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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
June 30, 1997 0-22065
RADIANT SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
Georgia 11-2749765
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Alderman Drive, Alpharetta, Georgia 30005
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 772-3000
----------------
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of the registrant's shares outstanding as of
August 13, 1997 was 15,175,660.
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RADIANT SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of June 30,
1997 and December 31, 1996 1
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: OTHER INFORMATION
Item 2: Changes in Securities
Item 6: Exhibits and Reports on Form 8-K
Signature
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Part I. FINANCIAL INFORMATION
RADIANT SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 6,194 $ 2,342
Accounts receivable, net of allowance for
doubtful accounts of $150 and $120......................... 8,940 4,885
Inventories................................................... 5,224 3,305
Loans to shareholders......................................... 335 -
Other short-term assets....................................... 391 417
-------- -------
Total current assets........................... 21,084 10,949
Property and equipment, net.................................... 2,855 1,518
Software development costs, net................................ 1,001 737
Intangibles, net............................................... 4,611 957
Deferred income tax assets..................................... 397 -
Other assets................................................... 584 455
-------- -------
$ 30,532 $14,616
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities...................... $ 8,778 $ 6,377
Customer deposits and unearned revenue........................ 6,224 3,052
Current portion of shareholder loans.......................... - 127
Current portion of long term debt............................. 634 582
-------- -------
Total current liabilities...................... 15,636 10,138
Shareholder loans, less current portion........................ - 3,194
Long term debt, less current portion........................... 3,451 5,271
-------- -------
Total liabilities.............................. 19,087 18,603
-------- -------
Put warrants................................................... - 513
-------- -------
Shareholders' equity (deficit):
Common stock, no par value; 20,000,000 shares authorized;
12,534,109 and 6,857,112 shares issued and outstanding...... - -
Common stock Series A, no par value; 10,000,000 shares
authorized; 0 and 1,442,889 shares issued and outstanding... - -
Additional paid-in capital.................................... 30,044 2,100
Deferred compensation......................................... (627) -
Warrants...................................................... - 1,185
Deferred sales discount....................................... - (132)
Accumulated deficit........................................... (17,972) (7,653)
-------- -------
11,445 (4,500)
-------- -------
Commitments....................................................
-------- -------
$ 30,532 $14,616
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
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RADIANT SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Systems sales................................................. $ 14,466 $ 9,752 $ 25,208 $13,601
Customer support, maintenance and other services.............. 2,694 1,097 4,512 1,795
-------- ------- -------- -------
Total revenues........................................... 17,160 10,849 29,720 15,396
Cost of revenues:
Systems sales................................................. 7,942 6,331 14,220 9,099
Customer support, maintenance and other services.............. 2,395 1,215 4,143 2,218
-------- ------- -------- -------
Total cost of revenues................................... 10,337 7,546 18,363 11,317
Gross profit.................................................... 6,823 3,303 11,357 4,079
Operating expenses:
Product development........................................... 1,466 768 2,619 1,469
Purchased research and development costs...................... 19,134 30 19,134 30
Stock compensation expense.................................... 1,214 - 1,214 -
Sales and marketing........................................... 1,243 292 2,116 577
Depreciation and amortization................................. 533 224 900 418
General and administrative.................................... 1,911 1,407 3,600 2,417
-------- ------- -------- -------
Income (loss) from operations................................... (18,678) 582 (18,226) (832)
Interest (income) expense, net.................................. (44) 40 165 79
Minority interest in earnings of PrysmTech...................... - 215 - 270
-------- ------- -------- -------
Income (loss) before provision (benefit) for income taxes....... (18,634) 327 (18,391) (1,181)
Income tax (benefit) provision.................................. - - - -
Pro forma income tax (benefit) provision........................ - 125 (212) (451)
-------- ------- -------- -------
Pro forma income (loss) before extraordinary item............... (18,634) 202 (18,179) (730)
Extraordinary item:
Loss from early extinguishment of debt,
net of income tax of $82...................................... - - 131 -
-------- ------- -------- -------
Pro forma net income (loss)..................................... $(18,634) $ 202 $(18,310) $ (730)
======== ======= ======== =======
Earnings per common and common equivalent share:
Income (loss) before extraordinary item....................... $ (1.26) $ 0.02 $ (1.30) $ (0.07)
Extraordinary loss on early extinguishment of debt............ - - (0.01) -
-------- ------- -------- -------
Pro forma net income (loss) per common and common
equivalent share.............................................. $ (1.26) $ 0.02 $ (1.31) $ (0.07)
======== ======= ======== =======
Weighted average common and common equivalent
shares outstanding............................................ 14,754 11,100 13,940 11,100
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
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RADIANT SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
For the six months ended For the six months ended
June 30, 1997 June 30, 1996
----------------------- -----------------------
<S> <C> <C>
Cash flows from operating activities
Pro forma net income (loss)............................................ $(18,310) $ (730)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities
Pro forma tax benefit.................................................. (212) (451)
Deferred taxes......................................................... (397) -
Depreciation and amortization.......................................... 899 411
Purchased research and development costs............................... 19,134 30
Stock compensation expense............................................. 1,214 -
Discounts earned on software license sales............................. 113 34
Amortization and write off of loan discount and loan origination fees.. 332 -
Minority interest in earnings of PrysmTech............................. - (298)
Changes in assets/liabilities:
Increase in accounts receivable..................................... (3,209) (3,694)
Increase in inventories............................................. (1,749) (401)
Increase in prepaid and other assets................................ (200) (109)
Increase (decrease) in accounts payable and accrued liabilities..... 1,267 (357)
Increase in accrued customer rebates................................ - 58
(Decrease) increase in customer deposits and unearned revenue....... (2,787) 4,478
--------- --------
Net cash used in operating activities............................. (3,905) (1,029)
Cash flows from investing activities
Purchases of property and equipment.................................... (1,386) (353)
Software development costs............................................. (460) (205)
Increase in goodwill attributed to purchase of PrysmTech............... (105) -
Payment for purchase of Twenty/20...................................... (1,325) -
Payment for purchase of ReMACS, net of cash acquired................... (2,906) -
Other.................................................................. - 44
--------- --------
Net cash used in investing activities............................. (6,182) (514)
Cash flows from financing activities
Proceeds from exercise of common stock warrants........................ 960 -
Proceeds from the issuance of common stock, net of issuance costs...... 24,149 -
Repurchase of common stock from shareholders........................... (2,122) -
Borrowings under long term debt........................................ - 3,094
Principal payments under capital lease obligations..................... (190) (143)
Principal payments under loan from shareholders........................ (4,094) -
Principal payments under loan from long-term debt...................... (4,532) (133)
Issuance of shareholder loans.......................................... (330) -
Other.................................................................. 98 -
--------- --------
Net cash provided by financing activities......................... 13,939 2,818
--------- --------
Increase in cash and cash equivalents.................................... 3,852 1,275
Cash and cash equivalents at beginning of year........................... 2,342 165
--------- --------
Cash and cash equivalents at end of period............................... $ 6,194 $ 1,440
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............................... $ 175 $ 162
========= ========
Noncash investing and financing activities:
Equipment purchases financed by borrowings under capital
lease obligations.................................................... $ 43 $ 183
========= ========
Note payable issued for customer rebates............................... $ - $ 873
========= ========
Reclassification of S corporation accumulated deficit to additional
paid in capital...................................................... $ 8,203 $ -
========= ========
Warrant issued to customer in exchange for prepaid software license.... $ - $ 79
========= ========
Warrant issued on debt................................................. $ - $ 240
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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Item 1. Financial Statements
----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
applicable to interim financial statements. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, these condensed consolidated financial statements contain all
adjustments (which comprise only normal and recurring accruals) necessary to
present fairly the financial position as of June 30, 1997, the results of
operations for the three and six month periods ended June 30, 1997 and 1996
and cash flows for the six months ended June 30, 1997 and 1996. The interim
results for the three and six month periods ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year. These
statements should be read in conjunction with the Company's combined financial
statements as filed in its annual report on Form 10K for the year ended
December 31, 1996.
2. COMPLETION OF INITIAL PUBLIC OFFERING
On February 19, 1997, the Company successfully completed its initial public
offering of common stock. The Company sold 2.8 million shares of Common
Stock, including the underwriters' over-allotment of 325,000 shares of Common
Stock, in the initial public offering for $26.8 million less issuance costs of
$2.6 million. Subsequent to the public offering of common stock, the Company
repurchased and subsequently retired 793,093 shares of Common Stock from two
shareholders for a total of $2.1 million.
3. ACQUISITIONS
On May 23, 1997, the Company purchased all of the outstanding common stock
of Restaurant Management and Control Systems, Inc. ("ReMACS") for 627,500
shares of Common Stock, $3.3 million in cash, $3.3 million in notes and
assumption of net liabilities of $4.5 million. Total consideration (subject
to adjustment), including transaction costs of approximately $150,000, was
$18.5 million. The transaction was accounted for as a purchase. Intangibles
of approximately $3.1 million were recorded, after adjusting for purchased
research and development costs, which are being amortized over four to ten
years. In connection with the acquisition, the Company entered into
employment agreements with five employees for terms expiring June 2002. The
agreements provide for severance, up to the longer of the remaining term of
the agreement or two years, for termination of employment for any reason other
than good cause. The Company granted options to purchase 360,000 shares of
the Company's Common Stock to employees of ReMACS at an exercise price equal
to the fair market value of the Company's Common Stock on the date of such
grant.
On May 30, 1997, the Company purchased all of the outstanding common stock
of RSI Merger Corporation (d.b.a. Twenty/20 Visual Systems) ("Twenty/20") for
199,074 shares of Common Stock and $1.3 million in cash. Total consideration
(subject to adjustment), including transaction costs of approximately
$100,000, was $3.7 million. The transaction was accounted for as a purchase.
Intangibles of approximately $400,000 were recorded, after adjusting for
purchased research and development costs, which are being amortized over four
to ten years. In connection
4
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with the acquisition, the Company entered into employment agreements with two
employees for terms expiring May 2001. The agreements provide for severance
for the remaining term of the agreement for termination of employment for any
reason other than good cause. The Company granted the two employees options to
purchase 140,000 shares of the Company's Common Stock of which 40,000 where
issued at a $4.50 discount to the fair market value of the Company's Common
Stock on the date of such grant and 100,000 which were issued at an exercise
price of $5.50. In connection with the issuance of the above options, the
Company recorded a non-recurring compensation charge of $1.2 million for those
options which vested immediately and $627,000 as a deferred compensation
charge for remaining options, which will be amortized ratably over the four
year vesting period.
4. CHARGES FOR ACQUISITION-RELATED EXPENSES
During the second quarter, the Company recorded $20.3 million in
acquisition-related expenses related to the acquisitions of ReMACS and
Twenty/20. These non-recurring charges consisted of $19.1 million in purchased
research and development costs of which $15.8 million related to the purchase
of ReMACS and $3.3 million related to the purchase of Twenty/20. The
acquisition-related expenses also included stock compensation expenses of $1.2
million related to the purchase of Twenty/20, as more fully described in
Note 3.
5. INCOME TAX (BENEFIT) PROVISION
Income tax (benefit)/provision for interim periods is based on estimated
effective annual income tax rates. As a result of its election to be treated
as an S Corporation for income tax purposes, the Company, prior to the
completion of its initial public offering in February 1997, was not 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. The Company's S Corporation status was terminated upon completion
of its initial public offering in February 1997. Upon the termination of its
S Corporation status, the Company recorded certain deferred tax assets in the
amount of $592,000. Simultaneously, with the recording of these deferred tax
assets, the Company recorded a tax benefit of $305,000 and a valuation
allowance of $287,000. The valuation allowance was recorded due to uncertainty
surrounding the future utilization of such deferred tax assets. For the period
subsequent to the initial public offering, the Company recorded a tax
provision of $305,000. As a result, no income tax provision was recognized for
the three and six month periods ended June 30, 1997.
6. NET INCOME (LOSS) PER SHARE
Pro forma net income (loss) per share is computed using the weighted-
average number of common stock and dilutive common stock equivalents ("CSE")
shares from stock options and warrants (using the treasury stock method)
outstanding during each period. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, common stock and CSEs issued at a price
below the expected public offering price during the twelve-month period prior
to the Company's initial public offering have been included in the calculation
as if they were outstanding for all periods prior to the initial public
offering presented, regardless of whether they are antidilutive.
5
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7. ACCOUNTING PRONOUNCEMENTS
During the first quarter 1997, the Financial Accounting Standards Board
(FASB) issued Statement 128 ("SFAS 128"), "Earnings Per Share". This
statement establishes new guidelines for the calculation and presentation of
earnings per share. The following table represents a reconciliation of basic
and dilutive weighted average shares and pro forma calculation of earnings per
share using the guidelines of SFAS 128.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------------------------------------------------------------------------
000S OMITTED EXCEPT PER SHARE DATA 1997 1996 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic weighted average shares
outstanding............................... 12,045 8,300 10,914 8,300
Shares of common stock assumed
issued upon exercise of common
stock equivalents using the "treasury
stock" method as it applies to the
computation of diluted earnings
per share................................. 2,709 2,800 3,026 2,800
----- ----- ----- -----
Diluted weighted average shares
outstanding............................... 14,754 11,100 13,940 11,100
====== ====== ====== ======
Net earnings (loss) used in the
computation of basic and diluted
earnings per share........................ $(18,634) $ 202 $(18,310) $ (730)
======== ====== ======== ======
Earnings per share:
Basic.................................... $ (1.55) $ 0.02 $ (1.68) $(0.09)
======== ====== ======== ======
Diluted.................................. $ (1.26) $ 0.02 $ (1.31) $(0.07)
======== ====== ======== ======
</TABLE>
8. SUBSEQUENT EVENT
On July 21, 1997, the Company sold 2.6 million shares of its Common Stock
and received approximately $58.4 million, after deducting underwriting
discounts and offering expenses. The proceeds of the offering will be used to
repay of $3.3 million of debt incurred in connection with the acquisition of
ReMACS and 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.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
---------------------
OVERVIEW
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 ordering systems, back office management
systems and headquarters-based management systems. The Company's products
enable retailers to interact electronically with their customers, capture
detailed data at the point of sale, manage labor and inventory at their sites
and communicate electronically with their sites, vendors and credit networks.
In addition, the Company offers system planning, design and implementation
services to tailor the automation solution to each retailer's specifications.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
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 48.3% to $14.5 million for the three month period ended June
30, 1997 ("fiscal 1997"), compared to $9.8 million for the three month period
ended June 30, 1996 ("fiscal 1996"). The increase related to sales and license
fees from new and existing customers, and the expansion of the Radiant
Hospitality Division, which serves the restaurant industry, through its
purchase of ReMACS and Twenty/20. Additionally, continued demand for the
Company's products such as Compu-Touch 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 145.6% to $2.7 million for fiscal 1997, compared to $1.1 million for
fiscal 1996. The increase was due to increased support, maintenance and
services revenues within its existing markets as well as those related to
ReMACS and Twenty/20. Additionally, continued customer acceptance of
professional services
7
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from the Company's Radiant Solutions Group, which was established during the
first quarter 1996, has contributed to this increase.
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 increased 25.4% to $7.9 million
for fiscal 1997, compared to $6.3 million for fiscal 1996. The increase was
directly attributable to the increase in systems sales. Cost of systems sales
as a percentage of total revenues declined to 46.3% from 58.4%. Cost of
systems sales as a percentage of systems revenues declined to 54.9% from
64.9%. The decreases were due to increased sales of existing and newly
introduced and acquired products, such as Core-Tech and ReMACS back office
management systems software, which have higher margins than the historical
site-based systems sold by the Company.
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 97.1% to $2.4
million for fiscal 1997 from $1.2 million for fiscal 1996. The increase was
due primarily to the Company's decision to expand the Radiant Solutions Group
and the related increase in wages associated with this effort. Cost of
customer support, maintenance and other services as a percentage of total
revenues increased to 14.0% from 11.2%. Cost of customer support, maintenance
and other services as a percentage of customer support, maintenance and other
services revenues declined to 88.9% from 110.8%. These declines reflect higher
service margins and higher capacity utilization of the personnel within 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 90.9% to $1.4 million for fiscal 1997, compared
to $768,000 for fiscal 1996. The increase was due to higher development costs
associated with new product development, including development activity
associated within the Company's Radiant Hospitality Division in connection
with the acquisitions of ReMACS and Twenty/20 and development of new credit
card network interfaces, as well as continued development efforts within
Radiant Entertainment Division. Product development expenses as a percentage
of total revenues increased to 8.5% from 7.1% as product development expenses
increased at a faster pace than total revenues. The Company capitalizes a
portion of its software development costs. In fiscal 1997, software
development costs of $258,000 were capitalized by the Company, as compared to
$141,000 for fiscal 1996, such costs representing 14.9% of its product
development costs in fiscal 1997, as compared to 15.5% for fiscal 1996.
Purchased Research and Development Costs. Purchased research and development
costs represent the estimated fair value of acquired incomplete research and
development projects as determined by independent appraisal. During fiscal
1997, in connection with the acquisition of ReMACS and Twenty/20, the Company
recorded a non-recurring charge of $19.1 million for purchased research and
development costs. During fiscal 1996, the Company recorded $30,000 in such
costs associated with the acquisition of Liberty Systems International, Inc.
Stock Compensation Expense. Stock compensation expense represents the
excess of the fair market value of the Company's Common Stock on the date of
the grant of stock options over the aggregate exercise price of such options.
In connection with the acquisition of Twenty/20, the Company granted such
stock options and recorded a non-recurring charge of $1.2 million. No
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such charge was recorded in fiscal 1996.
Sales and Marketing Expenses. Sales and marketing expenses increased
326.0% to $1.2 million during fiscal 1997, compared to $292,000 for fiscal
1996. The increase was associated with the Company's acquisition of ReMACS and
Twenty/20 and continued expansion of its sales activities and increased
commission expense attributable to higher sales. Sales and marketing expenses
as a percentage of total revenues increased to 7.2% from 2.7%.
Depreciation and Amortization. Depreciation and amortization expenses
increased 137.7% to $533,000 for fiscal 1997, compared to $224,000 for fiscal
1996. The increase resulted from an increase in computer equipment and other
assets required to support an increased number of employees. Depreciation and
amortization as a percentage of total revenues increased to 3.1% from 2.1%
during the period, primarily because personnel support costs increased at a
pace higher than associated revenues. Additionally, amortization of
capitalized software development costs increased 67.5% to $87,000 for fiscal
1997, compared to $52,000 for fiscal 1996 as a result of higher capitalized
software development costs.
General and Administrative Expenses. General and administrative expenses
increased 35.8% to $1.9 million for fiscal 1997, compared to $1.4 million for
fiscal 1996. The increase was due primarily to personnel increases in fiscal
1997 as well as the effects of the ReMACS and Twenty/20 acquisitions. General
and administrative expenses as a percentage of total revenues declined to
11.1% from 13.0% as a result of higher sales volumes.
Interest (Income) Expense, net. Interest (income) expense increased 209.4%
to net interest income of $44,000 for fiscal 1997, compared to net interest
expense of $40,000 for fiscal 1996. The change resulted primarily from
interest revenue earned on the proceeds of the sale of 2.8 million shares of
the common stock which occurred during the first quarter 1997, offset by
interest expense.
Minority Interest in Earnings of PrysmTech. In fiscal 1997, the Company
recognized no minority interest in earnings of PrysmTech compared to $215,000
in fiscal 1996. The remaining interest in PrysmTech was acquired by the
Company during the fourth quarter of 1996.
Income Tax (Provision) Benefit. As a result of its election to be treated as
an S Corporation for income tax purposes, the Company, prior to the completion
of its initial public offering in February 1997, was not subject to federal or
state income taxes. For periods prior to the termination of the S Corporation
status, pro forma net income amounts include additional income tax benefits
determined by applying the Company's anticipated statutory tax rate to pretax
loss, adjusted for permanent tax differences. No income tax benefit was
recognized for the three months ended June 30, 1997 as substantially all of
the purchased research and development expenses are not deductible for tax
purposes.
Pro Forma Net Income (Loss). For fiscal 1997, the Company recognized a net
loss of $18.6 million compared to pro forma net income of $202,000 for fiscal
1996. The decrease in net income resulted primarily from the recording of
acquisition-related expenses consisting of purchased research and development
costs and stock compensation costs associated with the purchase of ReMACS and
Twenty/20 in fiscal 1997 offset by increased revenues and improved operating
results in fiscal 1997 over fiscal 1996 more fully described above. Net income
excluding acquisition-related expenses of $19.7 million, net of tax benefits,
was $1.1 million, or $.07 per share, an increase of
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421.8%, or $.05 per share, over prior year.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
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 85.3% to $25.2 million for the six month period ended June 30,
1997 ("fiscal year 1997"), compared to $13.6 million for the six month period
ended June 30, 1996 ("fiscal year 1996"). The increase related to sales and
license fees from new and existing customers, and the expansion of the Radiant
Hospitality Division, through its purchase of ReMACS and Twenty/20.
Additionally, continued demand for the Company's products such as Compu-Touch
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 151.4% to $4.5 million for fiscal year 1997, compared to $1.8
million for fiscal year 1996. The increase was due to increased support,
maintenance and services revenues, within its existing markets as well as
those related to ReMACS and Twenty/20. Additionally, continued customer
acceptance of professional services from the Company's Radiant Solutions
Group, which was established during the first quarter 1996, has contributed to
this increase.
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 increased 56.3% to $14.2 million
for fiscal year 1997, compared to $9.1 million for fiscal year 1996. The
increase was directly attributable to the increase in systems sales. Cost of
systems sales as a percentage of total revenues declined to 47.8% from 59.1%.
Cost of systems sales as a percentage of systems revenues decreased to 56.4%
from 66.9%. The decreases were due to increased sales of existing and newly
introduced and acquired products, such as Core-Tech and ReMACS back office
management systems software, which have higher gross margins than the site-
based systems sold by the Company.
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 86.8% to $4.1
million for fiscal year 1997 from $2.2 million for fiscal year 1996. The
increase was due primarily to the Company's decision to expand the Radiant
Solutions Group and the related increase in wages associated with this effort.
Cost of customer support, maintenance and other services as a percentage of
total revenues decreased to 13.9% from 14.4%. Cost of customer support,
maintenance and other services as a percentage of customer support,
maintenance and other services revenues decreased to 91.8% from 123.6%. These
decreases reflect higher service margins and higher capacity utilization of
the personnel within the Radiant Solutions Group.
10
<PAGE>
Product Development Expenses. Product development expenses consist primarily
of wages and materials expended on product development efforts. Product
development expenses increased 78.3% to $2.6 million for fiscal year 1997,
compared to $1.5 million for fiscal year 1996. The increase was due to higher
development costs associated with new product development, including
development activity within the Company's Radiant Hospitality Division
associated with the acquisitions of ReMACS and Twenty/20 and development of
new credit card network interfaces. Product development expenses as a
percentage of total revenues decreased to 8.8% from 9.5% as total revenues
increased at a faster pace than product development expenses. The Company
capitalizes a portion of its software development costs. In fiscal year 1997,
software development costs of $460,000 were capitalized by the Company, as
compared to $205,000 for fiscal year 1996 representing 14.9% of its product
development costs in fiscal year 1997, as compared to 12.2% for fiscal year
1996.
Purchased Research and Development Costs. Purchased research and development
costs represent the estimated fair value of acquired incomplete research and
development projects as determined by independent appraisal. During fiscal
year 1997, in connection with the acquisition of ReMACS and Twenty/20, the
Company recorded a non-recurring charge of $19.1 million for purchased
research and development costs. During fiscal year 1996, the Company recorded
$30,000 in such costs associated with the acquisition of Liberty Systems
International, Inc.
Stock Compensation Expense. Stock compensation expense represents the excess
of the fair market value of the Company's Common Stock on the date of the
grant of stock options over the aggregate exercise price of such options. In
connection with the acquisition of Twenty/20, the Company granted such stock
options and recorded a non-recurring charge of $1.2 million. No such charge
was recorded in fiscal year 1996.
Sales and Marketing Expenses. Sales and marketing expenses increased
266.6% to $2.1 million during fiscal year 1997, compared to $577,000 for
fiscal year 1996. The increase was associated with the Company's acquisition
of ReMACS and Twenty/20 and continued expansion of its sales activities and
increased commission expense attributable to higher sales. Sales and marketing
expenses as a percentage of total revenues increased to 7.1% from 3.7%.
Depreciation and Amortization. Depreciation and amortization expenses
increased 115.2% to $900,000 for fiscal year 1997, compared to $418,000 for
fiscal year 1996. The increase resulted from an increase in computer equipment
and other assets required to support an increased number of employees.
Depreciation and amortization as a percentage of total revenues increased to
3.0% from 2.7% during the period, primarily because associated personnel
support costs increased at a pace higher than associated revenues.
Additionally, amortization of capitalized software development costs increased
87.1% to $174,000 for fiscal year 1997, compared to $93,000 for fiscal year
1996 as a result of higher capitalized software development costs.
General and Administrative Expenses. General and administrative expenses
increased 48.9% to $3.6 million for fiscal year 1997, compared to $2.4 million
for fiscal year 1996. The increase was due primarily to personnel increases in
fiscal year 1997 as well as the effects of the ReMACS and Twenty/20
acquisitions. General and administrative expenses as a percentage of total
revenues declined to 12.1% from 15.7% as a result of higher sales volumes.
11
<PAGE>
Interest (Income) Expense, net. Net interest expense increased 109.4% to
$165,000 for fiscal year 1997, compared to $79,000 for fiscal year 1996. The
increase resulted from the Company borrowing $4.5 million in the second and
third quarters of 1996 and the borrowing costs associated therewith offset by
interest income earned from the proceeds of the sale of 2.8 million shares of
the common stock which occurred during the first quarter 1997.
Minority Interest in Earnings of PrysmTech. In fiscal year 1997, the
Company recognized no minority interest in earnings of PrysmTech compared to
$270,000 in fiscal year 1996. The remaining interest in PrysmTech was
acquired by the Company during the fourth quarter of 1996.
Income Tax Provision. As a result of its election to be treated as an
S Corporation for income tax purposes, the Company, prior to the completion of
its initial public offering in February 1997, was not subject to federal or
state income taxes. The Company's S Corporation status was terminated upon
completion of its initial public offering in February 1997 and upon
termination of its S Corporation status, the Company recorded deferred tax
assets in the amount of $592,000. Simultaneously, with the recording of these
deferred tax assets, the Company recorded a tax benefit of $305,000 and a
valuation allowance of $287,000. The valuation allowance was recorded due to
the uncertainty surrounding the future utilization of such deferred tax
assets. For the first quarter, the benefit recorded in connection with the
termination of the Company's S Corporation status was offset by a tax
provision of $305,000. No income tax benefit was recognized for the three
months ended June 30, 1997 as substantially all of the purchased research and
development expenses are not deductible for tax purposes.
Pro Forma Income Tax (Benefit) Provision. The pro forma effective tax rate
for the period from January 1, 1997 through February 19, 1997, the date the
Company terminated its S Corporation status was a benefit of 38.5%, compared
to a benefit of 38.2% for fiscal year 1996.
Extraordinary item. During the first quarter, a loss from early
extinguishment of debt of $213,000, net of taxes of $82,000, was recognized
due to the write off of certain unamortized loan origination costs
and unamortized debt discounts associated with the repayment of outstanding
indebtedness to Sirrom Capital Corporation of $4.5 million.
Pro Forma Net Income (Loss). For fiscal year 1997, the Company recognized
net loss of $18.3 million compared to a pro forma net loss of $730,000 for
fiscal year 1996. The decrease in income resulted primarily from the recording
of acquisition-related expenses consisting of purchased research and
development costs and stock compensation costs associated with the purchase of
ReMACS and Twenty/20 in fiscal year 1997 offset by increased revenues and
improved margins in fiscal year 1997 over fiscal year 1996. Net income for
fiscal year 1997 before extraordinary item of $131,000 and acquisition related
expenses of $19.7 million, net of tax benefits, was $1.5 million, or $.11 per
share, an increase of 306.7%, or $.18 per share, over the pro forma net loss
of $730,000, or $.07 per share, for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
In February 1997, the Company completed its initial public offering, in
which the Company received net proceeds of approximately $24.3 million after
deducting underwriting discounts and offering expenses. The Company applied
the proceeds of the offering to (i) repay all of the Company's outstanding
indebtedness to Sirrom Capital Corporation ($4.5 million), (ii) repay debt
12
<PAGE>
incurred in connection with its acquisition of PrysmTech ($3.1 million),
(iii) repay outstanding shareholder notes ($1.1 million) and (iv) to
repurchase an aggregate of 793,073 shares of Common Stock from two
shareholders from whom the Company had a right of repurchase at a substantial
discount to the initial public offering price ($2.1 million). The balance of
the net proceeds of the offering (approximately $13.5 million) will be
utilized 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 exercise of outstanding warrants to purchase 1,333,002 shares of Common
Stock in connection with the initial public offering in February 1997 provided
the Company with proceeds of approximately $960,000.
Prior to the initial public offering, the Company has financed its
operations primarily through cash generated from operations and from financing
obtained during 1996. As of June 30, 1997, the Company had $6.2 million in
cash and cash equivalents.
In July 1997, the Company sold 2.6 million shares of Common Stock and
received net proceeds of approximately $58.4 million after deducting estimated
underwriting discounts and offering expenses. The proceeds of the offering
will be used to repay $3.3 million of debt incurred in connection with the
acquisition of ReMACS and 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 Company's used cash from operating activities in fiscal year 1997 and
1996 of $3.9 million and $1.0 million, respectively. In fiscal year 1997, the
Company's uses of cash were the primary result of increased accounts
receivables due to increased sales and a decrease in customer deposits and
unearned revenues. During fiscal year 1996, the Company's use of operating
cash was primarily the result of cash payments received from customers in
advance of shipments offset by increased accounts receivables and inventories.
Cash used in investing activities in fiscal year 1997 and 1996 was $6.2
million and $514,000 respectively. The use of cash for fiscal year 1997 in
investing activities consisted primarily of the acquisitions of ReMACS and
Twenty/20 for approximately $4.2 million. Purchases of property and equipment
accounted for approximately $1.4 million and $353,000 in fiscal year 1997 and
1996, respectively, to the use of cash in investing activities.
Cash of $13.9 million was provided by financing activities during fiscal
year 1997 due primarily to the issuance of Common Stock in the initial public
offering offset by repayment of the Company's outstanding indebtedness noted
above. Cash of $2.8 million provided by financing activities during fiscal
year 1996 consisted primarily of borrowings of $3.1 million.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
such as statements relating to financial results and plans for the future
business development activities, and are thus prospective. Such forward-
looking statements are subject to risks, uncertainties and other factors which
could cause actual results to differ materially from future results expressed
or implied by such forward-looking
13
<PAGE>
statements. Potential risks and uncertainties include, but are not limited to,
economic conditions, competition and other uncertainties detailed from time to
time in the Company's Securities and Exchange Commission filings.
14
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
------ ---------------------
On May 30, 1997, the Registrant issued 199,074 shares of Common Stock to
the four shareholders of RSI Merger Corporation in connection with the
acquisition of that company by the Registrant.
On May 23, 1997, the Registrant issued 627,500 shares of Common Stock to
the four shareholders of Restaurant Management and Control Systems, Inc. in
connection with the acquisition of that company by the Registrant.
Except as otherwise noted, all issuances of securities described above
were made in reliance on the exemption from registration provided by Section
4(2) of the Securities Act of 1933 as transactions by an issuer not involving a
public offering. All securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof. In each
instance, the offers and sales were made without any public solicitation, the
certificates bear restrictive legends and appropriate stop transfer instructions
have been or will be given to the transfer agent. No underwriter was involved
in the transaction and no commitments were paid.
Item 6. Exhibits and Reports on Form 8-K
------ --------------------------------
(a) Exhibits. The following exhibits are filed with this Report:
11.1 Statement regarding Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the quarter ended
June 30, 1997:
(i) Form 8-K dated May 23, 1997 (reporting acquisition of ReMACS); (ii)
Form 8-K/A (Amendment No. 1) to Form 8-K dated May 23, 1997 (filing ReMACS
financial statements); (iii) Form 8-K dated May 30, 1997 (reporting acquisition
of Twenty/20); and (iv) Form 8-K/A (Amendment No. 1) to Form 8-K dated May 30,
1997.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RADIANT SYSTEMS, INC.
Dated: August 14, 1997 By: /s/ John H. Heyman
--------------- -------------------------
John H. Heyman, Executive Vice President
and Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit Sequential Page No.
- -------------- ---------------------- -------------------
11.1 Statement regarding Computation
of Per Share Earnings
27.1 Financial Data Schedule
17
<PAGE>
EXHIBIT 11.1
RADIANT SYSTEMS, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1996 1997 1996 1997
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Pro forma net income (loss) before
extraordinary item....................... $ 202 $(18,634) $ (730) $(18,179)
======= ======== ======= ========
Pro forma net income (loss)................ $ 202 $(18,634) $ (730) $(18,310)
======= ======== ======= ========
Weighted average Common Stock
outstanding during the period............ 8,300 12,045 8,300 10,914
Cheap stock (1)............................ 2,800 2,709 2,800 3,026
------- -------- ------- --------
Total.................................... 11,100 14,754 11,100 13,940
======= ======== ======= ========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Income (loss) before extraordinary item.... $ 0.02 $ (1.26) $ (0.07) $ (1.30)
Extraordinary loss on early extinguishment
of debt.................................. - - - (0.01)
------- -------- ------- --------
Per share amount........................... $ 0.02 $ (1.26) $ (0.07) $ (1.31)
======= ======== ======= ========
</TABLE>
(1) Pursuant to Securities and Exchange Commission Accounting Bulletin No. 83,
common stock and common stock equivalents issued at a price below the
assumed initial public offering price per share ("cheap stock") during the
twelve months immediately preceeding the initial filing date of the
Company's Registration Statement for its public offering have been included
as outstanding for all periods presented, regardless of whether they are
antidilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 RADIANT SYSTEMS, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,194
<SECURITIES> 0
<RECEIVABLES> 9,090
<ALLOWANCES> (150)
<INVENTORY> 5,224
<CURRENT-ASSETS> 726
<PP&E> 5,317
<DEPRECIATION> (2,462)
<TOTAL-ASSETS> 30,532
<CURRENT-LIABILITIES> 15,636
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,445
<TOTAL-LIABILITY-AND-EQUITY> 30,532
<SALES> 17,160
<TOTAL-REVENUES> 17,160
<CGS> 10,337
<TOTAL-COSTS> 10,337
<OTHER-EXPENSES> 25,501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (44)
<INCOME-PRETAX> (18,634)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,634)
<EPS-PRIMARY> (1.26)
<EPS-DILUTED> 0
</TABLE>
