SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[x] AMENDMENT NO. 1 TO ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File Number: 0-27106
RSI SYSTEMS, INC.
(Name of small business issuer in its charter)
Minnesota 41-176721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 Metro Boulevard
Minneapolis, MN 55439
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 896-3020
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
$.01 PAR VALUE
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB for any
amendment to this Form 10-KSB. [x]
The Company's revenues for its most recent fiscal year were $1,625,720.
On October 1, 1996, the Company had 4,751,015 shares of common stock, $.01 par
value, outstanding, and the aggregate market value of the common stock as of
that date (based on the average of the closing bid and asked prices as of that
date as reported by the Nasdaq SmallCap Market), excluding outstanding shares
beneficially owned by directors and officers, was approximately $15,069,471.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one): Yes [ ] ;No [x]
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
Richard J. Braun 51 Chairman of the Board
Dennis A. Leese 51 Vice Chairman of the Board
Donald C. Lies 48 Chief Executive Officer,
President, and Director
William J. Brummond 45 Director
Richard F. Craven 53 Director
Byron G. Shaffer 63 Director
David W. Stassen 44 Director
RICHARD J. BRAUN was elected as a director of the Company in June 1995.
He is the Chief Executive Officer and a director of Editek, Inc., a business
specializing in clinical and forensic diagnostic and testing. He has served as a
Managing Director of Headwaters Capital Management LLC, a management investment
company, and President of Headwaters Capital Corporation. From 1992 to 1994, Mr.
Braun was Chief Operating Officer and a director of Employee Benefit Plans,
Inc., a provider of managed care, benefit plans and insurance services, and
Chief Executive Officer of EBP Life Insurance Company. From 1989 to 1991, Mr.
Braun was Chief Operating Officer and a director of Reich and Tang LP., a
private investment firm. He is also a director of North Star Universal, Inc.
DENNIS A. LEESE has served as a director of the Company since February
1995. Mr. Leese is the Chief Executive Officer and President of DBNS, Inc, a
telecommunication and software company. Mr. Leese served as President of the
Company from February 1994 to June 1996, and he served as Chief Executive
Officer of the Company from August 1994 to June 1996. Before joining the
Company, Mr. Leese was Senior Vice President of Sales and Marketing at Augat
Communications in Seattle, Washington, a subsidiary of Augat, Inc. and an
equipment supplier to telecommunication and cable television companies, from
October 1991 until December 1993. From April 1990 until October 1991, Mr. Leese
was Chief Operating Officer at ALS, a supplier of software-based training
programs on telecommunications technology, in Minneapolis, Minnesota.
DONALD C. LIES became President, Chief Executive Officer and a director of
the Company on July 1, 1996. Before joining the Company, Mr. Lies founded CHORUS
Marketing Group in May of 1989 and served as its President until June of 1996.
CHORUS specialized in both reengineering of management and marketing and sales
processes for a variety of office and factory automation systems manufacturers
and service providers. From 1987 to 1989, Mr. Lies served as the Vice President
of Marketing and Sales for Com Squared Systems, a computer software design,
manufacturing and reselling company. From 1985 to 1987, Mr. Lies was director of
Scanning Products Marketing for commercial products at National Computer
Systems. Prior to that, Mr. Lies served five years with Norstan, Inc. as General
Manager and Vice President for its information systems division. Prior to
joining Norstan, Mr. Lies was in sales for the office systems group of IBM. Mr.
Lies is the brother-in-law of David W. Stassen who is also a director of the
Company.
WILLIAM J. BRUMMOND has served as a director of the Company since June
1995. Mr. Brummond has recently become the Chief Executive Officer of MedVision
Inc. Mr. Brummond served as Chief Financial Officer and Treasurer of the Company
from May 1995 until August 1996. Prior to joining the Company, Mr. Brummond
helped found Medisys, Inc., a public company which sells infusion therapy
products and services, and served as its Chief Executive Officer from 1990 until
1994 and as its Chief Operating Officer from 1987 until 1990. From October 1994
until May 1995, Mr. Brummond served as President and a consultant for BDC, Inc.,
a management consulting company.
RICHARD F. CRAVEN, a founder of the Company, has served as a director since
its inception in December 1993. Mr. Craven is a private investor and has been
involved as a manager, owner and developer in several real estate ventures. He
has been a licensed real estate broker and a licensed insurance agent since
1965. Mr. Craven is also a director of VideoLabs, Inc.
BYRON G. SHAFFER has served as a director of the Company since February
1995. Mr. Shaffer has been a private investor for the last 20 years and has also
served as a director of Mentor Corp., a medical products manufacturer, since
1976.
DAVID W. STASSEN was elected as a director of the Company in June 1995. He
has served as President and Chief Executive Officer of Spine-Tech, Inc., a
manufacturer of spinal implants, since June 1992 and as a director since June
1991. From January 1990 until June 1992, Mr. Stassen served as Executive Vice
President of St. Paul Venture Capital, Inc. He is also a director of Avecor
Cardiovascular, Inc., a medical products company. Mr. Stassen is the
brother-in-law of Donald C. Lies who is the Chief Executive Officer, President
and a director of the Company.
Pursuant to the terms of the Company's Restated Articles of Incorporation,
the directors are divided into three classes with the term of one class expiring
each year. As the term of each class expires, the successors to the directors in
that class will be elected for a term of three years. The terms of Messrs.
Shaffer and Stassen expire at the 1996 Annual Meeting of Shareholders, the terms
of Messrs. Brummond and Braun expire at the 1997 Annual Meeting of Shareholders
and the term of Messrs. Leese and Craven expire at the 1998 Annual Meeting of
Shareholders. Executive officers are elected by the Board of Directors and serve
until their successors are elected and appointed.
BOARD OF DIRECTORS' COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, which consists of Messrs. Braun,
Shaffer and Stassen, supervises the financial affairs of the Company and
generally reviews the results and scope of the audit and other services provided
by the Company'sindependent accountants and reports the results of their review
to the full Board and to management. The Compensation Committee, which consists
of Messrs. Braun, Shaffer and Stassen, has general responsibility for management
of compensation matters, including recommendations to the Board of Directors on
compensation arrangements for officers and incentive compensation for employees
of the Company.
(b) SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and all persons who beneficially
own more than 10% of the outstanding shares of the Company's Common Stock to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of the Company's Common Stock. Executive
officers, directors and greater than 10% beneficial owners are also required to
furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based upon a review of the copies of such reports furnished
to the Company and written representations that no other reports were required,
during the year ended June 30, 1996, none of the Company's directors or officers
or beneficial owners of greater than 10% of the Company's Common Stock failed to
file on a timely basis the forms required by Section 16 of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for services rendered from inception through June 30,1994, and for the
years ended June 30, 1995 and June 30, 1996 to (i) all persons who served as the
Chief Executive Officer of the Company during fiscal 1996 and (ii) the other
most highly compensated executive officers of the Company whose salary and bonus
exceeded $100,000 in fiscal 1996 (the "Named Executive Officers"). Other than
those individuals listed below, no executive officer of the Company received
cash compensation of more than $100,000 in fiscal 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation ----------------------
Name and Principal -------------------- Securities All Other
Position (1) Year Salary Bonus Underlying Options(#) Compensation
- ----------------------- ---- ------ ------ ---------------------- ------------
<S> <C> <C> <C> <C> <C>
Dennis A. Leese (1) 1996 $149,994 $ 0 0 $ 0
Former Chief Executive 1995 60,000 0 40,000 5,808(2)
Officer and President 1994 49,500(3) 0 0 2,939(2)
William J. Brummond (4) 1996 130,000 0 0 0
Former Chief Financial 1995 14,833 0 25,000 0
Officer 1994 -- -- -- --
Douglas S. Clapp (5) 1996 120,000 0 0 0
Former Executive Vice 1995 93,250 0 30,000 0
President and Chief 1994 37,500 0 0 0
Technology Officer
John P. Griffin (6) 1996 105,231 0 0 0
Former Vice President 1995 20,770 0 25,000 0
of Marketing/Product 1994 -- 0 -- --
Development
</TABLE>
- -----------------------
(1) Mr. Leese resigned as Chief Executive Officer and President in June of
1996. Donald C. Lies was appointed President and Chief Executive Officer,
effective as of July 1, 1996.
(2) Consists of monthly payments of $484 for Mr. Leese's COBRA coverage.
(3) In lieu of cash compensation, the Company issued a warrant to Mr. Leese for
the purchase of 100,000 shares of the Company's Common Stock at $.005 per
share. The difference between the exercise price and the estimate fair
market value of the warrant was recorded as compensation.
(4) Mr. Brummond resigned as Chief Financial Officer in August 1996.
(5) Mr. Clapp resigned as Executive Vice President, Chief Technology Officer
and Secretary effective May 1, 1996.
(6) Mr. Griffin resigned as Vice President of Marketing and Product Development
in October 1996.
OPTION GRANTS AND EXERCISES
None of the Named Executive Officers were granted options during the fiscal
year ended June 30, 1996. The table below sets forth the option exercises of
the Named Executive Officers and the potential realizable value of the options
held by such persons at June 30, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
NAME ON EXERCISE (#) REALIZED ($) OPTIONS AT JUNE 30, 1996(#) AT JUNE 30, 1996($)(1)
---- --------------- ------------ --------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dennis A. Leese 0 $ 0 10,000 30,000 $ 58,000 $174,000
William J. Brummond 0 0 6,250 18,750 28,125 84,375
Douglas S. Clapp 0 0 0 0 0 0
John P. Griffin 0 0 6,250 18,750 28,125 84,375
</TABLE>
- ----------------------
(1) Based on the June 30, 1996 closing price of the Common Stock on Friday,
June 28, 1996 of $8.00 per share.
EMPLOYMENT AGREEMENTS
The Company and Donald C. Lies have entered into an employment agreement,
dated as of July 1, 1996, which provides that Mr. Lies will receive the
following: (i)an annual salary of $150,000; (ii) a grant of 25,000 shares of
restricted Common Stock vesting in equal increments of 25% of such shares at
each interval of six months from the effective date of Mr. Lies employment, so
long as Mr. Lies remains employed by the Company; (iii) a grant of options to
purchase 110,000 shares of Common Stock at $8.00 per share, vesting in equal
increments of 25% of such options at each interval of six months from July 1,
1996, so long as Mr.Lies remains employed by the Company; and (iv) an automobile
allowance of $650 per month. Mr. Lies has also agreed to purchase 110,000 shares
of Common Stock at a price of $3.00 per share, for which Mr. Lies will give the
Company a $330,000 nonrecourse promissory note secured by the 110,000 shares
purchased. The note bears interest at the prime rate and is due on July 1, 2001,
unless Mr.Lies employment with the Company is terminated within two years of
July 1, 1996, in which event the Company may, at its option, declare the note
due and payable in full. In addition to the foregoing, Mr. Lies is entitled to
all other benefits available generally to employees of the Company, including
vacation and health benefits.
The Company and Douglas S. Clapp, the former Executive Vice President and
Chief Technology Officer of the Company, have entered into a Separation and
Release Agreement, effective as of May 1, 1996, that provides that Mr. Clapp
will receive severance payments from the Company, in accordance with the
Company's standard payroll practices, totalling $120,000 over the 12 month
period ending April 30, 1997. Mr. Clapp will continue to receive a car allowance
of $600 per month over the 12 month period ending April 30, 1997.
COMPENSATION OF DIRECTORS
The Board of Directors of the Company has established the following
compensatio policies for non-employee directors of the Company. Non-employee
directors receive $100 for each meeting attended. Also, under the Company's 1994
Stock Plan, each non-employee director is granted, upon election to the Board,
an option to purchase 10,000 shares of Common Stock, exercisable at fair market
value and vesting in equal increments of 25% every three months and expiring ten
years from the date of grant. After the year of election, each non-employee
director will also receive annually an option to purchase 5,000 shares of Common
Stock. Directors who are employees of the Company receive no additional
compensation for serving as directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 1, 1996, the number of shares
of the Company's Common Stock beneficially owned by (i) each director of the
Company; (ii) each of the Named Executive Officers; (iii) each person known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock; and (iv) all executive officers and directors as a group. Unless
otherwise indicated, each person has sole voting and dispositive power over such
shares. Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days are
treated as outstanding only when determining the amount and percent owned by
such group or person. The address for all directors and officers of the Company
is 7400 Metro Boulevard, Suite 475, Minneapolis, MN, 55439.
NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENTAGE OWNED
---- ------------------ ----------------
Richard J. Braun ................. 95,001(1) 2.0%
Dennis A. Leese .................. 404,750(2) 8.4
Donald C. Lies ................... 135,000 2.8
William J. Brummond .............. 69,250(3) 1.4
Richard F. Craven ................ 819,500(4) 16.7
Byron G. Shaffer ................. 222,500(5) 4.6
David W. Stassen ................. 25,000(6) *
Douglas S. Clapp ................. 200,000 4.2
John P. Griffin .................. 17,500 *
Perkins Capital Management, Inc... 374,000(7) 7.9
All Current Executive Officers and 1,771,001(8) 34.5
Directors as a Group (7 persons)
- -------------------------------
* Indicates ownership of less than 1%.
(1) Includes 60,000 shares which may be acquired within 60 days upon the
exercise of stock options.
(2) Includes 73,000 shares which may be acquired within 60 days upon the
exercise of stock options and warrants.
(3) Includes 39,250 shares which may be acquired within 60 days upon the
exercise of stock options and warrants.
(4) Includes (i) 151,500 shares which may be acquired within 60 days upon the
exercise of stock options and warrants and (ii) 15,000 shares owned by Mr.
Craven's three children.
(5) Includes (i) 42,500 shares which may be acquired within 60 days upon the
exercise of stock options and warrants and (ii) 8,000 shares owned by Mr.
Shaffer's four children.
(6) Includes 10,000 shares which may be acquired within 60 days upon the
exercise of stock options.
(7) Based on a Schedule 13G filed by Perkins Capital Management, Inc. ("PCM"),
dated February 1, 1996. Includes 122,450 shares over which PCM has sole
voting power and 374,000 shares over which PCM has sole dispositive power.
The address of PCM is 730 East Lake Street, Wayzata, MN, 55391-1769.
(8) Includes 376,250 shares which may be acquired within 60 days upon the
exercise of stock options and warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Richard Craven, a director of the Company, is a director of VideoLabs,
Inc. ("VideoLabs"), a Minneapolis, Minnesota based manufacturer of video
cameras, and both Mr. Craven and Douglas Clapp, a former officer of the Company,
are beneficial owners of more than 5% of the outstanding shares of VideoLabs. In
December 1993, the Company purchased certain videoconferencing technology from
VideoLabs and issued to VideoLabs a convertible promissory note in the amount of
$100,000. In May 1995, VideoLabs converted its note into 88,888 shares, 25,000
shares of which were sold in July, 1995. In addition, the Company currently
purchases FlexCam cameras from VideoLabs and sells them as optional equipment in
connection with the sales of Eris Systems. From inception until June 30, 1995,
the Company's purchases from VideoLabs totaled $22,740. In fiscal 1996, net
purchases by the Company from VideoLabs were approximately $57,140. The Company
believes its transactions with VideoLabs have been on terms no less favorable
than could have been obtained from unaffiliated third parties on an arm's length
basis.
The Company was required to obtain a letter of credit in the amount of
$1,000,000 in favor of AT&T Corporation in September 1994. Richard F. Craven,
the Company's Chairman of the Board of Directors, pledged certain of his
personal assets to secure his personal guarantee in order to obtain such letter
of credit. In consideration of the personal guarantee, the Company issued Mr.
Craven warrants to purchase 200,000 shares of the Company's Common Stock at
$1.00 per share. The Company believes its transactions with Mr.Craven are on
terms no less favorable than could have been obtained from unaffiliated third
parties on an arm's length basis. The letter of credit has now expired.
The Company was also required to obtain a letter of credit in the amount
of $250,000 in favor of AT&T Corporation in December 1994. Byron G. Shaffer, a
director of the Company, and his spouse pledged certain of their personal assets
to secure a personal guarantee in order to obtain such letter of credit. In
consideration of the personal guarantee, the Company issued Mr. Shaffer a
warrant to purchase 25,000 shares of the Company's Common Stock at $2.00 per
share. The Company believes its transactions with Mr. Shaffer are on terms no
less favorable than could have been obtained from unaffiliated third parties on
an arm's length basis. The letter of credit has now expired.
In May 1996, the Company obtained a letter of credit in the amount of
$600,000 in favor of Lucent Technologies (formerly AT&T) Custom Manufacturing
Services. Messrs. Craven and Shaffer, directors of the Company, pledged certain
personal assets to secure their personal guarantees of this letter of credit. In
consideration of these directors' guarantees, the Company issued each of Messrs.
Craven and Shaffer a warrant to purchase 7,500 shares of Common Stock with an
exercise price equal to the market price of the Common Stock on the date of the
warrant ($8.00 on May 22, 1996). The warrants expire on May 22, 2000. The terms
of the warrants provide that if, during the one year term of the letter of
credit, the Company secures additional financing pursuant to a private placement
or registered secondary offering of securities, the warrant exercise price will
be reduced to the price at which such securities are offered to investors. In
connection with the recent private placement completed by the Company, the
exercise price of the warrants has been reduced to $3.00 per share. The Company
believes the foregoing transactions with Messrs. Craven and Shaffer are on terms
no less favorable than could have been obtained from unaffiliated third parties
on an arm's length basis.
A former officer of the Company is the President of Eris Systems, Inc., an
engineering firm that assisted the Company in the design and development of the
Eris System. The Company paid Eris Systems, Inc. approximately $187,000 during
the period in which the individual was an officer of the Company (from December
21,1993 through August 1994). Wild File, Inc., which is an affiliate of Eris
Systems, Inc., currently owns a warrant to purchase 100,000 shares of the
Company's Common Stock at $.50 per share. The Company believes its transactions
with Eris Systems, Inc. and Wild File, Inc. were on terms no less favorable than
could have been obtained from unaffiliated third parties on an arm's length
basis.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
Dated: October 28, 1996 RSI SYSTEMS, INC.
By: /s/ Donald C. Lies
-------------------------------------
Donald C. Lies
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on October 28, 1996.
SIGNATURE TITLE
--------- -----
/s/ Richard J. Braun* Chairman of the Board
- ----------------------------------
Richard J. Braun
/s/ Donald C. Lies Director, President, Chief Executive
- ---------------------------------- Officer (principal executive,
Donald C. Lies financial and accounting officer)
/s/ William J. Brummond* Director
- ----------------------------------
William J. Brummond
/s/ Richard F. Craven* Director
- ----------------------------------
Richard F. Craven
/s/ Byron G. Shaffer* Director
- ----------------------------------
Byron G. Shaffer
/s/ Dennis A. Leese* Vice Chairman of the Board
- ----------------------------------
Dennis A. Leese
/s/ David W. Stassen* Director
- ----------------------------------
David W. Stassen
*By: /s/ Donald C. Lies
-------------------------------------
Donald C. Lies
Attorney-in-Fact
