-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MAOIZF/6UT+AzE+EBjAhWnYwp7no1rKgDZyaDAXoCzB4QM6AnKR42KpxEt2xetBF 6IheaN1AHS9EPlWP8NvgXQ== 0000950134-00-001285.txt : 20000217 0000950134-00-001285.hdr.sgml : 20000217 ACCESSION NUMBER: 0000950134-00-001285 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991130 ITEM INFORMATION: FILED AS OF DATE: 20000216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XETA CORP CENTRAL INDEX KEY: 0000742550 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 731130045 STATE OF INCORPORATION: OK FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-16231 FILM NUMBER: 547514 BUSINESS ADDRESS: STREET 1: 1814 WEST TACOMA CITY: BROKEN ARROW STATE: OK ZIP: 74012 BUSINESS PHONE: 9186648200 MAIL ADDRESS: STREET 1: 1814 WEST TACOMA CITY: BROKEN ARROW STATE: OK ZIP: 74012 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K 1 U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of Report (Date of earliest event reported): February 14, 2000 (November 30, 1999) XETA Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 0-16231 73-1130045 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 1814 West Tacoma, Broken Arrow, Oklahoma 74012 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 918-664-8200 ----------------------------- Not Applicable - -------------------------------------------------------------------------------- (Former name or address, if changed since last report) 2 This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by XETA Corporation on December 15, 1999 solely to add the financial statements and pro forma financial information required by Item 7 and the related exhibit. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Business Acquired. The following financial statements of U.S. Technologies Systems, Inc. are set forth in this Report on the pages that follow: Independent Auditors' Report Balance sheets as of December 31, 1998 and 1997 Statements of income for the years ended December 31, 1998, 1997 and 1996 Statements of stockholders' equity for the years ended December 31, 1998, 1997 and 1996 (unaudited) Statements of cash flows for the years ended December 31, 1998, 1997 and 1996 Summary of Accounting Policies Notes to financial statements Condensed balance sheet as of September 30, 1999 (unaudited) Condensed statements of income for the periods ended January 1, 1999 through September 30, 1999 and January 1, 1998 through September 30, 1998 (unaudited) Condensed statements of cash flows for the periods ended January 1, 1999 through September 30, 1999 and January 1, 1998 through September 30, 1998 (unaudited) Notes to condensed financial statements (unaudited) (b) Pro Forma Financial Information. The following pro forma financial information is set forth in this Report following the Financial statements listed above: XETA Corporation Pro Forma Combined Condensed Financial Information (unaudited) Introduction Unaudited Pro Forma Combined Condensed Balance Sheet as of October 31, 1999 Notes to Unaudited Pro Forma Combined Condensed Balance Sheet as of October 31, 1999 Unaudited Pro Forma Combined Condensed Statement of Income for the Year ended October 31, 1999 Notes to Unaudited Pro Forma Combined Condensed Statement of Income (c) Exhibits. Exhibit No. Description ----------- ----------- 23 Consent of BDO Seidman, LLP 2 3 (AN S CORPORATION) FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 4 INDEPENDENT AUDITORS' REPORT To the Board of Directors U.S. Technologies Systems, Inc. Fenton, Missouri We have audited the accompanying balance sheets of U.S. Technologies Systems, Inc. (An S Corporation) as of December 31, 1998 and 1997 and the related statements of income, stockholders' equity and cash flows for the three years in the period ended December 31, 1998. 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 that 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 financial position of U.S. Technologies Systems, Inc. at December 31, 1998 and 1997, and the results of its operations and its cash flows for the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. St. Louis, Missouri February 5, 1999, except for Note 12 which is as of November 30, 1999 2 5 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) BALANCE SHEETS ================================================================================
December 31, 1998 1997 ------------ ------------ ASSETS CURRENT Cash and cash equivalents $ 42,167 $ 98,714 Accounts receivable, less allowance of $366,331 in 1998 and $277,399 in 1997 for possible losses (Note 3) 5,663,141 2,977,033 Inventory 2,546,077 1,732,843 Prepaid expenses and other receivables (Note 5) 272,281 77,245 ------------ ------------ TOTAL CURRENT ASSETS 8,523,666 4,885,835 FURNITURE, FIXTURES AND EQUIPMENT (Note 2), less accumulated depreciation and amortization 373,460 392,543 OTHER ASSETS 9,466 4,745 ------------ ------------ $ 8,906,592 $ 5,283,123 ============ ============ LIABILITIES CURRENT Accounts payable $ 3,232,665 $ 1,297,953 Subordinate notes payable (Note 4) 407,829 800,000 Accrued compensation and related taxes 590,856 264,129 Accrued expenses and other current liabilities 157,538 93,630 ------------ ------------ TOTAL CURRENT LIABILITIES 4,388,888 2,455,712 SUBORDINATE NOTES PAYABLE, less current maturities (Note 4) 2,854,798 2,472,627 ------------ ------------ TOTAL LIABILITIES 7,243,686 4,928,339 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 6, 8 and 9) STOCKHOLDERS' EQUITY Common stock, $1 par - shares authorized, 30,000; outstanding, 100 100 100 Additional paid-in capital 28,100 28,100 Retained earnings 1,634,706 326,584 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 1,662,906 354,784 ------------ ------------ $ 8,906,592 $ 5,283,123 ============ ============
See accompanying summary of accounting policies and notes to financial statements. 3 6 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) STATEMENTS OF INCOME ================================================================================
Years Ended December 31, 1998 1997 1996 ------------ ------------ ------------ NET SALES $ 28,480,728 $ 21,192,376 $ 19,366,652 COST OF GOODS SOLD 20,294,984 15,210,709 13,752,196 ------------ ------------ ------------ GROSS PROFIT 8,185,744 5,981,667 5,614,456 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,659,234 5,499,763 4,488,800 ------------ ------------ ------------ OPERATING INCOME 1,526,510 481,904 1,125,656 ------------ ------------ ------------ OTHER INCOME (EXPENSE) Miscellaneous, net (Note 10) 102,833 14,287 221,336 Interest expense (Note 4) (321,221) (300,876) (194,681) ------------ ------------ ------------ (218,388) (286,589) 26,655 ------------ ------------ ------------ NET INCOME $ 1,308,122 $ 195,315 $ 1,152,311 ============ ============ ============
See accompanying summary of accounting policies and notes to financial statements. 4 7 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) STATEMENTS OF STOCKHOLDERS' EQUITY ================================================================================
Common stock Additional --------------------------- paid-in Retained Shares Amount capital earnings Total ------------ ------------ ------------ ------------ ------------ BALANCE, January 1, 1996 100 $ 100 $ 28,100 $ 3,517,217 $ 3,545,417 Net income for the year -- -- -- 1,152,311 1,152,311 Distributions to stockholders -- -- -- (3,028,156) (3,028,156) ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1996 100 100 28,100 1,641,372 1,669,572 Net income for the year -- -- -- 195,315 195,315 Distributions to stockholders -- -- -- (1,510,103) (1,510,103) ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1997 100 100 28,100 326,584 354,784 Net income for the year -- -- -- 1,308,122 1,308,122 ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1998 100 $ 100 $ 28,100 $ 1,634,706 $ 1,662,906 ============ ============ ============ ============ ============
See accompanying summary of accounting policies and notes to financial statements. 5 8 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) STATEMENTS OF CASH FLOWS ================================================================================
Years Ended December 31, 1998 1997 1996 ------------- ------------- ------------ OPERATING ACTIVITIES Net income $ 1,308,122 $ 195,315 $ 1,152,311 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 117,934 110,978 90,266 Provision for doubtful accounts 88,932 (17,064) 75,463 Gain on sale of furniture, fixtures and equipment (1,835) - - Gain on sale of leases - (28,115) - Decrease in cash surrender value - - 39,126 Change in assets and liabilities: Accounts receivable (2,775,040) (976,491) 518,243 Net investment in sales-type leases - (119,615) (32,295) Inventory (814,835) 3,070 (70,764) Prepaid expenses (195,036) 111,042 (106,822) Other assets (4,721) 3,717 13,702 Accounts payable 1,934,712 455,989 (69,740) Accrued compensation 326,727 (26,393) 131,829 Accrued expenses and other current liabilities 63,908 19,963 10,266 ------------- ------------- ------------ CASH PROVIDED (USED IN) BY OPERATING ACTIVITIES 48,868 (267,604) 1,751,585 ------------- ------------- ------------ INVESTING ACTIVITIES Purchase of furniture, fixtures and equipment (103,812) (247,595) (116,327) Proceeds from sale of furniture, fixtures and equipment 8,397 9,155 - Proceeds from sale of leases - 403,500 - ------------- ------------- ------------ CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (95,415) 165,060 (116,327) ------------- ------------- ------------ FINANCING ACTIVITIES Principal payments of subordinated notes payable (10,000) (237,331) (1,559,052) Principal payments of note payable - (60,000) 60,000 ------------- ------------- ------------ CASH USED IN FINANCING ACTIVITIES (10,000) (297,331) (1,499,052) ------------- ------------- ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (56,547) (399,875) 136,206 CASH AND CASH EQUIVALENTS, beginning of year 98,714 498,589 362,383 ------------- ------------- ------------ CASH AND CASH EQUIVALENTS, end of year $ 42,167 $ 98,714 $ 498,589 ============= ============= ============
See accompanying summary of accounting policies and notes to financial statements. 6 9 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) SUMMARY OF ACCOUNTING POLICIES ================================================================================ USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. INVENTORY Inventory is stated at the lower of average cost or market and consists of new and used telecommunications equipment for resale to customers. FURNITURE, FIXTURES Furniture, fixtures and equipment are carried at AND EQUIPMENT, cost. Depreciation is computed using the DEPRECIATION AND straight-line method over their estimated useful AMORTIZATION lives. Leasehold improvements are amortized over the lesser of the lease term or the useful life of the property. INCOME TAXES The Company has elected to be taxed under Subchapter S of the Internal Revenue Code. Accordingly, the current taxable income of the Company is taxable to the stockholders who are responsible for the payment of taxes. REVENUE RECOGNITION The Company recognizes product revenue at the time products are shipped to its customers. Service revenue is recognized ratably over the contractual period or as the services are performed. ADVERTISING COSTS Advertising costs are charged to operations when incurred. Expense is net of reimbursements available from certain suppliers. Advertising expenses for 1998, 1997 and 1996 were $65,084, $63,896 and $58,035, respectively. 7 10 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) SUMMARY OF ACCOUNTING POLICIES ================================================================================ NEWLY ISSUED In June 1998, Statement of Financial Accounting ACCOUNTING STANDARDS Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument be measured at its fair value, recorded in the balance sheet as either an asset or liability and that changes in the derivative's fair value be recognized currently in earnings. SFAS 133 is effective for fiscal years beginning after June 15, 2000. The Company does not expect the adoption of this statement to have a significant impact on its results of operations, financial position or cash flows. SOP 98-5 "Reporting on the Costs of Start-up Activities," requires that costs be expensed as incurred. This statement is effective for financial statements issued for fiscal years beginning after December 15, 1998. The Company believes that the adoption of SOP 98-5 will have no effect on its results of operations, financial position or cash flows. RECLASSIFICATIONS Certain amounts in 1997 have been reclassified to conform with the 1998 presentation. Such reclassifications have had no effect on 1997 prior reported earnings. 8 11 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) NOTES TO FINANCIAL STATEMENTS ================================================================================ 1. BUSINESS U.S. Technologies Systems, Inc. (the Company), DESCRIPTION incorporated on September 29, 1989, is a licensed Lucent Technologies distributor of telecommunications equipment, business systems, components and software throughout the United States. The Company extends unsecured credit to its customers. 2. FURNITURE, Furniture, fixtures and equipment consist of the FIXTURES AND EQUIPMENT following at December 31, 1998 and 1997: December 31, 1998 1997 ---------- ---------- Leasehold improvements $ 61,169 $ 57,928 Computer software and equipment 342,189 312,688 Machinery and equipment 201,123 190,274 Leased telecommunications equipment 2,529 84,720 Furniture and fixtures 83,841 85,866 Automobiles 141,406 121,168 ---------- ---------- 832,257 852,644 Accumulated depreciation and amortization (458,797) (460,101) ---------- ---------- $ 373,460 $ 392,543 ========== ==========
Estimated useful lives: Leasehold improvements Lease life plus renewal period or 7 to 40 years Computer software and equipment 5 years Machinery and equipment 5 years Leased telecommunications 5 years equipment Furniture and fixtures 7 years Automobiles 5 years
9 12 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) NOTES TO FINANCIAL STATEMENTS ================================================================================ 3. LINE OF CREDIT The Company has a $3,000,000 (limited to 85% of eligible receivables) revolving loan agreement with a bank that expires on September 25, 2001 and may be extended thereafter on a year to year basis. Borrowings under the loan agreement bear interest at the bank's prime rate (7.75% at December 31, 1998) minus .5% or LIBOR plus 225 basis points at the Company's option and due monthly. The line is secured by accounts receivable. There were no borrowings under the loan agreement at December 31, 1998 and 1997. The agreement also places limits on the Company concerning new indebtedness, new encumbrances, acquisitions and divestitures and transactions with affiliates. Pursuant to the agreement, the Company is required to comply with certain covenants, as defined in the loan agreement, including EBITDA to capital expenditures, tangible net worth and debt to equity ratio. At December 31, 1998 and 1997, the Company was in compliance with all loan covenants. 4. SUBORDINATE Unsecured notes payable consist of the NOTES PAYABLE following:
Years Ended December 31, 1998 1997 ---------- ---------- Subordinate note payable to stock-holder, bearing interest at 9.0%, principal payable over eight years in semi-annual installments beginning in June 1999 $1,631,314 $1,636,314 Subordinate note payable to stock-holder, bearing interest at 9.0%, principal payable over eight years in semi-annual installments beginning in June 1999 1,631,313 1,636,313 ---------- ---------- 3,262,627 3,272,627 Less current maturities (407,829) (800,000) ---------- ---------- Total long-term debt $2,854,798 $2,472,627 ========== ==========
The above notes are subordinated to bank debt. 10 13 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) NOTES TO FINANCIAL STATEMENTS ================================================================================ The aggregate amounts of long-term debt maturing in each of the next five years are as follows: 1999 $ 407,829 2000 407,829 2001 407,828 2002 407,828 2003 407,828 Thereafter 1,223,485 ---------- $3,262,627 ==========
Interest paid on these notes to stockholders aggregated $316,581, $295,476 and $194,680 for 1998, 1997 and 1996, respectively. 5. REBATE PROGRAM Lucent Technologies offers various rebate programs to its licensed distributors ranging from co-operative advertising to rebates based on increases in purchasing and system installations. At December 31, 1998, the Company had a receivable balance of $194,790 related to these programs. Rebates are recorded as reductions in purchases. Reimbursements of operating expenses are netted with the appropriate expense. 6. MAJOR CUSTOMERS AND The Company derives a significant portion of its SUPPLIERS revenue from one customer. This customer accounted for approximately 15%, 14% and 15% of net sales for the years ended December 31, 1998, 1997 and 1996, respectively. The Company purchases a significant portion of its inventory from one supplier with which it has signed a distribution agreement. The supplier accounted for approximately 76%, 54% and 47% of total purchases for the years ending December 31, 1998, 1997 and 1996, respectively. 11 14 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) NOTES TO FINANCIAL STATEMENTS ================================================================================ 7. INCOME TAXES As described in the summary of accounting policies, federal income taxes on the net taxable earnings of the Company are payable personally by the stockholders pursuant to an election under Subchapter S of the Internal Revenue Code.
December 31, 1998 1997 ---------- ---------- Financial reporting basis: Total assets $9,366,357 $5,283,123 Total liabilities $7,703,451 $4,928,339 Total equity $1,662,906 $ 354,784 Tax basis: Total assets $9,872,618 $5,695,158 Total liabilities $4,417,030 $2,282,668 Total equity $5,455,515 $3,412,490 ========== ==========
Years Ended December 31, 1998 1997 1996 ---------- -------- ---------- Net income, financial statement purposes $1,308,122 $195,315 $1,152,311 Book versus differences due to: Changes in reserves 81,832 (21,322) 216,542 Change in amount of overhead capitalized in ending inventory 7,860 569 (19,199) Effect of conversion from cash to accrual basis of accounting 655,211 655,211 655,211 Non-deductible expenses and other 29,324 15,736 16,256 ---------- -------- ---------- Net income, federal income tax purposes $2,082,349 $845,509 $2,021,121 ========== ======== ==========
12 15 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) NOTES TO FINANCIAL STATEMENTS ================================================================================ 8. OPERATING LEASES The Company has various leases for office and warehouse facilities, including a lease with the stockholders of the Company. Terms of the stockholders' month-to-month lease require the Company to pay taxes, insurance and maintenance costs of the facility in addition to monthly rent of $7,500. The Company's remaining leases are paid on a month-to-month basis or expire in 1999. Total rent expense was $162,397, $144,915 and $107,458 in 1998, 1997 and 1996, respectively, including $90,000 which was paid to the Company's stockholders in all years. 9. EMPLOYEE The Company sponsors a 401(k) plan that BENEFIT PLAN provides, among other things, for annual contributions determined at the discretion of the Board of Directors, but not to exceed the amount allowable as a deduction under the Internal Revenue Code. The Company did not make 401(k) contributions in 1998, 1997 or 1996. 10. OTHER INCOME Other income in 1996 included a one-time gain of $121,463 relating to the redemption of coupons issued by a supplier as a result of a class action lawsuit. 11. SUPPLEMENTAL CASH FLOW INFORMATION DISCLOSURES The Company paid $321,221, $300,876 and $194,680 in interest during the years ended December 31, 1998, 1997 and 1996, respectively. The Company distributed $1,510,103 out of retained earnings to its stockholders during the year ended December 31, 1997. The proceeds were immediately loaned back to the Company and accounted for as a noncash transaction. See Note 4 for the terms of the notes. 13 16 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) NOTES TO FINANCIAL STATEMENTS ================================================================================ VALUATION ACCOUNT ANALYSIS
Balance at Additions Balance at Valuation January 1, charged to December 31, account 1996 expense Deductions 1998 --------- ---------- ---------- ---------- ------------- Allowance for doubtful accounts $ 14,000 $169,463 $(75,132) $108,331 Allowance for sales returns $ 205,000 $ 69,500 $(16,500) $258,000 Inventory reserves $ -- $106,000 $ -- $106,000 ========= ======== ======== ========
The deductions for the allowance for doubtful accounts are the amount of accounts receivable written-off net of recoveries on previously written-off accounts receivable. 12. SUBSEQUENT EVENT On November 30, 1999, the Company's stockholders completed the sale of 100% of the outstanding shares of the Company to XETA Corporation. 14 17 U. S. TECHNOLOGIES (AN S CORPORATION) FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1999 18 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) CONDENSED BALANCE SHEETS ================================================================================
September 30, December 31, 1999 1998 ------------ ------------ (Unaudited) ASSETS CURRENT Cash and cash equivalents $ 730,064 $ 198,879 Accounts receivable, less allowance for possible losses 11,686,852 5,087,936 Inventory 2,475,680 1,894,506 Other current assets 279,628 262,010 ------------ ------------ TOTAL CURRENT ASSETS 15,172,224 7,443,331 FURNITURE, FIXTURES AND EQUIPMENT, less accumulated depreciation and amortization 538,430 460,994 OTHER ASSETS 13,011 10,437 ------------ ------------ $ 15,723,665 $ 7,914,762 ============ ============ LIABILITIES CURRENT Accounts payable $ 5,784,306 $ 1,635,102 Subordinate notes payable 466,089 625,000 Accrued compensation and related taxes 2,749,062 1,172,201 Other current liabilities 337,438 408,979 ------------ ------------ TOTAL CURRENT LIABILITIES 9,336,895 3,841,282 SUBORDINATE NOTES PAYABLE, less current maturities 2,549,132 2,647,627 ------------ ------------ TOTAL LIABILITIES 11,886,027 6,488,909 ------------ ------------ STOCKHOLDERS' EQUITY Common stock, $1 par - shares authorized, 30,000; outstanding, 100 100 100 Additional paid-in capital 28,100 28,100 Retained earnings 3,809,438 1,397,653 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 3,837,638 1,425,853 ------------ ------------ $ 15,723,665 $ 7,914,762 ============ ============
See accompanying notes to financial statements. 19 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) CONDENSED STATEMENTS OF INCOME (UNAUDITED) ================================================================================
Nine Months Ended September 30, 1999 1998 ------------ ------------ NET SALES $ 29,061,153 $ 19,591,456 COST OF GOODS SOLD 20,885,594 13,851,140 ------------ ------------ GROSS PROFIT 8,175,559 5,740,316 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,022,788 4,484,622 ------------ ------------ OPERATING INCOME 2,152,771 1,255,694 ------------ ------------ OTHER INCOME (EXPENSE) Miscellaneous, net 193,779 53,777 Interest expense (171,818) (238,402) ------------ ------------ 21,961 (184,625) ------------ ------------ NET INCOME $ 2,174,732 $ 1,071,069 ============ ============
See accompanying notes to financial statements. 20 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) ================================================================================
Nine Months Ended September 30, 1999 1998 ----------- ----------- CASH PROVIDED BY OPERATING ACTIVITIES $ 1,206,357 $ 254,080 INVESTING ACTIVITIES Purchase of furniture, fixtures and equipment (273,097) (162,313) Proceeds from sale of furniture, fixtures and equipment 2,043 8,398 ----------- ----------- CASH USED IN INVESTING ACTIVITIES (271,054) (153,915) ----------- ----------- FINANCING ACTIVITIES Principal payments of subordinated notes payable (247,406) -- ----------- ----------- CASH USED IN FINANCING ACTIVITIES (247,406) -- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 687,897 100,165 CASH AND CASH EQUIVALENTS, beginning of period 42,167 98,714 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 730,064 $ 198,879 =========== ===========
See accompanying notes to financial statements. 21 U. S. TECHNOLOGIES SYSTEMS, INC. (AN S CORPORATION) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) ================================================================================ 1. BASIS OF PRESENTATION The condensed financial statements as of September 30, 1999 and for the nine month periods ended September 30, 1999 and 1998, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the financial position, results of operations and cash flows at September 30, 1999 and for all periods presented. The condensed financial statements are unaudited and not necessarily indicative of the operating results to be expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The condensed financial statements should be read in conjunction with the Company's financial statements and notes thereto, as of and for each of the three years in the period ended December 31, 1998, included elsewhere in this filing. 2. SUBSEQUENT EVENT On November 30, 1999, the Company's stockholders completed the sale of 100% of the outstanding shares of the Company to XETA Corporation. The Company has received notice from Lucent waiving its right to terminate the distribution agreement in the event of a change in ownership. The agreement has been extended to February 28, 2000. 22 XETA CORPORATION PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION (Unaudited) The Unaudited Pro Forma Combined Condensed Balance Sheet at October 31, 1999 (the "Pro Forma Balance Sheet") and the Unaudited Pro Forma Combined Condensed Statement of Income for the year ended October 31, 1999 (the "Pro Forma Statement of Income" and, together with the Pro Forma Balance Sheet, the "Pro Forma Financial Statements") are presented using the purchase method of accounting to give effect to the Purchase and reflect the combination of consolidated historical financial data of Xeta Corporation and U.S. Technologies Systems, Inc. The Pro Forma Balance Sheet and the Pro Forma Statement of Income are derived from the audited consolidated financial statements of Xeta Corporation contained in its Annual Report on Form 10-K for the year ended October 31, 1999, and from the unaudited condensed statements of U.S. Technologies Systems, Inc. as of and for the 12 months ended September 30, 1999, which are presented elsewhere in this filing or derived from statements included herein. The Pro Forma Balance Sheet as of October 31, 1999 and the Pro Forma Statement of Income are presented as if the Purchase had occurred on November 1, 1998. The pro forma adjustments reflected in the Pro Forma Financial Statements represent estimated values and amounts based on available information regarding U.S. Technologies System, Inc.'s assets and liabilities. The actual adjustments that will result from the Purchase will be based on further evaluations and may differ substantially from the adjustments presented herein. The Pro Forma Financial Statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or operating results that would have been achieved had the Purchase been consummated as of the dates indicated or of the results that may be obtained in the future. The unaudited Pro Forma Financial Statements should be read in conjunction with the accompanying notes and the historical financial statements of Xeta Corporation, and the historical unaudited combined financial statements of U.S. Technologies Systems, Inc. which are included in this filing. 23 XETA CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET OCTOBER 31, 1999 (in thousands)
HISTORICAL U.S. TECHNOLOGIES SYSTEMS, INC. XETA (unaudited as of PRO FORMA CORPORATION 9/30/99) ADJUSTMENTS COMBINED ----------- ---------------- ----------- -------- ASSETS Cash and cash equivalents $ 4,556 $ 730 $23,000 (1) $ 5,198 (22,856) (1) (232) (2) Current portion of net investment in sales-type leases 2,577 -- -- 2,577 Trade accounts receivable 4,433 11,687 -- 16,120 Inventories, net 3,733 2,476 -- 6,209 Other current assets 884 279 -- 1,163 ------- -------- ------- -------- Total current assets 16,183 15,172 (88) 31,267 Net investment in sales-type leases, less current portion 3,844 -- -- 3,844 Net property, plant and equipment 3,943 538 -- 4,481 Excess of cost over net assets acquired, net -- -- 20,141 (1) 20,141 Other noncurrent assets 1,346 14 101 (1) 1,461 ------- -------- ------- -------- Total assets $25,316 $ 15,724 $20,154 $ 61,194 ======= ======== ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 2,127 $ 5,784 $ - $ 7,911 Unearned revenue 4,541 - - 4,541 Other current liabilities 1,494 3,553 4,596 (3) 9,883 ------- -------- -------- 707 (3) (467) (3) ------- Total current liabilities 8,162 9,337 4,836 22,335 Long-term debt, less current portion -- 2,549 18,404 (3) 18,404 (2,549) (3) Other long-term liabilities 2,603 -- -- (3) 2,603 Shareholders' equity: Common stock 232 1 (1) (4) 232 Paid-in capital 5,374 28 2,639 (4) 8,013 (28) (4) Retained earnings 11,851 3,809 (3,809) (4) 11,851 Less- Treasury stock, at cost (2,906) -- 662 (4) (2,244) ------- -------- ------- -------- Total shareholders' equity 14,551 3,838 (537) 17,852 ------- -------- ------- -------- Total liabilities and shareholders' equity $25,316 $ 15,724 $20,154 $ 61,194 ======= ======== ======= ========
24 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET Basis of Presentation On November 30, 1999, Xeta Corporation acquired 100% of the common stock of U.S. Technologies Systems, Inc. in exchange for approximately $26 million and 150,000 shares of Xeta Corporation common stock. Xeta Corporation borrowed $26 million at an interest rate of approximately 8.5%. The $26 million was paid $23 million, adjusted downward for certain items specified in the purchase and sale agreement, at closing, and an additional $3 million of contigent consideration. The 150,000 shares of common stock were delivered at closing and valued at $22 per share. The U.S. Technologies Systems, Inc. acquisition was accounted for as a purchase. The pro forma adjustments necessary to present the financial position of Xeta Corporation are as follows: (1) To record the remaining excess of cost over net assets acquired as follows: The components of the purchase price include the following: Cash paid from bank debt $ 22,856,041 Excess of the fair market value of the Xeta Corporation shares above cost 2,638,500 Cost of Xeta Corporation shares 661,500 Amount paid to the former U.S. Technology Systems, Inc. shareholders for their estimated personal income tax liabilities for the period from the date the letter of intent until the closing of the acquisition 706,821 Acquisition costs 232,194 --------------- Total purchase price..................................................................... $ 27,095,056 =============== Purchase price allocated: U.S. Technologies Systems, Inc.'s estimated fair value of assets acquired less estimated fair value of liabilities acquired $ 6,852,859 Noncompete agreement obtained 101,000 Remaining of excess of cost over net assets acquired 20,141,197 --------------- Total purchase price....................................................................... $ 27,095,056 ===============
(2) To reflect cash paid for acquisition costs less excess cash on hand resulting from bank debt. (3) To reflect incremental additional debt required to finance purchase ($23,000,000), less subordinated debt due to former stockholders of U.S. Technologies Systems, Inc. not assumed by Xeta Corporation ($3,016,000) and the liability due to former stockholders of U.S. Technologies Systems, Inc. for personal tax liabilities ($707,000). (4) To eliminate U.S. Technologies Systems, Inc.'s stockholders' equity balances and to reflect issuance of 150,000 shares of Xeta Corporation common stock from treasury stock. 25 XETA CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME YEAR ENDED OCTOBER 31, 1999 (in thousands, except per share data)
HISTORICAL ------------------------------------------- U.S. TECHNOLOGIES XETA SYSTEMS, INC. CORPORATION (unaudited (year ended 12 months PRO FORMA 10/31/99) ended 9/30/99) ADJUSTMENTS COMBINED ------------------- --------------------- ----------- -------- INSTALLATION AND SERVICES REVENUES $ 18,766 $ - $ - $ 18,766 SYSTEM SALES 17,857 37,950 - 55,807 LONG DISTANCE SERVICES 640 - - 640 -------- --------- ------- ---------- Net sales 37,263 37,950 - 75,213 -------- --------- ------- ---------- INSTALLATION AND SERVICE COSTS 12,206 - - 12,206 COST OF SYSTEM SALES 10,856 27,329 - 38,185 COST OF LONG DISTANCE SERVICES 210 - - 210 -------- --------- ------- ---------- Total cost of sales, installation and service 23,272 27,329 - 50,601 -------- --------- ------- ---------- Gross profit 13,991 10,621 - 24,612 -------- --------- ------- ---------- OPERATING EXPENSES: Selling, general and administrative 5,136 8,197 (2,258) (3) 11,075 Amortization 1,936 - 1,108 (1) 3,044 Other operating expense 550 - - 550 -------- --------- ------- ---------- Total operating expenses 7,622 8,197 (1,150) 14,669 -------- --------- ------- ---------- INCOME FROM OPERATIONS 6,369 2,424 1,150 9,943 INTEREST AND OTHER INCOME (EXPENSE), net 665 (12) (1,947) (2) (1,294) -------- --------- ------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES 7,034 2,412 (797) 8,649 PROVISION FOR INCOME TAXES 2,750 - 630 (4) 3,380 -------- --------- ------- ---------- NET INCOME $ 4,284 $ 2,412 $(1,427) $ 5,269 ======== ========= ======= ========== EARNINGS PER COMMON SHARE: Basic $ 1.07 $ 1.27 ======== ========== Diluted $ .93 $ 1.10 ======== ========== AVERAGE COMMON SHARES OUTSTANDING: Basic 4,011 4,161 ======== ========== Diluted 4,627 4,777 ======== ==========
26 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME The pro forma adjustments necessary to present the results of operations of Xeta Corporation are as follows: (1) To amortize the excess of cost over net assets acquired in the purchase over 20 years and to amortize the noncompete agreement over one year. (2) To reflect increased interest expense resulting from debt incurred in connection with the Purchase based on an assumed interest rate of 8.5%. (3) To reduce compensation expense for accruals for payments to be made to the S-corporation shareholders for income taxes. (4) To reflect the tax provision for the income of U.S. Technologies Systems, Inc. less the net tax benefit resulting from the amortization of the excess of cost over net assets acquired, interest expense and compensation expense at an effective rate of 39%. 27 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 hereunto duly authorized. XETA Corporation (Registrant) DATED: February 14, 2000 By: /s/ Robert B. Wagner ------------------------------ Robert B. Wagner Chief Financial Officer 28 EXHIBIT INDEX SEC No. Description Page - ------- ----------- ---- (1) Underwriting Agreement - None. (2) Plan of acquisition, reorganization, arrangement, liquidation or succession. 2.1 Stock Purchase Agreement dated as of August 1, 1999, between MARK A. MARTIN, individually, and MARK A. MARTIN, Trustee Under Living Trust of Mark A. Martin dated April 4, 1994 and XETA Corporation (including a list breifly indentifying all omitted exhibits and schedules thereto) is incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated December 15, 1999, of which this Amendment on Form 8-K/A is a part. 2.2 Stock Purchase Agreement dated as of August 1, 1999, between LAWRENCE J. HOPP, individually, and LAWRENCE J. HOPP, as Trustee under Living Trust of Lawrence J. Hopp, dated October 13, 1994 and XETA Corporation (including a list briefly identifying all omitted exhibits and schedules thereto) is incorporated herein by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated December 15, 1999, of which this Amendment on Form 8-K/A is a part. 2.3 Credit Agreement dated as of November 30, 1999, among XETA, the Lenders, the Agent and the Arranger (including a list briefly indentifying all omitted exhibits and schedules thereto) is incorporated herein by reference to Exhibit 2.3 to the Registrant's Current Report on Form 8-K dated December 15, 1999, of which this Amendment on Form 8-K/A is a part. 2.4 Pledge and Security Agreement (including a list briefly identifying all omitted exhibits and schedules thereto) is incorporated herein by reference to Exhibit 2.4 to the Registrant's Current Report on Form 8-K dated December 15, 1999, of which this Amendment on Form 8-K/A is a part. 2.5 Real Estate Mortgage, Security Agreement, Financing Statement and Fixture Filing (with Power of Sale) (including a list briefly identifying all omitted exhibits and schedules thereto) is incorporated herein by reference to Exhibit 2.5 to the Registrant's 29 Current Report on Form 8-K dated December 15, 1999, of which this Amendment on Form 8-K/A is a part. 2.6 Subsidiary Guaranty is incorporated herein by reference to Exhibit 2.6 to the Registrant's Current Report on Form 8-K dated December 15, 1999, of which this Amendment on Form 8-K/A is a part. 2.7 $12,650,000 Term Note - Bank One, Oklahoma, NA is incorporated herein by reference to Exhibit 2.7 to the Registrant's Current Report on Form 8-K dated December 15, 1999, of which this Amendment on Form 8-K/A is a part. 2.8 $10,350,000 Term Note - Mercantile Bank is incorporated herein by reference to Exhibit 2.8 to the Registrant's Current Report on Form 8-K dated December 15, 1999, of which this Amendment on Form 8-K/A is a part. (4) Instruments defining rights of security holders, including indentures previously filed as Exhibits 3.1, 3.2 and 3.3 to the registrant's Registration Statement on Form S-1, Registration No. 33-7841. (16) Letter on change in certifying accountant - N/A. (17) Letter on director resignation - N/A. (20) Other documents or statements to security holders - None. (23) Consents of experts and counsel - Consent of BDO Seidman, LLP dated February 10, 2000. (24) Power of attorney - None. (27) Financial Data Schedule - N/A. (99) Additional exhibits. 99.1 Employment Agreement dated November 30, 1999 between Mark A. Martin and the Company is incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated December 15, 1999, of which this Amendment on Form 8-K/A is a part. EX-23 2 CONSENT OF BDO SEIDMAN 1 EXHIBIT 23 [BDO SEIDMAN, LLP LETTERHEAD] CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Xeta Corporation Tulsa, Oklahoma We hereby consent to inclusion in this Current Report on Form 8-K/A and to incorporation by reference in the Registration Statement on Form S-8 (No. 33-62173) of Xeta Corporation of our report dated February 5, 1999, except Note 12 dated November 30, 1999, relating to the financial statements of U.S. Technologies Systems, Inc. BDO SEIDMAN LLP St. Louis, Missouri February 10, 2000 -----END PRIVACY-ENHANCED MESSAGE-----