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 JUNE 30, 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 August 11, 2005, was 25,229,546.
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 June 30, 2005, our audited
consolidated balance sheet at September 30, 2004, and the related unaudited
consolidated statements of operations for the three- and nine-month periods and
cash flows for the nine-month periods ended June 30, 2005 and 2004, are attached
hereto.
2
ARADYME CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
June 30, September 30,
2005 2004
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ 387,271 $ 265,259
Accounts receivable 460,860 29,260
Prepaid expenses 17,653 66,917
------------ ------------
Total Current Assets 865,784 361,436
PROPERTY AND EQUIPMENT, NET 107,812 89,212
------------ ------------
OTHER ASSETS
Prepaid license fees 67,412 33,662
Deposits 25,538 4,960
------------ ------------
Total Other Assets 92,950 38,622
------------ ------------
TOTAL ASSETS $ 1,066,546 $ 489,270
============ ============
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
June 30, September 30,
2005 2004
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 107,769 $ 33,779
Accrued expenses 357,797 172,622
Notes payable 152,417 52,500
Notes payable related party (Note 2c) 200,000 --
Convertible notes payable (Note 2b) 208,453 --
------------ ------------
Total Current Liabilities 1,026,436 258,901
------------ ------------
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, 25,229,546 and 23,151,046 shares issued and
outstanding, respectively 25,230 23,151
Additional paid-in capital 6,209,794 4,465,510
Stock subscription receivable (150,000) --
Accumulated deficit (6,044,914) (4,258,292)
------------ ------------
Total Stockholders' Equity 40,110 230,369
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,066,546 $ 489,270
============ ============
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 Nine Months Ended
June 30, June 30,
------------------------------------- -------------------------------------
2005 2004 2005 2004
----------------- ------------------ ------------------ -----------------
REVENUES $ 552,671 $ 7,920 $ 808,770 $ 27,853
OPERATING EXPENSES
Depreciation and amortization 10,521 26,388 26,444 51,366
Rent 11,667 13,668 49,498 32,750
Contract services 94,866 12,866 416,103 256,515
General and administrative 733,846 502,886 1,854,925 970,444
------------- ------------- ------------- -------------
Total Operating Expenses 850,900 555,808 2,346,970 1,311,075
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (298,229) (547,888) (1,538,200) (1,283,222)
OTHER EXPENSE
Interest expense (76,102) (282) (208,529) (50,132)
Loss on disposal of assets -- -- (39,892) --
------------- ------------- ------------- -------------
Total Other Expense (76,102) (282) (248,421) (50,132)
------------- ------------- ------------- -------------
NET LOSS $ (374,331) $ (548,170) $ (1,786,621) $ (1,333,354)
------------- ------------- ------------- -------------
BASIC LOSS PER SHARE $ (0.02) $ (0.02) $ (0.07) $ (0.07)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 24,438,337 23,032,365 24,034,453 18,880,773
============= ============ ============= =============
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 Nine Months Ended
June 30,
2005 2004
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,786,621) $ (1,333,354)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 26,444 51,366
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 and promissory note 174,442 --
Changes in assets and liabilities:
(Increase) in accounts receivable (431,600) (10,433)
Decrease in prepaids 15,514 (743)
(Increase) decrease in deposits (20,578) --
Increase (decrease) in accounts payable and
related party payables 73,990 (227,849)
Increase in accrued expenses 261,974 14,290
-------------- --------------
Net Cash Used by Operating Activities (1,530,543) (1,472,673)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (84,935) (24,298)
-------------- --------------
Net Cash Used by Investing Activities (84,935) (24,298)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 366,459 80,000
Payments on notes payable (58,089) (15,000)
Proceeds from related party notes payable 200,000 --
Payments on related party payable -- (15,758)
Common stock issued for cash 1,229,120 2,075,948
Proceeds from subscription receivable -- 50,000
Stock offering costs -- (27,500)
-------------- --------------
Net Cash Provided by Financing Activities 1,737,490 2,147,690
-------------- --------------
NET INCREASE IN CASH 122,012 650,719
CASH AT BEGINNING OF PERIOD 265,259 55,296
-------------- --------------
CASH AT END OF PERIOD $ 387,271 $ 706,015
============== ==============
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 Nine Months Ended
June 30,
2005 2004
-------------- --------------
CASH PAID FOR:
Interest $ 5,633 $ 4,925
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 $ 150,000 $ --
Warrants and options granted below market value $ -- $ 17,425
Common stock issued for line of credit $ 20,000 $ --
Warrants issued for line of credit and promissory note $ 174,452 $ --
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
ARADYME CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 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, and its quarterly report on Form
10-QSB for the quarterly period ended March 31, 2005, filed May 13,
2005. Operating results for the three and nine months ended June 30,
2005, are not necessarily indicative of the results that may be
expected for longer periods or the entire year.
NOTE 2 - MATERIAL EVENTS
a. Common Stock
In June 2005, the Company issued 800,000 shares of restricted common
stock for cash of $250,000 and subscriptions receivable of $150,000, or
$0.50 per share, to private investors, all of whom were existing
shareholders.
b. Line of Credit Agreement
In April 2005, the Company drew an additional $120,000 against its line
of credit. The line of credit is unsecured, has a one-year term and
interest at 15% per annum. 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.
c. Promissory Notes
On June 30, 2005, the Company borrowed $150,000 from one of its
stockholders. The promissory note is due on October 31, 2005, accrues
interest at a rate of 7% per annum, and is unsecured. As additional
consideration for the loan, the Company granted the lender a warrant to
purchase 150,000 shares of common stock with an exercise price of $0.75
per share, expiring in three years. On that date, the closing price for
the Company's common stock was $0.67 per share.
8
ARADYME CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2005 and September 30, 2004
NOTE 2 - MATERIAL EVENTS (continued)
c. Promissory Notes (continued)
On June 30, 2005, the Company borrowed $100,000 from one of its
directors and $100,000 from an affiliate of that director. The balances
of both loans, with accrued interest, were subsequently paid off in
July 2005. Both loans were due on August 15, 2005, bore interest at the
rate of 10% per annum, and were secured by the Company's accounts
receivable.
NOTE 3 - STOCK OPTIONS AND WARRANTS
a. Stock Options
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. In the
three-month period ended June 30, 2005, the Company granted options to
purchase a total of 370,000 shares of the Company's common stock at an
exercise price of $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 with an exercise price at the
fair value of the Company's common stock on the date of issue and no
compensation expense will be recognized.
A summary of the status of the Company's stock options and warrants as
of June 30, 2005, and September 30, 2004, and changes during the
nine-month period ended June 30, 2005, and the twelve-month period
ended September 30, 2004, is presented below:
June 30, 2005 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 3,498,000 0.69 390,384 0.81
Canceled (250,884) 0.99 -- --
Exercised (7,500) 0.42 -- --
-------------- --------------
Outstanding, end of period 7,935,000 $0.54 4,695,384 $0.45
-------------- --------------
Exercisable, end of period 6,288,500 $0.53 4,142,884 $0.46
-------------- --------------
9
ARADYME CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2005 and September 30, 2004
NOTE 3 - STOCK OPTIONS AND WARRANTS (continued)
a. Stock Options (continued)
Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Option Grant at 06/30/05 Life Price at 06/30/05 Price
------------ ----------- ---- ----- ----------- -----
Options--May 2002 1,000,000 1.84 $0.42 1,000,000 $0.42
Options--February 2003 325,000 1.84 0.50 325,000 0.50
Options--September 2003 2,965,000 7.08 0.42 2,532,500 0.42
Options--December 2003 150,000 4.43 0.50 75,000 0.50
Options--November 2004 2,025,000 9.35 0.64 1,218,500 0.64
Options--May 2005 370,000 9.85 0.80 37,500 0.80
Warrants--November 2004 200,000 1.38 0.80 200,000 0.80
Warrants--June 2005 900,000 3.00 0.75 900,000 0.75
---------- ----------
7,935,000 5.91 $0.54 6,288,500 $0.53
========== ==========
b. Warrants
In June 2005, the Company agreed to grant warrants to investors who
purchased shares of restricted stock in the Company in June 2005. The
warrants, exercisable for up to 750,000 shares of restricted common
stock, have three-year terms and are exercisable at $0.75 per share.
The market price on the day the parties agreed to purchase shares of
restricted stock and the day the warrants were granted was $0.67 per
share.
In June 2005, the Company agreed to grant warrants to a lender in
conjunction with a short-term promissory note. The warrants,
exercisable for up to 150,000 shares of restricted common stock, have a
three-year term and are exercisable at $0.75 per share. The market
price on the day the warrants were granted was $0.67 per share.
The Company estimated the fair value of warrants issued in conjunction
with debt agreements by using the Black-Scholes option pricing model
based on the following assumptions: Risk-free interest rate of 2.5%;
expected life of 3 years; expected volatility of 112%; and dividend
yield of 0.00%. Based on these assumptions, $66,655 was charged to
interest expense as the fair value of warrants granted in conjunction
with the short-term promissory note.
10
ARADYME CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2005 and September 30, 2004
NOTE 4 - 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 June 30, 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.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
We provide data management solutions based on our unique and
proprietary next-generation database management system. 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 revenues for the three- and
nine-month periods ended June 30, 2005, compared to the three- and nine-month
periods ended June 30, 2004, and for the quarter ended June 30, 2005, compared
to each of the prior quarters ended December 31, 2004 and March 31, 2005. We
attribute this increase in revenue to the completion of initial milestone
requirements on several of our existing contracts. Also, this significant
increase in revenue, and the resulting collections of payments from customers,
has allowed us to show a trend over the last four quarters of reducing cash used
by operating activities.
Since December 2004, we have successfully initiated data migration
activities on approximately 3,000 independent source systems. In June 2005, we
reached a significant milestone by successfully completing all of the
contractual requirements on one of our state voter registration data migration
contracts. This is the first state voter registration date migration contract
that we have taken from beginning to completion and then billed and collected
all final amounts due.
Because of the success we have achieved in these areas and our ability
to offer solutions regardless of virtually any source database or format, we
believe we will continue to attract additional contracts and strategic
alliances.
We are seeking to establish a reputation with our customers and the
industry for completing assignments on schedule. Management believes that our
unique and proprietary database technology and our eHarbor(tm) web portal
technology are differentiating factors that allow us to be more responsive to
users and enhance our visibility to potential complex data migration project
customers.
During the nine months ended June 30, 2005, we also formed a series of
alliances with major hardware, software and service integrators including:
Accenture, LLP (NYSE: ACN), Covansys (Nasdaq: CVNS), Maximus, Inc. (NYSE: MMS),
PCC Technology Group, REDCON and Unisys (NYSE: UIS). We intend to leverage the
strategic relationships we have to pursue additional data migration and data
integration opportunities at both the state and federal level, including
opportunities in areas such as motor vehicle registration, retirement benefits,
department of corrections, educational systems, and other government database
needs, although we have not yet secured any contracts in these areas. We have
also begun pursuing opportunities within the private sector in areas such as
energy/utility, customer relationship management, and enterprise resource
planning. Further, we continue to receive increasing numbers of requests to bid
on additional projects.
Because of the flexibility offered by our core database management
system technology, we are also able to pursue data migration and data
integration opportunities that we believe are outside the realm of other
providers' technological capabilities.
12
Liquidity and Capital Resources
As of June 30, 2005, we had a working capital deficit of $160,652, as
compared to working capital of $102,535 at September 30, 2004. As of June 30,
2005, we had an accumulated deficit of $6,044,914 and total stockholders' equity
of $40,110, as compared to an accumulated deficit of $4,258,292 and
stockholders' equity of $230,369 at 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 principally relied on proceeds from the sale
of securities and advances from related parties to fund our activities. During
the nine months ended June 30, 2005, we used $1,530,543 in cash for operating
activities and $84,935 for investing activities, which was provided by net cash
of $1,737,490 from financing activities, resulting in a $122,013 increase in
cash during the period. Financing activities provided cash of $1,229,120 from
the sale of restricted common stock and proceeds of $566,459 from notes payable.
We estimate that we may require approximately $2,000,000 additional
cash to fund our activities until revenues are sufficient to fund operations,
which we expect to take at least two additional fiscal quarters. Management
intends to obtain additional capital to continue the growth and expansion of our
operations principally through the sale of securities, although we have no
commitment from any person to acquire any such securities or to provide funding
through any other mechanism. Additional capital will be required in future
fiscal years if we are unable to generate sufficient revenues from our existing
solutions and services within our projected timeline. We may also seek capital
in the future to expand.
Results of Operations
In the quarter ended March 31, 2005, we reported our first quarter of
substantial revenues resulting from the completion of some initial requirements
on several of our existing contracts. During this same period, we also secured
and announced a contract to perform data conversion and migration services for
ista - North America, which is engaged in metering and billing of water and
energy consumption.
For the nine months ended June 30, 2005, our revenue was $808,770,
compared to $27,853 for the nine months ended June 30, 2004. Revenue for the
three months ended June 30, 2005, was $552,671, compared to $7,920 for the three
months ended June 30, 2004.
In order to fulfill the contracts we have signed since November 2004 as
well as support the commercialization of our products and services, we have also
expanded our employee base, which has resulted in a corresponding increase in
our payroll burden and employee benefits expenses compared to prior-year
comparable periods.
Our most significant operating expense is for employee and consultant
contract services with those providing technical and other services. And,
because we have also increased our efforts to bring our initial products to
market, increased our product development activity, and expanded our marketing
and sales activities in the government and the energy and utility markets, our
total operating expenses for the three- and nine-month periods ended June 30,
2005, increased by 53% and 79%, respectively, when compared to the three- and
nine-month periods ended June 30, 2004. Management expects that as we hire
additional employees to support the delivery of our solutions and services to
customers, we will also experience a corresponding increase in operational
expenditures.
13
Because we are still in the 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. We expect that our
operating expenses will continue to grow during the ongoing initial marketing
efforts, as increased sales will require additional expenditures for sales,
marketing and implementation activities. And, it may be some time before our
sales, marketing and implementation resources are capable of supporting
substantially expanded sales without subsequent increases in our operating
expenses.
Other income and expenses during the nine-month period ended June 30,
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
2004, interest accrued on borrowings and notes payable to finance insurance
premiums, and a net loss on disposal of assets. Interest expense increased from
$282 in the three-month period ended June 30, 2004, to $76,102 in the
three-month period ended June 30, 2005, primarily as a result of charging
interest expense $66,655, the deemed fair value of warrants, using the
Black-Scholes method, granted in exchange for a promissory note and short-term
loan. Interest expense increased from $50,132 in the nine months ended June 30,
2004, to $208,429 in the nine months ended June 30, 2005, mainly as a result of
expensing the valuation of the warrants associated with the line of credit that
was established in November 2004, and the additional short-term loan in June
2005. In the nine months ended June 30, 2005, we realized a net loss of $39,892
on the disposal of assets in conjunction with the relocation of our facilities
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 and custom
software development. Revenues from data 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:
14
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.
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, invoiced fees are due within 30
days. Payment terms extending beyond the contractually agreed upon
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 typically 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.
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.
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.
15
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 June 30, 2005, pursuant to Rule 13a-15(b) under the Securities Exchange Act.
Based upon that evaluation, our Certifying Officers concluded that, as of June
30, 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 June 30, 2005, we issued an aggregate of
800,000 shares of restricted common stock in the following transactions.
We sold an aggregate of 800,000 shares of restricted common stock to
six current shareholders for $250,000 in cash and a subscription receivable of
$150,000, or $0.50 per share. As part of this transaction, these investors were
granted an aggregate of 750,000 warrants, with three-year terms, to purchase
restricted common stock of the company for $0.75 per share. At the time of these
transactions, the closing market price for our common stock was $0.67 per share.
Each of these purchasers was an accredited investor and current shareholder,
completed a subscription agreement for purchase of the securities, was invited
to review periodic reports filed with the Securities and Exchange Commission,
and was provided with the opportunity to ask questions directly 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.
On June 20, 2005, we issued warrants to purchase 150,000 shares of
common stock as additional consideration for the grant of a loan from a
stockholder. See Item 5. Other Events. The warrants have a three-year term and
an exercise price of $0.75 per share. On that date, the closing market price for
our common stock was $0.67 per share.
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.
ITEM 5. OTHER EVENTS
On June 30, 2005, we borrowed $150,000 from one of our stockholders.
The promissory note is due on October 31, 2005, accrues interest at a rate of 7%
per annum, and is unsecured. As additional consideration for the loan, we
granted the lender a warrant to purchase 150,000 shares of common stock with an
exercise price of $0.75 per share, expiring in three years. On the grant date,
the closing market price for our common stock was $0.67 per share.
On June 30, 2005, we borrowed $100,000 from one of our directors and
$100,000 from an affiliate of that director. The balances of both loans, with
accrued interest, were subsequently paid off in July 2005. Both loans were due
on August 15, 2005, bore interest at the rate of 10% per annum, and were secured
by our accounts receivable.
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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 10 Material Contracts
- -------------- -------------------------------------------------- ------------
10.19 Form of Warrant issued June 2005 Attached
10.20 Promissory Note to EnviroFresh, Inc. dated Attached
June 30, 2005
10.21 Promissory Note to Merwin D. Rasmussen, PC, dated Attached
June 30, 2005
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. Omitted
numbers in the sequence refer to documents previously filed as an exhibit.
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: August 11, 2005 By James R. Spencer
----------------------------
James R. Spencer, Chairman
(Chief Executive Officer)
Date: August 11, 2005 By Scott A. Mayfield
----------------------------
Scott A. Mayfield
(Chief Financial Officer)
18