UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

               |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2002

                                       OR

             |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

             For the transition period from __________ to __________

                         COMMISSION FILE NUMBER: 0-27106

                                  VISEON, INC.
                          (FORMERLY RSI SYSTEMS, INC.)
                          ----------------------------
                 (Name of small business issuer in its charter)

                    NEVADA                              41-1767211
                    ------                              ----------
        (State or other jurisdiction of                (IRS Employer
        incorporation or organization)              Identification No.)

                    545 E. JOHN CARPENTER FREEWAY, SUITE 1430
                               DALLAS, TEXAS 75062
                               -------------------
              (Address of principal executive offices and zip code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214-424-5700)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  COMMON STOCK,
                                                             $.01 PAR VALUE

Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes |X| No |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB for any
amendment to this Form 10-KSB. | |

The Company's revenues for its most recent fiscal year were $7,452,346.

On October 11, 2002, the Company had 14,842,398 shares of common stock, $.01 par
value, outstanding, and the aggregate market value of the common stock as of
that date (based on the average of the closing bid and asked prices as of that
date as reported by the OTC Bulletin Board System), excluding outstanding shares
beneficially owned by directors and officers, was approximately $9,078,092

                    DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes ___; No _X_

<PAGE>


                                     PART I

CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE THE
COMPANY'S ACTUAL RESULTS TO DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING
STATEMENTS

         In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document and any
document incorporated by reference herein, are advised that this document and
documents incorporated by reference into this document contain both statements
of historical facts and forward looking statements. Forward looking statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially from those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earnings or loss per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements and statements about the
Company or its business.

         This document and any documents incorporated by reference herein also
identify important factors which could cause actual results to differ materially
from those indicated by the forward looking statements. These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products, customer acceptance of products and services, and
other factors which are described herein and/or in documents incorporated by
reference herein.

         The cautionary statements made pursuant to the Private Litigation
Securities Reform Act of 1995 above and elsewhere by the Company should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of such Act. Forward
looking statements are beyond the ability of the Company to control and in many
cases the Company cannot predict what factors would cause results to differ
materially from those indicated by the forward looking statements.

ITEM 1.     DESCRIPTION OF BUSINESS.

(a)      BUSINESS DEVELOPMENT

            Viseon, Inc., a Nevada corporation, formerly RSI Systems, Inc. is a
visual communication sales, service and manufacturing organization. Viseon,
Inc., (the "Company" or "Viseon"), designs, manufactures and sells high
performance, business quality videoconferencing systems, services and
accessories throughout a direct and indirect sales network including resellers,
distributors and OEM or private label partners. In May 2001, the former RSI
Systems, Inc. was merged into its wholly owned subsidiary Viseon, Inc. in order
to change the domicile of the Company to Nevada and to effect a simultaneous
name change to Viseon, Inc. The Plan of Merger between RSI Systems, Inc. and
Viseon, Inc. was approved by the shareholders of RSI Systems, Inc. on May 23,
2001.

            The Company's fourth-generation video conferencing product family,
the MediaPro 384(R) (MediaPro(R), MediaPro 384(R)) system, is available for sale
worldwide. This system provides near television quality video and audio via a
miniaturized, self-contained free-standing device which is fully industry
standards based and is sold in three different configurations: laptop, dual
platform and multipoint. The Company was granted and owns United States Patent
Numbers 5,802,281, 6,073,192, and 6,397,275 and has others pending.

            The former RSI Systems, Inc. was incorporated under the laws of
Minnesota on December 21, 1993. Its founders developed a self-contained desktop
videoconferencing device for connection to personal computers and Apple
Macintosh systems. On July 25, 1995, the Company completed its initial public
offering of its common stock, par value $0.01 per share (the "Common Stock").
With the net proceeds from the public offering, including proceeds from the
exercise of the underwriter's overall allotment option (approximately
$7,400,000), the Company funded further research and development related to the
enhancement of the original product. By June 1996, the target market for this
product had not developed and the product had not achieved its price performance
objectives.

            In July 1996, the Company redirected its efforts away from the
computer-based desktop videoconferencing systems marketplace and towards the
emerging workgroup and set top television-based market. Subsequently, the
Company designed a second-generation system, the Video Flyer, that created a new
level of video, audio and price performance without the need for interfacing to
any type of computer system. Deemed a COMPUTER-FREE SYSTEM, the original Video
Flyer evolved into the Video Flyer Plus product line of videoconferencing
engines with enhanced features and functionality.

<PAGE>


            In September 1996, to fund the development and marketing of its
videoconferencing products, the Company completed a private placement of
1,500,000 shares of its Common Stock resulting in net proceeds to the Company of
approximately $3,943,000. In January 1998, to provide additional funds for
expanded marketing, distribution, product development and general corporate
purposes, the Company completed the private placement of 1,671,255 shares of its
Common Stock resulting in net proceeds of approximately $2,523,000.

            In the fall of 1998, the Company began development of a new
videoconferencing engine. The Company's MediaPro 384 system, introduced in June
1999, is a cross-platform, multimedia videoconferencing engine, capable of
operating either with or without a host computer or laptop, and displaying
through a variety of output devices.

            In February of 2001, the Company entered into several agreements to
better position itself for the changing videoconferencing marketplace. These
agreements consisted of a Stock Purchase Agreement between the Company and
Digital Investors, LLC, a Management Agreement with Active Management, LLC and a
Marketing Agreement between the Company and RSI Marketing, LLC.

            In April of 2001, The Company purchased the assets of King Research,
LLC, which consisted primarily of the intellectual property and software
necessary to manufacture, sell and distribute the Automatic Line Routing Switch
(ALRS). The ALRS allows one pair of network connections (either ISDN, PRI, BRI,
T-1, IP or POTS) to serve up to 4 rooms per switch. If more than 4 rooms need to
be pre-wired, a standard loop port on the ALRS allows for switches to be
cascaded as needed.

            In May of 2001, the Company entered into a non-exclusive agreement
to sell and distribute the Sony Electronics, Inc. videoconferencing product line
to customers in the United States.

            In June of 2001, the Company entered into an agreement with Polycom,
Inc. whereby it can sell and distribute the Polycom, Inc. videoconferencing
product line globally through its North American sales channel and European
subsidiary and Asian sales office.

            In August of 2001, the Company completed the move of its
headquarters to Dallas, TX. from Minneapolis, MN.

            In March of 2002, the Company began investigating ways to to sell
videoconferencing products to the United States Consumer market. These
investigations included market research of the U.S. Broadband Consumer market
and analysis of other manufacturers of videoconferencing products that could be
utilized to meet anticipated consumer demand.

            In May of 2002, the Company was issued Patent 6,397,275 which
relates to the Company's designs for its consumer videophone product. The
Company also met with several cable multiple system operators (MSO's) regarding
sales and marketing of its new product to residential consumers.

            In June of 2002, the Company began developing plans to launch a new
videophone product designed for the U.S. residential consumer market. This
product would provide for video communications to be performed by utilizing
existing broadband networks in the United States and Canada including Digital
Subscriber Lines (DSL) and Cable Modem Internet access.

            In October of 2002, the Company's wholly-owned subsidiary Viseon
PVT, Inc. which was incorporated in September 2002 entered into an exclusive
agreement with Leadtek Research, Inc. that calls for Leadtek Research, Inc. to
provide videophone products to the Company for sale in the United States and
Canada. This contract requires the Company to purchase certain minimum
quantities of product to be purchased quarterly to continue to maintain its
exclusivity. Included in this agreement was the Company's agreement not to
pursue any patent litigation against Leadtek Research, Inc. throughout the term
of the exclusive distribution and OEM agreement.


OVERVIEW OF THE MARKETPLACE

            Various forms of videoconferencing equipment have been introduced to
the global marketplace during the past 20 years. Initial system offerings were
very expensive (over $100,000) and sold primarily as a method to reduce travel
expense or conduct distance meetings between large groups of individuals. Use of
these systems was primarily by large corporations, governments and universities.

            With the establishment of industry standards promulgated for video
communications by the International Telecommunications Union (ITU) in the early
1990s and the availability of lower cost electronic components, marketplace
sales began to accelerate. Since then, enhanced, user-friendly products and
lower prices throughout the marketplace have increased the applications for
videoconferencing systems, creating distinct product segments.

            The videoconferencing equipment marketplace continued to evolve in
fiscal year 2002, with a clear continued shift toward high quality, reasonably
priced systems, which incorporate expanded capabilities and functionality. This
shift has continued to create expanding opportunities and challenges for the
Company, in what is believed to be an overall corporate videoconferencing


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<PAGE>


hardware market of approximately $1.0 billion worldwide. A recent report from
Frost and Sullivan said the U.S. Videoconferencing hardware revenues may climb
to $5 billion by 2007.

            The market is generally recognized as having the following
segmentation:

            (1)   Consumer Systems. These systems are now available in two
                  categories. One that is generally inexpensive, operates on
                  standard telephone lines and provides minimal levels of
                  picture quality and audio performance. List pricing for these
                  systems currently ranges from $100 to $500. The second
                  category is now recognized as a Broadband Videophone. It
                  operates on broadband transmission lines which are considered
                  to be either Digital Subscriber Lines (DSL) or via Cable Modem
                  access to the Internet. The Company's new Broadband Videophone
                  offers a higher resolution picture and audio quality that is
                  generally in the same quality range as former
                  Set-top/Workgroup Videoconferencing Systems. List pricing for
                  this system is still being evaluated but is currently set at
                  $1,295.

            (2)   Desktop PC Based Systems. These systems consist of electronic
                  components or devices being added to existing desktop personal
                  computers. Available from a variety of different
                  manufacturers, product performance varies widely. Pricing of
                  these systems is based upon system requirements,
                  functionality, and upgradability also varies widely and ranges
                  from less than $1,000 to $6,000.

            (3)   Set top/Workgroup Videoconferencing Systems. The Company was
                  one of the first manufacturers to enter this marketplace. The
                  Company's MediaPro 384(R)product is targeted at this market
                  segment. The systems in this market segment generally attach
                  to high quality brand name televisions or other displays to
                  provide medium to excellent video and audio performance at
                  price points ranging from $3,000 to $25,000. Systems provided
                  by manufacturers in this market segment are interoperable
                  between each other, thus allowing for rapid expansion of use
                  and cross-platform compatibility. This is similar to facsimile
                  machine standardization in the late 1980s to allow for rapid
                  expansion of the marketplace regardless of the product brand.

            (4)   Permanent Room Systems. With the improvement in quality of set
                  top/workgroup systems, this market segment is not growing as
                  rapidly as it once was, but many permanent rooms are
                  undergoing refurbishment. Permanent room systems are intended
                  to provide a high level of consistent operation for both audio
                  and video signals. Prices for full room systems are typically
                  in the $50,000 and up category, excluding installation.

            New capabilities and features will be introduced that will encourage
more demand in the marketplace. The Company believes that the residential
Consumer segment utilizing Broadband Internet Protocol will become one of the
fastest growing segments of the video communications industry.


(b)      BUSINESS OF THE COMPANY

PRODUCTS

MEDIAPRO 384.

            In June 1999, the Company introduced its fourth-generation product,
the MediaPro 384 product family, which is aimed primarily at the
workgroup/workgroup market segment. The MediaPro 384 product family is a 128 to
384 Kbps ISDN product that builds upon the strengths of the Company's previous
generation products and added several additional enhancements. The MediaPro 384
product family is available in three configurations and each configuration is
available with a variety of different network interfaces such as ISDN BRI and
V.35. All MediaPro 384 systems can accept additional software features and
upgrades to allow the products to continue to meet the demands of a continuously
changing market. The Company may charge a fee for new, substantial, software
features that it develops. The software updates are received by making a
telephone call to the Company's software server and downloading the software
into the unit to be updated.

            Price points for the MediaPro 384 product line are targeted for the
ISDN only videoconferencing marketplace. The Company has initiated development
on a new option for the MediaPro that will incorporate Internet protocol (IP) as
an optional communication method.

            The Company may attempt to sell this portion of its business given
the new focus on consumer Broadband Videophones.


AUTOMATIC LINE ROUTING SWITCH (ALRS).

            In April 2001, the Company acquired the Automatic Line Routing
Switch (ALRS) product line from King Research, LLC. This product family allows


                                       3
<PAGE>


for videoconferencing rooms to be pre-wired with either one or two category five
cables and then automatically transfer the appropriate telephone, ISDN, POTS and
Ethernet Network lines to the appropriate room based upon the current location
of the shared videoconferencing system. The Company sells this product line
worldwide, both through its distributors and resellers, as well as direct to
end-users.

            Price points for the ALRS products are targeted to justify
installing this equipment rather than install additional lines into each
conference room and purchase videoconferencing systems for each.

            The ALRS is available in 3 different configurations:

                  ACE - This unit will allow 3 BRI U Interface Type Lines or
                  T1-PRI Line to be shared between multiple conference rooms.

                  Eagle - This unit will allow up to 4 BRI U, Analog (POTS) and
                  Ethernet lines or 3 BRI ST Interface Type lines to be shared
                  between multiple rooms.

                  Eagle II - This unit will allow up to 4 BRI ST Interface Type
                  Lines, Analog (POTS) and Ethernet lines to be shared between
                  multiple rooms.

The Company is currently marketing the ALRS business to other companies in order
to focus its efforts on its new consumer broadband videophone initiative.

SERVICE AND SUPPORT

            The Company provides its customers with a single source for video
products and services that assist them with systems procurement and integration,
maintenance and operation of their video conferencing systems. It provides a
comprehensive suite of video and network services including integration, on-site
technical assistance, customized training, and maintenance. The Company
configures single or multi-vendor video and data conferencing platforms for our
clients and integrates systems and components into a complete solution designed
to suit each customer's particular communications requirements.

            Once the Company evaluates a customer's video conferencing
requirements, it delivers, installs and tests the communications equipment. When
the system is functional, the Company can provide training to all levels of our
customer's organization, including executives, managers, management information
systems and telecom administrators, technical staff and end users. Training
includes instruction in system operation as well as the planning and
administration of meetings. By means of thorough training, the Company helps to
ensure that it's customers understand the functionality of the systems and are
able to apply the technology effectively.

            The Company's maintenance programs cover a customer's entire video
communications system deployment for an annual fee. The maintenance programs
have many options that can include installation and maintenance service that
provides comprehensive customer support after the sale and helps to ensure that
its customers experience reliable, effortless video communications. The
Company's installation service reduces the overall cost of implementation by
reducing the burden on its customers' resources. Its maintenance service
provides technical support representatives, a 24x7 on-call help desk, nationwide
on-site diagnostic repair and replacement service, nationwide network trouble
coordination and a 24-hour video test facility.

            The Company anticipates supporting its existing service and support
customers while transitioning to a business that supports its broadband provider
partners who will be reselling the Company's new consumer Broadband Videophone.

ON-GOING PRODUCT DEVELOPMENT.

            The Company has reduced its in-house product development staff and
will contract with outside firms to partially fulfill its product development
needs. Management expects that these arrangements will continue to be sufficient
to support the ongoing sales activities of the MediaPro, ALRS and Broadband
Videophone product lines.

Broadband Videophone

            In October 2002, the Company entered into an agreement with Leadtek
Research, Inc. that grants the Company exclusive rights to distribute certain
video communications products. Leadtek Research, Inc. is an electronics
manufacturing company that is based in Taiwan. Leadtek manufactures a Broadband
Videophone that is designed for use in the residential home or commercial
office. The Company plans to sell this product primarily North America through
sales and marketing agreements with resellers, agents, distributors and
Broadband Providers.


                                       4
<PAGE>


            Price points for the Broadband Videophone product are still being
analyzed and tested to determine the best price/acceptance ratio.


SALES AND DISTRIBUTION

            In fiscal year 2002, the majority of the Company's North American
sales revenues were as a direct result of the contractual agreement with RSI
Marketing, LLC. Sales were primarily to corporate customers located in North
America. In April of 2002 the Company began to suffer from the overall reduction
in corporate technology spending. As a result, the Company has begun working on
alternative products and services that can be delivered to consumers.

RESELLERS AND DISTRIBUTORS.

            The Company has continued to focus its efforts primarily on direct
sales but has recently begun discussions with several Broadband providers to
sell and distribute its Broadband Videophone products.

ORIGINAL EQUIPMENT MANUFACTURER (OEM) OR PRIVATE LABEL PARTNERSHIPS.

            In fiscal year 2002, the Company sold equipment primarily under one
OEM or private label distribution agreements.

            (1)   Fonytel S.A., The Company has continued to manufacture a
                  version of its MediaPro that was originally delivered to
                  Philips Business Electronics in 1998. Fonytel S.A. began
                  purchasing this unit in October of 1999 and continues to
                  purchase this model.

            In the future, the Company expects to pursue additional OEM and
private label relationships with companies in which its Broadband Videophone can
provide unique strategic advantages to the business partner.

MARKETPLACE COMPETITION

      Corporate Video Conferencing

            The primary competitors that service the corporate customer
marketplace are Audio/Visual Dealers, Distributors, National and Regional
videoconferencing resellers, mail order catalog and Internet fulfillment
companies and direct sales by manufacturers. Some of these companies are larger,
have longer operating histories and have greater financial resources and
industry recognition than the Company. These competitors include Wire One, SBC,
AT&T Corporation, MCI WorldCom, ClearOne Communications, and ReView Video. The
Company also competes with other resellers and manufacturers of video
communication products including Polycom, Tandberg, Aethra, Sony, VCON,
Zydacron, Clear One and several others.

      Consumer Video Conferencing

            The current list of competitors that service the consumer video
conferencing marketplace are Consumer Electronics stores such as CompUSA, Best
Buy, Radio Shack, personal computer camera manufacturers such as Creative Labs,
Logitech, Phillips and many others. All of these companies are larger, have
longer operating histories and greater financial resources and industry
recognition than the Company. At the present time none of these competitors are
selling or marketing their products through broadband providers.

PRODUCT SUPPLY AND MANUFACTURING

         The Company's MediaPro(R) videoconferencing engines are manufactured by
a third party manufacturer ("Video Manufacturer"), under a manufacturing
agreement signed in the fall, 1996. In addition to manufacturing, Video
Manufacturer provides all purchasing, material control, testing services and
product warranty coverage for the Company's videoconferencing engines. Video
Manufacturer warrants that all products will be free from defects in material
and workmanship for fifteen months from the date the Video Manufacturer ships to
the Company, or for twelve months from the date the Company ships to the
customer, whichever comes first.

         The Company depends on a single source for the compression chip
component used in its products. The Company currently maintains an inventory of
the compression chips sufficient to allow for time to redesign its
videoconferencing engines to accommodate similar components from other vendors
in the event the compression chip currently used was to become unavailable to
the Company. Although materials purchasing services are provided by Video
Manufacturer, alternate suppliers have been identified by the Company for most
other components in its videoconferencing engines. The Company has no
information which would indicate that the compression chip or other components
currently used might become unavailable during the product life cycle of its
products.


                                       5
<PAGE>


         The Company believes the Video Manufacturer has the capacity and
capability to satisfy manufacturing requirements for its MediaPro(R)
videoconferencing engines in the foreseeable future. The Company has identified
an alternate manufacturer with capabilities acceptable to the Company. If a
disruption in manufacturing were to occur, the Company believes it could utilize
the alternative manufacturer to satisfy production requirements.

         The Company's ALRS is manufactured by a third party manufacturer ("ALRS
Manufacturer"), under a manufacturing agreement signed in April of 2001. The
Company believes that ALRS Manufacturer has the capacity and capability to
satisfy manufacturing requirements for its ALRS products in the foreseeable
future. The Company has identified an alternate manufacturer with capabilities
acceptable to the Company. If a disruption in manufacturing were to occur, the
Company believes it could utilize the alternative manufacturer to satisfy
production requirements.

         The Company's Broadband Videophone product is manufactured by a third
party manufacturer ("Videophone Manufacturer"), under an exclusive distribution
and OEM agreement signed in October of 2002. The Company believes that the
Videophone Manufacturer has the capacity and capability to satisfy manufacturing
requirements for its Videophone in the foreseeable future. The Company has
identified alternative manufacturers with capabilities acceptable to the
Company. If a disruption in manufacturing were to occur, the Company believes it
could utilize the alternative manufacturer to satisfy production requirements.

APPROVALS AND CERTIFICATIONS

         Government and telecommunications carrier approvals, safety
certifications and Electromagnetic Compliance (EMC) certifications are a key
requirement for electronic systems that use the telephone network. The MediaPro
384 and ALRS product family have received certain Safety, EMI and Telephone
certifications required for sale into the United States, Canada, China, the
European Union, Singapore, Taiwan, Hong Kong, South Africa and Australia.

         Although the Company has obtained telephone, safety and EMC
certifications for its videoconferencing systems in the countries noted above,
the Company cannot predict whether it will obtain necessary approvals and
certifications for the systems and similar products or for future products in
additional countries. Also, the Company cannot predict whether applicable law or
regulations might change in a way adverse to the Company's ability to sell its
products in a particular country.

INTELLECTUAL PROPERTY AND ROYALTY AGREEMENTS

         The Company's success is dependent in part on its proprietary
information, technology and expertise. The Company relies on a combination of
patents, trade secrets, copyrights and confidentiality agreements to establish
and protect its proprietary rights. In fiscal year 1998, the Company amended its
U.S. utility patent application for its peripheral videoconferencing system,
originally filed in September 1994, to narrow and refocus the Company's claims.
The Company received this patent on its system on September 1, 1998, a second
patent on June 6, 2000, and a third patent in May of 2002. The Company has also
applied for various United States and foreign patents relating to its
videoconferencing technology , some of which have not been granted to date.

         During fiscal year 2002, the Company took additional steps to protect
its patents from infringement by others. The Company has contacted, and in
several cases, filed suit against other manufactures as part of this process.
Details of pending suits filed by the Company are included under Item 3 of this
Form 10KSB.

         With respect to its technical employees and consultants, the Company
requires these employees to sign an agreement which obligates them to keep
confidential certain trade secrets and information of the Company and to assign
to the Company any inventions arising from their work for the Company, as
permitted by law. Depending on the responsibilities of a particular employee,
the Company may also consider having such an employee sign a non-compete
agreement.

         Certain software embedded in the Company's videoconferencing systems
carries a standard license agreement for the end-user. The software license
agreement is included in the system manuals and grants the purchaser a
non-exclusive and non-transferable license to use the software program.

         The Company has entered into various royalty and licensing agreements
from 1994 up through 1999 to utilize technology developed by other parties. The
cost of these agreements amount to approximately seventy-five dollars for each
MediaPro 384(R) manufactured.


                                       6
<PAGE>

RESEARCH AND DEVELOPMENT

         The Company incurred research and development expenses during fiscal
years 2002 and 2001 of $275,617 and $551,356 respectively.

EMPLOYEES

         On October 3, 2002, the Company had nine full-time employees; four in
technical and customer support; two in operations and two in accounting and one
executive. None of the Company's employees is represented by a labor union. The
Company believes its employee relations are good.

         The Company contracts with RSI Marketing, LLC. to provide sales and
marketing services in North America and Active Management, LLC to provide
consulting services. Additionally, the Company also outsources a variety of
functions to other third-parties on an as needed basis.

CERTAIN IMPORTANT FACTORS

         There are several important factors that could cause the Company's
actual results to materially differ from those anticipated by the Company or
which are reflected in any forward-looking statements of the Company. These
factors, and their impact on the success of the Company's operations and its
ability to achieve its goals, as well as those listed in the "Risk Factors"
section of the Company's Registration Statement on Form S-3 (File No.
333-46721), include the following:

                  (1)      Recent shifts in the focus of the Company's resources
                           from being a sole developer of its own
                           videoconferencing systems to a company which also
                           distributes products and services provided by others
                           has dramatically altered the business of the Company.
                           The Company has formed new relationships with other
                           companies to distribute their products alongside the
                           Company's own products. This change has affected the
                           financial model of the Company, in terms of margins,
                           cash flow requirements, and other areas. The Company
                           has a limited history competing in the marketplace as
                           a distributor of other product brands. There can be
                           no assurance that the Company will be able to succeed
                           in implementing this strategy, or that the Company
                           will be able to achieve positive cash flow or
                           profitable operations as a result of these changes in
                           the Company's business.

                  (2)      The history of operating losses experienced by the
                           Company since its inception and the ability of the
                           Company to avoid additional operating losses and net
                           losses over the next twelve months. The Company was
                           formed in December 1993 and has financed its
                           operations to date through sales of its Common Stock
                           and its line of credit with various banks. As of June
                           30, 2002, the Company had an accumulated deficit of
                           $21,797,124 . There can be no assurance that the
                           Company will generate sufficient sales to achieve
                           positive cash flow or profitable operations.

                  (3)      The Company requires additional working capital
                           financing. The Company has recently signed an
                           amendment to its existing line of credit whereby, the
                           bank has reduced the amount it may borrow on unsold
                           inventory and increased the amount of Accounts
                           Receivable against which it may borrow. These
                           modifications have reduced the amount eligible for
                           borrowing by approximately $500,000. The Company has
                           agreed to a timetable of paying down the loan to
                           $200,000 by the end of December 2002. The Company is
                           currently in arrears in that obligation by $25,000 .
                           The Company's current credit facility expires on
                           December 11, 2002. The Company has started discussing
                           renewing its existing credit facility with its
                           existing bank and pursuing potential alternative
                           banks to provide working capital financing for future
                           operations. There can be no assurance that the
                           alternative line of credit will be available to the
                           Company on reasonable terms or at all. If the Company
                           does not sign an agreement with the bank, the Company
                           expects to continue to seek other alternative lenders
                           until a line of credit is secured. Finally, the
                           Company has signed an agreement with Digital
                           Investors, LLC, under which Digital has agreed to
                           provide a line of credit to the Company under terms
                           and conditions similar to those contained in the
                           existing line of credit agreement. Under this
                           agreement , Digital's agreement to provide a line of
                           credit is contingent upon the Company not obtaining a
                           line of credit agreement with a bank by December 11,
                           2002. The Company believes it will obtain a line of
                           credit sufficient for future operations from a new
                           bank, or alternatively, Digital, as described above.
                           However, there can be no assurance that the Company
                           will be able to meet the covenants and restrictions
                           included in such a new line of credit arrangement on
                           an ongoing basis in the future.

                  (4)      The Company may have a need in the future for
                           additional equity capital. The Company's current bank
                           line of credit, including extensions, expires on
                           December 11, 2002. The Company is currently in the
                           process of attempting to renew its line of credit,


                                       7
<PAGE>


                           and expects to have such a line in place by December
                           11, 2002 as discussed in (3) above. However, the
                           Company's working capital requirements may vary
                           substantially from those planned depending on
                           numerous factors, including a failure to generate
                           sufficient revenues in the future, unexpected
                           increases in costs, and other unplanned events. If
                           the Company is unable to generate sufficient
                           revenues, or if, despite sufficient revenues, the
                           Company is unable to achieve its targeted margins, it
                           will require additional equity or debt financing. The
                           Company could also require additional capital to
                           finance future growth or for strategic acquisitions,
                           although no such acquisitions are currently planned.
                           Required additional capital would be sought from a
                           number of sources and could include sales of
                           additional shares of capital stock or other
                           securities or loans from banks or other sources. The
                           Company's ability to obtain additional funding will
                           depend substantially on operating results in future
                           periods. The Company will be materially adversely
                           affected and its ability to continue in business
                           could be jeopardized if it is not able to achieve
                           positive cash flow or profitability or if it is not
                           able to obtain any necessary financing on
                           satisfactory terms.

                  (5)      The Company's success is dependent on market
                           acceptance and will depend on its ability to
                           capitalize on the market opportunity for
                           videoconferencing systems and to successfully market
                           its line of videoconferencing systems and related
                           services. Some of the systems marketed by the Company
                           have been developed by the Company, and others are
                           developed and manufactured by other companies in the
                           industry. Management believes that the market leaders
                           of video conferencing equipment have been established
                           and may continue to change during the next several
                           years. To establish a market presence, the Company
                           must convince a significant number of business,
                           education and government entities and consumers that
                           the products which may be marketed by the Company in
                           the future offer superior features at a reasonable
                           price as compared to other similar videoconferencing
                           systems which have been or will become available from
                           the Company's competitors. There can be no assurance
                           that the Company will be able to obtain sufficient
                           acceptance of its products by individuals and
                           organizations to achieve profitable operations.

                  (6)      The Company faces intense competition. Other
                           companies in the marketplace provide
                           videoconferencing systems that provide high quality
                           video and audio videoconferencing. In addition,
                           management expects that new competitors will attempt
                           to enter the market and that existing or new
                           competitors will develop systems in the future that
                           duplicate or improve on various features of the
                           products offered by the Company. Many of the
                           Company's competitors are well established, better
                           known, and significantly larger, with substantially
                           greater technical, manufacturing, marketing, and
                           financial resources than the Company. The greater
                           resources of many of the Company's competitors may
                           permit them to respond more rapidly than the Company
                           to changes in technology. As a result, many of the
                           products and services offered by the Company are
                           developed and manufactured by other companies in the
                           industry. The Company's ability to compete in the
                           market will depend upon a number of factors including
                           the success of its marketing efforts and the
                           continued ability of the Company to secure and
                           maintain ongoing relationships with other companies
                           in the industry which provide or support products
                           offered by the Company. The Company competes based
                           upon the quality, reliability, flexibility and the
                           ease of use of its products. The Company also
                           competes on value relative to the features its
                           products offer. However, if the Company is forced by
                           competitive pressure to significantly reduce prices,
                           the Company's revenues and profitability may be
                           adversely affected.

                  (7)      The Company has a limited history of marketing,
                           distribution, and sales. The Company's new marketing
                           strategy is to focus on residential consumers who
                           have historically not purchased video communications
                           in the past. Although the Company's North American
                           resources have significant experience in marketing
                           new products and services in the industry, such
                           resources only have limited experience in marketing
                           the Company's products to consumers. There can be no
                           assurance that the Company's marketing and
                           distribution strategy will be successful.

                  (8)      The Company's products are subject to rapid technical
                           obsolescence. The telecommunications industry is
                           undergoing rapid and significant technical advances.
                           While management believes that the Company's product
                           offerings have certain advantages over other,
                           currently available videoconferencing systems,
                           management expects future technology to be superior
                           to the technology currently used in products offered
                           by the Company. Although the Company believes its
                           product offerings have been designed to assimilate
                           future technical advances, there can be no assurance
                           that any such future advances or the development of
                           new or competitive products by others will not render
                           the Company's products less competitive or obsolete.

                  (9)      The Company's success depends on it's ability to
                           assimilate new technologies in it's products and to
                           properly train sales staff, distributors and
                           resellers in the use of those products. The markets
                           for voice and video communications products and
                           network access products are characterized by rapidly
                           changing technology, evolving industry standards and
                           frequent new product introductions. The success of
                           the Companys' new products depends on several
                           factors, including proper new product definition,
                           product cost, timely completion and introduction of


                                       8
<PAGE>


                           new products, differentiation of new products from
                           those of its competitors and market acceptance of
                           these products. Additionally, properly addressing the
                           complexities associated with DSL, Cable Modem and
                           ISDN compatibility, sales training, reseller
                           training, technical and sales support as well as
                           field support are also factors that may affect the
                           Company's success in this market. Further, the shift
                           of communications from circuit-switched to IP-based
                           technologies over time may require the Company to add
                           new sales staff, distributors and resellers and gain
                           new core technological competencies. The Company is
                           attempting to address these needs and the need to
                           develop new products through its internal development
                           efforts. There can be no assurance that the Company
                           will successfully identify new voice, video and
                           network access product opportunities and develop and
                           bring new voice, video and network access products to
                           market in a timely manner. Further, there is no
                           assurance that competing technologies developed by
                           others will not render the Company's products or
                           technologies obsolete or noncompetitive. The failure
                           of the Company's new voice, video and network access
                           product development efforts and any inability to
                           service or maintain the necessary third-party
                           interoperability licenses would harm its business and
                           results of operations.

                  (10)     The Company's products are subject to availability,
                           development and acceptance of communications
                           infrastructure. Management believes the growth of the
                           corporate videoconferencing market is dependent on
                           the availability, and acceptance of communications
                           networks on which high quality videoconferencing
                           equipment may operate. Integrated Services Digital
                           Network ("ISDN") telephone service is one such
                           important network. To provide ISDN service to their
                           customers, telephone companies must replace analog
                           switches with digital switches in their local
                           offices. In 1994, approximately 75 percent of all
                           telephone circuits in the United States were capable
                           of providing ISDN service. Internationally,
                           approximately 84 percent, 80 percent and 58 percent
                           of telephone circuits in Europe, Australia and Japan,
                           respectively, are capable of providing ISDN service.
                           The monthly charge for ISDN service in the United
                           States ranges between $40 and $80 per month plus, in
                           certain markets, per-minute charges for usage above
                           minimum levels. Although the Company believes ISDN
                           service will become more available and less expensive
                           in the United States, the Company's sales of its
                           products would be materially adversely affected if
                           ISDN service is not available to, or not accepted by,
                           businesses and individuals.

                  (11)     The Company is dependent on a few key personnel. The
                           Company is highly dependent on its key management,
                           technical and marketing personnel, particularly John
                           Harris, the Chief Executive Officer of the Company.
                           The Company's future success will also depend in part
                           upon its ability to attract and retain highly
                           qualified personnel and consultants. The Company
                           competes for such personnel with other companies, and
                           there can be no assurance that the Company will be
                           successful in hiring or retaining qualified personnel
                           or consultants. The loss of key personnel or
                           consultants or the inability to hire or retain
                           qualified personnel or consultants could have a
                           material adverse effect on the Company.

                  (12)     The Company's success is dependent in part on its
                           proprietary information, technology and expertise.
                           The Company relies on a combination of patents, trade
                           secrets, copyrights and confidentiality agreements to
                           establish and protect its proprietary rights. In
                           fiscal year 1998, the Company amended its U.S.
                           utility patent application for its peripheral
                           videoconferencing system, originally filed in
                           September 1994, to narrow and refocus the Company's
                           claims. The Company received this patent on its
                           system on September 1, 1998 (U.S. Patent No.
                           5,802,281), a second patent on June 6, 2000 (U.S.
                           Patent No. 6,073,192) and a third patent on May 28,
                           2002 (U.S. Patent No. 6,397,275). The Company has
                           also applied for various other U.S. and foreign
                           patents relating to its videoconferencing engines,
                           some of which have not been granted to date.

                  (13)     There can be no assurance that the Company's measures
                           to protect its intellectual property will be
                           successful, that it will be granted any patents in
                           the future, or that any patents that have been or may
                           be granted will be of value to the Company. In the
                           absence of meaningful intellectual property
                           protection, the Company may be vulnerable to
                           competitors who could lawfully attempt to copy the
                           Company's products. Moreover, there can be no
                           assurance that other competitors may not
                           independently develop the same or similar technology.
                           While the Company believes that it has all rights
                           necessary to market and sell its system without
                           infringement of intellectual property rights held by
                           others, there can be no assurance that such
                           conflicting rights do not exist. The Company could
                           incur substantial legal costs in seeking enforcement
                           of its intellectual property rights against
                           infringement or the unauthorized use of its
                           proprietary technology by others or in defending
                           itself against similar claims of others. There can be
                           no assurance that the Company will have sufficient
                           funds to enforce or defend its intellectual property
                           rights.

                  (14)     Changes in general economic conditions, as has been
                           the case recently with the economic downturn and
                           uncertainty in technology industries, and specific
                           economic conditions prevailing in the communications
                           industry and other technology industries;


                                       9
<PAGE>


                  (15)     The near and long-term impact of terrorist attacks
                           and incidents, the military response to those attacks
                           and any future terrorism or responses to such
                           terrorism;

                  (16)     The timing and size of the orders for our products;

                  (17)     Changes to the Companys' channel partner contracts or
                           channel partner strategy, resulting in a loss of
                           channel partners or a reduction of channel partner
                           orders;

                  (18)     The Companys' distribution channels reducing their
                           inventory levels;

                  (19)     Slowing sales by the Companys' channel partners to
                           their customers which places further pressure on its
                           channel partners to minimize inventory levels and
                           reduce purchases of its products;

                  (20)     the level and mix of inventory that the Company holds
                           to meet future demand;

                  (21)     Further delays in the rollout of digital subscriber
                           line, or DSL, technology or the failure of such
                           rollout to occur;

                  (22)     Market acceptance of new product introductions and
                           product enhancements by the Company or its
                           competitors;

                  (23)     The prices of the Companys' products and those of its
                           competitors;

                  (24)     The mix of products the Company sell;

                  (25)     The cost and availability of components;

                  (26)     Manufacturing costs;

                  (27)     The level and cost of warranty claims;

                  (28)     Changes in the Companys' distribution network;

                  (29)     The impact of disruptions at the sites of the
                           Companys' primary manufacturing partners in Taiwan
                           due to any reason;

                  (30)     The impact of seasonality on the Companys' various
                           product lines and geographic regions; and the level
                           of royalties it must pay to third parties;

The Company has experienced sequential quarterly growth in the first two
quarters of 2002. In the third and fourth quarter of 2002 it experienced
sequential revenue decreases primarily related to video communications product
revenue. In addition, it incurred a significant net loss in 2002 due to
devaluing our remaining Mediapro(R) inventory and components related to its
manufacturing, and variable stock option accounting. As a result of these and
other factors, the Company believes that period-to-period comparisons of its
historical results of operations is not a good predictor or indication of its
future performance. If its future operating results are below the expectations
of stock market securities analysts or investors, the Companys' stock price may
decline. Because a disproportionate amount of its sales occur at the end of a
quarter, the Companys' operating results are unpredictable. The timing of the
Companys' customer orders and product shipments can harm its operating results.

Our quarterly revenues and operating results depend upon the volume and timing
of customer orders received during a given quarter and the percentage of each
order that we are able to ship and recognize as revenue during each quarter,
each of which is extremely difficult to forecast. Moreover, the majority of our
orders in a given quarter historically have been shipped in the last month of
that quarter and sometimes in the last few weeks of the quarter. This trend is
likely to continue, and any failure or delay in the closing of orders during the
last part of a quarter would materially harm our operating results, as occurred
in the fourth quarter of 2002. Furthermore, due to this trend, we may be unable
to ship products in the period we receive the order, which would have an adverse
impact in our operating results. In such events, the price of our common stock
would decline.


                                       10
<PAGE>


Difficulty in estimating customer orders can harm our operating results.

         We typically ship products within a short time after we receive an
order and historically have had no material backlog. Therefore, backlog is not a
good indicator of future net revenues. As a result, net revenues for any
particular quarter are extremely difficult to predict. Additionally, orders from
our channel partners are based on the level of demand from end-users. The
uncertainty of end-user demand means that any quarter could be significantly
negatively impacted by lower end-user orders which could in turn negatively
affect orders we receive from our dealers. Accordingly, our expectations for
both short and long-term future net revenues are based almost exclusively on our
own estimate of future demand and not on firm channel partner orders. Our
expense levels are based in part on these estimates. Because we receive a
majority of our dealer orders in the last month of a quarter and often in the
last few weeks of the quarter, we are limited in our ability to reduce expenses
quickly if for any reason orders and net revenues do not meet our expectations
in a particular period. Accordingly, any significant shortfall in demand for our
products in relation to our expectations would have an adverse impact in our
operating results.

General economic conditions may reduce our revenues and harm our business.

         As our business has grown, we have become increasingly exposed to
adverse changes in general economic conditions which can result in reductions in
capital expenditures by end-user customers of our products, longer sales cycles,
deferral or delay of purchase commitments for our products and increased price
competition. These factors adversely impacted our operating results in 2001,
where we experienced a sequential revenue decrease in the last two quarters. We
also experienced a sequential revenue decrease in the third and fourth quarter
of 2002. The outlook for fiscal year 2003 is subject to similar risks,
particularly if the current economic downturn and uncertainty in technology
spending continues.

Our future growth may require significant additional resources.

We cannot assure you that resources will be available when we need them or that
we will have sufficient capital to fund these resource needs. Also, as we assess
our resources following any acquisitions, we will likely determine that
redundancy in certain areas will require consolidation of these resources. Any
organizational disruptions associated with the consolidation process could
require further management attention and financial expenditures. If we are
unable to manage our growth effectively, if we experience a shortfall in
resources or if we must take additional restructuring charges, our results of
operations will be harmed

If we fail to successfully attract and retain qualified personnel, our business
will be harmed.

Our future success will depend in part on our continued ability to hire,
assimilate and retain qualified personnel. Competition for such personnel is
intense, and we may not be successful in attracting or retaining such personnel.
The loss of any key employee, the failure of any key employee to perform in his
or her current position or our inability to attract and retain skilled
employees, particularly technical and management, as needed, could harm our
business If we fail to compete successfully, our business and results of
operations would be significantly harmed.

         We face significant competition in the communications industry which is
subject to rapid technological change. In video communications, our major
competitors include Aethra, ClearOne Communications, formerly Gentner,
Panasonic, Polycom, Sony, Tandberg, VCON and VTEL, as well as various smaller or
new industry entrants such as Avistar, Broadband Networks, Imagecom, Motion
Media Technology, RoseTel System, Sorenson Vision, Videra and Zydacron. Many of
these companies have substantial financial resources and production, marketing,
engineering and other capabilities with which to develop, manufacture, market
and sell their products. In addition, with advances in telecommunications
standards, connectivity and video processing technology and the increasing
market acceptance of video communications, other established or new companies
may develop or market products competitive with our video communications
products. We believe we will face increasing competition from alternative video
communications solutions that employ new technologies or new combinations of
technologies from companies such as 3Com, Cisco Systems, Compaq, Dell,
MeetingOne, Microsoft, Nortel Networks, PlaceWare, RealNetworks and WebEx, that
enable web-based or network-based video communications with low-cost digital
camera systems. Most of these companies have substantial financial resources and
production, marketing, engineering and other capabilities with which to develop,
manufacture, market and sell their products.

We cannot assure you that we will be able to compete successfully against our
current or future competitors.

         We expect our competitors to continue to improve the performance of
their current products and to introduce new products or new technologies that
provide improved performance characteristics. New product introductions by our
competitors could cause a significant decline in sales or loss of market
acceptance of our existing products and future products. We believe that the
possible effects from ongoing competition may be the reduction in the prices of
our products and our competitors' products or the introduction of additional
lower priced competitive products. We expect this increased competitive pressure
may lead to intensified price-based competition, resulting in lower prices and
gross margins which would significantly harm our results of operations.


                                       11
<PAGE>


         In the past, we have experienced other delays in the introduction of
certain new products and enhancements, and we believe that such delays may occur
in the future. For instance, we experienced delays in introducing the Mediapro
in 1998 and from their original expected release dates due to unforeseen
technology issues. Any similar delays in the future for other new product
offerings could adversely affect market acceptance for these products and our
reputation, and seriously harm our results of operations.

We face risks related to the deployment of broadband communications services and
the adoption rate of new technologies.

         The success of our new Broadband Videophone product line is dependent
on the continued deployment of broadband services such as Digital Subscriber
Line(DSL) and cable modem internet access, by service providers. Beginning in
the second half of 2000 and continuing to the present, the market for broadband
services experienced a severe downturn, characterized by financial troubles for
many telecommunications service providers and delays in delivering broadband
services. However, cable modem internet access has begun to accelerate faster
than DSL.

We have invested significant resources developing products that are dependent on
the adoption rate of new technologies.

         For example, our Broadband Videophone is dependent on the roll out of
voice-over-IP, or VoIP, technologies and depends on the acceptance by the
consumer of video communications. If the use of new technologies that our
current and future products are based on does not occur, or occurs more slowly
than expected, we may not be able to sell certain of our products in significant
volumes and our business may be harmed.

Lower than expected market acceptance of our products, price competition and
other price decreases would negatively impact our business.

If the market does not accept our products, our profitability could be harmed.

Our profitability could also be negatively affected in the future as a result of
continuing competitive price pressures in the sale of video conferencing
equipment. Further, we have reduced prices in the past in order to expand the
market for our products, and in the future, we may further reduce prices or
introduce new products that carry lower margins in order to expand the market or
stimulate demand for our products. While we cannot assure you that these actions
would have the desired result, any of these actions could have an adverse impact
on our product margins and profitability.

The market for video communications products characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
The success of our new products depends on several factors, including proper new
product definition, product cost, timely completion and introduction of new
products, differentiation of new products from those of our competitors and
market acceptance of these products. Additionally, properly addressing the
complexities associated with compatibility issues, channel partner training,
technical and sales support as well as field support are also factors that may
affect our success in this market. Further, the shift in communications from
circuit-switched to IP-based technologies over time will require us to gain new
core technological competencies. We are attempting to address these needs and
the need to develop new products through our internal development efforts, joint
developments with other companies and through acquisitions. We may not identify
successful new product opportunities and develop and bring products to market in
a timely manner. Additionally, we cannot assure you that competing technologies
developed by others will not render our products or technologies obsolete or
noncompetitive. The failure of our new product development efforts and any
inability to service or maintain the necessary third-party interoperability
licenses would harm our business and results of operations.

Product obsolescence, excess inventory and other asset impairment can negatively
affect our results of operations.

         We operate in a high technology industry which is subject to rapid and
frequent technology and market demand changes. These changes can often render
existing technologies obsolete. These obsolescence issues can require
write-downs in inventory value when it is determined that the recorded value of
existing inventory is greater than its fair market value. For example, this
situation occurred in 2001, and again in 2002, when we recorded material excess
and obsolescence charges associated with our inventory of Mediapro products. If
the sales of our Mediapro continue to decline, our current level of product
inventory may be deemed excessive, and we may have to write down much or all of
this inventory which could adversely affect our profitability.

If we have insufficient proprietary rights or if we fail to protect those rights
we have, our business would be materially impaired.

We rely on third party license and distribution agreements and termination or
impairment of these agreements may cause delays or reductions in product
introductions or shipments which would harm our business.

         We have licensing agreements with various suppliers for software
incorporated into our products. For example, we license video communications
source code from RADVISION, video algorithm protocols from 8x8, development
source code from 8x8, audio algorithms from Lucent Technologies and Windows
software from Microsoft. We depend significantly on these agreements and our


                                       12
<PAGE>


ability to secure similar licenses from other providers. These third-party
software licenses may not continue to be available to us on commercially
reasonable terms, if at all. The termination or impairment of these licenses
could result in delays or reductions in new product introductions or current
product shipments until equivalent software could be developed, licensed and
integrated, if at all possible which would harm our business and results of
operations.

We rely on patents, trademarks, copyrights and trade secrets to protect our
proprietary rights which may not be sufficient to protect our intellectual
property.

         We rely on a combination of patent, copyright, trademark and trade
secret laws and confidentiality procedures to protect our proprietary rights.
Others may independently develop similar proprietary information and techniques
or gain access to our intellectual property rights or disclose such technology.
In addition, we cannot assure you that any patent or registered trademark owned
by us will not be invalidated, circumvented or challenged in the U.S. or foreign
countries or that the rights granted thereunder will provide competitive
advantages to us or that any of our pending or future patent applications will
be issued with the scope of the claims sought by us, if at all. Furthermore,
others may develop similar products, duplicate our products or design around our
patents. In addition, foreign intellectual property laws may not protect our
intellectual property rights. Litigation may be necessary to enforce our patents
and other intellectual property rights, to protect our trade secrets, to
determine the validity of and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Litigation could result in
substantial costs and diversion of resources which could harm our business, and
could ultimately be unsuccessful in protecting our intellectual property rights.

We face and might in the future face intellectual property infringement claims
that might be costly to resolve.

         We have from time to time received, and may in the future receive,
communications from third parties asserting patent or other intellectual
property rights covering our products. We cannot assure you that we will prevail
in any such litigation, that intellectual property claims will not be made
against us in the future or that we will not be prohibited from using the
technologies subject to any such claims or be required to obtain licenses and
make corresponding royalty payments. In addition, the necessary management
attention to, and legal costs associated with, litigation can have a significant
adverse effect on operating results and financial condition.

Failure to adequately service and support our products could harm our results of
operations.

         Our recent growth has been due in large part to an expansion into
products manufactured by other parties. This has increased the need for product
warranty and service capabilities. If we cannot develop and train our internal
support organization or maintain our relationship with our outside technical
support, it could harm our business.

Business interruptions could adversely affect our operations.

         Our operations are vulnerable to interruption by fire, earthquake,
power loss, telecommunications failure, national catastrophe, such as the
terrorist attacks which occurred on September 11, 2001, and other events beyond
our control. We do not have a detailed disaster recovery plan. In addition, we
do not carry sufficient business interruption insurance to compensate us for
losses that may occur and any losses or damages incurred by us could have a
material adverse effect on our business and results of operations.

Our cash flows could fluctuate due to the potential difficulty of collecting our
receivables.

Our stock price fluctuates as a result of the conduct of our business and stock
market fluctuations.

         The market price of our common stock has experienced significant
fluctuations and may continue to fluctuate significantly. The market price of
our common stock may be significantly affected by a variety of factors,
including:

         statements or changes in opinions, ratings or earnings estimates made
by brokerage firms or industry analysts relating to the market in which we do
business or relating to us specifically, as has occurred recently;

         the announcement of new products or product enhancements by us or our
competitors;

         technological innovations by us or our competitors;

         quarterly variations in our results of operations;

         general market conditions or market conditions specific to technology
industries;

         domestic and international macroeconomic factors.


                                       13
<PAGE>


         In addition, the stock market has recently experienced extreme price
and volume fluctuations. These fluctuations have had a substantial effect on the
market prices for many high technology companies similar to the Company. These
fluctuations are often unrelated to the operating performance of the specific
companies.


ITEM 2.  DESCRIPTION OF PROPERTY


         The Company subleased 12,452 square feet of space for its headquarters
in Dallas, Texas under a lease agreement which expired in August 2002.
Subsequent to the lease expiring, the Company moved and now subleases 4,229
square feet of space for its headquarters in Irving, Texas under a lease
agreement which expires in April, 2005. The Company believes its current space
is sufficient for its current needs and anticipates acquiring additional space
when necessary.

         The following schedule summarizes payments made in fiscal year 2002 for
space leased by the Company:

             Location                                          Amount
             --------                                          ------
             Dallas, TX - Headquarters                        $125,126
             Edina, MN Old Headquarters and Warehouse               $0
             European Sales Office                              $7,332
             Pacific Rim Sales Office                                0
                                                                     -
             TOTAL                                            $132,458
                                                              ========


                                       14
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

The Company has initiated suits against other manufacturers of videoconferencing
systems in order to protect its intellectual property rights. The following
suits are all currently in progress:

                  (1)      On May 14, 2001, the Company initiated a suit in the
                           United States District Court for the District of
                           Minnesota, Hennepin County, Minnesota against
                           Tandberg, Inc. and NV Holdings, Inc. for reasonable
                           royalties and lost profits associated with alleged
                           infringement of the Company's U.S. patents 6,073,192
                           and 5,802,281. The discovery portion of this case has
                           been delayed while the United States District Court
                           reviews a summary judgement submitted by VTEL
                           Corporation.

                  (2)      On May 24, 2001, the Company initiated a suit in the
                           United States District Court for the District of
                           Minnesota, Hennepin County, Minnesota against
                           PictureTel Corporation for reasonable royalties and
                           lost profits associated with alleged infringement of
                           the Company's U.S. patents 6,073,192 and 5,802,281.
                           This lawsuit was settled upon the completion of
                           Polycom, Inc. acquiring PictureTel Corporation in the
                           3rd quarter of our fiscal year 2002.

                  (3)      On June 22, 2001, the Company initiated a suit in the
                           United States District Court for the District of
                           Minnesota, Hennepin County, Minnesota against VTel
                           Corporation for reasonable royalties and lost profits
                           associated with alleged infringement of the Company's
                           U.S. patents 6,073,192 and 5,802,281. The United
                           States District Court has been presented with a
                           summary judgement motion from Vtel Corporation and
                           has yet to render a decision on this motion.

                  (4)      On January 11, 2002, the Company initiated a suit in
                           the United States District Court for the District of
                           Minnesota, Hennepin County, Minnesota against VCON,
                           Inc. for reasonable royalties and lost profits
                           associated with alleged infringement of the Company's
                           U.S. patents 6,073,192 and 5,802,281. In conjunction
                           with the issuance of our third patent, on September
                           30, 2002, the Company withdrew its suit against VCON,
                           Inc.

                  (5)      On August 14, 2002 the Company's subsidiary, RSI
                           Systems Ltd, received notice that the Bournemouth
                           County court rendered a judgement in the approximate
                           amount of $85,903 for a claim brought about by Sony
                           (UK) Ltd, for a past due invoice, interest and
                           related legal fees. The Company is in the process of
                           reviewing such claim and expects to negotiate a
                           settlement with the plaintiff at an amount less than
                           the full amount claimed.

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

         An Annual Meeting of the Company's Shareholders was held on June 17,
         2002 for the purpose of voting on the proposals as described below.
         Proxies for the meeting were solicited pursuant to Section 14 (a) of
         the Securities Exchange Act of 1934 and there was no solicitation in
         opposition to management's solicitations.

         The proposal to elect the Board of Directors was approved with the
         following vote:

         Shares voted "For" (9,810,750)
         Shares voted "Against" (0)
         Shares voted "Abstaining" (28,400)
         Shares not (4,332,916)

         The proposal to approve the increase of the number of authorized shares
         allowed by the 1994 RSI Stock Plan was approved with the following
         vote:

         Shares voted "For" (9,810,250)
         Shares voted "Against" (23,400)
         Shares "Abstaining" (5,500)
         Shares not voting (4,332,916)

         To consider and act upon a proposal to ratify the appointment of
         Virchow, Krause and Company LLP, certified public accountants, as
         independent auditors for the Company for the year ending June 30, 2002.

         Shares voted "For" (9,577,414)
         Shares voted "Against" (255,832)
         Shares "Abstaining" (5,900)
         Shares not voting (4,332,920)


                                       15
<PAGE>


PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         Since July 25, 1995 (the date of the Company's initial public offering
of Common Stock), the Company's Common Stock has been traded over-the-counter
and was quoted NASDAQ SmallCap Market System until December 20, 1999.
Thereafter, the Company's stock has been quoted on the OTC Bulletin Board
System. The following table sets forth the high and low sales prices for the
Company's Common Stock as reported by NASDAQ and the OTC System. Such quotations
represent interdealer prices, without retail markup, markdown or commission, and
do not necessarily represent actual transactions for the fiscal quarters
indicated.

                                                   HIGH         LOW
                                                   ----         ---

                2001

                First Quarter                      $.5938      $.2188
                Second Quarter                      .3438       .1406
                Third Quarter                       .7344       .3125
                Fourth Quarter                     1.2500       .5156

                2002

                First Quarter                       $1.01        $.55
                Second Quarter                       1.83         .65
                Third Quarter                        1.19         .44
                Fourth Quarter                        .85         .55


         As of October 11, 2002, there were (a) 14,842,398 shares of Common
Stock outstanding, held of record by approximately 125 persons, (although the
Company has been informed that there are approximately 1,100 beneficial owners)
(b) outstanding options to purchase an aggregate of 1,663,750 shares of Common
Stock, and (c) outstanding warrants to purchase an aggregate of 4,400,762 shares
of Common Stock. The Company has not declared or paid any cash dividends on its
Common Stock since its inception and does not intend to pay any dividends for
the foreseeable future.

         During fiscal year 2002, the Company sold the following securities
which were not registered with the Securities and Exchange Commission.

         On June 14, 2002 the Company received proceeds of $100,000 from a
convertible secured subordinated note. The loan was made to the Company from
Michelle Norwood. Ms Norwood is also a member of RSI Marketing, LLC. The terms
of this note include a conversion into the Company's common stock at a price of
$.55 per share. In connection with this note, the Company issued 5 year warrants
to purchase 181,818 shares of its common stock at a price of $.55 per share.
These warrants were valued at $71,182 using the Black Scholes pricing model.

         On June 20, 2002 the Company received proceeds of $200,000 from a
convertible secured subordinated note. The loan was made to the Company from an
accredited investor. The terms of this note include a conversion into the
Company's common stock at a price of $.55 per share. In connection with this
note, the Company issued 5 year warrants to purchase 363,636 shares of its
common stock at a price of $.55 per share. These warrants were valued at
$176,436 using the Black Scholes pricing model.

On September 8, 2002 the Company issued 83,333 shares of common stock purchased
by an accredited investor at $.60 per share under a Stock Purchase Agreement for
a total price of $49,999.80. In connection with the Stock Purchase Agreement,
the Company issued warrants to purchase 83,333 shares of its common stock at a
price of $.60 per share.

On September 18, 2002 the Company issued 333,333 shares of common stock
purchased by an accredited investor at $.60 per share under a Stock Purchase
Agreement for a total price of $199,999.80.

On September 28, 2002 the Company issued 166,666 shares of common stock
purchased by an accredited investor at $.60 per share under a Stock Purchase
Agreement for a total price of $99,999.60. In connection with the Stock Purchase
Agreement, the Company issued warrants to purchase 166,666 shares of its common
stock at a price of $.60 per share.

On September 28, 2002, in connection with consulting services provided by a
third party, the Company issued warrants to purchase 333,333 shares of its
common stock at a price of $.60 per share. These warrants were valued at
$242,100 using the Black-Scholes pricing model.


                                       16
<PAGE>


During fiscal year 2002, the Company issued the following warrants and stock
options:

On December 20, 2001, the Company granted Jim Hanzlik 125,000 options at an
exercise price of $1.04 per share.

On December 28, 2001, in conjunction with King Research, LLC fulfilling its
commitment to purchase $250,000 of ALRS product, the Company granted warrants to
purchase 250,000 shares of common stock, at a price of $.70 per share to King
Research, LLC, as part of the purchase of product technology on April 16, 2001.

On March 4, 2002, the Company granted John C. Harris 250,000 options at an
exercise price of $.66 per share.

ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this report. In addition to
historical information, the discussion in this report contains forward-looking
statements that involve risks and uncertainties. Actual results could differ
materially from those anticipated by these forward-looking statements due to
factors including, but not limited to, those factors set forth under "Risk
Factors" and elsewhere in this report.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of net revenues and
expenses during the reporting period. We regularly evaluate our estimates and
assumptions related to net revenues, allowances for doubtful accounts, sales
returns and allowances, inventory reserves, goodwill and purchased intangible
asset valuations, warranty reserves, restructuring costs, litigation and other
contingencies. We base our estimates and assumptions on historical experience
and on various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. To the extent there are material differences between our
estimates and the actual results, our future results of operations will be
affected.

We believe the following critical accounting policies require us to make
significant judgments and estimates in the preparation of our consolidated
financial statements:

Revenue Recognition

We do not recognize revenue until all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred or services
have been rendered; our price to the buyer is fixed or determinable; and
collectibility is reasonably assured.

When product sales revenue is recognized, we establish an estimated allowance
for future product returns based on historical returns experience; when price
reductions are approved, we establish an estimated liability for price
protection payable on inventories owned by product resellers. Should actual
product returns or pricing adjustments exceed our estimates, additional
reductions to revenues would result. Revenue from the licensing of patents is
recognized at the time of a patent agreement is executed and the goods, services
and/or cash are received. Revenue from post-contract customer support and any
other future deliverables is deferred and recognized over the support period or
as contract elements are delivered. Our products typically carry a ninety day to
five year warranty. Although we engage in extensive product quality programs and
processes, our warranty obligation is affected by product failure rates, use of
materials or service delivery costs that differ from our estimates. As a result,
additional warranty reserves could be required, which could reduce gross
margins.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. Our allowance for
doubtful accounts is based on our assessment of the collectibility of specific
customer accounts, the aging of accounts receivable, our history of bad debts
and the general condition of the industry. If a major customer's credit
worthiness deteriorates, or our customers' actual defaults exceed our historical
experience, our estimates could change and impact our reported results.


                                       17
<PAGE>


Inventory Valuation

Our policy is to value inventories at the lower of cost or market on a
part-by-part basis. This policy requires us to make estimates regarding the
market value of our inventories, including an assessment of excess and obsolete
inventories. We determine excess and obsolete inventories based on an estimate
of the future sales demand for our products within a specified time horizon,
generally 24 months. The estimates we use for demand are also used for near-term
capacity planning and inventory purchasing and are consistent with our revenue
forecasts.

If our sales forecast is less than the inventory we have on hand at the end of
an accounting period, we may be required to take excess and obsolete inventory
charges which will decrease gross margin and net operating results for that
period.


RESULTS OF OPERATIONS

         Net Sales. In fiscal year 2002, net sales increased to $7,452,346, up
119% from $3,409,352 in fiscal year 2001. In fiscal year 2002, the Company
expanded its direct sales efforts dramatically. And, although the Company did
experience significant sales increases, the Company's limited resources and
fierce competition from well established competitors, combined with lower
average selling prices for videoconferencing systems resulted in lower overall
profit margins during fiscal year 2002 compared to fiscal year 2001.

         Direct sales to end users were approximately $7,100,000 and $717,000
during fiscal years 2002 and 2001, respectively, an increase of $6,383,000. This
increase in direct sales was the result of the Company completing its patent
litigation settlement agreement with Polycom and then becoming a Polycom
distributor The Company expects to reduce sales of Polycom as its Broadband
Videophone becomes more widely accepted.

         In fiscal year 2002, OEM sales amounted to approximately $200,000 or
approximately 2% of total net sales, as a result of purchases of the MediaPro
product by Fonytel, S.A. In contrast, fiscal year 2001 OEM sales accounted for
approximately 10% of total net sales, or approximately $350,000. Fonytel, S.A.
represents the only remaining OEM customer currently purchasing products based
upon the Mediapro 384. The Company expects to continue pursuing additional OEM
customer opportunities with its IP Broadband Videophone in the future, although
it does not expect any additional sales to Fonytel, S.A.

         Sales through resellers and distributors were approximately $785,000
during fiscal 2002, compared to $2,342,000 during fiscal year 2001. The decline
was primarily related to lower international distributor sales as a result of
intense competition and lower average selling prices, coupled with fewer
international sales and marketing resources within the Company as a result of
financial constraints.

         Net sales in the fourth quarter of fiscal year 2002 were approximately
$1,347,121 compared to approximately $700,000 for the fourth quarter of fiscal
year 2001. The increase in net sales during the fourth quarter of fiscal year
2002 was primarily a result of continuing to fulfill orders of Polycom
equipment.

         During the fourth quarter of fiscal year 2002, the Company continued to
transform its business model in response to the changing market climate. These
changes included reducing its overhead and migrating more of its resources to
supporting its anticipated new products and services.

         Average selling prices continued to decrease during fiscal year 2002
compared to fiscal year 2001 as a result of increased competitive pressures in
the videoconferencing market. The Company plans to increase sales volume in
fiscal year 2003 and move rapidly to a consumer video communications company.

         To increase sales volume, the Company is focusing its efforts on
developing and supporting its new product the Broadband Videophone. With this
strategy, and an expected continuing market increase, the Company expects
increased sales in fiscal year 2003 compared to fiscal year 2002.

         Gross Profit. The Company generated a gross profit of $1,796,177 or
24.1% of net sales for fiscal year 2002 compared to gross profit of $1,634,047
or 47.9% of net sales for fiscal year 2001. Cost of goods sold in fiscal year
2002 amounted to $5,656,169 or 75.9% of net sales, compared to amounted to
$1,746,768, or 51.2% of net sales in fiscal year 2001. This higher cost of goods
sold as a percentage of net sales during fiscal year 2002 was due to a higher
ticket item then previous products and competitive pricing pressure.

         In the fourth quarter of fiscal year 2002, management took steps to
create a new category of consumer communications. The Company was awarded a
patent that allows the Company to focus its efforts on the sales and marketing
of its new Broadband Videophone. The Company has also formed new relationships
with other manufacturers of products that can be sold in conjunction with its
Videophone and service providers that can provide the broadband connectivity
required by the Videophone. Gross margin on the sale of this technology are
expected to be lower than gross margin earned by the Company on its own brand
name and OEM products. As a result of a higher expected sales mix of other
manufacturers' products containing lower margins in fiscal year 2003 and lower

                                       18
<PAGE>


overall pricing due to increased competition, the Company expects gross margin
percentages to decline during fiscal year 2003 compared to fiscal year 2002.

         Research and Development Expenses. Research and development expenses
were $275,617 or 3.7% of net sales for fiscal year 2002 compared to $551,356 or
16.2% of net sales for fiscal year 2001. During fiscal year 2002, the Company
continued to minimize its overall development strategy by eliminating the
majority of its internal development projects and focusing its resources on
identifying opportunities to partner with other companies to share technology
and jointly develop new products. This strategy resulted in a reduction in the
number of development employees and associated expenditures during fiscal year
2002 compared to fiscal year 2001.

         Selling, General and Administrative Expenses. Selling general and
administrative expenses were $3,017,637 or 40.5% of net sales for fiscal year
2002 compared to $2,621,291 or 76.9% of net sales for fiscal year 2001. The
percentage decrease was due to the higher sales volume in fiscal year 2002
compared to fiscal year 2001. The higher level of spending on selling, general
and administrative expenses during fiscal year 2002 of approximately $2,706,000
was a result of the Company increasing its marketing, sales, technical support
and administrative expenses in North America in response to the significantly
higher level of sales in fiscal year 2002 compared to 2001.

         During fiscal year 2002, the Company continued to implement expense
reduction measures to minimize net losses, conserve cash and re-position the
company for expected future sales growth. During fiscal year 2002, the Company
terminated two positions and chose not to fulfill 2 others across various
functional areas of the Company. The Company has also continued to reduce other
costs in the areas of facilities, communications, professional services and
other support costs throughout fiscal year 2002. Selling, general and
administrative expenses for fiscal year 2002 include approximately $31,000
related to the issuance of warrants to purchase common stock in the company to
AMI, which partially offset the overall reduction in selling, general and
administrative expenses during fiscal year 2002 compared to fiscal year 2001.
The Company believes it has maintained key personnel in all functional areas
necessary to successfully execute its business strategy for fiscal year 2003.

         Other Income and Expense. In fiscal year 2002, other income and expense
was $154,184 compared to $204,820 for fiscal year 2001. The lower amount of
other income and expense during fiscal year 2002 was due to lower interest rates
on the Company's line of credit.

         Net Operating Loss Carryforwards. The Company has net operating loss
carryforwards for financial statement and income tax reporting purposes of
approximately $20,300,000 which may be used to offset taxable income in future
years. Changes in the Company's ownership have caused changes in ownership under
section 382 of the Internal Revenue Code of 1996, which limits the use of the
Company's net operating loss carryforwards existing as of the date of the
ownership change. It is not anticipated that any limitation would have a
material adverse effect on the Company.

         As a result of the above, the net loss for fiscal year 2002 was
$1,651,261, or $0.13 per share, compared to a net loss of $1,743,420 or $0.18
per share for fiscal year 2001. In connection with its strategic plan, the
Company has formed key new strategic relationships, restructured operations,
prepared to launch a new product and believes it is well positioned to establish
a new consumer electronics product, thereby increasing future revenues and
profitability in the future.


                                       19
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         Cash and Cash Equivalents. Cash and cash equivalents totaled $0 on June
30, 2002 compared to $81,115 on June 30, 2001.

         Net Cash Used in Operating Activities. The amount of cash used in
operating activities was $1,715,807 during fiscal year 2002 compared to $247,310
during fiscal year 2001. The amount of cash used in operating activities during
fiscal year 2002 resulted mainly from a net loss of $1,651,261.

         In connection with its business volume increase of approximately 119%
during fiscal year 2002, accounts receivable increased $784,667 from June 30,
2001 to June 30, 2002, or approximately 148%. Accounts payable increased
$734,479, due to longer terms from vendors and delays in payments to vendors
during the fiscal year and continuing though JUNE 30, 2002. The delays were
necessary in order for the Company to preserve cash for operations while it took
steps to obtain additional capital.

         Total inventories increased $541,279 as of June 30, 2002 compared to
June 30, 2001 primarily as a result of the Company's settlement with Polycom.
During fiscal year 2002, the Company continued to offer incentive pricing on
certain configurations in order to lower the amount of slower moving inventory.
The Company's level of compression chip inventory also decreased in fiscal year
2002. Although this part is a critical component that can be procured from only
one vendor, the Company believes it has sufficient supply of the compression
chip even in light of the inventory reduction during the year. Overall inventory
levels are expected to increase significantly during fiscal year 2002 as the
Company launches a new consumer product manufactured by other companies in the
marketplace.

         Net Cash Used in Investing Activities. During fiscal year 2002,
property and equipment purchases were $56,417. The Company also invested $78,732
in payments for intangible assets during fiscal year 2002.

         Net Cash Provided by Financing Activities. Cash provided by financing
activities during fiscal year 2002 of $1,769,841 was generated from a $800,000
subordinated loan to the Company from Digital Investors, LLC that was
subsequently converted to common stock, whereby the Company received net
proceeds of $790,000 net of expenses. The Company also received proceeds of
$300,000 from a subordinated note payable and warrants issued with those notes.
The exercise of stock options by former employees was $15,825 and a reduction on
capital lease obligations of $58,689.

         On June 14,2002 the Company received proceeds of $100,000 from a
convertible subordinated note. The loan was made to the Company from Michelle
Norwood. Ms Norwood is also a member of RSI Marketing, LLC. The terms of this
note include a conversion into the Company's common stock at a price of $.55 per
share. In connection with this note, the Company issued 5 year warrants to
purchase 181,818 shares of its common stock at a price of $.55 per share. These
warrants were valued at $71,182using the Black Scholes pricing model.

         On June 20, 2002 the Company received proceeds of $200,000 from a
convertible subordinated note. The loan was made to the Company from accredited
investor. The terms of this note include a conversion into the Company's common
stock at a price of $.55 per share. In connection with this note, the Company
issued 5 year warrants to purchase 363,636 shares of its common stock at a price
of $.55 per share. These warrants were valued at $176,436 using the Black
Scholes pricing model.

On September 8, 2002 the Company issued 83,333 shares of common stock purchased
by an accredited investor at $.60 per share under a Stock Purchase Agreement for
a total price of $49,999.80. In connection with the Stock Purchase Agreement,the
Company issued warrants to purchase 83,333 shares of its common stock at a price
of $.60 per share.

On September 18, 2002 the Company issued 333,333 shares of common stock
purchased by an accredited investor at $.60 per share under a Stock Purchase
Agreement for a total price of $199,999.80.

On September 28, 2002 the Company issued 166,666 shares of common stock
purchased by an accredited investor at $.60 per share under a Stock Purchase
Agreement for a total price of $99,999.60. In connection with the Stock Purchase
Agreement, the Company issued warrants to purchase 166,666 shares of its common
stock at a price of $.60 per share.

On September 28, 2002, in connection with consulting services provided by a
third party, the Company issued warrants to purchase 333,333 shares of its
common stock at a price of $.60 per share. These warrants were valued at
$242,100 using the Black-Scholes pricing model.

         The Company's line of credit will expire on December 11, 2002. At this
time the bank has not indicated whether or not it will renew the line of credit.
The Company will attempt to renew its line of credit under similar terms it now
operates. Additionally, the Company has taken steps to identify alternative
lenders to provide a line of credit for future operations but has not entered
into any formal agreement or substantive discussions. There can be no assurance
that a line of credit will be available to the Company on reasonable terms or at


                                       20
<PAGE>


all. The Company expects to continue seeking lenders for its working capital
needs until a line of credit is secured.

         To ensure the Company has access to a line of credit sufficient to meet
its needs, the Company has signed an agreement with Digital Investors, LLC,
under which Digital has agreed subject to certain terms and conditions to
provide a line of credit to the Company under terms and conditions similar to
those that it currently operates under. Under this agreement, Digital's
agreement to provide a line of credit is contingent upon the Company not signing
a line of credit agreement with a bank by December 11, 2002. The Company
believes it will obtain a line of credit sufficient for future operations from
either its existing bank or a new bank, or alternatively, Digital, as described
above. However, there can be no assurance that the Company will be able to meet
the covenants and restrictions included in such a new line of credit arrangement
on an ongoing basis in the future. Management plans to continue to increase
sales and improve operating results through 1) launching a new product, 2)
creating new revenue streams from service offerings required by this new
technology, 3) continuing its efforts to streamline operations and minimize
overhead, and 4) implementing new proactive measures to protect the Company's
intellectual property rights. Management believes that it will obtain a new line
of credit in the second quarter of fiscal year 2003 to replace its previous line
of credit on terms and conditions that are acceptable to the Company. The
Company has signed an agreement with Digital Investors LLC subject to certain
terms and conditions, to provide a line of credit to the Company in the event a
new line is not secured from a bank by December 11, 2002. Management believes
that funds generated from operations, new equity recently acquired by the
Company and funds from a new line of credit yet to be secured from either a new
bank or Digital Investors LLC will be sufficient to fund operations for the
foreseeable future. In the event that cash from operations, cash from equity
capital and a new line of credit are not sufficient, management would seek
additional equity capital or debt financing. There can be no assurance that such
financing will be available to the Company on reasonable terms or at all.


                                       21
<PAGE>


ITEM 7.       FINANCIAL STATEMENTS.

              The following Consolidated Financial Statement and Independent
Auditors' Report thereon are included herein.

                                                                            Page
                                                                            ----


              Independent Auditors' Report.................................  23

              Consolidated Balance Sheets as Of June 30, 2002 and 2001.....  24

              Consolidated Statements of Operations for the years ended
                June 30, 2002 and 2001.....................................  25

              Consolidated Statements of Stockholders' Equity for
                the years ended June 30, 2002 and 2001.....................  26

              Consolidated Statements of Cash Flows for the
                years ended June 30, 2002 and 2001.........................  27

              Notes to Consolidated Financial Statements...................  28


                                       22
<PAGE>


                          INDEPENDENT AUDITORS' REPORT




Stockholders and Board of Directors
Viseon, Inc.


We have audited the accompanying consolidated balance sheets of Viseon, Inc. and
subsidiary as of June 30, 2002 and 2001, and the related consolidated statements
of operations, stockholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.


We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Viseon,
Inc. and subsidiary as of June 30, 2002 and 2001, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has recurring operating losses,
negative cash flows from operations for the year, and a working capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                              /s/ VIRCHOW, KRAUSE & COMPANY, LLP





Minneapolis, Minnesota
October 4, 2002


                                       23
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                      2002             2001
                                                                                  ------------     ------------
<S>                                                                               <C>              <C>
CURRENT ASSETS
    Cash and cash equivalents                                                     $         --     $     81,115
    Accounts receivable, net of allowance for doubtful accounts of $144,000 in
      2002 and 2001                                                                  1,314,131          529,464
    Other receivable                                                                        --          299,633
    Inventories (note 3)                                                             1,087,661          546,390
    Prepaid expenses                                                                    39,984           31,564
                                                                                  ------------     ------------
        Total Current Assets                                                         2,441,776        1,488,166
                                                                                  ------------     ------------

PROPERTY AND EQUIPMENT, NET                                                            720,431          803,540
                                                                                  ------------     ------------

INTANGIBLE ASSETS, NET                                                                 204,529          124,036
                                                                                  ------------     ------------

               TOTAL ASSETS                                                       $  3,366,736     $  2,415,742
                                                                                  ============     ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
    Checks issued in excess of cash in bank                                       $     51,919     $         --
    Revolving credit facility, net (note 7)                                          1,269,339          534,860
    Current portion of capital lease obligations                                         4,017           62,953
    Accounts payable                                                                 1,479,767        1,067,760
    Accrued expenses                                                                   204,745          229,005
    Current portion of deferred revenue                                                298,708           91,339
                                                                                  ------------     ------------
        Total Current Liabilities                                                    3,308,495        1,985,917

LONG-TERM LIABILITIES
    Capital lease obligations, net of current portion                                       --           23,085
    Deferred revenue, net of current portion                                                --          267,245
                                                                                  ------------     ------------

        Total Liabilities                                                            3,308,495        2,276,247
                                                                                  ------------     ------------

COMMITMENTS AND CONTINGENCIES (note 10)

STOCKHOLDERS' EQUITY (note 12)
    Preferred stock, $.01 par value per share
        5,000,000 shares authorized
        no shares issued and outstanding                                                    --               --
    Common stock, $.01 par value per share
        50,000,000 shares authorized
        14,172,066 and 11,668,981 shares issued and outstanding                        141,720          116,689
    Additional paid-in capital                                                      21,713,645       20,168,669
    Accumulated deficit                                                            (21,797,124)     (20,145,863)
                                                                                  ------------     ------------
        Total Stockholders' Equity                                                      58,241          139,495
                                                                                  ------------     ------------

               TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $  3,366,736     $  2,415,742
                                                                                  ============     ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       24
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                       Years Ended June 30, 2002 and 2001

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                           2002             2001
                                                       ------------     ------------
<S>                                                    <C>              <C>
NET SALES                                              $  7,452,346     $  3,409,352

COST OF GOODS SOLD                                        5,656,169        1,746,768
INVENTORY WRITEDOWN TO LOWER OF COST OR MARKET                   --           28,537
                                                       ------------     ------------

    Gross Profit                                          1,796,177        1,634,047

RESEARCH AND DEVELOPMENT                                    275,617          551,356
SELLING, GENERAL AND ADMINISTRATIVE                       3,017,637        2,621,291
                                                       ------------     ------------

    Operating Loss                                       (1,497,077)      (1,538,600)
                                                       ------------     ------------

OTHER INCOME (EXPENSE)
    Other income                                              1,980            4,073
    Interest income                                           2,637            8,589
    Interest expense                                       (101,089)        (215,482)
    Other expense                                           (57,712)          (2,000)
                                                       ------------     ------------
        Other Expense, Net                                 (154,184)        (204,820)
                                                       ------------     ------------

    NET LOSS                                           $ (1,651,261)    $ (1,743,420)
                                                       ============     ============

Basic and diluted loss per share                       $      (0.13)    $      (0.18)
                                                       ============     ============

Weighted average common shares outstanding:
  Basic and diluted                                      12,814,753        9,561,495
                                                       ============     ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       25
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       Years Ended June 30, 2002 and 2001

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                          Common Stock           Additional
                                                 ----------------------------      paid-in       Accumulated
                                                    Shares          Amount         capital         deficit           Total
                                                 ------------    ------------    ------------    ------------     ------------
<S>                                                 <C>          <C>             <C>             <C>              <C>
BALANCES, June 30, 2000                             8,724,883    $     87,249    $ 18,615,457    $(18,402,443)    $    300,263

    Common stock sold in private placement,
      net of expenses                               2,185,715          21,857         643,486              --          665,343

    Common stock warrants issued in
      connection with asset acquisition                    --              --         326,325              --          326,325

    Common stock warrants issued for services
      rendered                                             --              --         225,061              --          225,061

    Common stock issued for services rendered          75,000             750          28,545              --           29,295

    Note payable and accrued interest
      converted to common stock                       674,383           6,743         229,290              --          236,033

    Exercise of stock options                           9,000              90           3,285              --            3,375

    Compensation related to stock options                  --              --          97,220              --           97,220

    Net loss                                               --              --              --      (1,743,420)      (1,743,420)
                                                 ------------    ------------    ------------    ------------     ------------

BALANCES, June 30, 2001                            11,668,981         116,689      20,168,669     (20,145,863)         139,495

    Note payable and accrued interest
      converted into common stock net
      of expenses of $10,000                        2,314,285          23,143         776,857              --          800,000

    Common stock issued for services rendered         150,000           1,500         142,133              --          143,633

    Exercise of stock options                          38,800             388          15,437              --           15,825

    Common stock warrants issued in
      connection with subordinated note
      payable                                              --              --         300,000              --          300,000

    Common stock warrants issued in
      connection with revolving credit
      facility                                             --              --          53,120              --           53,120

    Compensation related to stock options                  --              --          74,529              --           74,529

    Common stock warrants issued in
      connection with software acquisition                 --              --         182,900              --          182,900

    Net loss                                               --              --              --      (1,651,261)      (1,651,261)
                                                 ------------    ------------    ------------    ------------     ------------

BALANCES, June 30, 2002                            14,172,066    $    141,720    $ 21,713,645    $(21,797,124)    $     58,241
                                                 ============    ============    ============    ============     ============
</TABLE>


                See accompanying notes to consolidated financial statements.

                                       26
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                       Years Ended June 30, 2002 and 2001

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                      2002             2001
                                                                                  ------------     ------------
<S>                                                                               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                                      $ (1,651,261)    $ (1,743,420)
    Adjustments to reconcile net loss to net cash flows from operating
      activities
        Depreciation and amortization                                                  358,999          347,099
        Amortization of original issuance discount                                      26,560               --
        Inventory writedown to lower of cost or market                                      --           28,537
        Interest expense converted to common stock                                          --           11,033
        Common stock issued for services rendered                                      143,633           29,295
        Warrants issued for services rendered                                               --          225,061
        Compensation related to stock options                                           74,529           97,220
        Changes in operating assets and liabilities
           Accounts receivable, net                                                   (784,667)         270,368
           Inventories                                                                (241,638)         232,029
           Prepaid expenses                                                             (8,420)          33,446
           Checks written in excess of cash in bank                                     51,919               --
           Accounts payable                                                            388,675          274,974
           Accrued expenses                                                            (14,260)         (36,144)
           Deferred revenue                                                            (59,876)         (16,808)
                                                                                  ------------     ------------
               Net Cash Flows from Operating Activities                             (1,715,807)        (247,310)
                                                                                  ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment                                                (56,417)        (353,100)
    Payments for intangible assets                                                     (78,732)        (133,189)
                                                                                  ------------     ------------
        Net Cash Flows from Investing Activities                                      (135,149)        (486,289)
                                                                                  ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Payments for debt issuance costs                                                   (38,334)              --
    Net advances (repayments) on revolving credit facility and warrants issued
      with revolving credit facility                                                   761,039          (38,941)
    Proceeds from subordinated note payable, net of expenses                           790,000               --
    Proceeds from note payable - related party                                              --          225,000
    Proceeds from subordinated note payable and warrants issued with notes
      payable                                                                          300,000               --
    Payments on capital lease obligations                                              (58,689)        (123,993)
    Proceeds from issuance of common stock, net of expenses                                  0          665,343
    Proceeds from exercise of common stock options                                      15,825            3,375
                                                                                  ------------     ------------
        Net Cash Flows from Financing Activities                                     1,769,841          730,784
                                                                                  ------------     ------------

           NET CHANGE IN CASH AND CASH EQUIVALENTS                                     (81,115)          (2,815)

 CASH AND CASH EQUIVALENTS - Beginning of Year                                          81,115           83,930
                                                                                  ------------     ------------

     CASH AND CASH EQUIVALENTS - END OF YEAR                                      $         --     $     81,115
                                                                                  ============     ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       27
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
--------------------------------------------------------------------------------

Founded in 1993, Viseon, Inc. (the Company) changed its name from RSI Systems,
Inc. to Viseon, Inc. on May 23, 2001. The Company designs, manufactures and
resells business level videoconferencing systems, services and accessories for
domestic and international markets. These systems are available in a variety of
configurations and price points through both direct and indirect sales channels.
Recently, the Company has undergone significant change, from being a sole
provider of its own videoconferencing systems, to a company which also
distributes products and services provided by others. The Company extends
unsecured credit to customers in the normal course of business.

At June 30, 2002, the Company has a wholly-owned subsidiary, RSI Systems, Ltd.
Customers are located primarily in the United Kingdom/Europe.

The Company has incurred losses from operations and negative cash flows for the
years ended June 30, 2002 and 2001. Together with a working capital deficit at
June 30, 2002, these conditions raise concerns about the Company's ability to
generate positive cash flows and fund operations.

Management plans to increase sales and improve operating results through 1)
increased marketing and a broader distribution of products from a relationship
with a third party direct sales and marketing organization in the United States,
and through a select group of stronger resellers and distributors, 2) continued
revenue streams from a broader line of products, 3) continued measures to
minimize overhead and 4) initiatives to protect its intellectual property
rights. Management believes that funds generated from operations and funds from
a credit facility will be sufficient to cover cash needs in the foreseeable
future. There is no guarantee these funds will be available with terms favorable
to the Company. In the event sales do not materialize at the expected rates, or
the Company does not achieve planned gross margins, management would seek
additional financing or would conserve cash by further reducing expenses.

--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

      PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Viseon, Inc. and
its wholly-owned subsidiary. All significant inter-company transactions and
balances have been eliminated in consolidation.

      CASH AND CASH EQUIVALENTS

The Company considers investments in highly liquid debt securities having an
initial maturity of three months or less to be cash equivalents. The Company
maintains its cash in high quality financial institutions. The balances, at
times, may exceed federally insured limits.

      INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method), or
market.

      PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is provided for using
the straight-line method over their estimated useful lives which range from two
to seven years. Leasehold improvements are amortized over the shorter of their
estimated useful life or the term of the lease. Maintenance, repairs and minor
renewals are expensed when incurred.


                                       28
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
--------------------------------------------------------------------------------

      CAPITALIZED SOFTWARE COSTS

Software costs have been accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed". Costs associated with the
planning and design phase of software development, including coding and testing
activities necessary to establish technological feasibility, are classified as
research and development and expensed as incurred. Once technological
feasibility has been determined, additional costs incurred in development,
including coding, testing and product quality assurance are capitalized, when
material. At June 30, 2002 and 2001, the Company had $625,612 and $625,009 of
unamortized computer software costs, including software acquired. Amortization
of computer software costs was $237,291 and $129,425 for the years ended June
30, 2002 and 2001.

      INTANGIBLE ASSETS

The Company amortizes patents over their estimated useful lives of ten years
using the straight-line method. Covenants not to compete are being amortized
using the straight-line method over the term of the covenants. Accumulated
amortization was $45,726 and $9,154 at June 30, 2002 and 2001. Amortization
expense was $36,572 and $9,154 for the years ended June 30, 2002 and 2001. Debt
issuance costs are amortized over the term of the subordinated note payable
using the straight-line method, which approximates the interest method.

      REVENUE RECOGNITION

The Company records sales revenue at the time merchandise is shipped. The
Company ensures the transaction complies with the seven conditions and the six
considerations contained in Accounting and Auditing Enforcement Release No. 108
of the Securities and Exchange Commission (SEC).

In November 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition." SAB No. 101, as amended, sets forth the SEC staff's
position regarding the point at which it is appropriate for a registrant to
recognize revenue. The staff believes that revenue is realizable and earned when
all of the following criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred or service has been rendered, the seller's price
to the buyer is fixed or determinable and collectibility is reasonably assured.
The Company uses the above criteria to determine whether revenue can be
recognized.

      SHIPPING AND HANDLING COSTS

In accordance with Emerging Issues Task Force (EITF) Issue 00-10, "Accounting
for Shipping and Handling Fees and Costs," the Company is including shipping and
handling revenues in sales and shipping and handling costs in cost of goods
sold.


                                       29
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
--------------------------------------------------------------------------------

      RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to operations when incurred.

      ADVERTISING COSTS

All costs related to advertising the Company's products are expensed in the
period incurred. Advertising expense for the years ended June 30, 2002 and 2001
was $88,945 and $12,129.

      NET LOSS PER SHARE

Basic and diluted loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during each period.
Dilutive common equivalent shares have not been included in the computation of
diluted loss per share because their inclusion would be antidilutive.
Antidilutive common equivalent shares issuable based on future exercise of stock
options or warrants could potentially dilute basic and diluted loss per share in
subsequent years. All options and warrants were antidilutive at June 30, 2002
and 2001.

      USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount for all financial instruments approximates fair value. The
carrying amount of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximates fair value because of the short
maturity of these instruments. The fair value of debt and capital lease
obligations approximates the current rates at which the Company could borrow
funds with similar remaining maturities and risks.

      SEGMENT REPORTING

The Company is an international seller of video conferencing systems in the
United States and the United Kingdom/Europe. Management believes the Company
meets the criteria for aggregating its operating segments into a single
reporting segment.


                                       30
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
--------------------------------------------------------------------------------

      RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." SFAS
No. 141 eliminates the pooling-of-interests method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001. In addition, SFAS No. 141 further clarifies the criteria
to recognize intangible assets separately from goodwill. The requirements of
SFAS No. 141 are effective for any business combination accounted for by the
purchase method that is completed after June 30, 2001. The Company believes the
adoption of SFAS No. 141 will not have a material effect on the Company's
consolidated financial position or results of operations.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 discontinues the amortization of recorded goodwill for
fiscal years beginning after December 15, 2001. The Company believes the
adoption of SFAS No. 142 will not have a material effect on the Company's
consolidated financial position or results of operations.

In June 2001, the FASB issued SFAS No. 143. "Accounting for Asset Retirement
Obligations." SFAS No. 143 is effective for fiscal years beginning after June
15, 2002. The Company believes the adoption of SFAS No. 143 will not have a
material effect on the Company's consolidated financial position or results of
operations.

In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121. SFAS No.
144 primarily addresses significant issues relating to the implementation of
SFAS No. 121 and develops a single accounting model for long-lived assets to be
disposed of, whether primarily held, used or newly acquired. The provisions of
SFAS No. 144 will be effective for fiscal years beginning after December 15,
2001. The provisions of SFAS No. 144 generally are to be applied prospectively.
The Company believes the adoption of SFAS No. 144 will not have a material
effect on the Company's consolidated financial position or results of
operations.

In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
The Company believes the adoption of SFAS No. 145 will not have a material
effect on the Company's consolidated financial position or results of
operations.

In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS No. 146 requires the recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred versus the date the Company commits to an exit plan. In
addition, SFAS No. 146 states the liability should be initially measured at fair
value. The requirements of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company believes the
adoption of SFAS No. 146 will not have a material effect on the Company's
consolidated financial position or results of operations.


                                       31
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 3 - INVENTORIES
--------------------------------------------------------------------------------

Inventories, net of reserve, consisted of the following at June 30:

                                                    2002            2001
                                                ------------    ------------

         Components                             $    299,099    $    437,150
         Finished goods                              788,562         109,240
                                                ------------    ------------

                                                $  1,087,661    $    546,390
                                                ============    ============

--------------------------------------------------------------------------------
NOTE 4 - PROPERTY AND EQUIPMENT, NET
--------------------------------------------------------------------------------

Property and Equipment consisted of the following at June 30:

                                                    2002             2001
                                                ------------     ------------

      Furniture, equipment and software         $  2,482,703     $  2,251,970
      Leasehold improvements                           5,421            5,421
                                                ------------     ------------

         Total Property and Equipment              2,488,124        2,257,391

      Less: accumulated depreciation and
            amortization                          (1,767,693)      (1,453,851)
                                                ------------     ------------

         Property and Equipment, net            $    720,431     $    803,540
                                                ============     ============

Depreciation and amortization expense was $322,426 and $338,354 for the years
ended June 30, 2002 and 2001.

--------------------------------------------------------------------------------
NOTE 5 - SOFTWARE
--------------------------------------------------------------------------------

In April 2001, the Company purchased from King Research the intellectual
property and rights related to software products for $200,000, plus issuance up
to a maximum of 1,000,000 warrants. At the signing of the agreement, the Company
issued a warrant for the purchase of 750,000 shares of its common stock at an
exercise price of $0.70. These warrants were valued at $326,325 using the
Black-Scholes pricing model. In December 2001, the Company issued warrants for
250,000 shares of the Company's common stock at an exercise price of $0.70 per
share. These warrants were valued at $182,900 using the Black-Scholes pricing
model. The warrants expire in April 2006. Amortization of the software is
provided using the straight-line method over its estimated useful life of five
years.

As part of the agreement, the Company entered into three covenants not to
compete by paying $25,000 for each agreement.


                                       32
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 6 - INTANGIBLE ASSETS, NET
--------------------------------------------------------------------------------

Intangible assets consisted of the following at June 30:

                                                    2002             2001
                                                ------------     ------------

      Patents                                   $    136,922     $     58,190
      Covenants not to compete                        75,000           75,000
      Debt issuance costs                             38,334               --
                                                ------------     ------------

         Total intangible assets                     250,256          133,190

      Less: accumulated amortization                 (45,727)          (9,154)
                                                ------------     ------------

         Intangible assets, net                 $    204,529     $    124,036
                                                ============     ============


--------------------------------------------------------------------------------
NOTE 7 - REVOLVING CREDIT FACILITY
--------------------------------------------------------------------------------

In December 2001, the Company entered into a $2,500,000 revolving credit
facility agreement with a bank and issued warrants to the lender to purchase up
to 200,000 common shares at $1.58 per share through December 2006. The proceeds
of $2,500,000 were allocated between the notes and the warrants, which were
valued using the Black-Scholes pricing model. The resulting original issue
discount (the fair value of the warrants), is being amortized over the life of
the note using the straight-line method, which approximates the interest method.
The credit facility is due on demand, expires in December 2002 and is secured by
substantially all assets of the Company. Interest on the outstanding borrowings
accrues at the prime rate plus 2.25% (7% at June 30, 2002). On June 30, 2002,
outstanding borrowings were $1,269,339. This revolving credit facility is
subject to covenants defined in the agreement. As of June 30, 2002, the Company
was not in compliance with the covenants. In July 2002, the covenants were
modified.

Outstanding borrowings of $534,860 from the commercial loan agreement at June
30, 2001 were paid in full during fiscal 2002.


                                       33
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 8 - SUBORDINATED NOTES PAYABLE
--------------------------------------------------------------------------------

In June 2002, the Company borrowed $300,000 and issued warrants to the various
lenders to purchase 545,454 common shares at $0.55 per share through June 2003.
The notes are subordinated to the bank, due on demand, mature June 2003 with
monthly interest only payments at 10%, and are secured by substantially all
assets of the Company. The subordinated notes payable are also convertible into
common stock of the Company at a conversion rate of $0.55 per share through June
2003. The proceeds of $300,000 were allocated between the notes and the
warrants, which were valued using the Black-Scholes pricing model. The resulting
original issue discount (the fair value of the warrants and the beneficial
conversion of the notes payable into common stock as defined in Emerging Issues
Task Force (EITF) 00-27 "Application of Issue No. 98-5 to Certain Convertible
Instruments"), is being amortized over the life of the notes using the
straight-line method, which approximates the interest method. The notes may be
converted based on the terms of the agreement.

In connection with these notes, the Company issued 38,182 warrants to purchased
common shares for services provided at $0.55 per share which expire in June
2007.

--------------------------------------------------------------------------------
NOTE 9 - CAPITAL LEASE OBLIGATIONS
--------------------------------------------------------------------------------

The following is a summary of leased equipment as of June 30:

                                                    2002             2001
                                                ------------     ------------

         Equipment                              $    160,200     $    484,147
         Less: accumulated amortization             (137,950)        (383,842)
                                                ------------     ------------

                                                $     22,250     $    100,305
                                                ============     ============

The following is a schedule of future minimum lease payments under the remaining
capital lease obligation together with the present value of the net minimum
lease payments as of June 30, 2002:

         Future minimum lease payments due in 2003               $      4,840
         Less: Amount representing interest at 17%                       (823)
                                                                 ------------
             Present Value of Future Minimum Lease Payments             4,017
         Less: Current portion                                         (4,017)
                                                                 ------------

             Long-Term Capital Lease Obligation                  $         --
                                                                 ============

--------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------

      OPERATING LEASES

The Company leases office space and various equipment under noncancelable
operating leases with terms of monthly to three years. One of the leases
requires the Company to pay its pro rata share of operating expenses.


                                       34
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES (cont.)
--------------------------------------------------------------------------------

Future minimum rental payments due under noncancelable operating leases are as
follows for the fiscal years ending June 30:

             2003                                                 $    75,211
             2004                                                      71,893
             2005                                                      59,911
                                                                  -----------
               Total                                              $   207,015
                                                                  ===========

Total rent expense was $132,458 and $130,621 for the years ended June 30, 2002
and 2001.

      SOFTWARE LICENSE AGREEMENTS

During 1994, the Company entered into a software license agreement with a
software development company which expires in 2004. Pursuant to the agreement,
the Company is to pay a royalty fee of up to $25.00 per unit of
videoconferencing systems containing the software. Royalty expenses related to
this agreement for the years ended June 30, 2002 and 2001 were $5,400 and
$17,850.

During 1996, the Company entered into a software license agreement with a
software development company. Pursuant to the agreement, in addition to upfront
licensing and production fees of $90,000, the Company is to pay a royalty fee of
up to $40.00 per unit of videoconferencing systems containing the software.
Royalty expenses related to this agreement for the years ended June 30, 2002 and
2001 were $8,640 and $3,558.

During 1998, the Company entered into a software license agreement with a
software development company which expires in 2003. Pursuant to the agreement,
in addition to upfront licensing and production fees of $25,000, the Company is
to pay a royalty fee of up to $5.00 per unit of videoconferencing systems
containing the software. Royalty expenses related to this agreement for the
years ended June 30, 2002 and 2001 were $1,080 and $3,705.

During 1999, the Company entered into a software license agreement with a
software development company. Pursuant to the agreement, in addition to upfront
licensing and production fees of $25,000, the Company is to pay a royalty fee of
$5.00 per unit of videoconferencing systems containing the software. The Company
had no sales of related systems containing the software during the years ended
June 30, 2002 and 2001.

      MANUFACTURING AGREEMENT

On August 28, 1996, the Company entered into a manufacturing agreement with a
third party custom manufacturer (Manufacturer). Pursuant to this agreement, the
Manufacturer agrees to produce the Company's videoconferencing products, and
warrant that all products will be free from defects in material and workmanship
for twelve months from the date the Company ships to the customer, or fifteen
months from the date the Manufacturer ships to the Company, whichever comes
first.

The agreement may be terminated by either party upon failure of the other party
to comply with any material term of the agreement after a 30 day written notice
and cure period. In the event of such termination, the Company would be
obligated to pay for any goods accepted under the terms of the agreement. The
Company may also terminate the agreement upon 30 days written notice. In such
case, the Company would be obligated to pay for material and work in progress
for products ordered.


                                       35
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES (cont.)
--------------------------------------------------------------------------------

As of June 30, 2002, the Company's obligation for material and work in progress
for products ordered was up to approximately $893,000.

      DISTRIBUTOR AND DEALER AGREEMENTS

The Company is a party to distributor and dealer agreements with several
companies. Certain distributors and dealers have minimum purchase obligations.
The term of each agreement is one year, renewable for additional one-year
periods. Distributors and dealers receive discounts depending upon the number of
systems ordered from the Company.

      INVESTOR AND RECRUITMENT AGREEMENT

In February 2001, in connection with an agreement for seeking of potential
investors and recruiting and hiring of senior management, the Company issued the
rights to purchase warrants for 500,000 shares of its common stock at an
exercise price of $0.45. 50,000 warrants were issued and vested immediately and
were valued at $10,315 using the Black-Scholes pricing model. Based on the
agreement, 450,000 warrants will vest at a rate of 37,500 quarterly and may vest
earlier based on the achievement of earnings criteria as defined in the
agreement. Based on the agreement, as of June 30, 2002, 187,500 warrants vested
and were valued at $38,680 using the Black-Scholes pricing model. The warrants
expire in February 2006.

Based on the terms of the agreement, the Company must pay $500 per month for
consulting fees. Consulting fee expense for the years ended June 30, 2002 and
2001 was $6,000 and $1,500.

      MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Sales to one customer represented approximately 11% of net sales for the year
ended June 30, 2002 with accounts receivable from two customers representing
approximately 13% and 14% of total accounts receivable as of June 30, 2002.
During the year ended June 30, 2001, sales to three customers represented
approximately 39% of net sales, with accounts receivable from two customers
representing approximately 76% of total accounts receivable as of June 30, 2001.

      RESTRUCTURING COSTS

During June 2001, the Board of Directors approved the movement of the Company's
corporate office from Minneapolis, Minnesota to Dallas, Texas. The expenses
related to this decision was $138,285 and was included in selling, general and
administrative expenses for the year ended June 30, 2001.

      LEGAL PROCEEDINGS

The Company is involved in legal actions in the ordinary course of its business.
Although the outcome of any such legal actions cannot be predicted, management
believes that there are no pending legal proceedings against or involving the
Company for which the outcome is likely to have a material adverse effect upon
the Company's consolidated financial position or results of operations.


                                       36
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES
--------------------------------------------------------------------------------

The Company utilizes the liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences attributable to temporary differences between the financial
statement and income tax reporting bases of assets and liabilities. The Company
has incurred cumulative net operating losses for both financial statement and
income tax reporting purposes. At June 30, 2002, the Company had net operating
loss carryforwards of approximately $20,300,000 and research and development
credit carryforwards of approximately $238,000. If not used, these carryforwards
will begin to expire in 2010. During 1996, a change in ownership occurred
pursuant to Section 382 of the Internal Code that limits the use of loss
carryforwards in any one year. Subsequent ownership changes may further limit
the use of these net operating loss carryforwards.

                                                 2002              2001
                                             ------------      ------------
     Deferred income tax assets:
       Net operating loss carryforwards      $  7,890,000      $  7,357,200
       Asset valuation reserves and other         299,900           219,300
       Research and development credit
           carryforwards                          238,000           238,000
                                             ------------      ------------
                                                8,427,900         7,814,500
       Less: valuation allowance               (8,368,800)       (7,754,000)
     Deferred income tax liabilities:
       Depreciation and amortization              (59,100)          (60,500)
                                             ------------      ------------
     Net deferred income tax assets          $         --      $         --
                                             ============      ============

Income tax computed at the U.S. federal statutory rate reconciled to the
effective tax rate is as follows for the years ended June 30:

                                                 2002              2001
                                             ------------      ------------

     Federal statutory tax rate benefits            (35.0)%           (35.0)%
     State tax, net of federal benefit               (5.0)             (5.0)
     Change in valuation allowance                   40.0              40.0
                                             ------------      ------------
     Effective tax rate                               0.0%              0.0%
                                             ============      ============

--------------------------------------------------------------------------------
NOTE 12 - STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

      COMMON STOCK

In January 2001, the Company issued 75,000 shares of common stock valued at
$29,295 as payment for consulting services to the former president of the
Company. These shares have not been registered with the Securities and Exchange
Commission.

In February 2001, a director of the Company converted a $225,000 note payable
and accrued interest due from the Company into common stock. The Company issued
674,383 shares of common stock upon conversion of the note payable which,
together with accrued interest at 10%, totaled $236,033. The note payable was
converted into common stock at a price of $0.35 per share. These shares have not
been registered with the Securities and Exchange Commission.


                                       37
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 12 - STOCKHOLDERS' EQUITY (cont.)
--------------------------------------------------------------------------------

During fiscal 2001, the Company received $665,343, net of offering costs as a
result of a private placement of 2,185,715 shares of common stock to Digital
Investors, LLC (Digital) for $0.35 per share. The shares were sold in connection
with a Stock Purchase Agreement between the Company and Digital. This agreement
was amended October 1, 2001. With the amendment, Digital issued warrants for the
purchase of 800,000 shares of common stock at an exercise price of $0.75 per
share expiring in April 2006.

During fiscal 2002, the Company issued 150,000 shares to directors and an
outside consultant. The shares had fair market values ranging from $0.75 to
$1.32 and were valued at $143,633. These shares have not been registered with
the Securities and Exchange Commission.

In January 2002, Digital Investors, LLC (Digital) converted a $800,000 note
payable and accrued interest from the Company into common stock. The Company
issued 2,314,285 shares of common stock upon conversion of the note payable at a
price of $0.35 per share, which totaled $790,000, Net of expenses.

      STOCK WARRANTS

In July 1995, in connection with the Company's initial public offering, the
Company issued warrants to the underwriter for the purchase of 122,500 shares of
common stock at an exercise price of $7.50. The warrants were exercisable
through July 2000 and expired.

In September 1996, in connection to the Company's private offering of 1,500,000
shares of its common stock, the Company issued a warrant to the placement agent
for the purchase of 150,000 shares of its common stock at an exercise price of
$3.00. The warrant is exercisable through September 2002.

In January 1998, in connection with the Company's private offering of 1,671,255
shares of its common stock, the Company issued a warrant to the placement agent
for the purchase of 167,126 shares of its common stock at an exercise price of
$1.65. The warrant expires January 2008.

Two directors of the Company had warrants for the purchase of 15,000 shares of
common stock at an exercise price of $3.00 per share. These warrants were
exercisable through June 30, 2001 and expired.

Total warrants outstanding at June 30, 2002 were 4,400,762 with exercise prices
ranging from $0.45 to $3.00 and expiring through June 2007.

      STOCK OPTIONS

The Company has a stock plan which permits the granting of stock options,
including incentive stock options as defined under Section 422 of the Internal
Revenue Code of 1986, nonqualified stock options and restricted stock. The
exercise price for options granted under the stock plan shall be at a price
determined at the sole discretion of the compensation committee of the Company's
board of directors provided, however, that incentive stock options granted under
the plan shall be granted at exercise prices equal to the fair market value on
the date of grant (110% for a stockholder holding 10% or more of the outstanding
shares of common stock).


                                       38
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 12 - STOCKHOLDERS' EQUITY (cont.)
--------------------------------------------------------------------------------

The Company has reserved 2,500,000 shares of common stock for issuance under the
plan. At June 30, 2002, 1,197,250 shares remained available for grant. Options
issued become exercisable over varying periods as provided in the individual
plan agreements and have a term of five or ten years.

A summary of changes in common stock options during the years ended June 30,
2002 and 2001 is as follows:

                                                                    WEIGHTED
                                                                     AVERAGE
                                                                    EXERCISE
                                                                    PRICE PER
                                                      OPTIONS         SHARE
                                                    ----------     ----------
Outstanding at June 30, 2000                         1,105,800     $     1.60

    Granted                                             15,000           0.38
    Exercised                                           (9,000)          0.38
    Canceled                                          (188,750)          1.72
                                                    ----------     ----------

Outstanding at June 30, 2001                           923,050     $     1.43

    Granted                                            607,500           0.82
    Exercised                                          (38,800)          0.48
    Canceled                                          (189,000)          1.95
                                                    ----------     ----------

Outstanding at June 30, 2002                         1,302,750     $     1.06
                                                    ==========     ==========

Exercisable at June 30, 2002                           874,667     $     1.22
                                                    ==========     ==========

As of June 30, 2002, the Company has granted 361,000 options outside the Plan
with a weighted average exercise price of $4.26 with a weighted average
remaining contractual life of 4.1 years.

The following table summarizes information about stock options outstanding as of
June 30, 2002 including those issued outside the Plan:

<TABLE>
<CAPTION>
                                         Options Outstanding           Options Exercisable
                                  ------------------------------ -----------------------------
                                     Weighted-
                                      Average        Weighted-                     Weighted-
   Range of                          Remaining        Average                       Average
   Exercise         Number          Contractual      Exercise        Number         Exercise
    Prices        Outstanding          Life           Price        Exercisable       Price
--------------  ----------------  ---------------- ------------- --------------- -------------
<S>             <C>               <C>              <C>           <C>             <C>
  $0.38-0.93           862,500              3.90   $       0.56        474,417   $       0.46
  $1.03-3.00           651,250              5.66   $       2.00        611,250   $       2.05
  $3.50-9.25           150,000              2.27   $       7.53        150,000   $       7.53
--------------  ----------------  ---------------- ------------- --------------- -------------
  $0.38-9.25         1,663,750              4.44   $       1.76      1,235,667   $       2.11
==============  ================  ================ ============= =============== =============
</TABLE>


                                       39
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 12 - STOCKHOLDERS' EQUITY (cont.)
--------------------------------------------------------------------------------

The Company applies APB No. 25 and related interpretations in accounting for its
stock option plans. Accordingly, $43,585 and $97,220 of compensation cost has
been recognized in the accompanying consolidated statements of operations for
the years ended June 30, 2002 and 2001. Had compensation cost been recognized
based on the fair values of options at the grant dates consistent with the
provisions of SFAS No. 123, the Company's net loss and basic and diluted loss
per share would have been increased to the following pro forma amount for the
years ending June 30:

                                                   2002              2001
                                               ------------     ------------
Net loss
    As reported                                $ (1,651,261)      (1,743,419)
    Pro forma                                    (1,843,279)      (2,011,950)

Basic and diluted loss per share:
    As reported                                $      (0.13)           (0.18)
    Proforma                                          (0.14)           (0.21)

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 2002 and 2001; risk-free interest rates of 5.0%
and 4.5%, expected option lives of 10 years and 10 years, expected volatility of
68.89% and 61.12% and expected dividend yield of 0%.

The weighted average fair values of options granted in 2002 and 2001 were as
follows:

    Fiscal 2002 grants                                          $       0.64
    Fiscal 2001 grants                                          $       0.12

--------------------------------------------------------------------------------
NOTE 13 - RETIREMENT SAVINGS PLAN
--------------------------------------------------------------------------------

The Company has a pre-tax salary reduction/profit-sharing plan under the
provisions of section 401(K) of the Internal Revenue Code, which covers
employees meeting certain eligibility requirements. Profit sharing contributions
by the Company are completely discretionary. The Company made no contributions
during the years ended June 30, 2002 and 2001.


                                       40
<PAGE>


                           VISEON, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 2002 and 2001

--------------------------------------------------------------------------------
NOTE 14 - RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

      Pointe Design

During the year ended June 30, 2001, the Company purchased advertising and
marketing services from a related party totaling $20,039. The Company believes
that the fees paid related to these services were equivalent to those that would
be paid under an arm's length transaction.

      RSI Marketing, LLC

In February 2001, in connection with a marketing agreement with a company to
market its products and services, the Company issued the rights to purchase
warrants for 1,000,000 shares of its common stock at an exercise price of $0.45.
These warrants were valued at $206,300 using the Black-Scholes pricing model.
The warrants were issued based on the achievement of gross sales targets by
December 2001. The warrants expire in February 2006.

The Company is obligated to pay commissions based on the terms outlined on the
agreement. Commission and advertising and marketing expense for the years ended
June 30, 2002 and 2001 were $742,283 and $50,082.

--------------------------------------------------------------------------------
NOTE 15 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     2002          2001
                                                                  ----------    ----------
<S>                                                               <C>           <C>
         Supplemental disclosure of cash paid for
             Interest                                             $   99,256    $  219,541

         Noncash investing and financing activities
             Software acquired through the issuance of
               common stock warrants                              $  182,900    $  326,325
             Note payable and accrued interest converted to
               common stock, net of expenses                      $  790,000    $  236,003
             Inventory received as payment of other
               receivable                                         $  299,633    $       --
             Capital lease payment obligations transferred
               to accounts payable                                $   23,332    $       --
</TABLE>

--------------------------------------------------------------------------------
NOTE 16 - SUBSEQUENT EVENTS (unaudited)
--------------------------------------------------------------------------------

During August 2002, the Company sold 333,333 shares of Company's common stock at
$0.60 per share for gross proceeds of $200,000.

During August and September 2002, the Company sold 249,999 shares of the
Company's common stock at $0.60 per share for gross proceeds of $150,000. In
connection with the sale of these shares of common stock, the Company issued
249,999 warrants to purchase common stock of the Company at $0.60 per share
which vest immediately with a term of five years.

In September 2002, the Company also issued 350,000 warrants to purchase common
stock of the Company at $0.60 per share for consulting services valued at
$242,100 using the Black-Scholes pricing model.

In October 2002, the Company signed an agreement with Digital Investors,
LLC to provide a line of credit to the Company if upon the Company is unable to
obtain a line of credit with a bank by December 2002.


                                       41
<PAGE>


ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE

             None.


                                    PART III

ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
             COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

(a)          CURRENT DIRECTORS AND EXECUTIVE OFFICERS

Name                      Age     Position with Company
----                      ---     ---------------------

John C. Harris             41     Chairman of the Board, Chief Executive Officer
                                  and President

Brian Day                  38     Director

Gerald  Dube               47     Director

W.R. Howell                65     Director

Charles Rey                54     Director


Brian Day has been a director of the Company since October 2001 and has been
Chief Financial Officer of Octave Communications, Inc. since June 1999. Octave
is a developer of multi-point conferencing units for use in audio, data and web
conferencing over both circuit switched and IP. From September 1998 to June
1999, Mr. Day was Chief Financial Officer of Healthtrax Inc. and prior to that,
Chief Financial Officer of Span Instruments, Inc.

         Gerald Dube has been director of the Company since November 2001. From
1994 to 1999, he served in senior executive level positions with Computer
Sciences Corp, including President of the Integrated Business Services unit. In
1999, Mr. Dube joined the internet consulting firm, Zefer, as Executive Vice
President.

         John Harris has been a director and Chief Executive and President of
the Company since February, 2001. From May until December of 2000, Mr. Harris
served as Chief Executive Officer of Diversified Technologies Group, Inc. a
company that provides enhanced fax services. From October 1999 until May 2000,
Mr. Harris was Chief Executive Officer of CBQ, Inc. an e-business solutions
provider. From March of 1999 until joining CBQ, Inc. Mr. Harris served as
President of Paragon Innovations, Inc. an embedded device design firm. From 1986
until 1998, Mr. Harris was President and CEO of CompuNet Support Systems, Inc.
CompuNet provided networking, systems integration and business building
applications.

         W. R. Howell has been a director of the Company since October 2001. Mr.
Howell has been Chairman Emeritus of J.C. Penney Inc. since 1997 and was Chief
Executive Officer of J.C. Penney from 1983 to 1996. Mr. Howell is also a
director of Pfizer, Bankers Trust, ExxonMobil, Halliburton, American Electric
Power, and Williams Companies.

         Charles Rey has been Chief Executive Officer of Heartland Direct Group
marketing company since 1975. Mr. Rey is also Chairman of the Board of POPS
Direct, a consumer internet marketing company.


                                       42
<PAGE>


              FORMER DIRECTORS AND EXECUTIVE OFFICERS

Name                      Age      Position with Company
----                      ---      ---------------------

Richard F. Craven          58      Former Chairman of the Board and former
                                   Interim President and Chief Executive Officer

Eugene W. Courtney         63      Former Chief Executive Officer and President

Marti D. Miller            44      Former Vice President Engineering

James D. Hanzlik           45      Former Chief Financial Officer

Byron G. Shaffer           67      Former Director

S. Albert Hanser           63      Former Director


         RICHARD F. CRAVEN became Interim President and Chief Executive Officer
and Chairman of the Board on September 7, 1999 and resigned his position as
Interim President and Chief Executive Officer when Mr. Courtney was appointed in
October 1999. He was a founder of the Company and served as a director since its
inception in December 1993 until June 2002. Mr. Craven is a private investor and
has been involved as a manager, owner and developer in several real estate
ventures. He has been a licensed real estate broker and a licensed insurance
agent since 1965. Mr. Craven is also a director of VideoLabs, Inc.

         BYRON G. SHAFFER served as a director of the Company from 1995 to
November 19, 1998 and again from September 1999 until October of 2001. Mr.
Shaffer has been a private investor for the last 20 years and has also served as
a director of Mentor Corporation, a medical products manufacturer, since 1976.

         S. ALBERT HANSER was a director from September 1999 until June 2002. He
is currently the CEO of Sanibel Captiva Trust Company. Mr. Hanser has been
Chairman of Hanrow Financial Group, Ltd. , a merchant banking firm. Mr. Hanser
also has served as Chairman/CEO of Resource Bank and Trust, Chairman of First
Bank Systems' Merchant Bank and Executive Vice President of Investment Banking
at Dain Bosworth. In addition, he sits on a number of industry, civic and
charitable boards. Mr. Hanser graduated from Brown University in 1959 and
Wharton School of Finance in 1974.

         JAMES D. HANZLIK became Chief Financial Officer on January 9, 1997 and
resigned June 28, 2002. Before joining the Company, Mr. Hanzlik was Vice
President, Controller for Sterner Lighting Group, a manufacturer of commercial
lighting. Prior to that, Mr. Hanzlik served as Controller and Product Group
Manager for Despatch Industries Ltd. a manufacturer of industrial heat
processing equipment serving the electronics manufacturing industry. Mr. Hanzlik
began his career from 1980 - 1985 at KPMG LLC, where he worked with a number
technology manufacturing companies.

         EUGENE W. COURTNEY was President and Chief Executive Officer from
October 1999 to February 2001. Before joining the Company, Mr. Courtney was
President and CEO of HEI, Inc., a designer and builder of microelectronics from
1990 to 1998. During the 1980's Mr. Courtney served as Group Vice President for
National Computer Systems, and he served as the CEO of Digital Scientific
Corporation during the 1970's. Mr. Courtney holds a Bachelor of Electrical
Engineering degree from Princeton University and is a director of several public
and privately held companies. Mr. Courtney retired in February of 2001.

         MARTI D. MILLER was Vice President of Engineering from August 1995 to
July 2001. Before joining the Company, Mr. Miller was Director of Engineering
for Transition Networks, Inc.

         The members of the Board of Directors are elected annually at the
Annual Meeting of Shareholders. Executive officers are elected by the Board of
Directors and serve until their successors are elected and appointed.


                                       43
<PAGE>


BOARD OF DIRECTORS' COMMITTEES

         The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee supervises the financial affairs of
the Company and generally reviews the results and scope of the audit and other
services provided by the Company's independent accountants and reports the
results of their review to the Board and to the Company's management. The
Compensation Committee has general responsibility for management of compensation
matters, including compensation arrangements for officers and incentive
compensation for employees of the Company. Currently the Audit Committee
consists of Messrs Brian Day and Charles Rey. The Compensation committee
consists of Messrs W.R. Howell and Gerald Dube.

(b)      SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and all persons who
beneficially own more than 10% of the outstanding shares of the Company's Common
Stock to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of the Company's Common Stock.
Executive officers, directors and greater than 10% beneficial owners are also
required to furnish the Company with copies of all Section 16(a) forms they
file. The following officers failed to file the following Forms (on a timely
basis) for the fiscal year ending JUNE 30, 2002; John C. Harris (Form 5), James
D. Hanzlik (Form 5) and Marti Miller (Form 5). Each of these forms were
subsequently filed by these individuals. None of the late Forms 5 noted above
contained transactions that were not reported on a timely basis. To the
Company's knowledge, based upon a review of the copies of such reports furnished
to the Company and written representations that no other reports were required,
during the year ended June 30, 2002, except as disclosed above, none of the
Company's directors or officers or beneficial owners of greater than 10% of the
Company's Common Stock failed to file on a timely basis the forms required by
Section 16 of the Exchange Act.


                                       44
<PAGE>


ITEM 10.     EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

         The following table sets forth the compensation paid or accrued by the
Company for services rendered for the years ended June 30, 2000, 2001 and 2002
to (i) all persons who served as the Chief Executive Officer of the Company
during fiscal year 2001 and (ii) the other most highly compensated executive
officers of the Company whose salary and bonus exceeded $100,000 in fiscal year
2002 (the "Named Executive Officers"). Other than those individuals listed
below, no executive officer of the Company received cash compensation of more
than $100,000 in fiscal year 2002.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                RESTRICTED
   NAME AND PRINCIPAL       FISCAL     ANNUAL COMPENSATION        STOCK       UNDERLYING       ALL OTHER
        POSITION             YEAR    SALARY ($)    BONUS ($)    AWARDS ($)    OPTIONS (#)    COMPENSATION $
        --------             ----    ----------    ---------    ----------    -----------    --------------
<S>                          <C>      <C>             <C>        <C>            <C>             <C>
John C. Harris (1)           2000           0         0               0               0              0
CHIEF EXECUTIVE OFFICER      2001      45,500         0               0               0              0
AND PRESIDENT                2002     130,000         0               0         250,000              0

Marti D. Miller              2000     133,500         0               0          40,000              0
FORMER VICE PRES-            2001     133,500         0               0               0         37,000 (3)
IDENT, ENGINEERING           2002      10,000         0          50,000               0              0

Mr. James D. Hanzlik(6)      2000     107,900         0               0          40,000          2,800
FORMER CHIEF FINANCIAL       2001     110,300         0               0          40,000         36,520 (4)
OFFICER                      2002     110,300         0               0          125,00              0

Eugene W. Courtney           2000      34,615         0               0         100,000              0
FORMER CHIEF EXECUTIVE       2001      75,900         0          29,295 (2)           0         35,500 (5)
OFFICER AND PRESIDENT        2002           0         0               0               0              0
</TABLE>

----------------------

(1)      Mr. Harris became President and CEO in February, 2001.
(2)      In January 2001, Mr. Courtney was granted 75,000 shares of restricted
         common stock as compensation for consulting services provided during
         the transition to a new Chief Executive Officer.
(3)      As of June 30, 2002, the Company accrued compensation costs associated
         with the termination of Mr. Miller, to be paid after June 30, 2002. The
         compensation was in the form of 50,000 shares of restricted common
         stock to be issued, and one month of salary and benefits of
         approximately $12,000.
(4)      As of June 30, 2002, the Company amended previous stock options held by
         Mr. Hanzlik. The amendments a) extended the time period for exercise of
         the options in the event of a termination to three years, b) provided
         for 100% vesting of all unvested stock options, and c) re-priced stock
         option exercise prices to $.45 for stock options having exercise prices
         in excess of $.45 (market price was $.73 per share on repricing date).
(5)      In April 2001, the Company amended stock options held by Mr. Courtney.
         The amendment a) extended the time period for exercise of the options
         in the event of a termination to three years, and b) provided or 100%
         vesting of all unvested stock options.
(6)      Mr. Hanzlik resigned as director and Chief Financial Officer on July
         28, 2002


                                       45
<PAGE>


OPTION GRANTS AND EXERCISES

         The tables below set forth information about the stock options held by
the Named Executive Officers and the potential realizable value of the options
held by such person on June 30, 2002. No stock options were exercised by the
Named Executive Officers of the Company during fiscal year 2002.

                        OPTION GRANTS IN LAST FISCAL YEAR
                                INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
                        NUMBER OF SECURITIES   % OF TOTAL OPTIONS GRANTED
                             UNDERLYING               TO EMPLOYEES          EXERCISE PRICE
        NAME            OPTIONS GRANTED (1)        IN FISCAL YEAR 2002          ($/SH)        EXPIRATION DATE
        ----            -------------------        -------------------          ------        ---------------
<S>                           <C>                      <C>                       <C>             <C>
John C. Harris                250,000                  66.6%                     $.66            02/28/2007
CHIEF EXECUTIVE
OFFICER AND
PRESIDENT

Marti D. Miller                     0                   N/A                       N/A               N/A
FORMER VICE
PRESIDENT
ENGINEERING

James D. Hanzlik              125,000                  33.3%                    $1.04            07/30/2007
CHIEF FINANCIAL
OFFICER

Eugene W. Courtney                  0                   N/A                       N/A               N/A
FORMER CHIEF
EXECUTIVE OFFICER
AND PRESIDENT
</TABLE>

---------------------

(1)      During fiscal year 2002, options to acquire shares of Common Stock were
         granted to the CEO and CFO. Options to acquire 120,000 shares of Common
         Stock were granted to non-employee directors.


                                       46
<PAGE>


           AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
                             YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                           SHARES                                                      VALUE OF UNEXERCISED
                          ACQUIRED        VALUE          NUMBER OF UNEXERCISED         IN-THE-MONEY OPTIONS
                        ON EXERCISE     REALIZED      OPTIONS AT JUNE 30, 2002 (#)    AT JUNE 30, 2002 ($)(1)
     NAME                   (#)            ($)         EXERCISABLE UNEXERCISABLE     EXERCISABLE UNEXERCISABLE
     ----                   ---            ---         -------------------------     -------------------------
<S>                          <C>            <C>        <C>               <C>           <C>              <C>
John C. Harris               0              0          250,000           190,000       8,400            N/A
CHIEF EXECUTIVE
OFFICER AND
PRESIDENT

Marti D. Miller              0              0             0              0               0               0
FORMER,
VICE PRESIDENT,
ENGINEERING

James D. Hanzlik             0              0          265,000           0             46,466            0
FORMER,
CHIEF FINANCIAL
OFFICER

Eugene W. Courtney           0         0               100,000           0               0               0
FORMER CHIEF
EXECUTIVE OFFICER
AND PRESIDENT
</TABLE>

--------------------

(1)      Based on the June 30, 2002 closing bid price of the Company's Common
         Stock of $.80 per share.

REPORT OF COMPENSATION COMMITTEE

         As of June 30, 2002 the Compensation Committee of the Board of
Directors granted Mr. Harris 250,000 stock options that expire on February 28,
2007. Additionally, Mr. Harris was extended an incentive bonus of $50,000 upon
the completion of the Company's first positive EBITDA quarter. Details of stock
granted and changes to options are summarized in Item 10. Summary Compensation
Table and Executive Option Repricing Table above and related footnotes thereto.

Richard F. Craven, Charles Rey
(Members of the Compensation Committee).


                                       47
<PAGE>


COMPENSATION OF DIRECTORS

         The Board of Directors of the Company has established the following
compensation policies for non-employee directors of the Company. Non-employee
directors receive $100 for each meeting attended. Also, under the Company's 1994
Stock Plan, each non-employee director is granted, upon election to the Board,
an option to purchase 20,000 shares of Common Stock, exercisable at market value
on the date of grant, vesting in equal increments of 25% every three months and
expiring ten years from the date of grant. After the year of election, each
non-employee director will also receive annually an option to purchase 5,000
shares of Common Stock exercisable at market value on the date of grant, vesting
in equal increments of 25% every three months and expiring ten years from the
date of grant. During fiscal year 2002, options to acquire 150,000 shares of the
Company's Common Stock were granted to non-employee directors, exercisable at
market value on the date of grant, vesting in equal increments of 25% every
three months and expiring ten years from the date of grant. Directors who are
employees of the Company receive no additional compensation for serving as
directors.


                                       48
<PAGE>


ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of October 11, 2002, the number of shares of
the Company's Common Stock beneficially owned by (i) each director of the
Company; (ii) each of the Named Executive Officers; (iii) each person known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock; and (iv) all executive officers and directors as a group. Unless
otherwise indicated, each person has sole voting and dispositive power over such
shares. Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days are
treated as outstanding only when determining the amount and percent owned by
such group or person. The address for all directors and officers of the Company
is Viseon, Inc., 545 E. John Carpenter Freeway, Suite 1430, Irving, TX 75062.

<TABLE>
<CAPTION>
                                                     NUMBER OF SHARES
NAME                                                BENEFICIALLY OWNED    OWNED PERCENTAGE
----                                                ------------------    ----------------
<S>                                                    <C>                      <C>
Richard Craven                                         2,643,207 (1)            18.2%

Brian Day                                                 27,500 (2)                *
Gerald Dube                                               25,000 (3)                *
S. Albert Hanser, Former Director                        228,250 (4)            1.58%
John Harris                                               66,000 (5)                *
W.R. Howell                                               27,500 (6)                *
Charles Rey                                              132,300 (7)                *
Marti D. Miller, Former CTO                               90,000 (8)                *
James D. Hanzlik, Former CFO                             265,000 (9)            1.83%
Eugene W. Courtney, Former CEO                           100,000 (10)            1.2%

All Current Executive Officers and                     3,357,957 (11)           28.1%
Directors as a Group (5 persons)

Digital Investors, LLC                                 5,991,700 (12)          41.41%

Alan C. Phillips and Delores V. Phillips Rev. Trust      823,478 (13)           5.69%
</TABLE>

--------------------

*   Indicates ownership of less than 1%.

 (1) Includes 55,000 shares which may be acquired within 60 days upon the
exercise of stock options.

 (2) Includes 7,500 shares which may be acquired within 60 days upon the
exercise of stock options.

 (3) Includes 5,000 shares which may be acquired within 60 days upon the
exercise of stock options.

 (4) Includes 36,250 shares which may be acquired within 60 days upon the
exercise of stock options.

 (5) Includes 66,000 shares which may be acquired within 60 days upon the
exercise of stock options.

 (6) Includes 7,500 shares which may be acquired within 60 days upon the
exercise of stock options.

 (7) Includes 7,500 shares which may be acquired within 60 days upon the
exercise of stock options.

 (8) Includes 40,000 shares which may be acquired within 60 days upon the
exercise of stock options.

 (9) Includes 265,000 shares which may be acquired within 60 days upon the
exercise of stock options.

(10) Includes 100,000 shares which may be acquired within 60 days upon the
exercise of stock options.

(11) Includes 415,000 shares which may be acquired within 60 days upon the
exercise of stock options.

(12) Includes 1,455,000 shares which may be acquired within 60 days upon the
exercise of stock warrants.

(13) This Trust is affiliated with the Company's third party manufacturer.


                                       49
<PAGE>


ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Mr. Richard F. Craven, a director of the Company, is the father-in-law
of the owner/partner of Pointe Design, which is a Minneapolis, Minnesota based
company that has provided marketing designs, print advertising and other
marketing materials to the Company. Net purchases by the Company from Pointe
Design totaled $20,039, $41,352 and $148,371 during fiscal years 2001, 2000 and
1999 respectively. The Company believes its transactions with Pointe Design have
been on terms no less favorable than could have been obtained from unaffiliated
third parties on an arm's length basis.

         During the first quarter of fiscal year 2000, Richard F. Craven,
Chairman, exercised warrants to purchase 134,000 shares of common stock at a
price of $1.00 per share.

         During fiscal year 2000, the Company's third party manufacturer was
issued a total of 608,478 shares of the common stock in connection with the
exchange of the common stock for certain accounts payable owed by the Company to
the manufacturer. The stock was exchanged at prices ranging from $.40 to $1.00
per share.

         In June 2000, Richard F. Craven, Chairman, converted notes receivable
due from the Company into 528,324 shares of common stock., at prices ranging
from $.53 to $.67 per share.

         During fiscal year 2001, Richard F. Craven loaned the Company $225,000.
In February 2001, prior to the maturity date of the note, Mr. Craven converted
the note and accrued interest into 674,383 shares of common stock at a price of
$.35 per share.

         Richard F. Craven also loaned the Company $200,000 in February, 2001.
The loan was repaid by the Company on February 26, 2001 together with accrued
interest at a rate of 10%.

         On October 5, 2001, the Company received proceeds of $800,000 from
Digital Investors, LLC. in the form of a subordinated note due October 5, 2002.
Interest on the note was due quarterly at a rate of 12% and the note was
subordinated to all amounts owed by the Company to its bank. This note was paid
in full on January 18, 2002.

         On October 5, 2001 the Company and Digital Investors, LLC amended the
Stock Purchase Agreement dated February 23, 2001. As part of the amendment, the
Company agreed to issue warrants to purchase 800,000 shares of common stock at a
price of $.75 per share upon the final closing of the Stock Purchase Agreement.

         On January 18, 2002 the Company issued 2,314,285 shares of common stock
purchased by Digital at $.35 per share under an amended Stock Purchase Agreement
for a total gross price of $810,000. Net proceeds from the transaction were
$809,999.75.

RSI Marketing, LLC is the exclusive North American sales representative for the
Company. In the agreement signed in February 2001, RSIM was granted a warrant to
acquire 1,000,000 shares of common stock at $.45. During fiscal year 2002,
500,000 of that option became uncancellable. The company paid RSIM $742,783 for
commissions and marketing expense in fiscal year 2002.

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS.

                  See Exhibit Index on page 44 which is incorporated herein by
         reference. Exhibits that cover management contract or compensatory
         plans or arrangements are marked with an asterisk (*) in the Exhibit
         Index.

(b)      REPORTS ON FORM 8-K

         On February 1, 2002, the Company filed a Form 8k announcing the
         issuance of 2,314,285 shares of its common stock to Digital Investors,
         LLC for $.35 per share and the issuance of warrants to purchase 800,000
         shares at $.75 per share, in connection with the terms of a Stock
         Purchase Agreement and related amendment to the Stock Purchase
         Agreement.


                                       50
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: October 11, 2002                 VISEON, INC.

                                        By: /s/ John C. Harris
                                            ------------------
                                        Chief Executive Officer and President


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on October 11, 2002.

                                POWER OF ATTORNEY

         Each person whose signature appears below constitutes and appoints John
C. Harris as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Annual Report on
Form 10-KSB and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorney in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.

        SIGNATURE                                   TITLE
        ---------                                   -----

/s/ John C. Harris                    Chairman, Chief Executive Officer and
----------------------------           President
John C. Harris

/s/ John C. Harris                    Chief Financial Officer
----------------------------
John C. Harris

/s/ Gerald Dube                       Director
----------------------------
Gerald Dube

/s/  W.R. Howell                      Director
----------------------------
W.R. Howell

/s/  Charles Rey                      Director
----------------------------
Charles Rey

/s/ Brian Day                         Director
----------------------------
Brian Day


                                       51
<PAGE>


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, John C. Harris, certify that:

         1.       I have reviewed this Annual Report on Form 10-KSB of Viseon,
                  Inc. (the "Annual Report");

         2.       Based on my knowledge, this Annual Report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  Annual Report; and

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this Annual Report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of Viseon, Inc., as of,
                  and for, the periods presented in this Annual Report.


Date: October 15, 2002                         /s/ John C. Harris
                                        ----------------------------------------
                                        John C. Harris
                                        Chief Executive Officer


                                       52
<PAGE>


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John C. Harris, certify that:

         1.       I have reviewed this Annual Report on Form 10-KSB of Viseon,
                  Inc. (the "Annual Report");

         2.       Based on my knowledge, this Annual Report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  Annual Report; and

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this Annual Report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of Viseon, Inc., as of,
                  and for, the periods presented in this Annual Report.


Date: October 15, 2002                         /s/ John C. Harris
                                        ----------------------------------------
                                        John C. Harris
                                        Chief Financial Officer


                                       53
<PAGE>


                                  VISEON, INC.
                                EXHIBIT INDEX TO
                  FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 2002

<TABLE>
<CAPTION>
Exhibit No.                Title of Document                                        Method of Filing
-----------                -----------------                                        ----------------
<S>         <C>                                                           <C>
2.1         Plan of Merger between RSI Systems, Inc. and Viseon, Inc.     Filed as Exhibit 10.40 to the Company's March 2001
                                                                          10-QSB and incorporated herein by reference.

3.1         Articles of Incorporation of Viseon, Inc.                     Filed as Exhibit 3.1 to the Company's S-2/A
                                                                          Registration Statement dated July 25, 2001 and
                                                                          incorporated herein by reference.

3.2         Certificate of Amendment of Articles of Incorporation         Filed as Exhibit 3.1 to the Company's S-2
            of Viseon, Inc., dated May 24, 2001.                          Registration Statement dated July 25, 2001 and
                                                                          incorporated herein by reference.

3.3         Bylaws of Viseon, Inc.                                        Filed as Exhibit 3.1 to the Company's S-2/A
                                                                          Registration Statement dated July 25, 2001 and
                                                                          incorporated herein by reference.

4.1         Form of Warrant granted to RSI Marketing, LLC.                Filed as Exhibit A to Exhibit 10.36 to the Company's
                                                                          March 31, 2001 10-QSB and incorporated herein by
                                                                          reference.

4.2         Form of Warrant granted to Active Management, LLC.            Filed as Exhibit A to Exhibit 10.38 to the Company's
                                                                          March 31, 2001 10-QSB and incorporated herein by
                                                                          reference.

10.1        1994 Stock Plan.*                                             Filed as Exhibit 10.5 to the SB-2 Registration
                                                                          Statement and incorporated herein by reference.

10.2        Form of Inventions, Confidential Information and              Filed as Exhibit 10.2 to the SB-2 Registration
            Non-Competition Agreement.                                    Statement and incorporated herein by reference.

10.3        Letter of Credit Agreement, dated September 19, 1994.         Filed as Exhibit 10.13 to the SB-2 Registration
                                                                          Statement and incorporated herein by reference.

10.4        Letter of Credit Agreement, dated December 13, 1994,          Filed as Exhibit 10.14 to the SB-2 Registration
            as amended.                                                   Statement and incorporated herein by reference.

10.5        Link Technology Inc. Source Code Software License             Filed as Exhibit 10.15 to the SB-2 Registration
            Agreement.                                                    Statement and incorporated herein by reference.

10.6        Design Royalty Agreement between the Company and              Filed as Exhibit 10.16 to the SB-2 Registration
            Worrell Design Inc.                                           Statement and incorporated herein by reference.

10.7        License Agreement with DSP Software Engineering, Inc.         Filed as Exhibit 10.15 to the Form 10-KSB Annual
            dated February 1, 1996.                                       Report of the Company for 1996, File No. 000-27106
                                                                          (the "Company's 1996 10-KSB") and incorporated
                                                                          herein by reference.

10.8        Addendum to License Agreement with Link Technology,           Filed as Exhibit 10.17 to the Company's 1996 10-
            Inc. dated April 29, 1996.                                    KSB and incorporated herein by reference.

10.9        Employment Agreement between the Company and                  Filed as Exhibit 10.20 to the Company's 1996 10-
            Donald Lies.*                                                 KSB and incorporated herein by reference.

10.10       Manufacturing Agreement with Altron, Inc. dated               Filed as Exhibit 10.21 to the Company's 1996 10-
            August 28, 1996.                                              KSB and incorporated herein by reference.
</TABLE>


                                       54
<PAGE>

<TABLE>
<S>         <C>                                                           <C>
10.11       Selling Agency Agreement with Miller Johnson & Kuehn          Filed as Exhibit 10.23 to the Company's 1996 10-
            Incorporated dated August 22, 1996.                           KSB and incorporated herein by reference.

10.12       Shareholder Agreement dated April 30, 1996.                   Filed as Exhibit 10.24 to the Company's 1996 10-
                                                                          KSB and incorporated herein by reference.

10.13       New Employee Inventions, Confidentiality and                  Filed as Exhibit 10.13 to the Form 10-KSB Annual
            Non-compete Agreement                                         Report of the Company for 1997, File No. 000-27106
                                                                          (the "Company's 1997 10-KSB") and incorporated
                                                                          herein by reference.

10.14       Non-Qualified Stock Option Agreement with                     Filed as Exhibit 10.14 to the Company's 1997 10-
            Donald C. Lies.*                                              KSB and incorporated herein by reference

10.15       Restricted Stock Agreement with Donald C. Lies.*              Filed as Exhibit 10.15 to the Company's 1997 10-
                                                                          KSB and incorporated herein by reference

10.16       Qualified Stock Option Agreement with Donald C. Lies.*        Filed as Exhibit 10.16 to the Company's 1997 10-
                                                                          KSB and incorporated herein by reference

10.17       Termination of Stock Purchase and Subscription                Filed as Exhibit 10.17 to the Company's 1997 10-
            Agreement.*                                                   KSB and incorporated herein by reference

10.18       Norwest Loan Agreement.                                       Filed as Exhibit 10.18 to the Company's 1997 10-
                                                                          KSB and incorporated herein by reference

10.19       Selling Agency Agreement with Miller Johnson & Kuehn          Filed as Exhibit 10.19 to the Form 10-KSB Annual
            Incorporated dated December 29, 1997.                         Report of the Company for 1998, File No. 000-27106
                                                                          (the "Company's 1998 10-KSB") and incorporated
                                                                          herein by reference.

10.20       Amended and Restated Credit and Security Agreement            Filed as Exhibit 10.20 to the Company's 1998 10-
            (Norwest Bank Minnesota, N. A.)                               KSB and incorporated herein by reference.

10.21       Amended and Restated Credit and Security                      Filed as Exhibit 10.21 to the Company's 1998 10-
                                                                          KSB and incorporated herein by reference

10.22       First Amendment to the Eximbank guaranteed                    Filed as Exhibit 10.22 to the Company's 1998 10-
            Amended and Restated Credit and Security Agreement.           KSB and incorporated herein by reference

10.23       Second Amendment to Amended & Restated Credit &               Filed as Exhibit 10.23 to the Form 10-KSB Annual &
            Security Agreement.                                           Report of the Company for 1999, File No. 000-27106
                                                                          (the "Company's 1999 10-KSB") and incorporated
                                                                          herein by reference

10.24       Third Amendment to Amended & Restated Credit &                Filed as Exhibit 10.24 to the Company's 1999 10-
            Security Agreement.                                           KSB and incorporated herein by reference

10.25       First Amendment to Patent & Trademark Security                Filed as Exhibit 10.25 to the Company's 1999 10-
            Agreement.                                                    KSB and incorporated herein by reference

10.26       First Amendment to Patent & Trademark Security                Filed as Exhibit 10.26 to the Company's 1999 10-
            Agreement.                                                    KSB and incorporated herein by reference

10.27       Severance Agreement Between the Company and                   Filed as Exhibit 10.27 to the Company's 1999 10-
            Donald C. Lies.                                               KSB and incorporated herein by reference

10.28       Fourth Amendment to Amended and Restated Credit               Filed as Exhibit 10.28 to the Form 10-KSB Annual
            and Security Agreement and Waiver of Defaults (Wells          Report of the Company for 2000, File No. 000-27106
            (the Fargo Business Credit, N.A.).                            "Company's 2000 10-KSB") and incorporated herein
                                                                          by reference.
</TABLE>


                                       55
<PAGE>

<TABLE>
<S>         <C>                                                           <C>
10.29       Second Amended and Restated Credit and Security               Filed as Exhibit 10.29 to the Company's 2000 10-
            Agreement (Wells Fargo Bank Minnesota, N.A.).                 KSB and incorporated herein by reference.

10.30       Export Import Bank of the United States Working               Filed as Exhibit 10.30 to the Company's 2000 10-
            Capital Guarantee Program,  Borrower Agreement.               KSB and incorporated herein by reference.

10.31       Note Payable to Richard F. Craven.                            Filed as Exhibit 10.31 to the Company's 2000 10-
                                                                          KSB and incorporated herein by reference.

10.32       Modified Separation and Severance Agreement between           Filed as Exhibit 10.32 to the Company's 2000 10-
            the Company and Donald C. Lies.                               KSB and incorporated herein by reference

10.33       Note Payable to Richard F. Craven.                            Filed as Exhibit 10.33 to the Form 10-QSB Quarterly
                                                                          Report of the Company for Period ended December
                                                                          31, 2000, File No. 000-27106 (the "Company's
                                                                          December 2000 10-QSB") and incorporated herein
                                                                          by reference.

10.34       Note Payable to Richard F. Craven.                            Filed as Exhibit 10.34 to the Company's December
                                                                          2000 10-QSB and incorporated herein by reference.

10.35       Stock Purchase Agreement by and between Company               Filed as Exhibit 10.33 to Company's March 2001 10-
            and Digital Investors, LLC, dated as of February 23, 2001.    QSB and incorporated herein by reference.

10.36       Shareholder Voting Agreement by and between the               Filed as Exhibit 10.34 to Company's March 2001
            Company and Digital Investors, LLC, Richard F. Craven         10-QSB and incorporated herein by reference.
            and Byron G. Shaffer, dated as of February 23, 2001.

10.37       Registration Rights Agreement by and between                  Filed as Exhibit 10.35 to Company's March 2001
            Company and Digital Investors, LLC, dated as of               10-QSB and incorporated herein by reference.
            February 23, 2001.

10.38       Marketing Agreement by and between Company                    Filed as Exhibit 10.36 to Company's March 2001
            and RSI Marketing, LLC, dated as of February 23, 2001.        10-QSB and incorporated herein by reference.

10.39       Registration Rights Agreement by and between Company          Filed as Exhibit 10.37 to Company's March 2001
            and RSI Marketing, LLC, dated as of February 23, 2001.        10-QSB and incorporated herein by reference.

10.40       Management and Consulting Agreement by and between            Filed as Exhibit 10.38 to Company's March 2001
            Company and Active Management, LLC, dated as of               10-QSB and incorporated herein by reference.
            February 23, 2001.

10.41       Registration Rights Agreement by and between  Company         Filed as Exhibit 10.39 to Company's March 2001
            and Active Management, LLC, dated as of                       10-QSB and incorporated herein by reference.
            February 23, 2001.

10.42       Asset Purchase Agreement with King Research, LLC,             Filed as Exhibit 10.41 to Company's March 2001 10-
            dated April 12, 2001.                                         QSB and incorporated herein by reference.

10.43       Licensing and Manufacturing Agreement with Mike Prell         Filed as Exhibit 10.42 to Company's and Mike Prell
            d/b/a Dallas Computer Recovery, dated April 12, 2001.         March 2001 10-QSB and incorporated herein by
                                                                          reference.

10.44       Non-Competition, Confidentiality and Assignment               Filed as Exhibit 10.43 to Company's March 2001
            Agreement with King Research, LLC, and Jeff Clem,             10-QSB and incorporated herein by reference.
            dated April 12, 2001.

10.45       Non-Competition, Confidentiality and Assignment               Filed as Exhibit 10.44 to Company's March 2001 10-
            Agreement with King Research, LLC, dated April 12, 2001.      QSB and incorporated herein by reference.
</TABLE>


                                       56
<PAGE>

<TABLE>
<S>         <C>                                                           <C>
10.46       Non-Competition, Confidentiality and Assignment               Filed as Exhibit 10.45 to Company's March 2001
            Agreement with King Research, LLC, Mike Prell and             10-QSB and incorporated herein by reference.
            Mike Prell d/b/a Dallas Computer Recovery,
            dated April 12, 2001

10.47       Non-Competition, Confidentiality and Assignment               Filed as Exhibit 10.46 to Company's March 2001
            Agreement with King Research, LLC, and Andrew Sears,          10-QSB and incorporated herein by reference.
            dated April 12, 2001.

10.48       First Amendment to Stock Purchase Agreement                   Filed as Exhibit 10.48 to Company's June 2001
                                                                          10-KSB and incorporated herein by reference.

10.49       Security Agreement with Digital Investors, LLC                Filed as Exhibit 10.49 to Company's June 2001
                                                                          10-KSB and incorporated herein by reference.

10.50       Note Payable to Digital Investors, LLC                        Filed as Exhibit 10.50 to Company's June 2001
                                                                          10-KSB and incorporated herein by reference.

10.51       Loan and Security  Agreement (Domestic)                       Filed as Exhibit 10.51 to Company's December
                                                                          2001 10-QSB and incorporated herein by reference

10.52       Loan and Security  Agreement (EXIM)                           Filed as Exhibit 10.52 to Company's December
                                                                          2001 10-QSB and incorporated herein by reference

10.53       EXIM Borrower Agreement                                       Filed as Exhibit 10.53 to Company's December
                                                                          2001 10-QSB and incorporated herein by reference

10.54       EXIM Note                                                     Filed as Exhibit 10.54 to Company's December
                                                                          2001 10-QSB and incorporated herein by reference

10.55       Integration Letter Agreement (Domestic)                       Filed as Exhibit 10.55 to Company's December
                                                                          2001 10-QSB and incorporated herein by reference

10.56       Integration Letter Agreement (EXIM)                           Filed as Exhibit 10.56 to Company's December
                                                                          2001 10-QSB and incorporated herein by reference

10.57       IP Agreement                                                  Filed as Exhibit 10.57 to Company's December
                                                                          2001 10-QSB and incorporated herein by reference

10.58       Amendment to Loan Agreement                                   Filed as Exhibit 10.58 to Company's March 2001
                                                                          10-QSB and incorporated herein by reference

10.59       Definitive Proxy Statement                                    Filed with the SEC on May 29, 2002 and incorporated
                                                                          herein by reference

10.60+      Amendment to Loan Agreement                                   Filed herewith electronically.

10.61+      Exclusive Distribution Agreement                              Filed herewith electronically.

23.1+       Consent of Virchow, Krause & Company, LLP                     Filed herewith electronically.

24.1+       Power of attorney from directors                              Filed herewith electronically.
            (included in signature page of this Registration Statement).
</TABLE>

----------------------------
+ Filed herewith.
* Denotes an exhibit that covers management contracts or compensatory plans or
arrangements.

The exhibits referred to in this Exhibit Index will be supplied to a shareholder
at a charge of $.25 per page upon written request directed to Secretary, Viseon,
Inc. at the executive offices of the Company.


                                       57