** **

**U.S. SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

**(Mark One)**

 
| **ý** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED  SEPTEMBER 30, 2001.** |  
**o**

**TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM_____TO_____.**

 

**CommissionFile Number 0-27106**

** **

**Viseon, Inc.**

**(Formerly RSI Systems, Inc.)**

(Exact name of smallbusiness issuer as specified in its charter)

 

 

**Nevada**

 

**41-1767211**

(State or other  jurisdiction of incorporation or organization)

 

(IRS Employer  Identification No.)

 

**8700  North Stemmons Freeway #310 Dallas, Texas**

 

**75247**

(Address of principal  executive offices)

 

(Zip Code)

 

**(214)-424-5700**

(Issuer’s Telephone Number)

 

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such report), and (2)has been subject to such filing requirements for the past 90 days.  YES ý  NO o

 

The Company had 11,683,781 shares of Common Stock, $ 0.01 par value pershare, outstanding as of November 12, 2001.

 

Transitional Small Business Disclosure Format (Check one): Yes o   No ý

 

Viseon, Inc.

 

INDEX

 

 

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Balance Sheets – September 30, 2001  (unaudited) and June 30, 2001

 

 

 

Statements of Operations  (unaudited) - Three Months ended September 30, 2001 and 2000

 

 

 

Statements of Cash Flows (unaudited)  – Three Months ended September 30, 2001 and 2000

 

 

 

Notes to Financial  Statements

 

 

Item 2.

Management’s  Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

PART  II

 

OTHER  INFORMATION

 

 

 

 

 

Signatures

 

 

 

 

 

 

Exhibit Index

 

 

**VISEON, INC.**

 

Balance Sheets

 

 

 

** September 30,**

 

**June 30,**

 

 

 

**2001**

 

**2001**

 

 

 

**(Unaudited****)**

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

161,810

 

81,115

 

Accounts receivable, net of allowance for doubtful accounts  of $191,444 and $144,000, respectively

 

1,239,039

   

529,464

   

Other Receivable

 

-

 

299,633

 

Inventories

 

2,279,994

 

546,390

 

Prepaid expenses

 

49,298

 

31,564

 

Total current assets

 

3,730,141

 

1,488,166

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

Furniture and equipment

 

2,246,547

 

2,251,970

 

Leasehold improvements

 

5,421

 

5,421

 

Less accumulated depreciation and amortization

 

(1,536,605

)

(1,453,851

)

Net property and equipment

 

715,363

 

803,540

 

 

 

 

 

 

 

Intangible assets, net

 

114,089

 

124,036

 

 

 

 

 

 

 

Total assets

 

$

4,559,593

 

2,415,742

 

 

 

 

 

 

 

Liabilities and  Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Revolving credit facility

 

$

475,954

 

534,860

 

Current portion of capital lease obligations

 

52,708

 

62,953

 

Accounts payable

 

3,266,876

 

1,067,760

 

Accrued expenses

 

376,569

 

229,005

 

Deferred revenue

 

272,201

 

91,339

 

Total current liabilities

 

4,444,308

 

1,985,917

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Capital lease obligations, net of current portion

 

19,206

 

23,085

 

Deferred Revenue, net of current portion

 

-

 

267,245

 

Total long-term liabilities

 

19,206

 

290,330

 

 

 

 

 

 

 

Total liabilities

 

4,463,514

 

2,276,247

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Preferred stock ($.01 par value per share, 5,000,000 shares authorized, no shares  issued or outstanding)

 

-

   

-

   

Common stock ($.01 par value per share, 50,000,000 shares authorized, 11,668,981  issued and outstanding)

 

116,689

   

116,689

   

Additional paid-in capital

 

20,249,511

 

20,168,669

 

Accumulated deficit

 

(20,270,121

)

(20,145,863

)

Total stockholders' equity

 

96,079

 

139,495

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

4,559,593

 

2,415,742

 

 

Seeaccompanying notes to financial statements.

 

**VISEON, INC.**

 

Statements of Operations

 

 

 

**Three  Months Ended**

 

**Three  Months Ended**

 

 

 

**September  30,**

 

**September  30,**

 

 

 

**2001**

 

**2000**

 

 

 

**(Unaudited)**

 

**(Unaudited)**

 

 

 

 

 

 

 

Net sales

 

$

1,616,619

 

$

887,650

 

Cost of goods sold

 

1,009,577

 

453,867

 

Gross profit

 

607,042

 

433,783

 

 

 

 

 

 

 

Research and development

 

108,906

 

145,049

 

Selling, general and administrative

 

672,401

 

513,597

 

Operating  loss

 

(174,265

)

(224,863

)

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest income (expense), net

 

(52,379

)

(64,744

)

Other income (expense), net

 

102,386

 

-

 

Other income (expense), net

 

50,007

 

(64,744

)

 

 

 

 

 

 

Net loss

 

$

(124,258

)

$

(289,607

)

 

 

 

 

 

 

Net loss per common share - basic

 

$

(0.01

)

$

(0.03

)

Net loss per common share - diluted

 

$

(0.01

)

$

(0.03

)

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

11,668,981

 

8,724,883

 

Weighted average shares outstanding - diluted

 

11,668,981

 

8,724,883

 

 

Seeaccompanying notes to financial statements.

**VISEON, INC.**

 

Statements of Cash Flows

 

 

 

**Three  Months Ended**

 

**Three  Months Ended**

 

 

 

**September  30,**

 

**September  30,**

 

 

 

**2001**

 

**2000**

 

 

 

**(Unaudited)**

 

**(Unaudited)**

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(124,258

)

$

(289,607

)

Adjustments to reconcile net loss to net cash used in operating  activities:

 

 

 

 

 

Depreciation and amortization

 

92,701

 

77,006

 

Compensation related to stock options

 

51,126

 

-

 

Warrents issued for services

 

21,116

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable, net

 

(709,575

)

29,806

 

Inventories

 

(1,733,604

)

84,251

 

Prepaid expenses

 

(17,734

)

10,148

 

Accounts payable

 

2,207,716

 

(14,805

)

Accrued expenses

 

147,564

 

(22,994

)

Deferred revenue

 

213,250

 

6,517

 

Net cash provided by (used in) operating activities

 

148,302

 

(119,678

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sale of furniture and equipment

 

5,423

 

-

 

Purchases of furniture and equipment

 

-

 

(9,236

)

Payments for intangible assets

 

-

 

(70,344

)

Net cash provided by (used in) investing activities

 

5,423

 

(79,580

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net borrowing (repayments) on revolving credit facility

 

(58,906

)

(34,745

)

Payments on capital lease obligations

 

(14,124

)

(34,075

)

Proceeds from note payable-stockholder

 

-

 

225,000

 

Net cash provided by (used in) financing activities

 

(73,030

)

156,180

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

80,695

 

(43,078

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$

81,115

 

$

83,930

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

161,810

 

$

40,852

 

 

Seeaccompanying notes to financial statements.

VISEON, INC.

NOTES TO FINANCIAL STATEMENTS

September 30, 2001 and2000

 

1.  BASIS OF PRESENTATION:

 

The unaudited interim financial statements have beenprepared in accordance with generally accepted accounting principles, pursuantto the rules and regulations of the Securities and Exchange Commission.  Accordingly, certain information andfootnote disclosures normally included in the financial statements have beenomitted or condensed pursuant to such rules and regulations.  The accompanying unaudited financialstatements should be read in conjunction with the Company’s June 30, 2001financial statements and related notes included in the Company’s Annual Reporton Form 10-KSB.

 

The financial statements reflect all adjustments, of a normally recurringnature, necessary to fairly present the results of operations and financialposition of the Company for the interim periods.

 

2.     REVOLVING CREDIT FACILITY:

 

The Company has had a commercial loan agreement with abank for a $2,500,000 line of credit facility which matured on its extended duedate of August 26, 2001.  The facilitywas secured by all corporate assets and provided working capital based on aborrowing base comprised of accounts receivable, inventories and marketablesecurities.  The facility also containedcertain covenants and conditions, including minimum net worth levels.  Interest on outstanding borrowings accruedat the prime rate plus 4% (10.0% at September 30, 2001).  Outstanding borrowings on the line of creditwere $475,954 and $534,860 at September 30, 2001 and June 30, 2001,respectively. In September 2001 the bank notified the Company it was in defaulton the loan agreement and demanded full payment on the line of credit balanceincluding interest. On October 30, 2001 the Company paid all outstandingprincipal and interest due to the bank.

 

3.  RELATED PARTY TRANSACTIONS:

 

OnOctober 5, 2001, the Company received proceeds of $800,000 from DigitalInvestors, LLC in the form of a  notedue October 5, 2002.  The note issecured by all the Company's assets and is subordinated to its bank line ofcredit, if any.  Interest is duequarterly at an annual rate of 12%.  TheCompany expects to repay the note, together with accrued interest, from theproceeds of the remaining shares of common stock to be purchased by Digitalunder a  Stock Purchase Agreement asamended (see below).

 

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 under terms andconditions that are acceptable to the Company.   Under this agreement , Digital's agreement  to provide a line of credit is contingentupon the Company not signing a line of credit agreement with a bank by December31, 2001.

OnOctober 5, 2001, the Company and Digital Investors, LLC (Digital) signed anamendment to a Stock Purchase Agreement (the "Agreement") originallysigned in February 2001, to; 1) change the required closing date for theremaining shares to be purchased under the Agreement to "3 days" fromthe effective date of the S-2 registration, as opposed to "10 days",2) issue to Digital, ten-year warrants to purchase 800,000 shares of theCompany's common stock at an exercise price of $.75 per share, upon the finalclosing of common stock purchased under the agreement, 3) waive the requirementfor a registration of the shares purchased under the Agreement prior to thefinal closing of the Agreement, if such registration has not been declaredeffective by October 1, 2002, and 4) require the Company to file a registrationstatement covering all shares and warrants issued to Digital under the amendedAgreement within 30 days of the final closing of the amended Agreement, in the eventsuch registration has not been completed by the date of such closing.  The Company expects to file a secondamendment to the S-2 registration statement to reflect these changes to theStock Purchase Agreement in the near future. There can be no assurances that such amended S-2 registration will bedeclared effective by the Securities and Exchange Commission in the near futureor at all. If the Securities and Exchange Commission does not declare the S-2registration effective, the Company plans to file an alternative registrationstatement in order to register the total number of shares and warrants to beissued  to Digital under the StockPurchase Agreement as amended.  As ofNovember 12, 2001, there are 2,314,285 shares remaining to be purchased by Digitalat $.35 per share under the amended Stock Purchase Agreement for a total grossprice of $810,000.

 

4.    COMMITMENTS AND CONTINGENCIES:

(a)Manufacturing Agreement

OnAugust 28, 1996, the Company entered into a manufacturing agreement with athird party custom manufacturer (Manufacturer).  Pursuant to this agreement, the Manufacturer agrees to producethe Company’s videoconferencing products, and warrant that all products will befree from defects in material and workmanship for twelve months from the datethe Company ships to the customer, or fifteen months from the date theManufacturer 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 September 30, 2001, theCompany’s obligation for material and work in progress for products orderedamounted to; up to approximately $921,000.

 

(b) Marketing Agreement

 

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

 

(c) Investor and Recruitment Agreement

 

InFebruary 2001, in connection with an agreement for seeking of potentialinvestors and recruiting and hiring of senior management, the Company issuedthe rights to purchase warrants for 500,000 shares of its common stock at anexercise 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 vest at a rate of 37,500 quarterly and mayvest earlier based on the achievement of earnings criteria as defined in theagreement.  Based on the agreement,37,500 warrants were issued and were valued at $7,736 using the Black-Scholespricing model during the first quarter of fiscal year 2002.  The warrants expire in February 2006.

**CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS THAT COULDCAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER FROM THOSE PROJECTED IN FORWARDLOOKING STATEMENTS**

 

In connection with the “safe harbor” provisions of the PrivateSecurities Litigation Reform Act of 1995, readers of this document and anydocument incorporated by reference herein, are advised that this document anddocuments incorporated by reference into this document contain both statementsof historical facts and forward looking statements.  Forward looking statements are subject to certain risks anduncertainties, which could cause actual results to differ materially from thoseindicated by the forward looking statements. Examples of forward looking statements include, but are not limited to(i) projections of revenues, income or loss, earnings or loss per share,capital expenditures, dividends, capital structure and other financial items,(ii) statements of the plans and objectives of the Company or its management 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 incorporated by reference herein alsoidentify important factors which could cause actual results to differmaterially from those indicated by the forward looking statements.  These risks and uncertainties include pricecompetition, the decisions of customers, the actions of competitors, theeffects of government regulation, possible delays in the introduction of newproducts, customer acceptance of products and services, and other factors whichare described herein and/or in documents 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 arebeyond the ability of the Company to control and in many cases the Companycannot predict what factors would cause results to differ materially from thoseindicated by the forward looking statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS

 

Viseon, Inc., aNevada corporation, (formerly RSI Systems, Inc.) is a global visualcommunication sales, service and manufacturing organization.   Viseon, Inc., (the “Company” or “Viseon”),designs, manufactures and sells high performance, business qualityvideoconferencing systems, services and accessories throughout a worldwidedirect and indirect sales network including resellers, distributors and OEM orprivate label partners. The former RSI Systems, Inc. was incorporated under thelaws of Minnesota on December 21, 1993.

 

RESULTS OF OPERATIONS

 

*ThreeMonths Ended September 30, 2001 Compared to Three Months Ended September 30,2000.*

 

Net Sales.  Net salesfor the first quarter of fiscal year 2002 were $1,616,619, up 82% from $887,650in the first quarter of fiscal year 2001. The increase in sales in the first quarter of fiscal year 2002 wasprimarily a result of higher sales volume associated with the Company’s newsales efforts in North America and revenues associated with the Company'slicensing of its patents.

 

The Company has an exclusive sales and marketingarrangement with RSI Marketing, LLC (RSIM) whereby RSIM sells and markets theCompany's products, as well as those manufactured by others, exclusively inNorth America.  The primary goal forRSIM is to sell the company's products directly to the video conferencing enduser. The majority of these accounts are either significant in size or theirrequirements dictate direct interaction with the manufacturer (theCompany).  Though it is not Viseon’sintention to compete with its other distribution channels, many of theorganizations which make larger purchases of videoconferencing equipment havedictated that the manufacturer provide specialized services (be they domesticor global) or modify products for their specific application. Excluding thesale of patent licensing rights described below, the increased level of salesduring the first quarter of fiscal year 2002 was a direct result of the salesand marketing efforts of RSIM.

 

During the first quarter of fiscal year 2002, the Company continued totake measures to protect its patents from infringement by other companies.  In connection with these efforts the Companyearned  revenue of $299,633 during thefirst quarter of fiscal year 2002 from the sale of patent licensing rights to athird party.

 

Gross Profit.  Gross profitwas $607,042 in the first quarter of fiscal year 2002 compared to a grossprofit of $433,783 during the first quarter of fiscal year 2001. Gross profitfor the first quarter of fiscal year 2002 included revenue associated with theCompany's licensing of its patents totaling $299,633.  Excluding this revenue of $299,633, cost of goods sold as apercentage of net sales in the first quarter of fiscal year 2002 were 77%compared to 51% in the first quarter of fiscal year 2001.  The higher cost of goods sold as a percentof net sales during the first quarter of fiscal year 2002 was due to changes inthe mix of products shipped in the current quarter compared to the firstquarter of fiscal year 2001. During the first quarter of fiscal year 2002, theproportion of sales generated from products purchased from other manufacturersincreased significantly.  These productswere sold at gross margins which are lower than products produced by theCompany.  In contrast, Company-producedproducts formed the primary basis for sales in the first quarter of fiscal year2001. This trend is expected to continue in future quarters during fiscal year2002, as part of the Company's strategy of increasing its installed base ofvideoconferencing units and broadening its product line.

 

Downward market pressure on the pricing of videoconferencing unitscontinued to remain strong during the first quarter of fiscal year 2002 and isexpected to continue.  This pressurealso contributed to the higher level of costs as a percentage of net salesduring the first quarter of fiscal year 2002, compared to fiscal year 2001.

 

Research and Development Expenses. Research and development expenses were $108,906 for the first quarter offiscal year 2002, or 7% of net sales, compared to research and developmentexpenses of $145,049 or 16% of net sales for the first quarter of fiscal year2001. Actual expenses  decreasedapproximately $36,000 as a result of lower head count associated with theCompany's overall strategy of broadening its current product offerings throughnew relationships with other manufacturers, and the acquisition or sharing ofproduct technology.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $672,401 or 42% of netsales for the first quarter of fiscal year 2002 compared to $513,597 or 58% ofnet sales for the first quarter of fiscal year 2001. The percentage decreasewas a result of increased sales during the first quarter of fiscal year 2002.  The higher level of spending on selling,general and administrative expenses during the first quarter of fiscal year2002 was primarily a result of increased marketing expenses associated withhigher sales activity and increased amortization expenses related to theCompany's Automated Line Routing Switch and patents.

 

In addition, selling, general and administrative expenses during thefirst quarter of fiscal year 2002 include approximately $51,000 non-cashexpenses related to modifications of stock options held by employees undervariable accounting rules for such modifications. The modifications were madein connection with the Company's restructuring and relocation of itsheadquarters during the first quarter of fiscal year 2002.

 

Other Income (Expense).  Other income(expense) was $50,007 in the first quarter of fiscal year 2002, compared to$(64,744) in the first quarter of fiscal year 2001.   The increase in other income (expense) during the first quarterof fiscal year 2002 was primarily a result of income recognized in connectionwith the Company's patent protection activities of approximately $100,000.

 

As a result of the foregoing, net loss for the first quarter of fiscalyear 2002 was $(124,258), or $(.01) per common share compared to a net loss of$(289,607) or $(.03) per common share in the first quarter of fiscal year 2001.

 

LIQUIDITY, CAPITAL RESOURCES AND MATERIAL CHANGES IN FINANCIALCONDITION

 

Net cash provided by operating activities was $148,302 in the firstquarter of fiscal year 2002, compared to cash used of $(119,678) in the firstquarter of fiscal year 2001.

 

Accounts receivable increased $709,575 during first quarter of fiscalyear 2002 as a result of increased sales during the quarter compared to thefourth quarter of fiscal year 2001.  Alarge proportion of the sales during the first quarter of fiscal year 2002 weremade in the month of September, resulting in the increased balance of accountsreceivable.

Inventory also increased during the first quarter of fiscal year 2002as a result of the Company's strategy to broaden its product line to includeproducts manufactured by other companies. Although the Company actively sold these products during the firstquarter of fiscal year 2002, a significant level of this inventory remained onhand at September 30, 2001. The Company purchased this new inventory onextended payment terms from vendors, resulting in an increase in accountspayable of approximately $2,207,000 during the first quarter of fiscal year2002, which offset the increased level of inventory and accounts receivableduring the quarter.

 

The Company's line of credit, including extensions,expired on August 26, 2001.  Inconnection with the expiration, the Company's bank, Wells Fargo Business CreditInc.(the "bank") indicated that it was not willing to renew the lineof credit. The Company has paid the bank the entire amount of outstandingprincipal and interest on the line of credit as of  October 30, 2001.

 

The Company has been actively pursuing alternative banks to provideworking capital financing for future operations.  Although no formal agreements have been signed, the Company hasreceived and signed a terms sheet for a new line of credit from a new bankoutlining general terms that are acceptable to the Company.  These terms, as well as the line of credititself, are subject to the approval by the bank's credit committee, agreementbetween the parties on all detailed terms, and the signing of completeddocumentation of such terms.  There canbe no assurance that the alternative line of credit from this new bank will beavailable to the Company on reasonable terms or at all.  The Company expects to continue  seeking lenders for its working capital needsuntil a line of credit is secured.

 

OnOctober 5, 2001, the Company received proceeds of $800,000 from DigitalInvestors, LLC in the form of a subordinated note due October 5, 2002.  The note is secured by all the Company'sassets and interest is due quarterly at an annual rate of 12%.  The Company expects to repay the note, togetherwith accrued interest, from the proceeds of the remaining shares of commonstock to be purchased by Digital under the Stock Purchase Agreement as amended(see below).

 

To ensure the Company hasaccess to a line of credit sufficient to meet its needs, the Company has signedan agreement with Digital Investors, LLC, under which Digital has agreed toprovide a line of credit to the Company under terms and conditions similar tothose contained in the 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.

 

Managementbelieves that funds generated from operations, the $800,000 subordinated debtrecently loaned to the Company by Digital and funds from a new line of credityet to be secured from either a new bank or Digital Investors LLC will be sufficientto fund operations for the foreseeable future. In the event that cash fromoperations, cash from subordinated debt financing and a new line of credit arenot sufficient, management would seek additional equity capital or debtfinancing.  There can be no assurancethat such financing will be available to the Company on reasonable terms or atall.

OnOctober 5, 2001, the Company and Digital Investors, LLC (Digital) signed anamendment to a Stock Purchase Agreement (the "Agreement") originallysigned in February 2001, to; 1) change the required closing date for theremaining shares to be purchased under the Agreement to "3 days" fromthe effective date of the S-2 registration, as opposed to "10 days",2) issue to Digital, ten-year warrants to purchase 800,000 shares of theCompany's common stock at an exercise price of $.75 per share, upon the finalclosing of common stock purchased under the agreement, 3) waive the requirementfor a registration of the shares purchased under the Agreement prior to thefinal closing of the Agreement, if such registration has not been declaredeffective by October 1, 2002, and 4) require the Company to file a registrationstatement covering all shares and warrants issued to Digital under the amendedAgreement within 30 days of the final closing of the amended Agreement, in theevent such registration has not been completed by the date of suchclosing.  The Company expects to file asecond amendment to the S-2 registration statement to reflect these changes tothe Stock Purchase Agreement in the near future.  There can be no assurances that such amended S-2 registrationwill be declared effective by the Securities and Exchange Commission in thenear future or at all. If the Securities and Exchange Commission does notdeclare the S-2 registration effective, the Company plans to file analternative registration statement in order to register the total number ofshares and warrants to be issued  toDigital under the Stock Purchase Agreement as amended.  As of November 12, 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.

 

Managementplans to continue to increase sales and improve operating results through 1)increased marketing and a broader distribution of its products as a result ofits new relationship with RSIM and other distribution partners, 2) increasedrevenue streams from a broader line of product, service and network offeringsas a result of joint development efforts with strategic partners, newdistribution agreements or product and technology acquisitions, 3)continued  efforts to streamlineoperations and minimize overhead, and 4) proactive measures to protect theCompany's intellectual property rights. Management believes that it will obtaina new line of credit in the second quarter of fiscal year 2002 to replace itsprevious line of credit on terms and conditions that are acceptable to theCompany.  The Company has signed anagreement with Digital Investors LLC to provide a line of credit to the Companyin the event a new line is not secured from a bank by December 31, 2001.  Management believes that funds generatedfrom operations,  subordinated debt  recently loaned to the Company and fundsfrom a new line of credit yet to be secured from either a new bank or DigitalInvestors LLC will be sufficient to fund operations for the foreseeable future.In the event that cash from operations, cash from subordinated debt financingand a new line of credit are not sufficient, management would seek additionalequity capital or debt financing.  Therecan be no assurance that such financing will be available to the Company onreasonable terms or at all.

PART II

OTHER INFORMATION

 

Item 1.

 

LEGAL PROCEEDINGS

 

 

None

Item 2.

 

CHANGES IN SECURITIES

 

 

None

Item 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

 

In September 2001 the Company's former bank notified  the Company it was in default on its loan agreement with the bank and  demanded full payment on the outstanding line of credit balance including  interest. On October 30, 2001 the Company paid such outstanding principal and  interest in full.  The Company has no  debt obligations to the bank as of November 13, 2001.

Item 4.

 

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

 

None

Item 5.

 

OTHER INFORMATION

 

 

 

None

 

Item 6.

 

EXHIBITS AND REPORTS ON FORM 8-K

 

 

(a)

Exhibits 10.48, 10.49, 10.50 - Material Contracts

 

 

(b)

Reports on Form 8-K

 

 

 

None

 
****
SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 

 

 

 

VISEON, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dated:

November 12, 2001

 

/s/  John C Harris

 

 

 

 

Its President & Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

By: 

/s/ James D. Hanzlik

 

 

 

 

 

James D. Hanzlik

 

 

 

 

 

 

 

 

 

Its Chief Financial Officer

 

VISEON, INC.

EXHIBIT INDEX TO

FORM 10-QSB FOR THEQUARTER ENDED SEPTEMBER 30, 2001

 

**Item  No.**

 

**Title  of Document**

 

**Method  of Filing**

10.48

 

First Amendment to Stock Purchase Agreement

 

Filed as Exhibit 10.48  to the Company's June 2001 10-KSB and incorporated herein by  reference.

10.49

 

Security Agreement with Digital Investors, LLC

 

Filed as Exhibit 10.48  to the Company's June 2001 10-KSB and incorporated herein by  reference.

10.50

 

Note payable to Digital Investors, LLC

 

Filed as Exhibit 10.48  to the Company's June 2001 10-KSB and incorporated herein by  reference.

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