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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:
September 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
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(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 November 13, 1997 was
15,370,912.
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RADIANT SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS
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PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
1997 and December 31, 1996 1
Condensed Consolidated Statements of Operations for the
Nine Months Ended September 30, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 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 8
PART II: OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds
Item 4: Submission of Matters to a Vote of Security Holders
Item 6: Exhibits and Reports on Form 8-K
Signature
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
RADIANT SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 54,543 $ 2,342
Accounts receivable, net of allowance for
doubtful accounts of $200 and $120....................... 16,762 4,885
Inventories................................................ 5,997 3,305
Loans to shareholders...................................... 341 -
Other short-term assets.................................... 580 417
------------ ------------
Total current assets.............................. 78,223 10,949
Property and equipment, net.................................. 3,500 1,518
Software development costs, net.............................. 1,356 737
Intangibles, net............................................. 4,395 957
Deferred income tax assets................................... 397 -
Other assets................................................. 858 455
------------ ------------
$ 88,729 $ 14,616
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities................... $ 10,461 $ 6,377
Customer deposits and unearned revenue..................... 4,948 3,052
Current portion of shareholder loans....................... - 127
Current portion of long term debt.......................... 602 582
------------ ------------
Total current liabilities ........................ 16,011 10,138
Shareholder loans, less current portion...................... - 3,194
Long term debt, less current portion......................... 91 5,271
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Total liabilities................................. 16,102 18,603
------------ ------------
Put warrants................................................. - 513
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Shareholders' equity (deficit):
Common stock, no par value; 20,000,000 shares authorized;
15,254,134 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................................. 88,733 2,100
Deferred compensation...................................... (581) -
Warrants................................................... - 1,185
Deferred sales discount.................................... - (132)
Accumulated deficit........................................ (15,525) (7,653)
------------ ------------
72,627 (4,500)
------------ ------------
Commitments..................................................
------------ ------------
$ 88,729 $ 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 SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Systems sales............................. $ 17,532 $ 9,741 $ 42,740 $ 23,342
Customer support, maintenance and other
services................................. 3,258 1,448 7,770 3,243
------------------ ------------------ ------------------ ------------------
Total revenues....................... 20,790 11,189 50,510 26,585
Cost of revenues:
Systems sales:............................ 8,071 5,592 22,291 14,691
Customer support maintenance and
other services.......................... 2,795 1,600 6,938 3,818
------------------ ------------------ ------------------ ------------------
Total cost of revenues............... 10,866 7,192 29,229 18,509
Gross profit................................. 9,924 3,997 21,281 8,076
Operating expenses:
Product development....................... 1,984 900 4,603 2,369
Purchased research and development
costs................................... - - 19,134 30
Stock compensation expense................ - - 1,214 -
Sales and marketing....................... 1,447 311 3,563 888
Depreciation and amortization............. 666 265 1,566 683
General and administrative................ 2,424 1,394 6,024 3,811
------------------ ------------------ ------------------ ------------------
Income (loss) from operations................ 3,403 1,127 (14,823) 295
Interest (income) expense, net............... (576) 229 (410) 308
Minority interest in earnings of PrysmTech... - 206 - 476
------------------ ------------------ ------------------ ------------------
Income (loss) before provisions
(benefit) for income taxes................ 3,979 692 (14,413) (489)
Income tax provision......................... 1,532 - 1,532 -
Pro forma income provision (benefit)......... - 264 (212) (187)
------------------ ------------------ ------------------ ------------------
Pro forma income (loss) before extraordinary
item...................................... 2,447 428 (15,733) (302)
Extraordinary Item:
Loss from early extinguishment of debt,
net of income tax of $82.................. - - 131 -
------------------ ------------------ ------------------ ------------------
Pro forma net income (loss).................. $ 2,447 $ 428 $ (15,864) $ (302)
================== ================== ================== ==================
Earnings per common and common equivalent
share:
Income (loss) before extraordinary item... $ 0.14 $ 0.04 (1.05) (0.03)
Extraordinary loss on early extinguish-
ment of debt............................ - - (0.01) -
------------------- ------------------ ------------------ ------------------
Pro forma net income (loss) per common and
common equivalent share................... $ 0.14 0.04 (1.06) (0.03)
================== ================== ================== ==================
Weighted average common and common
equivalent shares outstanding............. 17,844 11,100 14,907 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 nine months ended For the nine months ended
September 30, 1997 September 30, 1996
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<S> <C> <C>
Cash flows from operating activities
Pro forma net income (loss)...................... $ (15,864) $ (302)
Adjustments to reconcile net income loss to net
cash (used in) provided by operating
activities:
Pro forma tax benefit............................ (212) (187)
Deferred taxes................................... (397) --
Depreciation and amortization.................... 1,566 683
Purchased research and development costs......... 19,134 30
Stock compensation expenses...................... 1,214 --
Discounts earned on software license sales....... 113 44
Amortization and write off of loan discount
and loan origination fees...................... 332 88
Minority interest in earnings of PrysmTech....... -- (476)
Changes in assets/liabilities:
Increase in accounts receivable................ (11,031) (4,675)
Increase in inventories........................ (2,522) (620)
Increase in prepaid and other assets........... (711) (243)
Increase (decrease) in accounts payable and
accrued liabilities.......................... 3,018 (59)
Increase in accrued customer rebates........... -- 58
(Decrease) increase in customer deposits and
unearned revenue............................. (4,063) 3,083
----------------------------- -----------------------------
Net cash used in operating activities......... (9,423) (2,576)
Cash flows from investing activities
Purchases of property and equipment.............. (2,404) (570)
Software development costs....................... (872) (416)
Purchases of acquired businesses, net of cash
acquired........................................ (4,336) --
Other............................................ -- 31
----------------------------- -----------------------------
Net cash used in investing activities......... (7,612) (955)
Cash flows from financing activities
Proceeds from exercise of common stock warrants.. 960 --
Proceeds from the issuance of common stock, net
of issuance costs............................... 82,553 --
Exercise of employee stock options............... 285 --
Shareholder loans................................ (330) --
Repurchase of common stock from shareholders..... (2,122) --
Borrowings under long term debt.................. -- 4,619
Principal payments under capital lease
obligations..................................... (288) (224)
Principal payments under loan from shareholders.. (7,344) (117)
Principal payments under loan from long-term debt (4,576) (139)
Other............................................ 98 109
----------------------------- -----------------------------
Net cash provided by financing activities..... 69,236 4,248
----------------------------- -----------------------------
Increase in cash and cash equivalents............... 52,201 717
Cash and cash equivalents at beginning of year...... 2,342 165
----------------------------- -----------------------------
Cash and cash equivalents at end of period.......... $ 54,543 $ 882
============================= =============================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......... $ 211 $ 213
============================= =============================
Noncash investing and financing activities:
Equipment purchases financed by borrowings under
capital lease obligations....................... $ 43 $ 230
============================= =============================
Note payable issued for customer returns......... $ -- 873
============================= =============================
Reclassification of S corporation retained
earnings to additional paid in capital.......... $ 8,203 --
============================= =============================
Warrant issued to customer in exchange for
prepaid software licenses....................... $ -- 79
============================= =============================
Warrant issued on debt........................... $ -- 511
============================= =============================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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Item 1. Financial Statements
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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 for
fair presentation of the consolidated financial condition and results of
operations for these periods. The interim results for the nine months ended
September 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 Public Offerings
On February 19, 1997, the Company 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.
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 were used to repay of
$3.3 million of debt incurred in connection with the acquisition of
Restaurant Management and Control Systems, Inc. ("ReMACS"), more fully
described in Note 3, 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.
3. Acquisitions
On May 23, 1997, the Company purchased all of the outstanding common stock of
ReMACS for 627,500 shares of Common Stock, $3.3 million in cash, $3.3 million
in notes and assumption of net liabilities of $4.9 million. Total
consideration (subject to adjustment), including transaction costs of
approximately $150,000, was $18.9 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.
4
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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
$50,000, 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 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 election, 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 $1.8 million. During the
third quarter 1997, the Company recorded an income tax provision of $1.5
million.
6. Net Income Per Share
Pro forma net income 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 nine months
ended September 30, ended September 30,
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000s omitted except per share data 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Basic weighted average shares
outstanding................................. 14,646 8,300 12,237 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................................... 3,198 2,800 2,670 2,800
------ ----- ----- -----
Diluted weighted average shares
outstanding................................. 17,844 11,100 14,907 11,100
====== ====== ====== ======
Net earnings (loss) used in the
computation of basic and diluted
earnings per share.......................... $ 2,447 $ 428 $(15,864) $ (302)
======== ======= ========= =======
Earnings per share:
Basic...................................... $ 0.17 $ 0.05 $(1.30) $(0.04)
======== ====== ======= =======
Diluted.................................... $ 0.14 $ 0.04 $(1.06) $(0.03)
======== ====== ======= =======
</TABLE>
8. Subsequent Events
On October 31, 1997, the Company consummated the acquisition of RapidFire
Software, Inc., an Oregon corporation ("RapidFire"), and Equilease Financial
Services, Inc., an Oregon corporation ("Equilease"). Pursuant to a Stock
Purchase Agreement (the "Purchase Agreement"), dated as of October 23, 1997,
by and among the Company, RapidFire, Equilease and the sole shareholder of
RapidFire and Equilease (the "Shareholder"), all the outstanding Common
Stock of RapidFire and Equilease was acquired by the Company whereby
RapidFire and Equilease each became a wholly-owned subsidiary of the
Company. Pursuant to the Purchase Agreement, the Shareholder received an
aggregate of 102,230 shares of Common Stock of the Company, a non-negotiable
promissory note in the principal amount of $6.0 million (due October 31,
2005, unless earlier accelerated upon the attainment by RapidFire of certain
financial targets, and bearing no interest), and cash of $4.2 million.
Separately, the Company has agreed to loan up to $1.5 million to the
Shareholder, which debt matures October 31, 2005 and bears interest at a
rate of 5.0% per annum. The Company also
6
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entered into a five-year employment agreement with the Shareholder.
Simultaneously with the acquisition, the Company granted approximately
426,000 stock options to the former employees of RapidFire. These options
were granted at an exercise price equal to not less than the market price of
the Company's common stock at the date of grant.
RapidFire is principally engaged in the design, marketing and installing of
point of sale systems to the pizza industry and other delivery restaurants.
Equilease provides lease financing to certain RapidFire customers.
On November 3, 1997 the Company announced an agreement in principle, subject
to negotiation of a definitive purchase agreement, to acquire Logic Shop,
Inc. of Atlanta, Georgia. Logic Shop, Inc. provides management software to
the convenient automotive service center market. The parties expect to
execute a definitive purchase agreement by mid-November 1997.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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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 September 30, 1997 Compared to Three Months Ended September
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 80.0% to $17.5 million for the three month period ended September 30,
1997 (the "third quarter 1997"), compared to $9.7 million for the three month
period ended September 30, 1996 (the "third quarter 1996"). The increase related
to sales and license fees from new and existing customers, and the expansion of
the Radiant Hospitality Division. The Radiant Hospitality Division serves the
restaurant industry and was expanded in the second quarter of 1997 through its
acquisitions of ReMACS and Twenty/20. Additionally, continued demand for the
Company's products such as Compu-Touch, its convenience store site-based
product, from both new and existing customers has 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
125.0% to $3.3 million for the third quarter 1997, compared to $1.4 million for
the third quarter 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, increased customer demand of professional
services from the Company's Radiant Solutions Group, which was established
during the first quarter of 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 44.3% to $8.1 million for
the third quarter 1997, compared to $5.6 million for the third
8
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quarter 1996. The increase was directly attributable to the increase in systems
sales. Cost of systems sales as a percentage of systems revenues declined to
46.0% from 57.4%. The decreases were due primarily to increased efficiencies
associated with the manufacturing of site-based systems; as well as 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 74.7% to $2.8 million for the
third quarter 1997 from $1.6 million for the third quarter 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 customer
support, maintenance and other services revenues declined to 85.8% from 110.5%.
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 120.4% to $2.0 million for the third
quarter 1997, compared to $900,000 for the third quarter 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. Product development
expenses as a percentage of total revenues increased to 9.5% from 8.0% as
product development expenses increased at a faster pace than total revenues. The
Company capitalizes a portion of its software development costs. In the third
quarter 1997, software development costs of $412,000 were capitalized by the
Company, as compared to $211,000 for the third quarter 1996, such costs
declining to 17.2% of its product development costs in the third quarter 1997,
as compared to 19.0% for the third quarter 1996.
Sales and Marketing Expenses. Sales and marketing expenses increased 365.3%
to $1.4 million during the third quarter 1997, compared to $311,000 for the
third quarter 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 7.0% from 2.8%.
Depreciation and Amortization. Depreciation and amortization expenses
increased 151.3% to $666,000 for the third quarter 1997, compared to $265,000
for the third quarter 1996. The increase resulted primarily from an increase in
computer equipment and other assets required to support an increased number of
employees, as well as increased goodwill resulting from acquisitions.
Depreciation and amortization as a percentage of total revenues increased to
3.2% from 2.4% during the period, primarily because personnel support costs
increased at a pace higher than associated revenues. Additionally, amortization
of capitalized software development costs decreased 10.8% to $58,000 for the
third quarter 1997, compared to $65,000 for the third quarter 1996 as certain
capitalized software development costs became fully amortized.
General and Administrative Expenses. General and administrative expenses
increased 73.9% to $2.4 million for the third quarter 1997, compared to $1.4
million for the third quarter 1996. The increase was due primarily to personnel
increases as well as the effects of the ReMACS and Twenty/20 acquisitions.
General and administrative expenses as a percentage of total revenues declined
to 11.7% from 12.5% as a result of higher sales volumes.
9
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Interest (Income) Expense, net. Interest (income) expense increased 351.5% to
net interest income of $576,000 for the third quarter 1997, compared to net
interest expense of $229,000 for the third quarter 1996. The change resulted
primarily from interest revenue earned on the proceeds of the sale of 2.8
million shares of the common stock in the first quarter 1997 and the sale of 2.6
million shares of common stock in July 1997, offset by interest expense.
Minority Interest in Earnings of PrysmTech. In the third quarter 1997, the
Company recognized no minority interest in earnings of PrysmTech compared to
$206,000 in the third quarter 1996. The remaining interest in PrysmTech was
acquired by the Company during the fourth quarter of 1996.
Income Tax Provision and Pro Forma 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. During the third quarter 1997, the Company recorded an income
tax provision of $1.5 million.
Pro Forma Net Income (Loss). For the third quarter 1997, the Company
recognized net income of $2.4 million or $0.14 per share compared to pro forma
net income of $428,000 or $0.04 per share for the third quarter of 1996, an
increase 471.7%, or $0.10 per share. The increase in net income resulted
primarily from increased revenues and improved operating results in the third
quarter 1997 over the third quarter 1996, more fully described above.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 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 83.1% to $42.7 million for the nine month period ended September 30,
1997 ("fiscal year 1997"), compared to $23.3 million for the nine month period
ended September 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. The Radiant Hospitality Division serves the restaurant
industry and was expanded in the second quarter of 1997 through its acquisitions
of ReMACS and Twenty/20. Additionally, continued demand for the Company's
products such as Compu-Touch, its convenience store site-based product, from
both new and existing customers has 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
139.6% to $7.8 million for fiscal year 1997, compared to $3.2 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, increased customer demand of professional services
from the Company's Radiant Solutions Group, which was established during the
first quarter of 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 51.7% to $22.3 million for
fiscal year 1997, compared to $14.7 million for fiscal year 1996. The increase
was directly attributable to the increase in systems sales. Cost of systems
sales as a percentage of systems revenues decreased to 52.2% from 62.9%. The
decreases were due primarily to increased efficiencies associated with the
manufacturing of site-based systems; as well as 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
10
<PAGE>
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 81.7% to $6.9 million for
fiscal year 1997 from $3.8 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 customer support,
maintenance and other services revenues decreased to 89.3% from 117.7%. These
decreases 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 94.3% to $4.6 million for fiscal year 1997,
compared to $2.4 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
increased to 9.1% from 8.9%, as product development expenses increased at a
faster pace than total revenues. The Company capitalizes a portion of its
software development costs. In fiscal year 1997, software development costs of
$872,000, or 15.9% of its total product development costs, were capitalized by
the Company, as compared to $416,000, or 14.9% of its total product development
costs, 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 301.2%
to $3.6 million during fiscal year 1997, compared to $888,000 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 3.3%.
Depreciation and Amortization. Depreciation and amortization expenses
increased 129.3% to $1.6 million for fiscal year 1997, compared to $683,000 for
fiscal year 1996. The increase resulted from an increase in computer equipment
and other assets required to support an increased number of employees, as well
as increased goodwill resulting from acquisitions. Depreciation and amortization
as a percentage of total revenues increased to 3.1% from 2.6% 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 46.8% to $232,000 for fiscal year 1997, compared to
$158,000 for fiscal year 1996 as a result of increased investment by the Company
in new product development.
11
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased 58.1% to $6.0 million for fiscal year 1997, compared to $3.8 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 11.9% from 14.3% as a result of higher sales volumes.
Interest (Income) Expense, net. Interest (income) expense increased 233.0% to
net interest income of $410,000 for fiscal year 1997, compared to net interest
expense of $308,000 for fiscal year 1996. The change resulted primarily from
interest revenue earned on the proceeds of the sale of 2.8 million shares of the
common stock in the first quarter 1997 and the sale of 2.6 million shares of
common stock in July 1997, offset by interest expense resulting from the Company
borrowing $4.5 million in the second and third quarters of 1996 and the
borrowing costs associated therewith.
Minority Interest in Earnings of PrysmTech. In fiscal year 1997, the Company
recognized no minority interest in earnings of PrysmTech compared to $476,000 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 of 1997, the benefit recorded in connection with the termination of the
Company's S Corporation status was offset by a tax provision of $305,000.
Likewise, during the second quarter of 1997, no income tax benefit was
recognized as substantially all of the purchased research and development
expenses were not deductible for tax purposes. During the third quarter 1997,
the Company recorded an income tax provision of $1.5 million.
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 of 1997, 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 $15.9 million compared to a pro forma net loss of $302,000 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 during the second quarter of 1997 offset by increased revenues and
improved margins throughout 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 $4.0 million, or
$0.26 per share, an increase of 1,224.5%, or $0.23 per share, over the pro forma
net loss of $302,000, or $0.03 per share, for the same period last year.
12
<PAGE>
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 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) was 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 financed its operations
primarily through cash generated from operations and from financing obtained
during 1996.
In July 1997, the Company completed an public offering of 2.6 million shares
of Common Stock and received net proceeds of approximately $58.4 million after
deducting estimated underwriting discounts and offering expenses. A portion of
the offering proceeds was used to repay $3.3 million of debt incurred in
connection with the acquisition of ReMACS. The remaining proceeds will be used
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. As of September 30, 1997,
the Company had $54.5 million in cash and cash equivalents.
The Company's used cash from operating activities in fiscal year 1997 and 1996
of $9.4 million and $2.6 million, respectively. In fiscal year 1997, the
Company's uses of cash were the primary result of increased accounts receivable
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 receivable and inventories.
Cash used in investing activities in fiscal year 1997 and 1996 was $7.6
million and $955,000 respectively. The use of cash for fiscal year 1997 in
investing activities consisted primarily of the acquisition related costs of
approximately $4.3 million. Purchases of property and equipment accounted for
approximately $2.4 million and $570,000 in fiscal year 1997 and 1996,
respectively, to the use of cash in investing activities.
Cash of $69.2 million was provided by financing activities during fiscal year
1997 due primarily to the issuance of common stock in the initial public
offering and follow-on offering offset by repayment of the Company's outstanding
indebtedness noted above. Cash of $4.2 million provided by financing activities
during fiscal year 1996 consisted primarily of borrowings of $4.6 million.
13
<PAGE>
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 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
Items 1 and 3.
- --------------
No events occurred during the quarter covered by the report that would
require a response to any of these items.
Item 2. Changes in Securities and Use of Proceeds
- -------------------------------------------------
On February 25, 1997, the Company completed an initial public offering of its
common stock (the "Offering"). The managing underwriters in the Offering were
Alex. Brown and Sons, Incorporated, Deutsche Morgan Grenfell and The Robinson-
Humphrey Company, Inc. (the "Underwriters"). The shares of common stock were
registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-1 (the "Registration Statement," registration number 333-
17723). The Registration Statement was declared effective the Securities and
Exchange Commission on February 12, 1997.
On February 12, 1997 the Company commenced the Offering. The Offering was
terminated on February 25, 1997 after the Company had sold all 2,825,000 shares
of common stock registered for sale by the Company under the Registration
Statement. Of the amount registered, (i) 2,825,000 shares were sold by the
Company resulting in gross proceeds of $26.8 million and 400,000 were sold by
selling shareholders. The Company received net proceeds of approximately $24.2
million after deducting underwriting discounts of $1.9 million and Offering
expenses of $755,000. As of September 30, 1997, all of the proceeds of the
Offering had been used as follows: (i) to repay all of the Company's outstanding
indebtedness to Sirrom Capital Corporation ($4.5 million), (ii) to repay debt
incurred in connection with its acquisition of PrysmTech ($3.1 million), (iii)
to 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) was utilized for general corporate
purposes, including research and development (approximately $2.4 million), sales
and marketing (approximately $1.7 million), strategic acquisitions
(approximately $4.8 million) and the increased working capital requirements of
the Company generated by its growth (approximately $4.6 million).
None of the net proceeds at the Offering were paid directly or indirectly to any
director, officer or general partner of the Company or their associates, persons
owning 10% or more of any class of equity securities of the Company, or an
affiliate of the Company, except as follows: (i) indebtedness of $1.5 million
from the Company to H. Martin Rice, a vice president of the Company, was repaid
out of offering proceeds; (ii) indebtedness of $918,000 from the Company to Emro
Marketing Company, a greater than 10% shareholder of the Company ("Emro"), was
repaid out of offering proceeds; and (iii) 193,060 shares of common stock were
repurchased by the Company from Emro for $1.0 million from the offering
proceeds.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company held its Annual Meeting of Stockholders on September 11, 1997. Of
the 15,175,660 shares of common stock outstanding and entitled to vote at this
meeting, 13,377,482 were represented at the meeting, in person or by proxy. The
following matters were voted upon.
15
<PAGE>
1. The election to the Board of Directors of four persons named as nominees for
Director in the Proxy Statement of the Company, to serve as Directors of the
Company, for their respective terms or until their successors shall have been
elected. The result of the vote for each individual Director was:
<TABLE>
<CAPTION>
For Against
--- -------
<S> <C> <C>
Election of Class I directors:
Erez Goren to serve until the 2000 annual
meeting of shareholders 13,285,080 92,400
Alon Goren to serve until the 2000 annual
meeting of shareholders 13,285,080 92,400
Election of Class II director:
James S. Balloun to serve until the 1998 annual
meeting of shareholders 13,286,382 91,100
Election of Class III director:
Evan O. Grossman to serve until the 1999 annual
meeting of shareholders 13,286,382 91,100
</TABLE>
Accordingly, all four nominees were duly elected Directors of the Company.
2. The approval of an amendment to the 1995 Stock Option Plan to increase the
number of shares available for grant thereunder from 4.0 million shares to
5.0 million shares of common stock. The result of the vote was 8,603,357
shares in favor (representing 64.3% of the shares present), 3,937,416
against, 2,504 shares abstained and 834,205 Broker non-votes. Accordingly,
the amendment to the Plan was approved.
3. The approval of the Non-Management Directors' Stock Option Plan. The result
of the vote was 10,189,270 shares in favor (representing 76.2% of the shares
present), 2,351,003 against, 3,004 shares abstained and 834,205 Broker non-
votes. Accordingly, the Plan was approved.
Items 5. Other Information
- -------- -----------------
No events occurred during the quarter covered by the report that would
require a response to any of these items.
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) Reports to be filed on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1997
16
<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: November 13, 1997 By: /s/ John H. Heyman
----------------- ----------------------------------------
John H. Heyman, Executive Vice President
and Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- ------------- ----------------------
<S> <C>
11.1 Statement regarding Computation of Per Share Earnings
27.1 Financial Data Schedule
</TABLE>
18
<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
September 30, September 30,
-------------------------------- --------------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary and Fully Diluted
Pro forma net income (loss) before
extraordinary item........................... $ 428 $ 2,447 $ (302) $ (15,733)
============== ============= ============= =============
Pro forma net income (loss)................... $ 428 $ 2,447 $ (302) $ (15,864)
============== ============= ============= =============
Weighted average Common Stock
outstanding during the period................ 8,300 14,646 8,300 12,237
Cheap stock (1)............................... 2,800 3,198 2,800 2,670
-------------- ------------- ------------- -------------
Total........................................ 11,100 17,844 11,100 14,907
============== ============= ============= =============
Earnings per common and common
equivalent share:
Income (loss) before extraordinary item...... $ 0.04 $ 0.14 $ (0.03) $ (1.05)
Extraordinary loss on early extinguishment
of debt..................................... - - - (0.01)
-------------- ------------- ------------- -------------
Per share amount............................. $ 0.04 $ 0.14 $ (0.03) $ (1.06)
============== ============= ============= =============
</TABLE>
(1) Pursuant to Securities and Exchange Commission Accounting Bulletin No. 83,
common stock and common 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
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 54,543
<SECURITIES> 0
<RECEIVABLES> 16,962
<ALLOWANCES> (200)
<INVENTORY> 5,997
<CURRENT-ASSETS> 78,223
<PP&E> 5,879
<DEPRECIATION> (2,379)
<TOTAL-ASSETS> 88,729
<CURRENT-LIABILITIES> 16,011
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 72,627
<TOTAL-LIABILITY-AND-EQUITY> 88,729
<SALES> 20,790
<TOTAL-REVENUES> 20,790
<CGS> 10,866
<TOTAL-COSTS> 10,866
<OTHER-EXPENSES> 6,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (576)
<INCOME-PRETAX> 3,979
<INCOME-TAX> 1,532
<INCOME-CONTINUING> 2,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,447
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
