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 September 30, 2013 or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition period from _______________ to ______________
Commission File Number: 0-13215
WARP 9, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 30-0050402
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1933 CLIFF DRIVE, SUITE 11, SANTA BARBARA, CA 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
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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.
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Yes[_X_] No[__]
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Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
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Yes[_X_] No[__]
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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).
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Large accelerated filer [___] Accelerated filer [___]
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Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
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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).
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Yes[__] No[_X_]
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of November 12, 2013, the number of shares outstanding of the registrant's
class of common stock was 96,135,126.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets as of September 30, 2013
(unaudited) and June 30, 2013 3
Consolidated Statements of Operations for the Three Months
ended September 30, 2013 and September 30, 2012 (unaudited) 4
Consolidated Statement of Shareholders' Equity/(Deficit) for
the Three Months ended September 30, 2013 (unaudited) 5
Consolidated Statements of Cash Flows for the Three Months
ended September 30, 2013 and September 30, 2012 (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. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Mine Safety Disclosures 15
Item 5. Other Information 15
Item 6. Exhibits 15
Signatures 16
-2-
PART I. - FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 2013 June 30, 2013
------------------ ---------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 37,045 $ 12,636
Accounts Receivable, net 39,300 62,887
Prepaid and Other Current Assets 9,564 1,343
------------------ ---------------
TOTAL CURRENT ASSETS 85,909 76,866
------------------ ---------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 10,349 83,288
Computer Equipment 21,948 266,789
Computer Software 1,754 14,840
Leasehold Improvements - 18,696
------------------ ---------------
34,052 383,613
Less accumulated depreciation (20,482) (333,215)
------------------ ---------------
NET PROPERTY AND EQUIPMENT 13,570 50,398
------------------ ---------------
OTHER ASSETS
Lease Deposit 14,199 8,244
Licensing fees 2,000 5,000
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TOTAL OTHER ASSETS 16,199 13,244
------------------ ---------------
TOTAL ASSETS $ 115,678 $ 140,508
================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 235,934 $ 176,871
Accrued Expenses 94,764 91,966
Accrued Interest 8,944 7,948
Deferred Operating Lease Liability 5,552 6,117
Notes Payable, Wings Fund, net 161,845 126,984
Note Payable, Other 37,867 37,867
Customer Deposit 6,846 6,846
------------------ ---------------
TOTAL CURRENT LIABILITIES 551,752 454,599
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TOTAL LIABILITIES 551,752 454,599
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SHAREHOLDERS' EQUITY/(DEFICIT)
Preferred Stock, $0.001 Par Value;
5,000,000 Authorized Shares; no shares issued and outstanding - -
Common Stock, $0.001 Par Value;
495,000,000 Authorized Shares;
96,135,126 and 96,135,126 Shares Issued and Outstanding , respectively 96,135 96,135
Additional Paid In Capital 7,386,463 7,373,623
Accumulated Deficit (7,918,672) (7,783,849)
------------------ ---------------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) (436,074) (314,091)
------------------ ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $ 115,678 $ 140,508
================== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Quarter Ended
September 30, 2013 September 30, 2012
-------------------- --------------------
REVENUE $ 235,316 $ 350,731
COST OF SERVICES 66,686 62,291
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GROSS PROFIT 168,630 288,440
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OPERATING EXPENSES
Selling, general and administrative expenses 252,919 303,650
Research and development - 13,307
Stock option expense 5,840 3,682
Depreciation and amortization 39,196 5,652
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TOTAL OPERATING EXPENSES 297,955 326,291
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LOSS FROM OPERATIONS BEFORE OTHER INCOME AND TAXES (129,325) (37,851)
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OTHER INCOME/(EXPENSE)
Other income 5,000 7,500
Gain on sale of fixed assets 420 -
Gain on extinguishment of debt - 8,808
Interest expense (8,165) (996)
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TOTAL OTHER INCOME (EXPENSE) (2,745) 15,312
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LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (132,070) (22,539)
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PROVISION FOR INCOME (TAXES)/BENEFIT
Income taxes paid (2,753) (1,616)
Income tax (provision)/benefit - -
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PROVISION FOR INCOME (TAXES)/BENEFIT (2,753) (1,616)
-------------------- --------------------
NET LOSS $ (134,823) $ (24,155)
==================== ====================
EARNINGS PER SHARE
BASIC AND DILUTED $ (0.00) $ (0.00)
==================== ====================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 96,135,126 96,135,126
==================== ====================
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY/(DEFICIT)
(Unaudited)
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Value Shares Value Capital Deficit Total
----------- ----------- -------------- ----------- ------------- ------------- --------------
Balance, June 30, 2013 - $ - 96,135,126 $ 96,135 $ 7,373,623 $ (7,783,849) $ (314,091)
Stock compensation expense - - - - 5,840 - 5,840
Net loss - - - - - (134,823) (134,823)
Discount on Note - - - - 7,000 - 7,000
----------- ----------- -------------- ----------- ------------- ------------- --------------
Balance, September 30, 2013 - $ - 96,135,126 $ 96,135 $ 7,386,463 $ (7,918,672) $ (436,074)
=========== =========== ============== =========== ============= ============= ==============
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter Ended
September 30, 2013 September 30, 2012
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (134,823) $ (24,155)
Adjustment to reconcile net loss to net cash
provided/(used) by operating activities
Depreciation and amortization 39,196 5,652
Cost of stock compensation recognized 5,840 3,682
Contributed services - 12,000
Amortization of debt discount 2,894 -
Gain on sale of fixed assets (420) -
Change in assets and liabilities:
(Increase) Decrease in:
Accounts receivable 23,587 (90,348)
Prepaid and other assets (8,221) 3,341
Other assets (2,955) 3,000
Increase (Decrease) in:
Accounts payable 59,063 52,658
Accrued expenses 2,798 (1,283)
Deferred income - (1,478)
Other liabilities 4,398 1,006
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NET CASH PROVIDED/(USED) IN OPERATING ACTIVITIES (8,643) (35,925)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,368) -
Proceeds from sale of fixed assets 420 -
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NET CASH PROVIDED/(USED) IN INVESTING ACTIVITIES (1,948) -
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 35,000 -
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NET CASH PROVIDED/(USED) IN FINANCING ACTIVITIES 35,000 -
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NET INCREASE/(DECREASE) IN CASH 24,409 (35,925)
CASH, BEGINNING OF YEAR 12,636 63,104
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CASH, END OF PERIOD $ 37,045 $ 27,179
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 17 $ -
================== ==================
Taxes paid $ 2,753 $ -
================== ==================
The accompanying notes are an integral part of these
consolidated financial statements.
-6-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2013
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all normal recurring adjustments considered necessary for a fair
presentation have been included. Operating results for the three months
ended September 30, 2013 are not necessarily indicative of the results that
may be expected for the year ending June 30, 2014. For further information
refer to the financial statements and footnotes thereto included in the
Company's Form 10K for the year ended June 30, 2013.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Warp 9, Inc. is
presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in
the United States of America and have been consistently applied in the
preparation of the financial statements.
ACCOUNTS RECEIVABLE
The Company extends credit to its customers, who are located primarily in
California. Accounts receivable are customer obligations due under normal
trade terms. The Company performs continuing credit evaluations of its
customers' financial condition. Management reviews accounts receivable on a
regular basis, based on contracted terms and how recently payments have
been received to determine if any such amounts will potentially be
uncollected. The Company includes any balances that are determined to be
uncollectible in its allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off. The
balance of the allowance account at September 30, 2013 and June 30, 2013
are $24,907 and $24,907, respectively.
REVENUE RECOGNITION
The Company recognizes income when the service is provided or when product
is delivered. We present revenue, net of customer incentives. Most of the
income is generated from monthly fees from clients who subscribe to the
Company's fully hosted web based e-commerce products on terms averaging
twelve months. Unless terminated accordingly with prior written notice, the
agreements automatically renew for another term.
We provide online marketing services that we purchase from third parties.
The gross revenue presented in our statement of operations is in accordance
with ASC 605-45.
We also offer professional services such as development services. The fees
for development services with multiple deliverables constitute a separate
unit of accounting in accordance with ASC 605-25, which are recognized as
the work is performed.
Upfront fees for development services or other customer services are
deferred until certain implementation or contractual milestones have been
achieved. The deferred revenue as of September 30, 2013 and June 30, 2013
was $0 and $0, respectively.
For the quarter ended, September 30, 2013, monthly recurring fees for the
Company's total commerce platform ("TCP"), the Company's Internet commerce
system ("ICS"), and mobile services account for 33% of the Company's total
revenues, professional services account for 65% and the remaining 2% of
total revenues are from resale of third party products and services.
For the quarter ended, September 30, 2012, monthly recurring fees for TCP,
ICS, and mobile services account for 34% of the Company's total revenues,
professional services account for 60% and the remaining 6% of total
revenues are from resale of third party products and services.
STOCK-BASED COMPENSATION
The Company addressed the accounting for share-based payment transactions
in which an enterprise receives employee services in exchange for either
equity instruments of the enterprise or liabilities that are based on the
fair value of the enterprise's equity instruments or that may be settled by
the issuance of such equity instruments. The transactions are accounted for
using a fair-value-based method and recognized as expenses in our statement
of income. There was no material impact on the Company's financial
statement of operations.
-7-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2013
Stock-based compensation expense recognized during the period is based on
the value of the portion of stock-based payment awards that is ultimately
expected to vest. Stock-based compensation expense recognized in the
consolidated statement of operations during the three months ended
September 30, 2013, included compensation expense for the stock-based
payment awards granted prior to, but not yet vested, as of September 30,
2013 based on the grant date fair value estimated. Stock-based compensation
expense recognized in the statement of income for the three months ended
September 30, 2013 is based on awards ultimately expected to vest, it has
been reduced for estimated forfeitures. The stock-based compensation
expense recognized in the consolidated statements of operations during the
three months ended September 30, 2013 and 2012 are $5,840 and $3,682,
respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Management reviewed accounting pronouncements issued during the three
months ended September 30, 2013, and no pronouncements were adopted during
the period.
RECLASSIFICATION
Certain statement of operations amounts for the three months ended
September 30, 2012 were reclassified to conform to the presentation of the
period ended September 30, 2013.
3. LIQUIDITY AND OPERATIONS
The company had net losses of $134,823 and $24,155 for the three months
periods ended September 30, 2013 and 2012, respectively, and net cash used
in operating activities of $8,643 and $35,925 for the same periods,
respectively.
While we expect that our capital needs in the foreseeable future will be
met by cash-on-hand and existing cash flow, there is no assurance that the
Company will generate any or sufficient positive cash flows, or have
sufficient capital, to finance its growth and business operations, or that
such capital will be available on terms that are favorable to the Company
or at all. The Company has recently been incurring operating losses and
experiencing negative cash flow. In the current financial environment, it
could become difficult for the Company to obtain business leases and other
equipment financing. There is no assurance that we would be able to obtain
additional working capital through the private placement of common stock or
from any other source.
GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course
of business. The accompanying financial statements do not reflect any
adjustments that might result if the Company is unable to continue as a
going concern. The Company does not generate significant revenue, and has
negative cash flows from operations, which raise substantial doubt about
the Company's ability to continue as a going concern. The ability of the
Company to continue as a going concern and appropriateness of using the
going concern basis is dependent upon, among other things, an additional
cash infusion. Management believes the existing shareholders and potential
prospective new investors will provide the additional cash needed to meet
the Company's obligations as they become due, and will allow the
development of its core of business.
4. CONVERTIBLE NOTE PAYABLE
On March 25, 2013, the Company signed a convertible promissory note ("the
March 2013 Note") in the amount of $100,000, at which time an initial
advance of $50,000 was received to cover operational expenses. The lender,
Wings Fund, Inc., advanced an additional $20,000 on April 16, 2013, an
additional $15,000 on May 1, 2013 and an additional $15,000 on May 16,
2013, for a total draw of $100,000. The terms of the March 2013 Note allow
the lender to convert all or part of the outstanding balance plus accrued
interest, at any time after the effective date, at a conversion price of
the lower of (a) $0.015 per share, or (b) 50% of the lowest trade price of
Common Stock recorded on any trade day after the effective date of the
agreement. The March 2013 Note bears interest at a rate of 10% per year and
matures one year from the effective date of each advance.
On May 16, 2013, the Company signed a convertible promissory note ("the May
2013 Note") in the amount of $100,000, at which time an initial advance of
$10,000 was received to cover operational expenses. The lender, Wings Fund,
Inc., advanced an additional $20,000 on June 3, 2013, an additional $25,000
on July 2, 2013 and an additional $10,000 on September 30, 2013, for a
total draw of $65,000. 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
-8-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2013
recorded on any trade day after the effective date of the agreement. At the
time of issuance, the Company recognized a discount on the May 2013 Note in
the amount of $6,000 and an additional $7,000 during the quarter ended
September 30, 2013, due to the beneficial conversion feature. This discount
will be recognized over twelve months, beginning on May 16, 2013. For the
three months ended September 30, 2013 and the year ended June 30, 2013, the
Company included $2,894 and $542, respectively, in interest expense related
to the discount. The May 2013 Note bears interest at a rate of 10% per year
and matures one year from the effective date of each advance.
5. RELATED PARTIES
During the quarter ended September 30, 2013 and fiscal year ended June 30,
2013, the Company received a total of $35,000 and $130,000, respectively,
from Wings Fund, Inc., an affiliate of the Company, pursuant to the March
2013 Note and the May 2013 Note. See footnote 4 for details regarding the
March 2013 Note and the May 2013 Note.
During the fiscal year ended June 30, 2012, the Company signed a licensing
agreement with PageTransformer, to obtain expertise in the area of mobile
app and mobile web development. This licensing agreement expires in the
year ended June 30, 2014 and will not be renewed. The two founders of
PageTransformer, Andrew VanNoy and Zachary Bartlett, are our current Chief
Executive Officer and our current Vice President of Operations,
respectively. Other than the original licensing fee paid to
PageTransformer, the Company has not made any subsequent payments to
PageTransformer under the licensing agreement.
6. CAPITAL STOCK
At September 30, 2013 and 2012, the Company's authorized stock consists of
495,000,000 shares of common stock, par value $0.001 per share. The Company
is also authorized to issue 5,000,000 shares of preferred stock with a par
value of $0.001. The rights, preferences and privileges of the holders of
the preferred stock will be determined by the Board of Directors prior to
issuance of such shares. No transactions affecting capital stock were noted
during the quarter ended September 30, 2013 or the fiscal year ended June
30, 2013.
7. 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 authorized the grant of stock options to purchase up
to 25,000,000 shares of common stock until July 10, 2013. Accordingly no
new options may be granted under the Plan, but the terms and conditions of
the Plan still govern all outstanding options under the Plan. Options
granted under the Plan may be either Incentive Options or Nonqualified
Options, and are administered by the Company's Board of Directors. Each
option may be exercisable in full or in installment and at such time as
designated by the Board. Notwithstanding any other provision of the Plan or
of any Option Agreement, each option expires on the date specified in the
Option Agreement, which date may be no later than the tenth anniversary of
the date on which the option was granted (fifth anniversary in the case of
an Incentive Option granted to a greater-than-10% stockholder). The
purchase price per share of the Common Stock under each Incentive Option is
to be no less than the Fair Market Value of the Common Stock on the date
the option is granted (110% of the Fair Market Value in the case of a
greater-than-10% stockholder). The purchase price per share of the Common
Stock under each Nonqualified Option is to be specified by the Board at the
time the Option is granted, and may be less than, equal to, or greater than
the Fair Market Value of the shares of Common Stock on the date such
Nonqualified Option is granted, but may be no less than 85% of the Fair
Market Value of the Common Stock on the date of grant. The Plan provides
specific language as to the termination of options granted.
-9-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2013
The weighted average remaining contractual life of options outstanding
issued under the plan as of September 30, 2013 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
------------------ ------------------ ----------------
$ 0.050 8,000 4.83
$ 0.004 500,000 8.04
------------------
508,000
==================
On October 12, 2011, the Company granted 3,000,000 employee qualified
(incentive) stock options, and 500,000 non-qualified stock options at a
strike price of $0.004 per share. The options vest 1/48th monthly and
expire on October 12, 2021. During the six months ended December 31, 2012,
2,500,000 of these options were forfeited due to terminations.
On August 13, 2012, the Company granted 12,500,000 non-qualified stock
options at a strike price of $0.0053 per share. The options vest 1/36th
monthly and expire on August 13, 2019.
A summary of the Company's stock option activity for the three months
ending September 30, 2013, and related information follows:
September 30, 2013
------------------------------
Weighted
average
exercise
Options price
--------------- --------------
Outstanding -beginning of period 13,508,000 $ 0.005
Granted - -
Exercised - -
Forfeited - -
--------------- --------------
Outstanding - end of period 13,508,000 $ 0.005
=============== ==============
Exercisable at the end of period 5,214,930 $ 0.005
=============== ==============
Weighted average fair value of
options granted during the year $ -
==============
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.
8. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of
ASC TOPIC 855, and has determined that no such events require disclosure.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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CAUTIONARY STATEMENTS
This Form 10-Q may contain "forward-looking statements," as that term
is used in federal securities laws, about Warp 9, Inc.'s financial condition,
results of operations and business. These statements include, among others:
o statements concerning the potential benefits that Warp 9, Inc. ("W9,"
"we," "us," "our," or the "Company") may experience from its business
activities and certain transactions it contemplates or has completed;
and
o statements of W9's expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical
facts. These statements may be made expressly in this Form 10-Q. You
can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates," "opines," or similar
expressions used in this Form 10-Q. These forward-looking statements
are subject to numerous assumptions, risks and uncertainties that may
cause W9's actual results to be materially different from any future
results expressed or implied by W9 in those statements. The most
important facts that could prevent W9 from achieving its stated goals
include, but are not limited to, the following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its business, and
inability to raise additional capital or financing to
implement its business plans;
(e) failure to further commercialize its technology or to make
sales;
(f) loss of customers and reduction in demand for the Company's
products and services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside
parties, reducing revenue and increasing costs;
(i) insufficient revenues to cover operating costs;
(j) failure of the re-licensing or other commercialization of the
Roaming Messenger technology to produce revenues or profits;
(k) aspects of the Company's business are not proprietary and in
general the Company is subject to inherent competition;
(l) further dilution of existing shareholders' ownership in the
Company;
(m) uncollectible accounts and the need to incur expenses to
collect amounts owed to the Company; and
(n) the Company does not have an Audit Committee nor sufficient
independent directors.
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.
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-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 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-Q or to reflect the occurrence of unanticipated events.
-11-
The following discussion should be read in conjunction with our
condensed consolidated financial statements and notes to those statements. In
addition to historical information, the following discussion and other parts of
this quarterly report contain forward-looking information that involves risks
and uncertainties.
CURRENT OVERVIEW
Warp 9 is a provider of e-commerce solutions for midsize online
sellers. 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. Our e-commerce solutions are primarily offered
utilizing the Magento platform for websites accessed through a desktop interface
and the Moovweb Responsive Delivery platform for websites accessed through a
mobile interface. We also offer professional services to our clients which
include online catalog design, merchandizing and optimization, order management,
e-mail marketing campaign development, integration to third party payment
processing and fulfillment systems, analytics, custom reporting and strategic
consultation.
We charge our customers fixed monthly management fees based on a SaaS
model. 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. We
also charge non-recurring fees to initially develop websites for our customers.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations, including the discussion on liquidity and capital resources, are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
management re-evaluates its estimates and judgments, particularly those related
to the determination of the estimated recoverable amounts of trade accounts
receivable, impairment of long-lived assets, revenue recognition, and deferred
tax assets. We believe the following critical accounting policies require more
significant judgment and estimates used in the preparation of the financial
statements.
We maintain an allowance for doubtful accounts for estimated losses
that may arise if any of our customers are unable to make required payments.
Management specifically analyzes the age of customer balances, historical bad
debt experience, customer credit-worthiness, and changes in customer payment
terms when making estimates of the uncollectability of our trade accounts
receivable balances. If we determine that the financial conditions of any of our
customers has deteriorated, whether due to customer specific or general economic
issues, increases in the allowance may be made. Accounts receivable are written
off when all collection attempts have failed.
We follow the provisions of Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements" for revenue recognition and SAB
104. Under Staff Accounting Bulletin 101, four conditions must be met before
revenue can be recognized: (i) there is persuasive evidence that an arrangement
exists, (ii) delivery has occurred or service has been rendered, (iii) the price
is fixed or determinable, and (iv) collection is reasonably assured.
Income taxes are accounted for under the asset and liability method.
Under this method, to the extent that we believe that the deferred tax asset is
not likely to be recovered, a valuation allowance is provided. In making this
determination, we consider estimated future taxable income and taxable timing
differences expected in the future. Actual results may differ from those
estimates.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013, COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2012.
REVENUE
Total revenue for the three months ended September 30, 2013 decreased
by $115,415 to $235,316 compared to $350,731 for the three months ended
September 30, 2012. The overall decrease in revenue was primarily the result of
a decrease in recurring and non-recurring fees charged to customers related to
the Warp 9 Internet Commerce System ("ICS") platform, partially offset by
increases in fees billed for mobile and Magento projects.
COST OF REVENUE
The cost of revenue for the three months ended September 30, 2013
increased by $4,395 to $66,686 compared to $62,291 for the three months ended
September 30, 2012. The overall increase was primarily due to costs incurred to
produce e-commerce websites.
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SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative (SG&A) expenses for the three
months ended September 30, 2013 decreased $50,731 to $252,919 compared to
$303,650 for the three months ended September 30, 2012. The overall decrease in
SG&A expenses was primarily due to a decrease in outside services and salary
expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended September
30, 2013 decreased $13,307 to $0 compared to $13,307 for the three months ended
September 30, 2012. The decrease was due to a reduction in time devoted to the
Warp 9 Total Commerce Platform ("TCP") and instead devoting those resources to
operations and current project production.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for the three months ended
September 30, 2013 increased $33,544 to $39,196, compared to $5,652 for the
three months ended September 30, 2012. The increase was due to the Company
decommissioning its data center and disposing of the data center equipment, some
of which had not been fully depreciated.
OTHER INCOME AND EXPENSE
Total other income (expense) for the three months ended September 30,
2013 decreased $18,057 to net other expense of $2,745, compared to net other
income of $15,312 for the three months ended September 30, 2012. The decrease
was primarily due to the recognition of a gain on extinguishment of debt in the
prior period, but no such item was recorded in the current period. In addition,
as disclosed in footnote 4, the increase in Notes Payable has contributed to a
higher interest expense in the current period when compared to the prior period.
NET INCOME/(LOSS)
The consolidated net loss for the three months ended September 30, 2013
was ($134,823) compared to the consolidated net loss of ($24,155) for the three
months ended September 30, 2012. The increase in net loss for the period was
primarily due to a decrease in recurring revenue related to the ICS platform and
an increase in depreciation expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net working capital deficit (i.e. the difference
between current assets and current liabilities) of ($465,843) at September 30,
2013 compared to a net working capital deficit of ($377,733) at June 30, 2013.
The decrease in net working capital at September 30, 2013 was caused by an
increase in accounts payable over the past year.
Cash flow used in operating activities was ($8,643) for the three
months ended September 30, 2013 compared to cash flow used in operating
activities of ($35,925) for the three months ended September 30, 2012. The
decrease in cash flow used in operating activities of $27,282 was primarily due
to a decrease in accounts receivable during the current period, partially offset
by an increase in net loss.
Cash flow used in investing activities was ($1,948) for the three
months ended September 30, 2013 as compared to cash flow used in investment
activities of $0 for the three months ended September 30, 2012. The increase in
cash flow used in investing activities of $1,948 was primarily due to the
increase of equipment purchases during the current period.
Cash flow provided in financing activities was $35,000 for the three
months ended September 30, 2013 as compared to $0 for the three months ended
September 30, 2012. The increase in cash flow provided in financing activities
of $35,000 was due to proceeds received by the Company from a convertible
promissory note.
While we expect that our capital needs in the foreseeable future will
be met by cash-on-hand and existing cash flow, there is no assurance that we
will generate any or sufficient positive cash flows, or have sufficient capital,
to finance our growth and business operations, or that such capital will be
available on terms that are favorable to us or at all. The Company has recently
been incurring operating losses and experiencing negative cash flow. In the
current financial environment, it could become difficult for the Company to
obtain business leases and other equipment financing. There is no assurance that
we would be able to obtain additional working capital through the private
placement of common stock or from any other source.
OFF-BALANCE SHEET ARRANGEMENTS
None.
-13-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES.
---------------------------------
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by W9 in the reports that it
files under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer that it files under the Exchange Act is accumulated and communicated to
the issuer's management, including its principal executive officer and principal
financial officers, or persons performing similar functions as appropriate to
allow timely decisions regarding required disclosure. The Company's Chairman,
Chief Executive Officer, and Chief Financial Officer are responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Management has evaluated the effectiveness of the Company's disclosure
controls and procedures as of September 30, 2013 (under the supervision and with
the participation of the Company's Chairman, Chief Executive Officer, and Chief
Financial Officer) pursuant to Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended. As part of such evaluation, management considered the
matters discussed below relating to internal control over financial reporting.
Based on this evaluation, the Company's Chairman, Chief Executive Officer, and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective as of September 30, 2013.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and
maintaining adequate internal control over financial reporting, (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934). The Company's
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control objectives.
Furthermore, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate due to change in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. After evaluating the Company's internal controls over financial
reporting, the Company's Chairman, Chief Executive Officer, and Chief Financial
Officer have concluded that the internal controls over financial reporting are
effective as of September 30, 2013.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in the Company's internal control over
financial reporting that occurred during the Company's three month period ended
September 30, 2013 that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II. - OTHER INFORMATION
-----------------------------
ITEM 1. LEGAL PROCEEDINGS
--------------------------
There are no current legal proceedings as of this time.
The Company may file additional collection actions and be involved in
other litigation in the future.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
--------------------------------------------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
None.
-14-
ITEM 4. MINE SAFETY DISCLOSURES
--------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
--------------------------
None
ITEM 6. EXHIBITS
-----------------
(a) Exhibits
EXHIBIT NO. DESCRIPTION
------------ --------------------------------------------------
31.1 Section 302 Certification
31.2 Section 302 Certification
32.1 Section 906 Certification
32.2 Section 906 Certification
EX-101.INS XBRL INSTANCE DOCUMENT*
EX-101.SCH XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT*
EX-101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE*
EX-101.DEF XBRL TAXONOMY EXTENSION DEFINITION LINKBASE*
EX-101.LAB XBRL TAXONOMY EXTENSION LABELS LINKBASE*
EX-101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE*
* Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive
data files on Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, and otherwise are not subject to liability under those
sections.
-15-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
WARP 9, INC.
---------------------------------------------
(Registrant)
Dated: November 12, 2013 By: /s/ Andrew Van Noy
-------------------------------------
Andrew Van Noy,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Andrew Van Noy Dated: November 12, 2013
-----------------------------------------------------
Andrew Van Noy, Chief Executive Officer and President
(Principal Executive Officer)
By: /s/ Gregory Boden Dated: November 12, 2013
-----------------------------------------------------
Gregory Boden, Chief Financial Officer
(Principal Financial/Accounting Officer)
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