US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1998.
[ ] 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.)
5555 West 78th Street, Suite F, 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 6,663,531 shares of Common Stock, $ 0.01 par value per share,
outstanding as of May 14, 1998.
Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_
<PAGE>
RSI Systems, Inc. and Subsidiary
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998
(unaudited) and June 30, 1997................................3
Consolidated Statements of Operations (unaudited) - Three
months and nine months ended March 31, 1998 and 1997.........4
Consolidated Statements of Cash Flows (unaudited) - Nine
months ended March 31, 1998 and 1997.........................5
Notes to Consolidated Financial Statements...................6
Item 2. Management's Discussion and Analysis.........................9
PART II OTHER INFORMATION..................................................14
Signatures..................................................................16
Exhibit Index...............................................................17
<PAGE>
RSI SYSTEMS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1998 and June 30, 1997
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
Assets (Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,500,072 1,152,671
Accounts receivable, net of allowance for doubtful
accounts of $290,049 and $210,000 respectively 1,072,798 747,427
Inventories 806,310 544,613
Prepaid expenses 110,170 41,556
- -----------------------------------------------------------------------------------------------------
Total current assets 3,489,350 2,486,267
- -----------------------------------------------------------------------------------------------------
Property and equipment
Furniture and equipment 744,125 718,998
Leasehold improvements 52,118 4,818
Less accumulated depreciation (492,390) (332,589)
- -----------------------------------------------------------------------------------------------------
Net property and equipment 303,853 391,227
- -----------------------------------------------------------------------------------------------------
Other assets, net -- 521
- -----------------------------------------------------------------------------------------------------
Total assets $ 3,793,203 2,878,015
=====================================================================================================
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 790,534 1,166,507
Accrued expenses 125,183 363,165
Deferred revenue 195,607 123,989
Line of credit -- --
- -----------------------------------------------------------------------------------------------------
Total current liabilities 1,111,324 1,653,661
- -----------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock ($.01 par value per share, 10,000,000 shares
authorized, 6,663,531 and 4,757,265 issued and
outstanding, respectively) 66,635 47,573
Additional paid-in capital 17,238,260 14,358,381
Unearned compensation (25,001) (100,000)
Accumulated deficit (14,598,015) (13,081,600)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 2,681,879 1,224,354
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,793,203 2,878,015
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RSI SYSTEMS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three Months and Nine Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 848,977 668,535
Cost of goods sold 467,251 536,635
Inventory writedown to lower of cost or market -- 851,870
- -------------------------------------------------------------------------------------
Gross profit (loss) 381,726 (719,970)
Research and development 254,852 365,150
Selling, general, and administrative 821,101 857,677
- -------------------------------------------------------------------------------------
Operating loss (694,227) (1,942,797)
Other income (expense):
Interest income (expense), net (2,931) 24,772
Other income (expense), net (140) (20,230)
- -------------------------------------------------------------------------------------
Other income (expense), net (3,071) 4,542
- -------------------------------------------------------------------------------------
Net loss $ (697,298) (1,938,255)
=====================================================================================
Net loss per common share - basic $ (0.11) (0.41)
Net loss per common share - diluted $ (0.11) (0.41)
=====================================================================================
Weighted average shares outstanding 6,492,808 4,752,265
=====================================================================================
Nine Months Nine Months
Ended Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------
Net sales $ 2,976,262 1,556,626
Cost of goods sold 1,268,032 1,352,752
Inventory writedown to lower of cost or market -- 1,430,428
- -------------------------------------------------------------------------------------
Gross profit (loss) 1,708,230 (1,226,554)
Research and development 677,235 1,292,633
Selling, general, and administrative 2,492,597 2,537,712
- -------------------------------------------------------------------------------------
Operating loss (1,461,602) (5,056,899)
Other income (expense):
Interest income (expense), net (54,373) 75,544
Other income (expense), net (440) 3,064
- -------------------------------------------------------------------------------------
Other income (expense), net (54,813) 78,608
- -------------------------------------------------------------------------------------
Net loss $(1,516,415) (4,978,291)
=====================================================================================
Net loss per common share - basic $ (0.28) (1.17)
Net loss per common share - diluted $ (0.28) (1.17)
=====================================================================================
Weighted average shares outstanding 5,395,001 4,253,675
=====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RSI SYSTEMS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,516,415) (4,978,291)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 160,322 173,598
Unearned compensation 74,999 --
Inventory writedown to market -- 1,430,428
Foreign currency translation -- (28,400)
Changes in operating assets and liabilities:
Accounts receivable (325,371) 166,536
Inventories (261,697) (26,413)
Prepaid expenses (68,614) 41,413
Accounts payable (77) 8,822
Accrued expenses (237,982) 136,024
Deferred revenue 71,618 --
- -------------------------------------------------------------------------------------------
Net cash used in operating activities (2,103,217) (3,076,283)
- -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of marketable securities -- (1,500,000)
Purchases of furniture and equipment (72,427) (55,716)
- -------------------------------------------------------------------------------------------
Net cash used in investing activities (72,427) (1,555,716)
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,523,045 3,947,317
Proceeds from line of credit 1,315,058 --
Payments on line of credit (1,315,058) --
- -------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,523,045 3,947,317
- -------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 347,401 (684,682)
Cash and cash equivalents at beginning of period $ 1,152,671 1,032,921
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,500,072 348,239
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RSI SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 and 1997
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, 1997 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.
Net loss per common share amounts are based on the weighted average number of
shares of common stock outstanding. Common stock equivalents have not been
included in the computation as the effect would be anti-dilutive.
2. STOCKHOLDERS' EQUITY:
As of January 22, 1998, the Company completed the private placement of 1,671,255
shares of its Common Stock at $1.65 per share to "accredited investors". Net
proceeds to the Company from the private placement were approximately
$2,523,000. The proceeds will be used to expand Company marketing and
distribution efforts, fund the development of new video conferencing features
and products and for other general corporate purposes.
On October 14, 1997 the Company issued 210,011 shares of its common stock as
payment on $375,896 in trade debt to two of the Company's key vendors.
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 were used to fund 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.
3. DEBT:
On April 16, 1998, the Company signed an Amended and Restated Credit and
Security Agreement with a bank for a $1,000,000 committed line of credit.
Interest rates in the agreement range from a base rate set by the bank, to 4.0
points above the base rate, depending on the level of the Company's "borrowing
base" calculated on investments, accounts receivable and inventory levels. The
agreement contains certain covenants which require the Company to maintain a
minimum level of net worth. There was no outstanding balance on the line of
credit on March 31, 1998.
<PAGE>
4: NET INCOME PER SHARE:
During 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128)
which the Company adopted as of December 31, 1997. Under SFAS No. 128, basic net
income per share is computed based on the weighted average number of common
shares outstanding plus potential dilutive shares of common stock. Potential
dilutive shares of common stock include stock options which have been granted to
employees and directors and awards under the 1994 Stock plan. SFAS No. 128 also
requires reinstatement of net income per share amounts for all periods
presented.
5: RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS
No. 130). This statement requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet, and is effective for the Company's fiscal year ending June 30, 1999.
<PAGE>
CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS THAT COULD
CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER FROM THOSE
PROJECTED IN FORWARD LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this document and any document
incorporated by reference herein, are advised that this document and documents
incorporated by reference into this document contain both statements of
historical facts and forward looking statements. Forward looking statements are
subject to certain risks and uncertainties, which could cause actual results to
differ materially from those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, 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.
This document and any documents incorporated by reference herein also identify
important factors which could cause actual results to differ materially from
those indicated by the forward looking statements. These risks and uncertainties
include price competition, the decisions of customers, the actions of
competitors, the effects of government regulation, possible delays in the
introduction of new products, customer acceptance of products and services, and
other factors which are described herein and/or in documents incorporated by
reference herein. The cautionary statements made pursuant to the Private
Litigation Securities Reform Act of 1995 above and elsewhere by the Company
should not be construed as exhaustive or as any admission regarding the adequacy
of disclosures made by the Company prior to the effective date of such Act.
Forward looking statements are beyond the ability of the Company to control and
in many cases the Company cannot predict what factors would cause results to
differ materially from those indicated by the forward looking statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RSI Systems, Inc. (the "Company") incorporated under the laws of Minnesota on
December 21, 1993, designs, develops, manufactures and markets
telecommunications products for video conferencing.
The Company's primary product, the Video Flyer, is a self-contained, high
performance video conferencing peripheral unit which connects directly to any
size TV, projection system, PC, MAC or laptop (properly configured) and can
support most of the popular industry cameras and recording, playback and
communication devices. The Video Flyer was designed to comply with all industry
video communications primary standards. The Company markets its products
domestically and internationally through a variety of channels, including
authorized resellers, OEM and private label relationships and direct sales to
major accounts. The Company offers full training and support to its customers
through a variety of materials and programs.
Beginning in fiscal year 1997, the Company has pursued the expanding mobile
workgroup video conferencing market segment. Since the introduction of its
second generation product - the Video Flyer during the second half of fiscal
year 1997, the Company has been developing new distribution channels and
introducing new features and enhancements to the Video Flyer.
In December 1997, the Company finalized an agreement with Philips North American
Corporation (Philips), a subsidiary of Philips Electronics NV of Eindhoven,
Holland. The agreement calls for Philips and the Company to share technology to
co-develop specialized high-performance 384 and 128 Kbps video conferencing
systems for Philips to resell through its own distribution channels. In the
third quarter of fiscal year 1998, the Company completed the design phase of the
co-development project and shipped prototype units to Philips.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net Sales. Net sales for the third quarter of fiscal year 1998 were $ 848,977,
up 27% from $ 668,535 in the third quarter of fiscal year 1997. The increase in
sales in the third quarter of fiscal year 1998 compared to the third quarter of
fiscal year 1997 was a result of higher pricing and higher unit volume
associated with the Company's second generation product - the Video Flyer,
through the Company's expanded distribution channels. Although net sales in the
third quarter of fiscal year 1998 increased over the comparable quarter in
fiscal year 1997, the Company believes overall sales volume during the third
quarter of fiscal year 1998 was adversely affected by; 1) the reallocation of
Company resources toward support of the Philips co-development project resulting
in longer timetables for the completion of other generic enhancements to the
Video Flyer product, and 2) the economic uncertainty in the Pacific Rim.
<PAGE>
In the third quarter of fiscal year 1998 the Company designed and shipped
prototype units to Philips and recorded related revenues of approximately
$160,000. In the fourth quarter of fiscal year 1998, the Company expects unit
shipments to Philips to increase, generating increased revenues from Philips in
the fourth quarter of fiscal year 1998 compared to the third quarter.
Since the ultimate effects of the situation in the Pacific Rim are unknown, the
Company expects to continue monitoring the situation while focusing the majority
of its efforts on markets in Europe and North America through the remainder of
fiscal year 1998.
Although the overall effect of industry competition on future unit sales is
uncertain, the Company expects unit sales during the fourth quarter of fiscal
year 1998 to be higher than the comparable quarter in fiscal year 1997, as a
result of increased marketing of Video Flyer in the third and fourth quarters of
fiscal year 1998, expected shipments to Philips and the completion of several
new product enhancements to Video Flyer. Consequently, the Company expects
higher sales during the fourth quarter of fiscal year 1998 compared to the
fourth quarter of fiscal year 1997.
Gross Profit (Loss). Gross profit was $381,726 or 45% of sales in the third
quarter of fiscal year 1998 compared to a gross loss of $(719,970) or (107%)
of sales during the third quarter of fiscal year 1997.
The higher cost of goods sold relative to sales in the third quarter of fiscal
year 1997 was primarily a result of an inventory writedown to lower of cost or
market of $851,870 related to previous generation products. In addition, the
third quarter of fiscal year 1997 included a significant amount of sales of the
Company's previous generation products while the third quarter of fiscal year
1998 was comprised primarily of Video Flyer sales. The Video Flyer has a higher
unit price than previous generation products and also has a lower unit
manufacturing cost, resulting in a higher gross margin per unit.
Gross margin as a percent of net sales during the third quarter of fiscal year
1998 was adversely affected by high costs as a percent of sales on engineering
co-development work performed for Philips. As part of the agreement with
Philips, engineering work was performed on a cost pass through basis. In
addition, lower overall sales volume and the resulting lower amount of overhead
absorption also had an adverse effect on gross profit margin as a percent of net
sales in the third quarter of fiscal year 1998.
Research and Development Expenses. Research and development expenses were $
254,852 in the third quarter of fiscal year 1998, or 30% of sales, compared to
research and development expenses of $ 365,150 or 55% of sales in the third
quarter of fiscal year 1997. The percentage decrease in the third quarter of
fiscal year 1998 was due to higher sales as discussed above as well as a
reduction in the actual dollar spending. During the third quarter of fiscal year
1998 the Company's research and development efforts were directed primarily
toward co-development projects in support of Philips. In the third quarter of
fiscal year 1997, the Company was focused on full scale software and hardware
development and related testing of its Video Flyer, resulting in higher
expenditures compared to the third quarter of fiscal year 1998.
<PAGE>
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $ 821,101 in the third quarter of fiscal year 1998,
or 97% of sales, compared to $857,677, or 128% of sales in the third quarter of
fiscal year 1997. The percentage decrease was due to primarily to higher sales
in the third quarter of fiscal year 1998 as discussed above.
As a result of the foregoing, the net loss for the third quarter of fiscal year
1998 was $(697,298), or $(.11) per common share, compared to a net loss of
$(1,938,255), or $(.41) per common share in the third quarter of fiscal year
1997.
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Net Sales. Net Sales for the nine-month period ended March 31, 1998 were
$2,976,262, up 91% from $1,556,626 for the nine-month period ended March 31,
1997. The increase in sales during the nine-month period ended March 31, 1998
was a result of higher pricing and higher unit volume associated with the
Company's second generation product - the Video Flyer through the Company's
expanded distribution channels.
Gross Profit (Loss). Gross profit was $1,708,230 or 57% of sales in the
nine-month period ended March 31, 1998, compared to a gross loss of $(1,226,554)
or (79%) of sales in the nine-month period ended March 31, 1997. The higher cost
of goods sold relative to sales in the nine-month period ended March 31, 1997
was a result of an inventory writedown to lower of cost or market of $1,430,428
related to previous generation products. In addition, the nine-month period
ending March 31, 1997 included a significant amount of sales of the Company's
previous generation products while the nine-month period ending March 31, 1998
was comprised primarily of Video Flyer sales. In addition to carrying a higher
unit price than previous generation products, the Video Flyer also has a lower
unit manufacturing cost, resulting in a higher gross margin per unit.
Research and Development Expenses. Research and development expenses were
$677,235, or 23% of sales in the nine-month period ended March 31, 1998,
compared to research and development expenses of $ 1,292,633, or 83% of sales in
the nine-month period ended March 31, 1997. The percentage decrease in the
nine-month period ended March 31, 1998 was due to higher sales as discussed
above, as well as a reduction in the actual dollar spending. During the
nine-month period ended March 31, 1998, the Company's research and development
efforts were directed primarily toward enhancements to the Video Flyer and
co-development work for Philips. During the nine-month period ended March 31,
1997, the Company was involved in full scale software and hardware development
and related testing of Video Flyer, resulting in higher expenditures compared to
the nine-month period ended March 31, 1998.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $2,492,597 in the nine-month period ended March 31,
1998, or 84% of sales, compared to $2,537,712, or 163% of sales in the
nine-month period ended March 31, 1997. The percentage decrease was due
primarily to higher sales in the nine-month period ended March 31, 1998 as
discussed above.
Other Income (Expense). Other income (expense) was $(54,813) in the nine-month
period ended March 31, 1998, compared to $78,608 in the nine-month period ended
March 31, 1997. The higher amount of other (expense) in the nine-month period
ended March 31, 1998 was associated with
<PAGE>
interest charges on inventory procured by the Company's third party manufacturer
on behalf of the Company to support required lead times, and interest on
outstanding borrowings on the Company's line of credit. The nine-month period
ended March 31, 1997 included higher interest income earned on the proceeds of a
private placement of the Company's common stock on September 30, 1996 and other
income of $35,319 resulting from a reduction in the Company's foreign currency
translation adjustment upon finalizing the closure of its UK operation.
As a result of the foregoing, the net loss in the nine-month period ended March
31, 1998 was $(1,516,415), or $(.28) per common share, compared to a net loss of
$(4,978,291), or $(1.17) per common share in the nine-month period ended March
31, 1997.
OUTLOOK
The Company is aggressively pursuing its fiscal year 1998 strategy of targeting
specific markets through increased marketing initiatives, enhancing distribution
through a variety of channels, and developing additional product offerings to
enhance value and competitive advantage. Although the video conferencing
industry is competitive and rapidly changing, the Company believes these
initiatives will allow it to increase revenues, maintain margins and improve
income from operations. The magnitude of these improvements cannot be reasonably
estimated.
LIQUIDITY, CAPITAL RESOURCES AND MATERIAL CHANGES IN FINANCIAL CONDITION
CASH FLOWS FROM OPERATING ACTIVITIES
In the nine-months ended March 31, 1998, a reduction in the Company's net loss
resulted in a decrease in cash used in operating activities compared to the
nine-months ended March 31, 1997. The decrease in the amount of cash used in
operations was less than the actual reduction in the Company's net loss, because
the net loss during the previous period included a non-cash inventory write-down
to market of $1,430,428 related to the Company's previous generation product.
In addition to the net loss from operations for the nine-months ended March 31,
1998, cash was used in operating activities as a result of an increase in
inventory and accounts receivable related to increased sales volume and a
reduction in accrued expenses resulting from payments to certain key vendors.
Offsetting the use of cash was an increase in deferred revenues of $71,618
during the period ended March 31, 1998 as a result of progress billings in
excess of revenue recognized.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities was $(72,427) in the nine-month period
ended March 31, 1998, compared to a use of $(1,555,716) in the nine-month period
ended March 31, 1997. The higher use of cash for investing activities in the
nine-month period ended March 31, 1997 was largely a result of the Company's
investment of cash in marketable securities during October, 1996.
CASH FLOWS FROM FINANCING ACTIVITIES
On April 16, 1998, the Company signed an Amended and Restated Credit and
Security Agreement with a bank for a $1,000,000 committed line of credit. Under
the terms of the agreement, interest
<PAGE>
rates range from a base rate set by the bank, to 4.0 points above the base rate,
depending on the level of the Company's "borrowing base" calculated on
investments, accounts receivable and inventory. Through March 31, 1998, cash
requirements of the Company have been funded by cash received from equity
investments in the Company and its credit facility.
As of January 22, 1998, the Company completed the private placement of 1,671,255
shares of its common stock at $1.65 per share to "accredited investors". Net
proceeds to the Company from the private placement were approximately
$2,523,000. The proceeds will be used to expand Company marketing and
distribution, fund the development of new video conferencing features and
products and for other general corporate purposes.
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, netting proceeds of approximately $3,947,000.
The Company believes that funds from the private placement completed in January,
1998 and funds available under the line of credit will be sufficient to cover
cash needs until sufficient cash flow from operations can be achieved.
Management plans to continue to increase sales and improve operating results by
expanding distribution of its products through an expanded dealer network, and
continued emphasis on larger, national and OEM/private label accounts. In the
event sales do not materialize at expected rates, management would conserve cash
by reducing administrative expenses, sales and marketing expenses and research
and development expenses. To the extent that the Company requires cash in excess
of the funds generated by the private placement, its line of credit or future
operations, management would seek additional financing, however no assurance can
be made that any such financing would be available on favorable terms or at all.
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
As of January 22, 1998, the Company completed the private placement
of 1,671,255 shares of its Common Stock at $1.65 per share to
"accredited investors". Sales commissions related to the private
placement amounted to $ 196,495. After commissions and expenses, net
proceeds to the Company from the private placement were
approximately $2,523,000. The proceeds will be used to expand
Company marketing and distribution efforts, fund the development of
new video conferencing features and products and for other general
corporate purposes.
On October 14, 1997 the Company issued 210,011 shares of its common
stock as payment on $375,896 in trade debt to two of the Company's
key vendors.
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 were
used to fund 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.
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
<PAGE>
(b) Reports on Form 8-K:
On January 7, 1998 the Company filed a form 8-K, reporting
a private offering of 1,341,255 shares of its Common Stock
under Item 5, "Other Events".
On January 12, 1998, the Company filed a form 8-K/A, to
disclose the effects of the January 7, 1998 private
placement on a proforma basis as of November 30, 1997.
Proforma financial statements as of November 30, 1997 were
included in the 8-K/A.
On March 4, 1998, the Company filed a form 8-K/A amendment
#2, to disclose a supplemental private offering of 330,000
shares of its Common Stock on January 22, 1998 which was
in addition to the private offering of 1,341,255 shares on
January 7, 1998. Included with this 8-K/A amendment #2,
were proforma financial statements as of December 31,
1997, showing the effects of the private placement of the
Company's Common Stock, totaling 1,671,255 shares.
<PAGE>
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 15, 1998 By: /s/ Donald C. Lies
---------------------------------------
Donald C. Lies
Its President & Chief Executive Officer
By: /s/ James D. Hanzlik
---------------------------------------
James D. Hanzlik
Its Chief Financial Officer
<PAGE>
RSI SYSTEMS, INC.
EXHIBIT INDEX TO
FORM 10-QSB FOR THE NINE MONTHS ENDED MARCH 31, 1998
Item No. Title of Document Method of Filing
- -------- ----------------------- -----------------------------
27.1 Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,500,072
<SECURITIES> 0
<RECEIVABLES> 1,072,798
<ALLOWANCES> 290,049
<INVENTORY> 806,310
<CURRENT-ASSETS> 3,489,350
<PP&E> 303,853
<DEPRECIATION> 492,390
<TOTAL-ASSETS> 3,793,203
<CURRENT-LIABILITIES> 1,111,324
<BONDS> 0
0
0
<COMMON> 66,635
<OTHER-SE> 2,615,244
<TOTAL-LIABILITY-AND-EQUITY> 3,793,203
<SALES> 2,976,262
<TOTAL-REVENUES> 2,976,262
<CGS> 1,268,032
<TOTAL-COSTS> 1,268,032
<OTHER-EXPENSES> 3,169,832
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,373
<INCOME-PRETAX> (1,516,415)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,516,415)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,516,415)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
