Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)** |
|------------|------------|------------------------------------------------------------|
| ** ** | ** ** | **OF THE SECURITIES EXCHANGE ACT OF 1934**                 |
| ** ** | ** ** | ** **                                                 |
| ** ** | ** ** | **For the quarterly period ended  July 31, 2008**     |
| ** ** | ** ** | ** **                                                 |
| **OR**     |
| ** ** | ** ** | ** **                                                 |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)** |
| ** ** | ** ** | **OF  THE SECURITIES EXCHANGE ACT OF 1934**                |

 

**Commission File Number 0-16231**

 

.

 

**XETATechnologies, Inc.**

(Exact name of registrant as specified in its charter)

 

| **Oklahoma**                                 | ** ** | **73-1130045**       |
|----------------------------------------------|------------|----------------------|
| (State  or other jurisdiction of             |       | (I.R.S.  Employee    |
| incorporation  or organization)              |       | Identification  No.) |
|                                         |       |                 |
| **1814 W.  Tacoma Street, Broken Arrow, OK** | ** ** | **74012-1406**       |
| (Address  of principal executive offices)    |       | (Zip  Code)          |

 

**918-664-8200**

(Registrant’stelephone number, including area code)

 

(Former name,former address and former fiscal year, if changed since last report)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes  x     No  o

 

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company (as defined by Rule 12b-2of the Exchange Act).

 

| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer o                         |   | Smaller reporting company x |
|---------------------------|--------|---------------------|--------|-------------------------------------------------|--------|-----------------------------|
|                      |   |                |   | (Do not check if a smaller   reporting company) |   |                        |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

 

Yes  o     No  x

 

As of August 31,2008, there were 10,254,310 shares of the registrant’s common stock, par value$0.001, outstanding

 

 

 

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Table of Contents

 

INDEX

 
| ** **                                                                                               | ** ** | **PAGE** |
|----------------------------------------------------------------------------------------------------------|------------|----------|
| PART I. FINANCIAL INFORMATION                                                                       |       |     |
|                                                                                                     |       |     |
| ITEM 1.  FINANCIAL STATEMENTS (Unaudited)                                                                |       |     |
|                                                                                                     |       |     |
| Consolidated Balance Sheets -  July 31, 2008 and October 31, 2007                              |       | 3        |
|                                                                                                     |       |     |
| Consolidated Statements of  Operations - For the Three and Nine Months Ended July 31, 2008 and 2007 |       | 4        |
|                                                                                                     |       |     |
| Consolidated Statement of  Shareholders’ Equity - For the Nine Months Ended July 31, 2008      |       | 5        |
|                                                                                                     |       |     |
| Consolidated Statements of  Cash Flows - For the Nine Months Ended July 31, 2008 and 2007           |       | 6        |
|                                                                                                     |       |     |
| Notes to  Consolidated Financial Statements                                                              |       | 7        |
|                                                                                                     |       |     |
| ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS                                                       |       | 13       |
|                                                                                                     |       |     |
| ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                      |       | 18       |
|                                                                                                     |       |     |
| ITEM 4. CONTROLS  AND PROCEDURES                                                                         |       | 18       |
|                                                                                                     |       |     |
| PART II. OTHER  INFORMATION                                                                         |       |     |
|                                                                                                     |       |     |
| ITEM 1. LEGAL PROCEEDINGS                                                                                |       | 18       |
|                                                                                                     |       |     |
| ITEM 1A. RISK FACTORS                                                                                    |       | 19       |
|                                                                                                     |       |     |
| ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                     |       | 19       |
|                                                                                                     |       |     |
| ITEM 3. DEFAULTS  UPON SENIOR SECURITIES                                                                 |       | 20       |
|                                                                                                     |       |     |
| ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                             |       | 20       |
|                                                                                                     |       |     |
| ITEM 5. OTHER  INFORMATION                                                                               |       | 20       |
|                                                                                                     |       |     |
| ITEM 6. EXHIBITS                                                                                         |       | 20       |

 

2

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Table of Contents

 

XETA TECHNOLOGIES,INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
| ** **                                                                                                                                                    | ** ** | **July 31, 2008** | ** ** | **October 31, 2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
|                                                                                                                                                          |       |                        |       |                           |       |
| ASSETS                                                                                                                                                        |       |                        |       |                           |       |
| Current assets:                                                                                                                                               |       |                        |       |                           |       |
| Cash and cash  equivalents                                                                                                                                    |       | $                           | 74,177     |                           | $          | 402,918 |   |
| Current portion  of net investment in sales-type leases and other receivables                                                                                 |       | 773,723                     |       | 490,033                        |       |
| Trade accounts  receivable, net                                                                                                                               |       | 23,442,635                  |       | 16,236,137                     |       |
| Inventories, net                                                                                                                                              |       | 5,839,652                   |       | 4,296,574                      |       |
| Deferred tax  asset, net                                                                                                                                      |       | 670,698                     |       | 916,259                        |       |
| Prepaid taxes                                                                                                                                                 |       | 51,693                      |       | 19,737                         |       |
| Prepaid expenses  and other assets                                                                                                                            |       | 1,276,467                   |       | 517,757                        |       |
| Total current  assets                                                                                                                                         |       | 32,129,045                  |       | 22,879,415                     |       |
|                                                                                                                                                          |       |                        |       |                           |       |
| Noncurrent  assets:                                                                                                                                           |       |                        |       |                           |       |
| Goodwill                                                                                                                                                      |       | 26,323,411                  |       | 26,365,093                     |       |
| Intangible  assets, net                                                                                                                                       |       | 219,600                     |       | 104,042                        |       |
| Net investment  in sales-type leases, less current portion above                                                                                              |       | 118,145                     |       | 136,493                        |       |
| Property,  plant & equipment, net                                                                                                                    |       | 10,736,742                  |       | 10,610,820                     |       |
| Other assets                                                                                                                                                  |       | 15,563                      |       | —                         |       |
| Total noncurrent  assets                                                                                                                                      |       | 37,413,461                  |       | 37,216,448                     |       |
|                                                                                                                                                          |       |                        |       |                           |       |
| Total assets                                                                                                                                                  |       | $                           | 69,542,506 |                           | $          | 60,095,863 |   |
|                                                                                                                                                          |       |                        |       |                           |       |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                     |       |                        |       |                           |       |
|                                                                                                                                                          |       |                        |       |                           |       |
| Current  liabilities:                                                                                                                                         |       |                        |       |                           |       |
| Current portion  of long-term debt                                                                                                                            |       | $                           | 171,123    |                           | $          | 171,123 |   |
| Revolving line  of credit                                                                                                                                     |       | 6,109,050                   |       | 2,758,660                      |       |
| Accounts payable                                                                                                                                              |       | 7,652,706                   |       | 5,670,240                      |       |
| Current portion  of obligations under capital lease                                                                                                           |       | 146,798                     |       | —                         |       |
| Current unearned  revenue                                                                                                                                     |       | 3,450,622                   |       | 2,212,247                      |       |
| Accrued  liabilities                                                                                                                                          |       | 4,027,172                   |       | 3,565,031                      |       |
| Total current  liabilities                                                                                                                                    |       | 21,557,471                  |       | 14,377,301                     |       |
|                                                                                                                                                          |       |                        |       |                           |       |
| Noncurrent  liabilities:                                                                                                                                      |       |                        |       |                           |       |
| Long-term debt,  less current portion above                                                                                                                   |       | 1,226,214                   |       | 1,354,530                      |       |
| Accrued  long-term liability                                                                                                                                  |       | 144,100                     |       | 211,300                        |       |
| Long-term  portion of obligations under capital lease                                                                                                         |       | 297,743                     |       | —                         |       |
| Noncurrent  unearned service revenue                                                                                                                          |       | 64,335                      |       | 81,650                         |       |
| Noncurrent  deferred tax liability, net                                                                                                                       |       | 5,186,359                   |       | 4,631,917                      |       |
| Total noncurrent  liabilities                                                                                                                                 |       | 6,918,751                   |       | 6,279,397                      |       |
|                                                                                                                                                          |       |                        |       |                           |       |
| Contingencies                                                                                                                                                 |       |                        |       |                           |       |
|                                                                                                                                                          |       |                        |       |                           |       |
| Shareholders’  equity:                                                                                                                                   |       |                        |       |                           |       |
| Preferred stock;  $.10 par value; 50,000 shares authorized, 0 issued                                                                                          |       | —                      |       | —                         |       |
| Common stock;  $.001 par value; 50,000,000 shares authorized, 11,256,193 and 11,233,529  issued at July 31, 2008 and October 31, 2007, respectively |       | 11,256                      |       | 11,233                         |       |
| Paid-in capital                                                                                                                                               |       | 13,428,126                  |       | 13,189,311                     |       |
| Retained  earnings                                                                                                                                            |       | 29,834,370                  |       | 28,483,280                     |       |
| Less treasury  stock, at cost (1,001,883 shares at July 31,2008 and 1,018,788 shares at  October 31, 2007)                                               |       | (2,207,468                  | )          | (2,244,659                     | )          |
| Total  shareholders’ equity                                                                                                                              |       | 41,066,284                  |       | 39,439,165                     |       |
| Total  liabilities and shareholders’ equity                                                                                                              |       | $                           | 69,542,506 |                           | $          | 60,095,863 |   |

 

The accompanyingnotes are an integral part of these consolidated balance sheets.

 

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XETA TECHNOLOGIES,INC. AND SUBSIDIARY

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(UNAUDITED)

 
| ** **                                        | ** ** | **For the Three Months** | ** ** | **For the Nine Months** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                                        | ** ** | **Ended July 31,**            | ** ** | **Ended July 31,**           | ** ** |
| ** **                                        | ** ** | **2008**                                | ** ** | **2007**                               | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Systems sales                                     |       | $                                       | 10,662,567 |                                   | $          | 8,657,120 |   | $ | 28,648,487 |   | $ | 23,446,191 |   |
| Services                                          |       | 12,028,241                              |       | 9,463,504                              |       | 31,887,653 |   | 27,032,719 |   |
| Other revenues                                    |       | 512,724                                 |       | 127,669                                |       | 1,428,950 |   | 509,100 |   |
| Net sales and  service revenues                   |       | 23,203,532                              |       | 18,248,293                             |       | 61,965,090 |   | 50,988,010 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Cost of systems  sales                            |       | 7,846,284                               |       | 6,684,447                              |       | 21,174,666 |   | 17,919,182 |   |
| Services costs                                    |       | 8,373,080                               |       | 6,557,194                              |       | 23,104,061 |   | 19,021,635 |   |
| Cost of other  revenues & corporate COGS |       | 781,806                                 |       | 477,190                                |       | 1,707,157 |   | 1,367,060 |   |
| Total cost of  sales and service                  |       | 17,001,170                              |       | 13,718,831                             |       | 45,985,884 |   | 38,307,877 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Gross profit                                      |       | 6,202,362                               |       | 4,529,462                              |       | 15,979,206 |   | 12,680,133 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Operating  expenses                               |       |                                    |       |                                   |       |   |   |   |   |
| Selling, general  and administrative              |       | 4,870,068                               |       | 3,705,080                              |       | 12,795,830 |   | 10,946,501 |   |
| Amortization                                      |       | 265,152                                 |       | 183,721                                |       | 722,563 |   | 470,765 |   |
| Total operating  expenses                         |       | 5,135,220                               |       | 3,888,801                              |       | 13,518,393 |   | 11,417,266 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Income from  operations                           |       | 1,067,142                               |       | 640,661                                |       | 2,460,813 |   | 1,262,867 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Interest expense                                  |       | (96,401                                 | )          | (28,536                                | )          | (268,117 | ) | (38,923 | ) |
| Interest and  other income                        |       | 99                                      |       | 8,729                                  |       | 27,394 |   | 35,190 |   |
| Total interest  and other expense                 |       | (96,302                                 | )          | (19,807                                | )          | (240,723 | ) | (3,733 | ) |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Income before  provision for income taxes         |       | 970,840                                 |       | 620,854                                |       | 2,220,090 |   | 1,259,134 |   |
| Provision for  income taxes                       |       | 380,000                                 |       | 244,000                                |       | 869,000 |   | 504,000 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Net income                                        |       | $                                       | 590,840    |                                   | $          | 376,854 |   | $ | 1,351,090 |   | $ | 755,134 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Earnings per  share                               |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                             |       | $                                       | 0.06       |                                   | $          | 0.04 |   | $ | 0.13 |   | $ | 0.07 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Diluted                                           |       | $                                       | 0.06       |                                   | $          | 0.04 |   | $ | 0.13 |   | $ | 0.07 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Weighted average  shares outstanding              |       | 10,254,310                              |       | 10,214,741                             |       | 10,241,861 |   | 10,214,741 |   |
|                                              |       |                                    |       |                                   |       |   |   |   |   |
| Weighted average  equivalent shares               |       | 10,254,310                              |       | 10,214,741                             |       | 10,246,811 |   | 10,214,741 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

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XETA TECHNOLOGIES,INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

 
| ** **                               | ** ** | **Common Stock**  | ** ** | **Treasury Stock** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **               | ** ** |
|------------------------------------------|------------|------------------------|------------|-------------------------|------------|------------|------------|------------|------------|--------------------------|------------|
| ** **                               | ** ** | **Shares Issued** | ** ** | **Par Value**      | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Paid-in Capital** | ** ** | **Retained Earnings** | ** ** | **Total** | ** ** |
|                                     |       |                   |       |                    |       |       |       |       |       |                     |       |   |   |   |   |
| Balance- October 31,  2007          |       | 11,233,529             |       | $                       | 11,233     |       | 1,018,788  |       | $          | (2,244,659               | )          | $ | 13,189,311 |   | $ | 28,483,280 |   | $ | 39,439,165 |   |
|                                     |       |                   |       |                    |       |       |       |       |       |                     |       |   |   |   |   |
| Stock options  exercised $.001 par value |       | 22,664                 |       | 22                      |       | —     |       | —     |       | 90,193                   |       | — |   | 90,215 |   |
| Issuance of  restricted common stock     |       | —                 |       | —                  |       | (16,905    | )          | 37,191     |       | (37,191                  | )          | — |   | — |   |
| Tax benefit of  stock options            |       | —                 |       | —                  |       | —     |       | —     |       | 4,032                    |       | — |   | 4,032 |   |
| Stock based  compensation                |       | —                 |       | —                  |       | —     |       | —     |       | 181,782                  |       | — |   | 181,782 |   |
|                                     |       |                   |       |                    |       |       |       |       |       |                     |       |   |   |   |   |
| Net Income                               |       | —                 |       | —                  |       | —     |       | —     |       | —                   |       | 1,351,090 |   | 1,351,090 |   |
|                                     |       |                   |       |                    |       |       |       |       |       |                     |       |   |   |   |   |
| Balance-  July 31, 2008             |       | 11,256,193             |       | $                       | 11,255     |       | 1,001,883  |       | $          | (2,207,468               | )          | $ | 13,428,127 |   | $ | 29,834,370 |   | $ | 41,066,284 |   |

 

The accompanyingnotes are an integral part of this consolidated financial statement.

 

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XETA TECHNOLOGIES,INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
| ** **                                                                                   | ** ** | **For the Nine Months** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                   | ** ** | **Ended July 31,**           | ** ** |
| ** **                                                                                   | ** ** | **2008**                               | ** ** | **2007** | ** ** |
| Cash flows from  operating activities:                                                       |       |                                   |       |   |   |
| Net income                                                                                   |       | $                                      | 1,351,090  |   | $ | 755,134 |   |
|                                                                                         |       |                                   |       |   |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                                   |       |   |   |
| Depreciation                                                                                 |       | 528,811                                |       | 393,304 |   |
| Amortization                                                                                 |       | 722,563                                |       | 470,765 |   |
| Stock based  compensation                                                                    |       | 181,782                                |       | 78,554 |   |
| Loss (gain) on  sale of assets                                                               |       | 425                                    |       | (5,000 | ) |
| Provision for  returns and doubtful accounts receivable                                      |       | 7,924                                  |       |   |   |
| Provision for  excess and obsolete inventory                                                 |       | 76,500                                 |       | 76,500 |   |
| Increase in  deferred tax liability                                                          |       | 600,156                                |       | 761,583 |   |
| Change in assets  and liabilities, net of acquisitions:                                      |       |                                   |       |   |   |
| Increase in net  investment in sales-type leases and other receivables                       |       | (265,342                               | )          | (133,155 | ) |
| Increase in  trade account receivables                                                       |       | (7,180,367                             | )          | (2,351,832 | ) |
| (Increase)  decrease in inventories                                                          |       | (1,590,301                             | )          | 577,068 |   |
| Decrease  (increase) in deferred tax asset                                                   |       | 245,561                                |       | (290,095 | ) |
| Increase in  prepaid expenses and other assets                                               |       | (774,273                               | )          | (367,411 | ) |
| (Increase)  decrease in prepaid taxes                                                        |       | (31,956                                | )          | 6,385 |   |
| Increase  (decrease) in accounts payable                                                     |       | 1,982,387                              |       | (171,013 | ) |
| Increase in  unearned revenue                                                                |       | 1,146,906                              |       | 876,757 |   |
| Increase in  accrued liabilities                                                             |       | 210,632                                |       | 817,952 |   |
| Total  adjustments                                                                           |       | (4,138,592                             | )          | 740,362 |   |
|                                                                                         |       |                                   |       |   |   |
| Net cash (used  in) provided by operating activities                                         |       | (2,787,502                             | )          | 1,495,496 |   |
|                                                                                         |       |                                   |       |   |   |
| Cash flows used  in investing activities:                                                    |       |                                   |       |   |   |
| Additions to  property, plant & equipment                                           |       | (841,549                               | )          | (848,326 | ) |
| Proceeds from  sale of property, plant and equipment                                         |       | —                                 |       | 5,000 |   |
| Net cash used in  investing activities                                                       |       | (841,549                               | )          | (843,326 | ) |
|                                                                                         |       |                                   |       |   |   |
| Cash flows from  financing activities:                                                       |       |                                   |       |   |   |
| Net borrowings  (reductions) on revolving line of credit                                     |       | 3,350,390                              |       | (642,999 | ) |
| Principal  payments on long-term debt                                                        |       | (128,316                               | )          | (128,318 | ) |
| Payments on  capital lease obligations                                                       |       | (11,979                                | )          | — |   |
| Exercise of  stock options                                                                   |       | 90,215                                 |       | — |   |
| Net cash  provided by (used in) financing activities                                         |       | 3,300,310                              |       | (771,317 | ) |
|                                                                                         |       |                                   |       |   |   |
| Net (decrease)  in cash and cash equivalents                                                 |       | (328,741                               | )          | (119,147 | ) |
|                                                                                         |       |                                   |       |   |   |
| Cash and cash  equivalents, beginning of period                                              |       | 402,918                                |       | 174,567 |   |
| Cash and cash  equivalents, end of period                                                    |       | $                                      | 74,177     |   | $ | 55,420 |   |
|                                                                                         |       |                                   |       |   |   |
| Supplemental  disclosure of cash flow information:                                           |       |                                   |       |   |   |
| Cash paid during  the period for interest, net of $161,772 capitalized in 2007               |       | $                                      | 268,919    |   | $ | 54,234 |   |
| Cash paid during  the period for income taxes                                                |       | $                                      | 55,208     |   | $ | 26,159 |   |
| Capital lease  obligations incurred                                                          |       | $                                      | 456,520    |   | $ | — |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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** **

**XETATECHNOLOGIES, INC. AND SUBSIDIARY**

**Notesto Consolidated Financial Statements**

**July 31,2008**

(Unaudited)

 

1.  BASIS OF PRESENTATION:

 

XETA Technologies, Inc.(“XETA” or the “Company”) is a leading provider of communications technologieswith nationwide sales and service. XETA serves a diverse group of businessclients in sales, engineering, project management, installation, and servicesupport.  The Company sells productsproduced by a variety of manufacturers including Avaya, Inc. (“Avaya”),Nortel Networks Corporation (“Nortel”), and Mitel Corporation (“Mitel”).  In addition, the Company manufactures andmarkets a line of proprietary call accounting systems to the hospitalityindustry.  XETA is an Oklahomacorporation.

 

The Company prepared theaccompanying unaudited consolidated financial statements pursuant to the rules andregulations of the Securities and Exchange Commission (the “Commission”).  Certain information and footnote disclosuresnormally included in annual financial statements prepared in accordance withaccounting principles generally accepted in the United States of America havebeen condensed or omitted pursuant to those rules and regulations, althoughthe Company believes that the disclosures are adequate to reasonably insure theinformation is not misleading. Management suggests that these condensed financial statements be read inconjunction with the consolidated financial statements and the notes theretomade a part of the Company’s Annual Report on Form 10-K, Commission File No. 0-16231,which was filed with the Commission on January 7, 2008.  Management believes that the financialstatements contain all adjustments necessary for a fair statement of theresults for the interim periods presented. All adjustments were of a normal recurring nature.  The results of operations for the interimperiod are not necessarily indicative of the results for the entire fiscalyear.

 

Segment Information

 

The Company has threereportable segments:  services,commercial system sales, and lodging system sales.  Services revenues represent revenues earnedfrom installing and maintaining systems for customers in both the commercialand lodging segments.  The Companydefines commercial system sales as sales to the non-lodging industry.

 

The reporting segmentsfollow the same accounting policies used for the Company’s consolidatedfinancial statements and are described in the Summary of Significant AccountingPolicies in the Company’s Form 10-K described above.  Company management evaluates a segment’sperformance based on gross margins. Assets are not allocated to the segments.  Sales outside of the U.S. are immaterial.

 

The following is atabulation of business segment information for the three months ended July 31,2008 and 2007.

 
| ** **    | ** ** | **Services  Revenues** | ** ** | **Commercial  Systems  Sales** | ** ** | **Lodging  Systems  Sales** | ** ** | **Other  Revenue** | ** ** | **Total**   | ** ** |
|---------------|------------|------------------------|------------|--------------------------------|------------|-----------------------------|------------|--------------------|------------|-------------|------------|
| **2008**      |       |                   |       |                           |       |                        |       |               |       |        |       |
| Sales         |       | $                      | 12,028,241 |                           | $          | 8,366,333                   |       | $                  | 2,296,234  |        | $          | 512,724 |   | $ | 23,203,532 |   |
| Cost of sales |       | (8,373,080             | )          | (6,161,782                     | )          | (1,684,502                  | )          | (781,806           | )          | (17,001,170 | )          |
| Gross profit  |       | $                      | 3,655,161  |                           | $          | 2,204,551                   |       | $                  | 611,732    |        | $          | (269,082 | ) | $ | 6,202,362 |   |
|          |       |                   |       |                           |       |                        |       |               |       |        |       |
| **2007**      |       |                   |       |                           |       |                        |       |               |       |        |       |
| Sales         |       | $                      | 9,463,504  |                           | $          | 6,522,225                   |       | $                  | 2,134,895  |        | $          | 127,669 |   | $ | 18,248,293 |   |
| Cost of sales |       | (6,557,194             | )          | (5,152,119                     | )          | (1,532,328                  | )          | (477,190           | )          | (13,718,831 | )          |
| Gross profit  |       | $                      | 2,906,310  |                           | $          | 1,370,106                   |       | $                  | 602,567    |        | $          | (349,521 | ) | $ | 4,529,462 |   |

 

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The following is atabulation of business segment information for the nine months ended July 31,2008 and 2007.

 
| ** **    | ** ** | **Services  Revenues** | ** ** | **Commercial  Systems  Sales** | ** ** | **Lodging  Systems  Sales** | ** ** | **Other  Revenue** | ** ** | **Total**   | ** ** |
|---------------|------------|------------------------|------------|--------------------------------|------------|-----------------------------|------------|--------------------|------------|-------------|------------|
| **2008**      |       |                   |       |                           |       |                        |       |               |       |        |       |
| Sales         |       | $                      | 31,887,653 |                           | $          | 23,171,342                  |       | $                  | 5,477,145  |        | $          | 1,428,950 |   | $ | 61,965,090 |   |
| Cost of sales |       | (23,104,061            | )          | (17,247,331                    | )          | (3,927,335                  | )          | (1,707,157         | )          | (45,985,884 | )          |
| Gross profit  |       | $                      | 8,783,592  |                           | $          | 5,924,011                   |       | $                  | 1,549,810  |        | $          | (278,207 | ) | $ | 15,979,206 |   |
|          |       |                   |       |                           |       |                        |       |               |       |        |       |
| **2007**      |       |                   |       |                           |       |                        |       |               |       |        |       |
| Sales         |       | $                      | 27,032,719 |                           | $          | 17,253,332                  |       | $                  | 6,192,859  |        | $          | 509,100 |   | $ | 50,988,010 |   |
| Cost of sales |       | (19,021,635            | )          | (13,328,915                    | )          | (4,590,267                  | )          | (1,367,060         | )          | (38,307,877 | )          |
| Gross profit  |       | $                      | 8,011,084  |                           | $          | 3,924,417                   |       | $                  | 1,602,592  |        | $          | (857,960 | ) | $ | 12,680,133 |   |

 

Stock-Based CompensationPlans

 

The Company accounts forstock-based compensation in accordance with Statement of Financial AccountingStandards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”).  SFAS 123(R) requires companies tomeasure all employee stock-based compensation awards using a fair value methodand recognize compensation cost in its financial statements.  The valuation provisions of SFAS 123(R) applyto new awards and to awards that are outstanding at the effective date andsubsequently modified or cancelled.  TheCompany adopted on a prospective basis SFAS 123(R) beginning November 1,2005 for stock-based compensation awards granted after that date and forunvested awards outstanding at that date using the modified prospectiveapplication method.  The Companyrecognizes the fair value of stock-based compensation awards as selling,general and administrative expense as appropriate in the consolidated statementsof operations on a straight-line basis over the vesting period.  Compensation expense was recognized in thestatements of operations as follows:

 
| ** **                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Three months  ended July 31, |       | $        | 65,221     |     | $          | 30,685 |   |
|                              |       |     |       |     |       |
| Nine months  ended July 31,  |       | $        | 181,782    |     | $          | 78,554 |   |

 

Use of Estimates

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the U.S. requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

New Accounting Pronouncements

 

In June 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48(“FIN 48”), Accounting for Uncertainty in Income Taxes—an interpretation ofFASB Statement No. 109, to clarify certain aspects of accounting for uncertaintax positions, including issues related to the recognition and measurement ofthose tax positions.  The Company adoptedthis interpretation on November 1, 2007 and there was no impact to theCompany’s financial statements.

 

In September 2006, the FASB issued Statement of Financial Standards No. 157, “Fair Value Measurements” (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements.  This statement does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS 157 are effective for fiscal years beginning after November 15, 

 

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2007.  The Company does not expect the adoption of SFAS 157 to have a material impact on the Company’s consolidated financial position or results of operations.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFASNo. 141(R)”). Under SFAS No. 141(R), an entity is required torecognize the assets acquired, liabilities assumed, contractual contingencies,and contingent consideration at their fair value on the acquisition date. Itfurther requires that acquisition-related costs are recognized separately fromthe acquisition and expensed as incurred, restructuring costs generally beexpensed in periods subsequent to the acquisition date, and changes inaccounting for deferred tax asset valuation allowances and acquired income taxuncertainties after the measurement period impact income tax expense.  The adoption of SFAS No. 141(R) willchange the accounting treatment for business combinations on a prospectivebasis beginning in the first quarter of fiscal year 2010.

 

In December 2007,the FASB issued SFAS No. 160, “Noncontrolling Interests in ConsolidatedFinancial Statements—an amendment of ARB No. 51” (“SFAS No. 160”).  SFAS No. 160 changes the accounting andreporting for minority interests, which will be recharacterized asnon-controlling interests and classified as a component of equity.  SFAS No. 160 is effective for us on aprospective basis for business combinations with an acquisition date beginningin the first quarter of fiscal year 2010. As of July 31, 2008, the Company did not have any minorityinterests, therefore the adoption of SFAS No. 160 is not expected to havean impact on the Company’s consolidated financial statements.

 

In March 2008, theFASB issued SFAS No. 161, “Disclosure about Derivative Instruments andHedging Activities, an amendment of SFAS No. 133” (“SFAS 161”). Thisstatement requires that objectives for using derivative instruments bedisclosed in terms of underlying risk and accounting designation.  The Company is required to adopt SFAS No. 161on or before November 1, 2009.  TheCompany currently does not participate in any derivative instruments or hedgingactivities as defined under SFAS 133 and therefore it is unlikely that theadoption of SFAS No. 161 will have any impact on the Company’sconsolidated financial statements.

 

In April 2008, the FASBissued FASB Staff Position on Financial Accounting Standard No. 142-3, “Determinationof the Useful Life of Intangible Assets”, which amends the factors that shouldbe considered in developing renewal or extension assumptions used to determinethe useful life of intangible assets under SFAS No. 142 “Goodwill andOther Intangible Assets”.  The intent ofthis FSP is to improve the consistency between the useful life of a recognizedintangible asset under SFAS No. 142 and the period of the expected cash flowsused to measure the fair value of the asset under SFAS No. 141 (revised2007) “Business Combinations” and other U.S. generally accepted accountingprinciples.  The Company will adopt thisFSP in the first quarter of fiscal 2010 and will apply the guidanceprospectively to intangible assets acquired after adoption.

 

In May 2008, theFASB issued SFAS No. 162, “The Hierarchy of Generally Accepted AccountingPrinciples” (“FAS No.162”). SFAS No. 162 identifies the sources ofaccounting principles and the framework for selecting the principles used inthe preparation of financial statements. SFAS No. 162 is effective 60 daysfollowing the SEC’s approval of the Public Company Accounting Oversight Boardamendments to AU Section 411, “The Meaning of Present Fairly in Conformitywith Generally Accepted Accounting Principles”. The implementation of thisstandard will not have a material impact on the Company’s consolidatedfinancial position and results of operations.

 

2.  ACCOUNTS RECEIVABLE:

 

Accounts receivable consistsof the following:

 
| ** **                          | ** ** | **July 31,  2008** | ** ** | **(Audited)  October 31,  2007** | ** ** |
|-------------------------------------|------------|-------------------------|------------|---------------------------------------|------------|
|                                |       |                    |       |                                  |       |
| Trade  receivables                  |       | $                       | 23,597,028 |                                  | $          | 16,411,981 |   |
| Less reserve for  doubtful accounts |       | (154,393                | )          | (175,844                              | )          |
| Net trade  receivables              |       | $                       | 23,442,635 |                                  | $          | 16,236,137 |   |

 

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3.  INVENTORIES:

 

Inventoriesare stated at the lower of cost (first-in, first-out or average) or market andconsist of the following:

 
| ** **                                         | ** ** | **July 31,  2008** | ** ** | **(Audited)  October 31,  2007** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|---------------------------------------|------------|
|                                               |       |                    |       |                                  |       |
| Finished goods  and spare parts                    |       | $                       | 6,709,559  |                                  | $          | 5,068,227 |   |
| Less- reserve  for excess and obsolete inventories |       | (869,907                | )          | (771,653                              | )          |
| Total  inventories, net                            |       | $                       | 5,839,652  |                                  | $          | 4,296,574 |   |

 

4.  PROPERTY, PLANT AND EQUIPMENT:

 

Property, plant andequipment consist of the following:

 
| ** **                                                    | ** ** | **Estimated  Useful  Lives** | ** ** | **July 31,  2008** | ** ** | **(Audited)  October 31,  2007** | ** ** |
|---------------------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|---------------------------------------|------------|
|                                                          |       |                         |       |                    |       |                                  |       |
| Building and  building improvements                           |       | 3-20                         |       | $                       | 2,927,261  |                                  | $          | 2,686,753 |   |
| Data processing  and computer field equipment                 |       | 2-7                          |       | 3,169,779               |       | 2,556,878                             |       |
| Software  development costs, work-in-process                  |       | N/A                          |       | 2,291,619               |       | 3,792,567                             |       |
| Software  development costs of components placed into service |       | 3-10                         |       | 6,275,087               |       | 4,355,953                             |       |
| Hardware                                                      |       | 3-5                          |       | 605,876                 |       | 599,751                               |       |
| Land                                                          |       | —                       |       | 611,582                 |       | 611,582                               |       |
| Office furniture                                              |       | 5-7                          |       | 944,048                 |       | 947,094                               |       |
| Auto                                                          |       | 5                            |       | 516,185                 |       | 539,184                               |       |
| Other                                                         |       | 3-7                          |       | 239,533                 |       | 239,533                               |       |
|                                                          |       |                         |       |                    |       |                                  |       |
| Total property,  plant and equipment                          |       |                         |       | 17,580,970              |       | 16,329,295                            |       |
| Less- accumulated  depreciation                               |       |                         |       | (6,844,228              | )          | (5,718,475                            | )          |
|                                                          |       |                         |       |                    |       |                                  |       |
| Total property,  plant and equipment, net                     |       |                         |       | $                       | 10,736,742 |                                  | $          | 10,610,820 |   |

 

Interest costs related toan investment in long-lived assets are capitalized as part of the cost of theasset during the period the asset is being prepared for use.  The Company capitalized  $161,772 in interest costs in the nine monthsended July 31, 2007.

 

5.  INCOME TAXES:

 

The Company has recordeda tax provision of $869,000 or 39% and $504,000 or 40% for the nine monthsended July 31, 2008 and 2007, respectively, reflecting the statutoryfederal tax rate of 34% plus a blended state income tax rate of approximately5% and the impact of minimum income tax payments in certain states.  The Company currently estimates its annualeffective income tax rate for fiscal 2008 at approximately 40%.

 

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6.  CREDIT AGREEMENTS:

 

The Company’s creditfacility consists of a revolving line of credit and term loan with a commercialbank.  The agreement includes a mortgagethat matures on September 30, 2009 with amortization based on a 13-yearlife, and a $7.5 million revolving line of credit agreement to finance workingcapital needs.  Trade accounts receivableand inventories collateralize the revolving line of credit.  The Company had approximately $6.109 millionand $2.759 million, respectively, outstanding on the revolving line ofcredit.  The Company had approximately$1.4 million available under the revolving line of credit at July 31,2008.  Advance rates are defined in theagreement, but are generally at the rate of 80% on qualified trade accountsreceivable and 40% of qualified inventories. The revolving line of credit matures on September 30, 2009.  Long-term debt consisted of the following:

 
| ** **                                                                                                                                                                                                            | ** ** | **July 31,  2008** | ** ** | **(Audited)  October 31,  2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------------------|------------|
|                                                                                                                                                                                                                  |       |                    |       |                                  |       |
| Real estate term  note, payable in monthly installments of $14,257 plus interest, plus a fixed  payment of $1,198,061 due September 30, 2009, collateralized by a first  mortgage on the Company’s building |       | $                       | 1,397,337  |                                  | $          | 1,525,653 |   |
|                                                                                                                                                                                                                  |       |                    |       |                                  |       |
| Less-current  maturities                                                                                                                                                                                              |       | 171,123                 |       | 171,123                               |       |
|                                                                                                                                                                                                                  |       |                    |       |                                  |       |
| Total long-term  debt, less current maturities                                                                                                                                                                        |       | $                       | 1,226,214  |                                  | $          | 1,354,530 |   |

 

Interest on alloutstanding debt under the credit facility accrues at either a) the LondonInterbank Offered Rate (2.461% at July 31, 2008) plus 1.25% to 2.75%depending on the Company’s funded debt to cash flow ratio, or b) the bank’s primerate (5.0% at July 31, 2008) minus 0% to minus 1.125% also depending onthe Company’s funded debt to cash flow ratio. At July 31, 2008, the Company was paying 4.125% on the revolvingline of credit borrowings and 4.211% on the mortgage.  The credit facility contains financialcovenants common in such agreements, including tangible net worth requirements,limitations on the amount of funded debt to earnings before interest, taxes,depreciation and amortization, limitations on capital spending, and debt servicecoverage requirements.

 

7.  EARNINGS PER SHARE:

 

The Company computesbasic earnings per common share by dividing net income by the weighted averagenumber of shares of common stock outstanding during the reporting periods.  Dividing net income by the weighted averagenumber of shares of common stock and dilutive potential common stockoutstanding during the reporting periods computes diluted earnings per commonshare.  A reconciliation of net incomeand weighted average shares used in computing basic and diluted earnings pershare is as follows:

 
| ** **                        | ** ** | **For the Three Months Ended July 31, 2008** | ** ** |
|-----------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Income  (Numerator)**                                                         | ** ** | **Shares  (Denominator)** | ** ** | **Per Share  Amount** | ** ** |
| Basic EPS                         |       |                                                                            |       |   |   |   |   |
| Net income                        |       | $                                                                               | 590,840    |   | 10,254,310 |   | $ | 0.06 |   |
| Dilutive effect  of stock options |       |                                                                            |       | — |   |   |   |
|                              |       |                                                                            |       |   |   |   |   |
| Diluted EPS                       |       |                                                                            |       |   |   |   |   |
| Net income                        |       | $                                                                               | 590,840    |   | 10,254,310 |   | $ | 0.06 |   |

 
| ** **                        | ** ** | **For the Three Months Ended July 31, 2007** | ** ** |
|-----------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Income  (Numerator)**                                                         | ** ** | **Shares  (Denominator)** | ** ** | **Per Share  Amount** | ** ** |
| Basic EPS                         |       |                                                                            |       |   |   |   |   |
| Net income                        |       | $                                                                               | 376,854    |   | 10,214,741 |   | $ | 0.04 |   |
| Dilutive effect  of stock options |       |                                                                            |       | — |   |   |   |
|                              |       |                                                                            |       |   |   |   |   |
| Diluted EPS                       |       |                                                                            |       |   |   |   |   |
| Net income                        |       | $                                                                               | 376,854    |   | 10,214,741 |   | $ | 0.04 |   |

 

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| ** **                        | ** ** | **For the Nine Months Ended July 31, 2008** | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Income  (Numerator)**                                                        | ** ** | **Shares  (Denominator)** | ** ** | **Per Share  Amount** | ** ** |
| Basic EPS                         |       |                                                                           |       |   |   |   |   |
| Net income                        |       | $                                                                              | 1,351,090  |   | 10,241,861 |   | $ | 0.13 |   |
| Dilutive effect  of stock options |       |                                                                           |       | 4,950 |   |   |   |
|                              |       |                                                                           |       |   |   |   |   |
| Diluted EPS                       |       |                                                                           |       |   |   |   |   |
| Net income                        |       | $                                                                              | 1,351,090  |   | 10,246,811 |   | $ | 0.13 |   |

 
| ** **                        | ** ** | **For the Nine Months Ended July 31, 2007** | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Income  (Numerator)**                                                        | ** ** | **Shares  (Denominator)** | ** ** | **Per Share  Amount** | ** ** |
| Basic EPS                         |       |                                                                           |       |   |   |   |   |
| Net income                        |       | $                                                                              | 755,134    |   | 10,214,741 |   | $ | 0.07 |   |
| Dilutive effect  of stock options |       |                                                                           |       | — |   |   |   |
|                              |       |                                                                           |       |   |   |   |   |
| Diluted EPS                       |       |                                                                           |       |   |   |   |   |
| Net income                        |       | $                                                                              | 755,134    |   | 10,214,741 |   | $ | 0.07 |   |

 

Options to purchase1,029,500 shares of common stock at an average exercise price of $7.28 and978,668 shares of common stock at an average exercise price of $7.00 were notincluded in the computation of diluted earnings per share for the three monthsended July 31, 2008 and 2007, respectively, because inclusion of theseoptions would be antidilutive.  Optionsto purchase 844,900 shares of common stock at an average exercise price of$8.08 and 1,068,668 shares of common stock at an average exercise price of$6.69 were not included in the computation of diluted earnings per share forthe nine months ended July 31, 2008 and 2007, respectively, becauseinclusion of these options would be antidilutive.

 

8.  CAPITAL LEASES:

 

During 2008, the Companyleased software licenses under an agreement that is classified as a capitallease. The book value of the licenses is included in the balance sheet asproperty, plant, and equipment and was $443,839 at July 31, 2008.  Accumulated amortization of the leasedequipment at July 31, 2008 was $12,681. Amortization of assets under the capital lease is included indepreciation expense.  The future minimumlease payments required under the capital lease and the present value of thenet minimum lease payments as of July 31, 2008, are as follows:

 
| ** **                                           | ** ** | **Capital  Lease Payments** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
|                                                 |       |                             |       |
| 1 Year                                               |       | $                                | 161,435    |   |
| 2 Years                                              |       | 161,435                          |       |
| 3 Years                                              |       | 147,982                          |       |
| Total minimum  lease payments                        |       | 470,852                          |       |
| Less- imputed  interest                              |       | 26,311                           |       |
| Present value of  minimum payments                   |       | 444,541                          |       |
| Less-current  maturities of capital lease obligation |       | 146,798                          |       |
| Long-term  capital lease obligation                  |       | $                                | 297,743    |   |

 

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Preliminary Note RegardingForward-Looking Statements**

 

In the followingdiscussion, we make forward-looking statements about future events, performanceand results.  Such statements are notguarantees of performance, but rather reflect our current expectations,estimates, and forecasts about the industry and markets where we operate.   Forward-looking statements generally includewords such as “expects,” “anticipates,” “may”, “plans,” “believes,” “intends,” “projects,”“estimates,” “targets,” “may,” “should” and similar words or expressions.  These statements are subject to risks anduncertainties that are difficult to predict or are beyond our control, such ascustomer demand for advanced communications products; an uncertain, U.S.economy capital spending trends within our market; our ability to successfullydevelop the Mitel product and services offering; the financial condition of oursuppliers and changes in their distribution strategies and support;technological changes; fluctuating margins and product mix; failure to expandour wholesale service relationships; the ability to attract and retain highlyskilled personnel and technical competencies; and intense competition.  These and other risks and uncertainties arediscussed under the heading “Risk Factors” under Part I of the Company’s Form 10-Kfor the fiscal year ended October 31, 2007 (filed with the Commission on January 7,2008), and in updates to such risk factors set forth in Item 1A of Part IIof this quarterly report and our quarterly reports for the first and secondquarter of fiscal 2008.  Because of theserisks and uncertainties, actual results may differ materially and adverselyfrom those expressed in forward-looking statements.  Consequently, we caution investors to readand consider all forward-looking statements in conjunction with such riskfactors and uncertainties.  The PrivateSecurities Litigation Reform Act of 1995 provides a safe-harbor forforward-looking statements made by the Company.

 

# **Overview**

# ** **

Strategy.

 

In fiscal 2008, we havecontinued to focus on three primary strategies: acquire, penetrate, and retain targeted customers; expand our wholesaleservice offerings; and improve organizational alignment with our major businesspartners.

 

Our sales efforts targetlarge, multi-location, national, or super-regional customers.  Our national technical footprint and 24/7/365contact center are complimentary to the communication needs of thesecustomers.  Additionally, these largerenterprises often have a mixture of manufacturer platforms within theircommunications equipment portfolio and our ability to sell and service both theAvaya and Nortel product lines is an important competitive advantage.  Because of our extensive array of productsand services, we enjoy multiple sales opportunities with these customers,including new product sales, implementation of advanced applications, and avariety of potential service relationships. Once we establish a relationship with a customer, we search foropportunities to penetrate deeper into the account by assessing the customer’scommunications needs, proposing appropriate technologies, establishing orexpanding the service relationship, and proposing equipment and servicesolutions to other divisions or subsidiaries.

 

We launched our wholesaleservice offering in fiscal 2006 and its success has been a key contributor toour growth in recurring revenue.  Underthis service offering, we collaborate with manufacturers, network serviceproviders and systems integrators to provide services to their end-usercustomers.  In many instances, we providefield resources to carry out service responsibilities.  However, under a full outsourcing arrangementwe may provide a broader range of services, including call center support,remote technical support, on-site labor and spare parts.  Our entry into the wholesale services markethas succeeded because of excellent service to end-user customers and ourwillingness to create and execute flexible service programs and billingarrangements.  The continued success of thisstrategic initiative is a vital ingredient to our long-term goal of shiftingour revenue mix toward more recurring services revenues.

 

Finally, we strive toalign our Company’s sales, marketing, and services programs with those of ourmanufacturing partners.  Avaya and Nortelapproach the communications technology market differently and therefore we haveassigned separate executive sales management to each manufacturer’s productsand services.  Our Avaya sales andmarketing efforts focus on partnering with Avaya’s national sales force to sellequipment to large and medium sized enterprises and to sell Avayaimplementation and post-warranty

 

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maintenancecontracts.  Our Nortel initiatives focuson creating relationships with Nortel’s regional sales management to sellequipment and applications.  In addition,we work to deepen our relationships with key Nortel services decision makers tocreate wholesale service offerings for large Nortel end-users.  Since starting this initiative in late fiscal2006, we have improved our relationships and penetration with both Nortel andAvaya, resulting in a demonstrable increase in equipment and services revenues.

 

In early fiscal 2008 webecame a dealer for Mitel, selling their communications systems primarily tosmaller properties in the hospitality market thereby opening up a new segmentof the market for us.  Additionally, theMitel product line provides us an opportunity to serve certain hotel chains andmanagement companies who have standardized on the Mitel platform.

 

OperatingSummary.

 

Inthe third quarter of fiscal 2008 we earned net income of $591,000 on revenuesof $23.2 million compared to net income of $377,000 on revenues of $18.2million in the third fiscal quarter of last year.    For the first nine months of fiscal 2008,we earned $1.351 million in net income on revenues of $61.9 million compared tonet income of $755,000 on revenues of $51.0 million.  These results reflect the successfulexecution of our strategies discussed above and other contributing factors suchas our large equipment and implementation project with the Miami Dade CountyPublic School system (“M-DCPS”) system all of which are discussed in moredetail under “Results of Operations” below.

 

FinancialPosition Summary.

 

SinceOctober 31, 2007, our working capital increased approximately 24%.   This is due in part to the receivablesassociated with the M-DCPS project that have grown rapidly due to the complexprocedures required to collect the funds from both the school district and theFederal agency that administers the project funding .  The growth in these receivables has resultedin increased borrowings on our working capital revolver in fiscal 2008.  We discuss these and other financial items inmore detail under “Financial Condition” below.

 

Thefollowing discussion presents additional information regarding our financialcondition and results of operations for the three- and nine-month periods endedJuly 31, 2008 and 2007 and should be considered in conjunction with ourabove comments as well as the “Risk Factors” section below.

 

# **Financial Condition**

# ** **

Cashused by operations for the nine months ended July 31, 2008 was $2.8million.  As stated above, the complexand lengthy procedures required to collect funds on the M-DCPS project hasresulted in higher than expected growth in accounts receivable and increasedshort-term borrowing on our revolving credit facility.  The M-DCPS project is jointly funded by theschool district and the Federal Government. Generally, the school district pays ten percent (10%) of the projectplus amounts for certain equipment and services not covered by the program andthe federal government pays approximately ninety percent (90%) of thequalifying expenditures.  Under the rules ofthe program, the Universal Service Administration Company which is the agency taskedwith administering this program, cannot release funding until they receiveproof of payment from the school district. These requirements have extended the collection period on these projectsbeyond our original expectations.  Thecollection of these accounts is not in question and we are regularly receivingpayments on projects, however we do not expect collection of all the proceedsuntil well into the first quarter of fiscal 2009.

 

Inaddition to the cash used by operations, we invested approximately $842,000 incapital projects, including $417,000 in equipment and fixtures, as part of ournormal replacement and refurbishment cycles. Additionally, we invested $424,000 in the continued implementation ofOracle’s eBusiness Suite.  Early in thesecond fiscal quarter of fiscal 2008, we completed the cutover of the lastmajor functional module to the  Oracleplatform.  During the remainder of fiscal2008, we expect to implement additional features, including sales management,customer relationship management and an online service ticket creation andtracking system.

 

At July 31, 2008 our total borrowings were $7.5million, consisting of a mortgage on our headquarters building of $1.4 millionand $6.1 million due on our revolving line of credit.  At July 31, 2008 there was $1.4 million 

 

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available under the revolver to meet working capitalneeds.  We believe that the currentamount of working capital available under our revolving line of credit issufficient to meet our needs for the remainder of fiscal 2008.  In addition, we believe that should the needarise, we could arrange supplemental short-term financing under acceptableterms and prices.

 

The table below presentsour contractual obligations at July 31, 2008 as well as paymentobligations over the next five years:

 
| ** **                   | ** ** | ** ** | ** ** | **Payments due by period** | ** ** |
|------------------------------|------------|------------|------------|----------------------------|------------|
| ** **                   |       | **Total**  | ** ** | **Less  than  1 year**     | ** ** | **2 – 3  Years** | ** ** | **4 – 5  Years** |   |
| **Contractual  Obligations** |       |       |       |                       |       |   |   |   |   |
| Long-term debt               |       | $          | 1,461,453  |                       | $          | 226,680 |   | $ | 1,234,773 |   | $ | — |   |
| Capital lease                |       | 470,852    |       | 161,435                    |       | 309,417 |   | — |   |
| Operating leases             |       | 541,650    |       | 299,110                    |       | 241,580 |   | 960 |   |
| Total                        |       | $          | 2,473,955  |                       | $          | 687,225 |   | $ | 1,785,770 |   | $ | 960 |   |

 

# **Results of Operations**

# ** **

Inthe third quarter of fiscal 2008 our revenues increased $5.0 million or 27%compared to the third quarter last year, and our net income increased $214,000or 57%.  In the first nine months of theyear, our revenues increased $11.0 million or 22% and our earnings increased$596,000 or 79%.  These results primarilyreflect increased revenues in all of our major revenue categories coupled withhigher margins on sales of equipment. The narrative below provides further explanation of these results.

 

ServicesRevenues.

 

Ourservices revenues increased $2.6 million or 27% in the third quarter and $4.9million or 18% for the year-to-date periods compared to the same periods lastyear.  Services revenues consist of thefollowing:

 
| ** **                   | ** ** | **For the Three Months Ended  July 31,** | ** ** | **For the Nine Months Ended  July 31,** | ** ** |
|------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                   | ** ** | **2008**                                      | ** ** | **2007**                                     | ** ** | **2008** | ** ** | **2007** | ** ** |
| Contract &  T&M |       | $                                             | 7,202,000  |                                         | $          | 6,745,000 |   | $ | 21,438,000 |   | $ | 19,059,000 |   |
| Implementation               |       | 3,864,000                                     |       | 2,075,000                                    |       | 8,250,000 |   | 5,988,000 |   |
| Cabling                      |       | 962,000                                       |       | 644,000                                      |       | 2,199,000 |   | 1,986,000 |   |
| Total Services  revenues     |       | $                                             | 12,028,000 |                                         | $          | 9,464,000 |   | $ | 31,887,000 |   | $ | 27,033,000 |   |

 

Contractand time-and-materials (T&M) revenues increased 7% and 12%respectively inthe third quarter and year-to-date periods. These growth rates reflect slowing growth in our base of commercialcontract revenues, weak demand for T&M services throughout fiscal 2008, andthe relative stability of our lodging maintenance contract base, whichrepresents approximately 50% of our total Contract and T&M revenues.  As discussed above, one of our primarystrategies is to grow our commercial maintenance revenues to improve our profitmargins and the predictability of our results. We are pleased with the continued growth of this part of our business,even though the rate of growth in commercial contract revenues has decreasedduring fiscal 2008 due to fewer additions of new customer programs.  Under most of our large commercialmaintenance contracts, our customer is a network service provider, manufacturer,or a technology integrator who has the direct contractual relationship with theend-user of the equipment.  Thesecustomers contract with end-users who are often large, national enterprises toprovide a range of services which include servicing the communicationsequipment and ancillary technology. Competition is fierce for the opportunity to contract with these largeend-users and a range of service delivery issues must be addressed.  This process can take months as details aredebated and negotiated.  Once the enduser selects their service provider, the contracting process is often prolongedas well.  Finally, the transition ofservices to a new provider is often stretched out over several months tominimize the impact to the end-user.  Ourinvolvement in this process varies from full participation with our customer inthe sales process to being transparent to the end user.  Regardless of our role in the sales process,our ability to impact the pace of decisions and the pace of contract negotiationsis usually minimal.  Because of thesereasons and the fact that there a only few large opportunities available at anygiven time, the timing our acquisition of new revenues in this area isunpredictable.  Through the first ninemonths of fiscal 2008, we are encouraged by the number and size of 

 

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newservice program opportunities. and we are confident that we will eventuallyincorporate many of these opportunities into our service revenue base.

 

Throughoutfiscal 2008, we have experienced a decline in T&M revenues.  We believe this decline is largely due tomacro economic conditions that have slowed the growth of customer workforcesand reduced non-essential spending.

 

Implementationrevenues increased 86% and 38%, respectively in the third fiscal quarter andyear-to-date periods.  These increasesare attributable to growth in systems sales and also reflect M-DCPS systemimplementations.  The pace of installationsat M-DCPS accelerated toward the end of the second fiscal quarter and continuedthrough most of the third quarter generating record implementation revenues forthe third fiscal quarter.

 

Cablingrevenues increased 49% and 11%, respectively in the third fiscal quarter andyear-to-date periods.  This revenuecategory was also helped by the surge in installations of systems under theM-DCPS contract as a large portion of the schools required reconfiguration oftheir communications wiring.

 

SystemsSales.

 

Inthe third quarter of fiscal 2008, systems sales increased approximately $2.0million or 23% compared to the same period last year.  This increase includes a $1.8 million or 28%increase in sales of systems to commercial customers and a $161,000 or 8%increase in sales of systems to lodging customers.  Year-to-date systems sales increased $5.2million or 22% compared to last year. This includes an increase in sales of systems to commercial customers of$5.9 million or 34% and a decrease in sales of systems to lodging customers of$716,000 or 12%.  The increase in salesto commercial customers primarily reflects sales of systems to M-DCPS.  Shipments and installations for M-DCPSaccelerated in the last half of the second fiscal quarter and continued strongthrough most of the third fiscal quarter. We anticipate completion of this project during our fourth fiscalquarter.  Orders for systems tocommercial customers other than M-DCPS are slightly below last year’space.  We believe this decline primarilyreflects customers extending the sales cycle due to uncertainty in the U.S.economy.

 

Thequarterly growth in sales of systems to lodging customers reflects ourcontinued success in this niche market and the early success of our new Mitelproduct offering.  The Mitel product lineprovides us with the opportunity to work with certain hotel chains and propertymanagement companies that have standardized on the Mitel product line.  The year-to-date decline in sales of systemsto lodging customers is a difficult comparison to fiscal 2007.  Results for fiscal 2007 were beneficiallyinfluenced by an acceleration of orders from customers wanting to avoid amid-year manufacturer’s price increase. Because of strong order rates in the third fiscal quarter, our year-to-datelodging equipment orders are outpacing last year.

 

GrossMargins.

 

Thetable below presents the gross margins earned on our primary revenue streams:

 
| ** **                    | ** ** | **For the Three   Months Ended  July 31,** | ** ** | **For the Nine   Months Ended  July 31,** | ** ** |
|-------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| **Gross Margins**             | ** ** | **2008**                                        | ** ** | **2007**                                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Services  revenues            |       | 30.4                                            | %          | 30.7                                           | %          | 27.5 | % | 29.6 | % |
| Systems  sales                |       | 26.4                                            | %          | 22.8                                           | %          | 26.1 | % | 23.6 | % |
| Other revenues                |       | 22.1                                            | %          | 40.9                                           | %          | 62.2 | % | 38.8 | % |
| Corporate cost  of goods sold |       | -1.7                                            | %          | -2.2                                           | %          | -1.9 | % | -2.1 | % |
| Total                         |       | 26.7                                            | %          | 24.8                                           | %          | 25.8 | % | 24.9 | % |

 

The gross margins earned on Services revenuesreflect mixed results in this area of our business.  In the third fiscal quarter, record levels ofimplementation revenues, slight improvement in T&M revenues, and someadjustments in the Services cost structure combined to produce gross marginsabove 30%, which is a key metric for this portion of our business.  On a year-to-date basis, our Services grossmargins are lagging behind last year’s performance and reflect a cost structurebased on faster growth.  Consequently, wehave made adjustments to our cost structure in the fourth fiscal quarter tocontinue to address this issue and will 

 

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continue to monitor the balance between revenuegrowth and cost structure to try to maintain our targeted profitability levelsfor this portion of our business.

 

Gross margins on systems sales in the third fiscalquarter and the year-to-date period were up over last year and exceed ourtarget of 23% to 25% for systems revenues. This trend is consistent for system sales to our commercial and lodgingcustomers.  We continue to receive strongpricing support from our vendors in the form of project-specific discounts andincentive rebates.  These incentives arematerial to our gross margins and we work diligently to maximize this support; however,no assurance can be given that future support will continue at historicallevels.

 

Thefinal component of our gross margins is the margins earned on other revenuesand our corporate cost of goods sold.  Weearn the majority of our other revenues from the sale of Avaya maintenancecontracts on which we earn either a commission or gross profit.  We have no continuing service obligationassociated with these revenues and gross profits. In the first nine months ofthe year, we enjoyed significantly higher commission revenues from sales ofAvaya maintenance contracts.  Theserevenues were material to our overall operating income in all periodspresented.  This is an unpredictablerevenue stream that depends on the expiration dates of existing contracts,installation dates of new systems, the customer type as defined by Avaya, andthe number of years that customers contract for services.  Consequently, it is unlikely that we cansustain the results enjoyed in the first three quarters of the fiscalyear.  Other revenues may also includesales and cost of goods sold on equipment or services outside our normalprovisioning processes. These revenues vary in both sales volume and grossmargins earned.  Corporate cost of goodssold represents our material logistics and purchasing functions that supportall of our revenue segments.

 

OperatingExpenses.

 

Ourtotal operating expenses increased $1,246,000 or 32% in the third quarter offiscal 2008 compared to the third quarter of fiscal 2007.  Operating expenses were 22.1% of revenues inthe third quarter compared to 21.3% last year. Operating expenses increased $2,101,000 or 18% for the year to dateperiod compared to the same period a year ago. Operating expenses were 21.8% of revenues in the first three quarters offiscal 2008 compared to 22.4% for the same period last year.  The growth in operating expenses in the thirdfiscal quarter reflects several factors:

 

·                  Personneladditions to exploit new managed services opportunities

·                  Increasedexpenditures to support the Oracle eBusiness platform

·                  Increasedboard of director fees to support the addition of independent membership to theboard

·                  Increasednon-cash charges related to stock compensation expense for equity grantsprovided to management and key employees

·                  Increasedamortization of the Oracle platform capitalized costs in associated with theexpanded implementation

 

Forthe year, operating expenses have been impacted by all of the factors listedabove.  Partially offsetting theseincreases were improved sales and marketing incentives received frommanufacturers in the first fiscal quarter. The incentives we receive from manufacturers to support the sales andmarketing of their products come in the form of payments for growth in sales oftheir products, reimbursement for certain, pre-approved marketing programs, andadditions to sales-related headcount. The amount of these funds was higher than normal in the first quarterdue to special growth incentives offered by one of our manufacturers.  These funds returned to normal levels in thesecond and third quarters.  Ourexpenditures to promote our managed services business and to support the Oracleplatform have exceeded our projection to date in fiscal 2008.  We believe, however that operating expenseswill diminish to 18% to 20% of revenues over the next two to four years as werealize economies of scale.

 

InterestExpense and Other Income.

 

Netinterest and other expense was $96,000 in the third quarter of fiscal 2008compared to $20,000 in net other expense in the third quarter of fiscal2007.  Net interest and other expense was$240,000 for the nine-month period ended July 31, 2008 compared to $4,000in net other expense in the same period last year.  This increase in expense reflects thediscontinuation of capitalizing interest expense related to the implementationof the Company’s Oracle platform and higher than average borrowings in theperiods presented.

 

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TaxProvision.

 

Werecorded a combined Federal and state tax provision of 39% for both the thirdquarter of fiscal 2008 and fiscal 2007. For the nine-month period ended July 31, 2008, we recorded a taxprovision of 39% compared to a tax provision of 40% for the first nine monthsof fiscal 2007.  The tax provision reflectsthe effective Federal tax rate plus the composite state income tax ratesadjusted for states that require minimum tax payments even if tax losses areincurred.  Generally, we expect our taxprovision rate to be approximately 40%.

 

**ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Changes ininterest rates represents the primary market risk relating to our operatingresults.  We did not use derivativefinancial instruments for speculative or trading purposes during thethree-month period ended July 31, 2008.

 

*Interest Rate Risk*.   Due to utilization of variable interest rate debt, we are subject to the risk of fluctuation in interest rates in the normal course of business.  Our credit facility bears interest at a floating rate at either the London Interbank Offered Rate (2.461% at July 31, 2008) plus 1.25% to 2.75% or the bank’s prime rate (5.0% at July 31, 2008) less 0.0% to minus 1.125%.  A hypothetical 1% increase in interest rates would not have a material impact on our financial position or cash flows.

 

**ITEM 4.   CONTROLS AND PROCEDURES**

 

*Evaluationof Disclosure Controls and Procedures.* Based on an evaluation conducted as of July 31,2008 by our management, including our Chief Executive Officer (“CEO”) and ourChief Financial Officer (“CFO”), our CEO and CFO have concluded that ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”) are effective to reasonably ensure that information required to bedisclosed in reports that we file or submit under the Exchange Act, isrecorded, processed, summarized and reported within the time periods specifiedin Securities and Exchange Commission rules and forms, and that suchinformation is accumulated and communicated to our management, including theCEO and CFO, as appropriate to allow timely decisions regarding requireddisclosure.

 

*Changesin Internal Controls.*  There were no changes in ourinternal controls or in other factors that could materially affect, or isreasonably likely to materially affect, these controls subsequent to the dateof their evaluation.

 

**PART II.  OTHERINFORMATION**

 

**ITEM1.  LEGAL PROCEEDINGS.**

 

On or about April 8,2008, Design Business Communications, Inc., d/b/a/ American Telephone (“AMTEL”)filed a claim with the American Arbitration Association against the Company andHitachi Telecom (USA) Inc. (“HITEL”) alleging a breach of AMTEL’s AuthorizedDistributorship Agreement with HITEL (the “Distributor Agreement”).  The Company is involved in this matter byvirtue of the fact that in 2006, the Company acquired HITEL’s PBX business andagreed to fulfill HITEL’s surviving service obligations to its authorizeddistributors under their distributor agreements with HITEL.  The AMTEL Distributor Agreement provides thatAMTEL may order and the Company shall provide “spare parts, software and thirdlevel technical support as required for the maintenance of HITEL PRODUCT for aperiod of ten years from the ship date of the HITEL PRODUCT.”  In April 2007, AMTEL placed an orderwith the Company under the Distributor Agreement for 48 new telephones totalingapproximately $12,200; however, this product had previously been discontinuedby HITEL.   Because this order has notbeen fulfilled, AMTEL claims that the Company is in breach of the DistributorAgreement and that as a result, AMTEL has suffered damages in the amount of $5million (for loss of service and spare part revenues; loss of businessreputation; loss of customers; and possible claims by AMTEL customers forbreach of its service 

 

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obligations and sales andservice warranties).  While HITEL is alsocontesting AMTEL’s claim, it has notified the Company that it will seekindemnity against the Company under the terms of the 2006 purchase and saleagreement between HITEL and the Company. The Company has offered to assume thedefense of HITEL in this matter under a reservation of rights; however HITELhas refused this offer.  The Company isvigorously contesting this matter and, along with HITEL, may seek a stay of thearbitration pending discussions among the parties concerning a possible resolutionto AMTEL’s claims. If the arbitration proceeds as scheduled, the Companyexpects the arbitration to be completed during the first quarter of fiscal2009.

 

In addition to theforegoing, we are involved as a defendant in an employment related matter andas a plaintiff in another matter, both of which we consider to be routine andincidental to the operation of our business. We do not believe that either of these proceedings will have a materialaffect on our financial position or results of operations.

 

**ITEM 1A. RISK FACTORS.**

 

Theinformation presented below is an update to the “Risk Factors” included in theCompany’s Annual Report on Form 10-K for the fiscal year ended October 31,2007 and should be read in conjunction therewith.  Except as set forth below, the Risk Factorsincluded in the Company’s Form 10-K for its 2007 fiscal year have notmaterially changed.

 

**Avaya’s strategies regarding the provision ofservices to its customers are changing dramatically and may have a materialimpact on our operating results.**

 

Avayais repositioning itself as a hardware and software vendor providing a widerange of voice communications hardware and applications to its customers.  As part of this strategy, Avaya is segmentingits hardware maintenance and software support. The new software support offerings include technical support forspecific voice applications and upgrade services to ensure customers can accessall software patches and upgrades. Currently, we earn revenues from some of our customers, particularlylodging customers, to provide the products and services now being included byAvaya in its new software support offerings.   These changes could have a material, negative impact on our operatingresults if our revenues or margins are reduced in response to these mandatedchanges by Avaya.

 

**If economic conditions in the U.S. continue beuncertain or deteriorate further, our revenues, gross margins and net incomecould be negatively impacted.**

 

Inthe first nine months of fiscal 2008, we have seen a decline in order rates fornew equipment and for some discretionary (i.e. T&M) services that weoffer.  We believe that  these declines are largely due to uncertaintyabout the condition and near-term future of the U.S. economy.  These uncertainties have caused somecustomers to delay capital spending. Should these uncertainties persist or worsen, it is likely that ourbusiness would continue to experience the effects.

 

**Our long-term targeted levels of profitability maynot be achievable.**

 

Infiscal 2007, we set targets for our net profit margins, measured as net incomedivided by revenues, to be 4% to 6% within three to five years.  These targets reflected more detailed keyfinancial goals such as consistently earning gross margins on Services revenuesin the 30% to 35% range, earning gross margins on total revenues at more than30%, and lowering operating expenses to less than 20% of revenues.  We believe that economies of scale in ourbusiness, particularly in our Services, Sales, Accounting and Administrativefunctions, will be the key driver toward meeting these financial targets.  To date in fiscal 2008, we have experiencedrevenue growth of 22%; however we have not realized significant improvements inServices gross margins or in operating expenses when measured as a percent ofrevenues.  While we continue to believethat our profitability targets will ultimately be achieved as we continue toexpand our revenue base, we have yet to prove this operating model through actualresults.

 

**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

 

None.

 

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**ITEM 3. DEFAULTS UPON SENIOR SECURITIES.**

 

None.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**

 

None.

 

**ITEM 5. OTHER INFORMATION.**

 

(a) None.

 

**ITEM 6.  EXHIBITS.**

 

Exhibits(filed herewith):

 
| **SEC Exhibit No.** | ** ** | **Description**                                                                                                                                                                     |
|--------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                     |       |                                                                                                                                                                                |
| 31.1                     |       | Rule 13a-14(a)/15d-14(a) Certification  of Chief Executive Officer                                                                                                        |
|                     |       |                                                                                                                                                                                |
| 31.2                     |       | Rule 13a-14(a)/15d-14(a) Certification  of Chief Financial Officer                                                                                                        |
|                     |       |                                                                                                                                                                                |
| 32.1                     |       | Certification  of Chief Executive Officer Pursuant to Title 18, United States Code,  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|                     |       |                                                                                                                                                                                |
| 32.2                     |       | Certification  of Chief Financial Officer Pursuant to Title 18, United States Code,  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                            | XETA  Technologies, Inc. |
|---------------------------------|-------------------------------|
|                            | (Registrant)                  |
|                            |                          |
|                            |                          |
| Dated: September 10,  2008 | By:                           |  /s/ Greg D.  Forrest |
|                            |                          | Greg D. Forrest |
|                            |                          | Chief Executive Officer |
|                            |                          |
| Dated: September 10,  2008 | By:                           |  /s/ Robert B.  Wagner |
|                            |                          | Robert B. Wagner |
|                            |                          | Chief Financial Officer |

 

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EXHIBIT INDEX

 
| **SEC Exhibit No.** | ** ** | **Description**                                                                                                                                                                     |
|--------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                     |       |                                                                                                                                                                                |
| 31.1                     |       | Rule 13a-14(a)/15d-14(a) Certification  of Chief Executive Officer                                                                                                        |
|                     |       |                                                                                                                                                                                |
| 31.2                     |       | Rule 13a-14(a)/15d-14(a) Certification  of Chief Financial Officer                                                                                                        |
|                     |       |                                                                                                                                                                                |
| 32.1                     |       | Certification  of Chief Executive Officer Pursuant to Title 18, United States Code,  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|                     |       |                                                                                                                                                                                |
| 32.2                     |       | Certification  of Chief Financial Officer Pursuant to Title 18, United States Code,  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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