorporation (1)
- ---------------- -- ------------------------------------------------------------
3.2 Bylaws (1)
- ---------------- -- ------------------------------------------------------------
4.1 Specimen Certificate for Common Stock (1)
- ---------------- -- ------------------------------------------------------------
4.2 Non-Qualified Employee Stock Option Plan (2)
- ---------------- -- ------------------------------------------------------------
10.1 First Agreement and Plan of Reorganization between
Latinocare Management Corporation, a Nevada
corporation, and Warp 9, Inc., a Delaware corporation (3)
- ---------------- -- ------------------------------------------------------------
10.2 Second Agreement and Plan of Reorganization between
Latinocare Management Corporation, a Nevada
corporation, and Warp 9, Inc., a Delaware corporation (4)
- ---------------- -- ------------------------------------------------------------
10.3 Exchange Agreement and Representations for Shareholders of
Warp 9, Inc.(3)
- ---------------- -- ------------------------------------------------------------
10.4 Termination and Assignment (5)
- ---------------- -- ------------------------------------------------------------
31.1 Section 302 Certification
- ---------------- -- ------------------------------------------------------------
32.1 Section 906 Certification
- ---------------- -- ------------------------------------------------------------
(1) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 10-KSB filed with the
Securities and Exchange Commission, dated March 31, 2002.
(2) Incorporated by reference from the exhibits included in the
Company's Information Statement filed with the Securities and
Exchange Commission, dated August 1, 2003.
(3) Incorporated by reference from the exhibits included with the
Company's prior Report on Form SC 14F-1 filed with the
Securities and Exchange Commission, dated April 8, 2003.
(4) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 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/A Report filed with the Securities and Exchange
Commission on November 24, 2008 regarding appointment of
William Edward Beifuss, Jr. and John Charles Beifuss to fill
two vacancies on the Company's Board of Directors. The
Company's Board of Directors plans to form an Audit Committee.
(2) Form 8-K Report filed with the Securities and Exchange
Commission on February 3, 2009 regarding resignation of Louie
Ucciferri from the Board of Directors to provide a vacancy for
the Audit Committee. Mr. Ucciferri will continue to serve as
the Company's Acting Chief Financial Officer.
(3) Form 8-K Report filed with the Securities and Exchange
Commission on February 5, 2009 regarding resignation of Kin Ng
from the Board of Directors.
-16-
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: May 15, 2009 WARP 9, INC.
-------------------------------------------------------
(Registrant)
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: May 15, 2009
- ---------------------------------------------------
Louie Ucciferri, Corporate Secretary,
Acting Chief Financial Officer
(Principal Financial / Accounting Officer)
By: \s\Harinder Dhillon Dated: May 15, 2009
- ---------------------------------------------------
Harinder Dhillon, Chief Executive Officer and
President (Principal Executive Officer)
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