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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): December 29, 1999
XETA Corporation
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(Exact name of registrant as specified in its charter)
Oklahoma 0-16231 73-1130045
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(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1814 West Tacoma, Broken Arrow, Oklahoma 74012
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 918-664-8200
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Not Applicable
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(Former name or address, if changed since last report.)
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Item 5. Other Events.
Since the last discussion of the Company's Year 2000 readiness efforts
as discussed in its report on Form 10-Q for the fiscal quarter ended July 31,
1999 (as filed with the Commission on September 13, 1999), the Company has
completed final notification of its call accounting customers regarding the
availability of a software upgrade developed by the Company for its PC-based
call accounting products, and all upgrades ordered by customers and scheduled
for installation have been completed. As of December 6, 1999, approximately 96%
of the XL(R) and Virtual XL(TM) call accounting sites and approximately 96% of
the Buffie+ and XPERT(R) sites were upgraded for Y2K. The remaining sites
represent customers who have not responded to the Company's notifications or who
delayed in responding to the notifications and must wait for completion of their
upgrade as scheduling allows. The Company will continue to use its best efforts
to complete these upgrades prior to January 1, 2000; however no assurance can be
given that all such upgrades will be completed by that time.
The Company's systems are comprised in part of third-party hardware.
Therefore, the upgrade discussed above not only corrects Y2K issues in the
Company's proprietary call accounting software, but is also designed to
compensate for all known Y2K problems associated with PC-based hardware. As a
further precaution, the Company developed a hardware test diskette for its
proprietary systems to detect any previously unknown Y2K problems related to the
hardware. Customers are instructed to run the hardware test immediately after
they have installed the Company's software upgrade. To date, test results from
these on-going tests continue to be positive and have revealed no Y2K problems
associated with the hardware for which the Company's software upgrade was unable
to compensate.
The Company also distributes products manufactured by third parties,
such as voice mail systems and PBXs. The Company's primary Y2K efforts with
respect to such products has been to monitor statements made by the third party
manufacturers regarding the Y2K compliance status of their products and to relay
those statements to the Company's customers including the need, if any, to
update or upgrade such products to be Y2K compliant. This effort has been
on-going, since new or revised information concerning potential Y2K issues and
suggested remedial steps with regard to certain products has been released by
the manufacturers as late as October of this year. The Company's notification
efforts have included multiple verbal and written communications with its
customers, including notices delivered via certified mail.
The Company is a distributor of Baypoint Innovations (formerly
Centigram(R)) voice mail systems. Of the 361 systems in the field sold or
covered under maintenance agreements by the Company, 77% have been upgraded for
Y2K pursuant to Baypoint's recommendations. The other 23% represent customers
who have not responded to the Company's multiple notices. Baypoint's official
Y2K statements indicate that while the Y2K associated problems identified with
regard to voice mail systems will not affect the system's ability to operate and
record messages, it will affect the system's ability to continue to store
messages preceding the
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January 1, 2000 date. The Company has not performed any independent testing to
provide assurance that Baypoint's assessment regarding the performance of its
non-compliant systems is accurate, but it has developed a recovery methodology
which it can use to address this problem with voice mail systems that have not
been upgraded in advance of the change in millennium. This option will be
provided to customers for a fee, upon their request.
In October, 1999, the Company received a notice from Hitachi Telecom
that Hitachi had detected some Y2K operational issues that could affect the
ability of the Hitachi DX and HCX switches to accurately produce certain reports
and other information. The notification further advised that Hitachi had
developed a system update, as well as alternate steps for operation of the
system, in order to address the problems detected. The Company responded
promptly to this notice by requesting that Hitachi download the update to all of
XETA's Hitachi customer base and subsidize a portion of the cost of activating
the update. The Company then notified its Hitachi customers of the availability
of the update, the reason for it, and the fee to be charged to cover the cost of
an on site visit by one of the Company's technicians to activate the update. To
date, a relatively small number of the Company's customers have requested that
the update be activated on their systems. This is due to the fact that most of
the Company's customers utilize XETA call accounting systems for their reporting
functions which obviates the need for the update.
As a result of purchasing 100% of the stock in U. S. Technologies
Systems, Inc., the Company has substantially increased its customer base and
therefore its potential exposure (through its newly acquired subsidiary) to Y2K
liability should UST customers experience problems with equipment or systems
purchased from UST and be successful in imposing legal liability on UST for such
problems. The Company focused on this issue in its due diligence review of UST.
Because UST distributes primarily Lucent Technologies products, most of which
are represented by Lucent to be Y2K compliant, the potential for liability
presents itself primarily with respect to those items of equipment that predate
Y2K compliant versions. This represents a small percentage of sales made by UST
during the past five years, and it is possible that many of these products may
no longer be in use by the customer. Moreover, since Lucent Technologies
provides the end-user with a manufacturer's warranty on its products, UST
typically does not make any warranties with respect to the products. While no
assurance can be given that the Company will not incur Y2K related liability
through its subsidiary, UST, the Company believes, based upon its due diligence
review of UST, that the risk of same is small.
The Company has also made significant precautionary plans for
responding to any problems which may be experienced by customers at the change
of the millennium. Since October, the Company has been conducting on-going
training sessions in-house for employees throughout the Company to prepare them
how to respond to questions or problems under different Y2K scenarios. The
Company has also stocked extra inventory of its proprietary PC-based call
accounting systems as well as PC components such as motherboards that may be
needed in emergency situations. In addition, the Company has plans to operate
with increased round-the-clock service staff available from December 31, 1999
through January 3, 2000, so
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that the Company is prepared to handle any increase in service calls for any
reason during such transition period.
The Company has also assessed its internal technology systems for
exposure to Y2K problems. These systems include its service and accounting
systems as well as software and hardware used in product development. The
Company has purchased and installed all software and hardware upgrades necessary
to bring its systems into Y2K compliance. The Company has requested and received
Y2K compliance statements from its major vendors who provide services such as
electricity, phone service, banking services, etc., but has made no specific
contingency plans in the event the Company experiences a loss or significant
interruption of such services.
The Company estimates that it spent approximately $200,000 during
fiscal 1999 for Y2K compliance and estimates that it will spend approximately
$75,000 in additional costs during the first quarter of fiscal 2000 for Y2K
compliance activities including overtime costs for increased staffing of its
call center. In addition, the Company has invested approximately $100,000 in
additional inventory to meet potential emergencies. If not used for such
emergencies, this inventory will be used in the normal course of the Company's
business.
While the Company is satisfied that it has planned for this
unprecedented event in a responsible way, the uncertainties inherent in this
event, coupled with the fact that the impact upon the Company of the Y2K problem
will depend in part upon the Y2K preparation and mitigation efforts of parties
outside of the Company's control, make it impossible for the Company to assess
with any certainty the magnitude of any adverse impact that may be experienced
by the Company. Management continues to believe that regardless of the extent of
the Y2K problems that are actually experienced in the global marketplace, a
surge in litigation will ensue. The Company is not a defendant in any Y2K
related litigation at this time. However, as such litigation proliferates, the
Company, as a provider of proprietary software and a service provider for
telecommunications systems, becomes more vulnerable to such risk despite its
best efforts to mitigate the impact of the Y2K problem on its products and
services.
This discussion on the Year 2000 should be read in conjunction with the
Company's discussion on this topic contained in its Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in its
Annual Report on Form 10-KSB for the fiscal year ended October 31, 1998, filed
with the Commission, and similar discussions in subsequent quarterly reports
filed with the Commission.
Item 7. Financial Statements and Exhibits.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
XETA Corporation
(Registrant)
Dated: December 29, 1999 By: /s/ JACK R. INGRAM
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Jack R. Ingram, President
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