<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 JANUARY 31, 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 March 1, 1996
- --------------------------------- -----------------------------
Common Stock, $.10 par value 2,169,820
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page No.
-------
<S> <C>
Consolidated Balance Sheets - January 31, 1996 3
and October 31, 1995
Consolidated Statements of Operations - For the 4
Three Months Ended January 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity - 5
November 1, 1995 through January 31, 1996
Consolidated Statements of Cash Flows - For the 6
Three Months Ended January 31, 1996 and 1995
Notes to Consolidated Financial Statements 7
</TABLE>
2
<PAGE> 3
XETA CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
January 31, 1996 October 31, 1995
---------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $2,595,603 $ 2,788,709
Current portion of net investment in
sales-type leases 1,801,389 1,472,249
Other receivables, net 1,405,111 1,328,445
Inventories, net (Note 3) 654,054 884,764
Current deferred tax asset, net (Note 6) 206,871 282,185
Prepaid expenses and other assets 189,666 94,755
----------- ------------
Total current assets 6,852,694 6,851,107
----------- ------------
Noncurrent Assets:
Net investment in sales-type leases,
less current portion above 3,351,743 3,018,142
Property, plant, & equipment, net (Note 4) 335,535 329,525
Capitalized software production costs, net of
accumulated amortization of $227,730 at Jan.
31, 1996 and $214,002 at Oct. 31, 1995 214,560 184,013
Other assets 216,904 213,917
----------- ------------
Total noncurrent assets 4,118,742 3,745,597
----------- ------------
Total assets $10,971,436 $ 10,596,704
=========== ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 381,299 $ 441,581
Unearned revenue (Note 5) 2,079,317 1,968,019
Accrued liabilities 364,445 661,363
Accrued federal and state income taxes 21,361 538,566
----------- ------------
Total current liabilities 2,846,422 3,609,529
----------- ------------
Unearned service revenue (Note 5) 1,810,511 1,687,817
----------- ------------
Noncurrent deferred tax liability, net (Note 6) 497,050 475,921
----------- ------------
Commitments (Note 10)
Shareholders' equity:
Common stock; $.10 par value; 10,000,000
shares authorized, 2,169,820 and 2,003,320
issued at January 31, 1996 and October 31,
1995, respectively 216,982 200,332
Paid-in capital 4,627,614 4,092,291
Retained earnings 1,232,597 790,554
----------- ------------
6,077,193 5,083,177
Less treasury stock, at cost (259,740) (259,740)
----------- ------------
Total shareholders' equity 5,817,453 4,823,437
----------- ------------
Total liabilities & shareholders' equity $10,971,436 $ 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 Ended
--------------------------
January 31, 1996 January 31, 1995
---------------- ----------------
<S> <C> <C>
Sales of systems $2,039,216 $1,839,926
Installation and service revenues 1,542,781 1,221,003
---------- ----------
Net sales and service revenues 3,581,997 3,060,929
---------- ----------
Cost of sales 1,242,814 853,800
Installation and service cost 989,401 756,948
---------- ----------
Total cost of sales and service 2,232,215 1,610,748
---------- ----------
Gross profit 1,349,782 1,450,181
---------- ----------
Operating expenses:
Selling, general and administrative 689,285 664,508
Engineering, research and development,
and amortization of capitalized
software production costs 97,357 120,690
---------- ----------
Total operating expenses 786,642 785,198
---------- ----------
Income from operations 563,140 664,983
Interest and other income 139,903 78,349
---------- ----------
Income before provision for income
taxes 703,043 743,332
Provision for income taxes (261,000) (205,450)
---------- ----------
Net income $ 442,043 $ 537,882
========== ==========
Income per common and common
equivalent share
Primary $ .19 $ .24
========== ==========
Fully diluted $ .19 $ .23
========== ==========
Weighted average shares outstanding 1,923,241 1,776,593
========== ==========
Weighted average share equivalents
Primary 2,347,865 2,259,993
========== ==========
Fully diluted 2,347,865 2,295,645
========== ==========
</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 JANUARY 31, 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 166,500 16,650 149,850
Tax benefit of
stock options 385,473
Net Income 442,043
--------- -------- ------- --------- ---------- ----------
Balance -
January 31, 1996 2,169,820 $216,982 (189,747) $(259,740) $4,627,614 $1,232,597
========= ======== ======== ========= ========== ==========
</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 Three Months Ending
---------------------------
January 31, 1996 January 31, 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 442,043 $ 537,882
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 32,815 36,725
Amortization of capitalized software
production costs 13,728 13,728
(Gain) loss on sale of assets 5,064 (16,081)
Provision for doubtful accounts receivable 15,000 15,000
Provision for excess and obsolete inventory -- 22,060
Change in assets and liabilities:
(Increase) in net investment in sales-type
leases (662,741) (711,439)
(Increase) in other receivables (91,666) (546,209)
(Increase) decrease in inventories 230,710 (91,749)
(Increase) decrease in prepaid income taxes -- 80,817
(Increase) decrease in deferred tax asset 58,786 (90,405)
(Increase) decrease in prepaid expenses and
other assets (97,898) (117,213)
Increase (decrease) in accounts payable (60,282) 12,069
Increase (decrease) in unearned revenue 233,992 684,701
Increase (decrease) in accrued liabilities (503,569) 458,601
Increase (decrease) in deferred tax liabilities 112,578 (84,323)
----------- -----------
Total adjustments (713,483) (333,718)
----------- -----------
Net cash provided by (used in)
operating activities (271,440) 204,164
----------- -----------
Cash flows from investing activities:
Additions to capitalized software (44,276) --
Additions to property, plant & equipment (43,890) (25,456)
Proceeds from sale of assets -- 21,256
----------- -----------
Net cash provided by (used in)
investing activities (88,166) (4,200)
----------- -----------
Cash flows from financing activities:
Exercise of stock options 166,500 10,000
----------- -----------
Net cash used in financing activities 166,500 10,000
----------- -----------
Net increase (decrease) in cash and
cash equivalents (193,106) 209,964
Cash and cash equivalents, beginning of period 2,788,709 1,630,531
----------- -----------
Cash and cash equivalents, end of period $ 2,595,603 $ 1,840,495
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ -- $ --
Cash paid during the period for income taxes $ 296,286 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
XETA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 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
The Company maintains a $350,000 revolving line of credit with its
bank. To date, no advances have been made under this agreement.
(3) INVENTORIES
The following are the components of inventories:
<TABLE>
<CAPTION>
January 31, October 31,
1996 1995
---------- -----------
(Unaudited)
<S> <C> <C>
Raw materials $ 345,871 $ 447,090
Finished goods and spare parts 443,512 573,307
---------- ----------
789,383 1,020,397
Less reserve for excess
and obsolete inventory 135,329 135,633
---------- ----------
$ 654,054 $ 884,764
========== ==========
</TABLE>
7
<PAGE> 8
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Computer field equipment $666,422 $661,473
Office furniture 111,642 108,731
Other 128,878 106,277
-------- ---------
906,942 876,481
Less accumulated depreciation 571,407 (546,956)
-------- ---------
$335,535 $ 329,525
======== =========
</TABLE>
(5) UNEARNED INCOME
Unearned income consists of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Service contracts $1,319,838 $1,177,599
Warranty service 500,403 487,673
Systems shipped, but not installed 9,976 44,305
Customer deposits 199,682 208,065
Other deferred revenues 49,418 50,377
---------- ----------
Total current deferred revenue 2,079,317 1,968,019
Noncurrent unearned service revenues 1,810,511 1,687,817
---------- ----------
$3,889,828 $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>
January 31, October 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Deferred tax assets:
Prepaid service contracts $ 111,108 $ 128,397
Nondeductible reserves 278,946 299,873
Book depreciation in excess of tax 7,597 23,780
Other 32,364 44,036
--------- ---------
Total deferred tax asset 430,015 496,086
--------- ---------
Deferred tax liabilities:
Unamortized capitalized software
development costs (72,951) (62,564)
Tax income to be recognized on
sales-type lease contracts (555,794) (535,808)
Other (91,449) (91,450)
--------- ---------
Total deferred tax liability (720,194) (689,822)
--------- ---------
Net deferred tax liability $(290,179) $(193,736)
========= =========
</TABLE>
8
<PAGE> 9
(7) INTEREST AND OTHER INCOME
Interest and other income for the quarter ending January 31, 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 first quarter of fiscal 1996, XETA Corporation, ("the Company")
recorded net income of $442,000 on total revenues of $3,582,000. These results
represent a 17% increase in total revenues and a 18% decrease in net income
when compared to the first quarter of fiscal 1995.
During the quarter, two significant, but offsetting trends continued. First,
the acceptance of the Company's PBX product and service offering continued to
increase, resulting in substantial increases in the revenues earned from PBX
related activities compared to a year ago. Second, revenues from orders
resulting from the mandated changes in the dialing patterns of telephone
numbers used in most of North America ("North American Numbering Plan or
NANP")continued to decline as this upgrade program draws to a conclusion. This
surge in orders, primarily for higher margin call accounting systems, began in
the fourth quarter of fiscal 1994, reached their peak during the first quarter
of fiscal 1995 and have declined steadily since. Management expects the
remaining backlog of orders to be installed and recognized as revenues during
the second quarter.
A third important factor affecting the comparison of the first quarter results
is the difference in the effective income tax rates between the two periods.
The effective tax rate realized in the first quarter of fiscal 1995 reflected
the realization of $107,000 in tax benefits of reversing temporary timing
differences. Such unrealized benefits are no longer available to the Company.
FINANCIAL CONDITION
The Company's financial strength continues to be an important factor in all
phases of its business. The surge in revenues related to the changes in the
NANP was due in part to the Company's ability to internally finance these
transactions through the XETAPLAN program. As a result of the Company's
ability to offer this turnkey financing program, one of the Company's major
customers, Marriott International/Marriott Host, was able to upgrade all of its
XETA call accounting systems.
The Company's financial strength has also played an important role in the
Company's successful entry into the PBX market. By having the necessary
working capital to fund additional sales and service locations and to fully
support those locations with spare parts and administrative services, the
Company has been able to maintain a rapid rate of growth. Furthermore, the
Company's financial strength sometimes is an important factor in negotiations
with major customers who want the assurance that their PBX service provider can
fully support multiple locations across the country.
During the first fiscal quarter of fiscal 1996, the Company continued to invest
heavily in research and development activities. Most of this activity centered
around the development of the Company's new PBX
10
<PAGE> 11
related product, XPANDER. (See "Results of Operations" for a further
discussion of this product.) 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
Net sales and service revenues increased 17% to $3,582,000 compared to the
first quarter of fiscal 1995. This increase consisted of an 11% increase in
sales of new systems and a 26% increase in installation and service revenues.
When analyzed by product line, PBX related revenues, both systems sales and
service revenues, increased $973,000 or 91% compared to the first quarter of
fiscal 1995. Call accounting related revenues declined 23% in total. This
decrease included a $469,000 or 41% decrease in sales of new call accounting
systems, highlighting the impact of the decline in NANP related sales. Sales
of new call accounting systems are expected to decrease during the second
quarter and then decline significantly beginning in the third quarter of fiscal
1996. Revenues earned from call accounting service activities increased
$17,000 or 2% in the first quarter of fiscal 1996 compared to the first quarter
of fiscal 1995.
Gross margins decreased from 47% during the first quarter of fiscal 1995 to 38%
during the first quarter of fiscal 1996. This decrease in gross margins was
expected and reflects the decrease in sales of higher margin call accounting
systems.
The decreasing trend in overall gross margins is expected to continue through
the third quarter and then stabilize during the fourth quarter. As a result,
even though management expects PBX related revenues to continue to increase
sufficiently to produce a modest increase in overall fiscal 1996 revenues, the
magnitude of the decline in sales of higher margin call accounting systems will
make it challenging to surpass fiscal 1995's total net income. The expected
increase in fiscal 1996 revenues is dependent primarily on the continued
acceptance of the Company's PBX product and service offerings, and to a much
lesser degree, the successful completion of development of the Company's new
XPANDER product.
Operating expenses were relatively unchanged during the first quarter of fiscal
1996 compared to the same period in fiscal 1995. Increases in costs related to
additional sales and administrative personnel were partially offset by
decreases in bad debt expense and in executive bonuses, which are directly
related to profitability. Also, engineering related expenses decreased due to
the fact that a greater portion of the expenses incurred during the first
quarter of fiscal 1996 qualified for
11
<PAGE> 12
capitalization under the applicable accounting rules than in the same period
of fiscal 1995.
Interest and other income increased $62,000 or 79% during the first quarter of
fiscal 1996 compared to the first quarter of fiscal 1995. This increase
primarily reflects the increase in interest income earned from the Company's
portfolio of sales-type leases. During fiscal 1995, many of the Company's
sales related to the NANP activity were recorded as sale- type leases which,
under the applicable accounting rules, resulted in the recording of a system
sale and an offsetting sales-type lease receivable. Each month, as these
sales-type lease receivables are amortized, a portion of each payment is
recorded as interest income. The original term of these contracts ranged from
three to five years and the majority of these contracts are with a single
customer, Marriott International/Marriott Host. Because of the Company's long-
standing relationship with Marriott and because the Company's products are
essential, revenue-producing assets for the customer, management considers the
Company's credit risk to be satisfactorily diversified and the allowance for
doubtful accounts to be adequate to absorb estimated losses at January 31,
1996.
The Company has recorded a provision for federal and state income taxes of
$261,000 for the quarter ending January 31, 1996 compared to a provision for
taxes of $205,000 for the first quarter of fiscal 1995. As discussed above,
the effective tax rate for the first quarter of last year was reduced
substantially as a result of the recognition of $107,000 in tax benefits
relating to reversing timing differences. Management expects the effective
rate realized in the first quarter of fiscal 1996 to be indicative of the
effective rate for the remainder of the year.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Phonometrics
Since the filing of its report on Form 10-KSB for its 1995 fiscal year, the
Company learned that a ruling was issued against Phonometrics, Inc. in
favor of Northern Telecom on Northern Telecom's motion for summary judgment
of non- infringement. The court held that the accused products
manufactured and sold by Northern Telecom during the relevant time period
of the lawsuit did not infringe on Phonometrics' patent. Critical to the
court's decision was the fact that the accused products did not contain an
instantaneous digital display of the cost of the call, a call- completion
signal, and a settable charge selector (thumbwheels), all of which, the
court concluded, are necessary elements of the Claims in Phonometrics'
patent and therefore must be present to support a claim of infringement
under the Doctrine of Equivalents.
While the court's language in the Northern Telecom order granting Northern
Telecom's motion for summary judgment was not broad enough to automatically
dispose of all other pending Phonometrics cases, the Company believes that
the same arguments advanced by Northern Telecom can be made with respect to
the Company's equipment and that the Northern Telecom decision provides
strong, favorable precedent in favor of the Company's equipment and its
customers. Northern Telecom is appealing the court's decision.
The Company continues to monitor these cases. Several Phonometrics cases
are set for trial later this year. As of March 14, 1996, the Company has
not been named as a party in any of these cases.
ABTS
There have been no material developments in the action brought by
Associated Business Telephone Company ("ABTS") against the Company, since
the Company's description of this action in its 1995 Form 10-KSB. The
court-ordered settlement conference originally scheduled for March 7, 1996,
was indefinitely postponed, pending completion of further discovery by the
parties. The Court has set a July 31, 1996 date for completion of
discovery and an October 15, 1996 trial date in this matter.
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.
13
<PAGE> 14
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: March 15, 1996 By: /s/ JACK R. INGRAM
------------------------------------
Jack R. Ingram
President
Dated: March 15, 1996 By: /s/ ROBERT B. WAGNER
------------------------------------
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 -
(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.
(27) Financial Data Schedule -
(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
March 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 AND OF THE COMPANY'S 10QSB FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 2,595,603
<SECURITIES> 0
<RECEIVABLES> 1,405,111
<ALLOWANCES> 0
<INVENTORY> 654,054
<CURRENT-ASSETS> 6,852,694
<PP&E> 335,535
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,971,436
<CURRENT-LIABILITIES> 2,846,422
<BONDS> 0
<COMMON> 216,982
0
0
<OTHER-SE> 5,860,211
<TOTAL-LIABILITY-AND-EQUITY> 10,971,436
<SALES> 3,581,997
<TOTAL-REVENUES> 3,581,997
<CGS> 2,232,215
<TOTAL-COSTS> 2,232,215
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 703,043
<INCOME-TAX> 261,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 442,043
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
