RADIO SYSTEMS CORP, S-1/A, 1998-01-15

RADIO SYSTEMS CORP
S-1/A, 1998-01-15
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1998

REGISTRATION NO. 333-40593

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 1 TO FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

RADIO SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C> <C>
TENNESSEE 3699 62-1466437
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
Incorporation or
Organization)
</TABLE>

5008 NATIONAL DRIVE, KNOXVILLE, TENNESSEE 37914

423-637-8205

(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
RANDAL D. BOYD
CHAIRMAN OF THE BOARD AND PRESIDENT
RADIO SYSTEMS CORPORATION
5008 NATIONAL DRIVE
KNOXVILLE, TENNESSEE 37914, 423-637-8205
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of
Agent for Service)
Copies to:

<TABLE>
<C> <C>
J. CHASE COLE, ESQ. ELIZABETH E. MOORE, ESQ.
WALLER LANSDEN DORTCH & DAVIS, PLLC STOKES & BARTHOLOMEW, P.A.
2100 NASHVILLE CITY CENTER 424 CHURCH STREET
511 UNION STREET SUITE 2800
NASHVILLE, TENNESSEE 37219-1760 NASHVILLE, TENNESSEE 37219
615-244-6380 615-259-1450
FACSIMILE: 615-244-6804 FACSIMILE: 615-259-1470
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=======================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per
share............................. 2,167,750 shares $12.00 $26,013,000 $7,877
=======================================================================================================================
</TABLE>

(1) Includes 282,750 shares of Common Stock which the Underwriters have the
option to purchase from the Company solely to cover over-allotments, if any.

(2) Estimated in accordance with Rule 457(a) solely for the purpose of
calculating the registration fee.

(3) The Company paid a registration fee equal to $7,632 at the time of the
initial filing of this Registration Statement. This Amendment No. 1
registers an additional 69,000 shares of Common Stock. The Company has paid
an additional registration fee equal to $245 on or prior to this date in
connection with these additional 69,000 shares of Common Stock.

---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JANUARY 15, 1998

PROSPECTUS

1,885,000 SHARES

RADIO SYSTEMS CORPORATION
[LOGO]
COMMON STOCK

Of the 1,885,000 shares of common stock, no par value per share (the
"Common Stock"), of Radio Systems Corporation, a Tennessee corporation (the
"Company" or "Radio Systems"), offered hereby (the "Offering"), 1,490,000 shares
are being sold by the Company and 395,000 shares are being sold by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
receive any of the proceeds from the sale of the shares of Common Stock by the
Selling Shareholders. See "Principal and Selling Shareholders."

Prior to this Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $10 and $12 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Common Stock has been approved for quotation on the Nasdaq Stock Market's
National Market (the "Nasdaq National Market") under the symbol "RDIO."

SEE "RISK FACTORS" BEGINNING ON PAGE OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.

---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
================================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) SELLING SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------
Total (3)....................... $ $ $ $
==============================================================================================================================
</TABLE>

(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.

(3) The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to 282,750 additional shares of Common Stock on the same
terms and conditions as set forth above. If all such shares are purchased by
the Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ and the total Proceeds to Company
will be $ . See "Underwriting."

---------------------

The shares of Common Stock are offered, subject to receipt and acceptance
by the several Underwriters, to prior sale and to the Underwriters' right to
reject orders in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the shares of Common Stock
will be available for delivery on or about , 1998.

---------------------

J.C. Bradford The Robinson-Humphrey Company

, 1998

<PAGE> 3

Providing a way for 36.4 million pet owners to protect their investment.

[Picture of a computer chip]

Innovative Technology

[Pie chart divided into various colors to represent different areas of
distribution]

Diverse Distribution

[Pie chart showing 60% shading]

Market Leader

[Picture of a dog]

Fuzzy Friends

Radio Systems Corporation

Business Savvy. Big Hearts.

---------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
STABILIZATION AND SHORT-COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4

The proof is in the products.

At Radio Systems, our affordable and user-friendly "do-it-yourself"
products make it easy to share the world with the animals we love. With a
commitment to the development and application of technology and a focus on the
needs of the pet owner, our product line has grown stronger and more diverse
every year.

Just ask any of our satisfied customers. They're all the proof we need.

Original Radio Fence
Spray Control Radio Fence
Indoor Radio Fence
Anti-Bark Collars
Ultrasonic Pet Trainer
Champion Trainer
Electronic Flea Comb
Pet Mat Training Aid
PetFinder
Ultrasonic Pest Deterrent

Radio Systems Corporation
<PAGE> 5

Radio Systems Corporation. Sit. Stay. Read

[Picture of a computer chip]

Innovative Technology

We Invented the Category and Reinvented the Category. Technology doesn't
advance on its own. We push it. Our latest generation of affordable and
user-friendly "do-it-yourself" products replaces $27 worth of components with a
$1.27 chip, creating a more economical and dependable solution for pet owners.
Plus, this new technology allows for added safety features and a smaller, more
comfortable collar. With our new products, we intend to push technology as far
as it will go.

[Picture demonstrating actual size of the chip]

[Pie chart divided into various colors to represent different areas of
distribution]

Diverse Distribution

You're Everywhere or You're Nowhere. Radio Systems products are available
on the shelves at over 7,000 retail locations, including larger retailers like:
Wal-Mart, Kmart, Target, Home Depot, Lowe's, Ace Hardware, PETsMART, Petco, Pet
Supplies Plus, Quality, Sears Canada, and many more. Our products are available
in Canada, and through PetSafe Ltd., our products are also available in Western
Europe, giving Radio Systems a strong international presence in the industry.

[Pie chart showing 27% to home centers, 26% discounters, 17% pet
supply, 11% catalog/mail order, 12% farm supply and 8% other]

[Pie chart showing shading]

Market Leader

Very Market Friendly. Radio Systems created the "do-it-yourself" electronic
pet containment category, and continues to lead the category with approximately
170,000 units sold in 1997, a number the Company estimates to be 60% of the
category. In fact, within three years of launching the category at retail, Radio
Systems' growth helped to increase the size of the electronic pet containment
market as a whole. And with the broadest product offering of any player in the
electronic pet containment and training products field, Radio Systems has
achieved a position as an innovator and leader in the industry.

[Picture of a dog]

Fuzzy Friends

As Kind to Animals As We are to Their Trainers. Our business is to create
happier relationships between pets and their owners. By training the trainer
through easy-to-follow video tapes, we help owners understand their dogs. And by
providing training products that effectively and humanely correct dog behavior,
we help dogs understand their owners. A pet is indeed part of the family. And
our goal is to make that family stronger.

[Logo of The Humane Society of The United States]

[Picture of a dog and a cat behind flags used to show the boundaries of the
fence]

The Mission of Radio Systems Corporation is to create economical and
dependable solutions for pet owners by focusing on improving relationships with
their pets and the environment they share.

Radio Systems Corporation

<PAGE> 6

PROSPECTUS SUMMARY

The following is a summary of certain information contained elsewhere in
this Prospectus. This summary is not intended to be complete and is qualified in
its entirety by reference to, and should be read in conjunction with, the more
detailed information, including "Risk Factors," and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise indicates, (i) all references herein to the "Company" or
"Radio Systems" shall mean Radio Systems Corporation, (ii) the information in
this Prospectus assumes that the Underwriters' over-allotment option is not
exercised and (iii) the information contained in this Prospectus gives effect to
a three-for-one stock split paid in the form of a stock dividend approved by the
Company's Board of Directors in November 1997.

THE COMPANY

Radio Systems is a leading provider of electronic pet containment and
training products. The Company currently offers over 20 products, including
radio fences, bark control collars, ultrasonic pet trainers, pet locators,
ultrasonic pest deterrents and an electronic flea comb. Substantially all of the
Company's products are licensed by The Humane Society of the United States. The
Company introduced its first Radio Fence pet containment system in 1991, which
is a radio frequency based system designed to keep pets safely in a designated
area without a visible fence. Radio Systems was the first company to introduce
an affordable and user-friendly "do-it-yourself" product to the electronic pet
containment market by designing and packaging its product for sale through mass
retailers. The retail prices of the products currently offered by the Company
range from $9.95 to $299. The Company's "do-it-yourself" Radio Fence pet
containment systems sell at a significant discount to similar products sold and
installed by specialty fence companies.

The Company's primary product is the Radio Fence pet containment system,
which provides a safe, reliable method of pet containment utilizing a
proprietary computer microchip housed in the pet's collar to administer a mild,
electronic correction when the pet approaches a designated boundary. The pet
owner designates an outdoor containment area by running a wire approximately
three inches beneath the ground. Once the pet has been properly trained to
associate the mild, electronic correction with the boundaries of its containment
area, the pet learns not to approach those boundaries. The Company's newest pet
containment product is the Spray Control Radio Fence, which uses a burst of
non-toxic citronella spray from the pet's collar that is unpleasant to the pet,
rather than the electronic correction. For the year ended December 31, 1997,
Radio Fence pet containment products represented approximately 69% of the
Company's net sales.

Management believes that the Company's success is primarily due to its
ability to apply technological expertise and its marketing efforts. The Company
has achieved a position as an innovator and a leader in the electronic pet
containment and training products industry, in part, through the use of
technological expertise in low frequency magnetics, radio frequency magnetics,
radio frequency design, receiver miniaturization, ultrasonics and mixed signal
computer chip design. The Company leverages its technological and engineering
capabilities to develop new products and enhance its existing products. For
example, during 1996 and 1997 combined, the Company introduced eight new
products and enhanced many of its existing products. In addition, the Company
currently has over 20 potential new products in various stages of development.

The Company currently distributes its products through most of the major
mass retail chains in the United States, consisting of over 7,000 retail
locations. Retailers of the Company's products include Home Depot, Lowe's,
Wal-Mart, Kmart, PETsMART, Target, Ace Hardware, Sharper Image, Cabela's and
many others. For the year ended December 31, 1997, approximately 27% of the
Company's net sales were through home improvement and hardware stores, 26%
through discount stores, 17% through pet supply stores, 12% through farm supply
stores, 11% through catalog retailers and 8% through other retail channels. Of
these total net sales, approximately 7% were made primarily in Canada and
Western Europe.

The Company perceives significant growth in the pet containment and
training products market as a result of several trends including: (i) the
absolute growth in the number of pet owning households and in the number of
pets, (ii) the absolute growth of sales of pet supplies, (iii) the evolving
needs of pet owners, and (iv) technological advances resulting in alternative
solutions. Based on industry surveys, in 1996, approxi-
3
<PAGE> 7

mately 57% of all households in the United States owned at least one dog or cat
during the year (up from 54% in 1990) and, in the aggregate, Americans owned
approximately 128 million dogs and cats, an increase of 20% from 1990. In
addition, based on industry publications, Americans spent $4.1 billion on
non-food pet supplies in 1996, an amount which is projected to grow to $6.1
billion by 2001. Moreover, management believes that the needs of the Company's
target market have evolved as a result of the increasing percentage of dual
income families, longer work weeks and increasing travel habits, resulting in an
increased reliance on pet containment and training products as well as an
increasing awareness of pet behavioral issues. Company research suggests that
only approximately 30% of existing homeowners are aware that electronic pet
containment products exist. Management believes that an even smaller percentage
of homeowners are aware that economical and dependable "do-it-yourself"
electronic pet containment systems are available. While approximately 90% of pet
owners rent or own homes, the Company estimates that fewer than 600,000
electronic pet containment products such as the Company's Radio Fence have been
sold in the last three years.

Accordingly, management believes that it will be able to expand sales of
the Company's products significantly by increasing the public's awareness that
economical and dependable electronic pet containment and training products are
available. Moreover, although most of the Company's retailers that offer the
Company's products do so in all or substantially all of their stores, only a few
carry more than five of the Company's products. As a result of its efforts in
pioneering the "do-it-yourself" market, management believes that the Company's
Radio Fence pet containment systems are the only electronic pet containment
systems offered by most of the retailers that carry the Company's products.
Management believes that additional sales growth can result from increasing the
number of retailers and stores that currently carry its products as well as the
range of products offered by each retailer. Management also intends to grow the
Company through the selective acquisition of complementary businesses as well as
through the expansion of international sales.

The Company's operating strategy is to utilize its existing marketing and
engineering capabilities and take advantage of its strong distribution channels
and market position to maintain and strengthen its status as a leader in the
market for electronic pet containment and training products. In addition, the
Company intends to continue its strategy of developing customer-driven products,
providing exceptional customer service, maintaining cost-effective manufacturing
and product development techniques, and empowering its personnel through profit
teams to enhance the Company's products, processes and profitability.

Radio Systems Corporation was incorporated in Tennessee in 1991. Its
principal executive offices are located at 5008 National Drive, Knoxville,
Tennessee 37914, and its telephone number is 423-637-8205.

THE OFFERING

Common Stock offered by the
Company............................ 1,490,000 shares

Common Stock offered by the Selling
Shareholders....................... 395,000 shares

Common Stock to be outstanding
after the Offering................. 6,162,223 shares(1)

Use of Proceeds by the Company....... To repay outstanding indebtedness, to
fund research and development activities
and possible future acquisitions and for
general corporate purposes, including
working capital. See "Use of Proceeds."

Proposed Nasdaq National Market
symbol............................... RDIO

- ---------------

(1) Does not include 600,000 shares of Common Stock issuable upon the exercise
of stock options granted under the Company's existing stock option plans and
12,000 shares of Common Stock issuable upon the exercise of an outstanding
warrant. See "Management -- Compensation Pursuant to Plans" and "Description
of Capital Stock."

4
<PAGE> 8

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $6,570 $13,490 $13,193 $18,869 $24,567
Costs of goods sold......................................... 5,006 10,310 9,990 12,091 14,830
------ ------- ------- ------- -------
Gross profit on sales....................................... 1,564 3,180 3,203 6,778 9,737
Operating costs and expenses:
Selling, general and administrative expenses.............. 1,321 2,496 3,122 3,410 5,031
Research and development.................................. 462 471 912 664 983
Interest expense.......................................... 31 149 468 715 423
------ ------- ------- ------- -------
Income (loss) before income taxes and cumulative effect of
accounting change......................................... (250) 62 (1,299) 1,989 3,300
Income tax benefit (provision).............................. 90 7 (196) (42) (1,240)
------ ------- ------- ------- -------
Income (loss) before cumulative effect of accounting
change.................................................... (160) 69 (1,495) 1,947 2,060
Cumulative effect of accounting change...................... 60 -- -- -- --
------ ------- ------- ------- -------
Net income (loss)........................................... $ (100) $ 69 $(1,495) $ 1,947 $ 2,060
====== ======= ======= ======= =======
Earnings per common and equivalent share before cumulative
effect of accounting change............................... $(0.05) $ 0.02 $ (0.32) $ 0.42 $ 0.44
====== ======= ======= ======= =======
Income (loss) per common and equivalent share:
Basic..................................................... $(0.03) $ 0.02 $ (0.32) $ 0.42 $ 0.44
====== ======= ======= ======= =======
Diluted................................................... $(0.03) $ 0.02 $ (0.32) $ 0.36 $ 0.38
====== ======= ======= ======= =======
Number of shares and common stock equivalents used in
computing earnings per common and equivalent share(2):
Basic................................................... 3,106 3,990 4,601 4,663 4,666
Diluted................................................. 3,106 4,123 4,733 5,390 5,397
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED(1)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 5,504 $17,257
Total assets................................................ 11,304 22,482
Long-term debt, including current portion and borrowings
under line of credit...................................... 4,111 546
Shareholders' equity........................................ 3,778 18,521
</TABLE>

- ---------------

(1) Adjusted to reflect the sale by the Company of 1,490,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $11.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
(2) Reflects a 100-for-1 stock split effected as a stock dividend on September
19, 1994, and a three-for-one stock split approved by the Board of Directors
on November 14, 1997.
5
<PAGE> 9

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the shares of Common Stock offered hereby. This discussion also
identifies important cautionary factors that could cause the Company's actual
results of operations to differ materially from those suggested in
forward-looking statements regarding the Company made by, or on behalf of, the
Company. In particular, the Company's forward-looking statements, including
those regarding the adequacy of the Company's capital resources, its ability to
develop and market new products, the expansion of its business, potential
acquisitions and statements regarding trends relating to various net sales and
expense items, could be affected by a number of risks and uncertainties
including those described below.

DEPENDENCE ON THIRD PARTY MANUFACTURERS AND SUPPLIERS

The Company uses multiple foreign and domestic manufacturers to manufacture
and assemble substantially all of its products and component parts on a purchase
order basis and does not maintain purchase or supply agreements with these
suppliers. Certain of the Company's components, primarily the microchip used in
the Company's Radio Fence products manufactured by Orbit Semiconductor, Inc.
("Orbit"), are currently obtained from a single source. As with the Company's
other suppliers, the Company does not have a purchase or supply agreement with
Orbit. Management expects that the Company will continue to be substantially
dependent upon contract manufacturers in the future. There can be no assurance
that the Company will be able to continue to obtain sufficient quantities of
products or key components as required or that such products or key components
will be available to the Company on commercially reasonable terms. Because the
Company does not have long-term supply contracts with its suppliers, including
Orbit, the Company's suppliers could unilaterally terminate their relationships
with the Company at will. Moreover, the Company has no commitment from any of
its manufacturers or suppliers to continue to manufacture, assemble or supply
goods for the Company. Although management believes its relationships with its
suppliers and manufacturers are good and that additional sources are available
for all of the needed products and components, including the microchip, a future
deterioration of such relationships (including the Company's relationship with
Orbit) or events outside of the Company's control (for example, changes in the
costs of manufacturing, foreign government or economic instability, damage to
suppliers' manufacturing plants, financial difficulties of suppliers, delays or
interruptions in the shipment of products or, in the case of foreign suppliers,
changes in the foreign policy of the United States, changes in regulation,
tariffs or import/export policies or currency fluctuation) could have a material
adverse effect on the Company's ability to obtain the necessary products or
components and ship its products to its customers and on its results of
operations. See "Business -- Manufacturing and Assembly."

RISKS ASSOCIATED WITH FUTURE ACQUISITIONS

An element of the Company's growth strategy is expansion through the
acquisition of businesses or assets that complement or expand its existing
business. As a result, the Company evaluates potential acquisition
opportunities, some of which may be material in size or scope. Acquisitions
involve a number of special risks, including the time associated with
identifying and evaluating potential acquisitions, the Company's ability to
obtain acquisition financing, the diversion of management's attention to the
integration of the assets, operations and personnel of the acquired businesses,
the introduction of new products and services into the Company's business,
possible adverse short-term effects on the Company's results of operations, the
realization of acquired intangible assets and the loss of key employees of the
acquired businesses. The Company may issue equity securities and other forms of
consideration in connection with future acquisitions, which could cause dilution
to investors purchasing Common Stock in the Offering. The Company has no present
agreements, arrangements or commitments with respect to any acquisition. There
can be no assurance that suitable acquisition candidates will be found on terms
acceptable to the Company, that the Company will have adequate resources to
consummate any acquisition, that acquisitions can be consummated successfully or
that acquired businesses can be operated profitably or integrated successfully
into the Company's operations. See "Business -- Growth Strategy."

6
<PAGE> 10

NEW PRODUCT DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGE

Management believes that the market for the Company's products can be
characterized by, and is subject to, rapidly changing technology, competition
through technological advances and evolving industry standards. In addition, the
Company's operating and growth strategies are significantly dependent upon the
development, marketing and acceptance of the Company's products, including
products dependent upon technology or computer software. The development of new
electronic technology and software is a complex process, requiring high levels
of innovation and capital. The introduction of new or enhanced products also
requires that the Company manage transitions from older products in order to
minimize disruptions in customer orders, avoid excess inventory of products and
ensure that adequate supplies of new products can be delivered to meet new
customer orders. There can be no assurance that the Company will be successful
in the development and introduction of new or enhanced products, that the
Company can successfully manage the transition by customers to new or enhanced
products, that any such products will be sufficiently responsive to
technological changes or gain market acceptance, or that consumers will accept
any new or enhanced products. The Company's business, financial condition and
results of operations could be materially adversely affected if the Company
experiences significant delays in the development and introduction of new
products or enhancements, or if such new products or enhancements do not gain
market acceptance. In addition, there can be no assurance that products or
technologies developed by others will not render the Company's products or
technologies non-competitive or obsolete. See "Business -- Growth Strategy" and
"-- Competition."

DISTRIBUTION CHANNELS

The success of the Company depends heavily on the business it conducts with
a limited number of retail segments and retailers. For the year ended December
31, 1997, approximately 27%, 26%, 17%, 12%, and 11% of the Company's net sales
were made to home improvement and hardware stores, discount stores, pet supply
stores, farm supply stores and catalog retailers, respectively. For the same
period, approximately 13%, 10% and 9% of the Company's net sales were made
through Wal-Mart, Lowe's and PETsMART, respectively. The Company has
long-standing relationships with most of the retailers that sell the Company's
products; however, it does not have contracts with them and, therefore, these
retailers may unilaterally reduce or discontinue their purchases without
penalty. The Company's loss of (or failure to retain a significant amount of
business with) any of these retailers, whether as a result of purchasing
decisions made by these retailers, interruptions in the businesses of any of
these retailers, the consolidation of segments of the retail industry, failures
of the businesses of these retailers, or otherwise, could have a material
adverse effect on the Company's business, prospects and results of operations.
See "Business -- Sales and Marketing."

DEPENDENCE ON KEY PERSONNEL

The success of the Company depends upon the continued services of the
Company's senior management, particularly upon its founder, Chairman of the
Board and President, Randal D. Boyd. In addition to Mr. Boyd's service to the
Company in these positions, Mr. Boyd has also had a significant role in the
Company's sales and marketing activities and has developed relationships with
certain of the Company's largest retailers. Mr. Boyd has also developed and
implemented the Company's business and marketing strategies. The loss of the
services of any of the Company's senior management including, in particular, Mr.
Boyd, could have a material adverse effect upon the Company's business,
prospects and results of operations. Moreover, the Company's growth plans will
place significant demands on the Company's management and operating personnel.
The Company's ability to achieve and manage its future growth effectively will
require it to improve its operational, financial and management information
systems and to continue to attract, train, motivate, manage and retain key
officers and associates. If the Company is unable to manage its growth
effectively, its business, prospects and results of operations may be adversely
affected. See "Management" and "Business -- Growth Strategy."

COMPETITION

The industry in which the Company operates is highly competitive. The
Company's products compete with other similar products primarily on the basis of
quality, reliability, the availability and quality of customer

7
<PAGE> 11

service and price. Because of the competitive nature of the industry and because
the market for electronic pet containment and training products has not yet been
widely recognized, additional competitors may emerge that have greater access to
capital, more personnel and greater technological resources than the Company.
Additionally, current or future competitors may institute aggressive pricing
strategies in an effort to gain market share. There can be no assurance that the
Company will be able to compete successfully with any such competitors. See
"Business -- Competition."

DEPENDENCE UPON INTELLECTUAL PROPERTY

The Company's ability to compete effectively will depend, in part, on its
ability to protect its existing intellectual property, including its patents and
trademarks, and on its ability to develop and protect intellectual property. In
addition to patent and trademark protection, the Company also relies on trade
secrets, technological know-how and other unpatented, proprietary information
relating to its product development and manufacturing activities which it seeks
to protect, in part, by confidentiality agreements with its employees and third
parties. The Company's ability to compete effectively also depends on its
ability to avoid infringing on the proprietary rights of others. There can be no
assurance that the steps taken by the Company to protect its intellectual
property will be adequate to prevent misappropriation or that others will not
independently develop technology or products that compete with or are superior
to the Company's products. Likewise, there can be no assurance that the Company
will not inadvertently infringe on the intellectual property rights of others.
See "Business -- Intellectual Property."

VARIABILITY OF QUARTERLY OPERATING RESULTS

The Company's quarterly net sales and results of operations fluctuate
significantly, in part, with seasonal shifts in the retail industry, changes in
climate and the introduction of new products and technology. Historically,
approximately 55-60% of the Company's net sales have taken place in the second
and third fiscal quarters, when the weather is warm or mild. Future variability
of quarterly net sales and results of operations may be caused by a variety of
factors, including, but not limited to, the timing and shipment of significant
orders, the introduction of new products, processes and technologies by the
Company and its competitors, market acceptance of new and enhanced versions of
the Company's products, changes in pricing policies by the Company and its
competitors, the mix of distribution channels through which the Company's
products are sold, the inability to obtain sufficient supplies of sole or
limited source components for the Company's products, gains or losses of
significant customers, the timing of customer upgrade and expansion programs,
changes in the levels of operating expenses, the timing of acquisitions,
seasonality and general economic conditions. Moreover, the Company's obligation
to accept returns of products, in some cases at retail prices, could have a
material adverse effect on the Company's results of operations. In response to
competitive pressures of new product introductions, the Company may also take
certain pricing or marketing actions that could materially and adversely affect
the Company's operating results. The Company's expense levels are based, in
part, on the Company's expectations as to future sales. If future sales levels
are below expectations, the Company may be unable to adjust spending
sufficiently in a timely manner to compensate for such unexpected sales
shortfalls. Therefore, in future quarters, the Company's operating results may
be below the expectations of public market analysts and investors. In this
event, the price of the Common Stock may be materially adversely affected. See
"Management's Discussions and Analysis of Financial Conditions and Results of
Operations."

RECENT LOSSES

The Company incurred net losses of approximately $100,000 and $1.5 million
in fiscal 1993 and fiscal 1995, respectively. As a result of, among other
things, the competitive nature of the industry in which the Company operates and
the Company's need to develop new products and to enhance existing products,
there can be no assurance that the Company will maintain profitability or
achieve continued growth in operating performance in any future fiscal year or
quarter. See "Business -- Competition."

8
<PAGE> 12

EXPOSURE TO PRODUCT LIABILITY CLAIMS

The Company is potentially subject to various legal claims, including
products liability and other personal injury lawsuits relating to its products
and arising out of the ordinary course of its business. In addition, because the
Company sells products that are designed to contain pets, the Company may be
subject to claims if a pet is not effectively contained in its boundary, or
causes harm to property or individuals once it is outside of its boundary. The
Company does not maintain reserves to limit the economic impact to the Company
in the event of any successful legal claim of this nature against the Company.
The Company does, however, maintain general liability insurance coverage at
levels determined in light of management's estimation of the Company's exposure
to such claims, among other factors. There can be no assurance, however, that
such insurance will be adequate either in amount or type of coverage, or that
the Company will be able to maintain such coverage in the future. Consequently,
there can be no assurance that the costs and expenses or other liabilities
arising out of product liability or personal injury actions or legal proceedings
involving the Company will not have a material adverse effect on the Company's
business, prospects and results of operations. See "Business -- Insurance."

GOVERNMENT REGULATION

Standards governing the treatment of animals are constantly evolving and
developing. Various countries, including Norway, Sweden and Switzerland,
prohibit products that are deemed to be inhumane or harmful to pets. If any
governing or regulatory body of any country or other political jurisdiction with
similar or analogous laws determines that any or all of the Company's products
are prohibited, then the Company could be prohibited from selling such products
in such countries or jurisdictions. In addition, regulations have been adopted
in at least one town in the United States that require pet owners to post a sign
to notify the public that an owners' pet is being restrained by an electronic
fence. There can be no assurance that additional, similar laws or regulations
will not be proposed or adopted in the future. In addition, many of the
Company's products require compliance with standards set by the Federal
Communications Commission (the "FCC"). The ability of the Company to adhere to
the standards of the FCC cannot be assured and changes in current rules and
regulations cannot be predicted. The failure to comply with the FCC or other
domestic or international regulations could have a material adverse effect on
the Company and its results of operations. See "Business -- Regulation."

ABSENCE OF PRIOR PUBLIC MARKET; RELATIONSHIP OF OFFERING PRICE TO MARKET PRICE

Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or
continue after the Offering or that the market price of the Common Stock will
not decline below the initial public offering price. The initial public offering
price of the Common Stock has been determined by negotiation among the Company,
the Selling Shareholders, and J.C. Bradford & Co. and The Robinson-Humphrey
Company, LLC, as the representatives of the Underwriters (the
"Representatives"), and may not be indicative of the market price for shares of
Common Stock after the Offering. See "Underwriting." Prices for the shares of
Common Stock after the Offering will be determined in the market and may be
influenced by many factors, including the depth and liquidity of the market for
the Common Stock, investor perception of the Company, the Company's industry as
a whole and general economic and market conditions.

POSSIBLE VOLATILITY OF MARKET PRICE

From time to time after the Offering, there may be significant volatility
in the market price of the Common Stock. Quarterly operating results of the
Company, changes in earnings estimated by analysts, changes in general
conditions in the economy or the financial markets or other developments
affecting the Company could cause the market price of the Common Stock to
fluctuate substantially. In addition, the stock market from time to time
experiences extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities, often for reasons
unrelated to the operating performance of the issuers.

9
<PAGE> 13

CONTROL BY MANAGEMENT AND CERTAIN SHAREHOLDERS

Following completion of the Offering, directors and officers of the Company
will beneficially own approximately 64.4% of the outstanding shares of Common
Stock (approximately 61.3% if the underwriters' over-allotment option is
exercised in full). Accordingly, these persons will have substantial influence
over the affairs of the Company, including the ability to control the election
of directors, the decision whether to effect or prevent a merger or sale of
assets and other matters requiring shareholder approval. See "Management" and
"Principal and Selling Shareholders."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public
market following the Offering could adversely affect the market price for the
Common Stock. The number of shares of Common Stock available for sale in the
public market is limited by restrictions under the Securities Act of 1933, as
amended (the "Securities Act"), and lock-up agreements under which certain
holders of such shares have agreed not to sell or otherwise dispose of any of
their shares for a period of 180 days after the date of this Prospectus without
the prior written consent of J.C. Bradford & Co., acting on behalf of the
Underwriters. On the date of this Prospectus, no shares other than the 1,885,000
shares offered hereby will be eligible for sale. A total of 4,347,722 additional
shares are subject to lock-up agreements and will be eligible for sale subject
to the volume and holding period limitations of Rule 144 following the
expiration of such lock-up agreements. See "Shares Eligible for Future Sale."

EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS

Pursuant to the Company's Amended and Restated Charter (the "Charter"), the
Company's Board of Directors has the authority, without action by the
shareholders, to issue up to 10,000,000 shares of preferred stock and to fix the
rights and preferences of such shares. This authority, together with provisions
of the Company's Charter that implement staggered terms for directors, may
delay, deter, or prevent a change in control of the Company. In addition, as a
Tennessee corporation, the Company is subject to the provisions of the Tennessee
Business Combination Act, the Tennessee Control Share Acquisition Act and the
Tennessee Greenmail Act, each of which may be deemed to have anti-takeover
effects and may delay, deter, or prevent a takeover attempt that might be
considered by the shareholders to be in their best interests. See "Description
of Capital Stock -- Preferred Stock" and "Certain Provisions of the Charter,
Bylaws and Tennessee Law."

DILUTION

The purchasers of the Common Stock offered hereby will experience immediate
and significant dilution of $8.11 per share, the amount by which the purchase
price of the Common Stock offered hereby will exceed the net tangible book value
of the Common Stock immediately following the Offering. In the event the Company
issues additional shares of Common Stock in the future, including shares which
may be issued in connection with any future acquisitions, purchasers of Common
Stock in this Offering may experience further dilution in net tangible book
value per share of the Common Stock. See "Dilution."

10
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,490,000 shares of
Common Stock offered by the Company hereby (assuming an initial public offering
price of $11.00 per share) are estimated to be approximately $14.7 million
(approximately $17.5 million if the underwriters' over-allotment option is
exercised in full), after deducting the underwriting discount and estimated
expenses payable by the Company in connection with the Offering. The Company
will not receive any proceeds from the sale of shares of Common Stock by the
Selling Shareholders. See "Principal and Selling Shareholders."

The Company plans to use approximately $3.6 million of the net proceeds of
the Offering to repay outstanding indebtedness of the Company. The indebtedness
to be repaid from the net proceeds of the Offering bears interest at annual
rates ranging from 8.4% to 11.5%, and was incurred to purchase certain fixed
assets, acquire a product line from Austin Innovations, Inc. (the "Austin
Acquisition"), repurchase certain stock purchase warrants and meet the Company's
working capital needs. At December 31, 1997, such indebtedness had a weighted
average interest rate of 9.7%. Such indebtedness, if not repaid, would otherwise
mature at various dates through 2002. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

The remaining $11.1 million of the net proceeds is expected to be used to
fund research and development activities, possible future acquisitions and for
general corporate purposes, including working capital. Although the Company
periodically evaluates acquisition opportunities and conducts preliminary
discussions, the Company has no present agreements, arrangements or commitments
with respect to any acquisition. In identifying potential acquisitions, the
Company intends to target entities or product lines that are engaged in the
Company's existing business or that can increase the Company's ability to
compete in its markets. There can be no assurance that any such research and
development activities or acquisitions will be successful or that the terms of
any such transactions will be favorable to the Company.

Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, investment-grade or
government, interest-bearing securities.

11
<PAGE> 15

CAPITALIZATION

The following table sets forth (i) the actual capitalization of the Company
as of December 31, 1997 and (ii) the capitalization on an as adjusted basis to
reflect the issuance and sale of the 1,490,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $11.00 (the
midpoint of the estimated initial public offering price) per share and the
application of the estimated net proceeds therefrom, which are estimated to be
approximately $14.7 million (after deducting the underwriting discount and
estimated initial public offering expenses). This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and the related Notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED(1)
------ --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt, capital lease obligations and other obligations..... $ 683 $ 108
Long-term debt, line of credit, capital lease obligations
and other obligations, less current portion............... 3,427 438
Shareholders' equity:
Preferred Stock, no par value per share; 10,000,000 shares
authorized, no shares outstanding...................... -- --
Common Stock, no par value per share; 50,000,000 shares
authorized; 4,669,223 shares outstanding; 6,159,223
shares outstanding, as adjusted(2)..................... 2,029 16,771
Stock purchase warrants................................... 7 7
Retained earnings......................................... 1,742 1,742
------ -------
Total shareholders' equity........................ 3,778 18,521
------ -------
Total capitalization.............................. $7,889 $19,067
====== =======
</TABLE>

- ---------------

(1) Does not include 600,000 shares of Common Stock (after giving effect to
3,000 shares of Common Stock issued in January 1998 pursuant to the exercise
of an option) issuable upon the exercise of stock options granted under the
Company's stock option plans and 12,000 shares of Common Stock issuable upon
the exercise of an outstanding warrant. See "Management -- Compensation
Pursuant to Plans" and "Description of Capital Stock."

(2) Share amounts have been adjusted for a three-for-one stock split approved by
the Board of Directors on November 14, 1997.

12
<PAGE> 16

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock.
The Company expects that future earnings, if any, will be retained to finance
the growth and development of the Company's business and, accordingly, does not
intend to declare or pay any cash dividends on the Common Stock for the
foreseeable future. The declaration, payment and amount of future dividends, if
any, will be subject to the sole discretion of the Company's Board of Directors
and will depend upon the future earnings, results of operations, financial
condition and capital requirements of the Company and any applicable contractual
restrictions and such other factors as the Board of Directors, in its sole
discretion, deems relevant. The Company's current $5,000,000 Revolving Line of
Credit, dated April 3, 1995, with First American National Bank ("First
American"), as amended, and its Term Loan, dated June 5, 1995, with BankFirst of
Knoxville, Tennessee (together with First American, "the Banks"), provides that
the Company may not declare or pay any dividend of any kind without the prior
written consent of the Banks, which consent shall not be unreasonably withheld.

DILUTION

At December 31, 1997, the net tangible book value of the Company was
approximately $3.1 million, or $0.66 per share of Common Stock. Net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding.

After giving effect to the issuance and sale by the Company of the
1,490,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $11.00 (the midpoint of the estimated initial public offering
price) per share, and after deducting the estimated underwriting discount and
offering expenses payable by the Company and the receipt by the Company of
approximately $14.7 million in net proceeds, the pro forma net tangible book
value of the Company at December 31, 1997 would have been approximately $17.8
million, or $2.89 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $2.23 per share to existing
shareholders and an immediate dilution in net tangible book value of $8.11 per
share to purchasers of Common Stock in the Offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Net tangible book value prior to the Offering............... $0.66
Increase in net tangible book value attributable to new
investors................................................. 2.23
-----
Pro forma net tangible book value after the Offering........ 2.89
------
Dilution in net tangible book value to new investors........ $ 8.11
======
</TABLE>

The following table summarizes, at December 31, 1997, the number of shares
of Common Stock issued by the Company, the total consideration paid to the
Company and the average price per share paid to the Company by existing
shareholders and by the new investors purchasing shares of Common Stock in the
Offering at an assumed initial public offering price of $11.00 per share:

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE PRICE
------------------- --------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 4,274,223 69% $ 1,583,187 7% $ 0.38
New investors....................... 1,885,000 31 20,735,000 93 11.00
--------- --- ----------- ---
Total(2).................. 6,159,223 100% $22,318,187 100%
========= ===========
</TABLE>

- ---------------

(1) Sales by Selling Shareholders in this Offering will cause the number of
shares owned by existing shareholders to be reduced to 4,274,223 shares, or
approximately 69%, and the number of shares owned by new investors to be
increased to 1,885,000 shares, or approximately 31%, of the total number of
shares of Common Stock to be outstanding after this Offering. See "Principal
and Selling Shareholders."
(2) Does not include 600,000 shares of Common Stock (after giving effect to
3,000 shares of Common Stock issued in January 1998 pursuant to the exercise
of an option) issuable upon the exercise of stock options granted under the
Company's stock option plans and 12,000 shares of Common Stock issuable upon
the exercise of an outstanding warrant. See "Management -- Compensation
Pursuant to Plans" and "Description of Capital Stock."

13
<PAGE> 17

SELECTED FINANCIAL DATA

The selected financial data set forth on the following page for the Company
as of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997 are derived from the audited financial statements
included elsewhere herein. The selected financial data set forth on the
following page for the Company as of December 31, 1993, 1994 and 1995, and for
each of the two years in the period ended December 31, 1994 are derived from
financial statements not included elsewhere herein.

All information contained in the following tables should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Financial
Statements and related Notes included elsewhere in this Prospectus.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales................................................... 6,570 $13,490 $13,193 $18,869 $24,567
Costs of goods sold......................................... 5,006 10,310 9,990 12,091 14,830
------ ------- ------- ------- -------
Gross profit on sales....................................... 1,564 3,180 3,203 6,778 9,737
Operating costs and expenses:
Selling, general and administrative expenses.............. 1,321 2,496 3,122 3,410 5,031
Research and Development.................................. 462 471 912 664 983
Interest Expense.......................................... 31 149 468 715 423
------ ------- ------- ------- -------
Income (loss) before income taxes and cumulative effect of
accounting change......................................... (250) 62 (1,299) 1,989 3,300
Income tax benefit (provision).............................. 90 7 (196) (42) (1,240)
------ ------- ------- ------- -------
Income (loss) before cumulative effect of accounting
change.................................................... (160) 69 (1,495) 1,947 2,060
Cumulative effect of accounting change...................... 60 -- -- -- --
------ ------- ------- ------- -------
Net income (loss)........................................... $ (100) $ 69 $(1,495) $ 1,947 $ 2,060
====== ======= ======= ======= =======
Earnings per common and equivalent share before cumulative
effect of accounting change............................... $(0.05) $ 0.02 $ (0.32) $ 0.42 $ 0.44
====== ======= ======= ======= =======
Income (loss) per common and equivalent share:
Basic..................................................... $(0.03) $ 0.02 $ (0.32) $ 0.42 $ 0.44
====== ======= ======= ======= =======
Diluted................................................... $(0.03) $ 0.02 $ (0.32) $ 0.36 $ 0.38
====== ======= ======= ======= =======
Number of shares and common stock equivalents used in
computing earnings per common and equivalent share(2):
Basic..................................................... 3,106 3,990 4,601 4,663 4,666
Diluted................................................... 3,106 4,123 4,733 5,390 5,397
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, DECEMBER 31,
------------------------------------------ 1997
1993 1994 1995 1996 1997 AS ADJUSTED(1)
------ ------ ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.................................... $2,067 4,514 $3,613 $6,255 $9,603 $20,781
------ ------ ------ ------ ------ -------
Total assets...................................... 2,359 5,119 4,449 7,119 11,304 22,482
------ ------ ------ ------ ------ -------
Long-term debt, including current portion and
borrowings under line of credit................. -- 172 1,072 162 4,111 546
------ ------ ------ ------ ------ -------
Shareholders' equity.............................. 257 1,921 791 2,987 3,778 18,521
</TABLE>

- ---------------

14
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Financial Statements and
Notes thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors," as well as those discussed elsewhere
in this Prospectus.

OVERVIEW

The Company has achieved significant growth in the last five years, with
net sales increasing from $6.6 million in 1993 to $24.6 million in 1997. Net
sales increases have been primarily attributable to the addition of retailers to
the Company's distribution system as well as expanded penetration within each
retailer's chain. While the Company currently offers over 20 electronic pet
containment and training products, a substantial portion of the increase in net
sales has been attributable to the Company's Radio Fence pet containment
products. The Company's five largest customers accounted for 46.5% of total net
sales for the year ended December 31, 1997. The Company believes that sustained
growth can be achieved through continued expansion of its product line and
distribution channels, as well as increasing market awareness at the consumer
level, selective acquisitions, expansion of international sales and other
measures.

Product sales are recognized upon shipment, net of estimated trade
discounts and returns. Estimated warranty costs attributable to the Company's
standard warranty program are accrued for at the time of sale. Substantially all
sales transactions are denominated in U.S. dollars.

Cost of goods sold includes production costs plus freight, customs and
other costs associated with delivery from foreign contract manufacturers or from
domestic suppliers, as well as royalties paid under certain licensing or other
agreements. Selling, general and administrative expenses ("SG&A") include costs
related to the Company's sales force, which is comprised principally of
independent representatives working on a commission basis, and to a lesser
extent, of in-house associates. SG&A also include costs associated with
marketing and advertising activities, as well as corporate and administrative
support functions. Research and development costs consist primarily of salaries,
overhead and materials costs related to design and development efforts of the
Company's in-house engineering staff, as well as similar services provided on a
contract basis by third party consultants. Such costs are expensed when
incurred.

RESULTS OF OPERATIONS

The following table sets forth for the fiscal periods indicated the
percentage of total net sales represented by certain items reflected in the
Company's statements of operations and the percentage change from period to
period in such items.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 75.7 64.1 60.4
----- ----- -----
Gross profit on sales....................................... 24.3 35.9 39.6
Selling, general and administrative expenses................ 23.7 18.1 20.5
Research and development.................................... 6.9 3.5 4.0
Interest expense............................................ 3.5 3.8 1.7
----- ----- -----
Income (loss) before income taxes........................... (9.8) 10.5 13.4
Income tax provision........................................ (1.5) (0.2) (5.0)
----- ----- -----
Net income (loss)........................................... (11.3)% 10.3% 8.4%
===== ===== =====
</TABLE>

15
<PAGE> 19

Year Ended December 31, 1997 Compared With Year Ended December 31, 1996

Net sales. Net sales increased $5.7 million, or 30.2%, to $24.6 million
for the fiscal year 1997, from $18.9 million for fiscal year 1996. Of the
increase, approximately $4.1 million was attributable to increased net sales to
existing retailers with the remaining $1.6 million attributable to net sales to
new retailers. The growth in net sales was attributable to increased sales of
existing products, as well as the introduction of new training products
developed by the Company or acquired by the Company in the Austin Acquisition,
such as bark control collars and ultrasonic trainers.

Cost of goods sold. Cost of goods sold increased $2.7 million, or 22.6%,
to $14.8 million for fiscal year 1997, from $12.1 million for fiscal year 1996.
Cost of goods sold decreased as a percentage of net sales from 64.1% for fiscal
year 1996, to 60.4% for fiscal year 1997, due to cost reductions resulting from
efficiencies realized in packaging and improved pricing with suppliers.
Production overhead as a percentage of net sales continued to decrease in fiscal
year 1997, as fixed costs were spread over greater net sales volume. Freight
costs as a percentage of net sales decreased primarily as a result of improved
freight rates and larger shipment sizes.

Selling, general and administrative expenses. SG&A increased $1.6 million,
or 47.5%, to $5.0 million for fiscal year 1997, from $3.4 million for fiscal
year 1996. Increased marketing activities, primarily advertising, accounted for
approximately 46% of the increase and increases in variable costs such as sales
commissions and cooperative advertising accounted for an additional 25% of the
increase. Administrative and other support costs remained relatively stable due
to a combination of an increase in bonuses payable as a result of improved
operating results and a reduction of costs achieved by the Company through its
profit teams. SG&A as a percentage of net sales increased from 18.1% in 1996 to
20.5% in 1997.

Research and development expenses. Research and development expenses
increased $319,000, or 48.0%, to $983,000 for fiscal year 1997, from $664,000
for fiscal year 1996, reflecting an increase in the number of personnel. The
additional personnel were added to increase activity in both the development of
new products and the enhancement of existing products.

Interest expense. Interest expense decreased $292,000, or 40.8%, to
$423,000 for fiscal year 1997, from $715,000 for the fiscal year 1996. This
decrease was substantially attributable to the decrease in amortization of the
debt discount associated with the stock purchase warrants held by the
subordinated debt holder. The subordinated note was retired on December 18,
1996. This decrease was partially offset by the increase in borrowing cost
associated with debt incurred for the Austin Acquisition and for the repurchase
of the aforementioned stock purchase warrants.

Income taxes. Income tax provision increased to $1.2 million for fiscal
year ended 1997, from $42,000 for fiscal year 1996. The 2.1% effective rate for
fiscal year 1996 reflected both the utilization of net operating loss
carryforwards from prior periods, as well as reversal of the deferral tax
valuation allowance established in fiscal year 1995. The 1997 effective rate of
37.6% reflects the Company's combined federal and state tax rate, as the
utilization of net operating loss carryforwards and the change in deferred tax
asset valuation allowance were recorded entirely in 1996.

Year Ended December 31, 1996 Compared With Year Ended December 31, 1995

Net sales. Net sales increased $5.7 million, or 43.2%, to $18.9 million
for fiscal year 1996, from $13.2 million for fiscal year 1995. Of the increase,
approximately $3.4 million was attributable to increased sales through existing
distribution channels, with the remaining $2.3 million attributable to the
addition of new retailers. The increase in sales of the Radio Fence pet
containment products reflected an increase in volume of 34.0%, as the Company
implemented a dual brand strategy, with the Radio Fence brand featuring the
newer, ultralight receiver at a premium price, and the Pet Guardian brand using
the older receiver, offered at a more economical price.

Cost of goods sold. Cost of goods sold increased $2.1 million, or 21.0%,
to $12.1 million for fiscal year 1996, from $10.0 million for fiscal year 1995.
Cost of goods sold decreased as a percentage of net sales from 75.7% in 1995 to
64.1% in 1996, due to several cost reduction initiatives implemented in the last
quarter of

16
<PAGE> 20

1995 and the first quarter of 1996. Such initiatives included the outsourcing of
substantially all manufacturing and assembly operations to third parties,
entering into more favorable copper supply arrangements and integrating new,
more cost-effective designs into the Company's pet containment products.

Selling, general and administrative expenses. SG&A increased approximately
$300,000, or 9.2%, to $3.4 million for fiscal year 1996, from $3.1 million for
fiscal year 1995. Increased selling and marketing costs associated with the
increase in net sales and increased compensation expense associated with higher
profitability were partially offset by reductions in corporate and
administrative expenses achieved by personnel reductions and other cost control
measures. As a result of higher net sales in 1996, SG&A as a percentage of net
sales decreased from 23.7% in 1995 to 18.1% in 1996.

Research and development expenses. Research and development expenses
decreased approximately $250,000 or 29.4%, to $664,000 for fiscal year 1996,
from $912,000 for fiscal year 1995. This decrease reflected a more focused
approach to new product development, which resulted in a reduction in both
research personnel and the use of outside engineering services.

Interest expense. Interest expense increased $247,000, or 52.8%, to
$715,000 for fiscal year 1996, from $468,000 for fiscal year 1995. Substantially
all of the increase is attributable to increased amortization of debt discount
associated with the stock purchase warrant held by the subordinated debt holder.
The subordinated note was retired on December 18, 1996.

Income taxes. Income tax provision decreased $153,000, or 78.6%, to
$42,000 for fiscal year 1996, from $196,000 for fiscal year 1995. The net
decrease primarily reflected the approximately $1.3 million increase in tax
provision based on statutory rates applied to higher taxable income, net of the
$1.4 million decrease resulting from the reversal of the $685,000 deferred tax
asset valuation allowance established in 1995. The elimination of the valuation
allowance reflected the utilization of net operating loss carryforwards and tax
credits for which a 100% valuation allowance had been established in 1995.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its operations through a
combination of cash flow from operations, bank and other borrowings and equity
capital. The Company's capital requirements have arisen primarily in connection
with purchases of fixed assets and the Austin Acquisition.

Net cash provided (used) by operating activities improved from ($2.3
million) for the fiscal year 1994 to ($74,000) for the fiscal year 1995
primarily due to significantly lower inventory levels in 1995. Net cash provided
(used) by operating activities increased to $68,000 in 1996 due to a significant
improvement in net income (loss) from ($1.5 million) for the fiscal year 1995 to
$1.9 million for the fiscal year 1996. Net cash provided (used) by operating
activities for the fiscal year 1997 increased to $1.9 million from $68,000 for
the fiscal year 1996, primarily reflecting an increase in accounts payable and
accrued liabilities due to improved cash management and a higher level of
business activity. Investing activities include additions to property, plant and
equipment and the consummation of the Austin Acquisition in March 1997.

On March 31, 1997, the Company consummated the Austin Acquisition. Under
the terms of the Austin Acquisition purchase agreement, the Company paid
$500,000 cash within 90 days of closing and agreed to pay the seller royalties
on product sales of a minimum of $750,000 over five years and an overall maximum
of $1.5 million. This transaction was accounted for by the purchase method of
accounting. Accordingly, the total purchase price, including the present value
of the minimum royalty payments, was approximately $1.1 million. A portion of
the purchase price was allocated to the separately identifiable assets
(principally inventory and product molds) at their respective fair values. The
remaining portion of the purchase price has been allocated to goodwill and other
intangible assets and is being amortized under the straight-line method over
seven years. The present value of the minimum royalty payments is included in
long-term debt and other obligations in the accompanying financial statements.

In May 1997, the Company redeemed the warrants held by a former
subordinated debt holder. Consideration for the warrants was $1.8 million and
has been recorded, net of the excess tax deduction benefit

17
<PAGE> 21

of $510,000, as a charge to shareholders' equity. This transaction was partially
financed by a one-year term loan from a bank of $1.0 million.

The Company maintains a bank line of credit that provides for borrowings on
(i) a revolving "primary" line, expiring May 30, 1999, of up to $5.0 million
with a limit of (a) 75% of eligible receivables, as defined herein, plus (b) the
lesser of 50% of eligible inventory, as defined, or $1.5 million; and (ii) a
non-revolving "acquisition" line, expiring May 30, 1998, of up to $1.5 million
for permitted acquisitions, as defined herein. The primary line bears interest
at the bank's index rate plus 1% beginning December 31, 1997. The acquisition
line bears interest at the bank's index rate plus 1%. The outstanding balance on
the line of credit at December 31, 1997 was approximately $2.9 million. The
Company intends to use a portion of the net proceeds of this Offering to repay
the outstanding amounts on its line of credit. See "Use of Proceeds."

The Company's principal commitments as of December 31, 1997 consisted
primarily of long-term debt of $1.2 million primarily related to the Austin
Acquisition and to the purchase of stock warrants from a former subordinated
debt holder, as well as the $2.9 million balance on the line of credit, all as
described above. After the application of the net proceeds of this offering as
set forth in "Use of Proceeds," the Company believes that its cash balances,
availability under its line of credit, and its cash flows from operations will
be sufficient to meet its working capital expenditure needs for at least the
next 12 months.

Although the Company has no present agreements, arrangements or commitments
with respect to any acquisition, the Company may in the future make strategic
acquisitions of other complementary businesses using stock, cash, debt or a
combination thereof. Depending on the terms of any potential acquisition, the
Company may need to incur additional indebtedness or issue equity securities to
make any such acquisition.

The Company routinely engages in transactions in foreign countries.
Substantially all of the Company's transactions are denominated in U.S. dollars,
thereby limiting the Company's exposure to fluctuations in foreign currency
exchange rates.

IMPACT OF INFLATION AND CHANGING PRICES

The Company believes that the relatively moderate rate of inflation
experienced over the past several years has not had a material impact on its
sales or profitability.

SEASONALITY

YEAR 2000 COMPLIANCE

As the year 2000 approaches, a critical business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products in the
marketplace were designed to accommodate only two-digit date entries. Beginning
in the year 2000, these systems and products will need to be able to accept
four-digit entries to distinguish years beginning with 2000 from prior years. As
a result, computer systems and software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements. Significant uncertainty
exists concerning the potential effects associated with compliance. While the
Company believes that its software applications and programs are Year 2000
compliant, there can be no assurance that coding errors or other defects will
not be discovered in the future. Also, the Company has not initiated formal
communications with all of its significant suppliers and large customers to
determine the extent to which the Company is vulnerable to those third parties'
failure to remediate their own Year 2000 issues. Any Year 2000 compliance
problem of the Company, its suppliers or its customers could result in a
material adverse effect on the Company's business, prospects, results of
operations and financial condition.

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<PAGE> 22

IMPACT OF RECENTLY RELEASED ACCOUNTING STANDARDS

In addition to SFAS 128, the FASB has issued the following standards,
which: (i) have recently become or are not yet effective, and (ii) did not or
are not expected to have a material impact on the Company.

- SFAS 129, Disclosure of Information About Capital Structure, issued in
February 1997, effective for fiscal years ending after December 15, 1997.

- SFAS 130, Reporting Comprehensive Income, issued in June 1997, effective
for fiscal years beginning after December 15, 1997.

- SFAS 131, Disclosures About Segment of an Enterprise and Related
Information, issued in June 1997, effective for fiscal years beginning
after December 15, 1997.

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<PAGE> 23

BUSINESS

GENERAL

The Company currently distributes its products through most of the major
mass retail chains in the United States, consisting of over 7,000 retail
locations. The following table lists certain of the major retailers, grouped by
retail category, that offer the Company's products, together with the percentage
of the Company's net sales attributable to each category for the year ended
December 31, 1997:

<TABLE>
<CAPTION>
HARDWARE/HOME MASS MERCHANTS/
IMPROVEMENT STORES (27%) DISCOUNT STORES (26%) PET SUPPLY STORES (17%)
- --------------------------- --------------------------- ---------------------------
<C> <C> <C>
Lowe's Wal-Mart PETsMART
Home Depot Kmart Petco
Builder's Square Target Pet Supplies Plus
Payless Cashways Ames
Hechinger
Ace Hardware
</TABLE>

<TABLE>
<CAPTION>
FARM SUPPLY STORES (12%) CATALOG RETAILERS (11%) OTHER (8%)
- --------------------------- --------------------------- ---------------------------
<C> <C> <C>
Tractor Supply Sporting Dog Northern Hydraulics
Central Tractor Sears Canada PetSafe Ltd. (U.K.)
Agway Damark
Quality Sharper Image
Cabela's
</TABLE>

Management believes it will be able to expand sales of its products
significantly by increasing the public's awareness that economical and
dependable electronic pet containment and training products are available.

20
<PAGE> 24

Most of the Company's retailers offer its products in all or substantially all
of their stores, but only a few carry more than five of the Company's products.
Management believes that additional sales growth can result from increasing the
number of retailers and stores that currently carry its products as well as the
range of products offered by each. Management also intends to grow the Company
through the selective acquisition of complementary businesses as well as through
the expansion of international sales.

The Company's operating strategy is to utilize its existing marketing and
engineering capabilities and take advantage of its strong distribution channels
and market positions to maintain and strengthen its status as a leader in the
market for electronic pet containment and training products market. In addition,
the Company intends to remain committed to its customers by continuing to
develop customer-driven products, providing exceptional customer service,
maintaining cost-effective manufacturing and product development techniques, and
empowering its personnel through profit teams to enhance the Company's products,
processes and profitability.

INDUSTRY OVERVIEW

The Company perceives significant growth in its target market as a result
of several trends including: (i) the absolute growth in the number of pet owning
households and in the number of pets, (ii) the absolute growth of sales of pet
supplies, (iii) the evolving needs of this target market, and (iv) technological
advances resulting in alternative solutions.

Pet ownership and the resulting pet supply market have grown considerably
in recent years and this growth is expected to continue. Based on industry
surveys, in 1996, approximately 57% of all households in the United States owned
at least one dog or cat during the year (up from 54% in 1990) and, in the
aggregate, Americans owned approximately 128 million dogs and cats, an increase
of 20% from 1990. In addition, based on industry publications, Americans spent
$4.1 billion on non-food pet supplies in 1996, an amount which is projected to
grow to $6.1 billion by 2001.

Further, management believes that the needs of the Company's target market
have evolved as a result of the increasing percentage of dual income families,
longer work weeks and increasing travel habits, resulting in an increased
reliance on pet containment and training products as well as an increased
awareness of pet behavioral issues. According to a 1996 survey by the American
Pet Products Manufacturers Association, 58% of pet owners indicated that
"finding care when away" was a drawback to owning a pet (making this the most
often cited drawback) and 26% indicated that "noise, barking and whining" was a
major concern. Therefore, as the number of dual income families grows and more
people pursue active lifestyles, management believes that the appeal of
electronic pet containment and training products is greatly enhanced as pet
owners have less time to directly supervise and train their pets.

Traditionally, pet owners have relied upon conventional methods, such as
fences and chains, to contain their pets. Products such as those sold by the
Company are designed to address the substantial expense and often unattractive
appearance associated with traditional pet containment devices. The
technological improvements made by the Company have led to less expensive,
smaller, easier to install and more energy efficient products to service the
needs of this growing and evolving market. Pet containment products similar to
the Company's Radio Fence are also sold through specialty fence installers.
Purchasers of those systems generally pay a significant premium to have the pet
containment system installed or maintained by the specialty fence installer. The
Company and a small number of private companies market and sell pet containment
systems such as the Radio Fence to the "do-it-yourself" market through mass
retailers. These pet containment systems are sold at a significant discount to
those offered by specialty fence installers.

Company research suggests that only approximately 30% of existing
homeowners are aware that electronic pet containment products exist. Management
believes that an even smaller percentage of homeowners are aware that economical
and dependable "do-it-yourself" electronic pet containment systems are
available. While approximately 90% of pet owners in the United States own or
rent homes, the Company estimates that fewer than 600,000 electronic pet
containment products such as the Company's Radio Fence have been sold in the
last three years.

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<PAGE> 25

GROWTH STRATEGY

The Company intends to continue its growth by (i) increasing market
awareness of and demand for its products, (ii) increasing sales through existing
and new distribution channels, (iii) applying technological capabilities to
develop and enhance products, (iv) selectively acquiring complementary
businesses and (v) expanding international sales.

Increase Market Awareness. Because of limited market awareness of
electronic pet containment and training products such as the Radio Fence,
management believes that it can increase sales of its Radio Fence pet
containment systems significantly in its core domestic market by increasing the
public's awareness that economical and dependable products such as those offered
by the Company are available. Management believes that the Company can increase
the market awareness of the Company's products by focusing on its advertising
and merchandising efforts.

Emphasize Advertising. Prior to 1997, the Company had not purchased
advertising for its products, although its products were selectively advertised
by certain retailers. During 1997, the Company initiated a direct advertising
effort, and while management believes that these advertising efforts were
successful, the results were limited by the small amount of capital spent. To
increase market awareness of and demand for its products, the Company intends to
substantially increase its spending on advertising in 1998. The Company
currently intends to target consumers by advertising primarily through
television, newspapers and magazines, although the Company may also advertise
through other channels including direct marketing. In addition, the Company
intends to cross-sell its products by including marketing and advertising
information regarding the Company's various products in boxes containing the
Company's Radio Fence pet containment systems. The Company has recently retained
a national advertising agency to assist the Company with its advertising
efforts.

Improve Point of Sale Merchandising. The Company's merchandising goal is
to enhance its product presentation so that customers can more easily identify
the Company's products at the point of sale. For example, the Company is
currently working with one retailer to develop a user-friendly display board to
demonstrate the Company's products and to more efficiently utilize shelf space.
In addition, the Company intends to aggressively pursue opportunities to place
Radio Systems signs at the point of sale to enable consumers to easily locate
the Company's products within stores. The Company also intends to introduce new,
distinctive packaging for its core products to enhance brand and product
recognition. The Company will also pursue opportunities to display its products
off of the shelves with free-standing displays in the aisles of the retail
stores.

Increase Sales Through Existing and New Distribution Channels. The Company
currently distributes its products through most of the large mass retail chains
in the United States. Most of these retailers offer the Company's products in
all or substantially all of their stores, but only a few of these retailers
carry more than five of the Company's products in each of its stores. Although
the Company's products are currently distributed through over 7,000 retail
locations, management believes that additional sales growth can result from
increasing the Company's penetration of retailers that currently offer the
Company's products. The Company intends to continue its efforts to increase the
range of products offered by each retailer and store and to increase the number
of retailers and stores that carry its products.

Expand the Selection of Products Available at Retail. Management believes,
based on discussions with representatives of certain of the Company's retail
customers, the Company will be able to expand the selection of products offered
at many of these customers and increase its penetration with certain of its
customers. Management also believes that the Company's increased advertising
will increase the awareness of and demand for the Company's products, thereby
encouraging stores to expand their offerings of the Company's products. In
addition, the Company intends to continue to apply technology to introduce new
products and to enhance existing products, thereby creating further demand for a
broader selection of its products.

Add Distribution Channels. The Company intends to broaden its distribution
to other retail segments such as grocery stores, drug stores, club stores,
veterinarians and independent dealers. Management believes that the price points
of certain of its products are within the range of products customarily carried
by such retailers.

22
<PAGE> 26

Grow With Existing Distribution Channels. Based on the Company's current
relationships with the retail chains that now offer the Company's products,
management believes that it will be able to successfully place its products in
many of the new stores expected to be opened in the future by such retail
chains. No assurance can be given, however, that any such expansion will occur
or, if such expansion does occur, that the Company will benefit.

Apply Technological Capabilities to Develop and Enhance Products. The
Company intends to maintain and enhance its industry position as an innovator
and a leader in the successful application of technology in electronic pet
containment and training products. Radio Systems has achieved this position
through the use of technological expertise in low frequency magnetics, radio
frequency magnetics, radio frequency design, receiver miniaturization,
ultrasonics and mixed signal computer chip design. The Company intends to
leverage its technological and engineering capabilities in these areas to
develop and identify new products and to enhance its existing products.

In 1993, the Company, together with Concorde Microsystems, Inc., an
engineering firm of which Ronald Nutt, Ph.D., a director of the Company, is the
founder and currently a director ("Concorde"), developed a proprietary mixed
signal microchip that combines analog and digital components on a single chip.
Use of this chip in connection with the Company's Radio Fence products allowed
the Company to reduce its manufacturing costs to produce the receiver worn on
the pet's collar by approximately 80%, reduce the size of the receiver by
approximately 50% and increase the energy efficiency of the receiver by
approximately 400%. Thus, the Company was able to dramatically reduce the
selling price of its Radio Fence products without adversely affecting its profit
margins. In 1996, the Company re-engineered the Radio Fence receiver and
introduced it as the UltraLight Receiver, 40% smaller and lighter and with twice
the battery life of its previous model. In 1997, in response to customer
comments, the Company redesigned its ultrasonic pest deterrents to, among other
things, double the decibel level emitted from the deterrents to enhance the
effectiveness of the products.

As a result of its commitment to applied technology and innovation, the
Company has, since its formation, successfully introduced economical and
dependable products to the domestic market and continued to enhance its existing
products such as the Radio Fence. During 1996 and 1997 combined, the Company
introduced eight new products to the domestic market and enhanced many of its
existing products. In addition, the Company currently has over 20 potential new
products in various stages of development. The Company may leverage its
technological abilities to introduce new applications in areas such as tracking
and home security.

Selectively Acquire Complementary Businesses. To enhance growth in its
core product line, the Company will continue to evaluate complementary
businesses for acquisition. In March 1997, the Company acquired the electronic
pet related assets of Austin Innovations, Inc. whose products included the
ultrasonic pet trainer and bark control collar. The Austin Acquisition expanded
the Company's product line and increased the Company's sales through a
significant mass retailer. In identifying potential acquisitions, the Company
intends to target entities that are engaged in the Company's existing business
or product lines that can increase the Company's ability to compete in its
markets. The Company may also seek to acquire brand names or technologies that
can be integrated with the Company's existing operations and that will be
attractive to the Company's targeted customers.

Expand International Sales. Currently, only approximately 7% of the
Company's total net sales are made outside of the United States, primarily in
Canada and Western Europe. In Canada, the Company's products are offered
primarily through large retail chains. In Western Europe, the Company has a
marketing agreement with PetSafe Ltd., a corporation formed under the laws of
the United Kingdom in which the Company has a minority ownership interest
("PetSafe Ltd."), under which the Company's products are sold through exclusive
dealers and retail establishments. The Company intends to use its relationship
with PetSafe Ltd. to increase awareness of and demand for the Company's products
in the United Kingdom and other countries of Western Europe. To increase its
sales in Western Europe, the Company recently reduced retail price points by
shipping its products, in certain instances, directly to retailers rather than
consolidating shipments via multiple warehouses in the United Kingdom and
Western Europe.

23
<PAGE> 27

OPERATING STRATEGY

The operating strategy of the Company is to utilize its existing marketing
and engineering capabilities and take advantage of its strong distribution
channels and current market positions to maintain and strengthen its status as a
leader in the market for electronic pet containment and training products.

Maintain and Strengthen Market Position. Management believes that the
Company revolutionized the pet containment industry by introducing the Radio
Fence, an affordable and user-friendly "do-it-yourself" product, to the mass
retail market at a time when comparable products were sold primarily through
specialty fence installation companies. Management believes that the Company has
maintained its leadership position at the mass retail level by being committed
to innovation and customer service, by being sensitive to customer needs, by
using engineering and technological expertise to develop new products and to
continually enhance its existing products, and by offering economical and
dependable solutions to pet owners. As a result of its efforts in pioneering the
"do-it-yourself" market, management believes that the Company's Radio Fence pet
containment systems are the only electronic pet containment system offered by
most of the retailers that carry the Company's products. In addition, management
believes that Radio Systems is recognized as the leading provider by the
purchasing agents at most retailers carrying electronic pet containment and
training products. The Company expects to rely upon these factors, among others,
to strengthen its market position in the future.

Continue to Develop Customer Driven Products. The market for the Company's
products is relatively new and, thus, the Company continually evaluates the
responses and suggestions of its ultimate customers to complement and enhance
its new product development efforts. By remaining sensitive to its market, as
well as to the needs and demands of its customers, the Company can remain
competitive and continue to improve its product offerings. Feedback from
retailers, consumer focus groups and interaction with customers through its
in-house customer service team, provide the Company with its primary means of
customer response. In the past, such interaction has led to technological
improvements in products that reduced cost, improved efficiency or enhanced the
appeal of its products to its customers. For example, in recent years, the
Company applied its technological capabilities to significantly reduce the size
of certain of its pet containment products. The Company also recently introduced
new Radio Fence and bark control products with citronella spray as an
alternative to the mild, electronic correction.

Provide Exceptional Customer Service. The Company has a dedicated customer
service team consisting of 11 employees which it refers to as "associates"
(approximately 20% of the Company's total number of associates) to assist
customers with questions regarding the Company's products and to respond to and
address customer complaints. All of the members of the Company's customer
service team have undergone pet training classes and possess technological or
electrical training. As a result, management believes that its customer service
team is able to respond effectively to virtually any question regarding the
Company's products and their intended uses. The Company's customer service team
can be reached by calling a toll-free number listed on all of the Company's
products or through the Company's home page on the internet. The efforts of the
Company's customer service team directly support the marketing of the Company's
products through mass retail outlets.

Maintain Cost-Effective Manufacturing and Product Development
Techniques. The Company currently outsources virtually all of its manufacturing
and assembly functions and certain specialized engineering and development
projects. Management believes that the Company maintains a close relationship
with its suppliers and takes steps designed to ensure that the Company's product
specifications and quality standards are met. Management believes that, by
outsourcing certain capital intensive functions, the Company is able to avoid
significant capital expenditures, benefit from the resources of its outside
manufacturers and engineers and concentrate the Company's resources on
developing, marketing and selling its products. As a result of these and other
decisions, management believes that it is better able to control its fixed
costs.

Empower Personnel Through Profit Teams. The Company has empowered its work
force to make many operational and strategic policy and planning decisions.
Radio Systems introduced cross-departmental profit teams in 1996 and believes
that these teams were significantly responsible for the Company's return to
profitability during 1996. These profit teams have direct control over certain
categories of expenses and are responsible for reducing costs, improving
procedures and processes, and establishing budgets, including the

24
<PAGE> 28

capital investment budget. Coordinated by management, members of the Company's
profit teams regularly review and update corporate objectives and strategy. All
associates have full and equal access to financial information. Management
believes that it increases teamwork and motivation and reduces employee turnover
by empowering its associates with these responsibilities. All of the Company's
associates participate in the Company's profit sharing plan and cash bonus plan,
and all of the Company's associates that have been employed by the Company more
than six months own shares of the Company's Common Stock or hold employee stock
options.

PRODUCTS

The Company's products may generally be classified among three categories
of products: (i) the Radio Fence pet containment line of products, (ii) pet
training products and (iii) other complementary products. Many of the Company's
products are classified by Underwriters Laboratories, and substantially all of
the Company's products are licensed by The Humane Society of the United States.

Pet Containment Products. The Company currently offers three primary types
of Radio Fence pet containment systems, the Original Radio Fence, the Spray
Control Radio Fence and the Indoor Radio Fence. Each system includes one
receiver collar, but can be used to contain as many pets as desired within a
single area, as long as each pet is wearing a receiver collar, which may be
purchased separately at most retailers carrying the Company's products. The
Company includes an instructional video tape with each Radio Fence product that
demonstrates the installation of the Radio Fence and the proper training
techniques to be used by the pet owner. The Company's pet containment products
accounted for approximately 86%, 83% and 69% of the Company's net sales for the
fiscal years 1995, 1996 and 1997, respectively. The Company sold approximately
170,000 pet containment systems in the year ended December 31, 1997.

Original Radio Fence. The Company introduced its Original Radio Fence
pet containment system in 1991, which is a radio frequency based system
designed to keep pets safely in a designated area without a visible fence.
Once a Radio Fence product is plugged into a standard electrical outlet, a
radio signal is emitted that travels along an underground wire boundary
installed by the consumer. A lightweight receiver worn on the collar of the
consumer's pet alerts the pet with a warning beep as it approaches the
boundary. If the pet crosses the boundary, it receives a mild, electronic
correction. If the pet is trained properly to associate the receipt of the
mild, electronic correction with the boundary, the pet learns quickly not
to approach or cross the boundary. The Company offers a selection of Radio
Fence systems that vary depending on the size of the property to be covered
and certain other features. The Original Radio Fence sells at retail for
approximately $150 and additional receiver collars may be purchased at
retail for approximately $59.

Spray Control Radio Fence. The newest version of the Radio Fence
system, the Spray Control Radio Fence, was introduced by the Company to the
domestic market in July 1997. Spray control technology has been used
successfully in France since 1993 and is licensed by the Company for
distribution in the United States and Mexico. The Company has adapted this
licensed spray control technology for use in the Radio Fence line of
products. The Spray Control Radio Fence operates on the same principle as
the Original Radio Fence, except that it releases a burst of citronella
spray rather than an electronic correction when a pet crosses the defined
boundary. To pet owners, the citronella spray smells much like lemon. Pets,
however, find the spray and the smell of citronella to be bothersome. As a
result, the citronella spray is an effective deterrent. Management believes
that the Spray Control Radio Fence will appeal to pet owners that may be
concerned about the use of an electronic correction to train their pets.
The Spray Control Radio Fence sells at retail for approximately $299,
additional receiver collars may be purchased at retail for approximately
$149 and additional citronella canisters can be purchased at retail for
approximately $15.

Indoor Radio Fence. The Indoor Radio Fence system, which was
introduced by the Company in 1995, relies upon the proven technology and
methods used in the Company's other pet containment systems to prevent pets
from entering prohibited areas or rooms within the home. With the Indoor
Radio Fence, a small, disk-shaped transmitter about the size of a dinner
plate is placed in the area from which

25
<PAGE> 29

the pet is prohibited, such as a room or portion of the home. The pet wears
the same receiver collar as used with the Original Radio Fence system. If
the pet nears the control area, a warning beep sounds on its collar. If the
pet continues to approach the prohibited area, it receives a mild,
electronic correction. If the pet is trained properly to associate the
receipt of the correction with the prohibited area, the pet learns quickly
not to approach or enter the prohibited area. The Indoor Radio Fence sells
at retail for approximately $89.

Pet Training Products. The Company offers a wide selection of economical
and dependable pet training products. Each of the Company's training products
works by conditioning pets to associate unacceptable behaviors with a negative
correction, or to associate desired behaviors with a positive reinforcement.
Once an association is made, the pet's behavior is modified. The Company's pet
training products accounted for approximately 10%, 9% and 24% of the Company's
net sales for the fiscal years 1995, 1996 and 1997, respectively.

Bark Control Collars. Radio Systems currently offers three types of
bark control collars, the Original Bark Control Collar, the Silencer Bark
Control Collar and the Spray Control Anti-Bark Collar. The Original Bark
Control Collar was first sold by the Company in 1994 and, in 1997, the
Company sold approximately 200,000 bark control collars. Each of the
Company's bark control collars teaches a dog to associate barking with a
negative correction. By associating barking with the correction, the dog
quickly learns not to bark. All of the Company's bark control collars can
be removed once the dog learns that excessive barking is not acceptable.
The Original Bark Control Collar uses a mild, electronic correction to
train the dog and sells at retail for approximately $60. The Silencer Bark
Control Collar was introduced by the Company in 1997 and is designed for
sensitive or easy to train dogs. The Silencer Bark Control Collar emits
unpleasant high frequency sound impulses to train the dog and sells at
retail for approximately $30. The Company has recently introduced the Spray
Control Anti-Bark Collar. The Spray Control Anti-Bark Collar releases a
brisk, non-toxic citronella spray when the dog barks as an alternative to
the mild, electronic correction. The Spray Control Anti-Bark Collar sells
at retail for approximately $180, and additional citronella canisters can
be purchased at retail for approximately $15. The Company licenses the
spray control technology and is authorized to sell spray control products
in the United States and Mexico.

Training Systems. The Company currently offers training systems
designed exclusively for indoor use and for outdoor use.

The Pet Mat Training Aid (the "Pet Mat") was introduced by the Company
in 1996. With the Pet Mat, a mat is placed on the location from which the
pet is prohibited, such as a sofa or a bed. When the pet touches the Pet
Mat, it receives a mild, electronic correction. As a result, it quickly
learns to avoid the prohibited area. Pet Mat adjusts to three levels of
correction, from very mild to standard. Once the pet is trained to avoid
one prohibited area, the Pet Mat can be moved to train the pet to avoid
other areas. The Pet Mat Training Aid system sells at retail for
approximately $60.

The GoodDog! Trainer allows a pet owner to correct a pet's behavior
from a distance of up to 30 feet by using a hand-held remote control
transmitter. The pet wears a special collar which receives the signal sent
by the owner. The GoodDog! Trainer uses infra-red technology to send one of
three signals to the pet: (i) a positive tone, (ii) a mild, electronic
correction accompanied by a negative tone, or (iii) a negative tone by
itself for negative communication without electronic correction. The three
signals provide the pet owner with the means of either deterring negative
behavior or encouraging positive behavior. This collar is designed
exclusively for short-range indoor use. The GoodDog! Trainer also
incorporates a shock disabling switch to avoid accidental corrections. The
GoodDog! Trainer sells at retail for approximately $79 and additional
infra-red collars sell at retail for approximately $39.

The Ultrasonic Pet Trainer was introduced by the Company in 1997 and
operates much like the GoodDog! Trainer, but can be used indoors and
outdoors and utilizes ultrasonic signals to reward or discourage a pet's
behavior. These ultrasonic signals are outside of the range of sounds heard
by humans. The Ultrasonic Pet Trainer can be used to discourage excessive
barking, destructive chewing or digging and other unacceptable behaviors
and can also be used to train a pet to heed commands. The Ultrasonic

26
<PAGE> 30

Pet Trainer is accompanied by a one hour pet training video that
demonstrates how to correct or encourage virtually any behavior. The
Ultrasonic Pet Trainer sells at retail for approximately $30.

The Company also recently introduced the Champion Trainer. The
Champion Trainer, which relies upon the technology and methods used by the
Company in its Radio Fence products, permits a pet owner to train a pet up
to 75 feet away through the use of a hand-held transmitter. The Champion
Trainer permits the pet owner to choose among eight levels of electronic
correction, from very mild to standard. Designed for the average pet owner,
the Champion Trainer is accompanied by a comprehensive pet training video
that demonstrates how to correct virtually any behavior. The Champion
Trainer sells at retail for approximately $99.

Other Complementary Products. The Company also offers certain other
electronic products that it believes complement its line of electronic pet
training and containment products.

Management believes that its Ultrasonic Pest Deterrent system has
significant market potential. Backyard pests, such as squirrels or rabbits, are
an annoyance to many consumers eager to cultivate backyard gardens or bird
feeding stations. Many of these consumers, however, are reluctant to use poisons
or traps. The Ultrasonic Pest Deterrent system broadcasts an ultrasonic sound
that is unpleasant to unwanted pests. The product may be used selectively to
deter (i) rodents, rabbits, squirrels and other small animals; (ii) dogs and
cats; or (iii) birds, or may be used to deter any combination of these
categories. The Ultrasonic Pest Deterrent can also be set to protect an area as
small as 170 square feet and as large as 6,000 square feet. The Ultrasonic Pest
Deterrent was introduced in 1995 and sells at retail for approximately $79. The
Company also sells an Ultrasonic Squirrel Deterrent which was introduced in
1996, and sells at retail for approximately $49.

The PetFinder is a small, durable unit worn on a pet's collar. The owner is
instructed to reset the PetFinder once every 24 hours, usually at a set time
each day such as mealtime. If a pet leaves home, or if the PetFinder is not
reset for 48 hours, the PetFinder's bright red warning light will start to flash
thereby alerting others that the pet is lost and needs assistance. The pet's
address and telephone number are printed on the back of the PetFinder making it
easy for anyone to return the lost pet to its home. Radio Systems recently
introduced the PetFinder which sells at retail for $9.95. The Company has
licensed this product for distribution in North America.

The Electronic Flea Comb is another product recently introduced by the
Company. This chemical-free device is easy to use and is an effective way to
protect pets from fleas. The owner simply combs her pet with the Electronic Flea
Comb. While passing across a pet's body, the Electronic Flea Comb emits an
electronic signal that is harmless to the pet but kills the pet's fleas. The
Electronic Flea Comb sells at retail for approximately $29. The Company has
licensed this product for distribution in North America.

PRODUCT DEVELOPMENT

The Company maintains an in-house staff of five engineers and four other
associates with technological training to oversee the design and development of
new products and to enhance the Company's existing products. These engineers
often work with outside engineers or technicians to develop new products or to
enhance the Company's existing products. Management believes that the Company's
technological expertise is a competitive advantage and the Company will seek to
maintain an active staff of engineers to oversee the development of new
products. The Company currently has several products in development, some of
which it plans to introduce within the next twelve months.

The Company has been working with Concorde Microsystems, Inc. since 1993 to
develop a wireless version of the Company's Radio Fence. This wireless system
would correct a pet's behavior if it strayed beyond a given distance from a
radio transmitter. Based on preliminary test data and models, management
believes that this wireless system will cover an area of up to one acre. This
product is expected to sell at retail for approximately $299. Although
prototypes of this system exist, management believes that further development of
this product will be required before it is available for distribution.

The Company is also currently working to expand its line of remote trainers
and anticipates that it will offer citronella spray control and other remote
trainers that will have expanded training ranges of up to one

27
<PAGE> 31

mile. Management believes that long-range trainers will offer expanded
capabilities to persons seeking to train hunting dogs and other special-use
animals. Although prototypes of this line exist, management believes that
further development of these products will be required before it is available
for distribution.

To enhance its Radio Fence line of products, the Company is currently
developing a low profile, flexible collar, where the electronic components
contained in the pet's collar are spread over a larger area, thereby permitting
the receiver to be very thin and almost hidden from view. Management believes
that this feature will be attractive to many pet owners, especially those with
small pets. Although prototypes of this system exist, management believes that
further development of this product will be required before it is available for
distribution.

During the fiscal years 1995, 1996 and 1997, the Company spent
approximately $912,000, $664,000 and $982,000, respectively, on research and
development activities relating to the development of new products and the
enhancement of existing products.

MANUFACTURING AND ASSEMBLY

The Company currently outsources virtually all of its manufacturing and
assembly activities. For the year ended December 31, 1997, approximately 80% of
the Company's products, including its standard Radio Fence pet containment
products, were manufactured or assembled in China by two manufacturers. Other of
the Company's products are manufactured in Israel and France, and certain of the
components of the Company's Radio Fence products are manufactured in Taiwan. The
microchips used in the Company's products are manufactured by a supplier in
California. The Company's products and component parts are manufactured on a
purchase order basis and the Company does not maintain purchase or supply
agreements with its suppliers. Final assembly, packaging and shipping functions
are handled by the Company at its Knoxville, Tennessee facility.

SALES AND MARKETING

The Company currently sells its products to retailers throughout the United
States, including home improvement stores such as Home Depot and Lowe's, mass
merchants including Wal-Mart, Kmart and Target and major farm supply and pet
supply chains, including Central Tractor, Tractor Supply, Petco and PETsMART.
Wal-Mart, Lowe's and PETsMART accounted for approximately 13%, 10% and 9%,
respectively, of the Company net sales for the year ended December 31, 1997. For
the year ended December 31, 1997, approximately 27% of the Company's net sales
were made through home improvement and hardware stores, 26% through discount
stores, 17% through pet supply stores, 12% through farm supply stores, 11%
through catalog retailers and 8% through other channels. Of these total net
sales, approximately 7% were international and were made primarily in Canada and
Western Europe. In Western Europe, the Company distributes its products through
its marketing arrangement with PetSafe Ltd.

The Company's outside sales force consists primarily of 19 non-exclusive,
independent manufacturers' agencies which work on a commission basis and in many
cases have several sales representatives marketing the Company's products. Most
of these manufacturers' agencies have represented the Company for over five
years. For the year ended December 31, 1997, approximately 65% of the Company's
sales were made on a commission basis through these manufacturers' agencies and
35% of the Company's sales were made directly by the Company.

The Company's recently hired national accounts manager is actively working
to formulate and implement an expanded marketing strategy for the Company, and
is also working to further develop the relationships with the Company's
significant accounts previously established by the Company. The Company has
budgeted for, and intends to locate and hire during 1998, regional account
managers for the eastern and western regions of the United States. These
regional account managers will report directly to the national accounts manager.
Management envisions that these regional account managers will work closely with
the Company's independent manufacturers' agencies to ensure that such agencies
are aggressively representing the Company's products. The national accounts
manager and the regional account managers will also work directly with the
retailers offering the Company's products to promptly address any merchandising
or other issues promptly. No

28
<PAGE> 32

assurance can be given, however, that the Company will successfully locate and
hire regional account managers that meet the Company's requirements.

The Company uses different brand names for its products to maximize market
penetration, minimize market channel conflicts and to differentiate products by
features, applications and price. The Company currently uses the Radio Fence,
Radio Systems, Premium Radio Fence, Champ and Pet Guardian brand names.

REGULATION

Standards governing the treatment of animals are evolving and developing in
different countries. Various countries, including Norway, Sweden and
Switzerland, prohibit products that are deemed to be inhumane or harmful to
pets. If any governing or regulatory body of any country or other political
jurisdiction with similar or analogous laws determines that the Company's
products are prohibited, then the Company could not sell its products in such
countries or jurisdictions. Legislation has been proposed in the United Kingdom
to ban such products, including products of the type manufactured and sold by
the Company. In addition, at least one town in the United States has adopted
regulations governing the installation and maintenance of products such as the
Radio Fence. In addition to other limitations and registration fees, these
regulations require that pet owners post a sign to notify the public that an
owners' pet is being restrained by an electronic fence. There can be no
assurance that additional laws or regulations will not be proposed or adopted in
the future. In addition, many of the Company's products require compliance with
standards set by the FCC.

INTELLECTUAL PROPERTY

The Company relies on a combination of patents, trademark registrations and
confidentiality agreements to protect its intellectual property. The Company
regards its intellectual property as having significant value in the development
and marketing of its operations and products. The Company's policy is to pursue
registration of its trademarks and patents whenever possible and to oppose
vigorously any infringement of these properties.

The Company currently owns the following federally registered trademarks:
Underground Fence(R), Private Broadcasting Systems(R), Radio Fence(R), and Only
the Best for Your Friend!(R), and has been assigned rights for the use of two
others. The Company has an application for federal registration pending for an
additional trademark, and claims exclusive ownership in other trade and service
marks, all related to the Company's existing products and services. The Company
owns one federal patent related to technology used in products currently offered
by the Company. In addition, it has obtained licenses for the use of three other
patented technologies, all as described below and for use in products currently
offered by the Company. The Company also owns one federal patent and has
obtained Notices of Allowance pending final registration for two others for
technologies in connection with products currently under development.

The Company has an exclusive license with Multi-Vet Limited, a Canadian
corporation ("Multi-Vet"), with respect to the citronella spray technology used
by the Company (the "Spray Technology License Agreement"). Under the Spray
Technology License Agreement, the Company may use the spray technology in the
United States and Mexico in the design, manufacture, sale, distribution and
marketing of electronic pet containment and training products. Under the Spray
Technology License Agreement, the Company must pay a royalty to Multi-Vet based
on the net sales of all spray technology products sold by the Company, together
with certain minimum royalties through 2001. The Spray Technology License
Agreement expires in October 2008, but may be extended upon the mutual consent
of the parties. The Company currently uses the technology licensed to it under
the Spray Technology License Agreement to manufacture and sell the Spray Control
Radio Fence and the Spray Control Anti-Bark Collar.

The Company also has a license with Duplex CSA Limited ("Duplex") to
manufacture, market and sell the PetFinder product in North America and to use
the tradename "PetFinder" (the "PetFinder License Agreement"). The Company
understands that application for a patent in the United States on the PetFinder
product has been submitted by Duplex and such patent is currently pending. Under
the PetFinder License Agreement, the Company must pay to Duplex a set royalty
for each unit sold by the Company. The PetFinder

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<PAGE> 33

License Agreement also requires the Company to meet minimum sales levels to
retain its distributor status. The Pet Finder License Agreement expires in June
2001.

The Company is the exclusive distributor for the Electronic Flea Comb in
the United States, Canada and Mexico under a distribution agreement (the
"Distribution Agreement") between the Company and Mepro Epilady Ltd. ("Mepro").
Under the Distribution Agreement, the Company must meet minimum purchase
requirements of Electronic Flea Comb units to retain its distributor status.
Under the Distribution Agreement, the Company must pay Mepro a set royalty on
each unit sold. Once the Company has purchased from Mepro a specified minimum
number of units, the Company, with the approval of Mepro, may choose a third
party to manufacture the Electronic Flea Comb. The Distribution Agreement
expires in December 1998. Currently, Mepro is in receivership. Therefore, the
Distribution Agreement and its continued execution by Mepro are subject to court
approval.

COMPETITION

The market for the Company's products is very competitive. Management
believes, however, that it has developed and currently maintains a leading
competitive position in the electronic pet containment and training products
industry. Management believes that the principal competitive factors influencing
its business are product selection, price and quality, technological
advancements and improvements to products, the need to develop and market new
products in a cost-effective manner and customer service. Management believes
that its pet containment and training products currently compete at the mass
retail level with a relatively small number of private companies that generally
produce one or more electronic products similar to those offered by the Company.
The Company also competes with dealer-installed electronic pet containment
systems, the best known of which is Invisible Fence(R). Management believes that
the Company offers innovative, affordable solutions and methods for dealing with
the most common pet containment and behavioral problems. As a result, the
Company's products compete with conventional fences, training techniques and
chemical and mechanical pest and flea deterrents. The Company is periodically
forced to compete with products that claim to be similar to the products offered
by the Company but that are sold at substantially discounted prices. There can
be no assurance that any of the Company's competitors will not develop products
that offer price or performance features superior to those of the Company, or
that large, well-financed pet or electronics companies that do not currently
compete with the Company will not determine to enter the electronic pet
containment and training products market.

ASSOCIATES

At December 31, 1997, the Company employed 54 associates, 50 of whom were
full-time and four of whom were part time. None of the Company's associates is
represented by a collective bargaining agreement. Management believes that its
relationship with its associates is good.

PROPERTIES

The Company's corporate headquarters are located in Knoxville, Tennessee.
The Company currently leases the 36,250 square foot building in which it is
headquartered on a month-to-month basis for $9,300 per month (the "Current
Lease"). In addition, the Company has agreed to lease a new, 30,000 square foot
building currently under construction (the "New Lease"). Once the facility
subject to the New Lease is completed, the Company will terminate the Current
Lease and relocate its headquarters to this new facility. The New Lease is a
triple-net lease agreement with a ten year term, which term will commence on
June 1, 1998. Under the New Lease, the Company has the option to lease
additional space and an option to purchase the building and the surrounding land
during the first five years of the lease.

INSURANCE

The Company maintains general liability and property insurance. The costs
of insurance coverage varies and the availability of certain coverage has
fluctuated in recent years. While management believes, based upon its claims
experience, that the Company's present insurance coverage is adequate for its
current operations,

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<PAGE> 34

there can be no assurance that the coverage is sufficient for all future claims
or will continue to be available in adequate amounts or at reasonable rates. The
Company maintains $3.0 million key man life insurance policies on Randal D.
Boyd, Chairman of the Board and President of the Company, the proceeds of which
are payable to the Company.

LEGAL PROCEEDINGS

The Company does not have pending any litigation that, separately or in the
aggregate, if adversely determined, would have a material adverse effect on the
Company. The Company may, from time to time, be a party to litigation or
administrative proceedings which arise in the normal course of its business.

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<PAGE> 35

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the directors
and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Randal D. Boyd............... 38 Chairman of the Board of Directors and President
James D. Hudson.............. 51 Chief Financial Officer and Treasurer
Christopher E. Mainini....... 41 Vice President of Marketing and Product Development
Todd G. Birdwell............. 38 Director
Tom Boyd..................... 60 Director
E. Douglas Grindstaff........ 57 Director
Donald F. Johnstone.......... 67 Director
Ronald Nutt, Ph.D............ 59 Director
Richard B. Ray............... 57 Director
B. Otto Wheeley.............. 76 Director
</TABLE>

Randal D. Boyd founded the Company in January 1991 and has served as
Chairman of the Board of Directors and President of the Company since its
organization. In January 1983, Mr. Boyd founded SACO, Inc., a farm supply
distribution company ("SACO"), and has served as Chairman of the Board and
President of SACO since its organization. Prior to founding SACO, Mr. Boyd
served Fi-Shock, Inc., a manufacturer of electric fencing equipment
("Fi-Shock"), in several positions, including Director of International Sales
and Vice President of Sales. Mr. Boyd is the son of Tom Boyd, also a director of
the Company, and is currently a director of Fi-Shock.

James D. Hudson has served as Chief Financial Officer of the Company since
May 1994 and as Treasurer of the Company since April 1995. From June 1993 to
April 1994, Mr. Hudson served as General Manager of Propper International Sales,
Inc., an apparel finishing company and, from May 1992 to April 1993, he served
as Vice-President of Operations of QSC Finishing, Inc., an apparel finishing
company. From May 1990 to May 1992, Mr. Hudson was Vice-President and Chief
Financial Officer of Marithe & Francois Girbaud, N.A., a division of VFCorp., an
apparel company. Prior to 1990, Mr. Hudson served CocaCola Bottling Company in
several positions, including Corporate Controller and Chief Financial Officer of
the Northeast CocaCola Bottling Company, Inc. and Vice-President of Finance and
Chief Financial Officer of CocaCola Bottling Corporation of Cincinnati. Mr.
Hudson is a certified public accountant.

Christopher E. Mainini has served as Vice President of Marketing and
Product Development of the Company since November 1996. From January 1988
through November 1996, Mr. Mainini was Vice President of Sales for Linear
Corporation, a manufacturer and distributor of professional, residential and
retail security systems, responsible for all retail product development and
sales. Prior to such time, Mr. Mainini held engineering management positions at
the sonic division of Loral Corporation and the electronics division of General
Dynamics Corporation.

Todd G. Birdwell has served as a Director of the Company since January
1994. He has served on the Audit and Finance Committee of the Board of Directors
of the Company since July 1994. Since July 1992, Mr. Birdwell has been an
investment broker with Morgan Keegan & Company. Prior to such time, Mr. Birdwell
served as Vice President of Corporate Banking at First Tennessee Bank.

Tom Boyd has served as a Director of the Company since its organization in
1991 and has served as a member of the Compensation Committee of the Company's
Board of Directors since December 1994. He served as Secretary of the Company
from March 1991 through December 1994 and as Treasurer of the Company from March
1991 through April 1995. Mr. Boyd founded Fi-Shock in June 1968 and has served
as its Chief Executive Officer since its organization. In 1990, Mr. Boyd also
founded I-Shop, Inc., a CD-Rom publishing company specializing in product
informational CD-Roms and has served as its President since its

32
<PAGE> 36

organization. Mr. Boyd is the father of Randal D. Boyd, the founder, Chairman of
the Board of Directors and President of the Company.

E. Douglas Grindstaff has been a Director of the Company since April 1996.
Mr. Grindstaff served as a marketing consultant to the Company from August 1995
until April 1996. Mr. Grindstaff served as President of the Canadian operations
of Procter & Gamble Inc. from March 1987 to September 1991 and as President of
The Procter & Gamble Cellulose Company from September 1991 to June 1992. From
June 1992 until October 1994, Mr. Grindstaff served as President and Chief
Executive Officer of Genesco, Inc., a major shoe manufacturer. Since September
1995, Mr. Grindstaff has served as Chairman of the Board, Chief Executive
Officer and President of EcoSmart Technologies, Inc., a pesticide company. He
also currently serves as Chairman of the Board of MedImages, Inc., a medical
services company, as a director and President of Heartland, Co., a general
contracting firm and as a director of Laurel Spring Water Co., a bottler of
water products.

Donald F. Johnstone has been a Director of the Company since January 1995.
He served as President and Chief Executive Officer of Phillips Consumer
Electronics from June 1983 until March 1994. Prior to his position at Philips
Consumer Electronics, Mr. Johnstone served as General Manager of the Television
and Microwave Divisions of General Electric Company. From March 1994 through
March 1997, Mr. Johnstone served as President and Chief Executive Officer of
Whittle Communications. Since March 1995, he has served on the board of
directors of Plasti-Line, Inc., a publicly-traded outdoor sign manufacturer.

Ronald Nutt, Ph.D. has served as a Director of the Company since June 1993.
Dr. Nutt co-founded CTI PET Systems, Inc., a medical products manufacturer, in
1984, where he has served as a director and the Senior Vice President since its
organization. From January 1992 through December 1996, Dr. Nutt served as an
executive officer for Concorde Microsystems, Inc., a research and development
company that provides technological expertise to the Company. He currently
serves as a director of Concorde. He also currently serves on the board of
directors of several other privately-held technology companies.

Richard B. Ray has been a Director of the Company since December 1994. He
has served on the Audit and Finance Committee of the Company's Board of
Directors since July 1995. Since October 1995, Mr. Ray has been the Co-Chairman
of the Board and Chief Financial Officer for 21st Century Mortgage Corporation,
a company he co-founded. From 1982 through 1994, he was a director, Executive
Vice President and Chief Financial Officer of Clayton Homes, Inc., one of the
nation's largest vertically integrated manufactured home manufacturers. Since
1992, Mr. Ray has been a director of BankFirst, a community bank headquartered
in Knoxville, Tennessee. From September 1994 through September 1995, he was a
director of Palm Harbor Homes, Inc., a manufactured homes manufacturer and,
since 1991, he has been a director and member of the Executive Committee for the
Knox Housing Partnership, a not-for-profit developer of low income housing. In
September 1997, Mr. Ray was elected to serve as a trustee for the Windsor Real
Estate Investment Trust 8, a publicly-traded real estate investment trust.

B. Otto Wheeley has been a Director of the Company since December 1994 and
has served on the Compensation Committee of the Company's Board of Directors
since December 1994. From June 1943 through June 1982, Mr. Wheeley served in
various capacities, including as Deputy Chairman of the Board of Directors of
The Koppers Co., Inc. a conglomerate in industrial and commercial markets
("Koppers"). While with Koppers, Mr. Wheeley also served as President of
Kopvenco, Inc., a venture capital firm and a subsidiary of Koppers. In June
1984, Mr. Wheeley founded Venture First Associates, a venture capital firm
investing in technology firms in the East Tennessee area and served as its
general partner until 1995. He currently serves on the board of directors of
several privately held technology companies and Foster & Gallagher, a direct
mail company.

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<PAGE> 37

The Company's Board of Directors has established a policy of holding
meetings on a regular quarterly basis and other occasions when required by
special circumstances. Certain directors also devote their time and attention to
the board's principal standing committees. The committees and their primary
functions are as follows:

Audit and Finance Committee of the Board of Directors. The Audit and
Finance Committee makes recommendations to the board of directors with respect
to the Company's financial statements and the appointment of independent
accountants, reviews significant audit and accounting policies and practices,
meets with Company's independent accountants concerning, among other things, the
scope of audits and reports and reviews the performance of the overall
accounting and financial controls of the Company. The Audit and Finance
Committee currently consists of Messrs. Birdwell and Ray.

Compensation Committee of the Board of Directors. The Compensation
Committee has the responsibility for reviewing and approving salaries, bonuses
and other compensation and benefits of executive officers, advising management
regarding benefits and other terms and conditions of compensation and
administering the Company's cash incentive, stock incentive, 401(k) and other
executive compensation plans. The Compensation Committee currently consists of
Messrs. T. Boyd and Wheeley. See "-- Compensation Committee Interlocks and
Insider Participation."

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by the Company to each
of the Company's three executive officers, including the Chairman of the Board
and President (collectively, the "Named Executive Officers"), for the fiscal
year ended December 31, 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
------------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS (NO. OF SHARES) COMPENSATION
- ---------------------------- ---- -------- ------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Randal D. Boyd............................. 1997 $150,000 $44,938 -- --
Chairman of the Board and
President
James D. Hudson............................ 1997 120,000 35,950 -- --
Chief Financial Officer and
Treasurer
Christopher E. Mainini..................... 1997 105,000 31,456 -- --
Vice President of Marketing
and Product Development
</TABLE>

OPTION GRANTS IN LAST FISCAL YEAR

The Company did not grant any options to purchase shares of Common Stock to
the Company's Named Executive Officers during 1997.

34
<PAGE> 38

AGGREGATE FISCAL YEAR-END OPTION VALUES

The following table sets forth information with respect to the Company's
Named Executive Officers concerning options held at December 31, 1997. Options
to purchase 3,000 shares of Common Stock were exercised by the Named Executive
Officers during 1997.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR END 12/31/97(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Randal D. Boyd............................. -- -- -- --
James D. Hudson............................ 102,000 30,000(2) $997,500 $255,000
Christopher E. Mainini..................... 15,000 60,000(3) 127,500 510,000
</TABLE>

- ---------------

(1) These amounts were calculated by subtracting the exercise price from the
market value of the underlying Common Stock as of year-end (assumes a value
of $11.00 per share of Common Stock, the midpoint of the estimated initial
public offering price).
(2) 15,000 of which become exercisable on December 20, 1998 and 15,000 of which
become exercisable on December 20, 1999. All options become fully
exercisable upon a change in control of the Company.
(3) 15,000 of which become exercisable on November 15, 1998, 15,000 on November
15, 1999, 15,000 on November 15, 2000 and 15,000 on November 15, 2001. All
options become fully exercisable upon a change in control of the Company.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company do not receive additional
compensation for serving as directors of the Company. Non-employee directors of
the Company do not receive compensation for each board or committee meeting
attended. All but two of the non-employee directors have received, however,
options to purchase 30,000 shares of Common Stock and are eligible to
participate in the Radio Systems Corporation 1997 Stock Incentive Plan (the
"Incentive Plan").

COMPENSATION PURSUANT TO PLANS

1997 Incentive Stock Plan. The Company and its shareholders adopted the
Incentive Plan in November 1997. The Company has reserved 403,500 of the
authorized shares of Common Stock for issuance pursuant to options to be granted
under the Incentive Plan. Under the Incentive Plan and pursuant to action of the
Board, the Compensation Committee appointed by the Board of Directors may grant
to directors, officers and key employees of the Company non-transferable options
to purchase shares of Common Stock. The options are for terms not longer than
ten years (five years in the case of incentive stock options granted to an
individual who, at the time of the grant, owns more than 10% of the total
combined voting power of all classes of stock of the Company), at prices to be
determined by the Board of Directors or the Compensation Committee. Such prices
may not be less than 100% of the fair market value of the Common Stock on the
date of grant (110% in the case of an individual who, at the time of grant of
incentive stock options, owns more than 10% of the total combined voting power
of all classes of stock of the Company) in the case of incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Incentive stock options may be granted only to employees and may not be less
than 85% of the fair market value of the Common Stock on the date of grant in
the case of non-qualified stock options. Options granted under the Incentive
Plan may be exercisable in installments. The Company is authorized to loan, or
guarantee loans of, the purchase price of shares issuable upon exercise of
options granted under the Incentive Plan. Unless terminated earlier, the
Incentive Plan will terminate in 2007. The aggregate fair market value of Common
Stock with regard to which incentive stock options are exercisable by an
individual for the first time during any calendar year may not exceed $100,000.
The Incentive Plan is administered by the Compensation Committee. As of the date
of this Prospectus, the Company has granted options to purchase 78,000 shares of
Common Stock under the Incentive Plan. Such options are exercisable at the
initial public offering price and vest 25% per year commencing on the first
anniversary of the date of grant.

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<PAGE> 39

1994 Incentive Stock Plan. In 1994, the Company adopted the Radio Systems
Corporation 1994 Employee Incentive Stock Option Plan (the "1994 Plan"). The
Company has reserved 360,000 of the authorized shares of Common Stock for
issuance pursuant to options to be granted under the 1994 Plan. Under the 1994
Plan and pursuant to action of the Board, the Compensation Committee appointed
by the Board of Directors may grant to officers and executive personnel
non-transferable options to purchase shares of Common Stock. The options are for
terms not longer than ten years (five years in the case of incentive stock
options granted to an individual who, at the time of the grant, owns more than
10% of the total combined voting power of all classes of stock of the Company),
at prices to be determined by the Board of Directors or the Compensation
Committee. Such prices may not be less than 100% of the fair market value of the
Common Stock on the date of grant (110% in the case of an individual who, at the
time of grant of incentive stock options, owns more than 10% of the total
combined voting power of all classes of stock of the Company). Options granted
under the 1994 Plan are exercisable in installments. The Company is authorized
to loan, or guarantee loans of, the purchase price of shares issuable upon
exercise of options granted under the 1994 Plan. Only incentive options can be
issued under the 1994 Plan. The 1994 Plan was approved by the shareholders of
the Company on April 28, 1995 and, unless terminated earlier, the 1994 Plan will
terminate in 2004. The aggregate fair market value of Common Stock with regard
to which incentive stock options are exercisable by an individual for the first
time during any calendar year may not exceed $100,000. The 1994 Plan is
administered by the Compensation Committee. As of the date of this Prospectus,
the Company has granted options to purchase 348,000 shares of Common Stock under
the 1994 Plan.

Officer Incentive Program. The Company has an officer incentive program
(the "Officer Incentive Program") to compensate its Named Executive Officers
based on the Company's performance. The Officer Incentive Program applies to the
officers of the Company who are employed by the Company from January 15 of the
applicable year until the date of payment of the incentive. Under the Officer
Incentive Program, the pool from which the eligible officers receive their
incentive is determined as a percentage of operating income, up to 6%, depending
on the percentage increase in the operating income of the Company from one year
to the next. Each eligible officer's incentive is determined based on the
percentage of the individual officer's earned wages for the year compared to the
total earned wages of all eligible officers for the year with a maximum
incentive equal to 100% of the officer's earned wages for the year. The Officer
Incentive Program will be in effect for calendar years 1997 and 1998 and may be
extended thereafter.

Team Incentive Program. The Company has a team incentive program (the
"Team Incentive Program") to compensate all associates of the Company other than
its Named Executive Officers based on the Company's performance. The Team
Incentive Program applies to all associates of the Company who are employed by
the Company from January 15 of the applicable year until the date of payment of
the incentive. Under the Team Incentive Program, the pool from which the
eligible associates receive their incentive is determined as a percentage of
operating income, up to 7%, depending on the percentage increase in the
operating income of the Company from one year to the next. Each eligible
associate's incentive is determined based on the percentage of the individual
associate's earned wages for the year compared to the total earned wages of all
eligible associates for the year with a maximum incentive equal to 100% of the
associate's earned wages for the year. The Team Incentive Program will be in
effect for the calendar years 1997 and 1998 and may be extended thereafter.

401(k) Plan. The Company has adopted a Savings and Profit Sharing Plan
(the "Savings Plan") which is intended to be qualified under Sections 401(a) and
401(k) of the Code. To be eligible, an employee must have been employed by the
Company for at least one year. The Savings Plan permits employees who have
completed one year of service to defer from 2% to 15% of their compensation into
the Savings Plan up to specified limits per year (approximately $5,500 during
1997). Additional annual contributions may be made at the discretion of the
Company which will vest according to a schedule set forth in the Savings Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is comprised of directors who are not employees
of the Company. No interlocking relationship exists among the members of the
Compensation Committee and any other director or

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<PAGE> 40

officer of the Company. The members of the Compensation Committee are Tom Boyd
and B. Otto Wheeley. Mr. Boyd is the father of Randal D. Boyd, the Chairman of
the Board and President of the Company.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Pursuant to the Company's Charter and Bylaws, the Company is obligated to
indemnify each of its directors and officers to the fullest extent permitted by
law with respect to all liability and losses suffered and reasonable expenses
incurred by such person in any action, suit or proceeding in which such person
was or is made or threatened to be made a party or is otherwise involved by
reason of the fact that such person is or was a director or officer of the
Company. The Company is obligated to pay the reasonable expenses of the
directors or officers incurred in defending such proceedings if the indemnified
party agrees to repay all amounts advanced by the Company if it is ultimately
determined that such indemnified party is not entitled to indemnification. The
Company has also executed in favor of each of its directors indemnification
agreements that obligate the Company to indemnify and advance expenses to its
directors. See "Description of Capital Stock -- Limitations on Liability of
Officers and Directors."

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<PAGE> 41

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth as of December 31, 1997, information with
respect to the beneficial ownership of the Company's outstanding Common Stock by
(i) each director of the Company, (ii) each of the Named Executive Officers of
the Company, (iii) all directors and all executive officers of the Company as a
group, (iv) each shareholder known by the Company to be the beneficial owner of
more than 5% of the Company's outstanding Common Stock, and (v) each Selling
Shareholder.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP SHARES BENEFICIALLY
PRIOR TO OWNED
OFFERING(1) AFTER OFFERING(1)
---------------------- NUMBER OF ----------------------
NUMBER OF SHARES TO BE SOLD NUMBER OF
NAME AND ADDRESS SHARES PERCENT(2) IN THE OFFERING SHARES PERCENT(2)
- ---------------- --------- ---------- ----------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Randal D. Boyd(3)..................... 2,917,500 62.4% -- 2,917,500 47.3%
5008 National Drive
Knoxville, TN 37914
Tennessee Innovation Centers, Inc..... 500,434 10.7 169,756 330,678 5.4
1055 Commerce Park Drive
Oak Ridge, TN 37830
Ronald Nutt, Ph.D.(4)................. 720,651 15.4 -- 720,651 11.7
2121 Lakepoint Drive
Knoxville, Tennessee 37922
Concorde Microsystems, Inc............ 300,000 6.4 -- 300,000 4.9
2121 Lakepoint Drive
Knoxville, Tennessee 37922
Beta Development Corporation.......... 200,217 4.3 200,217 -- *
NSBW Corporation...................... 100,110 2.1 25,027 75,083 1.2
James D. Hudson(5).................... 105,000 2.2 -- 105,000 1.7
Christopher E. Mainini(6)............. 15,000 * -- 15,000 *
Richard B. Ray(7)..................... 38,405 * -- 38,405 *
Tom Boyd(8)........................... 1,200 * -- 1,200 *
B. Otto Wheeley(9).................... 118,110 2.5 -- 93,083 1.4
Donald F. Johnstone(10)............... 18,000 * -- 18,000 *
E. Douglas Grindstaff(11)............. 55,750 1.2 -- 55,750 *
Todd G. Birdwell(12).................. 204,300 4.4 -- 204,300 3.3
-------
Total....................... 395,000
=======
All directors and executive officers
as a group (10 persons)(13)......... 3,991,416 85.4% -- 3,966,389 64.4%
</TABLE>

- ---------------

* Represents less than 1% of the Common Stock outstanding.
(1) Under the rules of the Securities and Exchange Commission (the
"Commission"), a person is deemed to be a "beneficial owner" of a security
if he has or shares the power to vote or direct the voting of such security
or the power to dispose of or direct the disposition of such security.
Accordingly, more than one person may be deemed to be a beneficial owner of
the same security. Shares of Common Stock subject to options held by the
directors and executive officers that are not exercisable within 60 days of
the date hereof are not, in accordance with beneficial ownership rules
promulgated by the Commission, deemed outstanding for the purpose of
computing such director's or executive officer's beneficial ownership.

(2) Based on 4,672,223 shares of Common Stock outstanding prior to the Offering
and 6,162,223 shares of Common Stock outstanding after the Offering.

(3) Includes 202,500 shares held by the Boyd Family Children Irrevocable Trust
of which Todd G. Birdwell, a director of the Company, is trustee (the "Boyd
Family Trust"). Mr. Boyd disclaims beneficial ownership of the shares held
in the Boyd Family Trust.
(4) Includes 300,000 shares held by Concorde Microsystems, Inc. Dr. Nutt is a
director of Concorde. Dr. Nutt disclaims beneficial ownership of the shares
owned by Concorde.

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<PAGE> 42

(5) Includes 102,000 shares issuable upon the exercise of vested options.
(6) Includes 15,000 shares issuable upon the exercise of vested options.
(7) Includes 18,000 shares issuable upon the exercise of vested options.
(8) Includes 1,200 shares issuable upon the exercise of vested options.
(9) Includes 18,000 shares issuable upon the exercise of vested options. Also
includes 100,110 shares held by NSBW Corporation, a corporation of which
Mr. Wheeley is a director and the president. Mr. Wheeley disclaims
beneficial ownership of shares held by NSBW Corporation.
(10) Includes 18,000 shares issuable upon the exercise of vested options.
(11) Includes 40,000 shares held by Mr. Grindstaff's IRA. Also includes 12,000
shares issuable upon the exercise of a warrant held by Mr. Grindstaff's
IRA.
(12) Includes 1,800 shares issuable upon the exercise of vested options and
202,500 shares held by Mr. Birdwell as trustee of the Boyd Family Trust.
(13) Includes 162,000 shares issuable upon the exercise of vested options and
12,000 shares issuable upon the exercise of a warrant.

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 50,000,000 shares of Common Stock, no
par value per share and 10,000,000 shares of preferred stock, no par value per
share ("Preferred Stock"). Upon consummation of the Offering, 6,162,223 shares
of Common Stock will be issued and outstanding, no shares of Preferred Stock
will be issued and outstanding and 773,500 shares of Common Stock will be
reserved for issuance pursuant to outstanding stock options under the Company's
stock option plans and an outstanding warrant. Prior to the Offering, shares of
the Common Stock were held of record by 21 shareholders.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and are not entitled to cumulative voting
in the election of directors, which means that the holders of a majority of the
shares voting for the election of directors can elect all of the directors then
standing for election by the holders of Common Stock. The holders of Common
Stock are entitled to share ratably in such dividends, if any, as may be
declared from time to time by the Board of Directors in its discretion out of
funds legally available therefor. See "Dividend Policy." The holders of Common
Stock are entitled to share ratably in any assets remaining after satisfaction
of all prior claims upon liquidation of the Company. The Company's Charter gives
holders of Common Stock no preemptive or other subscription or conversion rights
and there are no redemption provisions with respect to such shares. All
outstanding shares of Common Stock are, and the shares offered hereby will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of holders of shares of any series of Preferred Stock
which the Company may designate and issue in the future.

PREFERRED STOCK

The authorized Preferred Stock may be issued from time to time in one or
more designated series or classes. The Board of Directors may issue shares of
Preferred Stock without approval of the shareholders, except as may be required
by applicable law or by the rules of the National Association of Securities
Dealers, Inc. The Board of Directors is also authorized to establish the voting,
dividend, redemption, conversion, liquidation and other relative provisions as
may be provided in a particular series or class. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a third party to acquire, or discourage a third party from
acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present intention to issue any series or class of Preferred
Stock.

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<PAGE> 43

CERTAIN PROVISIONS OF THE CHARTER, BYLAWS AND TENNESSEE LAW

General. The provisions of the Charter, the Bylaws and Tennessee statutory
law described in this section may delay or make more difficult acquisitions or
changes of control of the Company that are not approved by the Board of
Directors. Such provisions have been implemented to enable the Company,
particularly (but not exclusively) in the initial years of its existence as an
independent, publicly-owned company, to develop its business in a manner that
will foster its long-term growth without the disruption of the threat of a
takeover not deemed by the Board of Directors to be in the best interests of the
Company and its shareholders.

Directors. The Charter provides that the Board of Directors of the Company
shall consist of not fewer than three nor more than 11 directors, the exact
number to be set from time to time by a resolution adopted by the Board of
Directors. The Company currently has eight directors. Any or all of the
directors may be removed either with or without cause by the affirmative vote of
the holders of a majority of the voting power of all the shares of the Company's
Common Stock. Vacancies on the Board of Directors (including vacancies created
by an increase in the number of directors) may be filled by the Board of
Directors, acting by a majority of the remaining directors then in office, or by
a plurality of the votes cast by the shareholders at a meeting at which a quorum
is present. Officers are elected annually by and serve at the pleasure of the
Board of Directors. The Charter provides that the Board if Directors is divided
into three classes of as nearly equal size as possible, and the term of office
of each class expires in consecutive years so that each year only one class is
elected.

Amendment of the Bylaws and Charter. The Bylaws provide that a majority of
the Board of Directors or the holders of a majority of the voting power of all
shares of the Company's capital stock represented at any regular or special
meeting have the power to amend, alter, change, or repeal the Bylaws.

Any proposal to amend, alter, change, or repeal provisions of the Charter
relating to staggered terms for directors requires approval by the affirmative
vote of both a majority of the members of the Board of Directors then in office
and the holders of three-fourths of the voting power of all of the shares of the
Company's capital stock entitled to vote on the amendments. Other amendments to
the Charter require the affirmative vote of both a majority of the members of
the Board of Directors then in office and the holders of a majority of the
voting power of all of the shares of the Company's capital stock entitled to
vote on the amendments, with shareholders entitled to dissenters' rights as a
result of the Charter amendment voting together as a single class. Shareholders
entitled to dissenters' rights as a result of a Charter amendment are those
whose rights would be materially and adversely affected because the amendment
(i) alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption; (iii) alters or abolishes
a preemptive right; (iv) excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or (v)
reduces the number of shares held by such holder to a fraction if the fractional
share is to be acquired for cash. In general, however, under the Tennessee
Business Corporation Act no shareholder is entitled to dissenters' rights if the
security he or she holds is listed on a national securities exchange.

LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS

The TBCA provides that a corporation may indemnify any of its directors and
officers against liability incurred in connection with a proceeding if (i) such
person acted in good faith, (ii) the director or officer reasonably believed, in
the case of conduct in an official capacity, that such conduct was in the
corporation's best interests, or, in all other cases, that such conduct was not
opposed to the best interests of the corporation and (iii) in connection with
any criminal proceeding, the director or officer had no reasonable cause to
believe his conduct was unlawful. In actions brought by or in the right of the
corporation, however, the TBCA provides that no indemnification may be made if
the director or officer was adjudged liable to the corporation. The TBCA also
provides that in connection with any proceeding charging improper personal
benefit to a director or officer, no indemnification may be made if such
director or officer is adjudged liable on the basis that such personal benefit
was improperly received. In cases where the director or officer is wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which the director or officer was a party because the director or officer is or
was a director or officer of a corporation, the TBCA mandates that the

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<PAGE> 44

corporation indemnify the director or officer against reasonable expenses
incurred in connection with the proceeding. Notwithstanding the foregoing, the
TBCA provides that a court of competent jurisdiction, upon application, may
order that a director or officer be indemnified for reasonable expenses if, in
consideration of all relevant circumstances, the court determines that such
individual is fairly and reasonably entitled to indemnification, even if such
director or officer (i) was adjudged liable to the corporation in a proceeding
by or in right of the corporation, (ii) was adjudged liable on the basis that
personal benefit was improperly received, or (iii) breached his or her duty of
care to the corporation.

The Company's Charter provides that to the fullest extent permitted by
Tennessee law, no director shall be personally liable to the Company or its
shareholders for monetary damages for breach of any fiduciary duty to the
Company. Under this charter provision and the TBCA, the Company's directors are
relieved of personal liability to the Company or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability arising
from a judgment or other final adjudication establishing (i) any breach of the
director's duty of loyalty, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, or (iii) any
unlawful distributions. In addition, the Company's Bylaws provide that each
director and officer of the Company shall be indemnified by the Company to the
fullest extent allowed by Tennessee law.

ANTI-TAKEOVER LEGISLATION

Business Combination Act. The Tennessee Business Combination Act (the
"Combination Act") provides, among other things, that any corporation to which
the Combination Act applies, including the Company, shall not engage in any
"business combination" with an "interested shareholder" for a period of five
years following the date that such shareholder became an interested shareholder
unless prior to such date the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
shareholder becoming an interested shareholder. The Combination Act defines
"business combination," generally, to mean any: (i) merger or consolidation;
(ii) share exchange; (iii) sale, lease, exchange, mortgage, pledge, or other
transfer (in one transaction or a series of transactions) of assets representing
10% or more of (A) the market value of consolidated assets, (B) the market value
of the corporation's outstanding shares or (C) the corporation's consolidated
net income; (iv) issuance or transfer of shares from the corporation to the
interested shareholder; (v) plan of liquidation; (vi) transaction in which the
interested shareholder's proportionate share of the outstanding shares of any
class of securities is increased; or (vii) financing arrangements pursuant to
which the interested shareholder, directly or indirectly, receives a benefit
except proportionately as a shareholder. The Combination Act defines "interested
shareholder," generally, to mean any person who is the beneficial owner, either
directly or indirectly, of 10% or more of any class or series of the outstanding
voting stock, or any affiliate or associate of the corporation who has been the
beneficial owner, either directly or indirectly, of 10% or more of the voting
power of any class or series of the corporation's stock at any time within the
five year period preceding the date in question. The holder of a revocable proxy
will be considered the beneficial owner of shares subject to the proxy for
purposes of the Combination Act unless the proxy is not reportable on a Schedule
13D or 13G under the Securities Exchange Act of 1934, as amended. Consummation
of a business combination that is subject to the five-year moratorium is
permitted after such period if the transaction (i) complies with all applicable
charter and bylaw requirements and applicable Tennessee law and (ii) is approved
by at least two-thirds of the outstanding voting stock not beneficially owned by
the interested shareholder, or when the transaction meets certain fair price
criteria. The fair price criteria include, among others, the requirement that
the per share consideration received in any such business combination by each of
the shareholders is equal to the highest of (i) the highest per share price paid
by the interested shareholder during the preceding five-year period for shares
of the same class or series plus interest thereon from such date at a treasury
bill rate less the aggregate amount of any cash dividends paid and the market
value of any dividends paid other than in cash since such earliest date, up to
the amount of such interest, (ii) the highest preferential amount, if any, such
class or series is entitled to receive on liquidation, or (iii) the market value
of the shares on either the date the business combination is announced or the
date when the interested shareholder reaches the 10% threshold, whichever is
higher, plus interest thereon less dividends as noted above.

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<PAGE> 45

The Tennessee Control Share Acquisition Act (the "Acquisition Act")
prohibits certain shareholders from exercising in excess of 20% of the voting
power in a corporation acquired in a "control share acquisition," as defined in
the Acquisition Act, unless such voting rights have been previously approved by
the disinterested shareholders of the corporation. The Company has elected not
to make the Acquisition Act applicable to the Company. No assurance can be given
that such election, which must be expressed in a charter or bylaw amendment,
will not be made in the future.

Greenmail Act. The Tennessee Greenmail Act (the "Greenmail Act") prohibits
the Company from purchasing or agreeing to purchase any of its securities, at a
price in excess of market value, as that term is defined in the Greenmail Act,
from a holder of 3% or more of any class of such securities who has beneficially
owned such securities for less than two years, unless such purchase has been
approved by the affirmative vote of a majority of the outstanding shares of each
class of voting stock issued by the Company or the Company makes an offer of at
least equal value per share to all holders of shares of such class.

The effect of the Combination Act, the Acquisition Act and the Greenmail
Act may be to render more difficult a change of control of the Company.

TRANSFER AGENT AND REGISTRAR

Continental Stock Transfer & Trust Company is the transfer agent and
registrar for the Common Stock.

CERTAIN TRANSACTIONS

SACO, Inc., a farm distribution company, purchases products from the
Company for distribution in its normal course of business. During fiscal years
1995, 1996 and 1997, SACO purchased from the Company products valued at
approximately $196,000, $239,000 and $240,000, respectively. Randal D. Boyd,
Chairman of the Board and President of the Company and the Company's majority
shareholder, owns all of the outstanding common stock of SACO and serves as its
Chairman of the Board and President.

Mr. Boyd also serves as a director of PetSafe Ltd. During fiscal years
1995, 1996 and 1997, PetSafe purchased from the Company products valued at
$135,000, $622,000 and $364,000, respectively.

For several years, the Company has had an ongoing relationship with
Concorde Microsystems, Inc., a research and development company. During fiscal
years 1995, 1996 and 1997, the Company paid Concorde approximately $92,000,
$67,000 and $123,000, respectively, in fees and royalties under a development
agreement whereby Concorde developed a mixed signal computer chip which is now
owned by the Company and used in the Company's products. Concorde is also
currently performing product development work for the Company and will be paid
royalties on any product developed by Concorde that is ultimately marketed by
the Company. Concorde owns approximately 6% of the outstanding Common Stock of
the Company. Ronald Nutt, Ph.D., a director of Concorde, is also a director and
shareholder of the Company. While Dr. Nutt does not directly own any shares of
Common Stock of Concorde, Dr. Nutt's son owns 40% of the outstanding common
stock of Concorde.

On October 30, 1997, the Company paid the remaining outstanding principal
balance on a $100,000 10% Subordinated Debenture and Stock Purchase Warrant (the
"Debenture") held by E. Douglas Grindstaff, a director of the Company. The
Debenture was issued on December 12, 1995 and was due on December 20, 1997. In
connection with the Debenture, Mr. Grindstaff was granted a warrant for 12,000
shares of Common Stock of the Company. The warrant is currently held by Dean
Witter Reynolds in Mr. Grindstaff's individual retirement account. Also, Mr.
Grindstaff served as a marketing consultant to the Company from August 1995
until becoming a director of the Company in April 1996. In exchange for his
marketing consultant services, Mr. Grindstaff received 3,750 shares of Common
Stock of the Company.

Richard B. Ray, a director of the Company, is also a director of BankFirst
of Knoxville, Tennessee ("BankFirst"). As of December 31, 1997, the Company had
an outstanding principal balance of $138,000 under a Term Loan with BankFirst,
which bears interest at 11.5% per annum and expires on June 5, 2000.

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<PAGE> 46

Management believes that each of the foregoing transactions was consummated
on terms as favorable as those available to the Company from unaffiliated
parties.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has not been any public market for securities
of the Company. No prediction can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares of Common Stock
for sale will have on the market price prevailing from time to time. Sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions described below lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.

Upon completion of the Offering, the Company will have outstanding
6,162,223 shares of Common Stock 6,444,973 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 1,885,000
shares of Common Stock sold in the Offering will be freely tradable without
restriction or limitation under the Securities Act, except to the extent such
shares are subject to the agreement with the representatives of the Underwriters
described below and except for any shares purchased by "affiliates," as that
term is defined under the Securities Act, of the Company. The remaining
4,277,223 shares will be "restricted securities" within the meaning of Rule 144
adopted under the Securities Act (the "Restricted Shares"). The Restricted
Shares were issued by the Company in reliance upon an exemption from
registration under the Securities Act and none of such shares may be sold in the
public market, except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption from registration, such as the
exemption provided by Rule 144 under the Securities Act.

In general, under Rule 144, as currently in effect, any person (or person
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least a one-year period (as computed under Rule 144) is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock 61,562
shares after giving effect to the Offering) and (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks immediately preceding
the date on which the notice of sale is filed with the Commission. Sales under
Rule 144 are also subject to certain provisions relating to the manner and
notice of sale and the availability of current public information about the
Company. A shareholder who is not an affiliate of the Company at any time during
the 90 days immediately preceding a sale and who has beneficially owned his
shares for at least two years (as computed under Rule 144), is entitled to sell
such shares under Rule 144(k) without regard to the volume, manner and notice of
sale and availability of public information limitations described above. Shares
properly sold in reliance upon Rule 144 to persons who are not affiliates are
thereafter freely tradable without restrictions or registration under the
Securities Act.

The Company, the directors and executive officers of the Company (who in
the aggregate beneficially own 3,991,416 shares of Common Stock) and certain
holders of 5% or more of the shares of Common Stock outstanding after the
Offering have agreed with the Underwriters that, for a period of 180 days
following the Offering (the "Lock-up Period"), they will not offer to sell,
sell, contract to sell, grant an option to purchase or otherwise dispose (or
announce any offer, sale, grant of any option or other distribution) of any
shares of Common Stock of any securities convertible into or exchangeable for
shares of Common Stock without the prior written consent of J.C. Bradford & Co.
(except that the Company may grant options to purchase or award shares of Common
Stock under the Incentive Plan and the 1994 Plan and issue privately placed
shares in connection with acquisitions or upon the exercise of existing stock
options).

43
<PAGE> 47

As soon as practicable following the consummation of the Offering, the
Company intends to file a registration statement under the Securities Act to
register shares of Common Stock issuable pursuant to the Incentive Plan and the
1994 Plan. See "Management - Compensation Pursuant to Plans." Shares of Common
Stock issued pursuant to the Incentive Plan and the 1994 Plan after the
effective date of such registration statement will be available for sale in the
open market, subject to the Lock-up Period, if applicable.

44
<PAGE> 48

UNDERWRITING

Pursuant to the Underwriting Agreement and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co. and The Robinson-Humphrey Company, LLC, as representatives of the several
underwriters (the "Representatives"), have agreed, severally, to purchase from
the Company and the Selling Shareholders the number of shares of Common Stock
set forth below opposite their respective names:

<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
- ------------------- ---------
<S> <C>
J.C. Bradford & Co..........................................
The Robinson-Humphrey Company, LLC..........................

---------
Total............................................. 1,885,000
=========
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all shares of Common Stock
offered hereby, if any of such shares are purchased.

The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose initially to offer the shares of
Common Stock to the public at the initial offering price set forth on the cover
page of this Prospectus, and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain brokers or dealers. After the Offering, the public offering price and
concessions may be changed by the Representatives. The Representatives have
informed the Company that the Underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.

The Offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any offer for the purchase of shares.

The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of effectiveness of the Offering, to purchase up to
an aggregate of 282,750 additional shares of Common Stock to cover
over-allotments, if any. To the extent that the Underwriters exercise the
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the table above bears to the total number
of shares in such table, and the Company will be obligated, pursuant to the
option, to sell such shares to the Underwriters. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of Common Stock offered hereby. If purchased, the Underwriters will
sell these additional shares on the same terms as those on which the 1,885,000
shares are being offered.

The Company and its executive officers, directors, the Selling Shareholders
and certain other holders of the Common Stock, who, immediately following the
Offering, collectively will beneficially own an aggregate of 4,332,040 shares of
Common Stock, have agreed with the Representatives not to offer to sell or
otherwise dispose of any shares of Common Stock they currently own for a period
of 180 days from the date of this Prospectus, without the prior written consent
of J.C. Bradford & Co., except that the Company may grant options to purchase or
award shares of Common Stock under the Incentive Plan and the 1994 Plan and may
issue shares in connection with acquisitions or upon the exercise of existing
stock options. See "Shares Eligible for Future Sale."

The Underwriting Agreement provides that the Company and the Selling
Shareholders generally will severally indemnify the Underwriters and their
controlling persons, if any, against certain liabilities, including

45
<PAGE> 49

civil liabilities under the Securities Act, or will contribute to payments that
the Underwriters or any such controlling persons may be required to make in
respect thereof.

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock has been determined
by negotiation between the Company and the Representatives. Among the factors
considered in determining the initial public offering price, in addition to
prevailing market and general economic conditions, were the history of and
prospects for, the industry in which the Company operates, the ability of the
Company's management, the Company's past and present operations, the Company's
historical results of operations, the Company's earnings prospects, the prices
of similar securities of comparable companies and other relative factors. There
can be no assurance, however, that the price at which the Common Stock will sell
in the public market after the Offering will not be lower than the price at
which it is being sold by the Underwriters. The Representatives, on behalf of
the Underwriters, have agreed to undertake to sell the Common Stock in such a
manner as to ensure that the distribution standards of Nasdaq will be met. See
"Risk Factors -- Absence of Prior Public Market; Relationship of Offering Price
to Market Price."

In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of Common Stock, the Underwriters may bid for and purchase,
shares of Common Stock in the open market. The Underwriters may also impose a
penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing Common Stock in the Offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the Underwriters may bid for and purchase, shares of Common Stock in market
making transactions. These activities may stabilize or maintain the market price
of Common Stock above market levels that may otherwise prevail. The Underwriters
are not required to engage in these activities and may end any of these
activities at any time.

At the request of the Company, up to 50,000 shares of Common Stock have
been reserved for sale in the Offering to certain individuals, including
directors and employees of the Company, members of their families and other
persons having business relationships with the Company. The price of such shares
to such persons will be the initial public offering price set forth on the cover
of this prospectus. The number of shares available for sale to the general
public will be reduced to the extent these persons purchase such reserved
shares. Any reserved shares not purchased will be offered by the Underwriters to
the general public on the same basis as the other shares offered hereby.

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of Common
Stock are being passed upon for the Company by Waller Lansden Dortch & Davis, a
Professional Limited Liability Company, Nashville, Tennessee, counsel to the
Company. Waller Lansden Dortch & Davis, a Professional Limited Liability
Company, has also acted, and may in the future act, as counsel to J.C. Bradford
& Co. Certain legal matters will be passed upon for the Underwriters by Stokes &
Bartholomew, P.A., Nashville, Tennessee.

EXPERTS

The financial statements and schedules as of December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997 appearing
in this Prospectus and Registration Statement have been included herein in
reliance on the reports of Coopers & Lybrand L.L.P. independent accountants,
given on the authority of that firm as experts in accounting and auditing.

46
<PAGE> 50

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby
(the "Registration Statement"). This Prospectus, which is a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement and the exhibits and schedules filed
as a part thereof. Statements contained in this Prospectus concerning the
provisions or contents of any contract, agreement or any other document referred
to herein are not necessarily complete. With respect to each such contract,
agreement or document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matters
involved and each statement shall be deemed qualified in its entirety by such
reference to the copy of the applicable document filed with the Commission. A
copy of the Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the Pubic Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following Regional Offices of the Commission: New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of the Registration Statement and the exhibits and schedules
thereto can be obtained from the Public Reference Section of the Commission upon
payment of prescribed fees. The Commission maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding registrants, including the Company. The address of that site is
http://www.sec.gov.

Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
As a result of the Offering, the Company will become subject to the
informational and periodic reporting requirements of the Exchange Act and in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the public
reference facilities and other regional offices referred to above. The Company
intends to register the securities offered by the Registration Statement under
the Exchange Act simultaneously with the effectiveness of the Registration
Statement and to furnish its shareholders with annual reports containing audited
financial statements and quarterly reports for the first three fiscal quarters
of each fiscal year containing unaudited interim financial information.

The Common Stock has been approved for quotation on the Nasdaq National
Market. Accordingly, such periodic report, proxy statements and other financial
information may be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K. Street, N.W., Washington, D.C. 20006.

47
<PAGE> 51

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE(S)
-----------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1996 and 1997............. F-3
Statements of Operations for the years ended December 31,
1995, 1996 and 1997....................................... F-4
Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997.......................... F-5
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997....................................... F-6
Notes to Financial Statements............................... F-7 to F-15
</TABLE>

F-1
<PAGE> 52

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Radio Systems Corporation

We have audited the accompanying balance sheets of Radio Systems
Corporation (the "Company") as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Radio Systems Corporation as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Knoxville, Tennessee
January 12, 1998

F-2
<PAGE> 53

RADIO SYSTEMS CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,161 $ 989,418
Accounts receivable:
Trade, less allowance for doubtful accounts of $135,279
and $328,682 in 1996 and 1997, respectively........... 2,150,228 3,056,785
Related party trade receivables........................ 556,465 381,311
Inventories............................................... 3,176,542 4,459,070
Deferred income taxes..................................... 365,022 399,201
Prepaid expenses.......................................... 2,051 316,862
---------- -----------
Total current assets.............................. 6,255,469 9,602,647
Property and equipment, net................................. 789,401 971,092
Goodwill, net............................................... -- 633,258
Other assets................................................ 74,324 96,980
---------- -----------
Total assets...................................... $7,119,194 $11,303,977
========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of bank balance.............. $ 237,494 $ 810,027
Line of credit............................................ 2,008,170 --
Current portion of long-term debt and other obligations... 163,918 683,198
Current portion of capital lease obligations.............. 24,684 --
Accounts payable.......................................... 552,919 1,157,236
Income taxes payable...................................... 407,333 39,513
Accrued expenses.......................................... 576,368 1,408,619
---------- -----------
Total current liabilities......................... 3,970,886 4,098,593
Line of credit.............................................. -- 2,891,304
Long-term debt and other obligations, less current
maturities................................................ 138,362 536,143
Noncurrent portion of capital lease obligations............. 23,315 --
---------- -----------
Total liabilities................................. 4,132,563 7,526,040
Commitments and contingencies (Notes 6, 11)
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized, none issued................................ -- --
Common stock, no par value, 50,000,000 shares authorized;
4,659,473 and 4,669,223 shares issued and outstanding
in 1996 and 1997, respectively......................... 2,007,000 2,028,705
Stock purchase warrants................................... 502,259 7,259
Retained earnings......................................... 477,372 1,741,973
---------- -----------
Total shareholders' equity........................ 2,986,631 3,777,937
---------- -----------
Total liabilities and shareholders' equity........ $7,119,194 $11,303,977
========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 54

RADIO SYSTEMS CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................... $13,192,843 $18,869,421 $24,566,643
Cost of goods sold...................................... 9,989,793 12,091,736 14,829,940
----------- ----------- -----------
Gross profit on sales................................... 3,203,050 6,777,685 9,736,703
----------- ----------- -----------
Selling, general and administrative expenses............ 3,122,235 3,410,001 5,030,570
Research and development................................ 912,167 663,652 982,448
Interest expense........................................ 467,746 714,888 423,365
----------- ----------- -----------
Income (loss) before income taxes....................... (1,299,098) 1,989,144 3,300,320
Income tax provision.................................... (195,599) (42,310) (1,240,596)
----------- ----------- -----------
Net income (loss)....................................... $(1,494,697) $ 1,946,834 $ 2,059,724
=========== =========== ===========
Income (loss) per common and equivalent share:
Basic................................................. $ (0.32) $ 0.42 $ 0.44
=========== =========== ===========
Diluted............................................... $ (0.32) $ 0.36 $ 0.38
=========== =========== ===========
Weighted average shares and equivalents outstanding
(000's):
Basic................................................. 4,601 4,663 4,666
=========== =========== ===========
Diluted............................................... 4,733 5,390 5,397
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 55

RADIO SYSTEMS CORPORATION

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK STOCK RETAINED
---------------------- PURCHASE EARNINGS
SHARES AMOUNT WARRANTS (DEFICIT) TOTAL
--------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994....... 4,576,473 $1,801,000 $ 94,274 $ 25,235 $ 1,920,509
Issuance of common stock............ 80,000 200,000 -- -- 200,000
Stock purchase warrant issued with
note payable...................... -- -- 165,062 -- 165,062
Net loss............................ -- -- -- (1,494,697) (1,494,697)
--------- ---------- --------- ----------- -----------
Balances at December 31, 1995....... 4,656,473 2,001,000 259,336 (1,469,462) 790,874
Issuance of common stock............ 3,000 6,000 -- -- 6,000
Stock purchase warrant issued with
note payable...................... -- -- 242,923 -- 242,923
Net income.......................... -- -- -- 1,946,834 1,946,834
--------- ---------- --------- ----------- -----------
Balances at December 31, 1996....... 4,659,473 2,007,000 502,259 477,372 2,986,631
Issuance of common stock............ 9,750 21,705 -- -- 21,705
Retirement of stock purchase
warrants.......................... -- -- (495,000) (795,123) (1,290,123)
Net income.......................... -- -- -- 2,059,724 2,059,724
--------- ---------- --------- ----------- -----------
Balances at December 31, 1997....... 4,669,223 $2,028,705 $ 7,259 $ 1,741,973 $ 3,777,937
========= ========== ========= =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 56

RADIO SYSTEMS CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $(1,494,697) $ 1,946,834 $ 2,059,724
Adjustments to reconcile net income (loss) to cash
provided (used) by operating activities:
Depreciation and amortization...................... 332,997 609,557 421,466
Loss on disposal of equipment...................... 471 -- --
Provision for doubtful accounts.................... 66,324 138,635 381,311
Deferred taxes..................................... 202,526 (365,022) (34,179)
Services provided in exchange for common stock..... -- -- 12,705
Changes in operating assets and liabilities:
Accounts receivable.............................. 195,787 (1,791,204) (1,112,714)
Inventories...................................... 292,936 (681,291) (1,111,354)
Prepaid expenses................................. 161,779 21,668 (314,811)
Accounts payable................................. 115,016 (544,622) 620,008
Accrued expenses................................. 94,162 326,201 832,251
Income taxes payable............................. (41,708) 407,333 142,056
----------- ----------- -----------
Net cash provided (used) by operating
activities.................................. (74,407) 68,089 1,896,463
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures.................................. (393,259) (272,251) (325,557)
Net cash paid for acquisition of product line......... -- -- (500,000)
Other assets.......................................... (37,055) 3,420 (41,535)
----------- ----------- -----------
Net cash used in investing activities......... (430,314) (268,831) (867,092)
----------- ----------- -----------
Cash flows from financing activities:
Increase (decrease) in checks in excess of bank
balance............................................ (153,823) 48,388 572,533
Net proceeds from line of credit...................... 257,296 1,222,572 883,134
Proceeds from notes payable........................... 420,000 -- 1,042,175
Payments on notes payable............................. (28,608) (1,089,110) (703,957)
Payments on capital lease obligations................. (171,295) (22,013) (47,999)
Proceeds from issuance of common stock................ 200,000 6,000 9,000
Cash paid for retirement of stock purchase warrants... -- -- (1,800,000)
----------- ----------- -----------
Net cash provided (used) by financing
activities.................................. 523,570 165,837 (45,114)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... 18,849 (34,905) 984,257
Cash and cash equivalents, at beginning of period....... 21,217 40,066 5,161
----------- ----------- -----------
Cash and cash equivalents, at end of period............. $ 40,066 $ 5,161 $ 989,418
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 57

RADIO SYSTEMS CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company. Radio Systems Corporation (the "Company") is a provider of
electronic pet containment and training products. The Company sells primarily to
retailers such as home centers, discount stores, pet and farm supply stores, and
catalog retailers. Approximately 93% of the Company's 1997 net sales were made
in the United States, with 7% in Canada and Western Europe. A single customer
accounted for approximately 13% of the Company's sales in 1997. The Company's
top five customers accounted for approximately 42%, 41% and 47% of the Company's
sales in 1995, 1996 and 1997, respectively.

Management Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Inventories. Inventories are stated at lower of cost or market. Cost is
determined using standard costs which approximate the first-in, first-out (FIFO)
method.

Property, Equipment and Depreciation. Property and equipment are stated at
cost. Depreciation is computed using the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes using an
estimated useful life of five years for all assets. The cost and related
accumulated depreciation are removed upon retirement, and any related gain or
loss is included in income from operations. Maintenance and repairs are expensed
as incurred. Major renewals and improvements are capitalized.

Revenue Recognition. Product sales are recognized upon shipment, net of
estimated trade discounts and returns. Estimated warranty costs attributable to
the Company's standard warranty program are provided for at the time of sale.

Research and Development Costs. Research and development expenditures are
charged to expense in the period incurred.

Income Taxes. Income taxes are calculated using the asset and liability
method. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.

Cash Equivalents. The Company considers all highly liquid instruments with
an original maturity of three months or less to be cash equivalents.

2. INVENTORIES:

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Raw materials............................................... $2,569,404 $2,539,622
Finished goods.............................................. 607,138 1,919,448
---------- ----------
$3,176,542 $4,459,070
========== ==========
</TABLE>

The pet containment systems the Company sells are subject to technological
change. As of December 31, 1997, management is not aware of any changes which
would adversely affect the inventory on hand. Technological changes could
significantly increase the estimate of obsolete inventory. Such changes could
also significantly impact the estimates related to sales returns reserves.

F-7
<PAGE> 58

RADIO SYSTEMS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Machinery and equipment..................................... $1,231,535 $1,636,546
Furniture and fixtures...................................... 73,506 90,315
Leasehold improvements...................................... 75,777 75,777
---------- ----------
Total property and equipment................................ 1,380,818 1,802,638
Less accumulated depreciation and amortization.............. (591,417) (831,546)
---------- ----------
$ 789,401 $ 971,092
========== ==========
</TABLE>

Machinery and equipment includes equipment under capital leases with a net
book value of $42,774 and $0 at December 31, 1996 and 1997, respectively.

4. LINES OF CREDIT:

The Company has a $5,000,000 line of credit with a bank that expires on May
30, 1999. The Company may also issue letters of credit against the line up to
$500,000. Borrowings under the line are limited to (a) 75% of eligible
receivables, as defined, plus (b) the lesser of 50% of eligible inventory, as
defined, or $1,500,000 ($1,800,000 at certain times). Borrowings under the line
bear interest at the bank's prime rate plus 1% (9.5% at December 31, 1997). The
line is collateralized by accounts receivable, inventory, and certain equipment.
In addition, the Company's president and the president's spouse are guarantors
up to $1,000,000. At December 31, 1996 and 1997, advances on the line of credit
amounted to $2,008,170 and $2,891,304, respectively.

In addition to the revolving line of credit, the agreement also provides
for a non-revolving "Acquisition" line of credit of $1,500,000, which expires
May 30, 1998. Under the agreement, the bank may make advances on this line, at
its discretion, for acquisitions of all or substantial portions of the assets of
other entities. The agreement calls for a separate note for each acquisition
which would require payments of interest only at the bank's index rate plus 1%
until the consummation of the acquisition. At that point, the note would
automatically convert to an installment note payable in no more than 36 months,
at the bank's discretion.

The line of credit agreements contain certain covenants, the most
restrictive of which requires the maintenance of certain financial ratios.

The line of credit agreements and certain bank notes payable discussed in
Note 5 require lender approval prior to the payment of dividends.

F-8
<PAGE> 59

RADIO SYSTEMS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT AND OTHER OBLIGATIONS:

Long-term debt and other obligations consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ----------
<S> <C> <C>
Subordinated note payable to a shareholder, bearing interest
at 10%, retire on December 20, 1997....................... $ 100,000 $ --
Notes payable to banks in monthly installments totaling
$8,852, including interest at annual rates ranging from
8.1% to 11.5% through 2001. These notes are collateralized
by certain equipment...................................... 202,280 173,027
Note payable to a bank, due in monthly installments of
$83,333 plus interest at 9% through 1998. This note is
collateralized by personal guarantees of certain of the
Company's officers........................................ -- 500,002
Obligation to seller of a product line for minimum
royalties, due in quarterly installments of $37,500
through 2002; effective interest rate of 10%.............. -- 546,312
--------- ----------
302,280 1,219,341
Less current portion........................................ (163,918) (683,198)
--------- ----------
$ 138,362 $ 536,143
========= ==========
</TABLE>

As of December 31, 1997, the scheduled maturities of long-term debt and
other obligations are as follows:

Subordinated Note Warrants. In connection with the subordinated note that
was retired on December 18, 1996, the Company issued a stock purchase warrant to
the lender that provided for the purchase of up to 525,420 shares of common
stock at $0.003 per share. The fair value of the stock purchase warrant was
recorded as a discount on the subordinated note and was amortized to interest
expense during 1995, increasing the effective rate of interest. The terms of the
subordinated note agreement were such that the number of shares under the
warrants increased by 243,252 and 97,299 shares during 1995 and 1996,
respectively, because the loan remained outstanding. The Company amortized the
discount related to each increase in the warrant over the term between the
warrant adjustment dates or over the term of the subordinated notes, as
appropriate.

Including the warrants issued in connection with the 10% subordinated note
to a shareholder, warrants to purchase a total of 498,501 shares of stock at a
strike price of $0.003 remained outstanding at December 31, 1996. Total
amortization expense amounted to $133,885, $368,375 and $0 during the years
ended December 31, 1995, 1996 and 1997, respectively.

In May 1997, the Company purchased and retired the warrants held by the
subordinated debt holder. Consideration for the warrants was $1,800,000 and has
been recorded, net of the excess tax deduction benefit of $510,000, as a charge
to shareholders' equity.

F-9
<PAGE> 60

RADIO SYSTEMS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. LEASE OBLIGATIONS:

The Company is obligated under various noncancelable operating leases (with
initial or remaining lease terms in excess of one year) for certain facilities,
vehicles and equipment. Approximate future minimum lease payments under the
operating leases as of December 31, 1997, are:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ----------
<S> <C>
1998........................................................ $ 187,135
1999........................................................ 219,117
2000........................................................ 199,668
2001........................................................ 192,159
Thereafter.................................................. 1,234,279
</TABLE>

Rental expense for operating leases during 1995, 1996 and 1997, was
approximately $166,000, $164,000 and $172,000, respectively.

7. INCOME TAXES:

Significant components of the provision (benefit) for income taxes are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
Current:
Federal............................................ $ -- $ 339,780 $1,147,610
State.............................................. -- 67,552 127,165
-- 407,332 1,274,775
-------- --------- ----------
Deferred:
Federal............................................ 164,712 (308,720) (30,040)
State.............................................. 30,887 (56,302) (4,139)
-------- --------- ----------
195,599 (365,022) (34,179)
Total income tax provision................. $195,599 $ 42,310 $1,240,596
======== ========= ==========
</TABLE>

The income tax provision (benefit) recognized by the Company for the years
ended December 31, 1995, 1996 and 1997 differs from the amount determined by
applying the applicable U.S. statutory federal income tax rate to the Company's
pretax income (loss) as a result of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Computed tax provision (benefit) at the statutory
rate.............................................. $(441,693) $ 676,000 $1,155,112
State income tax provision (benefit), net of Federal
effect............................................ (51,444) 97,400 132,012
Research and development tax credits................ -- (79,523) (48,306)
Other, net.......................................... 4,087 33,082 1,778
Change in valuation allowance....................... 684,649 (684,649) --
--------- --------- ----------
$ 195,599 $ 42,310 $1,240,596
========= ========= ==========
</TABLE>

F-10
<PAGE> 61
RADIO SYSTEMS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The net deferred tax asset is comprised of the following components at:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- -------- --------
<S> <C> <C> <C>
Research and development tax credit................... $ 26,477 $ -- $ --
Accounts receivable allowance......................... 33,000 52,785 131,371
Inventory valuation................................... 6,600 -- --
Accrued expenses...................................... 66,000 184,757 299,344
Property and equipment................................ (45,000) (31,220) (48,968)
Goodwill amortization................................. -- -- 17,454
Warrant amortization.................................. -- 158,700 --
Net operating loss carryforwards...................... 597,572 -- --
--------- -------- --------
Deferred tax asset.................................... 684,649 365,022 399,201
Valuation allowance................................... (684,649) -- --
--------- -------- --------
Net deferred tax asset................................ $ -- $365,022 $399,201
========= ======== ========
</TABLE>

During 1996, the Company eliminated the valuation allowance of $684,649 to
reflect the utilization of net operating loss carryforwards and tax credits for
which a 100% valuation allowance had been provided in prior years. No valuation
allowance was deemed necessary at December 31, 1996 and 1997 as a result of
management's evaluation that all remaining deferred tax assets will more likely
than not be realized.

8. RELATED PARTY TRANSACTIONS:

In the ordinary course of business, the Company executes transactions with
various related parties, including an entity wholly-owned by the Company's
majority shareholder; an entity in which the Company is a 7% shareholder; an
entity owned by a director of the Company; and a minority shareholder of the
Company. Related party transactions are summarized as follows for the years
ended December 31:

<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Product sales to affiliated companies.................. $353,340 $863,372 $603,568
Payments to a minority shareholder for research and
development.......................................... 92,000 66,913 123,039
</TABLE>

A director of the Company is also a director for a bank holding a note from
the Company in the amount of $291,391, $202,280 and $138,087 as of December 31,
1995, 1996 and 1997, respectively.

As discussed in Note 5, a minority shareholder holds warrants to purchase
additional common stock, which were issued in connection with a subordinated
note.

9. EMPLOYEE BENEFIT PLAN:

The Company has a defined contribution employee retirement savings plan
(covering all full time employees) which provides for a stipulated matching
contribution and for discretionary contributions by the Company. Contributions
to the Plan for the years ended December 31, 1995, 1996 and 1997, were
approximately $43,000, $40,000 and $62,000, respectively.

10. STOCK OPTIONS:

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

F-11
<PAGE> 62

RADIO SYSTEMS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

1994 Stock Option Plan

The Company's 1994 Stock Option Plan authorized the grant of options to
employees for up to 360,000 shares of the Company's stock. Certain directors and
the corporate secretary of the Company have been granted options to purchase an
aggregate of 180,000 shares of the Company's stock. All options vest ratably
over five years and expire ten years from the grant dates.

A summary of the Company's stock option activity and related information
under the 1994 stock option plan for the years ended December 31 follows:

<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year......................... 297,000 $1.18 258,000 1.33 477,000 $1.78
Granted...................... 42,000 2.50 222,000 2.29 54,000 2.96
Exercised.................... -- -- (3,000) 2.00 (6,000) 1.50
Forfeited.................... (81,000) 1.37 -- -- -- --
------- ------- -------
Outstanding, end of year....... 258,000 $1.33 477,000 1.78 525,000 $1.90
======= ======= =======
Exercisable at end of year..... 58,800 $1.16 119,400 1.20 227,400 $1.46
Weighted-average fair value of
options granted during the
year......................... 0.84 $ 0.95 $ 1.10
</TABLE>

Exercise price for options outstanding as of December 31, 1997, ranged from
$1.00 to $2.96. The weighted-average remaining contractual life of those options
is eight years.

1997 Stock Option Plan

Pro forma information regarding net income and income per share is required
by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value of these options was estimated at the date of grant
using an option pricing model and the following assumptions: risk-free interest
rate of 6%; no dividend yield; and a weighted-average expected life of the
option of eight years.

F-12
<PAGE> 63

RADIO SYSTEMS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:

<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
Net income (loss):
As reported..................................... $(1,494,697) $1,946,834 $2,059,724
Pro forma....................................... (1,497,068) 1,919,070 2,010,182
Income (loss) per share:
As reported..................................... $ (0.32) $ 0.42 $ 0.44
Pro forma....................................... (0.33) 0.41 0.43
</TABLE>

11. CERTAIN CONCENTRATIONS:

The Company produces and sells electronic pet containment and training
products to companies operating in the retail industry throughout the United
States. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables are
generally due within 30 to 90 days. Credit losses relating to customers have
been within management's expectations.

The Company currently outsources virtually all of its manufacturing and
assembly functions. A substantial portion of the Company's products, including
its standard Radio Fence products, are assembled by two suppliers located in
China. Other products offered by the Company are manufactured in Israel and
France, and certain of the components of the Company's Radio Fence products are
manufactured in Taiwan. The microchips used in the Company's products are
manufactured by a supplier in California. Management believes that, if
necessary, alternate sources of supply on comparable terms could be obtained.

12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

During 1997, the Company borrowed $578,843 to purchase a product line.

Cash payments for interest and income taxes were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Interest.............................................. $325,352 $333,897 $ 423,365
Income taxes.......................................... 34,781 -- 1,100,000
</TABLE>

13. ACQUISITION OF PRODUCT LINE:

On March 31, 1997, the Company purchased certain assets related to the pet
products business (which consisted principally of ultrasonic bark control
collars and pet trainers) of a company located in Austin, Texas. The purchase
price was approximately $1,065,000, with $500,000 paid at or within 90 days of
closing, and the remainder to be paid quarterly at the rate of $37,500. The
seller also receives a royalty of 5% or 10% on certain defined sales of the
products. The transaction has been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
separately identifiable assets, principally inventory and product molds, at
their respective fair values. The remaining $712,000 of the purchase price has
been allocated to goodwill and other intangible assets, and is being amortized
using the straight-line method over seven years.

F-13
<PAGE> 64

RADIO SYSTEMS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Pro forma unaudited results of operations for the years ended December 31,
1996 and 1997, assuming that the acquisition had occurred at the beginning of
the earliest period presented, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Net sales................................................... $20,475,657 $25,013,260
Net income.................................................. $ 2,344,156 $ 2,107,300
Income per share............................................ $ 0.45 $ 0.45
</TABLE>

14. INCOME (LOSS) PER SHARE:

In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which changes
the calculations used for earnings per share (EPS) and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Adoption of this standard had no effect on basic EPS
for the year ended December 31, 1995, and resulted in a $0.05 increase in basic
EPS for the year ended December 31, 1996. The standard has no effect on the
diluted EPS. The Statement is effective for financial statements issued for
periods ending after December 15, 1997; earlier application was not permitted.

Common shares issued and common equivalent shares relating to options
issued during the 14-month period preceding January 12, 1998, have been
calculated using the treasury stock method assuming that the options or shares
were outstanding during each period presented and that the fair value of the
Company's common stock during each period was equal to the assumed initial
public offering price of $11.00 per share. Common equivalent shares relating to
all other options have been calculated using the treasury stock method for the
portion of each period for which the options were outstanding and using the
estimated fair value of the Company's common stock for each of the respective
periods. All shares, per share and conversion amounts relating to common stock
and stock options and warrants included in the accompanying financial statements
and notes reflects a 100-for-one stock split effected on December 21, 1994, and
the three-for-one split effected on November 14, 1997.

The following reconciliation details the numerators and denominators used
to calculate basic and diluted earnings per share for the years ended December
31, 1995, 1996 and 1997.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------
LOSS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS net loss........................................ $(1,494,697) 4,601,322 $(0.32)
======
Effect of Dilutive Securities Options..................... 131,344
----------- ---------
Diluted EPS net loss...................................... $(1,494,697) 4,732,666 $(0.32)
=========== ========= ======
</TABLE>

F-14
<PAGE> 65

RADIO SYSTEMS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS net income....................................... $1,946,834 4,633,190 $0.42
Effect of Dilutive Securities
Warrants................................................. 458,673
Options.................................................. 267,989
---------- ---------
Diluted EPS net income..................................... $1,946,834 5,389,852 $0.36
========== ========= =====
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS net income....................................... $2,059,724 4,666,025 $0.44
Effect of Dilutive Securities
Warrants................................................. 294,238
Options.................................................. 436,325
---------- ---------
Diluted EPS net income..................................... $2,059,724 5,396,588 $0.38
========== ========= =====
</TABLE>

15. PREFERRED STOCK

The Company currently has 10,000,000 shares of preferred stock authorized
with none issued. The Company may issue the preferred stock from time to time in
series having such designated rights, preferences, qualifications, and
limitations as the Board of Directors may determine.

F-15
<PAGE> 66

REPORT OF INDEPENDENT ACCOUNTANTS

ON FINANCIAL STATEMENT SCHEDULE

In connection with our audits of the financial statements of Radio Systems
Corporation as of December 31, 1996 and 1997, and for each of the three years in
the period ended December 31, 1997, which financial statements are included in
the Prospectus, we have also audited the financial statement schedule listed in
Item 16(b) herein.

In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included herein.

/s/ COOPERS & LYBRAND L.L.P.

Knoxville, Tennessee

January 12, 1998

S-1
<PAGE> 67

RADIO SYSTEMS CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END OF
DESCRIPTION OF YEAR EXPENSE DEDUCTIONS YEAR
- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Allowance for doubtful accounts................... $200,000 $ 66,324 $179,177 $ 87,147
Warranty Reserve.................................. 95,444 545,645 549,568 91,521
Allowance for Sales Returns....................... -- 39,357 -- 39,357
Inventory Obsolescence Reserve.................... 200,023 278,378 460,978 17,423
Year Ended December 31, 1996
Allowance for doubtful accounts................... 87,147 138,635 90,503 135,279
Warranty Reserve.................................. 91,521 640,497 609,192 122,826
Allowance for Sales Returns....................... 39,357 160,752 119,733 80,376
Inventory Obsolescence Reserve.................... 17,423 198,284 215,707 --
Year Ended December 31, 1997
Allowance for doubtful accounts................... 135,279 229,120 35,717 328,682
Warranty Reserve.................................. 122,826 1,039,549 995,278 167,097
Allowance for Sales Returns....................... 80,376 91,453 20,040 151,789
Inventory Obsolescence Reserve.................... -- 208,495 208,495 --
</TABLE>

S-2
<PAGE> 68

======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 11
Capitalization........................ 12
Dividend Policy....................... 13
Dilution.............................. 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 20
Management............................ 32
Principal and Selling Shareholders.... 38
Description of Capital Stock.......... 39
Certain Transactions.................. 42
Shares Eligible for Future Sale....... 43
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Available Information................. 47
Index to Financial Statements......... F-1
</TABLE>

---------------------

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

======================================================
======================================================

1,885,000 SHARES

[LOGO]

RADIO SYSTEMS CORPORATION
COMMON STOCK
--------------------
PROSPECTUS
--------------------

J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY COMPANY

, 1998

======================================================
<PAGE> 69

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table shows the expenses, other than underwriting discounts,
that the Company expects to incur in connection with the issuance and
distribution of the securities being registered under this registration
statement. All expenses are estimated except for the Securities and Exchange
Commission registration fee, the Nasdaq National Market fee and the NASD filing
fee.

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 7,674
NASD Filing Fee............................................. 3,019
Nasdaq National Market Fee.................................. 33,000
Blue Sky Fees and Expenses (including legal fees)........... 2,500
Printing Expenses........................................... 90,000
Legal Fees and Expenses..................................... 150,000
Accounting Fees and Expenses................................ 70,000
Transfer Agent and Registrar Fees........................... 750
Miscellaneous Expenses...................................... 43,057
--------
Total............................................. $400,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The TBCA provides that a corporation may indemnify any director or officer
against liability incurred in connection with a proceeding if (i) the director
or officer acted in good faith, (ii) the director or officer reasonably
believed, in the case of conduct in her official capacity with the corporation,
that such conduct was in the corporation's best interest, or, in all other
cases, that his conduct was not opposed to the best interests of the corporation
and (iii) in connection with any criminal proceeding, the director or officer
had no reasonable cause to believe that her conduct was unlawful. In actions
brought by or in the right of the corporation, however, the TBCA provides that
no indemnification may be made if the director or officer is adjudged to be
liable to the corporation. Similarly, the TBCA prohibits indemnification in
connection with any proceeding charging improper personal benefit to a director
or officer, if such director or officer is adjudged liable on the basis that a
personal benefit was improperly received. In cases where the director or officer
is wholly successful, on the merits or otherwise, in the defense of any
proceeding instigated because of his status as a director or officer of a
corporation, the TBCA mandates that the corporation indemnify the director or
officer against reasonable expenses incurred in the proceeding. Notwithstanding
the foregoing, the TBCA provides that a court of competent jurisdiction, upon
application, may order that a director or officer be indemnified for reasonable
expense if, in consideration of all relevant circumstances, the court determines
that such individual is fairly and reasonably entitled to indemnification,
whether or not the standard of conduct set forth above was met.

The Charter and Bylaws of the Company provide that the Company will
indemnify from liability, and advance expenses to, any present or former
director or officer of the Company to the fullest extent allowed by the TBCA, as
amended from time to time, or any subsequent law, rule, or regulation adopted in
lieu thereof. Additionally, the Charter provides that no director of the Company
will be personally liable to the Company or any of its shareholders for monetary
damages for breach of any fiduciary duty except for liability arising from (i)
any breach of a director's duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) any unlawful distributions, or (iv)
receiving any improper personal benefit. The Company has also executed in favor
of each of its directors Indemnification Agreements that obligate the Company to
indemnify and advance expenses to its directors.

The Company has purchased a directors and officers insurance policy
providing for $5,000,000 million in coverage for certain liabilities of the
Company's directors and officers. The policy expires in January, 2001.

II-1
<PAGE> 70

The proposed form of the Underwriting Agreement to be filed as Exhibit 1.1
to this Registration Statement contains certain provisions relating to the
indemnification of the Company, its controlling persons and the Selling
Shareholders by the Underwriters and relating to the indemnification of the
Underwriters by the Company, its controlling persons and the Selling
Shareholders.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Except as described in this section, no securities of the Registrant have
been sold by the Registrant within the past three years without registration
under the Securities Act.

Since October 30, 1994, the Registrant has sold and issued the following
securities:

1. On December 14, 1994, the Registrant granted an option for 90,000
shares of Common Stock to James D. Hudson at an option price of $1.00 per
share and an option for 60,000 shares of Common Stock to Barbara Thompson
at an option price of $1.00 per share (canceled January 15, 1996).

2. On December 15, 1994, the Registrant granted options for an
aggregate of 291,000 shares of Common Stock to the following:

a. an option for 3,000 shares of Common Stock was issued to Tom
Boyd at an option price of $1.00 per share;

b. an option for 3,000 shares of Common Stock was issued to Todd G.
Birdwell at an option price of $1.00 per share;

c. an option for 30,000 shares of Common Stock was issued to
Richard B. Ray at an option price of $1.00 per share;

d. an option for 30,000 shares of Common Stock was issued to B.
Otto Wheeley at an option price of $1.00 per share; and

e. an option for 30,000 shares of Common Stock was issued to Donald
F. Johnstone at an option price of $1.00 per share.

3. On December 20, 1994, the Registrant granted options for an
aggregate of 51,000 shares of Common Stock to the following:

a. an option for 3,000 shares of Common Stock was issued to Phillip
Greene at an option price of $2.00 per share;

b. an option for 15,000 shares of Common Stock was issued to Steve
J. Baker at an option price of $2.00 per share;

c. an option for 3,000 shares of Common Stock was issued to Charles
Ferrell at an option price of $2.00 per share (canceled);

d. an option for 15,000 shares of Common Stock was issued to Howard
A. Fehl at an option price of $2.00 per share; and

e. an option for 15,000 shares of Common Stock was issued to
Rungwit Sangsingkeow at an option price of $2.00 per share;

4. On December 29, 1994, the Registrant issued an aggregate of 405,000
shares of Common Stock to the following:

a. 15,000 shares of Common Stock to Thomas C. Wylly II for $1.67
per share;

b. 20,000.01 shares of Common Stock to James F. Smith, Jr. for
$2.50 per share;

c. 20,000.01 shares of Common Stock to Meta K. Smith for $2.50 per
share;

d. 20,000.01 shares of Common Stock to Richard B. Ray for $2.50 per
share;

II-2
<PAGE> 71

e. 20,000.01 shares of Common Stock to Tim W. Williams for $2.50
per share;

f. 120,000 shares of Common Stock to Tennessee Innovation Centers,
Inc. for $1.67 per share;

g. 100,000 shares of Common Stock to Tennessee Innovation Centers,
Inc. for $2.50 per share;

h. 30,000 shares of Common Stock to NSBW Corporation for $1.67 per
share; and

i. 60,000 shares of Common Stock were issued to Beta Development
Corporation for $1.67 per share.

5. On August 23, 1995, the Registrant issued 39,999.99 shares of
Common Stock to E. Douglas Grindstaff IRA for $2.50 per share.

6. On October 30, 1995, the Registrant issued 39,999.99 shares of
Common Stock to Michael Mars for $2.50 per share.

7. On December 1, 1995, the Registrant granted options for an
aggregate of 42,000 shares of Common Stock to the following:

a. an option for 6,000 shares of Common Stock was issued to Wanda
Elmore at an option price of $2.50 per share;

b. an option for 6,000 shares of Common Stock was issued to William
S. Groh at an option price of $2.50 per share (canceled);

c. an option for 6,000 shares of Common Stock was issued to Marcia
Anderson at an option price of $2.50 per share;

d. an option for 3,000 shares of Common Stock was issued to Phillip
Greene at an option price of $2.50 per share;

e. an option for 6,000 shares of Common Stock was issued to Ned
Earnest Clapp III at an option price of $2.50 per share (canceled
December 10, 1996);

f. an option for 3,000 shares of Common Stock was issued to Mary
Lindsey at an option price of $2.50 per share;

g. an option for 3,000 shares of Common Stock was issued to Walter
Frankenwich at an option price of $2.50 per share;

h. an option for 6,000 shares of Common Stock was issued to Timothy
H. Fehl at an option price of $2.50 per share; and

i. an option for 3,000 shares of Common Stock was issued to Phillip
Strenstream at an option price of $2.50 per share.

8. On December 20, 1995, the Registrant issued a Stock Purchase
Warrant for 12,000 shares of Common Stock to E. Douglas Grindstaff as
additional consideration for a $100,000 10% Subordinated Debenture.

9. On January 6, 1996, the Registrant issued 3,000 shares of Common
Stock to Rungwit Sangsingkeow pursuant to exercise of an option at $2.00
per share.

10. On January 26, 1996, the Registrant granted an option for 30,000
shares of Common Stock to Melvin E. Koons at an option price of $1.00 per
share.

11. On May 3, 1996, the Registrant granted options for an aggregate of
72,000 shares of Common Stock to the following:

a. an option for 15,000 shares of Common Stock was issued to
Phillip Greene at an option price of $2.50 per share;

II-3
<PAGE> 72

b. an option for 30,000 shares of Common Stock was issued to Steve
J. Baker at an option price of $2.50 per share;

c. an option for 9,000 shares of Common Stock was issued to Mary
Lindsey at an option price of $2.50 per share;

d. an option for 3,000 shares of Common Stock was issued to Phillip
A. Winkle at an option price of $2.50 per share;

e. an option for 3,000 shares of Common Stock was issued to
Patricia Dianne Daniels at an option price of $2.50 per share;

f. an option for 3,000 shares of Common Stock was issued to Dick
Firestone at an option price of $2.50 per share;

g. an option for 9,000 shares of Common Stock was issued to Wanda
Elmore at an option price of $2.50 per share;

12. On November 15, 1996, the Registrant granted an option for 75,000
shares of Common Stock to Christopher E. Mainini at an option price of
$2.50 per share.

13. On December 20, 1996, the Registrant granted an option for 45,000
shares of Common Stock to James D. Hudson at an exercise price of $2.50 per
share.

14. On February 3, 1997, the Registrant issued 750 shares of Common
Stock to E. Douglas Grindstaff for $2.50 per share.

15. On February 3, 1997, the Registrant issued 3,000 shares of Common
Stock to Rungwit Sangsingkeow pursuant to exercise of an option at $2.00
per share.

16. On April 17, 1997, the Registrant issued 3,000 shares of Common
Stock to E. Douglas Grindstaff for $2.50 per share.

17. On July 15, 1997, the Registrant granted options for an aggregate
of 54,000 shares of Common Stock to the following:

a. an option for 27,000 shares of Common Stock was issued to Tom
Boyd at an option price of $2.97 per share; and

b. an option for 27,000 shares of Common Stock was issued to Todd
G. Birdwell at an option price of $2.97 per share.

18. On December 29, 1997, the Registrant issued 3,000 shares of Common
Stock to James D. Hudson pursuant to exercise of an option at $1.00 per
share.

19. On January 7, 1998, the Registrant issued 3,000 shares of Common
Stock to Rungwit Sangsingkeow pursuant to exercise of an option at $2.00
per share.

The sales and issuances of securities in the above transactions have been
adjusted to reflect the three-for-one stock split, which was effected in
November 1997. The sales and issuances of the securities referenced above were
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof as transactions not involving any public offerings, with the recipients
representing their intentions to acquire the securities for their own accounts
and not with a view to the distribution thereof. In all of the above
transactions, appropriate legends were affixed to the respective stock
certificates, and all recipients had adequate access to information about the
Registrant.

II-4
<PAGE> 73

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following exhibits are filed as part of this Registration
Statement:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
1.1* -- Form of Underwriting Agreement
3.1* -- Form of Restated Charter of the Registrant
3.2* -- Form of Restated Bylaws of the Registrant
4.1 -- Specimen of Common Stock certificate
4.2* -- Form of Restated Charter of the Registrant (filed as Exhibit
3.1)
4.3* -- Form of Restated Bylaws of the Registrant (filed as Exhibit
3.2)
5.1 -- Opinion of Waller Lansden Dortch & Davis, PLLC
10.1* -- Radio Systems Corporation 1997 Stock Incentive Plan
10.2* -- Radio Systems Corporation 1994 Employee Incentive Stock
Option Plan
10.3* -- Officer Incentive Plan of Registrant
10.4* -- Form of Indemnification Agreement between the Registrant and
members of its Board of Directors
10.5* -- Industrial Lease, dated July 16, 1997, by and between the
Registrant and CRRSC Realty, LLC
10.6* -- 10% Subordinated Debenture and Stock Purchase Warrant, dated
December 20, 1995, between the Registrant and E. Douglas
Grindstaff
10.7* -- Purchase Agreement, dated March 1, 1994, by and between the
Registrant and Concorde Microsystems, Inc.
10.8* -- Transmitter ASIC Development Agreement, dated January 1,
1995, between the Registrant and Concorde Microsystems, Inc.
10.9* -- Agreement, dated January 10, 1997, between the Registrant
and Multi-Vet Limited and Multi-Vet International, Inc.
10.10* -- Agreement, dated July 1, 1996, between the Registrant and
Duplex CSA Limited
10.11* -- Form of Distribution Agreement, between the Registrant and
Mepro Epilady Ltd.
10.12* -- Loan Agreement, dated June 5, 1995, by and between the
Registrant and BankFirst of Knoxville, Tennessee
10.13* -- Loan and Security Agreement, dated April 3, 1995, by and
between the Registrant and First American National Bank
10.14* -- First Amendment to Loan and Security Agreement, dated
October 25, 1995, by and between the Registrant and First
American National Bank
10.15* -- Second Amendment to Loan and Security Agreement, dated May
17, 1996, by and between the Registrant and First American
National Bank
10.16* -- Third Amendment to Loan and Security Agreement, dated
December 13, 1996, by and between the Registrant and First
American National Bank
10.17* -- Fourth Amendment to Loan and Security Agreement, dated
January 22, 1997, by and between the Registrant and First
American National Bank
10.18* -- Fifth Amendment to Loan and Security Agreement, dated April
30, 1997, by and between the Registrant and First American
National Bank
10.19* -- Sixth Amendment to Loan and Security Agreement, dated May
30, 1997, by and between the Registrant and First American
Bank
10.20* -- Agreement, dated January 24, 1994, by and between the
Registrant and PetSafe Limited
10.21* -- Agreement Revision, dated May 13, 1996, by and between the
Registrant and PetSafe Limited
23.1 -- Consent of Coopers & Lybrand L.L.P.
</TABLE>

II-5
<PAGE> 74

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
23.2 -- Consent of Waller Lansden Dortch & Davis, PLLC (included in
Exhibit 5)

24.1* -- Power of Attorney (included in the signature page)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>

- ---------------

*Previously filed.

(b) Financial Statement Schedules

Schedule II -- Valuation and Qualifying Accounts, Years ended December
31, 1995, 1996 and 1997.

All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(3) To provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-6
<PAGE> 75

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nashville, State of
Tennessee, on January 14, 1998.

RADIO SYSTEMS CORPORATION

By: /s/ RANDAL D. BOYD
------------------------------------
Randal D. Boyd
Chairman of the Board and President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE(S) DATE
---- -------- ----
<C> <S> <C>

/s/ RANDAL D. BOYD Chairman of the Board and January 14, 1998
- ----------------------------------------------------- President (principal
Randal D. Boyd executive officer)

/s/ JAMES D. HUDSON Chief Financial Officer and January 14, 1998
- ----------------------------------------------------- Treasurer (principal
James D. Hudson financial and accounting
officer)

* Director January 14, 1998
- -----------------------------------------------------
Ronald Nutt, Ph.D

* Director January 14, 1998
- -----------------------------------------------------
Richard B. Ray

* Director January 14, 1998
- -----------------------------------------------------
Tom Boyd

* Director January 14, 1998
- -----------------------------------------------------
B. Otto Wheeley

* Director January 14, 1998
- -----------------------------------------------------
Donald F. Johnstone

* Director January 14, 1998
- -----------------------------------------------------
E. Doug Grindstaff

* Director January 14, 1998
- -----------------------------------------------------
Todd G. Birdwell

*By: /s/ JAMES D. HUDSON January 14, 1998
------------------------------------------------
James D. Hudson,
Attorney-in-fact
</TABLE>

II-7
<PAGE> 76

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
3.1* -- Form of Restated Charter of the Registrant
3.2* -- Form of Restated Bylaws of the Registrant
4.1 -- Specimen of Common Stock certificate
4.2* -- Form of Restated Charter of the Registrant (filed as Exhibit
3.1)
4.3* -- Form of Restated Bylaws of the Registrant (filed as Exhibit
3.2)
5.1 -- Opinion of Waller Lansden Dortch & Davis, PLLC
10.1* -- Radio Systems Corporation 1997 Stock Incentive Plan
10.2* -- Radio Systems Corporation 1994 Employee Incentive Stock
Option Plan
10.3* -- Officer Incentive Plan of Registrant
10.4* -- Form of Indemnification Agreement between the Registrant and
members of its Board of Directors
10.5* -- Industrial Lease, dated July 16, 1997, by and between the
Registrant and CRRSC Realty, LLC
10.6* -- 10% Subordinated Debenture and Stock Purchase Warrant, dated
December 20, 1995, between the Registrant and E. Douglas
Grindstaff
10.7* -- Purchase Agreement, dated March 1, 1994, by and between the
Registrant and Concorde Microsystems, Inc.
10.8* -- Transmitter ASIC Development Agreement, dated January 1,
1995, between the Registrant and Concorde Microsystems, Inc.
10.9* -- Agreement, dated January 10, 1997, between the Registrant
and Multi-Vet Limited and Multi-Vet International, Inc.
10.10* -- Agreement, dated July 1, 1996, between the Registrant and
Duplex CSA Limited
10.11* -- Form of Distribution Agreement, between the Registrant and
Mepro Epilady Ltd.
10.12* -- Loan Agreement, dated June 5, 1995, by and between the
Registrant and BankFirst of Knoxville, Tennessee
10.13* -- Loan and Security Agreement, dated April 3, 1995, by and
between the Registrant and First American National Bank
10.14* -- First Amendment to Loan and Security Agreement, dated
October 25, 1995, by and between the Registrant and First
American National Bank
10.15* -- Second Amendment to Loan and Security Agreement, dated May
17, 1996, by and between the Registrant and First American
National Bank
10.16* -- Third Amendment to Loan and Security Agreement, dated
December 13, 1996, by and between the Registrant and First
American National Bank
10.17* -- Fourth Amendment to Loan and Security Agreement, dated
January 22, 1997, by and between the Registrant and First
American National Bank
10.18* -- Fifth Amendment to Loan and Security Agreement, dated April
30, 1997, by and between the Registrant and First American
National Bank
10.19* -- Sixth Amendment to Loan and Security Agreement, dated May
30, 1997, by and between the Registrant and First American
Bank
10.20* -- Agreement, dated January 24, 1994, by and between the
Registrant and PetSafe Limited
10.21* -- Agreement Revision, dated May 13, 1996, by and between the
Registrant and PetSafe Limited
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Waller Lansden Dortch & Davis, PLLC (included in
Exhibit 5)
24.1* -- Power of Attorney (included in the signature page)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>

- ---------------

* Previously filed

<PAGE> 1
COMMON STOCK COMMON STOCK
NUMBER SHARES

RSC

LOGO TO COME

RADIO SYSTEMS CUSIP 749951 10 9
CORPORATION

This Certifies that ______________________________________________________

is the owner of __________________________________________________________

FULLY PAID AND NON-ASSESSABLE SHARES, NO PAR VALUE OF THE COMMON STOCK OF

===========================RADIO SYSTEMS CORPORATION===========================

transferable only on the books of the Corporation by the holder hereof in
person on or by duly authorized Attorney upon surrender of this Certificate
properly endorsed.

The Corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and qualifications, limitations or restrictions of such
preferences and/or rights.

This certificate is not valid until countersigned by the Transfer Agent
and registered by the Registrar.

WITNESS the seal of the Corporation and the signatures of its duly authorized
officers.

Dated:

-------------------------- --------------------------
THE FACSIMILE SIGNATURE OF THE FACSIMILE SIGNATURE OF
[SEAL]
------------------- -------------------
TO APPEAR HERE TO APPEAR HERE
-------------------------- --------------------------
SECRETARY CHAIRMAN OF THE BOARD AND
PRESIDENT

RADIO SYSTEMS CORPORATION
- ----------------------------------------------------------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the fact of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:

TEN COM as tenants in common UNIF GIFT MIN ACT _________ Custodian_________
TEN ENT as tenants by the entireties (Cust) (Minor)
JT TEN as joint tenants with
right of survivorship and under Uniform Gifts to Minors
not as tenants in common Act ________________________.
(State)

Additional abbreviations may also be used though not in the above list.

For Value received ___________________ hereby sell assign and transfers unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------
[ ]
---------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE

- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
of the common stock represented by the within Certificate and do hereby irrevocably constitute and approve _______________________
___________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------- ---------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.

SIGNATURE GUARANTEED:
--------------------------------------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GURANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17 ad 15

</TABLE>

<PAGE> 1
EXHIBIT 5.1

WALLER LANSDEN DORTCH & DAVIS
A PROFESSIONAL LIMITED LIABILITY COMPANY
NASHVILLE CITY CENTER
511 UNION STREET, SUITE 2100
POST OFFICE BOX 198966
NASHVILLE, TENNESSEE 37219-8966
(615) 244-6380

January 14, 1998

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

RE: Radio Systems Corporation
Registration Statement on Form S-1
Registration No. 333-40593

Ladies and Gentlemen:

We are acting as counsel to Radio Systems Corporation, a Tennessee
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933 (the "Act") of an aggregate of 2,167,750 shares of the
Company's Common Stock, no par value per share (the "Shares"), pursuant to a
Registration Statement on Form S-1 (the "Registration Statement"). We have
examined and relied upon such records, documents and other instruments as in our
judgment are necessary and appropriate in order to express the opinion
hereinafter set forth, and have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to original documents of all documents submitted to us as certified or
photostatic copies.

Based upon the foregoing, we are of the opinion that the Shares being
sold by the Company will be, when issued and delivered in the manner and on the
terms described in the Registration Statement (after the Registration Statement
is declared effective), duly authorized, validly issued, fully paid and
non-assessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the reference to us under the
caption "Legal Matters" in the prospectus included in the Registration
Statement.

Very truly yours,

/s/ Waller Lansden Dortch & Davis, PLLC

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Amendment No. 1 to
Form S-1 (File No. 333-40593) of our report dated January 12, 1998, on our
audits of the financial statements and financial statement schedules of Radio
Systems Corporation. We also consent to the references to our firm under the
captions "Experts" and "Selected Financial Data."

/s/COOPERS & LYBRAND L.L.P.

Knoxville, Tennessee
January 14, 1998

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
AND THE ACCOMPANYING FOOTNOTES; AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-1-1996 JAN-1-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 5,161 989,418
<SECURITIES> 0 0
<RECEIVABLES> 2,841,972 3,766,778
<ALLOWANCES> 135,279 328,682
<INVENTORY> 3,176,542 4,459,070
<CURRENT-ASSETS> 6,255,469 9,602,647
<PP&E> 1,380,818 1,802,638
<DEPRECIATION> 591,417 831,546
<TOTAL-ASSETS> 7,119,194 11,303,977
<CURRENT-LIABILITIES> 3,970,886 4,098,593
<BONDS> 0 0
0 0
0 0
<COMMON> 2,007,000 2,028,705
<OTHER-SE> 979,361 1,741,973
<TOTAL-LIABILITY-AND-EQUITY> 7,119,194 11,303,977
<SALES> 18,869,421 24,566,643
<TOTAL-REVENUES> 18,869,421 24,566,643
<CGS> 12,091,736 14,829,940
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 138,635 381,311
<INTEREST-EXPENSE> 714,888 423,365
<INCOME-PRETAX> 1,989,144 3,300,320
<INCOME-TAX> 42,310 1,240,596
<INCOME-CONTINUING> 1,946,834 2,059,724
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,946,834 2,059,724
<EPS-PRIMARY> 0.37 0.44
<EPS-DILUTED> 0.36 0.38

</TABLE>