##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2005
 Commission File Number 000-27106
 VISEON, INC.
  Nevada
(State or other jurisdiction of
incorporation or organization)
    
    41-1767211
(IRS Employer Identification No.)
 8445 Freeport Parkway, Suite 245, Irving, Texas 75063
 (972) 906-6300
 þ o
 o þ
  Transitional Small Business Disclosure Format (Check one): Yes o No þ




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INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets  December 31, 2005 (unaudited) and June 30,
2005 (audited)
    
    
    3Consolidated Statements of Operations (unaudited)  Three months ended
December 31, 2005 and 2004
    
    
    4Consolidated Statement of Operations (unaudited)  Six months ended
December 31, 2005 and 2004
    
    
    5Consolidated Statements of Cash Flows (unaudited)  Six months ended
December 31, 2005 and 2004
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Controls and Procedures
    
    
    18PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 3. Exhibits
    
    
    20Signatures
    
    
    20Certification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(a)Certification Pursuant to Section 906Certification Pursuant to Section 906




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PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 VISEON, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 December 31,
    
    
    June 30,2005
    
    
    2005(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    4,741,770
    
    
    $
    239,383Accounts receivable
    
    
    7,150
    
    
    
    16,541Inventories
    
    
    76,760
    
    
    
    3,758Prepaid expenses
    
    
    320,036
    
    
    
    379,291Total Current Assets
    
    
    5,145,716
    
    
    
    638,973PROPERTY AND EQUIPMENT, NET
    
    
    87,083
    
    
    
    26,428INTANGIBLE ASSETS, NET
    
    
    320,506
    
    
    
    266,358TOTAL ASSETS
    
    $
    5,553,305
    
    
    $
    931,759LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    728,500
    
    
    $
    1,230,041Accrued expenses
    
    
    339,786
    
    
    
    336,287Net liabilities of discontinued
operations
    
    
    204,975
    
    
    
    723,475Total Current Liabilities
    
    
    1,273,261
    
    
    
    2,289,803COMMITMENTS AND CONTINGENCIES STOCKHOLDERS EQUITY (DEFICIT)Convertible preferred stock, $.01 par value per share
5,000,000 shares authorizedSeries A convertible preferred stock, 97 and 125 shares
issued and outstanding (liquidation preference of
$2,425,000 and $3,125,000)
    
    
    1
    
    
    
    1Series B convertible preferred stock, 376 and 0 shares
issued and outstanding (liquidation preference of
$9,400,000 and $0)
    
    
    4
    
    
    
    Common stock, $.01 par value per share
100,000,000 shares authorized
35,198,179 and 32,849,070 issued and outstanding
    
    
    351,982
    
    
    
    328,491Additional paid-in capital
    
    
    54,392,136
    
    
    
    40,056,336Accumulated deficit
    
    
    (50,464,079
    )
    
    
    (41,742,872
    )Total Stockholders Equity (Deficit)
    
    
    4,280,044
    
    
    
    (1,358,044
    )TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
    
    $
    5,553,305
    
    
    $
    931,759
  3




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##### Table of Contents



VISEON, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 (Unaudited)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)NET SALES
    
    $
    7,150
    
    
    $
    70,833COST OF GOODS SOLD
    
    
    26,226
    
    
    
    115,219Gross Profit (Loss)
    
    
    (19,076
    )
    
    
    (44,386
    )RESEARCH AND DEVELOPMENT
    
    
    941,728
    
    
    
    1,194,700SELLING, GENERAL AND ADMINISTRATIVE
    
    
    594,555
    
    
    
    600,920Operating Loss
    
    
    (1,555,358
    )
    
    
    (1,840,006
    )OTHER INCOME (EXPENSE)Interest income
    
    
    33,637
    
    
    
    12,674Interest expense
    
    
    
    
    
    
    Other Income (Expense), net
    
    
    33,637
    
    
    
    12,674LOSS FROM CONTINUING OPERATIONS
    
    
    (1,521,721
    )
    
    
    (1,827,332
    )GAIN FROM DISCONTINUED OPERATIONS
    
    
    
    
    
    
    1,128NET LOSS
    
    
    (1,521,721
    )
    
    
    (1,776,204
    )Preferred Stock Dividends
    
    
    (296,694
    )
    
    
    (147,249
    )NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    (1,818,415
    )
    
    $
    (1,973,453
    )Basic and diluted loss per share:Loss from continuing operations
    
    $
    (0.04
    )
    
    $
    (0.07
    )Gain from discontinued operations
    
    $
    0.00
    
    
    $
    0.00Net loss attributable to common stockholders
    
    $
    (0.05
    )
    
    $
    (0.07
    )Weighted average common shares outstanding:Basic and diluted
    
    

   34,980,327
    
    
    
    28,051,800
  4




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VISEON, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 (Unaudited)
 Six Months
    
    
    Six MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)NET SALES
    
    $
    7,150
    
    
    $
    239,002COST OF GOODS SOLD
    
    
    26,226
    
    
    
    272,856Gross Profit (Loss)
    
    
    (19,076
    )
    
    
    (33,854
    )RESEARCH AND DEVELOPMENT
    
    
    1,939,556
    
    
    
    1,978,467SELLING, GENERAL AND ADMINISTRATIVE
    
    
    1,437,508
    
    
    
    1,295,593Operating Loss
    
    
    (3,396,139
    )
    
    
    (3,307,914
    )OTHER INCOME (EXPENSE)Interest income
    
    
    51,603
    
    
    
    30,316Interest expense
    
    
    (117,500
    )
    
    
    Other Income (Expense), net
    
    
    (65,897
    )
    
    
    30,316LOSS FROM CONTINUING OPERATIONS
    
    
    (3,462,036
    )
    
    
    (3,277,598
    )GAIN FROM DISCONTINUED OPERATIONS
    
    
    108,640
    
    
    
    6,107NET LOSS
    
    
    (3,353,396
    )
    
    
    (3,271,491
    )Preferred Stock Dividends
    
    
    (5,172,016
    )
    
    
    (351,275
    )NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    (8,525,412
    )
    
    $
    (3,622,766
    )Basic and diluted loss per share:Loss from continuing operations
    
    $
    (0.10
    )
    
    $
    (0.12
    )Gain from discontinued operations
    
    $
    0.00
    
    
    $
    0.00Net loss attributable to common stockholders
    
    $
    (0.25
    )
    
    $
    (0.14
    )Weighted average common shares outstanding:Basic and diluted
    
    
    34,213,009
    
    
    
    28,051,800
  5




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VISEON, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Six Months
    
    
    Six MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Net loss
    
    $
    (3,353,396
    )
    
    $
    (3,217,491
    )Adjustments to reconcile net loss to net
cash flows from operating activities:Depreciation and amortization
    
    
    32,507
    
    
    
    30,242Amortization of original issue discount
    
    
    117,500
    
    
    
    Common stock issued for services rendered
    
    
    27,500
    
    
    
    78,048Common stock warrants issued for services
rendered
    
    
    124,207
    
    
    
    Gain from discontinued operations
    
    
    (108,640
    )
    
    
    (6,107
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    9,392
    
    
    
    21,382Inventories, net
    
    
    (73,002
    )
    
    
    11,170Prepaid expenses
    
    
    59,255
    
    
    
    86,206Accounts payable
    
    
    (501,543
    )
    
    
    187,306Accrued expenses
    
    
    (141,518
    )
    
    
    150,205Net cash flows used in operating
activities
    
    
    (3,807,738
    )
    
    
    (2,713,039
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (80,340
    )
    
    
    Payments for intangible assets
    
    
    (66,970
    )
    
    
    (66,313
    )Net cash flows used in investing activities
    
    
    (147,310
    )
    
    
    (66,313
    )Cash flows from financing activities:Payments on short-term notes payable
    
    
    (250,000
    )
    
    
    Proceeds from short-term notes payable
    
    
    250,000
    
    
    
    Proceeds from exercise of common stock warrants
    
    
    240,000
    
    
    
    1,080,225Proceeds from exercise of common stock options
    
    
    
    
    
    
    33,500Proceeds from issuance of convertible
preferred stock and warrants
    
    
    9,400,000
    
    
    
    Payments of convertible preferred stock and
warrant issuance costs
    
    
    (1,182,565
    )
    
    
    (26,863
    )Dividends on convertible preferred stock
    
    
    
    
    
    
    (3,491
    )Net cash flows from financing activities
    
    
    8,457,435
    
    
    
    1,083,371Change in cash and cash equivalents from
discontinued operations
    
    
    
    
    
    
    (14,000
    )Increase (decrease) in cash and cash
equivalents
    
    
    4,502,387
    
    
    
    (1,709,981
    )Cash and cash equivalents, beginning of period
    
    
    239,383
    
    
    
    5,339,393Cash and cash equivalents, end of period
    
    $
    4,741,770
    
    
    $
    3,629,412
 6




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Six Months
    
    Six MonthsEnded
    
    EndedDecember 31,
    
    December 31,2005
    
    2004(Unaudited)
    
    (Unaudited)Supplemental cash flow information:Cash paid for interest
    
    
    
    
    
    
    Noncash investing and financing activities:Net liabilities of discontinued operations converted into
common stock and warrants
    
    
    409,860
    
    
    
    Accrued preferred stock dividends converted to common stock
    
    
    200,166
    
    
    
    254,981Common stock issued for preferred stock dividends
    
    
    426,775
    
    
    
    114,374Conversion of preferred stock to common stock
    
    
    7,000
    
    
    
    Cashless exercise of warrants
    
    
    2,619
    
    
    
    Warrants issued to induce exercise of warrants
    
    
    195,795
    
    
    
    Accretion of beneficial conversion option
    
    
    4,696,240
    
    
    
    
 7




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VISEON, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 1. DESCRIPTION OF THE BUSINESS:
 TM
  2. BASIS OF PRESENTATION:
   3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 Intangible Assets.
 Revenue Recognition.
 8




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Accounts Receivable.
 Inventory Valuation.
 Loss Per Common Share.
 Stock Based Compensation.
  For the three months ended
    
    For the six months endedDecember 31,
    
    December 31,2005
    
    2004
    
    2005
    
    2004Loss attributable to common
stockholders:As reported
    
    $
    (1,818,415
    )
    
    $
    (1,973,453
    )
    
    $
    (8,525,412
    )
    
    $
    (3,622,766
    )Pro forma
    
    
    (2,126,682
    )
    
    
    (2,033,457
    )
    
    
    (9,136,893
    )
    
    
    (3,801,376
    )Basic and diluted loss per share:As reported
    
    
    (0.05
    )
    
    
    (0.07
    )
    
    
    (0.25
    )
    
    
    (0.14
    )Pro forma
    
    
    (0.06
    )
    
    
    (0.07
    )
    
    
    (0.26
    )
    
    
    (0.14
    )Stock based compensation:As reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pro forma
    
    
    308,267
    
    
    
    60,004
    
    
    
    611,481
    
    
    
    178,610
  9




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For the three months ended
    
    For the six months endedDecember 31,
    
    December 31,2005
    
    2004
    
    2005
    
    2004Risk-free interest rate
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.25
    %Expected life of options granted
    
    10 years
    
    10 years
    
    10 years
    
    10 yearsExpected volatility
    
    
    35.26
    %
    
    
    33.31
    %
    
    
    35.26
    %
    
    
    33.31
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 4. RECENT ACCOUNTING PRONOUNCEMENTS:
  5. CONVERTIBLE PREFERRED STOCK AND WARRANTS:
 Series A Convertible Preferred Stock with Warrants
     10




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Series B Convertible Preferred Stock with Warrants
       11




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
    
    If a registration statement has not been declared effective by the SEC on or prior to
December 20, 2005, we shall pay an amount equal to (a) two hundred fifty dollars for
each issued and outstanding share of Series B Preferred and (b) if previously converted,
$0.01 for each share of Common Stock received upon the conversion of any shares of
Series B Preferred. The registration statement was declared effective by the SEC on
November 14, 2005.
    
    If we fail to maintain a registration statement continually effective after it is
declared effective by the SEC for the full period required for any reason, then for each
30 day period that such failure continues in any consecutive 12 month period, beyond a
permitted 30 day period in such 12 month period, we shall pay to the Holders of each
issued and outstanding share of Series B Preferred and, if previously converted, the
Common Stock received upon the conversion thereof for which we have a continuing
obligation to cause an effective registration statement to remain continuously effective
an amount equal to (a) seven hundred fifty dollars for each issued and outstanding share
of Series B Preferred and (b) if previously converted, $0.03 for each share of Common
Stock received upon the conversion of any shares of Series B Preferred; and thereafter
for each full 30 day period within such 12-month period that a registration statement is
not effective at the fault of the Company, we shall pay an amount equal to (a) $750 for
each issued and outstanding share of Series B Preferred and (b) if previously converted,
$0.03 for each share of Common Stock received upon the conversion of any shares of
Series B Preferred.
  6. COMMITMENTS AND CONTINGENCIES:
 Manufacturing Agreement
 ®
  Investor and Recruitment Agreement
  Legal Proceedings
  12




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7. STOCKHOLDERS EQUITY (DEFICIT):
   8. DISCONTINUED OPERATIONS:
  9. SUBSEQUENT EVENTS:
  13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    Overview
 TM
    14




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Results Of Operations
 Three Months ended December 31, 2005 Compared to Three Months ended December 31, 2004.
 Net Sales.
 Gross Profit (Loss).
 Research and Development Expenses.
 Selling, General and Administrative Expenses.
 Other Income (Expense).
 Gain from Discontinued Operations.
 Preferred Stock Dividends.
 Six Months ended December 31, 2005 Compared to Six Months ended December 31, 2004.
 Net Sales.
 15




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Gross Profit (Loss).
 Research and Development Expenses.
 Selling, General and Administrative Expenses.
 Other Income (Expense).
 Gain from Discontinued Operations.
 Preferred Stock Dividends.
 Liquidity And Capital Resources
   16




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Critical Accounting Policies And Estimates
   Revenue Recognition
   Allowance for Doubtful Accounts
  Accounting for Income Taxes
  17




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Item 3. Controls and Procedures
  
 PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 3. Exhibits
 (a) Exhibits
 31.01
    
    Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.31.02
    
    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
Section 906 of the Sarbanes-Oxley Act of 200232.02
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
  VISEON, INC.Dated:  February 10, 2006
    By:
    /s/ John C. HarrisJohn C. HarrisPresident and Chief Executive Officer Dated:  February 10, 2006
    By:
    /s/ Brian R. DayBrian R. DayChief Financial Officer 18