Item 1. Business.
History
Nine Mile Software, Inc., a Nevada corporation, was organized on November 30, 2006 to engage in the development and marketing of specialized software to be used in the financial industry. In 2008, we completed an initial public offering by selling a total of 714,288 shares of common stock at the offering price of $0.70 per share for gross proceeds of $499,991.
Our principal executive offices are located at 563 West 500 South, Ste 330, Bountiful, UT 84010 and our telephone number is (877) 499-9192.
Since inception, we have been developing the TradeWarrior rebalancing software. We released TradeWarrior Small Business on July 28, 2010 and realized our first revenues from license sales of TradeWarrior during the third quarter of 2010. TradeWarrior is a portfolio rebalancing and trade generation program created for financial and investment advisory firms. It is designed to help advisors quickly and efficiently trade a large number of client accounts to an assigned “target model”. TradeWarrior is primarily marketed to independent Registered Investment Advisors (“RIAs”).
Following the launch of TradeWarrior Small Business, we began development on TradeWarrior Ultimate, which will be the full-featured version of TradeWarrior. We launched a beta version of TradeWarrior Ultimate, our full-featured version of TradeWarrior, during the first quarter of 2011. Management anticipates exiting the beta stage and launching the Ultimate version during the second quarter of 2011. During the development period, a beta group of 5-10 RIA users will be using the program and providing industry feedback. This is essential to gain perspective and insight into the industry needs in a real time feedback loop in order to adjust the program to real life needs of end users.
We also plan to develop a client relation management (“CRM”) database. Most investment advisory firms have a CRM database that is used to store general client information such as names, mailing and e-mail addresses and account numbers. It is also used to keep track of client contacts, such as letters sent, e-mails, and phone calls, client financial planning information, and prospects and business contacts. We expect to develop and market the CRM product when sufficient cash flows from TradeWarrior sales are realized. Adding CRM capability to TradeWarrior is a potential area of expansion for our business.
We do not expect to make major capital expenditure for completing development of TradeWarrior. We do anticipate an increase in employees if and when TradeWarrior is marketed successfully. In preparation for marketing TradeWarrior, management will assess the potential demand for up to two customer service personnel to assist in responding to new customers’ questions, orientation and installation of programs. In addition, we will assess the potential demand to hire additional programmers to speed development of functionality within TradeWarrior.
Current Business
TradeWarrior Rebalancing Program
The TradeWarrior software is a portfolio rebalancing and trade generation program created for financial and investment advisory firms. It is designed to help advisors quickly and efficiently trade a large number of client accounts to a target model. Generally an investment advisor will create a model portfolio of stocks, bonds & mutual funds depending on the client’s risk tolerance. Over time, however, the client’s portfolio becomes out of balance in relation to the model portfolio as the market fluctuates and advisors change their desired allocations. For example, if the stock market has a good year and equities advance 15% while the bond market drops 5%, the client’s portfolio may be over-weighted in stocks and under-weighted in bonds. It becomes incumbent upon the advisor to generate trades to bring the accounts back in balance with the target model and the client’s risk profile.
Below is a very simple illustration of what is necessary to rebalance a client’s portfolio to the desired target model:
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Client's Portfolio Target Model Trades Required
25% A Fund 30% A Fund Buy 5% A Fund
50% B Fund 40% B Fund Sell 10% B Fund
25% C Fund 30% C Fund Buy 5% C Fund
The TradeWarrior software helps facilitate this rebalancing process by downloading all of an advisor’s account positions into the program from their custodian(s) or Portfolio Management Systems. The program then compares what is currently held in the account against the target model and generates the necessary trade file(s) to be uploaded to the custodian where the trades will be executed. It’s estimated that manually rebalancing a client’s portfolio generally takes 15 to 20 minutes per client. TradeWarrior cuts this time down to one or two minutes per client on average. The program also reduces human error because it runs all the calculations and generates an electronic trade file, thereby reducing human error from manually entering trades at the custodian.
Program Features & Benefits
Although the above example gives the appearance of a simple process, in reality there are many variables and complexities. To address these issues, TradeWarrior offers certain features that advisors need in such a program. Below are a few of the key features of TradeWarrior.
Household Rebalancing
The TradeWarrior program can trade accounts on a household or portfolio level. Typically an advisors client will have multiple accounts with an advisor. TradeWarrior will apply the model portfolio across all of a client’s accounts versus applying the model portfolio to each individual account. Thus, generally a client will only have a certain fund in one account versus the same fund in all accounts. This can generate tax efficiency and possibly lower trading costs. The program also facilitates tax sensitive trading. For instance, most advisors like to place income-generating funds in tax-deferred accounts such as IRAs. This could reduce a client’s tax bill and helps the advisor add value to the client. Some competitive programs on the market trade only on an account level. This means that an advisor using an account based program holds the same funds in all accounts, when some funds are better suited for a taxable or tax-deferred account. TradeWarrior meets the needs of advisors by trading on a household level.
Buy Location Optimization
Trade Warrior's ability to facilitate household level trading allows advisors to place some funds in taxable accounts and some funds in tax-deferred or tax-free accounts, which is generally accepted to be good financial management. Trade Warrior facilitates this need by allowing the advisor to “rank” the funds being used in their model portfolio by order of their perceived tax efficiency. This flexibility allows the advisor to use the most advantageous ranking system. This feature is completely customizable by the advisor.
Closed Mutual Funds
Some firms have mutual funds in their portfolios that are closed to new investors. This poses a trading problem because the advisor may want to keep their existing clients in the closed fund, but need to invest their new clients in an alternate fund. TradeWarrior facilitates this by allowing the advisor to keep closed funds for existing clients and automatically uses an alternate open fund for new clients.
“Do Not Sell” Securities
Some advisory clients have certain securities that they do not want to sell for tax or other reasons, but that security does not fit into an advisors model portfolio. TradeWarrior solves this problem by creating “Do Not Sell” restrictions. The restriction can be set on a firm-wide level that will restrict selling that security for all of an advisor’s accounts. The restriction can also be set on the account level that will restrict selling that security for that particular account. When rebalancing accounts, TradeWarrior will automatically exclude these do not sell securities and allocate the remaining funds in a client’s account. This allows for seamless trading without the need for the advisor to continually make manual adjustments. It also could help reduce trading errors from an advisor accidentally selling a security that was not supposed to be sold.
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Cash Management
Managing a client’s cash generally consumes much of the day-to-day trading activity of an investment advisory firm. There are many different cash scenarios that need to be accounted for. For instance, advisors typically have clients who make regular cash withdrawals from their accounts. TradeWarrior helps monitor this process to assure that cash will be available for withdraw, and assist the advisor in placing trades if necessary. Another common day-to-day task is investing new cash that is deposited, or withdrawing cash for one-time disbursements. TradeWarrior helps facilitate the monitoring of cash activities along with assisting the advisor in placing any necessary trades to keep the client in line with their target model. Another cash management feature allows the advisor to set a “cash minimum” on the account to ensure a minimum level of cash is in a particular account.
Estimated Tax Consequences of Trades
This feature analyzes the proposed trades against a clients cost basis on their positions. This feature allows the advisor to analyze all the proposed trades and recommend trades that will lower the client’s tax bill as much as possible. For instance, a client may need to sell a portion of a security that he holds in two taxable accounts. In one account the position has a short-term capital gain and in the other account the position has a long-term capital gain on it. TradeWarrior’s logic would automatically recommend selling the position with the long-term capital gain, thus lowering the client’s tax bill. This is one example of how TradeWarrior can equate into real world savings and tax efficiency for an investment advisor’s clients.
Directed Trading
This feature allows an advisor to quickly swap positions in their accounts without doing a full rebalance. For instance, if an advisor had a Security that he believed was overvalued; he could direct TradeWarrior to liquidate all or part of that Security and swap the proceeds into another Security. The value of this is it allows the advisor to make updates periodically to their Model Portfolio’s without having to rebalance all Securities in their client’s accounts.
Business Strategy
TradeWarrior Versioning
As part of the overall business strategy, we are releasing two versions of TradeWarrior at different price points. The two versions respectively are, TradeWarrior Small Business and TradeWarrior Ultimate. TradeWarrior is the only rebalancing program in the industry to offer different versions of its software.
TradeWarrior Small Business is designed to be the entry-level version of TradeWarrior. It will be designed with smaller advisory shops as the target market. The goal with Small Business version is to offer small to mid-size shops an affordable rebalancing system. This version will include many of the features and settings that investment advisors desire to customize their trading and rebalancing preferences. This version was released in July 2010.
TradeWarrior Ultimate will be our full-featured version that is designed for larger advisory shops and industry outsourcing firms. This will be our Enterprise level application designed for firms that need to rebalance large numbers of accounts. This version will include some of our more advanced trading functionality such as estimating tax consequences of trades, directed trading capability and options, margin, and short trading capabilities. The beta version of this was released in the 1st quarter of 2011, and the commercial release is expected to happen in the 2nd quarter of 2011.
“Whitebox” version of TradeWarrior. In addition to the versions of TradeWarrior sold as a plug-in to FinFolio, TradeWarrior will also be developed and sold as a “whitebox” version, meaning the program will be available to users who are not using the FinFolio Portfolio Management System. This version will run atop the FinFolio framework, but some key components will be removed so that it can’t be used as a Portfolio Management System, only a rebalancing system. A major focus by management in 2011 will be to integrate this version of TradeWarrior with the other large Portfolio Management Systems in the industry. As of the 1st quarter 2011, we have announced integrations with the Schwab PortfolioCenter and AssetBook portfolio management system. This version will open the market for TradeWarrior to the majority of investment advisory firms in the country using any major Portfolio Management System.
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FinFolio Partnership
On December 31, 2008, Nine Mile Software signed a Partnership Agreement with FinFolio. The partnership between the two companies represents a major collaboration of software technologies. Nine Mile Software's TradeWarrior program will be integrated onto the FinFolio platform as a plug-in. It will be the first independent rebalancing program in the industry to be completely integrated with a Portfolio Management System in the sense that we are both pointed to the exact same database. Due to the integration with FinFolio, TradeWarrior development was pushed further back than the initial development schedule announced by management. Nine Mile Software management believes the Partnership offered a stronger software suite and enhanced marketing opportunities, and was worth the delay in initial development plans. Due to the Partnership with FinFolio, Nine Mile Software has abandoned initial plans to develop their own Portfolio Management System. This development is no longer necessary since TradeWarrior will be a coupled within a powerful and open Portfolio Management System.
From the user's perspective, this integration increases efficiency and accuracy, as it eliminates duplicate data entry into two separate databases. FinFolio users will have the option to purchase TradeWarrior Small Business or upgrade TradeWarrior Ultimate. FinFolio (www.finfolio.com) has developed an open architecture portfolio accounting program designed for investment advisory and brokerage firms. FinFolio's founder, Matt Abar, has been creating software for advisors, brokers and planners for 19 years and has been successful in several technology ventures. Mr. Abar was the creator and CEO of Techfi, which established several milestones in the wealth management industry. Techfi developed the first commercially available client/server portfolio management software (Portfolio 2000), and the industry's first web-based portfolio management service bureau (AdvisorMart.com). First Trust/FISERV and Morningstar were Techfi shareholders when the company was sold in 2002 to Advent Software for $23 million.
AssetBook Partnership
On January 26, 2011, Nine Mile Software signed a Sales Referral Agreement with AssetBook. The partnership between the two companies consists of a joint effort to integrate our programs. AssetBook custom built an export from their portfolio management software to be imported into TradeWarrior. This integration effort marks the first third-party rebalancing integration available to AssetBook customers. TradeWarrior is in process of beta testing this integration with three or four AssetBook customers. Management expects to exit the beta testing stage and commercially release this integration in the 2nd quarter of 2011. As part of the Agreement, AssetBook will refer their customers to TradeWarrior if they want the enhanced trading and rebalancing capabilities offered by TradeWarrior.
AssetBook (www.assetbook.com) is a premier Software as a Service (SaaS) portfolio management system for investment advisors. AssetBook provides advisors with a combination of web based software and personalized service. The result is a flexible, dynamic portfolio management and reporting platform. Traditionally many advisors spend as much as 80% of their time maintaining their portfolio management systems. AssetBook does the work for advisors.
CRM Capability
Most investment advisory firms have a client relationship management (CRM) database. This database is used to store general client information such as names, mailing and e-mail addresses and account numbers. It is also used to keep track of client contacts, such as letters sent, e-mails, and phone calls, client financial planning information, and prospects and business contacts.
The company does not plan to use proceeds from the initial public offering to develop a CRM product, but it is expected to develop and market the CRM product if and when sufficient cash flows from TradeWarrior sales are realized. Adding CRM capability to TradeWarrior is a potential area of expansion for the business due to some of the following reasons:
● Advisors generally look to reduce the number of databases. Under current conditions, adding TradeWarrior to their business will increase the number of databases they need to maintain. Elimination of this hurdle will be a top development priority as a plan to offer a CRM program as an additional plug-in on the FinFolio platform.
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● It will help insulate the company from competition. TradeWarrior’s current function is rebalancing and trade generation. Development of more robust product features will help distinguish TradeWarrior from competitors. Adding CRM capability to the suite of Nine Mile Software products will further enhance the product offering to the investment advisory market.
● Many advisors may be reluctant to switch CRM database systems because of the large time commitment required to do such. However, the benefit of combining database functionality should help overcome this hurdle.
Currently the CRM market has almost full market penetration with a few companies. These companies include, but are not limited to, Junxure, Protracker, ACT! for Advisors, Upswing, Redtail and Outlook. When developing the CRM portion TradeWarrior, research on features will come from both internal experience and recommendations from external advisory firms. Many CRM programs are becoming increasingly complex to operate, taking weeks of training to use the system. The philosophy of Nine Mile’s product suite is to keep the software as simple and intuitive as possible.
Billing Capability
Currently there are many options for billing clients in the investment advisory market. Most major CRM and Portfolio Reporting programs come bundled with billing software incorporated into it. We envision bundling the billing program with the CRM program if and when it is released. The billing program is already under development internally. Though there are many billing options available to advisors, we plan to add features such as commission payouts, customizable advisor payouts, and non-sufficient funds tracking on client accounts. To our knowledge these features do not exist in the marketplace.
Marketing
To date the company has undertaken only limited marketing activities, but intends to increase marketing TradeWarrior.
The target market will be the investment advisory market that includes RIAs, brokers and other financial consultants and outsourcing firms. The intent is to generate leads from known advisory lists and registrars, ads in trade publications, trade shows and our website www.ninemilesoftware.com. The initial marketing strategy is designed around scheduling a demonstration of the software to the principal decision makers in a firm. The emphasis of the marketing will focus on the value, timesaving and functionality of TradeWarrior. A key marketing point will stress the flexibility of the program and the hands-on service approach. Initial marketing efforts will concentrate on the advisory market in the U.S. because it is the largest advisory market in the world and because of the familiarity of the marketplace. After establishing a position in the U.S. market and as necessary funds are available, the company may explore the possibility of expanding into Canada, Europe, and elsewhere.
Direct Mail/Email & Phone Campaign
A primary initial marketing campaign will begin with a direct mail and phone campaign, which is one of the most targeted and cost effective approaches. A cover letter and a professionally prepared marketing piece will be mailed or emailed to the key decision makers in a firm and then follow up phone calls whenever possible. The goal of this process is to invite qualified buyers to sit through a demonstration of the software with a company representative that can give a customized overview of the program and can answer any questions or concerns the prospect may have on a very individualized basis.
Ads in Trade Publications
Another marketing possibility is to run ads in industry specific trade publications such as Investment News, Financial Planner, Benefits Selling, Investment Advisor and Wealth Manager to name a few. Initially, the marketing campaign will conduct a short initial test campaign of one to three months to test the response we receive from each publication. Initially the campaign will run smaller and less expensive ads, but will experiment with different sizes, colors, language and layouts during these initial test runs to measure effectiveness.
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Trade Shows
A key marketing plan will be attending and sponsoring the various trade shows that are usually hosted by national brokerage firms, trade publications and professional associations. These shows offer an effective way to meet face-to-face with investment advisors and demonstrate TradeWarrior on the spot. The typical cost to participate in these shows ranges from $7,500 to $20,000 per show. Initially trade shows will be attended sparingly due to the high marketing cost, and evaluations will be made after every show to measure their effectiveness.
Nine Mile Software sponsored and attended its first trade show in the first quarter of 2009. The conference was the 2009 Technology for Today (T3) conference. The company has subsequently attended the 2010 and 2011 T3 Conferences. The founders of T3 are Joel Bruckenstein and David Drucker, who are well respected journalists covering technology and software for investment advisors. They have written articles for publications such as, The Wall Street Journal, New York Times, Business Week, The Washington Post, Financial Planning, Morningstar Advisor, and Wealth Manager, to name a few. In addition to this, they publish their own newsletter, Technology Tools for Today, upon which this yearly conference is based. With the sponsorship, Nine Mile Software was able to set up a trade show booth to demonstrate their flagship rebalancing program, TradeWarrior. This gave us the opportunity to talk with and demonstrate the abilities of TradeWarrior to investment advisors, brokers, and other software vendors.
We also attended the 2010 Advisors Money Show in Orlando, FL in November of 2010. We have had measurable sales results so far from attending conferences, and we will continue to evaluate and attend different trade shows during 2011.
Internal Sales Force
The initial plan is to not outsource sales, but rather develop an internal sales force. An internal sales force is advantageous due to the familiarity with the software, knowledge of financial terms and the needs of investment advisors. Initially, sales personnel may be required to help with service issues if needed.
Industry Affiliations with other Software Vendors
In December 2008, we signed a major Joint Venture Agreement with FinFolio. We also signed a Sales Referral Agreement with AssetBook in January 2011. Management will continue pursuing possible affiliations and/or joint ventures with other software vendors in the industry. This strategy offers upside potential to both firms as we could cross-sell each other’s software, which could possibly make both software packages more competitive. It’s believed this is a cost effective way to market and gain market recognition and retention. A major ongoing focus by management will be to form other industry affiliations.
Distribution and Payment
The program will be available for download on our website and physical discs will not be produced. This will keep costs down because there will be no cost for disc production and delivery. Every client who uses the program will have Internet access since the program is a tool to generate trade files for online trading. When a client purchases the program, they will be given access to download the program from the website. If they ever needed additional copies, they could easily go to the website and download the program again. Online purchases will also be facilitated on the website using a credit card or bank EFT service. Nine Mile Software will outsource the payment processing to an unaffiliated 3rd party so they will not house any client financial information that could become a liability. Paper checks will also be accepted for firms wishing to use this option.
Pricing
It’s anticipated that the price of TradeWarrior software will be one of its main selling points. The company uses an “Assets Under Management” (AUM) pricing model. This pricing model contains a base price plus a set flat percentage that would be charged depending on the size of the investment firm determined by its AUM. This keeps the pricing model simple and fair to end clients. It also allows fees to stay level with the size of the client, meaning if their business grows or contracts, so do the fees. Our price competes very favorably with our competitors.
We estimate that the Return on Investment Technology (ROIT) for customers using TradeWarrior will be realized quickly. We project that it currently takes an advisor twenty minutes to manually rebalance a client, and that TradeWarrior will take approximately two minutes per client. That equals a time savings of 18 minutes per client. Many advisors average $80 - $120/hour, and depending on the number of clients they manage and how often they rebalance, they should quickly realize the return on their investment in TradeWarrior. We also feel that reduced trading errors and the ability to trade quickly will equate to additional savings for users. There could also be quantifiable tax savings for advisors clients by using a rebalancing system.
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Competition
Rebalancing software is a relatively new industry and, accordingly, there is limited competition. To demonstrate the infancy of this market segment, from market research it’s estimated that 90% - 95% of investment advisors do not use rebalancing software yet. We believe that TradeWarrior will be competitive with other software on the market because of comparable functionality at a lower price. In addition, TradeWarrior is the first independent rebalancing program to be integrated within a Portfolio Management System (FinFolio). Some of the primary competitors to TradeWarrior are iRebal, Tamarac Advisor, eAllocator, RedBlack, and Total Rebalance Expert as well as free custodian software that may be offered to customers by a few financial institutions.
Intellectual Property
Nine Mile Software has retained the law firm Kunzler & Associates in Salt Lake City, Utah to help protect its intellectual property. Trademark applications are currently in process for the TradeWarrior name and associated logo.
Kunzler & Associates has conducted a patent search to help determine the patentability of TradeWarrior. The possibility of seeking patent protection is being assessed. If the Board of Directors determines it is worth the time, effort and cost, they may seek certain patents, however there is no guarantee that a patent can be obtained. Additional protections for intellectual property will be pursued when new software is developed and related products are enhanced whenever feasible.
Facilities
The corporate headquarters for Nine Mile Software is currently operating at an office building located in Bountiful, UT. This facility provides ample room for administrative and operational growth.
Employees & Contractors
Currently there are two full-time employees associated with Nine Mile Software: Damon Deru (CEO) and Ryan Sullivan (CTO). Our Board of Directors currently stands as follows: Damon Deru (CEO), Andrew Limpert (Chairman of the Board), and Michael Christensen (Secretary). In addition to full time employees, the company uses contract employees to further the progress of development. Currently there are contracts in place with the following individuals/firms:
M. Glade Francis
The company has contracted with Glade Francis to do consulting work and help with technical implementations such as website design and CRM billing program selection. Mr. Francis' recent work experience includes writing and negotiating multimillion dollar IT support contracts for the benefit of both commercial and public offices. His contracting experience provides him with an in-depth understanding of a wide range of industries and the ability to negotiate effectively. He has gained technical experience and expertise through hands on development of workplace solutions and personal freelance work. His technical background includes operations software experience and office software experience. Mr. Francis holds a Bachelor's degree in accounting, and a Masters degree in information technology management.
Scott Heffield/HeffTech, LLC
The company has contracted with Scott Heffield and his firm Hefftech, LLC as a contract developer in developing TradeWarrior. Mr. Heffield has over 20 years of hands on technology experience, including software development, technical support, system administration, project management, and executive management. He has 6 years experience in executive management positions, including serving as the founding Chief Technologist for the company that eventually became Overstock.com. He has over 16 years of development experience utilizing Microsoft tools and technologies, including over 3 years of hands on experience with Microsoft's new Windows Presentation Foundation (WPF) technologies. He also has over 6 years of hands on experience with Agile Development methodologies, and has participated as a team member on several multi-million dollar software projects utilizing Agile methodologies.
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Janson Evans
The company has contracted with Janson Evans to assist in our sales and marketing effort. Mr. Evans is currently a student at the University of Utah seeking a Finance degree. Mr. Evans has several years’ worth of financial service experience working for RIA and CPA offices. Among his duties at these firms were trading, compiling tax returns, and investment research.
Employee Stock Option Plans
In March 2007, our board of directors approved the creation of an employee stock option plan and authorized 650,000 shares of our common stock to be reserved for issuance under the plan. The board of directors has finalized and overseen the formal plan and established the terms and conditions of the awards to be made under the plan. We have made awards under the current plan as set forth in Item 10 of this report.
In July 2008, our board of directors approved the creation of a second employee stock option plan and authorized 400,000 shares of our common stock to be reserved for issuance under the plan. The board of directors has finalized and overseen the formal plan and established the terms and conditions of the awards to be made under the plan. We have made awards under the current plan as set forth in Item 10 of this report.
Industry Segments
No information is presented as to industry segments. We are presently engaged in the principal business of marketing the TradeWarrior portfolio rebalancing and trade generation program and developing other technologies. Reference is made to the statements of operations contained in the financial statements included herewith for a statement of our revenues and operating loss for the past three fiscal years.
Item 1A.
Item 1A. Risk Factors.
You should carefully consider the risks and uncertainties described below and other information in this report. If any of the following risks or uncertainties actually occur, our business, financial condition and operating results, would likely suffer. Additional risks and uncertainties, including those that are not yet identified or that we currently believe are immaterial, may also adversely affect our business, financial condition or operating results.
Going Concern
We may not be able to continue as a going concern.
Our independent registered public accountants have reviewed our financial data and information and rendered a statement that they have substantial doubt about our ability to continue as a going concern for the following reasons:
● we have limited financial resources and have incurred a net loss since inception through December 31, 2010;
● we have limited working capital and stockholders` equity; and
● our ability to establish an ongoing source of revenues sufficient to cover operating costs and operate successfully is uncertain.
If we fail to produce revenues, our business could fail, we could cease operations and you would lose your entire investment.
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Risks Relating to Our Business
We have a limited operating history and minimal revenues since inception. If we are unable to generate sufficient revenues to pay expenses in the near future, our business may fail resulting in the loss of any money invested in our common stock.
We have a limited operating history and have just realized our first revenues since our inception in November 2006. We face all the risks and problems associated with businesses in their early stages in a competitive environment. Prospective investors have only limited information on which to make an evaluation of our prospects. We have just commenced commercial marketing of our principal product, the TradeWarrior portfolio rebalancing program. If we are unable to successfully market TradeWarrior within a reasonable time, we may not be able to generate sufficient cash flows to meet operating expenses. Our prospects should be considered in light of the risks, expenses and difficulties frequently encountered in the establishment of any new business in a competitive environment.
As a public company our cost of doing business will increase because of necessary expenses, including compliance with SEC reporting requirements.
As a public company, we incur significant legal, accounting and other expenses to comply with certain SEC requirements and, in particular, the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley and other rules implemented by the SEC, require management to assess its internal controls over financial reporting.
Management must invest significant time and energy to stay current with public company responsibilities, which limits the time they can apply to other tasks associated with operating our business. It is possible that the additional burden and expense of operating as a public company could hinder our ability to achieve profitability, which would cause our business to fail and our investors to lose all their money invested in our stock.
We estimate that being a public company costs us in excess of $25,000 annually. This is in addition to all other costs of doing business. It is important that we maintain adequate cash flow not only to operate our business, but also to pay the cost of remaining public. If we fail to pay public company costs as incurred, we could become delinquent in our reporting obligations and our shares may no longer remain qualified for quotation on a public market. Further, investors may lose confidence in the reliability of our financial statements causing our stock price to decline.
We may need additional capital to achieve our business goals, which may not be available at attractive terms, or at all.
The proceeds from our initial public offering were sufficient to complete the first development phase and commence marketing of the TradeWarrior program. Even if we realize the maximum amount from this offering, we may need additional funds in order to expand marketing efforts, continue with research and development, add additional research and marketing staff and acquire additional equipment. If cash flows from operations are insufficient to fund expected capital needs, or our needs are greater than anticipated, we will need to raise additional funds, possibly through private or public sales of equity securities or the incurrence of debt. Additional funding may not be available on favorable terms, or at all. If we borrow funds, we would likely be obligated to make periodic interest or other debt service payments and be subject to additional restrictive covenants. If we raise additional funds through public or private sales of equity securities, sales may be at prices below the market price of our stock and our stockholders would suffer significant dilution. Failure to secure additional capital, if needed, could force us to curtail our growth strategy, reduce or delay capital expenditures and downsize operations, which would have a material negative effect on our financial condition.
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If we cannot successfully market TradeWarrior, we may not be able to realize sufficient revenues to continue operations.
Because TradeWarrior has only a limited marketing history, actual results from our marketing efforts and planned operations are difficult to predict and could vary significantly due to factors we cannot presently control or predict. These factors could affect the size and viability of the potential market for TradeWarrior, marketing and sales costs, and the actual demand for the product. Our inability to successfully market TradeWarrior would likely cause our business to fail and cause investors in our common stock to lose their entire investment.
There is an uncertain market for TradeWarrior.
We are a new business and have limited marketing history to accurately predict whether TradeWarrior will be accepted by the financial services industry, specifically RIAs, state registered advisors and financial planners. Further, we cannot predict whether there is sufficient demand for TradeWarrior for us to achieve and sustain profitability. If ultimately we are unable to achieve a viable and profitable market for TradeWarrior, our business would most likely fail and investors in our shares would lose their entire investment.
We expect to encounter several competitive software programs on the market.
In marketing the TradeWarrior software to financial service firms and investment advisors, we will encounter competition from other similar programs presently on the market. We believe our primary competitors are iRebal, Tamarac Advisor, RedBlack, Total Rebalance Expert and eAllocator. These competing software programs and others on the market may offer similar or superior features to TradeWarrior at a competitive price. Competitors may also be able to develop new or enhanced software that may be more efficient and less expensive than TradeWarrior. Further, competitors may develop proprietary positions that prevent us from successfully commercializing new software that we may develop. As a result, our software may not be able to compete successfully and new developments by others may render our software obsolete or uneconomical. If we fail to address competitive developments quickly and effectively, we will not be able to grow our business or remain a viable entity.
Our business could be adversely affected by economic developments in the financial services industry and/or the economy in general.
Marketing TradeWarrior will depend on the perceived demand for the application of this technology. TradeWarrior focuses on small to mid-tier registered investment advisory businesses. Therefore, we may be susceptible to downturns in the financial services industry and the economy in general. Any significant downturn in the market or in general economic conditions would likely negatively affect our business and your investment in our common stock.
Failure to retain the services of key personnel would adversely affect our business.
Our future success depends on retaining existing key employees and executive officers and our ability to hire new key employees, as necessary. The loss of existing key employees, particularly our Chief Executive Officer, Damon Deru, and our Chief Technical Officer, Ryan Sullivan, or the inability to attract new key employees could limit our ability to successfully market TradeWarrior. This would be detrimental to future development of new programs and products and to our overall business.
We may be unable to protect our software or intellectual property adequately or cost effectively.
Our future success depends in part on our ability to protect and preserve proprietary rights related to our software. We currently are in the process of seeking appropriate proprietary protection for our developing software and resulting products and trademarks. We have obtained copyright protection on “TradeWarrior” and plan to continue to secure copyright protection as we make enhancements and changes to the program. We also have retained legal representation to conduct a patent search to help determine the patentability of TradeWarrior. We anticipate using proceeds from our initial public offering in seeking patent protection, if deemed feasible. However, there is no guarantee that we can actually obtain a patent. We will continue to pursue additional protections for our intellectual property as we develop new software and related products and enhance existing products. Our inability to obtain appropriate protections for our intellectual property may allow competitors to enter our markets and produce or sell the same or similar software and programs. Further, if we do obtain these protections, we may not be able to prevent third parties from using our software or other intellectual property rights and technology without our authorization. Enforcing intellectual property rights could be costly and time-consuming and could distract management’s attention from operating business matters.
Our intellectual property may infringe on the rights of others, resulting in costly litigation.
In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights, particularly the filing of suits alleging infringement of intellectual property rights. Other companies or individuals may allege that our software and programs infringe on their patents or other intellectual property rights. Litigation, particularly in the area of intellectual property rights, is costly and the outcome is inherently uncertain. If we become engaged in such litigation and lose, we could be liable for substantial damages, and be forced to re-engineer one or more of our products, discontinue the use of the subject matter in question, obtain a license to use those rights and/or develop non-infringing alternatives. Any of these results would increase cash expenditures and adversely affect our financial condition.
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We may not be able to manage future growth effectively, which could adversely affect our operations and financial performance.
The ability to manage and operate our business as we execute our development and growth strategy will require effective planning. Significant rapid growth could strain management and internal resources and cause other problems that could adversely affect our financial performance. We expect that our efforts to grow will place a significant strain on personnel, management systems, infrastructure and other resources. Our ability to manage future growth effectively will also require us to successfully attract, train, motivate, retain and manage new employees and continue to update and improve our operational, financial and management controls and procedures. Further, our ability to successfully offer our products and implement our business plan in a rapidly evolving market requires an effective planning and management process. We plan to increase the scope of our operations domestically and our anticipated growth in future operations will continue to place, a significant strain on our management systems and resources. If we do not manage our growth effectively, our operations could be adversely affected, resulting in slower growth and a failure to achieve or sustain profitability.
Risks Relating to Ownership of Our Common Stock
There is a limited public trading market for our common stock and there is no assurance that a market will be maintained.
There is currently a limited public trading market for our common stock on the OTC Bulletin Board under the ticker symbol “NMLE.” We cannot give any assurance that an active trading market will develop or be sustained. If an active trading market for our common stock does not develop, it would be difficult, if not impossible, for stockholders to liquidate their shares. Also, the trading price for our shares may be highly volatile and subject to significant fluctuations in response to variations in our quarterly operating results and other factors. These price fluctuations may adversely affect the liquidity of our shares, as well as the price that holders may realize for their shares upon any future sale. There will be no public trading market for the Notes.
We do not expect to pay dividends in the foreseeable future.
We anticipate that we will retain any future earnings and other cash resources for future operations and development of our business. Accordingly, we do not anticipate declaring or paying any cash dividends in the foreseeable future. Any future payment of cash dividends will be at the discretion of our board of directors after taking into account many factors, including operating results, financial condition and capital requirements. Companies that pay dividends may be viewed as a better investment than corporations that do not, which could make our stock less attractive to potential investors.
Future sales or the potential sale of a substantial number of shares of our common stock could cause our market value to decline.
We currently have 2,758,136 shares of our common stock outstanding. Shares sold in our public offering are considered freely tradable without restriction or further registration under the federal securities laws, unless held by affiliates. Sale of a substantial number of restricted shares in the public markets, or the perception that these sales may occur, could cause the market price of our common stock to decline and materially impair our ability to raise capital through the sale of additional equity securities.
Trading in our shares is subject to certain "penny stock” regulation.
Trading in our shares is subject to certain provisions commonly referred to as the “penny stock rule.” A penny stock is generally defined to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Accordingly, trading in our stock is subject to additional sales practice requirements on broker-dealers that may require a broker dealer to:
● make a special suitability determination for purchasers of penny stocks;
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● receive the purchaser's written consent to the transaction prior to the purchase; and
● deliver to a prospective purchaser of a penny stock, prior to the first transaction, a risk disclosure document relating to the penny stock market.
Consequently, these disclosure requirements may restrict the ability of broker-dealers to trade and/or maintain a market in our stock and reduce the level of trading activity in the secondary market. Also, prospective investors may not want to get involved with the additional administrative requirements. For as long as our securities are subject to the rules on penny stocks, the liquidity of our common stock could be significantly limited, which would have a material adverse effect on the trading of our shares. This lack of liquidity may also make it more difficult for us to raise capital in the future.
Effective voting control is held by our current directors and two principal stockholders who have the ability to control future election of directors and the affairs of our company.
Our directors and two principal stockholders presently currently own approximately 62% of our outstanding shares. Accordingly, current directors and principal stockholders have the ability to elect all of our directors, who in turn elect all executive officers, and to control our business and other affairs without regard to the votes of other stockholders.
Trading in our shares in the public market will most likely be volatile because of factors beyond our control.
There can be no assurance that our shares will continue to be quoted on the OTC Bulletin Board or other recognized trading market, or that if they are, there will be an active trading market for the shares. Accordingly, it could be difficult for holders of our common stock to liquidate their shares.
The market price of our common stock could be subject to significant fluctuations and the market price could be subject to any of the following factors:
● our failure to achieve and maintain profitability;
● changes in earnings estimates and recommendations by financial analysts;
● actual or anticipated variations in our quarterly and annual results of operations;
● changes in market valuations of similar companies;
● announcements by us or our competitors of significant contracts, new services, acquisitions, commercial relationships, joint ventures or capital commitments;
● loss of significant clients or customers;
● loss of significant strategic relationships; and
● general market, political and economic conditions.
In the past, following periods of extreme volatility in the market price of a company's securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management's time and attention, which would otherwise be used to benefit our business.
Cautionary Statement Concerning Forward-Looking Information
This report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will” “should," “expect," "intend," "plan," anticipate," "believe," "estimate," "predict," "potential," "continue," or similar terms, variations of such terms or the negative of such terms. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including those risks discussed in the “Risk Factors” section above. Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment, actual results could differ materially from those anticipated in such statements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
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Item 1B.
Item 1B. Unresolved Staff Comments.
This item is not required for a smaller reporting company.
Item 2.
Item 2.
Description of Property.
We do not own any real property. We currently rent office space that serves as our principal place of business located at 563 West 500 South, Ste 330, Bountiful, UT 84010.
Item 3.
Item 3.
Legal Proceedings.
There are no material pending legal proceedings to which the company or any subsidiary is a party, or to which any property is subject and, to the best of our knowledge, no such action against us is contemplated or threatened.
Item 4.
Item 4.
(Removed and Reserved).
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock became eligible for trading on the OTC Bulletin Board during the fourth quarter of 2008, which permits price quotations for our shares to be published by that service. There is currently a limited public trading market for our shares trading under the OTCBB ticker symbol: “NMLE.” There has been only sporadic trades and the last reported trade on March 17, 2011 was at $0.18 per share. Set forth in the table below are the quarterly high and low bid prices of our common stock for the past two years as obtained from the OTC Bulletin Board. Quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
High Low
First Quarter $0.50 $0.35
Second Quarter $0.50 $0.11
Third Quarter $0.11 $0.11
Fourth Quarter $0.10 $0.15
First Quarter $0.82 $0.05
Second Quarter $0.77 $0.50
Third Quarter $0.55 $0.35
Fourth Quarter $0.55 $0.35
As of the date hereof there are approximately 60 stockholders of record of our common stock.
Secondary trading of our shares may be subject to certain state imposed restrictions. Except for the OTC Bulletin Board, we have no immediate plans, proposals, arrangements or understandings with any person concerning the development of a trading market in any of our securities. The ability of individual stockholders to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer's securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, we have no plans to register our securities in any particular state.
Penny Stock Rule
The ability of individual stockholders to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer's securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, we have no plans to register our securities in any particular state. Further, our common stock most likely will be subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
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It is unlikely that our securities will be listed on any national or regional exchange or The Nasdaq Stock Market in the foreseeable future. Therefore our shares most likely will be subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for broker-dealer transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The SEC generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is:
● registered and traded on a national securities exchange meeting specified criteria set by the SEC;
● authorized for quotation on The Nasdaq Stock Market;
● issued by a registered investment company;
● excluded from the definition on the basis of price (at least $5.00 per share) or the issuer's net tangible assets; or
● exempted from the definition by the SEC.
Broker-dealers who sell penny stocks to persons other than established customers and accredited investors are subject to additional sales practice requirements. An accredited investor is generally defined as a person with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must receive the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent to clients disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in our common stock and may affect the ability of stockholders to sell their shares.
These requirements may be considered cumbersome by broker-dealers and could impact the willingness of a particular broker-dealer to make a market in our shares, or they could affect the value at which our shares trade. Classification of the shares as penny stocks increases the risk of an investment in our shares.
Rule 144
Currently we have outstanding an aggregate of 2,758,136 shares of common stock. The 714,288 shares issued in the 2008 offering are freely transferable without restriction under the Securities Act, excluding any shares purchased by a person who is or thereby becomes an affiliate of Nine Mile Software. All 1,882,000 shares outstanding prior to the offering were issued in private transactions without registration under the Securities Act and are deemed “restricted securities” as defined by Rule 144 under the Securities Act. Rule 144 is the common means for a stockholder to resell restricted securities and for affiliates, to sell their securities, either restricted or non restricted (control) shares. Rule 144 has been amended by the SEC, effective February 15, 2008.
Under the amended Rule 144, an affiliate of a company filing reports under the Exchange Act who has held their shares for more than six months, may sell in any three-month period an amount of shares that does not exceed the greater of:
● the average weekly trading volume in the common stock, as reported through the automated quotation system of a registered securities association, during the four calendar weeks preceding such sale, or
● 1% of the shares then outstanding.
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Sales by affiliates under Rule 144 are also subject to certain requirements as to the manner of sale, filing appropriate notice and the availability of current public information about the issuer.
A non-affiliate stockholder of a reporting company who has held their shares for more than six months, may make unlimited resales under Rule 144, provided only that the issuer has available current public information about itself. After a one-year holding period, a non-affiliate may make unlimited sales with no other requirements or limitations.
We cannot predict the effect any future sales under Rule 144 may have on the market price of our common stock, if a market for our shares develops, but such sales may have a substantial depressing effect on such market price.
Dividends Policy
We have never declared cash dividends on our common stock, nor do we anticipate paying any dividends on our common stock in the foreseeable future.
Item 6.
Item 6.
Selected Financial Data.
This item is not required for a smaller reporting company.
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.
Plan of Operation
Since inception, we have been developing the TradeWarrior rebalancing software. We released TradeWarrior Small Business on July 28, 2010 and realized our first revenues from license sells of TradeWarrior during the third quarter of 2010. TradeWarrior is a portfolio rebalancing and trade generation program created for financial and investment advisory firms. It is designed to help advisors quickly and efficiently trade a large number of client accounts to an assigned “target model”. TradeWarrior is primarily marketed to independent Registered Investment Advisors (“RIAs”).
Following the launch of TradeWarrior Small Business, we began development on TradeWarrior Ultimate, which will be the full-featured version of TradeWarrior. We launched a beta version of TradeWarrior Ultimate, our full-featured version of TradeWarrior, during the first quarter of 2011. Management anticipates exiting the beta stage and launching the Ultimate version during the second quarter of 2011. During the development period, a beta group of 5-10 RIA users will be using the program and providing industry feedback. This is essential to gain perspective and insight into the industry needs in a real time feedback loop in order to adjust the program to real life needs of end users.
We also plan to develop a client relation management (“CRM”) database. Most investment advisory firms have a CRM database that is used to store general client information such as names, mailing and e-mail addresses and account numbers. It is also used to keep track of client contacts, such as letters sent, e-mails, and phone calls, client financial planning information, and prospects and business contacts. We expect to develop and market the CRM product when sufficient cash flows from TradeWarrior sales are realized. Adding CRM capability to TradeWarrior is a potential area of expansion for our business.
We do not expect to make major capital expenditure for completing development of TradeWarrior. We do anticipate an increase in employees if and when TradeWarrior is marketed successfully. In preparation for marketing TradeWarrior, management will assess the potential demand for up to two customer service personnel to assist in responding to new customers’ questions, orientation and installation of programs. In addition, we will assess the potential demand to hire additional programmers to speed development of functionality within TradeWarrior.
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Results of Operations and Liquidity and Capital Resources
We did not realize any revenues until the third quarter of 2010. For the year ended December 31, 2010, revenues were $11,735 and we realized a net loss of $267,267, or $0.10 per share, compared to a net loss of $288,485, or $0.11 per share, for the year ended December 31, 2009. The decreased net loss for 2010 is attributed to the 6% decrease in total operating expenses from $294,571 in 2009 to $275,881 in 2010, primarily due to an 11% decrease in research and development expenses from $90,274 in 2009 to $80,122 in 2010. The decrease in research and development expenses in 2010 was due to completion of a substantial portion of research and development of our TradeWarrior software. General and administrative expenses in 2010 were $195,759, a 4% decrease from $204,297 in 2010.
At December 31, 2010, we had total assets of $37,076 and stockholders' deficit of $75,438, compared to total assets of $154,785 and total stockholders' equity of $148,457 at December 31, 2009. The decrease in total assets and stockholders' equity at December 31, 2010 is attributed to a 78% decrease in cash from $138,604 at December 31, 2009 to $30,346 at December 31, 2010, primarily due to net cash used in operations of $179,041, offset by proceeds from notes payable of $75,000.
At December 31, 2010, our working capital was a negative $82,168, compared to a positive $143,926 at December 31, 2009, primarily due to the decrease in cash. Also at December 31, 2010, we had notes payable - related party of $75,000, that reflected cash advances from stockholders. In order to meet our working capital needs during 2011, we plan to raise capital through a Private Placement offering of debt and/or equity. As of the date hereof we have raised an aggregate of $20,000 by selling equity at $0.15/share. Shares from this offering have not been issued as of the date hereof. We have no other agreements or arrangements for additional funding and there can be no assurance any such funding will be available to us, or if available, such funding will be on acceptable or favorable terms to us. We will also continue on a best efforts basis to sell licenses of our TradeWarrior software to bring revenue into the company.
Going Concern Consideration
The Company’s financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has had insignificant revenues and has generated losses from operations.
In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources and to develop a consistent source of revenues. Management’s plans include investing in and developing all types of businesses related to the computer software industry.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Inflation
In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recent Accounting Pronouncements
ASC Topic 350 - In December 2010, the FASB issued Accounting Standards Update No. 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (ASU 2010-28). ASU 2010-28 modifies Step 1 of the goodwill impairment test so that for those reporting units with zero or negative carrying amounts, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not based on an assessment of qualitative indicators that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. We do not expect adoption of this standard to have a material impact on our consolidated results of operations and financial condition.
ASC Topic 820 - In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASU 2010-06). We adopted ASU 2010-06, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which are deferred until fiscal years beginning after December 15, 2010. We believe that the disclosures will not have a material impact on our consolidated results of operations and financial condition when updated.
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Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
This item is not required for a smaller reporting company.
Item 8.
Item 8.
Financial Statements and Supplementary Data.
This item is not required for a smaller reporting company.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
On August 7, 2009, we dismissed Moore & Associates Chartered as our independent registered public accountants. None of the reports of Moore & Associates on our financial statements for either of the past two years contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years, there were no disagreements with Moore and Associates, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Moore and Associates, Chartered's satisfaction, would have caused it to make reference to the subject matter of the disagreement in connection with its report on the registrant's financial statements.
On August 27, 2009, the PCAOB issued PCAOB Release No. 105-2009-006 revoking the registration of Moore & Associates, Chartered and barring Michael J. Moore, CPA, from being an associated person of a registered public accounting firm. The PCAOB imposed these sanctions on the basis of its findings concerning the alleged violations of Moore & Associates and Michael J. Moore of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, PCAOB rules and auditing standards in auditing the financial statements of three issuer clients from 2006 to 2008, PCAOB rules and quality controls standards, and noncooperation with a Board investigation. A copy of the PCAOB Release can be accessed at the PCAOB website at http://www.pcaobus.org.
On August 7, 2009, we engaged the accounting firm of Seale and Beers, CPAs as our new independent registered public accounting firm. Our board of directors approved the dismissal of Moore & Associates Chartered and the engagement of Seale and Beers, CPAs. During the two most recent fiscal years and the interim periods preceding the engagement, we did not consult Seale and Beers regarding any of the matters set forth in Item 304(a)(2)(i) or (ii) of Regulation S-B.
On September 15, 2009, we dismissed Seale and Beers, CPAs as our independent certifying accountants pursuant to the unanimous consent of our board of directors. We initially retained Seale and Beers on August 7, 2009, but the firm did not perform any auditing or accounting services nor has it issued any audit or other reports on our financial statements. Accordingly, since we retained Seale and Beers, we had no disagreements with the firm, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Seale and Beers’ satisfaction, would have caused it to make reference to the subject matter of the disagreement in connection with its report on our financial statements.
On September 22, 2009, we engaged Mantyla McReynolds, LLC, as our new independent certifying accountants. Our board of directors unanimously approved the engagement of Mantyla McReynolds. During the two most recent fiscal years and the interim periods preceding the engagement, we have not consulted Mantyla McReynolds regarding any of the matters set forth in Item 304(a)(2)(i) or (ii) of Regulation S-B.
Item 9A(T)
Item 9A(T) Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, management, with the participation of our chief executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures”, as defined in the Securities Exchange Act of 1934, Rules 13a-15(e) and 15-d-15(e). Based upon that evaluation, our chief executive officer and principal financial officer concluded that as of December 31, 2010, our disclosure controls and procedures are ineffective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is:
(i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms; and
(ii) accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of Nine Mile Software is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Our control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principals. Our internal control over financial reporting includes those policies and procedures that :
● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of our assets;
● provide reasonable assurance that the transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are being made only with proper authorizations; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Over Financial Reporting - Guidance for Smaller Public Companies. Based on our assessment and those criteria, our management concluded that our internal control over financial reporting was ineffective as of December 31, 2010.
Changes in Internal Control over Financial Reporting
Management has concluded that controls over both disclosure controls and financial reporting controls are ineffective due to material weaknesses in maintaining sufficient segregation of duties. Due our size and limited resources, we are unable at this time to implement and maintain proper segregation of duties.
There have been no significant changes in our internal controls over financial reporting or in other factors that could materially affect, or would be likely to materially affect, our internal controls over financial reporting subsequent to the date we carried out our evaluation.
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Item 9B.
Item 9B.
Other Information.
Not applicable.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance.
The following table sets forth the name, age and position of our present officers and directors. Each director has been a director of the company since inception.
Name Age Position
Damon Deru Chief Executive Officer and Director
Andrew Limpert Chairman of the Board and Director
Michael Christensen Secretary and Director
Ryan Sullivan Chief Technology Officer
All directors serve for one-year terms until their successors are elected or they are re-elected at the annual stockholders' meeting. Officers hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists or is contemplated.
There is no arrangement, agreement or understanding between any of the directors or officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer. Also, there is no arrangement, agreement or understanding between management and non-management stockholders under which non-management stockholders may directly or indirectly participate in or influence the management of our affairs.
The business experience of each of the persons listed above during the past five years is as follows:
Damon Deru is a graduate of the University of Utah where he received his B.S. Degree in Finance. He has worked in the financial services industry since 2001 as an investment advisor at Belsen Getty, LLC, a Registered Investment Advisory firm located in Salt Lake City, Utah. In his role at Belsen Getty, Mr. Deru was responsible for investment research, trading responsibilities for over 1,000 accounts, and managing and maintaining the databases and other information technology (IT) needs. Mr. Deru relinquished his role at Belsen Getty to form Nine Mile Software and develop the TradeWarrior rebalancing software.
Andrew Limpert is a graduate from the University of Utah and Westminster College with degrees of B.S. in Finance and an MBA with an emphasis in Finance. For the past 18 years he has founded, consulted on and funded numerous businesses in the private and public arenas. From 1998 to 2008 he has been an investment advisor with Belsen Getty, LLC, providing wealth management direction and strategic and financial advice for several investment banks. Currently, Mr. Limpert is the CFO and a director for Profire Energy, Inc.
Michael Christensen is a graduate of Weber State University, where he received an MBA and a B.S. Degree in Accounting. Mr. Christensen has over 15 years of experience in financial and accounting management and administration. He has experience in the distribution and printing industries, performance reporting and accounting systems support for an investment advisor. From 2002 to the present, Mr. Christensen has been on the staff of the Commissioner of Education for the LDS Church Educational System. Among his responsibilities he provides financial and budget support to the Board of Trustees for such institutions as Brigham Young University.
Ryan Sullivan is a graduate of Weber State University, where he received his B.S. Degree in Computer Science, with an emphasis in Software Engineering and a minor in Electrical Engineering Technology. Ryan has over five years experience in engineering .NET application, ranging from 3D measuring software for aircraft parts to Residential/Commercial Construction inspection services. Ryan has served as a Software Engineering consultant to several small to medium size companies to either start their development processes or to provide Software Engineering services.
Each director will devote only a portion of their business time to the affairs and operations of Nine Mile Software. The approximate percentage of business time to be devoted to our company by each director is expected to be as follows:
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● Damon Deru - 100%
● Andrew Limpert - 10%
● Michael Christensen - 5%
____________________
During the past ten years, none of our officers, directors, promoters or control persons has had any of the following events occur:
● any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;
● any conviction in a criminal proceeding or being subject to a pending criminal proceeding, excluding traffic violations and other minor offenses;
● being subject to any order, judgment or decree, not substantially reversed, suspended or vacated, of any court of competent jurisdiction, permanently enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking business;
● being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated; or
●
been the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
(i) any Federal or State securities or commodities law or regulation; or
(ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
(iii)
any judicial or administrative proceeding resulting from involvement in mail or wire fraud or fraud in connection with any business entity.
Committees of the Board of Directors
Currently we do not have any standing committees of the board of directors. Until such time as formal committees are established, our board of directors will perform some of the functions associated with a nominating committee and a compensation committee, including reviewing all forms of compensation provided to our executive officers, directors, consultants and employees, including stock compensation. The board will also perform the functions of an audit committee until we establish a formal audit committee.
Code of Ethics
We have adopted a Code of Ethics and Business Conduct that applies to our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions. In addition, we intend to promptly disclose (i) the nature of any amendment to the policy that applies to these persons, and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver on our website in the future.
A written copy of the Code will be provided upon request at no charge by writing to our corporate Secretary, c/o Nine Mile Software, Inc., 563 West 500 South, Ste 330, Bountiful, UT 84010.
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Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. We believe that no reports were filed during the fiscal year 2009.
Item 11.
Item 11. Executive Compensation.
During 2010 and 2009, the following compensation was awarded to officers of the company:
Name and Position Year
Salary
Stock Option
Option Value
Total
Damon Deru 2010
C.E.O. 2009
$75,000
$79,571
$0
$14,457
$75,000
$94,028
Andrew Limpert 2010
Chairman 2009
$0
$500
$0
$5,783
$0
$6,283
Ryan Sullivan 2010
C.T.O. 2009
$65,250
$67,063
$0
$14,457
$65,250
$81,520
Michael Christensen 2010
Secretary 2009
$0
$250
$0
$2,891
$0
$3,141
We use the Black-Scholes option pricing model to determine the fair value of options using the following assumptions: Risk free rate of 3.35%-5.35%, volatility of 100%, the given strike price of the instrument and the value of the stock on the date the awards are made.
Stock Purchase Options
On May 1, 2007, we granted a total of 610,000 stock purchase options exercisable for the purchase of our common stock at $0.025 per share. We granted an additional 40,000 stock purchase options during 2008. The options were issued to the following persons and for the number of shares indicted next to each person’s name.
Damon Deru - 360,000
Michael Christensen - 100,000
Glade Francis - 50,000
Tom Evans - 100,000
Ryan Sullivan - 40,000
Messrs. Deru and Christensen are directors and executive officers.
The options are not exercisable for a period of one year and are subject to a vesting schedule. Fifty percent of the options will vest when we first realize a quarterly profit from operations or when we have sold an aggregate of 80 TradeWarrior programs. The balance of the options will vest when we first record $1.0 million in total revenues. The options will expire if not exercised within 60 months of issuance, on May 1, 2012. None of the options have vested as of the date hereof.
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On July 31, 2008, we issued a total of 300,000 stock purchase options from the 400,000 options authorized under the 2008 plan. The options are exercisable for the purchase of our common stock at $0.75 per share. The options were issued to the following persons and for the number of shares indicted next to each person’s name.
Damon Deru - 100,000
Michael Christensen - 20,000
Glade Francis - 40,000
Tom Evans - 40,000
Ryan Sullivan - 100,000
Messrs. Deru, Christensen, and Limpert are directors and executive officers.
The options are not exercisable for a period of one year and are subject to a vesting schedule. They begin vesting July 31, 2009. Shares will vest over a period of three years from July 31, 2009 to July 31, 2012 (1/3 per year). During each of the three years the employee must provide full service to the company, which is determined by the board of directors. The options will expire if not exercised within 60 months of issuance, on July 31, 2013. None of the options have vested as of the date hereof.
The following table lists the options held by each officer and director and summarizes the terms and conditions of those options::
Name Year Option Issued
Number of shares underlying option
Exercise Price
Expiration Date
Value
Damon Deru 2010
100,000
$ 0.75
7-31-2013
(1)
Andrew Limpert 2010
40,000
$ 0.75
7-31-2013
(1)
Ryan Sullivan 2010
100,000
$ 0.75
7-31-2013
(1)
(1)
Michael Christensen 2010
20,000
$ 0.75
7-31-2013
(1)
(1)
(1)
None of the options depicted in the table above have vested as of the date hereof and therefore no value is being assigned.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information regarding the beneficial ownership of our shares of common stock by:
● each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
● each of our directors;
● our executive officers; and
● by all directors and executive officers as a group.
Beneficial ownership is determined in accordance with SEC rules. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after the date of this report, are deemed outstanding, but those shares are not deemed outstanding for purposes of computing percentage ownership of any other person. The number and percentage of shares beneficially owned are based on 2,758,136 shares of common stock outstanding as of March 31, 2011. Each person named in the table has sole voting and investment power with respect to all shares shown as beneficially owned by that person, subject to community property laws, where applicable.
Amount and Nature of
Name and Address Beneficial Ownership Percent of Class
Directors and Officers
Damon Deru* 280,067 9.9%
Andrew Limpert* 651,667 23.4%
Michael Christensen* 43,333 1.6%
Ryan Sullivan* 102,679 3.6%
All directors and officers 1,077,746 37.9%
as a group (4 persons)
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Other Beneficial Owners
Scott Deru 120,000 4.6%
Terry Deru 600,000 23.1%
* Director and/or executive officer
(1)
Unless otherwise indicated, the address for each person listed above is c/o Nine Mile Software, Inc., 563 West 500 South #330, Bountiful, UT 84010.
(2)
Number shares and percentage ownership is calculated separately for each person on the basis of the actual number of outstanding shares as of March 31, 2011 and assumes the exercise of options held by such person (but not by anyone else) currently exercisable or within sixty days.
(3)
Includes 66,666 shares that may be acquired upon exercise of stock purchase options previously granted to Mr. Deru, which options are currently exercisable.
(4)
Includes 26,667 shares that may be acquired upon exercise of stock purchase options previously granted to Mr. Limpert, which options are currently exercisable.
(5)
Includes 13,333 shares that may be acquired upon exercise of stock purchase options previously granted to Mr. Christensen, which options are currently exercisable.
(6)
Includes 66,666 shares that may be acquired upon exercise of stock purchase options previously granted to Mr. Sullivan, which options are currently exercisable.
(7)
Includes 86,666 shares that may be acquired upon exercise of stock purchase options previously granted to directors and officers, which options are currently exercisable.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
We did not have any material transactions during 2010 with any officer, director, nominee for election as director, or any stockholder owning greater than five percent (5%) of our outstanding shares, nor any member of the above referenced individuals' immediate family. None of the persons serving on our board of directors is considered an independent director.
Item 14.
Item 14.
Principal Accounting Fees and Services.
We do not have an audit committee and as a result our entire board of directors performs the duties of an audit committee. Our board of directors will approve in advance the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services. As a result, we do not rely on pre-approval policies and procedures.
Audit Fees
Mantyla McReynolds, LLC, our new auditors as of September 2009, billed us $6,083 for the audit of our annual financial statements included in the annual report for the year ended December 31, 2009 and for the review of quarterly financial statements included in our quarterly report for September 30, 2009. They have also billed us $15,618 for the audit of our annual financial statements included in this report for the year ended December 31, 2010 and for the review of quarterly financial statements included in our quarterly reports during 2010.
Audit Related Fees
For the year ended December 31, 2010 and 2009, there were no fees billed for assurance and related services by our former auditors, Moore & Associates and Seale and Beers, or our current auditors Mantyla McReynolds, relating to the performance of the audit of our financial statements which are not reported under the caption "Audit Fees" above.
Tax Fees
For the years ended December 31, 2010 and 2009, no fees were billed by our former auditors, Moore & Associates and Seale and Beers, or our current auditors Mantyla McReynolds, for tax compliance, tax advice and tax planning.
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We do not use Mantyla McReynolds for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are provided internally or by other service providers. We do not engage Mantyla McReynolds to provide compliance outsourcing services.
The board of directors has considered the nature and amount of fees billed by Mantyla McReynolds and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Mantyla McReynolds' independence.
PART 1V
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a) Exhibits
Exhibit No.
Exhibit Name
3.1*
Articles of Incorporation
3.2*
By-Laws
4.1*
Specimen stock certificate
10.1*
Escrow Agreement
10.2**
Securities Escrow Agreement
10.3**
Form 4-5EIA Escrow Agreement
21.1
Sumsidiaries
31.1
Certificatin of C.E.O. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of C.E.O. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1*
Subscription Agreement
______________
*Included as Exhibits to Form SB-2 filed with SEC on May 17, 2007
**Included as Exhibits to Amendment No. 1 to Form SB-2 on November 19, 2007
________________
.
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Nine Mile Software, Inc.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 2010
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C O N T E N T S
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Stockholders’ Equity (Deficit)
Statements of Cash Flows
Notes to the Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Nine Mile Software, Inc.
We have audited the accompanying consolidated balance sheets of Nine Mile Software, Inc. [a development stage company] as of December 31, 2010 and 2009, and the related consolidated statements of operations, cash flow, and stockholders’ equity (deficit), for the year ended December 31, 2010 and 2009 and for the period from inception [November 30, 2006] through December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nine Mile Software, Inc. [a development stage company] as of December 31, 2010 and 2009, and the results of operations and cash flow for the years ended December 31, 2010 and 2009 and for the period of inception [November 30, 2006] through December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a working capital deficit and has incurred a loss from operations and negative operating cash flow during the year ended December 31, 2010. These issues raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
/s/ Mantyla McReynolds LLC
Mantyla McReynolds LLC
Salt Lake City, Utah
March 31, 2011
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NINE MILE SOFTWARE, INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Nine Mile Software, Inc. (the Company) was incorporated in the State of Nevada on November 30, 2006. The Company is engaged in the business of developing and marketing specialized software for financial institutions.
On May 21, 2010, the Company formed a wholly owned subsidiary named TradeWarrior, Inc. to hold its assets. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, TradeWarrior, Inc. All intercompany accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounting Basis
The basis is accounting principles generally accepted in the United States of America. The Company has adopted a December 31 fiscal year end.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with an original maturity date of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash. Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company does not maintain amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight-line method over the expected useful life of the asset, after the asset is placed in service. The Company generally uses the following depreciable lives for its major classifications of property and equipment:
Description
Useful Life
Computer Equipment
3 years
Software Development Costs
In accordance with ASC 350 the Company capitalizes enhancements made to its internally developed software. The Capitalized costs are included in the Company’s balance sheets as software development. These costs are amortized over their estimated useful life of 3 years.
Copyright Costs
The Company has capitalized the costs of obtaining its copyrights. The Company is amortizing the copyright costs over the estimated life of 10 years beginning January 1, 2009. The Company will record amortization expense of $119 for each of the next 10 years ending in 2019.
Fair Value of Financial Instruments
In accordance with ASC 820, the carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term maturity of these instruments. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
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NINE MILE SOFTWARE, INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments (continued)
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash, accounts receivable, loans payable, and accounts payable and accrued expenses, approximate their fair market value based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2010, on a non-recurring basis:
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Notes Payable - Related Party: Market prices are not available for the Company's loans from related parties nor are market prices of similar loans available. The Company assessed that the fair value of this liability approximates its carrying value.
The method described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. If readily determined market values became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts. The Company believes its method of determining fair value is appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.
The following tables present the fair value of financial instruments as of December 31, 2010, by caption on the condensed balance sheet and by ASC 820 valuation hierarchy described above.
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NINE MILE SOFTWARE, INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Valuation of Long-Lived Assets
Long-lived tangible assets and definite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses an estimate of undiscounted future net cash flows of the assets over the remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the expected future cash flows of the assets, the Company recognizes an impairment loss equal to the difference between the carrying values of the assets and their estimated fair values.
Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent from other groups of assets. The evaluation of long-lived assets requires the Company to use estimates of future cash flows. However, actual cash flows may differ from the estimated future cash flows used in these impairment tests. As of December 31, 2010, management does not believe any of the Company’s assets were impaired.
Revenue Recognition
The Company follows guidance found in ASC 985-605 to recognize revenue from the sale of license agreements for its software products. Because the licensing arrangement does not require significant production, modification, or customization of software, revenue shall be recognized when all of the following criteria are met:
a.
Persuasive evidence of an arrangement exists
b.
Delivery has occurred
c.
The vendor’s fee is fixed or determinable
d.
Collectability is probable
The Company does offer a 30 day money back guarantee but as of the end of the period, all sales had passed the 30 day period with no refunds, thus no allowance for returns has been made.
In accordance with ASC 985-605-25-10 (c) which states, “If the arrangement is in substance a subscription, the entire fee shall be recognized ratably,” the Company records all proceeds received as deferred revenue and recognizes revenue over the life of the agreement, in most cases 12 months.
Research and Development
The Company expenses the costs of developing its software for brokerage firms during the period incurred. The Company has incurred research and development costs of $80,122 and $90,274 during the years ended December 31, 2010 and 2009, respectively.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising expense of $9,445 and $10,974 as of December 31, 2010 and 2009.
Stock-based compensation.
The Company has adopted ASC 718, which requires the Company to measure compensation expense for all outstanding unvested share-based awards at fair value and recognize compensation expense over the service period for awards expected to vest. The fair value of stock options was determined at the grant dates using the Black-Scholes option-pricing model. The Company uses historical data to estimate the expected volatility and expected life. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results could differ from estimates, such amounts will be recorded as an adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results may differ substantially from these estimates.
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NINE MILE SOFTWARE, INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic (Loss) per Common Share
Basic and diluted loss per common share is calculated using the weighted average number of common shares outstanding during the period. For the year ended December 31, 2010 and 2009, the Company’s 950,000 options are excluded from the computation of diluted earnings per share as they are anti-dilutive, due to net losses.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
In July, 2006, the FASB issued ASC 740, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a return. ASC 740 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. ASC 740 became effective as of January 1, 2007 and had no impact on the Company’s financial statements. The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
The Company elected to classify income tax penalties and interest as general and administrative and interest expenses, respectively. No penalties or interest have been accrued for unrecognized tax benefits as of December 31, 2010 and 2009. There were no penalties or interest recognized during the years ended December 31, 2010 and 2009.
Recent Accounting Pronouncements
ASC Topic 350 - In December 2010, the FASB issued Accounting Standards Update No. 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (ASU 2010-28). ASU 2010-28 modifies Step 1 of the goodwill impairment test so that for those reporting units with zero or negative carrying amounts, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not based on an assessment of qualitative indicators that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. We do not expect adoption of this standard to have a material impact on our consolidated results of operations and financial condition.
ASC Topic 820 - In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASU 2010-06). We adopted ASU 2010-06, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which are deferred until fiscal years beginning after December 15, 2010. We believe that the disclosures will not have a material impact on our consolidated results of operations and financial condition when updated.
We have reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operation, financial position or cash flows. Based on that review, we believe that none of these pronouncements will have a significant effect on our current or future earnings or operations.
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NINE MILE SOFTWARE, INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. During the year ended December 31, 2010 the Company realized a net loss of $267,267 and has incurred an accumulated deficit of $756,835. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 - EQUIPMENT AND OTHER ASSETS
The major classes of equipment as of December 31, 2010 and 2009 are as follows:
Depreciation expense was $1,313 and $479, for the years ended December 31, 2010 and 2009, respectively.
Other assets consist of capitalized costs associated with developing copyrights and enhancements to the Company’s software programs. The major classes of other assets as of December 31, 2010 and 2009 are as follows:
Amortization expense was $705 and $119, for the years ended December 31, 2010 and 2009, respectively.
NOTE 4 - RELATED PARTY NOTES PAYABLE
On June 1, 2010, the Company borrowed $50,000 under a promissory note from the relatives of an officer. The note is due with interest accrued at 10% per annum on June 1, 2011 and is secured by the assets of the Company. On October 10, 2010 the Company borrowed an additional $25,000 and renegotiated the outstanding $50,000 note balance. Under the new agreement, the new $75,000 note accrues interest at 10% and is due on October 31, 2011.
For the year ended December 31, 2010, the Company recorded interest expense of $3,425 and paid $1,667 leaving accrued interest of $1,758 on the note.
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NINE MILE SOFTWARE, INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 5 - STOCK PURCHASE OPTIONS
On May 1, 2007, the Company issued a total of 610,000 stock purchase options exercisable for the purchase of our common stock at $0.025 per share for $160. The Company issued an additional 40,000 stock purchase options during 2008. The options were issued to directors, executive officers and other individuals expected to become employees. The options are not exercisable for a period of one year and are subject to a vesting schedule. Fifty percent of the options will vest when the Company first realizes a quarterly profit from operations or when it has sold an aggregate of 80 of its stock trading programs. The balance of the options will vest when the Company first records $1.0 million in total revenues. The options will expire if not exercised within 60 months of issuance, on May 1, 2012.
The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model. The following weighted average assumptions used for grants in the year ended December 31, 2007: dividend yield of zero percent; expected volatility of 100%; risk-free interest rates of 5.35% and expected life of 5.0 years. The Company recognized no expense for the fair value of the options granted during 2007. Management has determined that the performance conditions are improbable of occurring.
On July 31, 2008, the Company granted a total of 300,000 stock purchase options exercisable for the purchase of our common stock at $0.75 per share from the 400,000 stock purchase options. The options were issued to directors, executive officers and other individuals expected to become employees. The options vest over 3 years. The options will expire if not exercised within 60 months of issuance, on July 31, 2013.
The following weighted average assumptions used for grants in the year ended December 31, 2008: dividend yield of zero percent; expected volatility of 100%; risk-free interest rates of 3.35% and expected life of 3.0. The Company recognized $43,372 of expense for the fair value of the options during each of the years ended December 31, 2010 and 2009.
A summary of the status of the Company’s stock option plans as of December 31, 2010 and 2009 and the changes during the period are presented below:
The following table summarizes information about the stock options as of December 31, 2010:
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NINE MILE SOFTWARE, INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 5 - STOCK PURCHASE OPTIONS (CONTINUED)
The following table summarizes information about the exercisable stock options as of December 31, 2010:
The following table summarizes information about non-vested options as of the year ended December 31, 2010:
The total fair values of options vested during each of the years ended December 31, 2010 and 2009 $43,000 were and $29,167, respectively.
NOTE 6 - INCOME TAXES
The Company’s provision for income taxes was $0 for the years ended December 31, 2010 and 2009 respectively since the Company incurred net operating losses which have a full valuation allowance through December 31, 2010.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a full valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is calculated by multiplying a 39% marginal tax rate by the cumulative Net Operating Loss (“NOL”) of $643,523. The total valuation allowance is equal to the total deferred tax asset. The valuation allowance increased by $106,248 from $165,842 to $272,090 for the year ended December 31, 2010.
The tax effects of significant items comprising the Company's net deferred taxes as of December 31, 2010 and 2009 were as follows:
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NINE MILE SOFTWARE, INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 6 - INCOME TAXES (CONTINUED)
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended December 31, 2010 and 2009 due to the following:
The Company has filed income tax returns in the United States and Florida. All tax years prior to 2007 are closed by expiration of the statute of limitations. The years ended December 31, 2010, 2009, and 2008 are open for examination.
The Company’s deferred tax assets and liabilities were as follows as of December 31, 2010 and 2009:
The Company’s net state and federal operating loss carry forwards of approximately $638,360 expire in various years beginning in 2026 and carrying forward through 2030.
In July, 2006, the FASB issued ASC 740, “Accounting for Uncertainty in Income Taxes” which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a return. ASC 740 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. ASC 740 became effective as of July 1, 2008 and had no impact on the Company’s financial statements. The Company’s tax filings for 2007-2009 remain open for review by tax authorities as of September 30, 2010.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
There are no legal proceedings, which the Company believes will have a material adverse effect on its financial position.
Office Rent Obligation
The Company is renting its office space at $550 per month. The term of this lease extends until February 28, 2013. The following summarizes the future minimum lease payments associated with this lease agreement:
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NINE MILE SOFTWARE, INC.
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rent expense for this lease for the years ended December 31, 2010 and 2009 was $6,600 and $6,050, respectively.
Partnership Agreement
The Company entered into a partnership with FinFolio in December 2008. The partnership between the two companies represents a major collaboration of software technologies which requires the Company to pay a 10% royalty of each direct and indirect sale of a license of the Nine Mile Software Standalone Application to Finfolio within ten days of month end, upon payment from a customer. If Nine Mile Software fails to pay any amounts when due, Nine Mile Software will pay Finfolio interest on the unpaid amount at the rate of 18% annum. The Company recorded royalty expense of $3,335 during 2010. As of December 31, 2010 $10 has been accrued as interest for unpaid amounts when due.
NOTE 8 - SUBSEQUENT EVENTS
In accordance with ASC 855 Company management reviewed all material events through the date of this report and determined that the following events required disclosure.
Joint Venture
The Company has entered into a joint venture with the first licensee of its technology as of January 2011. The joint venture agreement allows the Company to license its software to various users but requires the Company to pay a one-time 10% royalty to its joint venture partner.
Limited Offering
In February 2011 the Company’s Board of Directors authorized the issuance of equity, debt or a combination there of to raise capital. As of March 2011, the Company raised $20,000 throug the issuance of 133,335 shares at $0.15 per share.
Stock Based Compensation
In March, 2011 the Company’s Board of Directors authorized the issuance of 26,000 new shares to the Chief Technology Officer in consideration of services rendered to the Company relate to work performed in lieu of monetary compensation.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Nine Mile Software, Inc.
By: /S/ Damon Deru
Damon Deru
President and C.E.O.
April 1, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ DAMON DERU Chief Executive Officer and Director April 1, 2011
Damon Deru
April 1, 2011
/s/ ANDREW LIMPERT Chairman of the Board and Director
Andrew Limpert
April 1, 2001
/s/ MICHAEL CHRISTENSEN Secretary and Director
Michael Christensen Principal Financial Officer
Principal Accounting Officer
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