7400 Metro Blvd., Suite 475
Minneapolis, MN 55439
(612) 896-3020
May 15, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Form 10-QSB
The following EDGAR filing is RSI Systems, Inc.'s third quarter fiscal 1996 Form
10-QSB pursuant to applicable provisions of the Securities and Exchange Act of
1934. The report covers the quarter ended March 31, 1996.
Very truly yours,
RSI SYSTEMS, INC.
William J. Brummond
Chief Financial Officer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31,
1995.
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________
TO _________.
Commission File Number 0-27106
RSI SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1767211
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7400 Metro Blvd., Suite 475, Minneapolis, Minnesota 55439
(Address of principal executive offices) (Zip Code)
(612) 896-3020
(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 __X__ NO _____
The Company had 3,248,515 shares of Common Stock, $.01 par value per share,
outstanding as of May 13, 1996.
RSI SYSTEMS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996 (unaudited)
and June 30, 1995 .......................................... 3
Consolidated Statements of Operations (unaudited) - Three
Months and Nine Months Ended March 31, 1996 and 1995 ....... 4
Consolidated Statements of Cash Flows (unaudited) - Nine
Months Ended March 31, 1996 and 1995 ....................... 5
Notes to Consolidated Financial Statements ................. 6
Item 2. Management's Discussion and Analysis ....................... 7
PART II. OTHER INFORMATION.................................................. 10
Signatures ......................................................... 11
RSI SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,248,815 $ 59,499
Accounts receivable, net $ 242,189 $ 71,358
Inventories $ 2,173,710 $ 1,176,304
Prepaid expenses $ 207,834 $ 39,917
------------ ------------
Total current assets $ 4,872,548 $ 1,347,078
------------ ------------
Furniture & equipment, net $ 465,350 $ 132,430
Intangible assets, net $ 22,306 $ 68,206
------------ ------------
Total assets $ 5,360,204 $ 1,547,714
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 333,476 $ 1,196,118
Accrued expenses $ 52,875 $ 143,088
Deferred revenue $ 14,400 $ 14,400
------------ ------------
Total current liabilities $ 400,751 $ 1,353,606
------------ ------------
Stockholders' equity
Common stock, $0.1 par value, 10,000,000 shares
authorized, 3,248,515 and 1,841,015 shares issued
and outstanding respectively $ 32,485 $ 18,410
Additional paid in capital $ 10,099,277 $ 2,691,623
Foreign currency transulation adjustment $ 5,616 $ 2,160
Accumulated deficit ($ 5,177,925) ($ 2,518,085)
------------ ------------
Total stockholders' equity $ 4,959,453 $ 194,108
------------ ------------
Total liabilities and stockholders' equity $ 5,360,204 $ 1,547,714
============ ============
</TABLE>
RSI SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31,
1996 AND MARCH 31, 1995
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
----------- -----------
Net sales $ 243,349 $ 165,025
Cost of goods sold $ 239,494 $ 128,720
----------- -----------
Gross profit $ 3,855 $ 36,305
Research and development $ 264,949 $ 463,086
Selling and marketing $ 549,575 $ 92,850
General and administrative $ 238,968 $ 156,300
----------- -----------
Operating loss ($1,049,637) ($ 675,931)
Other income (expense):
Interest income (expense), net $ 41,096 ($ 1,385)
----------- -----------
Other income (expense), net $ 41,096 ($ 1,385)
----------- -----------
Net loss ($1,008,541) ($ 677,316)
=========== ===========
Loss per share ($ 0.31) ($ 0.48)
----------- -----------
Weighted average shares and common
share equivalents outstanding 3,248,427 1,424,704
----------- -----------
Nine Months Nine Months
Ended Ended
March 31, 1996 March 31, 1995
----------- -----------
Net sales $ 800,632 $ 165,025
Cost of goods sold $ 759,816 $ 128,720
----------- -----------
Gross profit $ 40,816 $ 36,305
Research and development $ 866,562 $ 956,415
Selling and marketing $ 1,314,227 $ 130,395
General and administrative $ 681,212 $ 413,837
----------- -----------
Operating loss ($2,821,185) ($1,464,342)
Other income (expense):
Interest income (expense), net $ 161,498 ($ 4,320)
Other income (expense), net ($ 154) $ 0
----------- -----------
Other income (expense), net $ 161,344 ($ 4,320)
----------- -----------
Net loss ($2,659,841) ($1,468,662)
=========== ===========
Loss per share ($ 0.86) ($ 1.21)
----------- -----------
Weighted average shares and common
share equivalents outstanding 3,086,865 1,211,315
----------- -----------
RSI SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED
MARCH 31, 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1996 March 31, 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,659,841) ($1,468,662)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization $ 111,410 $ 54,374
Provision for doubtful accounts $ 46,744 $ 0
Other $ 21,600 $ 0
Changes in operating assets and liabilities:
Accounts receivable ($ 215,123) ($ 60,089)
Inventories ($ 997,406) ($ 808,340)
Other assets ($ 167,916) ($ 10,950)
Accounts payable ($ 863,436) $ 1,158,340
Accrued expenses ($ 89,418) $ 18,313
----------- -----------
Net cash used in operating activities ($4,813,386) ($1,117,014)
----------- -----------
Cash flows from investing activities:
Purchases of furniture and equipment ($ 420,030) ($ 3,542)
----------- -----------
Net cash used in investing activities ($ 420,030) ($ 3,542)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 7,421,729 1,171,762
Other $ 1,003 $ 0
----------- -----------
Net cash provided by financing activities $ 7,422,732 $ 1,171,762
----------- -----------
Net change in cash $ 2,189,316 $ 51,206
----------- -----------
Cash and cash equivalents, beginning of period $ 59,499 $ 23,690
----------- -----------
Cash and cash equivalents, end of period $ 2,248,815 $ 74,896
=========== ===========
</TABLE>
RSI SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
1. BASIS OF PRESENTATION:
The unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles, pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in the financial
statements have been omitted or condensed pursuant to such rules and
regulations. The accompanying unaudited financial statements should be read in
conjunction with the Company's June 30, 1995 consolidated financial statements
and related notes.
The financial statements reflect all adjustments, of a normally
recurring nature, necessary to fairly present the results of operations and
financial position of the Company for the interim periods.
2. PUBLIC OFFERING:
Effective July 25, 1995, the Company sold 1,383,750 shares of common
stock, including 183,750 shares issued upon exercise of an underwriters'
over-allotment option, to the public at a price of $6.25 per share. Net proceeds
to the Company from the public offering were approximately $7,400,000. The
proceeds will be used to fund continued research and development, expand sales
and marketing activities, purchase capital equipment and for other general
corporate purposes, including working capital to finance accounts receivable and
inventory.
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RSI Systems, Inc., (the "Company" or "RSI") designs, develops and
markets telecommunications products for videoconferencing, collaborative
computing and high-speed data transfer. The Company's first product, the ERIS
Visual Communications System (the "Eris System"), consisting of a peripheral
device and application software, enables personal computer users to engage in
"desktop conferencing" - the ability of two PC users to conduct a
videoconference and simultaneously view and work on documents such as
spreadsheets, diagrams or reports ("document collaboration") and transfer
computer files from one user to the other.
During the third quarter of fiscal 1996, the Company continued to
concentrate on the expansion of its distribution network in the United States,
Europe and selected Pacific Rim countries. This effort included exhibiting at
the CeBIT computer show in Hannover, Germany. CeBIT is the world's largest
computer show, in both attendance and number of exhibitors. As a result of the
CeBIT exhibition, the Company signed six additional distributors for Europe. The
Company also exhibited at computer shows in Australia and Singapore, resulting
in three additional distributors for the Company's Pacific Rim operations.
RESULTS OF OPERATIONS
The Company's revenue is derived from sales to distributors and OEM's
who resell the Eris Systems to end users. The Company continued to devote a
significant amount of time and resources during the third quarter of fiscal 1996
to establish a distribution network in the United States, Europe and selected
Pacific Rim Countries.
Net sales for the third quarter of fiscal 1996 were $243,349, compared
to $165,025 for the same period of fiscal 1995. This represents a 47.5% increase
in sales for the quarter over the previous year. Net sales for the nine month
period ended March 31, 1996, were $800,632, compared to $165,025 for the same
period in the previous fiscal year. This represents an increase of $635,607, or
385.2% over the same period of the previous year.
During the third quarter of fiscal 1996, the Company received final
ISDN certification in Malaysia, Taiwan and New Zealand . The Company also
received French government approval for France's ISDN network. During the third
quarter of fiscal 1995, the Company released the initial version of its product
to the desktop videoconferencing market.
Cost of goods sold were $239,494 for the third quarter of fiscal 1996,
or 98.4% of net sales. Cost of goods sold for the third quarter of fiscal 1995
were $128,720, or 78.0% of net sales. Cost of goods sold for the nine month
period ended March 31, 1996, were $759,816, or 94.9% of net sales. Cost of goods
sold for the same period in fiscal 1995 were $128,720, or 78.0% of net sales.
The high cost of goods sold relative to sales is the result of low volume
manufacturing and expenses associated with the re-work of some product
inventory. The re-work of inventory expenses during the third quarter were the
result of the Company's desire to meet certain certification tests in Europe and
certain countries in the Pacific Rim area. As a result of these tests, minor
adjustments to the product were needed to obtain certification.
Research and development expenses were $264,949 for the third quarter
of fiscal 1996, or 108.9% of net sales. This compares to $463,086 spent during
the same period of fiscal 1995, or 280.6% of net sales. Research and development
expenses for the nine months ended March 31, 1996, were $866,562, or 108.2% of
net sales. This compares to $956,415 spent during the same period of fiscal
1995, or 579.6% of net sales. The decrease in research and development expenses
for fiscal 1996 compared to fiscal 1995 is the result of a shift in the
Company's primary activity from a concentration on the development of the
product, to finalization and certification. Additionally, this decrease in
research and development expenses was obtained while bringing all development
functions in-house and beginning work on the next generation of products.
Sales and marketing expenses for the third quarter of fiscal 1996 were
$549,575, or 225.8% of net sales. This compares to $92,850, or 56.3% of net
sales spent during the same period of fiscal 1995. Sales and marketing expenses
for the nine month period ended March 31, 1996, were $1,314,227, or 164.2% of
net sales. This compares to $130,395, or 79.0% of net sales spent during the
same period of the previous fiscal year. The increase in these expenses are the
result of the Company's effort to continue building its sales and marketing
programs in the United States, Europe and selected Pacific Rim countries.
General and administrative expenses for the third quarter of fiscal
1996 were $238,968, or 98.2% of net sales. This compares to $156,300, or 94.7%
of net sales spent during the same period of fiscal 1995. For the nine month
period ended March 31, 1996, general and administrative expenses were $681,212,
or 85.1% of net sales. For the previous fiscal year, general and administrative
expenses were $413,837, or 250.8% of net sales. General and administrative
expenses were higher in both the three month and nine month periods of fiscal
1996 because of an increase in general business activities.
Operating losses for the third quarter of fiscal 1996 were $1,049,637
compared to a loss of $675,931 for the same period in the prior fiscal year.
Operating losses for the nine months ended March 31, 1996 were $2,821,185,
compared to a loss of $1,464,342 for the same period in the prior fiscal year.
The increase in the operating loss was the result of the Company's sales and
marketing concentration during the quarter and its continued research and
development focus to broaden the Company's product offerings.
Other income (expense) was a positive $41,096 for the third quarter,
compared to a net expense of $1,385 during the prior year same period. Other
income (expense) for the nine month period ended March 31, 1996, was a positive
$161,344, compared to a net expense of $4,320 for the same period in the prior
fiscal year. The positive contribution from other income is the result of
interest earned on the funds received from the public offering completed during
the first quarter of fiscal 1996.
As a result of the foregoing, the Company had a net loss for the third
quarter of fiscal 1996 of ($1,008,541), or ($0.31) per share. This compares with
a net loss for the third quarter of fiscal 1995 of ($677,316), or ($0.48) per
share. This brings the nine month period ended March 31, 1996, net loss to
($2,659,841) or ($0.86) per share. This compares with a net loss for the same
period of the previous fiscal year of ($1,468,662) or ($1.21) per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating and Investing Activities
Net cash used in operating and investing activities was ($5,233,416)
for the nine month period ended March 31, 1996, compared to ($1,120,556) for the
same period in the previous fiscal year. The increase in cash usage was the
result of a larger net loss for the period, increases in inventory, decreasing
accounts payable to terms more in line with vendor expectations, capital
expenditures for equipment and an increase in accounts receivable.
Cash Flows from Financing Activities
In the first quarter of fiscal 1996, the Company completed an initial
public offering of its common stock. The Company sold 1,383,750 shares of common
stock, including 183,750 shares issued upon exercise of the underwriters
over-allotment option, at a price of $6.25 per share. Net proceeds to the
Company from the public offering were approximately $7,400,000. At March 31,
1996, the Company had cash and cash equivalents of $2,248,815. The available
cash and cash equivalents will be used by the Company for continued research and
development, expansion of the Company's sales and marketing efforts, the
purchase of capital equipment, inventory, financing of accounts receivable,
working capital and general corporate purposes.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
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 - Exh. 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RSI Systems, Inc.
Dated: May 12, 1996 By /s/ William J. Brummond
William J. Brummond
Its Chief Financial Officer and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 33,980
<SECURITIES> 2,214,835
<RECEIVABLES> 300,933
<ALLOWANCES> 58,744
<INVENTORY> 2,173,710
<CURRENT-ASSETS> 4,872,548
<PP&E> 586,051
<DEPRECIATION> 120,701
<TOTAL-ASSETS> 5,360,204
<CURRENT-LIABILITIES> 333,476
<BONDS> 0
0
0
<COMMON> 32,485
<OTHER-SE> 10,104,893
<TOTAL-LIABILITY-AND-EQUITY> 5,360,204
<SALES> 800,632
<TOTAL-REVENUES> 800,632
<CGS> 759,816
<TOTAL-COSTS> 759,816
<OTHER-EXPENSES> 2,844,001
<LOSS-PROVISION> 18,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,659,841)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,659,841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,659,841)
<EPS-PRIMARY> (.86)
<EPS-DILUTED> 0
</TABLE>
