<PAGE>
FILED PURSUANT TO
RULE 424 (b) (3)
FILE NO: 333-17723
2,900,000 Shares
LOGO
Common Stock
------------
Of the 2,900,000 shares of Common Stock being offered hereby, 2,500,000
shares are being sold by Radiant Systems, Inc. ("Radiant" or the "Company")
and 400,000 shares are being sold by certain shareholders of the Company (the
"Selling Shareholders"). See "Principal and Selling Shareholders." The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholders. Prior to this offering, there has been no public market for the
Common Stock of the Company. See "Underwriting" for the factors considered in
determining the initial public offering price. The Common Stock has been
approved for listing on the Nasdaq National Market under the trading symbol
"RADS."
------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------
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 UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $9.50 $.665 $8.835 $8.835
- --------------------------------------------------------------------------------
Total(3)................ $27,550,000 $1,928,500 $22,087,500 $3,534,000
- --------------------------------------------------------------------------------
</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. In addition, The Robinson-Humphrey Company, Inc.
received shares of Common Stock in consideration for services rendered in
a recent financing by the Company which shares are considered underwriting
compensation. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $500,000.
(3) The Company and certain of its shareholders have granted the Underwriters
a 30-day option to purchase up to 435,000 additional shares of Common
Stock solely to cover over-allotments, if any. To the extent that the
option is exercised, the Underwriters will offer the additional shares at
the Price to Public shown above. If the option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholders will be $31,682,500,
$2,217,775, $24,958,875 and $4,505,850, respectively. See "Underwriting."
------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It
is expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
February 19, 1997.
Alex. Brown & Sons
INCORPORATED
Deutsche Morgan Grenfell
The Robinson-Humphrey
Company, Inc.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 12, 1997
<PAGE>
[inside front cover graphics]
TITLE: The Convenience Store Solution
GRAPHIC: A picture of a computer terminal and keyboard. Displayed on the
terminal is a screen from the Company's Core-Tech software
application entitled "6 Month Margin Summary by Department." The
screen displays financial data in tabular form, as well as
graphically on a pie chart and a bar chart.
A second picture shows one of the Company's Compu-Touch point of
sale terminals. The terminal screen shows a series of "buttons"
ranging from "Drawer Totals," "Tank Reading," and "Select Pump" to
"Lottery" and "Money Order." The touch screen capability of the
terminal is demonstrated by a human finger which is shown touching
the "Lottery" button.
SUPPORTING
TEXT: "Core-Tech Headquarters-Based Management System. Compu-Touch POS."
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and an opinion thereon expressed by
independent auditors and will make available copies of quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER THE COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
GATE
- ----
TITLE: The Radiant Solution
GRAPHIC: Diagram mapping the flow of information created by deploying the
Company's technology solution. The diagram begins with a depiction
of a consumer initiating a transaction at the Company's consumer-
activated system, which transmits data to a point of sale system,
which in turn is connected to a back office management system. The
back office system periodically transmits data to the Company's
headquarters based system, which has the capability to
communicate electronically with user's vendors and suppliers.
Each stage is depicted by a disc with a stylized picture of the
relevant device or object (a PC for back office systems, a
headquarters building for headquarters based systems, etc.) upon
that disc. Arrows connect those components of the system having
direct, online connections while jagged lines depict nonreal time,
batch connections. The discs are arranged in a semicircle with
stylized pictures of businesspeople toward the center, representing
the Company's consulting and implementation services, connected with
each disc with a dotted line.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and combined financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Except as otherwise specified herein, all information in this
Prospectus (i) assumes no exercise of the Underwriters' over-allotment option
and (ii) reflects the conversion of all outstanding shares of non-voting Class
A Common Stock into an equal number of shares of Common Stock simultaneously
with the completion of this offering. See "Description of Capital Stock."
THE COMPANY
Radiant Systems, Inc. ("Radiant" or the "Company") provides enterprise-wide
technology solutions to selected vertical markets within the retail industry.
The Company offers fully integrated retail automation solutions including point
of sale ("POS") systems, consumer-activated ordering systems, back office
management systems and headquarters-based management systems. The Company's
products enable retailers to interact electronically with consumers, capture
data at the point of sale, manage site operations and logistics and communicate
electronically with their sites, vendors and credit networks. In addition, the
Company offers systems planning, design and implementation services that tailor
the automation solution to each retailer's specifications. The Company believes
that its site solutions are easy to implement, typically requiring less than a
week to install and a few hours to train individual users.
Radiant is currently a leading provider of integrated retail automation
solutions to the convenience store market and has a growing presence in the
entertainment market through its PrysmTech division. In addition, the Company
intends to expand its presence in the quick service restaurant ("QSR") market
in 1997. Since these markets require many of the same product features and
functionality, the Company believes it can leverage its existing technology
across these markets with limited incremental product development efforts.
In the convenience store market, the Company offers a fully integrated retail
automation solution, including the site-based Compu-Touch product, an
integrated point of sale and back office solution; OrderPoint, a consumer-
activated ordering system with multimedia capabilities; and Core-Tech, a
headquarters-based, enterprise-wide management system. In the entertainment
market, the Company markets an integrated site-based solution including BoxMan,
a box-office POS system; ConcMan, a concession stand POS system; OrderPoint, a
consumer-activated ticket and concession management and ordering system; and
OfficeMan, a back office solution. Radiant expects to introduce its
headquarters-based Core-Tech enterprise-wide management system to the
entertainment market in 1997. To accelerate its entry into the QSR market,
Radiant acquired a company with a limited product offering in May 1996. The
Company is developing a new suite of products for this market using its core
technologies and its recently introduced MediaClient platform. This platform
allows multiple multimedia software applications to operate on separate
terminals simultaneously, all driven by a single PC. As of December 31, 1996,
the Company had installed its products in over 2,200 sites and had over 50
customers in its various vertical markets, including Conoco, Inc., Ultramar
Diamond Shamrock Corporation, Dillon Companies, Inc., Emro Marketing Company
(Speedway/Starvin' Marvin), Sheetz, Inc., Regal Cinemas, Loews Theatre
Management Corporation and Wawa, Inc.
The Company's objective is to be the leading worldwide provider of
enterprise-wide technology solutions to the vertical markets it serves. To this
end, the Company introduced several new solutions in 1996, including
OrderPoint, Core-Tech, a Windows NT version of Compu-Touch and MediaClient, a
multimedia networking platform. In addition, the Company has expanded its
direct sales effort during the last twelve months and intends to further expand
this effort in 1997.
3
<PAGE>
The Company originally was organized under the laws of the state of New York
on August 1, 1985, and subsequently reincorporated under the laws of the state
of Georgia on October 27, 1995. The reincorporation was effected through a
merger of the New York corporation with and into the Georgia corporation. The
name of the Company was changed to Radiant Systems, Inc. from Softsense
Computer Products, Inc. on November 13, 1996. Since its inception, the Company
has elected to be treated as a corporation subject to taxation under Subchapter
S of the Internal Revenue Code of 1986, as amended. The Company's S Corporation
status, however, will terminate upon completion of this offering. The Company's
principal executive offices are located at 1000 Alderman Drive, Suite A,
Alpharetta, Georgia 30202, and its telephone number is (770) 772-3000.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company........... 2,500,000 shares
Common Stock offered by the Selling Sharehold-
ers.......................................... 400,000 shares
Common Stock to be outstanding after the of-
fering....................................... 11,359,726 shares(1)
Use of proceeds............................... Repayment of indebtedness,
repurchase of outstanding
shares of Common Stock and
general corporate purposes,
including working capital.
Nasdaq National Market symbol................. RADS
</TABLE>
- --------
(1) Excludes (i) 3,385,762 shares of Common Stock issuable upon the exercise of
stock options outstanding as of January 15, 1997, of which options to
purchase 413,512 shares were exercisable, and (ii) 793,093 shares of Common
Stock which will be repurchased by the Company with the proceeds of this
offering, some of which are the result of the exercise of certain warrants.
See "Management--Stock Option Plan" and "Use of Proceeds."
4
<PAGE>
SUMMARY COMBINED AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
PRO FORMA
CONSOLIDATED
1992 1993 1994 1995 1996 1996 (1)
------ ------ ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Systems sales.......... $1,079 $3,748 $13,529 $14,078 $35,888 $35,888
Customer support,
maintenance and other
services.............. 412 552 919 1,804 5,055 5,055
------ ------ ------- ------- ------- -------
Total revenues.......... 1,491 4,300 14,448 15,882 40,943 40,943
Cost of revenues:
Systems sales........... 462 2,307 9,459 9,863 22,270 22,270
Customer support,
maintenance and other
services.............. 366 588 1,208 2,300 5,465 5,465
------ ------ ------- ------- ------- -------
Total cost of revenues.. 828 2,895 10,667 12,163 27,735 27,735
------ ------ ------- ------- ------- -------
Gross profit............ 663 1,405 3,781 3,719 13,208 13,208
Income (loss) from
operations before
purchased research and
development costs...... 26 547 (94) (2,101) 1,781 1,608
Purchased research and
development costs...... -- -- -- -- 3,930 30
Income (loss) from
operations............. 26 547 (94) (2,101) (2,149) 1,578
Interest expense, net... 3 19 82 166 712 980
Other (income).......... -- -- -- (406) -- --
Minority interest in
earnings of PrysmTech.. -- -- -- -- 628 --
------ ------ ------- ------- ------- -------
Income (loss) before
provision
for income taxes....... 23 528 (176) (1,861) (3,489) 598
Pro forma income tax
provision
(benefit)(2)........... 11 206 (61) (709) (1,333) 233
------ ------ ------- ------- ------- -------
Pro forma net income
(loss)................. $ 12 $ 322 $ (115) $(1,152) $(2,156) $ 365
====== ====== ======= ======= ======= =======
Pro forma net income
(loss) per common and
common equivalent
share(3)............... $ (0.19) $ 0.03
======= =======
Weighted average common
and common equivalent
shares outstanding..... 11,100 11,798
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED(4)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 812 $13,106
Total assets ........................................... 14,616 26,337
Long-term debt and shareholder loans,
including current portion ............................. 9,174 715
Shareholders' equity (deficit).......................... (4,500) 16,366
</TABLE>
5
<PAGE>
- --------
(1) Pro forma consolidated data is presented assuming that the purchase of
PrysmTech had been consummated on January 1, 1996. Pro forma adjustments
were recorded to include increased interest and amortization expense,
elimination of one-time purchased research and development costs ($3.9
million), elimination of minority interest in earnings, income tax effects
and the effect of dilutive common stock equivalents. See Note 4 to the
combined financial statements of the Company.
(2) As a result of its election to be treated as an S Corporation for income
tax purposes, the Company has not been subject to federal or state income
taxes. Pro forma net income amounts include additional provisions for
income taxes determined by applying the Company's anticipated statutory tax
rate to pretax income (loss), adjusted for permanent tax differences.
(3) Pro forma net income (loss) per share is computed by dividing pro forma net
income (loss) available to common shareholders by weighted average shares
outstanding. Supplementary pro forma net income (loss) per share (resulting
from the anticipated repayment of borrowings with a portion of the proceeds
of this offering as indicated in "Use of Proceeds") is $(.16) for the year
ended December 31, 1996.
(4) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered by
the Company hereby at the initial public offering price of $9.50 per share
and the exercise of outstanding warrants to purchase 1,333,002 shares of
Common Stock, which will occur prior to the closing of this offering, for
an aggregate exercise price of $960,000, after deducting estimated
underwriting discounts and offering expenses and the application of the net
proceeds therefrom. See "Use of Proceeds."
Softsense(R), Compu-Touch(R) and OrderPoint(R) are registered trademarks
of the Company. The Company has applied for registration of its SoftsenseTM
design, Core-TechTM, MediaClient(TM) and RadiantTM and design trademarks.
The following trademarks and tradenames used in this Prospectus are the
property of owners other than the Company: Smile Gas, Speedway/Starvin'
Marvin, Panasonic, Novell, Microsoft SQL Server, Windows NT, PowerBuilder
and Pizzeria Uno.
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the shares of Common Stock offered by this Prospectus.
History of Operating Losses; Accumulated Deficit. As of December 31, 1996,
the Company had an accumulated deficit of $7.7 million. The Company incurred
net losses of $2.2 million, $1.2 million and $115,000 for fiscal 1996, 1995
and 1994, respectively. There can be no assurance that the Company will be
able to achieve profitability for fiscal 1997 and beyond. The Company
anticipates that completing its products under development, including those
purchased from PrysmTech, and marketing existing products and new releases
will require substantial expenditures. Accordingly, an investment in the
Common Stock is extremely speculative in nature and involves a high degree of
risk. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Management of Growth. The growth in the size and complexity of the Company's
business and the expansion of its product lines and its customer base will
place a significant strain on the Company's management and operations. An
increase in the demand for the Company's products could strain the Company's
resources or result in delivery problems, delayed software commitments, slow
response time, or insufficient resources for assisting customers with
implementation of the Company's products and services, which could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company anticipates that continued growth, if any,
will require it to recruit, hire and assimilate a substantial number of new
employees, including consulting, product development, sales and marketing
personnel. Since September 1995, the Company has hired a new President and
Chief Operating Officer, a new Chief Financial Officer and several other
members of senior management. There can be no assurance that the new
management can effectively manage the Company's operations.
The Company's ability to compete effectively and to manage future growth, if
any, also will depend on its ability to continue to implement and improve
operational, financial and management information systems on a timely basis
and to expand, train, motivate and manage its work force, particularly its
direct sales force and consulting services organization. There can be no
assurance that the Company will be able to manage any future growth, and any
failure to do so could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company's ability to undertake new projects and increase revenues is
dependent on the availability of the Company's personnel to assist in the
development and implementation of the Company's technology solutions. The
Company currently is attempting to increase consulting capacity in
anticipation of future sales. Should the Company increase its consulting
capacity and such sales fail to materialize, the Company's business, operating
results and financial condition would be adversely affected.
Fluctuations in Quarterly Operating Results. The Company has experienced and
expects to continue to experience quarterly fluctuations in its operating
results. The Company's recent revenue growth should not be taken as indicative
of the rate of revenue growth, if any, that can be expected in the future. The
Company believes that period-to-period comparisons of its operating results
are not meaningful and that the results for any period should not be relied
upon as an indication of future performance. Moreover, a significant portion
of the Company's quarterly revenues has been derived from a limited number of
customers in the convenience store market. The Company currently anticipates
that this trend will continue. With a limited number of customers,
fluctuations in their purchasing patterns resulting from budgeting or other
considerations can have a significant effect on the Company's quarterly
results. For example, in the fourth quarter of 1995 a large customer
accelerated its purchase of the Company's products, which resulted in higher
revenues and earnings for the Company in that quarter. As a result, systems
sales to this customer were lower in the following quarter. Any significant
cancellation or deferral of customer orders could also have a material adverse
effect on the Company's operating results in any particular quarter.
The introduction of new research and development projects requires the
Company to significantly increase its operating expenses to fund greater
levels of product development and to develop and commercialize additional
products and services. To the extent that such expenses precede or are not
subsequently followed by increased revenues, the Company's business, results
of operations and financial condition will be materially and adversely
affected.
7
<PAGE>
The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside the Company's
control. These factors include the level of usage of computer-based and
consumer-activated products and services, the size and timing of individual
customer orders, the introduction of new products or services by the Company
or its competitors, pricing changes in the industry, technical difficulties
with respect to the use of computer-based products and services developed by
the Company, general economic conditions and economic conditions specific to
the computer, convenience store, entertainment and QSR markets. As a strategic
response to changes in the competitive environment, the Company may from time
to time make certain pricing, service or marketing decisions or acquisitions
that could have a material adverse effect on the Company's business, results
of operations and financial condition.
Due to all of the foregoing factors, in some future quarters the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Company's Common Stock
would likely be materially and adversely affected.
Industry Concentration and Cyclicality. All of the Company's total revenues
in 1995 and approximately 74.8% of the Company's total revenues in 1996 were
related to the convenience store market, which is dependent on the domestic
and international economy. The convenience store market is affected by a
variety of factors, including global and regional instability, governmental
policy and regulation, natural disasters, consumer buying habits,
consolidation in the petroleum industry, war and general economic conditions.
Adverse developments in the convenience store market could materially affect
the Company's business, operating results and financial condition. In
addition, the Company believes the purchase of its products is relatively
discretionary and generally involves a significant commitment of capital,
because purchases of the Company's products are often accompanied by large
scale hardware purchases. As a result, although the Company believes its
products can assist convenience stores in a competitive environment, demand
for the Company's products and services could be disproportionately affected
by instability or downturns in the convenience store market which may cause
customers to exit the industry or delay, cancel or reduce planned expenditures
for information management systems and software products.
Concentration of Customers. The Company sells systems and services to a
number of major customers. During 1996, approximately 60.2% of the Company's
total revenues were derived from four customers. During 1995 and 1994,
approximately 59.4% and 75.9%, respectively, of the Company's total revenues
were derived from two customers. There can be no assurance that the loss of
one or more of these customers will not have a material adverse effect on the
Company's business, operating results and financial condition.
New Product Development and Rapid Technological Change. The Company has a
substantial ongoing commitment to research and development. In this regard,
the Company is currently designing, coding and testing a number of new
products and developing expanded functionality of its current products that
will be important for the Company to remain competitive. The cost of the
Company's research and development efforts are expected to approximate $6.0
million in 1997. The Company and its prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
the rapidly evolving market for computer-based products and services. To
address these risks, the Company must, among other things, continue to respond
to competitive developments; attract, retain and motivate qualified personnel;
implement and successfully execute its sales strategy; develop and market
additional products and services in present and future markets; upgrade its
technologies and commercialize products and services incorporating such
technologies. There can be no assurance that the Company will be successful in
addressing such risks.
The types of products sold by the Company are subject to rapid and continual
technological change. Products available from the Company, as well as from its
competitors, have increasingly offered a wider
8
<PAGE>
range of features and capabilities. The Company believes that in order to
compete effectively in selected vertical markets, it must provide compatible
systems incorporating new technologies at competitive prices. There can be no
assurance that the Company will be able to continue funding research and
development at levels sufficient to enhance its current product offerings or
will be able to develop and introduce on a timely basis new products that keep
pace with technological developments and emerging industry standards and
address the evolving needs of customers. There can also be no assurance that
the Company will not experience difficulties that will result in delaying or
preventing the successful development, introduction and marketing of new
products in its existing markets or that its new products and product
enhancements will adequately meet the requirements of the marketplace or
achieve any significant degree of market acceptance. Likewise, there can be no
assurance as to the acceptance of Company products in new markets, nor can
there be any assurance as to the success of the Company's penetration of these
markets, or to the revenue or profit margins with respect to these products.
The inability of the Company, for any reason, to develop and introduce new
products and product enhancements in a timely manner in response to changing
market conditions or customer requirements could materially adversely affect
the Company's business, operating results and financial condition. See
"Business--Product Development and Technology Platform."
In addition, the Company strives to achieve compatibility between the
Company's products and retail systems the Company believes are or will become
popular and widely adopted. The Company invests substantial resources in
development efforts aimed at achieving such compatibility. Any failure by the
Company to anticipate or respond adequately to technology or market
developments could materially adversely affect the Company's business,
operating results and financial condition.
Competition. The market for retail information systems is intensely
competitive. The Company believes the principal competitive factors in such
market are product quality, reliability, performance and price, vendor and
product reputation, financial stability, features and functions, ease of use
and quality of support. A number of companies offer competitive products
addressing certain of the Company's target markets. The Company competes with
in-house systems developed by the Company's targeted customers and with third-
party suppliers such as Dresser Industries, Inc., Gilbarco, Inc.,
International Business Machines Corporation, NCR Corporation, Matsushita
Electric Corporation of America (Panasonic), JDA Software Group, Inc. and
Tandem Computers, Inc., among others. In addition, the Company believes that
new market entrants may attempt to develop fully integrated systems targeting
the retail industry. In the market for consulting services, the Company
competes with the consulting divisions of the big six accounting firms,
Electronic Data Systems, Inc. and other systems integrators. Many of the
Company's existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical and marketing
resources than the Company. There can be no assurance that the Company will be
able to compete successfully against its current or future competitors or that
competition will not have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Company Operations--
Convenience Store Market--Competition," "--Entertainment Market--Competition"
and "--Quick Service Restaurant Market."
Dependence on Key Personnel; Ability to Attract and Retain Technical
Personnel. The Company's future success depends in part on the performance of
its executive officers and key employees. The Company does not have in place
employment agreements with any of its executive officers. The Company
maintains a $1.0 million "key person" life insurance policy on each of Erez
Goren and Alon Goren, the Chief Executive Officer and Chief Technical Officer,
respectively, of the Company. The loss of the services of any of its executive
officers or other key employees could have a material adverse effect on the
business, operating results and financial condition of the Company.
The Company is heavily dependent upon its ability to attract, retain and
motivate skilled technical and managerial personnel, especially highly skilled
engineers involved in ongoing product development and consulting personnel who
assist in the development and implementation of the Company's total business
solutions. The market for such individuals is intensely competitive. Due to
the critical role of the Company's product development and consulting staffs,
the inability to recruit successfully or the loss of a
9
<PAGE>
significant part of its product development or consulting staffs would have a
material adverse effect on the Company. The software industry is characterized
by a high level of employee mobility and aggressive recruiting of skilled
personnel. There can be no assurance that the Company will be able to retain
its current personnel, or that it will be able to attract, assimilate or
retain other highly qualified technical and managerial personnel in the
future. The inability to attract, hire or retain the necessary technical and
managerial personnel could have a material adverse effect upon the Company's
business, operating results and financial condition. See "Business --
Employees" and "Management."
Dependence on Proprietary Technology. The Company's success and ability to
compete is dependent in part upon its ability to protect its proprietary
technology. The Company relies on a combination of patent, copyright and trade
secret laws and non-disclosure agreements to protect this proprietary
technology. The Company enters into confidentiality and non-compete agreements
with its employees and license agreements with its customers and potential
customers which limits access to and distribution of its software,
documentation and other proprietary information. There can be no assurance
that the steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States.
Certain technology used in conjunction with the Company's products is
licensed from third parties, generally on a non-exclusive basis. The
termination of any such licenses, or the failure of the third-party licensors
to adequately maintain or update their products, could result in delay in the
Company's ability to ship certain of its products while it seeks to implement
technology offered by alternative sources, and any required replacement
licenses could prove costly. While it may be necessary or desirable in the
future to obtain other licenses relating to one or more of the Company's
products or relating to current or future technologies, there can be no
assurance that the Company will be able to do so on commercially reasonable
terms or at all. See "Business -- Proprietary Rights."
Control by Management. Upon completion of the offering, Erez Goren, the
Company's Co-Chairman and Chief Executive Officer, and Alon Goren, the
Company's Co-Chairman and Chief Technical Officer, will collectively own
approximately 59.0% of the Common Stock then outstanding (approximately 56.5%
if the Underwriters' over-allotment option is exercised in full).
Consequently, together they will continue to be able to elect the Company's
directors, to determine the outcome of most corporate actions requiring
shareholder approval and otherwise to control the business of the Company. See
"Principal and Selling Shareholders."
Payments to Affiliates; Broad Discretion over Use of Proceeds. The net
proceeds of this Offering (estimated to be approximately $21.6 million at the
initial public offering price of $9.50 per share) will be used to repay
indebtedness, repurchase outstanding shares of Common Stock and for general
corporate purposes. Included in the foregoing uses of proceeds are payments to
certain affiliates of the Company, as follows: (i) the repayment of
approximately $8.7 million of indebtedness to five shareholders of the
Company; and (ii) the repurchase of 793,093 shares of Common Stock for a total
of approximately $2.1 million from two shareholders of the Company. See "Use
of Proceeds" and "Certain Transactions." Approximately 49.7% of the net
proceeds to the Company of this offering ($10.7 million) are allocated to
general corporate purposes, including product development and working capital.
The Company's management will have broad discretion over the application of
these funds. There can be no assurance that management will make such
application effectively or in a manner that will not result in a material
adverse effect on the Company or its results of operations. See "Use of
Proceeds."
Absence of Prior Public Market; Dilution. Prior to this offering, there has
been no public market for shares of the Company's Common Stock. Although the
Common Stock has been approved for listing on the Nasdaq National Market,
there can be no assurance that an active trading market for the Common Stock
will develop or continue after the offering. The initial offering price of the
Common Stock was determined by negotiations among the Company, the Selling
Shareholders and the Underwriters based on several factors and may not be
indicative of the market price for the Common Stock after this offering. See
"Underwriting." Investors in the offering will experience immediate and
substantial dilution of the net tangible book value of the Common Stock, and
current shareholders will receive a material increase in the net tangible book
value of their shares of Common Stock. See "Dilution."
10
<PAGE>
Shares Eligible for Future Sale; Registration Rights. Upon completion of
this offering, the Company will have 11,359,726 shares of Common Stock
outstanding, assuming no exercise of the Underwriters' over-allotment option
and the repurchase of certain outstanding shares of Common Stock as set forth
in "Use of Proceeds." Of these shares, 2,900,000 shares offered hereby will be
eligible for sale in the open market without restriction. All of the remaining
8,459,726 shares of Common Stock are "restricted securities" as that term is
defined in Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). Of these restricted securities, approximately
7,199,968 shares will be eligible for sale in the public market 90 days
following the date of this Prospectus pursuant to Rule 144. Additional shares
of Common Stock, including shares issuable upon exercise of options and
warrants, will also become eligible for sale in the public market pursuant to
Rule 144 from time to time. The Company and its directors, executive officers
and certain current shareholders have agreed, however, not to sell any of
their shares of Common Stock (other than the shares to be sold by the Company
and the Selling Shareholders in this offering) for a period of 180 days from
the date of this Prospectus without the prior written consent of the
Underwriters. Following this offering, sales and potential sales of
substantial amounts of the Company's Common Stock in the public market
pursuant to Rule 144 or otherwise could adversely affect the prevailing market
prices for the Common Stock and impair the Company's ability to raise
additional capital through the sale of equity securities. See "Principal and
Selling Shareholders," "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."
Upon the completion of this offering, the holders of 413,454 shares of
Common Stock will be entitled to certain piggyback registration rights with
respect to such shares. If the Company were required to include in a Company-
initiated registration shares held by such holders pursuant to the exercise of
their piggyback registration rights, such sale might have an adverse effect on
the Company's ability to raise needed capital in the capital markets at a time
and price favorable to the Company. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
Volatility of Market Price for Common Stock. From time to time after this
offering there may be significant volatility in the market price for the
Common Stock. Quarterly operating results of the Company or of other companies
participating in the computer-based products and services industry, changes in
conditions in the economy, the financial markets of the computer products and
services industries, natural disasters or other developments affecting the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially.
Anti-Takeover Provisions. The Company's Amended and Restated Articles of
Incorporation authorize the Board of Directors to issue up to 5,000,000 shares
of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of the preferred stock without further
vote or action by the Company's shareholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. While
the Company has no present intention to issue additional shares of preferred
stock, such issuance, while providing desired flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. See "Description of Capital Stock--
Preferred Stock." In addition, certain provisions of the Company's Articles of
Incorporation and Bylaws may discourage proposals or bids to acquire the
Company. This could limit the price that certain investors might be willing to
pay in the future for shares of Common Stock. The Company's Articles of
Incorporation divide the Board of Directors into three classes, as nearly
equal in size as possible, with staggered three-year terms. One class will be
elected each year. The classification of the Board of Directors could have the
effect of making it more difficult for a third party to acquire control of the
Company. The Company is also subject to certain provisions of the Georgia
Business Corporation Code which relate to business combinations with
interested shareholders. See "Description of Capital Stock--Certain Charter
and Bylaw Provisions."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company at the initial public offering price of
$9.50 per share, are estimated to be approximately $21.6 million after
deducting the estimated underwriting discounts and offering expenses payable
by the Company. Additionally, prior to the closing of this offering the
Company will receive net proceeds of $960,000 from the exercise of outstanding
stock purchase warrants. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholders.
The Company anticipates that the net proceeds of the offering will be used
(i) to repay all of the Company's outstanding debt to Sirrom Capital
Corporation (approximately $4.5 million at December 31, 1996) (the "Sirrom
Debt"), (ii) to repay debt incurred in connection with the acquisition of
PrysmTech ($3.2 million at December 31, 1996) (the "PrysmTech Debt"), (iii) to
repay an outstanding note to Emro Marketing Company, a customer of the Company
(approximately $918,000 at December 31, 1996) (the "Emro Note"), (iv) to repay
an outstanding note to Lawrence D. Parker, a shareholder of the Company (the
"Shareholder Note") (approximately $170,000 at December 31, 1996), (v) to
repurchase 793,093 shares of Common Stock for a total of approximately $2.1
million from two shareholders from whom the Company has a right of repurchase
at a substantial discount to the initial public offering price and (vi) for
general corporate purposes, including research and development, sales and
marketing, possible strategic acquisitions and the increased working capital
requirements of the Company generated by its growth.
The Sirrom Debt was incurred to finance working capital requirements
resulting from the Company's growth. The Sirrom Debt bears interest at a fixed
rate of 14.0% and is payable in monthly installments of accrued interest to
maturity (due June 2001 with respect to $3.0 million of the original principal
amount and due September 2001 with respect to $1.5 million of the original
principal amount). The PrysmTech Debt was incurred in connection with the
acquisition of PrysmTech in December 1996, bears interest at a rate of 8.5%
and is due December 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Shareholder Note was incurred in October 1994 to repurchase a
portion of Mr. Parker's equity interest in the Company, bears interest at a
rate of 8.0% and is payable in equal monthly installments through December
1997. The Emro Note bears interest at a rate of 6.0% and is due February 2002.
See "Certain Transactions."
The Company has no current specific plan for the remaining estimated net
offering proceeds of approximately $10.7 million. The Company is raising such
monies at this time in order to increase the Company's working and equity
capital, to create a market for the Company's Common Stock, to facilitate
future access by the Company to public equity markets, to enhance the
Company's public image and credibility to support its marketing efforts,
particularly with current and potential future strategic partners, and for
general corporate purposes. Such general corporate purposes include the
funding of the support of the Company's sales and marketing efforts, funding
the development and enhancement of the Company's services and technology and
expanding customer support operations. The Company also may use a portion of
the net proceeds to acquire other businesses, technologies, services or
products complementary to the Company's current business, although the Company
currently has no agreements or understandings with respect to any acquisition,
and no portion of the net proceeds has been allocated to specific
acquisitions.
Pending such uses, the net proceeds of this offering will be invested in
short-term, interest-bearing investment grade securities.
DIVIDEND POLICY
The Company currently anticipates that all of its earnings will be retained
for development of the Company's business and does not anticipate paying any
cash dividends in the foreseeable future. The Sirrom Debt, which will be
repaid with the proceeds of this offering, provides that the Company may not
pay dividends (other than certain S-corporation distributions), without the
prior consent of Sirrom. Future cash dividends, if any, will be at the
discretion of the Company's Board of Directors and will depend upon, among
other things, the Company's future earnings, operations, capital requirements
and surplus, general financial condition, contractual restrictions and such
other factors as the Board of Directors may deem relevant.
12
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual indebtedness and
capitalization of the Company as of December 31, 1996, (ii) pro forma to
reflect the issuance of 1,158,360 shares of Common Stock upon the exercise of
outstanding stock purchase warrants which terminate if not exercised upon the
completion of this offering and the receipt by the Company of net proceeds
therefrom of $960,000, and (iii) pro forma as adjusted to reflect the issuance
of 174,458 net shares of Common Stock upon the exercise of additional
outstanding stock purchase warrants, the repurchase of 793,093 shares of
Common Stock for a total of approximately $2.1 million and the sale by the
Company of 2,500,000 shares of Common Stock offered hereby (at the initial
public offering price of $9.50 per share) and the application of the estimated
net proceeds therefrom as described under "Use of Proceeds." See also
"Principal and Selling Shareholders." The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the Company's combined financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt and
shareholder loans............................. $ 709 $709 $ 408
------ ------ -------
Long-term debt and shareholder loans.......... $8,465 $8,465 $ 307
Put Warrants.................................. 513 513 --
Shareholders' equity (deficit):
Common stock, no par value per share,
30,000,000 shares
authorized, 8,300,001 shares issued and
outstanding;
9,458,361 pro forma shares issued and
outstanding;
11,339,726 pro forma as adjusted shares
issued and
outstanding (1)(2).......................... -- -- --
Additional paid-in capital................... 2,100 4,205(3) 24,183(3)
Warrants..................................... 1,185 40 40
Deferred sales discount...................... (132) -- --
Accumulated deficit.......................... (7,653) (7,653) (7,857)(4)
------ ------ -------
Total shareholders' equity (deficit)....... (4,500) (3,408) 16,366
------ ------ -------
Total capitalization...................... $4,478 $5,570 $16,673
====== ====== =======
</TABLE>
- --------
(1) Actual, pro forma and pro forma as adjusted shares issued and outstanding
exclude (i) an aggregate of 4,000,000 shares of Common Stock reserved for
issuance under the Company's Amended and Restated 1995 Stock Option Plan,
of which 3,071,750 shares were subject to outstanding stock options as of
December 31, 1996, (ii) 264,000 shares of Common Stock issuable upon the
exercise of non-qualified stock options which were outstanding on December
31, 1996 and (iii) 20,000 shares of Common Stock issued by the Company
subsequent to December 31, 1996. Actual shares issued and outstanding
exclude 1,353,002 shares of Common Stock issuable upon the exercise of
stock purchase warrants which were outstanding on December 31, 1996.
Options to purchase 337,500 shares of Common Stock were exercisable as of
December 31, 1996. See "Management - Stock Option Plan" and Note 7 to the
combined financial statements of the Company.
(2) Pro forma issued and outstanding shares includes 1,158,360 shares of
Common Stock issuable upon the exercise of stock purchase warrants which
will be exercised by Emro Marketing Company prior to the completion of
this offering (the "Emro Shares"). Pro forma as adjusted issued and
outstanding shares (i) includes 174,458 net shares of Common Stock
issuable upon the exercise of stock purchase warrants which will be
exercised by Sirrom Capital Corporation prior to the completion of this
offering and the Emro Shares, and (ii) excludes 793,093 shares of Common
Stock which will be repurchased by the Company with the proceeds of this
offering. See "Use of Proceeds" and "Principal and Selling Shareholders."
(3) Includes $960,000 to be received upon the exercise of the stock purchase
warrants by Emro Marketing Company.
(4) Includes the write-off of unamortized loan origination costs and debt
discount of $60,000 and $144,000, respectively, at December 31, 1996, net
of tax benefit.
13
<PAGE>
DILUTION
The net tangible book value of the Company at December 31, 1996, was
approximately ($6.3 million) or $(0.76) per share of Common Stock. Net
tangible book value per share represents the amount of the Company's total
assets less intangible assets and total liabilities, divided by the total
number of shares of Common Stock outstanding. After giving effect to the sale
by the Company of 2,500,000 shares of Common Stock offered hereby at the
initial public offering price of $9.50 per share, the exercise of outstanding
stock purchase warrants to purchase 1,333,002 shares of Common Stock (the
"Warrants") and the repurchase by the Company of 793,093 shares of Common
Stock (the "Stock Repurchase"), the pro forma net tangible book value of the
Company at December 31, 1996 would have been $14.6 million or $1.28 per share
of Common Stock. This represents an immediate increase in net tangible book
value of $2.04 per share to existing shareholders and an immediate dilution in
net tangible book value of $8.22 per share to investors purchasing shares of
Common Stock in this offering. The following table illustrates the resulting
per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share...................... $9.50
Net tangible book value per share at December 31, 1996...... $(0.76)
Increase per share attributable to new investors............ 2.04
------
Pro forma net tangible book value per share after this
offering..................................................... 1.28
-----
Net tangible book value dilution per share to new investors.. $8.22
=====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1996, the number of shares of Common Stock previously purchased from the
Company, giving effect to the exercise of the Warrants, the total
consideration paid and the average price per share paid to the Company by
existing shareholders and by new investors purchasing the shares of Common
Stock offered hereby.
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
------------------ ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 9,652,819 79.4% $ 3,062,000 11.4% $ .32
New investors.............. 2,500,000 20.6 23,750,000 88.6 $9.50
---------- ----- ----------- -----
Total..................... 12,152,819 100.0% $26,812,000 100.0%
========== ===== =========== =====
</TABLE>
The sale of shares by the Selling Shareholders in this offering and the
Stock Repurchase will cause the pro forma number of shares held by all
existing shareholders of December 31, 1996 to be reduced to 8,459,726 shares,
or 74.5% of total shares of Common Stock to be outstanding after this
offering, and the pro forma number of shares held by new investors as of
December 31, 1996 to be 2,900,000 shares, or 25.5% of the total shares of
Common Stock to be outstanding after this offering. See "Principal and Selling
Shareholders."
The foregoing discussion and tables assume no exercise of stock options
outstanding on December 31, 1996. As of December 31, 1996, there were options
outstanding to purchase a total of 3,335,750 shares of Common Stock (including
options to purchase 264,000 shares issued outside of the 1995 Stock Option
Plan) at a weighted average exercise price of $2.59 per share and 928,250
additional shares were reserved for grant of future options under the
Company's 1995 Stock Option Plan. See "Management--Stock Option Plan" and Note
7 to the Company's combined financial statements. In addition, the foregoing
discussion does not reflect the cancellation of warrants to purchase 20,000
shares of Common Stock in exchange for 20,000 shares of Common Stock
subsequent to December 31, 1996.
14
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The following table sets forth selected combined financial data of the
Company for the periods indicated, which data has been derived from the
combined financial statements of the Company. The combined financial
statements of the Company as of December 31, 1994, 1995 and 1996, and for each
of the years in the four-year period ended December 31, 1996, have been
audited by Arthur Andersen LLP, independent public accountants. This selected
combined financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the combined financial statements of the Company and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Systems sales....................... $1,079 $3,748 $13,529 $14,078 $35,888
Customer support, maintenance and
other services..................... 412 552 919 1,804 5,055
------ ------ ------- ------- -------
Total revenues..................... 1,491 4,300 14,448 15,882 40,943
Cost of revenues:
Systems sales....................... 462 2,307 9,459 9,863 22,270
Customer support, maintenance and
other services..................... 366 588 1,208 2,300 5,465
------ ------ ------- ------- -------
Total cost of revenues............. 828 2,895 10,667 12,163 27,735
------ ------ ------- ------- -------
Gross profit......................... 663 1,405 3,781 3,719 13,208
Operating expenses:
Product development................. 196 271 984 1,640 3,328
Purchased research and development
costs............................... -- -- -- -- 3,930
Sales and marketing................. 203 209 470 607 1,487
Depreciation and amortization....... 19 46 178 583 948
General and administrative.......... 219 332 2,243 2,990 5,664
------ ------ ------- ------- -------
Income (loss) from operations........ 26 547 (94) (2,101) (2,149)
Interest expense, net................ 3 19 82 166 712
Minority interest in earnings of
PrysmTech............................ -- -- -- -- 628
Other (income)....................... -- -- -- (406) --
------ ------ ------- ------- -------
Income (loss) before provision for
pro forma income taxes.............. 23 528 (176) (1,861) (3,489)
Pro forma income tax provision
(benefit)(1)......................... 11 206 (61) (709) (1,333)
------ ------ ------- ------- -------
Pro forma net income (loss).......... $ 12 $ 322 $ (115) $(1,152) $(2,156)
====== ====== ======= ======= =======
Pro forma net income (loss) per
common and
common equivalent shares(2)......... $ (0.19)
=======
Weighted average common and common
equivalent
shares outstanding.................. 11,100
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1992 1993 1994 1995 1996
----- ----- ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $(310) $(102) $(1,027) $(3,664) $ 812
Total assets....................... 409 2,716 4,818 4,235 14,616
Long-term debt and shareholder
loan,
including current portion......... 7 89 1,067 970 9,174
Shareholders' equity (deficit)..... (273) 145 (722) (3,154) (4,500)
</TABLE>
- --------
(1) As a result of its election to be treated as an S Corporation for income
tax purposes, the Company has not been subject to federal or state income
taxes. Pro forma net income amounts include additional provisions for
income taxes determined by applying the Company's anticipated statutory
tax rate to pretax income (loss), adjusted for permanent tax differences.
(2) Pro forma net income (loss) per share is computed by dividing pro forma
net income (loss) available to common shareholders by weighted average
shares outstanding. Supplementary pro forma net income (loss) per share
(resulting from the anticipated repayment of borrowings with a portion of
the proceeds of this offering as indicated in "Use of Proceeds") is $(.16)
for the year ended December 31, 1996.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company historically has focused on providing integrated technology
solutions to selected vertical markets within the retail industry. The Company
derives its revenues primarily from the sale of integrated systems, including
software, hardware and related support and consulting services. The Company
plans to increase licensing of certain of its software products on a stand-
alone basis. In addition, the Company, through its Radiant Solutions Group,
offers implementation and integration services which are billed on a per diem
basis. The Company's revenues from its various technology solutions are, for
the most part, dependent on the number of installed sites a customer has.
Accordingly, while the typical sale is the result of a long, complex process,
the Company's customers usually continue installing additional sites over an
extended period of time. Revenues from systems sales are recognized as
products are shipped, provided that collection is probable and no significant
post shipment vendor obligations remain. Revenues from customer support,
maintenance and other services are generally recognized as the service is
performed.
Prior to 1993, the Company developed software solutions for the video rental
and car care markets. The Company entered the convenience store market in 1993
by establishing relationships with two customers. Sales to these two customers
represented approximately 75.9%, 59.4% and 18.3% of the Company's total
revenues in 1994, 1995 and 1996, respectively. In order to increase the
Company's focus on revenue growth and profitability, the Company expanded its
senior management team in 1995 and 1996. In addition, the Company responded to
strong demand for its technology solutions by investing heavily in new product
development. The Company also identified additional market opportunities for
its new products. As a result, the Company has substantially increased its
sales, marketing and product development activities.
Since November 1995, a number of events resulted in strong revenue growth
for the Company. The Company developed new products, established relationships
with new customers and increased sales to existing customers. The Company also
entered two new vertical markets -- the entertainment market and the QSR
market. The Company expanded its presence in the entertainment market in
November 1995 by entering into a joint venture (PrysmTech) to market
enterprise-wide technology solutions to this industry. On December 31, 1996,
the Company purchased the remaining interest in PrysmTech. Accordingly, the
operations of PrysmTech are reflected in the 1996 financial statements of the
Company. To accelerate its entry into the QSR market, in May 1996 the Company
purchased Liberty Systems International, Inc. ("LSI"), a technology solution
provider to the QSR industry. During this period, the Company also expanded
its sales force and continued to add management, consulting and product
development personnel. The revenue growth of the Company has resulted in
profitability since the second quarter of 1996, before accounting for one-
time, nonrecurring purchased research and development costs.
As a result of its election to be treated as an S Corporation for income tax
purposes, the Company has not been subject to federal or state income taxes.
Pro forma net income amounts discussed herein include additional provisions
for income taxes determined by applying the Company's anticipated statutory
tax rate to pretax income (loss), adjusted for permanent tax differences. The
Company's S Corporation status will terminate upon completion of this
offering.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain statement of operation items to total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
<S> <C> <C> <C>
1994 1995 1996
------- ------- -------
Revenues:
Systems sales................................... 93.6 % 88.6 % 87.7 %
Customer support, maintenance and other
services....................................... 6.4 11.4 12.3
------- ------- -------
Total revenues................................ 100.0 100.0 100.0
Cost of revenues:
Systems sales................................... 65.4 62.1 54.4
Customer support, maintenance and other
services....................................... 8.4 14.5 13.3
------- ------- -------
Total cost of revenues........................ 73.8 76.6 67.7
------- ------- -------
Gross profit..................................... 26.2 23.4 32.3
Operating expenses:
Product development............................. 6.8 10.3 8.1
Purchased research and development costs........ -- -- 9.6
Sales and marketing............................. 3.3 3.8 3.6
Depreciation and amortization................... 1.3 3.7 2.3
General and administrative...................... 15.5 18.8 13.9
------- ------- -------
Income (loss) from operations.................... (0.7) (13.2) (5.2)
Interest expense, net............................ 0.5 1.0 1.7
Minority interest................................ -- -- 1.6
Other (income)................................... -- (2.5) --
------- ------- -------
(Loss) before pro forma income taxes............. (1.2) (11.7) (8.5)
Pro forma income tax (benefit)................... (0.4) (4.4) (3.3)
------- ------- -------
Pro forma net (loss)............................. (0.8)% (7.3)% (5.2)%
======= ======= =======
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Systems Sales. The Company derives the majority of its revenues from sales
and licensing fees for its headquarters and site-based solutions. Systems
sales increased 154.9% to $35.9 million for the year ended December 31, 1996
("fiscal 1996"), compared to $14.1 million for the year ended December 31,
1995 ("fiscal 1995"). The increase related to sales and license fees from new
and existing customers, as well as the acquisition and consolidation of
PrysmTech that contributed $9.1 million to system sales in fiscal 1996.
Additionally, the Company introduced several new products in fiscal 1996,
including Core-Tech, OrderPoint, its MediaClient platform and a Windows NT
version of Compu-Touch. Initial demand for these products contributed to the
Company's increase in revenues.
Customer Support, Maintenance and Other Services. The Company also derives
revenues from customer support, maintenance and other services, which
increased 180.2% to $5.1 million for fiscal 1996, compared to $1.8 million for
fiscal 1995. The increase was due to increased support, maintenance and
services revenues, including $1.1 million related to PrysmTech, and the
establishment and expansion of Company's Radiant Solutions Group.
Cost of Systems Sales. Cost of systems sales consist primarily of hardware
and peripherals for site-based systems and labor. These costs are expensed as
products are shipped. Cost of systems sales
17
<PAGE>
increased 125.8% to $22.3 million for fiscal 1996, compared to $9.9 million
for fiscal 1995. The increase was directly attributable to the increase in
systems sales, including PrysmTech's sales. Cost of systems sales as a
percentage of total revenues declined to 54.4% from 62.1%. Cost of systems
sales as a percentage of systems revenues declined to 62.1% from 70.1%. The
decreases were due to increased sales of existing and newly introduced and
acquired products, such as Core-Tech and the PrysmTech product line, which
have higher margins than site-based systems sold by the Company in prior
years.
Cost of Customer Support, Maintenance and Other Services. Cost of customer
support, maintenance and other services consists primarily of personnel and
other costs associated with the Company's services operations. Cost of
customer support, maintenance and other services increased 137.6% to $5.5
million for fiscal 1996 from $2.3 million for fiscal 1995. The increase was
due primarily to the Company's decision to establish the Radiant Solutions
Group and the related increase in wages associated with this effort, as well
as the inclusion of PrysmTech's results. Cost of customer support, maintenance
and other services as a percentage of total revenues declined to 13.3% from
14.5%. Cost of customer support, maintenance and other services as a
percentage of customer support, maintenance and other services revenues
declined to 108.1% from 127.5%. These declines reflect higher service margins
from PrysmTech operations, partially offset by the Company's investment in the
Radiant Solutions Group.
Product Development Expenses. Product development expenses consist primarily
of wages and materials expended on product development efforts. Product
development expenses increased 102.9% to $3.3 million for fiscal 1996,
compared to $1.6 million for fiscal 1995. The increase was due to higher
development costs associated with new product development, including
development activity associated with the Company's QSR industry efforts and
development of new credit card network interfaces, as well as the inclusion of
PrysmTech's results. Product development expenses as a percentage of total
revenues declined to 8.1% from 10.3% because total revenues increased at a
faster pace than product development expenses. The Company capitalizes a
portion of its software development costs. In fiscal 1996, software
development costs of $635,000 were capitalized by the Company, as compared to
$329,000 for fiscal 1995. The Company capitalized 16.0% of its product
development costs in fiscal 1996, as compared to 16.7% for fiscal 1995.
Purchased Research and Development Costs. Purchased research and development
costs were $3.9 million for fiscal 1996. These one-time, nonrecurring costs
represent in-process research and development costs expensed by the Company in
connection with its acquisition of PrysmTech.
Sales and Marketing Expenses. Sales and marketing expenses increased 145.1%
to $1.5 million during fiscal 1996, compared to $607,000 for fiscal 1995. The
increase was associated with the Company's expansion of its sales force, the
inclusion of PrysmTech's results and increased commission expense attributable
to higher sales. Sales and marketing expenses as a percentage of total
revenues declined to 3.6% from 3.8%.
Depreciation and Amortization. Depreciation and amortization expenses
increased 62.5% to $948,000 for fiscal 1996, compared to $583,000 for fiscal
1995. The increase resulted from an increase in computer equipment and other
assets required to support an increased number of employees, as well as the
inclusion of PrysmTech's results. Depreciation and amortization as a
percentage of total revenues declined to 2.3% from 3.7% during the period,
primarily because revenues increased at a faster pace than associated
personnel support costs. Additionally, amortization of capitalized software
development costs increased 140.8% to $239,000 for fiscal 1996, compared to
$99,000 for fiscal 1995 as a result of higher capitalized software development
costs.
General and Administrative Expenses. General and administrative expenses
increased 89.4% to $5.7 million for fiscal 1996, compared to $3.0 million for
fiscal 1995. The increase was due primarily to personnel increases in fiscal
1996, as well as the inclusion of PrysmTech's results. General and
administrative expenses as a percentage of total revenues declined to 13.9%
from 18.8% as a result of higher sales volumes.
18
<PAGE>
Interest Expense. Interest expense increased 327.6% to $712,000 for fiscal
1996, compared to $166,000 for fiscal 1995. The increase resulted from the
Company borrowing $4.5 million in the second and third quarters of fiscal 1996
and the borrowing costs associated therewith. Interest expense as a percentage
of total revenues increased to 1.7% from 1.0% due to the increase in
borrowings.
Minority Interest in Earnings of PrysmTech. In fiscal 1996, the minority
interest in earnings of PrysmTech was $628,000, compared to none in fiscal
1995. This amount reflects the pro rata ownership interest not owned by the
Company.
Other Income. In fiscal 1996, the Company recognized no other income. In
fiscal 1995, the Company recognized $406,000 in other income, which primarily
represented a gain on the sale of Company assets.
Pro Forma Income Tax Provision (Benefit). The pro forma effective tax rate
for fiscal 1996 was a benefit of 38.2%, compared to a benefit of 38.1% for
fiscal 1995.
Pro Forma Net Income (Loss). Pro forma net loss increased 87.2% to $2.2
million for fiscal 1996, compared to $1.2 million for fiscal 1995. The
increase in net loss resulted primarily from one-time, nonrecurring charges
for purchased research and development costs, partially offset by increased
revenues and improved margins in fiscal 1996 over fiscal 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Systems Sales. Systems sales increased 4.1% to $14.1 million for fiscal
1995, compared to $13.5 million for the year ended December 31, 1994 ("fiscal
1994"). The increase related to sales and license fees from new customers and
increased sales and license fees to existing customers.
Customer Support, Maintenance and Other Services. Customer support,
maintenance and other services increased 96.4% to $1.8 million for fiscal
1995, compared to $919,000 for fiscal 1994. The increase was due to a greater
number of customer sites supported by the Company.
Cost of Systems Sales. Cost of systems sales increased 4.3% to $9.9 million
for fiscal 1995, compared to $9.5 million for fiscal 1994. The increase was
directly attributable to increased systems sales. Cost of systems sales as a
percentage of total revenues declined to 62.1% from 65.5%. Cost of systems
sales as a percentage of systems sales increased to 70.1% from 69.9%.
Cost of Customer Support, Maintenance and Other Services. Cost of customer
support, maintenance and other services increased 90.5% to $2.3 million for
fiscal 1995 from $1.2 million for fiscal 1994. The increase was due primarily
to increased personnel costs associated with the support of more customers and
sites. Cost of customer support, maintenance and other services as a
percentage of total revenues increased to 14.5% from 8.4%. Cost of support,
maintenance and other services as a percentage of customer support,
maintenance and other services revenues declined to 127.5% from 131.4%, as
growth in support and maintenance revenues grew at a faster rate than
expenses.
Product Development Expenses. Product development expenses increased 66.6%
to $1.6 million for fiscal 1995, compared to $984,000 million for fiscal 1994.
The increase was associated with increased development costs associated with
new product development and new credit card network interfaces. Product
development expenses as a percentage of total revenues increased to 10.3% from
6.8% due to the development efforts discussed above. In fiscal 1995, software
development costs of $329,000 were capitalized by the Company, as compared to
$133,000 for fiscal 1994. The Company capitalized 16.7% of its product
development costs in fiscal 1995, as compared to 11.9% in fiscal 1994.
Sales and Marketing Expenses. Sales and marketing expenses increased 29.0%
to $607,000 during fiscal 1995, compared to $470,000 for fiscal 1994. The
increase was associated with increased salaries and commissions. Sales and
marketing expenses as a percentage of total revenues increased to 3.8% from
3.3% in fiscal 1995 primarily because of commission plans introduced during
the period.
19
<PAGE>
Depreciation and Amortization. Depreciation and amortization expense
increased 228.2% to $583,000 for fiscal 1995, compared to $178,000 for fiscal
1994. The increase resulted from an increase in computer equipment and other
assets required to support a greater number of employees. Depreciation and
amortization as a percentage of total revenues increased to 3.7% from 1.3%
during the period due to the increased expense. Additionally, amortization of
capitalized software development costs increased 350.0% to $99,000 for fiscal
1995, compared to $22,000 for fiscal 1994 as a result of higher capitalized
software development costs.
General and Administrative Expenses. General and administrative expenses
increased 33.3% to $3.0 million for fiscal 1995, compared to $2.2 million for
fiscal 1994, due to the Company's investment in infrastructure. General and
administrative expenses as a percentage of total revenues increased to 18.8%
from 15.5%.
Interest Expense. Interest expense increased 103.6% to $166,000 for fiscal
1995, compared to $82,000 for fiscal 1994.
Other Income. Other income increased to $406,000 for fiscal 1995, compared
to none for fiscal 1994. Other income in 1995 primarily represented gain on
the sale of Company assets of $374,000 and equity in earnings of PrysmTech of
$32,000.
Pro Forma Income Tax Provision (Benefit). The pro forma effective tax rate
for fiscal 1995 was a benefit of 38.1%, compared to a benefit of 34.5% for
fiscal 1994. The increase in the benefit relates to a decrease in the relative
significance of permanent tax differences to pretax loss.
Pro Forma Net Income (Loss). Pro forma net loss increased 898.9% to $1.2
million for fiscal 1995, compared to $115,000 for fiscal 1994. The increase in
the loss was the result of increased research and development costs and
continued investments in infrastructure.
20
<PAGE>
QUARTERLY INFORMATION
The following tables set forth certain unaudited financial data for each of
the Company's last eight calendar quarters and such data expressed as a
percentage of the Company's total revenues for the respective quarters. The
information has been derived from unaudited combined financial statements
that, in the opinion of management, reflect all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of such
quarterly information. The operating results for any quarter are not
necessarily indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Systems sales.......... $4,521 $2,377 $2,549 $4,631 $3,849 $9,752 $9,741 $12,546
Customer support,
maintenance and other
services.............. 461 461 444 438 698 1,097 1,448 1,812
------ ------ ------ ------ ------ ------ ------ -------
Total revenues........ 4,982 2,838 2,993 5,069 4,547 10,849 11,189 14,358
Cost of revenues:
Systems sales.......... 3,436 1,549 1,784 3,093 2,768 6,331 5,592 7,579
Customer support,
maintenance and other
services.............. 555 538 568 640 1,003 1,215 1,600 1,646
------ ------ ------ ------ ------ ------ ------ -------
Total cost of
revenues............. 3,991 2,087 2,352 3,733 3,771 7,546 7,192 9,225
------ ------ ------ ------ ------ ------ ------ -------
Gross profit............ 991 751 641 1,336 776 3,303 3,997 5,133
Operating expenses:
Product development.... 347 409 417 467 701 768 900 959
Purchased research and
development costs..... -- -- -- -- -- 30 -- 3,900
Sales and marketing.... 149 179 109 170 285 292 311 599
Depreciation and
amortization.......... 128 126 133 196 194 224 265 265
General and administra-
tive.................. 706 719 738 827 1,010 1,407 1,394 1,854
------ ------ ------ ------ ------ ------ ------ -------
Income (loss) from oper-
ations................. (339) (682) (756) (324) (1,414) 582 1,127 (2,444)
Interest expense, net... 31 27 25 84 39 40 229 404
Other (income).......... -- (374) -- (33) -- -- -- --
Minority interest in
earnings of PrysmTech.. -- -- -- -- 55 215 206 152
------ ------ ------ ------ ------ ------ ------ -------
Income (loss) before pro
forma income taxes..... (370) (335) (781) (375) (1,508) 327 692 (3,000)
Pro forma income tax
provision (benefit).... (141) (128) (297) (143) (576) 125 264 (1,146)
------ ------ ------ ------ ------ ------ ------ -------
Pro forma net income
(loss)................. $ (229) $ (207) $ (484) $ (232) $ (932) $ 202 $ 428 $(1,854)
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems sales.......... 90.7% 83.8% 85.2% 91.4% 84.7% 89.9% 87.1% 87.4%
Customer support,
maintenance and other
services.............. 9.3 16.2 14.8 8.6 15.3 10.1 12.9 12.6
----- ----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Systems sales.......... 69.0 54.6 59.6 61.0 60.9 58.4 50.0 52.8
Customer support,
maintenance and other
services.............. 11.1 18.9 19.0 12.6 22.1 11.2 14.3 11.5
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............. 80.1 73.5 78.6 73.6 83.0 69.6 64.3 64.3
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 19.9 26.5 21.4 26.4 17.0 30.4 35.7 35.7
Operating expenses:
Product development.... 7.0 14.5 13.9 9.2 15.4 7.1 8.0 6.7
Purchased research and
development costs..... -- -- -- -- -- 0.2 -- 27.2
Sales and marketing.... 3.0 6.3 3.6 3.4 6.3 2.7 2.8 4.1
Depreciation and amor-
tization.............. 2.5 4.4 4.5 3.9 4.2 2.1 2.4 1.8
General and administra-
tive.................. 14.2 25.3 24.7 16.3 22.2 12.9 12.4 12.9
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from oper-
ations................. (6.8) (24.0) (25.3) (6.4) (31.1) 5.4 10.1 (17.0)
Interest expense, net... 0.6 1.0 0.8 1.7 0.9 0.4 2.1 2.8
Other (income).......... -- (13.2) -- -- -- -- -- --
Minority interest....... -- -- -- -- 1.2 2.0 1.8 1.1
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before pro
forma income taxes..... (7.4) (11.8) (26.1) (7.4) (33.2) 3.0 6.2 (20.9)
Pro forma income tax
provision (benefit).... (2.8) (4.5) (9.9) (2.8) (12.7) 1.1 2.4 (8.0)
----- ----- ----- ----- ----- ----- ----- -----
Pro forma net income
(loss)................. (4.6)% (7.3)% (16.2)% (4.6)% (20.5)% 1.9% 3.8% (12.9)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through cash generated from operations and recently from financing obtained
during fiscal 1996. As of December 31, 1996, the Company had $2.3 million in
cash and cash equivalents.
The Company's operating activities provided cash in fiscal 1994 and 1995 of
$844,000 and $841,000, respectively, while during fiscal 1996 the Company's
operating activities used cash of $1.4 million. In fiscal 1993, cash flow from
operating activities arose principally from the Company's profitable
operations, partially offset by an increase in accounts receivable.
Additionally, in fiscal 1994, cash from operating activities was significantly
increased due to customer deposits received in advance of product shipment. In
fiscal 1995, the Company's operating cash was the result of extended payment
terms with vendors. During fiscal 1996, the Company's uses of cash were the
result of increased accounts receivables due to increased sales somewhat
offset by continued receipt of customer deposits in advance of sales.
Cash used in investing activities in fiscal 1994, 1995 and 1996 was
$537,000, $641,000 and $727,000, respectively. Such investing activities
primarily consisted of purchases of property and equipment and capitalized
software development costs.
Cash used in financing activities was $249,000 and $402,000 in fiscal 1994
and 1995, respectively, while $4.3 million was provided by financing
activities during fiscal 1996. Financing activities during fiscal 1994 and
1995 consisted of shareholder distributions and repayment of a shareholder
note beginning in fiscal 1995. Additionally, in fiscal 1994 and 1995 the
Company's repayment of borrowings under capital lease agreements increased as
the Company purchased equipment under capital lease agreements
22
<PAGE>
of $599,000 and $218,000, respectively, in those years. Financing activities
in fiscal 1996 consisted primarily of borrowings of $4.5 million from Sirrom
Capital Corporation and $3.2 million in connection with the PrysmTech
acquisition. These loan proceeds were offset somewhat by payment of loan
origination fees as well as continued repayments of borrowings under capital
lease agreements. See Note 6 of the combined financial statements of the
Company.
Purchases of property and equipment were approximately $303,000, $312,000
and $493,000 in fiscal 1994, 1995 and 1996, respectively. These expenditures
were primarily for purchases of computer equipment, furniture and fixtures.
Total product development expenditures were $1.1 million, $2.0 million and
$4.0 million in fiscal 1994, 1995 and 1996, respectively. The cost of research
and development is expected to approximate $6.0 million in 1997, while the
cost of marketing new releases and existing products is expected to
approximate $4.5 million in 1997. These expenditures are expected to be
financed from operations and from the proceeds of this offering.
In order to finance its recent growth, the Company in fiscal 1996 borrowed
$4.5 million from Sirrom Capital Corporation (the "Sirrom Debt"). Funds were
disbursed to the Company in two installments; the first in June 1996 ($3.0
million) and the second in September 1996 ($1.5 million), which borrowings
were utilized to finance the Company's working capital requirements. The
Sirrom Debt is secured by substantially all the assets of the Company, bears
interest at a fixed rate of 14.0% and is payable in equal monthly installments
of accrued interest to maturity (due June 2001 with respect to the $3.0
million tranche and due September 2001 with respect to the $1.5 million
tranche). As of December 31, 1996, the Sirrom Debt had a balance of $4.5
million. The Sirrom Debt will be repaid from the proceeds of this offering.
See "Use of Proceeds." In addition, in connection with this financing, the
Company granted to Sirrom Capital Corporation warrants to purchase 174,642
shares of Common Stock at an exercise price of $.01 per share, which will be
exercised prior to the completion of this offering. See "Principal and Selling
Shareholders."
In connection with the acquisition of PrysmTech in December 1996 the Company
issued promissory notes in the principal amount of $3.2 million. These notes
are due December 1998 and bear interest at a rate of 8.5%. The PrysmTech Debt
will be repaid from the proceeds of this offering. See "Use of Proceeds."
The exercise of outstanding warrants to purchase 1,333,002 shares of Common
Stock prior to the completion of this offering will provide the Company with
proceeds of approximately $960,000. These proceeds, together with the net
proceeds of this offering, will be utilized for the purposes set forth in "Use
of Proceeds."
The Company believes that the net proceeds from this offering and the
exercise of the warrants referred to above will provide adequate liquidity to
meet the Company's planned capital, research and development and operating
requirements for at least the twelve month period following this offering.
Thereafter, if the Company's spending plans change, the Company may find it
necessary to seek to obtain additional sources of financing to support its
operations. There can be no assurance that such financing will be available on
commercially reasonable terms, if at all.
ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The Company's adoption of SFAS No. 121 in the first quarter of 1996 did not
have a significant impact on the Company's combined financial statements.
The American Institute of Certified Public Accountants has issued an
exposure draft to amend the provisions of Statement of Position ("SOP") 91-1,
"Software Revenue Recognition." The adoption of the standards in the current
version of the exposure draft is not expected to have a significant impact on
the Company's combined financial statements.
23
<PAGE>
BUSINESS
Radiant provides enterprise-wide technology solutions to selected vertical
markets within the retail industry. The Company offers fully integrated retail
automation solutions including POS systems, consumer-activated ordering
systems, back office management systems and headquarters-based management
systems. The Company's products enable retailers to interact electronically
with consumers, capture data at the point of sale, manage site operations and
logistics and communicate electronically with their sites, vendors and credit
networks. In addition, the Company offers system planning, design and
implementation services that tailor the automation solution to each retailer's
specifications.
Radiant is currently a leading provider of integrated retail automation
solutions to the convenience store market and has a growing presence in the
entertainment market through its PrysmTech division. In addition, the Company
intends to expand its presence in the QSR market in 1997. Since these markets
require many of the same product features and functionality, the Company
believes it can leverage its existing technology across these markets with
limited incremental product development efforts.
INDUSTRY BACKGROUND
Successful retailers increasingly require information systems that capture a
detailed picture of consumer activity at the point of sale and store that data
in an accessible fashion. Early technology innovators in the retail industry
deployed robust, integrated information systems at the point of sale and used
the information to react rapidly to changing consumer preferences, ultimately
gaining market share in the process. In addition, these integrated information
systems helped retailers achieve operational efficiencies. Many large national
retailers have followed suit by investing in proprietary information systems.
For many types of retailers, however, this type of automation did not make
economic or business sense. In particular, merchants with a large number of
relatively small sites, such as convenience stores, petroleum retailers,
restaurants and entertainment venues, generally have not been able to cost-
effectively develop and deploy sophisticated, enterprise-wide information
systems. Economic and standardization problems for these markets are
exacerbated by the fact that many sites operate as franchises, dealerships or
other decentralized ownership and control structures. Without an investment in
technology, these retailers continue to depend on labor and paper to process
transactions. Management believes that high labor costs, lack of centralized
management control of remote sites and inadequate informational reporting,
together with emerging technology trends, have caused many of these retailers
to reexamine how technology solutions can benefit their operations.
A large number of retail sites face these challenges. At the end of 1995,
there were more than 90,000 convenience stores nationwide, while the cinema
industry had approximately 27,000 screens at 6,500 sites nationwide. At the
end of 1994, the QSR industry had over 170,000 domestic units. Typically, the
existing systems in these industries consist of stand-alone devices such as
cash registers or other POS systems with little or no integration with either
the back office of the site or an enterprise-wide information system.
Implementation of such systems providing this functionality typically involves
three or more vendors and an independent systems integration firm. The
resulting proprietary solutions are often difficult to support and have
inherently high risks associated with implementation. Management believes that
technology solutions that are highly functional and scalable, relatively
inexpensive, and easy to deploy are critical for successful implementation in
these retail markets.
24
<PAGE>
In the absence of an integrated solution, retailers in these markets
typically rely on manual reporting to capture data on site activity and
disseminate it to different levels of management at the regional and national
headquarters. Basic information on consumers (i.e., who they are, when they
visit and what they buy) is not captured in sufficient detail, at the right
time or in a manner that can be communicated easily to others in the
organization. Similarly, information such as price changes does not flow from
headquarters to individual sites in a timely manner. In addition,
communications with vendors often remain manual, involving paperwork, delays
and related problems.
Recent trends in the retailing industry have accelerated the need for
enterprise-wide information and have heightened demand for integrated
retailing systems. Based in part upon industry association reports and other
studies, as well as the Company's experience in marketing its products, the
Company believes consumer preferences have shifted away from retailer loyalty
toward value and convenience, creating a greater need for timely data
concerning consumer buying patterns and preferences. Management also believes
that convenient consumer-activated ordering and payment systems, such as ATMs,
voice response units and "pay at the pump" systems, have become important to
retailers who wish to retain and build a customer base. Additionally,
retailers can improve operational and logistical efficiencies through better
management of inventory, purchasing, merchandising, pricing, promotions and
shrinkage control. Management believes that the constant flow of information
among the point of sale, the back office, headquarters and the supply chain
has become a key competitive advantage in the retail industry, causing
retailers to demand more sophisticated, integrated solutions from their
systems vendors.
In a parallel development, technological advances have improved the
capability of systems available to retailers. With the price of computing
power declining, technology investments have become economically feasible for
many retailers. Further, computing power has become increasingly flexible and
distributable, facilitating data capture and processing by applications
located at the point of sale. Also, new front-end graphical user interfaces
are making systems easier to use, which reduces training time and transaction
costs and facilitates more types of consumer-activated applications.
To meet increasing systems demands from retailers, providers of hardware and
software point of sale solutions are attempting to integrate existing
products. This process often requires independent systems integrators to
provide enterprise-wide data communications. These systems often are based on
proprietary, closed protocols and technology platforms from several different
vendors. As a result, the effort required to implement and maintain these
systems can be difficult, time consuming and expensive.
25
<PAGE>
THE RADIANT SOLUTION
The Company offers fully integrated technology solutions that enable
retailers to improve site operations, serve consumers better and route
information throughout their organization and supply chains. The Company
believes its core technology and solutions are applicable to a variety of
retail markets. The Company's suite of products links store level point of
sale information with centralized merchandising and financial functions that
ultimately drive replenishment communications with suppliers and vendors. The
Company believes that its site solutions are easy to implement, typically
requiring less than a week to install and a few hours to train individual
users. The following summarizes the solutions provided by Radiant:
A five segment diagram presenting in brief form the principal features and
functions of the company's primary technology solutions and services. The
diagram includes the text:
CONSUMER-ACTIVATED HEADQUARTERS
- ------------------- ------------
Touch Screen Interactive Executive Information
Video, Graphics, Audio Electronic Price Book
Credit/Cash Payment Vendor EDI
Compact, Enclosed Terminals Centralized Menu Management
Suggestive Selling
POINT OF SALE BACK OFFICE
- ------------- -----------
Touch Screen Interactive Inventory Control
Transaction Auditing Vendor Management
Credit Processing Purchasing/Receiving
Data Capture Employee Management
Peripheral Integration
Cash Reconciliation
SERVICES
- --------
Consulting
Training
Maintenance
Technical Support
Integration
The Company's technology solutions enable retailers to: allow consumers to
place their own orders for items such as food, movie tickets and concessions
through graphical touch screen interfaces; capture transaction information and
communicate with credit card networks; manage and analyze in-store inventory
movement, including electronic ordering; schedule and manage staffing; and
connect headquarters to each of the retailer's local sites and vendors,
enabling management to quickly change pricing and review operating performance
in a timely and efficient manner. The Company's products have been deployed
successfully in retail operations ranging in size from one to more than 600
sites.
Retailers derive the following benefits from Radiant's solutions:
Integrated information flows. The Company's technology solutions provide
retailers with tools for monitoring and analyzing sales data, stock status,
vendor relationships, merchandising and other important activities, both at
their sites and headquarters. These products further enable retailers to
communicate electronically with their suppliers in order to exchange
purchase orders, invoices and payments.
26
<PAGE>
Centralized management of highly decentralized operations. Information
provided by the Company's solutions enables headquarters management to
monitor site performance in a consistent manner on a near-real time basis,
implement price changes simultaneously throughout the enterprise and
rapidly initiate targeted marketing programs.
Tighter on-site control over operations. The Company's back office systems
enable site managers to closely manage inventory, reconcile accounts and
control issues such as shift scheduling and hourly wage calculations. The
Company's solutions incorporate sophisticated inventory management
techniques to help a retailer optimize its merchandising strategy.
Improved labor productivity. The Company incorporates user friendly
graphics within its solutions, reducing employee training and order
processing times which are important benefits in retail environments due to
high employee turnover. The Company's back office solutions can alleviate
extensive paperwork required of site managers, allowing them more time to
focus on operations.
Improved customer service. The Company's consumer-activated ordering
systems permit customers to place their own orders, answer surveys and
electronically communicate with the retailer. These systems can improve
customer service, reduce site labor costs and, through automating
suggestive selling concepts, help the retailer implement revenue
enhancement opportunities.
Lower cost of technology deployment. In addition to the cost savings
realized through better site management, the actual cost of deploying the
Company's multimedia networking platform is less than networked PC systems
due to platform efficiencies. Software modification requirements are
limited due to the high degree of functionality inherent in the core
applications, and systems integration problems are minimized because the
Company offers an integrated solution based on an open-architecture design
which facilitates integration with other systems.
COMPANY STRATEGY
The Company's objective is to be the leading worldwide provider of
enterprise-wide technology solutions to the vertical retail markets it serves.
The Company is pursuing the following strategies to achieve this objective:
Expand existing position in selected markets. The Company believes that it
is in a strong position to expand its current market share in the
convenience store and cinema markets due to its highly functional solutions
and its practical experience in deploying and implementing retail
solutions. The Company has experience integrating all aspects of its
solutions into existing retail technology infrastructures. In particular,
the Company has developed interfaces with a number of the widely-used
electronic information and payment networks, including networks of certain
major petroleum retailers. The Company currently is developing interfaces
to credit networks of additional major petroleum retailers, which if
certified, will allow the Company access to a large number of potential
sites.
Introduce new products to current markets. The Company has introduced a
variety of new products and services in 1996, including consumer-activated
systems, a headquarters-based, enterprise-wide management system, a Windows
NT version of its local site-based products, consulting services and its
multimedia networking platform. Additional products and services, such as
on-line consumer loyalty systems and solutions utilizing the Internet, are
in development or under review.
Continue to develop sales and services infrastructure. To meet the
anticipated requirements of growth in its business, the Company intends to
continue expanding its direct sales force and its professional services
organization. The Company also plans to develop relationships with
additional distributors.
27
<PAGE>
Expand markets for the Company's solutions. The Company believes that its
core technology and solutions are applicable to a variety of retail
markets. The Company acquired LSI to accelerate its entry into the QSR
market, and the Company plans to expand its presence in the QSR market with
pilot installations of certain new solutions scheduled for the first half
of 1997. The Company believes that additional markets such as full service
restaurants, stadiums, arenas and amusement parks represent additional
opportunities for the Company's solutions.
Attract and retain outstanding personnel. The Company believes its
strongest asset is its people. To attract and retain top talent, the
Company intends to maintain its entrepreneurial culture and to continue
offering competitive benefit programs. The Company has granted stock
options to a majority of its employees and will strive to continue to align
employee interests with those of the Company's shareholders.
COMPANY OPERATIONS
The Company is a leading provider of integrated technology solutions to the
convenience store market, has a growing presence in the entertainment market
and currently has plans to apply its core technologies to the QSR market.
Substantially all of the Company's total revenues in 1995 and approximately
74.8% of the Company's total revenues in 1996 were related to the convenience
store market. The Company believes that its core technology may be adapted to
provide solutions to a variety of vertical markets, but it has concentrated
its efforts to date in these three markets. The Company's principal products,
sales and marketing efforts, customers and competitors are discussed below for
each of these three markets. The following table depicts the Company's main
offerings and the vertical markets served by those offerings:
<TABLE>
<CAPTION>
QUICK SERVICE
CONVENIENCE STORE ENTERTAINMENT RESTAURANT(1)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Software:
Consumer-Activated
Ordering OrderPoint OrderPoint OrderPoint
Point of Sale Compu-Touch BoxMan, ConcMan (2)
Back Office Compu-Touch OfficeMan (3)
Headquarters-Based Core-Tech Core-Tech(4) Core-Tech(4)
Services:
Consulting and Training Radiant Solutions Group Radiant Solutions Group Radiant Solutions Group
Integration and
Logistics Integration Services Integration Services Integration Services
Platform: MediaClient MediaClient MediaClient
</TABLE>
(1) Does not reflect products acquired with LSI.
(2) Under development, with planned release in the first half of 1997.
(3) To be developed.
(4) Modifications for these markets currently are under development.
CONVENIENCE STORE MARKET
In the United States, there currently are approximately 90,000 convenience
store sites which derive a significant portion of revenues from selling
products other than gasoline. The Company believes that the international
convenience store market represents a substantial opportunity for its
solutions. Management believes that the industry is currently under-invested
in technology. Only 16.1% of the industry's retail sites use scanning
equipment, compared to grocery stores, which have implemented scanning at
approximately 90.0% of their locations. Yet, in a recent convenience store
industry survey, 71.0% of respondents perceive integrated scanning and price
book management as being important for their operations, and a majority of
respondents indicated that they were investigating whether to
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implement scanning at their retail locations. The same survey further reveals
that 54.0% of respondents plan to increase spending for technology solutions.
The Company thus believes that the demand for the Company's solutions for the
foreseeable future will remain strong.
This demand is fueled in part by the fact that many convenience store
operators are finding that their consumers prefer "pay at the pump" systems,
and many operators are upgrading their POS systems to interface with these
consumer-activated systems. Seventeen percent of convenience stores currently
utilize pay at the pump technology. Implementing this technology requires a
site to upgrade its system for controlling and managing fuel sales. Management
believes that installation of pay at the pump systems will remain strong for
the foreseeable future, encouraging additional investment in store automation.
The Company markets a variety of products and services as part of its
strategy to serve as an integrated solutions provider. From consumer-activated
ordering solutions to feature-rich, highly functional point of sale and back
office systems tied into headquarters through advanced client/server software,
the Company's enterprise-wide solutions interact with the consumer, site
employees and management and the senior management of a retailer's operations.
To help retailers optimize the impact these systems have on their operations,
the Company also offers a wide array of consulting, training and support
services provided by experienced professionals. The Company further provides
"ruggedized" hardware systems designed to cope with harsh retailing
environments.
Site-Based Products
Compu-Touch. Compu-Touch is the Company's principal product serving the
convenience store market. Compu-Touch, which can be licensed as modules or as
a complete system, is a comprehensive site-based solution that allows
retailers to process transactions and capture data at the point of sale, as
well as to manage other front and back office operations. Compu-Touch consists
of several modules, as described below. As of December 31, 1996, the Company
has licensed Compu-Touch systems to over 2,000 convenience store sites.
The following modules are offered with Compu-Touch:
CT POS -- provides point of sale functionality. Its PC-based architecture
allows non-POS functions (adding inventory and employees, changing fuel
prices, etc.) to be performed through a menu driven, user friendly
interface. In addition, CT POS produces reports that provide store managers
with valuable insight into their businesses. CT POS can be interfaced to
other systems using industry standard file formats.
CT Inventory -- allows convenience stores to manage inventory on an item
level basis, enabling two critical processes: item level audits and
electronic ordering. CT Inventory accepts sales data from either CT POS or
a third party system.
CT Fuel -- manages fuel inventory using the same closed loop approach as CT
Inventory. Real time fuel sales, received from CT POS, are combined with
deliveries, pump tests and stick readings, allowing for instant
reconciliation and analysis. CT Fuel includes a competitive survey feature
so fuel managers can set prices to maximize volume and margin.
CT Lottery -- utilizes the business logic embodied in CT Inventory. Lottery
sales, received from CT POS in real-time, are combined with deliveries
allowing for instant reconciliation.
CT Employee -- records and monitors key employee data such as hire date,
advanced payments and termination date. Operators can compare budgeted and
scheduled hours against actual hours worked with the labor schedule
feature. An electronic task list, complete with instructions, can be
scheduled to appear automatically on CT POS during an employee's shift.
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<PAGE>
CT Money -- allows store managers quickly to compare funds collected against
safe drops, pay-ins and pay-outs and make adjustments as necessary.
Compu-Touch includes features such as a touch screen interface, user
friendly applications and flexibility in set-up and configuration to
accommodate operational variables at each site. The Compu-Touch system is
based on an open architecture and runs on either the Windows NT or Novell
platform. The application supports multiple POS terminals and a separate back
office system. The product is upgradable so that customers can phase in their
investment with additional hardware and software modules. It also offers
customers scalability, such that the same application can be run in chains
with widely varying numbers and sizes of sites; yet the enterprise solution
remains consistent and supportive of each site.
OrderPoint. Within the convenience store market, the trend toward increased
branded food service offerings has created a demand for consumer-activated
ordering systems. In response, the Company has developed its easy to use,
consumer-activated OrderPoint system. OrderPoint allows a consumer to place an
order, answer a survey, pay with a plastic card, make inquiries and view
promotions through the use of a touch screen. OrderPoint's development
environment and authoring tools allow various media, such as video clips,
logos, pictures and recordings, to be quickly integrated into a consumer-
friendly application.
Management believes OrderPoint allows a retailer to increase labor
productivity, increase revenues through suggestive selling, increase consumer
ordering speed and accuracy, capture consumer information at the point of sale
and respond quickly to changing consumer preferences. OrderPoint was
commercially released in the second quarter of 1996, and, to date, the Company
has sold systems or licensed software to a number of convenience store chains.
Headquarters-Based Product
Core-Tech. In 1996, the Company introduced Core-Tech, a client/server based
software application which allows retailers to better manage multiple
convenience store sites. As of December 31, 1996, the Company had installed
Core-Tech at several headquarters locations, including those at Wawa, Inc.,
Sheetz, Inc., Conoco, Inc., Ultramar Diamond Shamrock Corporation and Petronas
Dagangan Berhad, the national petroleum company of Malaysia. The following is
a summary of the features and functionality of Core-Tech:
Price book -- allows retailers to set prices for products in a timely manner
on a site-by-site, zone-by-zone or system wide basis. Price book also
allows retailers to target prices based on a variety of different factors,
including markups based on cost, gross margins, and target margins.
Site configuration and management -- allows retailers to define and control
the parameters of site operations, such as prohibiting clerks from
authorizing fuel dispensing without prepayment.
Fuel management -- allows retailers to manage fuel inventory movement and
pricing. Such features allow management to define and regulate site pricing
and strategies, including responding to price changes at competitors'
sites.
Executive Information System ("EIS") -- supports headquarters analysis of
site operations, such as sales vs. cost analysis, sales vs. budget
analysis, labor productivity analysis and category management analysis. EIS
also facilitates "what if" analyses, allowing retailers to incorporate and
ascertain the sensitivities of operational variables such as price, cost
and volume.
Electronic Data Interchange -- supports the routing and analysis of purchase
orders and vendor invoices.
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<PAGE>
The Company believes that Core-Tech is one of the most functional and
comprehensive headquarters management applications widely marketed to
convenience store chains. The Core-Tech product is built with state of the art
software tools and is flexible and expandable based on application
architecture and database structure. The application is written in
PowerBuilder, and the database, Microsoft SQL Server, is highly scalable. The
user interface is intuitive and easy to use.
Sales and Marketing
The Company has independent sales efforts in each of its vertical markets.
The Company believes this strategy positions its sales force to understand its
customers' businesses, trends in the marketplace, competitive products and
opportunities for new product development and allows the Company to take a
consultative approach to working with customers.
Within the convenience store market, the Company's Director of National
Accounts manages a staff focusing on national accounts, including all major
petroleum companies. Further, the Company's Director of Sales manages two
distinct efforts: sales to large independent accounts via a geographically
dispersed sales force and sales to international accounts primarily through
distributors. The Company also has implemented a telemarketing effort directed
at chains with a limited number of sites. All sales personnel are compensated
with a base salary and commission based on gross margins and other
profitability measures.
To date, the Company's primary marketing objective has been to increase
awareness of all of the Company's technology solutions. To this end, the
Company has attended industry trade shows and selectively advertised in
industry publications. The Company intends to increase its sales and marketing
activities both domestically and internationally in 1997, and will expand its
advertising in relevant industry publications. Additionally, the Company
intends to continue developing an independent distribution network to sell and
service its products to certain segments of the domestic and international
markets.
Customers
Convenience store customers who have selected the Company as their
technology solutions provider operate over 7,000 sites. As of December 31,
1996, the Company has installed its technology solutions in over 2,000 of
these sites. In 1994 and 1995, two customers accounted for 75.9% and 59.4% of
the Company's total revenues, respectively, as follows: Conoco, Inc. (52.1% in
1994 and 15.8% in 1995) and Emro Marketing Company (23.8% in 1994 and 43.6% in
1995). During 1996, four convenience store customers accounted for 51.5% of
the Company's total revenues, as follows: Ultramar Diamond Shamrock
Corporation (21.5%), Emro Marketing Company (13.2%), Sheetz, Inc. (11.7%) and
Conoco, Inc. (5.1%). The following is a partial list of major convenience
store customers who have licensed and purchased the Company's products and
services:
<TABLE>
<S> <C>
Boardman Petroleum (Smile Gas) Go-Mart, Inc.
Conoco, Inc. Petronas Dagangan Berhad
Dillon Companies, Inc. Sheetz, Inc.
Emro Marketing Company
(Speedway/Starvin' Marvin) Ultramar Diamond Shamrock Corporation
Giant Industries, Inc. Wawa, Inc.
</TABLE>
Competition
In marketing its technology solutions, the Company faces intense
competition, including internal efforts by potential customers. The Company
believes the principal competitive factors are product quality, reliability,
performance, price, vendor and product reputation, financial stability,
features and functions, ease of use, quality of support and degree of
integration effort required with other systems.
Within the convenience store market, the Company believes it is the only
integrated technology solution provider of POS, back office and headquarters
management systems. Within these product lines, the Company faces different
levels of competition. Verifone, Ltd., Dresser Industries, Inc., Gilbarco,
Inc.,
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<PAGE>
Tokheim Corporation, Stores Automated Software, Inc., Matsushita Electric
Corporation of America (Panasonic), Auto-Gas Systems, Inc. and others provide
POS systems with varying degrees of functionality. Back office and
headquarters client/server software providers include The Software Works!,
Professional Datasolutions Inc. and JDA Software Group, Inc. In addition, the
Company faces competition from systems integrators and other companies such as
Tandem Computers, Inc. who offer an integrated technology solutions approach
by integrating other third party products.
The Company believes there are barriers to entry in the market for
convenience store automation solutions. The Company has invested a significant
amount of time and effort to create the functionality of Compu-Touch and Core-
Tech. The Company believes that the time required for a competitor to
duplicate the functionality of Compu-Touch or Core-Tech is substantial and
would require detailed knowledge of a retailer's operations at local sites and
headquarters. Also, developing a credit card network interface often can take
an additional six to nine months, as the certification process can be time
consuming. Moreover, the major petroleum companies are extremely selective
about which automation system providers are permitted to interface to their
credit networks. As of December 31, 1996, the Company was certified on seven
credit networks, and it currently has initiated the process to become
certified on four other major petroleum company credit networks.
ENTERTAINMENT MARKET
Within the entertainment market, the Company has focused on the cinema
market and plans to expand into amusement parks and stadiums. The Company
markets its products to the cinema market through its PrysmTech division.
There are approximately 27,000 cinema screens in the United States. These
screens are operated at approximately 6,500 sites, with recent trends
emphasizing more screens per site.
The domestic cinema industry is concentrated, with the top six chains
operating approximately 33.0% of the cinema screens. In addition to increasing
screens per site, "megaplexes" have evolved, which combine restaurants, movies
and other forms of entertainment in one facility. While cinema sites typically
are operated in a decentralized manner, the Company believes cinema operators
are focused on implementing cost controls from headquarters.
The Company believes its core technology and products are easily adaptable
for other entertainment venues, such as amusement parks, stadiums and arenas.
To date, the Company has installed systems in one of these facilities and has
pilot installations scheduled for two other amusement parks. While fewer in
number than cinemas, these venues are typically much larger, and management
believes that technology solutions for such operators represents significant
revenue potential for the Company.
Site-Based Products
To date, a majority of the Company's sales to the entertainment market has
consisted of comprehensive site-based solutions that allow retailers to
process transactions and capture data at the point of sale and to manage other
front and back office operations. As of December 31, 1996, the Company had
installed these products at approximately 175 sites. These site-based
solutions are marketed under the "BoxMan," "ConcMan," "OrderPoint," and
"OfficeMan" names. These systems include features such as a touch screen
interface, user-friendly applications and flexibility in configuration to
accommodate operational variables at each site.
These systems are based on an open architecture and run on the Windows NT or
Novell platform. The applications are made to be highly configurable,
typically supporting multiple POS terminals and a separate back office system.
The products are upgradable so that customers can phase in their
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<PAGE>
investment with additional hardware and software modules. These solutions
offer customers scalability, such that the same application can be run in
chains with widely varying numbers and sizes of sites; yet the enterprise
solutions remain consistent and supportive of each site.
BoxMan. BoxMan processes ticket sales, incorporating touch screen technology
at the point of sale. BoxMan provides for a variety of ticket alternatives and
payment options (such as cash, credit card or coupons). Individual sales and
performance are easily tracked, and all of the information gathered at the
point of sale can be communicated throughout the system on a real-time basis.
BoxMan also provides for advanced ticketing and teleticketing, as well as
will-call and self-service ticketing.
ConcMan. ConcMan processes concession sales, incorporating touch screen
technology at the point of sale. ConcMan communicates real-time information to
other POS and back office systems. In addition, ConcMan allows a number of
payment methods, such as cash, credit card or coupons, and tracks point of
sale performance data, such as average transaction value and rate of sales.
OrderPoint. OrderPoint is the Company's consumer-activated, multimedia
software. It utilizes graphics, full motion video and audio and allows
consumers to preview movies and purchase tickets and concessions by placing
orders through the use of a touch screen ordering system. It further allows
for remote ticketing and simple credit card purchases. By properly positioning
high profit items, retailers can use OrderPoint to promote combination sales
and implement suggestive selling programs. As of December 31, 1996, OrderPoint
is installed in over 50 cinema sites. See "--Convenience Store Market--Site-
Based Products" for a further description of the OrderPoint system.
OfficeMan. OfficeMan is a back office manager that provides the means for
cinemas to readily gather point of sale and management information. OfficeMan
provides real-time sales monitoring, with automatic updates of point of sale
information, thereby allowing cinemas to manage multiple sites more
effectively. Additionally, OfficeMan permits a cinema operator to define an
employee's security level, manage changes in movie schedules and manage
inventory. OfficeMan also provides an interface to other open systems and
credit card networks.
Headquarters-Based Product
Core-Tech. Core-Tech is the Company's client/server based solution that
permits retailers to manage individual sites from headquarters. Management
believes that there is demand within the entertainment market for a solution
with Core-Tech's features. As a result, the Company currently is adapting
Core-Tech for this market. See "--Convenience Store Market--Headquarters-Based
Product" for a description of the Core-Tech system.
Sales and Marketing
To date, the Company's sales and marketing efforts have consisted primarily
of involvement of senior management of PrysmTech. The Company's primary
marketing objective has been to increase awareness of all of the Company's
technology solutions. In November 1996, the Company hired a manager to plan
and manage the Company's efforts in the amusement park market. The Company
intends to increase its sales and marketing efforts in 1997.
Customers
Cinema customers who have selected the Company as their technology solutions
provider operate a total of 890 sites, or approximately 13.7% of the domestic
cinema sites. As of December 31, 1996, the Company has installed its
technology solutions in approximately 175 of these sites. In 1996, Loews
Theatre Management Corporation accounted for 13.8% of the Company's total
revenues. The following is a partial list of major cinema customers who have
licensed and purchased the Company's products and services:
Cobb Theatres
Loews Theatre Management Corporation
Mann Theatres
The Marcus Corporation
Regal Cinemas
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<PAGE>
Competition
The market for the Company's technology solutions is intensely competitive
and includes internal efforts by potential customers. The Company believes the
principal competitive factors are product quality, reliability, performance,
price, vendor and product reputation, financial stability, features and
functions, ease of use, quality of support and degree of integration effort
required with other systems. Within the cinema market, the Company faces
competition from Pacer/CATS, a subsidiary of Ticketmaster, Inc., and several
smaller software providers.
QUICK SERVICE RESTAURANT MARKET
The Company believes that its core technology and capabilities effectively
address the needs of the QSR market. To accelerate its entry into this market,
the Company in May 1996 acquired LSI -- an established provider of technology
solutions to the QSR market. LSI provided the Company with a team of
experienced QSR software developers, a functional product line and a customer
base that includes approximately 150 sites, including KFC Corporation and UNO
Restaurant Corporation (Pizzeria Uno). The Company does not intend to actively
market LSI's existing product line. However, the Company believes that its
core technology can be combined with LSI's industry expertise to create a
highly functional technology solution for the QSR market.
The QSR market is the largest and fastest growing segment in the food
service market. As of the end of 1994, there were over 170,000 QSRs in the
United States. Restaurants increasingly require real time information access
and management that permit employees to increase the speed and accuracy with
which they take an order, prepare the food and fill the order, and they must
accommodate numerous concurrent consumer orders at multiple counter top and
drive-through locations. Multiple order input devices, such as wireless, hand-
held terminals and touch screen monitors, may be required to handle high-order
volumes at peak periods.
The captured transaction data may be shared with store management, as well
as regional headquarters management. Such data can be analyzed to provide
performance, market and trend information. Such tasks are substantially
similar to those required in the convenience store and entertainment markets.
The Company is developing a new suite of products based on its Radiant
solution tailored to address the QSR market. Pilots for these products are
scheduled for the first half of 1997.
In marketing its technology solutions, the Company faces intense
competition, including internal efforts by potential customers. The Company
believes the principal competitive factors are product quality, reliability,
performance, price, vendor and product reputation, financial stability,
features and functions, ease of use, quality of support and degree of
integration effort required with other systems. Within the QSR market, the
Company faces competition from companies such as International Business
Machines Corporation, NCR Corporation, Matsushita Electric Corporation of
America (Panasonic), Par Technology Corporation, Compris Technologies, Inc.,
Progressive Software, Inc., Micros Systems, Inc. and many others who currently
deliver technology solutions to the market.
PROFESSIONAL SERVICES
In 1995, the Company determined that the integration, design,
implementation, application and installation of technology solutions were
critical to its ability to effectively market its solutions. Consequently, in
early 1996, the Company established its Radiant Solutions Group to provide
these services to its customers. The Radiant Solutions Group operates as a
stand-alone profit center. The following is a summary of some of the
professional services the Company provides:
Consulting. Business consultants, systems analysts and technical personnel
assist retailers in all phases of systems development, including systems
planning and design, customer-specific configuration of application
modules and on-site implementation or conversion from existing systems.
Directors in the Company's consulting organization typically have
significant consulting or
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<PAGE>
retail technology experience. The Company's consulting personnel undergo
extensive training in retail operations and the Company's products.
Consulting services typically are billed on a per diem basis.
Customization. The Company provides custom application development work
for customers billed on a project or per diem basis. Such enhancements
remain the property of the Company.
Training. The Company has a formalized training program available to its
customers, which is provided on a per diem rate at the Company's offices
or at the customer's site.
Integration. Typically, as part of its site solution, the Company
integrates standard PC components for its customers. This is done as part
of the overall technology solution for the customers to protect the
quality of the overall site solution and to provide the customers with a
system that is easy to support over the long term.
The market for the Company's professional services is intensively
competitive. The Company believes the principal competitive factors are the
professional qualifications, expertise and experience of individual
consultants. In the market for professional services, the Company competes
with the consulting divisions of the big six accounting firms, Electronic Data
Systems, Inc. and other systems integrators.
MAINTENANCE AND CUSTOMER SUPPORT
The Company offers customer support on a 24-hour basis, a service which
historically has been purchased by a majority of its customers and also
entitles the customer to product upgrades. In some cases, hardware support is
provided by third parties. The Company can remotely access its customers'
systems in order to perform quick diagnostics and provide on-line assistance.
The annual support option is typically priced at a percentage of the software
and hardware cost.
PRODUCT DEVELOPMENT AND TECHNOLOGY PLATFORM
The Company's product development strategy is focused on creating common
technology elements that can be leveraged in applications across various
vertical retail markets. The base technology architecture is designed so that
it can be integrated with products developed by other vendors and can be
phased into a retailer's operations. The Company has developed numerous
applications running on a Windows NT platform. The software architecture
incorporates Microsoft's Component Object Model, providing an efficient
environment for application development.
To implement its strategy, the Company has created Radiant Labs ("Labs"),
with responsibility for developing common technology elements intended for use
across the Company's vertical markets. In addition, the Company maintains
development groups for each of the convenience store, entertainment and QSR
markets. The vertical market development efforts focus on developing industry-
specific applications that leverage the common technology elements developed
by Labs. To facilitate new product development, teams are formed to combine
technical expertise from Labs and industry knowledge from the vertical groups.
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<PAGE>
The Company's MediaClient platform, graphically depicted below, was
developed for use across the Company's various vertical markets. It allows
multiple, multimedia software applications to run on separate workstation
clients simultaneously, all driven by a single PC acting as a server. With a
MediaClient platform, only one PC is required -- functionality is duplicated
through specialty peripherals ("MediaClient Nodes") connected by a fiber optic
ring. The server is responsible for almost all data processing and
functionality and serves as a repository for multimedia data.
TITLE: DESCRIPTION OF RADIANT SYSTEMS, INC.
RADIANT PLATFORM DIAGRAM
STRUCTURE: Diagram illustrating the operating system of the Company's Radiant
platform. The diagram depicts a personal computer acting as a host
to nine nodes, all connected by a solid line representing a fiber
optic connection. The nodes are depicted as rectangular boxes
arranged in a loop to the right of the depiction of the personal
computer.
The diagram is meant to illustrate the fact that as many as 50
nodes may operate as specialty peripherals or workstations when
connected to the personal computer acting as a server. A brief
description is included of the host personal computer, the nodes
and the fibre optic line. Each of these descriptions point to
the relevant component with an arrow.
SUPPORTING
TEXT: Connected by an arrow to the personal computer:
"MediaClient Host
. IBM PC compatible
. Windows NT
. Serves in excess of 50 nodes
. Second host provides redundancy"
Connected by an arrow to the nodes:
"MediaClient Nodes
. Solid-state multimedia device
. MPEG I & II, SVGA
. Stereo/mono sound
. Intercom
. Mag stripe reader
. 8 Serial devices
. Compact, enclosed design"
Connected by an arrow to the line:
"Bidirectional
Fault-tolerant
Fiber-optic loop"
The Company's MediaClient platform offers a number of advantages to the
retailer. Principally, it extends the processing power and functionality of a
PC throughout a dedicated network. A MediaClient platform is highly scalable,
depending on the requirements of the customer. It reduces software and network
maintenance costs because the retailer only manages applications on one
server. Moreover, MediaClient Nodes require substantially less space than a
PC, improve reliability and reduce cost of ownership.
PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary technology, including its software source code. To protect its
proprietary technology, the Company relies on a combination of trade secret,
nondisclosure, copyright and patent law, which may afford only limited
protection. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. Although the Company
relies on the limited protection afforded by such intellectual property laws,
it also believes that factors such as the technological and creative skills of
its personnel, new product developments, frequent product enhancements, name
recognition and reliable maintenance are essential to establishing and
maintaining a technology leadership position. The Company presently has one
patent pending. The source code for the Company's proprietary software is
protected both as a trade secret and as a copyrighted work. The Company
generally enters into confidentiality or license agreements with its
employees, consultants and customers and generally controls access to and
distribution of its software, documentation and other proprietary information.
Although the Company restricts the use by the customer of the Company's
software and does not permit the re-sale, sublicense or other transfer of such
software, there can be no assurance that unauthorized use of the Company's
technology will not occur.
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<PAGE>
Despite the measures taken by the Company to protect its proprietary rights,
unauthorized parties may attempt to reverse engineer or copy aspects of the
Company's products or to obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult. In addition, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.
Certain technology used in conjunction with the Company's products is
licensed from third parties, generally on a non-exclusive basis. These
licenses usually require the Company to pay royalties and fulfill
confidentiality obligations. The Company believes that there are alternative
resources for each of the material components of technology licensed by the
Company from third parties. However, the termination of any such licenses, or
the failure of the third-party licensors to adequately maintain or update
their products, could result in delay in the Company's ability to ship certain
of its products while it seeks to implement technology offered by alternative
sources. Any required replacement licenses could prove costly. Also, any such
delay, to the extent it becomes extended or occurs at or near the end of a
fiscal quarter, could result in a material adverse effect on the Company's
results of operations. While it may be necessary or desirable in the future to
obtain other licenses relating to one or more of the Company's products or
relating to current or future technologies, there can be no assurance that the
Company will be able to do so on commercially reasonable terms or at all.
In the future, the Company may receive notices claiming that it is
infringing on the proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of infringement claims
or legal proceedings by third parties with respect to current or future
products. In addition, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Any such claim
could be time consuming, result in costly litigation, cause product shipment
delays or force the Company to enter into royalty or license agreements rather
than dispute the merits of such claims. Moreover, an adverse outcome in
litigation or similar adversarial proceedings could subject the Company to
significant liabilities to third parties, require the expenditure of
significant resources to develop non-infringing technology, require disputed
rights to be licensed from others or require the Company to cease the
marketing or use of certain products, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. To the extent the Company desires or is required to obtain licenses
to patents or proprietary rights of others, there can be no assurance that any
such licenses will be made available on terms acceptable to the Company, if at
all. As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software developers may become increasingly subject to infringement claims.
Any such claims against the Company, with or without merit, as well as claims
initiated by the Company against third parties, can be time consuming and
expensive to defend, prosecute or resolve.
EMPLOYEES
As of December 31, 1996, the Company employed 265 persons. None of the
Company's employees is represented by a collective bargaining agreement nor
has the Company experienced any work stoppage. The Company considers its
relations with its employees to be good.
The Company's future operating results depend in significant part upon the
continued service of its key technical, consulting and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will retain its key managerial
or technical personnel or attract such personnel in the future. The Company
has at times experienced and continues to experience difficulty recruiting
qualified personnel, and there can be no assurance that the Company will not
experience such
37
<PAGE>
difficulties in the future. The Company, either directly or through personnel
search firms, actively recruits qualified product development, consulting and
sales and marketing personnel. If the Company is unable to hire and retain
qualified personnel in the future, such inability could have a material
adverse effect on the Company's business, operating results and financial
condition.
FACILITIES
The Company's principal facility occupies approximately 60,000 square feet
in Alpharetta, Georgia, under two lease agreements. These lease agreements
expire on January 31, 2000 and August 31, 2000, respectively. In January 1997,
the Company leased additional space at its current location, which increased
the square footage leased by the Company from 43,000 to 60,000 square feet.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority. There are no material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company, or any associate of any of the foregoing is a
party or has an interest adverse to the Company.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Erez Goren.................... 32 Co-Chairman of the Board and Chief
Executive Officer
Alon Goren.................... 31 Co-Chairman of the Board and Chief
Technology Officer
Eric B. Hinkle................ 36 President, Chief Operating Officer and
Director
John H. Heyman................ 35 Executive Vice President, Chief Financial
Officer and Director
Andrew S. Heyman.............. 33 Vice President and Managing Director of
Radiant Solutions Group
Carlyle M. Taylor............. 43 Vice President--Integration and Support
H. Martin Rice................ 44 Vice President and Managing Director of
PrysmTech Division
Christopher Lybeer............ 35 Vice President--Convenience Store Division
</TABLE>
Mr. Erez Goren has served as Co-Chairman of the Board and Chief Executive
Officer of the Company since its inception in 1985 and as its President from
1985 to October 1996. Mr. Goren attended State University of New York at Stony
Brook prior to devoting his full time and energy to the Company. He is the
brother of Alon Goren.
Mr. Alon Goren has served as Co-Chairman of the Board and Chief Technology
Officer of the Company since its inception in 1985. Mr. Goren has a B.S. in
Computer Systems Engineering from Rensselaer Polytechnic Institute. He is the
brother of Erez Goren.
Mr. Hinkle has served as President, Chief Operating Officer and a Director
of the Company since October 1996. Mr. Hinkle served in various capacities
with the Avionics Divisions of AlliedSignal Corporation from January 1994 to
October 1996, including most recently as Vice President of Communications and
Navigation Products. From 1991 to January 1994, Mr. Hinkle served as a Senior
Engagement Manager for McKinsey & Co., a consulting firm. Mr. Hinkle has an
M.B.A. from Harvard Business School, a M.S. degree in Electrical Engineering
from Stanford University, and a B.S. degree in Computer Engineering from Brown
University.
Mr. John H. Heyman has served as Executive Vice President, Chief Financial
Officer of the Company since September 1995 and as a director of the Company
since June 1996. Mr. Heyman served as Vice President and Chief Financial
Officer of Phoenix Communications, Inc., a commercial printer, from March 1991
to August 1995. From 1989 to 1991, Mr. Heyman served as Vice President,
Acquisitions of Forsch Corporation, a diversified manufacturing company. From
1983 to 1987, Mr. Heyman served in a variety of capacities with Arthur
Andersen LLP, where he worked primarily with middle market companies and
technology firms. Mr. Heyman has an M.B.A. from Harvard Business School and a
B.B.A. degree in Accounting from the University of Georgia. He is the brother
of Andrew S. Heyman.
Mr. Andrew S. Heyman has served as Vice President and Managing Director of
the Radiant Solutions Group of the Company since January 1996. Mr. Heyman
served as a senior manager with Andersen Consulting from 1987 to December
1995. He holds a M.S. degree in Computer Information Systems from Georgia
State University and a B.B.A. in Finance from the University of Georgia. He is
the brother of John H. Heyman.
Mr. Taylor has served as Vice President--Integration and Support of the
Company since September 1995. Mr. Taylor served in various capacities with NCR
Corporation (formerly AT&T Global Information
39
<PAGE>
Solutions) in the retail information systems area from 1978 to September 1995,
including most recently as Assistant Vice President of the scanner business
unit. Mr. Taylor received a B.S. degree in Mathematics from North Carolina
Wesleyan College.
Mr. Rice has served as Vice President of the Company and the Managing
Director of its PrysmTech Division since December 1996. From September 1994
until its acquisition by the Company in December 1996, Mr. Rice served as
President and Chief Executive Officer of PrysmTech, LLC. From 1989 to
September 1994, Mr. Rice served as President of The R.L. Sterling Company, a
consulting company. Prior to 1989, Mr. Rice served as Chief Financial Officer
of Maryland Realty Trust, a publicly traded REIT, and as a staff accountant
for Price Waterhouse LLP.
Mr. Lybeer has served as Vice President--Convenience Store Division of the
Company since January 1996. From 1993 to 1995, Mr. Lybeer served as Assistant
Vice President--Software Solutions of NCR Corporation (formerly AT&T Global
Information Solutions), a telecommunications company. From 1991 to 1993, Mr.
Lybeer served as a Director of Product Development of NCR Corporation, in the
retail information systems area. Mr. Lybeer received a B.S.E. in Computer
Engineering from the University of Michigan.
The Company intends, within 90 days of the date of this Prospectus, to
appoint at least two independent directors (not yet identified) who will be
unaffiliated with the Company.
BOARD OF DIRECTORS
The number of directors of the Company is currently fixed at four. The
Company's Board of Directors is divided into three classes, with members of
each class of directors serving for staggered three-year terms. The Board
consists of two Class I Directors (Mr. Erez Goren and Mr. Alon Goren), one
Class II Director (Mr. John H. Heyman) and one Class III Director (Mr.
Hinkle), whose initial terms shall expire at the 1997, 1998 and 1999 annual
meetings of the shareholders, respectively.
After the consummation of this offering, there will be two standing
Committees of the Board of Directors: the Compensation Committee and the Audit
Committee. The Compensation Committee, which will be composed of the two
independent directors to be appointed following this offering, will review and
make recommendations to the Board of Directors regarding salaries,
compensation and benefits of executive officers and key employees of the
Company. In addition, the Compensation Committee will administer the Company's
1995 Stock Option Plan. The Audit Committee will be composed of the two
independent directors to be appointed following this offering. Among other
duties, the Audit Committee will review the internal and external financial
reporting of the Company, review the scope of the independent audit and
consider comments by the auditors regarding internal controls and accounting
procedures and management's response to these comments. The Board of Directors
does not have a nominating committee.
EXECUTIVE COMPENSATION
The following table presents certain information concerning compensation
earned for services rendered in all capacities by the Company's Chief
Executive Officer and the two other executive officers of the Company whose
total annual salary and bonus exceeded $100,000 during fiscal 1996 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
NAME AND COMPENSATION AWARDS
-------- ------------------ ---------------------------------
PRINCIPAL POSITION SALARY($) BONUS($) SECURITIES UNDERLYING OPTIONS
------------------ --------- -------- -----------------------------
<S> <C> <C> <C> <C>
Erez Goren ............. $ 80,769 $11,197 --
Co-Chairman and Chief
Executive Officer
Carlyle M. Taylor ...... 80,000 28,000 --
Vice President
H. Martin Rice.......... 100,000 98,504 137,500
Vice President
</TABLE>
40
<PAGE>
STOCK OPTION PLAN
On December 20, 1995, the Company's directors and shareholders adopted the
1995 Stock Option Plan (the "Plan") for employees who are contributing
significantly to the business of the Company
or its subsidiaries as determined by the Company's Board of Directors or the
committee administering the Plan. The Plan currently provides for the grant of
incentive and non-qualified stock options to purchase up to 4,000,000 shares
of Common Stock at the discretion of the Board of Directors of the Company or
a committee designated by the Board of Directors to administer the Plan. The
option exercise price of incentive stock options must be at least 100.0%
(110.0% in the case of a holder of 10.0% or more of the Common Stock) of the
fair market value of the stock on the date the option is granted and the
options are exercisable by the holder thereof in full at any time prior to
their expiration in accordance with the terms of the Plan. Incentive stock
options granted pursuant to the Plan will expire on or before (1) the date
which is the tenth anniversary of the date the option is granted, or (2) the
date which is the fifth anniversary of the date the option is granted in the
event that the option is granted to a key employee who owns more than 10.0% of
the total combined voting power of all classes of stock of the Company or any
subsidiary of the Company. Options granted under the Plan typically vest over
a period of four to five years. As of January 15, 1997, options to purchase
3,121,762 shares of Common Stock were outstanding pursuant to the Plan. In
addition, non-qualified options to purchase 264,000 shares of Common Stock
have been granted by the Company outside of the Plan as of January 15, 1997.
The following table provides certain information concerning individual
grants of stock options made during fiscal 1996 to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS EXERCISE ANNUAL RATES
UNDERLYING GRANTED TO OR STOCK PRICE
OPTIONS EMPLOYEES BASE EXPIRATION APPRECIATION FOR
NAME GRANTED IN FISCAL YEAR PRICE DATE OPTION TERM (2)
- ---- ---------- -------------- -------- ---------- ---------------------
5% 10%
--------- -----------
<S> <C> <C> <C> <C> <C> <C>
Erez Goren.............. -- -- -- -- -- --
Carlyle M. Taylor....... -- -- -- -- -- --
H. Martin Rice(1)....... 137,500 8.5% $7.00 2006 $ 605,311 $ 1,533,977
</TABLE>
- --------
(1) Of the total, 57,140 are incentive stock options and 80,360 are non-
qualified stock options. Subject to acceleration upon the occurrence of
certain events, the incentive stock options vest in increments of 14,285
on each of the first, second, third and fourth anniversaries of the date
of grant, December 31, 1996. The non-qualified stock options vest on
December 31, 2004, subject to acceleration upon the attainment of certain
performance targets. See "--Employment Agreement."
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of option assuming that the market price of the
Company's Common Stock appreciates in value from the date of grant at the
5.0% and 10.0% annual rates prescribed by the SEC and therefore are not
intended to forecast possible future appreciation, if any, of the price of
the Company's Common Stock.
The following table provides certain information concerning the value of
unexercised options held by the Named Executive Officers under the Company's
1995 Stock Option Plan as of December 31, 1996. No stock options were
exercised during fiscal 1996 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR THE-MONEY OPTIONS AT
END FISCAL YEAR END (1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Erez Goren ................. -- -- -- --
Carlyle M. Taylor........... -- 200,000 -- $1,700,000
H. Martin Rice.............. -- 137,500 -- $ 343,750
</TABLE>
- --------
(1) Dollar values were calculated by determining the difference between the
public offering price of $9.50 per share and the exercise price of the
options.
41
<PAGE>
EMPLOYMENT AGREEMENT
On December 31, 1996, in connection with the acquisition of PrysmTech, the
Company entered into an Employment Agreement with H. Martin Rice to serve as
Managing Director of the PrysmTech Division of the Company (the "Agreement").
The term of the Agreement is four years subject to a one-year automatic
extension under certain circumstances. Under the Agreement, Mr. Rice will be
entitled to a base salary of $100,000 per year or a higher amount equal to
that of the Company's highest paid executive officer plus a bonus based upon
the PrysmTech division's net income (as defined in the Agreement), provided
that the base compensation and bonus payable to Mr. Rice under the Agreement
is limited to the greater of $200,000 and the maximum non-contingent and
potential contingent compensation available to any other executive officer of
the Company. The Agreement also provides (i) that Mr. Rice will receive a loan
from the Company in the amount of $165,000 on the closing date of this
offering, which loan will be payable, together with interest at the rate of
7.0% per annum, on December 31, 2001 or earlier out of the proceeds of the
sale of shares of the Company's Common Stock received by Mr. Rice in the
PrysmTech acquisition and (ii) certain insurance, automobile allowance and
other benefits. Under the Agreement, Mr. Rice has been granted options to
purchase 137,500 shares of the Company's Common Stock (the "Stock Options").
See "--Stock Option Plan."
Upon termination of the Agreement (other than voluntarily by Mr. Rice, or by
the Company for cause or upon the death of Mr. Rice), Mr. Rice will be
entitled to a termination payment equal to $16,666 for each partial and full
calendar month then remaining in the term of the Agreement, less any amount
payable to Mr. Rice under any long-term disability insurance maintained by the
Company.
The Agreement provides that if Mr. Rice's employment is terminated during
the term of the Agreement (other than voluntarily by Mr. Rice, or by the
Company for cause or upon the death of Mr. Rice) the Stock Options shall fully
vest on the date of such termination. Also upon such termination Mr. Rice may
require the Company to pay an income tax related bonus and to lend him the
amount payable upon the exercise of his remaining Stock Options.
The Agreement also contains provisions restricting Mr. Rice's ability to
compete with the Company and solicit its customers and employees and
obligating him to protect the confidentiality of the Company's information
following termination of his employment.
AGREEMENTS WITH EMPLOYEES
All employees of the Company, including executive officers, are required to
sign a confidentiality and noncompete agreement with the Company restricting
the ability of the employee to compete with the Company during his or her
employment and for a period ranging from six months to two years thereafter,
restricting solicitation of customers and employees following employment with
the Company, and providing for ownership and assignment of intellectual
property rights to the Company. The agreements have an indefinite term, but
the employee may terminate employment with the Company at any time.
401(K) PROFIT SHARING PLAN
The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan") which
is intended to be a tax-qualified defined contribution plan under Section
401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). In
general, all employees of the Company who have completed six months of
42
<PAGE>
service and have attained age 21 are eligible to participate. The 401(k) Plan
includes a salary deferral arrangement pursuant to which participants may
contribute, subject to certain Code limitations, a minimum of 3.0% and a
maximum of 15.0% of their salary on a pre-tax basis (up to $9,500 per year).
Subject to certain Code limitations, the Company may make both matching and
additional contributions at the discretion of the Board of Directors of the
Company each year. To date, no contributions have been made by the Company to
the 401(k) Plan. A separate account is maintained for each participant in the
401(k) Plan. The portion of a participant's account attributable to his or her
own contributions is 100.0% vested. Distributions from the 401(k) Plan may be
made in the form of a lump-sum cash payment or in installment payments.
CERTAIN TRANSACTIONS
On May 29, 1995, the Company repurchased 2,628,523 shares of Common Stock
(representing 24.7% of the Company's then outstanding shares of Common Stock)
from Thomas J. Barrella in exchange for certain assets and technology. In
connection therewith, Mr. Barrella resigned his positions as an executive
officer and director of the Company. The transferred assets and technology had
a value of approximately $616,000. As part of the transaction, Mr. Barrella
issued to the Company a note in the amount of $61,000 due in May 1997 and
bearing interest at a rate of 8.0%. As of December 31, 1996, $17,000 remained
outstanding under this note.
On June 7, 1996, Mr. Barrella granted to Erez Goren, the Chief Executive
Officer of the Company, an option to purchase all 600,033 remaining shares of
Common Stock held by Mr. Barrella. This option, exercisable for a period of
one year thereafter at an exercise price of $1.875 per share, will be assigned
to the Company by Mr. Goren for nominal consideration prior to the completion
of this offering. The Company will utilize a portion of the proceeds of this
offering to repurchase all of such shares from Mr. Barrella. See "Use of
Proceeds."
On October 31, 1994, the Company repurchased 3,085,700 shares of Common
Stock (representing 22.5% of the Company's then outstanding shares of Common
Stock) from Lawrence D. Parker in exchange for a note in the amount of
$473,000 due December 31, 1997, and bearing interest at a rate of 8.0%. As of
December 31, 1996, $170,000 remained outstanding under this note. The Company
will utilize a portion of the proceeds of this offering to repay this note.
See "Use of Proceeds." In connection with this transaction, Mr. Parker
resigned his positions as an executive officer and director of the Company and
entered into a five-year consulting agreement with the Company. In October
1995, the monthly consulting fees payable to Mr. Parker were reduced to $2,500
from $14,000. Consulting fees totalling $150,000, $131,000 and $28,000 were
paid by the Company to Mr. Parker in 1994, 1995 and 1996, respectively.
On May 27, 1994, the Company entered into a Software License, Support and
Equipment Purchase Agreement (the "Emro License Agreement") with Emro
Marketing Company (Speedway/Starvin' Marvin) ("Emro") pursuant to which Emro
agreed to purchase licenses for Compu-Touch systems. The Emro License
Agreement includes price discounts on certain of the Company's products,
rebates and extended warranty coverage on products purchased thereunder, and
credits (based on the number of systems purchased by Emro) for technical
support services. Although the rebates, the extended warranty terms and the
credits for technical support services are not currently available to other
customers of the Company, the price discounts are based on the number of
potential sites to be installed by Emro and are no more favorable than those
given to the only other customer of the Company who has a comparable number of
potential sites.
Under the terms of the Emro License Agreement, Emro is to receive a cash
rebate upon purchasing a defined number of software licenses. In the event the
Company is unable to pay the rebates when due, Emro has the option of applying
the rebate to the purchase of additional licenses or requiring the Company to
deliver a promissory note therefor. Accordingly, on March 27, 1996, the
Company issued to Emro a promissory note for accrued rebates in the amount of
$873,000 due March 2001, and bearing interest at a rate of 6.0%. As of
December 31, 1996, $918,000, including accrued interest, remained outstanding
under this note. The Company will utilize a portion of the proceeds of this
offering to repay this note. See "Use of Proceeds."
43
<PAGE>
Emro will continue to receive the preferential terms described above with
respect to purchases of Compu-Touch systems in the future for as long as Emro
purchases such products from the Company under the Emro License Agreement.
Revenues of $3.4 million, $6.9 million and $5.4 million were recorded by the
Company for systems sales and customer support, maintenance and other services
pursuant to the Emro License Agreement in 1994, 1995 and 1996, respectively.
In connection with the Emro License Agreement, the Company granted to Emro a
stock purchase warrant (the "Emro Warrant") to purchase 10.0% of the
outstanding shares of Common Stock of the Company at an exercise price of
$80,000 per percentage unit exercised. The Emro Warrant was subsequently
amended to increase the number of shares of Common Stock issuable thereunder
to 12.0% of the outstanding shares of Common Stock of the Company and to
provide the Company with the right to repurchase 2.0% upon the exercise of the
Emro Warrant at a price equal to the average of the exercise price of the Emro
Warrant and the fair market value of the Common Stock. The Emro Warrant will
be exercised in full prior to the completion of this offering, whereupon
318,996 shares of Common Stock will be sold by Emro hereby, 193,060 shares of
Common Stock will be repurchased by the Company for $1.0 million from the
proceeds of this offering and 646,304 shares of Common Stock will be retained
by Emro. See "Principal and Selling Shareholders" and "Use of Proceeds."
On December 31, 1996, the Company, which previously owned a 50.0% interest
in PrysmTech, acquired the remaining 50.0% interest of PrysmTech from its
owners, including H. Martin Rice, a Vice President of the Company and the
Managing Director of the Company's PrysmTech division. In connection
therewith, Mr. Rice received 150,000 shares of Common Stock of the Company and
the Company issued to Mr. Rice and his affiliates promissory notes totalling
$1.5 million. These notes bear interest at a rate of 8.5% and are due on the
earlier of (i) December 31, 1998 or (ii) the closing of this offering. The
Company will utilize a portion of the proceeds of this offering to repay these
notes. See "Use of Proceeds." The Company has also entered into an employment
agreement with Mr. Rice. See""-- Employment Agreement."
44
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of the Company's Common Stock as of February 5, 1997, and
as adjusted to reflect the sale of the shares offered hereby, by: (i) the
Selling Shareholders; (ii) each director of the Company; (iii) each Named
Executive Officer; (iv) each person known by the Company to own beneficially
more than 5.0% of the outstanding shares of the Common Stock; and (v) all
executive officers and directors of the Company as a group. Unless otherwise
indicated, each shareholder has sole voting and investment power with respect
to the indicated shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED SHARES OWNED
NAME OF BENEFICIAL OWNER PRIOR TO OFFERING(1) OFFERED(2) AFTER OFFERING(2)
- ------------------------ -------------------------- ---------- --------------------------
NUMBER PERCENT NUMBER PERCENT
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Erez Goren(3)........... 3,353,556 40.3% -- 3,353,556 29.5%
Alon Goren(3)........... 3,353,556 40.3 -- 3,353,556 29.5
Eric B. Hinkle.......... 55,000(4) * -- 55,000(4) *
John H. Heyman.......... 350,000(5) 4.1 -- 350,000(5) 3.0
Carlyle M. Taylor....... -- -- -- -- --
H. Martin Rice.......... 150,000 1.8 -- 150,000 1.3
Emro Marketing Company.. 1,158,360(6) 12.0 318,996 646,304(6) 5.7
Sirrom Capital
Corporation............. 174,642(7) 2.1 81,004 93,454(8) *
Executive officers and
directors
as a group (8
persons)............... 7,272,112(9) 85.0 -- 7,272,112(9) 62.7
</TABLE>
- --------
* Less than 1.0% of outstanding shares.
(1) Pursuant to the rules of the Commission, certain shares of the Company's
Common Stock that a beneficial owner has the right to acquire within 60
days pursuant to the exercise of stock options or warrants are deemed to
be outstanding for the purpose of computing the percentage ownership of
such owner but are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
(2) If the over-allotment option is exercised, Mr. Erez Goren and Mr. Alon
Goren will each sell up to 50,000 shares of Common Stock, and Mr. John H.
Heyman will sell up to 10,000 shares of Common Stock. See "Underwriting."
(3) The address of Erez Goren and Alon Goren is 1000 Alderman Drive, Suite A,
Alpharetta, Georgia 30202.
(4) Represents 55,000 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(5) Includes 175,000 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(6) Represents shares of Common Stock issuable upon the exercise of
outstanding common stock purchase warrants which will be exercised prior
to the completion of this offering. Shares beneficially owned after the
offering exclude 193,060 shares of Common Stock which will be repurchased
by the Company upon completion of this offering. See "Use of Proceeds."
The address of Emro Marketing Company is P.O. Box 1500, Springfield, Ohio
45501.
(7) Represents shares of Common Stock issuable upon the exercise of
outstanding common stock purchase warrants, which will be exercised prior
to the completion of this offering.
(8) Represents the balance of the shares issuable to Sirrom Capital
Corporation upon the exercise of its warrants, less 184 shares of Common
Stock to be tendered by Sirrom as payment of the exercise price thereof.
(9) Includes 240,000 shares of Common Stock subject to stock options
exercisable within the next 60 days.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, no par value per share and 10,000,000 shares of non-voting Class
A Common Stock, no par value per share. Simultaneously with the completion of
this offering, all shares of Class A Common Stock will automatically be
converted into shares of Common Stock and will thereafter cease to be
authorized. The following description is qualified in its entirety by
reference to the Company's Amended and Restated Articles of Incorporation (the
"Articles"), and Amended and Restated Bylaws (the "Bylaws"), which are filed
as exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
As of February 10, 1997, there were 6,857,112 shares of Common Stock
outstanding, held of record by five shareholders. The holders of Common Stock
are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders and shall vote with all other shares of
Common Stock as a single class. Cumulative voting in the election of directors
is not permitted. Holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of the Company, holders of Common Stock shall possess equal rights and
privileges on a share-for-share basis. Holders of Common Stock have no
conversion, preemptive or other rights to subscribe for additional shares or
other securities, and there are no redemption or sinking fund provisions with
respect to such shares. The issued and outstanding shares of Common Stock are,
and the shares offered hereby will be upon payment therefor, fully paid and
nonassessable.
CLASS A COMMON STOCK
As of February 10, 1997, there were 1,462,889 shares of Class A Common Stock
outstanding, held of record by ten shareholders. The shares of Class A Common
Stock will automatically be converted into shares of Common Stock on a one-
for-one basis upon consummation of this offering and will thereafter cease to
be authorized. Except with respect to voting rights, which (except as provided
by law) are denied to the holders of Class A Common Stock, the Class A Common
Stock ranks pari passu with the Common Stock and possesses equal rights and
privileges.
PREFERRED STOCK
The Articles authorize the Board of Directors, subject to certain
limitations prescribed by law, without further shareholder approval, to issue
from time to time up to an aggregate of 5,000,000 shares of preferred stock in
one or more series and to fix or alter the designations, preferences, rights
and any qualifications, limitations or restrictions on the shares of each such
series thereof, including the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption (including sinking fund
provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of such series. The
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change of control of the Company. No shares of Preferred Stock
are presently outstanding.
CERTAIN CHARTER AND BYLAW PROVISIONS
Shareholders' rights and related matters are governed by the Georgia
Business Corporation Code and the Company's Articles and Bylaws. Certain
provisions of the Articles and Bylaws, which are summarized below, could,
either alone or in combination with each other, have the effect of preventing
a change in control of the Company or making changes in management more
difficult.
46
<PAGE>
Corporate Takeover Provisions. The Company's Bylaws make applicable to the
Company provisions authorized by the Georgia Business Corporation Code
relating to business combinations with interested shareholders ("Corporate
Takeover Provisions"). The Corporate Takeover Provisions are designed to
encourage any person, before acquiring 10.0% of the Company's voting shares,
to seek approval of the Board of Directors for the terms of any contemplated
business combination. The Corporate Takeover Provisions will prevent for five
years certain business combinations with an "interested shareholder" (as
defined in the Corporate Takeover Provisions) unless (i) prior to the time
such shareholder became an interested shareholder the Board of Directors
approved either the business combination or the transaction that resulted in
the shareholder becoming an interested shareholder, (ii) in the transaction
that resulted in the shareholder becoming an interested shareholder, the
interested shareholder became the beneficial owner of at least 90.0% of the
outstanding voting shares of the Company excluding, however, shares owned by
the Company's officers, directors, affiliates, subsidiaries and certain
employee stock plans or (iii) subsequent to becoming an interested
shareholder, such shareholder acquired additional shares resulting in the
interested shareholder becoming the owner of at least 90% of the Company's
outstanding voting shares and the business combination is approved by the
holders of majority of the Company's voting shares, excluding from said vote
the stock owned by the interested shareholder or by the Company's officers,
directors, affiliates, subsidiaries and certain employee stock plans.
Shareholders of the Company who became interested shareholders prior to the
time of the adoption of the Corporate Takeover Provisions are not subject to
such provisions.
The Board of Directors is divided into three classes, as nearly equal in
size as possible, with staggered three-year terms. One class is elected each
year. The classification of the Board of Directors could have the effect of
making it more difficult for a third party to acquire control of the Company.
The Articles provide for the affirmative vote of holders of at least 75.0%
of shares of Common Stock entitled to vote generally in the election of
directors, voting as a single voting group, to alter or amend the provisions
of the Articles providing for a staggered board of directors, or to alter or
amend the Bylaws.
Constituency Considerations. The Company's Articles provide for the right of
the Board of Directors to consider the interests of various constituencies,
including employees, customers, suppliers and creditors of the Company, as
well as the communities in which the Company is located, in addition to the
interest of the Company and its shareholders, in discharging their duties in
determining what is in the Company's best interests.
Limitation of Directors' Liability. The Company's Articles eliminate,
subject to certain exceptions, the personal liability of directors to the
Company or its shareholders for monetary damages for breaches of such
directors' duty of care or other duties as a director. The Articles do not
provide for the elimination of or any limitation on the personal liability of
a director for (i) any appropriation, in violation of the director's duties,
of any business opportunity of the Company, (ii) acts or omissions that
involve intentional misconduct or a knowing violation of law, (iii) unlawful
corporate distributions or (iv) any transaction from which the director
received an improper benefit. In addition, the Company's Bylaws provide broad
indemnification rights to directors and officers so long as the director or
officer acted in a manner believed in good faith to be in or not opposed to
the best interests of the Company, and with respect to criminal proceedings,
if the director has no reasonable cause to believe his or her conduct was
unlawful. These provisions of the Articles and Bylaws limit the remedies
available to a shareholder who is dissatisfied with a Board decision protected
by these provisions.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 413,454 shares of Common
Stock will be entitled to piggyback registration rights with respect to such
shares.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is SunTrust Bank,
Atlanta.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
11,359,726 shares of Common Stock assuming no exercise of the Underwriters'
over-allotment option. See "Underwriting." Of these shares, all of the
2,900,000 shares of Common Stock sold in this offering will be freely
transferable without restriction or limitation under the Securities Act. The
remaining 8,459,726 shares are "restricted" shares within the meaning of Rule
144 adopted under the Securities Act (the "Restricted Shares"). The Restricted
Shares were issued and sold by the Company in private transactions in reliance
upon exemptions from registration under the Securities Act and may not be sold
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.
Beginning 90 days after the date of this Prospectus, approximately 7,199,968
Restricted Shares will be eligible for sale in the public market pursuant to
Rule 144. No other Restricted Shares will be eligible for sale under Rule 144
at that time. In general, under Rule 144 as currently in effect, any person
(or persons whose shares are aggregated), including an affiliate of the
Company, who has held shares for at least a two-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) 1.0% of the then outstanding shares of
the Company's Common Stock (approximately 114,000 shares after giving effect
to this offering) and (ii) the average weekly trading volume in the Company's
Common Stock during the four calendar weeks immediately preceding the date on
which the notice of sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain provisions relating to the
manner of sale, the filing of a notice of sale and the availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed an affiliate of the Company at any time during
the 90 days immediately preceding a sale, and who has held shares for at least
a three-year period (as computed under Rule 144), would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitation and
other conditions described above. Rule 144A under the Securities Act permits
the immediate sale by the current holders of Restricted Shares of all or a
portion of their shares to certain qualified institutional buyers as defined
in Rule 144A.
Upon completion of this offering, the holders of 413,454 shares of Common
Stock will be entitled to piggyback registration rights with respect to such
shares.
Prior to this offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of shares
or the availability of such shares for sale will have on the market price of
the Common Stock. Nevertheless, sales of substantial amounts of Common Stock
in the public market may have an adverse impact on such market price.
The Company and its executive officers, directors and certain shareholders
(who will hold an aggregate of 8,369,617 shares of Common Stock upon
completion of this offering) have agreed not to offer, sell, sell short or
otherwise dispose of any of their shares of Common Stock (other than the
shares offered by the Company and the Selling Shareholders in this offering)
in the public market for a period of 180 days after the date of this
Prospectus without the prior consent of the Representatives of the
Underwriters (the "Lock-up Period"). Following the Lock-up Period, these
shares will be eligible for sale in the public market, subject to the
conditions and restrictions of Rule 144, as described above.
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
Alex. Brown & Sons Incorporated, Deutsche Morgan Grenfell Inc. and The
Robinson-Humphrey Company, Inc. (the "Representatives"), have severally agreed
to purchase from the Company and the Selling Shareholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated....................................... 700,000
Deutsche Morgan Grenfell Inc.......................................... 700,000
The Robinson-Humphrey Company, Inc.................................... 700,000
Donaldson, Lufkin & Jenrette Securities Corporation................... 70,000
Hambrecht & Quist LLC................................................. 70,000
Montgomery Securities................................................. 70,000
Robertson, Stephens & Company LLC..................................... 70,000
Smith Barney Inc...................................................... 70,000
Adams, Harkness & Hill, Inc........................................... 50,000
William Blair & Company, L.L.C........................................ 50,000
J.C. Bradford & Co.................................................... 50,000
Furman Selz LLC....................................................... 50,000
Morgan Keegan & Company, Inc.......................................... 50,000
Needham & Company, Inc................................................ 50,000
Pennsylvania Merchant Group Ltd....................................... 50,000
Soundview Financial Group, Inc........................................ 50,000
Sterne, Agee & Leach, Inc............................................. 50,000
---------
Total................................................................. 2,900,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public 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 $0.38 per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $0.10 per
share to certain other dealers. After the initial public offering, the public
offering price and other selling terms may be changed by the Representatives
of the Underwriters.
The Company and certain of the Company's shareholders (the "Option Holders")
have granted to the Underwriters an option, exercisable not later than 30 days
after the date of this Prospectus, to purchase up to 435,000 additional shares
of Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased
by each of them shown in the above table bears to 2,900,000, and the Company
and the Option Holders 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 Common Stock
offered hereby. If purchased, the Underwriters will offer such additional
shares on the same terms as those on which the 2,900,000 shares are being
offered.
49
<PAGE>
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company, the Selling Shareholders and the Option Holders
against certain liabilities, including liabilities under the Securities Act.
The Company has agreed not to offer, sell, sell short or otherwise dispose
of any shares of Common Stock for a period of 180 days from the date of this
Prospectus without the prior consent of Alex. Brown & Sons Incorporated,
except that the Company may issue and may grant options representing the right
to purchase shares of Common Stock under its current stock option plan and may
issue shares of Common Stock upon exercise of currently outstanding employee
stock options. Directors, executive officers and certain shareholders of the
Company, who will own upon the completion of this offering an aggregate of
8,369,617 shares of Common Stock and options representing the right to
purchase 1,750,100 shares of Common Stock, have agreed not to offer, sell,
sell short or otherwise dispose of any such shares of Common Stock
beneficially owned by them or any shares issuable upon exercise of stock
options for a period of 180 days from the date of this Prospectus without the
prior written consent of Alex. Brown & Sons Incorporated. See "Shares Eligible
for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock has been determined by negotiations among the Company, the Selling
Shareholders and the Representatives of the Underwriters. Among the factors
considered in such negotiations were prevailing market conditions, the results
of operations of the Company in recent periods, the capital structure of the
Company, the market capitalizations and stages of development of other
companies which the Company and the Representatives of the Underwriters
believe to be comparable to the Company, estimates of the business potential
of the Company, an assessment of the Company's management, the present state
of the Company's development and other factors deemed relevant.
From time to time in the ordinary course of their respective businesses, the
Representatives have provided and may in the future provide investment banking
or other services to the Company. The Company has issued to The Robinson-
Humphrey Company, Inc. 20,000 shares of Common Stock as compensation for
investment banking services rendered in connection with financing provided to
the Company by Sirrom Capital Corporation in June 1996. The shares of Common
Stock received by The Robinson-Humphrey Company, Inc. are considered
underwriting compensation with regard to this offering and, in addition, will
be restricted from sale, transfer, assignment or hypothecation for a period of
one year from the date of this Prospectus.
The Common Stock has been approved for listing on the Nasdaq National
Market.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.
Certain legal matters in connection with this offering are being passed upon
for the Underwriters by Alston & Bird, Atlanta, Georgia.
EXPERTS
The combined financial statements of the Company as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996
included herein have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report thereon included herein in reliance
upon the authority of such firm as experts in accounting and auditing in
giving said report.
50
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement and such exhibits and schedules
filed as a part thereof, which may be inspected, without charge, at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission, upon payment of prescribed fees. Such
material also may be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are necessarily summaries of such
documents. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
51
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Combined Balance Sheets--December 31, 1995 and 1996 and pro forma
shareholders' deficit at December 31, 1996.............................. F-3
Combined Statements of Operations for the years ended December 31, 1994,
1995, and 1996.......................................................... F-4
Combined Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1994, 1995, and 1996 ...................................... F-5
Combined Statements of Cash Flows for the years ended December 31, 1994,
1995, and 1996 ......................................................... F-6
Notes to Combined Financial Statements................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Radiant Systems, Inc.:
We have audited the accompanying combined balance sheets of RADIANT SYSTEMS,
INC. (a Georgia corporation) and LIBERTY SYSTEMS INTERNATIONAL, INC. (a
Georgia corporation) as of December 31, 1995 and 1996 and the related
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1996. 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 Radiant Systems, Inc. and
Liberty Systems International, Inc. as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 15, 1997
F-2
<PAGE>
RADIANT SYSTEMS, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DEFICIT AT
DECEMBER 31,
1995 1996 1996
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 164,550 $ 2,342,079
Accounts receivable, net of allowances
for doubtful accounts of $41,500, and
$120,000 in 1995 and 1996,
respectively......................... 624,179 4,885,209
Inventories........................... 1,802,716 3,304,933
Other................................. 116,971 417,351
---------- -----------
Total current assets................ 2,708,416 10,949,572
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $670,266
and $1,438,681 in 1995 and 1996,
respectively........................... 1,030,669 1,517,902
SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization of $121,365,
and $360,203 in 1995 and 1996,
respectively........................... 340,630 736,418
INTANGIBLES............................. 0 957,405
OTHER ASSETS............................ 155,224 454,579
---------- -----------
$4,234,939 $14,615,876
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................... $2,298,068 $ 4,400,654
Accrued liabilities................... 1,264,465 1,975,909
Customer deposits and deferred
revenue.............................. 2,399,596 3,052,518
Current portion of shareholder loans.. 157,361 126,536
Current portion of long term debt..... 252,979 582,230
---------- -----------
Total current liabilities........... 6,372,469 10,137,847
Accrued customer rebates.............. 457,317 0
Shareholder loans, less current
portion.............................. 170,423 3,193,888
Long term debt, less current portion.. 389,044 5,271,368
---------- -----------
Total liabilities................... 7,389,253 18,603,103
---------- -----------
COMMITMENTS
PUT WARRANTS............................ 0 513,200
---------- -----------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 20,000,000
shares authorized; 6,857,112 shares
issued and outstanding in 1995 and
1996................................. 63 63 76
Class A common stock, no par value;
10,000,000 shares authorized;
1,142,889 shares issued and
outstanding in 1995 and 1,442,889
shares issued and outstanding in
1996................................. 10 13
Additional paid-in capital............ 0 2,099,997 4,204,997
Warrants.............................. 240,000 1,185,000 40,000
Deferred sales discount............... (111,900) (132,105) 0
Accumulated deficit................... (3,282,487) (7,653,395) (7,653,395)
---------- ----------- ------------
(3,154,314) (4,500,427) $ (3,408,322)
---------- ----------- ============
$4,234,939 $14,615,876
========== ===========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-3
<PAGE>
RADIANT SYSTEMS, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Systems sales.......................... $13,528,808 $14,077,704 $35,888,342
Customer support, maintenance, and
other services........................ 918,801 1,804,291 5,054,979
----------- ----------- -----------
Total revenues......................... 14,447,609 15,881,995 40,943,321
----------- ----------- -----------
COST OF REVENUES:
Systems sales.......................... 9,459,034 9,862,477 22,270,161
Customer support, maintenance, and
other services........................ 1,207,684 2,300,239 5,464,533
----------- ----------- -----------
Total cost of revenues................. 10,666,718 12,162,716 27,734,694
----------- ----------- -----------
GROSS PROFIT............................ 3,780,891 3,719,279 13,208,627
----------- ----------- -----------
OPERATING EXPENSES:
Product development.................... 983,999 1,639,669 3,327,630
Purchased research and development
costs................................. 0 0 3,930,000
Sales and marketing.................... 470,177 606,658 1,487,087
Depreciation and amortization.......... 177,790 583,483 948,385
General and administrative............. 2,243,097 2,990,039 5,664,246
----------- ----------- -----------
Total operating expenses............... 3,875,063 5,819,849 15,357,348
----------- ----------- -----------
(LOSS) FROM OPERATIONS.................. (94,172) (2,100,570) (2,148,721)
INTEREST EXPENSE, net................... 81,748 166,478 711,848
MINORITY INTEREST IN EARNINGS OF
PRYSMTECH.............................. 0 0 628,137
OTHER (INCOME).......................... 0 (406,292) 0
----------- ----------- -----------
(LOSS) BEFORE PRO FORMA INCOME TAXES.... (175,920) (1,860,756) (3,488,706)
PRO FORMA INCOME TAX (BENEFIT).......... (60,632) (709,165) (1,333,142)
----------- ----------- -----------
PRO FORMA NET (LOSS).................... $ (115,288) $(1,151,591) $(2,155,564)
=========== =========== ===========
PRO FORMA NET (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE................ $ (0.19)
===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING.......... 11,099,532
===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-4
<PAGE>
RADIANT SYSTEMS, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK DEFERRED ACCUMULATED
------------------ ---------------- SALES EARNINGS
SHARES AMOUNT SHARES AMOUNT APIC WARRANTS DISCOUNT (DEFICIT) TOTAL
---------- ------ --------- ------ --------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993................... 13,714,224 125 0 0 0 0 0 145,215 145,340
Issuance of customer
warrant............... 0 0 0 0 0 240,000 (240,000) 0 0
Sales of software
licenses under
customer warrant...... 0 0 0 0 0 0 37,500 0 37,500
Treasury stock
purchase.............. (3,428,556) (31) 342,856 3 0 0 0 (573,057) (573,085)
Distributions to
shareholders.......... 0 0 0 0 0 0 0 (156,266) (156,266)
Loss before pro forma
income taxes.......... 0 0 0 0 0 0 0 (175,920) (175,920)
---------- --- --------- --- --------- ---------- --------- ----------- -----------
BALANCE, December 31,
1994................... 10,285,668 94 342,856 3 0 240,000 (202,500) (760,028) (722,431)
Sales of software
licenses under
customer warrants..... 0 0 0 0 0 0 90,600 0 90,600
Treasury stock
purchase.............. (3,428,556) (31) 800,033 7 0 0 0 (616,000) (616,024)
Distributions to
shareholders.......... 0 0 0 0 0 0 0 (45,703) (45,703)
Loss before pro forma
income taxes.......... 0 0 0 0 0 0 0 (1,860,756) (1,860,756)
---------- --- --------- --- --------- ---------- --------- ----------- -----------
BALANCE, December 31,
1995................... 6,857,112 63 1,142,889 10 0 240,000 (111,900) (3,282,487) (3,154,314)
Issuance of customer
warrant............... 0 0 0 0 0 79,000 (79,000) 0 0
Sales of software
licenses under
customer warrants..... 0 0 0 0 0 0 58,795 0 58,795
Shares issued in
PrysmTech
acquisition........... 0 0 300,000 3 2,099,997 0 0 0 2,100,000
Issuance of warrant for
loan origination
fees.................. 0 0 0 0 0 40,000 0 0 40,000
Accretion of put
warrants.............. 0 0 0 0 0 0 (45,200) (45,200)
Accretion of customer
warrant............... 0 0 0 0 0 826,000 0 (826,000) 0
Distributions to
shareholders.......... 0 0 0 0 0 0 0 (11,002) (11,002)
Loss before pro forma
income taxes.......... 0 0 0 0 0 0 0 (3,488,706) (3,488,706)
---------- --- --------- --- --------- ---------- --------- ----------- -----------
BALANCE, December 31,
1996 .................. 6,857,112 $63 1,442,889 $13 2,099,997 $1,185,000 $(132,105) $(7,653,395) $(4,500,427)
========== === ========= === ========= ========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-5
<PAGE>
RADIANT SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Pro forma net (loss)............... $ (115,288) $(1,151,591) $(2,155,564)
Adjustments to reconcile pro forma
net (loss) to net cash provided by
(used in) operating activities:
Pro forma income tax (benefit).... (60,632) (709,165) (1,333,142)
Depreciation and amortization..... 177,790 583,483 948,385
Amortization of debt discount..... 0 0 305,731
Gain on disposition of assets..... 0 (374,018) 0
Discounts earned on software
license sales.................... 37,500 90,600 58,795
Purchased research and development
costs............................ 0 0 3,930,000
Minority interest in earnings of
PrysmTech........................ 0 0 (628,137)
Changes in assets and liabilities:
Accounts receivable.............. 294,010 255,303 (3,229,660)
Inventories...................... (1,443,175) 287,754 (774,048)
Other assets..................... (37,618) (132,587) (502,992)
Accounts payable................. 539,560 1,177,653 562,634
Accrued liabilities.............. 116,744 1,147,721 711,444
Accrued customer rebates......... 132,804 324,513 57,834
Customer deposits and deferred
revenue......................... 1,201,922 (659,111) 673,790
----------- ----------- -----------
Net cash provided by (used in)
operating activities............ 843,617 840,555 (1,374,930)
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment......................... (303,499) (312,104) (492,650)
Capitalized software development
costs............................. (133,095) (328,900) (634,642)
Purchase of treasury stock......... (100,000) 0 0
Net cash acquired upon purchase of
PrysmTech......................... 0 0 369,950
Purchase of LSI, net of $30,919
cash acquired..................... 0 0 30,819
----------- ----------- -----------
Net cash used in investing
activities...................... (536,594) (641,004) (726,523)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayments of shareholder loans.... 0 (145,302) (157,361)
Borrowings of long-term debt....... 0 0 4,594,203
Repayments of long-term debt....... (92,928) (169,878) (328,072)
Dividends received from PrysmTech.. 0 0 255,355
Payment of loan origination fees... 0 0 (129,639)
Distributions to shareholders...... (156,266) (45,703) (11,002)
Repayments of note from
shareholder....................... 0 13,628 30,500
Other.............................. 0 (55,000) 25,000
----------- ----------- -----------
Net cash (used in) provided by
financing activities............ (249,194) (402,255) 4,278,982
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ 57,829 (202,704) 2,177,529
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 309,425 367,254 164,550
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 367,254 $ 164,550 $ 2,342,079
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest.......................... $ 81,748 $ 166,478 $ 432,042
=========== =========== ===========
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equipment purchases under capital
lease obligations................. $ 598,538 $ 217,568 $ 306,945
=========== =========== ===========
Note issued for treasury stock
purchase.......................... $ 473,085 $ 0 $ 0
=========== =========== ===========
Treasury stock acquired on sale of
noncash assets.................... $ 0 $ 616,024 $ 0
=========== =========== ===========
Warrants issued to customer........ $ 240,000 $ 0 $ 79,000
=========== =========== ===========
Note payable issued for customer
rebates........................... $ 0 $ 0 $ 872,501
=========== =========== ===========
Put warrants issued in connection
with Sirrom Notes................. $ 0 $ 0 $ 468,000
=========== =========== ===========
Warrant issued for loan origination
fees.............................. $ 0 $ 0 $ 40,000
=========== =========== ===========
Accretion of Put Warrants.......... $ 0 $ 0 $ 45,200
=========== =========== ===========
Assumption of net liabilities in
connection with LSI purchase...... $ 0 $ 0 $ 78,349
=========== =========== ===========
Notes payable issued on purchase of
PrysmTech......................... $ 0 $ 0 $ 3,150,000
=========== =========== ===========
Stock issued on purchase of
PrysmTech......................... $ 0 $ 0 $ 2,100,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-6
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. ORGANIZATION AND BACKGROUND
Radiant Systems, Inc. (the "Company") provides enterprise-wide technology
solutions to selected vertical markets within the retail industry. The Company
offers fully integrated retail automation solutions, including point of sale
systems, consumer-activated order systems, back office management systems and
headquarters-based management systems. The Company's products enable retailers
to interact electronically with consumers, capture data at the point of sale,
manage site operations and logistics and communicate electronically with their
sites, vendors and credit networks. In addition, the Company offers system
planning, design and implementation services that tailor the automation
solution to each retailer's specifications.
The Company originally was organized under the laws of the state of New York
on August 1, 1985 and subsequently reincorporated under the laws of the state
of Georgia on October 27, 1995. The name of the company was changed to Radiant
Systems, Inc. from Softsense Computer Products, Inc. on November 13, 1996. In
connection with the reincorporation of the Company in October 1995, each
outstanding share of Common Stock and Class A Common Stock of the Company was
exchanged for 109,714 shares of Common Stock and Class A Common Stock, as
applicable. The shares outstanding and all other references to shares of
Common Stock and Class A Common Stock reported have been restated to give
effect to the reincorporation.
In the first quarter of 1997, the Company is planning an initial public
offering (the "Offering") of its Common Stock. In connection with the planned
Offering, the Company will convert from an S corporation to a C corporation
and one of the Company's principal shareholders will contribute his 21%
ownership in Liberty Systems International, Inc. ("LSI") to the Company,
whereby LSI will become a wholly owned subsidiary of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the accounts of
Radiant Systems, Inc. and, since May 1996, its 79%-owned subsidiary, LSI. The
remaining 21% ownership of LSI has been combined with the Company's financial
statements since it will be contributed to the Company in connection with the
planned Offering. All significant intercompany accounts have been eliminated.
Presentation
The preparation of the 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
disclosures 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.
Revenue Recognition
The Company's revenue is generated primarily through software and system
sales, support and maintenance, and installation and training:
. Software and System Sales. The Company sells its products, which include
both hardware and software licenses, directly to end users. Revenue from
software licenses and system sales is generally recognized as products
are shipped, provided that no significant vendor and post-contract
support obligations remain, and the collection of the related receivable
is probable.
F-7
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
. Support and Maintenance. The Company offers to its customers post-
contract support in the form of maintenance, telephone support, and
unspecified software enhancements. Revenue from support and maintenance
is generally recognized as the service is performed.
. Installation and Training. The Company offers installation and training
services to its customers through its Radiant Solutions Group. Revenues
from installation and training is generally recognized at the time the
service is performed.
Payments received in advance are recorded as customer deposits and deferred
revenue in the accompanying balance sheets and are recognized as revenue when
the related product is shipped or related revenue is earned.
Inventories
Inventories consist principally of computer hardware and software media and
are stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method over estimated useful lives of three to five years.
Property and equipment at December 31, 1995 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Computers and office equipment...................... $1,201,747 $ 2,295,579
Furniture and fixtures.............................. 383,869 488,961
Purchased software.................................. 115,319 172,043
---------- -----------
1,700,935 2,956,583
Less accumulated depreciation and amortization...... (670,266) (1,438,681)
---------- -----------
$1,030,669 $ 1,517,902
========== ===========
</TABLE>
Software Development Costs
Capitalized software development costs consist principally of salaries and
certain other expenses directly related to development and modification of
software products. Capitalization of such costs begins when a working model
has been produced as evidenced by the completion of design, planning, coding
and testing such that the product meets its design specifications and has
thereby established technological feasibility. Capitalization of such costs
ends when the resulting product is available for general release to the
public. Amortization of capitalized software development costs is provided at
the greater of the ratio of current product revenue to the total of current
and anticipated product revenue or on a straight-line basis over the estimated
economic life of the software, which the Company has determined is not more
than three years.
F-8
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
Purchased Research and Development Costs
In connection with the acquisition of LSI in May 1996 and PrysmTech, L.L.C.
("PrysmTech") in December 1996 (Note 4), the Company allocated $30,000 and
$3,900,000, respectively, of the purchase prices to incomplete research and
development projects as determined by independent appraisal. Accordingly,
these costs were expensed as of the acquisition dates. These allocations
represent the estimated fair value based on risk adjusted cash flows (assuming
a 40% discount rate) related to incomplete projects. The development of these
projects had not yet reached technological feasibility, and the technology has
no alternative future use. The technology acquired in these acquisitions will
require substantial additional development by the Company.
Income Taxes
The Company has elected to be treated as an S corporation for federal and
state income tax purposes. As a result, the income tax effects of the Company
accrue directly to its shareholders. Amounts are distributed to shareholders
for making applicable tax payments.
The accompanying combined financial statements reflect a provision for
income taxes on a pro forma basis as if the Company were liable for federal
and state income taxes as a taxable corporate entity throughout the years
presented. The pro forma income tax provision has been computed by applying
the Company's anticipated statutory tax rate to pretax income (loss), adjusted
for permanent tax differences.
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is computed using the weighted average
number of shares of Common Stock and dilutive Common Stock equivalent shares
("CSEs") from stock options and warrants (using the treasury stock method).
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
Common Stock and CSEs issued at prices below the expected public offering
price during the 12-month period prior to the Company's planned Offering have
been included in the calculation as if they were outstanding for all periods
prior to the Offering presented, regardless of whether they are dilutive. Net
income is not reduced by the $45,200 provision for accretion of Put Warrants
redemption values because the calculation assumes the related Common Stock was
outstanding in lieu of the Put Warrants (Notes 5 and 7).
Historical net income per share has not been presented in view of the S
corporation status in prior periods and the anticipated change in capital
structure upon closing of the planned Offering.
Fair Value of Financial Instruments
The book values of cash, trade accounts receivable, trade accounts payable,
and other financial instruments approximate their fair values principally
because of the short-term maturities of these instruments. The fair value of
the Company's long-term debt is estimated based on the current rates offered
to the Company for debt of similar terms and maturities. Under this method,
the Company's fair value of long-term debt was not significantly different
than the stated value at December 31, 1996.
Statement of Cash Flows
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash.
F-9
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
Significant Customer Concentration
A majority of the Company's customers operate within the convenience store
market, and a significant portion of the Company's revenues are derived from a
limited number of customers. During the years ended December 31, 1994, 1995,
and 1996, the following clients individually accounted for more than 10% of
the Company's revenue:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Customer A............................................... 52.1% 15.8% * %
Customer B............................................... 23.8 43.6 13.2
Customer C............................................... * * 21.5
Customer D............................................... * * 11.7
Customer E............................................... * * 13.8
</TABLE>
- --------
* Accounted for less than 10% of total revenues for the period indicated.
At December 31, 1996, 57.2% of the Company's accounts receivable related to
these 5 customers.
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company's adoption of SFAS No. 121 in the first quarter of 1996 did not
have a significant impact on the Company's combined financial statements.
The American Institute of Certified Public Accountants has issued an
exposure draft to amend the provisions of Statement of Position ("SOP") 91-1,
"Software Revenue Recognition." The adoption of the standards in the current
version of the exposure draft is not expected to have a significant impact on
the Company's combined financial statements.
Reclassifications
Certain reclassifications have been made to prior year financial statements
to conform the current year presentation.
3. PRODUCT DEVELOPMENT EXPENDITURES
Product development expenditures for the years ended December 31, 1995 and
1996 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Total development expenditures........................ $1,968,569 $3,962,272
Less additions to capitalized software development
costs prior to amortization....................... 328,900 634,642
---------- ----------
Product development expense........................... $1,639,669 $3,327,630
========== ==========
</TABLE>
F-10
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
The activity in the capitalized software development account during 1995 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Balance at beginning of period, net...................... $110,912 $340,630
Additions............................................... 328,900 634,642
Amortization expense.................................... (99,182) (238,854)
-------- --------
Balance at end of period, net............................ $340,630 $736,418
======== ========
</TABLE>
4. ACQUISITIONS
PrysmTech
In November 1995, the Company and Billmart, L.L.C. ("Billmart") formed
PrysmTech to pursue the development and sale of integrated site solutions to
the entertainment market. The Company contributed an exclusive license to
market its software to the entertainment market while Billmart contributed net
assets of $143,253 and an exclusive license to modify and market the Billmart
software. Each party received a 50% interest for its contribution.
On December 31, 1996, the Company acquired Billmart's interest in PrysmTech
for 300,000 shares of Common Stock and $3,150,000 in notes. Total
consideration, including transaction costs of approximately $100,000, was
$5,350,000. The transaction was accounted for as a purchase. Based on the
preliminary purchase price allocation, intangibles of $869,000 were recorded,
after adjusting for purchased research and development costs (Note 2), which
are being amortized over five years. The accompanying financial statements
include the operating results of PrysmTech since January 1, 1995 with
deductions for minority interest earnings. Results for 1995 include $32,274 of
earnings from the Company's investment in PrysmTech, which is included in
other income.
The Company's unaudited pro forma results of operations are presented
assuming that the purchase had been consummated January 1, 1996 and are not
necessarily indicative of the results of operations which would have actually
been attained during the year ended December 31, 1996.
<TABLE>
<S> <C>
Pro forma revenue............................................ $40,943,321
===========
Pro forma net income......................................... $ 364,745
===========
Pro forma earnings per share................................. $ 0.03
===========
</TABLE>
Pro forma adjustments were recorded to include (i) increased interest
expense to reflect interest expense on long-term debt that would have been
incurred to finance the purchase and (ii) increased amortization expense as a
result of the excess of the purchase price over the book value (iii)
elimination of minority interest in earnings (iv) elimination of the one-time,
non-recurring charge for purchased research and development costs of
$3,900,000 (v) income taxes for the tax effect of pro forma adjustments and a
pro forma tax provision for PrysmTech as if PrysmTech were liable for federal
and state income taxes using the Company's effective tax rate of 39%. Weighted
average shares were adjusted to give effect to the 300,000 shares issued and
the dilutive effect of CSEs outstanding before the 12-month period prior to
the planned Offering.
LSI
On May 17, 1996, the Company acquired LSI for $100 cash and assumed net
liabilities of $78,349. The transaction was accounted for as a purchase.
Intangibles of $48,349 were recorded, after adjusting for purchased research
and development costs (Note 2), which are being amortized over seven years.
The financial statements include the operating results of LSI from the date of
acquisition. Pro forma results of operations have not been presented because
the effect of this acquisition is not significant.
F-11
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
5. LONG-TERM DEBT
Long-term debt, including obligations under capital leases, consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- ----------
<S> <C> <C>
Notes payable to Sirrom Capital Corporation
("Sirrom") ("Sirrom Notes"), interest at 14%,
$3,000,000 principal due June 2001, $1,500,000 due
September 2001, secured by all of the assets of the
Company and all shares of the Company's principal
shareholders........................................ $ 0 $4,266,000
Note payable to Emro Marketing Corporation, interest
at 6%, due in five annual installments of $174,500
through 2001........................................ 0 872,501
Capital lease obligations, interest ranging from 5%
to 31%, payable monthly through 2000, secured by
equipment........................................... 642,023 715,097
-------- ----------
642,023 5,853,598
Less current portion................................. (252,979) (582,230)
-------- ----------
$389,044 $5,271,368
======== ==========
</TABLE>
At December 31, 1996, aggregate maturities of long-term debt, including
obligations under capital leases, are as follows:
<TABLE>
<S> <C>
1997........................................ $ 582,230
1998........................................ 410,559
1999........................................ 226,496
2000........................................ 193,813
2001........................................ 4,440,500
----------
$5,853,598
==========
</TABLE>
The Sirrom Notes were issued in June 1996 and September 1996 for $3,000,000
and $1,500,000, respectively. As discussed in Note 7, warrants ("Put
Warrants") to purchase 174,642 shares at $.01 per share were issued with the
notes. The value of these warrants was determined to be $468,000 based on the
relative fair value of the warrants to the notes. A corresponding amount of
the proceeds that has been allocated to the warrants has been accounted for as
a debt discount and is being amortized over the expected life of the related
notes using the effective interest method. At December 31, 1996, the
unamortized debt discount amounted to $234,000.
On May 27, 1994, the Company entered into an agreement with a customer
whereby the customer would receive a cash rebate upon purchasing a defined
number of software licenses. In the event the Company was unable to pay the
rebates when due, the agreement provided the customer the option of applying
the rebate to the purchase of additional licenses or requiring the Company to
deliver a promissory note for any remaining portion of the rebate. At December
31, 1995, the Company had recorded a customer rebate accrual of $457,317, as
it was probable that such purchase criteria would ultimately be met. During
1996, the customer met the purchase criteria, at which time the Company
delivered a promissory note in the amount of $872,501.
F-12
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
6. INCOME TAXES
In connection with the planned Offering, the Company will convert from an S
corporation to a C corporation and, accordingly, will be subject to future
federal and state income taxes. Upon conversion to C corporation status, the
Company will record deferred taxes for which it will be responsible following
termination of S corporation status. The components of the pro forma net
deferred tax asset as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts.............................. $ 46,200
Intangibles.................................................. 1,027,565
Other........................................................ 9,593
----------
Total deferred tax assets.................................. 1,083,358
----------
Deferred tax liabilities:
Depreciation................................................. $ (78,376)
Capitalized software......................................... (283,521)
----------
Total deferred tax liabilities............................. (361,897)
----------
Net pro forma deferred tax asset............................... $ 721,461
==========
</TABLE>
The following summarizes the components of the pro forma income tax
(benefit):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Current taxes:
Federal................................. $ 0 $ 0 $ 0
State................................... 0 0 0
Deferred.................................. (60,632) (709,165) (1,333,142)
-------- --------- -----------
Pro forma income tax (benefit)............ $(60,632) $(709,166) $(1,333,142)
======== ========= ===========
</TABLE>
A reconciliation from the federal statutory rate to the pro forma tax
provision (benefit) is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal tax
rate.................... (34.0)% (34.0)% (34.0)%
State income taxes, net
of federal tax benefit.. (4.5) (4.5) (4.5)
Other................... 4.0 0.4 0.3
----- ----- -----
(34.5)% (38.1)% (38.2)%
===== ===== =====
</TABLE>
7. SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
As of January 15, 1997, the authorized capital of the Company consists of
40,000,000 shares of capital stock comprised of 30,000,000 shares of no par
Common Stock and 10,000,000 shares of no par Class A Common Stock. Both
classes of stock have a stated value of $.00001 per share. The Class A Common
Stock is nonvoting and is automatically convertible into Common Stock without
further action on the part of the Company or its shareholders, at a rate of
one share of Common Stock for one share of Class A
F-13
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
Common Stock on the earlier of (i) the closing time of an initial public
offering by the Company, as defined, or (ii) the closing time of a change in
control of the Company, as defined. Upon completion of the planned Offering,
the Class A Common Stock will cease to be authorized.
Options
In December 1995, the Company adopted the 1995 Stock Option Plan, as amended
(the "Plan"), under which the Company may grant up to 4,000,000 incentive
Class A Common Stock options to key employees. Options are granted at an
exercise price which is not less than fair value as estimated by the Board of
Directors and become exercisable as determined by the Board of Directors,
generally over a period of four to five years. Options granted under the Plan
expire ten years from the date of grant. At December 31, 1996, options to
purchase 928,250 of Class A Common Stock were available for future grant under
the Plan.
The Company has granted 264,000 nonqualified stock options outside the Plan.
Of these options, 164,000 vest over four years. The remaining 100,000 options
vest at the end of eight years, subject to acceleration based on specified
terms within the agreement.
Transactions related to stock options for the years ended December 31, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE
--------- ----------
<S> <C> <C>
Options outstanding at December 31, 1994............. 0 $ 0.00
Granted............................................. 1,774,000 1.00
Exercised........................................... 0 0.00
---------
Options outstanding at December 31, 1995............. 1,774,000 1.00
Granted............................................. 1,625,750 1.00-7.00
Canceled............................................ (64,000) 1.00-4.50
Exercised........................................... 0 0.00
--------- ----------
Options outstanding at December 31, 1996............. 3,335,750 $1.00-7.00
========= ==========
Exercisable December 31, 1996........................
337,500
=========
</TABLE>
During 1995, the Financial Accounting Standards Board issued SFAS No. 123
("Accounting for Stock-Based Compensation") which defines a fair value-based
method of accounting for an employee stock option plan or similar equity
instrument. However, it also allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." Entities electing to remain with the accounting in APB
No. 25 must make pro forma disclosures of net income and, if presented,
earnings per share, as if the fair value-based method of accounting defined in
the statement had been applied.
The Company has elected to account for its stock-based compensation plan
under APB No. 25; however, the Company has computed for pro forma disclosure
purposes the value of all options granted during 1995 and 1996 using the Black
Scholes option pricing model as prescribed by SFAS No. 123 using the following
weighted average assumptions used for grants in 1995 and 1996:
<TABLE>
<S> <C>
Risk free interest rate........................................... 5.8%
Expected dividend yield........................................... 0.0%
Expected lives.................................................... 4 years
Expected volatility............................................... 56.0%
</TABLE>
F-14
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
The total value of the options granted during the years ended December 31,
1995 and 1996 were computed as approximately $867,000 and $3,527,000,
respectively, which would be amortized over the vesting period of the options.
If the Company had accounted for these plans in accordance with SFAS No. 123,
the Company's reported pro forma net loss and pro forma net loss per share for
the years ended December 31, 1995 and 1996 would have increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Net loss:
As reported...................................... $(1,151,591) $(2,155,564)
Pro forma........................................ (1,202,028) (2,984,410)
Primary EPS:
As reported...................................... -- $ (0.19)
Pro forma........................................ -- (0.27)
</TABLE>
Warrants
Customer Warrants
In May 1994, the Company and one of its major customers (the "Customer")
entered into an agreement (the "Agreement") whereby the Customer was granted
the right (the "Customer Warrant") to acquire 10% of the Company's outstanding
Class A Common Stock for $800,000, provided the Customer meets certain
purchase criteria. The Customer Warrant may be exercised at any time on or
after May 27, 1999 or at the earlier of (i) the closing time of an initial
public offering or (ii) the closing time of a change in control of the
Company. The Customer Warrant terminates on the earlier of (i) May 27, 1999 in
the event the specified purchase criteria are not met, (ii) the closing time
of an initial public offering by the Company, or (iii) 5:00 p.m. eastern time
on May 27, 2014, the twentieth anniversary of the Agreement. A deferred sales
discount of $240,000 was charged on the date of grant, which represented the
fair market value of the Customer Warrant on such date, and is being amortized
as a reduction of sales as the Customer makes purchases under the Agreement.
In February 1996, the Company amended the Agreement such that the Customer
Warrant was increased to 12% of the Company's outstanding common shares. An
additional deferred sales discount of $79,000 was charged on the date of
grant, which represented the fair market value on the date of the increase of
the Customer Warrant. The Company has the option to repurchase one-sixth of
the shares issuable under the Customer Warrant at a price midway between the
Customer's exercise price and the fair market value of the shares. The Company
is accreting to the expected redemption value of the shares, subject to the
call option. For the year ended December 31, 1996, accretion of $826,000 was
recorded.
Put Warrants
In connection with issuance of the Sirrom Notes (Note 5), the Company issued
Put Warrants to purchase 1.5% of the Company's outstanding Common Stock at an
exercise price of $.01. In the event that the notes remain outstanding on
March 31, 1997, Sirrom receives an additional warrant to purchase .5% of the
Company's shares, and if the notes remain outstanding on July 1, 1997, Sirrom
receives an additional warrant to purchase 1.5% of the Company's Common Stock.
Beginning July 1, 1998, warrants to purchase additional shares of Common Stock
accrue at 2% per year until prepayment or maturity of the notes.
F-15
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
Sirrom also has the option to require the Company to redeem the warrants
beginning in 2001 for fair value, as defined. The excess of the redemption
value over the carrying value is being accrued by periodic charges to retained
earnings in the absence of additional paid-in capital over the redemption
period. This accretion amounted to $45,200 for the year ended December 31,
1996.
Loan Origination Warrant
In 1996, the Company issued warrants to purchase 20,000 shares of Class A
Common Stock at an exercise price of $.01 for payment of loan origination fees
("Loan Origination Warrant"). The fair value of the warrant was determined to
be $40,000 and has been capitalized as loan origination fees.
A summary of the warrants to purchase shares of Class A Common Stock which
remain outstanding (and for which shares of Common Stock and Class A Common
Stock are reserved for issuance) is as follows as of December 31, 1996:
<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE EXPIRATION
--------- --------- ----------
<S> <C> <C> <C>
Customer warrants............................. 1,158,360 $.83 2014
Put warrants.................................. 174,642 .01 2001
Loan origination warrant...................... 20,000 .01 2001
</TABLE>
8. COMMITMENTS
Leases
The Company leases office space, equipment, and certain vehicles under
noncancelable operating lease agreements expiring on various dates through
2000. At December 31, 1996, future minimum rental payments for noncancelable
leases with terms in excess of one year were as follows:
<TABLE>
<S> <C>
1997................................ $490,242
1998................................ 466,883
1999................................ 460,979
2000................................ 201,589
</TABLE>
Total rent expense under operating leases was $227,267, $374,206, and
$503,530 for the years ended December 31, 1994, 1995, and 1996, respectively.
Benefit Plan
The Company has a 401(k) profit-sharing plan (the "Plan") available to all
employees of the company who have completed six months of service and have
attained age 21. The Plan includes a salary deferral arrangement pursuant to
which employees may contribute a minimum of 3% and a maximum of 15% of their
salary on a pretax basis. The Company may make both matching and additional
contributions at the discretion of the board of directors. The Company made no
such contributions during 1994, 1995, or 1996.
Employment Agreements
The Company has entered into employment agreements with two employees. Under
each agreement, in the event employment is terminated (other than voluntarily
by the employee or by the Company for cause or upon the death of the
employee), the Company is committed to pay certain benefits, including $16,666
per month from the date of termination to December 31, 2000.
9. RELATED-PARTY TRANSACTIONS
In October 1994, the Company repurchased 3,085,700 shares of Common Stock
for a note in the amount of $473,086. The note is unsecured, bears interest at
8% per annum, and is payable in monthly installments of $14,825 through
December 31, 1997.
F-16
<PAGE>
RADIANT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
In connection with the share repurchase, the Company entered into an
agreement with the shareholder whereby the Company would pay the shareholder
an initial payment of $150,000 and a monthly payment of $14,000 for five years
in return for certain consulting services, as defined. In October 1995, this
agreement was amended in order to reduce the quantity of services and related
monthly payment. Fees paid under the consulting agreement were $131,000 and
$27,500 in 1995 and 1996, respectively.
In May 1995, the Company entered into an agreement with a shareholder to
transfer certain assets and technology to the shareholder in a tax-free
exchange in return for 2,628,523 shares of Common Stock. A gain of $374,018,
included in other income, was recorded in connection with the transaction
which represents the excess of the fair market value of the stock acquired
over the net assets distributed. As part of the transaction, the Company
recorded a note receivable in the amount of $61,171, which is payable in
monthly installments of $2,966 through May 1997.
In June 1996, a shareholder sold 200,000 shares of Class A Common Stock for
$1.875 per share. The shareholder also issued to one of the Company's
principal shareholders an option to repurchase the remaining 600,033 shares of
Class A Common Stock for $1.875 per share through June 1997. The principal
shareholder intends to assign this option to the Company prior to the planned
Offering.
In connection with the acquisition of Billmart's interest in PrsymTech, the
Company issued notes in the amount of $3,150,000 to the former owners of
Billmart (Note 4). These notes are secured by the assets of PrysmTech, bear
interest at 8.5% per annum, and are payable on the earlier of December 31,
1998 or the tenth day following the closing of a stock offering, as defined.
10. SUBSEQUENT EVENTS
Initial Public Offering
In the first quarter of 1997, the Company is planning an initial public
offering of its Common Stock. The Company plans to issue 2,500,000 shares at
an estimated initial public offering price of between $9.00 and $11.00 per
share. There can be, however, no assurance that the offering will be completed
at a per share price within the estimated range, or at all.
Pro Forma Shareholders' Equity (Deficit)
The pro forma shareholders' equity (deficit) at December 31, 1996, gives
effect to the conversion of 1,442,889 shares of Class A Common Stock and
1,158,360 shares issuable under Customer Warrants into Common Stock upon the
close of the Company's planned Offering.
Preferred Stock
In January 1997, the Company authorized 5,000,000 shares of preferred stock
with no par value. The Board of Directors has the authority to issue these
shares and to fix dividends, voting and conversion rights, redemption
provisions, liquidation preferences, and other rights and restrictions.
F-17
<PAGE>
INSIDE BACK COVER GRAPHICS
Graphic: A picture of one of the Company's Order Point point of sale terminals
designed for use in the cinema market. The terminal shows a screen for
ordering popcorn, with touch screen "buttons" for "Large," "Medium,"
"Small," and "Collector Tub."
A second picture shows one of the Company's BoxMan point of sale
terminals in use in the ticketing booth of a movie theater. The
terminal screen shows a series of touch screen "buttons" including
buttons for movie titles offered and a number key pad, as well as a
display of the customer's movie order. The touch screen capability
of the terminal is demonstrated by a human hand shown touching a
"button" for a specific movie in response to an order from a customer
shown through the booth's glass front.
A third picture shows one of the Company's Order Point point of sale
terminals designed for use in the quick service restaurant industry.
The terminal shows a series of "buttons" ranging from "Entrees,"
"Salads," "Drinks," and "Deserts" to "Cancel Item" and "Complete
Order," as well as a display of a customer's order by item and price.
Supporting
Text: "Order Point/Cinema. BoxMan Ticketing System. Order
Point/Quick Service Restaurant.
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
SHAREHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. 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 DATE SUBSEQUENT TO THE
DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary....................................................... 3
Risk Factors ............................................................ 7
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Combined Financial Data......................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 24
Management............................................................... 39
Certain Transactions..................................................... 43
Principal and Selling Shareholders....................................... 45
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 49
Legal Matters............................................................ 50
Experts.................................................................. 50
Additional Information................................................... 51
Index to Combined Financial Statements................................... F-1
</TABLE>
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UNTIL MARCH 9, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS 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.
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2,900,000 Shares
LOGO
Common Stock
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PROSPECTUS
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Alex. Brown & Sons
INCORPORATED
Deutsche Morgan Grenfell
The Robinson-Humphrey
Company, Inc.
February 12, 1997
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