<PAGE>
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, 1998 0-22065
RADIANT SYSTEMS, INC.
------------------------------------------------------
(Exact name of registrant 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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 772-3000
--------------
Not applicable
----------------------------------------------------
(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 10, 1998 was
16,062,541.
<PAGE>
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
------------
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of June 30,
1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1998 and 1997 4-5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 6-7
Notes to Condensed Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 16
Item 5: Other Information 16
Item 6: Exhibits and Reports on Form 8-K 16
Signature 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................... $31,154 $47,567
Accounts receivable, net of allowance for
doubtful accounts of $400 and $350............. 18,346 17,557
Inventories..................................... 11,201 8,706
Other short-term assets......................... 4,532 1,867
------- -------
Total current assets.......................... 65,233 75,697
Property and equipment, net...................... 7,171 4,844
Software development costs, net.................. 2,648 1,773
Intangibles, net................................. 7,292 10,332
Other long-term assets........................... 4,654 869
------- -------
$86,998 $93,515
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................ $ 4,460 $ 7,234
Accrued liabilities............................. 4,577 5,887
Client deposits and unearned revenue............ 2,604 4,645
Current portion of long-term debt............... 239 672
-------- --------
Total current liabilities.................... 11,880 18,438
Long-term debt, less current portion............. 4,043 4,056
-------- --------
Total liabilities............................. 15,923 22,494
Shareholders' equity
Common stock, no par value; 30,000,000
shares authorized; 16,044,657 and 15,423,587
shares issued and outstanding.................. - -
Additional paid-in capital...................... 92,031 90,708
Deferred compensation........................... (445) (536)
Accumulated deficit............................. (20,511) (19,151)
-------- --------
71,075 71,021
-------- --------
$ 86,998 $ 93,515
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
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RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- --------------------
1998 1997 1998 1997
------- -------- ------- --------
<S> <C> <C> <C> <C>
REVENUES:
Systems sales........................ $13,793 $ 14,466 $30,440 $ 25,208
Client support, maintenance
and other services................ 5,732 2,694 10,629 4,512
------- ------- ------- --------
Total revenues................... 19,525 17,160 41,069 29,720
COST OF REVENUES:
Systems sales........................ 7,150 7,942 15,146 14,220
Client support, maintenance and
other services.................... 5,062 2,395 9,216 4,143
------- ------- ------- --------
Total cost of revenues........... 12,212 10,337 24,362 18,363
GROSS PROFIT........................... 7,313 6,823 16,707 11.357
OPERATING EXPENSES:
Product development.................. 3,020 1,466 5,813 2,619
Purchased research and
development costs................. - 19,134 - 19,134
Stock compensation expense........... - 1,214 - 1,214
Sales and marketing expenses......... 3,073 1,243 5,896 2,116
Depreciation and amortization........ 1,188 533 2,175 899
General and administrative........... 3,052 1,911 6,101 3,601
------- ------- ------- --------
LOSS FROM OPERATIONS................... (3,020) (18,678) (3,278) (18,226)
Other income, net.................... (40) - (91) -
Interest (income) expense, net....... (432) (44) (920) 165
------- ------- ------- --------
LOSS BEFORE INCOME TAX
PROVISION (BENEFIT).................. (2,548) (18,634) (2,267) (18,391)
Income tax benefit..................... (1,019) - (907) (212)
------- ------- ------- --------
LOSS BEFORE EXTRAORDINARY
ITEM................................. (1,529) (18,634) (1,360) (18,179)
EXTRAORDINARY ITEM:
Loss from early extinguishment
of debt, net of taxes................ - - - 131
------- ------- ------- --------
NET LOSS............................... $(1,529) $(18,634) $(1,360) $(18,310)
======= ======== ======= ========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- --------------------
1998 1997 1998 1997
------- -------- ------- --------
<S> <C> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE:
Loss before extraordinary
item............................... $ (0.10) $ (1.55) $ (0.09) $ (1.67)
Extraordinary loss on early
extinguishment of debt.............. 0.00 0.00 0.00 (0.01)
------- ------- ------- --------
BASIC AND DILUTED LOSS PER SHARE....... $ (0.10) $ (1.55) $ (0.09) $ (1.68)
======= ======= ======= ========
SHARES USED TO COMPUTE BASIC AND
diluted loss per share.............. 15,991 12,045 15,958 10,914
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
For the six months
ended June 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (1,360) $(18,310)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred compensation........................................... 91 -
Depreciation and amortization................................................... 2,175 899
Purchased research and development costs........................................ - 19,134
Stock compensation expense...................................................... - 1,214
Deferred income taxes........................................................... (907) (397)
Income tax benefit.............................................................. - (212)
Discounts earned on software license sales...................................... - 113
Amortization and write off of loan discount and
loan origination fees........................................................ - 332
Imputed interest on shareholder note............................................ 113 -
Changes in assets and liabilities:
Accounts receivable.......................................................... (790) (3,209)
Inventories.................................................................. (2,495) (1,749)
Other assets................................................................. (1,453) (200)
Accounts payable............................................................. (2,774) 1,267
Accrued liabilities.......................................................... (1,588) -
Client deposits and deferred revenues........................................ (2,041) (2,787)
-------- --------
Net cash used in operating activities...................................... (11,029) (3,905)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (3,551) (1,386)
Capitalized software development costs.......................................... (1,098) (460)
Increase in goodwill attributed to acquisitions................................. - (105)
Payment for purchases of acquisitions, net of cash acquired..................... - (4,231)
-------- --------
Net cash used in investing activities...................................... (4,649) (6,182)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock warrants................................. - 960
Proceeds from the issuance of common stock, net of issuance
costs........................................................................ - 24,149
Exercise of employee stock options.............................................. 1,323 -
Repurchase of common stock from shareholders.................................... - (2,122)
Principal payments under capital lease obligations.............................. (127) (190)
Principal payments under loan from shareholders................................. (1,500) (4,094)
Principal payments under long-term debt......................................... (431) (4,532)
Issuance of shareholder loans................................................... - (330)
Other........................................................................... - 98
-------- --------
Net cash (used in) provided by financing activities........................ (735) 13,939
-------- --------
(Decrease) increase in cash and cash equivalents.................................. (16,413) 3,852
Cash and cash equivalents at beginning of year.................................... 47,567 2,342
-------- --------
Cash and cash equivalents at end of period........................................ $ 31,154 $ 6,194
======== ========
</TABLE>
6
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<TABLE>
<CAPTION>
For the six months
ended June 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest..................................................................... $ 137 $ 175
======== ========
Income taxes................................................................. $ 1,678 $ -
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases financed by borrowings under capital
lease obligations................................................................ $ - $ 43
======== ========
Reclassification of S Corporation retained earnings to additional
paid-in capital.................................................................. $ - $ 8,203
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
7
<PAGE>
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 Radiant Systems, Inc. (the
"Company") 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 six months ended June
30, 1998 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
consolidated financial statements as filed in its Annual Report on Form 10-K for
the year ended December 31, 1997.
2. ACQUISITIONS
In May 1997, the Company completed the acquisitions of ReMACS, based in
Pleasanton, California, and RSI Merger Corporation (d.b.a.Twenty/20 Visual
Systems) ("Twenty/20"), based in Dallas, Texas. ReMACS is a leading provider of
back office management systems for clients in the restaurant industry with over
8,000 installed or licensed sites. Twenty/20 is a provider of point of sale and
table management systems for full-service restaurants.
In October 1997, the Company acquired RapidFire Software, Inc. ("RapidFire
Software") and EquiLease Financial Services, Inc. ("EquiLease") (collectively
"RapidFire") based in Hillsboro, Oregon. RapidFire Software is a leading
provider of point of sale systems to the pizza industry and other delivery
restaurants, with installations in over 2,000 restaurant sites nationwide.
EquiLease provides lease financing to certain clients of RapidFire.
In November 1997, the Company completed its acquisition of Logic Shop, Inc.
("Logic Shop"), based in Atlanta, Georgia. Logic Shop is a leading provider of
management software to the convenient automotive service center market, with
over 1,500 sites installed.
3. INCOME TAX BENEFIT
Income tax benefit 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. 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 due to uncertainty surrounding the future utilization of such
deferred tax assets. For the period prior to the Company's initial public
offering, the tax benefit has been presented on a pro forma basis as if the
Company had been liable for federal and state income taxes. The pro forma tax
benefit for the period from January 1, 1997 through February 19, 1997, the date
the Company terminated its S Corporation status, was a benefit of $212,000.
Based on its loss from operations for the six months ended June 30, 1998, the
Company has recorded a tax benefit of $907,000 using an effective tax rate of
40.0%.
In connection with the filing of the Company's 1997 income tax returns, the
Company revised the tax basis of the intangible assets acquired in connection
with its fourth quarter 1997 acquisitions of RapidFire and Logic Shop resulting
in the reduction of intangible assets of $2.3 million.
8
<PAGE>
4. NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," effective for
fiscal years ending after December 15, 1997. The Company adopted the new
guidelines for the calculation and presentation of earnings per share, and
restated all prior periods. Basic loss per share is based on the weighted
average number of shares outstanding. Diluted loss per share is based on the
weighted average number of shares outstanding and the dilutive effect of common
stock equivalent shares ("CSEs") issuable upon the exercise of stock options and
warrants (using the treasury stock method).
The following table represents a reconciliation of basic and dilutive weighted
average shares and loss 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 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic weighted average shares
outstanding................................. 15,991 12,045 15,958 10,914
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................................... - - - -
------- -------- ------- --------
Diluted weighted average shares
outstanding................................. 15,991 12,045 15,958 10,914
======= ======== ======= ========
Net loss used in the computation of basic
and diluted loss per share.................. $(1,529) $(18,631) $(1,360) $(18,310)
======= ======== ======= ========
Loss per share:
Basic and Diluted......................... $ (0.10) $ (1.55) $ (0.09) $ (1.68)
======= ======== ======= ========
</TABLE>
Pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin ("SAB") No. 83, common stock and CSEs issued at prices below the public
offering price during the 12-month period prior to the offering were included in
the calculation as if they were outstanding for all periods presented,
regardless of whether they were dilutive. In February 1998, SEC staff released
SAB No. 98 on computations of earnings per share. SAB No. 98 replaces SAB No. 83
in its entirety and requires, among other items, that only "nominal issuances"
of common stock be reflected in the calculation as if they were outstanding for
all periods presented and that the calculation be made in accordance with SFAS
No. 128 for periods subsequent to the offering. Accordingly, for all periods
presented, common stock equivalents have been excluded from diluted weighted
average shares outstanding, as their impact was antidilutive.
9
<PAGE>
5. ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No.130"). SFAS No. 130 establishes standards for the disclosure of all
components of comprehensive income. Comprehensive income is defined as the
change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. Other
comprehensive income refers to revenues, expenses, gains, and losses that under
generally accepted accounting principles are included in comprehensive income
but bypass net income. Currently, the Company has no other comprehensive income
items. Accordingly, the adoption of SFAS No. 130 in the first quarter 1998 had
no impact on the Company's financial statements.
In 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in its interim financial
reports to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated by the chief decision maker
in deciding how to allocate resources and in assessing performance. SFAS No.
131 also allows the aggregation of segments which meet certain criteria.
Although SFAS No. 131 is not required to be applied to interim statements in the
initial year of application, management believes its current disclosures
contained within the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of its interim reports on SEC Form
10Q and annual report on SEC Form 10K comply with the Statement's requirements.
As a result, the application of SFAS No. 131 will not significantly affect its
financial statement disclosures.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
The Company provides enterprise-wide technology solutions to 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
clients, 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 its solutions to each retailer's
specifications.
The Company derives its revenues primarily from the sale of integrated systems,
which include 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 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 client has. Accordingly, while the typical
sale is the result of a long, complex process, the Company's client usually
continues installing additional sites over an extended period of time. Revenues
from software and systems sales are recognized as products are shipped, provided
that collection is probable and no significant post shipment vendor obligations
remain. Revenues from client support, maintenance and other services are
generally recognized as the service is performed.
Since November 1995, a number of events resulted in strong revenue growth for
the Company. The Company developed new products, established relationships with
new clients and increased sales to existing clients. The Company expanded its
presence into the retail industry in November 1995 by entering into a joint
venture (PrysmTech) to market enterprise-wide technology solutions to cinema
operators. On December 31, 1996, the Company purchased the remaining interest in
PrysmTech. Accordingly, the operations of PrysmTech are reflected in the 1996
financial statements of the Company with a deduction for the minority interest
in the earnings of PrysmTech. Continuing its growth in the retail industry, in
May 1996 the Company purchased Liberty Systems International, Inc. ("LSI"), a
technology solution provider to the quick service restaurant ("QSR") operators.
To broaden its presence in the restaurant market, the Company acquired ReMACS
and Twenty/20, in May 1997 and RapidFire in October 1997. In November 1997, the
Company acquired Logic Shop to serve the convenient automotive service centers.
During this period, the Company also expanded its sales force and continued to
add management, consulting and product development personnel.
As a result of its election to be treated as an S Corporation for income tax
purposes, prior to the completion of its initial public offering in February
1997, the Company was not subject to federal or state income taxes. Pro forma
net loss amounts for the six months ended June 30, 1997 include additional
income tax benefits determined by applying the Company's anticipated statutory
tax rate to pretax loss, adjusted for permanent tax differences. The Company's
S Corporation status terminated upon completion of its initial public offering
in February 1997.
The Company is currently in the process of performing a review of its business
systems, including its computer systems and its product offerings, and is
querying its clients, vendors and resellers as to their progress in identifying
and addressing problems that their computer systems may face in correctly
interrelating and processing date information as the year 2000 approaches and is
reached. The Company does not expect that the cost to modify its information
technology infrastructure to be Year 2000 compliant will be material to its
financial condition or results of operations. To date, the expense of upgrading
product applications to be Year 2000 compliant has not been material. Moreover,
the Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance. In the event that any
of the Company's significant suppliers or clients do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
11
<PAGE>
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 1997
Systems Sales. The Company derives the majority of its revenues from sales and
licensing fees of its headquarters-based, back office management, and point of
sale solutions. Systems sales decreased 4.7% to $13.8 million for the quarter
ended June 30,1998 (the "second quarter 1998"), compared to $14.5 million for
the quarter ended June 30, 1997 (the "second quarter 1997"). The decrease for
the second quarter 1998 resulted from interruptions and delays in client roll
outs of the Company's solutions. Systems sales increased 20.8% to $30.4 million
for the six months ended June 30, 1998 (the "fiscal year 1998"), compared to
$25.2 for the six months ended June 30, 1997 (the "fiscal year 1997"). The
increase for the fiscal year 1998 related to increased sales and license fees
from new and existing clients.
Client Support, Maintenance and Other Services. The Company also derives
revenues from client support, maintenance and other services, which increased
112.8% to $5.7 million for the second quarter 1998, compared to $2.7 million for
the second quarter 1997 and increased 135.6% to $10.6 million for the fiscal
year 1998, compared to $4.5 million for the fiscal year 1997. The increases were
due to increased support, maintenance and services revenues resulting from an
increased install base and from the Company's 1997 acquisitions. Additionally,
increased client demand of professional services such as training, project
management and implementation services contributed to these increases.
Cost of Systems Sales. Cost of systems sales consists primarily of hardware and
peripherals for site-based systems and labor. These costs are expensed as
products are shipped. Cost of systems sales decreased 10.0% to $7.2 million for
the second quarter 1998, compared to $7.9 million for the second quarter 1997.
The decrease was directly attributable to the decrease in systems sales during
the second quarter of 1998. Cost of system sales increased 6.5% to $15.1
million for the fiscal year 1998 from $14.2 million for the fiscal year 1997.
The increase was directly attributable to the increase in systems sales for
fiscal year 1998. Cost of systems sales as a percentage of systems sales
decreased to 51.8% from 54.9% for the second quarter 1998 and 1997,
respectively, and to 49.8% from 56.4% for the fiscal year 1998 and 1997,
respectively. The decreases were due primarily to increased efficiencies
associated with the manufacturing of site-based systems, as well as increased
sales of software licenses which typically have higher gross margins than the
site-based systems sold by the Company.
Cost of Client Support, Maintenance and Other Services. Cost of client support,
maintenance and other services consists primarily of personnel and other costs
associated with the Company's services operations. Cost of client support,
maintenance and other services increased 111.4% to $5.1 million for the second
quarter 1998 from $2.4 million for the second quarter 1997 and increased 122.5%
to $9.2 million for fiscal year 1998 from $4.1 million for fiscal year 1997.
The increases were due primarily to increased wages associated with the effort
of supporting higher revenues in this area. Cost of client support, maintenance
and other services as a percentage of client support, maintenance and other
services revenues decreased to 88.3% from 88.9% for the second quarter 1998 and
1997, respectively, and to 86.7% from 91.8% for fiscal year 1998 and 1997,
respectively, as a result of increased efficiencies and staff utilization.
Product Development Expenses. Product development expenses consist primarily of
wages and materials expended on product development efforts. Product
development expenses increased 106.0% to $3.0 million for the second quarter
1998, compared to $1.5 million for the second quarter 1997 and increased 122.0%
to $5.8 million for fiscal year 1998, compared to $2.6 million for fiscal year
1997. The increases were due to higher development costs associated with new
product development and additional development costs associated with the
Company's 1997 acquisitions. Product development expenses as a percentage of
total revenues increased to 15.5% from 8.5% for the second quarter 1998 and
1997, respectively, and to 14.2% from 8.8% for fiscal year 1998 and 1997,
respectively, as product development expenses increased at a faster pace than
total revenues. The Company capitalizes a portion of its software development
costs. In the second quarter 1998 and 1997, the Company capitalized software
12
<PAGE>
development costs of $455,000, or 13.1% of its total product development costs,
and $258,000, or 14.9% of its total product development costs, respectively.
For fiscal year 1998 and 1997, the Company capitalized software development
costs of $1.1 million, or 15.9% of its total product development costs, and
$460,000, or 14.9% of its total product development costs, respectively.
Sales and Marketing Expenses. Sales and marketing expenses increased 147.2% to
$3.1 million during the second quarter 1998, compared to $1.2 million in the
second quarter 1997 and increased 178.6% to $5.9 million during fiscal year
1998, compared to $2.1 million for fiscal year 1997. The increase was
associated with the Company's 1997 acquisitions, continued expansion of its
sales activities and increased commission expense attributable to higher margin
sales. Sales and marketing expenses as a percentage of total revenues were 15.7%
and 7.2% for the second quarter 1998 and 1997, respectively and 14.4% and 7.1%
for fiscal year 1998 and 1997, respectively.
Depreciation and Amortization. Depreciation and amortization expenses increased
122.9% to $1.2 million for the second quarter 1998, compared to approximately
$533,000 for the second quarter 1997 and increased 141.9% to $2.2 million for
fiscal year 1998, compared to approximately $899,000 for fiscal year 1997. The
increase resulted from an increase in computer equipment and other assets
required to support an increased number of employees and locations, as well as
increased goodwill amortization resulting from acquisitions. Depreciation and
amortization as a percentage of total revenues was 6.1% and 3.1% for the second
quarter 1998 and 1997, respectively, and 5.3% and 3.0% for fiscal year 1998 and
1997, respectively. These increases were primarily due to associated personnel
support costs which increased at a pace higher than associated revenues.
Amortization of capitalized software development costs was approximately
$136,000 and $87,000 for the second quarter 1998 and 1997, respectively, and
approximately $223,000 and $174,000 for fiscal year 1998 and 1997, respectively.
General and Administrative Expenses. General and administrative expenses
increased 59.7% to $3.1 million for the second quarter 1998, compared to $1.9
million for the second quarter 1997 and increased 69.5% to $6.1 million for
fiscal year 1998, compared to $3.6 million for fiscal year 1997. The increase
was due primarily to personnel increases and related costs associated with the
Company's 1997 acquisitions. General and administrative expenses as a
percentage of total revenues were 15.6% and 11.1% for the second quarter 1998
and 1997, respectively, and 14.9% and 12.1% for fiscal year 1998 and 1997,
respectively, as personnel and related expenses grew at a faster rate than
revenues.
Interest (Income) Expense. Interest income increased 881.8% to $432,000 for the
second quarter 1998, compared to $44,000 for the second quarter 1997. For fiscal
year 1998, net interest income was $920,000, compared to interest expense of
$165,000 for fiscal year 1997. The increase resulted primarily from interest
income earned on the proceeds of the sale of 5.4 million shares of the Company's
common stock during the first and third quarters of 1997.
Income Tax 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. 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 all periods
presented, the accompanying financial statements reflect provisions for income
taxes computed in accordance with the provisions of Statement of Accounting
Standards No. 109, "Accounting for Income Taxes". For the period prior to the
Company's initial public offering, the tax benefit has been presented on a pro
forma basis as if the Company had been liable for federal and state income
taxes. The pro forma tax benefit for the period from January 1, 1997 through
February 19, 1997, the date the Company terminated its S Corporation status, was
a benefit of $212,000. As substantially all of the purchased research and
development expenses associated with the ReMACS and
13
<PAGE>
Twenty/20 acquisitions were not deductible for income tax purposes, no income
tax benefit was recognized during the second quarter 1997 compared to a benefit
of 40.0% for the second quarter 1998.
Extraordinary Item. During fiscal year 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. There was no such charge during fiscal year 1998.
Net Loss. Net loss for the second quarter 1998 was $1.5 million, or $0.10 per
share, as compared to net income of $1.1 million, or $0.07 per share for the
second quarter 1997, before giving effect to acquisition related charges. Net
loss for fiscal year 1998, was $1.4 million or $0.09 per share, as compared to
net income of $1.5 million or $0.11 per share during fiscal year 1997, before
extraordinary items and acquisition related charges. Including the acquisition
related charges of approximately $19.7 million, net of tax benefits, net loss
for the second quarter 1997 and fiscal year 1997 was approximately $18.6 million
and $18.3 million, respectively, or $1.55 and $1.68 per share.
LIQUIDITY AND CAPITAL RESOURCES
In July 1997, the Company completed a 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 June 30, 1998, the
Company had $31.2 million in cash and cash equivalents.
The Company used cash from operating activities in fiscal year 1998 and fiscal
year 1997 of $11.0 million and $3.9 million, respectively. In fiscal year 1998,
the Company's uses of cash were the primary result of the net loss for the
period then ended; increased accounts receivable and inventory due to increased
sales; decreased accounts payable and accrued liabilities due to timing of
certain vendor payments; and client deposits and unearned revenues as the
Company delivered products and/or services previously paid by clients. During
fiscal year 1997, the Company's use of operating cash was primarily the result
of increased accounts receivable and inventories.
Cash used in investing activities in fiscal year 1998 and fiscal year 1997 was
$4.6 million and $6.2 million, respectively. The uses of cash in investing
activities for fiscal year 1998 consisted primarily of the purchases of property
and equipment for approximately $3.6 million. During fiscal year 1998, the
Company's integration and client support groups moved into its new 55,000 sq.
ft. leased facility in Alpharetta, Georgia. As a result, the Company purchased
equipment and furniture to accommodate the move. The uses of cash in investing
activities for fiscal year 1997 consisted primarily of the purchases of property
and equipment of approximately $1.4 million and the payment for purchases of
acquisitions, net of cash acquired, of $4.2 million.
Cash of $735,000 was used in financing activities during fiscal year 1998 due
primarily to an advance made by the Company to the former sole shareholder of
RapidFire under its agreement to loan up to $1.5 million, which debt matures
October 31, 2005 and bears interest at 5.0% per annum. Cash of $13.9 million was
provided by financing activities during the fiscal year 1997 due to the issuance
of common stock in the initial public offering offset by the repayment of the
Company's outstanding indebtedness noted above.
14
<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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
- --------------------------------------------------------------------
Not applicable
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company held its Annual Meeting of Shareholders on May 15, 1998. Of the
15,933,939 shares of common stock outstanding and entitled to vote at this
meeting, 14,253,996 were represented at the meeting, in person or by proxy. The
following matters were voted upon.
1. The election to the Board of Directors of two persons named as nominees for
Director in the Proxy Statement of the Company, to serve as Class II
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:
For Against
---------- -------
Election of Class II directors:
James S. Balloun to serve until the 2001 annual
Meeting of shareholders 14,211,572 42,424
John H. Heyman to serve until the 2001 annual 14,170,372 83,624
Meeting of shareholders
Accordingly, both nominees were duly elected Class II 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 5.0 million shares to
6.0 million shares of common stock. The result of the vote was 8,653,490
shares in favor (representing 60.7% of the shares present), 4,754,340
against, 13,390 shares abstained and 832,776 broker non-votes. Accordingly,
the amendment to the Plan was approved.
3. The adoption of an Employee Stock Purchase Plan for the Company. The result
of the vote was 12,887,485 shares in favor (representing 90.4% of the shares
present), 521,895 against, 11,840 shares abstained and 832,776 broker non-
votes. Accordingly, the amendment to the Plan was approved.
ITEMS 5. OTHER INFORMATION
- -------- -----------------
As set forth in the Company's 1998 Proxy Statement, proposals of shareholders
intended to be presented at the Company's 1999 Annual Meeting of Shareholders
must be received at the Company's principal executive offices by December 15,
1998 in order to be eligible for inclusion in the Company's proxy statement and
form of proxy for that meeting.
With respect to any such proposals received by the Company after March 6, 1999,
the persons named in the form of proxy solicited by management in connection
with the 1999 annual meeting of shareholders of the Company will have
discretionary authority to vote on any such shareholder proposals in accordance
with their judgement of what is in the best interests of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits.
16
<PAGE>
The following exhibits are filed with this Report:
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
June 30, 1998
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
Dated: August 13, 1998 By: /s/ John H. Heyman
----------------- -------------------
John H. Heyman, Executive Vice
President and Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
______________ ______________________
27.1 Financial Data Schedule
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from June 30,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 31,154 6,194
<SECURITIES> 0 0
<RECEIVABLES> 18,746 9,090
<ALLOWANCES> (400) (150)
<INVENTORY> 11,201 5,224
<CURRENT-ASSETS> 4,532 726
<PP&E> 0 5,317
<DEPRECIATION> 0 (2,462)
<TOTAL-ASSETS> 86,998 30,532
<CURRENT-LIABILITIES> 11,880 15,636
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 71,075 11,445
<TOTAL-LIABILITY-AND-EQUITY> 86,998 30,532
<SALES> 41,069 29,720
<TOTAL-REVENUES> 41,069 29,720
<CGS> 24,362 18,363
<TOTAL-COSTS> 24,362 18,363
<OTHER-EXPENSES> 19,985 29,583
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (920) 165
<INCOME-PRETAX> (2,267) (18,391)
<INCOME-TAX> (907) (212)
<INCOME-CONTINUING> (1,360) (18,179)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 131
<CHANGES> 0 0
<NET-INCOME> (1,360) (18,310)
<EPS-PRIMARY> (0.09) (1.68)
<EPS-DILUTED> (0.09) (1.68)
</TABLE>
