U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
XXX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
____ 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 4,752,265 shares of Common Stock, $ 0.01 par value per share,
outstanding as of November 18, 1996.
Transitional Small Business Disclosure Format (Check one): Yes ____ No _XX_
RSI Systems, Inc.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
(unaudited) and June 30, 1996..............................3
Consolidated Statements of Operations (unaudited) - Three
months ended September 30, 1996 and 1995...................4
Consolidated Statements of Cash Flows (unaudited) - Three
months ended September 30, 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
Exhibit Index ................................................................12
<TABLE>
<CAPTION>
RSI SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND JUNE 30, 1996
September 30, June 30,
1996 1996
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,211,410 $ 1,032,921
Accounts receivable, net 286,337 524,433
Inventories 1,730,343 1,744,222
Prepaid expenses 143,958 184,658
------------ ------------
Total current assets 6,372,048 3,486,234
------------ ------------
Property & equipment
Furniture & equipment 696,133 619,807
Leasehold improvements 4,818 4,818
Less accumulated depreciation (215,583) (168,282)
------------ ------------
Net property and equipment 485,368 456,343
------------ ------------
Other assets 316,000 316,000
Less accumulated amortization (259,269) (239,919)
------------ ------------
Net other assets 56,731 76,081
------------ ------------
$ 6,914,147 $ 4,018,658
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 519,292 278,820
Accrued expenses 674,760 861,586
------------ ------------
Total current liabilities 1,194,052 1,140,406
------------ ------------
Stockholders' equity
Common stock, $.01 par value, 10,000,000 shares
authorized, 3,251,015 and 4,752,265 issued and
outstanding, respectively 47,523 32,510
Additional paid-in capital 14,167,388 10,214,252
Foreign currency translation adjustment 110,123 28,400
Accumulated deficit (8,604,939) (7,396,910)
------------ ------------
Total stockholders' equity 5,720,095 2,878,252
------------ ------------
$ 6,914,147 $ 4,018,658
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
RSI SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Three months ended Three months ended
September 30, September 30,
1996 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 433,876 $ 187,508
Cost of goods sold 473,200 169,695
----------- -----------
Gross profit (loss) (39,324) 17,813
Research and development 482,603 255,188
Selling, general, and administrative 699,026 478,154
----------- -----------
Operating loss (1,220,953) (715,529)
----------- -----------
Other income (expense)
Interest income, net 7,963 56,899
Other expense, net (6,027) (1,538)
----------- -----------
Other income, net 1,936 58,437
----------- -----------
Net loss $(1,219,017) $ (657,092)
=========== ===========
Loss per share $ (0.37) $ (0.24)
=========== ===========
Weighted average shares and common share
equivalents outstanding 3,284,969 2,768,284
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
RSI SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Three months ended Three months ended
September 30, September 30,
1996 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,219,017) $ (657,092)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 67,609 35,632
Provision for doubtful accounts -- 6,000
Other -- (6,278)
Foreign currency translation adjustment 81,723 --
Changes in operating assets and liabilities:
Accounts receivable 238,096 (32,686)
Inventories 13,879 (230,607)
Prepaid expenses 40,700 --
Other assets -- (112,237)
Accounts payable 240,472 (701,827)
Accrued expenses (186,826) (38,274)
----------- -----------
Net cash used in operating activities (723,364) (1,737,369)
=========== ===========
Cash flows from investing activities:
Purchases of furniture and equipment (79,673) (155,533)
Proceeds from sale of equipment 275 --
-----------
Net cash used in investing activities (79,398) (155,533)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 3,968,149 7,457,745
Other 13,102 (980)
----------- -----------
Net cash provided by financing activities 3,981,251 7,456,765
----------- -----------
Net change in cash and cash equivalents 3,178,489 5,563,863
Cash and cash equivalents at beginning of period 1,032,921 57,046
----------- -----------
Cash and cash equivalents at end of period $ 4,211,410 $ 5,620,909
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
RSI SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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, 1996 financial statements and related notes included in the Company's
Annual Report on Form 10-KSB.
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. PRIVATE OFFERING:
Effective September 30, 1996, the Company sold 1,500,000 shares of common stock
to "accredited investors" through a private offering at a price of $ 3.00 per
share. Net proceeds to the Company from the private placement were approximately
$ 4,000,000. The proceeds will be used to fund continued research and
development, expand sales and marketing activities, purchase capital equipment
and inventory, finance accounts receivable, and for other general corporate
purposes, including working capital. The Company is also negotiating a line of
credit with a bank but no agreement has been reached.
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RSI Systems, Inc. (the "Company") was organized in December 1993 and it designs,
develops and markets telecommunications products for videoconferencing,
collaborative computing, and high-speed data transfer. The Company's first
product, the ERIS(TM) Visual Communications System, consisting of a peripheral
device and applications software, enables personal computer users to engage in
"desktop conferencing" - the ability of two PC users to conduct a video
conference and simultaneously view and work on documents such as spreadsheets,
diagrams or reports.
Fiscal 1996 was the first full year of sales of the Company's line of
videoconferencing equipment and software, with these sales continuing into
fiscal year 1997. During the first quarter of fiscal year 1997, the Company
placed additional emphasis on the continued development of its direct sales
force, which included the hiring of experienced sales representatives and the
announcement of a new incentive-based compensation plan. The Company also
revised its distributor sales program and established what it believes are
important relationships with additional distributors, both in the U.S. and
abroad.
During the first quarter of fiscal 1997 the Company also initiated actions to
close its subsidiary in the UK, which had been used as its base for European
operations. European sales efforts will now be directed from Amsterdam, The
Netherlands, by a newly-hired factory-based employee who will spend much of his
time in Europe. The Company feels that this approach will be more effective in
securing direct sales in Europe and in developing a productive network of
European distributors.
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 1997 were $ 433,876, compared to $
187,508 for the same period of fiscal 1996. The Company's revenue is derived
from direct sales activity, and through sales to distributors who resell the
Company's products to end users. As discussed above, fiscal 1996 was the first
full year of product sales for the Company, and therefore sales in the first
quarter of that year reflected the results of the Company's initial selling
efforts in the market.
Cost of goods sold was $ 473,200 for the first quarter of fiscal 1997, in
excess of sales for the period. This compares to cost of goods sold of $
169,695, or 91% of sales in the comparable period last fiscal year.
The high cost of goods relative to sales in the first quarter of fiscal 1997
reflects high costs for product produced by the Company's previous contract
manufacturer, coupled with discounted prices granted to certain customers who
took delivery during this period. During the first quarter of fiscal 1997 the
Company discontinued its relationship with its former contract manufacturer, and
has now signed a new agreement with a new contract manufacturer. The new
contract provides for lower product costs. Cost of goods sold in the first
quarter of fiscal 1996 reflect manufacturing start-up costs and rework costs
required to meet certain certification tests required by selected countries in
both Europe and the Pacific Rim.
Research and development expenses were $ 482,603 for the first quarter of fiscal
1997, or 111% of sales, compared to research and development expenses of $
255,188, or 136% of sales for the first quarter in the last fiscal year. During
the first quarter of fiscal 1997 the Company announced a computer-free version
of the Eris(TM) System, and completed prototype testing of its new Video Flyer
product line, earlier code-named "Champion". The new Video Flyer was announced
in October, 1996. First shipments are planned for early in calendar year 1997.
Selling, general, and administrative expense was $ 699,026 in the first quarter
of fiscal 1997, or 161% of sales, compared to $ 478,154, or 255% of sales for
the comparable period last year. These higher expenses in the current fiscal
quarter reflect increased selling and product promotion activity, initial
closing costs for the UK operations, as well as severance costs and related
expenses associated with certain management changes occurring early in the
quarter.
Other income (net) was $ 1,936 in the first quarter of fiscal 1997, compared
to $ 58,437 in the comparable quarter of fiscal 1996. In fiscal 1996, the higher
amount for other income is primarily due to interest income earned on cash
proceeds resulting from the Company's initial public offering early in the
quarter.
As a result of the foregoing, net income for the first quarter of fiscal 1997
was a loss of ($ 1,219,017), or ($0.37) per share, compared to a net loss of
($657,092) in the comparable period last year, or ($0.24) per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
Net cash used in operating activities was ($ 723,364) in the first quarter of
fiscal 1997, compared to ($ 1,737,369) in the first quarter of fiscal 1996.
While the quarterly net loss this year ($ 1,219,017) was considerably larger
than the quarterly net loss last year ($ 657,092), the negative effect on cash
flow was reduced this year, largely through a reduction in accounts receivable
and an increase in accounts payable, which was partially offset by a reduction
in accrued expenses.
Cash Flows from Investing Activities
Net cash used in investing activities was ($ 79,398) in the first quarter of
fiscal 1997, compared to ($ 155,533) in the comparable quarter of fiscal 1996.
The higher figure last year is largely the result of initial purchases of
fixtures and test equipment in connection with early development activity on the
Eris(TM) product line.
Cash Flows from Financing Activities
Effective September 30, 1996, the Company sold 1,500,000 shares of common stock
to "accredited investors" through a private offering at a price of $ 3.00 per
share. Net proceeds to the Company from the private placement were approximately
$ 4,000,000. The proceeds will be used to fund continued research and
development, expand sales and marketing activities, purchase capital equipment
and inventory, finance accounts receivable, and for other general corporate
purposes, including working capital. The Company is also negotiating a line of
credit with a bank but no agreement has been reached.
In the comparable quarter last year, 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.
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) Exhibit 27.1 - 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: November 19, 1996 By: /s/ Donald C. Lies
------------------------------------
Donald C. Lies
Its President & Chief Executive Officer
and (principal executive, financial,
and accounting officer)
RSI SYSTEMS, INC.
EXHIBIT INDEX TO
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Item No. Title of Document Method of Filing
- -------- ----------------- ----------------
27.1 Financial Data Schedule Filed herewith electronically
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,211,410
<SECURITIES> 0
<RECEIVABLES> 286,337
<ALLOWANCES> 0
<INVENTORY> 1,730,343
<CURRENT-ASSETS> 6,372,048
<PP&E> 485,368
<DEPRECIATION> 215,583
<TOTAL-ASSETS> 6,914,147
<CURRENT-LIABILITIES> 1,194,052
<BONDS> 0
0
0
<COMMON> 47,523
<OTHER-SE> 5,672,572
<TOTAL-LIABILITY-AND-EQUITY> 6,914,157
<SALES> 433,876
<TOTAL-REVENUES> 433,876
<CGS> 473,200
<TOTAL-COSTS> 473,200
<OTHER-EXPENSES> 1,181,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,963)
<INCOME-PRETAX> (1,219,017)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,219,017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,219,017)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
