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, 2000.
____ 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
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RSI Systems, Inc.
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(Exact name of small business issuer as specified in its charter)
Minnesota 41-1767211
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5593 West 78th Street, Minneapolis, Minnesota 55439
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(Address of principal executive offices) (Zip Code)
(952) 896-3020
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(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 8,724,883 shares of Common Stock, $ 0.01 par value per share,
outstanding as of November 8, 2000.
Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_
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RSI Systems, Inc.
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 2000 (unaudited)
and June 30, 2000............................................3
Statements of Operations (unaudited) - Three
Months ended September 30, 2000 and 1999 ....................4
Statements of Cash Flows (unaudited) - Three
Months ended September 30, 2000 and 1999.....................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....................................................11
Signatures....................................................................12
Exhibit Index.................................................................13
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RSI SYSTEMS, INC.
Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
Assets (Unaudited)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 40,852 83,930
Accounts receivable, net of allowance for doubtful
accounts of $274,000 and $241,000, respectively 770,026 799,832
Inventories 722,705 806,956
Prepaid expenses 54,862 65,010
---------------------------------------------------------------------------------------------------
Total current assets 1,588,445 1,755,728
---------------------------------------------------------------------------------------------------
Property and equipment:
Furniture and equipment 1,588,430 1,582,763
Leasehold improvements 3,569 --
Less accumulated depreciation and amortization (1,197,708) (1,120,702)
---------------------------------------------------------------------------------------------------
Net property and equipment 394,291 462,061
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Patents, net 70,344 --
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Total assets $ 2,053,080 2,217,789
===================================================================================================
Liabilities and Stockholders' Equity
---------------------------------------------------------------------------------------------------
Current liabilities:
Revolving credit facility $ 539,056 573,801
Current portion of capital lease obligations 124,767 137,978
Note payable-stockholder 225,000 --
Accounts payable 777,981 792,786
Accrued expenses 242,155 265,149
Deferred revenue 82,276 75,759
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Total current liabilities 1,991,235 1,845,473
Capital lease obligations, net of current portion 51,189 72,053
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Total liabilities 2,042,424 1,917,526
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Stockholders' equity:
Common stock ($.01 par value per share, 15,000,000 shares
authorized, 8,724,883 issued and outstanding) 87,249 87,249
Additional paid-in capital 18,615,457 18,615,457
Accumulated deficit (18,692,050) (18,402,443)
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Total stockholders' equity 10,656 300,263
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Total liabilities and stockholders' equity $ 2,053,080 2,217,789
===================================================================================================
</TABLE>
See accompanying notes to financial statements.
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RSI SYSTEMS, INC.
Statements of Operations
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
2000 1999
(Unaudited) (Unaudited)
------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 887,650 $ 1,624,128
Cost of goods sold 453,867 730,033
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Gross profit 433,783 894,095
Research and development 145,049 270,111
Selling, general and administrative 513,597 1,293,488
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Operating loss (224,863) (669,504)
Other income (expense):
Interest income (expense), net (64,744) (86,743)
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Other income (expense), net (64,744) (86,743)
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Net loss $ (289,607) $ (756,247)
==========================================================================================
Net loss per common share - basic $ (0.03) $ (0.11)
Net loss per common share - diluted $ (0.03) $ (0.11)
==========================================================================================
Weighted average shares outstanding - basic 8,724,883 6,872,238
Weighted average shares outstanding - diluted 8,724,883 6,872,238
==========================================================================================
</TABLE>
See accompanying notes to financial statements.
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RSI SYSTEMS, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
2000 1999
(Unaudited) (Unaudited)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (289,607) $ (756,247)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 77,006 64,139
Changes in operating assets and liabilities:
Accounts receivable, net 29,806 376,189
Inventories 84,251 (337,986)
Prepaid expenses 10,148 (8,777)
Accounts payable (14,805) (190,351)
Accrued expenses (22,994) 178,298
Deferred revenue 6,517 10,399
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Net cash used in operating activities (119,678) (664,336)
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Cash flows from investing activities:
Proceeds from sale of marketable securities -- 793,146
Purchases of furniture and equipment (9,236) (21,065)
Payments for patent costs (70,344) --
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Net cash provided by (used in) investing activities (79,580) 772,081
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Cash flows from financing activities:
Proceeds from issuance of common stock -- 134,000
Net borrowing (repayments) on revolving credit facility (34,745) 398,850
Payments on capital lease obligations (34,075) (25,328)
Proceeds from note payable-stockholder 225,000 --
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Net cash provided by financing activities 156,180 507,522
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Net change in cash and cash equivalents (43,078) 615,267
Cash and cash equivalents at beginning of period $ 83,930 $ 418,863
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Cash and cash equivalents at end of period $ 40,852 $ 1,034,130
====================================================================================================
</TABLE>
See accompanying notes to financial statements.
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RSI SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000 and 1999
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, 2000 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:
In August 2000, the Company modified its commercial loan agreement with a bank
for a $2,500,000 committed line of credit facility that matures in June 2001.
This agreement amended and restated the previous commercial loan agreement dated
September 3, 1999. The new facility is secured by all corporate assets and
provides working capital based on a borrowing base comprised of accounts
receivable, inventories and marketable securities. The new facility also
contains certain covenants and conditions, including minimum net worth plus
subordinated debt levels. Interest on outstanding borrowings accrues at the
prime rate plus 4% (13.5% at September 30, 2000). Outstanding borrowings were
$539,056 and $573,801 at September 30, 2000 and June 30 2000, respectively.
3. RELATED PARTY TRANSACTIONS:
In August 2000, the Company received $225,000 from Richard F. Craven, Chairman
of the Company, in exchange for a demand note payable. On February 28, 2001, the
maturity date of the note, the principal amount of the note together with
accrued interest at 10% per annum is convertible into common stock at a price of
$.34 per share, which was the market price of the Company's common stock on the
date the note was signed.
On September 6, 1999, the Company issued 134,000 shares of its common stock and
received $134,000 upon the exercise of warrants held by Mr. Craven.
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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.
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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 partners. The Company's
fourth-generation product family, the MediaPro 384(TM) system, is a
cross-platform, multimedia videoconferencing engine, capable of operating either
with or without a host computer and displaying through a variety of output
devices. The Company was incorporated under the laws of Minnesota on December
21, 1993.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Net Sales. Net sales for the first quarter of fiscal year 2001 were $887,650,
down 45% from $1,624,128 in the first quarter of fiscal year 2000. The decrease
in sales in the first quarter of fiscal year 2001 was primarily a result of
lower sales volume associated with the Company's OEM partners.
Net sales in the first quarter of fiscal year 2000 included approximately
$655,000 from Philips Electronics N.V. (Philips). These prior years sales to
Phillips included a termination settlement of approximately $290,000 related to
Phillips' decision to exit the settop videoconferencing market and terminate its
OEM agreement with the Company in September 1999. The Company had no sales to
Phillips during the first quarter of fiscal year 2001.
Gross Profit. Gross profit was $433,783 in the first quarter of fiscal year 2001
compared to a gross profit of $894,095 during the first quarter of fiscal year
2000, as a result of lower net sales volume. As noted above, gross profit in the
first quarter of fiscal year 2000 included a $290,000 contract termination
settlement from Philips. Cost of goods sold as a percentage of net sales,
excluding the $290,000 from Philips were 55% in the first quarter of fiscal year
2000 compared to 51% in the first quarter of fiscal year 2001. The higher cost
of goods sold as a percent of net sales during the first quarter of fiscal year
2000 was due to lower average selling prices on units shipped in that quarter
compared to the first quarter of fiscal year 2001. The lower selling prices were
a result of the Company offering substantial discounts in the first quarter of
fiscal year 2000. The higher level of discounts were offered as part of the
Company's strategy to increase volume by attracting new resellers in the first
quarter of fiscal year 2000.
Research and Development Expenses. Research and development expenses were
$145,049 for the first quarter of fiscal year 2001, or 16% of net sales,
compared to research and development expenses of $270,111 or 17% of net sales
for the first quarter of fiscal year 2000. Actual expenses decreased
approximately $125,000 as a result of lower head count associated with lower
sales volume.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $513,597 or 58% of net sales for the first quarter
of fiscal year 2001 compared to $1,293,488 or 80% of net sales for the first
quarter of fiscal year 2000. The lower level of spending on selling, general and
administrative expenses was a result of the Company decreasing its marketing,
sales, technical support and administrative expenses in North America and
Europe. During the first quarter of fiscal year 2001 the Company maintained
these lower expense levels to minimize net losses and conserve cash. Since
September 1999, the Company has both terminated, and through attrition,
eliminated, nineteen positions across various functional areas of the Company.
The Company has also reduced other costs in the areas of facilities,
communications, professional services and other support costs which contributed
to the lower level of expenses during the first quarter of fiscal year 2001. The
Company believes it has maintained key personnel in all functional areas
necessary to successfully execute its business strategy for fiscal year 2001.
In addition, the first quarter of fiscal year 2000 included severance expenses
of approximately $200,000 associated with the resignation of the Company's
former Chief Executive Officer and President in September 1999. There were no
such expenses in the first quarter of fiscal year 2001.
Other Income (Expense). Other income (expense) was $(64,744) in the first
quarter of fiscal year 2001, compared to $(86,743) in the first quarter of
fiscal year 2000. The Company realized reduced interest expense in the first
quarter of fiscal year 2001primarily as a result of paying down the revolving
credit facility with cash reserves in February 2000.
As a result of the foregoing, net loss for the first quarter of fiscal year 2001
was $(289,607), or $(.03) per common share compared to a net loss of $(756,247)
or $(.11) per common share in the first quarter of fiscal year 2000.
LIQUIDITY, CAPITAL RESOURCES AND MATERIAL CHANGES IN FINANCIAL CONDITION
Net cash used in operating activities was $(119,678) in the first quarter of
fiscal year 2001, compared to $(664,336) in the first quarter of fiscal year
2000. The decreased use of cash in the first quarter of fiscal year 2001 was
primarily due to the lower net loss and a decrease in inventory during the first
quarter of fiscal year 2001 compared to the first quarter of fiscal year 2000.
Inventory decreased during the first quarter of fiscal year 2001 as a result of
reductions in inventory levels of peripheral components. The Company purchases
many of these components in quantities that satisfy requirements over several
months in order to obtain the best possible pricing from vendors. As a result,
inventory levels of components can fluctuate from quarter to quarter.
During the first quarter of fiscal year 2001, cash requirements of the Company
have been funded primarily by cash received from its revolving credit facility.
In addition, during the first quarter of fiscal year 2001, the Company received
proceeds of $225,000 from a director of the Company. (See NOTE 3 RELATED PARTY
TRANSACTIONS). The Company also renewed and extended the term of its credit
facility in August 2000. Under the terms of the agreement, a maximum of
$2,500,000 may be drawn based on a borrowing base comprised of a percentage of
eligible accounts receivable, inventory and marketable securities. At September
30, 2000 the Company had cash and
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cash equivalents of $40,852, and an outstanding line of credit balance of
$539,056 on the $2,500,000 credit facility, leaving approximately $1,961,000
unused and approximately $313,000 available.
The Company believes funds generated from operations and funds available under
its line of credit will be sufficient to cover near term cash needs. However, in
the event the Company requires cash in excess of the funds from these sources,
management would seek additional financing or would conserve cash by further
reducing administrative, product development and sales and marketing expenses.
No formal arrangements have been made for such additional financing, and no
assurance can be made that any such financing would be available on favorable
terms or at all.
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PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In February 2000, the Company initiated a suit in Superior Court,
San Bernardino County, California, against a customer for collection
of certain unpaid invoices for equipment ordered and shipped. In
August 2000, the Customer filed a cross complaint against the
Company for alleged breach of contract and interference with
prospective economic advantage. The cross complaint did not specify
an amount of damages. The Company believes the matter will not have
a material adverse impact on the results of operations or financial
position of the Company.
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
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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 8, 2000 /s/ Eugene W. Courtney
-----------------------------
Eugene W. Courtney
Its President & Chief Executive Officer
By: /s/ James D. Hanzlik
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James D. Hanzlik
Its Chief Financial Officer
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RSI SYSTEMS, INC.
EXHIBIT INDEX TO
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000
Item No. Title of Document Method of Filing
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27.1 Financial Data Schedule Filed herewith electronically
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