-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LFI53QEah2cpkdXd48ZwfxbyeJ13kWH8PV7teSiTPpZkmG358C/wUqdQq7ZOWaSj ymAock0/6nFmGkH5VPVw5g== 0000931763-99-002416.txt : 19990817 0000931763-99-002416.hdr.sgml : 19990817 ACCESSION NUMBER: 0000931763-99-002416 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RADIANT SYSTEMS INC CENTRAL INDEX KEY: 0000845818 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 112749765 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22065 FILM NUMBER: 99691965 BUSINESS ADDRESS: STREET 1: 1000 ALDERMAN DR STREET 2: STE A CITY: ALPHARETTA STATE: GA ZIP: 30202 BUSINESS PHONE: 7707723000 MAIL ADDRESS: STREET 1: 1000 ALDERMAN DRIVE STREET 2: STE A CITY: ALPHARETTA STATE: GA ZIP: 30202 10-Q 1 FORM 10-Q FOR PERIOD ENDED JUNE 30, 1999 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, 1999 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.) 3925 Brookside Parkway, Alpharetta, Georgia 30022 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (770) 576-6000 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, 1999 was 16,522,827. 1 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, 1999 and 3 December 31, 1998 Condensed Consolidated Statements of Operations for the Three and 4 Six Months Ended June 30, 1999 and 1998 Condensed Consolidated Statements of Cash Flows for the Six Months 5 Ended June 30, 1999 and 1998 Notes to Condensed Consolidated Financial Statements 6-8 Item 2: Management's Discussion and Analysis of Financial 9-13 Condition and Results of Operations Item 3: Quantitative and Qualitative Disclosures About Market Risks 13 PART II: OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders 14 Item 5: Other Information 14 Item 6: Exhibits and Reports on Form 8-K 14 Signature 14
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- RADIANT SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
June 30, 1999 December 31, 1998 ------------------- ---------------------- (unaudited) ASSETS Current assets Cash and cash equivalents $ 31,927 $ 25,537 Accounts receivable, net of allowance for doubtful accounts of $900 and $750 20,449 17,645 Inventories 12,225 11,965 Other short-term assets 3,524 2,997 ------------- -------------- Total current assets 68,125 58,144 Property and equipment, net 9,011 8,341 Software development costs, net 4,971 3,718 Intangibles and other long-term assets 12,182 13,963 ------------- -------------- $ 94,289 $ 84,166 ============= ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 5,816 $ 4,844 Accrued liabilities 5,619 3,210 Client deposits and unearned revenue 5,265 2,600 Current portion of long-term debt 120 161 ------------- -------------- Total current liabilities 16,820 10,815 Long-term debt, less current portion 4,137 4,106 ------------- -------------- Total liabilities 20,957 14,921 Shareholders' equity Common stock, no par value; 30,000,000 shares authorized; 16,351,600 and 15,505,565 shares issued and outstanding -- -- Additional paid-in capital 94,665 92,144 Deferred compensation (303) (353) Accumulated deficit (21,030) (22,546) ------------- -------------- Total shareholders' equity 73,332 69,245 ------------- -------------- $ 94,289 $ 84,166 ============= ==============
The accompanying notes are an integral part of these condensed consolidated financial statements 3 RADIANT SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Unaudited
For the three months ended For the six months ended June 30, June 30, ------------------------------------- ------------------------------------- 1999 1998 1999 1998 --------------- ----------------- --------------- ----------------- Revenues: System sales $ 21,316 $ 13,793 $ 38,551 $ 30,440 Client support, maintenance and other services 9,264 5,732 16,303 10,629 ------------- ------------ ----------- ------------ Total revenues 30,580 19,525 54,854 41,069 Cost of revenues: System sales 10,519 7,150 19,003 15,146 Client support, maintenance and other services 7,234 5,062 13,120 9,216 ------------- ------------ ----------- ------------ Total cost of revenues 17,753 12,212 32,123 24,362 ------------- ------------ ----------- ------------ Gross profit 12,827 7,313 22,731 16,707 Operating expenses: Product development 2,945 3,020 5,520 5,813 Sales and marketing 3,159 3,073 6,086 5,896 Depreciation and amortization 1,551 1,188 2,930 2,175 General and administrative 3,194 3,052 6,353 6,101 ------------- ------------ ----------- ------------ Income (loss) from operations 1,978 (3,020) 1,842 (3,278) Interest income, net (342) (472) (685) (1,011) ------------- ------------ ----------- ------------ Income (loss) before income tax provision 2,320 (2,548) 2,527 (2,267) (benefit) Income tax provision (benefit) 928 (1,019) 1,011 (907) ------------- ------------ ----------- ------------ Net income (loss) $ 1,392 $ (1,529) $ 1,516 $ (1,360) ============= ============ =========== ============ Earnings (loss) per share: Basic $ 0.09 $ (0.10) $ 0.09 $ (0.09) ============= ============ =========== ============ Diluted $ 0.08 $ (0.10) $ 0.09 $ (0.09) ============= ============ =========== ============ Weighted average shares outstanding Basic 16,313 15,991 16,212 15,958 ============= ============ =========== ============ Diluted 17,965 15,991 17,801 15,958 ============= ============ =========== ============
The accompanying notes are an integral part of these condensed consolidated financial statements 4 RADIANT SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Unaudited
For the six months ended June 30, -------------------------------------------------- 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,516 $ (1,360) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization of deferred compensation 51 91 Depreciation and amortization 3,359 2,175 Imputed interest on shareholder note 113 113 Changes in assets and liabilities: Accounts receivable (2,804) (790) Inventories (261) (2,495) Other assets 608 (2,360) Accounts payable 971 (2,774) Accrued liabilities 2,409 (1,588) Client deposits and deferred revenue 2,665 (2,041) -------------------------- ---------------------- Net cash provided by (used in) operating activities 8,627 (11,029) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (2,645) (3,551) Capitalized software development costs (1,683) (1,098) -------------------------- ---------------------- Net cash used in investing activities (4,328) (4,649) CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of employee stock options 2,528 1,323 Repurchase of common stock (514) -- Shareholder loans (306) (1,500) Employee stock purchase plan 507 -- Principal payments under capital lease obligations (16) (127) Principal payments under long-term debt (107) (431) -------------------------- ---------------------- Net cash provided by (used in) financing activities 2,092 (735) -------------------------- ---------------------- Increase (decrease) in cash and cash equivalents 6,391 (16,413) Cash and cash equivalents at beginning of year 25,536 47,567 -------------------------- ---------------------- Cash and cash equivalents at end of period $ 31,927 $ 31,154 ========================== ====================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 7 $ 137 -------------------------- ---------------------- Income taxes $ -- $ 1,678 ========================== ======================
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 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 three months and six months ended June 30, 1999 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, 1998. 2. Net Income (Loss) Per Share Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of shares outstanding. Diluted net income (loss) per share includes the dilutive effect of stock options. The following table represents a reconciliation of basic and dilutive weighted average shares and earnings (loss) per share.
For the three months For the six months ended June 30, ended June 30, ------------------------------------- ----------------------------------- in thousands except per share data 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- Basic weighted average shares outstanding shares 16,313 15,991 16,212 15,958 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 1,652 -- 1,589 -- ---------------- ---------------- --------------- --------------- Diluted weighted average shares outstanding 17,965 15,991 17,801 15,958 ================ ================ =============== =============== Net earnings (loss) used in the computation of basic and diluted earnings (loss) per share $ 1,392 $ (1,529) $ 1,516 $ (1,360) ================ ================ =============== =============== Earnings (loss) per share: Basic $ 0.09 $ (0.10) $ 0.09 $ (0.09) ================ ================ =============== =============== Diluted $ 0.08 $ (0.10) $ 0.09 $ (0.09) ================ ================ =============== ===============
For the three and six month periods ended June 30, 1999, options to purchase approximately 44,000 and 72,000 shares of common stock, respectively, were excluded from the above reconciliation, as the options were antidilutive for the periods then ended. For the three and six month periods June 30, 1998 all common stock equivalents were excluded from the calculation of diluted weighted average shares outstanding as their impact was antidilutive. 6 3. Segment Reporting Data The Company operates through two primary reportable segments (i) Global Solutions and (ii) Regional Solutions. Although both groups provide enterprise- wide technology solutions to the retail industry, the distinguishing factor between them is primarily the size of the clients served and the nature of the services performed. Global Solutions' clients tend to be clients with greater than fifty owned and operated sites, while Regional Solutions' clients typically have less than fifty owned and operated sites. Additionally, the purchasing behavior of the Global Solutions clients is typically characterized by the use of fewer, larger contracts. These contracts typically involve longer negotiating cycles, and often require the dedication of substantial amounts of working capital and other resources. The accounting policies of the segments are substantially the same as those described in the summary of significant accounting policies included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The Company's management evaluates the performance of the segments based on an internal measure of contribution margin, or income and loss from operations, before certain allocated costs of development and corporate overhead. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. The Other nonreportable segment includes miscellaneous businesses, certain unallocated corporate operating expenses and the elimination of intersegment sales. The summary of the Company's operating segments is as follows (in thousands):
For the three months ended June 30, 1999 Global Regional Solutions Solutions Other Consolidation --------------------- -------------------- ----------------- ---------------------- Revenues $ 25,647 $ 4,933 -- $ 30,580 Contribution margin 7,840 262 $ (363) 7,739 Operating income (loss) 3,119 (778) (363) 1,978
For the three months ended June 30, 1998 ---------------------------------------------------------------------------------------------- Global Regional Solutions Solutions Other Consolidation --------------------- -------------------- ----------------- ------------------- Revenues $ 15,521 $ 4,004 -- $ 19,525 Contribution margin 1,735 (460) $ (52) 1,223 Operating income (loss) (1,929) (1,039) (52) (3,020)
For the six months ended June 30, 1999 ---------------------------------------------------------------------------------------------- Global Regional Solutions Solutions Other Consolidation --------------------- -------------------- ------------------ ----------------- Revenues $ 46,178 $ 8,676 -- $ 54,854 Contribution margin 13,651 10 $ (1,052) 12,609 Operating income (loss) 4,849 (1,955) (1,052) 1,842
For the six months ended June 30, 1998 ---------------------------------------------------------------------------------------------- Global Regional Solutions Solutions Other Consolidation --------------------- -------------------- ----------------- --------------------- Revenues $ 33,534 $ 7,535 -- $ 41,069 Contribution margin 5,812 (791) $ (52) 4,969 Operating income (loss) (1,352) (1,874) (52) (3,278)
7 Identifiable assets allocated between the segments are comprised primarily of accounts receivable, inventory and intangible assets. There have been no material changes in these balances from those reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 4. Subsequent Event On August 1, 1999, the Company entered into an agreement with America Online, Inc. ("AOL") and MovieFone, Inc., a subsidiary of AOL ("MF"), to form a strategic relationship in the retail point of sale business. This relationship, among other things, entails a ten-year marketing and development agreement whereby the Company will develop and manufacture point of sale systems and services for sale to the entertainment segment pursuant to MF's specifications, which will make such point of sale systems interoperable with MF's remote entertainment and event ticketing services. The relationship also contemplates future collaborative efforts between the companies. As part of this relationship, AOL is making two investments. First, AOL will purchase $10.0 million of the Company's common stock at a price of $15 per share. Secondly,upon completion of a mutually agreed-upon business plan, AOL has agreed to invest $25.0 million as well as provide product development and management assistance in a subsidiary of the Company to be formed that will engage in consumer interactive businesses other than in the entertainment segment (e.g., interactive fuel and dispenser business and interactive restaurant self-ordering business upon completion of a mutually agreed upon business plan). In return for its investment, AOL will receive a 15.0% equity interest in the form of preferred stock of this subsidiary. 5. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133) which established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value, and changes in the derivative fair value be recognized currently in earnings unless specific accounting criteria are met. The Company plans to adopt SFAS 133 in the first quarter of fiscal 2001. Management does not believe that adoption of this statement will have a material effect on the consolidated financial statements of the Company. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Under SOP 98-1, computer software costs incurred in the preliminary project state are expensed as incurred. Additional, specified upgrades and enhancements may be capitalized; however, external costs related to maintenance, unspecified upgrades, and enhancements should be recognized as expense over the contract period on a systematic basis. Internal costs incurred for maintenance should be expensed as incurred. SOP 98-1 is effective for the Company's fiscal year beginning January 1, 1999. The adoption of SOP 98-1 during the first quarter ended March 31, 1999 did not have a material effect on the consolidated financial statements of the Company. 8 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, 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 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 clients usually continue 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. Throughout the course of 1997 and 1998, the Company entered additional retail markets, facilitated primarily through the acquisition of several companies and product offerings. Combined with its existing products, the Company began developing, marketing, deploying and supporting a variety of products. As a result, during 1998 the Company's management determined that significant internal cost efficiencies and increased market appeal could be obtained through the consolidation of its legacy products into a single family of products, Lighthouse(TM). This consolidation effort integrated the best business and technical knowledge from multiple markets. During 1998, the Company began developing Lighthouse, its next generation software technology. Management believes its Lighthouse generation of software products, which leverages both Microsoft Windows(R) CE and NT operating systems, represents an innovative platform based on open, modular software and hardware architecture and offers increased functionality and stability compared to other open systems in the marketplace. Additionally, management believes the Lighthouse family of products will uniquely position the Company to serve the needs of retailers who cross business segments (i.e., a convenience store or cinema with a fast food operation), further differentiating the Company's systems from those of its competitors and allowing the Company to significantly reduce future development and support costs. Additionally, the Company continues to review products and solutions utilizing the Internet. In 1998, a number of factors impacted the Company's revenue growth and operating results. Most notable was the fact that a number of the Company's larger clients were involved in mergers and acquisitions which, for a variety of reasons, interrupted or delayed roll outs of the Company's products. In addition, the purchasing behavior of the Company's largest clients became increasingly characterized by the use of fewer, larger contracts. These contracts typically involve longer negotiating cycles, require the dedication of substantial amounts of working capital and other resources, and in general require costs that may substantially precede recognition of associated revenues. Moreover, in return for larger, longer-term purchase commitments, clients often demand more stringent acceptance criteria, which can also cause revenue recognition delays. The above, coupled with investments by the Company in product development and other areas of business, negatively impacted operating results and contributed to losses during 1998. 9 Results of Operations Three and six months ended June 30, 1999 compared to three and six months ended June 30, 1998 System 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. System sales increased 54.5% to $21.3 million for the quarter ended June 30,1999 (the "second quarter 1999"), compared to $13.8 million for the quarter ended June 30, 1998 (the "second quarter 1998"). System sales increased 26.6% to $38.6 million for the six months ended June 30, 1999 (the "fiscal year 1999"), compared to $30.4 for the six months ended June 30, 1998 (the "fiscal year 1998"). In addition to increased sales and license fees from new and existing clients during fiscal year 1999, the Company's Lighthouse software product was released to food service clients during the period, which contributed to this increase in system sales. Client Support, Maintenance and Other Services. The Company also derives revenues from client support, maintenance and other services, which increased 61.6% to $9.3 million for the second quarter 1999, compared to $5.7 million for the second quarter 1998 and increased 53.4% to $16.3 million for the fiscal year 1999, compared to $10.6 million for the fiscal year 1998. These increases were due to increased support, maintenance and services revenues within existing markets, resulting from an increased install base. Additionally, increased client demand for professional services such as training, project management and implementation services contributed to these increases. Cost of System Sales. Cost of system sales consists primarily of hardware and peripherals for site-based system and labor. These costs are expensed as products are shipped. Cost of system sales increased 47.1% to $10.5 million for the second quarter 1999, compared to $7.2 million for the second quarter 1998. Cost of system sales increased 25.5% to $19.0 million for the fiscal year 1999 from $15.1 million for the fiscal year 1998. These increases were directly attributable to the increase in system sales for fiscal year 1999. Cost of system sales as a percentage of system sales decreased to 49.3% for the second quarter 1999 from 51.8% for the second quarter 1998, and to 49.3% during fiscal year 1999 from 49.8% for fiscal year 1998. The decreases were due primarily to increased efficiencies associated with the manufacturing of site-based systems, as well as increased sales of software-only licenses. 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 42.9% to $7.2 million for the second quarter 1999 from $5.1 million for the second quarter 1998 and increased 42.4% to $13.1 million for fiscal year 1999 from $9.2 million for fiscal year 1998. 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 78.1% from 88.3% for the second quarter 1999 and 1998, respectively, and to 80.5% from 86.7% for fiscal year 1999 and 1998, 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 decreased 2.5% to $2.9 million for the second quarter 1999, compared to $3.0 million for the second quarter 1998 and decreased 5.0% to $5.5 million for fiscal year 1999, compared to $5.8 million for fiscal year 1998. These decreases were due primarily to higher capitalization of software costs associated with the Company's development of its Lighthouse generation of products. In the second quarter 1999 and 1998, the Company capitalized software development costs of $829,000, or 21.9% of its total product development costs, and $455,000, or 13.1% of its total product development costs, respectively. For fiscal year 1999 and 1998, the Company capitalized software development costs of $1.7 million, or 23.4% of its total product development costs, and $1.1 million, or 15.9% of its total product development costs, respectively. Product development expenses as a percentage of total revenues decreased to 9.6% from 15.5% for the 10 second quarter 1999 and 1998, respectively, and to 10.1% from 14.2% for fiscal year 1999 and 1998, respectively, as total revenues increased while product development expenses decreased. Sales and Marketing Expenses. Sales and marketing expenses increased 2.8% to $3.2 million during the second quarter 1999, compared to $3.1 million in the second quarter 1998 and increased 3.2% to $6.1 million during fiscal year 1999, compared to $5.9 million for fiscal year 1998. These increases were associated with continued expansion of sales activities and increased commission expense attributable to higher sales. Sales and marketing expenses as a percentage of total revenues were 10.3% and 15.7% for the second quarter 1999 and 1998, respectively, and 11.1% and 14.4% for fiscal year 1999 and 1998, respectively, as total revenues increased at a pace higher than related sales and marketing expenses. Depreciation and Amortization. Depreciation and amortization expenses increased 30.6% to $1.6 million for the second quarter 1999, compared to $1.2 million for the second quarter 1998 and increased 34.7% to $2.9 million for fiscal year 1999, compared to $2.2 million for fiscal year 1998. The increase resulted from an increase in computer equipment, leasehold improvements and other assets required to support an increased number of employees and locations. Depreciation and amortization as a percentage of total revenues was 5.1% and 6.1% for the second quarter 1999 and 1998, respectively, and 5.3% for both fiscal years 1999 and 1998. The decrease in the second quarter 1999 was primarily due to associated revenues increasing at a pace higher than associated personnel support. Amortization of capitalized software development costs was approximately $250,000 and $136,000 for the second quarter 1999 and 1998, respectively, and approximately $429,000 and $223,000 for fiscal year 1999 and 1998, respectively. General and Administrative Expenses. General and administrative expenses increased 4.7% to $3.2 million for the second quarter 1999, compared to $3.1 million for the second quarter 1998 and increased 4.1% to $6.4 million for fiscal year 1999, compared to $6.1 million for fiscal year 1998. The increase was due primarily to personnel increases needed to support additional revenues. General and administrative expenses as a percentage of total revenues were 10.4% and 15.6% for the second quarter 1999 and 1998, respectively, and 11.6% and 14.9% for fiscal year 1999 and 1998, respectively, as total revenues grew at a pace faster than associated personnel and related expenses. Interest Income,Net. Net interest income decreased 27.5% to $342,000 for the second quarter 1999, compared to $472,000 for the second quarter 1998. For fiscal year 1999, net interest income decreased 32.2% to $685,000, compared to net interest income of $1.0 million for fiscal year 1998. The Company's interest income is derived from the investment of its cash and cash equivalents. The decreases in net interest income resulted primarily from a decline in cash and cash equivalents from an average cash balance of $33.6 million during the second quarter 1998 and $39.4 million during the fiscal year 1998 to compared to an average cash balance $31.5 million during the second quarter 1999 and $28.7 million during the fiscal year 1999. See--"Liquidity and Capital Resources." Income Tax Provision (Benefit). The Company recorded a tax provision of 40.0% in both the second quarter 1999 and fiscal year 1999. In both the second quarter 1998 and fiscal year 1998, the Company recorded a tax benefit of 40.0%. Net Income (Loss). Net income for the second quarter 1999 was $1.4 million, or $0.08 per diluted share, an increase of $2.9 million, or $0.18 per share over a net loss of $1.5 million, or $0.10 per share for the second quarter 1998. Net income for fiscal year 1999 was $1.5 million or $0.09 per share, an increase of $2.9 million or $0.18 per share over a net loss of $1.4 million or $0.09 per share for fiscal year 1998. Liquidity and Capital Resources As of June 30, 1999, the Company had $31.9 million in cash and cash equivalents and working capital of $51.3 million. As more fully described in Note 4 of the Condensed Consolidated Financial Statements, AOL has agreed to purchase $10.0 million of the Company's stock at a price of $15 per share and may invest an additional $25.0 million in a subsidiary of the Company at a later date. The Company provided cash from operating activities in fiscal year 1999 of $8.6 million compared to a use of cash of $11.0 million in fiscal year 1998. In fiscal year 1999, the Company 11 provided cash from operating activities primarily due to net income of $1.5 million during the period, as well as increased accounts payable and accrued liabilities due to timing of certain vendor payments liabilities, partially offset by decreases in accounts receivable, inventory and other assets. Additionally, client deposits and unearned revenues increased during fiscal year 1999 as the Company received cash from clients in advance of products and/or services being delivered. In fiscal year 1998, the Company's uses of cash were the primary result of increased accounts receivable and inventory due to increased sales, coupled with a decrease in client deposits and unearned revenues as the Company delivered products and/or services previously paid by clients. Cash used in investing activities during fiscal year 1999 and 1998 was $4.3 million and $4.6 million, respectively. The uses of cash in investing activities for fiscal year 1999 consisted primarily of the purchases of property and equipment for $2.6 million and capitalized software costs of $1.7 million. The uses of cash in investing activities during fiscal year 1998 consisted primarily of the purchases of property and equipment of $3.6 million and capitalized software costs of $1.1 million. Cash of $2.1 million was provided by financing activities during fiscal year 1999 due primarily to cash received from the exercise of employee stock options of $2.5 million, partially offset by the Company's purchase of common stock pursuant to its stock repurchase program for approximately $514,000. 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 an agreement to loan up to $1.5 million to that individual, which debt matures October 31, 2005 and bears interest at 5.0% per annum. In September 1998, the Board of Directors of the Company authorized a stock repurchase program pursuant to which management is authorized to repurchase up to 3,000,000 shares of common stock of the Company. As of August 10, 1999, the Company had repurchased in the open market an aggregate of 680,154 shares of its common stock for a total of $4.5 million. These purchases were, and any future purchase will be, financed from the Company's cash reserves. Year 2000 Issue The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or invoices sent, or engage in similar normal business activities. The Company continues to undergo a review of its internal systems, including those that support financial, manufacturing and general business operations. To date, the Company has identified some systems that require upgrades to be Year 2000 compliant, including certain business software applications. The business application upgrades are in progress, and are accommodated by existing software maintenance contracts with outside providers. The Company anticipates that it will complete its review of its internal systems and expects that all-necessary upgrades to ensure Year 2000 compliance will be completed by the end of the third quarter of 1999. All costs associated with analyzing the Year 2000 Issue or making conversions to existing systems are being expensed as incurred. Management presently believes that the costs to modify its information technology infrastructure to be Year 2000 compliant will not have a material adverse impact to its financial condition or results of operations during any quarterly or annual reporting period. Additionally, the Company is in the process of conducting an inventory and business risk assessment of its non-information technology systems. Company personnel are conducting communications with all of its significant suppliers of goods and services to determine the extent to which the Company's operations and systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. To date, the Company's analysis of key third parties has not revealed any issues that would prevent them from continuing to provide products and services through the Year 2000 transition. There can be no guarantee that the systems of other companies on which the Company's operations and systems rely will 12 be timely converted and would not have an adverse effect on the Company's systems or results of operations. However, the Company is currently identifying and considering various contingency options to minimize the risk of any Year 2000 problems. Finally, the Company has substantially completed the testing of its existing product offerings. The testing includes and analysis of both standard products, currently offered, and all custom products that have been offered or developed, which the Company currently supports. The testing is not performed with respect to any legacy products that the Company does not currently sell or support. In the event that the testing determines that a product may not be Year 2000 compliant, the Company has or will develop either a fix, or a migration path to a product that is Year 2000 compliant. To date, the costs to modify the Company's software to be Year 2000 compliant has not been material. Furthermore, management believes that any additional costs to be incurred will not be material nor have a material adverse impact on its financial condition or results of operations during any quarter or annual reporting period. The Company, to date, has utilized predominantly internal resources to reprogram, or replace, and test its hardware and software for Year 2000 modifications. The Company has not fully completed a contingency plan for business activities that are susceptible to a substantial risk of any disruptions from a Year 2000 related event. Because the Company has not fully assessed its risk from potential Year 2000 failures, the Company has not yet developed detailed contingency plans specific to Year 2000 events for any business activity. The Company is aware of the possibility that certain business activities may be hereafter identified as at risk. The Company is developing contingency plans for such business activities as and if such determinations are made. The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material difference include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. 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 - -------------------------------------------------------------------- The Company's financial instruments that are subject to market risks are its cash and cash equivalents. During the three and six month periods ended June 30, 1999, the weighted average interest rate on its cash balances was approximately 4.73% and 4.68%, respectively. A 10.0% decrease in this rate would have impacted interest income by approximately $38,000 and $72,000, respectively, during the three and six month periods ended June 30, 1999. 13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The Company held its 1999 Annual Meeting of Shareholders on June 28, 1999. Of the 16,317,410 shares of common stock outstanding and entitled to vote at the meeting, 14,946,303 shares were represented at the meeting in person or by proxy. The only matter voted upon at the meeting was the election to the Board of Directors of the Company of two persons named as nominees for director in the Proxy Statement of the Company, to serve as Class III directors of the Company for a term expiring at the 2002 annual meeting of shareholders of the Company. The voting results were as follows: Nominee For Against ------- --- ------- Evan O. Grossman 14,912,592 33,711 Eric B. Hinkle 14,888,263 58,040 The term of office of the following other directors continued after the meeting: Erez Goren, Alon Goren, John H. Heyman and James S. Balloun. Item 5. Subsequent Event - ------------------------- On August 1, 1999, the Company entered into an agreement with America Online, Inc. ("AOL") and MovieFone, Inc., a subsidiary of AOL ("MF"), to form a strategic relationship in the retail point of sale business. This relationship, among other things, entails a ten-year marketing and development agreement whereby the Company will develop and manufacture point of sale systems and services for sale to the entertainment segment pursuant to MF's specifications, which will make such point of sale systems interoperable with MF's remote entertainment and event ticketing services. The relationship also contemplates future collaborative efforts between the companies. As part of this relationship, AOL is making two investments. First, AOL will purchase $10.0 million of the Company's common stock at a price of $15 per share. Secondly, upon completion of a mutually agreed-upon business plan, AOL has agreed to invest $25.0 million as well as provide product development and management assistance in a subsidiary of the Company to be formed that will engage in consumer interactive businesses other than in the entertainment segment (e.g., interactive fuel and dispenser business and interactive restaurant self-ordering business upon completion of a mutually agreed upon business plan). In return for its investment, AOL will receive a 15.0% equity interest in the form of preferred stock of this subsidiary. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits. The following exhibit is filed with this Report: 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1999 RADIANT SYSTEMS, INC Dated: August 13, 1999 By: /s/ John H. Heyman --------------- ---------------------------- John H. Heyman, Executive Vice President and Chief Financial Officer 14 EXHIBIT INDEX Exhibit Number Description of Exhibit - -------------- ---------------------- 27.1 Financial Data Schedule 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 31,927 0 21,349 (900) 12,225 3,524 16,632 (7,621) 94,289 16,820 0 0 0 0 73,332 94,289 54,854 54,854 32,123 32,123 20,889 0 (585) 2,527 1,011 1,516 0 0 0 1,516 0.09 0.09
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