Mail Stop 0407
March 15, 2005
Via U.S. Mail and Fax
Mr. Robert B. Wagner
Chief Financial Officer
XETA Technologies, Inc.
1814 W. Tacoma
Broken Arrow, OK 74012-1406
RE: XETA Technologies, Inc.
Form 10-K for the fiscal year ended October 31, 2004
Filed January 19, 2005
Form 10-Q for the quarter ended January 31, 2005
File No. 000-16231
Dear Mr. Wagner:
We have reviewed the above referenced filings and have the
following comments. We have limited our review to only your
financial statements and related disclosures and will make no
further
review of your documents. As such, all persons who are
responsible
for the adequacy and accuracy of the disclosure are urged to be
certain that they have included all information required pursuant
to
the Securities Exchange Act of 1934. Please address the following
comments in future filings. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a future
revision is unnecessary. Please be as detailed as necessary in
your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the year ended October 31, 2004
Item 7. Management`s Discussion and Analysis
Application of Critical Accounting Policies
Goodwill and Other Long-lived Assets, page 19
1. We note your statement that you conduct your annual goodwill
impairment reviews immediately after the completion of the fiscal
year. In future filings, clarify the date at which you perform
your
goodwill impairment test. Is it performed as of the end of each
fiscal year or the beginning of the subsequent fiscal year?
2. Tell us how many reporting units you have and how you
identified
these reporting units under the guidance in SFAS 142.
3. Describe for us in more detail how you determine the fair value
of
your reporting units in performing the first step of your goodwill
impairment test. Tell us why you subtracted bank debt from your
net
discounted cash flows in arriving at the fair value of the
reporting
units. Clarify for us how you have defined bank debt and whether
this amount includes only principal payments or principal and
interest? How have you allocated bank debt to each reporting
unit?
Note 1 - Business and Summary of Significant Accounting Policies
Segment Information, page F-9
4. We note that you have three reportable segments. If you have
aggregated several operating segments into one reportable segment,
tell us how you determined that you met the criteria for
aggregation
in paragraph 17 of SFAS 131, including the requirement that the
segments have similar economic characteristics.
Note 8 - Credit Agreements, page F-16
5. We note your statement that, at October 31, 2004, you were
either
in compliance with the covenants of the credit facility or had
received the appropriate waivers from your bank. Clarify this
statement and tell us how you applied the guidance in SFAS 78 and
EITF 86-30 in determining that classification of the debt as non-
current was appropriate.
Note 15 - Contingencies
Litigation, page F-21
6. You disclose that you have a loss contingency recorded related
to
the litigation brought about by the Software & Information
Industry
Association. Tell us and disclose, in future filings, the amount
of
the accrued contingency and where it is recorded on your balance
sheet. In addition, we note at page 14 that you accrued a
contingent
liability in 2003 and partially reversed the contingency in 2004.
Tell us and disclose the amounts of the original accrual and
subsequent reversal.
Item 9A. Controls and Procedures, page 26
7. We note the conclusions of your CEO and CFO about the
effectiveness of the company`s disclosure controls and procedures.
As currently drafted, those conclusions do not focus on the entire
scope of disclosure controls and procedures, found in Rule 13a-
15(e)
under the Securities Exchange Act of 1934. Your statement does
not
indicate whether your disclosure controls and procedures were
effective, as of December 31, 2003, to ensure that material
information was communicated to the CEO and CFO "as appropriate to
allow timely decisions" about required disclosure. Please
supplementally confirm that your disclosure controls and
procedures
were effective to ensure this. Alternatively, you may simply
conclude that the company`s disclosure controls and procedures
were
effective. This comment is also addressed to your Form 10-Q for
the
quarter ended January 31, 2005. In addition, please comply with
this
comment in all future periodic reports.
8. Please note that Item 308(c) requests disclosure of any changes
(not just significant changes) in a company`s internal control
over
financial reporting occurring during the last quarter (not
subsequent
to the date of the evaluation) that have materially affected (not
significantly affected), or are reasonably likely to materially
affect, the company`s internal control over financial reporting.
Please supplementally confirm that there were no changes in your
internal controls over financial reporting that materially
affected,
or were reasonably likely to materially affect, the company`s
internal control over financial reporting. This comment is also
addressed to your Form 10-Q for the quarter ended January 31,
2005.
In addition, please comply with this comment in all future
periodic
reports.
* * * *
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Please furnish
a
letter that keys your responses to our comments and provides any
requested supplemental information. Please file your response
letter
on EDGAR.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filings; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filings or
in
response to our comments on your filings.
You may contact Adam Washecka, Staff Accountant, at (202)
824-
5569 or Melissa Hauber, Senior Staff Accountant, at (202) 942-2858
if
you have questions regarding comments on the financial statements
and
related matters. Please contact me at (202) 942-1990 with any
other
questions.
Sincerely,
Larry Spirgel
Assistant Director
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Mr. Robert B. Wagner
XETA Technologies, Inc.
March 15, 2005
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