I. Introduction

Orca's objection to the claim of MagTron, Inc. arises in the context of a solvent chapter 7 case. From the sale of its technology, Orca Technology, Inc., will pay all creditors
in full with interest and will return a dividend to its equity interests. However, Orca and MagTron, as manufacturing partners, were unable to compete successfully in the disk
drive industry. Now both corporations are defunct, asserting offsetting claims, and blaming each other for their respective failures.

II. Facts

The technology for a 760 megabyte disk drive was developed by Priam, Inc in the late 1980's. However, overwhelmed by its research and development costs, Priam filed
bankruptcy in 1989. With thirty years of experience in the disk drive industry, Michael Warner believed that Priam's technology could be developed into a profitable family
of drives. Warner incorporated Orca for that purpose and became its first Chief Executive Officer. In June 1990, a little more than a year after the technology was developed
by Priam, Orca purchased the patents, product designs, tools, fixtures, manufacturing, pilot lines and documentation for the 760 megabyte disk drive and prototypes for a 1.2
gigabyte disk drive, together called the Falcon drives, at Priam's bankruptcy sale for $10,000 plus royalties.

Recognizing that the disk drive market was rapidly developing, immediately after the purchase Warner created a business plan and began to search for a manufacturing
partner for Orca. Orca's Vice President of Sales and Marketing, Richard Reiser, testified that the "strategy was to do what is now fairly popular in the [Silicon Valley] and,
that is, put together what's called a 'fabless' corporation." He explained that since Orca did not have a means of production, but had established engineering, sales and
marketing personnel, Orca would need to find a manufacturing partner with the ability to manufacture disk drives cost-effectively. Warner testified that Orca sought to
establish a manufacturing relationship in Korea, Japan or Taiwan. As stated in Orca's business plan, this strategy was designed to "[e]stablish an off shore production
capability with a manufacturing partner for high volume low cost manufacturing" in order to reach efficiencies of scale. Around that time, Orca was contacted by MagTron, a disk drive manufacturer based in Taiwan. Warner testified that MagTron's President represented that it had financial backing of $8 to $10 million to support such a
production and that it could competently manufacture Orca's Falcon drives. Orca began negotiating with MagTron, while continuing to look for other suitable
manufacturers.

After weeks of negotiation, and with no other manufacturing partner in sight, on December 28, 1990, Orca and MagTron signed an agreement. The agreement, which was
labeled the "agreement document," was drafted by both parties without assistance from counsel. By the terms of the agreement document, MagTron received the exclusive
right to manufacture the 760 megabyte disk drive, but if MagTron was unable to meet the quality requirements or the production or delivery schedule, Orca could use another
manufacturer. Orca agreed to purchase "a minimum of 5,000 drives" during the first year of production. As part of the agreement, MagTron was to receive the tooling and
equipment created by Priam. The agreement document stated that Orca would transfer the "technology, manufacturing rights and related technical data to enable MagTron
to manufacture and market this product." If MagTron stopped producing the Falcon drives, MagTron was required to return the production line to Orca. If Orca abandoned
the project, MagTron would retain the rights to the transferred technology and ownership of the transferred tooling and equipment. The agreement document provided that it could only be modified by a written agreement signed by the parties.

Orca shipped the production line to MagTron in Taiwan in February 1991. MagTron forwarded Falcon drives to Orca's headquarters for testing in March and thereafter
shipped 150 drives in May at a wholesale price of $1330 per drive. At the end of May, Reiser acknowledged in a letter to "whom it may concern" that the drives exceeded
specifications and performed well. Reiser stated that they "feel very lucky to have made this agreement with MagTron, especially at such a critical time in the development of
Orca Technology." Favorable comments were also reflected in a memo to MagTron by Orca's Director of Operations, Bob Deardorff, dated June 1991, regarding the
success of the initial production of Falcon drives. Deardorff wrote that the fact that the "760 program" had been "shut down in a relatively uncontrolled manner by Priam,
shelved for approximately 1.5 years and then resurrected to production in less than 6 months is a testimony to both MagTron and Orca's competence and commitment to the
program . . . ." Deardorff's memo, however, also expressed his concern that MagTron's production schedule would not produce the contractually specified 5,000 drives in the first year of production.

The principals of Orca discovered in late May or June 1991 that MagTron was having difficulties paying suppliers and that it had not ordered sufficient parts to produce
5,000 drives. Many parts were not readily available from suppliers, requiring seven to eight months from the time ordered until delivery. Because of Warner's concern that
parts be available for assembly, Orca began ordering and purchasing parts for later production by MagTron.

During 1991, 300,000 drives were sold worldwide. Competitive forces in the marketplace drove the retail price for 760 megabyte disk drives down to $1500 in the summer
of 1991. Orca had wanted to gain a large share of the market. However, by the summer of 1991, Orca had only sold several hundred drives.

In November 1990, Warner became acquainted with Bisser Dimitrov. Dimitrov had extensive experience in the disk drive industry in Eastern Europe and, at trial, professed
to have been a member of the KGB, the CIA and the Russian Mafia. When Dimitrov joined Orca in July 1991, his role was to assist Orca in increasing its market share and in
raising additional capital for production. Dimitrov brought in a group that invested approximately $3 million in Orca in late 1991 and then occupied a significant position on
Orca's Board of Directors.

In November 1991, only six months after the first Falcon drives were ready for shipment, the market suffered what was described as an "abnormal" price drop for 760
megabyte disk drives. It became apparent to both Orca and MagTron that the technology was moving to that of the 1.2 gigabyte disk drive. Orca and MagTron agreed to
conclude production of the 760's and to concentrate on the development of the 1.2's so that Orca's engineers could catch up with its competitors in developing this
technology. The parties signed a written agreement on November 13, 1991, that reduced the number of 760 megabyte disk drives Orca was required to purchase to a
maximum of 750. MagTron agreed to reduce the wholesale price to $1,000 for each drive, and Orca waived royalty payments.

By January 1992, Dimitrov's investors were upset with the direction Orca was taking since the money they had invested was spent to purchase materials for production by
MagTron. Dimitrov's investors would only provide more capital if Warner were replaced as CEO. At that point, Warner was asked to resign by the Board and Peter Kearns
became the acting CEO.

Despite the change in management, Orca and MagTron continued the negotiations that had begun the previous September to award MagTron the exclusive right to produce
the 1.2 gigabyte disk drives. Although MagTron and Orca considered sharing profits equally, they drafted an agreement that was similar to the agreement for the 760's and
that included an identical royalty schedule. However, as Orca's decline became more evident, the draft agreement was never executed by either party.

Nonetheless, MagTron and Orca agreed at a meeting in February 1992 to operate under a letter of intent. The parties contemplated a joint venture, where Orca's subsidiary,
Orca (Europe), and MagTron would contribute revenue to fund research and development at Orca. The parties contemplated that MagTron would sell 1.2 gigabyte disk
drives to both Orca and Orca (Europe).

Kearns acknowledged at the February meeting, which was also attended by Ron Shieh, MagTron's Vice-President, that Orca owed MagTron about $285,000. A document,
entitled "Reconciliation of MagTron Inc. and Pacific MagTron accounts of 10 Feb. 1992," shows a balance owed to MagTron of $329,003.98 and a balance owed to Orca by
MagTron's subsidiary, Pacific MagTron, of $37,355.09. The balances were offset to arrive at the net sum of $284,998.89. Kearns testified that this document was meant to
reconcile the accounts payable and accounts receivable between Orca and MagTron. Shieh signed on behalf of MagTron, indicating his assent to the reconciliation.

Shortly thereafter, Deardorff, still serving as Orca's Director of Operations, wrote an internal memo on March 11, 1992, outlining the status of Orca's relationship with
MagTron. Deardorff recognized that the number of 760 megabyte disk drives that could be produced was determined by the availability of the Adic chip that was
"obsoleted" by its supplier prior to Orca's purchase of the Priam technology. Deardorff also noted that the engineering required to develop the 1.2 gigabyte disk drive was
"substantially more than indicated by the initial 1.2 prototypes," and that significant resources were needed to make improvements to the yield, which was then only 30%.
Deardorff stated that MagTron had approximately 3500 complete sets of the inventory necessary to produce these drives as of February 1, 1992. MagTron ultimately
produced approximately 800 760 megabyte disk drives, but only shipped 550 drives to Orca. The record is silent as to MagTron's disposition of the remaining 250 drives. Deardorff acknowledged that after the decision was made to shift production to the 1.2 gigabyte disk drives, the remaining sets of inventory were to be committed to the
production of the 1.2's.

Thereafter, as reflected in MagTron's invoices through February 10, 1992, MagTron shipped 110 of the 1.2 gigabyte disk drives to Orca for testing. Deardorff stated in his
March 1992 memo that "in order to expedite the program initial units were shipped to Orca without complete testing . . . ." Of the 110 drives received by Orca, only forty
were shipped to customers because of quality assurance concerns. Orca introduced into evidence invoices from April, May and July 1992 reflecting that MagTron sent an
additional 242 1.2 gigabyte disk drives to Orca (Europe). Orca never received royalties for these drives. Dimitrov testified that MagTron displayed Falcon 1.2 gigabyte disk
drives at the Hanover Fair in Germany. However, Dimitrov did not know how many Falcon drives were sold by MagTron, if any.

In attempting to quantify its damages, Orca introduced a memo dated June 3, 1992, wherein Ron Shieh, a Vice President at MagTron, wrote that MagTron "made over 350
1.2 gigabyte drives to your [Orca's] specifications . . . ." Warner estimates that 106 drives were sold by MagTron at the Hanover Fair, since Orca received invoices for 244
1.2 gigabyte drives, leaving at least 106 of the 350 drives unaccounted for. Warner testified that "we have reason to believe MagTron was selling those units." However,
Warner did not address whether the initial 110 drives invoiced through February 1992 made up the balance of the 350 drives produced. Based on the record before the court,
it is not clear whether the 106 drives were unaccounted for or whether they were among the initial 110 drives shipped to Orca for testing.

In support of Orca's position that it could have sold more drives if MagTron had produced more, Dimitrov testified that he had "hard" orders on the East Coast and in
Europe and that he was selling drives in the thousands. He stated that he had orders "exceeding the numbers which you are talking about here." Dimitrov believed he could
have sold thousands of Orca's 760 megabyte disk drives, since he had sold several thousand similar drives produced by Maxtor.

On March 24, 1992, Orca filed its chapter 11 petition, but the principals of Orca and MagTron continued to explore the possibility of a joint venture. In an April 1992 memo
to MagTron, Pacific MagTron and Orca (Europe), as well as MagTron's major investor, Chang-Hong Chemical, Kearns summarized the current situation of the companies
and outlined what was needed to pursue a joint venture. Kearns recognized that the 1.2 gigabyte disk drives needed additional engineering before MagTron could produce a
commercially saleable product. Kearns suggested establishing a new company that would keep the current engineering and management team together.

Orca and MagTron continued negotiating through May 1992, but an agreement was never reached. On July 9, 1992, Orca converted its case to a Chapter 7 bankruptcy.
MagTron thereafter dissolved. A proof of claim asserting it was owed $425,229 was filed on behalf of MagTron in April 1994.

The court takes judicial notice of the events surrounding the liquidation of Orca's technology. In the application for sale, counsel noted that:

. . . [T]he likely motivation of prospective buyers . . . is either offensive or defensive; that is, the buyer either intends to commence patent infringement litigation against hard
disc drive manufacturers . . . or the buyer perceives exposure to an infringement action and wishes . . . to protect itself against such a suit. As a consequence, unsuccessful
bidders might well fear that their bids would identify them as potential targets in infringement suits brought by the successful bidder.

In order to prevent the potential that fear of a future infringement action would chill the bidding, the Trustee assured all prospective bidders that he was prepared to sell to
agents representing undisclosed principals, and was otherwise willing . . . to assure the anonymity of all potential bidders.

It is significant in understanding the dynamics of the competition faced by Orca and MagTron to recognize the interest in Orca's technology even after its demise.

III. Contentions of the Parties

MagTron now asserts a claim for $336,400, which includes the amount reflected in the reconciliation in February 1992 that Orca owed MagTron without offsetting the
amount that Pacific MagTron owed Orca, and adding approximately $7,400 that was invoiced after the reconciliation date. MagTron contends that the reconciliation is an
account stated that releases MagTron from all other claims related to the sale of drives to Orca and finally determines the amount that is owing between the parties.
However, MagTron asserts that even if the reconciliation did not release all other claims, there are no legitimate offsets.

Orca asserts numerous offsetting claims in excess of MagTron's claim. Orca claims that MagTron is liable for the breach of their contract, patent infringement and fraud.
Orca calculates more than $1 million in offsetting damages against MagTron for the loss of its production line, lost profits, the value of Orca as a going concern and for
unpaid royalties. With respect to the value of the production line, Orca represents that Priam's book value was $2,760,000, the estimated replacement cost was $1 million
and the contract price with MagTron for the purchase of the line was $325,000. In support of its position that it is entitled to going concern value and lost profits, Orca
provides estimates from its business plan, a multiple of Orca's revenue, a market share comparison and a valuation by MagTron . To determine royalties due, Orca provides
invoices for an additional 242 1.2 gigabyte disk drives sold to Orca (Europe) by MagTron and an estimate that 106 drives were sold by MagTron at the Hanover Fair. Orca contends that the various letters and memos indicating Orca's satisfaction with MagTron's performance were only written to encourage investment by MagTron in the
inventory needed to manufacture the Falcon drives and to enable MagTron to deal more effectively with its suppliers.

IV. ANALYSIS

To resolve this matter, the court will consider, in sequential order, the nature of the contract for the 760 megabyte disk drives, whether a breach of contract occurred, and
whether Orca is entitled to offset its claims for royalties and lost profits against MagTron's claim. However, before analyzing the agreement document and its terms, it is first
necessary to consider whether the parties agreed to an account stated, releasing all other claims.

A. The February 10, 1992 Reconciliation Does Not Release All Other Claims

Under California law "[a]n account stated is an agreement, based on the prior transactions between the parties, that the items of the account are true and that the balance
struck is due and owing from one party to another." Gleason v. Klamer, 103 Cal. App. 3d 782, 786-87 (1980); see generally 1 B.E. Witkin, Summary of California Law,
Contracts, §917 (9th ed.). An essential element of an account stated is that both parties have assented to its terms. Restatement (Second) of Contracts §282. If there is no
evidence that both parties agreed to a stated sum, the document is not an account stated. See Zinn v. Fred R. Bright Co. Inc., 271 Cal. App. 2d 597, 600 (1969) (noting a
requisite element of an account stated is "an agreement between the parties, express or implied, on the amount due from the debtor to the creditor"). This is particularly true
where statements are routinely sent as part of a continuing business relationship between the parties. See American Fruit Growers, Inc. v. Jackson, 203 Cal. 748, 751 (1928).

Generally, an account stated is viewed as a new contract and forecloses further dispute as to the items which comprise the account stated. See Gleason v. Klamer, 103 Cal.
App. 3d at 787. Since an account stated constitutes a new contract that supersedes and extinguishes the original obligation, mutual assent is an essential element. Id. at 786-787. However, the parties to an account stated are not bound as to matters that were not contemplated, even though those matters existed when the account was stated. See
California Milling Corp. v. White, 229 Cal. App. 2d 469, 478-79 (1964). To further complicate the issue, there may be a partial settlement and account stated as to only
some transactions between the parties. Id. at 477.

Here, there is insufficient evidence to conclude that the principals of Orca and MagTron intended to treat the February 1992 "reconciliation" as an account stated. The
record is devoid of any reference to a release of other claims. The document entitled "Reconciliation of MagTron Inc. And Pacific MagTron Accounts" merely acknowledges
specified outstanding obligations between Orca, MagTron and Pacific MagTron. As Peter Kearns testified, the February 1992 document was intended to reconcile the
payables and the receivables between Orca and MagTron. The reconciliation itemizes the receivables and payables by month, invoice number and invoice amount. The totals
are reflected in the "Monthly Reconciliation Report" of MagTron's Suspense Account and comprise the balance due between MagTron and Orca as of February 10, 1992.
There is evidence from the minutes of the meeting held on February 8-9, 1992, signed by the principals of both Orca and MagTron, that "Orca acknowledged that at this time
monies are due and payable to MagTron. The reconciliation shows a net figure of circa $285,000 with circa $156,000 due now." On its face, the itemization and the acknowledgment establish only a reconciliation and not a release of any other claims.

B. The Agreement Document Is Not Voidable

"A contract is an agreement to do or not to do a certain thing" and gives rise to an obligation or legal duty, enforceable in an action at law. See Cal. Civil Code §§ 1549,
1427-1428. The California Civil Code enumerates the essential elements for the existence of a contract under California law: parties capable of contracting, their consent, a
lawful object, and a sufficient cause or consideration. See Cal. Civil Code § 1550. On December 28, 1990, Orca and MagTron entered into an agreement for the production
of 760 megabyte 5 1/4 inch disk drives. The contract is supported by sufficient consideration since the agreement contemplated the sale of the disk drives by MagTron in
exchange for payment by Orca. The agreement document meets the essential elements for a contract under California law.Although Orca alleged the contract was voidable because of fraudulent representations concerning MagTron's financial wherewithal, Orca did not produce any evidence to
establish MagTron's financial ability during the relevant contract negotiations or that MagTron misrepresented its financial ability to purchase components. Without this evidence, the court is not able to find that MagTron misrepresented its financial ability to Orca.

C. MagTron Did Not Breach Its Obligation To Produce 760 Megabyte Disk Drives

1. MagTron Acted In Good Faith

Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. See Kendall v. Ernest Pestana, Inc., 40 Cal. 3d 488,
500 (1985). The burden imposed is "that neither party will do anything which will injure the right of the other to receive the benefits of the agreement." Gruenberg v. Aetna
Ins. Co. 9 Cal. 3d 566, 573 (1973). The "precise nature and extent of the duty imposed . . . will depend on the contractual purposes." Egan v. Mutual of Omaha Ins. Co., 24
Cal. 3d 809, 818 (1979).

The best evidence of MagTron's good faith in the production of the 760 megabyte disk drives comes directly from Orca. In May 1991, Reiser stated that the production
exceeded specifications and performed well. Reiser also stated that Orca "feel[s] very lucky to have made this agreement with MagTron, especially at such a critical time in
the development of Orca Technology." As further proof of MagTron's good faith, Deardorff wrote MagTron in June, 1991, stating that "implementation of the process and
initial production of the OT5-760 was extremely successful." Although Orca's counsel suggested that these letters may have been sent merely for the benefit of MagTron's
investors, similar sentiments were expressed by Deardorff in the March 11, 1992 internal memo. Deardorff's memo to the file outlined the status of Orca's relationship with
MagTron and stated that "[t]he core team remains solid and committed to the success of the program."

The record shows that a number of external factors affected MagTron's ability to produce 760 megabyte disk drives. Included among these factors were the rapid changes in
technology, the price reduction for the drives and the unavailability of necessary parts.

2. The Contract Was Modified To Require Orca To Purchase

A Maximum Of 750 Of The 760 Megabyte Drives

The agreement document contemplated that Orca would "purchase from MagTron a minimum of 5000 [760 megabyte] drives the first year of production." Although the
terms of the agreement address Orca's guaranteed purchase of a minimum of 5,000 drives in the first year, the agreement document is ambiguous as to whether MagTron was
required to produce a specified quantity of drives. Reiser testified that Orca's agreement to purchase 5,000 drives obligated MagTron to produce 5,000 drives, while Ted Li,
Operations Manager of Pacific MagTron, testified that MagTron never agreed to produce a specified number of drives since the viability of production remained uncertain.

A contract measuring the quantity of goods by the output of the seller requires actual output as may occur in good faith. See Cal. Comm. Code § 2306. "Where parties
contract with reference . . . [to] the output of the seller, there is necessarily a degree of uncertainty of amount. The very circumstances which make it impossible for the
parties to know definitely when the contract is made how much it will cover makes it necessary for each of them to assume the risk of future events beyond the control of
either when acting in good faith, which may vary the quantity of the subject matter." Oregon Plywood Sales Corp. v. Sutherlin Plywood Corp., 246 F.2d 466, 469 (9th Cir.
1957).

Considering the circumstances surrounding the negotiation of the agreement document, including that the contract would only be economically viable if it met certain
economies of scale, and on reviewing the protection clauses afforded to both contracting parties, the court finds that the agreement document required MagTron to use its
best efforts to produce a minimum of 5,000 of the 760 megabyte disk drives. However, implicit in the agreement is the understanding that future events beyond the control
of either party might change the quantity of drives to be produced. Id. Although Dimitrov testified that he had "hard" orders for the 760 megabyte drives, the decision to
cease production of the 760 megabyte drives was mutual. The record demonstrates that continuing production of the 760 megabyte disk drives would have resulted in losses
for both Orca and MagTron and that there was no prospect of improvement in the market at the time Orca and MagTron agreed to cease production of the 760's. Good business judgment required that the agreement document be modified.

It is uncontroverted that the agreement document was modified only 11 months after it was executed, by a written contract, signed by the principals of both Orca and
MagTron on November 13, 1991, which reduced the production required to a maximum of 750 of the 760 megabyte disk drives. Sufficient consideration supported the
modification of the agreement document to meet the requirements of California Civil Code sections 1698(a) and 1550. The modification was supported by new consideration
since MagTron agreed to reduce the price and Orca agreed that no royalty payments would be required from MagTron. See In re Mediscan Research, Ltd., 109 B.R. 392,
394 (B.A.P. 9th Cir. 1989).

D. Orca Is Not Entitled To An Offsetting Claim

For The 760 Megabyte Drives Sold By MagTron

Or The Value Of The Production Line

The agreement document provided for royalty payments to Orca by MagTron for drives produced either by MagTron or its licensee according to a schedule. However, when
the contract was modified on November 13, 1991, Orca waived royalty payments. Because of the modification, Orca is not entitled to royalty payments for the remaining
250 of the 760 megabyte disk drives produced by MagTron. Under the terms of the agreement document, Orca transferred to MagTron "the technology, manufacturing rights, and related technical data to enable MagTron to
manufacture and market this product." The contract provides that if Orca abandoned the project, MagTron could retain the production line. The record establishes that the
Falcon project was abandoned either by Orca or by the Chapter 7 Trustee with the result that MagTron has no liability for the production line.

E. Orca Is Entitled To Damages Based On MagTron's Sale Of 1.2 Gigabyte Disk Drives

1. Orca Is Entitled To Lost Royalties For 242 Of The 1.2 Gigabyte

Disk Drives Sold Based On The Doctrine of Unjust Enrichment

Orca's claim for lost royalties for the 350 1.2 gigabyte disk drives MagTron produced is not based upon the existence of a contract, but upon the doctrine of unjust
enrichment. Unjust enrichment applies to situations where as a matter of fact there is no legal contract, "but where the person sought to be charged is in possession of money
or property which in good conscience and justice he should not retain . . . ." Trenton Indus. v. A.E. Peterson Manufacturing Co., 165 F. Supp. 523, 532 (S.D. Cal. 1958). A
licensee is liable to the licensor for payment of royalties under the theory of implied contract because one should not be permitted to be enriched unjustly at the expense of
another. See Seagren v. Smith, 63 Cal. App. 2d 733 (1944) (holding that licensee was liable for payments of royalties even though licensing agreement was canceled).

Clearly, value was conferred upon MagTron as a result of its use of the sets of inventory and the tooling and engineering for the 1.2 gigabyte disk drives provided by Orca.
Although there is no contract, the parties entered into a letter of intent outlining their relationship. Further, the unexecuted agreement for the 1.2 gigabyte disk drives
contemplated a royalty schedule identical to that for the 760 megabyte disk drives. Using the royalty schedule, the royalties due Orca would be $200 for each of the 242 1.2
gigabyte disk drives sold by MagTron to Orca (Europe). See Oshkosh Truck Corp. v. Lockheed Missiles & Space Co., 678 F. Supp. 809, 811 (N.D. Cal. 1987) (stating that
evidence of the royalty provision of the License Agreement provided a reasonable basis for the jury's damage verdict based on unjust enrichment).

Royalties on the remaining 106 1.2 gigabyte disk drives claimed by Orca to have been sold at the Hanover Fair are not awarded because Orca failed to meet its burden of
proof. The record is unclear whether the disputed 106 1.2 gigabyte disk drives were included within the 110 drives previously shipped to Orca for testing. Further, royalties
on the 3500 sets of materials are not awarded because Orca did not produce evidence that MagTron assembled 1.2 gigabyte disk drives using the 3500 sets of materials.

2. Orca's Claim For Lost Profits On The 1.2 Gigabyte

Drive Is Too Speculative To Be Awarded As Damages

Orca also claims that it is entitled to lost profits on the sale of the 350 1.2 gigabyte disk drives. However, the evidence presented is too speculative for lost profits to be
awarded as damages. The loss of anticipated profits may be awarded only where there is an established business with a satisfactory basis for estimating probable earnings.
See Postal Instant Press, Inc. v. Sealy, 43 Cal. App. 4th 1704, 1710 (1996) (holding that lost future profits are only awarded when the court can calculate the amount with
some degree of certainty).

An award of damages may not be based upon speculative evidence or mere conjecture. See Lindy Pen Co., Inc. v. BIC Pen Corp., 982 F.2d 1400, 1407-08 (9th Cir. 1993),
cert. denied, 114 S.Ct. 64 (1993). If the anticipated profits are from a new business to be established, the difficulty of estimating lost profits has led the courts to classify
damages as uncertain and speculative, and to deny recovery. See 1 B.E. Witkin, Summary of California Law, Contracts, § 826 (9th ed.).

Orca's evidence as to lost profits for the 350 1.2 gigabyte disk drives based on actual invoices for the months of April, May, July established a material cost of $820 per unit.
The material costs provide only an estimate and do not include overhead costs. Without this evidence, the record is inadequate to determine costs and there is no reasonable
basis for computing MagTron's profit for the sales to Orca (Europe).

V. Conclusion

Orca has satisfied its burden of proving damages for unjust enrichment due to MagTron's sale of the 1.2 gigabyte disk drives to Orca (Europe) and Orca is entitled to
offsetting damages for the sale of 242 drives at $200 for each drive, for a total of $48,400. No other offsetting claims are supported by the record. MagTron's claim is
allowed at $244,051.09 which is computed as the amount shown on the reconciliation, $284,998.89, plus $7,452.20 invoiced after the date of the reconciliation, less $48,400
allowed for damages for unjust enrichment.

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