-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C8Ki62BYB+foFaRKEiRXWukGevP662HLjLZxZXLe3Al41/0ZMYBnjF2mrOQSZ7Ti HgF+rQYE6JDezRWgubS29Q== 0001038838-05-000203.txt : 20050214 0001038838-05-000203.hdr.sgml : 20050214 20050214151254 ACCESSION NUMBER: 0001038838-05-000203 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050214 DATE AS OF CHANGE: 20050214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARADYME CORP CENTRAL INDEX KEY: 0001123580 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 330619254 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-50038 FILM NUMBER: 05608835 BUSINESS ADDRESS: STREET 1: 1255 NORTH RESEARCH WAY STREET 2: BUILDING Q CITY: OREM STATE: UT ZIP: 84097 BUSINESS PHONE: 801-705-5000 MAIL ADDRESS: STREET 1: 1255 NORTH RESEARCH WAY STREET 2: BUILDING Q CITY: OREM STATE: UT ZIP: 84097 FORMER COMPANY: FORMER CONFORMED NAME: ALBION AVIATION INC DATE OF NAME CHANGE: 20000912 10QSB 1 q123104.txt 10-QSB ENDED DECEMBER 31, 2004 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 ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 33-0619254 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1255 North Research Way, Building Q Orem, Utah 84097 ---------------------------------------- (Address of principal executive offices) (801) 705-5000 -------------------------- (Issuer's telephone number) n/a ---------------------------------------------------- (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 ------------- ------------- (Unaudited) CURRENT ASSETS Cash $ 208,203 $ 265,259 Accounts receivable 34,460 29,260 Prepaid expenses 74,049 66,917 ------------- ------------- Total Current Assets 316,712 361,436 ------------- ------------- PROPERTY AND EQUIPMENT, NET 89,869 89,212 ------------- ------------- OTHER ASSETS Prepaid license fees 44,912 33,662 Deposits 26,540 4,960 ------------- ------------- Total Other Assets 71,452 38,622 ------------- ------------- TOTAL ASSETS $ 478,033 $ 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 December 31, September 30, 2004 2004 ------------- ------------- (Unaudited) CURRENT LIABILITIES Accounts payable $ 85,747 $ 33,779 Accrued expenses 80,126 172,622 Notes payable 44,667 52,500 ------------- ------------- Total Current Liabilities 210,540 258,901 ------------- ------------- 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, 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) ------------- ------------- Total Stockholders' Equity 267,493 230,369 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 478,033 $ 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 December 31, -------------------------------- 2004 2003 ------------- ------------- 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 ------------- ------------- Total Operating Expenses 710,148 260,181 ------------- ------------- LOSS FROM OPERATIONS (683,348) (243,181) OTHER INCOME (EXPENSE) Interest expense (130,115) (24,461) ------------- ------------- Total Other Income (Expense) (130,115) (24,461) ------------- ------------- NET LOSS $ (813,463) $ (267,642) ------------- ------------- BASIC LOSS PER SHARE $ (0.03) $ (0.02) ============= ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 23,471,970 15,386,312 ============= ============= 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 ------------- ------------- 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 - - ------------- ------------- Net Cash Used by Operating Activities (590,486) (250,756) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (8,737) - ------------- ------------- Net Cash Used by Investing Activities (8,737) - ------------- ------------- 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 ------------- ------------- Net Cash Provided by Financing Activities 542,167 284,720 ------------- ------------- NET (DECREASE) INCREASE IN CASH (57,056) 33,964 CASH AT BEGINNING OF PERIOD 265,259 55,296 ------------- ------------- CASH AT END OF PERIOD $ 208,203 $ 89,260 ============= ============= 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 ------------- ------------- 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 - - - - ---------- ---------- Outstanding, end of period 6,675,500 $ 0.50 4,695,384 $ 0.45 ---------- ---------- Exercisable, end of period 5,355,000 $ 0.49 4,142,884 $ 0.46 ---------- ---------- Outstanding Exercisable -------------------------------------------- --------------------------- 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 --------- --------- 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 16 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. 17 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. 18 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) 19 EX-31.01 2 ex3101q123104.txt CEO CERTIFICATION REQUIRED UNDER SECTION 302 Exhibit 31.01 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14 I, James R. Spencer, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Aradyme Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: February 14, 2005 /s/ James R. Spencer - ----------------------------- James R. Spencer Principal Executive Officer EX-31.02 3 ex3102q123104.txt CFO CERTIFICATION REQUIRED UNDER SECTION 302 Exhibit 31.02 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14 I, Scott A. Mayfield, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Aradyme Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: February 14, 2005 /s/ Scott A. Mayfield - ------------------------------ Scott A. Mayfield Principal Financial Officer EX-32.01 4 ex3201q123104.txt CEO CERTIFICATION REQUIRED UNDER SECTION 906 Exhibit 32.01 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Aradyme Corporation (the "Company") on Form 10-QSB for the quarter ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James R. Spencer, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ James R. Spencer - ---------------------------- James R. Spencer Chief Executive Officer February 14, 2005 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.02 5 ex3202q123104.txt CFO CERTIFICATION REQUIRED UNDER SECTION 906 Exhibit 32.02 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Aradyme Corporation (the "Company") on Form 10-QSB for the quarter ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Scott A. Mayfield, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Scott A. Mayfield - --------------------------- Scott A. Mayfield Chief Financial Officer February 14, 2005 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----