Attached files

file filename
EX-31 - WARP 9, INC.ex312.txt
EX-31 - WARP 9, INC.ex311.txt
EXCEL - IDEA: XBRL DOCUMENT - WARP 9, INC.Financial_Report.xls
EX-32 - WARP 9, INC.ex321.txt
EX-32 - WARP 9, INC.ex322.txt

                                  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, 2012

                                       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.
           -----------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            NEVADA                                     30-0050402
---------------------------------         ------------------------------------
 (State or other jurisdiction of          (I.R.S. Employer Identification No.)
  incorporation or organization)

            6500 HOLLISTER AVENUE, SUITE 120, SANTA BARBARA, CA 93117
           -----------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (805) 964-3313
           -----------------------------------------------------------
               Registrant's telephone number, including area code

--------------------------------------------------------------------------------
(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[_X_]                                                          No[__]
--------------------------------------------------------------------------------
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).
--------------------------------------------------------------------------------
        Yes[_X_]                                                          No[__]
--------------------------------------------------------------------------------
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 November 13, 2012, 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 ---- Item 1. Consolidated Financial Statements 3 Consolidated Balance Sheets as of September 30, 2012 (unaudited) and June 30, 2012 3 Consolidated Statements of Operations for the Three Months ended September 30, 2012 and September 30, 2011 (unaudited) 4 Consolidated Statement of Shareholders' Equity/(Deficit) for the Three Months ended September 30, 2012 (unaudited) 5 Consolidated Statements of Cash Flows for the Three Months ended September 30, 2012 and September 30, 2011 (unaudited) 6 Notes to Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 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. Mine Safety Disclosures 15 Item 5. Other Information 15 Item 6. Exhibits 15 Signatures 16 -2-
PART I. - FINANCIAL INFORMATION ------------------------------- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ----------------------------------------- WARP 9, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS September 30, 2012 June 30, 2012 ----------------------- ----------------- (unaudited) ASSETS CURRENT ASSETS Cash $ 27,179 $ 63,104 Accounts Receivable, net 183,688 93,340 Prepaid and Other Current Assets 8,451 11,792 ----------------------- ----------------- TOTAL CURRENT ASSETS 219,318 168,236 ----------------------- ----------------- PROPERTY & EQUIPMENT, at cost Furniture, Fixtures & Equipment 83,288 83,288 Computer Equipment 260,179 260,179 Computer Software 14,025 14,025 Leasehold Improvements 18,696 18,696 ----------------------- ----------------- 376,188 376,188 Less accumulated depreciation (316,584) (310,992) ----------------------- ----------------- NET PROPERTY AND EQUIPMENT 59,604 65,196 ----------------------- ----------------- OTHER ASSETS Lease Deposit 8,244 8,244 Internet Domain, net 1,213 1,273 Licensing fees 14,000 17,000 ----------------------- ----------------- TOTAL OTHER ASSETS 23,457 26,517 ----------------------- ----------------- TOTAL ASSETS $ 302,379 $ 259,949 ======================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) CURRENT LIABILITIES Accounts Payable $ 143,802 $ 91,144 Accrued Expenses 85,100 86,383 Accrued Interest 4,961 3,964 Deferred Income 31,375 32,853 Deferred Operating Lease Liability 5,645 5,636 Note Payable, Other 37,867 37,867 Customer Deposit 21,361 21,361 ----------------------- ----------------- TOTAL CURRENT LIABILITIES 330,111 279,208 ----------------------- ----------------- TOTAL LIABILITIES 330,111 279,208 ----------------------- ----------------- SHAREHOLDERS' EQUITY/(DEFICIT) Preferred Stock, $0.001 Par Value; 5,000,000 Authorized Shares; no shares issued and outstanding - - Common Stock, $0.001 Par Value; 495,000,000 Authorized Shares; 96,135,126 and 96,135,126 Shares Issued and Outstanding , respectively 96,135 96,135 Additional Paid In Capital 7,350,295 7,334,613 Accumulated Deficit (7,474,162) (7,450,007) ----------------------- ----------------- TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) (27,732) (19,259) ----------------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $ 302,379 $ 259,949 ======================= ================= 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, 2012 September 30, 2011 --------------------------- --------------------------- REVENUE $ 350,731 $ 194,438 COST OF SERVICES 53,327 14,177 --------------------------- --------------------------- GROSS PROFIT 297,404 180,261 --------------------------- --------------------------- OPERATING EXPENSES Selling, general and administrative expenses 312,615 289,707 Research and development 13,307 39,036 Stock option expense 3,682 48 Depreciation and amortization 5,652 6,179 --------------------------- --------------------------- TOTAL OPERATING EXPENSES 335,255 334,970 --------------------------- --------------------------- LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES) (37,851) (154,709) --------------------------- --------------------------- OTHER INCOME/(EXPENSES) Other income 7,500 7,740 Gain on extinguishment of debt 8,808 - Interest expense (996) (7,345) --------------------------- --------------------------- TOTAL OTHER INCOME/(EXPENSES) 15,312 395 --------------------------- --------------------------- LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (22,539) (154,314) --------------------------- --------------------------- PROVISION FOR INCOME (TAXES)/BENEFIT Income taxes paid (1,616) (1,662) Income tax (provision)/benefit - - --------------------------- --------------------------- PROVISION FOR INCOME (TAXES)/BENEFIT (1,616) (1,662) --------------------------- --------------------------- NET LOSS $ (24,155) $ (155,976) =========================== =========================== 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 STATEMENTS OF SHAREHOLDERS' EQUITY(DEFICIT) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 Preferred Stock Common Stock Additional ---------------------- --------------------------- Paid-in Accumulated Shares Value Shares Value Capital Deficit Total ----------- ---------- -------------- ------------ ---------------- ----------------- ------------- Balance, June 30, 2012 - $ - 96,135,126 $ 96,135 $ 7,334,613 $ (7,450,007) $ (19,259) Stock compensation expense (unaudited) - - - - 3,682 - 3,682 Contributed services (unaudited) - - - - 12,000 - 12,000 Net loss (unaudited) - - - - - (24,155) (24,155) ----------- ---------- -------------- ------------ ---------------- ----------------- ------------- Balance, September 30, 2012 (unaudited) - $ - 96,135,126 $ 96,135 $ 7,350,295 $ (7,474,162) $ (27,732) =========== ========== ============== ============ ================ ================= ============= The accompanying notes are an integral part of these consolidated financial statements. -5-
WARP 9, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended September 30, 2012 September 30, 2011 --------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (24,155) $ (155,976) Adjustment to reconcile net loss to net cash provided/(used) by operating activities Depreciation and amortization 5,652 6,179 Bad debt expense - (406) Cost of stock compensation recognized 3,682 48 Contributed services 12,000 - Change in assets and liabilities: (Increase) Decrease in: Accounts receivable (90,348) (19,011) Prepaid and other assets 3,341 (11,374) Other assets 3,000 3,000 Increase (Decrease) in: Accounts payable 52,658 (26,104) Accrued expenses (1,283) (4,558) Deferred income (1,478) 7,593 Other liabilities 1,006 (6,036) --------------------- -------------------- NET CASH PROVIDED/(USED) IN OPERATING ACTIVITIES (35,925) (206,645) --------------------- -------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment - (7,893) --------------------- -------------------- NET CASH PROVIDED/(USED) IN INVESTING ACTIVITIES - (7,893) --------------------- -------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment on notes payable - - --------------------- -------------------- NET CASH PROVIDED/(USED) IN FINANCING ACTIVITIES - - --------------------- -------------------- NET DECREASE IN CASH (35,925) (214,538) CASH, BEGINNING OF YEAR 63,104 575,398 --------------------- -------------------- CASH, END OF PERIOD $ 27,179 $ 360,860 ===================== ==================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ - $ 996 ===================== ==================== Taxes paid $ - $ - ===================== ==================== 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, 2012 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, 2012 are not necessarily indicative of the results that may be expected for the year ending June 30, 2013. For further information refer to the financial statements and footnotes thereto included in the Company's Form 10K for the year ended June 30, 2012. 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, 2012 and June 30, 2012 are $52,408 and $52,408, 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, 2012 and June 30, 2012 was $31,375 and $32,853, respectively. 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. For the quarter ended, September 30, 2011, monthly recurring fees for TCP, ICS and mobile services account for 70% of the Company's total revenues, professional services account for 13% and the remaining 17% 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, 2012 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, 2012, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of September 30, 2012 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, 2012 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation expense recognized in the consolidated statements of operations during the three months ended September 30, 2012 and 2011 are $3,682 and $48 respectively. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Management reviewed accounting pronouncements issued during the three months ended September 30, 2012, and no pronouncements were adopted during the period. RECLASSIFICATION Certain statement of operations amounts for the three months ended September 30, 2011 were reclassified to conform to the presentation of the period ended September 30, 2012. 3. LIQUIDITY AND OPERATIONS ----------------------------- The company had net losses of $24,155 and $155,976 for the three months periods ended September 30, 2012 and 2011, respectively, and net cash used in operating activities of $35,925 and $206,645 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. CAPITAL STOCK ------------------ At September 30, 2012 and 2011, 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. 5. STOCK OPTIONS AND WARRANTS ------------------------------- On July 10, 2003, the Company adopted the Warp 9, Inc. Stock Option Plan for Directors, Executive Officers, and Employees of and Key Consultants to the Company. This Plan, may issue 25,000,000 shares of common stock. Options granted under the Plan could be either Incentive Options or Nonqualified Options, and are administered by the Company's Board of Directors. Each option may be exercisable in full or in installment and at such time as designated by the Board. Notwithstanding any other provision of the Plan or of any Option Agreement, each option are to expire on the date specified in the Option Agreement, which date are to be no later than -8-
WARP 9, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED SEPTEMBER 30, 2012 the tenth anniversary of the date on which the option was granted (fifth anniversary in the case of an Incentive Option granted to a greater-than-10% stockholder). The purchase price per share of the Common Stock under each Incentive Option is to be no less than the Fair Market Value of the Common Stock on the date the option was granted (110% of the Fair Market Value in the case of a greater-than-10% stockholder). The purchase price per share of the Common Stock under each Nonqualified Option were to be specified by the Board at the time the Option was granted, and could be less than, equal to or greater than the Fair Market Value of the shares of Common Stock on the date such Nonqualified Option was granted, but were to be no less than 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. 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. The options vest 1/48th monthly and expire October 12, 2021. On August 13, 2012, the Company granted 12,500,000 non-qualified stock options at a strike price of $0.0053. The options vest 1/36th monthly and expire August 13, 2019. A summary of the Company's stock option activity for the three months ending September 30, 2012, and related information follows: September 30, 2012 ----------------------------- Weighted average exercise Options price -------------- -------------- Outstanding -beginning of period 3,578,000 $ 0.006 Granted 12,500,000 0.005 Exercised - - Forfeited (500,000) 0.004 -------------- -------------- Outstanding - end of period 15,578,000 $ 0.006 ============== ============== Exercisable at the end of period 1,351,195 $ 0.012 ============== ============== Weighted average fair value of options granted during the year $ 66,250 ============== The Black Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The weighted average remaining contractual life of options outstanding issued under the plan as of September 30, 2012 was as follows: Weighted Average Number of remaining Exercise options contractual prices outstanding life (years) -------------------- ------------------ ------------------- $ 0.350 20,000 1.25 $ 0.050 50,000 2.06 $ 0.050 8,000 5.83 $ 0.005 12,500,000 6.87 $ 0.004 3,000,000 9.04 ------------------ 15,578,000 ================== 6. SUBSEQUENT EVENTS -------------------- Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has determined that no such events require disclosure. -9-
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," "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 Company; (m) uncollectible accounts and the need to incur expenses to collect amounts owed to the Company; (n) the Company does not have an Audit Committee nor sufficient independent directors. -10-
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 or successfully compete,, 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 W9 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 SaaS 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 developed and deployed new products based on a proprietary virtual publishing technology. These new products allow for the creation of interactive web versions of paper catalogs and magazines where users can flip through pages with a mouse and click on products or advertisements. These magazines or catalogs have built-in integration for e-commerce transactions through our ICS product and other transaction based activities. Accordingly, when shoppers click on a product, they are taken to the e-commerce product page where they can add that product to their shopping cart for purchasing. Clients utilizing this technology have discovered when exposing consumers to the virtual catalogs, a higher average order size and significant increase in rate of conversion result. We have sold this solution on a limited basis while we continue to refine the product and technology. We believe there could be many markets for our virtual catalog and magazine technology and we expect to test market these new products in the future. -11-
Research and development efforts have been focused both on updating our flagship ICS e-commerce platform as well as developing new products and on updating our current products with new features. In the planning phase of our development efforts, 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. 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. Management believes that in order to compete successfully, it must dedicate a greater allocation of resources to research and development. Updating our platform, creating new products and revamping the current products must be part of the ongoing operational practice in order to compete successfully. There can be no assurance that management will be able to successfully devote the resources needed for this research and development and that it will be able to compete successfully. 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. -12-
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012, cOMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2011 REVENUE Total revenue for the three months ended September 30, 2012 increased by $156,293 to $350,731 compared to $194,438 for the same prior period. The overall increase in revenue was primarily the result of an increase in recurring monthly fees and upfront fees for mobile e-commerce website development. COST OF REVENUE The cost of revenue for the three months ended September 30, 2012 increased by $39,150 to $53,327 compared to $14,177 for the same prior period. The overall increase was primarily due to costs incurred to produce mobile e-commerce websites. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative (SG&A) expenses for the three months ended September 30, 2012 increased $22,908 to $312,615 compared to $289,707 for the same prior period. The overall increase in SG&A expenses was primarily due to an increase in salary expense. RESEARCH AND DEVELOPMENT Research and development expenses for the three months ended September 30, 2012 decreased $25,729 to $13,307 as compared to $39,036 for the same prior period. The decrease was due to a reduction in time devoted to the new TCP platform and instead devoting those resources to operations and current project production. NET INCOME/(LOSS) The consolidated net loss for the three months ended September 30, 2012 was ($24,155) compared to the consolidated net loss of ($155,976) for the same prior period. The decrease in net loss for the period was primarily due to an increase in mobile e-commerce website recurring and upfront revenue. LIQUIDITY AND CAPITAL RESOURCES The Company had net working capital deficit (i.e. the difference between current assets and current liabilities) of ($110,793) at September 30, 2012 as compared to a net working capital of ($110,972) at June 30, 2012. The decrease in net working capital at September 30, 2012 was caused by an increase in operating expenses. Cash flow used in operating activities was ($35,925) for the three months ended September 30, 2012 as compared to cash flow used in operating activities of ($206,645) for the same prior period. The decrease in cash flow used in operating activities of $170,720 was primarily due to a decrease in net loss and an increase in accounts payable. Cash flow used in investing activities was $0 for the three months ended September 30, 2012 as compared to cash flow used in investment activities of ($7,893) for the same prior period. The decrease in cash flow used in investing activities of ($7,893) was primarily due to the decrease of equipment purchases during the current period. Cash flow used in financing activities was $0 for the three months ended September 30, 2012 as compared to $0 for the same prior period. 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. OFF-BALANCE SHEET ARRANGEMENTS None. -13-
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 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, 2012 (under the supervision and with the participation of the Company's Chairman, Chief Executive Officer, 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, 2012. 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, 2012. NO ATTESTATION REPORT BY INDEPENDENT REGISTERED ACCOUNTANT The effectiveness of our internal control over financial reporting as of September 30, 2012 has not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company. 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, 2012 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. -14-
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. 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 -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 13, 2012 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 13, 2012 ------------------------------------------------------ Andrew Van Noy, Chief Executive Officer and President (Principal Executive Officer) By: /s/ Gregory S. Boden ------------------------------------------------------ Gregory S. Boden, Chief Financial Officer (Principal Financial/Accounting Officer) -16