U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - FOR THE QUARTERLY PERIOD ENDED March 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________TO_______________
COMMISSION FILE NUMBER 0-25380
ULTRADATA SYSTEMS, INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 43-1401158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9375 Dielman Industrial Drive, St. Louis, MO 63132
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (314)997-2250
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No_____
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding as of March 31, 1996
Common, $.01 par value 2,377,706
Transitional Small Business Disclosure Format Yes_____ No X
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
March 31, 1996
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995 3.
Consolidated Statements of Income
for the quarters ended March 31, 1996 and 1995 4.
Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and 1995 5.
Notes to Consolidated Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8.
PART 11 - OTHER INFORMATION 11.
Signatures 12.
Item 1. Financial Statements
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
March 31, December 31,
1996 1995
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,388,473 $ 15,065
Marketable securities 0 800,000
Trade accounts receivable, net of allowance for
doubtful accounts of $8,500 and $15,000 at
March 31, 1996 and December 31, 1995
respectively 229,836 2,794,254
Costs and estimated earnings on long-
term contracts 968,673 612,317
Inventories 2,274,398 1,954,584
Deferred tax assets 49,515 49,515
Prepaid expenses and other current assets 150,066 122,852
Total current assets 5,060,961 6,348,587
Property and equipment, net 435,569 403,023
Deferred compensation trust 83,164 83,164
Other assets 13,583 17,538
Total assets $ 5,593,277 $ 6,852,312
Liabilities and Stockholders' Equity
Current liabilities:
Note payable to bank $ 0 $ 448,000
Accounts payable 528,258 673,216
Accrued expenses and other liabilities 65,337 588,732
Total current liabilities 593,595 1,709,948
Deferred rent, less current portion 3,110 1,244
Deferred compensation liability 83,164 83,164
Deferred tax liabilities 23,060 23,060
Total liabilities 702,929 1,817,416
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,377,706 and 2,351,171 shares
issued and outstanding at March 31, 1996
and December 31, 1995, respectively. $ 23,757 $ 23,512
Additional paid-in capital 3,750,035 3,601,030
Retained earnings 1,527,056 1,820,854
Notes receivable issued for purchase of common
stock (410,500) (410,500)
Total stockholders' equity 4,890,348 5,034,896
Total liabilities and stockholders'
equity $ 5,593,277 $ 6,852,312
See accompanying notes to consolidated financial statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Month Period ended March 31,
1996 1995
(unaudited)
Net sales
Consumer products $ 502,306 $ 2,268,393
Contract revenues 356,356 24,580
Total Net Sales 858,662 2,292,973
Cost of sales
Consumer products 237,073 1,114,222
Contracts 152,042 12,812
Total Cost of Sales 389,115 1,127,034
Gross Profit 469,547 1,165,939
Selling, general & administrative
expenses 761,570 510,091
Research & development
expenses 206,040 81,609
Operating (Loss) Income (498,063) 574,239
Other income (expense)
Interest expense (1,418) (2,183)
Interest income 25,023 39,626
Other, net 587 (6,977)
Total Other Income 24,192 30,466
(Loss) Income before income
tax (benefit) expense (473,871) 604,705
Income tax (benefit) expense (180,071) 244,506
Net (loss) income $ (293,800) $ 360,199
Earnings (loss) per common and
common equivalent share
Primary $(0.09) $0.14
Fully Diluted (0.09) 0.14
Weighted average common and
common equivalent shares
outstanding 2,377,706 2,751,032
See Accompanying Notes to Consolidated Financial Statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Month Period ended March 31,
1996 1995
(unaudited)
Cash flows from operating activities.
Net (Loss) Income $ (293,800) $ 360,199
Adjustments to reconcile net (loss) income
to net cash provided by operations:
Depreciation 16,250 10,800
Discount accretion 0 (25,540)
Decrease in accounts receivable, net 2,564,418 270,806
(Increase) decrease in inventories (319,814) 123,963
(Increase) decrease in deferred
offering costs (31,897) 183,208
(Increase) in costs and estimated earnings
on long-term contracts (356,356) 0
Decrease in prepaid expenses and other
current assets 4,683 279
Decrease in accounts payable (144,956) (359,237)
Decrease in accrued expenses
and other liabilities (523,394) (45,942)
Decrease (increase)in deferred rent 1,866 (775)
Increase (decrease) in deferred income
taxes, net 0 3,500
Net cash provided by operating activities 917,000 531,671
Cash flows from investing activities:
Purchase of marketable securities 0 (2,201,112)
Capital expenditures (48,796) (71,377)
Sale of marketable securities 800,000 0
Sale of certificates of deposit 0 50,000
Decrease in other assets 3,954 10,410
Net cash provided by (used in) investing
activities 755,158 (2,222,489)
Cash flows from financing activities:
(Repayment) borrowing on line of credit (448,000) 104,000
(Repayment) of bridge loan financing 0 (135,000)
(Increase) in deferred compensation trust 0 (1,956)
Proceeds from sale of stock 149,250 1,480,072
Decrease in deferred compensation liability 0 1,956
Net cash (used in) provided by financing
activities (298,750) 1,449,072
Net increase (decrease) in cash and
cash equivalents 1,373,408 (241,746)
Cash and cash equivalents at beginning of
period 15,065 636,550
Cash and cash equivalents at end of period $ 1,388,473 $ 394,804
Supplemental disclosurs of cash flow information:
Cash paid during the period for interes $ 3,499 $ 5,571
Cash paid during the period for taxes 325,000 185,000
See Accompanying Notes to Consolidated Financial Statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying consolidated interim financial statements included herein
have been prepared by Ultradata Systems, Incorporated (the "Company"),
without audit, except for the consolidated balance sheet at December 31,
1995, in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures made are adequate to make the information presented not
misleading.
The consolidated financial statements include the accounts of Ultradata
Systems, Incorporated and its majority-owned subsidiary, POIS, Inc.(POIS).
As a result of operating losses incurred by POIS, the consolidated financial
statements include 100% of the POIS accounts since the minority interest does
not currently have the ability to absorb these losses. All significant
intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, the information furnished for the quarters ended
March 31, 1996 and 1995, respectively, includes all adjustments, consisting
solely of normal recurring accruals necessary for a fair presentation of the
financial results for the respective interim periods and is not necessarily
indicative of the results of operations to be expected for the entire fiscal
year ending December 31, 1996. It is suggested that the interim financial
statements be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 1995, as filed with the Securities
and Exchange Commission on Form 10-KSB (Commission File Number 0-25380).
NOTE 2 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
During 1996, earnings per common and common equivalent share are based on the
weighted average number of common shares outstanding plus shares issuable
upon the assumed exercise of dilutive common share options and warrants by
using the modified treasury stock method. However, for the quarter ended
March 31, 1996, the inclusion of common share options and warrants were
antidilutive and were excluded from the computation. For 1995, earnings per
common share and common equivalent share are based on the average
r 1995 for consideration below the initial public offering price
(See Note 2). For the quarters ended March 31, 1996 and 1995, the earnings
per common and common equivalent share are computed using common shares and
common share equivalents outstanding, respectively.
NOTE 3 - INCENTIVE STOCK OPTION PLAN
As of March 31, 1996, the company's outstanding stock options totaled 162,992
shares. These options have been issued to key employees, officers, directors
and consultants of the Company. The Company is authorized to issue 175,000
shares of incentive stock options or non-qualified stock options. All
outstanding stock options were exercisable at March 31, 1996 at prices
ranging from $5.00 to $6.75 per share.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The analysis of the Company's financial condition, capital resources and
operating results should be viewed in conjunction with the accompanying
consolidated financial statements, including the notes thereto.
RESULTS OF OPERATIONS
Quarter ended March 31, 1996 as compared to the quarter ended March 31, 1995.
Net sales for the quarter ended March 31, 1996 were $858,662 compared to
$2,292,973 for the quarter ended March 31, 1995. The following shows a
breakdown and comparison of these revenues.
Three months ended Increase
March 31, (Decrease)
REVENUES 1996 1995
Consumer Products $ 502,306 $2,268,393 (78)%
Contract Revenues 356,356 24,580 1,350%
Total $ 858,662 $2,292,973 (63)%
Consumer Products revenue for the quarter ended March 31, 1996 declined by
$1,766,087 which represents a 77.8% decrease from the quarter ending March
31, 1995. The decrease in revenue is attributed to a "Today's Special Value"
(TSV) promotion with the QVC Network, the Company's largest customer, during
the quarter ended March 31, 1995. This "TSV" promotion for the quarter ended
March 31, 1995, totaled $1,102,500, representing 63.4% of the quarterly sales
to QVC of $1,597,500. The "TSV" promotion for the first quarter of this
fiscal year was held on January 4, 1996 which necessitated the Company to
ship and recognize the sale in the fourth quarter of 1995. The QVC Network
requires that products be delivered and available before a product is offered
to its customer. Exclusive of the "TSV" promotion, consumer product sales
decreased $753,587 or 60.0%. Revenues were also affected by a very harsh
winter, resulting in decreased demand during the first quarter for the
Company's travel products. This lower demand resulted in overstock
conditions for many retail outlets and catalog customers, causing a delay in
purchase decisions. The Company believes that a return to normal ordering
activity will occur in the second quarter and expects the growth of the past
several years to continue.
Contract revenues for the quarter totaled $356,356 as compared to $24,580 for
the same period last year. The Company's minimal contract revenue for the
prior year's quarter was attributed to residual activities on a systems
research and development contract, which subsequently led to a $1.7 million
production contract for laser pointing and tracking systems (PATS) received
on August 9, 1995. That production contract has recorded $356,356 in
revenues for the first quarter. The Company recognizes revenues on a
percentage of completion method pursuant to the terms of the contract.
Gross profit for the consumer product group totaled $265,233 or 52.8% of
consumer product sales for the quarter compared to $1,154,171 or 50.9% of
sales for the quarter ended March 31, 1995. Gross margin as a percentage of
sales has stabilized during the past year and has ranged between 50-52% for
each of the past five quarters. Gross profit for the contract revenues was
$204,314 or 57.3% of revenues for the quarter ended March 31, 1996 compared
to $11,768 or 47.9% of revenues for the quarter ended March 31, 1995. Gross
profit as a percentage of net contract sales are not comparable between the
periods.
Selling, general and administrative (SG&A) expenses for the quarter totaled
$761,570 as compared to $510,091 for the same quarter last year, representing
a 49.3% increase over the same period last year. SG&A expenses increased as
a result of initiatives taken by management to accommodate the continuing
expansion of the Company, especially with respect to increased activities in
sales, marketing and advertising. Higher advertising and marketing
expenses were attributed to expanded use of print media, including product
literature and brochures. Advertisements were placed in a number of road and
travel publications, SkyMall Magazine, and targeted consumer specialty
publications. This reflects the company's strategy to increase its name
recognition, to support new product offerings, and to maintain its market
leadership. Such strategies were executed consistent with the additional
equity made available from the initial public offering. Consequently,
staffing has increased from 18 full-time employees at March 31, 1995 to 27
full-time employees at March 31, 1996. The Company's expansion has
necessitated increases in both office and warehouse space. On November 1,
1995 the Company almost doubled its warehouse and office space from 5,000
square feet to 9,952 square feet.
Research and development expense increased $124,431, or 152.5%, to $206,040
during the quarter ended March 31, 1996 as compared to the same period last
year. The Company's research and development efforts have focused on five
new products which are scheduled for release in the latter half of this year.
These five new products are: (1) TRIPLINK, a travel computer to be sold with
a CD ROM for use with personal computers configured with CD ROM drives
(2) TIME TRACKER, an electronic device which attaches to a cellular phone and
enables users to track their actual phone costs (3) EUROROAD, the Company's
first entry into the European market with a multiple language travel
computer (4) TOWN & COUNTRY, an expanded Road Whiz Ultra to be marketed
exclusively by the QVC Network and (5) the POIS 496 Navigator System,
introducing the Company's first onboard navigation product. Research and
development expense attributed to POIS for the quarter totaled $108,055 or
52.4% of the $206,040 spent during the quarter versus an expenditure of
$47,914, or 58.7% for the same period last year. The Company anticipates
a continuation of research and development expenses for the remainder of the
year. The Comapny projects that such expenses will approximate 5-7% of net
sales for the foreseeable future.
Interest income for the quarter ended March 31, 1996 totaled $25,023, as
compared to $39,626 for the quarter ended March 31, 1995. Smaller investable
balances were available during the first quarter of this year as more of the
proceeds from the initial stock offering have been expended within the
business for increased sales and marketing, additional staffing, and research
and development. Also, the Company has moved towards more liquid investments
in order to avoid short term borrowing against the line of credit prior to
invested funds reaching their maturities. These more liquid short term
investments carry a lower interest rate.
As a result of the foregoing, the Company incurred a net loss of $293,800, or
$(0.09) per share for the quarter ended March 31, 1996 versus net income of
$360,199, or $0.14 per share for the quarter ended March 31, 1995.
FINANCIAL CONDITION AND LIQUIDITY
The Company has funded its operations primarily through the sale of Common
Stock in an initial public offering totaling $1,492,572 , net of expenses,
and through periodic borrowings, and, more recently from cash generated by
operations. As of March 31, 1996, the Company had $1,388,473 in cash and cash
equivalents. The Company's operating activities provided $917,000 for the
first quarter, exclusive of depreciation and other non-cash expenses. Net
cash totaling $755,158 was provided from investing activities consisting of the
sale of marketable securities for $800,000, partially offset by $48,796 used
for capital additions. Net cash was used by financing activities which
included a $448,000 repayment of bank borrowings, offset by $149,250 net
proceeds from the sale of stock. The Company's current ratio at March 31,
1996 was 8.53 to 1 as compared to 3.71 at December 31, 1995. The combined
effects of increased funding as a result of the initial public offering, as
well as profitable operations for FY-95 have improved the Company's liquidity.
Inventories increased $319,814 from the December 31, 1995 level to $2,274,398
as of March 31, 1996. This was a result of increased purchases to support
higher production levels. The utilization of a second source foreign
manufacturer has added approximately four weeks to the lead time required for
receiving finished products. Accounts receivable decreased $2,564,418 from
the December 31, 1995 balance to $229,836 at March 31, 1996. This decrease is
a seasonal occurrence as 43.9% of consumer products sales were recorded in
the fourth quarter of last year. These receivables were subsequently
collected during the first quarter.
Capital expenditures for the quarter ended March 31, 1996 totaled $48,796 as
a result of additional leasehold improvements, purchases of office furniture,
and the purchase of additional production equipment.
The Company has a line of credit with a commercial bank of $1.0 million
secured by accounts receivable and inventories. As of March 31, 1996 the
borrowing against this line of credit was zero. The Company has recently
negotiated an increase in its line of credit to a $2.0 million unsecured basis
with a $500,000 facility for letters of credit, bringing the total credit
available to $2.5 million.
Based upon its current operating plan, the Company believes that the
liquidity provided by its existing cash and cash equivalents, the borrowing
arrangement described above, and the cash generated from operations will be
sufficient to meet the Company's operating and capital requirements for
fiscal 1996.
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits -Following
Exhibit No. Description of Exhibit
10.12 Licensing Agreement between Kineticom, Inc. and
Ultradata Systems, Inc. dated March 15, 1996.
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 13, 1996 /s/ Monte Ross
Monte Ross, President and CEO
(Duly authorized officer and principal
financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,388,473
<SECURITIES> 0
<RECEIVABLES> 238,336
<ALLOWANCES> (8,500)
<INVENTORY> 2,274,398
<CURRENT-ASSETS> 5,060,961
<PP&E> 692,950
<DEPRECIATION> (257,381)
<TOTAL-ASSETS> 5,593,277
<CURRENT-LIABILITIES> 593,595
<BONDS> 0
0
0
<COMMON> 23,757
<OTHER-SE> 4,866,591
<TOTAL-LIABILITY-AND-EQUITY> 5,593,277
<SALES> 858,662
<TOTAL-REVENUES> 884,272
<CGS> 389,115
<TOTAL-COSTS> 967,610
<OTHER-EXPENSES> 25,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,023
<INCOME-PRETAX> (473,871)
<INCOME-TAX> (180,071)
<INCOME-CONTINUING> (473,871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (293,800)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
PRELIMINARY LICENSING AGREEMENT BETWEEN
KINETICOM, INC., AND ULTRADATA SYSTEMS, INC.
Kineticom, Inc. (hereinafter, "Kineticom"), agrees to grant a license to
Ultradata Systems, Inc. (hereinafter, "Ultradata"), for the manufacture and
distribution of the product known as the "Time TrackerTM (hereinafter
referred to as "the product"). The product is a battery-powered device,
which, when properly programmed and installed on or in close proximity to a
cellular telephone, will record cellular telephone usage and provide data
regarding the estimated cost of usage to date, unspent "free" time remaining,
etc.
The license shall be granted, subject to the following terms and conditions:
Producibility -- This entire agreement is conditional upon Kineticom
providing evidence, satisfactory to Ultradata, that an economically
producible design has been achieved. Evidence shall include detailed product
design documentation and a bid from at least one competent electronic
manufacturer.
Exclusivity -- Ultradata shall have the exclusive right to manufacture the
product for and distribute the product in the United States and Europe.
Kineticom shall retain those same rights in all other markets.
Period of Effectivity -- This agreement shall be effective until a date 18
months from the first day of the month in which the agreement is signed and
is subject to renewal at that time and at each 12-month interval thereafter,
according to the terms defined below.
Renewal Terms -- Renewal shall be automatic, at Ultradata's option, provided
that sales of 50,000 units or more have been achieved in the 12-month
interval prior to the initial renewal date and also provided that sales of
200,000 units or more have been achieved prior to each subsequent renewal date.
Should Ultradata fail to achieve this sales volume, Ultradata may, at its
option, retain the right to manufacture and sell the product in the markets
named above, but exclusivity will be lost. In the event that the license is
not renewed, Ultradata shall have 12 months from the license expiration date
to dispose of inventory. However, Kineticom may, at its option, purchase any
remaining product inventory at its special price defined below. Kineticom
may also, at its option, purchase residual component inventory at the lesser
of cost or market value.
Abandonment and Termination -- Should Ultradata fail to spend at least
$50,000 per quarter in promoting, developing, and improving the product,
beginning now and through the quarter the calendar quarter that starts on
October 1, 1996 (as the first quarter), such failure to support the product
will be considered abandonment and all rights of Ultradata under this
agreement shall be forfeited.
If at any time achieved sales are insufficient, in Ultradata's judgment, to
justify the continued investment required above, Ultradata shall have the
unilateral right to terminate this agreement, upon payment of all royalties
due to Kineticom at the time such termination right is exercised.
Royalties -- In consideration of this licensing agreement, Ultradata agrees
to pay a royalty of 18% of the gross profit on each unit. "Gross Profit" is
defined as the net selling price of each unit minus the cost of manufacture
for that unit minus product-specific support costs resulting from a Time
Tracker "800" number for product support. "Net Selling Price" is defined as
the price paid to Ultradata by Ultradata"s customer, less any sales taxes, ad
allowances, rebates, or returns. The "Cost of Manufacture" for a unit is
defined as the cost of parts furnished to the assembler by Ultradata plus
the cost to Ultradata of labor and parts furnished by the assembler.
Payment of Royalties -- Royalties will be paid to Kineticom as follows:
1) $50,000 within 90 days of execution of this document, provided that
initial market trials of prototype units have shown market acceptance as
evidenced by the sale of those units to distributors and consumers.
2) $20,000 quarterly beginning October 1, 1996, and on the first day of the
three subsequent calendar quarters and $15,000 monthly thereafter on the
first day of each month.
3) Within 45 days of the end of each quarter, if the royalties due exceed the
cumulative payments already made through items (1) and (2) above, Ultradata
will pay any additional royalties due. If the royalties due fail to exceed
the payments already made through items (1) and (2) above, no additional
payment shall be due. In no event shall Kineticom be called upon to refund
any royalty payments made through items (1) and (2) above. These payments
constitute the minimum royalty in order for Ultradata to retain exclusive
licensing rights in the targeted markets named above.
Kineticom Support -- Kineticom agrees to provide reasonable technical and
marketing support when requested by Ultradata, throughout the period of this
agreement. Kineticom agrees to provide this support as a part of this
agreement and without further compensation from Ultradata other than
royalties as defined above.
Kineticom agrees to provide and hereby licenses (at no additional cost to
Ultradata) all relevant documentation and information relating to the product
and to assist in its interpretation and proper use. Such information shall
include, but is not limited to design documentation, microcode, promotional
materials, market studies, cost data, distribution channels/sales contacts,
or other information that will assist in the development, distribution, and
sale of the product.
Accounting -- Ultradata agrees to provide a quarterly accounting of all
expenditures made by it in promoting and developing the product. Ultradata
also agrees to provide quarterly reports detailing the net selling price of
each unit, the cost of manufacturing each unit, the cost of product-specific
"800" number support, and the calculated royalty due based on such
information. Kineticom is authorized by Ultradata to employ the services of
an independent auditor to audit these results should it choose to do so. In
the event of an audit, Kineticom will bear the cost of any charges incurred.
Intellectual Property -- The product concept and initial hardware and
firmware design are and shall remain the property of Kineticom.
Product improvements made or suggested by Kineticom during the life of this
agreement shall be the property of Kineticom and will be covered under the
agreement as if they were included in the original design.
Design and producibility improvements made to the product by Ultadata will be
the property of Ultradata. Ultradata hereby conveys a royalty-free license
to Kineticom for the use of the improvements by it or its licensees in
markets retained by Kineticom. Ultradata will convey a royalty-free license
to Kineticom for the use of these improvements by it or its licensees in
markets licensed to Ultradata upon termination of the license agreement, of
if Ultradata is found by a court of competent jurisdiction to have materially
breached this agreement.
Product Sales to Kineticom -- Ultradata agrees to manufacture and sell
product to Kineticom for distribution in channels not reserved to Ultradata.
Prices will be 22% above the cost to manufacture the product. Ultradata
acknowledges that certain changes to the product may be required for certain
non-U.S. Markets and agrees to make such changes as required by Kineticom for
sale of the product in those markets. Such changes may result in different
versions of the product or may result in a single new version of the product.
The non-recurring costs of implementing product changes specifically to meet
the needs of Kineticom's markets are to be borne by Kineticom. Costs of other
product improvements are to be borne by Ultradata.
Agreement in Principle -- This document constitutes an agreement in principle
of its parties. It will be superseded by a more detailed document(s), as
necessary to meet legal requirements, or to expand or clarify the
relationship. However, the essential elements shall not be materially
changed, except by mutual agreement by the parties hereto, upon whom this
document shall be legally binding in the absence of a superseding agreement.
This agreement is entered into upon this 15th day of March, 1996.
By: By:
Monte Ross, President Jay Van Dwingelen, President
Ultradata Systems, Inc. Kineticom, Inc.
