<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended JULY 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-16231
XETA Corporation
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-1130045
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4500 S. Garnett, Suite 1000, Tulsa, Oklahoma 74146
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
918-664-8200
--------------------------------------------------------------------------------
(Registrants telephone number, including area code)
Not Applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at September 1, 1995
-------------------------------- --------------------------------
<S> <C>
Common Stock, $.10 par value 1,809,873
</TABLE>
Page 1 of 14 consecutive pages
Exhibit Index appears on Page 14.
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page No.
-------
<S> <C>
Consolidated Balance Sheets - July 31, 1995 and 3
October 31, 1994
Consolidated Statements of Operations - For the 4
Three and Nine Months Ended July 31, 1995 and
1994
Consolidated Statements of Shareholders' Equity - 5
November 1, 1994 through July 31, 1995
Consolidated Statements of Cash Flows - For the 6
Nine Months Ended July 31, 1995 and 1994
Notes to Consolidated Financial Statements 7
</TABLE>
2
<PAGE> 3
XETA CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31, 1995 October 31, 1994
------------- ----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $2,366,155 $1,630,531
Current portion of net investment in
sales-type leases 1,293,916 904,725
Other receivables, net 1,207,277 962,536
Inventories, net (Note 3) 1,003,462 710,407
Prepaid income taxes -- 188,714
Current deferred tax asset, net (Note 6) 516,220 302,143
Prepaid expenses and other assets 83,215 45,041
---------- ----------
Total current assets 6,470,245 4,744,097
---------- ----------
Noncurrent Assets:
Net investment in sales-type leases,
less current portion above 2,484,601 1,736,122
Property, plant, & equipment, net (Note 4) 306,520 354,219
Capitalized software production costs, net of
accumulated amortization of $200,274 at July
31, 1995 and $262,400 at Oct. 31, 1994 164,847 115,556
Other assets 171,849 113,761
---------- ----------
Total noncurrent assets 3,127,817 2,319,658
---------- ----------
Total assets $9,598,062 $7,063,755
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Current liabilities:
Accounts payable $ 244,312 $ 241,745
Unearned revenue (Note 5) 1,984,828 1,759,293
Accrued liabilities 515,576 372,163
Accrued federal and state income taxes 709,036 89,466
---------- ----------
Total current liabilities 3,453,752 2,462,667
---------- ----------
Unearned service revenue (Note 5) 1,445,320 1,202,029
---------- ----------
Noncurrent deferred tax liability, net (Note 6) 303,385 174,933
---------- ----------
Commitments (Note 10)
Shareholders' equity:
Common stock; $.10 par value; 10,000,000
shares authorized, 1,999,620 and 1,964,620
issued and outstanding at July 31, 1995
and October 31, 1994, respectively 199,962 196,462
Paid-in capital 4,050,498 4,011,185
Retained earnings (deficit) 404,885 (723,781)
---------- ----------
4,655,345 3,483,866
Less treasury stock, at cost (259,740) (259,740)
---------- ----------
Total shareholders' equity 4,395,605 3,224,126
---------- ----------
Total liabilities & shareholders' equity $9,598,062 $7,063,755
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
XETA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ending July 31, Ending July 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales of systems $1,640,995 $ 893,077 $5,263,402 $2,383,139
Installation and service revenues 1,290,838 881,447 3,773,088 2,438,392
---------- ---------- ---------- ----------
Net sales and service revenues 2,931,833 1,774,524 9,036,490 4,821,531
---------- ---------- ---------- ----------
Cost of sales 924,053 507,239 2,853,826 1,205,541
Installation and service cost 832,886 623,793 2,386,423 1,687,674
---------- ---------- ---------- ----------
Total cost of sales and service 1,756,939 1,131,032 5,240,249 2,893,215
---------- ---------- ---------- ----------
Gross profit 1,174,894 643,492 3,796,241 1,928,316
---------- ---------- ---------- ----------
Operating expense:
Selling, general and administrative 636,709 425,851 1,936,920 1,338,050
Engineering, research and
development, and amortization of
capitalized software production
costs 120,942 123,819 373,179 351,583
---------- ---------- ---------- ----------
Total operating expenses 757,651 549,670 2,310,099 1,689,633
---------- ---------- ---------- ----------
Income from operations 417,243 93,822 1,486,142 238,683
Interest and other income 101,636 35,962 275,524 500,462
Interest and other expense -- (847) -- (1,876)
---------- ---------- ---------- ----------
Income before provision for income
taxes 518,879 128,937 1,761,666 737,269
Provision for income taxes 218,610 10,500 633,000 33,000
---------- ---------- ---------- ----------
Net income $ 300,269 $ 118,437 $1,128,666 $ 704,269
========== ========== ========== ==========
Income per common and common
equivalent share:
Primary $ .13 $ .05 $ .52 $ .31
======== ======== ======== ========
Fully diluted $ .13 $ .05 $ .51 $ .31
======== ======== ======== ========
Weighted avg. shares outstanding 1,809,873 1,781,529 1,795,196 1,888,614
========= ========= ========= =========
Weighted avg. share equivalents -
Primary 2,237,390 2,250,782 2,191,027 2,304,260
========= ========= ========= =========
Fully diluted 2,237,390 2,250,782 2,203,878 2,304,260
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
XETA CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NOVEMBER 1, 1994 THROUGH JULY 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------- --------------------
Number of Retained
Shares Issued Paid-in Earnings
& Outstanding Par Value Shares Amount Capital (Deficit)
------------- --------- ------ ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance -
October 31, 1994 1,964,620 $196,462 (189,747) $(259,740) $4,011,185 $(723,781)
Stock options
exercised 10,000 1,000 9,000
Stock warrants
exercised 25,000 2,500 30,313
Net income 1,128,666
--------- -------- -------- --------- ---------- ---------
Balance -
July 31, 1995 1,999,620 $199,962 (189,747) $(259,740) $4,050,498 $ 404,885
========= ======== ======== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
XETA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Nine Months Ending
--------------------------
July 31, 1995 July 31, 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,128,666 $ 704,269
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 118,218 168,395
Amortization of capitalized software
production costs 41,184 73,179
Gain on sale of subsidiary stock -- (400,000)
Gain on sale of assets (15,691) (1,835)
Provision for doubtful accounts receivable 45,000 45,000
Provision for excess and obsolete inventory 13,483 61,718
Change in assets and liabilities:
(Increase) decrease in net investment in
sales-type leases (1,137,670) (415,806)
(Increase) decrease in other receivables (289,741) 162,186
(Increase) decrease in inventories (306,538) (102,798)
(Increase) decrease in prepaid income taxes 188,714 182,852
Increase in deferred tax asset (85,625) (136,686)
(Increase) decrease in prepaid expenses and
other assets (96,262) (7,763)
Increase (decrease) in accounts payable 2,567 (37,976)
Increase (decrease) in unearned revenue 468,827 199,574
Increase (decrease) in accrued liabilities 143,414 34,017
Increase in accrued income taxes 619,570 159,452
---------- ----------
Total adjustments (290,550) (16,491)
---------- ----------
Net cash provided by (used in)
operating activities 838,116 687,778
---------- ----------
Cash flows from investing activities:
Proceeds from sale of XRS stock (Note 5) -- 400,000
Additions to property, plant & equipment (89,087) (167,273)
Additions to capitalized software production
costs (90,477) --
Proceeds from sale of assets 34,259 4,280
---------- ----------
Net cash provided by (used in)
investing activities (145,305) 237,007
---------- ----------
Cash flows from financing activities:
Purchase of treasury stock -- (259,740)
Exercise of stock options and warrants 42,813 --
---------- ----------
Net cash used in financing activities 42,813 (259,740)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 735,624 665,045
Cash and cash equivalents, beginning of period 1,630,531 997,755
---------- ----------
Cash and cash equivalents, end of period $2,366,155 $1,662,800
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ -- $ 985
Cash paid during the period for income taxes $ 48,266 $ 55,000
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
XETA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995
(Unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements included herein include the
accounts of XETA Corporation and its wholly- owned subsidiary, Xetacom, Inc.
Xetacom's operations have been insignificant to date. All significant
intercompany accounts and transactions have been eliminated.
The consolidated financial statements have been prepared by the
Company, without an audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the
disclosures made in these financial statements are adequate to make the
information presented not misleading when read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest financial statements filed as part of the Company's Annual
Report on Form 10-KSB, Commission File No. 0-16231. Management believes that
the financial statements contain all adjustments necessary for a fair statement
of the results for the interim periods presented. All adjustments made were of
a normal recurring nature.
(2) REVOLVING CREDIT AGREEMENT
On March 7, 1995, the Company renewed and increased its $350,000
revolving line of credit at substantially the same terms and covenants as the
previous agreement. The Company is in compliance with all of the provisions of
the credit agreement. No advances have been made under either the previous or
the extended credit agreement.
In conjunction with a distributorship agreement with one of the
Company's major vendors, the Company has provided a $75,000 letter of credit
agreement to the vendor. Under the current credit agreement, the letter of
credit reduces the Company's available borrowing line for other uses to
$275,000.
(3) INVENTORIES
The following are the components of inventories:
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
Raw materials $ 193,356 $ 134,423
Finished goods 1,232,620 856,932
Work-in-process 26,517 18,435
---------- ----------
1,452,493 1,009,790
Less reserve for excess
and obsolete inventory 449,031 299,383
---------- ----------
$1,003,462 $ 710,407
========== ==========
</TABLE>
7
<PAGE> 8
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
Computer field equipment $621,372 $619,896
Office furniture 107,932 98,212
Other 106,277 104,157
-------- --------
835,581 822,265
Less accumulated depreciation 529,061 468,046
-------- --------
$306,520 $354,219
======== ========
</TABLE>
(5) UNEARNED INCOME
Unearned income consists of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
Service contracts $ 968,182 $ 665,870
Warranty service 543,234 462,279
Systems shipped, but not installed 224,788 119,495
Customer deposits 194,231 451,896
Other deferred revenues 54,393 59,753
--------- ---------
Total current deferred revenue 1,984,828 1,759,293
Noncurrent unearned service revenues 1,445,320 1,202,029
---------- ----------
$3,430,148 $2,961,322
========== ==========
</TABLE>
(6) INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
July 31, 1995 Oct. 31, 1994
------------- -------------
(Unaudited)
-----------
<S> <C> <C>
Deferred tax assets:
Prepaid service contracts $ 136,380 $ 211,557
Nondeductible reserves 428,553 277,877
Book depreciation in excess of tax 25,160 23,142
Other 88,650 70,201
--------- ---------
Total deferred tax asset 678,743 582,777
--------- ---------
Deferred tax liabilities:
Unamortized capitalized software
development costs (56,048) (39,289)
Tax income to be recognized on
sales-type lease contracts (409,860) (308,660)
--------- ---------
Total deferred tax liability (465,908) (347,949)
--------- ---------
Net deferred tax asset 212,835 234,828
Less valuation allowance -- (107,618)
--------- ---------
Net deferred tax asset $ 212,835 $ 127,210
========= =========
</TABLE>
8
<PAGE> 9
In accordance with FAS 109, the Company recorded a valuation allowance
against the net deferred tax asset at October 31, 1994 as the realization of
the future benefits associated with the reversal of the temporary differences
above was not assured. During the second quarter of fiscal 1995, the Company
recognized the remaining previously reserved tax asset to reduce its federal
tax provision.
(7) INTEREST AND OTHER INCOME
Interest and other income for the quarter and nine months ending July 31,
1995, consists primarily of interest income earned from sales-type leases and
cash investments.
(8) FOOTNOTES INCORPORATED BY REFERENCE
Certain footnotes are applicable to the consolidated financial statements,
but would be substantially unchanged from those presented in the Company's
Annual Report on Form 10-KSB, Commission File No. 0-16231, filed with the
Securities and Exchange Commission on January 25, 1995. Accordingly, reference
should be made to those statements for the following:
<TABLE>
<CAPTION>
Note Description
---- -----------
<S> <C>
1 Business and summary of significant accounting policies
3 Cash and cash equivalents
4 Income taxes
5 Preferred stock in Xeta Reservation Systems, Inc.
7 Accrued liabilities
9 Stock options
10 Commitments
11 Major customers
13 Other receivables
14 Employment agreements
15 Contingency
16 Earnings per share
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During the third quarter ending July 31, 1995, XETA Corporation ("the Company")
recorded net income of $300,000 on net sales revenues of $2,932,000,
representing increases of 154% and 65%, respectively, compared to the third
quarter of fiscal 1994. For the nine month period ending July 31, 1995, net
income was up 60% to $1,129,000 and net sales increased 87% to $9,036,000.
These gains have been the result of sales generated by the mandated changes in
the North American Numbering Plan ("NANP"), continued acceptance of the
Company's XL Series call accounting systems and its PBX product and service
offering.
Beginning in mid-1994, mandated changes were made in the dialing patterns of
telephone numbers used in most of North America. These dialing patterns,
collectively referred to as the NANP, were changed to allow for the issuance of
much needed new telephone numbers. The most significant change to the NANP was
to allow a digit other than a zero or one as the middle digit in an area code.
Most telecommunications equipment required an upgrade or replacement to
accommodate the new dialing patterns. In hotels, this meant that almost all
call accounting systems, answer detection systems and PBX's required upgrade or
replacement. For the past four quarters, the Company has experienced a surge
in orders for upgrades or replacements of systems. Many of the Company's
customers elected to replace their systems with the new XL Series system, a
PC-based line of call accounting and answer detection products. The Company
was also active in the upgrades of existing Hitachi PBX systems to comply with
the NANP changes. While the surge in new orders related to NANP activity is
over, the Company has a substantial backlog of NANP related orders for call
accounting systems. These orders will produce significant systems sales
revenues and associated installation and service revenues, although decreasing
each quarter, through the second quarter of fiscal 1996.
Revenues from the Company's PBX sales and service activities, begun in
mid-1993, continue to exceed expectations. The Company is a nation-wide
distributor of Hitachi telephone systems and despite strong competition in the
lodging industry, the Company has been very successful in both the sales of new
Hitachi PBX's and in securing service contracts from hotels which already have
Hitachi systems. For the year, net sales of new PBX systems have increased
over 170% and revenues from installation and service of PBX's has increased
over 230% from the corresponding period for the previous fiscal year. During
the year, the Company has added sales offices in Indiana and New Jersey and has
staffed the offices with experienced salesmen. With the continued acceptance
of the Company's PBX product and service offering and the increase in the size
of its sales force, management expects continued growth in revenues from these
activities, although no assurance can be given.
FINANCIAL CONDITION
The Company's financial strength continues to play an important role in the
success of the Company's sales and marketing plans. During the fiscal year to
date, total assets and net worth have each grown 36%. In addition, the Company
has no outstanding bank debt. Management has used the Company's financial
strength in its marketing programs, primarily by offering its XETAPLAN programs
to customers needing to upgrade their systems to comply with the NANP changes
discussed above. These upgrades were largely unforeseen and not budgeted by
hotels, so the Company's ability to offer favorable payment terms was a key
factor in many customers' decisions to upgrade their systems with new
equipment.
10
<PAGE> 11
Management plans to continue to use its strong balance sheet and cash position
to its advantage in the marketplace. Continued expansion of the XETAPLAN
program is expected. In addition, other alternatives, such as financing the
expansion of the Company's products and services into new markets and
synergistic acquisitions will also be considered as opportunities arise.
RESULTS OF OPERATIONS
Net sales and service revenues increased 65% to $2,932,000 for the third
quarter of fiscal 1995 compared to the third quarter of fiscal 1994 and have
increased 87% to $9,036,000 for the year-to-date period. Revenues from both
the sales of new systems and installation and service revenues have increased
dramatically during fiscal 1995 for the reasons discussed above. Revenues from
sales of new call accounting systems are expected to remain strong, although
decline with each quarter, through the second quarter of the next fiscal year.
Revenues from maintenance contracts on the Company's installed base of call
accounting systems should remain stable for the foreseeable future. Despite
the expected future decline in sales of new call accounting systems, management
believes that through the expansion of its sales force, continued market
acceptance of its PBX service programs and the introduction of new products and
services, the Company can continue to sustain or exceed its current sales
levels for the near future. Acceptance of the Company's entry into the PBX
market has exceeded management's expectations to date. While the Company has
already established itself as a major nation-wide distributor of Hitachi PBX
systems to the lodging industry, the Company has just scratched the surface of
the potential lodging market for such systems.
Gross margins earned on net sales and service revenues were 40% in the third
quarter of fiscal 1995 compared to 36% for the third quarter of fiscal 1994.
Gross margins for the nine month period ending July 31, 1995 were 42% compared
to 40% for the year earlier period. Margins earned on sales of systems have
edged lower as sales of PBX systems have increased over the past two years.
Margins on PBX-related equipment, which the Company sells as an authorized
distributor for the vendors, are lower than the margins earned on the Company's
call accounting and answer detection systems, which are manufactured by the
Company. The gross margins earned on installation and service activities have
increased during fiscal 1995 compared to fiscal 1994, reflecting primarily the
fact that revenues have grown to sufficient levels to sustain the increased
field and administrative personnel needed to support the Company's entry into
the PBX installation and service market. Management believes that the margins
currently being earned on installation and service activities are acceptable.
Operating expenses increased 38% during the third quarter of fiscal 1995
compared to the third quarter of fiscal 1994 and increased 37% for the nine
month period ending July 31, 1995 compared to the nine month period a year ago.
These increases are primarily attributable to increases in commissions and
executive bonuses which have increased due to increases in sales and profits.
Other increases relate to additional sales, administration and engineering
personnel added during the year. Included in operating expenses are the costs
associated with research and development of new products and enhancements to
existing products. The Company has continued to invest heavily in these
activities, recognizing that innovative products and the service-friendly
design of those products have been a key factor in the Company's success
throughout its existence. Some of the products currently under development
have reached the technological feasibility stage and in accordance with
generally accepted accounting principles, approximately
11
<PAGE> 12
$90,000 of software production costs have been capitalized during the year.
Interest and other income increased $66,000 or 183% during the third quarter of
fiscal 1995 compared to the third quarter of fiscal 1994. Interest and other
income was $276,000 for the first nine months of fiscal 1995 compared to
$500,000 during the first nine months of fiscal 1994. Other income for fiscal
1994 included a $400,000 nonrecurring gain from the sale of the Company's
investment in XETA Reservations Systems, Inc. The increase in interest and
other income during fiscal 1995 relates to substantial increases in interest
income earned from sales-type leases under the XETAPLAN program and increased
income from cash investments. As discussed above, the XETAPLAN program was
utilized extensively during the past four quarters to encourage customers to
upgrade their systems with new Company systems. These XETAPLANS were primarily
extended to existing customers, including one of the Company's major customers,
at favorable lease rates. Also contributing to the increase in interest income
is the increase in the amount of cash invested and the slightly higher yields
available on short-term, highly liquid investments.
The provision for federal and state income taxes increased from $10,500 during
the third quarter of fiscal 1994 to $219,000 for the third quarter of fiscal
1995. For the year to date, the provision for income taxes is $633,000 during
fiscal 1995 compared to $33,000 for the year earlier period. The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 109 on
November 1, 1994. There was no impact on the Company's results of operations
at the time of adoption of SFAS 109 which requires recognition of deferred tax
liabilities and assets for the expected future consequences of events that have
been included in a company's financial statements or tax return. In accordance
with SFAS 109, the Company recorded a valuation allowance equal to the net tax
asset as the realization of the future benefits associated with reversing
temporary timing differences was not assured. During fiscal 1994, the Company
reduced the valuation allowance to reflect the realization of $389,000 in tax
benefits of reversing timing differences. During the first quarter of fiscal
1995, the Company reduced the valuation allowance to zero reflecting the
realization of the remaining $107,000 in tax benefits of reversing temporary
timing differences.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material change in the Company's position with respect to
the Phonometrics patent infringement litigation filed against certain of the
Company's customers and implicating the Company's call accounting systems
(along with other vendors' call accounting, voice mail, and PBX systems), as
discussed in more detail in the Company's Form 10- KSB for the fiscal year
ended October 31, 1994, filed with the SEC in January, 1995. As of September
1, 1995, the Company has not been named as a party in any of these lawsuits.
The lawsuits pending against the Company's customers are still in the early
stages and the Company is not aware of any significant developments or progress
in any of these cases since its disclosure of this matter in its 10-QSB for the
first quarter of fiscal 1995. The Company continues to believe that its legal
position in defense of Phonometrics' allegations of patent infringement is
strong.
On June 16, 1995, Associated Business Telephone Company ("ABTS"), a former
distributor for the Company, brought suit against the Company in the Superior
Court of Camden County, New Jersey, based upon allegations of breach of
warranty, breach of contract and tortious interference with business
relationships. The alleged claims arise in connection with a distributor's
agreement pursuant to which the Company sold multiple XD-8200 call accounting
systems to an affiliate of ABTS, and a maintenance agreement pursuant to which
the Company furnished service to the systems. ABTS seeks to recover damages
from the Company, although no specific amount is alleged in the petition. The
Company intends to vigorously defend this lawsuit.
Items 2 through 5 of Part II have been omitted because they are inapplicable or
the response thereto is negative.
Item 6.
(a) Exhibits - See the Exhibit Index at Page ____.
(b) Reports on Form 8-K - During the quarter for which this report is
filed, the Registrant did not file any reports with the Securities and Exchange
Commission on Form 8-K.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XETA CORPORATION
(Registrant)
Dated: September 12, 1995 By: /s/ JACK R. INGRAM
Jack R. Ingram
President
Dated: September 12, 1995 By: /s/ ROBERT B. WAGNER
Robert B. Wagner
Vice President of Finance
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEC. NO. Description Page
------- ----------- ----
<S> <C> <C>
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession - None. -
(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. -
(11) Statement re: computation of per share earnings - Inapplicable. -
(15) Letter re: unaudited interim financial information - Inapplicable. -
(18) Letter re: change in accounting principles - Inapplicable. -
(19) Previously unfiled documents - Indicated by
asterisk (*). -
(20) Report furnished to security holders - None. -
(23) Published report regarding matters submitted to a vote
of security holders - None. -
(24) Consents of experts and counsel - None. -
(25) Power of attorney - None. -
(27) Financial Data Schedule -
(28) Additional exhibits - None. -
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JULY
31, 1995 BALANCE SHEET, YEAR TO DATE OPERATING & CASH FLOW STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10QSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 2,366,155
<SECURITIES> 0
<RECEIVABLES> 1,207,277
<ALLOWANCES> 0
<INVENTORY> 1,003,462
<CURRENT-ASSETS> 6,470,245
<PP&E> 306,520
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,598,062
<CURRENT-LIABILITIES> 3,453,752
<BONDS> 0
<COMMON> 199,962
0
0
<OTHER-SE> 4,195,643
<TOTAL-LIABILITY-AND-EQUITY> 9,598,062
<SALES> 9,036,490
<TOTAL-REVENUES> 9,036,490
<CGS> 5,240,249
<TOTAL-COSTS> 5,240,249
<OTHER-EXPENSES> 2,310,099
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,761,666
<INCOME-TAX> 633,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,128,666
<EPS-PRIMARY> .52
<EPS-DILUTED> .51
</TABLE>
