-----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, WZWn8NaybEpYAJHgUUG+XbaxmyK3gw/LDJsbtuKV6jsBUXXzRaD+hduu1ppNZYcs sEoTG+4ytuXzc8NbcwM6yw== 0001038838-06-000379.txt : 20060515 0001038838-06-000379.hdr.sgml : 20060515 20060515163323 ACCESSION NUMBER: 0001038838-06-000379 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060515 DATE AS OF CHANGE: 20060515 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: 06841824 BUSINESS ADDRESS: STREET 1: 1255 NORTH RESEARCH WAY STREET 2: SUITE Q 3500 CITY: OREM STATE: UT ZIP: 84097 BUSINESS PHONE: 801-705-5000 MAIL ADDRESS: STREET 1: 1255 NORTH RESEARCH WAY STREET 2: SUITE Q 3500 CITY: OREM STATE: UT ZIP: 84097 FORMER COMPANY: FORMER CONFORMED NAME: ALBION AVIATION INC DATE OF NAME CHANGE: 20000912 10QSB 1 q033106.txt 10-QSB ENDED MARCH 31, 2006 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, 2006 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 (I.R.S. Employer Identification No.) incorporation or organization) 1255 North Research Way, Suite Q3500 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 [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] 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 12, 2006, was 33,229,546. 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 March 31, 2006, our audited consolidated balance sheet at September 30, 2005, 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, 2006 and 2005, are attached hereto. 2
ARADYME CORPORATION AND SUBSIDIARY Consolidated Balance Sheets March 31, September 30, 2006 2005 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS Cash $ -- $ 84,485 Accounts receivable, net of allowance 262,646 335,499 Prepaid expenses 36,000 68,288 ------------- ------------- Total Current Assets 298,646 488,272 ------------- ------------- PROPERTY AND EQUIPMENT, NET 166,165 138,313 ------------- ------------- OTHER ASSETS Prepaid license fees 89,912 78,662 Deposits 21,580 21,580 ------------- ------------- Total Other Assets 111,492 100,242 ------------- ------------- TOTAL ASSETS $ 576,303 $ 726,827 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Cash overdraft $ 7,729 $ -- Accounts payable 147,668 134,147 Accrued expenses 480,084 347,940 Notes payable - related party 105,781 100,794 Notes payable 115,256 499,896 ------------- ------------- Total Current Liabilities 856,518 1,082,777 ------------- ------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT) 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, 32,229,546 and 25,229,546 shares issued and outstanding, respectively 32,230 25,230 Additional paid-in capital 7,645,237 6,209,794 Accumulated deficit (7,957,682) (6,590,974) ------------- ------------- Total Stockholders' Equity (Deficit) (280,215) (355,950) ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 576,303 $ 726,827 ============= ============= The accompanying notes are an integral part of these unaudited consolidated financial statements. 3
ARADYME CORPORATION AND SUBSIDIARY Consolidated Statements of Operations (Unaudited) For the Three Months Ended For the Six Months Ended March 31, March 31, ------------------------------ -------------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ REVENUES $ 265,736 $ 229,299 $ 467,891 $ 256,099 OPERATING EXPENSES Wages and payroll taxes 691,795 560,851 1,425,161 964,026 Contract services 64,286 90,447 112,355 321,237 Rent 37,378 22,159 60,711 37,832 Depreciation and amortization 18,585 7,844 36,153 15,923 Other operating expenses 92,777 104,621 178,483 157,053 ------------ ------------ ------------ ------------ Total Operating Expenses 904,821 785,922 1,812,863 1,496,071 ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS (639,085) (556,623) (1,344,972) (1,239,972) OTHER INCOME (EXPENSE) Interest expense (5,448) (2,313) (21,736) (132,427) Loss on disposal of assets -- (39,892) -- (39,892) ------------ ------------ ------------ ------------ Total Other Expense (5,448) (42,205) (21,736) (172,319) ------------ ------------ ------------ ------------ NET LOSS $ (644,533) $ (598,828) $ (1,366,708) $ (1,412,291) ============ ============ ============ ============ BASIC LOSS PER SHARE $ (0.02) $ (0.02) $ (0.05) $ (0.06) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 31,367,324 24,201,063 28,838,887 23,832,510 ============ ============ ============ ============ The accompanying notes are an integral part of these unaudited consolidated financial statements. 4
ARADYME CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended March 31, 2006 2005 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (1,366,708) $ (1,412,291) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 36,153 15,923 Loss on disposal of assets -- 39,892 Common stock issued for services -- 96,000 Common stock issued for line of credit -- 20,000 Warrants issued for line of credit -- 107,787 Changes in assets and liabilities: Decrease (Increase) in accounts receivable 72,853 (133,374) Decrease in prepaids 21,038 4,399 (Increase) in deposits -- (20,578) Increase in accounts payable and related party payables 13,522 42,278 Increase in accrued expenses 132,145 119,938 (Decrease) in interest payable (11,030) -- ------------- ------------- Net Cash Used by Operating Activities (1,102,027) (1,120,026) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (64,005) (60,024) ------------- ------------- Net Cash Used by Investing Activities (64,005) (60,024) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from related-party notes payable 370,000 -- Payments on related-party notes payable (370,000) -- Proceeds from notes payable 100,000 96,459 Payments on notes payable (268,625) (44,464) Cash overdraft 7,729 -- Common stock issued for cash 1,300,000 964,120 Offering costs (57,557) -- ------------- ------------- Net Cash Provided by Financing Activities 1,081,547 1,016,115 ------------- ------------- NET (DECREASE) IN CASH (84,485) (163,935) CASH AT BEGINNING OF PERIOD 84,485 265,259 ------------- ------------- CASH AT END OF PERIOD $ -- $ 101,324 ============= ============= The accompanying notes are an integral part of these unaudited consolidated financial statements. 5
ARADYME CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows (Continued) (Unaudited) For the Six Months Ended March 31, 2006 2005 ------------- ------------- CASH PAID FOR: Interest $ 4,860 $ 3,686 Income taxes $ -- $ -- NON-CASH TRANSACTIONS: Common stock issued for conversion of debt $ 200,000 $ -- Common stock issued for services $ -- $ 96,000 Common stock issued for subscription receivable $ -- $ 15,000 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. 6
ARADYME CORPORATION AND SUBSIDIARY Notes to the Consolidated Financial Statements March 31, 2006 and September 30, 2005 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, 2005, filed January 13, 2006. Operating results for the three and six months ended March 31, 2006, 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 February and March 2006, the Company received $300,000 in cash from Eagle Rock Capital, LLC, as payment toward the second tranche of the Stock Purchase Agreement entered into on December 12, 2005, between Eagle Rock Capital, LLC, and the Company. Based on the partial funding of this tranche, 1,500,000 shares of common stock are considered issuable to this investor and are included on the balance sheet as shares issued and outstanding. Full payment was received on this $500,000 funding tranche and a cumulative 2,500,000 shares of common stock have been now issued to this investor per the terms of the Stock Purchase Agreement. See Note 4 - Subsequent Events. b. Promissory Notes In February 2006, the Company borrowed $100,000 from a stockholder, evidenced by an unsecured promissory note with a one-month term, interest at 12% per annum, and a 1% origination fee. The Company is in the process of renegotiating the payment terms of the note. 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, 2006, the Company did not grant any options or warrants to purchase shares of the Company's common stock. 7 ARADYME CORPORATION AND SUBSIDIARY Notes to the Consolidated Financial Statements March 31, 2006 and September 30, 2005 NOTE 3 - STOCK OPTIONS AND WARRANTS (continued) A summary of the status of the Company's stock options and warrants as of March 31, 2006, and September 30, 2005, and changes during the six-month period ended March 31, 2006, and the twelve-month period ended September 30, 2005, is presented below:
March 31, 2006 September 30, 2005 ----------------------------- ----------------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price -------------- ----------- ------------- ------------ Outstanding, beginning of period 8,525,500 $0.45 4,695,384 $0.45 Granted 5,000,000 0.50 4,210,000 0.66 Canceled -- -- (372,384) 0.92 Exercised -- -- (7,500) 0.42 ---------- --------- Outstanding, end of period 13,525,500 $0.52 8,525,500 $0.54 ========== ========= Exercisable, end of period 11,772,500 $0.52 6,492,500 $0.52 ========== ========= Weighted average fair value of options and warrants granted during the period $0.21 $0.56 Outstanding Exercisable ------------------------------------------- ------------------------------- Weighted Weighted Number Remaining Average Number Average Outstanding Contractual Exercise Exercisable Exercise Exercise Price at 3/31/06 Life Price at 3/31/06 Price - -------------- ---------- ----------- -------- ----------- -------- Stock Options - $ 0.42 3,965,000 5.01 $0.42 3,748,750 $0.42 $ 0.48 712,000 9.39 0.48 - - $ 0.50 475,000 1.80 0.50 437,500 0.50 $ 0.64 2,025,000 8.59 0.64 1,461,250 0.64 $ 0.80 248,500 9.10 0.80 25,000 0.80 ----------- ----------- Total Outstanding Options 7,425,500 6.35 $0.50 5,672,500 $0.48 =========== =========== Warrants - $ 0.75 900,000 2.25 $0.75 900,000 $0.75 $ 0.80 200,000 0.62 0.80 200,000 0.80 $ 0.50 5,000,000 4.70 0.50 5,000,000 0.50 ----------- ----------- Total Outstanding Warrants 6,100,000 4.20 0.55 6,100,000 $0.55 =========== =========== Total Outstanding Options and Warrants 13,525,500 5.38 $0.52 11,772,500 $0.52 =========== ===========
8 ARADYME CORPORATION AND SUBSIDIARY Notes to the Consolidated Financial Statements March 31, 2006 and September 30, 2005 NOTE 4 - SUBSEQUENT EVENTS On April 17, 2006, the Company revised and restated the terms of the investment agreements signed on December 12, 2005, between the Company and Eagle Rock Capital, LLC. Under the revised agreement, the Company has agreed to sell to Eagle Rock Capital, in a series of tranches, up to 15,000,000 shares of common stock at $0.20 per share and warrants to purchase up to an additional 18,750,000 shares of common stock with exercise prices of $0.40 per share. The warrant to purchase 5,000,000 shares issued December 12, 2005, has been canceled and replaced with a warrant to purchase 5,000,000 shares under the revised and restated agreement. All of the warrants are exercisable any time on or after December 12, 2006, and expire on December 12, 2011. At that time, $500,000 provided by Eagle Rock Capital were applied to fund the second tranche under the revised and restated agreement. If the remaining tranches are fully funded, the Company will receive an aggregate $3,000,000 without regard to any additional amounts that would be received if any of the warrants are exercised. The agreement obligates the Company to file a registration statement with the Securities and Exchange Commission, within 30 days after its certificate of incorporation is amended to increase its capitalization from 50,000,000 shares of common stock to 100,000,000 shares of common stock, registering the resale of both the shares of common stock and the shares of common stock issuable upon the exercise of the warrants acquired under the agreement as well as certain other shares designated by Eagle Rock Capital. The agreement also provides Eagle Rock Capital with a right of first refusal to provide additional equity financing for a period of 18 months after the closing date. 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 at least $3,000,000 through private placement of its preferred and/or common stock to sustain operations until revenues are sufficient to cover costs. 9 ARADYME CORPORATION AND SUBSIDIARY Notes to the Consolidated Financial Statements March 31, 2006 and September 30, 2005 NOTE 5 - GOING CONCERN (continued) In December 2005, the Company executed an agreement to secure at least $1.0 million in new equity financing from an affiliated investor, with provisions for the affiliated investor to provide $2.0 million in additional equity financing through the purchase of additional common stock. Additional funds may be provided through the exercise of warrants granted under the agreement. That agreement was revised and restated in April 2006, at which time the investor provided an additional $500,000. Even if the balance of $1.5 million is funded under the agreement however, the Company also anticipates that it may require additional capital in the future to meet its ongoing cash requirements until it is able to generate sufficient revenues from the commercialization of its technology and delivery of its services to fund its anticipated operations and expansion. However, management cannot provide any assurances that the Company will be successful in accomplishing any of these 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, 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 provide data management solutions and services based on our unique database management system, or DBMS, the proprietary base development platform from which we derive our solutions, services, and additional technology products. Our principal products and services include data migration/conversion services, data integration solutions, and application development, together with the training and support services associated with the delivery of these products and services. Some of our initial revenue-producing business activities using our DBMS technology have included custom database application development, large-scale data migrations/conversions, and data integration projects. Due to the versatility and capability of our products and services, we are currently working to exploit revenue opportunities related to data migration/conversion and data integration, and plan to continue to commercialize our technologies and expand our solutions into additional areas as our capital and internally-generated funds permit. 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 trends in our financial performance are the increases in our revenue and expenses for the three- and six-month periods ended March 31, 2006, compared to the three- and six-month periods ended March 31, 2005. These 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. At the same time, however, management notes that these revenues are lower than management expected due to delays and cancellations in projects for which we have been contracted to provide solutions. We believe that completion of further requirements on continuous projects will result in more significant revenue in the following several quarters. 10 During the six-month period ending March 31, 2006, we successfully completed the delivery of our technology solutions on three of the initial data migration projects for which we initially contracted and are now nearing completion on several others. Since September 2004, we have initiated data migration activities from approximately 3,000 independent sources which, we believe, establishes us and our technology as a recognizable provider of migration and conversion solutions. We also feel that the successes we have experienced in providing our technology, systems, and processes 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 our technology is 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. As evidenced by the subcontract agreement that we recently signed to provide data migration/conversion services to support the implementation of the State of Nevada's "Offender Tracking Information System," our technology enables us to evaluate and pursue potential contracts and data migration projects in many areas including: (1) addressing state and federal initiatives such as department of corrections, motor vehicle registration, retirement benefits, "no child left behind" and other governmental database needs within the public sector, and (2) a wide scope of data migration projects within the private sector. Results of Operations - --------------------- Our net loss decreased from $1,412,291 in the six-month period ended March 31, 2005, to $1,366,708 in the six-month period ended March 31, 2006; and increased from $598,828 in the three-month period ended March 31, 2005, to $644,533 in the three-month period ended March 31, 2006. We expect that as revenue increases, expenses will not increase at the same rate; therefore, we anticipate improvement in the net loss for future periods. Our revenues increased 83%, from $256,099 in the six-month period ended March 31, 2005, to $467,891 in the six-month period ended March 31, 2006; and increased 16%, from $229,299 for the three months ended March 31, 2005, to $265,736 for the three months ended March 31, 2006. Our revenue from the commercialization of our database management system is not yet adequate to cover our operating expenses, but has grown significantly over the prior year. Management has focused much of our sales and marketing resources on the development of relationships and new sales leads. Revenue in the recent six- and three-month periods was lower than management expected due to delays, and some cancellations, in several of the projects for which we have been contracted to provide solutions. Future revenue increases will be dependent on our ability to attract new contracts and to deliver acceptable work according to the terms of the contracts, however management expects 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. The major elements of our operating expenses are employee costs and consultant contract charges for those providing technical and other services. To support the commercialization of our products and services, to deliver our solutions on contracts that have been signed, and to further the development of our technology offerings, we expanded our staff compared to the three- and six-month periods ended March 31, 2005. Total operating expenses for the three- and six-month periods ending March 31, 2006, increased by 15% and 21% respectively, when compared to the three- and sixth-month periods ended March 31, 2005, 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 growth in data migration/conversion and data integration services, although management does not anticipate that the operating expenses will grow at the same rate as projected revenue increases. 11 Our early stage of business development makes revenue and operating expense comparisons between various interim periods difficult, and they may not be indicative of expected future results of operations. Generally, we expect that operating expenses will grow somewhat to support our ongoing marketing efforts, and that to increase sales we will need to make 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, 2006, includes interest accrued on borrowings and notes payable to finance insurance premiums. Interest expense decreased from $132,427 in the six-month period ended March 31, 2005, to $21,736 in the six-month period ended March 31, 2006. However interest in the six-month period ended March 31, 2005, included $107,787 of noncash expense derived from the valuation of warrants associated with a line of credit arranged during that three-month period. Liquidity and Capital Resources - ------------------------------- As of March 31, 2006, we had a working capital deficit of $557,872, as compared to a working capital deficit of $594,505 as of September 30, 2005. At March 31, 2006, we had an accumulated deficit of $7,957,682 and total stockholders' deficit of $280,215, compared to an accumulated deficit of $6,590,974 and stockholders' deficit of $355,950 at September 30, 2005. The auditors' report for the year ended September 30, 2005, 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, 2006, we used $1,102,027 in cash for operating activities and $64,005 for investing activities, which was provided by net cash of $1,081,547 from financing activities, resulting in an $84,485 decrease in cash during the period. Financing activities provided cash of $1,300,000 from the sale of restricted common stock and proceeds of $470,000 from notes payable. We estimate that we will require approximately an additional $3,000,000 in cash, which we have sought to obtain principally through the sale of securities, to fund our activities until revenues are sufficient to cover costs. In December 2005, we executed an agreement to secure at least $1,000,000 in new equity financing from an affiliated investor, with provisions for the investor to provide up to $2,000,000 in additional equity financing through the purchase of additional common stock, in tranches, between now and March 2007. This agreement was revised and restated in April 2006 to provide for earlier funding, and an additional $500,000 was provided to us under the agreement. Additional funds may also be provided through the exercise of warrants granted under this agreement. 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. 12 Other Items - ----------- We have reviewed 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. On December 16, 2004, the Financial Accounting Standards Board, or FASB, published its Statement of Financial Accounting Standards, or SFAS, No. 123 (Revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R are effective beginning with the first interim or annual reporting period of the first fiscal year beginning on or after December 15, 2005. Accordingly, we will implement the revised standard in the first quarter of fiscal year 2007. Currently, we account for our share-based payment transactions under the provisions of Accounting Principles Board, or APB, Opinion 25, by making pro forma disclosures of net loss and loss per share as if the fair value method of valuing stock options had been applied to employee stock options. Management is assessing the implications of this revised standard and believes that the adoption of SFAS 123R could have a significant impact on our financial position, results of operations, or cash flow. In May 2005, FASB issued SFAS No. 154, "Accounting Changes and Error Corrections-a Replacement of APB Opinion No. 20 and FASB Statement No. 3." This statement requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. This pronouncement was effective December 15, 2005. Currently, we have not made any changes in accounting principles; therefore, the adoption of SFAS No. 154 will not impact our 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. 13 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. 14 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. 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, 2006, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of March 31, 2006, 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. 15 PART II--OTHER INFORMATION ITEM 6. EXHIBITS The following exhibits are filed as a part of this report:
Exhibit Number* Title of Document Location - ---------------- ---------------------------------------------------- -------------------------------------------- Item 10 Material Contracts - ---------------- ---------------------------------------------------- -------------------------------------------- 10.29 Revised and Restated Stock Purchase Agreement Incorporated by reference from the current between Aradyme Corporation and Eagle Rock report on Form 8-K dated April 17, 2006, Capital, LLC, dated April 17, 2006 filed April 19, 2006. 10.30 Revised and Restated Registration Rights Agreement Incorporated by reference from the current between Aradyme Corporation and Eagle Rock report on Form 8-K dated April 17, 2006, Capital, LLC, dated April 17, 2006 filed April 19, 2006. 10.31 Form of Warrant To Purchase Shares of Common Stock Incorporated by reference from the current (to be issued pursuant to Revised and Restated report on Form 8-K dated April 17, 2006, Stock Purchase Agreement between Aradyme filed April 19, 2006. Corporation and Eagle Rock Capital, LLC, effective December 12, 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. 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 15, 2006 By /s/ James R. Spencer ---------------------------- James R. Spencer, Chairman (Chief Executive Officer) Date: May 15, 2006 By /s/ Scott A. Mayfield --------------------------- Scott A. Mayfield (Chief Financial Officer) 16 EX-31.01 2 ex3101q033106.txt RULE 13A-14(A)/15D-14(A) CERTIFICATIONS 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: May 15, 2006 /s/ James R. Spencer - ----------------------------- James R. Spencer Principal Executive Officer EX-31.02 3 ex3102q033106.txt RULE 13A-14(A)/15D-14(A) CERTIFICATIONS 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: May 15, 2006 /s/ Scott A. Mayfield - ---------------------------- Scott A. Mayfield Principal Financial Officer EX-32.01 4 ex3201q033106.txt SECTION 1350 CERTIFICATIONS 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 March 31, 2006, 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 May 15, 2006 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 ex3202q033106.txt SECTION 1350 CERTIFICATIONS 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 March 31, 2006, 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 May 15, 2006 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-----