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 MARCH 31,
1999.
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 6,684,781 shares of Common Stock, $ 0.01 par value per share,
outstanding as of May 14, 1999.
Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_
1
<PAGE>
RSI Systems, Inc.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1999 (unaudited)
and June 30, 1998 ............................................ 3
Statements of Operations (unaudited) - Three
months and nine months ended March 31, 1999 and 1998 ......... 4
Statements of Cash Flows (unaudited) - Nine
months ended March 31, 1999 and 1998 ......................... 5
Notes to Financial Statements ................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 8
PART II. OTHER INFORMATION ................................................. 13
Signatures .................................................................. 14
Exhibit Index ............................................................... 15
2
<PAGE>
RSI SYSTEMS, INC.
Balance Sheets
March 31, 1999 and June 30, 1998
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
Assets (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 384,229 382,093
Marketable securities 990,383 979,555
Accounts receivable, net of allowance for doubtful
accounts of $490,000 and $254,000, respectively 2,997,436 1,541,626
Inventories 1,027,625 637,422
Prepaid expenses 99,710 56,949
- --------------------------------------------------------------------------------------------------
Total current assets 5,499,383 3,597,645
- --------------------------------------------------------------------------------------------------
Property and equipment:
Furniture and equipment 1,299,766 1,038,463
Leasehold improvements 55,713 50,625
Less accumulated depreciation and amortization (809,669) (560,403)
- --------------------------------------------------------------------------------------------------
Net property and equipment 545,810 528,685
- --------------------------------------------------------------------------------------------------
Total assets $ 6,045,193 4,126,330
==================================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,854,568 1,037,331
Accrued expenses 211,475 124,254
Deferred revenue 110,829 40,664
Revolving credit facility 1,262,086 497,715
Current portion of capital lease obligations 62,379 55,388
- --------------------------------------------------------------------------------------------------
Total current liabilities 3,501,337 1,755,352
- --------------------------------------------------------------------------------------------------
Long-term liabilities:
Capital lease obligations, net of current portion 202,184 107,639
- --------------------------------------------------------------------------------------------------
Total long-term liabilities 202,184 107,639
- --------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock ($.01 par value per share, 10,000,000 shares
authorized, 6,684,781 and 6,657,281 issued and
outstanding, respectively) 66,848 66,573
Additional paid-in capital 17,261,953 17,238,322
Accumulated deficit (14,987,129) (15,041,556)
- --------------------------------------------------------------------------------------------------
Total stockholders' equity 2,341,672 2,263,339
- --------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 6,045,193 4,126,330
==================================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
RSI SYSTEMS, INC.
Statements of Operations
Three Months and Nine Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 2,789,939 848,977
Cost of goods sold 1,311,113 467,251
- ------------------------------------------------------------------------------------------------
Gross profit 1,478,826 381,726
Research and development 290,068 254,852
Selling, general, and administrative 1,126,225 821,101
- ------------------------------------------------------------------------------------------------
Operating income (loss) 62,533 (694,227)
Other income (expense):
Interest income (expense), net (15,641) (3,071)
- ------------------------------------------------------------------------------------------------
Other income (expense), net (15,641) (3,071)
- ------------------------------------------------------------------------------------------------
Net earnings (loss) $ 46,892 (697,298)
================================================================================================
Net earnings (loss) per common share - basic $ 0.01 (0.11)
Net earnings (loss) per common share - diluted $ 0.01 (0.11)
================================================================================================
Weighted average shares outstanding - basic 6,675,092 6,492,808
Weighted average shares outstanding - diluted 7,231,100 6,492,808
================================================================================================
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, March 31,
1999 1998
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------
Net sales $ 7,745,484 2,976,262
Cost of goods sold 3,655,709 1,268,032
- ------------------------------------------------------------------------------------------------
Gross profit 4,089,775 1,708,230
Research and development 905,954 677,235
Selling, general, and administrative 3,098,839 2,492,597
- ------------------------------------------------------------------------------------------------
Operating income (loss) 84,982 (1,461,602)
Other income (expense):
Interest income (expense), net (30,555) (54,813)
- ------------------------------------------------------------------------------------------------
Other income (expense), net (30,555) (54,813)
- ------------------------------------------------------------------------------------------------
Net earnings (loss) $ 54,427 $ (1,516,415)
================================================================================================
Net earnings (loss) per common share - basic $ 0.01 (0.28)
Net earnings (loss) per common share - diluted $ 0.01 (0.28)
================================================================================================
Weighted average shares outstanding - basic 6,666,822 5,395,001
Weighted average shares outstanding - diluted 7,185,469 5,395,001
================================================================================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
RSI SYSTEMS, INC.
Statements of Cash Flows
Nine Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, March 31,
1999 1998
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 54,427 (1,516,415)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 249,266 160,322
Unearned compensation -- 74,999
Changes in operating assets and liabilities:
Accounts receivable (1,455,811) (325,371)
Inventories (390,203) (261,697)
Prepaid expenses (42,761) (68,614)
Accounts payable 817,237 (77)
Accrued expenses 87,221 (237,982)
Deferred revenue 70,165 71,618
- --------------------------------------------------------------------------------------------------
Net cash used in operating activities (610,459) (2,103,217)
- --------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of marketable securities (10,828) --
Purchases of furniture and equipment (109,081) (72,427)
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (119,909) (72,427)
- --------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 23,906 2,523,045
Net proceeds from line of credit 764,371 --
Payments on capital lease obligations (55,773) --
- --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 732,504 2,523,045
- --------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 2,136 347,401
Cash and cash equivalents at beginning of period $ 382,093 1,152,671
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 384,229 1,500,072
==================================================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
RSI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
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, 1998 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. REVOLVING CREDIT FACILITY:
On September 22, 1998, the Company signed an amendment to a commercial loan
agreement with a bank for a committed line of credit facility. The amendment
restates a previous agreement dated April 16, 1998, and increases the maximum
line of credit from the original $1,000,000 to $2,000,000. The facility is
secured by all corporate assets and provides working capital based on a
borrowing base comprised of accounts receivable, inventory and marketable
securities. The facility contains certain covenants and conditions, including
minimum net worth and tangible net worth levels. Interest on outstanding
borrowings accrues at the bank's base rate or the base rate plus up to 4%,
depending on the level of each component of the Company's borrowing base and the
outstanding amount on the line of credit. The base rate was 7-3/4% on March 31,
1999. The facility has a maturity date of June 26, 2000.
3. NET EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share is computed based on the weighted average number
of common shares outstanding, while diluted earnings (loss) 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 and warrants which have been granted to employees,
directors or other parties.
4. RECENT ACCOUNTING PRONOUNCEMENTS:
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), effective in fiscal 2000,
establishes new standards for recognizing all derivatives as either assets or
liabilities, and measuring those instruments at fair value. At the present time,
the Company does not anticipate that SFAS No. 133 will have a material impact on
its financial position or results of operations.
6
<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.
7
<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" or RSI) designs, manufactures and sells high
performance, business quality videoconferencing systems throughout a worldwide
network of resellers and OEM or private label customers. The Company was
incorporated under the laws of Minnesota on December 21, 1993.
Since July 1996, the Company's efforts have been directed toward the emerging
small workgroup and set-top television-based market. The Company's primary
product, the Video FlyerTM PLUS system, provides computer-free television
quality video and audio (without the need for interfacing to any type of
computer system), via a miniaturized, self-contained free standing device which
is fully industry standards based.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net Sales. Net sales for the third quarter of fiscal year 1999 were $2,789,939,
up 229 % from $848,977 in the third quarter of fiscal year 1998. The increase in
net sales in the third quarter of fiscal year 1999 compared to the third quarter
of fiscal year 1998 was primarily a result of higher unit volume associated with
the Company's expanded distribution through its OEM and private label
relationships. OEM and private label sales volume accounted for approximately
60% of sales in the third quarter of fiscal year 1999. The increased net sales
due to increased unit volume was partially offset by lower average selling
prices as a result of volume pricing discounts on sales to certain customers
during the period. Through the third quarter of fiscal year 1999, the Company's
OEM and private label customers have taken delivery of unit quantities required
under obligations with the Company. In the fourth quarter of fiscal year 1999,
due to a reduction in the overall OEM and private label volume required, the
Company expects a decrease in the number of units and related revenues from OEM
and private label customers compared to the third quarter of fiscal year 1999.
The amount of such decrease is uncertain.
Gross Profit. Gross profit was $1,478,826 in the third quarter of fiscal year
1999 compared to a gross profit of $381,726 during the third quarter of fiscal
year 1998. The increased gross profit was a result of higher sales. Cost of
goods sold as a percentage of net sales were 47% in the third quarter of fiscal
year 1999 compared to 55% in the third quarter of fiscal year 1998. The lower
cost of sales as a percent of net sales during the third quarter of fiscal year
1999 was due to changes in product mix and related lower average manufacturing
costs, which more than offset lower selling prices on units shipped during the
third quarter of fiscal year 1999. Net sales for the third quarter of fiscal
year 1999 contained a lower proportion of peripheral equipment such as display
devices and cameras and a higher proportion of video conferencing engines with
no peripheral equipment. Peripheral equipment costs are high relative to
peripheral equipment sales prices, so the change in product mix decreased the
overall percentage of cost of goods sold to net sales during the third quarter
of fiscal year 1999 compared to the third quarter of fiscal year 1998.
8
<PAGE>
Research and Development Expenses. Research and development expenses were
$290,068 for the third quarter of fiscal year 1999, or 10% of sales, compared to
research and development expenses of $254,852, or 30% of sales for the third
quarter of fiscal year 1998. The decrease in such expenses as a percent of sales
in the third quarter of fiscal year 1999 was due to higher sales as discussed
above. Actual spending increased during the third quarter of fiscal year 1999
due to increased hardware and software development on a number of new product
configurations and capabilities as well as development in support of OEM and
private label partners. During the third quarter of fiscal year 1998 the
Company's research and development efforts were directed toward smaller scale
enhancements to the Video Flyer product.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1,126,225 in the third quarter of fiscal year
1999, or 40% of sales, compared to $821,101 or 97% of sales for the third
quarter of fiscal year 1998. The decrease in such expenses as a percent of sales
was due to higher sales in the third quarter of fiscal year 1999 as discussed
above. The increase in actual expenditures during the third quarter of fiscal
year 1999 was a result of increased sales, marketing and technical support
activities associated with higher sales volume. No significant additional sales
or marketing expenses were incurred in connection with the increased sales
volume generated through the Company's OEM and private label partners in the
third quarter of fiscal year 1999.
Other Income (Expense). Other income (expense) was $(15,641) in the third
quarter of fiscal year 1999, compared to $(3,071) in the third quarter of fiscal
year 1998. In the third quarter of fiscal year 1999, the higher amount of other
(expense) was due to higher amounts outstanding on the Company's line of credit
in order to support the higher level of sales activity. The higher interest
expense was partially offset by interest income earned on investments during the
third quarter of fiscal year 1999. The investments were made with available
proceeds of a private placement of the Company's common stock in January 1998.
As a result of the foregoing, the net earnings for the third quarter of fiscal
year 1999 were $46,892 or $.01 per common share compared to a net loss of
$(697,298), or $(.11) per common share in the third quarter of fiscal year 1998.
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
Net Sales. Net sales for the nine-month period ended March 31, 1999 were
$7,745,484, compared to $2,976,262 for the nine-month period ended March 31,
1998. The increase in sales during the nine-month period ended March 31, 1999
was a result of higher unit volume associated with the Company's expanded
distribution through its OEM and private label relationships. OEM and private
label sales volume accounted for approximately 50% of sales in the nine-month
period ended March 31, 1999. Through the third quarter of fiscal year 1999, the
Company's OEM and private label customers have taken delivery of unit quantities
required under obligations with the Company. In the fourth quarter of fiscal
year 1999, due to a reduction in the overall OEM and private label volume
required, the Company expects a decrease in the number of units and related
revenues from OEM and private label customers compared to the third quarter of
fiscal year 1999. The amount of such decrease is uncertain.
9
<PAGE>
Gross Profit. Gross profit was $4,089,775 for the nine-month period ended March
31, 1999, compared to a gross profit of $1,078,230 during the nine-month period
ended March 31, 1998. The increased gross profit was a result of higher sales.
Cost of goods sold as a percentage of sales were 47% for the nine-month period
ended March 31, 1999 compared to 43% during the nine-month period ended March
31, 1998. The increased cost of goods sold as a percentage of sales during the
nine-month period ended March 31, 1999 was due to lower average selling prices
on units shipped during the period.
Research and Development Expenses. Research and development expenses were
$905,954, or 12% of sales for the nine-month period ended March 31, 1999,
compared to research and development expenses of $677,235, or 23% of sales for
the nine-month period ended March 31, 1998. The decrease in such expenses as a
percent of sales in the nine-month period ended March 31, 1999 was due to higher
sales as discussed above. Actual dollar spending increased during the nine-month
period ended March 31, 1999 due to increased development associated with new
product configurations and capabilities as well as development in support of OEM
and private label customers. During the nine-month period ended March 31, 1998,
the Company's research and development efforts were directed primarily toward
smaller scale enhancements to the Video Flyer.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $3,098,839 for the nine-month period ended March
31, 1999 or 40% of sales, compared to $2,492,597, or 84% of sales the nine-month
period ended March 31, 1998. The decrease in such expenses as a percent of sales
was due to higher sales during the nine-month period ended March 31, 1999 as
discussed above. The increase in actual expenditures during the nine-month
period ended March 31, 1999 was due to increased sales, marketing and technical
support activities associated with increased sales volume.
Other Income (Expense). Other income (expense) was $(30,555) for the nine-month
period ended March 31, 1999, compared to $(54,813) for the nine-month period
ended March 31, 1998. The lower amount of other (expense) during the nine-month
period ended March 31, 1999 was due to higher amounts of interest income on
investments during the period, which offset a significant portion of interest
expense. These investments were a result of a private placement of the Company's
common stock in January, 1998. Since the investments were available during only
three months of the nine-month period ending March 31, 1998, the amount of
interest income available to offset interest expense was lower during the
nine-month period ended March 31, 1998 compared to the nine-month period ended
March 31, 1999.
As a result of the foregoing, the net earnings for the nine-month period ended
March 31, 1999 were $54,427, or $0.01 per common share, compared to a net loss
of $(1,516,415), or $(.28) per common share in the nine-month period ended March
31, 1998.
OUTLOOK
The Company is pursuing its fiscal year 1999 strategy of increasing sales by
targeting specific markets best suited to its product capabilities, increasing
distribution through a variety of channels and developing additional product
offerings to enhance value and competitive advantage. Although the video
conferencing industry remains very competitive and continues to rapidly change,
the Company believes its strategy will allow it to increase revenues, maintain
margins and improve
10
<PAGE>
income from operations in fiscal year 2000. The magnitude of these improvements
cannot be reasonably estimated.
LIQUIDITY, CAPITAL RESOURCES AND MATERIAL CHANGES IN FINANCIAL CONDITION
CASH FLOWS FROM OPERATING ACTIVITIES
Although the Company generated a profit during the nine-month period ended March
31, 1999, a significant increase in accounts receivable of $1,455,811 and an
increase in inventories of $390,203, offset by an increase in accounts payable
of $817,237 were the primary factors resulting in a net use of cash in operating
activities of $(610,459). The increase in accounts receivable was primarily a
result of increased sales to OEM and private label distribution customers. These
sales occurred primarily in the last month of the third quarter and as a result,
had not yet been paid by March 31, 1999.
The increase in inventory during the nine-month period ended March 31, 1999 was
a result of increased sales activity and Company efforts to ensure adequate
product was on hand to support customer orders. A significant portion of this
inventory was delivered to the Company in the last month of the nine-month
period ended March 31, 1999 on open credit terms and had not been paid for as of
March 31, 1999. As a result, accounts payable increased $817,237 during the
nine-month period ended March 31, 1999.
CASH FLOW FROM INVESTING ACTIVITIES
Net cash used in investing activities was $(119,909) during the nine-month
period ended March 31, 1999, compared to a use of $(72,427) during the
nine-month period ended March 31, 1998. The increased use of cash for investing
activities was a result of purchases of equipment and development tools related
to increased development and sales activity related to the Company's products
during the nine-month period ended March 31, 1999.
CASH FLOW FROM FINANCING ACTIVITIES
As of March 31, 1999, the Company had entered into various capital leases to
finance new equipment and development tools. Payments on such leases during the
nine-month period ended March 31, 1999 were $55,773.
For the nine-month period ended March 31, 1999, the Company's cash requirements
were funded by a $2,000,000 credit facility. Under the terms of the credit
facility, a maximum of $2,000,000 in working capital funds may be drawn based on
a borrowing base comprised of a percentage of eligible accounts receivable,
inventory and marketable securities. At March 31, 1999 the Company had cash and
cash equivalents of $382,093, marketable securities of $990,383 and an
outstanding balance of $1,262,086 on the $2,000,000 credit facility.
The Company believes funds from operations, funds remaining from previous equity
investments in the Company and funds from its line of credit will be sufficient
to cover cash needs during calendar year 1999. However, in the event the Company
requires cash in excess of the funds from these
11
<PAGE>
sources, management would seek additional financing, however no formal
arrangements have been made in this regard and no assurance can be made that any
such financing would be available on favorable terms or at all.
YEAR 2000 STATUS
The Company has a timetable for becoming ready for the year 2000. The Company
expects to be fully compliant and operational with systems designed to comply
with the year 2000 issue by July 1, 1999. As of May 14, 1999 the Company's
internal information systems have been upgraded to comply with the Year 2000
issue and are currently being utilized with no known problems.
To date the costs of assessing the year 2000 problem have been insignificant,
and based on its assessment to date, the Company does not believe future
remediation costs will be material to the Company's financial condition or
operating results.
The Company is currently continuing its efforts to develop a contingency plan to
handle a worst case scenario related to the Year 2000 issue. The contingency
plan is being developed in order to minimize uncertainties and the potential
costs involved under a worst case scenario involving replacement of its sources
of supply for critical components. The Company's revised schedule for a
completed contingency plan is June 30, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DEBT FINANCING
The Company is exposed to interest rate risk associated with its revolving
credit facility. The Company's borrowing rates are dependent upon the level of
the Company's borrowing base and outstanding amounts on the Company's line of
credit. See footnote 2.
12
<PAGE>
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
13
<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 14, 1999 By: /s/ Donald C. Lies
--------------------------------------
Donald C. Lies
Its President & Chief ExecutiveOfficer
By: /s/ James D. Hanzlik
--------------------------------------
James D. Hanzlik
Its Chief Financial Officer
14
<PAGE>
RSI SYSTEMS, INC.
EXHIBIT INDEX TO
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1999
Item No. Title of Document Method of Filing
-------- ----------------- ----------------
27.1 Financial Data Schedule Filed herewith electronically
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 384,229
<SECURITIES> 990,383
<RECEIVABLES> 2,997,436
<ALLOWANCES> 490,000
<INVENTORY> 1,027,625
<CURRENT-ASSETS> 5,499,383
<PP&E> 545,810
<DEPRECIATION> 809,669
<TOTAL-ASSETS> 6,045,193
<CURRENT-LIABILITIES> 3,501,337
<BONDS> 0
0
0
<COMMON> 66,848
<OTHER-SE> 2,274,824
<TOTAL-LIABILITY-AND-EQUITY> 6,045,193
<SALES> 7,745,484
<TOTAL-REVENUES> 7,745,484
<CGS> 3,655,709
<TOTAL-COSTS> 3,655,709
<OTHER-EXPENSES> 4,004,793
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,555
<INCOME-PRETAX> 54,427
<INCOME-TAX> 0
<INCOME-CONTINUING> 54,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,427
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
