SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------------
For the Fiscal Year Ended: Commission File Number
December 31, 1996 0-9574
--------------------
UNITED SYSTEMS TECHNOLOGY, INC.
Iowa 42-1102759
(State of Incorporation) (I.R.S. Employer Identification Number)
3021 Gateway Drive, Suite 240
Irving, Texas 75603
(214) 518-0728
(Address of principal executive offices and telephone number)
---------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, par value $.10 per share
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 _____.
As of March 7, 1997, the aggregate market value of voting stock held by
non-affiliates of the Registrant was $603,235.
As of March 26, 1997, there were 37,969,765 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's
definitive proxy statement relating to its 1996 annual meeting of shareholders
is incorporated by reference into Part III of this Form 10-KSB.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in the proxy statement incorporated
by reference into Part III of the Form 10-KSB or any amendment hereto. X
<PAGE>
PART I
ITEM 1. BUSINESS
General Development of Business
United Systems Technology, Inc. ("USTI"), was incorporated under the
laws of the State of Iowa on June 5, 1978, and its wholly-owned subsidiary,
United Systems Technology East, Inc. ("USTEI"), was incorporated under the laws
of the State of Delaware on June 10, 1991 (USTI and USTEI, collectively, are
referred to herein as the "Company"). The Company is engaged in the business of
developing, supporting and marketing computer software products to county and
local governments. The software applications of the Company operate on IBM
mid-range computers, and on various network computer systems both in DOS and
Windows environments. The products are offered to customers in five product
application groups. These product application groups, consisting of over 30
separate software titles, are Financial, General Administration, Public Works,
Civil Processing and Public Safety.
On November 15, 1995, United Systems Technology, Inc. ("USTI")
purchased substantially all of the assets and assumed certain liabilities of QDS
Acquisitions, Inc. (QDS") from Dralvar Capital Corp. ("Dralvar"). These assets
were previously acquired by certain Dralvar shareholders through foreclosure on
their security interests in such assets granted by QDS. The purchase price
consisted of the issuance of 4,326,600 shares of USTI Common Stock. In addition,
USTI assumed certain obligations of Dralvar. The assets purchased by USTI
consisted of (a) all operating assets of QDS including its Utility Billing
System ("UBS") and its Law Enforcement Automated Data Retrieval System
("LEADRS") software,(b) the non-exclusive right to sell and provide software
maintenance and services for the Quest Fund Accounting ("QFA") software product
line from the closing date through February 28, 1997, (c) substantially all
hardware, equipment, supplies, furniture, furnishings and other fixed assets,
(d) all software used for product development, (e) trade secrets and proprietary
information including the name QuestTM and any other trademarks, (f) business
records of Dralvar, including customer lists and related contracts and contract
rights and (g) certain accounts receivable of Dralvar totaling approximately
$61,131. USTI assumed certain obligations of Dralvar which consisted of
obligations to customers in the amount of $187,645 and accrued expenses in the
amount of $36,774.
On February 21, 1997 Noll Computer Systems ("NCS") exercised its option
to reacquire certain assets, including the InterFundTM products and customer
relationships existing in 1994. In addition, NCS purchased the InterFundTM
products developed at USTI and customer relationships added since October 1994,
including, but not limited to, the following contractual obligations: License
Agreements, Customer Support Agreements, and certain contractual obligations
related to ongoing Service Requests. In October 17, 1994, USTI acquired
substantially all of the assets of Noll Computer Systems, Inc. ("NCS"), a Texas
Corporation. USTI's initial decision to infuse the company with the new
technology, specifically the Progress and UNIX based InterFundTM product family,
was based on the belief that USTI needed a new technology direction to provide
an alternative to the AS/400 based Legacy product family that had come under
increasing competition from more "Open" systems. Sales of this product family
did not reach the required levels in the 1994 agreement with NCS. The Company
made the decision not to prepay the stipulated minimum royalty amounts as
provided for in the agreement to retain the InterFundTM product line. According
to the 1994 agreement, in the event that royalty payments, based on sales or
prepayment, did not equal certain stipulated minimum annual amounts, NCS had the
right to reacquire the InterFundTM product line. On February 21, 1997, NCS
exercised its right to reacquire certain assets and elected to purchase others
that had been developed by USTI.
2
<PAGE>
Narrative Description of Business
Products
The software applications offered by the Company consist of a
comprehensive line of management information systems which were developed to
specifically meet the unique requirements of local governmental entities. The
software applications of the Company are offered through its LegacyTM, QuestTM
and asystTM product lines. The LegacyTM product line operates on the IBM
mid-range computer systems, including the AS/400 and the Advanced/36. The
QuestTM product line operates in a single user or small network PC environment.
The asystTM product line operates in a single user or network Windows
environment. An initial software sale typically averages between $1,500 and
$40,000. The cost of the related hardware varies depending on the type of
machine purchased as well as the amount of memory capacity, peripheral equipment
and optional features obtained on the machine.
The Company markets its software packages in the following five product
application groups.
Financial Systems
This group includes software modules in the areas of general ledger and
budgetary accounting, budget preparation, accounts payable, payroll,
accounts receivable, centralized cash receipts, tax billing and collection,
and comprehensive financial report writer.
Public Works
This group includes software modules in the areas of building permits and
inspections, utility billing and collections, hand held meter reading,
assessment billing and project accounting.
General Administration
This group includes software modules in the areas of information indexing,
perpetual inventory, vehicle and equipment maintenance, fixed asset records,
and business licenses.
Public Safety
This group includes software modules in the areas of computer aided
dispatch, law enforcement records management, jail management, emergency
medical services billing, court administration and alarm billing.
Civil Processing
This group includes software modules in the areas of summonses and complaint
docketing, process server activity, writ and foreclosure docketing and
garnishments and is designed exclusively for the County Sheriff Civil
Process function..
The Company has substantially completed the development of several new
software products which significantly enhance the competitiveness of its
comprehensive software offering. These products are marketed under the asystTM
brand name, are developed as Windows applications to "look and work like
Microsoft Office", and include a new Fund Accounting system including General
Ledger, Budget Preparation, Fixed Assets, Accounts Payable, Purchase Orders,
Cash Receipts, Payroll, Utility Billing and the BOSS for Windows civil
processing system. The Company derives its revenue principally from (i)
licensing of its software packages, (ii) installation, training and customer
support, (iii) maintenance agreements, and (iv) equipment and supplies sales.
3
<PAGE>
Software Packages
The Company licenses its software packages under a perpetual nonexclusive
and nontransferable license agreement.
Installation, Training and Customer Support
The Company provides services related to the training and implementation of
the software packages to its customers. These services typically occur at
the customer site, but are also conducted in a classroom setting at the
company's headquarters or as "remote" training through interactive
computer-to-computer hookup. In the event that the customer requests
additional functions from the product which are not standard in the software
packages, the Company provides custom programming services for these
modifications.
Maintenance Agreements
The Company offers maintenance agreements in conjunction with the licensing
of its software packages. These agreements provide telephone support,
software product enhancements, error corrections, upgrades and remote
diagnostics support.
Equipment and Supplies Sales
The Company sells PC's and hand-held computers as well as certain computer
forms that are used in conjunction with the Company's products.
For the year ended December 31, 1996, the Company generated
approximately 11% of its revenue from the sale of software, 25% from
installation, training and customer support, 59% from software maintenance, and
5% from equipment and supplies sales.
Marketing
The Company markets its products on a nationwide basis. Marketing is
conducted through its full-time sales staff in Dallas, Texas as well as the
Company's full-time sales representatives located in Minneapolis, Minnesota;
Ringwood, New Jersey; and Lexington, Kentucky.
The Company's customers are primarily municipal governments with
populations between 1,000 and 100,000, county governments, police departments,
emergency medical services providers and municipal court systems. The Company
currently has approximately 1,500 customer installations nationwide. USTI
proposes computer equipment when selling its software, but the customer may
obtain their computer equipment from a hardware manufacturer or dealer and then
purchases one or more software modules from the Company.
The typical purchaser's representative is a City Manager,
Administrative Manager, Controller or Director of Finance. Customer leads are
established from customer referrals, direct mail campaigns and attendance at
national and regional trade shows. In addition, the names and addresses of
target city governments are readily available from directory sources. The
Company also holds an annual users' meeting in Dallas, Texas. The two-day
meeting is typically attended by approximately 100 current and prospective
users. In the past, new business has been generated from current customers who
have upgraded systems by purchasing new modules. In addition, the Company has
gained new accounts from persons attending this meeting.
4
<PAGE>
Approximately 32% of the Company's customers are located in Texas and
Minnesota, and the remaining customers are located in various states nationwide.
Competition
The Company is aware of sizable, nationally prominent competitors which
market products that are similar to those of the Company. Numerous other
competitors are small, local vendors who often do not market standard
application packages. Management believes that the comprehensive nature of its
product offering, including the uniqueness of the new asystTM product line, has
a positive impact on its competitive status.
Employees
The Company presently has 23 full-time employees, including its
executive officers. In addition, from time to time, the Company engages the
services of various consultants and part-time employees.
Research and Development
During 1996, the Company incurred approximately $75,000 in research and
development costs related to the development of its asystTM product line.
Patents, Copyrights, Trademarks and Royalties
The Company does not believe that its products are patentable, and, to
date, has not registered any copyright with respect to its products. The Company
believes that all of its products are of a proprietary nature and the Company's
licensing arrangements prohibit disclosure of the program by the customer.
However, there can be no assurance that the Company's software is incapable of
being duplicated or that the Company will be successful in discovering or
preventing any such duplication.
The Company entered into royalty agreements as part of the sale of
assets to NCS on February 21, 1997. In addition, the Company is a party to
certain royalty agreements which, individually, and in the aggregate, have not
required the payment of material amounts. Under these agreements, the Company is
the licensee of certain software systems which it markets as part of its product
line.
5
<PAGE>
ITEM 2. PROPERTIES
The Company maintains its offices at 3021 Gateway Drive, Suite 240,
Irving, Texas, 75063. The lease for this facility was entered into on August 27,
1994 to include approximately 6,160 square feet and had an expiration date of
August 31, 1995. On July 31, 1995, the lease was renewed for an additional
five-year term commencing on September 1, 1995 and expiring on August 31, 2000.
The Company leases this space from a nonaffiliate for a monthly rental of $4,310
for the first twelve months of the lease, $4,525 for the next twelve months of
the lease, $4,750 for the next twelve months of the lease, $4,990 for the next
twelve months of the lease and $5,240 for the final twelve months of the lease.
In addition, the lease allows the Company and the lessor a right to terminate
the lease at the end of the third year of the lease by providing written notice.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in the following legal proceedings:
On December 10, 1993, Plaintiff County of Essex filed suit against
USTI, USTEI, New Jersey Municipal Data Management ("MDM") and MDM's surety in
Superior Court of New Jersey. The suit is based on allegations that MDM failed
to perform its obligations related to software and related services sold by MDM
to the County of Essex and that USTI and USTEI succeeded to the obligations of
MDM by the acquisition of MDM. USTI and USTEI have answered each of such
lawsuits, denying all material allegations therein, and intend to vigorously
defend such allegations.
On August 11, 1993, Plaintiff City of Sinton, Texas filed suit against
USTI alleging defects in software and services sold to the city in 1990. The
suit failed to specify a measure of damages which the City of Sinton seeks and
USTI has answered the lawsuit by denying all material allegations therein, and
intends to vigorously defend such allegations.
On August 12, 1996, Plaintiff City of Siloam Springs, Arkansas filed
suit against USTI alleging defects in software and services sold to the city in
1994. The suit alleges three different theories of recovery, as to each of
which, plaintiff claims damages in excess of $10,000. USTI has been granted an
extension of time to file an answer in the matter and intends to answer the
lawsuit by denying all material allegations therein, and intends to vigorously
defend such allegations.
Management of the Company is of the opinion that these lawsuits will
not have a material effect on the consolidated results of operations or
financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1996.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's common stock is traded over-the-counter on the National
Association of Securities Dealers, Inc. Over-The-Counter Bulletin Board System.
The quotations shown below represent prices among the dealers and do not include
retail mark-ups, mark-downs, or commissions, and do not necessarily represent
actual transactions.
<TABLE>
High Low
Quarter Ended Bid Price Bid Price
<S> <C> <C> <C> <C>
March 31, 1995 $0.04 $0.03
June 30, 1995 $0.03 $0.02
September 30, 1995 $0.03 $0.01
December 31, 1995 $0.02 $0.01
March 31, 1996 $0.03 $0.01
June 30, 1996 $0.01 $0.01
September 30, 1996 $0.05 $0.04
December 31, 1996 $0.03 $0.03
</TABLE>
As of March 7, 1997, the Company had 481 shareholders of record and its
common stock had a closing bid price of $.025 per share and a closing asked
price of $.032 per share
Holders of the Company's common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. However, no
dividends on common stock have ever been paid by the Company, nor does the
Company anticipate that dividends will be paid in the foreseeable future. In
addition, payment of dividends to holders of the Company's common stock are
restricted pursuant to the terms of outstanding shares of preferred stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company derives its revenue from the licensing of its software
packages, installation, training and customer modifications, maintenance
agreements and sale of equipment and supplies. Results of operations for 1996
include revenues of $2,004,746 resulting in a net loss of $299,000 as compared
to revenues of $1,771,332 and a net loss of $867,005 in 1995.
During 1996, the Company continued to adjust its expenses based on
anticipated levels of revenue resulting in decreased expenses and improved
results of operations. The Company continued to diversify its product offerings
in 1996 by introducing its asystTM product line in the second quarter of 1996.
With this added diversity, as well as the QuestTM product line and the Boss for
Windows application, the Company believes it presents to prospective clients a
broader choice of hardware platforms on which to operate the Company's software.
Recently, the response to the Company's direct marketing efforts for the asystTM
product line have been encouraging to the Company. Like BOSS for Windows, the
asystTM product line operates in a single user or network Windows environment
and is seamlessly interfaced with other Microsoft Office products. The Company
believes that its asystTM product line offers its current and prospective
customers an attractive option, both from a financial and functionality
standpoint.
7
<PAGE>
On February 21, 1997 Noll Computer Systems ("NCS") exercised its option
to reacquire certain assets, including the InterFundTM products and customer
relationships existing in 1994. In addition, NCS purchased the InterFundTM
products developed at USTI and customer relationships added since October 1994,
including, but not limited to, the following contractual obligations: License
Agreements, Customer Support Agreements, and certain contractual obligations
related to ongoing Service Requests. In October 17, 1994, USTI acquired
substantially all of the assets of Noll Computer Systems, Inc. ("NCS"), a Texas
Corporation. USTI's initial decision to infuse the company with the new
technology, specifically the Progress and UNIX based InterFundTM product family,
was based on the belief that USTI needed a new technology direction to provide
an alternative to the AS/400 based Legacy product family that had come under
increasing competition from more "Open" systems. Sales of this product family
did not reach the required levels in the 1994 agreement with NCS. The Company
made the decision not to prepay the stipulated minimum royalty amounts as
provided for in the agreement to retain the InterFundTM product line. According
to the 1994 agreement, in the event that royalty payments, based on sales or
prepayment, did not equal certain stipulated minimum annual amounts, NCS had the
right to reacquire the InterFundTM product line. On February 21, 1997, NCS
exercised its right to reacquire certain assets and elected to purchase others
that had been developed by USTI.
The following table sets forth, for the period indicated, the relative
percentage which certain items in the Consolidated Statements of Operations of
the Company bear as a percent of total revenues and the percentage change in
those items from period to period.
<TABLE>
Percentage of Revenues
Year Ended December 31, % Change
1996 1995 1996 vs 1995
Revenue
<S> <C> <C> <C>
Software Packages 15% 11% 59%
Installation, training and
customer support 12% 25% (45%)
Maintenance 60% 59% 16%
Equipment and other 13% 5% 167%
---- ----
100% 100% 13%
Costs and expenses
Salaries 58% 68% (4%)
Other general administrative
and selling expense 28% 33% (1%)
Depreciation and amortization 37% 44% (3%)
Commissions 2% 1% 37%
Cost of equipment sold 6% 3% 107%
Total costs and expenses 131% 149% -
Operating loss (31%) (49%) (28%)
Non-operating (expense) income (1%) -- 78%
Loss before income taxes and
extraordinary items (32%) (49%) (27%)
</TABLE>
8
<PAGE>
1996 vs 1995
The Company's total revenue increased 13% for the year ended December
31, 1996 from $1,771,332 in 1995 to $2,004,747 in 1996. Software license fees
increased 59% in 1996 due, in part, to the Company's increased marketing efforts
for its Quest and asyst product lines. Installation, training and customer
support revenue decreased 45% in 1996 due to the decrease in licensing
minicomputer products in previous periods. Maintenance revenue increased 16% in
1996, which is attributable to the addition of the Quest Data clients. Equipment
sales and supplies increased significantly over 1995 due, in part, to the sales
of computer equipment and the addition of compatible preprinted forms for its
products.
Total costs and expenses remained constant for the year ended December
31, 1996 decrasing from $2,630,623 in 1995 to $2,630,623 in 1996. Salaries,
other general, administrative and selling expense costs decreased only
marginally by 4% in 1996 as a result of continued efforts to control or reduce
expenses. Depreciation and amortization expense decreased 3% in 1996 from 1995
due in part to the complete depreciation of the leasehold improvements for the
corporate office move in 1993. Commission expenses increased 37% in 1996
resulting from the increased licensing of the Company's software products by
Company sales representatives over the same period in 1995. Cost of equipment
sold increased significantly over 1995 due, in part, to the increased sales of
computer equipment and the addition of compatible preprinted forms for its
products.
Liquidity and Capital Resources
The Company had net cash provided by operating activities of $4,088
during 1996 as compared to $136,882 used in 1995. This decrease in cash used was
primarily the result of the improvement in the results of operations and the
improved collection efforts in 1996 as compared to 1995. Net cash of $33,321 was
utilized in 1996 for the purchase of equipment necessary for the sales,
development and support of the new asystTM product line. Net cash of $42,749 was
utilized during 1996 for the reduction of capital lease obligations.
Management believes that the effect of its continued focus on adjusting
the Company's expenses to the level of revenue, which management anticipates
achieving, and the Company's current cash balance will be adequate to meet its
working capital requirements in the near future. However, if the Company is not
able to continue to generate positive cash flows in the future by achieving a
level of sales adequate to support the Company's cost structure, additional
financing may be required, of which there can be no assurance.
The Company has a $50,000 note payable to Ventana Growth Fund, a
related party. The maturity date of the note was extended from September 30,
1996 to September 30, 1998. The original maturity date of this note was October
17, 1987. As of December 31, 1996, there was $72,020 of interest outstanding on
the note.
The Company is currently in arrears in the payment of dividends to
holders of its preferred stock. As of December 31, 1996, dividends were in
arrears on the Series B preferred stock in the amount of $288,800, on the Series
C preferred stock in the amount of $115,415, on the Series D preferred stock in
the amount of $240,685 and on Series E preferred stock in the amount of
$116,735.
9
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
United Systems Technology, Inc. and Subsidiary
Index to Consolidated Financial Statements
And Supplementary Schedules
Pages
Reports of Independent Accountants F-1
Consolidated Financial Statements
Balance sheets as of December 31, 1996 and 1995 F-2
Statements of operations for the years
ended December 31, 1996 and 1995 F-3
Statements of stockholders' equity for the years
ended December 31, 1996 and 1995 F-4
Statements of cash flows for the years
ended December 31, 1996 and 1995 F-5 to F-6
Notes to Consolidated Financial Statements F-7 to F-19
10
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
United Systems Technology, Inc.
We have audited the accompanying consolidated balance sheets of United Systems
Technology, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United Systems
Technology, Inc. and subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ GRANT THORNTON LLP
Dallas, Texas
March 21, 1997
F-1
<PAGE>
<TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
========== ============
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 67,252 $ 139,234
Trade accounts receivable, less allowance
for doubtful accounts of
$40,000 in 1996 and $75,000 in 1995 253,692 368,803
Prepaid expenses and other 279 8,314
---------- -----------
Total current assets 321,223 516,351
---------- -----------
Property and equipment at cost, net 115,738 164,962
Goodwill, net 741,744 1,168,515
Software development costs, net -- 136,713
Purchased software, net 71,833 195,720
Deposits and other 27,942 28,541
---------- -----------
957,257 1,694,451
---------- -----------
Total Assets 1,278,480 2,210,802
========== ============
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable - related party -- 50,000
Current portion of capital lease obligations 8,271 51,283
Trade accounts payable 230,039 301,645
Accrued payroll 20,432 22,248
Accrued interest - related party 72,020 67,873
Other accrued expenses 115,368 115,970
Deferred revenue 664,797 839,767
---------- ----------
Total current liabilities 1,110,927 1,448,786
Notes payable - related party -- 50,000
Capital lease obligations,
net of current portion 6,730 6,467
---------- -----------
Total liabilities 1,167,657 1,455,253
---------- -----------
Commitments and contingencies -- --
Stockholders' Equity
Preferred stock, voting, convertible,
cumulative, par value $.10 per share;
authorized 5,000,000 shares; issued
and outstanding, 500,000 shares of
Series B, 750,000 shares of Series C,
500,000 shares of Series D and 300,000
shares of Series E (liquidating preference
of $1.00, $.20, $1.00 and $1.00 per
share, respectively,) aggregating
$1,450,000 205,000 205,000
Common stock, par value $.10 per share;
authorized 100,000,000 shares;
issued and outstanding 37,969,765 and
38,643,165 shares in 1996 and 1995 respectively 3,796,975 3,864,315
Additional paid-in capital 4,214,390 4,157,151
Accumulated deficit (8,105,542) (7,470,917)
---------- -----------
Total stockholders' equity 110,823 755,549
---------- -----------
Total liabilities and stockholders's equity 1,278,480 2,210,802
========== ===========
The accompanying notes are an integral part of the financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Operations
For The Years Ended December 31,
1996 1995
========== ============
Revenue
<S> <C> <C>
Software packages 302,305 189,756
Installation, training and customer support 246,014 446,671
Maintenance 1,203,724 1,040,246
Equipment sales and supplies 241,871 88,461
Other 10,833 6,198
---------- -----------
2,004,747 1,771,332
---------- -----------
Costs and expenses
Salaries 1,156,355 1,204,488
Other general, administrative
and selling expense 488,819 494,184
Depreciation and amortization 336,621 501,151
Rent 74,466 72,913
Commissions 34,271 24,982
Cost of equipment and supplies sold 124,574 60,117
Impairment of software development costs 74,915 272,788
Impairment of goodwill 335,625 -
---------- -----------
2,625,646 2,630,623
---------- -----------
Operating loss (620,899) (859,291)
---------- -----------
Nonoperating (expense)income
Interest expense (8,608) (18,349)
Loss on sale of assets (8,205) -
Interest income 3,087 10,635
---------- -----------
(13,726) (7,714)
---------- -----------
Net loss (634,625) (867,005)
---------- -----------
Preferred stock dividend requirement (104,500) (104,500)
---------- -----------
Loss allocable to common shareholders (739,125) (971,505)
========== ============
Net loss per common share (0.02) (0.03)
========== ============
Weighted average number of common
shares outstanding 33,955,837 34,273,165
========== ============
The accompanying notes are an integral part of the financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31,
Capital Stock Additional
Issued Paid-In Accumulated
Preferred Common Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance January 1, 1995 $205,000 $3,364,315 $4,589,651 ($6,603,912)$1,555,054
Issuance of 5,000,000
shares of common
stock for a business
acquisition 500,000 (432,500) 67,500
Net loss (867,005) (867,005)
-------- ---------- --------- ----------- ---------
Balance,December 31,1995 205,000 3,864,315 4,157,151 (7,470,917) 755,549
Acquisition and
retirement of 673,400
shares of common stock (67,340) 57,239 (10,101)
Net loss (634,625) (634,625)
-------- ---------- --------- ----------- ---------
Balance,December 31,1996 $205,000 $3,796,975 $4,214,390 ($8,105,542) $110,823
======== ========== ========= =========== =========
The accompanying notes are an integral part of the financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Years Ended December 31,
1996 1995
========== ============
Cash flows from operating activities:
<S> <C> <C>
Net loss $(634,625) $ (867,005)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 336,621 501,151
Impairment of software development costs 74,915 272,788
Impairment of goodwill 335,625 -
Loss on sale of assets 8,205 -
Change in operating assets and liabilities:
Trade accounts receivable 99,700 483,353
Prepaid Expenses 8,035 (4,644)
Deposits and other 599 (208)
Accounts payable (67,459) (56,611)
Accrued expenses (2,418) (248,377)
Deferred revenue (155,110) (217,329)
---------- -----------
$ 638,713 $ 730,123
---------- -----------
Net cash provided by (used) in
operating activities 4,088 (136,882)
---------- -----------
Cash flows from investing activities:
Property and equipment additions $ (33,321) $ (33,968)
---------- -----------
Cash flows from financing activities:
Payments on capital lease obligations $ (42,749) $ (109,621)
---------- -----------
Decrease in cash and cash equivalents $ (71,982) $ (280,471)
Cash and cash equivalents, beginning of year 139,234 419,705
---------- -----------
Cash and cash equivalents, end of year $ 67,252 $ 139,234
========== ============
The accompanying notes are an integral part of the financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
United Systems Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows, Cont.
For the Years Ended December 31,
1996 1995
========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
<S> <C> <C>
Interest $ 6,356 $ 12,767
========== ============
Supplemental disclosures of noncash
investing and financing activities:
The Company entered into capital lease
obligations for new equipment $ 12,332 $ -
========== ============
Common stock received in payment
of receivable $ 10,101 $ -
========== ============
On November 15, 1995 the Company purchased
substantially all the assets and assumed
certain liabilities of QDS Acquisitions, Inc.
("QDS") from Dralvar Capital Corp. for
4,326,600 shares of the Company's common
stock. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 291,919
Fair value of stock issued (67,500)
-----------
Liabilities assumed $ 224,419
==========
The accompanying notes are an integral part of the financial statements.
F-6
</TABLE>
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
1. Summary of Significant Accounting Policies:
Nature of Operations
The Company is engaged in the business of developing, supporting and
marketing computer software products to county and local governments
located throughout the United States.
Basis of Presentation
The financial statements for the years ended December 31, 1996 and 1995
are consolidated and include the accounts of United Systems Technology,
Inc. ("USTI") and its wholly-owned subsidiary, United Systems
Technology East, Inc. ("USTEI"). All material intercompany transactions
and balances have been eliminated.
Cash Equivalents
The Company considers short-term investments purchased with an initial
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of property
and equipment is computed using the straight-line method over the
estimated useful lives of such property and equipment, which range from
three to five years. Gains and losses on the disposal of such assets
are recognized as incurred.
Software Development Costs
The Company has implemented and accounted for certain costs related to
the development of its computer software products in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for
Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
("SFAS 86"). Under SFAS 86, all costs incurred to establish the
technological feasibility of a computer software product are charged to
operations as incurred. After technological feasibility is established,
costs of producing the computer software product are capitalized until
the product is available for general release to customers. The
capitalized cost of internally developed software is amortized over its
estimated useful life, generally five years, using the straight-line
method or the ratio of current revenues to current and anticipated
revenues from such software, whichever provides the greater
amortization. Amortization and impairment of developed software costs
was $136,713 and $527,869 for the years ended December 31, 1996 and
1995, respectively.
Stock Options
Statement of Fiancial Accounting Standards No. 123 is effective for
1996 and establishes fiancial accounting and reporting standards,
based on fair value, for stock-based compensation plans. However, the
statement permits, as an alternative, the use of existing accounting
rules based on intrinsic value for such plans. The Company has
elected to continue use of the intrinsic value method and will provide
pro forma disclosures prescribed by the statement.
F-7
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
1. Summary of Significant Accounting Policies (Cont'd.):
Other Assets
Goodwill represents the excess of the total acquisition cost over the
fair value of the net assets acquired of Municipal Software
Consultants, Inc. ("MSC"), acquired in 1986, New Jersey Municipal Data
Management, Inc. ("MDM") acquired in 1991, and QDS Acquisitions, Inc.
("QDS") acquired in 1995. The goodwill resulting from the MSC and MDM
acquisitions is and is being amortized using the straight-line method
over 20 years from date of acquisition. The goodwill resulting from the
QDS acquisition is being amortized using the straight-line method over
10 years from date of acquisition. Purchased software represent assets
acquired in the MDM and QDS acquisitions, and are being amortized using
the straight-line method over a five-year period.
Revenue Recognition
The Company recognizes revenue from the initial license for computer
software product sales upon delivery of a software package. Revenue
from installation, training and customer support is recognized in the
period in which the services are provided. Revenue from contracts to
maintain its computer software products is recognized over the term of
the contracts.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
In reviewing recoverability, the Ocmpany estimates the future cash
flows expected to result from using the assets and eventually disposing
of them. If the sum of the expected future cash flows (undiscouted and
without interest charges) is less than the carrying amout of the asset,
an impairment loss is recognized based on the assets fair value.
Earnings (Loss) Per Common Share
Earnings (loss) per common share is computed based on the weighted
average number of common and common equivalent shares outstanding. In
1996 and 1995, the convertible preferred stock, stock options and
warrants were excluded from the computation as they were anti-dilutive.
Financial Instruments
The fair value of the Company's financial instruments, consisting of
cash and cash equivalents and debt, approximate their carrying values.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent asset and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates
F-8
<PAGE>
<TABLE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
2. Property and Equipment:
Property and equipment at December 31, 1996 and 1995 consisted of the
following:
1996 1995
---- ----
<S> <C> <C>
Leasehold improvements $ 58,702 $ 58,702
Furniture and fixtures 38,330 37,518
Equipment 869,292 847,956
------- -------
966,324 944,176
Less accumulated depreciation
and amortization (850,586) (779,214)
--------- ---------
$115,738 $164,962
======= =======
</TABLE>
<TABLE>
3. Other Assets:
Other assets at December 31, 1996 and 1995 consisted of the following:
Accumulated
Cost Amortization Net
---- ------------ ---
1996
<S> <C> <C> <C>
Goodwill $ 1,692,128 $ (950,384) $ 741,744
Software development costs 2,337,299 (2,337,299) 0
Purchased software 590,654 (518,821) 71,833
1995
Goodwill $1,692,128 $ (523,613) $ 1,168,515
Software development costs 2,337,299 (2,200,586) 136,713
Purchased software 620,853 (425,133) 195,720
</TABLE>
4. Capital Lease Obligations:
The Company leases certain assets under capital leases. The leases
include interest at rates ranging from 10.75% to 11.9% and expire at
various dates through 1999. The leases are collateralized by the
related asset and most of the leases include options to purchase the
equipment at the end of the lease term. During 1991, the Company
entered into a $200,000 capital lease with Ventana Leasing, Inc., a
related party. The balance of this lease obligation was $39,840 at
December 31, 1995.
F-9
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
<TABLE>
4. Capital Lease Obligations (Cont'd.):
Included in property and equipment as of December 31, 1996 are the
following assets held under capital leases:
<S> <C>
Office furniture and equipment $443,683
Accumulated amortization (405,752)
-------
Assets under capital lease, net $ 37,931
=======
</TABLE>
<TABLE>
Future minimum lease payments under capital leases as of December 31,
1996 are as follows:
<S> <C> <C>
1997 $ 9,558
1998 4,914
1999 2,376
-------
Total minimum lease payments 16,848
Less amount representing interest (1,847)
-------
Present value of capital lease obligations 15,001
Less current portion (8,271)
-------
$ 6,730
=======
</TABLE>
Amortization expense associated with these assets amounted to $40,058,
and $47,615 for the years ended December 31, 1996, and 1995,
respectively.
5. Notes Payable:
The Company had a note payable to a related party in the amount of
$50,000 at December 31, 1996 and 1995. This note payable, which is not
collateralized, bears interest at prime plus 2.5%, through September
30, 1995 and at prime after September 30, 1995, and is due September
30, 1998. The prime rate of interest was 8.25% at December 31, 1996 and
8.75% in 1995. There was approximately $72,020 and $67,873 accrued
interest outstanding on this note at December 31, 1996 and 1995,
respectively. Interest expense incurred was $4,147 and $4,427 for the
years ended December 31, 1996 and 1995, respectively.
F-10
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
6. Capital Stock:
Preferred Stock
The Company's amended articles of incorporation authorize the issuance
of 5,000,000 shares of preferred stock with a par value of $.10 per
share. The preferred stock may be issued in series from time to time
with such designation, rights, preferences and limitations as the Board
of Directors may determine by resolution. The Company has established
four series of preferred stock: Series B, Series C, Series D and Series
E.
In June 1988, the Company established and issued 500,000 shares of
Series B preferred stock. The terms of the Series B preferred stock
provide for, among other things: (i) a cumulative dividend of $.07 per
share per annum, payable quarterly, which accrues day to day and which
must be paid prior to the payment of a dividend to holders of the
Company's common stock; (ii) a liquidation preference of $1.00 per
share plus accrued but unpaid dividends paid prior to any distribution
to holders of common stock and Series C preferred stock; (iii) the
right to convert each share plus accrued but unpaid dividends into
common stock; (iv) the right to vote on all matters submitted to a vote
of stockholders of the Company; and (v) redemption at the Company's
option at a redemption price of $1.00 per share plus all accrued and
unpaid dividends. As of December 31, 1996 the 500,000 outstanding
shares of Series B preferred stock were entitled to be converted into
3,943,995 shares of common stock and were entitled to 3,943,995 votes
on all matters submitted to a vote of stockholders of the Company. At
December 31, 1996 cumulative dividends of approximately $288,800 were
in arrears.
In June 1988, the Company established and issued 750,000 shares of
Series C preferred stock. The terms of the Series C preferred stock
provide for, among other things: (i) a cumulative dividend of $0.018
per share per annum which accrues from day to day and which must be
paid prior to the payment of a dividend to holders of the Company's
common stock; (ii) a dividend equal to that paid any other holders of
common stock; (iii) a liquidation preference of $.20 per share plus
accrued but unpaid dividends paid prior to any distribution to holders
of common stock; (iv) the right to convert each share plus accrued but
unpaid dividends into common stock; (v) the right to vote on all
matters submitted to a vote of stockholders of the Company; and (vi)
the right to approve any issuance of Series A preferred stock prior to
its issuance. As of December 31, 1996, the 750,000 outstanding shares
of Series C preferred stock were entitled to be converted into
1,327,070 shares of common stock and were entitled to 1,327,070 votes
on all matters submitted to a vote of stockholders of the Company. At
December 31, 1996 cumulative dividends of approximately $115,415 were
in arrears.
F-11
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Capital Stock (Cont'd.):
In February 1990, the Company established and issued 500,000 shares of
Series D preferred stock. The terms of the Series D preferred stock
provide for, among other things: (i) a cumulative dividend of $.07 per
share per annum, payable quarterly, which accrues day to day and which
must be paid prior to the payment of a dividend to holders of the
Company's common stock; (ii) a liquidation preference of $1.00 per
share plus accrued but unpaid dividends paid prior to any distribution
to holders of common stock and Series C preferred stock; (iii) the
right to convert each share plus accrued but unpaid dividends into
common stock; (iv) the right to vote on all matters submitted to a vote
of stockholders of the Company; and (v) redemption at the Company's
option at a redemption price of $1.00 per share plus all accrued and
unpaid dividends. As of December 31, 1996 the 500,000 outstanding
shares of Series D preferred stock were entitled to be converted into
2,116,243 shares of common stock and were entitled to 2,116,243 votes
on all matters submitted to a vote of stockholders of the Company. At
December 31, 1996 cumulative dividends of approximately $240,685 were
in arrears.
In June 1991, the Company established and issued 300,000 shares of
Series E preferred stock. The terms of the Series E preferred stock
provide for, among other things: (i) a cumulative dividend of $.07 per
share per annum, payable quarterly, which accrues day to day and which
must be paid prior to the payment of the dividend to holders of the
Company's common stock; (ii) a liquidation preference of $1.00 per
share plus accrued but unpaid dividends paid prior to any distribution
to holders of common stock and Series C preferred stock; (iii) the
right to convert each share plus accrued but unpaid dividends into
common stock; (iv) the right to vote on all matters submitted to a vote
of stockholders of the Company; and (v) redemption at the Company's
option at a redemption price of $1.00 per share plus all accrued and
unpaid dividends. As of December 31, 1996 the 300,000 outstanding
shares of Series E preferred stock were entitled to be converted into
2,083,685 shares of common stock and were entitled to 2,083,685 votes
on all matters submitted to a vote of stockholders of the Company. At
December 31, 1996, cumulative dividends of approximately $116,735 were
in arrears.
F-12
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
7. Commitments and Contingencies:
Operating Leases
The Company leases certain office facilities under noncancelable lease
agreements which expire at various dates through August 31, 2000. The
future minimum lease payments under these leases are $55,201 in 1997,
$57,960 in 1998, $60,858 in 1999 and $41,903 in 2000. Rent expense was
$74,466 and $72,913 in 1996 and 1995, respectively.
Legal Proceedings
The Company is involved in the following legal proceedings:
On December 10, 1993, County of Essex filed suit against USTI, USTEI,
New Jersey Municipal Data Management ("MDM") and MDM's surety in
Superior Court of New Jersey. The suit is based on allegations that MDM
failed to perform its obligations related to software and related
services sold by MDM to the County of Essex and that USTI and USTEI
succeeded to the obligations of MDM by the acquisition of MDM. USTI and
USTEI have answered each of such lawsuits, denying all material
allegations therein, and intend to vigorously defend such allegations.
On August 11, 1993, City of Sinton, Texas filed suit against USTI
alleging defects in software and services sold to the city in 1990. The
suit failed to specify a measure of damages which the City of Sinton
seeks and USTI has answered the lawsuit by denying all material
allegations therein, and intends to vigorously defend such allegations.
On August 12, 1996, City of Siloam Springs, Arkansas filed suit against
USTI alleging defects in software and services sold to the city in
1994. The suit alleges three different theories of recovery, as to each
of which, plaintiff claims damages in excess of $10,000. USTI has been
granted an extension of time to file an answer in the matter and
intends to answer the lawsuit by denying all material allegations
therein, and intends to vigorously defend such allegations.
Management of the Company is of the opinion that these lawsuits will not
have a material effect on the consolidated results of operations or financial
position of the Company.
F-13
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
8. Common Stock Options and Warrants:
Stock Options
In September 1986, the Board of Directors approved the adoption of a
stock option plan (the "Plan"), whereby 12,000,000 shares of the
Company's common stock are reserved for options to be granted to
employees and directors at the discretion of the Board of Directors.
The exercise price shall be at a minimum of 100% of the fair market
value of the stock at the time the option is granted. Unless otherwise
specified, the options expire ten years from the date of grant and may
not be exercised during the initial one-year period from date of grant.
All outstanding otions expire five years from the date of grant.
Compensation costs for stock options granted to employees is measured
as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to
acquire the stock. If the Company recognized compensation expense based
upon the fair value at the grant date for options granted during 1996
and 1995 under the Plan, the Company's 1996 and 1995 net loss and net
loss per common share would have increased to the pro forma amounts
indicated as follows:
<TABLE>
1996 1995
---- ----
Net loss allocable to common shareholders
<S> <C> <C>
As reported $ (739,125) $ (971,505)
Pro forma $ (813,306) $(1,011,901)
Net loss per common share
As reported $ (0.02) $ (0.03)
Pro forma $ (0.02) $ (0.03)
</TABLE>
The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions, expected volatility of 560% in 1996 and
253% in 1995; risk free interest rates of 7.05% in 1996 and 6.50% in
1995; no dividend yield; and expected lives of 5 years.
The pro forma amounts presented are not representative of the amounts
that will be disclosed in the future because they do not take into
effect pro forma expenses related to grants before 1995.
F-14
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
8. Common Stock Options and Warrants (Cont'd.):
Additional information with respect to options outstanding at December
31, 1996, and the changes for each of the two years in the period then
ended was as follows:
<TABLE>
1996
--------------------------
Weighted
Average
Exercise
Shares Price
------ --------
<S> <C> <C>
Outstanding at beginning of year 4,810,000 $.04
Granted 1,077,500 .06
Forfieted (65,000) .04
----------- ---
Oustanding at end of year 5,822,500 $.04
=========== ===
Options exercisable at December 31, 1996 2,952,500 $.04
=========== ===
Weigted average fair value per share
of options granted during 1996 $.06
---
1995
--------------------------
Weighted
Average
Exercise
Shares Price
------ --------
Outstanding at beginning of year 1,600,000 $.09
Granted 4,730,000 .04
Forfieted (1,520,000) .08
----------- ---
Oustanding at end of year 4,810,000 $.04
=========== ===
Options exercisable at December 31, 1995 75,000 $.25
=========== ===
</TABLE>
Information about stcok options outstanding at December 31, 1996 is
summarized as follows:
<TABLE>
Options Outstanding
--------------------------------------------
Weighted Average
Number Remaining Weighted Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price
------------------------ ----------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$.01 to $.05 4,660,000 3.6 years $.04
$.06 to $.10 1,062,500 4.6 years $.06
$.11 to $.25 100,000 .3 years $.25
----------
5,822,500
==========
</TABLE>
F-15
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
8. Common Stock Options and Warrants (Cont'd.):
<TABLE>
Options Exercisable
--------------------------------------
Number Weighted Average
Range of Exercise Prices Exercisable Exercise Price
------------------------ ----------- --------------
<S> <C> <C> <C> <C>
$.01 to $.05 2,852,500 $.04
$.06 to $.10 - -
$.11 to $.25 100,000 $.25
----------
2,952,500
==========
</TABLE>
Stock Purchase Warrants
In connection with the sale of preferred stock discussed in Note 6 and
the loan from a partnership discussed in Note 5, the Company issued
stock purchase warrants which entitle the partnership to purchase
750,000 shares of the Company's common stock at a price of $.20 per
share. These stock purchase warrants expired on September 30, 1994. A
new warrant was issued in connection with the extension of the loan
from the partnership. The new warrant entitles the partnership to
purchase 750,000 shares of the Company's common stock at a price of
$.05 per share and expires on November 22, 1997. The terms of the
warrants provide that the holder has certain registration rights, at
the Company's expense, regarding public resale of the common stock
underlying the warrants. As of December 31, 1996, none of these
warrants have been exercised.
As of December 31, 1996 additional common stock purchase warrants had
been issued primarily to officers, directors and employees including
warrants to purchase 1,000,000 shares at $.035 per share issued in
1995 to a director of the Company for the issuance of a letter
of credit to collateralize debt of the Company. As of December 31,
1996, none of these warrants have been exercised and are all fully
vested:
<TABLE>
Vesting As Of the Year Ending 1996
Expiration Exercise
Date Price Total
---------- -------- -----------------------
<S> <C> <C> <C>
Mar 1, 1997 $.250 500,000
Mar 31,1997 $.280 200,000
Oct 29,1997 $.190 100,000
Feb 16,1999 $.080 1,000,000
Aug 9, 1999 $.050 1,000,000
Aug 9, 2000 $.035 1,000,000
---------
3,950,000
=========
</TABLE>
F-16
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
9. Income Taxes:
At December 31, 1996, the Company has net operating loss carry-forwards
of approximately $4,142,000. These carry-forwards expire during the
period 1997 through 2011. Additionally, the Company has approximately
$71,000 in unused general business tax credits available to directly
offset future income tax liabilities and $624,000 in capital loss
carry-forwards available to directly offset future capital gains.
For the years ended December 31, 1996 and 1995 the difference between
the effective federal income tax rate and the amounts determined by
applying the statutory federal income tax rate to income before
provision for federal income tax was as follows:
<TABLE>
1996 1995
Amount Amount
<S> <C> <C>
Federal income tax benefit at statutory rate $ (215,772) $ (294,780)
Amortization of goodwill 145,102 27,280
Expiration of net operating loss carryforward 186,164 -
Other 7,406 54,500
Change in valuation allowance (122,900) 213,000
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
Because of losses from operations for the past two years, the Company
has recorded a valuation allowance equal to the net deferred tax asset.
The components of the deferred tax accounts as of December 31, 1996 and
1995 are approximately as follows:
<TABLE>
1996 1995
---- ----
Deferred tax assets:
<S> <C> <C>
Net operating losses carried forward $1,408,400 $1,538,800
Capital losses carried forward 212,300 212,300
Deferred revenue 226,000 285,500
Accounts payable and accrued expenses 148,800 166,900
General business tax credits 71,000 71,000
--------- ---------
Total deferred tax asset $2,066,500 $2,274,500
--------- ---------
F-17
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
9. Income Taxes (Cont'd.):
Deferred tax liabilities:
Accounts receivable 86,300 122,500
Capitalized software - 46,500
Purchased software, property
and equipment 59,500 61,900
--------- ---------
Total deferred tax asset 145,800 230,900
--------- ---------
Net deferred tax asset before
valuation allowance 1,920,700 2,043,600
Less valuation allowance 1,920,700 2,043,600
--------- ---------
Net deferred tax asset $ - $ -
--------- ---------
</TABLE>
10. Acquisition of Business:
On November 15, 1995, the Company purchased substantially all of the
assets and assumed certain liabilities of QDS Acquisitions, Inc.
("QDS") from Dralvar Capital Corp. ("Dralvar"). These assets were
previously acquired by certain Dralvar shareholders through foreclosure
on their security interests in such assets granted by QDS. The purchase
price consisted of the issuance of 4,326,600 shares of the Company's
common stock. The assets purchased by USTI consisted of (a) all
operating assets of QDS including its Utility Billing System ("UBS")
and its Law Enforcement Automated Data Retrieval System ("LEADRS")
software,(b) the non-exclusive right to sell and provide software
maintenance and services for the Quest Fund Accounting ("QFA") software
product line from the closing date through February 28, 1997, (c)
substantially all hardware, equipment, supplies, furniture, furnishings
and other fixed assets, (d) all software used for product development,
(e) trade secrets and proprietary information including the name
QuestTM and any other trademarks, (f) business records of Dralvar,
including customer lists and related contracts and contract rights and
(g) certain accounts receivable of Dralvar totaling approximately
$61,131,. USTI assumed certain obligations of Dralvar which consisted
of obligations to customers in the amount of $187,645 and accrued
expenses in the amount of $36,774.
The following summarizes the unaudited consolidated pro forma results
of operations of the Company as though the acquisition had occurred as
of the beginning of the year ended December 31, 1995 (in thousands):
<TABLE>
Pro Forma
<S> <C>
Revenue $2,366
Net loss (1,033)
Net loss per share (0.03)
</TABLE>
F-18
<PAGE>
UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
11. Sale of Assets
On February 21, 1997 Noll Computer Systems ("NCS") exercised its option
to reacquire certain assets, including the InterFundTM products and
customer relationships existing in
1994. In addition, NCS purchased the InterFundTM products developed at
USTI and customer relationships added since October 1994, including,
but not limited to, the following contractual obligations: License
Agreements, Customer Support Agreements, and certain contractual
obligations related to ongoing Service Requests. In October 17, 1994,
USTI acquired substantially all of the assets of Noll Computer Systems,
Inc. ("NCS"), a Texas Corporation. USTI's initial decision to infuse
the company with the new technology, specifically the Progress and
UNIX based InterFundTM product family, was based on the belief that
USTI needed a new technology direction to provide an alternative
to the AS/400 based Legacy product family that had come under
increasing competition from more "Open" systems. Sales of this
product family did not reach the anticipated levels in the 1994
agreement with NCS. The Company made the decision not to prepay the
stipulated minimum royalty amounts as provided for in the agreement to
retain the InterFundTM product line. According to the 1994 agreement,
in the event that royalty payments, based on sales or prepayment, did
not equal certain stipulated minimum annual amounts, NCS had the right
to reacquire the InterFundTM product line. The February 21, 1997
transaction did not have a material effect on the Company.
12. Employee Benefit Plans:
Effective January 16, 1992, the Company established the USTI Employee's
401(k) Profit Sharing Plan and Trust (the "Plan"), which is a defined
contribution plan that covers substantially all full-time employees of
the Company eligible to participate. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 401(k) of the Internal Revenue Code. The
Company made contributions for the benefit of the participants in the
Plan in the amount of $2,623 and $1,425 for the years ended December
31, 1996 and 1995, respectively.
13. Fourth Quarter Adjustments:
During the fourth quarter's of 1996 and 1995, the Company charged
operations for adjustments to software development costs of
approximately $74,915 and $273,000 in 1996 and 1995, respectively.
During the fourth quarter of 1996, the Company charged operations
for an impairment to goodwill of approximately $335,625.
F-19
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its Independent Accountants
on accounting and financial disclosure matters.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth in the Company's
definitive proxy statement relating to the Company's 1997 Annual Meeting of
Shareholders under the captions "Election of Directors" and "Executive
Officers." Such information is incorporated herein by reference therefrom.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is set forth in the Company's
definitive proxy statement relating to the Company's 1997 Annual Meeting of
Shareholders under the caption "Management Compensation." Such information is
incorporated herein by reference therefrom.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is set forth in the Company's
definitive proxy statement relating to the Company's 1997 Annual Meeting of
Shareholders under the caption "Security Ownership of Certain Beneficial Owners
and Management." Such information is incorporated herein by reference therefrom.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the Company's
definitive proxy statement relating to the Company's 1997 Annual Meeting of
Shareholders under the caption "Certain Relationships and Related Transactions."
Such information is incorporated herein by reference therefrom.
11
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this Report:
1. Consolidated Financial Statements
See "Index to Consolidated Financial Statements and
Supplementary Schedules" under Item 8 of this Report.
2. Consolidated Financial Statements Schedules
See "Index to Consolidated Financial Statements and
Supplementary Schedules" under Item 8 of this Report. All
other schedules have been omitted, as the required information
is inapplicable or the information is presented in the
financial statements or the notes thereto.
3. Exhibits
The following documents are filed as exhibits herewith, unless otherwise
specified, and are incorporated herein by this reference:
Exhibit
Number
3.1 Amended and Restated Articles of Incorporation of the Company as filed on
November 21, 1986 with the Secretary of State of the State of Iowa.
(Incorporated by reference, Registration Statement on Form S-1, File No. 33-
9574, Exhibit 3.11)
3.2 Articles of Merger of Municipal Software Consultants, Inc. into United
Systems Technology, Inc., as filed on December 31, 1986 with the Secretaries
of State of the States of Iowa and Texas. (Incorporated by reference, Annual
Report on Form 10-K for the fiscal year ended December 31, 1986, Exhibit 3.2)
3.3 Statement Establishing and Designating Series B Preferred Stock of the
Company, as filed on June 13, 1988 with the Secretary of State of the State
of Iowa. (Incorporated by reference, Quarterly Report on Form 10-Q for the
quarter ended June 30, 1988, Exhibit 4.1)
3.4 Statement Establishing and Designating Series C Preferred Stock of the
Company, as filed on June 13, 1988 with the Secretary of State of the State of
Iowa. (Incorporated by reference, Quarterly Report on Form 10-Q for the quarter
ended June 30, 1988, Exhibit 4.2)
12
<PAGE>
Exhibit
Number
3.5 Articles of Amendment to the Articles of Incorporation of
the Company, as filed on July 15, 1988 with the Secretary of
State of the State of Iowa. (Incorporated by reference,
Quarterly Report on Form 10-Q for the quarter ended June 30,
1988, Exhibit 3.1)
3.6 By-Laws of the Company, as amended and currently in effect. (Incorporated by
reference, Registration Statement on Form S-1, File No. 33-9574, Exhibit 3.6)
3.7 Articles of Amendment to the Articles of Incorporation
designating the Series D Preferred Stock of the Company, as
filed on February 23, 1990 with the Iowa Secretary of State.
(Incorporated by reference, Form 8-K Current Report dated
February 15, 1990, Exhibit 3.1)
3.8 Statement establishing and designating Series E Preferred
Stock of the Company, as filed on June 26, 1991, with the
Secretary of the State of Iowa. (Incorporated by referenced,
Annual Report on Form 10-K for the year ended December 31,
1991, Exhibit 3.8)
10.1 1986 Stock Option Plan. (Incorporated by reference, Registration Statement
on Form S-1, File No. 33-9574, Exhibit 10.9)
10.2 Agreement Regarding Preferred Stock Purchase, Warrant Purchase and Loan,
dated October 16, 1986, by and between the Company and Ventana Growth Fund.
(Incorporated by reference, Registration Statement on Form S-1, File No. 33-
9574, Exhibit 10.10)
10.3 Preferred Stock Purchase Agreement, dated October 28, 1986, by and between
the Company and Ventana Growth Fund. (Incorporated by reference, Registration
Statement on Form S-1, File No. 33-9574, Exhibit 10.17)
10.4 Promissory Note, dated October 16, 1986, in the amount of $150,000.00, from
the Company to Ventana Growth Fund. (Incorporated by reference, Registration
Statement on Form S-1, File No. 33-9574, Exhibit 10.19)
10.5 Stock Purchase Agreement, dated June 8, 1988, by and between the Company
and Farm Bureau Mutual Insurance Company. (Incorporated by reference, Quarterly
Report on Form 10-Q for the quarter ended June 30, 1988, Exhibit 19.1)
10.6 Preferred Stock Exchange Agreement, dated June 8, 1988, by and between the
Company and Ventana Growth Fund. (Incorporated by reference, Quarterly
Report on Form 10-Q for the quarter ended June 30, 1988, Exhibit 19.2)
10.7 Purchase Agreement, dated February 15, 1990, by and
between the Company and International Technology Group, Inc.
(Incorporated by reference, Form 8-K Current Report dated
February 15, 1990, Exhibit 10.1)
13
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Exhibit
Number
10.8 Assignment and Assumption Agreement, dated February 15, 1990, by and
between the Company and International Technology Group, Inc. assigning all
relevant rights and interest in a maintenance agreement with Grumman Systems
Support Corp. to the Company. (Incorporated by reference, Form 8-K Current
Report dated February 15, 1990, Exhibit 10.2)
10.9 Assignment and Assumption Agreement, dated February 15, 1990, by and
between the Company and International Technology Group, Inc. assigning all
rights and interest in a Technology Transfer Agreement with AM Computer
Corporation and Microvote Partners, Ltd. to the Company. (Incorporated by
reference, Form 8-K Current Report dated February 15, 1990, Exhibit 10.3)
10.10 Assignment and Assumption Agreement, dated February 15, 1990, by and
between the Company and International Technology Group, Inc. assigning all
rights and interest in trademark INTEGRITY to the Company. (Incorporated by
reference, Form 8-K Current Report dated February 15, 1990, Exhibit 10.4)
10.11 Stock Purchase Agreement, dated February 14, 1990, by and between Farm
Bureau Mutual Insurance Company and the Company. (Incorporated by
reference, Form 8-K Current Report dated February 15, 1990, Exhibit 10.5)
10.12 Asset Purchase Agreement, dated June 10, 1991, by and between the Company
and New Jersey Municipal Data Management, Inc. (Incorporated by reference
Form 8-K Current Report, dated June 10, 1991)
10.13 Asset Purchase Agreement, dated December 22, 1994, by
and between the Company and Sequoia Pacific Systems, a
division of Smurfit Packaging Corporation. (Incorporated by
reference Form 8-K Current Report, dated December 22, 1994,
Exhibit 10.1)
10.14 Assignment and Assumption Agreement, dated December 22,
1994, by and between the Company and Sequoia Pacific Systems,
a division of Smurfit Packaging Corporation. (Incorporated by
reference Form 8-K Current Report, dated December 22, 1994,
Exhibit 10.2)
10.15 Asset Purchase Agreement, dated October 17, 1994, by and
between the Company and Noll Computer Systems, Inc.("NCS").
(Incorporated by reference, Annual Report on Form 10-KSB for
the year ended December 31, 1994, Exhibit 10.15)
10.16 Asset Purchase Agreement, dated November 15, 1995, by and between the
Company, Dralvar Capital Corp. ("Dralvar") and Ken Neff. (Incorporated by
reference, Form 8-K Current Report, dated November 15, 1995, Exhibit 10.1)
10.17 Asset purchase Agreement dated February 21, 1997, by and between the
Company and Noll Computer Services, Inc. ("NCS").
14
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Exhibit
Number
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the year for which
this report is filed.
(c) Exhibits
The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this
report.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
UNITED SYSTEMS TECHNOLOGY, INC.
Date: March 29, 1997 By: /s/ Thomas E. Gibbs
-------------------------
Thomas E. Gibbs,
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1997 By: /s/ Thomas E. Gibbs
--------------------------
Thomas E. Gibbs,
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: March 29, 1997 By: /s/ Randall L. McGee
--------------------------
Randall L. McGee,
Secretary and Treasurer
(Principal Financial &
Accounting Officer)
Date: March 29, 1997 By: /s/ David Sengpiel
--------------------------
David Sengpiel, Director
Date: March 29, 1997 By: /s/ Scott Burri
--------------------------
Scott Burri, Director
Date: March 29, 1997 By: /s/ Jordan Issackedes
--------------------------
Jordan Issackedes, Director
Date: March 29, 1997 By: /s/ Earl Cohen
--------------------------
Earl Cohen, Director
16
<PAGE>
United Systems Technology, Inc.
Form 10-KSB
Exhibit 10.17
ASSET PURCHASE AGREEMENT
By and Between
United Systems Technology, Inc.
And
Noll Computer Systems, Inc.
Febraury 21, 1997
<PAGE>
TABLE OF CONTENTS
1. SALE AND PURCHASE OF ASSETS 3
1.1 Description of Assets 3
1.2 Assets Excluded 4
1.3 Liabilities 4
2. PURCHASE PRICE 4
2.1 Amount and Payment 4
3. RECLAIMED ASSETS 5
3.1 Description of Reclaimed Assets 5
3.2 Customer Relationships 6
4. CLOSING 6
4.1 Deliveries by Company 6
4.2 Deliveries by Purchaser 6
4.3 Possession 7
4.4 Taxes and Fees 7
5. REPRESENTATIONS AND WARRANTIES OF COMPANY 7
5.1 Organization, Good Standing, Power, etc. 7
5.2 Authorizations and Enforceability 7
5.3 Effect of Agreement, etc 7
5.4 Restrictions; Burdensome Agreements 8
5.6 Hardware, Equipment and Condition 8
5.7 Customers 8
5.8 Brokers 8
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER 8
6.1 Organization, Good Standing, Power, etc 8
6.2 Authorization of Agreement and Enforceability 8
6.3 Effect of Agreement. Consents. etc 8
6.4 No Finder 9
7. CONDITIONS TO COMPANY'S OBLIGATIONS 9
7.1 Accuracy of Representations and Warranties 9
7.2 Performance of Covenant 9
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<PAGE>
8. CONDITIONS TO PURCHASER'S OBLIGATIONS 9
8.1 Accuracy of Representations and Warranties 9
8.2 Performance of Covenants 9
9. TERMINATION 10
10. INDEMNIFICATION 10
11. GENERAL
11.1 Expenses, etc 10
11.2 Survival of Representations and Warranties 10
11.3 Waivers 11
11.4 Announcements 11
11.5 Binding Effect; Benefits 11
11.6 Notices 11
11.7 Further Assurances 12
11.8 Entire Agreement; Amendment 12
11.9 Headings 12
11.10 Severability 12
11.11 Counterparts 12
11.12 Gender; Singular and Plural 12
11.13 Third Parties 13
11.14 Governing Law; Performance 13
11.15 Attorneys' Fees 13
11.16 Time of Essence 13
Exhibit 1.1(a) InterFund TM Software Packages and Customers
Being Purchased
Exhibit 1.1(b) Hardware, Equipment and other Fixed Assets
Exhibit 1.1(c) Contracts and Agreements Being Purchased
Exhibit 1.2(a) Assets Excluded
Exhibit 1.3(a) Contract Obligations
Exhibit 1.3(b) City of Hurst Purchase Agreement
Exhibit 2.1(a) Capital Projects License Royalty Agreement
Exhibit 2.1(b) Business Tax License Royalty Agreement
Exhibit 2.1(c) Maintenance Royalty Agreement
Exhibit 3.1(a) Reclaimed InterFund Customers
Exhibit 4.1(a) Bill of Sale
2
<PAGE>
ASSET PURCHASE AGREEMENT
PARTIES
The parties to this Agreement are UNITED SYSTEMS TECHNOLOGY, INC., an Iowa
corporation, the company which is selling certain of its assets
("Company"),.NOLL COMPUTER SYSTEMS, INC., a Texas corporation, the purchaser of
such assets of the Company ("Purchaser"). The parties hereby agree as follows:
RECITALS
A. Company and Purchaser entered into an Asset Purchase Agreement in
October 1994 which has a provision for the Purchaser to reclaim
certain assets transferred in the October 1994 Agreement; and
B. Company owns certain assets that were not subject to be reclaimed by
the Purchaser as part of the October 1994 Agreement; and
C. Company is willing to sell and Purchaser is willing to purchase certain
assets that were not subject to be reclaimed by the Purchaser as part
of the October 1994 Agreement upon the terms and conditions set forth
herein:
AGREEMENT
1. SALE AND PURCHASE OF ASSETS. On the terms and subject to the conditions
of this Agreement, Company will sell, assign and convey to Purchaser
and Purchaser will purchase from Company, all of the right, title and
interest in and to the "Assets," as defined below, free and clear of
all liens, claims and encumbrances, except for the assumption by
Purchaser of the "Liabilities" as defined below, or as otherwise
provided herein.
1.1 Description of Assets. The "Assets" are specifically
described below, consisting at Closing of:
(a) Certain operating assets of the Company as follows: the
InterFund TM software packages developed by the Company and
the customer relationships and related contracts and
agreements with respect to InterFund customers which were
added by the Company since October 1994. Such InterFund TM
software packages are more specifically described in Exhibit
1.1(a) and customers described in Exhibit 1.1(c), both
attached hereto;
(b) Certain hardware, equipment and other fixed assets (the "fixed
assets") as described in Exhibit 1.1(b) hereto;
(c) The name "InterFund TM", and all trademark and service mark
rights with respect thereto;
3
<PAGE>
(d) Certain contract rights and agreements in connection with
the InterFund product line for customers added by the Company
since October 1994 as listed on Exhibits 1.1(c) subject to
certain royalty payments described herein, and
(e) The Company's customer relationship and related contract
rights in connection with the Company's Purchase Agreement
with the City of Hurst entered into in July 1996 (the "Hurst
Agreement") subject to certain payments to be made to the
Company. The Hurst Agreement and the payment terms are set
forth on Exhibit 1.3(b).
1.2 Assets Excluded. Except as provided elsewhere herein,
the Assets exclude:
(a) All accounts receivable related to the InterFund customers
billed to the InterFund customers prior to Closing date,
specifically listed on Exhibit 1.2(a) attached hereto.
1.3 Liabilities. Except as expressly provided in this Section 1.3,
Purchaser assumes no debts, tax liabilities or other
liabilities or obligations (contractual or otherwise) of
Company or any other debts, liabilities or obligations related
to the conduct of Company's business. Purchaser will assume
the following liabilities (the "Liabilities") of Company, and
no others:
(a) Obligations under those certain contracts, license and
maintenance agreements for the customers listed in Exhibit
1.3(a). and
(b) Obligations related to a Purchase Agreement Between the City
of Hurst and USTI, Inc. dated July 1996 subject to certain
payments to be made to the Company as described in Exhibit
1.3(b) attached hereto.
2. PURCHASE PRICE.
2.1 Amount and Payment. The purchase price ("Purchase Price")
for the Assets shall be:
(a) Company's right to receive certain royalty payments equal to
twenty-five percent (25%) of license fee revenues on sales by
Purchaser of InterFund TM software packages listed on Exhibit
1.1(a) until Company has received a total cumulative royalty
of Fourteen Thousand Dollars ($14,000) for the InterFund TM
Capital Projects package and a total cumulative royalty of
Four Thousand Dollars ($4,000) for the InterFund TM Business
Tax package, all as described in those certain License Royalty
Agreements attached as Exhibit 2.1(a) and Exhibit 2.1(b)
hereto, respectively ("Capital Projects License Royalty
Agreement and Business Tax License Royalty Agreement"); and
(b) Company's right to receive certain royalty payments equal to
fifteen percent (15%) of the annual maintenance contract
revenues of the InterFund product line for customers added
since October 1994 as listed on Exhibits 1.1(c), for the next
three (3) annual renewal dates, all as described in that
certain Maintenance Contract Royalty Agreement attached as
Exhibit 2.1(c) hereto ("Maintenance Contract
Royalty Agreement");.
As set forth in the Capital Projects License Royalty Agreement,
Purchaser will provide to Company a monthly report of the license
fee revenues and royalties owing thereunder. In
4
<PAGE>
the event that Company receives maximum cumulative royalties of
Fourteen Thousand Dollars ($14,000), Purchaser shall have no further
obligation to make royalty payments to Company.
As set forth in the Business Tax License Royalty Agreement,
Purchaser will provide to Company a monthly report of the license fee
revenues and royalties owing thereunder. In the event that Company
receives maximum cumulative royalties of Four Thousand Dollars
($4,000), Purchaser shall have no further obligation to make royalty
payments to Company.
As set forth in the Maintenance Contract Royalty Agreement,
Purchaser will provide to Company a monthly report of the annual
maintenance contract revenues for accounts listed on Exhibit 1.1(c) and
royalties owing thereunder. In the event that Company receives
royalties at the next three annual renewals for each of the contracts
listed in Exhibit 1.1(c), Purchaser shall have no further obligations
to make payment of additional royalties to the Company.
3. RECLAIMED ASSETS. The October, 1994 Asset Purchase Agreement between
the Company and Purchaser gave the Purchaser the right to reclaim
certain assets thereby transferred to the Company in the event the
Company failed to pay the Purchaser certain minimum royalties. The
Company has failed to pay those royalties. Pursuant to this Agreement,
the Purchaser hereby reclaims and the Company hereby transfers to the
Purchaser the following assets (the "Reclaimed Assets"):
3.1 The following InterFund software packages or product lines:
General Ledger
Accounts Payable
Payroll
Utility Billing
Municipal Court
Accounts Receivable
Property Tax Billing and Collection
Fixed Assets
Work Order Management
Inventory Control
Purchase Order Management
3.2 The Company's customer relationships and related contract
rights in connection with the preceding InterFund software
packages or product Lines for customers of Purchaser that were
transferred to the Company in October, 1994, as listed in
Exhibit 3.1(a).
4. CLOSING. The closing of the transactions contemplated by Section 1
hereof (the "Closing") shall take place at the offices of Untied
Systems Technology, Inc. 3021 Gateway Drive, Suite 240, Irving, Texas,
75063 at 2:00 p.m., local time, on February 21, 1997, or at such other
date, time and place as Purchaser and Company shall mutually agree in
writing (the "Closing Date").
Conveyance, transfer, assignment and delivery of the Assets to
Purchaser shall be by bills of sale, certificates of transfer,
endorsements, assignments and other instruments of transfer and
conveyance in such form as Purchaser may reasonably request. Assumption
of the Liabilities by Purchaser shall be by execution and delivery of
this Agreement and certain contracts and other instruments in such form
as Company may reasonably request. At Closing, Company and Purchaser
shall respectively execute and deliver the following additional
instruments and documents:
4.1 Deliveries by Company:
5
<PAGE>
(a) A bill of sale in form attached hereto as Exhibit 4.1(a)
covering all of the Assets and Reclaimed Assets being acquired
hereunder;
(b) The License Royalty Agreement and Maintenance Contract Royalty
Agreement duly executed by Company;
(c) Such other documents and instruments as counsel for the
Company and Purchaser may reasonably require to effectuate or
evidence the transfer of the Assets.
4.2 Deliveries by Purchaser:
(a) The Capital Projects License Royalty Agreement, Business
Tax License Royalty Agreement and Maintenance Contract
Royalty Agreement duly executed by Purchaser;
(b) Such other documents and instruments as counsel for
Company may reasonably require, from time to time, to
effectuate or evidence the transactions contemplated
hereby.
4.3 Possession. Purchaser shall take possession of the Assets
and Reclaimed Assets as of Closing.
4.4 Taxes and Fees.
(a) Any transfer, sales or use tax, or transfer, filing or
recording fees, payable upon or with respect to the sale
of the Assets shall be paid when due by Purchaser.
(b) All personal property taxes attributable to any of the
Assets shall be apportioned and pro rated as of Closing.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY. The "Disclosure
Schedules" described herein shall mean all of the disclosures made in
writing by Company to Purchaser, whether in the form of Exhibits to
this Agreement, summarized schedules, or copies or originals of actual
documents delivered or made available to Purchaser for its review.
Company and Purchaser shall agree in writing at Closing on the specific
content of the final Disclosure Schedules. Subject to the Disclosure
Schedules, Company represents and warrants to Purchaser as follows:
5.1 Organization, Good Standing, Power, etc. Company (a) is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Iowa; (b) is
authorized or licensed to do business as a foreign corporation
and is in good standing in the jurisdictions listed in the
Disclosure Schedules; (c) is not required to be authorized or
licensed to do business as a foreign corporation in any other
jurisdiction (within or without the United States) by reason
of the nature of the business conducted by it or the
properties owned or leased or operated by it; and (d) has the
requisite power and authority to own, lease and operate its
properties and to carry on its business as currently
conducted.
5.2 Authorizations and Enforceability. Company has all requisite
power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly
6
<PAGE>
authorized, executed and delivered by Company and constitutes
the valid and binding obligation of Company, fully enforceable
in accordance with its terms.
5.3 Effect of Agreement. Consents. No consent, authorization or
approval or exemption by, or filing with, any governmental or
public body or authority is required in connection with the
execution, delivery and performance by Company of this
Agreement or the taking of any action hereby contemplated.
The Assets and the Reclaimed Assets are not subject to any
lien, security interest, charge or encumbrance other than
those specifically set forth in this Agreement and exhibits
hereto. The execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby will not, with or without the
giving of notice or the lapse of time, or both, result in the
breach of or conflict with any term, covenant or provision of
any contract to which the Company is a party.
5.4 Restrictions; Burdensome Agreements. Company is not a party
to any contract, commitment or agreement, and none of Company
or its properties or the Assets are subject to or bound or
affected by any charter, bylaw or other corporate restriction,
or any order, judgment, decree, law, statute, ordinance, rule,
regulation or other restriction of any kind or character,
which would prevent Company from entering into this Agreement
or from consummating the transactions contemplated hereby.
5.5 Hardware, Equipment and Condition. Exhibit 1.1(b) sets forth a
correct and complete list of all of the hardware and equipment
being sold hereunder ("fixed assets"). The fixed assets are in
good condition and repair (ordinary wear and tear excepted)
and suitable for the uses for which intended.
5.6 Customers. Exhibit 1.2(a) sets forth the following information
with respect to Company's InterFund customers: A list of each
of Company's InterFund customers including a list of the
software packages licensed to each customer and the status of
license and/or maintenance agreements with each customer.
5.7 Brokers. To the Company's knowledge, no firm, corporation,
agency or other person has any right to a consultant's or
finder's fee or any type of brokerage commission payable in
relation to or in connection with the transactions
contemplated by this Agreement by reason of any action taken
or agreement entered into by Company.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
and warrants to Company as follows:
6.1 Organization, Good Standing, Power, etc. Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Texas. Purchaser has
all requisite corporate power and authority to execute,
deliver and perform this Agreement and consummate the
transactions contemplated herein.
7
<PAGE>
6.2 Authorizations and Enforceability. Purchaser has all
requisite power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly authorized,
executed and delivered by Purchaser and constitutes the valid
and binding obligation of Purchaser, fully enforceable in
accordance with its terms.
6.3 Effect of Agreement. Consents. No consent, authorization or
approval or exemption by, or filing with, any governmental or
public body or authority is required in connection with the
execution, delivery and performance by Purchaser of this
Agreement or the taking of any action hereby contemplated.
The execution, delivery and performance of this Agreement by
the Purchaser and the consummation of the transactions
contemplated hereby will not, with or without the giving of
notice or the lapse of time, or both, result in the breach of
or conflict with any term, covenant or provision of any
contract to which the Purchaser is a party.
6.4 No Finder. To Purchaser's knowledge, there is no firm,
corporation, agency or other person that is entitled to a
consultant's or finder's fee or any type of brokerage
commission in relation to or in connection with the
transactions contemplated by this Agreement as a result of any
agreement with Purchaser.
7. CONDITIONS TO COMPANY'S OBLIGATIONS. The obligations of Company
hereunder are subject to the fulfillment, at or prior to the Closing,
of each of the following conditions, any or all of which may be waived
in writing by Company, in its sole discretion:
7.1 Accuracy of Representations and Warranties. Each of the
representations and warranties of Purchaser contained in this
Agreement shall be true on and as of the Closing Date with the
same force and effect as though made on and as of the Closing
Date, except as affected by transactions contemplated hereby.
7.2 Performance of Covenants. Purchaser shall have performed and
complied with all covenants, obligations and agreements to be
performed or complied with by it on or before the Closing Date
pursuant to this Agreement.
8. CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligations of Purchaser
hereunder are subject to the fulfillment, at or prior to the Closing,
of each of the following conditions, any or all of which may be waived
in writing by Purchaser, in its sole discretion:
8.1 Accuracy of Representations and Warranties. Each of the
representations and warranties of Company contained in this
Agreement shall be true on and as of the Closing Date with the
same force and effect as though made on and as of the Closing
Date, except as affected by transactions contemplated hereby.
8.2 Performance of Covenants. Company shall have performed and
complied with all covenants, obligations and agreements to be
performed or complied with by it on or before the Closing Date
pursuant to this Agreement.
8
<PAGE>
9. TERMINATION This Agreement may be terminated prior to the Closing Date:
9.1 By Company or Purchaser if the Closing has not taken place on
or before February 21, 1997, unless extended by Purchaser and
Company in accordance with Section 3 hereto; provided, however
that such termination shall not relieve any party from
liability if such party, as of the termination date, is in
breach of any of the provisions of this Agreement.
9.2 By Purchaser, if on the Closing Date any of the conditions set
forth in Section 7 have not been satisfied, or waived by
Purchaser.
9.3 By Company, if on the Closing Date any of the conditions set
forth in Section 6 have not been satisfied, or waived by the
Company.
10. INDEMNIFICATION.
10.1 Company, jointly and severally, will defend, indemnify and
hold harmless Purchaser and any person claiming by or through
it or its successors and assigns from, against and in respect
of any and all losses, claims, and liabilities incurred by or
asserted against Purchaser or its successors or assigns in
connection with (i) any breach of any of the representations
and warranties of Company in this Agreement,(ii) any breach of
any covenant or agreement made by Company in this Agreement,
or (iii) any liability, debt or obligation of Company or lien
or encumbrance on the Assets not specifically assumed by
Purchaser in this Agreement.
10.2 Purchaser will defend, indemnify and hold harmless Company and
any person claiming by or through it or its successors and
assigns from, against and in respect of any and all loses,
claims, and liabilities incurred by or asserted against
Company or its successors or assigns in connection with (i)
any breach of any of the representations and warranties of
Purchaser in this Agreement, (ii) any breach of any covenant
or agreement made by Purchaser in this Agreement, or (iii) any
claim, liability, debt or obligation of Company with respect
to the Liabilities assumed by Purchaser in this Agreement.
11. GENERAL
11.1 Expenses, etc. Except as otherwise provided herein, whether or
not the transactions contemplated by this Agreement are
consummated, each party hereto shall pay its own expenses and
the fees and expenses of its counsel and accountants and other
experts.
11.2 Survival of Representations and Warranties. The
representations, warranties, covenants and agreements set
forth in this Agreement, the Disclosure Schedules, any other
written representation and in any ancillary document shall
survive the Closing.
11.3 Waivers. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach.
9
<PAGE>
11.4 Announcements. Each party hereto agrees that it shall
not, except as otherwise required by applicable law or
regulations, make or release any statement, announcement or
publicity with respect to this Agreement or the transactions
contemplated hereby, including written statements to
employees, customers, and suppliers, or permit any of its
officers, directors or employees to do so unless the form and
content of any such statement, announcement or publicity and
the time of release thereof shall have been approved, in
writing, by Purchaser and Company.
11.5 Binding Effect; Benefits. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and
assigns.
11.6 Notices. All notices, requests, demands and other
communications which are required to be or may be given under
this Agreement shall be in writing and shall be deemed to have
been duly given when delivered in person or transmitted by fax
or five (5) days after deposit in the U.S. mails by certified
or registered first class mail, postage prepaid, return
receipt requested, addressed to the party to whom the same is
so given or made.
11.6.1 if to Purchaser, to:
Noll Computer Systems, Inc.
2401 Gravel Street
Fort Worth, TX 76118
Attn: David Noll, President
Fax Number: (817) 284-2459
with a copy to:
McClean & Sanders
100 Main Street
Fort Worth, TX 76102
Attn: James Whitton
Fax Number: (817) 870-2265
11.6.2 if to Company to:
United Systems Technology, Inc.
3021 Gateway Drive - Suite 240
Irving, Texas 75063
Attn: Thomas E, Gibbs, President
Fax Number: (972) 580-8280
with a copy to:
Law, Snakard & Gambill
3200 Bank One Tower
500 Throckmorton Street
Fort Worth, TX 76102
Attn: Vernon Rew
Fax Number: (817) 332-7473
10
<PAGE>
or to such other address or Fax Number as any party may designate by
giving notice to the other parties hereto.
11.7 Further Assurances. The Company shall, from time to time at or
after the Closing, at the request of Purchaser, and without
further consideration, execute and deliver such other
instruments and take such other actions as may be required to
confer to Purchaser and its assignees the benefits
contemplated by this Agreement.
11.8 Entire Agreement; Amendment. This Agreement (including the
Exhibits and Disclosure Schedules hereto) constitutes the
entire agreement and supersedes all prior agreements and
understandings, oral and written, between the parties hereto
with respect to the subject matter hereof and may not be
amended, modified or terminated unless in a written instrument
executed by the party or parties sought to be bound.
11.9 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not be
deemed to be a part of this Agreement or to affect the meaning
or interpretation of this Agreement.
11.10 Severability. The invalidity of all or any part of any section
of this Agreement shall not render invalid the remainder of
this Agreement or the remainder of such section. If any
provision of this Agreement is so broad as to be
unenforceable, such provision shall be interpreted to be only
so broad as is enforceable.
11.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to
be an original and all of which together shall be deemed to be
one and the same instrument. A faxed copy of an executed
counterpart shall evidence execution.
11.12 Gender; Singular and Plural. Any reference in this Agreement
in the masculine gender shall include the feminine and neuter
genders, and vice versa, as appropriate. Any reference in this
Agreement in the singular shall mean the plural, and vice
versa, as appropriate.
11.13 Third Parties. Nothing in this Agreement, whether expressed or
implied, is intended to confer any rights or remedies on any
person other than Purchaser and Company, nor is anything in
this Agreement intended to relieve or discharge the obligation
or liability of any third party, nor shall any provision give
any third party any right of subrogation or action against any
party to this Agreement.
11.14 Governing Law; Performance. This Agreement shall be construed
as to both validity and performance and enforced in accordance
with and governed by the internal laws of the State of Texas.
This Agreement shall be performable in Tarrant County, Texas
11.15 Attorneys' Fees. In the event of any action or proceeding
arising out of or in connection with this Agreement, the
prevailing party will be entitled to all costs, expenses and
reasonable attorneys' fees incurred with or without suit and
on appeal.
11
<PAGE>
11.16 Time of Essence. Time is of the essence of this Agreement.
12
<PAGE>
DATED this 21st day of February 1997.
COMPANY: UNITED SYSTEMS TECHNOLOGY, INC.
By /s/ Thomas E. Gibbs
---------------------------
Thomas E. Gibbs, President
AND
By /s/ Randall L.McGee
--------------------------
Randall L. McGee, Secretary and Treasurer
PURCHASER: NOLL COMPUTER SYSTEMS, INC.
By /s/ J. David Noll
--------------------------
J. David Noll, President
13
<PAGE>
Capital Projects License Royalty
Agreement
This License Royalty Agreement (this "Agreement") is entered into this
21st day of February 1997, by and between UNITED SYSTEMS TECHNOLOGY, INC., an
Iowa corporation ("Company") and NOLL COMPUTER SYSTEMS, INC., a Texas
corporation ("Purchaser").
RECITALS
A. Company and Purchaser are parties to that certain Asset Purchase
Agreement dated February 21, 1997 (the "Asset Purchase Agreement")
pursuant to which the Company is selling certain of its assets to
Purchaser for the consideration set forth therein. Capitalized terms
used but not otherwise defined herein shall have the meanings given
then in the Asset Purchase Agreement; and
B. As a portion of such consideration, Purchaser is agreeing to pay to
Company a certain royalty with respect to sales by the Purchaser of
InterFundTM Capital Projects package as set forth herein.
Now, therefore, in consideration of the premises and of the mutual
agreements and covenants set forth herein, the parties do hereby agree
as follows:
AGREEMENT
1. Royalty. Purchaser hereby agrees to pay to Company a royalty (the
"Royalty") equal to twenty-five percent (25%) of the Purchaser's license
fee revenues on sales by the Purchaser of the InterFundTM Capital Projects
package software until the Company has received a total cumulative Royalty
of Fourteen Thousand Dollars ($14,000). The Purchaser's initial $24,000 of
license fee revenues on sales by the Purchaser of the InterFundTM Capital
Projects package software will be excluded from Royalty payments.
2. Accounts and Payment. Purchaser shall keep an accurate account of all
license fees actually received on sales of the InterFundTM Capital Projects
package as provided herein and shall render a statement (the "Statement")
in writing to the Company within (30) days after the end of each calendar
month during the term of this Agreement setting forth the amounts actually
received on the sales of the InterFundTM Capital Projects package.
Concurrently with the rendering of such Statement, Purchaser shall pay to
the Company the Royalties based on the cash receipts during the
corresponding calendar month. The Statement shall include the amount of
license fee revenues on the InterFundTM Capital Projects package received
during the corresponding calendar month and the computation of the Royalty
resulting from such receipts.
3. Grant of Security Interest. Purchaser hereby grants to the Company a
security interest in the following described property hereafter called
"collateral": The InterFundTM Capital Projects package and the extensions,
improvements, refinements and changes thereto and such records, documents,
writings, computer records, disks, tapes and other means that are
reproducible that are associated with the InterFundTM Capital Projects
package. This grant is made for the purpose of securing payment of the
obligations set forth herein and any and all extensions and renewals of or
substitutes for any part thereof. Purchaser agrees to punctually pay such
obligations when due.
14
<PAGE>
Purchaser agrees that for the term of this Royalty Agreement it will not,
without the prior written consent of the Company, 1) sell, assign,
transfer, exchange or otherwise dispose of the InterFundTM Capital
Projects package, 2) grant a lien or security interest in or execute,
file or record any financing statement or other security instrument
with respect to the InterFundTM Capital Projects package to any third
party other than the Company, or 3) convey actual or constructive
possession of the InterFundTM Capital Projects package to any party
other than the Company, except granting licenses in the ordinary
course of business. Purchaser hereby agrees to sign one or more
financing statements and any required amendments thereto, to fully
reflect Company's security interest in the InterFundTM Capital
Projects package.
4. Representations, Warranties and Agreements of Purchaser. Purchaser
represents, warrants and agrees as follows:
Purchaser's principal place of business will be 2401 Gravel Street, Fort
Worth, Texas, 76118 effective as of the signing of this agreement and
Purchaser shall promptly give Company written notice of any change
thereto. All tangible collateral and all of Purchaser's business
records, including those pertaining to the collateral, shall be kept
at the above address. In the event that the Purchaser's principal
place of business changes, the Purchaser shall notify the Company in
writing within 30 days of such change of address.
5. Term. The term of this Agreement shall be for the period ending on the date
that the Royalty amount of Fourteen Thousand Dollars ($14,000) is paid
hereunder.
6. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been given when delivered in accordance with
Section 10.6 of the Asset Purchase Agreement.
7. Binding Effects; Benefits. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
15
<PAGE>
8. Entire Agreement: Amendment. This Agreement constitutes the entire
Agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings, oral and
written, between the parties hereto and may not be amended, modified or
terminated unless in a written instrument executed by the party of
parties sought to be bound.
10. Headings. This section and other headings contained in this Agreement are
for reference purposes only and shall not be deemed to be a part of this
Agreement or to affect the meaning or interpretation of this Agreement.
11. Severability. The invalidity of all or any part of any section of this
Agreement shall not render invalid the remainder of this Agreement or the
remainder of such section. If any provision of this Agreement is so broad
as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
12. Counterparts. This Agreement may be executed in any number of counterparts,
each of which, when executed, shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument. A faxed
copy of an executed counterpart shall evidence execution.
13. Gender; Singular and Plural. Any reference in this Agreement in the
masculine gender shall include the feminine and neuter genders, and vice
versa, as appropriate. Any reference in the Agreement in the singular shall
mean plural, and vice versa, as appropriate.
14. Third Parties. Nothing in the Agreement, whether expressed or implied, is
intended to confer any rights or remedies on any person other than the
Purchaser and the Company, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third party, nor
shall any provision give any third party any right of subrogation or action
against any party to this Agreement.
15. Governing Law; Performance. This Agreement shall be construed as to both
validity and performance and enforced in accordance with and governed by
the internal laws of the State of Texas. This Agreement shall be
performable in Tarrant County, Texas.
16. Attorneys' Fees. In the event of any action or proceeding arising out of or
in connection with this Agreement, the prevailing party will be entitled to
all costs, expenses and reasonable attorneys' fees incurred with or without
suit on appeal.
16
<PAGE>
DATED this 21st day of February 1997.
COMPANY: UNITED SYSTEMS TECHNOLOGY, INC.
By /s/ Thomas E. Gibbs
---------------------------
Thomas E. Gibbs, President
AND
By /s/ Randall L.McGee
--------------------------
Randall L. McGee, Secretary and Treasurer
PURCHASER: NOLL COMPUTER SYSTEMS, INC.
By /s/ J. David Noll
--------------------------
J. David Noll, President
17
<PAGE>
Business Tax License Royalty
Agreement
This License Royalty Agreement (this "Agreement") is entered into this
21st day of February 1997, by and between UNITED SYSTEMS TECHNOLOGY, INC., an
Iowa corporation ("Company") and NOLL COMPUTER SYSTEMS, INC., a Texas
corporation ("Purchaser").
RECITALS
A. Company and Purchaser are parties to that certain Asset Purchase
Agreement dated February 21, 1997 (the "Asset Purchase Agreement")
pursuant to which the Company is selling certain of its assets to
Purchaser for the consideration set forth therein. Capitalized terms
used but not otherwise defined herein shall have the meanings given
then in the Asset Purchase Agreement; and
B. As a portion of such consideration, Purchaser is agreeing to pay to
Company a certain royalty with respect to sales by the Purchaser of
InterFundTM Business Tax package as set forth herein.
Now, therefore, in consideration of the premises and of the mutual
agreements and covenants set forth herein, the parties do hereby agree
as follows:
AGREEMENT
1 Royalty. Purchaser hereby agrees to pay to Company a royalty (the
"Royalty") equal to twenty-five percent (25%) of the Purchaser's license
fee revenues on sales by the Purchaser of the InterFundTM Business Tax
package software until the Company has received a total cumulative Royalty
of Four Thousand Dollars ($4,000). The Purchaser's initial $4,000 of
license fee revenues on sales by the Purchaser of the InterFundTM Business
Tax package software will be excluded from Royalty payments.
2. Accounts and Payment. Purchaser shall keep an accurate account of all
license fees actually received on sales of the InterFundTM Business Tax
package as provided herein and shall render a statement (the "Statement")
in writing to the Company within (30) days after the end of each calendar
month during the term of this Agreement setting forth the amounts actually
received on the sales of the InterFundTM Business Tax package.
Concurrently with the rendering of such Statement, Purchaser shall pay to
the Company the Royalties based on the cash receipts during the
corresponding calendar month. The Statement shall include the amount of
license fee revenues on the InterFundTM Business Tax package received
during the corresponding calendar month and the computation of the Royalty
resulting from such receipts.
3. Grant of Security Interest. Purchaser hereby grants to the Company a
security interest in the following described property hereafter called
"collateral": The InterFundTM Business Tax package and the extensions,
improvements, refinements and changes thereto and such records, documents,
writings, computer records, disks, tapes and other means that are
reproducible that are associated with the InterFundTM Business Tax package.
This grant is made for the purpose of securing payment of the obligations
set forth herein and any and all extensions and renewals of or substitutes
for any part thereof. Purchaser agrees to punctually pay such obligations
when due.
18
<PAGE>
Purchaser agrees that for the term of this Royalty Agreement it will not,
without the prior written consent of the Company, 1) sell, assign,
transfer, exchange or otherwise dispose of the InterFundTM Business Tax
package, 2) grant a lien or security interest in or execute, file or
record any financing statement or other security instrument with
respect to the InterFundTM Business Tax package to any third party other
than the Company, or 3) convey actual or constructive possession of the
InterFundTM Business Tax package to any party other than the Company,
except granting licenses in the ordinary course of business. Purchaser
hereby agrees to sign one or more financing statements and any required
amendments thereto, to fully reflect Company's security interest in the
InterFundTM Business Tax package.
4. Representations, Warranties and Agreements of Purchaser. Purchaser
represents, warrants and agrees as follows:
Purchaser's principal place of business will be 2401 Gravel Street, Fort
Worth, Texas, 76118 effective as of the signing of this agreement and
Purchaser shall promptly give Company written notice of any change thereto.
All tangible collateral and all of Purchaser's business records, including
those pertaining to the collateral, shall be kept at the above address. In
the event that the Purchaser's principal place of business changes, the
Purchaser shall notify the Company in writing within 30 days of such change
of address.
5. Term. The term of this Agreement shall be for the period ending on the date
that the Royalty amount of Four Thousand Dollars ($4,000) is paid
hereunder.
6. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been given when delivered in accordance with
Section 10.6 of the Asset Purchase Agreement.
7. Binding Effects; Benefits. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
19
<PAGE>
8. Entire Agreement: Amendment. This Agreement constitutes the entire
Agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings, oral and
written, between the parties hereto and may not be amended, modified or
terminated unless in a written instrument executed by the party of parties
sought to be bound.
9. Headings. This section and other headings contained in this Agreement are
for reference purposes only and shall not be deemed to be a part of this
Agreement or to affect the meaning or interpretation of this Agreement.
10. Severability. The invalidity of all or any part of any section of this
Agreement shall not render invalid the remainder of this Agreement or the
remainder of such section. If any provision of this Agreement is so broad
as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
11. Counterparts. This Agreement may be executed in any number of counterparts,
each of which, when executed, shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument. A faxed
copy of an executed counterpart shall evidence execution.
12. Gender; Singular and Plural. Any reference in this Agreement in the
masculine gender shall include the feminine and neuter genders, and vice
versa, as appropriate. Any reference in the Agreement in the singular shall
mean plural, and vice versa, as appropriate.
13. Third Parties. Nothing in the Agreement, whether expressed or implied, is
intended to confer any rights or remedies on any person other than the
Purchaser and the Company, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third party, nor
shall any provision give any third party any right of subrogation or action
against any party to this Agreement.
14. Governing Law; Performance. This Agreement shall be construed as to both
validity and performance and enforced in accordance with and governed by
the internal laws of the State of Texas. This Agreement shall be
performable in Tarrant County, Texas.
15. Attorneys' Fees. In the event of any action or proceeding arising out of or
in connection with this Agreement, the prevailing party will be entitled to
all costs, expenses and reasonable attorneys' fees incurred with or without
suit on appeal.
20
<PAGE>
DATED this 21st day of February 1997.
COMPANY: UNITED SYSTEMS TECHNOLOGY, INC.
By /s/ Thomas E. Gibbs
---------------------------
Thomas E. Gibbs, President
AND
By /s/ Randall L.McGee
--------------------------
Randall L. McGee, Secretary and Treasurer
PURCHASER: NOLL COMPUTER SYSTEMS, INC.
By /s/ J. David Noll
--------------------------
J. David Noll, President
21
<PAGE>
Maintenance Royalty Agreement
This Maintenance Royalty Agreement (this "Agreement") is entered into
this 21st day of February 1997, by and between UNITED SYSTEMS TECHNOLOGY, INC.,
an Iowa corporation ("Company") and NOLL COMPUTER SYSTEMS, INC., a Texas
corporation ("Purchaser").
RECITALS
A. Company and Purchaser are parties to that certain Asset Purchase
Agreement dated February 21, 1997 (the "Asset Purchase Agreement")
pursuant to which the Company is selling certain of its assets to
Purchaser for the consideration set forth therein. Capitalized terms
used but not otherwise defined herein shall have the meanings given
then in the Asset Purchase Agreement; and
B. As a portion of such consideration, Purchaser is agreeing to pay to
Company a certain royalty with respect to the renewals of maintenance
contracts with certain InterFundTM customers added since October 1994
as set forth herein and in Exhibit A attached here.
Now, therefore, in consideration of the premises and of the mutual
agreements and covenants set forth herein, the parties do hereby agree
as follows:
AGREEMENT
1. Royalty. Purchaser hereby agrees to pay to Company a royalty (the
"Royalty") equal to fifteen percent (15%) of the Purchaser's
maintenance fee revenues on renewals of certain customer accounts as
listed in Exhibit A hereto. This royalty will be paid to the Company
by the Purchaser on the three annual renewals subsequent to the
signing of this Agreement, it being understood that if after the
signing of this Agreement, an InterFund customer listed in Exhibit A
does not renew its maintenance coverage and does not pay the related
maintenance revenue to the Purchaser, said Royalty will not be due to
Company.
2. Accounts and Payment. Purchaser shall keep an accurate account of all
maintenance fees actually received for the accounts listed on Exhibit
A as provided herein and shall render a statement (the "Statement") in
writing to the Company within (30) days after the end of each calendar
month during the term of this Agreement setting forth the amounts
actually received from the customers listed on Exhibit A for annual
maintenance fees for the three annual renewals subsequent to the
signing of this Agreement. Concurrently with the rendering of such
Statement, Purchaser shall pay to the Company the Royalties based on
the cash receipts during the corresponding calendar month. The
Statement shall include the amount of maintenance fee revenues from
the customers listed on Exhibit A received during the corresponding
calendar month and the computation of the Royalty resulting from such
receipts.
3. Grant of Security Interest. Purchaser hereby grants to the Company a
security interest in the following described property hereafter called
"collateral": The InterFundTM maintenance contracts with certain
InterFundTM customers added since October 1994 a set forth in Exhibit
A attached hereto. This grant is made for the purpose of securing
payment of the obligations set forth herein and any and all extensions
and renewals of or substitutes for any part thereof. Purchaser agrees
to punctually pay such obligations when due.
22
<PAGE>
Purchaser agrees that for the term of this Royalty Agreement it will
not, without the prior written consent of the Company, 1) sell,
assign, transfer, exchange or otherwise dispose of the InterFundTM
customers listed on Exhibit A, 2) grant a lien or security
interest in of execute,file or record any financing statement
or other security instrument with respect to the InterFundTM customers
listed on Exhibit A to any third party other than the Company, or 3)
convey actual or constructive possession of the InterFundTM customers
listed on Exhibit A to any party other than the Company. Purchaser
hereby agrees to sign one or more financing statements and any
required amendments thereto, to fully reflect Company's security
interest in the InterFundTM customers listed on Exhibit A.
4. Representations, Warranties and Agreements of Purchaser. Purchaser
represents, warrants and agrees as follows:
Purchaser's principal place of business will be 2401 Gravel Street,
Fort Worth, Texas, 76118 effective as of the signing of this
agreement and Purchaser shall promptly give Company written notice of
any change thereto. All Tangible collateral and all of Purchaser's
business records, including those pertaining to the collateral, shall
be kept at the above address. In the event that the Purchaser's
principal place of business changes, the Purchaser shall notify the
Company in writing within 30 days of such change of address.
5. Term. The term of this Agreement shall be for the period ending on the
date that all Royalty amounts to be paid to the Company by the
Purchaser on the three annual renewals subsequent to the singing of
this Agreement for the customers listed on Exhibit A are paid
hereunder.
6. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered in
accordance with Section 10.6 of the Asset Purchase Agreement.
7. Binding Effects; Benefits. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
8. Entire Agreement: Amendment. This Agreement constitutes the entire
Agreement between the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings,
oral and written, between the parties hereto and may not be amended,
modified or terminated unless in a written instrument executed by the
party of parties sought to be bound.
9. Headings. This section and other headings contained in this Agreement
are for reference purposes only and shall not be deemed to be a part
of this Agreement or to affect the meaning or interpretation of this
Agreement.
10. Severability. The invalidity of all or any part of any section of this
Agreement shall not render invalid the remainder of this Agreement or
the remainder of such section. If any provision of this Agreement is
so broad as to be unenforceable, such provision shall be interpreted
to be only so broad as is enforceable.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an
original and all of which together shall be deemed to be one and the
same instrument. A faxed copy of an executed counterpart shall
evidence execution.
12. Gender; Singular and Plural. Any reference in this Agreement in the
masculine gender shall include the feminine and neuter genders, and
vice versa, as appropriate. Any reference in the Agreement in the
singular shall mean plural, and vice versa, as appropriate.
23
<PAGE>
13. Third Parties. Nothing in the Agreement, whether expressed or implied,
is intended to confer any rights or remedies on any person other than
the Purchaser and the Company, nor is anything in this Agreement
intended to relieve or discharge the obligation or liability of any
third party, nor shall any provision give any third party any right of
subrogation or action against any party to this Agreement.
14. Governing Law; Performance. This Agreement shall be construed as to
both validity and performance and enforced in accordance with and
governed by the internal laws of the State of Texas. This Agreement
shall be performable in Tarrant County, Texas.
15. Attorneys' Fees. In the event of any action or proceeding arising out
of or in connection with this Agreement, the prevailing party will be
entitled to all costs, expenses and reasonable attorneys' fees
incurred with or without suit on appeal.
24
<PAGE>
DATED this 21st day of February 1997.
COMPANY: UNITED SYSTEMS TECHNOLOGY, INC.
By /s/ Thomas E. Gibbs
---------------------------
Thomas E. Gibbs, President
AND
By /s/ Randall L.McGee
--------------------------
Randall L. McGee, Secretary and Treasurer
PURCHASER: NOLL COMPUTER SYSTEMS, INC.
By /s/ J. David Noll
--------------------------
J. David Noll, President
25
<PAGE>
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<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 67252 139234
<SECURITIES> 0 0
<RECEIVABLES> 253692 368803
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<CURRENT-ASSETS> 321223 516351
<PP&E> 115738 164962
<DEPRECIATION> 336621 501151
<TOTAL-ASSETS> 1278480 2210802
<CURRENT-LIABILITIES> 1110927 1448786
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<TOTAL-LIABILITY-AND-EQUITY> 1278480 2210802
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<CHANGES> 0 0
<NET-INCOME> (634625) (867005)
<EPS-PRIMARY> (0.02) (0.03)
<EPS-DILUTED> 0 0
</TABLE>
