<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, 1997
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, 1997
- -------------------------------- ----------------------------
Common Stock, $.10 par value 2,002,906
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 - January 31, 1997 3
and October 31, 1996
Consolidated Statements of Operations - For the 4
Three months ending January 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity - 5
November 1, 1996 through January 31, 1997
Consolidated Statements of Cash Flows - For the 6
Three months ending January 31, 1997 and 1996
Notes to Consolidated Financial Statements 7
</TABLE>
2
<PAGE> 3
XETA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
January 31, 1997 October 31, 1996
---------------- ----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,781,482 $ 3,549,101
Current portion of net investment in
sales-type leases 2,237,380 2,217,672
Other receivables, net 1,673,133 1,516,479
Inventories, net (Note 3) 1,224,848 1,041,496
Current deferred tax asset, net (Note 6) 121,173 92,897
Prepaid expenses and other assets 217,761 156,233
Prepaid taxes -- 173,785
------------ ------------
Total current assets 9,255,777 8,747,663
------------ ------------
Noncurrent Assets:
Net investment in sales-type leases,
less current portion above 2,444,102 2,737,358
Property, plant, & equipment, net (Note 4) 400,321 394,906
Capitalized software production costs, net of
accumulated amortization of $283,566 at Jan
31, 1997 and $268,914 at Oct. 31, 1996 395,825 325,816
Other assets 159,733 158,677
------------ ------------
Total noncurrent assets 3,399,981 3,616,757
------------ ------------
Total assets $ 12,655,758 $ 12,364,420
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 449,761 $ 371,473
Unearned revenue (Note 5) 2,723,680 2,274,294
Accrued liabilities 238,042 666,838
Accrued federal and state income taxes 52,920 --
------------ ------------
Total current liabilities 3,464,403 3,312,605
------------ ------------
Unearned service revenue (Note 5) 1,242,898 1,388,998
------------ ------------
Noncurrent deferred tax liability, net (Note 6) 528,746 591,984
------------ ------------
Commitments (Note 10)
Shareholders' equity:
Common stock; $.10 par value; 10,000,000 shares
authorized, 2,187,653 and 2,182,653 issued at
January 31, 1997 and October 31, 1996, respectively 218,765 218,265
Paid-in capital 4,753,951 4,736,413
Retained earnings 2,706,735 2,375,895
------------ ------------
7,679,451 7,330,573
Less treasury stock, at cost (259,740) (259,740)
------------ ------------
Total shareholders' equity 7,419,711 7,070,833
------------ ------------
Total liabilities & shareholders' equity $ 12,655,758 $ 12,364,420
============ ===========
</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, 1997 January 31, 1996
---------------- ----------------
<S> <C> <C>
Sales of systems $ 1,082,792 $ 2,039,216
Installation and service revenues 1,817,937 1,542,781
----------- -----------
Net sales and service revenues 2,900,729 3,581,997
----------- -----------
Cost of sales 645,194 1,242,814
Installation and service cost 1,143,271 989,401
----------- -----------
Total cost of sales and service 1,788,465 2,232,215
----------- -----------
Gross profit 1,112,264 1,349,782
----------- -----------
Operating expenses:
Selling, general and administrative 674,378 689,285
Engineering, research and development,
and amortization of capitalized
software production costs 98,868 97,357
----------- -----------
Total operating expenses 773,246 786,642
----------- -----------
Income from operations 339,018 563,140
Interest and other income 167,822 139,903
----------- -----------
Income before provision for income
taxes 506,840 703,043
Provision for income taxes (176,000) (261,000)
Net income $ 330,840 $ 442,043
=========== ===========
Income per common and common
equivalent share $ .14 $ .19
=========== ===========
Weighted average shares outstanding 1,995,352 1,923,241
=========== ===========
Weighted average shares equivalents 2,345,180 2,347,865
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
XETA CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NOVEMBER 1, 1996 THROUGH January 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
--------------------------- -------------------------
Number of
Shares Issued Paid-in Retained
& Outstanding Par Value Shares Amount Capital Earnings
------------- --------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance -
October 31, 1996 2,182,653 $218,265 (189,747) $(259,740) $4,736,413 $2,375,895
Stock options
exercised 5,000 500 6,063
Tax benefit of
stock options 11,475
Net Income 330,840
--------- -------- -------- --------- ---------- ----------
Balance -
January 31, 1997 2,187,653 $218,765 (189,747) $(259,740) $4,753,951 $2,706,735
========= ======== ======== ========= ========== ==========
</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
-----------------------------
Jan. 31, 1997 Jan. 31, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 330,840 $ 442,043
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 43,245 32,815
Amortization of capitalized software
production costs 14,652 13,728
(Gain) loss on sale of assets -- 5,064
Provision for doubtful accounts receivable 9,000 15,000
Change in assets and liabilities:
(Increase) decrease in net investment in
sales-type leases 273,548 (662,741)
(Increase) in other receivables (165,654) (91,666)
(Increase) decrease in inventories (183,352) 230,710
Decrease in prepaid income taxes 173,785 --
(Increase) decrease in deferred tax asset (28,276) 58,786
(Increase) in prepaid expenses and
other assets (62,583) (97,898)
Increase (decrease) in accounts payable 78,288 (60,282)
Increase in unearned revenue 303,286 233,992
Increase in accrued income taxes 52,920 --
(Decrease) in accrued liabilities (417,321) (503,569)
Increase (decrease) in deferred tax liabilities (63,238) 112,578
----------- -----------
Total adjustments 28,300 (713,483)
----------- -----------
Net cash provided by (used in)
operating activities 359,140 (271,440)
----------- -----------
Cash flows from investing activities:
Additions to capitalized software (84,662) (44,276)
Additions to property, plant & equipment (48,660) (43,890)
----------- -----------
Net cash used in
investing activities (133,322) (88,166)
----------- -----------
Cash flows from financing activities:
Exercise of stock options 6,563 166,500
----------- -----------
Net cash provided by financing activities 6,563 166,500
----------- -----------
Net increase (decrease) in cash and
cash equivalents 232,381 (193,106)
Cash and cash equivalents, beginning of period 3,549,101 2,788,709
Cash and cash equivalents, end of period $ 3,781,482 $ 2,595,603
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 282 $ --
Cash paid during the period for income taxes $ 108,462 $ 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, 1997
(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 $1,000,000 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,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Raw materials $ 706,673 $ 577,054
Finished goods and spare parts 677,423 623,690
---------- ----------
1,384,096 1,200,744
Less reserve for excess
and obsolete inventory (159,248) (159,248)
---------- ----------
$1,224,848 $1,041,496
========== ==========
</TABLE>
7
<PAGE> 8
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Computer field equipment $ 829,254 $ 797,825
Office furniture 114,096 112,976
Other 158,114 147,001
----------- -----------
1,101,464 1,057,802
Less accumulated depreciation (701,143) (662,896)
----------- -----------
$ 400,321 $ 394,906
=========== ===========
</TABLE>
(5) UNEARNED INCOME
Unearned income consists of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Service contracts $1,518,661 $1,570,872
Warranty service 384,482 379,753
Systems shipped, but not installed 164,864 63,829
Customer deposits 608,036 209,357
Other deferred revenues 47,637 50,483
---------- ----------
Total current deferred revenue 2,723,680 2,274,294
Noncurrent unearned service revenues 1,242,898 1,388,998
---------- ----------
$3,966,578 $3,663,292
</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,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Deferred tax assets:
Prepaid service contracts $ 36,774 $ 51,083
Nondeductible reserves 217,597 198,822
Book depreciation in excess of tax 15,902 15,902
Other 85,026 50,675
--------- ---------
Total deferred tax asset 355,299 316,482
--------- ---------
Deferred tax liabilities:
Unamortized capitalized software
development costs (134,581) (110,778)
Tax income to be recognized on
sales-type lease contracts (562,331) (638,831)
Other (65,960) (65,960)
--------- ---------
Total deferred tax liability (762,872) (815,569)
--------- ---------
Net deferred tax liability $(407,573) $(499,087)
========= =========
</TABLE>
8
<PAGE> 9
(7) INTEREST AND OTHER INCOME
Interest and other income for the three months ending January 31,
1997, 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, 1997. 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
6 Accrued liabilities
8 Stock options
9 Commitments
10 Major customers and concentrations of credit risk
11 Employment agreements
12 Contingency
13 Earnings per share
15 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 1997, ending January 31, 1997, XETA
Corporation (the "Company"), reported net income of $331,000 or $.14 per share
compared to $442,000 or $.19 for the first quarter of fiscal 1996. This
decrease is primarily the result of lower systems sales, including both call
accounting and PBX related products. These decreases are more fully explained
in the analysis below.
The discussion that follows provides analysis of the major factors and trends
which management believes had the most significant impact on the financial
condition of the Company as of January 31, 1997, and the results of its
operations for the quarter ending January 31, 1997 as compared to the quarter
ending January 31, 1996. Also included in this discussion are the major
factors, trends and risks which management believes will affect the outlook for
the Company. This analysis should be read in conjunction with the Consolidated
Financial Statements and Notes thereto contained in this report.
FINANCIAL CONDITION
During the quarter ending January 31, 1997, the Company's cash balances
increased $232,000. This increase included increases in cash from operations of
$359,000 and from exercises of stock options of $6,000. These increases were
partially offset by investments in capitalized software and equipment totaling
$133,000.
Management considers the Company's financial condition to be strong with cash
balances representing approximately 30% of total assets, working capital of
$5.8 million and a current ratio of 2.7. Management believes that its present
working capital and future operating cash flows will be sufficient to meet
anticipated operating needs and planned capital expenditures. These needs
include continued investment in research and development activities and
expansion of the Company's service and sales staffs as the customer base
expands and as opportunities present themselves.
Beyond management's plans to utilize its healthy financial condition to expand
its current operations, other alternatives are continually evaluated to
effectively utilize the Company's cash balances and to enhance shareholder
value. These opportunities include expansion of the Company's Xetaplan program
and a stock repurchase program, both of which have been done in the last three
years and could be utilized in the future. In addition, management has
evaluated potential synergistic acquisitions and continues to do so.
RESULTS OF OPERATIONS
Net sales and service revenues decreased $681,000 or 19% during the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996. By product
line, this decrease consisted of decreases in call accounting systems sales of
$223,000 or 33% and in PBX systems sales of
10
<PAGE> 11
$733,000 or 54%. These decreases were offset by an increase in installation and
service revenues of $275,000 or 18%
The decrease in call accounting systems sales was expected as sales of these
systems has declined to historical levels from the inflated levels experienced
during the first quarter of fiscal 1996 related to the mandated changes in the
North American Numbering Plan ("NANP"). The Company will have one more quarter
in which to compare to these inflated call accounting sales. Revenues from
sales of new PBX systems during the first quarter of fiscal 1997 were lower
than in the first quarter of fiscal 1996 and lower than management's
expectations. Management believes this decline is primarily the result of the
timing of customer decisions and not a deficiency in the Company's PBX product
offering. As evidence of this belief, orders received during the first quarter
of fiscal 1997 surged to more than $2 million. This backlog, which is
approximately 5 times the normal level, represents systems which are scheduled
to be installed and recorded as revenues during the Company's second and third
fiscal quarters.
The increase in installation and service revenues is due primarily to the
continued expansion of the Company's PBX customer base. Recurring PBX contract
revenue increased by more than 50% during the first quarter when compared to
the first quarter of the prior year. These revenues are earned from customers
with existing Hitachi PBX systems who contract with the Company for monthly
service and from customers who purchased new Hitachi systems directly from the
Company and whose systems are currently under warranty. Revenues earned from
call accounting installation and service activities also increased during the
quarter, although at a much more modest rate of 3%. These revenues, which are
also primarily recurring in nature, reflect the fact that although the call
accounting product line has matured, the Company is very successful at
maintaining its customer base by providing a high level of quality service to
its customers.
Gross margins earned on net sales and service revenues was 38% for the first
quarter of both fiscal 1997 and fiscal 1996. Gross margins earned on systems
sales, which differ significantly by product line between higher margin call
accounting sales and lower margin PBX sales, were relatively unchanged at 40%.
If, as expected, a greater percentage of the Company's systems sales come from
sales of PBX systems, gross margins earned on systems sales will decline
slightly from their current levels. The gross margin of 37% earned on
installation and service revenues is within management's target for these
revenues and is relatively unchanged from the previous year.
Operating expenses decreased $15,000 or 2% during the first quarter of fiscal
1997 compared to fiscal 1996. This slight decrease included increases in sales
and marketing costs related to an increase in personnel and office costs and
increases in general and administrative expenses, primarily legal fees
associated with pending litigation. These increases were offset by a decrease
in expenses directly related to sales and profitability, such as commissions
and executive bonuses.
Interest and other income increased $28,000 or 20%. This increase resulted from
increases in interest income earned from Xetaplan sales-type leases. Since many
of the call accounting systems installed during
11
<PAGE> 12
the surge in orders from the mandated changes in the NANP were installed under
the Company's Xetaplan sales-type lease program, the interest income from these
contracts has grown steadily for several quarters.
The Company has recorded a provision for federal and state income taxes of
$176,000 representing an effective tax rate of 35% compared to 37% for the
first quarter fiscal 1995. The lower tax rate reflects a reduction in the
estimated state tax provision for fiscal 1997.
OUTLOOK AND RISK FACTORS
The statements contained in this section entitled "Outlook and Risk Factors"
are based on current expectations. The statements are forward-looking and
actual results may differ materially.
Despite the decline in revenues and operating results in the first quarter,
management believes that the Company is well-positioned to exceed fiscal 1996's
total revenues and net income. This belief is founded on the basis of the
excellent order activity for new PBX systems during the first quarter and the
continued growth in the Company's service base.
The Company's distributorship agreement with Hitachi Telecom (USA), Inc.
("Hitachi") is renewable on March 31, 1997. The Company considers its
relationship with Hitachi to be very good and strongly believes that the
agreement will be renewed on mutually beneficial terms; however, if such a
renewal cannot be achieved, the Company's operating results could be lower than
those expected.
The Company continues to commit the majority of its research and development
resources into development of XPANDER, its first PBX related proprietary
product. Management believes the market for XPANDER is continuing to grow, but
that it is still too early to predict when demand will be strong enough to
forecast significant revenues from sales of this product. The Company has
applied for a patent on XPANDER, but it is too early in the application process
to determine whether the Company will receive a patent and the protections
associated therewith.
The Company is involved in two matters of pending litigation (See "Legal
Proceedings" in Part II below). In both cases, management believes its legal
position is strong and no loss contingencies have been recorded in the
financial statements. Should the outcome of either of these matters be
unfavorable however, the Company may have to record expenses which might cause
operating results to be materially lower than those expected.
The Company's Form 10KSB for the year ended October 31, 1996 contains an
expanded discussion of risk factors which should be read in conjunction with
this report.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
PHONOMETRICS
Following a hearing on February 13, 1997 in the Phonometrics patent
infringement litigation in Florida, on February 20, 1997 the United
States District Court for the Southern District of Florida entered an
order in each of the Florida cases against hotels (including those
involving the Company's customers), to stay the proceedings pending
the outcome of Phonometrics' appeal of its loss in the Northern
Telecom case. In its order, the Court stated that it would enter final
judgment in favor of all of the hotels in the event of a decision by
the appeals court in favor of Northern Telecom. In positioning these
cases for dismissal pending the outcome of the Northern Telecom
appeal, the Court noted that Phonometrics is pursuing a theory of the
scope of its patent that is "fundamentally at odds with the Federal
Circuit's decision" in several other cases against telecommunications
equipment manufacturers, including Northern Telecom. As of March 4,
1997, the Northern Telecom appeal had not yet been set for oral
argument, but it is expected that the hearing date will be scheduled
soon.
There has been no movement in the California Phonometrics litigation,
since the California litigation was stayed pending the outcome of the
Florida litigation.
ABTS
The trial date in the action brought by Associated Business Telephone
Systems, Inc. ("ABTS") against the Company has been rescheduled for
August, 1997. Recently the Company filed a counterclaim against ABTS
and a third-party claim against D&P Investments and Communication
Equipment Brokers for breach of contract, pursuant to which the
Company seeks damages in an amount in excess of $75,000. The parties
are continuing with discovery. The Company intends to vigorously
defend the claim brought by ABTS and pursue its counterclaim and third
party claim.
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 14, 1997 By:
---------------------------------
Jack R. Ingram
President
Dated: March 14, 1997 By:
---------------------------------
Robert B. Wagner
Vice President of Finance
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEC. NO. Description
- -------- -----------
<S> <C>
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession - None.
(3) Articles of Incorporation and Bylaws - previously filed as Exhibits
3.1, 3.2, and 3.3 to the Registrant's Registration Statement on Form
5.1, Registration No. 33-7841.
(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) Material Contracts-none
(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) Report furnished to security holders - None.
(22) Published report regarding matters submitted to a vote of security
holders - None.
(23) Consents of experts and counsel 23.1 Consent of Arthur Andersen LLP
(24) Power of attorney - None.
(27) Financial Data Schedule
(99) Additional exhibits - None.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
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,
1996 or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 14, 1997
<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 4 OF 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-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 3,781,482
<SECURITIES> 0
<RECEIVABLES> 1,673,133
<ALLOWANCES> 0
<INVENTORY> 1,224,848
<CURRENT-ASSETS> 9,255,777
<PP&E> 400,321
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,655,758
<CURRENT-LIABILITIES> 3,464,403
<BONDS> 0
0
0
<COMMON> 218,765
<OTHER-SE> 7,460,686
<TOTAL-LIABILITY-AND-EQUITY> 12,655,758
<SALES> 2,900,729
<TOTAL-REVENUES> 2,900,729
<CGS> 1,788,465
<TOTAL-COSTS> 1,788,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 506,840
<INCOME-TAX> 176,000
<INCOME-CONTINUING> 330,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 330,840
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
