<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 APRIL 30, 1996
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 '
- --------------------------------------------------------------------------------
(Registrant's 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.
Class Outstanding at June 1, 1996
- ----------------------------------- ----------------------------------
Common Stock, $.10 par value 2,170,653
Page 1 of 16 consecutive pages
Exhibit Index appears on Page 15.
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page No.
-------
<S> <C>
Consolidated Balance Sheets - April 30, 1996 3
and October 31, 1995
Consolidated Statements of Operations - For the 4
Three and Six Months Ended April 30, 1996 and 1995
Consolidated Statements of Shareholders' Equity - 5
November 1, 1995 through April 30, 1996
Consolidated Statements of Cash Flows - For the 6
Six Months Ended April 30, 1996 and 1995
Notes to Consolidated Financial Statements 7
</TABLE>
2
<PAGE> 3
XETA CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 30, 1996 October 31, 1995
-------------- ----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,406,754 $ 2,788,709
Current portion of net investment in
sales-type leases 2,101,330 1,472,249
Other receivables, net 984,590 1,328,445
Inventories, net (Note 3) 760,229 884,764
Current deferred tax asset, net (Note 6) 248,804 282,185
Prepaid expenses and other assets 202,744 94,755
---------- -----------
Total current assets 7,704,451 6,851,107
---------- -----------
Noncurrent Assets:
Net investment in sales-type leases,
less current portion above 3,551,755 3,018,142
Property, plant, & equipment, net (Note 4) 354,459 329,525
Capitalized software production costs, net of
accumulated amortization of $241,457 at April
30, 1996 and $214,002 at Oct. 31, 1995 247,237 184,013
Other assets 212,528 213,917
----------- -----------
Total noncurrent assets 4,365,979 3,745,597
----------- -----------
Total assets $12,070,430 $10,596,704
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 417,394 $ 441,581
Unearned revenue (Note 5) 2,313,575 1,968,019
Accrued liabilities 513,564 661,363
Accrued federal and state income taxes 114,523 538,566
---------- -----------
Total current liabilities 3,359,056 3,609,529
---------- -----------
Unearned service revenue (Note 5) 1,896,160 1,687,817
---------- -----------
Noncurrent deferred tax liability, net (Note 6) 537,742 475,921
---------- -----------
Commitments (Note 10)
Shareholders' equity:
Common stock; $.10 par value; 10,000,000
shares authorized, 2,170,653 and 2,003,320
issued at April 30, 1996 and October 31,
1995, respectively 217,065 200,332
Paid-in capital 4,691,351 4,092,291
Retained earnings 1,628,796 790,554
----------- -----------
6,537,212 5,083,177
Less treasury stock, at cost (259,740) (259,740)
----------- -----------
Total shareholders' equity 6,277,472 4,823,437
----------- -----------
Total liabilities & shareholders' equity $12,070,430 $10,596,704
=========== ===========
</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 Six Months
April 30 April 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales of systems $1,990,880 1,782,481 4,030,096 3,622,407
Installation and service revenues 1,703,625 1,261,247 3,246,406 2,482,250
---------- ---------- --------- ----------
Net sales and service revenues 3,694,505 3,043,728 7,276,502 6,104,657
---------- ---------- --------- ----------
Cost of sales 1,224,743 1,075,973 2,467,557 1,929,773
Installation and service cost 1,130,886 796,589 2,120,287 1,553,537
---------- ---------- ---------- ----------
Total cost of sales and service 2,355,629 1,872,562 4,587,844 3,483,310
---------- ---------- ---------- ----------
Gross profit 1,338,876 1,171,166 2,688,658 2,621,347
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative 755,454 635,703 1,444,739 1,300,211
Engineering, research and development,
and amortization of capitalized
software production costs 98,181 131,547 195,538 252,237
---------- ---------- ---------- ----------
Total operating expenses 853,635 767,250 1,640,277 1,552,448
---------- ---------- ---------- ----------
Income from operations 485,241 403,916 1,048,381 1,068,899
Interest and other income 149,958 95,539 289,861 173,888
---------- ---------- ---------- ----------
Income before provision for income
taxes 635,199 499,455 1,338,242 1,242,787
Provision for income taxes 239,000 208,941 500,000 414,390
---------- --------- ---------- ----------
Net income $ 396,199 $ 290,514 838,242 828,397
========== ========== ========== ==========
Income per common and common
equivalent share
Primary and fully diluted $ .17 $ .12 $ .36 $ .36
========== ========== ========== ==========
Weighted average shares outstanding 1,980,638 1,799,120 1,951,624 1,787,857
========== ========== ========== ==========
Weighted average shares equivalents 2,349,036 2,370,951 2,338,797 2,308,780
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
XETA CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NOVEMBER 1, 1995 THROUGH April 30, 1996
(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, 1995 2,003,320 $200,332 (189,747) $(259,740) $4,092,291 $ 790,554
Stock options
exercised 167,333 16,733 150,808
Tax benefit of
stock options 448,252
Net Income 838,242
--------- -------- ------- --------- ---------- ----------
Balance -
April 30, 1996 2,170,653 $217,065 (189,747) $(259,740) $4,691,351 $1,628,796
========= ======== ======= ========= ========== ==========
</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 Six Months Ending
-------------------------
April 30, 1996 April 30, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 838,242 $ 828,397
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 78,283 79,553
Amortization of capitalized software
production costs 27,456 27,456
(Gain) loss on sale of assets (14,076) (23,061)
Provision for doubtful accounts receivable 30,000 30,000
Provision for excess and obsolete inventory -- 15,330
Change in assets and liabilities:
(Increase) in net investment in sales-type
leases (1,162,694) (991,934)
(Increase) decrease in other receivables 313,855 (900,168)
(Increase) decrease in inventories 124,535 114,038
(Increase) decrease in prepaid income taxes -- 188,714
(Increase) decrease in deferred tax asset 33,381 (119,361)
(Increase) decrease in prepaid expenses and
other assets (106,600) (107,222)
Increase (decrease) in accounts payable (24,187) 159,279
Increase (decrease) in unearned revenue 553,899 536,370
Increase (decrease) in accrued liabilities (147,799) 109,114
Increase (decrease) in accrued income taxes 24,209 503,673
Increase (decrease) in deferred tax liabilities 61,821 (93,716)
---------- ----------
Total adjustments (207,917) (471,935)
---------- ----------
Net cash provided by (used in)
operating activities 630,325 356,462
---------- ----------
Cash flows from investing activities:
Additions to capitalized software (90,681) (35,237)
Additions to property, plant & equipment (118,088) (59,380)
Proceeds from sale of assets 28,948 34,259
---------- ----------
Net cash provided by (used in)
investing activities (179,821) (60,358)
---------- ----------
Cash flows from financing activities:
Exercise of stock options 167,541 42,813
---------- ----------
Net cash provided by financing activities 167,541 42,813
---------- ----------
Net increase (decrease) in cash and
cash equivalents 618,045 338,917
Cash and cash equivalents, beginning of period 2,788,709 1,630,531
---------- ----------
Cash and cash equivalents, end of period $3,406,754 $1,969,448
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ -- $ 739
Cash paid during the period for income taxes $ 140,588 $ 55,000
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
XETA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
(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
In June, 1996, the Company increased its line of credit with its bank
to $1,000,000 on essentially the same terms and conditions as its previous line
of credit. To date, no advances have been made under this agreement.
(3) INVENTORIES
The following are the components of inventories:
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995'''
---------- ----------
(Unaudited)
<S> <C> <C>
Raw materials $ 383,574 $ 447,090
Finished goods and spare parts 491,696 573,307
---------- ----------
875,270 1,020,397
Less reserve for excess
and obsolete inventory 115,041 135,633
---------- ----------
$ 760,229 $ 884,764
========== ==========
</TABLE>
7
<PAGE> 8
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995 ''
--------- ----------
(Unaudited)
<S> <C> <C>
Computer field equipment $721,251 $661,473
Office furniture 112,976 108,731
Other 120,766 106,277
-------- --------
954,993 876,481
Less accumulated depreciation 600,534 546,956
-------- -------
$354,459 $329,525
======== ========
</TABLE>
(5) UNEARNED INCOME
Unearned income consists of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995'''
--------- ----------
(Unaudited)
<S> <C> <C>
Service contracts $1,569,752 $1,177,599
Warranty service 464,388 487,673
Systems shipped, but not installed 61,361 44,305
Customer deposits 167,732 208,065
Other deferred revenues 50,342 50,377
---------- ----------
Total current deferred revenue 2,313,575 1,968,019
Noncurrent unearned service revenues 1,896,160 1,687,817
---------- ----------
$4,209,735 $3,655,836
========== ==========
</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>
April 30, October 31,
1996 1995 '
--------- ----------
(Unaudited)
---------
<S> <C> <C>
Deferred tax assets:
Prepaid service contracts $ 98,199 $ 128,397
Nondeductible reserves 324,512 299,873
Book depreciation in excess of tax 5,716 23,780
Other 39,835 44,036
--------- ---------
Total deferred tax asset 468,262 496,086
--------- ---------
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C>
Deferred tax liabilities:
Unamortized capitalized software
development costs (84,061) (62,564)
Tax income to be recognized on
sales-type lease contracts (581,690) (535,808)
Other (91,449) (91,450)
--------- ---------
Total deferred tax liability (757,200) (689,822)
--------- ---------
Net deferred tax liability $(288,938) $(193,736)
========= =========
</TABLE>
(7) INTEREST AND OTHER INCOME
Interest and other income for the six months ending April 30, 1996,
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 29, 1996. 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 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
18 Retirement plan
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During the second quarter of fiscal 1996, XETA Corporation ("the Company"),
focused on four major areas of emphasis: increasing sales of its PBX products,
continued growth of its service customer base, completion of the roll-out of
call accounting systems related to the mandated changes in the North American
Numbering Plan ("NANP") and continued development of the Company's new PBX
related product, XPANDER. These areas, as well as other factors affecting the
Company's financial condition and results of operations, will be discussed in
this report. The forward looking statements contained in this report are
estimates by the Company's management of future performance and are subject to
a variety of risks and uncertainties, some of which are discussed herein, which
could cause actual results to differ materially from management's current
expectations.
The Company has enjoyed wide acceptance of its PBX product and service
offering. During the second quarter, total PBX related revenues, both sales of
new systems and service revenues, were $2,066,000, a 40% increase over PBX
related revenues earned during the second quarter of fiscal 1995. For the
first six months of fiscal 1996, PBX related revenues were $4,110,000 or 62%
higher than the first half of fiscal 1995. Included in these PBX revenues are
recurring revenues earned from PBX service contracts. During fiscal 1996 to
date, these revenues have doubled when compared to fiscal 1995 levels.
Management believes that through continued commitment to its PBX service
offerings, its base of recurring revenues from PBX service contracts will
continue to grow for the foreseeable future.
During the second quarter of fiscal 1996, the Company completed the
installation of the call accounting systems which had been ordered in response
to the mandated changes in the NANP. These installations and their related
revenues began in the fourth quarter of fiscal 1994, peaked in the first
quarter of fiscal 1995 and have been steadily declining. Beginning in the
third quarter, revenues earned from sales of new call accounting systems will
return to normal levels. Despite the expected decline in future sales of new
call accounting systems, it is important to note that recurring revenues earned
from service contracts on call accounting systems are expected to continue.
These revenues were approximately $740,000 during the second quarter of fiscal
1996 representing an 18% increase over the same period in fiscal 1995. Most of
the Company's call accounting customers purchase service contracts on their
systems and the Company's success in getting these contracts renewed each year
has historically been very high.
The Company continues development and testing of its newest product, XPANDER.
This product is designed to work with any brand of PBX to increase the number
of available extensions without increasing the size of the PBX. The primary
initial application of XPANDER will be to add a second telephone extension in
hotel rooms to enable guests to make data and voice calls simultaneously.
Currently, to provide this capability, hotels must significantly expand the
size of their PBX systems resulting in significant up front costs and
continuing maintenance costs. XPANDER will be a more cost effective way to
meet this need. While the Company has yet to secure a field test for the
system, development and debugging has continued as planned and in-house testing
has yielded favorable results. Management believes that the market for XPANDER
is continuing to form as guest demand for multiple phone line access in the
rooms increases. Sales of XPANDER are expected to begin late in
10
<PAGE> 11
the current fiscal year; however, such sales are not expected to begin to be
significant until fiscal 1997.
FINANCIAL CONDITION
The Company's financial condition has continued to improve throughout the first
six months of fiscal 1996. Working capital has increased 34% to $4,345,000 and
shareholders' equity has increased 30% to $6,277,000 during the first half of
fiscal 1996. In addition, as a result of the utilization of the Company's
XETAPLAN program over the past 18 months by customers who were upgrading their
call accounting systems, the Company currently has significant sales-type lease
receivables which, over the next four years will generate additional cash
reserves.
This financial strength continues to play an important role in the Company's
growth and ability to compete in its market. By having the necessary working
capital to fund additional service and sales locations and to fully support
those locations with inventory and administrative services, the Company has
been able to provide a consistent level of performance throughout its
nation-wide customer base.
The Company's financial strength also enables it to continue to invest heavily
in research and development activities. These projects, which include the
XPANDER product, will form the basis for continued expansion of the Company in
the future. Management anticipates that investment in engineering and research
and development activities will continue at the current pace for the
foreseeable future.
In addition to the activities described above, the Company continues to
actively evaluate various strategies for effective use of its cash reserves.
These strategies include, but are not limited to, stock repurchases,
synergistic acquisitions and continued expansion of the XETAPLAN program
possibly to include PBX or XPANDER systems.
RESULTS OF OPERATIONS
For the second quarter of fiscal 1996, the Company recorded net income of
$396,000 compared to net income of $290,000 for the second quarter of fiscal
1995, representing a 36% increase. For the year to date periods, the Company
has recorded net income of $838,000 compared to $828,000 for the first six
months of fiscal 1995, a 1% increase. Specific operating items and their
changes are discussed below.
Net sales and service revenues increased 21% and 19% for the three and six
month periods, respectively, ending April 30, 1996, compared to the same
periods in fiscal 1995. For the second quarter, systems sales increased 12%
over 1995 levels consisting of a 23% increase in sales of new PBX systems and a
4% decline in the sales of new call accounting systems. For the six month
period ending April 30, systems sales increased 11% consisting of a 52%
increase in sales of PBX systems and a 23% decrease in call accounting systems
sales compared to the first six months of fiscal 1995. The trend in both PBX
and call accounting sales was expected. As discussed above, the Company
continues to enjoy success in marketing its PBX product line and these sales
are expected to continue to grow as the Company gains market share and as the
Company introduces its own PBX-related products, such as XPANDER. See
discussion above regarding sales of call accounting systems and the changes in
the NANP.
11
<PAGE> 12
Revenues earned from installation and service activities increased 35% during
the second quarter of fiscal 1996 compared to the second quarter of fiscal 1995
and 31% for the six month comparative periods ending April 30, 1996.
Approximately one-fourth of these increases is the result of the additional
call accounting systems that have been added during the past year and that are
now under service contract and generate recurring revenues. Most of the
remainder of the increase in service revenues relates to PBX service activities
such as contract revenues and time and material charges.
Gross margins decreased from 38% to 36% in the second quarter of fiscal 1996
compared to the second quarter of fiscal 1995 and decreased from 43% to 37% for
the six month period ending April 30, 1996, compared to the previous year.
These decreases were expected and reflect the continuing change in mix of sales
from higher margin call accounting sales to lower margin PBX sales. For this
reason and due to the conclusion of the surge in call accounting sales related
to the NANP changes, management has stated that fiscal 1995's operating result
will be a challenge to equal in fiscal 1996 even though total revenues may
increase slightly. These results will be dependent upon the continued
acceptance of the Company's PBX product and service offerings and the timing of
customer orders and related installations of new PBX systems. As discussed
above, revenues from sales of XPANDER systems are not expected to make a
significant contribution to fiscal 1996 results.
Operating expenses increased 11% and 8% for the three and six month periods,
respectively, ending April 30, 1996, compared to the same periods in 1995.
These increases were related to increases in sales related costs such as the
addition of new personnel and sales offices and to increased sales related
compensation due to increased sales. Partially offsetting these increases are
decreases in engineering related costs due to the fact that a greater portion
of the expenses incurred during fiscal 1996 qualified for capitalization under
the applicable accounting rules than in the same period of fiscal 1995.
Interest and other income increased 57% during the second quarter of fiscal
1996 compared to 1995 and increased 67% for the six month period ending April
30, 1996, compared to the six months ending April 30, 1995. This increase is
primarily related to increases in interest income earned from sales-type leases
and cash investments. Many of the call accounting sales over the last 18
months were made under the Company's XETAPLAN program. As a result, the
Company is recording interest income on these sales-type leases as amortization
occurs.
The Company recorded a provision for federal and state income taxes of $239,000
for the second quarter of fiscal 1996 and $500,000 for the first six months of
fiscal 1996. These provisions for taxes represent an effective tax rate of
approximately 37%. This compares with an effective tax rate of 42% during the
second quarter of fiscal 1995 and 33% for the first six months of fiscal 1995.
The decrease in the effective rate during the second quarter relates to a
reduction in the estimated state tax provision for fiscal 1996. The increase
in the year to date effective tax rate is due to the fact that fiscal 1995's
first quarter taxes were reduced by $107,000 in tax benefits relating to
reversing timing differences. Management expects the effective tax rate
recorded so far in fiscal 1996 to be indicative of the rate required for the
remainder of the year.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Phonometrics
Phonometrics, Inc. continues to pursue its patent infringement litigation
against telecommunications equipment manufacturers and hotel users of such
equipment. In February, 1996, Phonometrics filed one lawsuit against
twenty-nine hotel owners and management companies in the United States District
Court for the Northern District of California (Civil Action No. C-96-0707).
This lawsuit is identical in nature to the Phonometrics litigation pending in
the U.S. District Court for the Southern District of Florida; however, due to
the timing of the filing of the California litigation, the time period during
which Phonometrics may seek damages based on the alleged infringement is
limited to February 1990 - October 1990. In light of the short period of time
for which damages may be sought and the relatively deminimus settlement offer
figures proposed by Phonometrics to numerous defendants named in the lawsuit
(the offers of which the Company is aware have all been for less than $10,000),
it is believed that Phonometrics' primary purpose in filing the California
litigation is to finance the Florida litigation.
During the Company's past quarter, four of the Company's customers
that are named as defendants in the California litigation notified the Company
that they would seek indemnity from the Company with regard to such litigation.
As is the case in the Florida litigation, the Company is only one of several
vendors of several parts of the hotels' telecommunications equipment that is
implicated in the litigation. Consequently, the Company to date has not
assumed the outright defense of its customers in any of the Phonometrics
litigation.
In March of this year, the Florida litigation pending against the
hotel users of the allegedly infringing telephone equipment was stayed by the
Florida Court, pending the outcome of the Florida cases filed against various
manufacturers of the telephone equipment. Those cases have been referred to a
special master by the Florida Court for determination on the merits of each
case. (As was reported last quarter, one such case involving Northern Telecom
was resolved in Northern Telecom's favor, although Phonometrics has filed a
notice of intent to appeal the decision.) Recently, the defendants in the
California litigation filed motions to seek a similar stay of the California
litigation pending the outcome of the Florida litigation. A hearing on such
motions is set for June 28, 1996.
The Company, through its legal counsel, continues to monitor the
developments in these cases, communicate with legal counsel for its customers
involved in the lawsuits, and generally consider from time to time various
alternatives available to it in responding to this matter.
ABTS
In early April, 1996, the Company was successful in moving the action
brought against it by Associated Business Telephone Company ("ABTS") from
Federal Court in New Jersey to the U.S. District Court of the Northern District
of Oklahoma, which sits in Tulsa, Oklahoma. As a result, dates previously set
by the New Jersey Federal Court (as reported in the Company's 10-QSB for its
first quarter in fiscal 1996) are irrelevant. The Oklahoma Court has scheduled
a status conference in this case for June 28, 1996.
13
<PAGE> 14
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 15.
(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: June 13, 1996 By: Jack R. Ingram
President
Dated: June 13, 1996 By: Robert B. Wagner
Vice President of Finance
14
<PAGE> 15
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 16
24.1 Consent of Arthur Andersen LLP
(25) Power of attorney - None. -
(28) Additional exhibits - None. -
</TABLE>
15
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of the Form S-8
made by Xeta Corporation on August 28, 1995. It should be noted that we have
not audited any financial statements of the Company subsequent to October 31,
1995 or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
June 10, 1996
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTIANS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGERS 3 AND 4 OF THE COMPANY'S 10QSB FOR THE YEAR TO DATE AND AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 3,406,754
<SECURITIES> 0
<RECEIVABLES> 2,101,330
<ALLOWANCES> 0
<INVENTORY> 760,229
<CURRENT-ASSETS> 7,704,451
<PP&E> 354,459
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,070,430
<CURRENT-LIABILITIES> 3,359,056
<BONDS> 0
<COMMON> 217,065
0
0
<OTHER-SE> 6,320,147
<TOTAL-LIABILITY-AND-EQUITY> 12,070,430
<SALES> 3,694,505
<TOTAL-REVENUES> 3,694,505
<CGS> 2,355,629
<TOTAL-COSTS> 2,355,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 635,199
<INCOME-TAX> 239,000
<INCOME-CONTINUING> 396,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396,199
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
