1814 W. Tacoma

Broken Arrow, Oklahoma  74012

PROXY STATEMENT

Annual Meeting of Shareholders
To be Held April 3, 2007

This Proxy Statementproxy statement is furnished to the shareholders of XETA Technologies, Inc. (the(“XETA” or the “Company” or “we” or “us”) by itsour Board of Directors to solicit proxies for use at the Annual Meetingour annual meeting of Shareholdersshareholders (the “Annual Meeting”).  The Annual Meeting will be held on April 3, 2007,8, 2008, at the Renaissance Tulsa Hotel and Convention Center located at 6808 South 107^th East Avenue, Tulsa, Oklahoma, at 6:30 p.m., local time.  The purpose of the Annual Meeting is: (i) to elect six (6) members to the Company’s Board of Directors to serve for the ensuing year and until their successors are elected; (ii) to ratify the selection of Tullius Taylor Sartain & Sartain LLP as the Company’s independent certified public accountants for the fiscal year ending October 31, 2007; and (iii) at the discretion of the

        This proxy holders, to transact any other business that may properly come before the Annual Meeting or any adjournment thereof.

This Proxy Statementstatement and the accompanying proxy card together with a copy of the Company’s Annual Report to shareholders for the fiscal year ended October 31, 2006, will first be mailed to shareholders on or about March 8, 2007.18, 2008.

VotingINFORMATION ON VOTING

Who Can Vote

Only shareholders of record at the close of business on February 20, 2007 (the “Record Date”) are26, 2008, the record date fixed by the Board of Directors, will be entitled to vote at the Annual Meeting and any adjournment thereof.  Shareholders areMeeting.  Each record holder is entitled to one vote per share of Common Stock registered in their nameto the holder on the Record Date.record date.   As of January 15, 2007,February 26, 2008, there were 10,214,74110,254,310 shares of Common Stock of the Company outstanding, the only voting stock of the Company.outstanding.

How You Can Vote

You may vote in person at the Annual Meeting or by proxy.  We encourage you to vote by proxy even if you plan to attend the meeting.  Proxies properly executed and received by us in time to be voted at the Annual Meeting will be voted in accordance with the specifications marked on the proxy card.  Signed proxies which are returned to us with no voting specifications marked will be voted “FOR” the proposals described in this proxy statement and in the discretion of the persons named in the proxy on any other matter which may properly come before the meeting.

The process by which you vote depends upon how you hold your shares, as follows:

If you hold your shares in your own name as the stockholder of record, you may vote by proxy eithermail or the internet.  To vote by completing, signingmail, complete, sign and datingreturn the enclosed proxy card and returning it in the envelope provided, or viaprovided.  To vote using the internet, by followingfollow the internet voting instructions included with yourdescribed on the proxy card.  Shareholders who vote by internet do not need to return the proxy card.

If you hold your shares in a stock brokerage account or through another nominee such as a bank, your shares are held in what is known as “street name” through an account with aname.”  You are the beneficial owner of the shares but the broker bank or other nominee the organization holding your account is considered to be the shareholder of record holder for purposes of voting at the Annual Meeting.  Youshares.  As the beneficial owner, however, you have the right to direct your broker bank or other nominee on how to vote the shares in your account.  To do so, please follow the voting instructions on the form you receive from them.the broker or nominee.  If you hold your shares in street name and you wish to vote in person at the Annual Meeting, you must obtain a legal proxy issued in your name from your broker bank or other nominee, giving you the right to vote the shares.

Proxies properly executed and received by the Company will be voted in accordance with the specifications marked on the proxy card.  Proxies containing no specifications will be voted FOR the proposals described in this Proxy Statement.

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Revocability of ProxiesHow You Can Change Your Vote

Any shareholder giving a

You may change your vote by revoking your proxy has the power to revoke it at any time before it is acted upon.  Shareholdersvoting takes place at the Annual Meeting.  You may revoke theiryour proxy by submitting a noticenotifying the Secretary of revocation to the Company in writing, by submitting another proxy with a later

date, or by notifying the Company and voting in person at the Annual Meeting.  If you hold your shares in street name, you must contact your broker bank or other nominee regarding how to revoke your proxy and change your vote.

Quorum and Voting Requirements

A quorum is necessary to conduct the business of the meeting. This means that holders of a majority of the outstanding shares entitled toof common stock must be represented at the meeting, either in person or by proxy.

Votes Required for Approval

        Under our bylaws, the election of directors, as well as any other business which may properly come before the meeting, requires the affirmative vote of a majority of the shares present in person or represented by proxy is necessary to constitute a quorum at the Annual Meeting.  If a quorum is not present, the Meeting may be adjourned and rescheduled for a later date without additional notice, until a quorum is present.entitled to vote.

How Votes are Counted

        Abstentions and broker non-votes“non-votes” are both counted as shares present in determining whether the quorum requirement is satisfied.  However, they receive different treatment for purposes of whether they are considered shares present and entitled to vote on a matter.  A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.  Broker non-votes, therefore, are excluded from the number of shares present and entitled to vote on a matter and consequently do not count against the matter.  Abstentions, on the other hand, are also counted in the total number of votes cast with respectpresent and entitled to vote on a proposalmatter and thus have the same effect as a vote against the matter.  Broker non-votes are not counted as votes cast in the tabulation of votes on any matter brought before the Meeting.   The affirmative vote of a majority of the shares of the Company’s Common Stock having voting power at the Annual Meeting is required for the election of directors.  Votes will be tabulated by UMB Bank, n.a.

Cost of Solicitation

The cost of soliciting proxies, including preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to shareholders, will be borne entirely by the Company.   The Company will reimburse brokerage firms, banks and other nominees, custodians and fiduciaries for their reasonable expenses incurred in sending proxy materials to beneficial owners of shares and obtaining their instructions.  The Company has retained UMB Bank, n.a. to assist in the distribution of the proxy materials for an approximate fee of $1,000 plus reasonable expenses.

PROPOSAL 1

ELECTION OF DIRECTORS

Information Concerning the Nominees for Election as Directors

The Company’s certificate of incorporation and bylaws provide that the        A Board of Directors shall consistconsisting of such number of directors asseven members is fixed from timeproposed to time by resolution of the Board of Directors.  The Board has most recently fixed the number of directorsbe elected at six, effective at the close of the Annual Meeting.  Members of the Board are elected for one-year terms.

The nominees for election to the Board of Directorsand the positions they currently hold with us are identified below.listed below, followed by their biographies.  All of the nominees areexcept Greg D. Forrest, our CEO, currently serve as directors of the Company exceptCompany.  S. Lee Crawley was appointed by the Board effective February 1, 2008 to fill the vacant seat created by the resignation of our former Board Chairman Jack R. Ingram.  Mr. Keller.  Mr. KellerCrawley was recommended as a nomineenominated by a non-management director and was subsequently approved for inclusion on the slate of directors by the Nominating Committee and the full Board.  Four of the nominees—Mr. Duke, Dr. Hisrich, Mr. Keller and Mr. Siegenthaler—are independent in accordance with Nasdaq rules.director.  All of the nominees have indicated that they are able and willing to serve if elected.  If any nominee should become unable to serve due to unforeseen circumstances, the persons designated as proxies will have full discretion to cast votes for another person recommended by the Board.

The Board of Directors unanimously recommends that shareholders vote “FOR” the election of the seven nominees listed below.

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Mr. BarberDuke has been a director since 1987.1991 and became our Board Chairman on July 1, 2007.  Heis a shareholder in the law firm of Barber & Bartz, a Professional Corporation, in Tulsa, Oklahoma, which serves as counsel to the Company.  Mr. Barber has been engaged in the private practice of law since October 1980, and is also a Certified Public Accountant licensed in Oklahoma.

Mr. Duke has been a director since 1991.  He is currently a consultant to the oil and gas industry.  industry and an independent investor.  From 1980 until August 2002, Mr. Duke was in senior management in the oil and gas industry, including time as President and Chief Operating Officer of Hadson Petroleum (USA), Inc., a domestic oil and gas subsidiary of Hadson Corporation, where he was responsible for all phases of exploration and production, land, accounting, operations, product marketing and budgeting and planning.

Dr. Hisrich        Mr. Forrest has been our Chief Executive Officer since June 7, 2007 and our President since July 2005.  He also served as our Chief Operating Officer from July 2005 until he became CEO in July of last year.  He first joined XETA as a Director of Sales over the Seattle branch sales and service operations in August, 2004 when the Company acquired Bluejack Systems, LLC.  Mr. Forrest was the CEO, principal owner and founder of Bluejack.  Prior to founding Bluejack, Mr. Forrest founded and operated several other fast-growing companies in the communications, clothing and commercial interior industries.

        Mr. Barber has been a director since 1987.  He currentlyis a shareholder in the law firm of Barber & Bartz, a Professional Corporation, in Tulsa, Oklahoma, which serves as counsel to the Company.  Mr. Barber has been engaged in the private practice of law since October 1980, and is also a certified public accountant licensed in Oklahoma.

Mr. Crawley was appointed to the Board on February 1, 2008.  He has an extensive background in business and financial management, with an emphasis on business transactions and profit improvement.  His professional experience includes functioning as CEO, CFO and COO for several public and private companies, including Flint Engineering and Construction Company (CEO, 1992-1997) and Vantage Point Energy, a public exploration and production company (CEO, 1986-1992).  He also serves as Chairman of Intellevue, a software technology company he invested in in 1998.  Since May 2000 he has been the managing member of Corporate Finance Associates-Tulsa LLC, a mergers and acquisitions advisory firm. CFA-Tulsa is a senior shareholder in Corporate Finance Associates Worldwide, a national M&A firm which Mr. Crawley joined in May 2004.  He serves as its Vice Chairman.

Dr. Hisrich has been a director since 1987.  He holds the Garvin Professor of Global Entrepreneurship and is Director of the Global Entrepreneurship Center at Thunderbird, the GarvinThunderbird School of InternationalGlobal Management in Glendale, Arizona.  He is also a marketing and management consultant.  Previously he occupied the A. Malachi Mixon III Chair in Entrepreneurial Studies and was Professor of Marketing and Policy Studies at the Weatherhead School of Management at Case Western Reserve University in Cleveland, Ohio.  Prior to assuming such positions, he occupied the Boviard Chair of Entrepreneurial Studies and Private Enterprise and was Professor of Marketing at the College of Business Administration for the University of Tulsa.  He has also held a number of other academic positions and served on several editorial boards, including the Editorial Board of the Journal of Small Business and Enterprise Development, of which he is currently a member.  Dr. Hisrich is a member of the Board of Directors of Jameson Inn, Inc., Noteworthy Medical Systems, Inc., and NeoMed Technologies.

Mr. Ingram has served as a director since 1989.  He has been the Company’s Chief Executive Officer since July 1990.  He also served as the Company’s President from July 1990 until August 1999 and from June 2001 until July 2005.  Mr. Ingram’s business experience prior to joining the Company in 1990 was concentrated in the oil and gas industry.

Mr. Keller,has been a director since April 2007.  He was an executive in the banking industry for over twenty years until he retired in September 2006 as the Chairman and CEO of JP Morgan Chase in Oklahoma, a position he held for 10 years.  He previously served in a similar capacity with Bank One in Oklahoma, Bank IV and the Fourth National Bank.  Mr. Keller is a native of Oklahoma and continues to be involved in a number of community and business organizations.  He is a director of the St. Francis Health System, a trustee of the Oklahoma City Memorial Institute for the Prevention of Terrorism, a director of the Tulsa Metropolitan Chamber of Commerce, a trustee of Oklahoma State University-Tulsa, a director of the Oklahoma Foundation of Excellence, and a director of the Southwestern Graduate School of Banking at Southern Methodist University.

Mr. Siegenthaler has been a director since the Company’s inception in 1981.  He served as the Company’s Executive Vice President from July 1990 until March 1999.  Since 1974, Mr. Siegenthaler has managed his personal investment portfolio and promoted sales activities for his own private investments.  Hehe  has been involved as partner, shareholder, officer, director, or sole proprietor in a number of business entities with significant involvement in fabrication and marketing of steel, steel products and other raw material, real estate, oil and gas, and telecommunications.  He is also CEO of Myriad Technologies, Inc., through which he has managed his personal investment portfolio and promoted sales activities for his own private investments.

Recommendation

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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF ALL OF THE NOMINEES LISTED ABOVE AS DIRECTORS OF THE COMPANY.CORPORATE GOVERNANCE

                The Board reviews its governance practices on an ongoing basis in light of the Sarbanes-Oxley Act of 2002, the rules and regulations of the United States Securities and Exchange Commission (“SEC”), and the listing standards of the NASDAQ Stock Market (“NASDAQ”).

BOARD OF DIRECTORS AND COMMITTEESDirector Independence

Our Board of Directors must have at least a majority of independent directors.  Under the NASDAQ rules applicable to us, in order for a director to be deemed independent, the board must determine that the individual does not have a relationship (including those listed by NASDAQ that will preclude a finding of independence) that would interfere with the individual’s exercise of independent judgment in carrying out his or her responsibilities as a director.  Applying this standard, the Board has determined that Messrs. Crawley, Duke, Keller, Hisrich, and Siegenthaler, all incumbent board members, are independent within the meaning of the NASDAQ standards for board service.  In its deliberations on independence, the Board considered Mr. Siegenthaler’s stock ownership, which is slightly over 10%, and the fact that his adult son is employed by the Company as a sales representative.  The Board determined that neither of these relationships interfere with Mr. Siegenthaler’s ability to exercise independent judgment as a director.  Mr. Barber is not an independent director due to his association with Barber & Bartz, the Company’s outside legal counsel, and Mr. Forrest will not qualify as an independent director since he is an executive officer of the Company.

Board Meetings and Attendance

The

Our Board of Directors of the Company held threesix meetings during the fiscal year ended October 31, 2006.  None of the directors2007.  Each director attended fewer thanat least 75% of the combined totalaggregate number of all Boardboard meetings and meetings of  Committees ofheld by all committees on which they were a member during fiscal 2006, except for Dr. Hisrich who attended 55% of such meetings.  All other action taken by the Board of Directors was consented to in writing by a Memorandum of Action in lieu of a meeting, to which all incumbent directors subscribed.  Directors meet their responsibilities not only by

attending Board and committee meetings but also through communication with members of management on matters affecting the Company.

he then served.  The Company encourages its local directors to attend the annual meeting of shareholders.  All threeAt last year’s annual meeting, all of the local, then incumbent directors were present, at the Company’s April 4, 2006 Annual Meeting.  In addition,as well as Mr. Duke traveled fromwho resides in the Oklahoma City to attend the Annual Meeting.area.

Committees of the Board

The

There are three standing committees of the Board of Directors has anDirectors: the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee.

  Each of these committees operates under a written charter approved by the Board.  A copy of each committee’s charter is posted under Governance Documents in the Governance section in the Investor Relations section of our website at www.xeta.com.  The Board has determined that all of the members of the three standing committees are independent according to NASDAQ’s independence standards for service on these committees, including Audit Committee.  Thein the case of the members of the Audit Committee, consists of directors Donald T. Duke, Robert D. Hisrichthe stricter independence requirements imposed by SEC rule and Ronald L. Siegenthaler, all of whom qualify as independent directors under Nasdaq’s current listing standardsNASDAQ for audit committee membership.

Audit Committee

The current members of the Audit Committee are Mr. Crawley, Mr. Duke (Chairman), Dr. Hisrich and Mr. Keller. The Board of Directors has determined that the Committee has at least onetwo members—Mr. Crawley and Mr. Duke—who qualify as an “audit committee financial expert” serving on the Committee, Donald T. Duke.  Mr. Duke is independent as that term is defined in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934.by SEC rules.  The Audit Committee met six times independently of meetings of the Board of Directors during the 20062007 fiscal year.

The Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company.  Among other things, the Audit Committee is responsible for selecting and retaining the Company’s independent public accountants; pre-approving the engagement of the independent accountants for all audit-related services and permissible, non-audit related services; reviewing in advance the scope and focus of the annual audit; and reviewing and discussing with management and the auditors the financial reports of the Company, the audited financial statements, the auditor’s report, the management letter and the quality and adequacy of the Company’s internal controls; and reviewing and approving all related-party transactions.controls.

The Committee operates under a written charter adopted by the Board of Directors.  A copy of the Audit Committee charter is attached to this Proxy Statement as Appendix A and can also be found in the Investor Relations section of the Company’s website at www.xeta.com.

Compensation Committee. 

The members of the Compensation Committee consists of directors Donald T.are Mr. Duke Robert D.(Chairman), Dr. Hisrich and Ronald L. Siegenthaler.  AllMr. Keller.  Mr. Siegenthaler is a non-voting member of the members are independent as defined by Nasdaq’s current listing standards for compensation committee membership.

The Compensation Committee works with Company management and provides advice and assistance to the Board regarding establishment of the Company’s compensation philosophy, objectives and strategy; administration of executive and management compensation programs; significant changes in employee benefit plans; executive employment and severance agreements; and appointments to the Committee.  The Committee is also responsible for recommending for full Board approval the compensation of the Chairman and Chief Executive Officer, all other executive officers, and directors of the Company, and for providing an annual report on executive compensation to the Board.  Duringmet once during fiscal 2006, the Compensation Committee did not meet independently of meetings of the Board of Directors.2007.  The Committee conducted itsalso conducts business during the 2006 fiscal year in conjunction with meetings of the Board, via telephone, and e-mail communications and by written Memorandumconsent.

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The Compensation Committee oversees the Company’s compensation and benefits policies and programs and establishes and/or reviews the philosophy, objectives and goals of Action.such policies and programs.  The Committee’s primary responsibilities include: determining the compensation of the Company’s CEO, CFO and other executive officers, including awards to such persons under the Company’s cash-based incentive and long-term equity-based plans; reviewing and recommending compensation of directors to the Board; and administering the Company’s equity-based incentive plan.  The process and procedures followed by the Compensation Committee in considering and determining executive compensation are described below under the heading “Compensation Discussion and Anaylsis.”

Nominating and Governance Committee.  Ronald L. Siegenthaler is

The members of the Nominating Committee’s Chairman and sole member,Governance Committee are Mr. Keller (Chairman) and is independent as defined by Nasdaq’s listing standards for nominating committee members.Mr. Siegenthaler.  During the 2007 fiscal year, the Committee conducted its business via telephone, e-mail communications, informal discussions and written consents.

The Nominating and Governance Committee was establishedis responsible for the purposeidentifying, recruiting and evaluating qualified persons to serve on our Board of identifyingDirectors and recommending nomineessuch individuals to the Board for nomination for election as directors; evaluating director independence and the size and composition of Directors.the Board; reviewing and ratifying Committee assignments recommended by the Board Chairman and submitting such recommendations to the Board for approval; considering director nominations by shareholders; reviewing related person transactions involving directors; overseeing corporate governance matters; and leading the process for succession planning.

Director Nomination Process.    The Committee does not have specific minimum qualifications that must be met by a candidateCommittee’s process to identify candidates for election to the Board involves requesting recommendations from members of Directors in orderthe Board and individuals personally known to be consideredthem, and from senior level executive officers.  The process for nominationevaluating candidates includes gathering and reviewing a candidate’s biographical and background information, and personal meetings with the candidate by the Committee.  In identifying and evaluating nominees for director,members of the Committee and other Board members if appropriate.  While we have not established specific minimum qualifications for a position on our Board, nominees are selected on the basis of broad experience, wisdom, integrity, understanding of our business environment, the ability to make independent analytical inquiries and the need to maintain a majority of independent members on the Board.  The Committee also considers each candidate’s experience, integrity, backgroundany other qualities that a candidate may possess that could add to the overall quality, diversity and skills,skill of the Board, as well as any oth er qualities that the candidate may possess and factors that the candidate may be ablecandidate’s ability to bringdevote adequate time to the Board.Board duties.

Shareholder Nominations.    The Company has not paid a fee to any third party for the identification or evaluation of candidates.  The Nominating Committee will consider board candidates proposed in good faith by a shareholder.  IfShareholders who wish to recommend a shareholder desirescandidate to propose athe Committee for consideration should submit the candidate’s name for Board consideration, the name of the nominee should be forwardedand biographical information to the Nominating and Governance Committee in care of the Company’s Corporate Secretary.Board, c/o Donald T. Duke, Board Chairman, XETA Technologies, Inc., 1814 West Tacoma Street, Broken Arrow, OK  74012.  The Company does not haveCommittee will evaluate shareholder-recommended candidates in substantially the same manner that it evaluates candidates submitted by others.  If the Board determines to nominate a formal processcandidate recommended by a shareholder, then the candidate’s name will be included in placeour proxy card for shareholder nominations because it believes that this informal process serves the needsnext annual meeting of shareholders.

Shareholders may also be entitled to nominate director candidates directly, without any action or recommendation on the part of the Nominating and Governance Committee or the Board.  For nominations to be considered at next year’s annual meeting, shareholders must follow the procedures set forth in a recent bylaw amendment adopted by the Board.  Under these procedures, a shareholder must submit written notice of the shareholder’s nomination which must be received by us not later than 120 days prior to the anniversary of the mailing date of our proxy materials for the previous year’s annual meeting, so long as the date of the meeting is not changed by more than 30 days from the anniversary date of the previous year’s meeting.  If the date of the meeting is changed by more than such 30 days, then the notice must be received no later than the 10^th day following the date on which notice of the meeting is mailed to shareholders or is announced publicly.  The notice must include the following information:  (1) a brief description of the candidate to be nominated; (2) the name and record address of the shareholder; (3) the class and number of shares beneficially owned by the shareholder; (4) a representation that the shareholder is a holder of record entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to make the nomination; and (5) a description of any arrangement or understanding between such shareholder and the Board.person to be nominated by such shareholder.  The notice should be addressed to:  Corporate Secretary, XETA Technologies, Inc., 1814 W. Tacoma Street, Broken Arrow, OK  74012.

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Code of Ethics

We have adopted a financial officer Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, and any principal accounting officer, controller and other persons who perform similar functions for the Company.  A copy of this Code of Ethics is posted under Governance Documents in the Nominating Committee charter is attached to this Proxy Statement as Appendix B and can also be found inGovernance section on the Investor Relations sectionpage of the Company’sour website at www.xeta.com.

Communications with Directors

The Board of Directors has not established a formal process for shareholders to follow to send communications to the Board or its members, as the Company’s policy has been to forward to the Board any shareholder correspondence it receives that is addressed to the Directors. 

Shareholders who wish to communicate with the Board of Directors or an individual director may do so by sending their correspondence in writing to the Company’s headquartersXETA Technologies, Inc., Attention Board of Directors (or individual named director) at 1814 West Tacoma Street, Broken Arrow, Oklahoma 74012.  Any such communications will be delivered directly to the Board or named director.

DirectorCOMPENSATION DISCUSSION AND ANAYLSIS

This Compensation

The Company currently compensates its directors who are not officers Discussion and Analysis provides a narrative review of the Company $9,600 per year for Board membership.  In addition, Board members serving on a Committee receive $8,000 per yearobjectives and Board members serving as Chairmanelements of a Committee receive an additional $16,000 per year.  The Company also reimburses Mr. Duke and Dr. Hisrich, who are not residents of the Tulsa area, for travel expenses actually incurredcompensation paid to attend Board and Committee meetings and the Annual Shareholders Meeting.

The Company has also on occasion granted stock options to its outside directors.  No such options were granted during the 2006 fiscal year.  The last grant of stock options to outside directors was made on November 1, 2001.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are identified above under the section entitled “Committees”.  There are no “interlocks” (as defined by the rules of the Securities and Exchange Commission) with respect to any member of the Compensation Committee of the Board of Directors.  No member of this Committee was at any time during the 2006 fiscal year an officer or employee of the Company.  No member of the Committee is a former officer or employee of the Company except Mr. Siegenthaler, who served as Executive Vice President of the Company from July 1990 to March 1999.

EXECUTIVE COMPENSATION AND RELATED INFORMATION

Summary of Cash and Certain Other Compensation

The following table sets forth information concerning the compensation of the Company’s Chief Executive Officer and the Company’s other three executive officers.

SUMMARY COMPENSATION TABLE

(1)     Represents the Company’s contributions to the employee’s account under the Company’s 401(k) plan.

(2)     Represents bonus amount awarded for 2006 fiscal year performance, to be paid in quarterly installments.  Bonus payments are subject to forfeiture if the employee is not employed at the time of payment.

(3)     Mr. Forrest became President on July 6, 2005.  Prior to that date, he was employed by the Company as Director of Sales of the Company’s Seattle branch office since joining the Company in August 2004.  His 2005 bonus consists of (i) $3,325 awarded for 2005 fiscal year performance in his capacity as President, and (ii) $15,537, representing 2% of the gross profits of the Seattle Branch Office during his service as Director of Sales of such office, which was paid pursuant to the terms of his employment agreement in such capacity.

(4)     Represents $3,250 in car allowance and $3,173 in unused vacation time for which Mr. Forrest was paid in cash.

(5)     Represents $71,300 in relocation expenses paid on behalf of Mr. Forrest, and $3,877 in commissions earned by Mr. Forrest while he was still Director of Sales of the Company’s Seattle branch office.

(6)     Represents unused vacation time for which the employee was paid in cash.

(7)     Represents the dollar value of the difference between the price paid for shares of the Company’s common stock upon exercise of stock options and the market value of such stock on the date of exercise.

Stock Options

The following table sets forth certain information regarding stock options granted during the 2006 fiscal year to personsofficers named in the Summary Compensation Table.  NoTable below.  For fiscal 2007, these named executive officers (“NEOs”) are:

·Greg Forrest, President and Chief Executive Officer

·Jack Ingram, former Chief Executive Officer

·Robert Wagner, Chief Financial Officer

Compensation of NEOs is established by the Company’s Compensation Committee (the “Committee).  In addition to determining NEO compensation, the Committee oversees the Company’s compensation plans and policies and administers the Company’s equity compensation programs.  A complete discussion of the Committee and its membership is included in the Corporate Governance section of this proxy statement.

General Compensation Philosophy

The focal point of the Committee’s compensation philosophy is to enhance long-term shareholder value.  To do this, the Committee believes that performance-based compensation should include modest but competitive base salaries and benefitscoupled with significant “at risk” compensation opportunities.  “At risk” compensation should include an annual incentive bonus program to reward near-term performance coupled with equity-based awards to reward long-term performance.

The Company designs its compensation programs to attract, motivate and retain quality managers who will improve long term shareholder value.  Under the Company’s compensation programs, the higher an executive’s level of responsibility, the greater proportion of his compensation will be dependent upon the Company’s performance and the executive’s individual performance and contributions.

Compensation Process

In implementing and administering the Company’s compensation plans, the Committee employs an encompassing analytical approach.  The Committee assesses, as described below, a variety of information, both objective and subjective in nature.  The Committee believes that no formulas or objective measures can fully or adequately take into account the full range of considerations in assessing individual performance or setting compensation.  The Committee’s deliberations therefore are inherently subjective in nature and are influenced by the experience and judgment of its members.

To carry out the Company’s compensation philosophy and to discharge its duties under its charter, the Committee meets after the close of each fiscal year to consider a range of information. This information includes “hard” data relative to the Company’s financial and operating performance scorecard during the year as well as the performance and trading levels of the Company’s common stock.  Additionally, the Company provides the Committee with historical compensation data on each NEO regarding previous salary levels, annual incentive

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awards, and previous equity awards and the current status of such awards.  Other information includes reviews of the Company’s significant accomplishments during the year, the Committee’s view of the individual performance and contributions of each NEO, and Committee members’ individual and collective opinion(s) of the current compensation market for each NEO’s discipline.

The items included in the Company performance scorecard include various financial measurements including performance around revenues, earnings, net operating margin, EBITDA and EBITDA margin, and returns on equity, assets, and invested capital.  Operating measurements include gross profits, gross margins, sales contribution (defined as gross margin less sales expense as a percentage of revenues), operating expense as a percent of revenues, and revenue mix.  The Committee places emphasis on those financial measurements which in its view are of most significance to shareholders, such as return on equity, net operating margins, and growth in revenues.

Additionally, at the Committee’s annual review the CEO makes recommendations for adjustments in base salaries, annual incentive compensation awards, and equity grants.  These recommendations are based on data chosen by the CEO and may include competitive pay data gleaned from public company filings, research performed by a compensation consultant, and the CEO’s evaluation of each executive’s performance, including his own, against goals established for such executives at the beginning of each fiscal year.

The Committee considers all of this information together with its own evaluation of each NEO’s unique capabilities and their past and expected contribution toward the Company’s performance objectives.  The Committee then processes such information through the subjective review and evaluation mentioned above, which it believes is of vital importance to balance the interests of all stakeholders in the process.

Overview of Elements of Executive Compensation

The key elements of NEO compensation are:  base salaries, an annual incentive program, and long term equity compensation.  Additionally, NEO’s may participate in the Company’s standard benefits programs on the same terms as all other employees.  These benefit programs include health and welfare benefits, vacation and sick leave benefits, and a 401(k) retirement savings plan (“401(k) Plan”).  Under the Company’s 401(k) Plan, all employees have the opportunity, but are not required, to invest the Company’s matching contributions in XETA common stock.

The Company does not have employment, severance, or change-of-control agreements with any of its NEO’s.

Base Salary.  The Company pays a base salary to each NEO.  The Committee believes that base salaries should be competitive, but modest for each NEO’s area of responsibility.  The Committee believes that setting modest base salaries, coupled with significant annual and long term incentive compensation opportunities (discussed below), provides a balanced and clear incentive for NEOs to pursue prudent initiatives designed to achieve superior long-term performance.

Base pay is set at the commencement of employment and is reviewed annually for adjustment based on the Committee’s view of changes in market conditions and changes in the NEO’s level of responsibilities.  Base pay is also reviewed for adjustment when an NEO assumes a different executive office or position with the Company during the fiscal year.

Annual Incentive Compensation.  The Company pays an annual incentive bonus to NEOs based on Company profitability and the individual performance of each NEO.  The annual incentive compensation component is an integral part of the Company’s overall compensation philosophy, particularly in relation to the interaction between the annual incentive bonus and base salary.  The annual incentive bonus is intended to be a self-correcting tool that provides robust rewards in conjunction with expanding profit levels and correspondingly constricts executive compensation when profitability narrows.

The annual incentive bonus is paid from an aggregate bonus pool accrued during the year for NEOs and other key non-sales employees of the Company to tangibly recognize the leadership and sacrifice of many of its key employees.   In recent years, due to an extended period of poor industry and Company fundamentals, the amount of this bonus pool was set on a discretionary basis.  This practice continued through fiscal 2007.  At its annual compensation review subsequent to the close of fiscal 2007, the Committee authorized a total bonus pool of $317,000 on a discretionary basis for distribution to key employees.  From this pool, $100,000 was awarded in the form of cash bonuses to the Company’s CEO and CFO.  The remaining $217,000 was awarded to other key non-sales employees, also as cash bonuses.

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Due to the improvement in the financial health and prospects of the Company, beginning in fiscal 2008 the Committee has set a target amount for the total bonus pool to be 10% of the Company’s annual pre-tax, pre-bonus profits.  Additionally, the Committee has set targets to award 50% of the total bonus pool for distribution among the Company’s NEO’s and non-sales executive director and to pay between 33% and 50% of each executive’s annual incentive bonus in restricted stock appreciation rightsawards.  All of these targets are subject to the Committee’s discretion and may be adjusted upward or downward based on a variety of factors including the size of the bonus pool and the NEO’s progress toward his targeted equity ownership (discussed below).

Long-Term Equity Compensation.  The Committee believes that the element of long-term equity compensation should be sufficient to provide NEOs the potential for meaningful wealth creation through stock price appreciation.  This opportunity serves to further motivate NEOs to enhance the value of the stock and more heavily aligns their interests with that of the shareholders.  Additionally, the Committee believes that equity awards can be an effective retention tool and thus grants awards with multi-year vesting periods.  In setting this portion of compensation, the Committee factors in the total number of outstanding equity awards and the expiration periods of each such award, in order to balance the Committee’s goal of promoting equity ownership by executives against the potential dilution which such awards can have upon current and future shareholders.  The Committee has set a general target of maximum potential dilution of 15%, but has not set a restriction on exceeding that level if, in its judgment, conditions warrant.

Traditionally, the Committee has granted equity awards in the form of stock options, typically with three year vesting on a cliff or pro rata basis.  These awards were granted duringfrom time-to-time based on Company performance, dilution considerations, recruiting of new executives, and/or to recognize additional responsibilities assumed by an executive.  Additionally, since the implementation of Financial Accounting Standard 123(R), and up until the Company’s financial performance began to improve in late fiscal 2006.2006, the Committee was reluctant to burden the Company’s already weak operating results with the additional compensation expense required by the new standard.

(1)    AllBeginning in fiscal 2008, the Committee will consider annual grants of long-term equity compensation as part of its comprehensive review of total executive compensation.  In addition to stock options, were granted on October 19, 2006 underthe Committee may consider granting restricted stock or other forms of share-based compensation in the future which are provided for in the Company’s 2004 Omnibus Stock Incentive Plan.  Each such option is exercisable 100% three years fromPlan (the “2004 Omnibus Plan”).

In fiscal 2007, the date of grantCompany’s long time CEO and expires after five years fromsecond largest shareholder stepped down and Mr. Forrest, then serving as the date of grant.  If, after the options are vested, theCompany’s President, was named executive officer: (i) dies or becomes disabled, the option may be exercised for a year from the date of death or disability, or until the original expiration dateCEO.  To promote continuation of the option, whichever occurs first; (b)historically strong alignment between the Company’s officers and its shareholders, the Committee has set equity ownership targets for the positions of CEO, CFO, and Executive Directors as provided below:

Annually, the Committee will monitor each executive’s progress toward achieving these equity targets.  Shares held in the Company’s 401(k) Plan count toward meeting the targets above.  Because this is dismisseda new program for cause, any unexercised options shall be forfeited; (c) leaves the employ of the Company, the Committee has not established timelines for any other reason,achieving these targets.

Material Factors Affecting Executive Compensation in Fiscal 2007 and 2008

Effective December 1, 2006, as a result of its annual review of Company and executive performance, the option mayCommittee approved base salary increases for Mr. Forrest and Mr. Wagner of $20,000 and $15,000, respectively, bringing Mr. Forrest’s annual salary at that time to $185,000 and Mr. Wagner’s to $125,000.  Mr. Forrest’s salary adjustment was made in part to reflect the steady increase over time in his duties and responsibilities since becoming the Company’s President on July 6, 2005, as the Company’s then CEO Jack Ingram began transitioning responsibilities to Mr. Forrest.  The adjustment in Mr. Wagner’s base salary was similarly based in part on his increased span of control in assuming responsibility for the Company’s contact center operations, material logistics, purchasing, and information technology functions.  The December 2006 salary increases for both executives also reflect the Committee’s view that the Company’s CEO and CFO base salaries had ceased to be exercised for three months fromcompetitive.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee of our Board is an officer or employee of the Company.   Mr. Siegenthaler, a non-voting member of the Compensation Committee was formerly an executive vice president of the Company during the 1990s.

No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Compensation Committee.

EXECUTIVE OFFICERS

Our executive officers are as follows:

Mr. Forrest was appointed our Chief Executive Officer on June 7, 2007.  He has been our President since July 2005 and also served as our Chief Operating Officer from July 2005 until he became CEO.  Previously he was Director of Sales over our Seattle branch sales and service operations.  Mr. Forrest joined XETA in August 2004 upon our acquisition of Bluejack Systems, LLC, a company which he founded, owned and served as CEO.  Prior to founding Bluejack, Mr. Forrest founded and operated several fast-growing companies in the communications, clothing and commercial interior industries.

        Mr. Wagner joined us in July 1988 as Chief Accounting Officer and became our Chief Financial Officer in March 1989.  He assumed the duties of Executive Director of Operations on January 2, 2007.  He was a member of our Board of Directors from March 1996 until April 2004.  Mr. Wagner is a certified public accountant licensed in Oklahoma and received his bachelor of science degree in accounting from Oklahoma State University.

EXECUTIVE COMPENSATION

Summary Compensation Table

        The following table presents information regarding compensation of each of the Company’s named executive officers for services rendered in fiscal 2007.

(1)                            The expense for options awards above was computed in accordance with Statement of Financial Accounting Standards No. 123R (“SFAS 123R”).  For a discussion on the assumptions and methodologies used to value the option awards granted in fiscal 2007, please see the discussion in the “Grants of Plan-based Awards” table presented below.

(2)                            The following table provides detail for the aggregate amount under “All Other Compensation” for each of the executive officers:

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(a)The Company paid for landscaping valued at $10,230 at Mr. Forrest’s private residence to enable the Company to hold a series of customer marketing and investor relations events at his home during the 2007 PGA Championship.  The value of the landscaping was based on the amount paid by the Company to the vendor.  Subsequent to the PGA event, the Company purchased certain catering and entertaining supplies from Mr. Forrest for use by the Company at similar events in the future.  The personal benefit received by Mr. Forrest from use of these items is included in this column and valued at 10% of the original cost paid to vendors for the supplies as evidenced by receipts.   The last component of this column is an amount the Company reimbursed Mr. Forrest for professional services provided to him by his personal accountant.

(3)                            Mr. Ingram was our CEO until he resigned on June 7, 2007.  Prior to his resignation, Mr. Ingram’s annual base salary was $120,000.

Grants of Plan-Based Awards

                The following table presents information regarding the incentive awards granted to the Company’s named executive officers during fiscal year 2007.

(a)The Company’s non-equity and equity incentive award plans are described under “Elements of Executive Compensation” in the Compensation Discussion and Analysis above.  On December 1, 2006, the Compensation Committee granted cash bonuses to Mr. Forrest, Mr. Ingram, and Mr. Wagner of $20,000 each.  These bonuses were distributed in quarterly installments in January, April, July, and October of 2007.

(b)The grant date fair value was calculated using the Black Scholes valuation method.  In computing the fair value, the Company used an expected option life of 6½ years, a risk free rate of return of 4.725%, an expected volatility of 74%, and a dividend yield of 0%.  No turnover was assumed in calculating the fair value of shares granted to the named executive officers.  The expected option life was based on the Company’s experience that NEO’s generally hold options until near their expiration date.

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Outstanding Option Awards at Fiscal 2007 Year-End

                The following table presents information regarding the outstanding equity awards held by each of the named executive officers as of October 31, 2007.

(1)These awards vest in one installment on October 19, 2009.

(2)These awards vest in one installment on January 5, 2011.

COMPENSATION OF DIRECTORS

We changed the composition of director compensation during fiscal 2007 when we separated the roles of Chairman of the Board and Chief Executive Officer as of July 1, 2007.  Since then, the standard annual fee paid to non–employee directors for their services is $25,000.  The Chairman of the Board receives an additional annual fee of $55,000 and committee chairmen receive an additional annual fee of $16,000 for each chairmanship.  Presently Mr. Duke serves as chairman of the Audit and Compensation committees, but has waived the fee for these services.  Prior to July 2007, our directors received an annual fee of $9,600 for board membership, $8,000 annually for committee service, and $16,000 annually for chairing a committee.  All fees are paid monthly.  We also reimburse our non-local directors their reasonable travel expenses to attend Board and Committee meetings and the annual shareholder meeting.

It has also been the Company’s practice on occasion to grant stock options to its outside directors, typically upon their election or appointment to the Board.  Options (noted in the table below) were granted during fiscal 2007 to Mr. Keller upon his election to the Board and to Mr. Duke upon his appointment as Chairman of the Board.

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The following table presents information regarding the compensation of non-executive directors during fiscal 2007.

(1)                      Upon his appointment as non-executive Chairman of the Board, Mr. Duke was awarded options for 25,000 shares of common stock which vest in two equal installments on July 2, 2008 and 2009, respectively.  Mr. Duke’s option was granted at the strike price of $3.25 per share, the market value of the stock at the time of grant and expires on July 5, 2014.  The dollar amount shown reflects the total option-related expense recognized for financial reporting purposes for the fiscal year ended October 31, 2007 in accordance with Statement of Financial Accounting Standards No. 123R (“SFAS 123R”), assuming no forfeitures.

(2)                      Upon his election to the Board at the annual meeting on April 3, 2007, Mr. Keller was granted an option for 10,000 shares of common stock vesting on April 5, 2010.  Mr. Keller’s option was granted at the strike price of $3.12, the market value of the stock at the time of grant and expires on April 5, 2012.  The dollar amount shown reflects the total option-related expense recognized for financial reporting purposes for the fiscal year ended October 31, 2007 in accordance with Statement of Financial Accounting Standards No. 123R (“SFAS 123R”), assuming no forfeitures.

(3)                      Prior to July 2007, Mr. Barber received an annual fee of $15,000, paid monthly, to serve as an adviser  to the audit committee.

(4)                      Effective July 1, 2007, Mr. Siegenthaler was appointed as a special liaison between the Board and the Company’s executive officers and management.  Mr. Siegenthaler is responsible to the Board for engaging with management and employees on behalf of the Board as appropriate, in all areas of the Company’s operations. Mr. Siegenthaler receives an annual fee of $25,000, paid monthly, to serve in this capacity.

RELATED TRANSACTIONS

Mr. Barber is a principal shareholder in the law firm of Barber & Bartz, a Professional Corporation, which serves as outside general counsel to the Company.  During the fiscal year ended October 31, 2007, the Company paid legal fees to Barber & Bartz in the approximate amount of $133,165.  Mr. Barber was also paid $10,795 during the fiscal year for serving in an advisory role to the Audit Committee.

Related Transactions Policy.  We have adopted a written policy for the approval or ratification of “related person transactions.”  For purposes of our policy, related person transactions include any transaction, arrangement or relationship expected to exceed $120,000 in any calendar year which involves the Company and any officer, director, director nominee, or persons who own in excess of 5% of the Company’s stock, or any of their respective family members.  The policy requires officers and directors to annually complete a Company questionnaire designed to elicit information about potential related person transactions.  Under the Company’s Corporate Code of Conduct

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applicable to all officers and directors, such persons have a duty to disclose potential conflicts of interest to the Company’s Chief Executive or Chief Financial Officer or to the Board.  When related person transactions or potential transactions are identified by these or any other method, they are referred for review to the Nominating and Governance Committee if the transaction involves a director, or to the Audit Committee in all other cases.

The policy requires the appropriate Committee to take into account the extent of the related person’s interest in the transaction; the benefits of the transaction to the Company; whether the terms of the transaction are no less favorable than could be obtained in arm’s–length dealings with an unrelated third party under similar circumstances; the aggregate value of the transaction; whether the transaction involves a conflict of interest; the impact the transaction could have on the independence of a director if it involves a director or an immediate family member of the director; as well as any other factors that the Committee deems appropriate to its review.

On-going related person transactions are subject to annual review under the policy.  The policy also provides standing pre-approvals for the following transactions:

·compensation paid to an officer or director if approved by the Compensation Committee;

·grants of equity awards to any executive officer or director if made under the Company’s existing equity plans or future plans that receive shareholder approval;

·interests that arise solely from participation in a Company employee benefit plan that is maintained for the general benefit of all Company employees;

·interests that arise solely from stock ownership if all other owners benefit pro rata; and

·any transaction with another company if the related person’s only relationship with that company is as a non-officer employee, director or owner of less than 10% of that company.

PROPOSAL 2

INDEPENDENT PUBLIC ACCOUNTANTS

The Audit Committee has selected Tullius Taylor Sartain & Sartain LLP (“TTSS”) as the independent public accountants to perform an integrated audit of the Company’s financial statements for the fiscal year ending October 31, 2007.  Representatives of TTSS are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and to respond to appropriate questions.  While ratification of the Company’s selection of accountants by the Company’s shareholders is not required, in the event of a negative vote on such ratification, the Company’s Audit Committee will reconsider its selection.  Even if the selection is ratified, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that such change would be in the best interests of the Company and its shareholders.  TTSS audited the Company’s financial statements for the fiscal years ended October 31, 20062007 and 2005.2006.

The Board of Directors unanimously recommends that shareholders vote “FOR” the appointment of Tullius Taylor Sartain & Sartain LLP as the Company’s independent public accountants.

Recommendation

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPOINTMENT OF TULLIUS TAYLOR SARTAIN & SARTAIN LLP AS THE COMPANY’S INDEPENDENT PUBLIC ACCOUNTANTS.

Audit Fees and IndependenceServices

The following table sets forth the fees for professional services rendered during fiscal 20062007 and fiscal 20052006 by the Company’s registered public accounting firm, Tullius Taylor Sartain & Sartain:Sartain LLP:

(1)           Includes fees for services related to the 2005 audit and to review theof our annual financial statements included inand review of our quarterly reports on Form 10–Q, as well as services that are normally provided by the Company’s Form 10-Qs for the 2nd and 3rd quarters of fiscal 2005.  Review of the Company’s Form 10-Q for the 1st quarter of fiscal 2005 was performed by its formerindependent registered public accounting firm Grant Thornton LLP.  The Company paid Grant Thornton $12,075 for these services.in connection with statutory and regulatory filings or engagements and services that generally only the independent registered public accounting firm can reasonably provide, such as comfort letters,

statutory audits, attest services, consents and assistance with and review of documents filed with the SEC.

(2)           Relates to the audit of the Company’s 401(k) retirement plan.

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applicable to all officers and directors, such persons have a duty to disclose potential conflicts of interest to the Company’s Chief Executive or Chief Financial Officer or to the Board.  When related person transactions or potential transactions are identified by these or any other method, they are referred for review to the Nominating and Governance Committee if the transaction involves a director, or to the Audit Committee in all other cases.

The policy requires the appropriate Committee to take into account the extent of the related person’s interest in the transaction; the benefits of the transaction to the Company; whether the terms of the transaction are no less favorable than could be obtained in arm’s–length dealings with an unrelated third party under similar circumstances; the aggregate value of the transaction; whether the transaction involves a conflict of interest; the impact the transaction could have on the independence of a director if it involves a director or an immediate family member of the director; as well as any other factors that the Committee deems appropriate to its review.

On-going related person transactions are subject to annual review under the policy.  The policy also provides standing pre-approvals for the following transactions:

·compensation paid to an officer or director if approved by the Compensation Committee;

·grants of equity awards to any executive officer or director if made under the Company’s existing equity plans or future plans that receive shareholder approval;

·interests that arise solely from participation in a Company employee benefit plan that is maintained for the general benefit of all Company employees;

·interests that arise solely from stock ownership if all other owners benefit pro rata; and

·any transaction with another company if the related person’s only relationship with that company is as a non-officer employee, director or owner of less than 10% of that company.

PROPOSAL 2

INDEPENDENT PUBLIC ACCOUNTANTS

The Audit Committee has selected Tullius Taylor Sartain & Sartain LLP (“TTSS”) as the independent public accountants to perform an integrated audit of the Company’s financial statements for the fiscal year ending October 31, 2007.  Representatives of TTSS are expected to be present at the Annual Meeting with the independent auditorsopportunity to make a statement if they desire to do so and to respond to appropriate questions.  While ratification of the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended,Company’s selection of accountants by the Auditing Standards BoardCompany’s shareholders is not required, in the event of a negative vote on such ratification, the Company’s Audit Committee will reconsider its selection.  Even if the selection is ratified, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that such change would be in the best interests of the American Institute of Certified Public Accountants.Company and its shareholders.  TTSS audited the Company’s financial statements for the fiscal years ended October 31, 2007 and 2006.

We have received and reviewed the written disclosures and the letter from the independent auditors required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended, by the Independence Standards Board, and have discussed with the auditors the auditors’ independence.

Based on the reviews and discussions referred to above, we recommend to theThe Board of Directors unanimously recommends that shareholders vote “FOR” the financial statements referred to above be included inappointment of Tullius Taylor Sartain & Sartain LLP as the Company’s Annual Report on Form 10-K for the year ended October 31, 2006independent public accountants.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAudit Fees and Services

The following table sets forth certain information known to the Company as of February 9,fees for professional services rendered during fiscal 2007 regarding beneficial ownership ofand fiscal 2006 by the Company’s Common Stock, par value $.001 per share, by (a) each person knownregistered public accounting firm, Tullius Taylor Sartain & Sartain LLP:

(1)Includes audit of our annual financial statements and review of our quarterly reports on Form 10–Q, as well as services that are normally provided by the Company to own more than five percent (5%)Company’s independent registered public accounting firm in connection with statutory and regulatory filings or engagements and services that generally only the independent registered public accounting firm can reasonably provide, such as comfort letters,

statutory audits, attest services, consents and assistance with and review of documents filed with the Company’s Common Stock, (b) each director and nominee for election as a director of the Company, (c) each executive officer named in the Summary Compensation Table, and (d) all directors and executive officers of the Company as a group.SEC.

*Less than one percent of the shares outstanding.

(1)                      Address is that of the Company’s principal office at 1814 W. Tacoma Street, Broken Arrow, Oklahoma 74012 unless otherwise indicated.

(2)           Except as indicated inRelates to the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to community property laws where applicable.  The numberaudit of shares beneficially owned includes the number of shares of Common Stock that such persons presently have the right to acquire pursuant to unexercised options under the Company’s stock option plans, as follows:  13,000 shares for Mr. Siegenthaler; 35,000 shares for Mr. Ingram; 125,000 shares for Mr. Patterson; 13,000 shares for Mr. Barber; 63,000 shares for Mr. Wagner; 13,000 shares for Dr. Hisrich; 17,000 shares for Mr. Duke; and 279,000 shares for all directors and executive officers as a group (8 persons).

(3)                      Includes 129,000 shares held by Mr. Siegenthaler’s wife’s trust.

(4)                   Includes 10,000 shares held by Mr. Ingram’s wife.  Of the total shares shown as beneficially owned by him, Mr. Ingram shares voting power over 997,579 shares with his wife.

(5)                   Includes 9,324 shares, the equivalent number of shares held as units for Mr. Patterson’s account by the Company’s 401(k) retirement plan, over which Mr. Pattersonplan.

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applicable to all officers and directors, such persons have a duty to disclose potential conflicts of interest to the Company’s Chief Executive or Chief Financial Officer or to the Board.  When related person transactions or potential transactions are identified by these or any other method, they are referred for review to the Nominating and Governance Committee if the transaction involves a director, or to the Audit Committee in all other cases.

The policy requires the appropriate Committee to take into account the extent of the related person’s interest in the transaction; the benefits of the transaction to the Company; whether the terms of the transaction are no less favorable than could be obtained in arm’s–length dealings with an unrelated third party under similar circumstances; the aggregate value of the transaction; whether the transaction involves a conflict of interest; the impact the transaction could have on the independence of a director if it involves a director or an immediate family member of the director; as well as any other factors that the Committee deems appropriate to its review.

On-going related person transactions are subject to annual review under the policy.  The policy also provides standing pre-approvals for the following transactions:

·compensation paid to an officer or director if approved by the Compensation Committees.Committee;

·grants of equity awards to any executive officer or director if made under the Company’s existing equity plans or future plans that receive shareholder approval;

·interests that arise solely from participation in a Company employee benefit plan that is maintained for the general benefit of all Company employees;

·interests that arise solely from stock ownership if all other owners benefit pro rata; and

·any transaction with another company if the related person’s only relationship with that company is as a non-officer employee, director or owner of less than 10% of that company.

PROPOSAL 2

INDEPENDENT PUBLIC ACCOUNTANTS

The Audit Committee has selected Tullius Taylor Sartain & Sartain LLP (“TTSS”) as the independent public accountants to perform an integrated audit of the Company’s financial statements for the fiscal year ending October 31, 2007.  Representatives of TTSS are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and to respond to appropriate questions.  While ratification of the Company’s selection of accountants by the Company’s shareholders is not required, in the event of a negative vote on such ratification, the Company’s Audit Committee will reconsider its selection.  Even if the selection is ratified, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that such change would be in the best interests of the Company and its shareholders.  TTSS audited the Company’s financial statements for the fiscal years ended October 31, 2007 and 2006.

The Board of Directors unanimously recommends that shareholders vote “FOR” the appointment of Tullius Taylor Sartain & Sartain LLP as the Company’s independent public accountants.

Audit Fees and Services

The following table sets forth the fees for professional services rendered during fiscal 2007 and fiscal 2006 by the Company’s registered public accounting firm, Tullius Taylor Sartain & Sartain LLP:

A son(1)Includes audit of CEOour annual financial statements and review of our quarterly reports on Form 10–Q, as well as services that are normally provided by the Company’s independent registered public accounting firm in connection with statutory and regulatory filings or engagements and services that generally only the independent registered public accounting firm can reasonably provide, such as comfort letters,

statutory audits, attest services, consents and assistance with and review of documents filed with the SEC.

(2)Relates to the audit of the Company’s 401(k) retirement plan.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company as of February 14, 2008 regarding beneficial ownership of the Company’s Common Stock, par value $.001 per share, by (a) each person known by the Company to own more than five percent (5%) of the Company’s Common Stock, (b) each director Jack Ingram is employed byand nominee for election as a director of the Company, (c) each executive officer named in the Summary Compensation Table, and (d) all directors and executive officers of the Company as a sales representative, and a son of director Ron Siegenthaler is employed by the Company as a sales representative.  Both receive a base salary and commissions in accordance with the Company’s standard compensation plan for all sales representatives in their respective lines of business.  During fiscal 2006 Mr. Ingram’s son received a total of $183,000 in base salary and commissions and Mr. Siegenthaler’s son received a total of $119,000 in base salary and commissions.  Both of these individuals were among the Company’s top ten sales representatives for the fiscal year.  All payments made by the Company to them were made in the ordinary course of business.  Neither the CEO nor the director has a material interest in these transactions, nor does either of them share a household with these employees.  Neither of these employees is an executive officergroup.

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*Less than one percent of the shares outstanding.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’sour directors and executive officers and holders ofpersons who hold more than ten percent (10%) of our stock, to report their initial ownership and any subsequent changes in ownership of our stock to the SEC.  SEC regulations impose specific deadlines for filing these reports and we are required to disclose in this proxy statement any failure to comply with these regulations.  Based on our review of these filings and the written representations of our directors, executive officers and 10% shareholders, we believe that during fiscal 2007, our directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements, with these exceptions:.  Two reports on Form 4, each reporting a single transaction for Ed Keller, were filed one day late.

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