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 MARCH 31, 2005
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 May 10, 2005, was 24,429,546.
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 March 31, 2005, our audited
consolidated balance sheet at September 30, 2004, and the related unaudited
consolidated statements of operations for the three- and six-month periods and
cash flows for the six-month periods ended March 31, 2005 and 2004, are attached
hereto.
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ARADYME CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
March 31, September 30,
2005 2004
------------- -------------
(Unaudited)
CURRENT ASSETS
Cash $ 101,324 $ 265,259
Accounts receivable 162,634 29,260
Prepaid expenses 40,018 66,917
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Total Current Assets 303,976 361,436
PROPERTY AND EQUIPMENT, NET 93,422 89,212
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OTHER ASSETS
Prepaid license fees 56,162 33,662
Deposits 25,538 4,960
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Total Other Assets 81,700 38,622
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TOTAL ASSETS $ 479,098 $ 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
March 31, September 30,
2005 2004
------------- -------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 76,057 $ 33,779
Accrued expenses 215,760 172,622
Notes payable 104,495 52,500
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Total Current Liabilities 396,312 258,901
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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, 24,429,546 and 23,151,046 shares issued and
outstanding, respectively 24,430 23,151
Additional paid-in capital 5,743,939 4,465,510
Stock subscription receivable (15,000) --
Accumulated deficit (5,670,583) (4,258,292)
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Total Stockholders' Equity 82,786 230,369
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 479,098 $ 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 For the Six Months Ended
March 31, March 31,
------------------------------- ---------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
REVENUES $ 229,299 $ 2,933 $ 256,099 $ 19,933
OPERATING EXPENSES
Depreciation and amortization 7,844 12,758 15,923 24,978
Rent 22,159 6,812 37,832 19,082
Contract services 90,447 83,221 321,237 243,649
General and administrative 665,472 392,295 1,121,079 467,558
------------- ------------- ------------- -------------
Total Operating Expenses 785,922 495,086 1,496,071 755,267
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (556,623) (492,153) (1,239,972) (735,334)
OTHER INCOME (EXPENSE)
Interest expense (2,313) (25,389) (132,427) (49,580)
Loss on disposal of assets (39,892) -- (39,892) --
------------- ------------- ------------- -------------
Total Other Income (Expense) (42,205) (25,389) (172,319) (49,580)
------------- ------------- ------------- -------------
NET LOSS $ (598,828) $ (517,542) $ (1,412,291) $ (785,184)
------------- ------------- ------------- -------------
BASIC LOSS PER SHARE $ (0.02) $ (0.03) $ (0.06) $ (0.05)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 24,201,063 18,176,653 23,832,510 16,773,858
============= ============= ============= =============
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 Six Months Ended
March 31,
2005 2004
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,412,291) $ (785,184)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 15,923 24,978
Bad debt -- --
Loss on disposal of assets 39,892 --
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 (133,374) (5,393)
Decrease in prepaids 4,399 75
(Increase) decrease in deposits (20,578) --
Increase (decrease) in accounts payable and
related party payables 42,278 (212,640)
Increase in accrued expenses 119,938 107,476
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Net Cash Used by Operating Activities (1,120,026) (836,638)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (60,024) (14,509)
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Net Cash Used by Investing Activities (60,024) (14,509)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 96,459 80,000
Payments on notes payable (44,464) (15,000)
Payments on related party payable -- (15,758)
Common stock issued for cash 964,120 1,963,448
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Net Cash Provided by Financing Activities 1,016,115 2,012,690
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NET (DECREASE) INCREASE IN CASH (163,935) 1,161,543
CASH AT BEGINNING OF PERIOD 265,259 55,296
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CASH AT END OF PERIOD $ 101,324 $ 1,216,839
============= =============
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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ARADYME CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
March 31,
2005 2004
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CASH PAID FOR:
Interest $ 3,686 $ 4,643
Income taxes $ -- $ --
NON-CASH TRANSACTIONS:
Notes payable and accrued interest converted to common stock $ -- $ 657,624
Common stock issued for services $ 96,000 $ 16,625
Common stock issued for subscription receivable $ 15,000 $ 50,000
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
Notes to the Consolidated Financial Statements
March 31, 2005 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 and
six months ended March 31, 2005, are not necessarily indicative of the
results that may be expected for longer periods or the entire year.
NOTE 2 - MATERIAL 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), a global consulting and technology services company, 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 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.
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ARADYME CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and September 30, 2004
NOTE 2 - MATERIAL EVENTS (continued)
On February 16, 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
Maine to help the state comply with HAVA.
On March 22, 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
New Jersey to help the state comply with HAVA.
b. Common Stock
In January through March 2005, the Company issued 426,000 shares of
restricted common stock for cash of $411,000 and subscriptions
receivable of $15,000, or $1.00 per share, to private investors in a
private placement.
c. Line of Credit Agreement
In March 2005, the Company drew $80,000 against its line of credit. The
line of credit is unsecured with a one-year term and interest at 15%
per annum.
NOTE 3 - STOCK OPTIONS AND WARRANTS
The Company grants options to purchase shares of the Company's common
stock to employees of the Company and other service providers in order
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. The Company estimated the fair value of stock options at
the date of grant by using the Black-Scholes option pricing model.
Stock options are typically issued at the fair value of the Company's
common stock on the date of issue, therefore no compensation expense is
generally recognized.
In the three-month period ended March 31, 2005, the Company did not
grant any options to purchase shares of the Company's common stock.
9
ARADYME CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 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 March 31, 2005, and September 30, 2004, and changes during the
six-month period ended March 31, 2005, and the twelve-month period
ended September 30, 2004, is presented below:
March 31, 2005 September 30, 2004
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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 0.65 390,384 0.81
Canceled (247,884) 0.98 -- --
Exercised (7,500) 0.42 -- --
-------------- ---------------
Outstanding, end of period 6,668,000 $0.50 4,695,384 $0.45
-------------- ---------------
Exercisable, end of period 5,352,500 $0.49 4,142,884 $0.46
-------------- ---------------
Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Option Grant at 03/31/05 Life Price at 03/31/05 Price
------------ ----------- ------ ------- ----------- -------
Options--May 2002 1,000,000 2.08 $0.42 1,000,000 $0.42
Options--February 2003 325,000 2.08 0.50 325,000 0.50
Options--September 2003 2,965,000 8.51 0.42 2,532,500 0.42
Options--December 2003 150,000 4.68 0.50 75,000 0.50
Options--November 2004 2,028,000 9.60 0.64 1,220,000 0.64
Warrants--November 2004 200,000 1.62 0.80 200,000 0.80
---------- ----------
6,668,000 6.75 $0.50 5,352,500 $0.49
========= =========
NOTE 4 - SUBSEQUENT EVENTS
On May 5, 2005, the Company granted stock options to purchase a total
of 370,000 shares of the Company's common stock at $0.80 per share to
employees of, and a consultant to, the Company to provide incentive and
to retain the services of the grantees. The options vest over a three-
or four-year period and have 10-year expirations. The Company estimates
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 will be recognized.
10
ARADYME CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 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. Revenue
has increased significantly in the quarter ended March 31, 2005, and
management will need to sustain those revenue increases and raise
additional capital through private placement of the Company's preferred
and/or common stock or through debt financing 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 financial statements
do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
We develop, manufacture, market and provide computer database
management services and software based on proprietary technology. Because of the
relatively short period on which we are reporting, 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 revenue for the three- and
six-month periods ended March 31, 2005, compared to the comparable three- and
six-month periods ended March 31, 2004. These significant increases are the
result of bringing our products and services to market, and the subsequent
recognition of revenue based on completion of partial requirements of several of
the contracts that we have previously announced. These revenues represent work
completed on only the initial portion of contracts in place, and we believe that
completion of further requirements will result in more significant revenue in
the following several quarters.
During the six-month period ending March 31, 2005, we successfully
completed the early requirements of current contracts for the delivery of voter
registration and election management solutions. Since December 2004, we have
successfully initiated data migration activities from approximately 3,000
11
independent sources. We believe these successful efforts have established a
strong validation of the technology, systems and processes used in the delivery
of our products and services and that these successes will attract additional
contracts and partners for us.
With the actual experience we have had to date providing services and
products based on our unique and proprietary technology, we have proven that the
technology is extremely adaptable and applicable to virtually any source data
base or format, allowing us migration opportunities and abilities that we feel
are not within other providers' technological capabilities. Our technology
enables us to evaluate and pursue potential contracts and data migration
projects including: 1) addressing state and federal initiatives such as motor
vehicle registration, retirement benefits, department of corrections, "no child
left behind" and other government database needs, although we have not yet
obtained any contracts or projects in those areas within the public sector, and
2) a wide scope of data migration projects within the private sector.
Liquidity and Capital Resources
As of March 31, 2005, we had a working capital deficit of $92,336, as
compared to working capital of $102,535 as of September 30, 2004. As of March
31, 2005, we had an accumulated deficit of $5,670,583 and total stockholders'
equity of $82,786, as compared to an accumulated deficit of $4,258,292 and
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 six months ended March 31, 2005, we used $1,120,025 in cash for operating
activities and $60,024 for investing activities, which was provided by net cash
of $1,016,115 from financing activities, resulting in a $163,934 decrease in
cash during the period. Financing activities provided cash of $964,120 from the
sale of restricted common stock and proceeds of $96,459 from notes payable.
We estimate that we will require approximately $2,000,000 in cash to
fund our activities until revenues are sufficient to fund operations, which we
expect to take at least two additional fiscal quarters. We intend to obtain that
additional capital 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 system on our projected time line.
Results of Operations
As a result of completion of some of the initial requirements of
several contracts, we recognized our first significant revenues from the
commercialization of our data migration services. For the six months ended March
31, 2005 our revenue was $256,099, compared to $19,933 for the six months ended
March 31, 2004. Revenue for the three months ended March 31, 2005, was $229,299,
compared to $2,933 for the three months ended March 31, 2004. Based on our
current contracts, we expect that we will be able to recognize increased revenue
over the next several quarters. In addition, we expect that our increased
marketing and sales efforts, as well as our strategic alliances with major
integrators will result in new significant contracts within both the public and
private sectors.
As a result of the initial relationships we have formed with several
major hardware, software and service integrators, we have already been awarded a
12
number of significant contracts related to voter registration and election
management solutions for states to comply with HAVA. During the six-month period
ended March 31, 2005, we have signed subcontracts to provide data migration
services with the following partners, who are considered prime contractors to
providing voter registration solutions to the indicated states:
Covansys (Nasdaq: CVNS) Idaho
Covansys (Nasdaq: CVNS) Nevada
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
Accenture LLP (U.S.-based business of Accenture) (NYSE: ACN) Colorado
Covansys (Nasdaq: CVNS) Maine
Covansys (Nasdaq: CVNS) New Jersey
The total subcontract amounts due to us under these subcontracts are
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. These subcontracts are normally
about one year in duration, provide for periodic payments over the life of the
contract, and have potential for follow-on revenue for maintenance services.
We are now leveraging the success we have had on our existing contracts
with our partners in the six-month period ended March 31, 2005, to obtain new
agreements with additional states to assist them with HAVA compliance. In
addition, we have begun to focus more of our marketing and sales efforts on
establishing new arrangements with these and other firms in other marketing
areas, such as data distribution-migration repurposing, customer relationship
management, and enterprise resource planning, to meet other government, industry
or education needs in the public sector. We have also begun pursuing
opportunities in the private sector.
To support the commercialization of our products and services, we have
expanded our staff to support the contracts that have been signed since November
2004. Our most significant operating expense is for employee and consultant
contract services with those providing technical and other services. Our payroll
burden and employee benefits expenses have increased compared to prior-year
comparable periods. Total operating expenses for the three- and six-month
periods ending March 31, 2005, increased by 59% and 98% respectively, when
compared to the three- and sixth-month periods ended March 31, 2004, 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 and utility markets. Management expects that
operating expenses will continue to increase as additional employee resources
are hired to support our growth in offering data migration 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,
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 six-month period ended March 31,
2005, consist principally of the valuation of warrants granted, common stock
issued to a lender that provided us with a line of credit agreement in November
13
2004, interest accrued on borrowings and notes payable to finance insurance
premiums, and a net loss on assets disposed of. Interest expense decreased from
$25,389 in the three-month period ended March 31, 2004, to $2,313 in the
three-month period ended March 31, 2005, as a result of lower debt balances in
the current year period. Interest expense increased from $49,580 in the
six-month period ended March 31, 2004, to $132,427 in the six-month period ended
March 31, 2005, mainly as a result of expensing the valuation of the warrants
associated with the line of credit that was put in place in November 2004. In
the three-month period ended March 31, 2005, we realized a net loss of $39,892
on the disposal of assets in conjunction with the relocation of the facility to
Orem, Utah, in January 2005.
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 affect 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 the American Institute of Certified
Public Accountants' 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
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.
14
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
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.
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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 (the "Securities Exchange Act"), 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 defined in Rule 13a-15(e) under the Securities Exchange Act) as
of March 31, 2005, pursuant to Rule 13a-15(b) under the Securities Exchange Act.
Based upon that evaluation, our Certifying Officers concluded that, as of March
31, 2005, 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 March 31, 2005, we issued an aggregate of
426,000 shares of restricted common stock in the following transactions.
We sold an aggregate of 396,000 shares of restricted common stock to 15
investors for $381,000 in cash and a subscription receivable of $15,000, or
$1.00 per share. At the time of these transactions, the closing market price for
our common stock ranged from $1.05 to $1.75 per share. These purchasers were
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 were provided with the opportunity
to ask questions directly of our executive officers. These transactions were
conducted in reliance on the exemption from registration provided by Rule 506 of
Regulation D.
We sold an aggregate of 30,000 shares of restricted common stock to two
investors for $30,000, or $1.00 per share. At the time of these transactions,
the closing market price for our common stock ranged from $1.05 to $1.75 per
share. These investors represented in writing that they were not residents of
the United States. These transactions were conducted in reliance on Regulation
S.
On May 5, 2005, we issued options to purchase an aggregate of 370,000
shares of our common stock to 16 nonexecutive employees and one consultant to
provide an incentive and retain the services of the recipients. The options have
an exercise price of $0.80 per share, expire 10 years from the date of grant,
and vest according to a variety of schedules over the next two and one-half to
four years, subject to the recipient's continued employment with us. These
options were granted pursuant to our 2004 Long-Term Incentive Program.
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: May 13, 2005 By /s/ James R. Spencer
----------------------------
James R. Spencer, Chairman
(Chief Executive Officer)
Date: May 13, 2005 By /s/ Scott A. Mayfield
----------------------------
Scott A. Mayfield
(Chief Financial Officer)
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