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**SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549**

**FORM 10-KSB**

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

**For the Fiscal YearEnded June 30, 2001**

**or**

| **o** | **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 FILENUMBER: 0-27106**

| **VISEON,  INC.(Formerly RSI Systems, Inc.)**   |
|-------------------------------------------------|
| ****                                            |
| (Name of small business issuer  in its charter) |

 

|                                                                                   | **NEVADA**                                                     | **41-1767211**                    |
|----------------------------------------------------------------------------------------|----------------------------------------------------------------|-----------------------------------|
|                                                                                   | ****                                                           | ****                              |
|                                                                                   | (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
|                                                                                   |                                                           |
|                                                                                   | **8700 N. Stemmons Freeway, Ste 310  DALLAS, TEXAS 75247**     |
|                                                                                   |                                                                |
|                                                                                   | (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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 ý   No o

Check if there is no disclosureof delinquent filers in response to Item 405 of Regulation S-B contained inthis form, and no disclosure will be contained, to the best of registrant'sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-KSB for any amendment to this Form10-KSB. o

The Company's revenues for itsmost recent fiscal year were $3,409,352.

On October 8, 2001, the Companyhad  11,668,981 shares of common stock,$.01 par value, outstanding, and the aggregate market value of the common stockas of that date (based on the average of the closing bid and asked prices as ofthat date as reported by the OTC Bulletin Board System), excluding outstandingshares beneficially owned by directors and officers, was approximately$7,157,000.

**DOCUMENTSINCORPORATED BY REFERENCE: None**

Transitional Small BusinessDisclosure Format (check one):  Yes o;No ý

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**PART I**

**CAUTIONARY STATEMENT IDENTIFYING IMPORTANTFACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER FROM THOSEPROJECTED IN FORWARD LOOKING STATEMENTS**

             In connection with the "safeharbor" provisions of the Private Securities Litigation Reform Act of1995, readers of this document and any document incorporated by referenceherein, are advised that this document and documents incorporated by referenceinto this document contain both statements of historical facts and forwardlooking statements.  Forward lookingstatements are subject to certain risks and uncertainties, which could causeactual results to differ materially from those indicated by the forward lookingstatements. Examples of forward looking statements include, but are not limitedto (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 orBoard of Directors, including the introduction of new products, or estimates orpredictions of actions by customers, suppliers, competitors or regulatoryauthorities, (iii) statements of future economic performance, and (iv)statements of assumptions underlying other statements and statements about theCompany or its business.

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

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

**Item1  DESCRIPTION OF BUSINESS**

**(a)         Business Development**

             Viseon, Inc., a Nevada corporation, formerlyRSI Systems, Inc. is a global visual communication sales, service andmanufacturing organization.   Viseon,Inc., (the “Company” or “Viseon”), designs, manufactures and sells highperformance, business quality videoconferencing systems, services andaccessories throughout a worldwide direct and indirect sales network includingresellers, distributors and OEM or private label partners.  In May 2001, the former RSI Systems, Inc.was merged into Viseon, Inc. in connection with a Plan of Merger between RSISystems, Inc. and Viseon, Inc. approved by the shareholders of RSI Systems, Inc.on May 23, 2001.

             The Company’s fourth-generation videoconferencing product family, the MediaPro 384TM (MediaPro, MediaPro 384) system,is available for sale worldwide.  Thissystem provides near television quality video and audio via a miniaturized, self-containedfree-standing device which is fully industry standards based and is sold inthree different configurations: laptop, dual platform and multipoint. The products are protected by United States Patent Numbers 5,802,281 and6,073,192.

             The Company acquired the assets of KingResearch, LLC which primarily consisted of the Automatic Line Routing Switchtechnology, in April 2001.

             The Company has recently entered intodistribution agreements with the number one and number four U.S. market shareleaders;  Polycom, Inc. (which is in theprocess of acquiring former industry leader Picturetel), and Sony Electronics,Inc. respectively, which together account for over 50% market share ofvideoconferencing sales in the United States. Other agreements have been signed with Genesys Conferencing, Inc. aglobal leader in conferencing services which enable the company to earnadditional revenue from ISDN network usage by its customers.
             The former RSI Systems, Inc. was incorporatedunder the laws of Minnesota on December 21, 1993.  Its founders developed a self-contained desktop videoconferencingdevice for connection to personal computers and Apple Macintosh systems.  On July 25, 1995, the Company conducted apublic offering of its common stock, par value $0.01 per share (the “CommonStock”).  With the net proceeds from thepublic offering, including proceeds from the exercise of the underwriter’soverall allotment option (approximately $7,400,000), the Company funded furtherresearch and development related to the enhancement of the original product.  By June 1996, the target market for thisproduct had not developed and the product had not achieved its priceperformance objectives.

             In July 1996, the Company redirected itsefforts away from the computer-based desktop videoconferencing systemsmarketplace and towards the emerging workgroup and settop television-basedmarket.  Subsequently, the Companydesigned a second-generation system, the Video Flyer, that created a new levelof video, audio and price performance without need for interfacing to any typeof computer system.  Deemed a *computer-freesystem*, the original Video Flyer evolved into the Video Flyer Plusproduct line of videoconferencing engines with enhanced features andfunctionality.

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

             In the fall of 1998, the Company begandevelopment of a new videoconferencing engine. The Company’s MediaPro 384 system, introduced in June 1999, is across-platform, multimedia videoconferencing engine, capable of operatingeither with or without a host computer or laptop, and displaying through avariety of output devices.

             In February of 2001, the Company entered intoseveral agreements to better position itself for the changing videoconferencingmarketplace.  These agreements consistedof a Stock Purchase Agreement between the Company and Digital Investors, LLC, aManagement Agreement with Active Management, LLC and a Marketing Agreementbetween the Company and RSI Marketing, LLC.

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

             In May of 2001, the Company entered into anon-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 anagreement with Polycom, Inc. whereby it can sell and distribute the Polycom,Inc. videoconferencing product line globally through its North American saleschannel and European subsidiary and Asian sales office.

**Overview of the Marketplace**

             Various forms of videoconferencing equipmenthave been introduced to the global marketplace during the past 20 years.  Initial system offerings were very expensiveand sold primarily as a method to reduce travel expense or conduct distancemeetings between large groups of individuals.

             With the establishment of industry standardsby the International Telecommunications Union (ITU) in the early 1990s and theavailability of lower cost electronic componentry, marketplace sales began torapidly accelerate.  Since then,enhanced, user-friendly products and lower prices throughout the marketplacehave increased the applications for videoconferencing systems, creatingdistinct product segments.

             The videoconferencing equipmentmarketplace continued to evolve in fiscal year 2001, with a clear continued shift toward highquality, reasonably priced systems, which incorporate expanded capabilities andfunctionality.  This shift has continuedto create expanding opportunities and challenges for the Company, in what isbelieved to be an overall hardware market of approximately $1.0 billion.  A recent report from Frost and Sullivan saidthe U.S.  videoconferencinghardware  revenues may climb to $5billion by 2007.
             The market is generally recognized as havingthe following segmentation:
 (1)Consumer  Systems.  These systems are generally  very inexpensive, operate on standard telephone lines and provide minimal  levels of quality picture and audio performance.  List pricing for these systems currently ranges from $100 to  $500.    (2)Desktop  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 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.  Viseon was  one of the first manufacturers to enter this marketplace.  The Company’s new MediaPro product is also  targeted toward this market segment which is estimated to be in the area of  $300 million.1     The systems  in this market segment generally attach to high quality brand name  televisions or other displays to provide medium to exceptional 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 settop/workgroup systems, this market segment is not growing as  rapidly as it once was, but many permanent rooms are undergoing  refurbishment, creating opportunities for manufacturers of products that are  easily integrated into permanent room systems.  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.  The Company’s videoconferencing engines, because  of their adaptability and quality, can be easily integrated into these room  systems.1H.C.  Wainright & Co., Inc.; Videoconferencing Industry, *The Rise of the Small Group System,*December  2, 1998.
             H.C. Wainwrightbelieves that the settop/workgroup systems segment will grow at a rate of over45% annually.2  The Companybelieves that the market will generally remain stratified over the next fewyears within the segments identified above. New capabilities and features will be introduced that will encouragemore demand in the marketplace.  One ofthe most popular features and capabilities that is beginning to be widelyaccepted is the ability to videoconference utilizing internet protocol(IP).  Many companies are evaluatingthis feature as a means to lower their total cost of ownership ofvideoconferencing.  Continued demand forunique and cost effective user applications will become the primary driver ofproduct development and market expansion.
2Ibid.
             Videoconferencing continues to see a boost indemand as the recent economic slump has forced many corporations to reducetravel expenses.  A survey by RunzheimerReports on Travel Management earlier this year-found that approximately 36percent of companies seeking to cut domestic travel costs usedvideoconferencing.   Subsequent to thatreport,  business travel in the UnitedStates has declined dramatically due to the tragic events of September 11, 2001and the company has seen a surge in business opportunities and shipments.

**(b)         Businessof the Company**

**Products**

*MediaPro 384.*

             In June 1999, the Company introduced itsfourth-generation product, the MediaPro 384 product family, which is aimedprimarily at the settop/workgroup market segment. The MediaPro 384 productfamily is a 384 Kbps ISDN product that builds upon the strengths of theCompany’s previous generation products and added several additionalenhancements.  The MediaPro 384 productfamily is available in three configurations and each configuration is availablewith a variety of different network interfaces such as ISDN BRI and V.35. AllMediaPro 384 systems can accept additional software features and upgrades toallow the products to continue to meet the demands of a continuously changingmarket.  The Company may charge a feefor new, substantial, software features that it develops. The software updatesare received by making a telephone call to the Company’s software server anddownloading the software into the unit to be updated.

             Price points for the MediaPro 384 productline are targeted for the ISDN only videoconferencing marketplace.  The Company has initiated development on anew option for the MediaPro that will incorporate internet protocol (IP) as anoptional communication method.

*Automatic Line Routing Switch (ALRS).*

             In April 2001, the Company acquired theAutomatic Line Routing Switch (ALRS) product line from King Research ,LLC.  This product family allows forvideoconferencing rooms to be pre-wired with either one or two CAT5 cables andthen automatically transfer the appropriate telephone, ISDN, POTS and EthernetNetwork lines to the appropriate room based upon the location of the sharedvideoconferencing system.  The Companyplans to sell this product line worldwide, both through it distributors andresellers, as well as direct to end users.

             Price points for the ALRS products aretargeted to justify installing this equipment rather than install additionallines into each conference room and purchase videoconferencing systems foreach.

             The ALRS is available in 3 differentconfigurations:

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

Eagle – This unit will allow up to 4 BRI U, Analog (POTS) and Ethernetlines 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.

*Service and Support*

             The Company provides its customers with asingle source for video products and services that assist them with systemsprocurement and integration, maintenance and operation of their videoconferencing systems and requirements. It provides a comprehensive suite ofvideo and network services including integration, on-site technical assistance,customized training, and maintenance. Viseon configures single or multi-vendorvideo and data conferencing platforms for our clients and integrate systems andcomponents into a complete solution designed to suit each customer's particularcommunications requirements.

             Once the Company evaluates a customer'svisual conferencing requirements, it delivers, installs and tests thecommunications equipment. When the system is functional, the Company can providetraining to all levels of our customer's organization, including executives,managers, management information systems and data-processing administrators,technical staff and end users. Training includes instruction in systemoperation as well as the planning and administration of meetings. By means ofthorough training, the Company helps to ensure that it's customers understandthe functionality of the systems and are able to apply the technologyeffectively.

 

             Our Service Angel maintenance programs covera customer's entire video communications system deployment for an annual fee.Service Angel has many options that can include installation and maintenanceservice that provides comprehensive customer support after the sale and helpsto ensure that our customers experience reliable, effortless videocommunications. The Company's installation service reduces the overall cost ofimplementation by reducing the burden on our customer's resources. It'smaintenance service provides technical support representatives, a 24x7 on-callhelp desk, nationwide on-site diagnostic repair and replacement service,nationwide network trouble coordination and a 24-hour video test facility.

*On-Going Product Development.*

             The Company has reduced its in-house productdevelopment staff and has contracted with outside firms to fulfill most  of its product developmentrequirements.  Management expects thatthese arrangements will continue to be sufficient to support the ongoing salesactivities of both the Mediapro and ALRS product lines.

**Sales and Distribution**

             In fiscal year 2001, the Company entered intoan agreement with RSI Marketing, LLC (RSIM) to exclusively sell and market theCompany's product offerings in North America. RSI Marketing has begun an aggressive program to sell videoconferencingproducts manufactured by the Company and by other manufacturers, directly toend users in North America. Additionally, the Company continued with its multilevel approach tointernational distribution.  Thisapproach included 1) resellers and distributors, 2) OEM and private labelrelationships and 3) direct sales to preferred accounts, with a focus onresellers and distributors.

*Resellers and Distributors.*

             In fiscal year 2001, the Company continuedoffering its Millennium Partners Program, which supports and rewards strongerresellers and distributors throughout North America, Europe, Asia, Australiaand portions of the Middle East and South Africa through higher discounts offlist pricing.  Through the Millenniumprogram, authorized product resellers and distributors can purchasevideoconferencing equipment and related peripheral devices from the Company andresell them in their local geographic markets. The Company provides classroom training, literature, sales, marketingand technical support to these customers. The Company believes its Millennium program offers very competitivediscounts to its resellers and distributors.

             In fiscal year 2002, the Company plans tocontinue strengthening its reseller network by continuing to broaden itsproduct offering to resellers.   Byfocusing resources on both the maintenance and development of  relationships with other manufacturers andtechnology firms in the industry,  theCompany expects to be able to offer new types of products to its resellers,acting as either a distributor, or as a manufacturer of products owned eitherexclusively or jointly with others.  TheCompany's addition of the ALRS to its overall product line in the fourthquarter of fiscal year 2001 is an example of this strategy. The ALRS is nowbeing sold by major companies in the industry, including Polycom, Inc.  The Company expects to be able to offer thisbroader range of products at attractive margins, thereby building long-termrelationships with stronger resellers, including systems integrators whoprovide turnkey solutions to end users.

*Original Equipment Manufacturer (OEM) orPrivate Label Partnerships.*

             
 In fiscal  year 2001, the Company sold equipment primarily under two 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.    (2)Shanghai  Creator, The Company began designing a version of its MediaPro product for  the Chinese market in October 2000 and has completed all of the work  necessary to fulfill its contractual obligations.
             
             In the future, the Company expects to pursueadditional OEM and private label relationships with companies in which itsproducts can provide unique strategic advantages to the business partner.

*Direct Sales.*

             In February 2001 the Company entered into anexclusive sales and marketing arrangement with RSI Marketing, LLC (RSIM)whereby RSIM will sell and market the Company's products, as well as thosemanufactured by others, exclusively in North America.  The primary goal for RSIM is to sell the companies productsdirectly to the video conferencing end user. The majority of these accounts areeither significant in size or their requirements dictate direct interactionwith the manufacturer (the Company). Though it is not Viseon’s intention to compete with its otherdistribution channels, many of the organizations which make larger purchases ofvideoconferencing equipment have dictated that the manufacturer providespecialized services (be they domestic or global) or modify products for theirspecific application.    Although theCompany redirected its efforts away from preferred account sales in fiscal year2000 the Company began experiencing increased quote activity from directefforts of RSIM in the fourth quarter of 2001.   It is the Companies intent to aggressively target the largecorporate video conferencing user and government agencies.

**Marketplace Competition**

             By changing the Company’s business scope andstrategy to include other manufacturers' products and services it no longerconsiders videoconferencing manufacturers to be direct competitors.  The primary competitors that service thismarketplace are Audio/Visual Dealers, Distributors, National and Regionalvideoconferencing resellers, mail order catalog and Internet fulfillmentcompanies.   Some of these companies arelarger, have longer operating histories and have greater financial resourcesand industry recognition than the Company. These competitors include Wire One, SBC, AT&T Corporation, MCIWorldcom, Gentner Communications, and Review Video.  The Company also competes with other dealers of videocommunication products.

**Product Supply and Manufacturing**

             The Company's videoconferencing engines aremanufactured by a third party manufacturer (“Video Manufacturer”), under amanufacturing agreement signed in the fall, 1996.  In addition to manufacturing, Video Manufacturer provides allpurchasing, material control, testing services and product warranty coveragefor the Company’s videoconferencing engines. Video Manufacturer warrants that all products will be free from defectsin material and workmanship for fifteen months from the date Video Manufacturerships to the Company, or for twelve months from the date the Company ships tothe customer, whichever comes first.

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

             The Company believes Video Manufacturer hasthe capacity and capability to satisfy manufacturing requirements for itsvideoconferencing engines in the foreseeable future.  The Company has identified an alternate manufacturer withcapabilities acceptable to the Company. If a disruption in manufacturing were to occur, the Company believes itcould utilize the alternative manufacturer to satisfy production requirements.

             The Company’s ALRS is manufactured by a thirdparty manufacturer (“ALRS Manufacturer"), under a manufacturing agreementsigned in April of 2001.  The Companybelieves that ALRS Manufacturer has the capacity and capability to satisfymanufacturing requirements for its ALRS’s in the foreseeable future.  The Company has identified an alternate manufacturer with capabilitiesacceptable to the Company.  If adisruption in manufacturing were to occur, the Company believes it couldutilize the alternative manufacturer to satisfy production requirements.
**Approvalsand Certifications**

             Government and telecommunications carrierapprovals, safety certifications and Electromagnetic Compliance (EMC)certifications are a key requirement for electronic systems that use thetelephone network.  The MediaPro 384 andALRS product family have received the Safety, EMI and Telephone certificationsrequired 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 thecountries noted above, the Company cannot predict whether it will obtainnecessary approvals and certifications for the systems and similar products orfor future products in additional countries. Also, the Company cannot predictwhether applicable law or regulations might change in a way adverse to the Company'sability to sell its products in a particular country.

**Intellectual Property and Royalty Agreements**

             The Company's success is dependent in part onits proprietary information, technology and expertise. The Company relies on acombination of patents, trade secrets, copyrights and confidentialityagreements to establish and protect its proprietary rights.  In fiscal year 1998, the Company amended itsU.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 and asecond patent on June 6, 2000.   TheCompany has also applied for various United States and foreign patents relatingto its videoconferencing engines, some of which have not been granted to date.

             During fiscal year 2001, the Company tooksteps to protect its patents from infringement by others.  The Company has contacted, and in severalcases, filed suit against other manufactures as part of this process.  Details of pending suits filed by theCompany are included under Item 3 of this Form 10KSB.

             With respect to its technical employees andconsultants, the Company requires these employees to sign an agreement whichobligates them to keep confidential certain trade secrets and information ofthe Company and to assign to the Company any inventions arising from their workfor the Company, as permitted by law. Depending on the responsibilities of aparticular employee, the Company may also consider having such an employee signa non-compete agreement.

             The software embedded in the Company'svideoconferencing systems carries a standard license agreement for theend-user. The software license agreement is included in the system manuals andgrants the purchaser a non-exclusive and non-transferable license to use thesoftware program.

             The Company has entered into various royaltyand licensing agreements from 1994 up through 1999 to utilize technologydeveloped by other parties.  These agreementsamount to approximately seventy-five dollars for each MediaPro 384manufactured.
**Researchand Development**

             The Company incurred research and developmentexpenses during fiscal years 2001 and 2000 of $551,356 and $819,733respectively.

**Employees**

             On October 9, 2001, the Company had ninefull-time employees; two in sales, two in customer support; one in productdevelopment and engineering; one in operations and three administration andfinance.  None of the Company'semployees is represented by a labor union. The Company believes its employeerelations are good.

             The Company contracts with two organizationsto provide sales and marketing services in North America and the Asia PacificRim Territories.  The Company alsocontracts with several companies to meet its service and support requirements.

 

**Certain Important Factors**

             There are several important factors thatcould cause the Company's actual results to materially differ from thoseanticipated by the Company or which are reflected in any forward-lookingstatements of the Company. These factors, and their impact on the success ofthe Company's operations and its ability to achieve its goals, as well as thoselisted in the "Risk Factors" section of the Company's RegistrationStatement 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. As of June  30, 2001, the Company had an accumulated deficit of $20,145,863.  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 received a demand letter from its bank,  demanding full payment of outstanding amount on the line of credit together  with accrued interest.  The Company  has been actively pursuing alternative banks to provide working capital  financing for future operations.  The  Company has received and signed a terms sheet for a new line of credit from a  new bank, outlining general terms that are acceptable to the Company.  These terms, as well as the line of credit  itself, are subject to the results of an examination of the Company by the  bank, approval by the bank's credit committee, agreement between the parties  on all detailed terms, and the signing of completed documentation of such  terms.  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 new 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 terms sheet received from the potential new bank noted  above.   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 31, 2001.   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, expired on August 26,  2001.  The Company is currently in the  process of attempting to replace such line of credit with a new line, and  expects to have such a line in place by December 31, 2001 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 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 our 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 signal 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 marketing strategy is to  focus on businesses, schools and governmental entities which the Company  believes will provide the most significant opportunities for sales of its  system. The Company markets its products worldwide on both a direct sales  basis and through distributors and dealers. The Company has contracted with  RSI Marketing, LLC, to market and sell its products throughout  North-America.  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. 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 an 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  Company's 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 its competitors and  market acceptance of these products. Additionally, properly addressing the  complexities associated with DSL 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 development efforts. There can  be no assurance 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 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 $20 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) and a second patent on June 6, 2000 (U.S. Patent No.  6,073,192).  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.     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.
 

**Item 2.   DESCRIPTION OF PROPERTY**

             The Company subleases 4,000 square feet ofspace at its headquarters in Dallas, Texas under a lease agreement whichexpires during October, 2002.  TheCompany believes its current space is sufficient for its current andanticipated needs. The following schedule summarizes payments made in fiscalyear 2001 for space leased by the Company:

 
LocationAmount  Edina, MN Headquarters$72,340 Edina, MN Warehouse24,360 European Sales Office15,177 Pacific Rim Sales Office18,744   TOTAL$130,621   
 

**Item 3.   LEGAL PROCEEDINGS**

During fiscal year 2001, the Company initiated suits against othermanufacturers of videoconferencing systems in order to protect its intellectualproperty rights.  The following suitshave been filed:
 (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. (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. (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.
Each of the three defendants noted above have disputed the Viseon'sinfringement claims and all the suits are in the relatively early discoverystages of patent litigation.

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

A Special Meeting of the Company's Shareholders was held on May 23,2001 for the purpose of voting on the proposals as described below.  Proxies for the meeting were solicitedpursuant to Section 14 (a) of the Securities Exchange Act of 1934 and there wasno solicitation in opposition to management's solicitations.

The proposal to adopt and approve the Agreement and Plan of Merger byand between RSI Systems, Inc. and Viseon, Inc., a Nevada Corporation, datedApril 9, 2001, pursuant to which RSI Systems, Inc. was to be merged with andinto Viseon, Inc. was approved with the following vote:

Shares voted "For" (7,475,658)Shares voted "Against" (13,245)Shares voted "Abstaining" (20,950)Shares not voting (3,372,413)

The proposal to approve the transactions contemplated under the StockPurchase Agreement, dated as of February 23, 2001 between RSI Systems, Inc. andDigital Investors, LLC was approved with the following vote:

Shares voted "For" (7,405,228)Shares voted "Against" (60,975)Shares "Abstaining" (43,650)Shares not voting (3,372,413)

**PART II**

**Item 5.   MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS**

             Since July 25, 1995 (the date of theCompany's initial public offering of Common Stock), the Company's Common Stockhas been traded over-the-counter and was quoted NASDAQ SmallCap Market Systemuntil December 20, 1999.  Thereafter,the Company's stock has been quoted on the OTC Bulletin Board System. Thefollowing table sets forth the high and low sales prices for the Company'sCommon Stock as reported by NASDAQ and the OTC System.  Such quotations represent interdealerprices, without retail markup, markdown or commission, and do not necessarilyrepresent actual transactions for the fiscal quarters indicated.
 HIGH LOW    2000         First Quarter$2.5630 $1.1880 Second Quarter1.3440 .3440 Third Quarter2.1250 .3130 Fourth Quarter1.0940 .3750      2001         First Quarter$.5938 $.2188 Second Quarter.3438 .1406 Third Quarter.7344 .3125 Fourth Quarter1.2500 .5156 
             As of October 8, 2001, there were (a)11,668,981 shares of Common Stock outstanding, held of record by approximately125 persons, (although the Company has been informed that there areapproximately 1,100 beneficial owners) (b) outstanding options to purchase anaggregate of 1,304,050 shares of Common Stock, and (c) outstanding warrants topurchase an aggregate of 2,567,126 shares of Common Stock. The Company has notdeclared or paid any cash dividends on its Common Stock since its inception anddoes not intend to pay any dividends for the foreseeable future.

             During fiscal year 2001, the Company sold thefollowing securities which were not registered with the Securities and ExchangeCommission.
 (1)On January  31 2001, the Company granted Eugene W. Courtney 75,000 shares of restricted  common stock as compensation for consulting services provided during the  transition to a new Chief Executive Officer.    (2)On  February 23, 2001, the Company sold  1,400,000 shares of  common stock to  Digital Investors LLC (Digital) in connection with a Stock Purchase Agreement  signed on February 23, 2001 at a price of $.35 per share.  In addition, the Company sold 428,572  shares and 357,143 shares to Digital for $150,000 and $125,000 ($.35 per share),  on April 30, 2001 and June 20, 2001 respectively also under the terms of the  Stock Purchase Agreement.    (3)On February  23, 2001, the Company granted warrants to Active Management, LLC (AM), a  management and consulting firm, for the purchase of 500,000 shares of common  stock at an exercise price of $.45 per share.  The warrants are exercisable at a rate of 50,000 on February  23, 2001 and 37,500 per quarter thereafter (or earlier, based on the  achievement of certain earnings targets) and expire five years from the date  of issuance.    (4)On February  23, 2001, the Company granted warrants to RSI Marketing, LLC (RSIM), a sales  and marketing firm, for the purchase of 1,000,000 shares of common stock at  an exercise price of $.45 per share.   The warrants are cancelable if certain sales targets through December  2002 are not achieved by RSIM.  The  warrants expire five years from the date of issuance.    (5)On February  26, 2001, the Company issued 674,383 shares of common stock upon conversion  of a note payable of $225,000 together with accrued interest totaling $11,033  due to Richard F. Craven.  The note  and accrued interest were converted at a price of $.35 per share.    (6)On April 16,  2001, the Company granted warrants to purchase 750,000 shares of common stock  at a price of $.70 per share to King Research LLC, as part of the purchase of  a product technology.
** **

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

**Results of Operations**

             Net Sales.  In fiscal year 2001, net sales decreased to$3,409,352, down 25% from $4,576,277 in fiscal year 2000.  In fiscal year 2001, the Company attemptedto mitigate the risks associated with a concentration of sales activity in anysingle type of distribution channel by 1) pursuing direct sales to preferredaccounts, 2) trying to develop new OEM account relationships, and 3) focusingon a select number of stronger resellers and distributors to sell itsproducts.  Though successful inincreasing direct sales to end users, the Company was unable to obtain anyrevenue increase from OEM customers in fiscal year 2001.  And, although the Company did experiencesignificant sales increases to a select number of stronger distributors, theCompany's limited resources and fierce competition from well established competitors,combined with lower average selling prices for videoconferencing systems  resulted in lower overall sales throughreseller and distributor channels during fiscal year 2001 compared to fiscalyear 2000.

             Direct sales to end users were approximately$717,000 and $554,000 during fiscal years 2001 and 2000, respectively, anincrease of $163,000.  This increase indirect sales was the result of company efforts to focus on  applications in which the technologicalflexibility of its MediaPro product line could create a distinct competitiveadvantage.  The Company expects that theaddition of products from Sony and Polycom, services from Genesys, and Viseon'sown ALRS will facilitate increased direct sales in the future.

             In fiscal year 2001, OEM sales amounted toapproximately $350,000 or approximately 10% of total net sales, as a result ofpurchases of the MediaPro product by Gentner Corporation. In contrast, fiscalyear 2000 OEM sales accounted for approximately 21% of total net sales, orapproximately $950,000.  The decline inOEM sales during fiscal year 2001 was due to a termination of an OEM agreementbetween the Company and Philips Electronics N.V. in the second quarter offiscal year 2000.  Sales to Philipsduring fiscal year 2000 were approximately $600,000, including early- contracttermination settlement revenues of $290,000 paid to the Company, for lost grossmargin on videoconferencing units ordered by Philips but not shipped by theCompany.  The Company expects tocontinue pursuing additional OEM customer opportunities in the future, althoughit does not expect any additional sales to Gentner or Philips.

             Sales through resellers and distributors wereapproximately $2,342,000 during fiscal year 2001, compared to approximately$2,966,000 during fiscal year 2000.  Thedecline was primarily related to lower international distributor sales as aresult of intense competition and lower average selling prices, coupled withfewer international sales and marketing resources within the Company as aresult of  financial constraints.

             Net sales in the fourth quarter of fiscalyear 2001 were approximately $700,000 compared to approximately $1,086,000 forthe fourth quarter of fiscal year 2000. The decrease in net sales during the fourth quarter of fiscal year 2001was primarily a result of decreased sales through international resellers anddistributors as discussed above.  InApril, 2001, the Company acquired the rights to manufacture and distribute theALRS product line.  During its initiallaunch in the fourth quarter of fiscal year 2001, the product was availableprimarily in configurations designed for use in the United States, and notoverseas.  The Company expectsconfigurations for overseas customers will be available in the second quarterof fiscal year 2002.  Total resellersales during the fourth quarter of fiscal year 2001 increased in the UnitedSates as a result of the new ALRS product line, but the increase was more thanoffset by the lower overall sales to international resellers and distributors duringthe same period.

             During the fourth quarter of fiscal year2001, the Company revitalized its sales and marketing efforts in the UnitedStates as a result of its new relationship with a third party sales andmarketing organization named RSI Marketing (RSIM).  Under the terms of an agreement signed in February 2001, RSIM isresponsible for selling and marketing the Company's products in the UnitedStates.  During the fourth quarter offiscal year 2001, RSIM began its efforts by becoming familiar with theCompany's products, and designing and launching new marketing initiatives.  Although sales by RSIM during the fourthquarter of fiscal year 2001 were not significant, the Company expects sales inthe United States to increase significantly as a result of the new relationshipwith RSIM.

             Average selling prices  continued to decrease during fiscal year2001 compared to fiscal year 2000 as a result of increased competitivepressures in the videoconferencing market. The Company plans to increase sales volume in fiscal year 2002 tomitigate the overall effects of this increased competitive pressure on salesprices.

             To increase sales volume, the Company isfocusing its efforts on developing and supporting its relationships with moreeffective distribution resources such as RSIM, increasing marketing activities,and increasing its revenue streams through a broader number of product andservice offerings, including other manufacturer's brand name productsdistributed by the Company.  With thisstrategy, and an expected continuing market increase, the Company expectsincreased sales in fiscal year 2002 compared to fiscal year 2001.

             GrossProfit.  The Company generated agross profit of $1,634,047 or 47.9% of net sales for fiscal year 2001 comparedto a gross profit of $1,888,416 or 41.3% of net sales for fiscal year2000.  The lower gross profit as apercentage of net sales during fiscal year 2000 was primarily a result of aninventory writedown to lower of cost or market of $341,846 or approximately7.5% of net sales during that year. Cost of goods sold in fiscal year 2001 amounted to $1,746,768, or 51.2%of net sales, compared to $2,346,015 or 51.3% of net sales in fiscal year 2000,or 54.7% of sales, excluding the effect of the Philips settlement discussedabove.  This higher cost of goods as apercentage of net sales during fiscal year 2000 was due to a higher level ofmanufacturing costs during fiscal year 2000 related to the Company's MediaProproduct line.

             In the fourth quarter of fiscal year 2001,management took steps to broaden the Company's overall product offerings.  As discussed above, the Company acquired andbegan selling the ALRS product line.  Inaddition, the Company formed new relationships with other manufacturers ofbrand name videoconferencing systems and service providers, whereby the Companyplans to distribute these products and services in the future, in addition toselling its own products.  Gross marginson the sale of alternative manufacturers' systems are expected to be lower thangross margins earned by the Company on its own brand name and OEMproducts.  As a result of a higherexpected sales mix of other manufacturers' products containing lower margins infiscal year 2002, and lower overall pricing due to increased competition, theCompany expects  gross marginspercentages to decline during fiscal year 2002 compared to fiscal year 2001.

             Researchand Development Expenses.  Researchand development expenses were $551,356 or 16.2% of net sales for fiscal year2001 compared to $819,733 or 17.9% of net sales for fiscal year 2000.  During fiscal year 2001, the Company alteredits overall development strategy by minimizing internal development projectsand focusing its resources on identifying opportunities to partner with othercompanies to share technology and jointly develop new products.   This strategy resulted a reduction in thenumber of development employees and associated expenditures during fiscal year2001 compared to fiscal year 2000.

             Selling,General and Administrative Expenses. Selling general and administrative expenses were $2,621,291 or 76.9% ofnet sales for fiscal year 2001 compared to $3,327,248 or 72.7% of net sales forfiscal year 2000.  The percentageincrease was due to the lower sales volume in fiscal year 2001 compared tofiscal year 2000. The lower level of spending on selling, general andadministrative expenses during fiscal year 2001 of approximately $706,000 was aresult of the Company decreasing its marketing, sales, technical support andadministrative expenses in North America and Europe in response to thesignificantly lower level of sales in fiscal year 2001 compared to 2000.

             During fiscal year 2001, the Companycontinued to implement expense reduction measures to minimize net losses,conserve cash and re-position the company for expected future sales growth.During fiscal year 2001, the Company terminated, and  through attrition, eliminated, eight positions across variousfunctional areas of the Company.  TheCompany has also continued to reduce other costs in the areas of facilities,communications, professional services and other support costs throughout fiscalyear 2001.  In addition to these costreduction measures, the Company restructured its sales compensation programs toincrease the proportion of variable expenses and minimize the proportion offixed compensation expenses.  Under theterms of the Company's agreement with RSIM in February 2001, sales compensationexpenses in North America became entirely variable. Prior to that, the majorityof sales compensation expenses in North America were fixed.  Selling, general and administrative expensesfor fiscal year 2001 include approximately $206,000 related to the issuance ofwarrants to purchase common stock in the company to RSIM, which partiallyoffset the overall reduction in selling, general and administrative expensesduring fiscal year 2001 compared to fiscal year 2000. The Company believes ithas maintained key personnel in all functional areas necessary to successfullyexecute its business strategy for fiscal year 2002.

             In the fourth quarter of fiscal year 2001,management continued efforts to streamline the Company's operations.  As part of a restructuring, the Companyrelocated its corporate headquarters to Dallas during the first quarter of  fiscal year 2002.  Selling, general and administrative expenses includeapproximately $138,000 associated with the Company's restructuring andrelocation, which also partially offset the overall reduction in selling, generaland administrative expenses during fiscal year 2001.

             OtherIncome and Expense.  In fiscal year2001, other income and expense was $204,820 compared to $223,647 for fiscalyear 2000.  The lower amount of otherincome and expense during fiscal year 2001 was due to lower interest expense, offsetby lower interest income.  The lowerlevel of interest expense was a result of lower average outstanding borrowingson the Company's line of credit, and lower interest incurred on capital leaseobligations.  The lower level ofborrowings on the Company's line of credit was a result of lower overall salesduring fiscal year 2001.  In addition,during fiscal year 2001, the Company made final payments on certain capitallease obligations resulting in lower interest expenses on capital leasescompared to fiscal year 2000.  Thehigher interest income in fiscal year 2000 was due to increased cash and cashequivalents available to the Company in fiscal year 2000.

             NetOperating Loss Carryforwards.  TheCompany has net operating loss carryforwards for financial statement and incometax reporting purposes of approximately $18,700,000 which can be used to offsettaxable income in future years.  Changesin the Company’s ownership have caused changes in ownership under section 382of the Internal Revenue Code of 1996, which limits the use of the Company’s netoperating loss carryforwards existing as of the date of the ownershipchange.  It is not anticipated that anylimitation would have a material adverse effect on the Company.

             As a result of the above, the net loss forfiscal year 2001 was $1,743,420 or $0.18 per share, compared to a net loss of$2,482,212, or $0.33 per share for fiscal year 2000.  In connection with its strategic plan, the Company has formed keynew strategic relationships, restructured operations, increased productofferings and believes it is well positioned to increase its share of theglobal videoconferencing marketplace, thereby increasing future revenues andprofitability in the future.

**Liquidity and Capital Resources**

             Cash andCash Equivalents.  Cash and cashequivalents totaled $81,115 on June 30, 2001 compared to $83,930 on June 30,2000.

             Net CashUsed in Operating Activities. The amount of cash used in operatingactivities was $247,310 during fiscal year 2001 compared to $1,271,844 duringfiscal year 2000.  The amount of cashused in operating activities during fiscal year 2001 resulted mainly from a netloss of $1,743,420, a large proportion of which was offset by non-cash expensesof  approximately $738,000 and changesin operating assets and liabilities of approximately $758,000.

             In connection with its business volumedecrease of approximately 26% during fiscal year 2001, accounts receivabledecreased $270,368 from June 30, 2000 to June 30, 2001, or approximately34%.  Accounts payable increased$274,974, due to delays in payments to vendors during the fiscal year andcontinuing though June 30, 2001.  Thedelays were necessary in order for the Company to preserve cash for operationswhile it took steps to obtain additional capital.

             Total inventories decreased $232,029 as ofJune 30, 2001 compared to June 30, 2000 primarily as a result of the Company'sefforts to minimize inventory levels and conserve cash.  During fiscal year 2001, the Company convertedand upgraded certain slow moving previous-generation product inventory intocurrent configurations, to utilize the inventory.  In addition, the Company offered incentive pricing on certainconfigurations in order to lower the amount of slower moving inventory.   The Company's level of compression chipinventory also decreased in fiscal year 2001.  Although this part is a critical component that can be procured fromonly one vendor, the Company believes it has sufficient supply of thecompression chip even in light of the inventory reduction during the year.   Overall inventory levels are expected toincrease significantly during fiscal year 2002 as the Company broadens itsoverall product offerings, including products manufactured by other companiesin the marketplace.

             Net CashUsed in Investing Activities.  During fiscal year 2001, property and equipment purchases were$353,100.  The Company invested $200,000cash toward the acquisition of the ALRS product line, and capitalizedapproximately $88,000  related to thedevelopment of GUI interface software for certain foreign applications of itsMediaPro product line.  The Company alsoinvested approximately $65,100 in other equipment during fiscal year 2001 forgeneral purposes, including support of the Company's engineering, testing anddemonstration activities.

             Payments for intangible assets were $133,189during fiscal year 2001.  These paymentswere a result of the Company paying outside parties for certain non-competeagreements signed in connection with the acquisition of the ALRS product line,as well as legal fees associated with the development of its intellectualproperty rights.

             Net CashProvided by Financing Activities. Cash provided by financing activities during fiscal year 2001 of$730,784 was generated  primarily from a$225,000 subordinated loan to the Company from Richard F. Craven, Chairman, andnet proceeds from the purchase of redeemable common stock by Digital Investors,LLC of $665,343, offset by payments on capital lease obligations of $123,993.

             During fiscal year 2001, the Company received$225,000 cash in exchange for a note payable to its Chairman, Richard F. Cravenon February 28, 2001.  The note carriedan interest rate of 10.0% and was convertible into common stock of the Companyat the sole discretion of Mr. Craven. On February 26, 2001, the entire loan amount of $225,000 together withaccrued interest totaling $11,033 was converted into 674,383 shares of commonstock at a price of $.35 per share.

             During the third quarter of fiscal year 2001,redeemable common stock was issued to Digital Investors LLC (Digital) inconnection with a Stock Purchase Agreement (the "Agreement") signedon February 23, 2001 whereby Digital initially purchased 1,400,000 shares ofcommon stock for $490,000 ($.35 per share). Under the terms of the Agreement,Digital purchased an additional 428,572 and 357,143 shares for $150,000 and$125,000 ($.35 per share), on April 30, 2001 and June 20, 2001 respectively. Asof June 30, 2001, the terms of the Agreement allowed Digital to redeem the commonstock if a registration with the Securities and Exchange Commission of all theshares to be purchased by Digital under the Agreement was not completed byAugust 31, 2001.  The Company filed anS-2 and an S-2/A Registration Statement on June 6, 2001 and July 25, 2001respectively, but as of August 31, 2001, the registration of the shares withthe Securities and Exchange Commission had not been declared effective.  On October 5, 2001, the Company and Digitalsigned an amendment to the Stock Purchase Agreement to; 1) change the requiredclosing date for the remaining shares to be purchased under the Agreement to"3 days" from the effective date of the S-2 registration, as opposedto "10 days", 2) issue to Digital, ten-year warrants to purchase800,000 shares of the Company's common stock at an exercise price of $.75 pershare, upon the final closing of common stock purchased under the agreement, 3)waive the requirement for a registration of the shares purchased under theAgreement prior to the final closing of the Agreement, if such registration hasnot been declared effective by October 1, 2002, and 4) require the Company tofile a registration statement covering all shares and warrants issued toDigital under the amended Agreement within 30 days of the final closing of theamended Agreement, in the event such registration has not been completed by thedate of such closing.  The Companyexpects to file a second amendment to the S-2 registration statement to reflectthese changes to the Stock Purchase Agreement in the near future.  There can be no assurances that such amendedS-2 registration will be declared effective by the Securities and ExchangeCommission in the near future or at all. If the Securities and ExchangeCommission does not declare the S-2 registration effective, the Company plansto file an alternative registration statement in order to register the totalnumber of shares and warrants to be issued to Digital under the Stock Purchase Agreement as amended.  As of October 8, 2001, there are 2,314,285shares remaining to be purchased by Digital at $.35 per share under the amendedStock Purchase Agreement for a total gross price of $810,000.

             On October 5, 2001, the Company receivedproceeds of $800,000 from Digital Investors, LLC. in the form of a subordinatedsecured note due October 5, 2002. Interest on the note is due quarterly at a rate of 12% and the note issubordinated to all amounts owed by the Company to its bank.  The Company expects to repay the note,together with accrued interest, from the proceeds of the remaining shares ofcommon stock to be purchased by Digital under the Stock Purchase Agreement asamended.

             In August 2000, the Company modified itscommercial loan agreement with Wells Fargo Business Credit, Inc. (the"bank") for a $2,500,000 committed line of credit facility. Thisagreement amended and restated the previous commercial loan agreement datedSeptember 3, 1999. The new facility was secured by all corporate assets andprovided working capital based on a borrowing base comprised of accountsreceivable, inventories, and marketable securities. Total outstanding borrowingson the line of credit were $534,860 as of June 30, 2001.

             The Company's line of credit expired on June26, 2001.  In connection with theexpiration, the bank indicated that it is not willing to renew the line ofcredit.  The Company has taken steps toidentify alternative lenders to provide a line of credit for future operationsbut no such formal agreement has been signed. In order to provide temporary working capital financing to the Company,the bank agreed to extend the maturity date of the line of credit to August 26,2001 under terms and conditions similar to those contained in the original loanagreements with the Company.  TheCompany has received notification from the bank that the Company is in defaultof such terms and conditions.  OnSeptember 20, 2001 the Company received a demand letter from the bank,demanding full payment of outstanding amount on the line of credit togetherwith accrued interest.

             In response to the demand letter, the Companyrequested a forbearance agreement with the bank, requesting the bank to refrainfrom exercising its rights and remedies under its credit agreements with theCompany for a certain period of time. The Company has received proposed terms of the agreement from the bank,and is currently in the process of negotiating such terms with the bank. Therecan be no assurance that the Company will be able to obtain a forbearanceagreement with the bank on terms acceptable to the Company.  If no such forbearance agreement is signed,the Company could be forced to pay the bank the outstanding principal andinterest on the line of credit.  The currentoutstanding principal balance on the line of credit as of  October 9, 2001 was approximately $306,000.

             The Company has been actively pursuingalternative banks to provide working capital financing for futureoperations.  Although no formalagreements have been signed, the Company has received and signed a terms sheetfor a new line of credit from a potential new bank outlining general terms thatare acceptable to the Company.  Theseterms, as well as the line of credit itself, are subject to the results of anexamination of the Company by the bank, approval by the bank's creditcommittee, agreement between the parties on all detailed terms, and the signingof completed documentation of such terms. There can be no assurance that the alternative line of credit from thispotential bank will be available to the Company on reasonable terms or atall.  The Company expects tocontinue  seeking lenders for itsworking capital needs until a line of credit is secured.

             To ensure the Company has access to a line ofcredit sufficient to meet its needs, the Company has signed an agreement withDigital Investors, LLC, under which Digital has agreed to provide a line ofcredit to the Company under terms and conditions similar to those contained inthe terms sheet received from the potential new bank noted above.   Under this agreement , Digital'sagreement  to provide a line of creditis contingent upon the Company not signing a line of credit agreement with abank by December 31, 2001.  The Companybelieves it will obtain a line of credit sufficient for future operations froma new bank, or alternatively, Digital, as described above.  However, there can be no assurance that theCompany will be able to meet the covenants and restrictions included in such anew line of credit arrangement on an ongoing basis in the future.

             Management plans to continue to increasesales and improve operating results through 1) increased marketing and abroader distribution of its products as a result of its new relationship withRSIM and other distribution partners, 2) increased revenue streams from abroader line of product offerings as a result of joint development efforts withstrategic partners, new distribution agreements or product and technologyacquisitions, 3) continued  efforts tostreamline operations and minimize overhead, and 4) proactive measures to protectthe Company's intellectual property rights. Management believes that it willobtain a new line of credit in the second quarter of fiscal year 2002 toreplace its previous line of credit on terms and conditions that are acceptableto the Company.  The Company has signedan agreement with Digital Investors LLC to provide a line of credit to theCompany in the event a new line is not secured from a bank by December 31,2001.  Management believes that fundsgenerated from operations,  subordinateddebt  recently loaned to the Company andfunds from a new line of credit yet to be secured from either a new bank orDigital Investors LLC will be sufficient to fund operations for the foreseeblefuture. In the event that cash from operations, cash from subordinated debtfinancing and a new line of credit are not sufficient, management would seekadditional equity capital or debt financing. There can be no assurance that such financing will be available to theCompany on reasonable terms or at all.

 

**Item 7. FINANCIALSTATEMENTS.**

             The following Financial Statement and Reportof Independent Public Accountants thereon are included herein.
Report of Independent Public Accountants Balance  Sheets as of June 30, 2001 and 2000. Statements of Operations for the years ended June 30, 2001 and 2000. Statements of Stockholders' Equity for the  years ended June 30, 2001 and 2000. Statements of Cash Flows for the years ended June 30, 2001 and 2000. Notes to Financial Statements.
**Item 8. CHANGESIN 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)         CurrentDirectors and Executive Officers**
Name Age Position  with Company  Richard F.  Craven 58 Chairman of  the Board and former Interim President and Chief Executive Officer     John C.  Harris 40 Chief  Executive Officer and President     Byron G.  Shaffer 67 Director     S. Albert  Hanser 63 Director     James D.  Hanzlik 45 Chief  Financial Officer      **Former Directors and Executive Officers**     Name Age Position  with Company  Eugene W.  Courtney 63 Former Chief  Executive Officer and President     Marti D.  Miller 44 Former Vice  President Engineering
 

             ***Richard F. Craven***becameInterim President and Chief Executive Officer and Chairman of the Board onSeptember 7, 1999 and resigned his position as Interim President and ChiefExecutive Officer when Mr. Courtney was appointed in October 1999.  He is a founder of the Company and hasserved as a director since its inception in December 1993. Mr. Craven is aprivate investor and has been involved as a manager, owner and developer inseveral real estate ventures. He has been a licensed real estate broker and alicensed insurance agent since 1965. Mr. Craven is also a director ofVideoLabs, Inc.

             ***John C. Harris*** hasbeen a director and Chief Executive and President of the Company sinceFebruary, 2001.  From May until Decemberof 2000, Mr. Harris served as Chief Executive Officer of DiversifiedTechnologies Group, Inc. a company in which its primary business was providingenhanced fax services.  From October1999 until May 2000, Mr. Harris was Chief Executive Officer of CBQ, Inc. ae-business solutions provider.  FromMarch of 1999 until joining CBQ, Inc. Mr. Harris served as President of ParagonInnovations, Inc. and embedded device design firm.  From 1986 until 1998, Mr. Harris was President and CEO ofCompuNet Support Systems, Inc. CompuNet provided networking, systemsintegration and business building applications.  CompuNet Support Systems, Inc. was recognized in 1995, 1996 and1997 as one of the top 100 fastest growing privately held companies in Dallas,TX.

             ***Byron G. Shaffer***servedas a director of the Company from 1995 to November 19, 1998 and again sinceSeptember 1999.  Mr. Shaffer has been aprivate investor for the last 20 years and has also served as a director ofMentor Corporation, a medical products manufacturer, since 1976.***             ***S. Albert Hanser*** has been adirector since September 1999.  He iscurrently the CEO of Sanibel Captiva Trust Company.  Mr. Hanser has been Chairman of Hanrow Financial Group, Ltd. , amerchant banking firm.  Mr. Hanser alsohas served as Chairman/CEO of Resource Bank and Trust, Chairman of First BankSystems' Merchant Bank and Executive Vice President of Investment Banking atDain Bosworth.  In addition, he sits ona number of industry, civic and charitable boards.  Mr. Hanser graduated from Brown University in 1959 and WhartonSchool of Finance in 1974.

             ***James D. Hanzlik***became Chief Financial Officer on January 9, 1997.  Before joining the Company, Mr. Hanzlik was Vice President, Controllerfor Sterner Lighting Group, a manufacturer of commercial lighting.  Prior to that, Mr. Hanzlik served asController and Product Group Manager for Despatch Industries Ltd. amanufacturer of industrial heat processing equipment serving the electronicsmanufacturing industry.  Mr. Hanzlikbegan his career from 1980 - 1985 at KPMG LLC, where he worked with a numbertechnology manufacturing companies.

             ***Eugene W. Courtney***  was President and Chief Executive Officerfrom October 1999 to February 2001.  Beforejoining the Company, Mr. Courtney was President and CEO of HEI, Inc., adesigner and builder of microelectronics from 1990 to 1998.  During the 1980's  Mr. Courtney served as Group Vice President for National ComputerSystems, and he served as the CEO of Digital Scientific Corporation during the1970's.  Mr. Courtney holds a Bachelorof Electrical Engineering degree from Princeton University and is a director ofseveral public and privately held companies. Mr. Courtney retired in February of 2001.

             ***Marti D. Miller*** wasVice President of Engineering from August 1995 to July 2001.  Before joining the Company, Mr. Miller wasDirector of Engineering for Transition Networks, Inc.

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

**Board of Directors’ Committees**

             The Board of Directors has established anAudit Committee and a Compensation Committee. The Audit Committee supervisesthe financial affairs of the Company and generally reviews the results andscope of the audit and other services provided by the Company's independentaccountants and reports the results of their review to the  Board and to the Company's management. TheCompensation Committee has general responsibility for management ofcompensation matters, including compensation arrangements for officers andincentive compensation for employees of the Company.  Currently, both committees consist of Mr. Craven, Mr. Hanser andMr. Shaffer.

**(b)         Section16 (a) Beneficial Ownership Reporting Compliance**

             Section 16(a) of the Securities Exchange Actof 1934, as amended, requires the Company's directors and executive officersand all persons who beneficially own more than 10% of the outstanding shares ofthe Company's Common Stock to file with the Securities and Exchange Commissioninitial reports of ownership and reports of changes in ownership of theCompany's Common Stock. Executive officers, directors and greater than 10%beneficial owners are also required to furnish the Company with copies of allSection 16(a) forms they file.  Thefollowing officers failed to file the following Forms (on a timely basis) forthe fiscal year ending June 30, 2001; 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.  Noneof the late Forms 5 noted above contained transactions that were not reportedon a timely basis.  To the Company'sknowledge, based upon a review of the copies of such reports furnished to theCompany and written representations that no other reports were required, duringthe year ended June 30, 2001, except as disclosed above, none of the Company'sdirectors or officers or beneficial owners of greater than 10% of the Company'sCommon Stock failed to file on a timely basis the forms required by Section 16of the Exchange Act.

**Item10.                EXECUTIVE COMPENSATION**

**Executive Compensation**

             The following table sets forth thecompensation paid or accrued by the Company for services rendered for the yearsended June 30, 1999, 2000 and 2001 to (i) all persons who served as the ChiefExecutive Officer of the Company during fiscal year 2001 and (ii) the othermost highly compensated executive officers of the Company whose salary andbonus exceeded $100,000 in fiscal year 2001 (the "Named ExecutiveOfficers"). Other than those individuals listed below, no executiveofficer of the Company received cash compensation of more than $100,000 infiscal year 2001.

***Summary CompensationTable***
    **Annual Compensation** **Restricted**         **** **Stock** **Underlying** **All Other** **Name and Principal Position** **Fiscal Year** **Salary ($)** **Bonus ($)** **Awards ($)** **Options (#)** **Compensation $** **** **** **** **** **** **** ****** **John C. Harris (1)*Chief  Executive Officer and President* 1999  2000  2001 0  0  45,500 0 0  0 0  0  0 0  0  0 0  0  0 Marti D. Miller *Former  Vice President, Engineering* 1999  2000  2001 129,969  133,500  133,500 0  0  0 0  0  0 40,000  40,000  0 0  0  37,000 (3)Mr. James D. Hanzlik *Chief  Financial Officer* 1999  2000  2001 102,625  107,900  110,300 0  0  0 0  0  0 40,000  40,000  0 4,800  2,800  36,520 (4)Eugene W. Courtney *Former  Chief Executive Officer and President* 1999  2000  2001 0 34,615  75,900 0  0  0 0  0  29,295 (2)0  100,000  0 0  0  35,500 (5)
______________________
(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, 2001, the Company accrued compensation costs associated with the  termination of Mr. Miller, to be paid after June 30, 2001. 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, 2001, 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.
**OptionGrants and Exercises**

             The tables below set forth information aboutthe stock options held by the Named Executive Officers and the potentialrealizable value of the options held by such person on June 30, 2001 No stockoptions were exercised by the Named Executive Officers of the Company duringfiscal year 2001

***Option Grants inLast Fiscal YearIndividual Grants***
**Name** **Number of Securities****Underlying****Options  Granted (1)** **% of Total Options   Granted to Employees****In  Fiscal Year 2000** **Exercise   Price ($/sh)** **Expiration Date**    John C. Harris*Chief  Executive Officer and President* 0 N/A N/A N/AMarti D.  Miller *Former  Vice President Engineering* 0 N/A N/A N/AJames D.  Hanzlik *Chief  Financial Officer* 0 N/A N/A N/AEugene W.  Courtney *Former  Chief Executive Officer and President* 0 N/A N/A N/A
**_____________________**
(1)During  fiscal year 2001, no options to acquire shares of  Common Stock were granted to employees of the Company.  Options to acquire 15,000 shares of Common  Stock were granted to non-employee directors.(2)During  fiscal year 2001, the Company amended certain employee stock options held by  key employees in connection with the Company's restructuring and planned  relocation of its headquarters.  The  amendments to employee options; a) extended the maximum exercise period of  certain employee options in the event of termination to a period of up to  three years, b) re-priced certain options with exercise prices over $.45 per  share to $.45 per share (market price was $.73 on repricing date); and c)  provided for 100% vesting of unvested portions of certain employee stock  options.  Details regarding the  amendments to Named Executive Officers are provided under Item 10, Executive  Compensation.  The Company recognized  compensation expense of $97,220 as of June 30, 2001 in connection with the  amendments of all employee stock options.
***Aggregated Optionexercises in Last Fiscal Year and Fiscal Year-End Option Values***
  **Shares Acquired** **Value** **Number of Unexercised****Options  at June 30, 2001 (#)** **Value of Unexercised****In-The-Money  Options****At June  30, 2001 ($)(1)**   **On Exercise** **Realized** **** **** **Name** **(#)** **($)** **Exercisable** **Unexercisable** **Exercisable** **Unexercisable** **** **** **** **** **** **** **** John C. Harris *Chief  Executive Officer and President* 0 0 0 0 N/A N/A Marti D. Miller *Vice  President, Engineering* 0 0 122,667 37,333 5,760 8,640 James D. Hanzlik *Chief  Financial Officer* 0 0 140,000 0 42,400 0 Eugene W. Courtney *Former  Chief Executive Officer and President* 0 0 100,000 0 35,500 0 
**____________________**
(1)Based on the  June 30, 2001 closing bid price of the Company's Common Stock of $.73 per  share.
 

The following table representsrepricing of options for executive officers due to the restructuring andrelocating of the Company.

***Option/SARRepricings Table***
**Name****Date** **Number of Securities Underlying  Options Repriced (#)** **Market Price of Stock At Time of Repricing  ($)** **Exercise Price At Time of Repricing ($)** **New Exercise Price ($)** **Length of Original Option Term Remaining At  Date of Repricing**       James D. Hanzlik6/29/01 40,000 0.73 1.13 0.45 1 year *Chief Financial*6/29/01 40,000 0.73 2.00 0.45 3 years *Officer*6/29/01 20,000 0.73 2.81 0.45 7 years 
 

             
**Report of Compensation Committee**

             As of June 30, 2001 the CompensationCommittee of the Board of Directors granted stock and authorized changes tostock options held by Mr. Courtney, Mr. Miller and Mr. Hanzlik. These grantsand changes are were made in connection with the Company's restructuring andrelocation of its company headquarters to ensure a timely and organizedrestructuring of the Company. Details of stock granted and changes to optionsare summarized in Item 10. Summary Compensation Table and Executive OptionRepricing Table above and related footnotes thereto.

** **

** **

RichardF. Craven, S. Albert Hanser, Byron G. Shaffer(Members of the Compensation Committee)

** **

**Compensation of Directors**

             The Board of Directors of the Company hasestablished the following compensation policies for non-employee directors ofthe Company. Non-employee directors receive $100 for each meeting attended.Also, under the Company's 1994 Stock Plan, each non-employee director isgranted, upon election to the Board, an option to purchase 20,000 shares ofCommon Stock, exercisable at market value on the date of grant, vesting inequal increments of 25% every three months and expiring ten years from the dateof grant. After the year of election, each non-employee director will alsoreceive annually an option to purchase 5,000 shares of Common Stock exercisableat market value on the date of grant, vesting in equal increments of 25% everythree months and expiring ten years from the date of grant.  During fiscal year 2001, options to acquire15,000 shares of the Company’s Common Stock were granted to non-employeedirectors, exercisable at market value on the date of grant, vesting in equalincrements of 25% every three months and expiring ten years from the date ofgrant.  Directors who are employees ofthe Company receive no additional compensation for serving as directors.

**Item11.   SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

             The following table sets forth as of October8, 2001, the number of shares of the Company's Common Stock beneficially ownedby (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 theoutstanding shares of Common Stock; and (iv) all executive officers anddirectors as a group. Unless otherwise indicated, each person has sole votingand dispositive power over such shares. Shares not outstanding but deemedbeneficially owned by virtue of the right of a person or member of a group toacquire them within 60 days are treated as outstanding only when determiningthe amount and percent owned by such group or person. The address for alldirectors and officers of the Company is Viseon, Inc., 8700 N. Stemmons FrwySte 310, Dallas, Texas 75247.

             

**                                                                  **

 
**Name** **Number of Shares  Beneficially Owned** **Owned Percentage** **** **** **** John C. Harris 0(1)* Richard F. Craven 2,611,957(2)22.3%Byron G. Shaffer 480,250(3)4.1%S. Albert Hanser 125,750(4)1.1%Marti D. Miller 40,000(5)* James D. Hanzlik 140,000(6)1.2%Eugene W. Courtney 175,000(7)1.5%All Current Executive Officers and Directors as a  Group (5 persons) 3,357,957(8)28.1%Digital Investors, LLC 2,877,415 23.3%Alan C. Phillips and Delores V. Phillips Rev. Trust 823,478(9)7.1%
____________________
*Indicates  ownership of less than 1%.(1)Mr. Harris  became President and CEO in February, 2001(2)Includes  53,750 shares which may be acquired within 60 days upon the exercise of stock  options.(3)Includes  73,750 shares which may be acquired within 60 days upon the exercise of stock  options.(4)Includes  28,750 shares which may be acquired within 60 days upon the exercise of stock  options.(5)Includes  40,000 shares which may be acquired within 60 days upon the exercise of stock  options.(6)Includes  140,000 shares which may be acquired within 60 days upon the exercise of  stock options.(7)Includes  100,000 shares which may be acquired within 60 days upon the exercise of  stock options.(8)Includes  296,250 shares which may be acquired within 60 days upon the exercise of  stock options.(9)This Trust  is affiliated with the Company’s third party manufacturer.
**Item12.   CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

             Mr. Richard F. Craven, a director of theCompany, is the father-in-law of the owner/partner of Pointe Design, which is aMinneapolis, Minnesota based company that has provided marketing designs, printadvertising and other marketing materials to the Company. Net purchases by theCompany from Pointe Design totaled $20,039, $41,352 and $148,371 during fiscalyears 2001, 2000 and 1999 respectively. The Company believes its transactions with Pointe Design have been onterms no less favorable than could have been obtained from unaffiliated thirdparties 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 ofcommon stock at a price of $1.00 per share.

             In connection with the private offering ofthe Company’s Common Stock in November 1999, certain members of the Board ofDirectors of the Company purchased a total of 600,000 shares of the Company’s Common Stock at prices ranging from $.50to $1.00 per share.

             During fiscal year 2000, the Company's thirdparty manufacturer was issued a total of 608,478 shares of the common stock inconnection with the exchange of the common stock for certain accounts payableowed by the Company to the manufacturer. The stock was exchanged at pricesranging 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 commonstock., at prices ranging from $.53 to $.67 per share.

             During fiscal year 2001, Richard F. Cravenloaned the Company $225,000.  InFebruary 2001, prior to the maturity date of the note, Mr. Craven converted thenote and accrued interest into 674,383 shares of common stock at a price of$.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 receivedproceeds of $800,000 from Digital Investors, LLC. in the form of a subordinatednote due October 5, 2002.  Interest onthe note is due quarterly at a rate of 12% and the note is subordinated to allamounts owed by the Company to its bank.

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

**Item 13.  EXHIBITS AND REPORTS ON FORM 8-K**

(a)         **Exhibits.**

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

(b)        **Reports on Form 8-K**

                           On May 23, 2001 the Company filed a Form 8Kannouncing its shareholders' approval of two proposals voted on during aspecial meeting of the shareholders on May 23, 2001; 1) Adopting the Agreementand Plan of Merger (the "Agreement") by a and between RSI Systems,Inc. and Viseon, Inc., a Nevada corporation, and 2) Complete the transactionscontemplated under the Stock Purchase Agreement, dated February 23, 2001,between RSI Systems, Inc. and Digital Investors, LLC.

                           On April 16, 2001 the Company filed a Form 8Kannouncing the acquisition of the Automated Line Routing Switch (ALRS) productand related rights and technology from King Research, LLC.

                           On February 26, 2001 the Company filed a Form8K disclosing the private placement of 1,400,000 shares of its common stock inan agreement with Digital Investors, LLC. for $490,000.

**Report of Independent Public Accountants**

 

The Stockholders and Board of DirectorsViseon, Inc.:

 

We have audited the accompanying balance sheets of Viseon, Inc. (fka:RSI Systems, Inc.) (the Company) as of June 30, 2001 and 2000, and the relatedstatements of operations, stockholders’ equity and cash flows for the yearsthen ended.  These financial statementsare the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of Viseon, Inc. as ofJune 30, 2001 and 2000, and the results of its operations and its cash flowsfor the years then ended, in conformity with accounting principles generallyaccepted in the United States of America.

/s/ VIRCHOW, KRAUSE & COMPANY, LLP

Minneapolis, MinnesotaOctober 2, 2001

**VISEON, INC.**

Balance Sheets

June 30, 2001 and 2000
**Assets****2001** **2000**  **** ****      Current assets:     Cash and cash  equivalents$81,115 $83,930  Accounts  receivable, net of allowance for doubtful accounts of $144,000 in 2001 and  $241,000 in 2000529,464 799,832  Other receivable299,633 —  Inventories (note  4)546,390 806,956  Prepaid expenses31,564 65,010           Total current  assets1,488,166 1,755,728          Property and equipment:     Furniture,  equipment and software2,251,970 1,582,763  Leasehold  improvements5,421 —  Less accumulated depreciation  and amortization(1,453,851)(1,120,702)          Net property and  equipment803,540 462,061          Intangible assets, net124,036 —           $2,415,742 $2,217,789         **Liabilities and Stockholders’ Equity**         Current liabilities:     Revolving credit  facility (note 6)$534,860 $573,801  Current portion  of capital lease obligations (note 7)62,953 137,978  Accounts payable1,067,760 792,786  Accrued expenses229,005 265,149  Current portion  of deferred revenue91,339 75,759           Total current  liabilities1,985,917 1,845,473          Long-term liabilities:     Capital lease  obligations, net of current portion (note 7)23,085 72,053  Deferred revenue,  net of current portion267,245 —           Total long-term  liabilities290,330 72,053          Commitments and contingencies (note 8)         Stockholders’ equity (note 10):     Preferred stock,  par value $.01 per share, authorized 5,000,000 shares, no shares issued or  outstanding— —  Common stock, par  value $.01 per share, authorized 50,000,000 shares, 11,668,981 and 8,724,883  shares issued and outstanding116,689 87,249  Additional  paid-in capital20,168,669 18,615,457  Accumulated  deficit(20,145,863)(18,402,443)          Total  stockholders’ equity139,495 300,263           $2,415,742 $2,217,789    
 

See accompanying notes to financialstatements.

 

**VISEON, INC.**

Statements ofOperations

Years ended June 30, 2001 and 2000

 
 **2001** **2000**  **** ****      Net sales$3,409,352 $4,576,277 Cost of goods sold1,746,768 2,346,015 Inventory writedown to lower of cost or market (note 4)28,537 341,846  **** ****       Gross profit1,634,047 1,888,416      Research and development551,356 819,733 Selling, general and administrative2,621,291 3,327,248  **** ****       Operating loss(1,538,600)(2,258,565) **** ****      Other income (expense):     Other income4,073 1,792  Interest income8,589 41,945  Interest expense(217,482)(267,384) **** ****       Other expense,  net(204,820)(223,647) **** ****       Net loss$(1,743,420)$(2,482,212)        Basic and diluted loss per share$(0.18)$(0.33)        Weighted average common shares outstanding:     Basic and diluted9,561,495 7,443,507    
See accompanying notes to financial statements.

**VISEON, INC.**

Statements ofStockholders’ Equity

Years ended June 30, 2001 and 2000

 
 **Common stock****** **Additional  paid-in** **Accumulated**    **Shares** **Amount** **capital** **deficit** **Total**  **** **** **** **** ****            Balances  at June 30, 19996,837,281 $68,373 $17,338,241 $(15,920,231)$1,486,383             Common stock warrant exercised134,000 1,340 132,660 — 134,000              Common stock issued in settlement  of trade payables608,478   6,085   358,556   —   364,641                Common stock sold to directors600,000 6,000 469,000 — 475,000              Exercise of stock options16,800 168 9,132 — 9,300              Note payable and accrued interest  converted to common stock528,324   5,283   307,868   —   313,151                Net loss for the year ended June  30, 2000— — — (2,482,212)(2,482,212)                  Balances  at June 30, 20008,724,883 87,249 18,615,457 (18,402,443)300,263             Common stock sold in private  placement, net of expenses2,185,715   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— — 225,061 — 225,061              Common stock issued for services75,000 750 28,545 — 29,295              Note payable and accrued interest  converted to common stock674,383   6,743   229,290   —   236,033                Exercise of stock options9,000 90 3,285 — 3,375              Compensation related to stock  options— — 97,220 — 97,220              Net loss for the year ended June  30, 2001— — — (1,743,420)(1,743,420)                  Balances  at June 30, 200111,668,981 $116,689 $20,168,669 $(20,145,863)$139,495       
 

See accompanying notes to financial statements.

 

**VISEON, INC.**

Statements ofCash Flows

Years ended June 30, 2001 and 2000

 
 **2001** **2000**  **** ****      Cash flows from operating activities:     Net loss$(1,743,420)$(2,482,212) Adjustments to  reconcile net loss to net cash used in operating activities:     Depreciation and  amortization347,099 325,749  Inventory  writedown to lower of cost or market (note 4)28,537 341,846  Interest expense  converted to common stock11,033 —  Common stock  issued for services29,295 —  Warrants issued  for services225,061 —  Compensation  related to stock options97,220 —  Changes in  operating assets and liabilities:     Accounts  receivable, net270,368 717,818  Inventories232,029 (114,564) Prepaid expenses33,446 21,556  Accounts payable274,974 (174,727) Accrued expenses(36,144)94,731  Deferred revenue(16,808)(2,041) **** ****       Net cash used in  operating activities(247,310)(1,271,844) **** ****      Cash flows from investing activities:     Proceeds from  sale of marketable securities— 992,945  Purchases of  property and equipment(353,100)(176,788) Payments for  intangible assets(133,189)—  **** ****       Net cash provided  by (used in) investing activities(486,289)816,157  **** ****      Cash flows from financing activities:     Repayments on  revolving credit facility, net(38,941)(673,956) Proceeds from  note payable - related party225,000 300,000  Payments on capital lease obligations(123,993)(123,590) Proceeds from  issuance of common stock, net of expenses665,343 475,000  Proceeds from  exercise of common stock warrants— 134,000  Proceeds from  exercise of common stock options3,375 9,300  **** ****       Net cash provided  by financing activities730,784 120,754  **** ****       Decrease in cash  and cash equivalents(2,815)(334,933)     Cash and cash equivalents at beginning of year83,930 418,863  **** ****      Cash and cash equivalents at end of year$81,115 $83,930         Supplemental disclosure of cash flow information:          Cash paid during  the year for interest$219,541 $203,032     Cash paid during  the year for income taxes$— $—         Supplemental schedule of noncash investing and financing activities:     Equipment  acquired through capital lease obligations$— $87,916      Software acquired  through the issuance of common stock warrants$326,325 $—      Common stock  issued in settlement of trade payables$— $364,641      Note payable and  accrued interest converted to common stock$236,033 $313,151    
 

See accompanying notes tofinancial statements.

**VISEON, INC.**

Notes to Financial Statements

June 30,2001 and 2000

**(1)        Description of Business**

Founded in 1993, Viseon, Inc. (the Company) changed its name from RSISystems, Inc. to Viseon, Inc. on May 23, 2001. The Company designs, manufactures and resells business levelvideoconferencing systems, services and accessories for domestic andinternational markets.  These systemsare available in a variety of configurations and price points through bothdirect and indirect sales channels. Recently, the Company has undergone significant change, from being asole provider of its own videoconferencing systems, to a company which alsodistributes products and services provided by others.  The Company extends unsecured credit to customers in the normalcourse of business.

The Company experienced a significant decrease in sales as a result ofthe loss of two key customers in fiscal 2000 and had losses from operations andnegative cash flows for the year ended June 30, 2001.  Together with a working capital deficit as of June 30, 2001,these conditions raise concerns about the Company’s ability to generatepositive cash flows and fund operations.

Management plans to increase sales and improve operating resultsthrough 1) increased marketing and a broader distribution of products from anew relationship with a third party direct sales and marketing organization inthe United States, and through a select group of stronger resellers anddistributors, 2) increased revenue streams from a broader line of products, 3)continued measures to minimize overhead and 4) initiatives to protect isintellectual property rights. The Company is currently in the process ofseeking new working capital financing from a new bank to replace its currentline of credit which has expired.  Toensure 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 whichDigital has agreed to provide a line of credit to the Company if a new line ofcredit has not been obtained from a bank by December 31, 2001. Managementbelieves that funds generated from operations, funds from a recent subordinatedloan, and funds from a new line credit facility (from either a new bank orDigital) will be sufficient to cover cash needs in the foreseeable future. Inthe event sales do not materialize at the expected rates, or the Company doesnot achieve planned gross margins, management would seek additional financingor would conserve cash by further reducing expenses.

**(2)        Summary of Significant AccountingPolicies**

***(a)        Cash and Cash Equivalents***

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

***(b)        Inventories***

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

***(c)         Property and Equipment***

Property and equipment are recorded at cost.  Depreciation is provided for using the straight-line method overtheir estimated useful lives which range from two to seven years.  Leasehold improvements are amortized overthe shorter of their estimated useful life or the term of the lease.******(d)        Capitalized Software Costs***

Software costs have been accounted for in accordance with Statement ofFinancial Accounting Standards (SFAS) No. 86 “Accounting for the Costs ofComputer Software to be Sold, Leased, or Otherwise Marketed”.  Costs associated with the planning and designphase of software development, including coding and testing activitiesnecessary to establish technological feasibility, are classified as researchand development and expensed as incurred. Once technological feasibility has been determined, additional costsincurred in development, including coding, testing and product qualityassurance are capitalized, when material. At June 30, 2001 and 2000, the Company had $625,009 and $185,146 ofunamortized computer software costs, including software acquired.  Amortization of computer software costs was$129,425 and $70,154 for the years ended June 30, 2001 and 2000.

***(e)         Intangible Assets***

The Company amortizes patents over their estimated useful lives of tenyears using the straight-line method. Covenants not to compete are being amortized using the straight-linemethod over the term of the covenants. Accumulated amortization was $9,154 at June 30, 2001.

***(f)         Revenue Recognition***

The Company records sales revenue at the time merchandise isshipped.  The Company ensures thetransaction complies with the seven conditions and the six considerationscontained in Accounting and Auditing Enforcement Release No. 108 of theSecurities 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 atwhich it is appropriate for a registrant to recognize revenue.  The staff believes that revenue isrealizable and earned when all of the following criteria are met: persuasiveevidence of an arrangement exists, delivery has occurred or service has beenrendered, the seller’s price to the buyer is fixed or determinable andcollectibility is reasonably assured. The Company uses the above criteria to determine whether revenue can berecognized, and therefore, believes that the issuance of this bulletin does nothave a material impact on these financial statements.  The Company adopted SAB No. 101 during the year ended June 30,2001 and the effect of adopting was not material to the financial statements.

***(g)        Shipping and Handling Costs***

In accordance with recently released Emerging Issues Task Force (EITF)Issue 00-10, “Accounting for Shipping and Handling Fees and Costs,” the Companyis including shipping and handling revenues in sales and shipping and handlingcosts in cost of goods sold.

***(h)        Research and Development Costs***

Research and development costs are charged to operations when incurred.
******(i)         AdvertisingCosts***

All costs related to advertising the Company’s products are expensed inthe period incurred. Advertising expense for the years ended June 30, 2001 and2000 was $12,129 and $38,604.

***(j)         Net Loss Per Share***

Basic and diluted loss per share is computed by dividing net loss bythe weighted average number of common shares outstanding during eachperiod.  Dilutive common equivalentshares have not been included in the computation of diluted loss per sharebecause their inclusion would be antidilutive. Antidilutive common equivalent shares issuable based on future exerciseof stock options or warrants could potentially dilute basic and diluted lossper share in subsequent years.

***(k)        Use of Estimates***

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities, disclosure of contingent assets and liabilities atthe date of financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from theseestimates.

***(l)         Fair Value of Financial Instruments***

The carrying amount for all financial instruments approximates fairvalue.  The carrying amount of cashequivalents, accounts receivable, accounts payable and accrued expensesapproximates fair value because of the short maturity of theseinstruments.  The fair value of debt andcapital lease obligations approximates the current rates at which the Companycould borrow funds with similar remaining maturities and risks.

**(3)        OtherReceivable**

Other receivable of $299,663 is offset by deferred revenue which willbe recognized in future years in accordance with the terms of the agreement.

**(4)        Inventories**

Inventories, net of reserve, consisted of the following at June 30: 
 2001 2000         Work in progress$0 $26,312 Components437,150 618,847 Finished goods109,240 161,797          $546,390 $806,956    
The fiscal year2001 and 2000 statements of operations reflect write-downs of $28,537 and$341,846 to reduce inventory to the lower of cost or market.  The write-downs were associated with excessinventory resulting from the Company’s decision to discontinue production ofcertain previous generation products.

**(5)        Software**

In April 2001, the Company purchased from King Research theintellectual property and rights related to software products for $200,000,plus issuance up to a maximum 1,000,000 warrants.  At the signing of the agreement, the Company issued a warrant forthe 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.  If $250,000 of the Company’s product is purchased by December2001, a warrant to purchase 250,000 shares of the Company’s common stock at anexercise price of $0.70 will be issued. The warrants expire in April 2006. Amortization of the software is provided using the straight-line methodover its estimated useful life of five years.

As part of the agreement, the Company entered into three covenants notto compete by paying $25,000 for each agreement.

**(6)        Revolving Credit Facility**

In August 2000, the Company modified its commercial loan agreement witha bank for a $2,500,000 committed line of credit facility which matured on itsextended due date in August 2001.  Thefacility is secured by all corporate assets and provides working capital basedon a borrowing base comprised of accounts receivable, inventories andmarketable securities.  The facilityalso contains certain covenants and conditions, including minimum net worthlevels.  Interest on outstandingborrowings accrues at the prime rate plus 4% (10.75% at June 30, 2001).  Outstanding borrowings were $534,860 and$573,801 at June 30, 2001 and 2000, respectively.  In September 2001 the bank demanded full payment includinginterest.  The Company is negotiatingrepayment terms with the bank.

**(7)        CapitalLease Obligations**

The following is a summary of leased equipment as of June 30:
 2001 2000         Equipment$484,147 $484,147 Less accumulated amortization(383,842)(230,084)         $100,305 $254,063    
 

The following is a schedule of future minimum lease payments undercapital leases with the present value of the minimum lease payments as of June30, 2001:
   2002$81,696 200312,171       Total minimum lease payments93,867    Less amount representing interest from 14% to 17%(7,829)      Present value of minimum lease payments86,038    Less current portion(62,953)      $23,085   
**(8)        Commitments and Contingencies**

***(a)        Operating Leases***

The Company leases office space and various equipment under noncancelableoperating leases with terms of monthly to three years.  One of the leases requires the Company topay its prorata share of operating expenses. Future minimum rental payments dueunder noncancelable operating leases are as follows for the fiscal years endingJune 30:
2002$51,757 200321,800 20041,300    Total$74,857   
Total rent expense was $130,621 and $173,680 for the years ended June30, 2001 and 2000.

***(b)        Software License Agreements***

During 1994, the Company entered into a software license agreement witha software development company which expires in 2004.  Pursuant to the agreement, the Company is to pay a royalty fee ofup to $25.00 per unit of videoconferencing systems containing thesoftware.  Royalty expenses related to thisagreement for the years ended June 30, 2001 and 2000 were $17,850 and $23,850.

During 1996, the Company entered into a software license agreement witha software development company. Pursuant to the agreement, in addition to upfront licensing and productionfees of $90,000, the Company is to pay a royalty fee of up to $40.00 per unitof videoconferencing systems containing the software.  Royalty expenses related to this agreement for the year endedJune 30, 2001 and 2000 were $3,558 and $4,532.

During 1998, theCompany entered into a software license agreement with a software developmentcompany which expires in 2003. Pursuant to the agreement, in addition toupfront licensing and production fees of $25,000, the Company is to pay aroyalty fee of up to $5.00 per unit of videoconferencing systems containing thesoftware.  Royalty expenses related tothis agreement for the years ended June 30, 2001 and 2000 were $3,705 and$4,770.

During 1999, the Company entered into a software license agreement witha software development company. Pursuant to the agreement, in addition toupfront licensing and production fees of $25,000, the Company is to pay aroyalty fee of $5.00 per unit of videoconferencing systems containing thesoftware.  The Company had no sales ofrelated systems containing the software during the years ended June 30, 2001and 2000.

***(c)         Manufacturing Agreement***

On August 28, 1996, the Company entered into a manufacturing agreementwith a third party custom manufacturer (Manufacturer).  Pursuant to this agreement, the Manufactureragrees to produce the Company’s videoconferencing products, and warrant thatall products will be free from defects in material and workmanship for twelvemonths from the date the Company ships to the customer, or fifteen months fromthe date the Manufacturer ships to the Company, whichever comes first.

The agreement may be terminated by either party upon failure of theother party to comply with any material term of the agreement after a 30 daywritten notice and cure period. In the event of such termination, the Companywould be obligated to pay for any goods accepted under the terms of theagreement.  The Company may alsoterminate the agreement upon 30 days written notice. In such case, the Companywould be obligated to pay for material and work in progress for productsordered.  As of June 30, 2001, theCompany’s obligation for material and work in progress for products orderedamounted to; up to approximately $921,000.

***(d)        Distributor and Dealer Agreements***

The Company is a party to distributor and dealer agreements withseveral companies. Certain distributors and dealers have minimum purchaseobligations. The term of each agreement is one year, renewable for additionalone-year periods. Distributors and dealers receive discounts depending upon thenumber of systems ordered from the Company.

***(e)         Marketing Agreement***

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

The Company is obligated to pay commissions based on the terms outlinedon the agreement.  Commission expensefor the year ended June 30, 2001 was $50,082.
******(f)         Investorand Recruitment Agreement***

In February 2001, in connection with an agreement for seeking ofpotential investors and recruiting and hiring of senior management, the Companyissued the rights to purchase warrants for 500,000 shares of its common stockat an exercise price of $0.45.  50,000warrants were issued and vested immediately and were valued at $10,315 usingthe Black-Scholes pricing model.  Basedon the agreement, 450,000 warrants will vest at a rate of 37,500 quarterly andmay vest earlier based on the achievement of earnings criteria as defined inthe agreement.  Based on the agreement,37,500 warrants vested and were valued at $7,736 using the Black-Scholespricing model.  The warrants expire inFebruary 2006.

Based on the terms of the agreement, the Company must pay $500 permonth for consulting fees.  Consultingfee expense for the year ended June 30, 2001 was $1,500.

***(g)        Major Customers and Concentration ofCredit Risk***

Sales to three customers represented approximately 39% of net sales forthe year ended June 30, 2001 with accounts receivable from two customersrepresenting approximately 76% of total accounts receivable as of June 30,2001.  During the year ended June 30,2000, sales to two customers represented approximately 28% of net sales, withaccounts receivable from these two customers representing approximately 41% oftotal accounts receivable as of June 30, 2000.

***(h)        Restructuring Costs***

During June 2001, the Board of Directors approved the movement of theCompany’s corporate office from Minneapolis, Minnesota to Dallas, Texas.  The expenses related to this decision atJune 30, 2001 were $138,285 and were included in selling, general andadministrative expenses.

***(i)         Employment Agreements***

At June 30, 2001, the Company has an employment agreement with one ofits officers which expires at-will.  The contractrequires either one year of severance pay or release of the noncompete clausein the agreement.

The Company also has employment agreements with three of its employees which expiresat-will.  The agreement requires sixmonths’ severance in the event of sale or merger of the Company.

**(9)        Income Taxes**

The Company utilizes the liability method of accounting for incometaxes.  Deferred tax assets andliabilities are recognized for the expected future tax consequencesattributable to temporary differences between the financial statement and income taxreporting bases of assets and liabilities. The Company has incurred cumulative net operating lossesfor both financial statement and income tax reporting purposes.  At June 30, 2001, the Company had net operatingloss carryforwards of approximately $18,700,000 and research and developmentcredit carryforwards of approximately $238,000.  If not used, these carryforwards will begin to expire in 2010.  During 1996, a change in ownership occurredpursuant to Section 382 of the Internal Code that limits the use of losscarryforwards in any one year. Subsequent ownership changes may further limit the use of these netoperating loss carryforwards.  TheCompany has recorded a full valuation allowance of $7,754,000, and $7,105,000at June 30, 2001 and 2000 against the net deferred tax asset due to theuncertainty of realizing the related benefits.

**(10)      Stockholders'Equity**

***(a)        Common Stock***

In September 1999, the Company issued 134,000 shares of common stockupon the exercise of warrants held by a director.  The Company received proceeds of $134,000 upon the exercising ofthe warrants ($1.00 per share).  Theseshares have not been registered with the Securities and Exchange Commission.

In November 1999, the Company sold 600,000 shares of common stock toCompany directors.  The Company received$475,000 in exchange for the 600,000 shares of common stock ($1.00 and $.50 pershare).  These shares have not beenregistered with the Securities and Exchange Commission.

In November 1999 and June 2000, the Company issued a total of 608,478shares of common stock to its third party manufacturer, as payment on tradedebt of $364,641 ($1.00 and $.40 per share). These shares have not been registered with the Securities and Exchange Commission.

In March 2000, the Company issued 16,800 shares of common stock uponthe exercise of stock options.  TheCompany received proceeds of $9,300 upon the exercise of the options ($.38 and$1.13 per share).  These shares havebeen registered with the Securities and Exchange Commission and are freelytradable.

In June 2000, a director of the Company converted two $150,000 notespayable and accrued interest due from the Company into common stock.  The Company issued 528,324 shares of commonstock upon conversion of the notes payable which, together with accruedinterest at 10%, totaled  $313,151.  The notes payable were converted into commonstock at prices of $.53 and $.67 per share, respectively.  These shares have not been registered withthe Securities and Exchange Commission.

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

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

During fiscal 2001, the Company received $665,343, net of offeringcosts as a result of a private placement of 2,185,715 shares of common stock toDigital Investors, LLC (Digital) for $0.35 per share.  The shares were sold in connection with a Stock PurchaseAgreement between the Company and Digital. This agreement was amended October 1, 2001.  With the amendment, Digital issued warrants for the purchase of800,000 shares of common stock at an exercise price of $0.75 per share expiringin October 2011.  These shares have notbeen registered with the Securities and Exchange Commission.

***(b)        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 122,500shares 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 of1,500,000 of its common stock, the Company issued a warrant to the placementagent for the purchase of 150,000 shares of its common stock at an exerciseprice of $3.00.  The warrant isexercisable through September 2002.

In January 1998, in connection with the Company’s private offering of1,671,255 shares of its common stock, the Company issued a warrant to theplacement agent for the purchase of 167,126 shares of its common stock at anexercise price of $1.65.  The warrantexpires January 2008.

Two directors of the Company had warrants for the purchase of 15,000shares of common stock at an exercise price of $3.00 per share.  These warrants were exercisable through June30, 2001 and expired.  During 2000,warrants held by a director and other third parties for the purchase of 141,000shares of common stock expired.

Total warrants outstanding at June 30, 2001 were 2,657,126 withexercise prices ranging from $0.45 to $3.00 and expiring through April 2006.

***(d)        Stock Options***

The Company has a stock plan which permits the granting of stockoptions, including incentive stock options as defined under Section 422 of theInternal Revenue Code of 1986, nonqualified stock options and restrictedstock.  The exercise price for optionsgranted under the stock plan shall be at a price determined at the solediscretion of the compensation committee of the Company’s board of directorsprovided, however, that incentive stock options granted under the plan shall begranted 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 commonstock).

The Company hasreserved 2,000,000 shares of common stock for issuance under the plan.  At June 30, 2001, 1,076,950 shares remainedavailable for grant.  Options issuedbecome exercisable over varying periods as provided in the individual planagreements and have a term of five or ten years.

A summary of changes in common stock options during the years endedJune 30, 2001 and 2000 is as follows:
 **Options** **Weighted average exercise price per share**  **** **** Outstanding at June 30, 19991,252,750 $2.17       Granted497,000 0.47  Exercised(16,800)0.55  Canceled(627,150)1.87  **** ****      Outstanding at June 30, 20001,105,800 1.60       Granted15,000 0.38  Exercised(9,000)0.38  Canceled(188,750)1.72  **** ****      Outstanding at June 30, 2001923,050 $1.43         Exercisable at June 30, 2001784,468 $1.55    
 

The following tables summarizeinformation about stock options outstanding as of:
 **June 30, 2001******  **Options outstanding****** **Options exercisable****** **Exercise  prices********Number  outstanding****** **Weighted-  average  remaining  contractual  life****** **Weighted  average  exercise  price****** **Number   exercisable****** **Weighted  average  exercise  price****** $0.38-0.52512,800 5.35 $0.40 402,550 $0.40 1.12-3.00621,250 5.73 2.24 592,918 2.25 6.25-9.25170,000 4.65 7.74 170,000 7.74      $0.38-9.251,304,050 5.44 $2.23 1,165,468 $2.41      
 
 **June 30, 2000******  **Options outstanding****** **Options exercisable****** **Exercise  prices********Number  outstanding****** **Weighted-  average  remaining  contractual  life****** **Weighted-  average  exercise  price****** **Number  exercisable****** **Weighted-  average  exercise  price****** $0.38-0.52561,800 1.27 $0.40 170,136 $0.41 1.12-3.00745,000 5.12 2.15 578,339 2.14 6.25-9.25180,000 5.67 7.82 180,000 7.82      $0.38-9.251,486,800 3.73 $2.18 928,475 $2.93      
 

The Company applies APBNo. 25 and related interpretations in accounting for its stock option plans.  Accordingly, $97,220 and $0 of compensationcost has been recognized in the accompanying statements of operations for theyears ended June 30, 2001 and 2000.  Hadcompensation cost been recognized based on the fair values of options at thegrant dates consistent with the provisions of SFAS No. 123, the Company’s netloss and basic and diluted loss per share would have been increased to thefollowing pro forma amounts:
 **Year ended June 30,**  ****  **2001** **2000**  **** ****      Net loss:     As reported$(1,743,420)(2,482,212) Pro forma(2,011,950)(2,846,561)     Basic and Diluted loss per share:     As reported$(.18)(.33) Pro forma(.21)(.38)     
The fair value of each option grant is estimated on the date of the grantusing the Black-Scholes option pricing model with the following weightedaverage assumptions used for grants in 2001 and 2000; risk-free interest ratesof 4.5% and 6.28%, expected option lives of 10 years and 5.46 years, expectedvolatility of 61.12% and 38.4% and expected dividend yield of 0%.

The weighted average fair values of options granted in 2001 and 2000were as follows:
Fiscal 2001 grants$0.12 Fiscal 2000 grants0.22 
**(11)      Retirement Savings Plan**

The Company has a pre-tax salary reduction/profit-sharing plan underthe provisions of section 401(K) of the Internal Revenue Code, which coversemployees meeting certain eligibility requirements.  Profit sharing contributions by the Company are completelydiscretionary.  The Company made no contributionsduring the years ended June 30, 2001 and 2000.

**(12)      RelatedParty Transaction**

During the years ended June 30, 2001 and 2000, the Company purchasedadvertising and marketing services from a related party totaling $20,039 and$41,352.  The Company believes that thefees paid related to these services were equivalent to those that would be paidunder an arm’s length transaction.

**(13)      SubsequentEvent**

In October 2001, the Company received $800,000 from Digital from asubordinated note due in October 2002. Interest is due quarterly at 12%, the note is subordinated to all bankdebt and is secured by substantially all assets of the Company.

 

**SIGNATURES**

             Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.
Dated:  October 11, 2001VISEON, INC.   By: /s/ John  C. Harris  Chief  Executive Officer and President
 

             Pursuant to the requirements of the SecuritiesExchange Act of 1934, this Report has been signed below by the followingpersons on behalf of the registrant and in the capacities indicated on October11, 2001.

**POWER OF ATTORNEY**

             Each person whose signature appears belowconstitutes and appoints James D. Hanzlik or John C. Harris as his true andlawful attorney-in-fact and agent, with full power of substitution andresubstitution, for him and in his name, place and stead, in any and allcapacities, to sign any or all amendments to this Annual Report on Form 10-KSBand to file the same, with all exhibits thereto, and other documents inconnection therewith, with the Securities and Exchange Commission, grantingunto said attorney-in-fact and agent, full power and authority to do andperform each and every act and thing requisite and necessary to be done in andabout the premises, as fully to all intents and purposes as he might or coulddo in person, hereby ratifying and confirming all said attorney in-fact andagent, or his substitute or substitutes, may lawfully do or cause to be done byvirtue thereof.
SIGNATURETITLE  /s/ John C.  HarrisChief  Executive Officer and President John C.  Harris     /s/ James D.  HanzlikChief  Financial Officer James D.  Hanzlik   /s/ Richard  F. CravenChairman of  the Board Richard F.  Craven   /s/ Byron G.  ShafferDirector Byron G.  Shaffer   /s/ S.  Albert HanserDirector S. Albert  Hanser 
**VISEON, INC.Exhibit Index toForm 10-KSB for the Year Ended June 30, 2001**

 
Exhibit No.Title of  DocumentMethod of  Filing 
 
2.1Plan of Merger between RSI Systems, Inc.  and Viseon, Inc. Filed as Exhibit 10.40 to the Company’s  March 200110-QSB and incorporated herein by reference.    3.1Articles 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.    3.2Certificate  of Amendment of Articles of Incorporation of Viseon, Inc., dated May 24,  2001. Filed as  Exhibit 3.1 to the Company's S-2 Registration Statement dated July 25, 2001  and incorporated herein by reference.    3.3Bylaws 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.    4.1Form 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.    4.2Form 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.    10.11994 Stock  Plan.* Filed as  Exhibit 10.5 to the SB-2 Registration Statement and incorporated herein by  reference.    10.2Form of  Inventions, Confidential Information and Non-Competition Agreement. Filed as  Exhibit 10.2 to the SB-2 Registration Statement and incorporated herein by  reference.        10.3Letter of  Credit Agreement, dated September 19, 1994. Filed as  Exhibit 10.13 to the SB-2 Registration Statement and incorporated herein by  reference.    10.4Letter of  Credit Agreement, dated December 13, 1994, as amended. Filed as  Exhibit 10.14 to the SB-2 Registration Statement and incorporated herein by  reference.    10.5Link  Technology Inc. Source Code Software License Filed as  Exhibit 10.15 to the SB-2 Registration Agreement. Statement and incorporated  herein by reference.    10.6Design  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.    10.7License  Agreement with DSP Software Engineering, Inc. dated February 1, 1996. Filed as  Exhibit 10.15 to the Form 10-KSB Annual   Report of the Company for 1996, File No. 000-27106 (the “Company’s  1996 10-KSB”) and incorporated herein by reference.    10.8Addendum to  License Agreement with Link Technology,   Inc. dated April 29, 1996 Filed as  Exhibit 10.17 to the Company's 1996 10-KSB and incorporated herein by  reference.    10.9Employment  Agreement between the Company and Donald Lies.* Filed as  Exhibit 10.20 to the Company's 1996 10-KSB and incorporated herein by  reference.    10.10Manufacturing  Agreement with Altron, Inc. dated August 28, 1996. Filed as  Exhibit 10.21 to the Company's 1996 10-KSB and incorporated herein by  reference.    10.11Selling  Agency Agreement with Miller Johnson & Kuehn Incorporated dated August  22, 1996 Filed as  Exhibit 10.23 to the Company's 1996 10-KSB and incorporated herein by  reference.    10.12Shareholder  Agreement dated April 30, 1996. Filed as  Exhibit 10.24 to the Company's 1996 10- KSB and incorporated herein by  reference.    10.13New Employee  Inventions, Confidentiality and Non-compete Agreement Filed as  Exhibit 10.13 to the Form 10-KSB Annual   Report of the Company for 1997, File No. 000-27106  (the “Company’s 1997 10-KSB”) and  incorporated  herein by reference.    10.14Non-Qualified  Stock Option Agreement with Donald C. Lies.* Filed as  Exhibit 10.14 to the Company's 1997 10-KSB and incorporated herein by  reference    10.15Restricted  Stock Agreement with Donald C. Lies.* Filed as  Exhibit 10.15 to the Company's 1997 10-KSB and incorporated herein by  reference    10.16Qualified  Stock Option Agreement with Donald C. Lies.* Filed as  Exhibit 10.16 to the Company's 1997 10-KSB and incorporated herein by  reference    10.17Termination  of Stock Purchase and Subscription Agreement.* Filed as  Exhibit 10.17 to the Company's 1997 10-KSB and incorporated herein by  reference    10.18Norwest Loan  Agreement. Filed as  Exhibit 10.18 to the Company's 1997 10-KSB and incorporated herein by  reference    10.19Selling  Agency Agreement with Miller Johnson & Kuehn Incorporated dated  December 29, 1997. Filed as  Exhibit 10.19 to the Form 10-KSB Annual   Report of the Company for 1998, File No. 000-27106 (the  “Company's 1998 10-KSB”) and incorporated herein by reference.    10.20Amended 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.    10.21Amended and  Restated Credit and Security Filed as  Exhibit 10.21 to the Company's 1998 10-KSB and incorporated herein by  reference    10.22First  Amendment to the Eximbank guaranteed Amended and Restated Credit and Security  Agreement. Filed as  Exhibit 10.22 to the Company's 1998 10-KSB and incorporated herein by  reference    10.23Second  Amendment to Amended & Restated Credit & Security Agreement. Filed as  Exhibit 10.23 to the Form 10-KSB Annual &  Report of the Company for 1999, File No. 000-27106 (the  “Company's 1999 10-KSB”) and incorporated herein by reference    10.24Third  Amendment to Amended & Restated Credit & Security Agreement. Filed as  Exhibit 10.24 to the Company's 1999 10-KSB and incorporated herein by  reference    10.25First  Amendment to Patent & Trademark Security Agreement Filed as  Exhibit 10.25 to the Company's 1999 10-KSB and incorporated herein by  reference    10.26First  Amendment to Patent & Trademark Security Agreement. Filed as  Exhibit 10.26 to the Company's 1999 10- KSB and incorporated herein by  reference    10.27Severance  Agreement Between the Company and Donald C. Lies. Filed as  Exhibit 10.27 to the Company's 1999 10- KSB and incorporated herein by  reference    10.28Fourth  Amendment to Amended and Restated Credit and Security Agreement and Waiver of  Defaults (Wells (the Fargo Business Credit, N.A.). Filed as  Exhibit 10.28 to the Form 10-KSB Annual   Report of the Company for 2000, File No. 000-27106  “Company's 2000 10-KSB”) and incorporated  herein by reference.    10.29Second  Amended and Restated Credit and Security Agreement (Wells Fargo Bank  Minnesota, N.A.). Filed as  Exhibit 10.29 to the Company’s 2000 10-   KSB and incorporated herein by reference.    10.30Export  Import Bank of the United States Working Capital Guarantee Program,  Borrower Agreement. Filed as  Exhibit 10.30 to the Company’s 2000 10-   KSB and incorporated herein by reference.    10.31Note Payable  to Richard F. Craven. Filed as  Exhibit 10.31 to the Company’s 2000 10- KSB and incorporated herein by  reference.    10.32Modified  Separation and Severance Agreement between   the Company and Donald C. Lies. Filed as  Exhibit 10.32 to the Company’s 2000 10- KSB and incorporated herein by  reference    10.33Note 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.    10.34Note Payable  to Richard F. Craven. Filed as  Exhibit 10.34 to the Company's December 2000 10-QSB and incorporated herein  by reference.    10.35Stock  Purchase Agreement by and between Company   and Digital Investors, LLC, dated as of February 23, 2001. Filed as  Exhibit 10.33 to Company’s March 2001 10- QSB and incorporated herein by  reference.    10.36Shareholder  Voting Agreement by and between the Company and Digital Investors, LLC,  Richard F. Craven and Byron G. Shaffer, dated as of February 23, 2001. Filed as  Exhibit 10.34 to Company's March 2001 10-QSB and incorporated herein by  reference.    10.37Registration  Rights Agreement by and between Company and Digital Investors, LLC, dated as  of February 23, 2001. Filed as  Exhibit 10.35 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.38Marketing  Agreement by and between Company and RSI Marketing, LLC, dated as of February  23, 2001. Filed as  Exhibit 10.36 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.39Registration  Rights Agreement by and between Company and RSI Marketing, LLC, dated as of  February 23, 2001. Filed as  Exhibit 10.37 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.40Management  and Consulting Agreement by and between Company and Active Management, LLC,  dated as of February 23, 2001. Filed as  Exhibit 10.38 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.41Registration  Rights Agreement by and between   Company and Active Management, LLC, dated as of February 23, 2001. Filed as  Exhibit 10.39 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.42Asset  Purchase Agreement with King Research, LLC, dated April 12, 2001. Filed as  Exhibit 10.41 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.43Licensing  and Manufacturing Agreement with Mike Prell d/b/a Dallas Computer Recovery,  dated April 12, 2001. Filed as  Exhibit 10.42 to Company’s and Mike Prell March 2001 10-QSB and incorporated  herein by reference.    10.44Non-Competition,  Confidentiality and Assignment Agreement with King Research, LLC, and Jeff  Clem, dated April 12, 2001. Filed as  Exhibit 10.43 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.45Non-Competition,  Confidentiality and Assignment Agreement with King Research, LLC, dated April  12, 2001. Filed as  Exhibit 10.44 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.46Non-Competition,  Confidentiality and Assignment Agreement with King Research, LLC, Mike Prell  and Mike Prell d/b/a Dallas Computer Recovery, dated April 12, 2001 Filed as  Exhibit 10.45 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.47Non-Competition,  Confidentiality and Assignment Agreement with King Research, LLC, and Andrew  Sears, dated April 12, 2001. Filed as  Exhibit 10.46 to Company’s March 2001 10-QSB and incorporated herein by  reference.    10.48First  Amendment to Stock Purchase Agreement Filed  herewith electronically.    10.49Security  Agreement with Digital Investors, LLC Filed  herewith electronically.    10.50Note Payable  to Digital Investors, LLC Filed  herewith electronically.    21.1Subsidiary  of the Registrant. Filed as  Exhibit 21.1 to the Company's 1996 10-KSB and incorporated herein by  reference.    21.2Subsidiary  of Registrant. Filed as  Exhibit 21.2 to the Company's December 2000 10-QSB and incorporated herein by  reference.    23.1+Consent of Virchow, Krause & Company,  LLP Filed herewith electronically.    24.1+Power of attorney from directors (included in signature page of this  Registration Statement). Filed herewith electronically.    
____________________________+ Filed herewith.* Denotes an exhibit that covers management contracts or compensatory plans orarrangements.

The exhibits referred to inthis Exhibit Index will be supplied to a shareholder at a charge of $.25 perpage upon written request directed to Secretary, Viseon, Inc. at the executiveoffices of the Company.************