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U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-QSB
 (Mark One) þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACTOF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31 , 2004o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 FOR THE TRANSITION PERIOD FROM TO .
 Commission File Number 0-27106 Viseon, Inc.  Nevada
    
    41-1767211(State or other jurisdiction
    
    (IRS EmployerOf incorporation or organization)
    
    Identification No.)8445 Freeport Parkway, Suite 245, Irving, Texas
    
    75063(Address of principal executive offices)
    
    (Zip Code)
 (972) 906-6300
(Issuers Telephone Number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter 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 þ NO o The Company had 30,635,267 shares of Common Stock, $ 0.01 par value per share, outstanding as of
February 14, 2005. Transitional Small Business Disclosure Format (Check one): YES o NO þ




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Viseon, Inc. INDEX PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets -
December 31, 2004 (unaudited) and June 30, 2004 (audited)
    
    
    3Consolidated Statements of Operations (unaudited) -
Three months ended December 31, 2004 and 2003
    
    
    4Consolidated Statements of Operations (unaudited) -
Six months ended December 31, 2004 and 2003
    
    
    5Consolidated Statements of Cash Flows (unaudited) 
Six months ended December 31, 2004 and 2003
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    14Item 3. Controls and Procedures
    
    
    17PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits and Reports on Form 8-K
    
    
    17Signatures
    
    
    18Certification Pursuant to Rule 13a-14(a)Certification Pursuant to Section 906
  2




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PART I
FINANCIAL INFORMATION 
 Item 1. Financial Statements VISEON, INC. AND SUBSIDIARIES 
 Consolidated Balance Sheets December 31,
    
    
    June 30,2004
    
    
    2004(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    3,629,412
    
    
    $
    5,339,393Accounts receivable, net of allowance for doubtful accounts
of $3,739 at December 31, 2004 and June 30, 2004
    
    
    22,007
    
    
    
    43,389Inventories
    
    
    3,430
    
    
    
    14,600Prepaid expenses
    
    
    383,583
    
    
    
    469,789Total Current Assets
    
    
    4,038,432
    
    
    
    5,867,171PROPERTY AND EQUIPMENT, NET
    
    
    28,533
    
    
    
    35,659INTANGIBLE ASSETS, NET
    
    
    253,354
    
    
    
    210,157TOTAL ASSETS
    
    $
    4,320,319
    
    
    $
    6,112,987LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    600,981
    
    
    $
    413,674Accrued expenses
    
    
    341,936
    
    
    
    226,269Net liabilities of discontinued operations
    
    
    723,475
    
    
    
    743,582Total Current Liabilities
    
    
    1,666,392
    
    
    
    1,383,525COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYSeries A convertible preferred stock, $.01 par value per share
5,000,000 shares authorized, 214 and 338
shares issued and outstanding
(liquidation preference of $5,350,000 and $8,450,000)
    
    
    2
    
    
    
    3Common stock, $.01 par value per share
100,000,000 shares authorized
29,607,098 and 24,682,907 issued and outstanding
    
    
    296,071
    
    
    
    246,829Additional paid-in capital
    
    
    39,230,552
    
    
    
    37,732,562Accumulated deficit
    
    
    (36,872,698
    )
    
    
    (33,249,932
    )Total Stockholders Equity
    
    
    2,653,927
    
    
    
    4,729,462TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    4,320,319
    
    
    $
    6,112,987
 See accompanying notes to consolidated financial statements. 3




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VISEON, INC. AND SUBSIDIARIES 
 Consolidated Statements of Operations Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2004
    
    
    2003NET SALES
    
    $
    70,833
    
    
    $
    37,161COST OF GOODS SOLD
    
    
    115,219
    
    
    
    30,479RESERVE FOR INVENTORIES
    
    
    
    
    
    
    (66,830
    )Gross Profit (Loss)
    
    
    (44,386
    )
    
    
    73,512RESEARCH AND DEVELOPMENT
    
    
    1,194,700
    
    
    
    28,221SELLING, GENERAL AND ADMINISTRATIVE
    
    
    600,920
    
    
    
    612,065Operating Loss
    
    
    (1,840,006
    )
    
    
    (566,774
    )OTHER INCOME (EXPENSE)Interest income
    
    
    12,674
    
    
    
    Interest expense
    
    
    
    
    
    
    (214,939
    )Other Expense, net
    
    
    12,674
    
    
    
    (214,939
    )LOSS FROM CONTINUING OPERATIONS
    
    
    (1,827,332
    )
    
    
    (781,713
    )GAIN FROM DISCONTINUED OPERATIONS
    
    
    1,128
    
    
    
    350,748NET LOSS
    
    
    (1,776,204
    )
    
    
    (430,965
    )Preferred Stock Dividends
    
    
    (147,249
    )
    
    
    NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    $
    (1,973,453
    )
    
    $
    (430,965
    )Basic and diluted earnings (loss) per share:Loss from continuing operations
    
    $
    (0.07
    )
    
    $
    (0.04
    )Gain from discontinued operations
    
    $
    0.00
    
    
    $
    0.02Net loss
    
    $
    (0.07
    )
    
    $
    (0.02
    )Net loss attributable to common stockholders
    
    $
    (0.07
    )
    
    $
    (0.02
    )Weighted average common shares outstanding:Basic and diluted
    
    
    28,051,800
    
    
    
    19,377,972
 See accompanying notes to consolidated financial statements. 4




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VISEON, INC. AND SUBSIDIARIES 
 Consolidated Statements of Operations Six Months
    
    
    Six MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2004
    2003NET SALES
    
    $
    239,002
    
    
    $
    67,860COST OF GOODS SOLD
    
    
    272,856
    
    
    
    66,472RESERVE FOR INVENTORIES
    
    
    
    
    
    
    (66,830
    )Gross Profit (Loss)
    
    
    (33,854
    )
    
    
    68,218RESEARCH AND DEVELOPMENT
    
    
    1,978,467
    
    
    
    29,767SELLING, GENERAL AND ADMINISTRATIVE
    
    
    1,295,593
    
    
    
    1,072,932Operating Loss
    
    
    (3,307,914
    )
    
    
    (1,034,481
    )OTHER INCOME (EXPENSE)Interest income
    
    
    30,316
    
    
    
    Interest expense
    
    
    
    
    
    
    (418,473
    )Other Expense, net
    
    
    30,316
    
    
    
    (418,473
    )LOSS FROM CONTINUING OPERATIONS
    
    
    (3,277,598
    )
    
    
    (1,452,954
    )GAIN FROM DISCONTINUED OPERATIONS
    
    
    6,107
    
    
    
    350,748NET LOSS
    
    
    (3,271,491
    )
    
    
    (1,102,206
    )Preferred Stock Dividends
    
    
    (351,275
    )
    
    
    NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    $
    (3,622,766
    )
    
    $
    (1,102,206
    )Basic and diluted earnings (loss) per share:Loss from continuing operations
    
    $
    (0.12
    )
    
    $
    (0.07
    )Gain from discontinued operations
    
    $
    0.00
    
    
    $
    0.02Net loss
    
    $
    (0.12
    )
    
    $
    (0.05
    )Net loss attributable to common stockholders
    
    $
    (0.14
    )
    
    $
    (0.06
    )Weighted average common shares outstanding:Basic and diluted
    
    
    26,614,465
    
    
    
    19,674,689
 See accompanying notes to consolidated financial statements. 5




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VISEON, INC. AND SUBSIDIARIES 
 Consolidated Statements of Cash Flows Six Months
    
    
    Six MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2004
    2003Cash flows from operating activities:Net loss
    
    $
    (3,271,491
    )
    
    $
    (1,102,206
    )Adjustments to reconcile net loss to net
cash flows from operating activities:Depreciation and amortization
    
    
    30,242
    
    
    
    15,596Amortization of original issue discount
    
    
    
    
    
    
    340,607Compensation related to stock options
    
    
    
    
    
    
    53,391Common stock issued for services rendered
    
    
    78,048
    
    
    
    440,436Loss on retirement of equipment
    
    
    
    
    
    
    152Gain from discontinued operations
    
    
    (6,107
    )
    
    
    (350,748
    )Reserve for inventories
    
    
    
    
    
    
    (66,830
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    21,382
    
    
    
    (35,837
    )Inventories, net
    
    
    11,170
    
    
    
    38,530Prepaid expenses
    
    
    86,206
    
    
    
    (2,513
    )Accounts payable
    
    
    187,306
    
    
    
    (172,088
    )Accrued expenses
    
    
    150,205
    
    
    
    54,055Net cash flows used in operating activities
    
    
    (2,713,039
    )
    
    
    (443,279
    )Cash flows from investing activities:Proceeds from sale of equipment
    
    
    
    
    
    
    1,000Payments for intangible assets
    
    
    (66,313
    )
    
    
    (91,623
    )Net cash flows used in investing activities
    
    
    (66,313
    )
    
    
    (90,623
    )Cash flows from financing activities:Payments of subordinated notes payable
    
    
    
    
    
    
    (110,000
    )Proceeds from subordinated note payable and warrants issued with
note payable
    
    
    
    
    
    
    110,000Proceeds from short-term notes payable
    
    
    
    
    
    
    155,000Proceeds from exercise of common stock options
    
    
    33,500
    
    
    
    119,245Proceeds from exercise of common stock warrants
    
    
    1,080,225
    
    
    
    350,000Proceeds from sales of common stock warrants
    
    
    
    
    
    
    5,000
 6




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Six Months
    
    
    Six MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2004
    2003Payments of convertible preferred stock and warrant issuance costs
    
    
    (26,863
    )
    
    
    Dividends on convertible preferred stock
    
    
    (3,491
    )
    
    
    Net cash flows from financing activities
    
    
    1,083,371
    
    
    
    629,245Change in cash and cash equivalents from discontinued operations
    
    
    (14,000
    )
    
    
    (102,750
    )Decrease in cash and cash equivalents
    
    
    (1,709,981
    )
    
    
    (7,407
    )Cash and cash equivalents, beginning of period
    
    
    5,339,393
    
    
    
    7,784Cash and cash equivalents, end of period
    
    $
    3,629,412
    
    
    $
    377Supplemental cash flow information:Cash paid for interest, net of original
issue discount
    
    $
    
    
    
    $
    44,665Noncash investing and financing activities:Accounts payable converted to common stock
    
    $
    
    
    
    $
    130,246Short-term notes converted into common stock and warrants
    
    
    
    
    
    
    65,000Accrued preferred stock dividends converted to common stock
    
    
    254,981
    
    
    
    Common stock issued for preferred stock dividends
    
    
    114,374
    
    
    
    
 See accompanying notes to consolidated financial statements. 7




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VISEON, INC. 
  1. DESCRIPTION OF THE BUSINESS: Viseon, Inc. (the Company), a Nevada corporation, was incorporated on December 21, 1993 and
historically had been a developer of its own group videoconferencing systems sold primarily to
corporate end users and OEM customers. On July 25, 1995, it completed its initial public offering
of its common stock, par value $0.01 per share (the Common Stock). In January 2003, the Company changed its focus from being a group videoconferencing systems
manufacturer and reseller to a desktop and consumer broadband communications systems developer
and reseller. The only measurable revenues that the Company is
currently realizing are as a result of sales of the VisiFone, the Companys personal videophone which operates on
broadband networks. Therefore, we have classified the net assets and operations related to the
group videoconferencing business as discontinued operations in the accompanying consolidated
financial statements. The VisiFone products are low-cost broadband communication devices, which can be used by both
consumers and businesses for both audio and audio/ video calling over high speed internet
connections. The VisiFone is a self-contained system that does not require a PC or any external
equipment for its operation. It will utilize virtually any broadband connection and home or
office network including high-speed Internet connections via DSL or cable modem. The first generation of VisiFone has been available to customers, primarily for testing, since
2003. It is available as either an ITU Standard, H.323 compliant system which is compatible with
most corporate video conferencing systems or as a Session-Initiation-Protocol (SIP) compliant
device, which is compatible with many of the emerging Voice Over
Internet Protocol (VoIP) telephony
networks. The VisiFone can be used in corporate, government and educational applications and is
priced such that it also has significant potential to be sold to residential consumers who have
subscribed to broadband Internet access via cable modem or DSL. The second generation of VisiFone has been developed by the Company based on input from various
broadband carriers and VoIP marketers. Shipments are expected to begin during the fourth quarter
of fiscal 2005. The new VisiFone is the first Digital Home Telephone designed for VoIP. It provides users with
several unique features including Digital Wideband audio, H.264 video communications capabilities,
integrated terminal adapter functionality and multiple optional screen sizes. Viseon has filed a
number of patent applications related to the new VisiFone technology, design and functionality. The Company has licensed certain parts of its patents to other companies within the visual
communications industry. The Company intends to enter into additional agreements whereby it may
grant a license of its intellectual property to third parties in furtherance of developing
proprietary consumer broadband videophone products and services, some of which may be based on its
existing intellectual property. The Company plans to undertake the development of these products
and services jointly with one or more suitable, established manufacturers, which the Company is
currently in the process of identifying and selecting. To date the Company has retained independent
business enterprises to assist in the design of the general appearance and functionality of our
next generation broadband videophones as well as the design and development of the software,
electronics and acoustics that will be integrated therein which is the genesis of the next
generation VisiFone. The design and development assistance provided by each of these companies is a
cooperative effort with our technical support personnel, under the supervision of our technical
advisors and senior management to insure strict adherence to the specifications outlined to them by
the Company. Additionally, the Company established a relationship with Leadtek, an Asian partner,
as a distributor in the U.S. of a broadband videophone manufactured by Leadtek. The Company may
also continue forming new relationships with other companies to distribute their products alongside
its own products. The Companys marketing strategy targets primarily residential consumers who have historically not
purchased video communication devices and, to a limited degree, business and government entities
with widespread operations across regional, national and international boundaries. Management
identified the challenges associated with marketing the Companys products to such a diverse market
segment prior to its decision to modify the Companys business model and 8




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has been evaluating various marketing strategies for more than two years. Management recognized the
advantages of developing a marketing strategy that included a plan of sales and distribution of its
products in tandem with one or more major broadband providers and VoIP marketers. In this regard,
the Company has been actively discussing videotelephony and the merits of offering the VisiFone to
their subscribers, with cable television system operators, telephone companies and independent VoIP
marketers in search of potential partners with which such a relationship can be developed. All of
these developments have affected and will continue to affect the Companys financial model in terms
of margins, cash flow requirements and other areas. The Company has a limited operational history
with respect to the current direction of its business. There can be no assurance that the Company
will be able to succeed in implementing its strategy, or that the Company will be able to achieve
positive cash flows or profitable operations as a result of such changes in its business. The Company has incurred losses from operations and negative cash flows from operations for the
quarters ended December 31, 2004 and 2003. Management plans to try to increase sales and improve
operations through 1) increased marketing and direct sales activities to corporate customers, 2)
continued initiatives to gain acceptance of our product by broadband carriers for sale to their
subscribers, 3) continued measures to minimize overhead and 4) initiatives to monetize our
intellectual property rights. Management believes that current cash funds and funds generated from
operations will be sufficient to cover cash needs for the 2004-2005 fiscal year, although there can
be no assurance in this regard. In the event sales do not materialize at the expected rates or the
Company does not achieve planned gross margins, management would seek additional financing or would
conserve cash by further reducing expenses. There can be no assurance that the Company will be
successful in achieving these objectives or becoming profitable. 2. BASIS OF PRESENTATION: The unaudited interim consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America, pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in the consolidated financial statements have been omitted
or condensed pursuant to such rules and regulations. The accompanying unaudited consolidated
financial statements should be read in conjunction with the Companys June 30, 2004 consolidated
financial statements and related footnotes included in the Companys Annual Report on Form 10-KSB. The consolidated financial statements include the accounts of Viseon, Inc. and its wholly-owned
subsidiaries, RSI Systems, Ltd. a subsidiary in the United Kingdom and Viseon PVT, Inc., a Nevada
Corporation. The consolidated financial statements reflect all adjustments, of a normal recurring nature,
necessary to fairly present the results of operations and financial position of the Company for the
interim periods. Operating results for the three months and six months ended December 31, 2004 are
not necessarily indicative of the results that may be expected for the full year. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Intangible Assets. The Company amortizes patents over their estimated useful lives of ten years
using the straight-line method. Accumulated amortization of intangible assets was $65,003 and
$49,442 at December 31, 2004 and June 30, 2004, respectively. Amortization expense of intangible
assets was $7,932 and $3,678 for the three months ended December 31, 2004 and 2003, and was $15,560
and $6,131 for the six months ended December 31, 2004 and 2003. Amortization expense is estimated
to approximate $27,000 for each of the years ending June 30, 2005, 2006, 2007, 2008 and 2009. Revenue Recognition. The Company records sales revenue at the time merchandise is shipped and
records a reserve for potential returns based upon historical experience rates. In November 1999,
the SEC issued Staff Accounting Bulletin (SAB) No. 104,Revenue Recognition. SAB No. 104, as
amended, sets forth the SEC staffs position regarding the point at which it is appropriate for a
registrant to recognize revenue. The staff believes that revenue is realizable and earned when all
of the following criteria are met: persuasive evidence of an arrangement exists, delivery has
occurred or service has been rendered, the sellers price to the buyer is fixed or determinable and
collectibility is reasonably assured. The Company believes it meets all of the requirements for
revenue recognition under SFAS 48 and SAB 104. The Company offers an unconditional 30-day right of return on the sale of its VisiFone products.
The Company recognizes revenue on shipment and records a reserve for potential returns. The
Companys warranty policy during the first year after 9




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the sale includes an obligation to replace during the first 30 days and to repair during the next
11 months. The Company has a one-year warranty with the manufacturer, so there is little, if any,
cost to the Company for warranty claims. No warranty reserve has been recorded to date, although
the Company will record a reserve if warranty activity increases and there are unrecoverable costs
to the Company. Accounts Receivable Reserves. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability or unwillingness of its customers to make required payments. If
the financial condition of the Companys customers declines resulting in an impairment of their
ability to make payments, additional allowances may be required. Inventory Valuation. The Company writes down excess and obsolete inventory equal to the difference
between the cost of inventory and the estimated market value based upon assumptions about product
life cycles, demand for the Companys products, market conditions and other pertinent factors. If
actual product life cycles, product demand and market conditions are less favorable than those
projected by management, additional inventory write-downs may be required in future periods. Loss Per Common Share. Basic loss attributable to common stockholders per common share is computed
by dividing the loss by the weighted average number of common shares outstanding for the reporting
period. Diluted loss attributable to common stockholders per common share is computed by dividing
the loss by the sum of the weighted average number of common shares outstanding plus the number of
common share equivalents that represent all additional shares of Common Stock that would have been
outstanding if all potentially dilutive securities (primarily stock options, stock warrants and
convertible debt) had been exercised. All options and warrants outstanding during the three months
and six months ended December 31, 2004 and 2003 were anti-dilutive to earnings per share. Stock Based Compensation. In accordance with Accounting Principles Board (APB) Opinion No. 25 and
related interpretations, the Company uses the intrinsic value-based method for measuring
stock-based compensation cost which measures compensation cost as the excess, if any, of quoted
market price of the Companys Common Stock at the grant date over the amount the employee must pay
for the stock. The Companys general policy is to grant stock options at fair value at the date of
grant. The Company has adopted the disclosure only provision of SFAS No. 123, Accounting for
Stock-Based Compensation. Had compensation cost been recognized based on the fair values of options at the grant dates
consistent with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, the Companys net loss and basic and diluted net loss
per common share would have been changed to the following pro forma amounts: For the three months ended
    
    
    For the six months endedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Loss attributable to common stockholdersAs reported
    
    $
    (1,973,453
    )
    
    $
    (430,965
    )
    
    $
    (3,622,766
    )
    
    $
    (1,102,206
    )Pro forma
    
    
    (2,033,457
    )
    
    
    (447,190
    )
    
    
    (3,801,376
    )
    
    
    (1,134,656
    )Basic and diluted loss per share:As reported
    
    
    (0.07
    )
    
    
    (0.02
    )
    
    
    (0.14
    )
    
    
    (0.06
    )Pro forma
    
    
    (0.07
    )
    
    
    (0.02
    )
    
    
    (0.14
    )
    
    
    (0.06
    )Stock based compensation:As reported
    
    
    
    
    
    
    6,945
    
    
    
    
    
    
    
    53,391Pro forma
    
    
    60,004
    
    
    
    16,225
    
    
    
    178,610
    
    
    
    32,450
 10




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In determining the compensation cost of options granted during the three months and six months
ended December 31, 2004 and 2003, as specified by SFAS No. 123, the fair value of each option grant
has been estimated on the date of grant using the Black-Scholes option pricing model and the
weighted average assumptions used in these calculations are summarized as follows: For the Three Months Ended
    
    
    For the Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Risk-free interest rate
    
    
    4.25
    %
    
    
    N/A
    
    
    
    4.25
    %
    
    
    N/AExpected life of options granted
    
    10 Years
    
    
    N/A
    
    
    10 Years
    
    
    N/AExpected volatility
    
    
    33.31
    %
    
    
    N/A
    
    
    
    33.31
    %
    
    
    N/AExpected dividend yield
    
    
    0
    %
    
    
    N/A
    
    
    
    0
    %
    
    
    N/A
 4. RECENT ACCOUNTING PRONOUNCEMENTS: In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46). FIN 46 states that companies that have exposure to the economic risks and
potential rewards from another entitys assets and activities have a controlling financial interest
in a variable interest entity and should consolidate the entity, despite the absence of clear
control through a voting equity interest. The consolidation requirements apply to all variable
interest entities created after January 31, 2003. For variable interest entities that existed
prior to February 1, 2003, the consolidation requirements are effective for annual or interim
periods beginning after December 15, 2004. Disclosure of significant variable interest entities is
required in all financial statements issued after January 31, 2003, regardless of when the variable
interest was created. The Company does not expect the adoption of FIN 46 to have a material effect
on the Companys financial statements. In November 2004, the
FASB issued SFAS No. 151 Inventory Costs which amends the guidance in ARB No. 43,
Chapter 4 Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4,
previously stated that under some circumstances, items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as
current period charges. SFAS No. 151 requires that those items be recognized as current-period
charges regardless of whether they meet the criterion of so abnormal. In addition, SFAS No, 151
requires that allocation of fixed production overheads to the costs of conversion be based on the
normal capacity of the production facilities. SFAS No. 151 shall be effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for
inventory costs incurred during fiscal years beginning after the date SFAS No. 151 was issued. SFAS
No. 151 shall be applied prospectively. The Company does not expect the adoption of SFAS No. 151
to have a material effect on its consolidated financial statements. In December 2004, the
FASB issued SFAS No. 153 Exchanges of Nonmonetary
Assets which amends APB Opinion No.
29, Accounting for Nonmonetary Transactions. APB No. 29 is based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value of the assets exchanged. The
guidance in that Opinion, however, included certain exceptions to that principle. SFAS No. 153
amends APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the exchange. SFAS No. 153 shall
be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods
beginning after the date SFAS No. 153 was issued. SFAS No. 153 shall be applied prospectively. The
Company does not expect the adoption of SFAS No. 153 to have a material effect on its consolidated
financial statements. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, that focuses
primarily on accounting for transactions in which an entity obtains employee services in
share-based payment transactions. This statement replaces SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. Beginning with our quarterly period that begins January 1, 2006, we will be required
to expense the fair value of employee stock options and similar awards. As a public company, we
are allowed to select from two alternative transition methods, each having different reporting
implications. The impact of SFAS No. 123R has not been determined at this time. 5. CONVERTIBLE PREFERRED STOCK AND WARRANTS: In the months of March and April 2004, the Company sold, in private placement transactions, a total
of 338 shares of Series A Convertible Preferred Stock in prepackaged units which included one
Series A-1 Warrant and one Series A-2 Warrant for each share of Series A Convertible Preferred
Stock (collectively referred to as the Securities). The private placement of the Securities
resulted in gross proceeds to the Company of $8,450,000, prior to offering expenses. In total,
holders of the 338 shares of Series A Convertible Preferred Stock may acquire 16,900,000 shares of
our Common Stock (8,450,000 shares of Common Stock upon conversion and 8,450,000 shares upon
exercise of warrants). The Companys placement agent received an aggregate placement fee of
$845,000 and warrants to purchase 1,267,500 shares of Common Stock. Each share of Series A Convertible Preferred Stock is convertible, at the initial conversion price
of $1.00, into 25,000 shares of Common Stock, subject to adjustment under certain conditions.
Holders of the Series A Convertible Preferred Stock are entitled to dividends at the rate of 10%
per annum payable quarterly in either cash or, at the option of the Company, registered shares of
Common Stock valued at fair market value. Shares of Series A Convertible Preferred Stock are
convertible into shares of Common Stock at the holders option at any time and will automatically
convert to shares of Common Stock if certain trading volume and closing price targets on the
Companys Common Stock are met at various intervals. The closing price targets are $2.00 per share
through August 16, 2006 and $3.00 per share thereafter. The trading volume target is an average of
125,000 shares per day over a consecutive 20-day period during which the applicable closing price
target has been met or exceeded. In addition, shares of the Series A Convertible Preferred Stock
participate on an as-if converted basis in any dividends paid on Common Stock. Holders of shares of
Series A Convertible Preferred Stock are entitled to voting rights together with the Common Stock,
on an as-if converted basis. The conversion price of the Series A Convertible Preferred Stock is subject to appropriate
adjustment in the event of stock splits, stock dividends, reverse stock splits, capital
reorganizations, recapitalizations, reclassifications, and similar occurrences as well as the
issuance of Common Stock in consideration of an amount less than the then-effective conversion
price. The holder of each Series A-1 Warrant is entitled to purchase 12,500 shares of Common Stock at an
exercise price of $1.08 per share for a term of five years from the date of issuance. The holder of
each Series A-2 Warrant is entitled to purchase 12,500 shares of Common Stock at an exercise price
of $1.26 per share for a term of five years from the date of issuance. The exercise price of the
Series A-1 and Series A-2 Warrants is subject to adjustment for the issuance of Common Stock in
consideration of an amount less than the then effective exercise price. The shares of Common Stock underlying the Securities are currently subject to an effective
registration statement on Form SB-2 under the Securities Act of 1933, as amended. The Company has
agreed to cause this registration statement to continuously remain effective until all such Common
Stock may be sold without regard to an effective registration statement. Failure to maintain a
continuously effective registration statement will subject the Company to liability to certain
holders of shares of Series A Convertible Preferred Stock in the form of liquidated damages
totaling as high as $253,500 per month. The company has recorded a charge of $147,875 in Selling,
General & Administrative Expenses for the 11




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estimated penalty due to certain of the Companys preferred stockholders related to the effective
date of the Companys registration statement occurring twelve days later than the date required in
an agreement between the Company and its preferred stockholders. In addition to a placement fee paid in cash, the Companys placement agent received warrants to
purchase a total of 1,267,500 shares of Common Stock at a purchase price of $1.00 per share for a
term of five years from the date of issuance (the Series A-1-AGENT Warrants). The exercise price
of the Series A-1-AGENT Warrants is subject to adjustment for the issuance of Common Stock in
consideration of an amount less than the then effective exercise price. The Series A-1 Warrants, Series A-2 Warrants and Series A-1-Agent Warrants each contain provisions
allowing the Company to repurchase the warrants from the holders upon 15 days notice at $0.10 per
warrant share if certain trading volume and closing price targets on the Companys Common Stock are
met at various intervals. The closing price targets are $2.50 per share through August 16, 2006 and
$3.50 per share thereafter. The trading volume target is an average of 125,000 shares per day over
a consecutive 20-day period during which the applicable closing price target has been met or
exceeded. From August through December 2004, holders of 124 shares of the Series A Convertible Preferred
Stock elected to convert their shares to Common Stock, resulting in the issuance of 3,100,000
shares of Common Stock. 6. COMMITMENTS AND CONTINGENCIES: Manufacturing Agreement On August 28, 1996, the Company entered into a manufacturing agreement with a third party custom
manufacturer (the Manufacturer). Pursuant to this agreement, the Manufacturer agreed to produce
the Companys group videoconferencing products. The agreement may be terminated by either party
upon failure of the other party to comply with any material term of the agreement after a 30 day
written notice and cure period. In the event of such termination, the Company would be obligated to
pay for any goods accepted under the terms of the agreement. The Company may also terminate the
agreement upon 30 days written notice. In such case, the Company would be obligated to pay for
material and work in progress for products ordered. As of June 30, 2003, the Company and the Manufacturer agreed that the Company will no longer place
orders for its MediaPro384® group videoconferencing product line from the Manufacturer. The
agreement has not yet been terminated; however, the Company and the Manufacturer have entered into
discussions regarding the potential obligation that may arise from the termination of the agreement
and the Company has accrued an estimate of that potential liability of $518,500. This amount is
classified on the balance sheet under net liabilities of discontinued operations. Distributor and Dealer Agreements In May 2003, the Company entered into an agreement with a supplier pursuant to which the supplier
manufactures and private labels the VisiFone for the Company.
The agreement expired in accordance with its terms in May 2004 although the Company has continued purchasing VisiFones at the pricing
contained in the expired agreement.
In most instances, the Company
assumes the risks and rewards of ownership of the inventory purchased from the supplier and,
accordingly, records revenue on a gross basis. Substantially all revenues for the three month and
six month periods ended December 31, 2004 and 2003 were from sales of the VisiFone purchased from
this supplier. Investor and Recruitment Agreement In February 2001, in connection with an agreement for seeking potential investors and recruiting
and hiring of senior management, the Company issued rights to purchase warrants for 500,000 shares
of its Common Stock at an exercise price of $0.45. The agreement also required the payment of
consulting fees. As of June 30, 2004, all warrants have vested and been expensed. This agreement
expired in February 2004. The warrants expire in February 2006. Legal Proceedings The Company is involved in legal actions in the ordinary course of its business. 12




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In February 2004, the Company was named as defendant in a lawsuit for approximately $31,000
allegedly owed for past-due accounts payable. The plaintiff was also seeking recovery of attorneys
fees of approximately $10,000. The Company has accrued $25,111 related to its estimated exposure
with this lawsuit. In October 2004, the Company paid $22,500 in full and final settlement of the
plaintiffs claims and this lawsuit was dismissed. The Company had been named as a defendant in several lawsuits during fiscal year 2004 and 2003
related to amounts allegedly owed for goods and services. During fiscal year 2004, the Company
settled several of these lawsuits for approximately $175,000, which amounts had been previously
included in cost of goods sold or selling, general and administrative expenses in the consolidated
statement of operations. 7. STOCKHOLDERS EQUITY (DEFICIT): During the quarter ended December 31, 2004, the Company issued 167,660 shares of Common Stock
valued at $172,229 for payment of dividends on its Series A Convertible Preferred Stock. In
addition, 15,946 shares of Common Stock were issued pursuant to the Consultant Compensation Plan in
payment of approximately $31,800 in services rendered. During the quarter ended December 31, 2004, 57 shares of Series A Convertible Preferred Stock with
a liquidation preference of $1,425,000 were converted into 1,425,000 shares of Common Stock. In December 2004, the Company issued 1,104,973 shares of Common Stock upon exercise of warrants.
One holder exercised a warrant to purchase 114,473 shares of Common Stock on a cashless basis by
exchanging the right to purchase 35,527 shares valued at $67,500 for the payment otherwise due on
exercise of the warrant. Several holders exercised warrants to purchase 990,500 shares of Common
Stock for cash proceeds of $1,080,225. In December 2004, the Company issued 45,000 shares of Common Stock upon exercise of options. The
Company received proceeds of $33,500. 8. DISCONTINUED OPERATIONS: In January 2003, the Company decided to change its focus from being a group videoconferencing
manufacturer and reseller to a desktop and consumer video communications manufacturer and reseller.
This was accomplished by the transfer to a third party of its group videoconferencing services
contract portfolio and the liquidation of its remaining group videoconferencing assets. The only
measurable revenues we are now receiving result from the sales of the VisiFone. Therefore, the
Company classified the net assets and operations related to the group videoconferencing business as
discontinued operations in the accompanying consolidated financial statements. 9. SUBSEQUENT EVENTS: In January 2005, 28 shares of Series A Convertible Preferred Stock with a liquidation preference of
$700,000 were converted into 700,000 shares of Common Stock. In addition, the Company issued
250,000 shares of Common Stock upon exercise of warrants, pursuant to which the Company received
proceeds of $270,000. CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE THE COMPANYS ACTUAL RESULTS TO
DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Words such as intend, anticipate, believe,
estimate, plan and expect and variations of these words and similar expressions are intended
to identify these forward-looking statements. All statements other than statements of historical
facts contained in this report, including statements regarding our future financial position,
business strategy, budgets, projected costs and plans and objectives of management for future
operations, are considered to be forward-looking statements. We express our expectations, beliefs
and projections in good faith and believe our expectations reflected in these forward-looking
statements are based on reasonable assumptions; however, we cannot assure you that these
expectations, beliefs or projections will prove to have been correct. Risks, uncertainties and
assumptions that could cause actual results to differ materially from the expectations reflected
in the forward-looking statements include, among other things: (i) projections of revenues,
income or loss, 13




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earnings or loss per share, capital expenditures, dividends, capital structure and other financial
items, (ii) statements of the plans and objectives of the Company or its management or Board of
Directors, including the introduction of new products, or estimates or predictions of actions by
customers, suppliers, competitors or regulatory authorities, (iii) statements of future economic
performance, and (iv) statements of assumptions underlying other statements and statements about
the Company or its business. Readers are referred to the caption Risk Factors appearing at the end of Item 1 of the 2004
Annual Report on Form 10-KSB for additional factors that may affect our forward-looking statements.
In light of these risks, uncertainties and assumptions, the forward-looking events discussed in
this report might not occur. We undertake no obligation to update or revise our forward-looking
statements, whether as a result of new information, future events or otherwise. 
 Item 2. Managements Discussion and Analysis or Plan of Operation RESULTS OF OPERATIONS Three Months ended December 31, 2004 Compared to Three Months ended December 31, 2003. Net Sales. Net sales for the second quarter of fiscal year 2005 were $70,833, an increase of 190.6%
from $37,161 in the second quarter of fiscal year 2004. The increase in sales in the second quarter
of fiscal year 2005 was primarily attributable to sales of the VisiFone to a major broadband
carrier in the amount of $63,571. The Company expects sales to remain low as it focuses its efforts
on final design and marketing of the next generation of VisiFone Unit. Gross Profit (Loss). Gross loss was ($44,386) in the second quarter of fiscal year 2005 compared to
a gross profit of $73,512 during the second quarter of fiscal year 2004. The gross loss in the
second quarter of fiscal year 2005 was attributable to the sale of units below the Companys cost
for the purpose of testing adoption of the VisiFone by consumers. For the next two quarters, the
Company expects to continue to sell the VisiFone at low or negative margins to corporate,
government and educational customers for demonstration and evaluation purposes and to promote
adoption of the technology in the marketplace. Research and Development Expenses. Research and development expenses were $1,194,700 for the second
quarter of fiscal year 2005 (1,686.6% of net sales) compared to $28,221 (75.9% of net sales) for
the second quarter of fiscal year 2004. The significant increase was attributable to increased
expenditures toward the development of the next generation unit in the VisiFone product line. The
Company anticipates that research and development expenses will remain high as a percentage of
sales over the next two quarterly periods as the Company continues to develop the next generation
VisiFone. Selling, General and Administrative Expenses. Selling, general and administrative expenses were
$600,920 (848.4% of net sales) for the second quarter of fiscal year 2005 compared to $612,065
(1,647.1% of net sales) for the second quarter of fiscal year 2004. Selling, general and
administrative expenses were relatively constant between periods, reflecting a consistent level of
expenditures in the Companys administrative operations. Other Income (Expense). Other income was $12,674 in the second quarter of fiscal year 2005,
compared to other expense of ($214,939) in the second quarter of fiscal year 2004. The net increase
in other income was attributable to interest earned on the Companys cash funds in fiscal 2005 and
the reduction in interest expense as the Company repaid or converted its interest-bearing debt to
equity in fiscal 2004. Gain from Discontinued Operations. During the second quarters of fiscal 2005 and 2004, the Company
negotiated discounted repayments related to amounts owed to certain creditors. Based on these
discounts, the Company recorded a gain from discontinued operations of $1,128 in the second quarter
of fiscal 2005 and $350,748 in the second quarter of fiscal 2004. Preferred Stock Dividends. The results of operations for the second quarter of fiscal 2005 reflect
a charge of $147,249 for dividends on the Companys Series A Convertible Preferred Stock which
bears dividends at the rate of 10% per annum. Substantially all such dividends were paid by the
issuance of Common Stock. Six Months ended December 31, 2004 Compared to Six Months ended December, 2003. 14




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Net Sales. Net sales for the first six months of fiscal year 2005 were $239,002, an increase of
352.2% from $67,860 in the first six months of fiscal year 2004. The increase in sales in the first
half of fiscal year 2005 was primarily attributable to sales of the Companys VisiFone unit to two
customers in the amount of $218,371. The Company expects sales to remain low as it focuses its efforts on final design
and marketing of the next generation VisiFone Unit. Gross Profit (Loss). Gross loss was ($33,854) in the first half of fiscal year 2005 compared to a
gross profit of $68,218 during the first half of fiscal year 2004. The gross loss in the first half
of fiscal 2005 was attributable to the sale of units below the Companys cost to a major broadband
carrier for the purpose of testing the adoption of the VisiFone by consumers. This gross loss was
partially offset by low margin sales to other customers during the first fiscal quarter. For the
next two quarters, the Company expects to continue to sell the VisiFone at low or negative margins
to corporate, government and educational customers for demonstration and evaluation purposes and to
promote adoption of the technology in the marketplace. Research and Development Expenses. Research and development expenses were $1,978,467 for the first
half of fiscal year 2005 (827.8% of net sales) compared to $29,767 (43.9% of net sales) for the
first half of fiscal year 2004. The significant increase was attributable to increased expenditures
toward the development of the next generation unit in the VisiFone product line. The Company
anticipates that research and development expenses will decrease in amount and remain high as a
percentage of sales over the next two quarterly periods. Selling, General and Administrative Expenses. Selling, general and administrative expenses were
$1,295,593 (542.1% of net sales) for the first half of fiscal year 2005 compared to $1,072,932
(1,581.1% of net sales) for the first half of fiscal year 2004. The increase in selling, general
and administrative expenses was primarily due to an accrual for the estimated penalty due to
certain of the Companys preferred stockholders related to the effective date of the Companys
registration statement occurring twelve days later than the date required in an agreement between
the Company and its preferred stockholders. Other Income (Expense). Other income was $30,316 in the first half of fiscal year 2005, compared to
other expense of $418,473 in the first half of fiscal year 2004. The net increase in other income
was attributable to interest earned on the Companys cash funds in fiscal 2005 and the reduction in
interest expense as the Company repaid or converted its interest-bearing debt to equity in fiscal
2004. Gain from Discontinued Operations. During the first half of fiscal 2005 and 2004, the Company
negotiated discounted repayments related to amounts owed to certain creditors. Based on these
discounts, the Company recorded a gain from discontinued operations of $6,107 for the first half of
fiscal 2005 and $350,748 for the first half of fiscal 2004. Preferred Stock Dividends.
The results of operations for the first half of fiscal 2005 reflect a
charge of $351,275 for dividends on the Companys Series A Convertible Preferred Stock which bears dividends
at the rate of 10%. Substantially all such dividends were paid by the issuance of Common Stock. LIQUIDITY AND CAPITAL RESOURCES The Company raised $8,450,000 (prior to offering expenses) from the sale of its Series A
Convertible Preferred Stock with warrants in a series of private placement transactions in March
and April 2004. In addition, the Company raised an additional $1,350,225 in December 2004 and
January 2005 from the exercise by holders of certain of the Companys common stock purchase
warrants. Management believes that the funds generated from the recent private placement
financing activities and warrant exercises will be sufficient to cover the cash needs of the
Company for the next twelve months, although there can be no assurance in this regard. Proceeds
from remaining outstanding warrants could generate an additional $14.7 million, although certain
warrants have cashless exercise provisions. However, there can be no assurance that any additional
warrants will be exercised. Historically, the Company has generated losses from operations and negative cash flows. For the six
months ended December 31, 2004, the Company incurred a net loss attributable to common stockholders
of $3,622,766. For the same period, the Company used $2,713,039 in operating activities, used
$66,313 in investing activities for payment of costs related to its intellectual property, and
generated $1,083,371 from financing activities, primarily due to the warrant exercises. 15




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Management plans to try to increase sales and improve operating results through (i) increased
marketing and direct sales activities to corporate customers, (ii) continued initiatives to gain
acceptance of our product by consumer broadband providers for sale to their subscribers and (iii)
initiatives to monetize our intellectual property rights. There can be no assurance that we will be
successful in achieving these objectives and becoming profitable. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted
in the United States requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of net
revenues and expenses during the reporting period. We regularly evaluate our estimates and
assumptions related to net revenues, allowance for doubtful accounts, sales returns and allowances
and accounting for income taxes. We base our estimates and assumptions on historical experience and
on various other factors that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. To the extent there are material differences between
our estimates and the actual results, our future results of operations will be affected. We believe the following critical accounting policies require us to make significant judgments and
estimates in the preparation of our consolidated financial statements: Revenue Recognition The Company records sales revenue at the time merchandise is delivered. In November 1999, the SEC
issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, SAB No. 104, as amended,
which sets forth the SEC staff s position regarding the point at which it is appropriate for a
registrant to recognize revenue. The staff believes that revenue is realizable and earned when all
of the following criteria are met: persuasive evidence of an arrangement exists, delivery has
occurred or service has been rendered, the sellers price to the buyer is fixed or determinable and
collectibility is reasonably assured. The Company uses the above criteria to determine whether
revenue can be recognized. When product sales revenue is recognized, we establish and estimate allowance for future product
returns based on historical returns experience; when price reductions are approved, we establish an
estimate liability for price protection payable on inventories owned by product resellers. Should
actual product returns or pricing adjustments exceed our estimates, additional reductions to
revenue would result. Revenue from the licensing of patents is recognized at the time a patent
agreement is executed and the goods, services and/or cash are received. Our product typically
carries a ninety-day to five-year warranty. Although we engage in extensive product quality
programs and processes, our warranty obligation is affected by product failure rates, use of
materials or service delivery cost that differs from our estimates. As a result, additional
warranty reserves could be required, which could reduce gross margins. Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of
our customers to make required payments. Our allowance for doubtful accounts is based on our
assessment of the collectibility of specific customer accounts, the aging of accounts receivable,
our history of bad debts and the general condition of the industry. If a major customers credit
worthiness deteriorates, or our customers actual defaults exceed our historical experience, our
estimates could change and impact our reported results. Accounting for Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and
liability method, deferred tax assets and liabilities are recognized at the enacted rates for the
future tax consequences attributable to differences between the financial statement carrying
amounts of existing tax assets and liabilities and their respective tax basis. The effect on
deferred tax assets and liabilities of a change in tax rate is recognized in income in the period
that includes the enactment date. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized. 16




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Item 3. Controls and Procedures Within 90 days prior to the date of filing this Quarterly Report on Form 10-QSB, the Company
conducted an evaluation, under the supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
as amended (the Exchange Act)). Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and procedures as of the end of
the fiscal quarter covered by this Quarterly Report on Form 10-QSB are effective to ensure that
information required to be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Management of the Company has also evaluated,
with the participation of the Chief Executive Officer and Chief Financial Officer of the Company,
any change in the Companys internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter covered by
this Quarterly Report on Form 10-QSB. There was no change in the Companys internal control over
financial reporting during the Companys most recently completed fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting. However, due to the limited number of Company employees engaged in the
authorization, recording, processing and reporting of transactions, there is inherently a lack of
segregation of duties. The Company periodically assesses the cost versus benefit of adding the
resources that would remedy or mitigate this situation and currently, does not consider the
benefits to outweigh the costs of adding additional staff in light of the limited number of
transactions related to the Companys operations. 
 PART II
OTHER INFORMATION 
 Item 1. Legal Proceedings The Company is subject to certain litigation and claims arising in the ordinary course of business.
We do not expect costs related to these claims to have a material adverse effect on our
consolidated financial position or our results of operations. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. 
 Item 3. Defaults upon Senior Securities None 
 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 ExhibitNumber
    
    Description31.01
    
    Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.32.01
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002.
 (b) Reports on Form 8-K None 17




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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 the undersigned thereunto duly authorized. VISEON, INC.Dated: February 14, 2005
    
    By:
    
    /s/ John C HarrisJohn C. HarrisIts President & Chief Executive OfficerDated: February 14, 2005
    
    By:
    
    /s/ Robert A. WolfRobert A. WolfIts Chief Financial Officer
 18