<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
_ _ _ SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
_ _ _ SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 0-21059
ACE*COMM CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1283030
- ----------------------------------- -------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
704 Quince Orchard Road, Gaithersburg, MD 20878
- -------------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
301-721-3000
- ----------------------------------------------------
(Registrant's telephone number, including area code)
209 Perry Parkway, Gaithersburg, MD 20877
- --------------------------------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
--- ---
Number of shares of Common Stock outstanding as of January 31, 1997: 7,898,066
-1-
<PAGE>
ACE*COMM CORPORATION
INDEX
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1996
(Unaudited) and June 30, 1996 3
Consolidated Statements of Operations (Unaudited) for the
Three and Six Months Ended December 31, 1996 and 1995 4
Consolidated Statements of Stockholder's Equity as of
December 31, 1996 (Unaudited) and June 30, 1996 5
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended December 31, 1996 and 1995 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
-2-
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
ACE*COMM CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1996 1996
------------ ----------
<S> <C> <C>
Assets
Current assets:
Cash $ 7,060,208 $ 369,206
Accounts receivable, less $10,000 allowance 9,372,293 8,643,871
Inventories 2,074,359 1,836,317
Prepaid expenses and other 720,203 283,813
---------- -----------
Total current assets 19,227,063 11,133,207
Property and equipment, net 1,867,345 1,305,844
Capitalized software development costs, net 1,827,042 1,393,067
Other assets 119,003 466,268
---------- -----------
Total assets $23,040,453 $14,298,386
---------- -----------
---------- -----------
Liabilities and Stockholders' Equity
Current liabilities:
Current borrowings $ 255,429 $ 2,097,178
Accounts payable 766,127 3,122,212
Accrued expenses 411,992 1,036,684
Accrued compensation 1,104,219 1,010,922
Officer loan - 78,572
Income taxes payable 266,418 -
Deferred revenue 692,141 1,890,103
---------- -----------
Total current liabilities 3,496,326 9,235,671
Noncurrent borrowings 404,047 2,951,541
---------- -----------
Total liabilities 3,900,373 12,187,212
---------- -----------
Mandatorily redeemable Class C Preferred Stock, $5.14 par
value, 340,211 shares authorized, issued and outstanding - 2,261,627
---------- -----------
Contingencies
Stockholders' equity (deficit)
Class B Preferred Stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding - 1,000
Common stock, $.01 par value, 45,000,000 shares authorized,
7,898,066 and 3,590,451 shares issued and outstanding 78,981 35,905
Additional paid-in capital 18,428,149 343,124
Retained Earnings/(Accumulated deficit) 632,950 (530,482)
---------- -----------
Total stockholders' equity (deficit) 19,140,080 (150,453)
---------- -----------
Total liabilities, mandatorily redeemable preferred stock
and stockholders' equity (deficit) $23,040,453 $ 14,298,386
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
ACE*COMM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue - products and services $7,256,995 $4,772,434 $13,520,898 $8,205,072
Cost of products and services 3,211,329 2,736,224 6,107,236 4,471,815
----------- ----------- ----------- ----------
Gross margin 4,045,666 2,036,210 7,413,662 3,733,257
Selling, general and administrative 2,779,647 1,609,951 5,156,225 2,972,186
Research and development 467,650 234,967 866,245 366,699
----------- ----------- ----------- ----------
Total cost and operating expenses 6,458,626 4,581,142 12,129,706 7,810,700
----------- ----------- ----------- ----------
Income from operations 798,369 191,292 1,391,192 394,372
Interest (income) expense, net (92,525) 97,219 (38,658) 200,907
----------- ----------- ----------- ----------
Income before income taxes 890,894 94,073 1,429,850 193,465
Income taxes 266,418 - 266,418 -
----------- ----------- ----------- ----------
Net income $ 624,476 $ 94,073 $1,163,432 $ 193,465
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Income per share (pro forma for all periods except
three months ended December 31, 1996) $.07 $.02 $.14 $.03
Shares used in computing income per share 8,972,023 5,792,290 8,098,759 5,715,968
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
ACE*COMM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Retained
-------------------- ------------------- Add'l Stock Earnings
Par Par Paid-in Subscrip. (Accum
Shares Value Shares Value Capital Receivable Deficit) Total
---------- ------- ---------- ------ --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 1,000 $1,000 3,261,245 $32,612 $446,789 $ - $2,508 $482,909
Accretion of preferred stock
dividends - - - - (139,894) - - (139,894)
Exercise of common stock
options - - 36,000 360 12,980 (5,900) - 7,440
Net loss for the year ended
June 30, 1995 - - - - - - (1,592,646) (1,592,646)
----- ------ --------- ------- -------- -------- ----------- ---------
Balance, June 30, 1995 1,000 1,000 3,297,245 32,972 319,875 (5,900) (1,590,138) (1,242,191)
Accretion of preferred stock
dividends - - - - (139,894) - - (139,894)
Exercise of common stock
options - - 293,206 2,933 163,143 (117,232) - 48,844
Payment of stock subscriptions
receivable - - - - - 123,132 - 123,132
Net income for the year ended
June 30, 1996 - - - - - - 1,059,656 1,059,656
----- ------ --------- ------- -------- -------- ----------- ---------
Balance, June 30, 1996 1,000 1,000 3,590,451 35,905 343,124 - (530,482) (150,453)
Accretion of preferred stock
dividends (Unaudited) - - - - (17,487) - - (17,487)
Conversion of preferred stock
Class C (Unaudited) - - 1,530,950 15,310 2,263,804 - - 2,279,114
Redempton of preferred stock
Class B (Unaudited) (1,000) (1,000) - - (307,000) - - (308,000)
Issuance of common stock
(Unaudited) - - 2,645,000 26,450 16,107,832 - - 16,134,282
Exercise of common stock
options (Unaudited) - - 151,945 1,519 293,627 - - 295,146
Repurchase and retirement
of common stock (Unaudited) - - (20,280) (203) (255,751) - - (255,954)
Net income for the period ended
December 31, 1996 (Unaudited) - - - - - - 1,163,432 1,163,432
----- ------ --------- ------- ----------- -------- ----------- ---------
Balance, December 31, 1996
(Unaudited) - $ - 7,898,066 $78,981 $18,428,149 $ - $632,950 $19,140,080
----- ------- --------- ------- ----------- -------- ----------- --------------
----- ------- --------- ------- ----------- -------- ----------- --------------
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
ACE*COMM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
December 31,
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,163,432 $ 193,465
Adjustments to reconcile net income to net cash (used for)
provided by operating activities
Depreciation 174,784 135,375
Amortization of capitalized software 281,126 256,120
Changes in operating assets and liabilities
Accounts receivable (728,422) (1,220,905)
Inventories (238,042) (33,244)
Other assets (89,125) (131,973)
Accounts payable (2,356,085) 1,511,339
Accrued expenses (624,692) 365,573
Accrued compensation 93,297 -
Income taxes payable 266,418 -
Deferred revenue (1,197,962) (579,244)
------------ -----------
Net cash (used for) provided by operating activities (3,255,271) 496,506
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (516,999) (79,464)
Additions to capitalized software development costs (715,101) (270,760)
------------ -----------
Net cash used for investing activities (1,232,100) (350,224)
------------ -----------
Cash flows from financing activities:
Net decrease in line of credit (4,446,563) -
Other borrowings - 335,854
Payments on debt (237,671) (700,112)
Principal payments under capital lease obligation (2,867) -
Net proceeds from common stock issued 16,134,282 31,623
Exercise of common stock options 295,146 -
Repurchase and retirement of common stock (255,954) -
Redemption of class B preferred shares (308,000) -
------------ -----------
Net cash provided by (used for) financing activities 11,178,373 (332,635)
------------ -----------
Net increase (decrease) in cash 6,691,002 (186,353)
Cash at beginning of period 369,206 189,903
------------ -----------
Cash at end of period $ 7,060,208 $ 3,550
------------ -----------
------------ -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 135,588 $ 200,907
------------ -----------
------------ -----------
Supplemental schedule of non cash financing
activities:
Accretion of preferred stock dividends $ 17,487 $ 69,947
Purchase of telephone equipment under capital lease obligation $ 222,153 $ -
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
ACE*COMM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of ACE*COMM Corporation and its subsidiaries (the "Company"). The
financial statements have been prepared by ACE*COMM Corporation ("ACE*COMM"
or the "Company") in accordance with generally accepted accounting principles
for interim financial statements and pursuant to the rules of the Securities
and Exchange Commission for Form 10-Q. Accordingly, certain information and
footnotes required by generally accepted accounting principles for complete
financial statements have been omitted. It is the opinion of management that
all adjustments considered necessary for a fair presentation have been
included, and that all such adjustments are of a normal and recurring nature.
Operating results for the periods presented are not necessarily indicative
of the results that may be expected for any future periods. For further
information, refer to the audited financial statements and footnotes included
in the Company's Registration Statement, Form S-1.
Pro forma income per share is computed using the weighted average number
of shares of common stock, adjusted for the dilutive effect of common stock
equivalent shares of common stock options and assuming the
conversion of redeemable preferred stock as of the beginning of
the period presented. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common stock and common stock equivalent shares
issued by the Company at prices below its initial public offering price
during the twelve month period prior to the initial public offering date
(using the treasury stock method and an offering price of $7.00 per share)
have been included in the calculation of pro forma income per share for the
three and six months ended December 31, 1996, as if they were outstanding for
all of the period regardless of whether they are dilutive.
Initial Public Offering
On August 13, 1996, in connection with the Company's initial public
offering, 2,875,000 shares of Common Stock, 2,645,000 of which were offered
by the Company, were sold at $7.00 per share. The net proceeds raised by the
Company totaled $17,218,950.
The Mandatorily Redeemable Class C Preferred Stock was automatically
converted into Common Stock upon the completion of the Company's public
offering. No dividends were payable with respect to the converted shares.
On August 28, 1996, the Company redeemed the Class B Preferred Stock for
$308,000 in accordance with such terms requiring redemption upon transfer of
substantially all assets or of majority control of the Company.
Funds generated by the Company's initial public stock offering afforded
the opportunity to reduce bank and other debt obligations by $5.3 million.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
ACE*COMM Corporation ("ACE*COMM" or the "Company") develops, markets and
services operations support systems ("OSS") products for networks deployed by
telecommunications service providers, such as telephone companies, other
public carriers and large enterprises operating data and voice networks. The
Company's products perform such functions as billing data collection, network
surveillance, alarm processing and network management for some of the largest
carriers and enterprises in the world.
The Company sells its products through direct channels and through its
strategic alliance partners, for delivery to end users in the United States
and internationally. Since June 1994, the Company, consistent with its
strategic emphasis, has derived most of its revenue from sales of its carrier
network products. The Company expects such sales to increase as a percentage
of its revenue for at least the next several years. The balance of the
Company's revenue is derived from the sale of network management products to
enterprise customers, including the armed forces and agencies of the U.S.
government.
Substantially all of the Company's revenue derives from dollar-denominated
sales and, although the Company in its most recent fiscal years has had
significant sales to foreign end users, it does not have significant foreign
operations. The Company maintains no inventory abroad, shipping all products
from the United States pursuant to terms of orders issued by customers.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
on the Company's statement of operations as a percentage of revenue:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
-------------------------- ------------------------
1996 1995 1996 1995
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue - products and services 100.0% 100.0% 100.0% 100.0%
Costs and operating expenses:
Cost of products and services 44.3% 57.3% 45.2% 54.5%
Selling, general and administrative 38.3% 33.8% 38.1% 36.2%
Research and development 6.4% 4.9% 6.4% 4.5%
------------ ------------ ----------- -----------
Income from operations 11.0% 4.0% 10.3% 4.8%
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
REVENUES
Revenues for the quarter ended December 31, 1996 were $7.3 million, an
increase of $2.5 million, or 52.1%, over the comparable quarter in fiscal
1996. Revenues for the six months ended December 31, 1996 were $13.5
million, which represents an increase of 64.8%, as compared to $8.2 million
of revenue for the six months ended December 31, 1995. The increase in
revenues is primarily attributable to an increase in sales volume of the
Company's carrier network products to Telefonos de Mexico S.A. de C.V.
("TELMEX") and ICL Enterprises as well as the Company's network management
products to GeoPhone Company, L.L.C. and WinStar Telecommunications Group.
Second quarter carrier network revenues grew 57.6% over the December 1995
quarter and represented 79.3% of the total quarterly revenue, compared to 76.5%
in the December 1995 quarter. For the six months ended December 31, 1996,
carrier network revenues grew 95.2% over the same period in 1995,
representing 81.8% of total revenues, compared to 69.0% in the previous year.
-8-
<PAGE>
COST OF PRODUCTS AND SERVICES
Cost of products and services was $3.2 million, or 44.3% of revenue, for
the quarter ended December 31, 1996, and $6.1 million, or 45.2% of revenue,
for the six months ended December 31, 1996. By comparison, cost of products
and services was $2.7 million, or 57.3% of revenue, for the quarter ended
December 31, 1995, and $4.5 million, or 54.5% of revenue, for the six months
ended December 31, 1995. The increase in costs is primarily attributable to
hardware costs associated with products shipped to TELMEX and ICL
Enterprises and to increased labor costs related to the hiring of additional
personnel to facilitate deliveries for an increased revenue base. Travel
costs also increased as a result of extensive travel to Mexico, Europe and
the Far East in support of the Company's contracts in those countries. Gross
margins were 55.7% and 42.7% for the quarters ending December 31, 1996 and
1995, respectively, and 54.8% and 45.5% for the six months ended December 31,
1996 and 1995, respectively. The change in gross margins is primarily
attributable to an increase in software revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $2.8 million, or 38.3%
of revenue, for the quarter ended December 31, 1996, and $1.6 million, or
33.7% of revenue, for the quarter ended December 31, 1995. For the six
months ended December 31, 1996, selling, general and administrative expenses
were $5.2 million, or 38.1% of revenue, as compared to $3.0 million, or 36.2%
of revenue, for the six months ended December 31, 1995. The increase in
expenses is a result of certain selling costs associated with the TELMEX
project, additional marketing efforts, the hiring of additional personnel due
to company growth, an increase in office rent as a result of the relocation
of the Company's headquarters to a larger facility and non-recurring expenses
related to the relocation.
RESEARCH AND DEVELOPMENT
Research and development expenses were $468,000, or 6.4% of revenue, for
the quarter ended December 31, 1996, and $235,000, or 4.9% of revenue, for
the quarter ended December 31, 1995. For the six months ended December 31,
1996 and 1995, research and development expenses were $866,000, or 6.4% of
revenue, and $367,000, or 4.5% of revenue, respectively. The increase is
attributable to the addition of software development engineers to continue
the development and enhancement of the Company's products.
INTEREST (INCOME) EXPENSE
Net interest (income) expense for the quarter ended December 31, 1996 was
($93,000) compared to $97,000 for the quarter ended December 31, 1995. For
the six months ended December 31, 1996, net interest (income) expense was
($39,000) compared to $201,000 for the six months ended December 31, 1995.
The increase in net interest income reflects the application of proceeds from
the Company's initial public offering in the first quarter of fiscal 1997,
which allowed the company to repay bank debt and invest remaining funds.
PROVISION FOR INCOME TAXES
The provision for income taxes was $266,000 for the quarter and six months
ended December 31, 1996. No income tax provision was recorded for the
quarter and six months ended December 31, 1995 since any provision was offset
by a similar decrease in the valuation allowance. Due to the availability of
operating loss carryforwards and tax credits, the Company does not expect to
begin to pay taxes until later in fiscal 1997.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had $7.1 million in cash and cash
equivalents and $15.7 million in working capital. These values represent
increases of $6.7 million in cash and cash equivalents and $13.8 million in
working capital over the year ended June 30, 1996. These increases are
primarily related to the Company's initial public offering of common stock,
which raised net proceeds of $17,218,950.
For the six months ended December 31, 1996, cash flows used in operations
were $3.3 million compared to cash provided from operations of $497,000 for
the six months ended December 31, 1995. The decrease in cash was comprised
primarily of a decrease in accounts payable of $2.4 million resulting from
the Company's efforts to reduce the age of its accounts payable following the
initial public offering, a decrease in deferred revenues of $1.2 million, an
increase in accounts receivable of $728,000, and a decrease in accrued
expenses of $625,000. These decreases were offset in part by the net income
of $1.2 million for the period. Accounts receivable days outstanding were
110 at December 31, 1996, down from 120 days at June 30, 1996.
Cash used for investing activities during the six months ended December
31, 1996 was $1.2 million as compared to $350,000 for the six months ended
December 31, 1995. The cash used for the six months ended December 31, 1996
includes $517,000 in capital expenditures and $715,000 for capitalized
software development activities. The capital expenditures reflect purchases
of computers and equipment necessary for company growth. The capitalized
software is primarily attributable to the development of new switch
interfaces for carrier network products targeted for sales in Korea and other
foreign end users.
Funds generated by the Company's initial public stock offering afforded
the opportunity to reduce bank and other debt obligations by $5.3 million in
the six months ended December 31, 1996. Currently, the Company has two lines
of credit with Citizens Bank of Maryland, totaling $3.5 million, both of
which expire on November 30, 1997. At December 31, 1996, no amounts were
outstanding under the two credit facilities.
The Company believes that existing cash balances, cash flow from
operations and available bank lines will be sufficient to support its working
capital requirements for at least the next 12 months. To the extent that the
Company's existing resources, together with future earnings, are insufficient
to fund the Company's future activities, the Company may need to raise
additional funds through public or private financings.
-10-
<PAGE>
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
10 Teaming Agreement Between ACE*COMM Corporation and
Samsung Electronics Company, LTD
11.1 Statement of Computation of Earnings per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACE*COMM CORPORATION
DATE_______________ By:_______________________________________
George T. Jimenez
President and Chief Executive Officer
________________________________________
Jeffrey S. Simpson, Vice President -- Finance
(Principal Financial Officer)
-12-
<PAGE>
KOREA TELECOM CAMA PROJECT
TEAMING AGREEMENT
ACE*COMM/SAMSUNG
This Agreement is entered into effective _________________, between SAMSUNG
ELECTRONICS COMPANY, LTD (SAMSUNG), having its principal place of business
located at Samsung Main Building, 250, 2-Ka, Taepyung-Ro, Chung-Ku, Seoul,
100-742, Korea, and AMERICAN COMPUTER AND ELECTRONICS CORPORATION (ACE*COMM),
a Maryland Corporation with offices located at 209 Perry Parkway,
Gaithersburg, Maryland 20877, hereinafter "the Parties."
WHEREAS, Korea Telecom (KT) has established requirements to collect its
billing data in an effective, accurate, and timely manner. Specifically, KT
desires to replace its current recording and collection method using magnetic
tape drives with an automated electronic data capture, transmission, and
distribution system and refers to this work activity as the KT CAMA Project
(hereinafter "the Project");
WHEREAS, the Consortium (the "Consortium" refers to each of the three
companies individually as well as collectively as follows: Samsung
Electronics Company, Ltd., LG Information and Communications, Ltd., and ILJIN
Corporation) desires to cooperate to meet the requirements of the KT CAMA
Project;
WHEREAS, KT has selected the Consortium to accomplish the Project utilizing
their own resources and those that are available in the market;
WHEREAS, the Consortium has selected ACE*COMM as the supplier of products and
services in connection with the Project;
WHEREAS, ACE*COMM desires to cooperate and work with the Consortium to meet the
Project requirements and provide products and services in connection with the
Project;
WHEREAS, KT is expected to award the Project to the Consortium upon
successful trial demonstration, the Consortium and ACE*COMM (collectively
the Project Team ) realize that they must take reasonable steps to align
resources to utilize the strengths of each Team Member and work with each
other openly;
WHEREAS, the Project Team desires to collaborate as described herein to
support the Project, and each have entered into a separate Teaming Agreement
with ACE*COMM for such purpose,
<PAGE>
NOW THEREFORE, in consideration of the mutual promises set forth herein, the
Parties agree as follows:
A. Scope of the Agreement
This Agreement is applicable only to the Project. The Parties agree that
their work in connection with the Project will be conducted in two Phases,
with Phase I being a trial to demonstrate the ability of ACE*COMM to
deliver Extract Devices (EDs) functionally consistent with KT requirements
(the "Trial") and Phase II being the delivery of the full scope of the KT
requirement (343 ED systems). The objective of this Agreement is to set
forth the terms and conditions pursuant to which the Parties will cooperate
in the execution of the Trial for the Project, and in the event such Trial
is successful, to set forth the process by which the Parties will negotiate
and implement a contract with Korea Telecom in connection with the Project.
B. Nature of the Cooperation
(1) The Parties agree to take reasonable steps to cooperate to maximize
the chances of a successful Trial on terms and conditions satisfactory
to both. In this regard, the Parties agree during the term of this
Agreement to collaborate on an exclusive basis in developing,
submitting, and conducting a Trial for the Project. If this Agreement
terminates pursuant to Section N, each Party shall be free,
thereafter, to sell its products or services or otherwise participate
in the Project.
(2) The Parties agree that there will be a Trial Phase (Korea Telecom
Verification Test) to demonstrate the ability of ACE*COMM to deliver
Extract Devices (EDs) functionally consistent with KT requirements.
This Phase will be conducted based upon the time line portrayed in
Annex 2 and the Acceptance Plan documented in Annex 4. Each of these
Annexes shall become and constitute an integral part of this
Agreement. In the Trial Phase, ACE*COMM will perform all necessary
modifications of its DCMS architecture necessary to comply with ED
specifications which will be contained in Annex 8 of this Agreement,
which shall become and constitute an integral part of this Agreement.
(3) Upon successful completion of the Trial Phase, and upon KT purchase of
the ACE*COMM EDs for the Project, the Trial EDs will be replaced by
the commercial product with a full credit for the price of the Trial
EDs.
(4) The terms and conditions for the supply of EDs are contained in Annex
7 of this Agreement.
(5) The Parties agree that the Project shall be presented as a combined
effort with support from ACE*COMM as named sub-contractor. As among
the Parties, it is agreed that SAMSUNG will assume a role as team
leader,
2
<PAGE>
with overall responsibility for integrating the business and technical
aspects of the Project, in consultation with and as supported by
ACE*COMM, but with each Party assuming full responsibility for its own
Project Share, as defined below.
(6) Except as otherwise specified in the Agreement, no Party shall be
authorized to act for, or on behalf of, the other Party for any
purpose related to the Project except as may be authorized in writing
by that other Party.
(7) Nothing contained in this Agreement shall be construed or interpreted
to the effect that the Parties hereto have established or intend to
establish any form of corporate association, agency or partnership,
other than the specific cooperation arrangement established by this
Agreement.
C. Division of Responsibilities
(1) Each Party shall be solely and entirely responsible for offering, and
in case of award of contract for the Project, carrying out of such
part of the Project as is defined as its area of responsibility (said
area of responsibility and any revision thereof are referred to as
"Project Share"). The framework and principles governing the
determination of each party's Project Share are set forth in Annex 1
hereto, which Annex forms an integral part of this Agreement. Prior
to executing a contract with KT for the Project, the Parties will
define more precisely the allocation of their respective
responsibilities, together with specific terms (including price)
governing their performance, which will be reflected in supplementary
contracts between the Parties.
(2) Other equipment and services required for the Project and not
specifically allocated as part of one party's Project Share shall be
selected by SAMSUNG.
(3) The Parties recognize that timeliness of performance will be critical
to the success of the Project. Therefore, as soon as feasible, the
Parties will agree to a time-line for the performance of their various
responsibilities under this Agreement, which time-line will be
attached hereto as Annex 2 and which shall become and constitute an
integral part of this Agreement. ACE*COMM agrees to the milestone
dates presently included in Annex 2 based on the understanding between
the Parties. Such time-line, with any agreed to modifications as
evidenced in writing, shall also be incorporated into the subsequent
contracts between the Parties contemplated by Section C(1).
D. Subcontractors and Assignment
No Party shall assign, transfer, or delegate its interest in this Agreement
or the rights granted herein in any manner. This Section shall not
preclude the use of a
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<PAGE>
sub-contractor by any Party to perform a portion of that Party's Project
Share, provided that such Party remains solely and entirely responsible for
the satisfactory performance of its Project Share, including the
performance of its subcontractors.
E. Coordinating Council
Upon signature of this Agreement, each Party shall designate a
representative who shall be primarily responsible for representing such
Party and working with the representatives of the other companies making up
the Consortium. Such representatives shall form a Coordinating Council,
which shall regularly meet and/or consult in order to decide on the
activities to be undertaken under this Agreement and in order to assure the
proper coordination among the Project Team with regard to such activities
and in particular in the preparation of the Project for KT.
F. Preparation of The Project
(1) The Parties hereto shall prepare in joint consultation, each at its
own expense, their respective engineering contribution to the Project
in accordance with the time schedule to be established as Annex 2.
The separate contributions of each shall be integrated through the
efforts of the Coordinating Council to form a single proposal for the
Project. SAMSUNG shall assume a leadership role in integrating the
technical and commercial aspects of the Project. The Parties shall
undertake to reach agreement during the period of preparation of the
Project on matters of common interest in the Project.
(2) In order to clearly define all of a technical, commercial or other
nature to ensure a Trial which is as complete as possible, each Party
will coordinate its Project Share with the other Party and disclose to
the other Party upon request such technical, commercial and other
information as may reasonably be required in order to avoid
inconsistencies in the Project. Disclosure of the Parties
confidential or proprietary information or material shall be
governed by Section K hereof to the extent applicable.
(3) Each Party shall be responsible that its contribution to the Project
covers all details of the Project comprised in its Project Share, and
any error or omission occurring shall be the responsibility of the
Party in whose Project Share such errors or omissions have occurred,
and each Party hereto shall save harmless and indemnify the other
Party from and against any loss or damage sustained by the other Party
by reason of such errors or omissions (consequential or indirect
damages or lost profit excluded).
(4) Each Party will inform the other Party as appropriate of any problems
of which it is aware and which will prevent it from meeting the
requirements and obligations arising out of this Agreement.
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<PAGE>
G. Relationship to Korea Telecom
(1) SAMSUNG will be the responsible agent on behalf of the Parties for
dealing with KT for their portion of the Project.
(2) Under this Agreement ACE*COMM's intellectual property is protected
under the terms of the Non Disclosure Agreement, Annex 5, entered into
by Consortium and KT on December 5, 1995.
(3) No contract or commitments will be entered into on behalf of a Party
without the written consent of that Party.
H. Conduct of the Trial
The parties shall conduct the Trial on or before the date agreed upon.
I. Award of Contract
(1) Each Party shall carry out its Project Share for its own risk and
account in accordance with the conditions of such contract and this
Agreement.
(2) Each Party shall assume for its Project Share the associated risks,
and will indemnify and/or save harmless the other Party in respect of
costs for claims, damages, or liabilities which might arise out of or
in consequence of the carrying out of its Project Share where the
cause of such claim, damage or liability is properly attributable to
the act or omission of that Party; if the cause of such claim, damage
or liability is attributable to another Project Team Member or to more
than one Member, then the cost thereof will be settled in such
equitable ratio as will be agreed upon, and where the cause of such
claim, damage or liability is not properly attributable to one of the
Parties hereto, then the costs thereof will be settled in proportion
to the value of the Project Shares of the Parties involved in
proportion to the relative size of their Project Shares.
J. Project Management
In the event of a successful Trial, SAMSUNG shall be responsible for
managing the Parties obligations to KT. Upon signature of a contract with
KT in connection with the Project, SAMSUNG shall designate a project
manager who shall be responsible for managing these obligations, and whose
tasks will include, but not be limited to:
(1) project control, including scheduling management, coordination and
administration of the Project;
(2) contract administration, including the submission of invoices to KT,
and the disbursement of payment to the Parties;
(3) coordination among the Parties;
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<PAGE>
(4) administration of a Trial Acceptance Test Plan (KT Verification Test)
intended to validate that the ED meets the specifications will be the
responsibility of the Customer, Korea Telecom.
K. Use of Information
(1) During the term of this Agreement, the Parties may provide each other
with confidential, proprietary information pertaining to their
business plans, products, technology and operations for purposes of
preparing the Project or working in connection with the Project. The
protection and use of such ACE*COMM confidential, proprietary
information shall be governed by Annex 5 (Non-Disclosure Agreement
signed by the Parties) which constitutes an integral part of this
Agreement.
(2) The provisions of this Section K, regarding the use and protection of
ACE*COMM confidential, proprietary information, shall survive
termination or expiration of this Agreement as follows:
(a) If termination or expiration is effected under paragraph
N(1) hereof, such provisions of Section K shall survive such
termination or expiration for three (3) years thereafter,
(b) If termination or expiration is effected under paragraphs
N(2), N(3), or N(4), such provisions of Section K shall
survive such termination or expiration for five (5) years
thereafter. To the extent any timeframe for survival in
this section K(2) differs from any timeframe for use and
protection of ACE*COMM confidential, proprietary information
provided in Annex 5 hereto, the longer of such timeframes
shall apply.
L. Industrial Property Rights
ACE*COMM agrees to grant Samsung a non-exclusive, royalty-free, perpetual,
and non-transferable license to use and modify source code and technical
information provided herein in accordance with the Source Code License
Agreement of Annex 6. This license, software, and information shall be used
exclusively to support KT in the KT CAMA Project. Additionally, Samsung
may provide a sub-licenses to KT under the same terms and conditions of the
Source Code License Agreement of Annex 6. No other sub-licenses shall be
granted by Samsung to any other party.
M. Export Control Compliance
Each Party acknowledges that the products to be transmitted or sold in
accordance with this Agreement may be subject to export and re-export
restrictions under the United States Department of Commerce Export
Administration Regulations ( Regulations ) and may require the specific
written permission of the U.S. Department of Commerce to export or
re-export the commodities outside the
6
<PAGE>
country of destination of such commodities listed in Seller's bill of
lading ("Destination Country"). Each Party further acknowledges that any
product manufactured by either Party incorporating any item(s) furnished
hereunder may also require the specific written permission of the US
Department of Commerce for export from the Destination Country, as
described in Part 776.12 of the Regulations.
Each Party assures the other Party that it does not intend to and will not
knowingly, without the prior written consent, if required, of the US
Department of Commerce, transmit, sell, transfer or convey, directly or
indirectly, any of the technical information or software referenced in this
Agreement;
Each Party further assures the other that it will not transmit, sell,
transfer or convey any commodities, technical information or software
received under this Agreement to any individuals or entities listed in the
Table of Denial Orders, as published in Supplement Nos. 1 and 2 to Part 788
of the Regulations.
N. Term and Termination
(1) This Agreement shall become effective upon signature by all Parties
and continue in force for three (3) years after and may be renewed by
mutual written consent after such three (3) years.
(2) This Agreement shall terminate upon occurrence of any of the following
events:
(a) cancellation of the Project by KT;
(b) final rejection during the Trial Phase or award of the Project to
an entity who does not belong to Consortium;
(c) the date upon which the Parties enter into subsequent contracts
governing their performance of the Project;
(d) June 30, 1997, in the event that no contract in connection with
the Proposal has yet been awarded to SAMSUNG.
(3) In addition to the above, any Party may terminate this Agreement on
thirty (30) days written notice to the other Party that the other
Party has breached the Agreement (including a failure of a Party to
perform its responsibilities hereunder), and such breach is not
satisfactorily cured by the breaching Party within the thirty (30) day
period.
(4) Each Party further shall have the right by written notice to
immediately terminate this Agreement if:
(a) Either of Parties become bankrupt or has a receiving order made
against it or shall file a petition in bankruptcy or shall make
an arrangement with or an assignment in favor of creditors; or
(b) SAMSUNG, for any reason, is disqualified for bidding or carrying
out its Project Share.
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<PAGE>
O. Arbitration
Any controversy or claim, whether based on contract, statute, tort, fraud,
misrepresentation or other legal theory, related directly or indirectly to
this Agreement, except any action arising out of or relating to the
Non-Disclosure Agreement of Annex 5 hereto and Source Code License
Agreement of Annex 6 hereto and Terms and Conditions For Delivery of
Extract Devices of Annex 7 hereto; whenever brought, will be resolved by
arbitration in accordance with the terms of this Section. The rules of the
International Chamber of Commerce will govern the arbitrability of all
claims.
A single arbitrator who is mutually agreeable to the Parties and
knowledgeable in the development and provision of telephony operations
systems will conduct the arbitration under the then current rules and
supervision of the International Chamber of Commerce. The arbitrator's
decision and award will be final and binding and may be entered in any
court with jurisdiction. The arbitrator will not have authority to award
punitive or other non-compensatory damages to either party. The
arbitration will be held in Maryland if SAMSUNG claims; or in Seoul,
the Republic of Korea if ACE*COMM claims.
Each party will each bear its own attorney's fees associated with the
arbitration, and pay all other costs and expenses of the arbitration as the
rules of the International Chamber of Commerce provide.
P. Choice of Law and Forum
This Agreement shall be governed and shall be construed in accordance with
the substantive laws of the State of Maryland of the USA.
Q. Notices
Any notice to be given under this Agreement shall be provided in writing,
to the person, and at the address listed below until further notice:
SAMSUNG ELECTRONICS COMPANY, LTD
[Name] Dr. Ilsoo Ahn
[Address] World Tower Bldg., 9th Floor,
7-25, Shincheon-dong, Songpa-Ku
Seoul, 138-240, Korea
[Facsimile] 011-82-2-3434-3201
8
<PAGE>
ACE*COMM
[Name] Dr. Thomas V. Russotto
[Address] 209 Perry Parkway, Gaithersburg, MD 20877
[Facsimile] (301) 921-0434
R. Validity
If any part, term, or provision of this Agreement shall be held void,
illegal, unenforceable, or in conflict with the law of any relevant
jurisdiction, it shall be assumed that the validity of the remaining
portions or provisions shall not be affected thereby.
S. Entire Agreement
This Agreement sets forth the entire understanding among the Parties
concerning its subject matter and supersedes any prior written or oral
communications and agreements. This Agreement shall be amended or changed
only by mutual written consent of duly authorized representatives.
T. No Claim
Notwithstanding the foregoing, ACE*COMM shall not claim or sue SAMSUNG
for any cause solely attributable to LGIC and/or ILJIN.
U. Signature
IN WITNESS WHEREOF, the Parties hereto have caused their duly authorized
representatives to execute this Agreement effective as of the day and year
first above written.
SAMSUNG ELECTRONICS AMERICAN COMPUTER AND
COMPANY, LTD. ELECTRONICS CORPORATION
By: By :
-------------------------------- ---------------------------
Name: Name: Dr. Thomas V. Russotto
------------------------------ ---------------------
Title: Title: Vice President
----------------------------- --------------------
Date: Date:
------------------------------ ----------------------
9
<PAGE>
ACE*COMM CORPORATION
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
Weighted average shares outstanding:
Common Stock 7,832 3,491 7,098 3,394
Common stock equivalents 1,140 2,301 1,001 2,322
------ ------ ------ ------
Weighted average common shares
and eqivalents 8,972 5,792 8,099 5,716
Net income $ 624 $ 94 $1,163 $ 193
------ ------ ------ ------
------ ------ ------ ------
Net income per share $ .07 $ .02 $ .14 $ .03
------ ------ ------ ------
------ ------ ------ ------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ACE*COMM CORPORATION'S UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR
THE SIX MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,060
<SECURITIES> 0
<RECEIVABLES> 9,382
<ALLOWANCES> 10
<INVENTORY> 2,074
<CURRENT-ASSETS> 19,227
<PP&E> 2,946
<DEPRECIATION> 1,079
<TOTAL-ASSETS> 23,040
<CURRENT-LIABILITIES> 3,496
<BONDS> 404
0
0
<COMMON> 79
<OTHER-SE> 19,061
<TOTAL-LIABILITY-AND-EQUITY> 23,040
<SALES> 13,521
<TOTAL-REVENUES> 13,521
<CGS> 6,107
<TOTAL-COSTS> 6,107
<OTHER-EXPENSES> 6,022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (39)
<INCOME-PRETAX> 1,430
<INCOME-TAX> 266
<INCOME-CONTINUING> 1,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,163
<EPS-PRIMARY> .14
<EPS-DILUTED> 0
</TABLE>
