PINX:WNYN Warp 9 Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended March 31, 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 incorporation or organization)
(I.R.S. Employer Identification No.)
   
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 (§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
(Do not check if a smaller reporting company)
[___]
 
Smaller reporting company
[_X_]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes
[__]
No
[_X_]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of May 10, 2012, the number of shares outstanding of the registrant’s class of common stock was 96,135,126.

 
 

 
 
 
1

 
 

 
 
Table of Contents

PART I – FINANCIAL INFORMATION
 
Page
         
Item 1.
 
Consolidated Financial Statements
 
3
   
Consolidated Balance Sheets as of  March 31, 2012 (unaudited) and June 30, 2011 (audited)
 
3
   
Consolidated Statements of Operations for the Three Months and Nine Months ended March 31, 2012 and March 31, 2011 (unaudited)
 
4
   
Consolidated Statement of Shareholders’ Equity for the Nine Months ended March 31, 2012 (unaudited)
 
5
   
Consolidated Statements of Cash Flows for the Nine Months ended March 31, 2012 and March 31, 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
 
13
         
Item 4T.
 
Controls and Procedures
 
13
         
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
 
 14
         
Item 5.
 
Other Information
 
 14
         
Item 6.
 
Exhibits
 
 14
         
Signatures
     
 15




 
 
 
2

 
 


PART I. - FINANCIAL INFORMATION

Item 1.                      CONSOLIDATED FINANCIAL STATEMENTS
 
WARP 9, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
 

             
   
March 31, 2012
   
June 30, 2011
 
   
(Unaudited)
       
ASSETS
           
CURRENT ASSETS
           
     Cash
 
$
55,629
   
$
575,398
 
     Accounts Receivable, net
   
118,880
     
68,269
 
     Prepaid and Other Current Assets
   
29,202
     
25,388
 
TOTAL CURRENT ASSETS
   
203,711
     
669,055
 
                 
PROPERTY & EQUIPMENT, at cost
               
Furniture, Fixtures & Equipment
   
88,023
     
89,485
 
Computer Equipment
   
273,410
     
632,793
 
Computer Software
   
14,025
     
20,972
 
Leasehold Improvements
   
18,696
     
18,696
 
     
394,154
     
761,946
 
Less accumulated depreciation
   
(322,331
)
   
(681,131
)
NET PROPERTY AND EQUIPMENT
   
71,823
     
80,815
 
                 
OTHER ASSETS
               
      Lease Deposit
   
8,244
     
8,244
 
      Internet Domain, net
   
1,333
     
1,513
 
      Licensing fees
   
20,000
     
29,000
 
TOTAL OTHER ASSETS
   
29,577
     
38,757
 
                 
  TOTAL ASSETS
 
$
305,111
   
$
788,627
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts Payable
 
$
47,746
   
$
71,248
 
Accrued Expenses
   
77,584
     
92,845
 
Deferred Income
   
24,753
     
32,010
 
Deferred Operating Lease Liability
   
5,471
     
4,045
 
Note Payable
   
39,838
     
37,867
 
Customer Deposit
   
21,361
     
27,873
 
TOTAL CURRENT LIABILITIES
   
216,753
     
265,888
 
                 
LONG TERM LIABILITIES
               
     Note payable
   
-
     
1,971
 
TOTAL  LONG TERM LIABILITIES
   
-
     
1,971
 
                 
  TOTAL LIABILITIES
   
216,753
     
267,859
 
                 
SHAREHOLDERS' EQUITY
               
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
   
7,301,720
     
7,299,905
 
Accumulated Deficit
   
(7,309,497)
     
(6,875,272
)
TOTAL SHAREHOLDERS'  EQUITY
   
88,358
     
520,768
 
                 
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
305,111
   
$
788,627
 
                 
                 

 
The accompanying notes are an integral part of these consolidated financial statements.
 


 
 
 
3

 
 

 
WARP 9, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
 
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
March 31, 2012
   
March 31, 2011
   
March 31, 2012
   
March 31, 2011
 
                         
REVENUE
 
$
220,406
   
$
228,281
   
$
628,899
   
$
728,004
 
                                 
COST OF SERVICES
   
30,408
     
14,176
     
80,773
     
54,871
 
                                 
GROSS PROFIT
   
189,998
     
214,105
     
548,126
     
673,133
 
                                 
OPERATING EXPENSES
                               
  Selling, general and administrative expenses
   
276,983
     
220,428
     
882,565
     
795,897
 
  Research and development
   
24,544
     
29,178
     
92,554
     
75,443
 
  Stock option expense
   
894
     
63
     
1,815
     
265
 
  Depreciation and amortization
   
5,404
     
6,762
     
17,065
     
20,212
 
                                 
TOTAL OPERATING EXPENSES
   
307,825
     
256,431
     
993,999
     
891,817
 
                                 
LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)
   
(117,827
)
   
(42,326
)
   
(445,873
)
   
(218,684
)
                                 
OTHER INCOME/(EXPENSE)
                               
   Interest income
   
-
     
6,087
     
(6,401
)
   
24,236
 
   Other income
   
7,500
     
7,500
     
22,740
     
15,000
 
   Penalties
   
-
     
(98)
     
-
     
(98)
 
   Interest expense
   
(1,030)
     
(1,403
)
   
(3,029)
     
(3,415
)
                                 
TOTAL OTHER INCOME (EXPENSE)
   
6,470
     
12,086
     
13,310
     
35,723
 
                                 
LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES
   
(111,357)
     
(30,240
)
   
(432,563)
     
(182,961
)
                                 
PROVISION FOR INCOME (TAXES)/BENEFIT
                               
   Income tax (provision)/benefit
   
-
     
11,473
     
(1,662
)
   
17,981
 
                                 
PROVISION FOR INCOME (TAXES)/BENEFIT
   
-
     
11,473
     
(1,662
)
   
17,981
 
                                 
NET LOSS
 
$
(111,357)
   
$
(18,767
)
 
$
(434,225)
   
$
(164,980
)
                                 
                                 
BASIC AND DILUTED EARNINGS PER SHARE
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
                                 
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
                               
    BASIC AND DILUTED
   
96,135,126
     
68,115,963
     
96,135,126
     
68,115,963
 
                                 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

 
 
 
4

 
 

 
 
WARP 9, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
FOR THE NINE MONTHS ENDED MARCH 31, 2012
 
 
                           
Additional
             
   
Preferred Stock
   
Common Stock
   
Paid-in
   
Accumulated
       
   
Shares
   
Value
   
Shares
   
Value
   
Capital
   
Deficit
   
Total
 
Balance, June 30, 2011
   
-
   
$
-
     
96,135,126
   
$
96,135
   
$
7,299,905
   
$
(6,875,272
)
 
$
520,768
 
                                                         
Stock compensation expense (unaudited)
   
-
     
-
     
-
     
-
     
1,815
     
-
     
1,815
 
                                                         
Net loss for the nine months ended March 31, 2012 (unaudited)
   
-
     
-
     
-
     
-
     
-
     
(434,225)
     
(434,225)
 
Balance, March 31, 2012 (unaudited)
   
-
   
$
-
     
96,135,126
   
$
96,135
   
$
7,301,720
   
$
(7,309,497)
   
$
88,358
 
 

 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

 
 
 
5

 
 

 
 
WARP 9, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
 
   
Nine Months Ended
 
   
March 31, 2012
   
March 31, 2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
 
$
(434,225)
   
$
(164,980
)
Adjustment to reconcile net loss to net cash
               
  used by operating activities
               
Depreciation and amortization
   
17,065
     
20,212
 
Bad debt expense
   
11,256
     
(48,165
)
Cost of stock compensation recognized
   
1,815
     
265
 
Contributed services
   
-
     
64,614
 
Change in assets and liabilities:
               
(Increase) Decrease in:
               
Accounts receivable
   
(61,867
)
   
(556
)
Prepaid and other assets
   
(3,814
)
   
(11,288
)
Deferred tax asset
   
-
     
(20,185
)
Deferred operating lease liability
   
1,426
     
3,418
 
Deposits
   
-
     
8,205
 
Other Assets
   
9,000
     
-
 
Increase (Decrease) in:
               
Accounts payable
   
(23,502
)
   
(52,384
)
Accrued expenses
   
(15,261)
     
(1,257
)
Deferred income
   
(7,257
)
   
21,676
 
Other liabilities
   
(6,512)
     
(900
)
                 
NET CASH PROVIDED/(USED) IN OPERATING ACTIVITIES
   
(511,876
)
   
(181,325
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Net purchase / (disposal) of property and equipment
   
(7,893
)
   
(5,478
)
                 
NET CASH USED IN INVESTING ACTIVITIES
   
(7,893
)
   
(5,478
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payments on notes payable
   
-
     
(21
)
                 
NET CASH PROVIDED/(USED) IN FINANCING ACTIVITIES
   
-
     
(21
)
                 
NET DECREASE IN CASH
   
(519,769
)
   
(186,824
)
                 
                 
CASH, BEGINNING OF PERIOD
   
575,398
     
733,737
 
                 
CASH, END OF PERIOD
 
$
55,629
   
$
546,913
 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
         
   Interest paid
 
$
27
   
$
432
 
   Taxes paid
 
$
3,849
   
$
2,204
 
                 
 

 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

 
 
 
6

 
 

 
 
WARP 9, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 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 nine months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending June 30, 2012.  For further information refer to the financial statements and footnotes thereto included in the Company's Form 10K for the year ended June 30, 2011.

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 March 31, 2012 and June 30, 2011 are $22,664 and $11,408, 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 March 31, 2012 and June 30, 2011 was $24,753 and $32,010, respectively.

For the quarter ended, March 31, 2012, monthly fee from web products and associated service fees account for 74% of the Company’s total revenues, professional services account for 9% and the remaining 17% of total revenues are from resale of third party products and services.

For the quarter ended, March 31, 2011, monthly fee from web products and associated service fees account for 78% of the Company’s total revenues, professional services account for 6% and the remaining 16% 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
MARCH 31, 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 March 31, 2012, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of March 31, 2012 based on the grant date fair value estimated.   Stock-based compensation expense recognized in the statement of income for the three months ended March 31, 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 nine months ended March 31, 2012 and 2011 are $1,814 and $265 respectively.
  
Recently Issued Accounting Pronouncements
 
 
Management reviewed accounting pronouncements issued during the nine months ended March 31, 2012, and no pronouncements were adopted during the period.
 
3.     LIQUIDITY AND OPERATIONS

The company had net losses of $434,225 and $164,980 for the nine month periods ended March 31, 2012 and 2011, respectively, and net cash used in operating activities of $511,876 and $181,325 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 March 31, 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 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.
 
 
8

 
 
WARP 9, INC. AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2012

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.
 
A summary of the Company’s stock option activity for the three months ending March 31, 2012, and related information follows:
 
   
March 31, 2012
 
   
Options
   
Weighted
average
exercise
price
 
Outstanding -beginning of period
   
3,588,000
   
$
0.01
 
Granted
   
-
     
-
 
Exercised
   
-
     
-
 
Forfeited
   
(10,000
)
   
0.40
 
Outstanding - end of period
   
3,578,000
   
$
0.01
 
Exercisable at the end of period
   
437,628
   
$
0.03
 
Weighted average fair value of
               
 options granted during the year
         
$
14,000
 
 
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
March 31, 2012 was as follows:
               
Exercise
prices
   
Number of
options
outstanding
   
Weighted
Average
remaining
contractual
life (years)
 
$ 0.350       20,000       1.75  
$ 0.050       50,000       2.56  
$ 0.050       8,000       6.33  
$ 0.004       3,500,000       9.54  
          3,578,000          
 
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:

statements concerning the potential benefits that Warp 9, Inc. (“W9” or the “Company”) may experience from its business activities and certain transactions it contemplates or has completed; and

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.

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.
 
 
10

 

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.

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.
 
 
11

 
 
Results of Operations for the Three Months and Nine Months Ended March 31, 2012, compared to the Three Months and Nine Months Ended March 31, 2011

REVENUE

Total revenue for the three months ended March 31, 2012 decreased by $7,875 to $220,406 compared to $228,281 for the same prior period.  For the nine months ended March 31, 2012, total revenue decreased by $99,105 to $628,899 compared to $728,004 in the same prior period.  The overall decrease in revenue was the result of a decrease in recurring monthly fees caused by client terminations, partially offset by an increase in mobile website development. The client terminations were due to both i) the financial environment affecting the clients’ fiscal health and in turn, W9’s revenue stream from those clients, and ii) increased competition in the e-commerce software space and the perceived competitive nature of the ICS product-line.

COST OF REVENUE

The cost of revenue for the three months ended March 31, 2012 increased by $16,232 to $30,408 compared to $14,176 for the same prior period.  For the nine months ended March 31, 2012 the cost of revenue increased $25,902 to $80,773 compared to $54,871 for the same prior period.  The overall increase was primarily due to the increase in subcontractor services and recognition of the licensing fees to PageTransformer.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses for the three months ended March 31, 2012 increased $56,555 to $276,983 compared to $220,428 for the same prior period.  For the nine months ended March 31, 2012, SG&A expenses increased $86,668 to $882,565 compared to $795,897 in the same prior period.  The overall increase in SG&A expenses was primarily due to an increase in salary expense, partially offset by a decrease in bad debt expense.

RESEARCH AND DEVELOPMENT

Research and development expenses for the three months ended March 31, 2012 increased $4,634 to $24,544 as compared to $29,178 for the same prior period.  For the nine months ended March 31, 2012, the research and development expenses increased $17,111 to $92,554 as compared to $75,443 for the same prior period.  The overall increase was due to increased staffing expense associated with research and development to update our e-commerce platform and new products and features.

 NET INCOME/(LOSS)

The consolidated net loss for the three months ended March 31, 2012 was ($111,357) compared to the consolidated net loss of ($18,767) for the same prior period.  For the nine months ended March 31, 2012, the consolidated net loss was ($434,225) compared to the consolidated net loss of ($164,980) for the same prior period.  The consolidated net loss is mainly attributable to a reduction in revenue, and an increase in SG&A expense, as outlined above.

LIQUIDITY AND CAPITAL RESOURCES

The Company had net working capital deficit (i.e. the difference between current assets and current liabilities) of ($13,042) at March 31, 2012 as compared to a net working capital of $403,167 at June 30, 2011.  The decrease in net working capital at March 31, 2012 was caused by a reduction in revenue and an increase in operating expenses.

Cash flow used in operating activities was ($511,876) for the nine months ended March 31, 2012 as compared to cash flow used in operating activities of ($181,325) for the same prior period. The increase in cash flow used in operating activities of ($330,551) was primarily due to increases in net loss and the accounts receivable balance.

Cash flow used in investing activities was ($7,893) for the nine months ended March 31, 2012 as compared to cash flow used in investment activities of ($5,478) for the same prior period.  The increase in cash flow used in investing activities of ($2,415) was primarily due to the increase of equipment purchases during the current period.

Cash flow used in financing activities was $0 for the nine months ended March 31, 2012 as compared to ($21) for the same prior period.  The increase in cash flow of $21 used in financing activities was primarily due to no payments on debt being made during the current 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.
 
 
12

 

Off-Balance Sheet Arrangements

None.
 
Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

Item 4T.  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by 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 March 31, 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 March 31, 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 March 31, 2012.

No Attestation Report by Independent Registered Accountant

The effectiveness of our internal control over financial reporting as of March 31, 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 second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
13

 

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

On April 24, 2012 the Company appointed Gregory S. Boden as Chief Financial Officer and Andrew Van Noy as President.  Previously, Mr. Boden had served as an independent Director and the Chairman of the Audit Committee, and Mr Van Noy served as a Director.

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
 
 

 
 
 
14

 
 

 


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: May 15, 2012
By:
/s/ William E. Beifuss
 
   
William E. Beifuss, Chief Executive Officer
 
       
       


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/ William E. Beifuss
Dated: May 15, 2012
William E. Beifuss, Chief Executive Officer and Corporate Secretary
(Principal Executive Officer)
 
 
 
By: /s/ Gregory S. Boden
 
Gregory S. Boden, Chief Financial Officer
(Principal Financial/Accounting Officer)
 
   
   
 

 
 
15

PINX:WNYN Warp 9 Inc Quarterly Report 10-Q Filling

Warp 9 Inc PINX:WNYN Stock - Get Quarterly Report SEC Filing of Warp 9 Inc PINX:WNYN stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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PINX:WNYN Warp 9 Inc Quarterly Report 10-Q Filing - 3/31/2012
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