UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 2006
COMMISSION FILE NUMBER 0-13215
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WARP 9, INC.
---------------------
(Exact name of Registrant as Specified in its Charter)
NEVADA 30-0050402
-------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
50 Castilian Dr. Suite A, Santa Barbara, California 93117
(Address of principal executive offices) (Zip Code)
(805) 964-3313
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------------ -----------------------------
COMMON STOCK OTC
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the proceeding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
As of November 14, 2006 the number of shares outstanding of the
registrant's only class of common stock was 212,400,568.
Transitional Small Business Disclosure Format (check one):
Yes No X
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TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Balance Sheets as of September 30, 2006 (unaudited).................................................. 3
Statements of Operations for the Three Months ended September 30, 2006
and 2005 (unaudited)................................................................................. 4
Statements of Shareholders' Deficit for the Three Months ended
September 30, 2006 (unaudited)....................................................................... 5
Statements of Cash Flows for the Three Months ended
September 30, 2006 and 2005 (unaudited).............................................................. 6
Notes to Condensed Consolidated Financial Statements
(unaudited).......................................................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................ 10
Item 3 Controls and Procedures.............................................................................. 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................................................... 14
Item 2. Changes in Securities................................................................................ 14
Item 3. Defaults upon Senior Securities...................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 15
Item 5. Other Information.................................................................................... 15
Item 6. Exhibits and Reports on Form 8-K..................................................................... 16
Signatures.................................................................................................... 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2006
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 103,089
Accounts Receivable, net 372,039
Prepaid and Other Current Assets 29,139
----------------
TOTAL CURRENT ASSETS 504,267
----------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 89,485
Computer Equipment 499,083
Commerce Server 50,000
Computer Software 9,476
----------------
648,044
Less accumulated depreciation (421,822)
----------------
NET PROPERTY AND EQUIPMENT 226,222
----------------
OTHER ASSETS
Lease Deposit 9,748
Restricted Cash 93,000
Internet Domain, net 1,362
Investment-Zingerang 10,000
Loan Costs 161,042
----------------
TOTAL OTHER ASSETS 275,152
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TOTAL ASSETS $ 1,005,641
================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable $ 205,407
Credit Cards Payable 13,552
Accrued expenses 425,319
Bank Line of Credit 75,684
Deferred Income 192,000
Note Payable 22,000
Customer Deposit 41,115
Derivative Liability-Debenture 562,227
Capitalized Leases, Current Portion 40,368
----------------
TOTAL CURRENT LIABILITIES 1,577,672
----------------
LONG TERM LIABILITIES
Convertible Debenture 1,045,000
Beneficial Conversion Feature (230,903)
Capitalized Leases 55,528
----------------
TOTAL LIABILITIES 869,625
----------------
SHAREHOLDERS' DEFICIT
Common stock, $0.001 par value;
495,000,000 authorized shares;
200,499,787 shares issued and outstanding 200,500
Additional paid in capital 6,050,389
Accumulated deficit (7,692,545)
----------------
TOTAL SHAREHOLDERS' DEFICIT (1,441,656)
----------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,005,641
================
The accompanying notes are an integral part of these financial statements.
3
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
2006 2005
-------------- --------------
REVENUE $ 432,676 $ 337,926
COST OF SERVICES 96,416 107,054
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GROSS PROFIT 336,260 230,872
OPERATING EXPENSES
Selling, general and administrative expenses 513,830 607,643
Research and development 107,377 106,377
Depreciation and amortization 39,639 23,393
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TOTAL OPERATING EXPENSES 660,846 737,413
-------------- --------------
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) (324,586) (506,541)
OTHER INCOME/(EXPENSE)
Interest Income 30,620 1,016
Other Income - 6,386
Interest Expense (62,917) (10,268)
-------------- --------------
TOTAL OTHER INCOME (EXPENSE) (32,297) (2,866)
-------------- --------------
LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (356,883) (509,407)
PROVISION FOR INCOME TAXES - -
-------------- --------------
NET LOSS (356,883) (509,407)
============== ==============
BASIC AND DILUTED LOSS PER SHARE $ (0.00) $ (0.00)
============== ==============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 197,266,575 181,445,352
============== ==============
The accompanying notes are an integral part of these financial statements.
4
WARP9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006
(Unaudited)
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
----------------- ------------ ----------- ------------- --------------
Balance, June 30, 2005 180,807,091 $ 180,807.06 $4,950,066 $ (5,171,310) $ (40,437)
Issuance of common stock,
Convertible debenture 3,271,881 3,272 56,728 60,000
Issuance of common stock, 4,579,174 4,579 282,568 287,147
Stock issued for cash
Issuance of common stock,
Stock issued for services 1,145,000 1,145 135,205 136,350
Warrant Compensation 16,828 16,828
Discount on convertible debenture 300,000 300,000
Stock Compensation, net 144,965 144,965
Net Loss for the year ended
June 30, 2006 (2,164,352) (2,164,352)
----------------- ------------ ----------- ------------- --------------
Balance, June 30, 2006 189,803,146 $ 189,803 $5,886,360 $ (7,335,662) $ (1,259,499)
Issuance of common stock
Convertible debenture (unaudited) 10,696,641 10,697 84,303 95,000
Derivative liability (unaudited) 49,236 49,236
Stock issuance cost (unaudited) (198) (198)
Stock compensation, net (unaudited) 30,688 30,688
Net Loss for the period
September 30, 2006 (unaudited) (356,883) (356,883)
----------------- ------------ ----------- ------------- --------------
Balance, September 30, 2006 (unaudited) 200,499,787 $ 200,500 $6,050,389 $ (7,692,545) $ (1,441,657)
================= ============ =========== ============= ==============
The accompanying notes are an integral part of these financial statements.
5
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
September 30
2006 2005
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (356,883) $ (509,407)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 22,721 23,393
Issuance of common shares and warrants for services - 74,947
Conversion of convertible debenture into common shares 95,000 -
Cost of stock options recognized 30,688 -
Amortization of loan costs 16,875 -
Derivative expense 12,658 -
Change in convertible debenture (95,000)
Change in beneficial conversion feature 29,861 -
(Increase) Decrease in:
Accounts receivable (210,969) 19,249
Prepaid and other assets (5,205) (3,592)
Increase (Decrease) in:
Accounts payable 33,915 92,295
Accrued expenses 31,248 4,912
Deferred Income 130,667 22,667
Other liabilities (67,360) 15,643
--------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (331,784) (259,893)
--------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of stock for investment (10,000) -
Purchase of property and equipment (1,537) (10,928)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (11,537) (10,928)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note payable (3,000) -
Payments on capitalized leases (12,914) (13,713)
Proceeds from line of credit 75,342 75,000
Deposit for shares of common stock - 32,000
Proceeds from issuance of common stock, net of cost (198) 25,916
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 59,230 119,203
--------------- ---------------
NET (DECREASE) IN CASH (284,091) (151,618)
CASH, BEGINNING OF PERIOD 387,180 237,529
--------------- ---------------
CASH, END OF PERIOD $ 103,089 $ 85,911
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 6,812 $ 10,268
=============== ===============
Taxes paid $ - $ 63
=============== ===============
Capitalized lease contracted - 19,796
=============== ===============
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the three months ended September 30, 2006, the Company issued
10,696,641 shares of common stock at a fair value of $95,000 for the
convertible debenture. During the three months ended September 30, 2005, the
Company purchased $19,796 of equipment under capital leases respectively.
The accompanying notes are an integral part of these financial statements.
6
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2006
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all normal recurring adjustments considered necessary for a fair
presentation have been included. Operating results for the three month
period ended September 30, 2006 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2007. For further
information refer to the financial statements and footnotes thereto
included in the Company's Form 10K-SB for the year ended June 30, 2006.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Warp 9, Inc. is
presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in
the United States of America and have been consistently applied in the
preparation of the financial statements.
GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course
of business. The accompanying financial statements do not reflect any
adjustments that might result if the Company is unable to continue as a
going concern. The Company's losses and negative cash flows from operations
raise substantial doubt about the Company's ability to continue as a going
concern. The ability of the Company to continue as a going concern and
appropriateness of using the going concern basis is dependent upon, among
other things, additional cash infusion.
STOCK-BASED COMPENSATION
As of June 30, 2006, the Company adopted Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" (FAS) No. 123R, that addresses
the accounting for share-based payment transactions in which an enterprise
receives employee services in exchange for either equity instruments of the
enterprise or liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of
such equity instruments. The statement eliminates the ability to account
for share-based compensation transactions, as we formerly did, using the
intrinsic value method as prescribed by Accounting Principles Board, or
APB, Opinion No. 25, "Accounting for Stock Issued to Employees," and
generally requires that such transactions be accounted for using a
fair-value-based method and recognized as expenses in our statement of
income. The adoption of (FAS) No. 123R by the Company had no material
impact on the statement of income.
The Company adopted FAS 123R using the modified prospective method which
requires the application of the accounting standard as of June 30, 2006.
Our financial statements as of and for the three months ended September 30,
2006 reflect the impact of adopting FAS 123R. In accordance with the
modified prospective method, the financial statements for prior periods
have not been restated to reflect, and do not include, the impact of FAS
123R.
Stock-based compensation expense recognized during the period is based on
the value of the portion of stock-based payment awards that is ultimately
expected to vest. Stock-based compensation expense recognized in the
consolidated statement of operations during the three months ended
September 30, 2006, included compensation expense for the stock-based
payment awards granted prior to, but not yet vested, as of September 30,
2006 based on the grant date fair value estimated in accordance with the
pro forma provisions of FAS 148, and compensation expense for the
stock-based payment awards granted subsequent to September 30, 2006, based
on the grant date fair value estimated in accordance with FAS 123R. As
stock-based compensation expense recognized in the statement of income for
the three months ended September 30, 2006 is based on awards ultimately
expected to vest, it has been reduced for estimated forfeitures, FAS 123R
requires forfeitures to be
7
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2006
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK-BASED COMPENSATION (CONTINUED)
estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. In the pro forma
information required under FAS 148 for the periods prior to the year ended
June 30, 2006, we accounted for forfeitures as they occurred. The
stock-based compensation expense recognized in the consolidated statement
of operations during the three months ended September 30, 2006 is $30,688
2006 2005
---------------- ----------------
Net loss as reported $ (356,883) $ (509,407)
Add: Stock based employee compensation expense - -
included in net reported loss, net of related tax effect
Deduct: Stock based employee compensation expense - (30,738)
determined under fair value based method for all awards,
net of related tax effect
---------------- ----------------
Pro forma net loss $ (356,883) $ (540,145)
================ ================
Basic and diluted pro forma loss per share
As reported $ (0.00) $ (0.00)
================ ================
Proforma $ (0.00) $ (0.00)
================ ================
3. CAPITAL STOCK
At September 30, 2006, 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. During the three months ended September 30, 2006,
the Company issued 10,696,641 shares of common stock ranging from $0.0088
per share to $0.0092 per share for the conversion of the debenture with a
value of $95,000.
4. CONVERTIBLE DEBENTURES
On December 28, 2005, we consummated a securities purchase agreement with
Cornell Capital Partners L.P. providing for the sale by us to Cornell of
our 10% secured convertible debentures in the aggregate principal amount of
$1,200,000 of which the first installment of $400,000 was advanced
immediately. The net amount of the first installment received by the
Company was $295,500 after paying total fees of $92,500 which included
legal, structuring, due diligence, commitment fees, and prior liability of
$12,000. An interest expense of $100,000, representing the value of the
conversion feature in accordance to EITF 00-27 was recorded for the first
installment. Under EITF 00-27, the Company records a beneficial conversion
cost associated with the convertibility feature of the security that equals
the value of any discount to market available at the time of conversion.
This beneficial conversion cost is recorded at the time the convertible
security is first issued and is amortized over the stated terms.
8
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2006
4. CONVERTIBLE DEBENTURES (Continued)
Holders of the debentures may convert at any time amounts outstanding under
the debentures into shares of our common stock at a conversion price per
share equal to the lesser of (i) $0.15 or (ii) 80% of the lowest volume
weighted average price of our common stock during the five trading days
immediately preceding the conversion date as quoted by Bloomberg, LP.
Cornell has agreed not to short any of the shares of Common Stock. EITF
00-19 is applicable to debentures issued by the Company in instances where
the number of shares into which a debenture can be converted is not fixed.
For example, when a debenture converts at a discount to market based on the
stock price on the date of conversion. In such instances, EITF 00-19
requires that the embedded conversion option of the convertible debentures
be bifurcated from the host contract and recorded at their fair value. In
accounting for derivatives under EITF 00-19, the Company records a
liability representing the estimated present value of the conversion
feature considering the historic volatility of the Company's stock, and a
discount representing the imputed interest associated with the beneficial
conversion feature. The discount is then amortized over the life of the
debentures and the derivative liability is adjusted periodically according
to stock price fluctuations. At the time of conversion, any remaining
derivative liability is charged to additional paid-in capital. For purpose
of determining derivative liability, the Company uses Black Scholes
modeling for computing historic volatility.
We have the right to redeem a portion or all amounts outstanding under the
debenture prior to the maturity date at a 20% redemption premium provided
that the closing bid price of our common stock is less than $0.15. In
addition, in the event of redemption, we are required to issue to Cornell
50,000 shares of common stock for each $100,000 redeemed.
We also issued to Cornell five-year warrants to purchase 1,500,000,
4,000,000 and 4,000,000 shares of Common Stock at $0.08, $0.10 and $0.12
per share, respectively.
The second installment of $350,000 ($295,000 net of fees) was advanced on
January 27, 2006. An interest expense of $87,500 was incurred, representing
the value of the conversion feature in accordance to EITF 00-27.
The last installment of $450,000 ($395,000 net of fees) was advanced on May
9, 2006, after the registration statement was declared effective by the
Securities and Exchange Commission. An interest expense of $112,500,
representing the value of the conversion feature in accordance to EITF
00-27, was incurred at the receipt of this first installment.
The debentures mature on the third anniversary of the date of issuance, and
the Company is not required to make any payments until the maturity dates.
Interest is accrued at 10% per annum on the principal balance outstanding.
At September 30, 2006, the outstanding balance of the debentures were
$1,045,000, and the interest accrued was $70,991.
5. SUBSEQUENT EVENTS
On October 15, 2006, Jonathan Lei resigned as the Chairman, Chief Executive
Officer, President, Chief Financial Officer, and Secretary of the Company
for personal reasons. The Company's Board of Directors has appointed Louie
Ucciferri to the positions of Chairman, Secretary and Acting Chief
Financial Officer. The Company also appointed Harinder Dhillon as
President, Chief Executive Officer, and director. To ensure a smooth
transition, the Company retained Mr. Lei as a consultant to the Company for
a fee of $12,500 per month. Additionally, in lieu of paying to Mr. Lei, a
sum of $237,980 in salaries that has been accrued since August 1999, the
Company and Mr. Lei mutually agreed to convert that amount into a
promissory note bearing simple interest at a rate of five percent (5%) per
annum payable on demand on or before October 31, 2008, This accrued
salaries has been audited by the Company's auditors and reported in the
Company's prior 10Q-SB and 10K-SB filings.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
This Form 10-QSB may contain "forward-looking statements," as that term
is used in federal securities laws, about Warp 9, Inc.'s financial condition,
results of operations and business. These statements include, among others:
o statements concerning the potential benefits that Warp 9, Inc. ("W9" or the
"Company") may experience from its business activities and certain
transactions it contemplates or has completed; and
o statements of W9's expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical facts.
These statements may be made expressly in this Form 10-QSB. You can find
many of these statements by looking for words such as "believes,"
"expects," "anticipates," "estimates," "opines," or similar expressions
used in this Form 10-QSB. These forward-looking statements are subject to
numerous assumptions, risks and uncertainties that may cause W9's actual
results to be materially different from any future results expressed or
implied by W9 in those statements. The most important facts that could
prevent W9 from achieving its stated goals include, but are not limited to,
the following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its business, and
inability to raise additional capital or financing to implement
its business plans;
(e) failure to commercialize its technology or to make sales;
(f) changes in demand for the Company's products and services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside
parties;
(i) insufficient revenues to cover operating costs.
There is no assurance that the Company will be profitable, the Company
may not be able to successfully develop, manage or market its products and
services, the Company may not be able to attract or retain qualified executives
and technology personnel, the Company may not be able to obtain customers for
its products or services, the Company's products and services may become
obsolete, government regulation may hinder the Company's business, additional
10
dilution in outstanding stock ownership may be incurred due to the issuance of
more shares, warrants and stock options, or the exercise of outstanding warrants
and stock options, and other risks inherent in the Company's business.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. W9 cautions you not to place undue reliance on the
statements, which speak only as of the date of this Form 10-QSB. The cautionary
statements contained or referred to in this section should be considered in
connection with any subsequent written or oral forward-looking statements that
W9 or persons acting on its behalf may issue. The Company does not undertake any
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this Form 10-QSB, or to reflect the
occurrence of unanticipated events.
CURRENT OVERVIEW
We are a provider of e-commerce software platforms and services for the
catalog and retail industry. Our suite of software platforms are designed to
help online retailers maximize the Internet channel by using advanced
technologies for online catalogs, e-mail marketing campaigns, and interactive
visual merchandising. Offered on 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. 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 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
catalog.
We charge our customers a monthly fee for using our e-commerce software
based on a Software-as-a-Service model. Unlike traditional software companies
that sell software on a perpetual license where quarterly and annual revenues
are quite difficult to predict, our SaaS model spreads the collection of
contracts over several quarters or years and makes our revenues more predictable
for a longer period of time.
We also licensed our Roaming Messenger mobile messaging technology on
an exclusive basis to one licensee, from which we expect to derive royalty
revenues. We have generated only minimal revenues from the licensing of Roaming
Messenger technology to date, and earned minimal revenue from the operation of
the Roaming Messenger business before we licensed it. To date, almost all of our
revenues are generated from Warp 9 e-commerce products and services.
11
As of the date of this report, a number of Warp 9 ICS client websites
are in the implementation phase. Once the implementation phase is completed, the
client's e-commerce website is released to the public. When an ICS enabled
website is released to the public, we can start to bill the client the
contracted monthly fees, resulting in new additional recurring ICS revenue.
On September 18, 2006, we signed an Exclusive Technology Licensing
Agreement with one licensee for our Roaming Messenger mobile messaging
technology. As a result of granting this exclusive license, we laid-off all
dedicated personnel that were engaged in the Roaming Messenger operation and
eliminated related expenses to reduce our operating costs. We anticipate that
the losses for the fiscal year in 2007 will be less than losses incurred in the
fiscal year ended June 30, 2006 primarily due to the reduction of expenses
associated with the Roaming Messenger operation.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2006
COMPARED TO THE SAME PERIOD IN 2005
The results of operation for the three-month period ending September
30, 2006 still largely reflects the operating expenses associated with
conducting the Roaming Messenger business on a day-to-day basis with all related
personnel, since the Exclusive Technology Licensing Agreement and resulting
expense reductions did not commence until September 18, 2006.
Total revenue for the three-month period ending September 30, 2006 was
$432,676 as compared to $337,926 for the three-month period ending September 30,
2005.
The cost of revenue for the three-month period ending September 30,
2006 was 22% as compared to 32% for the three-month period ending September 30,
2005.
Total operating expenses for the three month period ended September 30,
2006 decreased by $76,567 to $660,846 from $737,413 in 2005. The change is
primarily due to decrease in selling, general and administrative expenses.
Selling, general and administrative expenses decreased by $93,813
during the three months ended September 30, 2006 to $513,830 from $607,643 in
the three month period ended September 30, 2005. The decrease in selling,
general and administrative expenses were primarily due to general decrease in
cost associated with the Roaming Messenger operation.
12
Non-cash selling, general and administrative expenses for the three
months ended September 30, 2006 totaled $73,207 which include (i) $30,688 in
employee stock option expenses, and (ii) $42,519 of net expenses associated with
the accounting for a convertible debenture in accordance with EITF 00-19 and
EITF 00-27.
Expense related to depreciation was $39,596 for the three months ended
September 30, 2006 as compared to $23,393 for the three months ended September
30, 2005.
Research and development expenses was $107,377 for the three
months ended September 30, 2006 as compared to $106,377 for the three months
ended September 30, 2005.
Total other income and expense was ($32,297) for the three months ended
September 30, 2006 as compared to ($2,866) in the prior year.
For the three months ended September 30, 2006, our consolidated net
loss was ($356,883) as compared to a consolidated net loss of ($509,407) for the
three months ended September 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
We had cash at September 30, 2006 of $103,089 as compared to cash of
$387,180 as of June 30, 2006. We had net working capital deficit (i.e. the
difference between current assets and current liabilities) of ($1,073,045) at
September 30, 2006 as compared to a net working capital deficit of ($848,174) at
June 30, 2006. Cash flow utilized by operating activities was ($331,784) for the
three months ended September 30, 2006 as compared to cash utilized for operating
activities of ($259,893) during the three months ended September 30, 2005. Cash
flow used in investing activities was ($11,538) for the three months ended
September 30, 2006 as compared to cash used in investing activities of ($10,928)
during the three months ended September 30, 2005. Cash flow provided by
financing activities was $59,230 for the three months ended September 30, 2006
as compared to cash provided by financing activities of $119,203 for the three
months ended September 30, 2005.
On August 11, 2005, the Company was approved for a $100,000 revolving
line of credit from Bank of America at an interest of prime plus 4 percentage
points. This line of credit is not secured by assets of the Company. The
effective interest rate on the line of credit at September 30, 2006 was 12.25%
per annum. At September 30, 2006, $75,342 was borrowed under this line of
credit.
As of the date of this report, a number of Warp 9 ICS client websites
are in the implementation phase. Once the implementation phase is completed, the
client's e-commerce website is released to the public. When an ICS enabled
website is released to the public, we can start to bill the client the
contracted monthly fees. As of the date of this report, there is approximately
$130,000 of total annual ICS contract revenue that is waiting to be realized
once the client sites are launched.
While we expect our losses to be less in the next fiscal year due to
the reduction of expenses previously incurred by the Roaming Messenger operation
before it was exclusively licensed to a third party in September 2006, there is
no assurance that losses will actually be less or the Company will have
13
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.
We anticipate that we may be able to obtain additional required working
capital through the private placement of common stock to domestic accredited
investors pursuant to Regulation D of the Securities Act of 1933, as amended
(the "Act"), or to offshore investors pursuant to Regulation S of the Act. There
is no assurance that we will obtain the additional working capital that we need
through the private placement of common stock. In addition, such financing may
not be available in sufficient amounts or on terms acceptable to us.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chairman and Chief Financial Officer has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this quarterly report and, based
on this evaluation, has concluded that the disclosure controls and procedures
are effective.
There have been no changes in the Company's internal control over
financial reporting that occurred during the fiscal quarter ended September 30,
2006 that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may be involved in legal actions and claims arising in the
ordinary course of business from time to time, none of which at this time are
considered to be material to the Company's business or financial condition.
ITEM 2. CHANGES IN SECURITIES
During the three months ended September 30, 2006, the Company issued
10,696,641 shares of common stock ranging from $0.0088 per share to $0.0092 per
share for the conversion of the debenture with an outstanding balance reduction
of $95,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 24, 2006, holders of 106,074,025 shares of the Company's
common stock, or approximately 52.9% of the total issued and outstanding common
stock of the Company, voted to change the name of the Company from Roaming
Messenger, Inc. to Warp 9, Inc., by amending the Company's articles of
incorporation. The Board of Directors of the Company voted unanimously to
implement this shareholder action.
ITEM 5. OTHER INFORMATION
On September 18, 2006, we entered into a ten year Exclusive Technology
Licensing Agreement with Zingerang, Inc. Under this agreement, the Company
grants to Zingerang Inc., the Licensee, an exclusive, worldwide, sub-licensable,
transferable, royalty-bearing right and license to the Roaming Messenger
technology and related patent portfolio. In consideration for granting the
license to Zingerang, the Company is entitled to an ongoing royalty fee equal to
five percent (5%) of Zingerang's gross sales, to be paid quarterly. The Company
will immediately receive a one time payment equal to $100,000 as a recoupable
advance against the royalties. During the term of the Agreement, Zingerang may,
at its sole discretion, pay to the Company a one-time royalty payment of
$500,000, in lieu of ongoing royalties, less certain patent application fees.
Additionally, the Company participated in Zingerang's founder round of financing
where it acquired forty million (40,000,000) shares of common stock in
Zingerang, which represents a large minority position, for a total investment of
$10,000.
On October 15, 2006, Jonathan Lei resigned as the Chairman, Chief
Executive Officer, President, Chief Financial Officer, and Corporate Secretary
of the Company for personal reasons. Mr. Lei has accrued a total of $237,980 in
salary on the Company's balance sheet since August 1999. This amount has been
audited by the Company's auditors and reported in the Company's Form 10Q-SB and
10K-SB filings. The Company and Mr. Lei have agreed to convert his accrued
salary into a promissory note bearing simple interest at a rate of five percent
(5%) per annum payable on demand on or before October 31, 2008, in lieu of
paying the accrued salary upon Mr. Lei's resignation. The Company has also
entered into a one year consulting agreement, which can be terminated by either
party at any time upon a 30 days prior written notice, in order to ease the
transition to new management. Pursuant to the terms of the agreement, Mr. Lei
will receive $12,500 per month in consideration for providing ongoing strategic
planning and advisory services to the Company including, but not limited to,
business planning, financial planning, product planning, and management
consulting services. The Company's Board of Directors has appointed Louie
Ucciferri to replace Jonathan Lei as Chairman of the Board of Directors and has
appointed Harinder Dhillon and Kin Ng to fill the vacancies on the Board of
Directors created by the resignation of Tom M. Djokovich in February 2006 and
the resignation of Jonathan Lei in October 2006. The Company has appointed
Harinder Dhillon, the President of the Company's wholly owned subsidiary, as the
President and Chief Executive Officer of the Company and Louie Ucciferri, a
director of the Company, as the new Corporate Secretary and Acting Chief
Financial Officer of the Company.
15
On October 25, 2006, the Company's articles of incorporation were
amended to change the name of the Company from Roaming Messenger, Inc. to Warp
9, Inc.
On November 2, 2006, the Company was approved to trade its common stock
under the new symbol WNYN.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Specimen Certificate for Common Stock (1)
4.2 Non-Qualified Employee Stock Option Plan (2)
10.1 First Agreement and Plan of Reorganization between
Latinocare Management Corporation, a Nevada
corporation, and Warp 9, Inc., a Delaware
corporation (3)
10.2 Second Agreement and Plan of Reorganization
between Latinocare Management Corporation, a
Nevada corporation, and Warp 9, Inc., a Delaware
corporation (4)
10.3 Exchange Agreement and Representations for
Shareholders of Warp 9, Inc.(3)
10.4 Exclusive Technology License Agreement, dated
September 18, 2006 (5)
10.5 Subscription Agreement with Zingerang Inc., dated
September 18, 2006 (5)
31.1 Section 302 Certification
32.1 Section 906 Certification
----------------------
(1) Incorporated by reference from the exhibits included with the Company's
prior Report on Form 10-KSB filed with the Securities and Exchange
Commission, dated March 31, 2002.
(2) Incorporated by reference from the exhibits included in the Company's
Information Statement filed with the Securities and Exchange
Commission, dated August 1, 2003.
(3) Incorporated by reference from the exhibits included with the Company's
prior Report on Form SC 14F1 filed with the Securities and Exchange
Commission, dated April 8, 2003.
(4) Incorporated by reference from the exhibits included with the Company's
prior Report on Form 8K filed with the Securities and Exchange
Commission, dated May 30, 2003.
(5) Incorporated by reference from the exhibits included with the Company's
prior Report on Form 8K filed with the Securities and Exchange
Commission, dated September 22, 2006.
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(b) The following is a list of Current Reports on Form 8-K filed by the Company
during and subsequent to the quarter for which this report is filed.
(1) Form 8-K, dated August 2, 2006 filed with the SEC reflecting the change
of the Company's auditors.
(2) Form 8-K, dated September 22, 2006 filed with the SEC describing the
Exclusive Technology Licensing Agreement between Zingerang, Inc. and
Roaming Messenger, Inc.
(3) Form 8-K, dated October 17, 2006 filed with the SEC reflecting the
resignation of Jonathan Lei in all capacities with the Company and
appointment of new officers and directors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 14, 2006 WARP 9, INC.
By: \s\Harinder Dhillon
--------------------------------------
Harinder Dhillon
President and 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\Louie Ucciferri Dated: November 14, 2006
--------------------------------------
Louie Ucciferri, Chairman
Corporate Secretary, Acting
Chief Financial Officer
(Principal Financial/Accounting Officer)
By: \s\Harinder Dhillon Dated: November 14, 2006
--------------------------------------
Harinder Dhillon, President and
Chief Executive Officer, Director
(Principal Executive Officer)
17