UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004
Commission File No. 000-50038
ARADYME CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 33-0619254
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1255 North Research Way, Building Q
Orem, Utah 84097
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(Address of principal executive offices)
(801) 705-5000
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(Issuer's telephone number)
n/a
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. The number of shares of $0.001 par
value common stock outstanding as of February 14, 2005, was 24,211,046.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB pursuant to the
rules and regulations of the Securities and Exchange Commission and, therefore,
do not include all information and footnotes necessary for a complete
presentation of our financial position, results of operations, cash flows, and
stockholders' equity (deficit) in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments considered necessary
for a fair presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring nature.
Our unaudited consolidated balance sheet at December 31, 2004, our
audited consolidated balance sheet at September 30, 2004, and the related
unaudited consolidated statements of operations for the three-month periods and
cash flows for the three-month periods ended December 31, 2004 and 2003, are
attached hereto.
2
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
December 31, September 30,
2004 2004
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(Unaudited)
CURRENT ASSETS
Cash $ 208,203 $ 265,259
Accounts receivable 34,460 29,260
Prepaid expenses 74,049 66,917
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Total Current Assets 316,712 361,436
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PROPERTY AND EQUIPMENT, NET 89,869 89,212
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OTHER ASSETS
Prepaid license fees 44,912 33,662
Deposits 26,540 4,960
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Total Other Assets 71,452 38,622
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TOTAL ASSETS $ 478,033 $ 489,270
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30,
2004 2004
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(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 85,747 $ 33,779
Accrued expenses 80,126 172,622
Notes payable 44,667 52,500
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Total Current Liabilities 210,540 258,901
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock: 1,000,000 shares authorized of $0.001
par value, 0 shares issued and outstanding, respectively - -
Common stock: 50,000,000 shares authorized of $0.001
par value, 23,996,046 and 23,151,046 shares issued and
outstanding, respectively 23,996 23,151
Additional paid-in capital 5,315,252 4,465,510
Accumulated deficit (5,071,755) (4,258,292)
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Total Stockholders' Equity 267,493 230,369
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 478,033 $ 489,270
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
December 31,
--------------------------------
2004 2003
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REVENUES $ 26,800 $ 17,000
OPERATING EXPENSES
Depreciation and amortization 8,079 12,220
Rent 15,672 12,270
Contract services 230,789 160,428
General and administrative 455,608 75,263
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Total Operating Expenses 710,148 260,181
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LOSS FROM OPERATIONS (683,348) (243,181)
OTHER INCOME (EXPENSE)
Interest expense (130,115) (24,461)
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Total Other Income (Expense) (130,115) (24,461)
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NET LOSS $ (813,463) $ (267,642)
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BASIC LOSS PER SHARE $ (0.03) $ (0.02)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 23,471,970 15,386,312
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
December 31,
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (813,463) $ (267,642)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 8,079 12,220
Bad debt - -
Warrants and options issued below market value - 17,425
Common stock issued for services 96,000 16,625
Common stock issued for line of credit 20,000 -
Warrants issued for line of credit 107,787 -
Changes in assets and liabilities:
(Increase) in accounts receivable (5,200) (9,625)
(Increase) in prepaids (18,382) -
(Increase) decrease in deposits (21,580) 340
Increase (decrease) in accounts payable and
related party payables 51,969 (42,795)
(Decrease) increase in accrued expenses (15,696) 22,696
(Decrease) in deferred revenue - -
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Net Cash Used by Operating Activities (590,486) (250,756)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (8,737) -
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Net Cash Used by Investing Activities (8,737) -
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 16,459 80,000
Payments on notes payable (24,292) -
Common stock issued for cash 550,000 204,720
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Net Cash Provided by Financing Activities 542,167 284,720
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NET (DECREASE) INCREASE IN CASH (57,056) 33,964
CASH AT BEGINNING OF PERIOD 265,259 55,296
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CASH AT END OF PERIOD $ 208,203 $ 89,260
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended
December 31,
2004 2003
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CASH PAID FOR:
Interest $ 2,327 $ -
Income taxes $ - $ -
NON-CASH TRANSACTIONS:
Common stock issued for services $ 96,000 $ 16,625
Warrants and options granted below market value $ - $ 17,425
Common stock issued for line of credit $ 20,000 $ -
Warrants issued for line of credit $ 107,787 $ -
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Notes to the Financial Statements
December 31, 2004 and September 30, 2004
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Aradyme Corporation and Subsidiary (the Company) have been prepared
by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted in accordance with
such rules and regulations. The information furnished in the interim
condensed consolidated financial statements includes normal recurring
adjustments and reflects all adjustments that, in the opinion of
management, are necessary for a fair presentation of such consolidated
financial statements. Although management believes the disclosures and
information presented are adequate to make the information not
misleading, it is suggested that these interim condensed consolidated
financial statements be read in conjunction with the Company's most
recent audited consolidated financial statements and notes included in
its annual report on Form 10-KSB for the fiscal year ended September
30, 2004, filed January 13, 2005. Operating results for the three
months ended December 31, 2004, are not necessarily indicative of the
results that may be expected for longer periods or the entire year.
NOTE 2 - MATERIAL EVENTS
a. Contracts
On October 21, 2004, the Company signed a subcontract agreement with
Accenture, LLP (U.S.-based business of Accenture) (NYSE: ACN), a
multinational management and technology consulting firm, to provide
data conversion and migration services for the delivery of voter
registration and election management solutions for the state of Kansas
to help the state comply with the Help America Vote Act of 2002, or
HAVA. In February 2005, the Company received notice that Kansas and
Accenture terminated their agreement, resulting in the termination of
its subcontract with Accenture.
On November 10, 2004, the Company signed a master subcontract agreement
with Covansys (Nasdaq: CVNS) a global consulting and technology
services company, to integrate and oversee voter registration and
election management solutions that enable state governments to comply
with HAVA.
On November 16, 2004, the Company signed a subcontract with Covansys
(Nasdaq: CVNS) to provide data migration services for the delivery of
voter registration and election management solutions for the state of
Idaho to help the state comply with HAVA. On December 9, 2004, the
Company signed a subcontract agreement with Accenture, LLP (U.S.-based
business of Accenture) (NYSE: ACN) to provide data conversion and
migration services for the delivery of voter registration and election
management solutions for the state of Wisconsin to help the state
comply with HAVA.
On December 15, 2004, the Company signed a subcontract agreement with
Maximus, Inc. (NYSE: MMS) a government services company devoted to
providing program management, consulting and information technology
services, to provide data migration services for the state of Missouri
to help the state comply with HAVA.
8
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Notes to the Financial Statements
December 31, 2004 and September 30, 2004
NOTE 2 - MATERIAL EVENTS (continued)
b. Common Stock
In November 2004, the Company issued a total of 270,000 shares of
common stock as payment to two consultants who have provided services
to the Company. These shares were valued at $0.64 per share, the market
price on the date of the awards. In December 2004, the Company issued
550,000 shares of restricted common stock for cash of $550,000, or
$1.00 per share, to private investors in a private placement. The
selling price was determined and approved by the board of directors.
In November 2004, as consideration for granting the line of credit
referenced in Note 2c, the Company issued 25,000 shares of restricted
common stock to a private lender. These shares were valued $20,000, or
$0.80 per share, which was the market price on the day the parties
agreed to the terms of the line of credit.
c. Line of Credit Agreement
In November 2004, the Company signed an agreement with a private lender
to provide a line of credit available to the Company for up to
$200,000. The line of credit is unsecured with a one-year term and
interest at 15% per annum. The lender was granted a warrant to purchase
up to 200,000 shares of restricted common stock at $0.80 per share, the
market price on the day the parties agreed to the principal business
terms of the line of credit, with a two-year term. The Company recorded
$107,787 in interest expense associated with the issuance of this
warrant. Subject to acceptance by the Company, loan amounts outstanding
under this agreement are convertible to restricted common stock, with a
conversion price of $0.80 per share.
NOTE 3 - STOCK OPTIONS AND WARRANTS
a. Stock Options
In November 2004, the Company granted options to purchase a total of
978,000 shares of the Company's common stock at $0.64 per share, to
employees of the Company to provide incentive and to retain the
services of the grantees. The options vest over either three or four
years and have 10-year expirations.
In November 2004, the Company granted stock options to purchase a total
of 1,050,000 shares of the Company's common stock at $0.64 per share to
three officers to provide incentive and to retain the services of the
grantees. The options vested immediately on the date of grant and have
10-year expirations. The Company estimated the fair value of stock
options at the date of grant by using the Black-Scholes option pricing
model. All of the options were issued at the fair value of the
Company's common stock on the date of issue and no compensation expense
was recognized.
9
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Notes to the Financial Statements
December 31, 2004 and September 30, 2004
NOTE 3 - STOCK OPTIONS AND WARRANTS (continued)
A summary of the status of the Company's stock options and warrants as
of December 31, 2004, and September 30, 2004, and changes during the
three-month period ended December 31, 2004, and the 12-month period
ended September 30, 2004, is presented below:
December 31, 2004 September 30, 2004
---------------------------- -----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ ---------
Outstanding, beginning of period 4,695,384 $ 0.45 4,305,000 $ 0.43
Granted 2,228,000 0.64 390,384 0.81
Canceled (247,884) 0.97 - -
Exercised - - - -
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Outstanding, end of period 6,675,500 $ 0.50 4,695,384 $ 0.45
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Exercisable, end of period 5,355,000 $ 0.49 4,142,884 $ 0.46
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Outstanding Exercisable
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Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Option Grants at 12/31/04 Life Price at 12/31/04 Price
------------- ----------- ----------- --------- ----------- ---------
Options - May 2002 1,000,000 2.33 $ 0.42 1,000,000 $ 0.42
Options - February 2003 325,000 2.33 0.50 325,000 0.50
Options - September 2003 2,972,500 8.75 0.42 2,536,250 0.42
Options - December 2003 150,000 4.92 0.50 75,000 0.50
Options - November 2004 2,028,000 9.84 0.64 1,218,750 0.64
Warrants - November 2004 200,000 1.87 0.80 200,000 0.80
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6,675,500 7.00 $ 0.50 5,355,000 $ 0.49
========= =========
10
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Notes to the Financial Statements
December 31, 2004 and September 30, 2004
NOTE 3 - STOCK OPTIONS AND WARRANTS (continued)
b. Warrants
In October 2004, warrants exercisable for 240,384 shares of common
stock at $1.00 per share expired.
In November 2004, the Company agreed to grant warrants to a lender in
conjunction with the line of credit agreement (Note 2). The warrants,
exercisable for up to 200,000 shares of restricted common stock, have a
two-year term and are exercisable at $0.80 per share, the market price
on the day the parties agreed to the principal business terms of the
line of credit.
The Company estimated the fair value of the warrants at the date of
grant by using the Black-Scholes option pricing model based on the
following assumption: Risk-free interest rate of 2.89%; expected life
of 2 years; expected volatility of 136%; and dividend yield of 0.00%.
NOTE 4 - SUBSEQUENT EVENTS
a. Subcontracts
On January 6, 2005, the Company signed a subcontract agreement with
Unisys (NYSE: UIS) a worldwide information technology services and
solutions company, to provide data migration services for the
Commonwealth of Virginia to help the state comply with the National
Help America Vote Act of 2002, or HAVA.
On January 25, 2005, the Company signed a subcontract with PCC
Technology Group, LLC, an information technology services company that
provides software solutions to industry, local, state and federal
governments, to provide data migration services for the delivery of
voter registration and election management solutions for the state of
New Hampshire to help the state comply with HAVA.
On January 29, 2005, the Company signed a subcontract with Covansys
(Nasdaq: CVNS) to provide data migration services for the delivery of
voter registration and election management solutions for the state of
Nevada to help the state comply with HAVA.
On February 9, 2005, the Company signed a subcontract agreement with
Accenture, LLP (U.S.-based business of Accenture) (NYSE: ACN) to
provide data conversion and migration services for the delivery of
voter registration and election management solutions for the state of
Colorado to help the state comply with HAVA.
b. Common Stock
In January 2005, the Company issued 215,000 shares of restricted common
stock for cash of $215,000, or $1.00 per share, to private investors in
a private placement.
11
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Notes to the Financial Statements
December 31, 2004 and September 30, 2004
NOTE 5 - GOING CONCERN
The Company's financial statements are prepared using accounting
principles generally accepted in the United States of America
applicable to a going concern that 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. 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.
In order to continue as a going concern, develop a reliable source of
revenues, and achieve a profitable level of operations, the Company
will need, among other things, additional capital resources. Management
has been successful negotiating contracts that are expected to increase
revenue significantly, and is in the process of negotiating additional
contracts, and plans to raise approximately $3,000,000 through private
placement of its preferred and/or common stock to sustain operations
until revenues are sufficient to cover costs. 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 consolidated
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
We develop, manufacture, market and distribute computer database
management software based on acquired proprietary technology. Because of the
relatively short period, results for any given interim period may not be
indicative of comparative results for longer periods or for the entire year.
Management believes that the most notable trend in our financial
performance is the substantial increase in our total operating expenses, which
increased approximately 272% for the three-month period ended December 31, 2004,
compared to the comparable period ended December 31, 2003. This increase is the
result of our efforts to bring our initial products to market, to develop new
products, and to expand our marketing and sales efforts. While these expanded
marketing efforts are resulting in significant strategic teaming arrangements
with major hardware, software and service integrators, which act as prime
contractors, we anticipate that it will take several months for actual revenues
to build from current nominal levels.
Liquidity and Capital Resources
As of December 31, 2004, we had working capital of $106,172, as
compared to working capital of $102,535 as of September 30, 2004. As of December
31, 2004, we had an accumulated deficit of $5,071,755, and total stockholders'
equity of $267,493, as compared to stockholders' equity of $230,369 as of
September 30, 2004. The auditors' report for the year ended September 30, 2004,
as with previous years, contained an explanatory paragraph regarding our ability
to continue as a going concern.
Since inception, we have relied principally on proceeds from the sale
of securities and advances from related parties to fund our activities. During
the three months ended December 31, 2004, we used $590,486 in cash for operating
activities and $8,737 for investing activities, which was provided by net cash
of $542,167 from financing activities, resulting in a $57,056 decrease in cash
during the period. Financing activities provided cash of $550,000 from the sale
of restricted common stock and proceeds of $16,459 from a note payable.
We estimate that we will require approximately $3,000,000 in cash to
fund our activities until revenues are sufficient to fund operations, which we
will seek to obtain principally through the sale of securities. We have no
commitment from any person to acquire any such securities or to provide funding
through any other mechanism. We expect that additional capital will be required
in future fiscal years if we are unable to generate sufficient revenues from
commercialization of our database management systems.
Results of Operations
In relation to our operating expenses, our revenues from the
commercialization of our database management system are not yet considered
significant, and were $26,800 and $17,000 for the three months ended December
31, 2004 and 2003, respectively. As noted above, we expect that it will be
several months before our recent increased marketing efforts, particularly in
providing services, and strategic alliances with major product integration to
assist states in complying with the Help America Vote Act of 2002, or HAVA,
result in significant revenue increases.
Through the final two quarters of the prior fiscal year ended September
30, 2004, we evolved out of the development stage and into commercialization of
selected products and services. In 2004, we formed strategic teaming
13
relationships with several major hardware, software and service integrators with
the demonstrated experience and capability to provide enterprise-wide solutions
and with established marketing and distribution infrastructure.
Through these relationships, we have been awarded a number of
significant contracts to apply our technology to provide data extraction,
translation and loading services that provide voter registration and election
management solutions for states to comply with HAVA. Since November 2004, we
have signed subcontracts with the following partners, which are considered prime
contractors to an individual state, to provide data migration services for the
indicated states:
Accenture LLP (U.S.-based business of Accenture) (NYSE: ACN) Kansas
Covansys (Nasdaq: CVNS) Idaho
Accenture LLP (U.S.-based business of Accenture) (NYSE: ACN) Wisconsin
Maximus, Inc. (NYSE: MMS) Missouri
Unisys (NYSE: UIS) Virginia
PCC Technology Group New Hampshire
Covansys (Nasdaq: CVNS) Nevada
Accenture LLP (U.S.-based business of Accenture) (NYSE: ACN) Colorado
Subsequent to December 31, 2004, Kansas and Accenture terminated their
agreement, resulting in the termination of our subcontract with Accenture, so we
are seeking to reposition ourselves to provide similar data migration services
through a replacement prime contractor that Kansas may select.
Normally, these subcontracts are about one year in duration, with
potential for follow-on revenue for maintenance services, and provide for
periodic payments over the life of the contract. The total subcontract amount
due to us under these subcontracts is estimated to be from 4% to 6% of the total
HAVA voter registration funding for an individual state, which is primarily
funded by the federal funds that have previously been appropriated to each
state.
In addition to the subcontracts summarized above, we expect both to (1)
work with our teaming partners to obtain new agreements with additional states
to assist them with HAVA compliance, and to (2) establish new teaming
arrangements with other firms in other marketing areas that we may select, such
as data distribution-migration-repurposing, customer relationship management,
and enterprise resource planning, to meet other government, industry or
education needs.
Our principal operating expense is for employee and consultant contract
services with those providing technical and other services. To support the
commercialization of our products and services, we have converted resources that
were previously engaged on a contract basis to employee status and have expanded
our staff to support the contracts that have been signed since November 2004.
This increased our costs for payroll burdens and employee benefits. Total
operating expenses increased approximately 272% for the three-month period ended
December 31, 2004, as compared to the same period a year earlier, as we
increased our efforts to bring our initial products to market, increased our
product development activity, and expanded our marketing and sales activities in
the eGovernment and the energy/utility markets. Management expects that
operating expenses will continue to increase as additional employee resources
are hired to support the growth in data services.
Because of this early stage of our business development, revenue and
operating expense comparisons between various interim periods may not be
indicative of expected future results of operations. Generally, we expect that
operating expenses will continue to grow during the ongoing initial marketing
efforts, as increased sales will require additional expenditures for sales,
14
marketing and implementation services. It may be some time before our sales,
marketing and implementation resources are capable of supporting substantially
expanded sales without corresponding increases in operating expenses.
Other income and expenses during the three month period ended December
31, 2004, consist principally of the valuation of warrants granted, and common
stock issued to a lender who provided us with a line of credit agreement in
November, 2004, interest accrued on borrowings and notes payable to finance
insurance premiums. Interest expense increased from $24,461 in the three-month
period ended December 31, 2003, to $130,115 in the three-month period ended
December 31, 2004, mainly as a result of expensing the valuation of the warrants
associated with the line of credit.
Other Items
We have reviewed all other recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on our results
of operations or financial position. Based on that review, we believe that none
of these pronouncements will have a significant effect on current or future
financial position or results of operations.
Critical Accounting Policies
Software Development Costs
Development costs related to software products are expensed as incurred
until technological feasibility of the product has been established. Based on
our product development process, technological feasibility is established upon
completion of a working model. Costs incurred by us between completion of the
working model and the point at which the product is ready for general release
have not been significant. Accordingly, no costs have been capitalized to date.
Revenue Recognition
Revenues are primarily derived from providing data services, developing
custom software, and selling software licenses and related services, which
include maintenance, support, consulting and training services. Revenues from
data services, custom software development, and license arrangements and related
services are recognized in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," as amended by SOP 98-9. We generally recognize
revenue when all of the following criteria are met as set forth in paragraph 8
of SOP 97-2: (i) persuasive evidence of an arrangement exists, (ii) delivery has
occurred, (iii) the fee is fixed or determinable, and (iv) collectibility is
probable. The third and fourth criteria may require us to make significant
judgments or estimates. We define each of these four criteria as follows:
Persuasive evidence of an arrangement exists. It is our
customary practice to have a written contract, which is signed by both
the customer and us, defining services to be provided or software
licenses to be supplied by us and all other key terms of the
arrangement. In the event of a standard license arrangement that has
been previously negotiated with us, a purchase order from the customer
is required.
Delivery has occurred or services have been rendered. Data
services are provided by us to customer specifications and, in the case
of software licensing, our software is physically delivered to the
15
customer. If an arrangement includes undelivered products or services
that are essential to the functionality of the delivered product,
delivery is not considered to have occurred until these products or
services are delivered.
The fee is fixed or determinable. Our policy is not to provide
customers the right to a refund of any portion of their data services
fees or license fees paid. Generally, 100% of the invoiced fees are due
within 30 days. Payment terms extending beyond these customary payment
terms are considered not to be fixed or determinable, and revenues from
such arrangements are recognized as payments become due and payable.
Collectibility is probable. Collectibility is assessed on a
customer-by-customer basis. If it is determined from the outset of an
arrangement that collectibility is not probable, revenues would be
recognized as cash is collected.
For data services and custom software development contracts, generally
revenue is previously agreed upon as a fixed price in the customer contract.
Some contracts may include a definition of progress milestones or phases with
corresponding revenue elements established for each milestone or phase. The
standard contract defines that, if we have met all of the conditions and
requirements of that milestone or phase, then revenue is earned and billable by
us.
For contracts with multiple elements (e.g., license and maintenance),
revenue is allocated to each component of the contract based on vendor specific
objective evidence ("VSOE") of its fair value, which is the price charged when
the elements are sold separately. Since VSOE has not been established for
license transactions, the residual method is used to allocate revenue to the
license portion of multiple-element transactions. Therefore, we recognize the
difference between the total arrangement fee and the amount deferred for the
undelivered items as revenue.
We sell many of our products to end users under license agreements. The
fee associated with such agreements is allocated between software license
revenue and maintenance revenue based on the residual method. Software license
revenue from these agreements is recognized upon receipt and acceptance of a
signed contract and delivery of the software, provided the related fee is fixed
and determinable, collectibility of the revenue is probable, and the arrangement
does not involve significant customization of the software. If an acceptance
period is required, revenue is recognized upon the earlier of customer
acceptance or the expiration of the acceptance period, as defined in the
applicable software license agreement.
We recognize maintenance revenue ratably over the life of the related
maintenance contract. Maintenance contracts on perpetual licenses generally
renew annually. We typically invoice and collect maintenance fees on an annual
basis at the anniversary date of the license. Deferred revenue represents
amounts received by us in advance of performance of the maintenance obligation.
Professional services revenue includes fees derived from the delivery of
training, installation and consulting services. Revenue from training,
installation and consulting services is recognized on a time and materials basis
as the related services are performed.
Forward-Looking Statements
This report contains statements about the future, sometimes referred to
as "forward-looking" statements. Forward-looking statements are typically
identified by the use of the words "believe," "may," "should," "expect,"
"anticipate," "estimate," "project," "propose," "plan," "intend" and similar
words and expressions. We intend that the forward-looking statements will be
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covered by the safe harbor provisions for forward-looking statements contained
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Statements that describe our future strategic plans, goals
or objectives are also forward-looking statements.
Although we have attempted to identify important factors that could
cause actual results to differ materially, there may be other factors that cause
the forward-looking statements not to come true as described in this report.
These forward-looking statements are only predictions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially. While we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
The forward-looking information is based on present circumstances and
on our predictions respecting events that have not occurred, that may not occur,
or that may occur with different consequences from those now assumed or
anticipated.
ITEM 3. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit to the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange
Commission's rules and forms, and that information is accumulated and
communicated to our management, including our principal executive and principal
financial officers (whom we refer to in this periodic report as our Certifying
Officers), as appropriate to allow timely decisions regarding required
disclosure. Our management evaluated, with the participation of our Certifying
Officers, the effectiveness of our disclosure controls and procedures as of
December 31, 2004, pursuant to Rule 13a-15(b) under the Securities Exchange Act.
Based upon that evaluation, our Certifying Officers concluded that, as of
December 31, 2004, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting
that occurred during our most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
During the quarter ended December 31, 2004, we issued an aggregate of
820,000 shares of restricted common stock in the following transactions. All of
the following transactions were previously reported in our annual report on Form
10-KSB for the fiscal year ended September 30, 2004.
On November 2, 2004, we issued an aggregate of 270,000 shares of
restricted common stock as compensation for services rendered by two independent
consultants. We provided both of these independent contractors, who are
knowledgeable about our industry, with business and financial information about
us. On the date of this transaction, the market price for our common stock was
$0.64 per share.
On December 8, 2004, we sold 500,000 shares of common stock to one
accredited investor for an aggregate of $500,000, or $1.00 per share. At the
time of this transaction, the closing market price for our common stock was
$1.08 per share. This purchaser was provided with a private placement memorandum
detailing our business and financial information, including copies of our
periodic reports as filed with the Securities and Exchange Commission, and was
provided with the opportunity to ask questions directly of our executive
officers. This transaction was conducted in reliance on the exemption from
registration provided by Rule 506 of Regulation D.
On December 30, 2004, we sold an aggregate of 50,000 shares of common
stock to an investor who is a resident of Germany for $50,000, or $1.00 per
share. At the time of this transaction, the closing market price for our common
stock was $1.35 per share. This investor represented in writing that he was not
a resident of the United States, that he was taking the shares for investment,
and that the securities constituted restricted securities, and consented to a
restrictive legend on the certificates to be issued. This transaction was
conducted in reliance on Regulation S.
Each of the foregoing persons was able to bear the financial risk of
his or her investment. Each transaction was negotiated directly with each such
person by one or more of our executive officers. No general solicitation was
used, no commission or other remuneration was paid in connection with such
transaction, and no underwriter participated. Each recipient acknowledged in
writing the receipt of restricted securities and consented to a legend on the
certificate issued and stop-transfer instructions with the transfer agent. Each
certificate for the shares and the option agreements issued in the foregoing
transactions bore a restrictive legend conspicuously on its face and
stop-transfer instructions were noted respecting such certificate on our stock
transfer records.
Unless otherwise stated, each of the foregoing transactions was
effected in reliance on the exemption from registration provided in Section 4(2)
of the Securities Act of 1933, as amended, for transactions not involving any
public offering.
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ITEM 6. EXHIBITS
The following exhibits are filed as a part of this report:
Exhibit Number* Title of Document Location
- ---------------- ---------------------------------------------------- --------
Item 31 Rule 13a-14(a)/15d-14(a) Certifications
- ---------------- ---------------------------------------------------- --------
31.01 Certification of Principal Executive Officer Attached
Pursuant to Rule 13a-14
31.02 Certification of Principal Financial Officer Attached
Pursuant to Rule 13a-14
Item 32 Section 1350 Certifications
- ---------------- ---------------------------------------------------- --------
32.01 Certification Pursuant to 18 U.S.C. Section 1350, Attached
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Chief Executive
Officer)
32.02 Certification Pursuant to 18 U.S.C. Section 1350, Attached
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Chief Financial
Officer)
- ---------------
* All exhibits are numbered with the number preceding the decimal indicating
the applicable SEC reference number in Item 601 and the number following
the decimal indicating the sequence of the particular document.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ARADYME CORPORATION
(Registrant)
Date: February 14, 2005 By /s/ James R. Spencer
--------------------------------
James R. Spencer, Chairman
(Chief Executive Officer)
Date: February 14, 2005 By /s/ Scott A. Mayfield
--------------------------------
Scott A. Mayfield
(Chief Financial Officer)
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