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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended
June 30, 2005
    
    Commission File Number 0-27106
 VISEON, INC.
  
 
 
   
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VISEON, INC.
    
    FORM 10-KSB
  
 INDEX
 PART I.
    
    Page NumberItem 1. Description of Business
    
    
    4Item 2. Description of Property
    
    
    18Item 3. Legal Proceedings
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19PART II.
    
    
    19Item 5. Market for Common Equity and Related Stockholder Matters
    
    
    19Item 6. Managements Discussion and Analysis or Plan of Operation
    
    
    20Item 7. Financial Statements
    
    
    23Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    23Item 8A. Controls and Procedures
    
    
    23Item 8B. Other Information
    
    
    23PART III.
    
    
    24Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
    
    
    24Item 10. Executive Compensation
    
    
    25Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
    
    
    27Item 12. Certain Relationships and Related Transactions
    
    
    28Item 13. Exhibits
    
    
    30Item 14. Principal Accountant Fees and Services
    
    
    33List of SubsidiariesConsent of Virchow Krause Company, LLPCertification from John Harris, President and CEOCertification from Brian R. Day, CFOCertification of CEO Pursuant to U.S.C. Section 1350Certification of CFO Pursuant to U.S.C. Section 1350
 - 2 -




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VISEON, INC.
    
    FORM 10-KSB
 INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
  *
    
    Our belief that sales of our products may be disproportionately high during the holiday
shopping season when compared to other times of the year.*
    
    Our belief that our product offerings will be designed to assimilate future technical
advances.*
    
    Our belief that we have all rights necessary to market and sell our system without
infringement of intellectual property rights held by others.*
    
    Our belief that, given the right business opportunities, we may expand our operations
rapidly and significantly.*
    
    Our belief that we can maintain key personnel and consultants in all functional areas
necessary to successfully execute our business strategy for fiscal year 2006.*
    
    Our belief that we are well positioned to establish new consumer electronics products,
thereby increasing future revenues and profitability.*
    
    Our belief as to the reasonableness of the estimates and assumptions we make that form the
basis of our judgments regarding the carrying values of assets and liabilities that are not readily
apparent from other sources.*
    
    Our belief that we should not encounter any meaningful difficulty in procuring all
requisite certifications and approvals.*
    
    Our belief as to the principal competitive factors we will face in our markets.*
    
    Our belief as to the amounts ultimately payable, if any, in connection with certain
litigation and claims arising in the ordinary course of business.*
    
    Our expectations regarding the marketing expenses associated with creating and promoting a
brand image.*
    
    Our expectations regarding the marketing expenses associated with developing and promoting
new products.*
    
    Our expectations regarding the basis upon which we will compete in our markets.*
    
    Our expectations regarding by whom and where our broadband videophone products will be
manufactured, assembled and tested.*
    
    Our expectations regarding the compatibility of our personal videophones with other
products.*
    
    Our expectations regarding the establishment of a formal manufacturing quality process for
our products.*
    
    Our expectations regarding order fulfillment and customer support.*
    
    Our expectations regarding our sales and distribution strategies.*
    
    Our plan to develop our products and services jointly with one or more suitable,
established developers and manufacturers.*
    
    Our plan to continue forming new relationships with other companies to distribute their
products alongside our own products.*
    
    Our intent to focus on licensing our intellectual property to third parties and developing
proprietary consumer broadband videophone products and services.*
    
    Our intent to rely on an outside sales force.*
    
    Our intent to use a variety of marketing programs to build awareness of our products.*
    
    Our intent to compete in the consumer videophone market vigorously in all aspects.*
    
    Our intent to take additional steps to protect our patents from infringement by others.
  - 3 -




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VISEON, INC.
    
    FORM 10-KSB
 
 ITEM 1 . DESCRIPTION OF BUSINESS.
 INTRODUCTION
  TM
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VISEON, INC.
    
    FORM 10-KSB
 Industry Background
      PC-Based Systems; Software Coder/Decoders (Codecs).
 PC-Based Systems; Hardware Codecs
 - 5 -




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VISEON, INC.
    
    FORM 10-KSB
 The Personal Videophone.
 Products and Services
     - 6 -




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VISEON, INC.
    
    FORM 10-KSB
 Manufacturing, Order Fulfillment and Customer Support
  Market and Marketing
 Corporate Market
   Consumer Market
    - 7 -




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VISEON, INC.
    
    FORM 10-KSB
  Business Development, Sales and Marketing
        Approvals, Certifications and Regulation
  Competition
  - 8 -




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VISEON, INC.
    
    FORM 10-KSB
   Intellectual Property and Proprietary Rights
     Acquisitions
   - 9 -




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VISEON, INC.
FORM 10-KSB   Research and Development
  Employees
   Risk Factors
    - 10 -




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VISEON, INC.
    
    FORM 10-KSB
      *
    
    The depth and liquidity of the markets for our Common Stock*
    
    Investor perception of the Company and the industry in which we participate*
    
    General economic and market conditions
  - 11 -




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VISEON, INC.
    
    FORM 10-KSB
       - 12 -




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VISEON, INC.
    
    FORM 10-KSB
   *
    
    educate consumers on the benefits of our products.*
    
    commit a substantial amount of human and financial resources to secure
strategic partnerships and otherwise support the retail and/or carrier distribution of
our products.*
    
    develop our own sales, marketing and support activities to consumers, broadband
providers and retailers.*
    
    establish a sufficient number and locations of retailers carrying our products.
    - 13 -




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VISEON, INC.
    
    FORM 10-KSB
      - 14 -




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VISEON, INC.
    
    FORM 10-KSB
         - 15 -




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VISEON, INC.
    
    FORM 10-KSB
    *
    
    changes in political and strategic relations between the U.S. and the countries
in which we do business.*
    
    changes in foreign currency exchange rates.*
    
    changes in a specific country or regions political or economic conditions*
    
    trade protection measures and import or export licensing requirements.*
    
    potentially negative consequences from changes in tax laws.*
    
    difficulty in managing widespread sales and manufacturing operations.*
    
    less effective protection of intellectual property.
    *
    
    Federal Communications Commission regulations relating to the electronic
emissions of consumer products*
    
    Federal Communications Commission regulations relating to consumer products
that are connected to the public telephone network*
    
    Federal Communications Commission regulations relating to consumer products
that are connected to the Internet*
    
    copyright laws relating to the use of copyrighted audio and video media
    *
    
    We will need to improve our operational and financial systems, procedures and
controls to support our expected growth and any inability to do so will adversely
impact our ability to grow our business. Our current and planned systems, procedures
and controls may not be adequate to support our future operations and expected growth.
Delays or problems associated with any improvement or expansion of our operational
systems and controls could adversely impact our relationships with customers and harm
our reputation and brand.*
    
    We will need to attract and retain qualified personnel, and any failure to do
so may impair our ability to offer new products or grow our business. Our success will
depend on our ability to attract, retain and motivate managerial, technical, marketing,
administrative and customer support personnel. Competition for such employees is
intense, and we may be unable to successfully attract, integrate or retain sufficiently
qualified personnel. If we
 - 16 -




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VISEON, INC.
    
    FORM 10-KSB
 are unable to hire, train, retain or manage the necessary personnel, we may be unable
to successfully introduce new products or otherwise implement our business strategy.*
    
    We will need to provide acceptable customer support and any inability to do so
will impair our ability to develop consumer acceptance of our products. We expect that
some of our customers will require significant support when evaluating and using our
products. We do not have experience with widespread deployment of our products and
services to a diverse customer base and in the future we may not have adequate
personnel to provide the levels of support that our customers will require. Our
failure to provide adequate customer support for our products or services will damage
our reputation in the marketplace and strain our relationships with customers and
strategic partners. This could prevent us from gaining new or retaining existing
customers and could harm our reputation and brand.
      *
    
    2,196,438 shares of our Common Stock are available for issuance to outside
consultants to compensate them for services provided.*
    
    Options to purchase approximately 2,060,250 registered shares are outstanding.*
    
    Warrants to purchase approximately 16,852,772 shares of Common Stock are
outstanding.*
    
    Dividends payable on our Series A Convertible Preferred Stock may be paid in
shares of Common Stock at the option of the Company. The current amount of dividends
payable on the outstanding shares of Series A Convertible Preferred Stock is $312,500
per year, payable quarterly.
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VISEON, INC.
    
    FORM 10-KSB
      *
    
    statements or changes in opinions, ratings or earnings estimates made by
brokerage firms or industry analysts relating to the market in which we do business or
relating to us specifically, as has occurred in the past.*
    
    the announcement of new products or product enhancements by our competitors or
us.*
    
    technological innovations by our competitors or us.*
    
    quarterly variations in our results of operations.*
    
    general market conditions or market conditions specific to technology
industries.*
    
    domestic and international macroeconomic factors.
    
 ITEM 2. DESCRIPTION OF PROPERTY
  - 18 -




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VISEON, INC.
    
    FORM 10-KSB
 
 ITEM 3. LEGAL PROCEEDINGS
      
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
  
 ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES
OF EQUITY SECURITIES
  HIGH
    
    
    LOW2004First Quarter
    
    
    1.15
    
    
    
    .50Second Quarter
    
    
    1.45
    
    
    
    .85Third Quarter
    
    
    1.68
    
    
    
    .78Fourth Quarter
    
    
    1.66
    
    
    
    .952005First Quarter
    
    
    1.44
    
    
    
    .69Second Quarter
    
    
    2.50
    
    
    
    1.01Third Quarter
    
    
    2.68
    
    
    
    1.10Fourth Quarter
    
    
    1.40
    
    
    
    1.02
 - 19 -




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VISEON, INC.
    
    FORM 10-KSB
     
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
 Overview
 TM
   Results of Operations
 Year Ended June 30, 2005 Compared to Year Ended June 30, 2004.
 Net Sales.
 Gross Profit (Loss).
 Research and Development Expenses.
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VISEON, INC.
    
    FORM 10-KSB
  Selling, General and Administrative Expenses.
 Other Income and Expense.
 Preferred Stock Dividends.
 Liquidity and Capital Resources
   Subsequent Event
  Year Ended June 30, 2005 Compared to Year Ended June 30, 2004
 Cash and Cash Equivalents.
 Net Cash Used in Operating Activities.
 Net Cash Used in Investing Activities.
 Net Cash Provided by Financing Activities.
 - 21 -




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VISEON, INC.
    
    FORM 10-KSB
   Total
    
    1 year or less
    
    1-3 years
    
    3-5 years
    
    Over 5 yearsOperating Leases
    
    $
    19,188
    
    
    $
    19,188
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 Critical Accounting Policies and Estimates
   Revenue Recognition.
  Allowance for Doubtful Accounts.
 Accounting for Income Taxes.
  - 22 -




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VISEON, INC.
    
    FORM 10-KSB
 
 ITEM 7. FINANCIAL STATEMENTS.
    
 
 
  
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 8A. CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 ITEM 8B. OTHER INFORMATION.
  - 23 -




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VISEON, INC.
    
    FORM 10-KSB
 
  
 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT
   Name
    
    Age
    
    PositionsJohn C. Harris
    
    
    44
    
    
    Chairman of the Board, Chief Executive Officer and PresidentRobert A. Wolf
    
    
    45
    
    
    Chief Financial Officer (1)Brian Day
    
    
    42
    
    
    Director, Chief Financial Officer (2)Geoffrey Gerard
    
    
    60
    
    
    DirectorJohn ODonnell
    
    
    50
    
    
    DirectorCharles Rey
    
    
    57
    
    
    DirectorAshton Peery
    
    
    53
    
    
    Director (3)
 
 (1)
    
    Mr. Wolf resigned as Chief Financial Officer on July 15, 2005(2)
    
    Mr. Day resigned as a member of the Board of Directors and was appointed Chief
Financial Officer and Chief Operating Officer on July 16, 2005(3)
    
    Mr. Peery was appointed as a Director on July 16, 2005          - 24 -




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VISEON, INC.
    
    FORM 10-KSB
     
 ITEM 10. EXECUTIVE COMPENSATION.
   SUMMARY COMPENSATION TABLE
 Long Term CompensationAnnual Compensation
    
    Awards
    
    Payouts(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)Other
    
    Restricted
    
    Securities
    
    
    
    
    
    AllAnnual
    
    Stock
    
    Underlying
    
    LTIP
    
    OtherName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation
    
    Awards
    
    Options/
    
    Payouts
    
    CompensationPrincipal Position
    
    Year
    
    Salary ($)
    
    Bonus ($)
    
    ($)
    
    ($)
    
    SARs (#)
    
    ($)
    
    ($)John C. Harris
    
    
    2002
    
    
    
    130,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000Chief Executive
    
    
    2003
    
    
    
    130,000Officer and President
    
    
    2004
    
    
    
    151,667
    
    
    
    310,000
    (2)
    
    
    
    
    
    
    
    
    
    
    300,000
    (3)2005
    
    
    
    195,000Robert A. Wolf (1)
    
    
    2002Chief Financial
    
    
    2003Officer
    
    
    2004
    
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    (4)2005
    
    
    
    100,000
 
 (1)
    
    Mr. Wolf became Chief Financial Officer in March 2004.(2)
    
    In January 2004, the compensation committee approved a cash payment in the amount of fifty
thousand dollars and the grant of 200,000 shares of the Companys common stock to Mr. Harris
in consideration of his past performance and his oral agreement to continue his employment
with the Company. The shares were valued at $1.05 per share, the closing bid per share on
the date of issuance (June 24, 2004). Mr. Harris had previously earned a performance bonus in
the amount of fifty thousand dollars.(3)
    
    The compensation committee also approved the grant to Mr. Harris, pursuant to the Companys
1994 Employee Stock Option Plan, of options to purchase 300,000 shares of the Companys common
stock in connection with his agreement to continue to serve as the Companys CEO for an
additional two years.(4)
    
    In February 2004, the compensation committee also approved the grant to Rob Wolf, pursuant to
the Companys 1994 Employee Stock Option Plan, of options to purchase 300,000 shares of the
Companys common stock in connection with his agreement to serve as the Companys CFO for two
years. The options were granted in September 2004. - 25 -




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VISEON, INC.
    
    FORM 10-KSB
  Option Grants in Last Fiscal Year
 (a)
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)% of TotalNumber of
    
    
    Options/SARsSecurities Underlying
    
    
    Granted toOptions/SARs
    
    
    Employees
    
    
    Exercise or Base
    
    
    ExpirationName
    
    Granted (#)
    
    
    in Fiscal Year
    
    
    Price ($/Sh)
    
    
    DateRobert A. Wolf
    
    
    300,000
    
    
    
    41.10
    %
    
    $
    1.00
    
    
    September 2014Chief Financial
Officer
 
 (1)
    
    The Company has never granted any SARS.(2)
    
    The aggregate number of options granted in fiscal year 2005 was 730,000.(3)
    
    Mr. Wolfs options vest according to the following schedule: 112,500 immediately, 37,500 per
quarter beginning December 29, 2004.   (a)
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)Number of
    
    
    Value ofSecurities Underlying
    
    
    UnexercisedUnexercised
    
    
    In-the-MoneyOptions / SARs at
    
    
    Options / SARs atShares Acquired
    
    
    
    
    
    
    June 30, 2005 (#)
    
    
    June 30, 2005 ($)Name
    
    on Exercise (#)
    
    
    Value Realized ($)
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableJohn C. Harris
    
    
    
    
    
    
    
    
    
    
    475,000
    
    
    
    75,000
    
    
    $
    123,000
    
    
    $
    6,000Rob A. Wolf
    
    
    
    
    
    
    
    
    
    
    225,000
    
    
    
    75,000
    
    
    $
    18,000
    
    
    $
    6,000
 
 (1)
    
    Based upon the closing bid price of the Common Stock quoted on the OTC Bulletin Board
on June 30, 2005, which was $1.08 per share, and the exercise price of the options (between
$0.66 and $1.00 per share).       - 26 -




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VISEON, INC.
    
    FORM 10-KSB
 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
  Beneficial OwnershipName and Address ofBeneficial Owner
    
    
    
    Number
    
    
    PercentBrian Day
    
    
    
    
    147,500
    (1)
    
    
    *Geoffrey Gerard
    
    
    
    
    31,000
    (2)
    
    
    *John Harris
    
    
    
    
    712,500
    (3)
    
    
    2.1
    %John ODonnell
    
    
    
    
    325,869
    (4)
    
    
    *
    %Charles Rey
    
    
    
    
    170,021
    (5)
    
    
    *Rob Wolf
    
    
    
    
    262,500
    (6)Ashton Peery
    
    
    
    
    35,000
    (7)
    
    
    *All Current Executive Officers and Directors as a Group (7 persons)
    
    
    1,684,390
    
    
    
    4.8
    %Digital Investors, LLC
    
    
    1,909,024
    (8)
    
    
    5.5
    %16901 N. Dallas Parkway,Suite 230Addison, TX 75001Richard Craven
    
    
    2,043,652
    (9)
    
    
    6.0
    %5200 Wilson Road #200Edina, MN 55424Henry F. Harris, Sr.
    
    
    4,605,225
    (10)
    
    
    12.8
    %575 E. Evergreen AvenueWyndmoor, Pennsylvania 19038Schottenfeld Qualified Associates, LP
    
    
    3,623,503
    (11)
    
    
    9.9
    %399 Park AvenueNew York, NY 10022Albert B. Greco16901 N. Dallas Parkway
    
    
    3,022,980
    (12)
    
    
    8.8
    %Suite 230Addison, TX 75001Kingdon Capital Management, LLC
    
    
    2,992,258
    (13)
    
    
    8.8
    %152 West 57th Street50th FloorNew York, NY 10019
 
 *
    
    Indicates ownership of less than 1%.(1)
    
    Includes 77,500 shares owned outright and 70,000 shares that may be acquired within 60 days
upon the exercise of stock options.(2)
    
    Includes 26,000 shares owned outright and 5,000 shares that may be acquired within 60 days
upon the exercise of stock options.(3)
    
    Includes 200,000 shares owned outright and 512,500 shares that may be acquired within 60 days
upon the exercise of stock options.(4)
    
    Includes 30,000 shares owned outright, 20,869 shares owned indirectly through Avteq, Inc.,
25,000 shares that may be acquired within 60 days upon the
exercise of stock options and
250,000 shares owned indirectly through JOD Enterprises, LLC that may be purchased pursuant to
warrants currently exercisable. - 27 -




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VISEON, INC.
    
    FORM 10-KSB
 (5)
    
    Includes 37,500 shares owned outright, 57,521 owned by Mr. Reys sons and 75,000 shares that
may be acquired within 60 days upon the exercise of stock options.(6)
    
    Includes 262,500 shares that may be acquired within 60 days upon the exercise of stock options.(7)
    
    Includes 30,000 shares owned outright and 5,000 shares that may be acquired within 60 days
upon the exercise of stock options.(8)
    
    Includes 1,057,360 shares owned outright and 851,664 shares that may be acquired within 60
days upon the exercise of stock warrants.(9)
    
    Includes 1,998,652 shares owned outright and 45,000 shares that may be acquired within 60 days
upon the exercise of stock options.(10)
    
    Includes 2,605,225 shares owned outright or through trusts, 1,000,000 shares that may be
acquired upon the conversion of the Companys Series A Convertible Preferred Stock, which is
currently convertible and 1,000,000 shares that may be purchased pursuant to warrants
currently exercisable.(11)
    
    Includes 538,923 shares owned outright, 500,000 shares that may be acquired upon the
conversion of shares of the Companys Series A and Series B Preferred Stock, 1,516,666 shares
that may be acquired upon the exercise of warrants; also includes 15,781 shares owned outright
by Richard Schottenfeld, Managing Member of Schottenfeld Qualified Associates, LP, 150,000
shares that may be acquired by upon the conversion of shares of the Companys Series A
Preferred Stock by Mr. Schottenfeld, 381,320 shares that may be acquired by Mr. Schottenfeld
upon the exercise of warrants and 148,000 shares owned outright by Schottenfeld Group LLC.
Mr. Schottenfeld is the Managing Member of the general partner of Schottenfeld Qualified
Associates, LP and controls voting and disposition of the shares held by this stockholder. Mr.
Schottenfeld is a member of Schottenfeld Group LLC and shares control of voting and
disposition of the shares held by this stockholder. Holdings also include 627,519 shares of
Common Stock owned outright, 875,000 shares that may be acquired upon the conversion of shares
of the Companys Preferred Stock and 1,269,824 shares that may be acquired upon the exercise
of warrants held by eight individuals and entities who may be deemed to constitute a group
with one another, Schottenfeld Qualified Associates, LP, Richard Schottenfeld and Schottenfeld
Group LLC. The terms of various convertible securities held by the various reporting persons
limit the combined beneficial ownership of the reporting persons to 9.99%, subject to waiver
of such limitation by the reporting persons upon sixty-five days notice to the Company.(12)
    
    Includes 901,040 shares of Common Stock owned outright, 212,916 shares that may be acquired
upon the exercise of warrants currently exercisable. Also includes 1,057,360 shares of Common
Stock owned outright by Digital Investors, LLC, and 851,664 shares of Common Stock that may be
acquired upon the exercise of warrants currently exercisable. In addition to his personal
holdings, Mr. Greco, as the sole manager of Digital Investors, LLC, has sole dispositive
authority over all shares of Common Stock and warrants owned by Digital Investors, LLC (see
note 8).(13)
    
    Includes 1,971,258 shares owned outright, 2,000,000 shares that may be acquired upon the
exercise of warrants currently exercisable and 2,000,000 shares that may be acquired upon the
conversion of shares of the Companys Series A Preferred Stock by M. Kingdon Offshore M.V.,
219,200 shares owned outright, 225,000 shares that may be acquired upon the exercise of
warrants currently exercisable and 225,000 shares that may be acquired upon the conversion of
 shares of the Companys Series A Preferred Stock by Kingdon Partners, 134,200 shares owned
outright, 125,000 shares that may be acquired upon the exercise of warrants currently
exercisable and 125,000 shares that may be acquired upon the conversion of shares of the
Companys Series A Preferred Stock by Kingdon Family Partnership, LP and 668,300 shares owned
outright, 650,000 shares that may be acquired upon the exercise of warrants currently
exercisable and 650,000 shares that may be acquired upon the conversion of shares of the
Companys Series A Preferred Stock by Kingdon Associates. The terms of various convertible
securities held by the various reporting persons limit the combined beneficial ownership of
the reporting persons to 9.99%, subject to waiver of such limitation by the reporting persons
upon sixty-five days notice to the Company.
 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  - 28 -




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VISEON, INC.
    
    FORM 10-KSB
       Equity Compensation Plan Information
 Number of securities to be
    
    Weighted average
    
    Number of securitiesissued upon exercise of
    
    exercise price of
    
    remaining available foroutstanding options,
    
    outstanding options,
    
    future issuance underPlan category
    
    warrants and rights
    
    warrants and rights
    
    equity compensation plansEquity compensation
plans approved by
security holders
    
    
    1,829,250
    
    
    $
    1.12
    
    
    
    5,585,750Equity compensation
plans not approved
by security holders
    
    
    231,000
    
    
    $
    2.81
    
    
    
    N/ATotal
    
    
    2,060,250
  - 29 -




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VISEON, INC.
    
    FORM 10-KSB
  
 ITEM 13. EXHIBITS.
   EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Plan of Merger between RSI Systems, Inc. and Viseon, Inc. (filed as Exhibit 10.40 to the
Companys March 2001 
10-QSB and incorporated herein by reference).3.1
    
    Articles of Incorporation of Viseon, Inc. (filed as Exhibit 3.1 to the Companys S-2/ A
Registration Statement dated July 25, 2001 and incorporated herein by reference).3.2
    
    Certificate of Amendment of Articles of Incorporation (filed as Exhibit 3.1 to the
Companys S-2 Registration Statement dated July 25, 2001 and incorporated herein by reference).3.3
    
    Bylaws of Viseon, Inc. (filed as Exhibit 3.1 to the Companys S-2/ A Registration Statement
dated July 25, 2001 and incorporated herein by reference).3.4
    
    Certificate of Amendment of Articles of Incorporation (filed as Exhibit 3.4 to the
Companys SB-2 Registration Statement filed on May 6, 2004 and incorporated herein by reference).4.1
    
    Form of Warrant granted to RSI Marketing, LLC. (Filed as Exhibit A to Exhibit 10.36 to the
Companys March 31, 2001 
10-QSB and incorporated herein by reference).4.2
    
    Form of Warrant granted to Active Management, LLC. (filed as Exhibit A to Exhibit 10.38 to
the Companys March 31, 2001 10-QSB and incorporated herein by reference).4.3
    
    Certificate of Designation Establishing the Series A Preferred Stock of Viseon, Inc. (filed
as Exhibit 4.1 to the Companys Form 
8-K dated March 18, 2004 and incorporated herein by reference).4.4
    
    Form of Series A-1 Common Stock Purchase Warrant (filed as Exhibit 4.2 to the Companys
Form 8-K dated March 18, 2004 and incorporated herein by reference).4.5
    
    Form of Series A-2 Common Stock Purchase Warrant (filed as Exhibit 4.3 to the Companys
Form 8-K dated March 18, 2004 and incorporated herein by reference).10.1
    
    1994 Stock Plan. (filed as Exhibit 4.1 to the Companys Registration Statement on Form S-8
(SEC File No. 33-62573) dated August 31, 1998 and incorporated herein by reference).10.2
    
    Manufacturing Agreement with Altron, Inc. dated August 10, 1996 (filed as Exhibit 10.21 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).10.3
    
    Registration 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 the Form 10-QSB Report of the
Company for Period ended March 31, 2001, File No. 000-27106 (the Companys March 2001 10-QSB and
incorporated herein by reference).10.4
    
    Registration 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).10.5
    
    Registration 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).
 - 30 -




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##### Table of Contents



VISEON, INC.
    
    FORM 10-KSB
 ExhibitNumber
    
    Description10.6
    
    Exclusive Distribution Agreement (filed as Exhibit 10.61 to the Companys 2002 10-KSB and
incorporated herein by reference).10.7
    
    Promissory Note between the Company and EXIM Corporation (filed as Exhibit 23.3 to the
Companys SB-2/ A
Registration Statement dated August 1, 2003 and incorporated herein by reference).10.8
    
    Promissory Note between the Company and Henry Mellon dated (filed as Exhibit 23.4 to the
Companys SB-2/
A Registration Statement dated August 1, 2003 and incorporated herein by reference).10.9
    
    Assignment of Note and Liens (filed as Exhibit 10.24 to the Form 10-KSB Annual Report of
the Company for 2003 File No. 000-27106 (the Companys 2003
10-KSB) and incorporated herein by
reference).10.10
    
    Third Amendment to Loan Agreement (filed as Exhibit 10.25 to the Companys 2003 10-KSB
and incorporated
herein by reference).10.11
    
    Warrant in favor of Henry Mellon (filed as Exhibit 10.26 to the Companys 2003 10-KSB and
incorporated herein by reference).10.12
    
    Warrant in favor of EXIM Corporation (filed as Exhibit 10.27 to the Companys 2003 10-KSB
and incorporated herein by reference).10.13
    
    Warrant in favor of EXIM Corporation (filed as Exhibit 10.28 to the Companys 2003 10-KSB
and incorporated herein by reference).10.14
    
    Registration Rights Agreement in favor of Henry Mellon (filed as Exhibit
10.29 to the Companys 2003 10-KSB and incorporated herein by reference).10.15
    
    Registration Rights Agreement in favor of EXIM Corporation (filed as Exhibit
10.30 to the Companys 2003 10-KSB and incorporated herein by reference).10.16
    
    Piggyback Registration Rights Agreement in favor of Henry Mellon (filed as
Exhibit 10.31 to the Companys 2003 10-KSB and incorporated herein by reference).10.17
    
    Piggyback Registration Rights Agreement in favor of EXIM Corporation (filed
as Exhibit 10.32 to the Companys 2003 10-KSB and incorporated herein by reference).10.18
    
    Agreement with Comlink Video regarding purchase of group videoconferencing
assets (filed as Exhibit 10.61 to the Companys 2003 10-KSB and incorporated herein by reference).10.19
    
    Warrant in favor of Henry Mellon (filed as Exhibit 10.33 to the Companys
2003 10-KSB and incorporated herein by reference).10.20
    
    Promissory Note between the Company and Judas, Inc. dated June 30, 2002
(filed as Exhibit 10.34 to the Companys 2003 10-KSB and incorporated herein by reference).10.21
    
    Agreement Amending Promissory Note between the Company and Judas, Inc.
(filed as Exhibit 10.35 to the Companys 2003 10-KSB and incorporated herein by reference).10.22
    
    Warrant in favor of Judas, Inc. (filed as Exhibit 10.36 to the Companys
2003 10-KSB and incorporated herein by reference).10.23
    
    Warrant in favor of Judas, Inc. (filed as Exhibit 10.37 to the Companys
2003 10-KSB and incorporated herein by reference).10.24
    
    Piggyback Registration Rights Agreement in favor of Judas, Inc. (filed as
Exhibit 10.39 to the Companys 2003 10-KSB and incorporated herein by reference).10.25
    
    Promissory Note between the Company and Michelle Norwood dated June 30, 2002
(filed as Exhibit 10.40 to the Companys 2003 10-KSB and incorporated herein by reference).10.26
    
    Agreement Amending Promissory Note between the Company and Michelle Norwood
(filed as Exhibit 10.41 to the Companys 2003 10-KSB and incorporated herein by reference).10.27
    
    Warrant in favor of Michelle Norwood (filed as Exhibit 10.42 to the
Companys 2003 10-KSB and incorporated herein by reference).
 - 31 -




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##### Table of Contents



VISEON, INC.
    
    FORM 10-KSB
 ExhibitNumber
    
    Description10.28
    
    Warrant in favor of Michelle Norwood (filed as Exhibit 10.43 to the
Companys 2003 10-KSB and incorporated herein by reference).10.29
    
    Piggyback Registration Rights Agreement in favor of Michelle Norwood (filed
as Exhibit 10.44 to the Companys 2003 10-KSB and incorporated herein by reference).10.30
    
    Agreement to Convert Short-Term Debt to Long-Term Note between the Company
and Carbone Holdings, L.L.C. dated May 31, 2003 (filed as Exhibit 10.45 to the Companys
2003 10-KSB and incorporated herein by reference).10.31
    
    Promissory Note between the Company and Carbone Holdings, L.L.C. dated May
31, 2003 (filed as Exhibit 10.46 to the Companys 2003 10-KSB and incorporated herein by reference).10.32
    
    Agreement to Convert Short-Term Debt to Long-Term Note between the Company and Active
Management, L.L.C. dated May 31, 2003 (filed as Exhibit 10.47 to the Companys
2003 10-KSB and incorporated herein by reference).10.33
    
    Promissory Note between the Company and Active Management, L.L.C. dated May 31, 2003
(filed as Exhibit 10.48 to the Companys 2003 10-KSB and incorporated herein by
reference).10.34
    
    Form of Series A Convertible Preferred Stock and Warrants Purchase Agreement (filed
as Exhibit 4.1 to the Companys Form 8-K dated April 19, 2004 and incorporated herein
by reference).10.35
    
    Form of Registration Rights Agreement (filed as Exhibit 4.2 to the Companys Form
8-K dated April 19, 2004 and incorporated herein by reference).21.1
    
    List of Subsidiaries (filed herewith).23.1
    
    Consent of Independent Registered Public Accounting Firm  Virchow, Krause &
Company, LLP31(a)
    
    Certification from John Harris, President and Chief Executive Officer of the Registrant,
pursuant to 1 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a) (filed herewith).31(b)
    
    Certification from Robert A. Wolf, Chief Financial Officer of the Registrant, pursuant to
1 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a) (filed herewith).32(a)
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (filed herewith).32(b)
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (filed herewith).99.1
    
    The Companys Year 2003 Consultant Compensation Plan (filed as Exhibit 4.1 to the
Companys Registration
Statement on Form S-8 (SEC File No. 333-102551) filed January 16, 2003.99.2
    
    The Company s 1994 Stock Plan (filed as Exhibit 4.1 to the Companys Registration
Statement on Form S-8
(SEC File No. 333-62573).
The Companys 2005 Stock Plan (filed as Exhibit.)
 - 32 -




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##### Table of Contents



VISEON, INC.
    
    FORM 10-KSB
 
 Item 14. Principal Accountant Fees and Services.
            - 33 -




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES




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##### Table of Contents





Report of Independent Registered Public Accounting Firm
    
    F-1Consolidated Financial StatementsConsolidated Balance Sheets
    
    F-2Consolidated Statements of Operations
    
    F-3Consolidated Statements of Stockholders Equity (Deficit)
    
    F-4Consolidated Statements of Cash Flows
    
    F-5 - F-6Notes to Consolidated Financial Statements
    
    F-7 - F-19






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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/  VIRCHOW, KRAUSE & COMPANY, LLP 
 F-1




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
   2005
    
    
    2004ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    239,383
    
    
    $
    5,339,393Accounts receivable, net of allowance for doubtful accounts
of $0 and $3,739
as of June 30, 2005 and June 30, 2004
    
    
    16,541
    
    
    
    43,389Inventories
    
    
    3,758
    
    
    
    14,600Prepaid expenses
    
    
    379,291
    
    
    
    469,789Total Current Assets
    
    
    638,973
    
    
    
    5,867,171PROPERTY AND EQUIPMENT, NET
    
    
    26,428
    
    
    
    35,659INTANGIBLE ASSETS, NET
    
    
    266,358
    
    
    
    210,157TOTAL ASSETS
    
    $
    931,759
    
    
    $
    6,112,987LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIESAccounts payable
    
    $
    1,230,041
    
    
    $
    413,674Accrued expenses
    
    
    336,287
    
    
    
    226,269Net liabilities of discontinued operations
    
    
    723,475
    
    
    
    743,582Total Current Liabilities
    
    
    2,289,803
    
    
    
    1,383,525COMMITMENTS
AND CONTINGENCIES
STOCKHOLDERS EQUITY (DEFICIT)Series A convertible preferred stock, $.01 par value per share
5,000,000 shares authorized, 125 and 338
shares issued and outstanding
(liquidation preference of $3,125,000 and $8,450,000)
    
    
    1
    
    
    
    3Common stock, $.01 par value per share
100,000,000 shares authorized
32,849,070 and 24,682,907 issued and outstanding
    
    
    328,491
    
    
    
    246,829Additional paid in capital
    
    
    40,056,336
    
    
    
    37,732,562Accumulated deficit
    
    
    (41,742,872
    )
    
    
    (33,249,932
    )Total Stockholders Equity (Deficit)
    
    
    (1,358,044
    )
    
    
    4,729,462TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    931,759
    
    
    $
    6,112,987
  F-2




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
 
 2005
    
    
    2004NET SALES
    
    $
    239,660
    
    
    $
    286,215COST OF GOODS SOLD
    
    
    284,746
    
    
    
    259,087RESERVE FOR INVENTORIES
    
    
    
    
    
    
    (66,830
    )Gross Profit (Loss)
    
    
    (45,086
    )
    
    
    93,958RESEARCH AND DEVELOPMENT
    
    
    5,134,123
    
    
    
    169,982SELLING, GENERAL AND ADMINISTRATIVE
    
    
    2,815,881
    
    
    
    2,873,163Operating Loss
    
    
    (7,995,090
    )
    
    
    (2,949,187
    )OTHER INCOME (EXPENSE)Other income
    
    
    
    
    
    
    3,719Interest income
    
    
    46,077
    
    
    
    12,547Amortization of original issue discount
    
    
    
    
    
    
    (916,666
    )Interest expense
    
    
    
    
    
    
    (127,079
    )Other Expense, net
    
    
    46,077
    
    
    
    (1,027,479
    )LOSS FROM CONTINUING OPERATIONS
    
    
    (7,949,013
    )
    
    
    (3,976,666
    )GAIN FROM DISCONTINUED OPERATIONS
    
    
    6,107
    
    
    
    348,628NET LOSS
    
    
    (7,942,906
    )
    
    
    (3,628,038
    )Preferred Stock Dividends
    
    
    (550,034
    )
    
    
    (3,358,380
    )NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    $
    (8,492,940
    )
    
    $
    (6,986,418
    )Basic and diluted earnings (loss) per share:Loss from continuing operations
    
    $
    (0.27
    )
    
    $
    (0.19
    )Gain from discontinued operations
    
    $
    
    
    
    $
    0.01Net loss
    
    $
    (0.27
    )
    
    $
    (0.18
    )Net loss attributable to common stockholders
    
    $
    (0.29
    )
    
    $
    (0.34
    )Weighted average common shares outstanding:Basic and diluted
    
    
    29,122,280
    
    
    
    20,585,143
  F-3




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
 
 Preferred Stock
    
    
    
    
    
    
    Common Stock
    
    
    
    
    
    
    Additional Paid-InShare
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Accumulated Deficit
    
    
    TotalBALANCES, June 30, 2003
    
    
    
    
    
    
    
    
    
    
    17,829,829
    
    
    $
    178,298
    
    
    $
    24,179,469
    
    
    $
    (26,263,514
    )
    
    $
    (1,905,747
    )Convertible preferred stock and
common stock warrants issued for
cash
    
    
    338
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    8,449,997
    
    
    
    
    
    
    
    8,450,000Convertible preferred stock
issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,215,859
    )
    
    
    
    
    
    
    (1,215,859
    )Accretion of beneficial
conversion option for
convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,135,261
    
    
    
    (3,135,261
    )
    
    
    Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (223,119
    )
    
    
    (223,119
    )Common stock issued for services
rendered
    
    
    
    
    
    
    
    
    
    
    990,257
    
    
    
    9,903
    
    
    
    971,541
    
    
    
    
    
    
    
    981,444Exercise of common stock options
    
    
    
    
    
    
    
    
    
    
    410,500
    
    
    
    4,105
    
    
    
    211,575
    
    
    
    
    
    
    
    215,680Exercise of common stock warrants
    
    
    
    
    
    
    
    
    
    
    1,166,666
    
    
    
    11,667
    
    
    
    338,333
    
    
    
    
    
    
    
    350,000Conversion of accounts payable
into common stock
    
    
    
    
    
    
    
    
    
    
    103,233
    
    
    
    1,032
    
    
    
    129,214
    
    
    
    
    
    
    
    130,246Conversion of subordinated notes
and accrued interest into
common stock
    
    
    
    
    
    
    
    
    
    
    4,182,422
    
    
    
    41,824
    
    
    
    1,212,902
    
    
    
    
    
    
    
    1,254,726Common stock warrants issued for
services rendered
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,673
    
    
    
    
    
    
    
    124,673Common stock warrants issued for
cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    5,000Common stock warrants issued in
connection with subordinated
notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,590
    
    
    
    
    
    
    
    126,590Compensation related to common
stock options and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,866
    
    
    
    
    
    
    
    63,866Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,628,038
    )
    
    
    (3,628,038
    )BALANCES, June 30, 2004
    
    
    338
    
    
    
    3
    
    
    
    24,682,907
    
    
    
    246,829
    
    
    
    37,732,562
    
    
    
    (33,249,932
    )
    
    
    4,729,462Convert preferred stock to
common stock
    
    
    (213
    )
    
    
    (2
    )
    
    
    5,325,000
    
    
    
    53,250
    
    
    
    (53,248
    )
    
    
    
    
    
    
    Convertible preferred stock
issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,972
    )
    
    
    
    
    
    
    (43,972
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    587,689
    
    
    
    5,877
    
    
    
    629,351
    
    
    
    (550,034
    )
    
    
    85,194Common stock issued for services
rendered
    
    
    
    
    
    
    
    
    
    
    284,807
    
    
    
    2,848
    
    
    
    327,604
    
    
    
    
    
    
    
    330,452Exercise of common stock options
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    450
    
    
    
    33,050
    
    
    
    
    
    
    
    33,500Exercise of common stock
warrants for cash
    
    
    
    
    
    
    
    
    
    
    1,573,834
    
    
    
    15,739
    
    
    
    1,434,487
    
    
    
    
    
    
    
    1,450,226Exercise of common stock
warrants (cashless)
    
    
    
    
    
    
    
    
    
    
    349,833
    
    
    
    3,498
    
    
    
    (3,498
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,942,906
    )
    
    
    (7,942,906
    )BALANCES, June 30, 2005
    
    
    125
    
    
    $
    1
    
    
    
    32,849,070
    
    
    $
    328,491
    
    
    $
    40,056,336
    
    
    $
    (41,742,872
    )
    
    $
    (1,358,044
    )
 F-4




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
 
 2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (7,942,906
    )
    
    $
    (3,628,038
    )Adjustments to reconcile net loss to net
cash flows from operating activities:Depreciation and amortization
    
    
    41,136
    
    
    
    71,996Amortization of original issue discount
    
    
    
    
    
    
    916,666Compensation related to stock options
    
    
    
    
    
    
    40,660Compensation related to common stock warrants
    
    
    
    
    
    
    23,206Common stock issued for services rendered
    
    
    330,450
    
    
    
    981,444Common stock warrants issued for services rendered
    
    
    
    
    
    
    124,673Loss on retirement of equipment
    
    
    
    
    
    
    11,367Gain from discontinued operations
    
    
    (6,107
    )
    
    
    (348,628
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    26,848
    
    
    
    (39,280
    )Inventories, net
    
    
    10,842
    
    
    
    (7,521
    )Prepaid expenses
    
    
    90,498
    
    
    
    (423,216
    )Accounts payable
    
    
    816,368
    
    
    
    (5,880
    )Accrued expenses
    
    
    181,596
    
    
    
    147,724Net cash flows used in operating activities
    
    
    (6,451,275
    )
    
    
    (2,134,827
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (5,401
    )
    
    
    (27,931
    )Payments for intangible assets
    
    
    (82,705
    )
    
    
    (118,468
    )Net cash flows from investing activities
    
    
    (88,106
    )
    
    
    (146,399
    )Cash flows from financing activities:Payments on short-term notes payable
    
    
    
    
    
    
    (135,000
    )Proceeds from short-term notes payable and warrants issued with
note payable
    
    
    
    
    
    
    200,000Proceeds from exercise of common stock options
    
    
    33,500
    
    
    
    215,680Proceeds from exercise of common stock warrants
    
    
    1,450,226
    
    
    
    350,000Proceeds from sales of common stock warrants
    
    
    
    
    
    
    5,000Proceeds from issuance of convertible preferred stock and warrants
    
    
    
    
    
    
    8,450,000Payments of convertible preferred stock and warrants issuance costs
    
    
    (26,863
    )
    
    
    (1,215,859
    )Dividends on convertible preferred stock
    
    
    (3,492
    )
    
    
    (82,286
    )Net cash flows from financing activities
    
    
    1,453,371
    
    
    
    7,787,535
 F-5




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##### Table of Contents



2005
    
    
    2004Change in cash and cash equivalents from discontinued operations
    
    
    (14,000
    )
    
    
    (174,700
    )Increase in cash and cash equivalents
    
    
    (5,100,010
    )
    
    
    5,331,609Cash and cash equivalents, beginning of year
    
    
    5,339,393
    
    
    
    7,784Cash and cash equivalents, end of year
    
    $
    239,383
    
    
    $
    5,339,393
  F-6




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
 
 NOTE 1  Description of Business
       NOTE 2  Summary of Significant Accounting Policies
 Principles of Consolidation
  Cash and Cash Equivalents
  F-7




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
 Note 2 (Continued)
 Accounts Receivable
  Inventories
  Property and Equipment
  Intangible Assets
  Revenue Recognition
     Shipping and Handling Costs
 F-8




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
 Note 2 (Continued)
  Research and Development Costs
  Advertising Costs
  Net Loss Per Share
  Stock-Based Compensation
   2005
    
    
    2004Loss attributable to common stockholdersAs reported
    
    $
    (8,492,940
    )
    
    $
    (6,986,418
    )Pro forma
    
    $
    (8,937,689
    )
    
    $
    (7,212,896
    )Basic and diluted loss per share:As reported
    
    $
    (0.29
    )
    
    $
    (0.34
    )Pro forma
    
    $
    (0.31
    )
    
    $
    (0.35
    )Stock based compensation:As reported
    
    $
    
    
    
    $
    40,660Pro forma
    
    $
    444,749
    
    
    $
    226,478
  Use of Estimates
 F-9




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
 NOTE 2
(Continued)
  Fair Value of Financial Instruments
  Segment Reporting
  Recent Accounting Pronouncements
     F-10




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
   NOTE 3  Prepaid Expenses
  2005
    
    
    2004Prepaid ExpensesPrepaid Insurance
    
    $
    59,994
    
    
    $
    63,045Vendor Deposits
    
    
    250,000
    
    
    
    265,000Other
    
    
    69,297
    
    
    
    141,744Prepaid Expenses
    
    $
    379,291
    
    
    $
    469,789
 NOTE 4  Property and Equipment, Net
  2005
    
    
    2004Property and EquipmentFurniture, equipment and software
    
    $
    48,727
    
    
    $
    43,326Less: accumulated depreciation and amortization
    
    
    (22,299
    )
    
    
    (7,667
    )Property and Equipment, net
    
    $
    26,428
    
    
    $
    35,659
  NOTE 5  Intangible Assets, net
  F-11




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
 2005
    
    
    2004Patents
    
    $
    342,304
    
    
    $
    259,600Less: accumulated amortization
    
    
    (75,946
    )
    
    
    (49,443
    )Intangible assets, net
    
    $
    266,358
    
    
    $
    210,157
  NOTE 6
 Accrued Expenses
  2005
    
    
    2004Accrued preferred dividends
    
    $
    52,148
    
    
    $
    140,833Deferred revenue
    
    
    
    
    
    
    25,800Accrued compensation
    
    
    38,792
    
    
    
    20,167Accrued late registration fee
    
    
    101,625
    
    
    
    Accrued legal fees
    
    
    87,768
    
    
    
    16,750Other accrued liabilities
    
    
    55,954
    
    
    
    22,719Accrued Expenses
    
    $
    336,287
    
    
    $
    226,269
 NOTE 7
 Debt
   F-12




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
  NOTE 8  Commitments and Contingencies
 Operating Leases
   2006
    
    
    19,188Total
    
    $
    19,188
  Manufacturing Agreement
   Distributor and Dealer Agreements
  Major Customers and Concentration of Credit Risk
  Legal Proceedings
  F-13




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
   NOTE 9  Income Taxes
  2005
    
    
    2004Deferred income tax assets:Net operating loss carryforwards
    
    $
    15,230,900
    
    
    $
    10,995,900Asset valuation reserves and other
    
    
    304,900
    
    
    
    324,100Research and development credit carryforwards
    
    
    291,900
    
    
    
    234,00015,827,700
    
    
    
    11,554,000Less: valuation allowance
    
    
    (15,827,700
    )
    
    
    (11,554,000
    )Deferred income tax liabilities:Depreciation and amortization
    
    
    
    
    
    
    Net deferred income tax assets
    
    $
    
    
    
    $
    
   2005
    
    2004Federal statutory tax rate benefits
    
    
    (35.0
    )%
    
    
    (35.0
    )%State tax, net of federal benefit
    
    
    (5.0
    )%
    
    
    (5.0
    )%Change in valuation allowance
    
    
    40.0
    %
    
    
    40.0
    %Effective tax rate
    
    
    
    %
    
    
    
    %
 NOTE 10  Stockholders Equity (Deficit)
 Series A Convertible Preferred Stock with Warrants
  F-14




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
       Consultant Compensation Plan
   Stock Warrants
  F-15




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
  WeightedAverageExercisePrice perWarrants
    
    
    ShareOutstanding at June 30, 2003
    
    
    9,627,659
    
    
    
    0.48Granted
    
    
    10,834,166
    
    
    
    1.15Exercised
    
    
    (1,166,666
    )
    
    
    0.30Canceled
    
    
    
    
    
    
    Outstanding at June 30, 2004
    
    
    19,295,159
    
    
    
    0.86Granted
    
    
    
    
    
    
    Exercised
    
    
    (2,109,054
    )
    
    
    0.82Canceled
    
    
    (333,333
    )
    
    
    0.60Outstanding at June 30, 2005
    
    
    16,852,772
    
    
    $
    0.88
 Stock Options
    F-16




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
  Weightedaverageexerciseprice perOptions
    
    
    shareOutstanding at June 30, 2003
    
    
    1,084,250
    
    
    
    1.13Granted
    
    
    459,500
    
    
    
    0.99Exercised
    
    
    (350,500
    )
    
    
    0.55Canceled
    
    
    (9,000
    )
    
    
    1.13Outstanding at June 30, 2004
    
    
    1,184,250
    
    
    
    1.23Granted
    
    
    730,000
    
    
    
    1.18Exercised
    
    
    (45,000
    )
    
    
    0.74Canceled or Expired
    
    
    (40,000
    )
    
    
    6.25Outstanding at June 30, 2005
    
    
    1,829,250
    
    
    $
    1.12Exercisable at June 30, 2005
    
    
    1,462,583
    
    
    $
    1.12Exercisable at June 30, 2004
    
    
    919,250
    
    
    $
    1.30
    Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Range of
    
    
    
    
    
    
    Remaining
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExercisePrices
    
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$
    
    
    0.38-0.52
    
    
    
    43,000
    
    
    
    4.44
    
    
    $
    0.46
    
    
    
    43,000
    
    
    $
    0.46$
    
    
    0.65-0.75
    
    
    
    370,000
    
    
    
    6.68
    
    
    $
    0.69
    
    
    
    370,000
    
    
    $
    0.69$
    
    
    1.00-1.50
    
    
    
    1,167,500
    
    
    
    5.55
    
    
    $
    1.09
    
    
    
    800,833
    
    
    $
    1.10$
    
    
    1.62-2.18
    
    
    
    220,000
    
    
    
    7.45
    
    
    $
    1.83
    
    
    
    220,000
    
    
    $
    1.83$
    
    
    2.81-3.00
    
    
    
    259,750
    
    
    
    2.11
    
    
    $
    2.83
    
    
    
    259,750
    
    
    $
    2.83$
    
    
    0.38-3.00
    
    
    
    2,060,250
    
    
    
    5.50
    
    
    $
    1.30
    
    
    
    1,693,583
    
    
    $
    1.35
  Fiscal 2005 grants
    
    $
    0.80Fiscal 2004 grants
    
    $
    0.29
 F-17




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VISEON, INC. AND SUBSIDIARIES
 
 NOTE 11  Retirement Savings Plan
  NOTE 12  Supplemental Disclosure of Cash Flow Information
 Supplemental cash flow information:
 Cash paid for interest, net of original issue discount
    
    $
    
    
    
    $
    14,553Noncash investing and financing activitiesCommon stock issued for accounts payable
    
    
    
    
    
    $
    130,246Subordinated notes converted to common stock warrants
    
    
    
    
    
    $
    65,000Subordinate notes and accrued interest converted to common stock
    
    
    
    
    
    $
    1,254,726Accrued preferred stock dividends converted to common stock
    
    $
    409,187
    
    
    
    Common stock issued for preferred stock dividends
    
    $
    149,841
    
    
    
    Conversion of preferred stock to common stock
    
    $
    48,250
    
    
    
    Cashless exercise of warrants
    
    $
    3,498
    
    
    
    
 NOTE
13  Discontinued Operations
   NOTE
14  Subsequent Events
 Series B Convertible Preferred Stock with Warrants
  F-18




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VISEON, INC. AND SUBSIDIARIES
 
        F-19




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##### Table of Contents



SIGNATURES
  VISEON, INC.By
    
    /s/ JOHN C. HARRISJohn C. Harris,Chief Executive Officer and President (Principal Executive Officer)By
    
    /s/ BRIAN R. DAYBrian R. DayChief Financial Officer (Principal Financial Officer and Principal
Accounting Officer)
  Name
    
    Title
    
    Date/s/ JOHN C. HARRIS
    
    Director; Chief Executive
    
    September 30, 2005John C. Harris
    
    Officer and President;(Principal Executive Officer,/s/ BRIAN DAY
    
    Chief Financial Officer
    
    September 30, 2005Brian Day
    
    (Principal Financial Officer
and Principal Accounting Officer)/s/ ASHTON PEERY
    
    Director
    
    September 30, 2005Ashton Peery/s/ GEOFFREY GERARD
    
    Director
    
    September 30, 2005Geoffrey Gerard/s/ JOHN ODONNELL
    
    Director
    
    September 30, 2005John ODonnell/s/ CHARLES REYCharles Rey
    
    Director
    
    September 30, 2005