<PAGE> 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)
<PAGE> 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
<PAGE> 3
(AN S CORPORATION)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<PAGE> 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
<PAGE> 5
U. S. TECHNOLOGIES SYSTEMS, INC.
(AN S CORPORATION)
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 1998 1997
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
3
<PAGE> 6
U. S. TECHNOLOGIES SYSTEMS, INC.
(AN S CORPORATION)
STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
4
<PAGE> 7
U. S. TECHNOLOGIES SYSTEMS, INC.
(AN S CORPORATION)
STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Common stock Additional
--------------------------- paid-in Retained
Shares Amount capital earnings Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
============ ============ ============ ============ ============
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
5
<PAGE> 8
U. S. TECHNOLOGIES SYSTEMS, INC.
(AN S CORPORATION)
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
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
============= ============= ============
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
6
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
December 31, 1998 1997
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
9
<PAGE> 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:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
The above notes are subordinated to bank debt.
10
<PAGE> 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:
<TABLE>
<S> <C>
1999 $ 407,829
2000 407,829
2001 407,828
2002 407,828
2003 407,828
Thereafter 1,223,485
----------
$3,262,627
==========
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
December 31, 1998 1997
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
---------- -------- ----------
<S> <C> <C> <C>
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
========== ======== ==========
</TABLE>
12
<PAGE> 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
<PAGE> 16
U. S. TECHNOLOGIES SYSTEMS, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
VALUATION ACCOUNT ANALYSIS
<TABLE>
<CAPTION>
Balance at Additions Balance at
Valuation January 1, charged to December 31,
account 1996 expense Deductions 1998
--------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
========= ======== ======== ========
</TABLE>
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
<PAGE> 17
U. S. TECHNOLOGIES
(AN S CORPORATION)
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<PAGE> 18
U. S. TECHNOLOGIES SYSTEMS, INC.
(AN S CORPORATION)
CONDENSED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
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
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 19
U. S. TECHNOLOGIES SYSTEMS, INC.
(AN S CORPORATION)
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1998
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 20
U. S. TECHNOLOGIES SYSTEMS, INC.
(AN S CORPORATION)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1998
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 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.
<PAGE> 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.
<PAGE> 23
XETA CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
OCTOBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
HISTORICAL
U.S.
TECHNOLOGIES
SYSTEMS, INC.
XETA (unaudited as of PRO FORMA
CORPORATION 9/30/99) ADJUSTMENTS COMBINED
----------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
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
======= ======== ======= ========
</TABLE>
<PAGE> 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:
<TABLE>
<S> <C>
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
===============
</TABLE>
(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.
<PAGE> 25
XETA CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------
U.S.
TECHNOLOGIES
XETA SYSTEMS, INC.
CORPORATION (unaudited
(year ended 12 months PRO FORMA
10/31/99) ended 9/30/99) ADJUSTMENTS COMBINED
------------------- --------------------- ----------- --------
<S> <C> <C> <C> <C>
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
======== ==========
</TABLE>
<PAGE> 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%.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
