Radiant Systems (RADS) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

Commission File Number: 0-22065

RADIANT SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Georgia	11-2749765
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3925 Brookside Parkway, Alpharetta, Georgia	30022
(Address of principal executive offices)	(Zip code)

(770) 576-6000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ¨

Indicate by check mark whether the registrant has submitted electronically and has posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 2, 2010, there were 38,998,231 shares of the registrant’s no par value common stock outstanding.

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

		PAGE
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009 (unaudited)		3
	Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2010 (unaudited) and 2009 (unaudited)		4
	Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended September 30, 2010 (unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 (unaudited) and 2009 (unaudited)		6
	Notes to Condensed Consolidated Financial Statements (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
Item 4.	Controls and Procedures		35
PART II	OTHER INFORMATION
Item 6.	Exhibits		36
Signatures			37

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	September 30, 2010			December 31, 2009
ASSETS
Current assets
Cash and cash equivalents	$	57,623		$	15,521
Accounts receivable, net		57,499			42,515
Inventories		38,175			29,662
Deferred tax assets		6,061			5,690
Other current assets		3,235			4,587
Total current assets		162,593			97,975
Property and equipment, net		23,953			24,923
Software development costs, net		13,046			11,810
Deferred tax assets, non-current		2,096			1,323
Goodwill		109,575			107,819
Intangible assets, net		35,691			42,428
Other long-term assets		9,693			2,319
Total assets	$	356,647		$	288,597
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	6,000		$	6,000
Accounts payable		18,963			17,724
Accrued liabilities		28,077			23,462
Customer deposits and unearned revenues		27,421			21,157
Current portion of capital lease payments		527			842
Total current liabilities		80,988			69,185
Capital lease payments, net of current portion		238			576
Long-term debt, net of current portion		10,243			56,626
Deferred tax liabilities, non-current		4,886			4,265
Other long-term liabilities		11,727			4,602
Total liabilities		108,082			135,254
Shareholders’ equity
Preferred stock, no par value; 5,000,000 shares authorized, no shares issued		—			—
Common stock, no par value; 100,000,000 shares authorized; 38,808,547 and 33,239,198 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		—			—
Additional paid-in capital		242,470			164,769
Retained earnings (accumulated deficit)		6,780			(9,081	)
Accumulated other comprehensive loss		(685	)		(2,345	)
Total shareholders’ equity		248,565			153,343
Total liabilities and shareholders’ equity	$	356,647		$	288,597

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 September 30,						For the nine months ended September 30,
	2010			2009			2010			2009
Revenues:
Systems	$	42,180		$	29,619		$	118,565		$	86,499
Maintenance, subscription and transaction services		36,993			33,501			108,769			96,781
Professional services		10,076			7,820			28,490			26,395
Total revenues		89,249			70,940			255,824			209,675
Cost of revenues:
Systems		23,589			16,051			65,955			45,278
Maintenance, subscription and transaction services		17,497			16,340			52,023			47,430
Professional services		6,903			5,353			20,376			17,401
Total cost of revenues		47,989			37,744			138,354			110,109
Gross profit		41,260			33,196			117,470			99,566
Operating expenses:
Product development		6,670			5,911			18,567			16,624
Sales and marketing		11,817			10,288			35,374			31,378
Depreciation of fixed assets		1,466			1,143			4,416			3,625
Amortization of intangible assets		2,157			2,380			6,509			6,969
General and administrative		10,087			7,701			29,231			26,142
Impairment of goodwill (see Note 4)		—			—			(313	)		—
Other charges and income, net (see Note 8)		—			—			—			1,153
Total operating expenses		32,197			27,423			93,784			85,891
Income from operations		9,063			5,773			23,686			13,675
Interest income		(116	)		(16	)		(123	)		(55	)
Interest expense		293			542			1,050			1,869
Other income, net		(3	)		(21	)		(128	)		(88	)
Income before taxes		8,889			5,268			22,887			11,949
Income tax provision		1,387			1,847			7,026			4,321
Net income	$	7,502		$	3,421		$	15,861		$	7,628
Net income per share:
Basic income per share	$	0.21		$	0.10		$	0.46		$	0.23
Diluted income per share	$	0.20		$	0.10		$	0.44		$	0.23
Weighted average shares outstanding:
Basic		35,354			33,002			34,290			32,834
Diluted		36,916			34,269			35,808			33,500

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(in thousands)

(unaudited)

	Common Stock					Additional Paid-in Capital			(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
	Shares			Amount
BALANCE, December 31, 2009		33,239		$	—	$	164,769		$	(9,081)	$	(2,345)		$	153,343
Components of comprehensive income:
Net income		—			—		—			15,861		—			15,861
Foreign currency translation adjustment		—			—		—			—		1,660			1,660
Total comprehensive income		—			—		—			15,861		1,660			17,521
Exercise of employee stock options		1,902			—		14,315			—		—			14,315
Stock issued under Employee Stock Purchase Plan		11			—		166			—		—			166
Net tax benefits related to stock-based compensation		—			—		3,940			—		—			3,940
Restricted stock awards		214			—		1,910			—		—			1,910
Stock-based compensation		—			—		2,072			—		—			2,072
Issuance of common stock		3,502			—		56,365			—		—			56,365
Tax withholdings related to net share settlement of stock options		—			—		(421	)		—		—			(421	)
Retirement of repurchased Company stock		(60	)		—		(646	)		—		—			(646	)
BALANCE, September 30, 2010		38,808		$	—	$	242,470		$	6,780	$	(685	)	$	248,565

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the nine months ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	15,861		$	7,628
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,078			11,942
Provision for deferred income taxes		(608	)		1,631
Impairment of goodwill		(313	)		—
Stock-based compensation expense		3,971			3,555
Other charges and income, net (see Note 8)		—			(190	)
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable		(15,220	)		3,069
Inventories		(8,627	)		2,418
Other assets		2,154			(2,239	)
Accounts payable		1,700			(2,331	)
Accrued liabilities		4,682			7,867
Customer deposits and unearned revenue		2,057			3,802
Other liabilities		3,020			(495	)
Net cash provided by operating activities		21,755			36,657
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(4,379	)		(4,217	)
Capitalized software development costs		(2,913	)		(3,307	)
Proceeds from notes receivable		233			—
Purchase of customer list		—			(2,000	)
Proceeds from sale of building		—			216
Purchase price adjustment for Hospitality EPoS		—			(97	)
Net cash used in investing activities		(7,059	)		(9,405	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock		56,491			—
Proceeds from exercise of employee stock options		13,669			854
Proceeds from shares issued under Employee Stock Purchase Plan		166			169
Tax benefits related to stock-based compensation		3,940			114
Tax withholdings related to net share settlement of stock options		(421	)		—
Principal payments on capital lease obligations		(653	)		(626	)
Principal payments on term loan under JPM Credit Agreement		(4,500	)		(4,500	)
Proceeds from revolving loan under the JPM Credit Agreement		16,350			21,200
Repayments of revolving loan under the JPM Credit Agreement		(58,350	)		(47,700	)
Proceeds from research and development notes payable		134			239
Repayments of research and development notes payable		—			(81	)
Net cash provided by (used in) financing activities		26,826			(30,331	)
Effect of exchange rate changes on cash and cash equivalents		580			1,332
Increase (decrease) in cash and cash equivalents		42,102			(1,747	)
Cash and cash equivalents at beginning of period		15,521			16,450
Cash and cash equivalents at end of period	$	57,623		$	14,703

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the nine months ended September 30,
	2010			2009
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	912		$	1,827
Cash paid for income taxes	$	6,102		$	1,795
SCHEDULE OF NON-CASH TRANSACTIONS:
Assets acquired under capital leases	$	—		$	155
Purchases of property and equipment	$	28		$	126
Amendment to agreement with Century Payments, Inc.	$	9,000		$	—
Removal of capitalized contract costs	$	(2,849	)	$	—
Net share settlement of stock options exercised, repurchased and retired	$	646		$	—
Accrued expenses related to issuance of common stock	$	(126	)	$	—
Non-cash transactions related to acquisitions:
Purchase price adjustment related to Hospitality EPoS	$	—		$	(16	)
Purchase price adjustment related to Jadeon	$	—		$	(108	)
Purchase price adjustment related to Orderman	$	—		$	(214	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. BASIS OF PRESENTATION AND ACCOUNTING PRONOUNCEMENTS

Basis of Presentation

The information contained in this report is filed by Radiant Systems, Inc. and subsidiaries (“Radiant,” the “Company,” “we,” “us,” or “our”). In the opinion of management, the unaudited interim condensed consolidated financial statements of Radiant, included herein, have been prepared on a basis consistent with the December 31, 2009 audited consolidated financial statements, and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Radiant’s Form 10-K for the year ended December 31, 2009, as updated and superseded by Radiant’s Current Report on Form 8-K dated June 25, 2010 (the “June 25, 2010 8-K”). Radiant’s results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of future operating results.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The accompanying unaudited condensed consolidated financial statements of Radiant have been prepared in accordance with generally accepted accounting principles applicable to interim financial statements, the general instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

As described in the June 25, 2010 8-K, effective January 1, 2010, the Company reorganized its business segments to better reflect the Company’s management structure and revenue streams as well as to better identify the operational and geographic scope of its segments. The change resulted in three reportable segments: (1) Hospitality-Americas, (2) Retail & Entertainment-Americas and (3) International. Prior to this change, the Company’s reportable segments were Hospitality and Retail. The June 25, 2010 8-K also provides prior-period segment information which has been recast as a result of these organizational changes.

Repurchased or Reacquired Company Stock

The Company records repurchased or reacquired Company stock at cost and allocates this value to additional paid-in capital.

Net Income Per Share

Basic net income per common share is computed by dividing net income by the weighted average number of shares outstanding. In the event of a net loss, dilutive loss per share is the same as basic loss per share. Diluted net income per share includes the dilutive effect of stock options. A reconciliation of the weighted average number of common shares outstanding assuming dilution is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Weighted average common shares outstanding		35,354		33,002		34,290		32,834
Dilutive effect of outstanding stock options		1,562		1,267		1,518		666
Weighted average common shares outstanding assuming dilution		36,916		34,269		35,808		33,500

For the three months ended September 30, 2010 and 2009, options to purchase approximately 0.7 million and 3.2 million shares of common stock, respectively, were excluded from the above reconciliation, as the options were anti-dilutive for the periods then ended. For the nine months ended September 30, 2010 and 2009, options to purchase approximately 1.5 million and 3.9 million shares of common stock, respectively, were excluded from the above reconciliation, as the options were anti-dilutive for the periods then ended.

8

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Comprehensive Income (Loss)

The Company follows FASB ASC Topic 220,Comprehensive Income, (“ASC 220”). ASC 220 establishes the rules for the reporting of comprehensive income and its components. The Company’s comprehensive income (loss) includes net income and foreign currency translation adjustments. Total comprehensive income for the three months ended September 30, 2010 and 2009 was approximately $16.4 million and $9.2 million, respectively. Total comprehensive income for the nine months ended September 30, 2010 and 2009 was approximately $17.5 million and $22.4 million, respectively.

Financing Costs Related to Long-Term Debt

Costs associated with obtaining long-term debt are deferred and amortized over the term of the related debt. The Company incurred financing costs equal to $1.2 million related to the JPM Credit Agreement during the first half of 2008. The costs were deferred and are being amortized over the life of the loan, which is five years. Amortization of these financing costs was approximately $0.1 million for each of the three month periods ended September 30, 2010 and 2009. Amortization of these financing costs was approximately $0.2 million and $0.3 million for the nine months ended September 30, 2010 and 2009, respectively.

Fair Value of Financial Instruments

The Company follows the guidance of FASB ASC section 825-10-50 (“ASC 825-10-50”) for disclosures about fair value of its financial instruments. The Company also follows the guidance of FASB ASC section 820-10-35 (“ASC 820-10-35”) to measure the fair value of its financial instruments. ASC 820-10-35 establishes a framework for measuring fair value under accounting principles generally accepted in the United States of America (“U.S. GAAP”) and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10-35 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820-10-35 are described below:

• Level 1 – Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

• Level 2 – Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

• Level 3 – Pricing inputs that are generally unobservable inputs and not corroborated by market data.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

• Cash and equivalents, accounts receivable, notes receivable, and accounts payable – The carrying amount of these items approximates fair value.

• Long-term debt — Term loan – To estimate the fair value of our term loan, which is not quoted on an exchange, the Company used those interest rates that were currently available to it for issuance of debt with similar terms and remaining maturities. At September 30, 2010, the fair value of the $15.5 million principal amount of the term loan under the JPM Credit Agreement was approximately $15.2 million.

• Long-term debt — Revolving credit loan – To estimate the fair value of our revolving credit facility, which is not quoted on an exchange, the Company uses those interest rates currently available to it in conjunction with management’s estimate of the amounts and timing of the repayment of principal amounts and related interest. At September 30, 2010, the Company had no revolving loan facility borrowings. See Note 7 for additional discussion of the Company’s credit facility.

9

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Accounting Pronouncements

Recently Issued Standards

In October 2009, the FASB issued Accounting Standards Update No. 2009-14 (“ASU 2009-14”),Software (Topic 985): Certain Revenue Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force. This ASU establishes that tangible products that contain software that works together with the nonsoftware components of the tangible product to deliver the tangible product’s essential functionality are no longer within the scope of software revenue guidance. These items should be accounted for under other appropriate revenue recognition guidance. We are required to adopt this ASU prospectively for new or materially modified agreements as of January 1, 2011 and concurrently with ASU 2009-13, which is described below. Full retrospective application is optional and early adoption is permitted at the beginning of a fiscal year. We are currently evaluating the impact of this ASU on our financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13 (“ASU 2009-13”),Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force. This ASU amends the criteria for separating consideration in multiple-deliverable arrangements, which will, as a result, separate multiple-deliverable arrangements more often than under existing U.S. GAAP. Additionally, this ASU establishes a selling price hierarchy for determining the selling price of a deliverable. The ASU also eliminates the residual method of revenue allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. This guidance requires that management determine its best estimate of selling price in a manner consistent with that used to determine the price to sell the deliverable on a stand-alone basis. This ASU significantly expands the disclosures required for multiple-deliverable revenue arrangements with the objective of disclosing judgments related to these arrangements and the effect that the use of the relative selling-price method and changes in those judgments have on the timing and amount of revenue recognition. We are required to adopt this ASU prospectively for new or materially modified agreements as of January 1, 2011 and concurrently with ASU 2009-14, which is described above. Full retrospective application is optional and early adoption is permitted at the beginning of a fiscal year. We are currently evaluating the impact of this ASU on our financial statements.

10

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

2. STOCK-BASED COMPENSATION

Radiant has adopted equity incentive plans that provide for the grant of incentive and non-qualified stock options and restricted stock awards to directors, officers and other employees pursuant to authorization by the Board of Directors. The exercise price of all options equals the market value on the date of the grant. In addition, Radiant provides employees stock purchase rights under its Employee Stock Purchase Plan (“ESPP”). The ESPP permits employees to purchase Radiant common stock at the end of each quarter at 95% of the market price on the last day of the quarter. Based on these terms, the ESPP will not result in any future stock compensation expense. The Company has authorized approximately 19.6 million shares for awards of stock options and restricted stock, of which approximately 1.7 million shares are available for future grants as of September 30, 2010.

The Company accounts for equity-based compensation in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”), which requires the Company to measure the cost of employee services received in exchange for all equity awards granted, including stock options and restricted stock awards, based on the fair market value of the award as of the grant date. The estimated fair value of the Company’s equity-based awards, less expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis. The non-cash stock-based compensation expense from stock options and restricted stock awards was included in the condensed consolidated statements of operations as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Cost of revenues - systems	$	48		$	28		$	131		$	105
Cost of revenues - maintenance, subscription and transaction services		28			19			73			62
Cost of revenues - professional services		41			66			107			227
Product development		142			56			345			177
Sales and marketing		240			154			648			583
General and administrative		816			643			2,667			2,402
Total non-cash stock-based compensation expense		1,315			966			3,971			3,556
Estimated income tax benefit		(497	)		(354	)		(1,501	)		(1,274	)
Total non-cash stock-based compensation expense, net of tax benefit	$	818		$	612		$	2,470		$	2,282
Impact on net income per share and diluted net income per share	$	0.02		$	0.02		$	0.07		$	0.07

The Company capitalized less than $0.1 million in stock-based compensation expense related to product development in each of the three and nine-month periods ended September 30, 2010 and 2009.

11

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Stock Options

The exercise price of each stock option equals the market price of Radiant’s common stock on the date of grant. Most options are scheduled to vest equally over a three or four-year period or when certain stock performance requirements are met. These stock performance requirements include a provision that allows for early vesting if certain stock price targets are met. The Company recognizes stock-based compensation expense using the graded vesting attribution method. Outstanding options expire no later than ten years from the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The weighted average assumptions used in the model for the three and nine-month periods ended September 30, 2010 and 2009 are outlined in the following table:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2010	2009	2010	2009
Expected volatility	71%	70%	69 -71%	69% -70%
Expected life (in years)	3-4	3-4	3-4	3-4
Expected dividend yield	0.0%	0.0%	0.0%	0.0%
Risk-free interest rate	1.1%	1.9%	1.1 -2.0%	1.6 -2.2%

The computation of the expected volatility assumption used in the Black-Scholes-Merton calculations for new grants is based on a combination of historical and implied volatilities. When establishing the expected life assumption, the Company reviews annual historical employee exercise behavior of option grants with similar vesting periods. The risk-free interest rate is based on the U.S. Treasury yield curve at the grant date, using a remaining term equal to the expected life of the option. The total expense to be recorded in future periods will depend on several variables, including the number of stock-based awards that vest, pre-vesting cancellations and the fair value of those vested awards.

A summary of the changes in stock options outstanding under our stock-based compensation plans during the nine months ended September 30, 2010 is presented below:

(in thousands, except per share data)	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2009		5,875		$	9.37		3.30	$	14,656
Granted		536		$	13.47
Exercised		(1,902	)	$	7.53
Forfeited or cancelled		(61	)	$	17.96
Outstanding at September 30, 2010		4,448		$	10.53		3.15	$	29,319
Vested or expected to vest at September 30, 2010		4,389		$	10.53		3.11	$	28,923
Exercisable at September 30, 2010		3,191		$	10.75		2.40	$	20,342
Exercisable at December 31, 2009		4,455		$	9.51		2.98	$	10,278

12

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The weighted average grant-date fair value of options granted during the three-month periods ended September 30, 2010 and 2009 was $8.02 and $5.17, respectively. The weighted average grant-date fair value of options granted during the nine-month periods ended September 30, 2010 and 2009 was $7.21 and $1.69, respectively. The total intrinsic value, the difference between the exercise price and the market price on the date of exercise, of options exercised during the three-month periods ended September 30, 2010 and 2009, was $8.7 million and $0.9 million, respectively, and $14.8 million and $1.0 million for the nine-month periods ended September 30, 2010, and 2009, respectively. The total fair value of options that vested during each of the three-month periods ended September 30, 2010 and 2009 was approximately $0.2 million. The total fair value of options that vested during the nine-month periods ended September 30, 2010 and 2009 was approximately $2.9 million and $3.2 million, respectively. There were unvested options outstanding to purchase approximately 1.3 million shares and 1.8 million shares as of September 30, 2010 and 2009, respectively, with a weighted-average grant-date fair value of $4.92 and $3.40, respectively. None of the 1.3 million shares that were unvested at September 30, 2010 had a vesting period based on stock performance requirements. Of the 1.8 million shares that were unvested at September 30, 2009, there were 0.3 million shares that had a vesting period based on stock performance requirements. The unvested shares have a total unrecognized compensation expense as of September 30, 2010 and 2009 equal to approximately $3.1 million and $2.0 million, respectively, net of estimated forfeitures, which will be recognized over the weighted average periods of 1.1 years and 0.9 years, respectively. The Company recognized stock-based compensation expense related to employee and director stock options equal to approximately $0.7 million and $0.6 million for the three months ended September 30, 2010 and 2009, respectively, and approximately $2.0 million and $2.3 million for the nine months ended September 30, 2010 and 2009, respectively. Cash received from stock options exercised was approximately $7.6 million and $0.8 million during the three-month periods ended September 30, 2010 and 2009, respectively, and $13.7 million and $0.9 million for the nine-month periods ended September 30, 2010 and 2009, respectively.

Restricted Stock Awards

The Company awarded less than 0.1 million shares of restricted stock to employees during each of the three-month periods ended September 30, 2010 and 2009. The Company awarded approximately 0.2 million shares and 0.4 million shares of restricted stock to employees during the nine-month periods ended September 30, 2010 and 2009, respectively. These restricted stock awards vest at various times over a three-year period from the date of grant. The weighted average grant-date fair value of restricted stock awards granted during the three-month periods ended September 30, 2010 and 2009 was $14.82 and $10.11 per share, respectively. The weighted average grant-date fair value of restricted stock awards granted during the nine-month periods ended September 30, 2010 and 2009 was $13.55 and $3.35 per share, respectively. The Company recognized stock-based compensation expense related to restricted stock awards equal to approximately $0.6 million and $0.4 million for the three months ended September 30, 2010 and 2009, respectively, and approximately $1.9 million and $1.3 million for the nine months ended September 30, 2010 and 2009, respectively. The total fair value of restricted stock awards that vested during the three-month period ended September 30, 2010 was less than $0.1 million. No restricted stock awards vested during the three-month period ended September 30, 2009. The total fair value of restricted stock awards that vested during the nine-month periods ended September 30, 2010 and 2009 was approximately $0.7 million and $0.4 million, respectively. There were unvested restricted stock awards outstanding at September 30, 2010 and 2009 equal to approximately 0.8 million shares and 0.6 million shares, respectively, with a weighted-average grant-date fair value of $8.62 and $6.90 per share, respectively. The unvested restricted stock awards had a total unrecognized compensation expense as of September 30, 2010 and 2009 equal to approximately $3.5 million and $2.5 million, respectively, which will be recognized over the weighted average periods of 1.5 years and 2.0 years, respectively. The unvested restricted stock awards outstanding are included in the calculation of common shares outstanding as of September 30, 2010.

3. ACQUISITIONS

There were no acquisitions during the periods covered by this report.

13

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

4. GOODWILL AND INTANGIBLE ASSETS

In accordance with FASB ASC Topic 350,Intangibles—Goodwill and Other (“ASC 350”), we classify purchased intangibles into three categories: (1) goodwill; (2) finite-lived intangible assets subject to amortization; and (3) indefinite-lived intangible assets. Goodwill and indefinite-lived intangible assets are not amortized. As required by ASC 350, these assets are tested for impairment on at least an annual basis.

Goodwill

Goodwill is recognized when the consideration paid for a business acquisition exceeds the fair value of the net assets acquired, including tangible and intangible assets. Changes in the carrying amount of goodwill for the nine months ended September 30, 2010 are as follows (in thousands):

	Hospitality- Americas			Retail & Entertainment- Americas			International			Total
Gross goodwill		47,770			58,346			24,883			130,999
Accumulated impairment losses		(2,252	)		(17,008	)		(3,920	)		(23,180	)
BALANCE, December 31, 2009	$	45,518		$	41,338		$	20,963		$	107,819
Impairment charge adjustment for Quest (1)		—			313			—			313
Currency translation adjustments related to acquisitions		—			3,385			57			3,442
Currency translation adjustments related to impairment losses		—			(1,609	)		(390	)		(1,999	)
Gross goodwill		47,770			61,731			24,940			134,441
Accumulated impairment losses		(2,252	)		(18,304	)		(4,310	)		(24,866	)
BALANCE, September 30, 2010	$	45,518		$	43,427		$	20,630		$	109,575

(1) During the year ended December 31, 2009, the Company recognized a provisional non-cash charge of approximately $17.0 million related to the impairment of Quest’s goodwill. A true-up adjustment of approximately $0.3 million related to this impairment charge was recorded in the second quarter of 2010.

14

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Intangible Assets

Intangible assets recorded in connection with business acquisitions are stated at their fair value, determined as of the date of acquisition, less accumulated amortization, if applicable. These assets consist of finite-lived and indefinite-lived intangibles, including core and developed technology, customer relationships, noncompete agreements, trademarks and tradenames. Amortization of finite-lived intangible assets is recognized on a straight-line basis over their estimated useful lives. A summary of the Company’s intangible assets as of September 30, 2010 and December 31, 2009 is as follows (in thousands):

	Weighted Average Amortization Lives		September 30, 2010					December 31, 2009
			Gross Carrying Value		Accumulated Amortization			Gross Carrying Value		Accumulated Amortization
Hospitality-Americas
Core and developed technology		3.2 years	$	12,500	$	(12,500	)	$	12,500	$	(12,500	)
Reseller network		15.0 years		9,200		(4,114	)		9,200		(3,654	)
Direct sales channel		10.0 years		3,600		(2,415	)		3,600		(2,145	)
Covenants not to compete		3.3 years		1,600		(1,599	)		1,600		(1,569	)
Trademarks and tradenames		Indefinite		1,300		—			1,300		—
Trademarks and tradenames		5.0 years		300		(299	)		300		(254	)
Customer list and contracts		4.2 years		7,195		(4,431	)		7,195		(3,147	)
Total Hospitality-Americas				35,695		(25,358	)		35,695		(23,269	)
Retail & Entertainment-Americas
Core and developed technology		4.5 years		8,110		(6,145	)		7,952		(5,540	)
Reseller network		10.1 years		9,739		(4,869	)		9,437		(4,004	)
Subscription sales		4.0 years		1,400		(1,400	)		1,400		(1,400	)
Covenants not to compete		10.0 years		150		(97	)		150		(86	)
Trademarks and tradenames		Indefinite		1,303		—			1,200		—
Trademarks and tradenames		6.0 years		700		(554	)		700		(467	)
Customer list and contracts		9.7 years		4,738		(1,450	)		4,719		(1,109	)
Backlog		2 months		92		(92	)		92		(92	)
Total Retail & Entertainment-Americas				26,232		(14,607	)		25,650		(12,698	)
International
Core and developed technology		4.3 years		8,717		(3,191	)		9,148		(1,623	)
Reseller network		7.0 years		6,160		(2,004	)		6,428		(1,361	)
Trademarks and tradenames		Indefinite		1,633		—			1,720		—
Customer list and contracts		10.0 years		1,895		(487	)		1,910		(350	)
Total International				18,405		(5,682	)		19,206		(3,334	)
Other intangible assets				2,021		(1,015	)		2,021		(843	)
Total intangible assets			$	82,353	$	(46,662	)	$	82,572	$	(40,144	)

15

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The table below summarizes the approximate amortization expense, assuming no future acquisitions, dispositions or impairments of intangible assets, for the following 12-month periods subsequent to September 30, 2010 (in thousands):

12-month period ended September 30,
2011	$	8,177
2012		5,653
2013		4,555
2014		4,072
2015		2,742
Thereafter		6,256
	$	31,455

16

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

5. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

A summary of the Company’s accounts receivable as of September 30, 2010 and December 31, 2009 is as follows (in thousands):

	September 30,			December 31,
	2010			2009
Trade receivables billed	$	57,153		$	43,220
Trade receivables unbilled		3,929			3,127
		61,082			46,347
Less allowance for doubtful accounts		(3,583	)		(3,832	)
	$	57,499		$	42,515

The Company maintains allowances for doubtful accounts for estimated losses that may result from the inability of customers to make required payments. Estimates are developed by using standard quantitative measures based on customer payment practices and history, inquiries, credit reports from third parties and other financial information. If the financial condition of the Company’s customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required. Bad debt expense totaled approximately $0.1 million and less than $0.1 million for the three-month periods ended September 30, 2010 and 2009, respectively, and totaled approximately $0.3 million and $0.5 million for the nine-month periods ended September 30, 2010 and 2009, respectively.

6. INVENTORY

Inventories consist principally of computer hardware and software media and are stated at the lower of cost (first-in, first-out method) or market. A summary of the Company’s inventory as of September 30, 2010 and December 31, 2009 is as follows (in thousands):

	September 30,		December 31,
	2010		2009
Raw materials	$	25,236	$	14,451
Work in process		334		375
Finished goods		12,605		14,836
	$	38,175	$	29,662

17

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

7. DEBT

Prior to January 2008, the Company had a senior secured credit facility with Wells Fargo Foothill, Inc. (the “WFF Credit Agreement”). The WFF Credit Agreement provided for extensions of credit, upon satisfaction of certain conditions, in the form of revolving loans in an aggregate principal amount of up to $15 million and a term loan facility in an aggregate principal amount of up to $31 million. The revolving loan amount available to the Company was derived from a monthly borrowing base calculation using the Company’s various accounts receivable balances. The amount derived from this borrowing base calculation was further reduced by the total amount of letters of credit outstanding. Loans under the WFF Credit Agreement bore interest, at the Company’s option, at either the London Interbank Offering Rate (“LIBOR”) plus two and one half percent or at the prime rate of Wells Fargo Bank, N.A.

The WFF Credit Agreement was scheduled to expire on March 31, 2010. However, it was refinanced on January 2, 2008 upon the execution of the credit agreement with JPMorgan Chase Bank, N.A., as arranger and administrative agent, and JPMorgan Chase Bank, N.A, SunTrust Bank, Bank of America, BBVA Compass Bank and Wachovia Bank, N.A., as lenders (the “JPM Credit Agreement”). The JPM Credit Agreement and subsequent amendments thereto provide for extensions of credit, upon satisfaction of certain conditions, in the form of revolving loans in an aggregate principal amount of up to $80 million and a term loan facility in an aggregate principal amount of up to $30 million. The Company has the right to increase the revolving credit commitment by up to $25 million, subject to the terms and conditions set forth in the JPM Credit Agreement. As of September 30, 2010, aggregate borrowings under this facility totaled $15.5 million, comprised of $15.5 million in term loan facility borrowings and no amounts outstanding under the revolving loan facility. As of September 30, 2010, revolving loan borrowings available to the Company were equal to $80.0 million.

The JPM Credit Agreement is guaranteed by the Company and its subsidiaries and is secured by the assets of the Company and its subsidiaries. The maturity date of the JPM Credit Agreement is January 2, 2013. Interest accrues on amounts outstanding under the loan facility, at the Company’s option, at either (1) LIBOR plus a margin ranging between 1.25% and 2.00%, based upon the Company’s consolidated leverage ratio, as defined, or (2) the higher of the administrative agent’s prime rate or one-half of one percent over the federal funds effective rate plus a margin ranging between 0.25% and 1.00%, based on the Company’s consolidated leverage ratio, as defined. The JPM Credit Agreement contains certain customary representations and warranties from the Company. It also contains customary covenants, including: use of proceeds; limitations on liens; limitations on mergers, consolidations and sales of the Company’s assets; and limitations on related party transactions. In addition, the JPM Credit Agreement requires the Company to comply with various financial covenants, including maintaining leverage and fixed charge coverage ratios, as defined. The leverage ratio covenant limits the Company’s consolidated indebtedness to a multiple of three times its consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) as determined on a pro forma basis over the prior four quarters. The fixed charge coverage ratio requires the Company to maintain the ratio of its consolidated EBITDA as determined on a pro forma basis less capital expenses to its fixed charges (which includes regularly scheduled principal payments, consolidated interest expense, taxes paid or payable in accordance with U.S. GAAP, and restricted payments) to at least 1.2 to 1 for periods ending in 2008, 1.3 to 1 for periods ending in 2009, and 1.35 to 1 thereafter. The JPM Credit Agreement also contains certain customary events of default, including defaults based on events of bankruptcy and insolvency, nonpayment of principal, interest or fees when due (subject to specified grace periods), breach of specified covenants, change in control and material inaccuracy of representations and warranties. The Company was in compliance with its financial and non-financial covenants as of September 30, 2010.

In the third quarter of 2008, the Company assumed research and development loans with the Austrian government in the amount of $0.1 million in conjunction with the acquisition of Orderman, bearing interest at approximately 2.50%, which were repaid in the third quarter of 2009. In the fourth quarter of 2008, the Company entered into an additional research and development loan with the Austrian government in the amount of $0.7 million, bearing interest at approximately 2.50%. As of September 30, 2010, approximately $0.7 million was outstanding on this loan. This loan matures on March 31, 2013.

In the second quarter of 2005, the Company entered into an amended and restated promissory note in the amount of $1.5 million with the previous shareholders of Aloha Technologies, Inc., acquired by the Company in January 2004. During the fourth quarter of 2005, the Company modified the amended promissory note by reducing the $1.5 million principal amount to approximately $1.0 million. The decrease was the result of agreed upon purchase price adjustments. The principal on this note was originally agreed to be paid over the course of the third and fourth quarters of 2008 and the first quarter of 2009, but was paid in full during the first quarter of 2008 in conjunction with the execution of the JPM Credit Agreement.

18

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The following is a summary of long-term debt and the related balances as of September 30, 2010 and December 31, 2009 (in thousands):

Description of Debt	September 30, 2010		December 31, 2009
Revolving credit loan under the JPM Credit Agreement bearing interest at LIBOR plus the applicable margin, as defined, and at the Alternative Base Rate plus the applicable margin, as defined (3.50% as of September 30, 2010), maturing on January 2, 2013	$	—	$	42,000
Term loan under the JPM Credit Agreement bearing interest at LIBOR plus the applicable margin, as defined (1.56% as of September 30, 2010), maturing on January 2, 2013		15,500		20,000
Research and development loan from the Austrian government bearing interest at approximately 2.50%, maturing on March 31, 2013		743		626
Total		16,243		62,626
Less: Current portion of long-term debt		6,000		6,000
Long-term debt, net of current portion	$	10,243	$	56,626

Approximate annual maturities of notes payable for the following 12-month periods subsequent to September 30, 2010 are listed below (in thousands):

12-month period ended September 30,
2011	$	6,000
2012		7,500
2013		2,743
	$	16,243

19

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

8. OTHER INCOME AND CHARGES

Write-off of Third-Party Software Licenses

During the first quarter of 2009, the Company determined that it would not use certain third-party software licenses and recorded a write-off charge of $0.5 million as a result.

Severance and Restructuring Charge

During the first quarter of 2009, the Company recorded a charge of $0.7 million related to severance costs and restructuring of the organization. This charge resulted from efforts to align the Company’s cost structure with its revenues in light of the severe economic downturn that began in the second half of 2008.

Sale of Building

During the first quarter of 2009, the Company sold a building for cash proceeds of approximately $0.2 million. A net gain of approximately $0.1 million was recognized as a result of this transaction.

Lease Restructuring Charges – Brookside II Building, Alpharetta, Georgia

During the third quarter of 2008, the Company amended a sublease agreement for certain facilities located in Alpharetta, Georgia, in order to reduce future operating costs. In accordance with FASB ASC Topic 420,Exit or Disposal Cost Obligations (“ASC 420”), the Company recorded a lease restructuring charge based on the fair value of the remaining lease payments at the amendment date less the estimated sublease rentals that could reasonably be obtained from the property. The restructuring charges were not attributable to any of the Company’s reportable segments.

This amendment resulted in a restructuring charge of approximately $0.9 million in the third quarter of 2008, which consisted of $0.3 million for construction allowance and $0.6 million of lease restructuring reserves associated with the amendment to the sublease. As of September 30, 2010, approximately $0.3 million related to the lease commitments remained in the restructuring reserve to be paid. The Company anticipates the remaining payments will be made by the first quarter of 2013 (lease expiration). The table below summarizes the activity in the restructuring reserve (in thousands):

	Short-Term			Long-Term			Total
Balance, December 31, 2009	$	183		$	233		$	416
Expenses charged against restructuring reserve		(50	)		(71	)		(121	)
Balance, September 30, 2010	$	133		$	162		$	295

Lease Restructuring Charges – Alexander Building, Alpharetta, Georgia

During the third quarter of 2005, the Company decided to consolidate certain facilities located in Alpharetta, Georgia, in order to reduce future operating costs. This resulted in the abandonment of one facility, which formerly housed the Company’s customer support call center. The restructuring charges were not attributable to any of the Company’s reportable segments. In accordance with ASC 420, the Company recorded a lease restructuring charge based on the fair value of the remaining lease payments at the abandonment date less the estimated sublease rentals that could reasonably be obtained from the property.

This consolidation resulted in a restructuring charge of approximately $1.5 million in the third quarter of 2005, which consisted of $1.2 million for facility consolidations and $0.3 million of fixed asset write-offs associated with the facility consolidation. As of September 30, 2010, approximately $0.1 million related to the lease commitments remained in the restructuring reserve to be paid. The Company anticipates the remaining payments will be made by the fourth quarter of 2010 (lease expiration). The table below summarizes the activity in the restructuring reserve (in thousands):

	Short-Term			Long-Term		Total
Balance, December 31, 2009	$	180		$	—	$	180
Expenses charged against restructuring reserve		(123	)		—		(123	)
Balance, September 30, 2010	$	57		$	—	$	57

20

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

9. SEGMENT REPORTING

We currently operate in three segments: (1) Hospitality-Americas, (2) Retail & Entertainment-Americas and (3) International. The Hospitality-Americas segment represents our North and South American restaurants business, which includes fast food, delivery, quick service and table service restaurant operators. Our Retail & Entertainment-Americas segment is comprised of our other North and South American business lines which serve petroleum and convenience retailers, specialty retailers and entertainment venues, including movie theaters, stadiums and arenas. The International segment focuses on our foreign operations outside of the Company’s other two segments, and primarily focuses on restaurant businesses and petroleum and convenience retail businesses. These segments became effective January 1, 2010 and replace the former reportable segments of Hospitality and Retail. All information reported for fiscal year 2009 has been reclassified to present data in accordance with the new segments.

The reportable segments were identified based on the manner in which management reviews operating results and makes decisions regarding the allocation of the Company’s resources. Each segment focuses on delivering site management systems, including point-of-sale, self-service kiosk, and back-office systems, designed specifically for each of the core vertical markets. The Company’s segments derive revenues from the sale of (i) products, including system software and hardware, and (ii) services, including client support, maintenance, training, custom software development, hosting, electronic payment processing and implementation services.

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 Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission. Management evaluates the financial performance of the segments based on direct operating income, which is profit or loss before the allocation of certain corporate costs.

The following table presents revenue for the Company’s reportable segments as well as a reconciliation of segment direct operating income to the Company’s consolidated income before taxes (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenues:
Hospitality-Americas	$	54,630		$	41,419		$	154,643		$	122,752
Retail & Entertainment-Americas		23,871			19,923			66,510			57,878
International		9,618			8,862			31,469			27,168
Corporate		1,130			736			3,202			1,877
Total revenues	$	89,249		$	70,940		$	255,824		$	209,675
Direct operating income:
Hospitality-Americas	$	14,323		$	8,585		$	38,217		$	27,490
Retail & Entertainment-Americas		7,268			5,515			19,545			16,421
International		1,112			699			4,873			2,857
Corporate		107			33			555			60
Total segment direct operating income		22,810			14,832			63,190			46,828
Indirect corporate operating costs (a)		(9,202	)		(5,093	)		(26,197	)		(19,378	)
Indirect depreciation and amortization expense (b)		(3,230	)		(3,000	)		(9,649	)		(9,066	)
Stock-based compensation expense (c)		(1,315	)		(966	)		(3,971	)		(3,556	)
Interest and other, net (d)		(174	)		(505	)		(486	)		(2,879	)
Total income before taxes	$	8,889		$	5,268		$	22,887		$	11,949

(a) Represents unallocated corporate expenses including central marketing, product development and general and administrative costs.

(b) Depreciation expense and amortization of intangible assets for each reportable segment are included in a separate schedule within this note.

(c) See Note 2 for additional discussion of stock-based compensation expense.

(d) Unless otherwise stated, the items in this category are not attributable to any of our reportable segments. This amount for the nine-month period ended September 30, 2010 includes a $0.3 million reduction of the 2009 goodwill impairment charge related to Quest within our Retail & Entertainment-Americas segment (second quarter 2010). This amount for the nine-month period ended September 30, 2009 includes a write-off charge of approximately $0.5 million for certain third-party software licenses that were deemed unusable (first quarter 2009), a charge of approximately $0.7 million related to severance costs and restructuring of the organization (first quarter 2009), and a net gain of approximately $0.1 million on the sale of a building (first quarter 2009).

21

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Segment assets consist primarily of accounts receivable, goodwill and intangible assets. The following table presents assets for the Company’s reportable segments as of September 30, 2010 and December 31, 2009 (in thousands):

	September 30, 2010		December 31, 2009
Assets:
Hospitality-Americas	$	102,006	$	98,349
Retail & Entertainment-Americas		75,609		72,082
International		56,880		59,242
Corporate		122,152		58,924
Total assets	$	356,647	$	288,597

The following table presents depreciation and amortization expense for the Company’s reportable segments (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Depreciation and amortization:
Hospitality-Americas	$	1,065	$	1,087	$	3,189	$	3,208
Retail & Entertainment-Americas		716		1,051		2,161		3,061
International		1,032		748		3,146		2,122
Corporate		1,550		1,119		4,582		3,551
Total depreciation and amortization	$	4,363	$	4,005	$	13,078	$	11,942

10. INCOME TAX

The Company follows the guidance issued by the FASB related to accounting for uncertainty in income taxes. This guidance, included in ASC Topic 740,Income Taxes, prescribes a consistent recognition threshold and measurement attribute, as well as clear criteria for subsequently recognizing, derecognizing and measuring such tax positions, for financial statement purposes. The guidance also requires expanded disclosure with respect to the uncertainty in income taxes. During the three-month and nine-month periods ended September 30, 2010, the reserve for uncertainty in income taxes was increased by approximately $0.2 million and $0.4 million, respectively.

Consistent with the Company’s continuing practice, interest and/or penalties related to income tax matters are recorded as part of income tax expense. The Company has accrued less than $0.1 million of interest and penalties associated with uncertain tax positions during the three and nine-month periods ended September 30, 2010.

The Company’s effective tax rates for the three months ended September 30, 2010 and 2009 were equal to 15.6% and 35.1%, respectively, inclusive of discrete events. The Company’s effective tax rates for the nine months ended September 30, 2010 and 2009 were 30.7% and 36.2%, respectively. The quarter-over-quarter and year-over-year decrease is primarily attributable to discrete events including the completion of a multi-year research and development credit and tax planning due to the lapse of IRC Section 954(c)(6). IRC Section 954(c)(6) generally excludes from U.S. federal income tax certain dividends, interest, rents and royalties received or accrued by one controlled foreign corporation (“CFC”) of a U.S. multinational enterprise from a related CFC that would otherwise be taxable pursuant to the subpart F regime. The tax provision permitting the look thru rule lapsed on December 31, 2009; therefore, certain CFC income is included in the annual effective tax rate. Proposed legislation has not been enacted as of September 30, 2010 but tax planning resulted in the reduction of the majority of the 954(c)(6) income inclusion as a discrete event during the quarter ended September 30, 2010.

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RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

11. RELATED PARTY TRANSACTIONS

None

12. SIGNIFICANT EVENTS

Amended Financial Arrangement – Radiant Payment Services

In 2008, the Company expanded its business services with the launch of Radiant Payment Services (“RPS”), a business aimed at selling and servicing electronic payment processing. At that time, we entered into an agreement with Century Payments, Inc. (“Century”), which obtained and serviced new customers on behalf of RPS.

Effective April 1, 2010, the Company amended its agreement with Century. The amendment restructured the financial arrangement between RPS and Century, gave Century the ability to bundle Radiant products with electronic payment processing services, and requires RPS to provide custom development of certain tools for Century’s use. Due to the transfer of roles, responsibilities and risks from RPS to Century under the new agreement, the Company concluded that it is appropriate to account for the revenues, under this new agreement, on a net basis. RPS received consideration for the amended agreement in the amount of approximately $11.2 million, which is comprised of a $2.2 million one-month promissory note, paid on July 28, 2010, and a $9.0 million 24-month promissory note, due on June 28, 2012, both of which are guaranteed and earn interest at 4.5%.

Approximately $2.8 million of the consideration from Century to RPS relates to repayment of the unamortized balance of capitalized contract costs that RPS had previously paid to Century. The $2.8 million balance was being amortized by the Company over the expected life of the customer contracts but was removed from our balance sheet upon repayment by Century under the amended agreement. The Company deferred the remaining $8.4 million of consideration related to the products and services in the amended agreement and expects to recognize these revenues over the next three to four years as they are earned. Approximately $1.4 million of the deferred revenue was recognized during the first nine months of 2010.

As of September 30, 2010, RPS had approximately $7.0 million in deferred revenue associated with this agreement. Of this amount, $3.4 million is included in the condensed consolidated balance sheets under the caption “Customer deposits and unearned revenue” in current liabilities and $3.6 million is included in the caption “Other long-term liabilities.”

Common Stock Issuance

On September 15, 2010, the Company completed a public offering of 3.5 million shares of its common stock at a price of $17.00 per share. We received net proceeds from the offering of approximately $56.4 million after deducting discounts and commissions paid to the underwriters and other expenses incurred related to the offering. We used a portion of the net proceeds from the offering to pay down the outstanding balance under the revolving portion of our credit facility. The remaining net proceeds will be used to fund working capital requirements and for general corporate purposes, including potential acquisitions.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Management’s Discussion and Analysis (“MD&A”) is intended to facilitate an understanding of Radiant’s business and results of operations. This MD&A should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2009, as updated and superseded by Radiant’s Current Report on Form 8-K dated June 25, 2010, as well as the condensed consolidated financial statements and the accompanying notes to condensed consolidated financial statements included elsewhere in this report. MD&A consists of the following sections:

• Overview: A summary of Radiant’s business and opportunities

• Results of Operations: A discussion of operating results

• Liquidity and Capital Resources: An analysis of cash flows, sources and uses of cash, contractual obligations and financial position

• Critical Accounting Policies and Procedures: A discussion of critical accounting policies that require the exercise of judgments and estimates

• Recent Accounting Pronouncements: A summary of recent accounting pronouncements and the effects on the Company

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Overview

We are a leading provider of technology solutions for managing site operations in the hospitality and retail industries. With more than 100,000 installations worldwide, our customers include leading brands and venues in the restaurant and food service, sports and entertainment, petroleum and convenience, and specialty retail markets. Our solutions allow our customers to improve customer service and loyalty, improve speed of service, increase revenue per transaction through suggestive selling, loyalty programs and point of purchase promotion displays, and optimize labor and inventory resources. At the core of our solution portfolio is a robust point-of-sale, or POS, solution, consisting of software and hardware that can be deployed as a touch-screen terminal, self-service kiosk or wireless handheld device. We also provide a range of software-as-a-service, or SaaS, offerings to our customers, including online ordering, loyalty promotion, gift card management, theft and fraud prevention, and store and enterprise analytics. The growth of our SaaS offerings, which are sold on a subscription basis, has allowed us to increase the value we provide to our customers and to increase our recurring revenue, which we define as maintenance, subscription and transaction services revenue.

We seek to differentiate our products and services by providing retailers and foodservice operators with technology designed to allow them to provide exceptional service at the critical point of consumer interaction. We do this by developing and selling hardware, software and services that address the unique requirements of the highly specialized store environments in which our customers operate. We support our technology solutions with services such as software and hardware support, installation, training and solutions consulting.

Security has become a driving factor in our industry as our customers try to meet ever escalating governmental requirements directed toward the prevention of identity theft, as well as operating safeguards imposed by the credit and debit card associations. In September 2006, these card associations established the PCI Security Standards Council to oversee and unify industry standards in the areas of credit card data security. We believe we are a leader in providing systems and software solutions that meet the payment application requirements, and we will continue to help the industry define new standards across the payment process, educate businesses on how to reduce theft by meeting the Payment Card Industry Data Security Standard (PCI DSS) requirement process, and build new technologies outside of our point-of-sale software to combat theft.

We operate in three segments: (1) Hospitality-Americas, (2) Retail & Entertainment-Americas and (3) International. The Hospitality-Americas segment represents our North and South American restaurants business, which includes fast food, delivery, quick service and table service restaurant operators. Our Retail & Entertainment-Americas segment is comprised of our other North and South American business lines which serve petroleum and convenience retailers, specialty retailers and entertainment venues, including movie theaters, stadiums and arenas. The International segment focuses on our foreign operations outside of the Company’s other two segments, and primarily focuses on restaurant businesses and petroleum and convenience retail businesses. These segments became effective January 1, 2010 and replace the former reportable segments of Hospitality and Retail. All information reported for fiscal year 2009 has been recast to present data in accordance with the new segments.

Each segment focuses on delivering site management systems, including point-of-sale, self-service kiosk, and back-office systems, designed specifically for each of the core vertical markets. We believe our customers benefit from a number of competitive advantages gained through our 25-year history of success in our industry segments. These advantages include our globally trusted brand names, large installed base, customizable platforms and our investment in research and development of new products for our industry segments.

The point-of-sale markets in which we operate are intensely competitive and highly dynamic, categorized by advances in technology, product introductions and the ability to respond to security standards. This competitive environment and the expectation in the marketplace that technology will continue to improve while becoming less expensive results in significant pricing pressures. Our ability to compete generally depends on how well we navigate within this environment. To compete successfully we must continue to commercialize our technology, develop new products that meet constantly evolving customer requirements, continually improve our existing products, processes and services faster than our competitors, and price our products competitively while reducing average unit costs.

Our financial results through the first nine months of 2010 reflect significant improvement over the same period a year ago, primarily due to stronger global economic and industry conditions. In the first half of 2009, negative trends in consumer spending and pervasive economic uncertainty led to slowed new site openings and reduced capital spending from existing customers. However, in the second half of 2009, demand began to increase and was recognized through new customer contracts, a growing pipeline of opportunities and the stabilization of our channel partners. This trend has continued in 2010 due to the number of significant new contracts signed in recent months, the visibility of the sales pipeline available to us, our ability to work closely with our channel partners to help end customers realize the benefits of new technology in their sites, and the launching of several new products in hosted solutions, mobile ordering and a new point-of-sale terminal in Europe.

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Results of Operations

Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009 and June 30, 2010 and the Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009

Systems – Systems revenues are derived from sales and licensing fees for our point-of-sale hardware and software, site management software solutions and peripherals. Systems sales during the third quarter of 2010 were approximately $42.2 million. This is an increase of $12.6 million, or 42%, as compared to the same period in 2009, and an increase of $0.1 million, or less than 1%, as compared to the second quarter of 2010. Systems sales during the nine-month period ended September 30, 2010 were $118.6 million compared to $86.5 million for the same period in 2009, an increase of 37%. The increases are primarily attributable to improvements seen in the global economy, which in turn has resulted in increased new site openings and capital spending from new and existing customers across all areas of our business. The increases are also attributable to several significant contracts being signed within the past couple of quarters and a significant number of those installations occurring during the second and third quarters of 2010.

Maintenance, subscription and transaction services– The Company derives revenues from maintenance, subscription and transaction services, including hardware maintenance, software support and maintenance, software-as-a-service (“SaaS”) solutions and electronic payment processing services. The majority of these revenues are derived from support and maintenance, which is structured on a renewable basis and is directly attributable to the base of installed sites. A majority of all subscription, maintenance and support contracts are renewed annually. Revenues from maintenance, subscription and transaction services during the third quarter of 2010 were approximately $37.0 million. This is an increase of $3.5 million, or 10%, as compared to the same period in 2009, and an increase of $1.2 million, or 3%, as compared to the second quarter of 2010. Revenues from maintenance, subscription and transaction services during the nine-month period ended September 30, 2010 were $108.8 million compared to $96.8 million for the same period in 2009, an increase of 12%. The increases are primarily due to increased demand for SaaS solutions and the additional revenues generated in both hardware and software support and maintenance resulting from increased systems sales, which added to our site base for recurring revenue.

Professional services– The Company also derives revenues from professional services such as consulting, training, custom software development and systems installations. Revenues from professional services during the third quarter of 2010 were approximately $10.1 million. This is an increase of $2.3 million, or 29%, as compared to the same period in 2009 and an increase of $0.9 million, or 10%, as compared to the second quarter of 2010. Revenues from professional services during the nine-month period ended September 30, 2010 were $28.5 million compared to $26.4 million for the same period in 2009, an increase of 8%. In recent months we have begun to see a shift in customer spending away from consulting and custom development projects and towards capital purchases of systems. This shift has resulted in a decrease in our one-time consulting and custom development revenues, but has been offset by increases in installations revenues related to increased systems sales.

Systems gross profit – Cost of systems consists primarily of hardware and peripherals for site-based systems and amortization of capitalized labor costs for internally developed software. All costs, other than capitalized software development costs, are expensed as products are shipped, while capitalized software development costs are amortized on a straight-line basis over the estimated useful life of the software. In the third quarter of 2010, systems gross profit increased by $5.0 million, or 37%, as compared to the same period in 2009, and decreased by $0.9 million, or 5%, as compared to the second quarter of 2010. In the third quarter of 2010, the gross profit percentage decreased by two points to 44% from 46% for the same period in 2009 and as compared to the second quarter of 2010. For the nine-month period ended September 30, 2010 compared to the same period in 2009, systems gross profit increased by approximately $11.4 million, or 28%, while the gross profit percentage decreased by four points to 44% from 48% for the same period in 2009. The fluctuations in the gross profit percentage are primarily due to variations in product mix as our hardware products have lower margins than our software products.

Maintenance, subscription and transaction services gross profit – Cost of maintenance, subscription and transaction services consists primarily of personnel and other costs to provide support and maintenance services, SaaS solutions and electronic payment processing services. In the third quarter of 2010, the gross profit on maintenance, subscription and transaction services increased by approximately $2.3 million, or 14%, as compared to the same period in 2009, and increased by $0.6 million, or 3%, as compared to the second quarter of 2010. The gross profit percentage increased by two points to 53% in the third quarter of 2010 from 51% for the same period in 2009, and was flat as compared to the second quarter of 2010. For the nine-month period ended September 30, 2010, the gross profit on maintenance, subscription and transaction services increased by approximately $7.4 million, or 15%, as compared to the same period in 2009, while the gross profit percentage increased by one point to 52%. The slight increases in the gross profit percentages are primarily due to increased revenues from SaaS solutions, which have higher margins than support and maintenance.

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Professional services gross profit– Cost of professional services consists primarily of personnel costs for consulting, training, custom software development and installation services. The gross profit on professional services revenue for the third quarter of 2010 increased by approximately $0.7 million, or 29%, as compared to the same period in 2009, and increased by $0.7 million, or 28%, as compared to the second quarter of 2010. The gross profit percentage remained constant at 32% in the third quarter of 2010 as compared to the same period in 2009, and increased by four percentage points as compared to the second quarter of 2010. For the nine-month period ended September 30, 2010, the gross profit on professional services decreased by approximately $0.9 million, or 10%, as compared to the same period in 2009, and the gross profit percentage decreased by six percentage points to 28%. The changes in the gross profit percentages are the result of fluctuations in sales mix. These margins decline when more revenues come from lower margin services, such as installations, than from higher margin services, such as consulting and custom development services.

Segment revenues – During the third quarter of 2010, total revenues in the Hospitality-Americas business segment were approximately $54.6 million. This is an increase of $13.2 million, or 32%, as compared to the same period in 2009, and an increase of $3.1 million, or 6%, as compared to the second quarter of 2010. Total revenues in the Hospitality-Americas segment for the nine-month period ended September 30, 2010 were $154.6 million, which is an increase of $31.9 million, or 26%, as compared to the same period in 2009. The increases are primarily the result of improved economic conditions, which has led to increased demand for new systems in both our direct and channel businesses. The increases are also due to several significant contracts being signed within the last couple of quarters and significant installation activity occurring in the second and third quarters of 2010.

In the third quarter of 2010, total revenues in the Retail & Entertainment-Americas business segment were approximately $23.9 million. This is an increase of $3.9 million, or 20%, as compared to the same period in 2009, and an increase of $1.9 million, or 9%, as compared to the second quarter of 2010. Total revenues in the Retail & Entertainment-Americas segment for the nine-month period ended September 30, 2010 were $66.5 million, which is an increase of $8.6 million, or 15%, as compared to the same period in 2009. The increases are primarily attributable to strength in systems sales along with increases in related support and maintenance revenues across each business within the segment, largely due to improved economic and industry conditions.

In the third quarter of 2010, total revenues in the International business segment were approximately $9.6 million. This is an increase of $0.8 million, or 9%, as compared to the same period in 2009, and a decrease of $2.5 million, or 21%, as compared to the second quarter of 2010. Total revenues in the International segment for the nine-month period ended September 30, 2010 were $31.5 million, which is an increase of $4.3 million, or 16%, as compared to the same period in 2009. The increases from the same periods in 2009 are primarily the result of increased systems sales along with hardware and software support and maintenance within our convenience retail business and channel business in Europe. The decrease from the second quarter of 2010 is primarily due to seasonality within our handheld business in Europe where the second quarter is typically the strongest.

Segment direct operating income – The Company evaluates the financial performance of the segments based on direct operating income, which is profit or loss before the allocation of certain corporate costs.

In the third quarter of 2010, direct operating income in the Hospitality-Americas business segment was approximately $14.3 million. This is an increase of $5.7 million, or 67%, as compared to the same period in 2009, and an increase of $1.5 million, or 12%, as compared to the second quarter of 2010. Total direct operating income in the Hospitality-Americas segment for the nine-month period ended September 30, 2010 was $38.2 million, which is an increase of $10.7 million, or 39%, over the same period in 2009. The increases are primarily attributable to increased profits from systems sales, SaaS solutions and hardware and software support and maintenance. These increases were partially offset by an increase in operating expenses, primarily sales commissions, which increased as expected in line with the overall increase in revenues.

In the third quarter of 2010, direct operating income in the Retail & Entertainment-Americas business segment was approximately $7.3 million. This is an increase of $1.8 million, or 32%, as compared to the same period in 2009, and an increase of $0.6 million, or 10%, as compared to the second quarter of 2010. Total direct operating income in the Retail & Entertainment-Americas segment for the nine-month period ended September 30, 2010 was $19.5 million, which is an increase of $3.1 million, or 19%, over the same period in 2009. The increases are primarily the result of additional profits resulting from increased systems sales and related support and maintenance revenues, as previously discussed.

In the third quarter of 2010, direct operating income in the International business segment was approximately $1.1 million. This is an increase of $0.4 million, or 59%, as compared to the same period in 2009, and a decrease of $1.6 million, or 60%, as compared to the second quarter of 2010. Total direct operating income in the International segment for the nine-month period ended September 30, 2010 was $4.9 million, which is an increase of $2.0 million, or 71%, over the same period in 2009. The increases from 2009 are primarily due to additional profits resulting from increased systems sales, including handhelds in the European market, and increased hardware and software support and maintenance revenues. The decrease from the second quarter of 2010 is primarily due to seasonality within our handheld business in Europe as previously explained.

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Total operating expenses – The Company’s total operating expenses increased by approximately $4.8 million, or 17%, during the third quarter of 2010 as compared to the same period in 2009, and by approximately $0.9 million, or 3%, as compared to the second quarter of 2010. Total operating expenses for the nine months ended September 30, 2010 increased by approximately $7.9 million, or 9%, as compared to the same period in 2009. Total operating expenses as a percentage of total revenues were 36% in the third quarter of 2010 compared to 39% in the third quarter of 2009 and 36% in the second quarter of 2010. Total operating expenses as a percentage of revenues were 37% for the nine months ended September 30, 2010 as compared to 41% for the same period in 2009. The components of operating expenses are discussed below:

• Product development expenses – Product development expenses consist primarily of wages and materials expended on product development efforts, excluding any development expenses related to associated revenues, which are included in costs of maintenance, subscription and transaction services. Product development expenses increased during the third quarter of 2010 by approximately $0.8 million, or 13%, as compared to the same period in 2009, increased by $0.5 million, or 8%, as compared to the second quarter of 2010, and increased by $1.9 million, or 12%, during the nine months ended September 30, 2010 as compared to the same period in 2009. The increases are due to incremental investments in the development of future products as well as normal fluctuations among maintenance, custom development, capitalized software projects and product development. Product development expenses as a percentage of revenues were 7% for the third quarter of 2010 as compared to 8% for the same period in 2009, 7% for the second quarter of 2010, and 7% for the nine-month period ended September 30, 2010 as compared to 8% for the same period in 2009.

• Sales and marketing expenses – Sales and marketing expenses increased during the third quarter of 2010 by approximately $1.5 million, or 15%, as compared to the same period in 2009, decreased by $0.1 million, or 1%, as compared to the second quarter of 2010, and increased by $4.0 million, or 13%, during the nine months ended September 30, 2010 as compared to the same period in 2009. The increases from 2009 are primarily due to incremental sales commissions expense directly related to the increase in revenues and an increased focus on marketing activities. Sales and marketing expenses as a percentage of revenues were 13% for the third quarter of 2010 as compared to 15% for the same period in 2009, 14% for the second quarter of 2010, and 14% for the nine months ended September 30, 2010 as compared to 15% for the same period in 2009.

• Depreciation and amortization expenses – Depreciation and amortization expenses increased during the third quarter of 2010 by $0.1 million, or 3%, as compared to the same period of 2009, increased by less than $0.1 million, or 1%, compared to the second quarter of 2010, and increased by approximately $0.3 million, or 3%, during the nine months ended September 30, 2010 as compared to the same period in 2009. The slight increases are due to additional depreciation expense resulting from routine capital spending to support our business operations, which was partially offset by a decline in amortization expense for assets that became fully amortized during these periods. Depreciation and amortization expenses as a percentage of revenues were 4% for the third quarter of 2010 as compared to 5% for the same period in 2009, 4% for the second quarter of 2010, and 4% for the nine-month period ended September 30, 2010 as compared to 5% for the same period in 2009.

• General and administrative expenses – General and administrative expenses increased during the third quarter of 2010 by approximately $2.4 million, or 31%, as compared to the same period in 2009, increased by $0.2 million, or 2%, as compared to the second quarter of 2010, and increased by $3.1 million, or 12%, during the nine months ended September 30, 2010 as compared to the same period in 2009. The increases are primarily due to additional bonus expense related to the Company’s performance as compared to its operating budget. General and administrative expenses as a percentage of revenues were 11% for the third quarter of 2010 and 2009, as well as second quarter of 2010, and the nine months ended September 30, 2010. General and administrative expenses as a percentage of revenues for the nine months ended September 30, 2009 were 12%.

• Impairment of goodwill – During the fourth quarter of 2009, the Company recorded a $17.0 million non-cash impairment charge to write off a portion of the goodwill associated with the acquisition of Quest. In the second quarter of 2010, the Company recorded a $0.3 million gain to adjust the initial charge upon completion of the valuation analysis.

• Other income and charges, net– The amounts contained under this heading are unlikely to occur again in the normal course of business and, as such, it is not practical to compare amounts between the current period and previous periods. However, a description of the items which comprise these amounts follows:

• During the first quarter of 2009, the Company recorded a charge of $0.7 million related to severance payments and restructuring of the organization and a charge of $0.5 million related to the write-off of third-party software licenses. These charges were partially offset by a gain of $0.1 million on the sale of a building.

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Interest expense, net – The Company’s interest expense includes interest expense incurred on its long-term debt, revolving line of credit and capital lease obligations. Interest expense decreased by approximately $0.2 million, or 46%, in the third quarter of 2010 as compared to the same period in 2009, decreased by $0.1 million, or 20%, as compared to the second quarter of 2010, and decreased by $0.8 million, or 44%, during the nine months ended September 30, 2010 as compared to the same period in 2009. These decreases are due to continued paydown of the Company’s outstanding indebtedness and a reduction in interest rates. See Note 7 to the condensed consolidated financial statements for additional discussion of the Company’s credit facility. The Company’s interest income is primarily earned from notes receivable. Interest income increased by approximately $0.1 million in the third quarter of 2010 as compared to the same period in 2009 and the second quarter of 2010, and increased by approximately $0.1 million during the nine months ended September 30, 2010 as compared to the same period in 2009. These increases are primarily the result of the $9.0 million promissory note received from Century at the end of the second quarter of 2010. See Note 12 to the condensed consolidated financial statements for additional discussion of this note receivable.

Income tax provision – The Company’s effective tax rates for the three months ended September 30, 2010 and 2009 were equal to 15.6% and 35.1%, respectively, inclusive of discrete events. The Company’s effective tax rate for the nine-month periods ended September 30, 2010 and 2009 were 30.7% and 36.2%, respectively. The quarter-over-quarter and year-over-year decrease is primarily attributable to discrete events, including the completion of a multi-year research and development credit and tax planning due to the lapse of IRC Section 954(c)(6). IRC Section 954(c)(6) generally excludes from U.S. federal income tax certain dividends, interest, rents and royalties received or accrued by one controlled foreign corporation (“CFC”) of a U.S. multinational enterprise from a related CFC that would otherwise be taxable pursuant to the subpart F regime. The tax provision permitting the look thru rule lapsed on December 31, 2009; therefore, certain CFC income is included in the annual effective tax rate. Proposed legislation has not been enacted as of September 30, 2010 but tax planning resulted in the reduction of the majority of the 954(c)(6) income inclusion as a discrete event during the quarter ended September 30, 2010.

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Liquidity and Capital Resources

Prior to January 2008, the Company had a senior secured credit facility with Wells Fargo Foothill, Inc. (the “WFF Credit Agreement”). The WFF Credit Agreement provided for extensions of credit, upon satisfaction of certain conditions, in the form of revolving loans in an aggregate principal amount of up to $15 million and a term loan facility in an aggregate principal amount of up to $31 million. The revolving loan amount available to the Company was derived from a monthly borrowing base calculation using the Company’s various accounts receivable balances. The amount derived from this borrowing base calculation was further reduced by the total amount of letters of credit outstanding. Loans under the WFF Credit Agreement bore interest, at the Company’s option, at either the London Interbank Offering Rate (“LIBOR”) plus two and one half percent or the prime rate of Wells Fargo Bank, N.A.

The WFF Credit Agreement was scheduled to expire on March 31, 2010. However, it was refinanced on January 2, 2008 upon the execution of the credit agreement with JPMorgan Chase Bank, N.A., as arranger and administrative agent, and JPMorgan Chase Bank, N.A., SunTrust Bank, Bank of America, Guaranty Bank and Wachovia Bank, N.A., as lenders (the “JPM Credit Agreement”). The JPM Credit Agreement provides for extensions of credit, upon satisfaction of certain conditions, in the form of revolving loans in an aggregate principal amount of up to $80 million and a term loan facility in an aggregate principal amount of up to $30 million. An amendment to the JPM Credit Agreement was signed in July 2008, whereby the Company has the right to increase its revolving credit commitment by up to $25 million, subject to the terms and conditions set forth in the JPM Credit Agreement. As of September 30, 2010, aggregate borrowings under this facility totaled $15.5 million, comprised of $15.5 million in term loan facility borrowings and no amounts outstanding under the revolving loan facility. As of September 30, 2010, revolving loan borrowings available to the Company were equal to $80.0 million.

The JPM Credit Agreement is guaranteed by the Company and its subsidiaries and is secured by the assets of the Company and its subsidiaries. The maturity date of the JPM Credit Agreement is January 2, 2013. Interest accrues on amounts outstanding under the loan facility, at the Company’s option, at either (1) LIBOR plus a margin ranging between 1.25% and 2.00%, based upon the Company’s consolidated leverage ratio, as defined, or (2) the higher of the administrative agent’s prime rate or one-half of one percent over the federal funds effective rate plus a margin ranging between 0.25% and 1.00%, based on the Company’s consolidated leverage ratio, as defined. The JPM Credit Agreement contains certain customary representations and warranties from the Company. In addition, the JPM Credit Agreement contains certain financial and non-financial covenants, with which the Company was in compliance as of September 30, 2010. Further explanation of this agreement is presented in Note 7 to the condensed consolidated financial statements.

The Company’s working capital increased by approximately $52.8 million, or 183%, to $81.6 million at September 30, 2010 as compared to $28.8 million at December 31, 2009. This increase in working capital during the first nine months of 2010 resulted from an increase in the Company’s current assets, equal to approximately $64.6 million, that was primarily attributable to a substantial increase in cash resulting from the completion of the Company’s public offering of common stock during the quarter-ended September 30, 2010, offset by an increase in current liabilities of approximately $11.8 million, as more fully explained below. The Company has historically funded its business through cash generated by operations.

Cash provided by operating activities during the nine months ended September 30, 2010 was approximately $21.8 million. Cash from operations was mainly generated through income from operations, adjusted to exclude the effect of non-cash charges, including depreciation, amortization, stock-based compensation expense and other charges. Changes in assets and liabilities increased operating cash flows during the first nine months of 2010, principally due to increases in accounts payable, bonus accruals and accrued expenses (which have a positive impact on cash flow) that were attributable to increased sales and an increase in inventory on hand at September 30, 2010, which increased related accruals due to the fact that certain payments due to our vendors that supplied the Company with inventory were not due at quarter-end. These increases were partially offset by increases in accounts receivable and inventory (which have a negative effect on cash flow) that were attributable to increased sales, the timing of certain cash collections and anticipation of hardware shipments in future quarters. In addition, there was also an increase in customer deposits and unearned revenue which resulted from collecting calendar year support and maintenance billings, which have been deferred and are being recognized as revenue over the course of 2010. Lastly, the Company received proceeds from Century of approximately $2.2 million, as more fully explained in Note 12. If near-term demand for the Company’s products weakens, or if significant anticipated sales in any quarter do not close when expected, the availability of funds from operations may be adversely affected.

Cash provided by operating activities during the nine months ended September 30, 2009 was approximately $36.7 million. Cash from operations was mainly generated through income from operations, adjusted to exclude the effect of non-cash charges, including depreciation, amortization, stock-based compensation expense and other charges. Changes in assets and liabilities increased operating cash flows during the first nine months of 2009, principally due to (i) our continued focus on collections which resulted in a reduction in accounts receivable, (ii) a focus on inventory management which resulted in a decrease in inventories, and (iii) an increase in client deposits and unearned revenue which was a result of collecting calendar year support and maintenance billings, which have been deferred and are being recognized as revenue over the course of 2009. The increase in accrued expenses is due to normal quarterly fluctuations.

Cash used in investing activities during the nine months ended September 30, 2010 was approximately $7.1 million. Approximately $4.4 million was used to invest in property and equipment. In addition, the Company continued to increase its investment in future products by investing $2.9 million in internally developed capitalizable software during the first nine months of 2010. The Company also received cash proceeds of $0.2 million from various notes receivable during the first nine months of 2010.

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Cash used in investing activities during the nine months ended September 30, 2009 was approximately $9.4 million. Approximately $4.2 million was used to invest in property and equipment and $2.0 million related to the purchase of a customer list related to our RPS business. The Company continued to increase its investment in future products by investing $3.3 million in internally developed capitalizable software during the first nine months of 2009. Lastly, the Company recognized cash proceeds of $0.2 million from the sale of a building located in Australia.

Cash provided by financing activities during the nine months ended September 30, 2010 was approximately $26.8 million. Financing activities included a public stock offering completed during the quarter ended September 30, 2010 of approximately 3.5 million shares of common stock at a price of $17.00 per share, resulting in net cash proceeds equal to approximately $56.5 million, after deducting discounts and commissions paid to the underwriters and other expenses incurred in conjunction with the offering. In addition, the Company received cash proceeds from a research and development note of approximately $0.1 million, the exercise of stock options by employees of approximately $13.7 million, the purchase of shares issued under the Employee Stock Purchase Plan of approximately $0.2 million and the impact of tax benefits related to stock-based compensation expense of approximately $3.9 million. Cash used in financing activities included scheduled payments under the JPM Credit Agreement of approximately $4.5 million, net payments against the revolving loan facility under the JPM Credit Agreement of approximately $42.0 million, scheduled payments against the Company’s capital lease obligations of approximately $0.7 million and tax withholding payments related to the net share settlement of stock options of approximately $0.4 million.

Cash used in financing activities during the nine months ended September 30, 2009 was approximately $30.3 million. Financing activities include scheduled payments under the JPM Credit Agreement, payments against the revolving loan facility, net of proceeds, payments against the research and development notes and scheduled payments against the Company’s capital lease obligations totaling approximately $31.7 million. In addition, the Company received cash proceeds from a research and development note, the exercise of stock options by employees, the purchase of shares issued under the Employee Stock Purchase Plan and the impact of tax benefits related to stock-based compensation expense totaling approximately $1.4 million.

The Company believes that its cash and cash equivalents, funds generated from operations and borrowing capacity will provide adequate liquidity to meet its normal operating requirements, as well as to fund the above obligations, for at least the next twelve months.

The Company believes there are opportunities to grow its business through the acquisition of complementary and synergistic companies, products and technologies. We look for acquisitions that can be readily integrated and accretive to earnings, although we may pursue smaller non-accretive acquisitions that will shorten our time to market with new technologies. The Company expects the general size of cash acquisitions it would currently consider would be less than $50 million. Any material acquisition could result in a decrease in the Company’s working capital, depending on the amount, timing and nature of the consideration to be paid. In addition, any material acquisitions of complementary or synergistic companies, products or technologies could require that we obtain additional debt or equity financing. There can be no assurance that such additional financing will be available to us or that, if available, such financing will be obtained on favorable terms and would not result in additional dilution to our stockholders.

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The Company leases office space, equipment and certain vehicles under non-cancelable operating lease agreements expiring on various dates through 2017. Additionally, the Company leases computer equipment under capital lease agreements which expire on various dates through July 2013. Contractual obligations as of September 30, 2010 are as follows (in thousands):

	Payments Due by Period
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
Capital leases	$	813	$	566	$	247	$	—	$	—
Operating leases (1)		21,889		5,181		8,571		5,040		3,097
Other obligations:
Revolving credit facility (JPM Credit Agreement)		—		—		—		—		—
Term loan facility (JPM Credit Agreement)		15,500		6,000		9,500		—		—
Austrian research & development loan		743		—		743		—		—
Estimated interest payments on credit facility and term notes (2)		885		556		329		—		—
Purchase commitments (3)		18,383		16,652		1,731		—		—
Total contractual obligations	$	58,213	$	28,955	$	21,121	$	5,040	$	3,097

(1) This schedule includes the future minimum lease payments related to facilities that are being subleased. The total minimum rentals to be received in the future under subleases as of September 30, 2010 are approximately $1.6 million in less than one year and $2.0 million in one to three years.

(2) For purposes of this disclosure, we used the interest rates in effect as of September 30, 2010 to estimate future interest expense. See Note 7 to the condensed consolidated financial statements for further discussion of our debt components and their interest rate terms.

(3) The Company has entered into certain noncancelable purchase orders for manufacturing supplies to be used in its normal operations. The related supplies are to be delivered at various dates through February 2012.

At September 30, 2010, the Company had a $3.2 million reserve for unrecognized tax benefits, which is not reflected in the table above. Substantially all of this tax reserve is classified in other long-term liabilities and deferred income taxes on the accompanying condensed consolidated balance sheet.

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Critical Accounting Policies and Procedures

General

The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to client programs and incentives, product returns, bad debts, inventories, intangible assets, income taxes, and commitments and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as updated and superseded by Radiant’s Current Report on Form 8-K dated June 25, 2010.

Accounting Pronouncements

Recently Issued Standards

In October 2009, the FASB issued Accounting Standards Update No. 2009-14 (“ASU 2009-14”),Software (Topic 985): Certain Revenue Arrangements That Include Software Elements—a consensus of the FASB Emerging Issues Task Force. This ASU establishes that tangible products that contain software that works together with the nonsoftware components of the tangible product to deliver the tangible product’s essential functionality are no longer within the scope of software revenue guidance. These items should be accounted for under other appropriate revenue recognition guidance. We are required to adopt this ASU prospectively for new or materially modified agreements as of January 1, 2011 and concurrently with ASU 2009-13, which is described below. Full retrospective application is optional and early adoption is permitted at the beginning of a fiscal year. We are currently evaluating the impact of this ASU on our financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13 (“ASU 2009-13”),Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force. This ASU amends the criteria for separating consideration in multiple-deliverable arrangements, which will, as a result, separate multiple-deliverable arrangements more often than under existing U.S. GAAP. Additionally, this ASU establishes a selling price hierarchy for determining the selling price of a deliverable. The ASU also eliminates the residual method of revenue allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. This guidance requires that management determine its best estimate of selling price in a manner consistent with that used to determine the price to sell the deliverable on a stand-alone basis. This ASU significantly expands the disclosures required for multiple-deliverable revenue arrangements with the objective of disclosing judgments related to these arrangements and the effect that the use of the relative selling-price method and changes in those judgments have on the timing and amount of revenue recognition. We are required to adopt this ASU prospectively for new or materially modified agreements as of January 1, 2011 and concurrently with ASU 2009-14, which is described above. Full retrospective application is optional and early adoption is permitted at the beginning of a fiscal year. We are currently evaluating the impact of this ASU on our financial statements.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q of Radiant Systems, Inc. and its subsidiaries (“Radiant,” “Company,” “we,” “us,” or “our”) contains forward-looking statements. All statements in this Quarterly Report on Form 10-Q, including those made by the management of Radiant, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding Radiant’s future financial results, operating results, business strategies, projected costs, products, competitive positions, management’s plans and objectives for future operations, and industry trends. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” and “continue,” the negative of these terms, or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), including the section titled “Risk Factors” therein, as updated and superseded by Radiant’s Current Report on Form 8-K dated June 25, 2010. These and many other factors could affect Radiant’s future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by Radiant or on its behalf. Radiant undertakes no obligation to revise or update any forward-looking statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rates

The Company’s financial instruments that are subject to market risks are its long-term debt instruments. During the third quarter of 2010, the weighted average interest rate on its long-term debt was approximately 3.4%. A 10% increase in this rate would have impacted interest expense by less than $0.1 million for the three-month period ended September 30, 2010.

Foreign Exchange

The Company’s revenues derived from sources outside of the United States were approximately $12.5 million and $9.8 million for the three months ended September 30, 2010 and 2009, respectively, and approximately $39.0 million and $30.1 million for the nine months ended September 30, 2010 and 2009, respectively. The Company’s business outside the United States is subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. Accordingly, the Company’s future results could be materially adversely impacted by changes in these or other factors.

ITEM 4. CONTROLS AND PROCEDURES

The Company has established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify its financial reports and to other members of senior management and the Company’s board of directors.

Based on their evaluation as of September 30, 2010, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Act”) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In the first quarter of 2010, we completed an upgrade of our ERP system. This project is the result of our normal business process to evaluate and upgrade our systems software and related business processes to support our evolving operational needs. As part of the upgrade, we have continued to update our internal controls over financial reporting as necessary to accommodate any modifications to our business processes and accounting procedures. The upgrade was subject to comprehensive testing and review and we believe that appropriate internal controls are in place with the upgraded system.

During the quarter ended September 30, 2010, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

The following exhibits are filed with or incorporated by reference into this report. The exhibits which are denominated by an asterisk (*) were previously filed as a part of, and are hereby incorporated by reference from (i) a Registration Statement on Form S-1 for the Registrant, Registration No. 333-17723, as amended (“2/97 S-1”), (ii) a Registration Statement on Form S-1 for the Registrant, Registration No. 333-30289 (“6/97 S-1”), (iii) the Registrant’s Form 8-K filed December 17, 2007 (the “December 17, 2007 8-K”), (iv) the Registrant’s Form 8-K filed January 8, 2008 (the “January 8, 2008 8-K”), (v) the Registrant’s Form 8-K filed July 9, 2008 (the “July 9, 2008 8-K”), and (vi) a Registration Statement on Form S-3 for the Registrant, Registration No. 333-162309 (“10/09 S-3”).

Exhibit No.	Description
*2.1	Share Purchase Agreement, dated December 11, 2007, by and among Radiant Systems, Inc., Quest Retail Technology Pty Ltd, and David Brown (December 17, 2007 8-K).
*2.1.1	First Amendment to Share Purchase Agreement, dated as of January 4, 2008, by and among Radiant Systems, Inc., RADS Australia Holdings Pty Ltd, Quest Retail Technology Pty Ltd, and David Brown (January 8, 2008 8-K).
*2.2	Stock Purchase Agreement dated as of July 3, 2008, by and among Radiant Systems GmbH, Orderman GmbH, Alois Eisl, Franz Blatnik, Gottfried Kaiser, and Ing. Willi Katamay (July 9, 2008 8-K).
10.1	Form of Notice of Grant of Stock Options and Option Agreement.
10.2	Form of Grant Agreements – Restricted Stock Unit and Restricted Stock Award.
10.3	Form of Grant Agreement – Non Qualified Options.
*3.1	Amended and Restated Articles of Incorporation (6/97 S-1).
*3.2	Amended and Restated Bylaws (2/97 S-1).
*3.3	Articles of Amendment to Amended and Restated Articles of Incorporation of Radiant Systems, Inc. (10/09 S-3).
31.1	Certification of John H. Heyman, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Mark E. Haidet, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 5, 2010	By:	/s/    MARK E. HAIDET
		Mark E. Haidet,
		Chief Financial Officer
		(Duly authorized officer and principal financial officer)

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