SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
September 30, 2000 0-22065
RADIANT SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 11-2749765
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3925 Brookside Parkway, Alpharetta, Georgia 30022
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 576-6000
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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The number of the registrant's shares outstanding as of November 6, 2000 was
27,700,271.
1
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31,
1999 3
Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations 9-14
Item 3: Quantitative and Qualitative Disclosures About Market Risks 14
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 16
Signatures: 16
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
2000 1999
-------------------- -------------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 52,414 $ 53,435
Accounts receivable, net 21,162 17,929
Inventories 15,023 13,141
Other short-term assets 4,207 3,256
-------- --------
Total current assets 92,806 87,761
Property and equipment, net 12,656 7,857
Software development costs, net 7,922 5,394
Other long-term assets 11,738 10,987
-------- --------
$125,122 $111,999
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 13,308 $ 14,466
Client deposits and unearned revenue 7,545 7,243
Current portion of long-term debt -- 105
-------- --------
Total current liabilities 20,853 21,814
Long-term debt, less current portion -- 4,250
-------- --------
Total liabilities 20,853 26,064
Shareholders' equity
Common stock, no par value; 100,000,000 shares authorized;
27,618,019 and 25,475,888 shares issued and outstanding 0 0
Additional paid-in capital 113,976 100,872
Accumulated deficit (9,707) (14,937)
-------- --------
Total shareholders' equity 104,269 85,935
-------- --------
$125,122 $111,999
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---------------- --------------- --------------- ---------------
Revenues:
System sales $18,862 $24,949 $58,948 $63,500
Client support, maintenance and other services 12,384 9,981 34,991 26,284
------- ------- ------- -------
Total revenues 31,246 34,930 93,939 89,784
Cost of revenues:
System sales 9,477 12,295 28,062 31,298
Client support, maintenance and other services 9,678 7,893 27,848 21,013
------- ------- ------- -------
Total cost of revenues 19,155 20,188 55,910 52,311
------- ------- ------- -------
Gross profit 12,091 14,742 38,029 37,473
Operating expenses:
Product development 3,059 2,640 8,213 8,160
Sales and marketing 3,062 3,034 9,243 9,120
Depreciation and amortization 2,090 1,536 5,497 4,466
General and administrative 3,854 3,190 11,282 9,543
------- ------- ------- -------
Income from operations 26 4,342 3,794 6,184
Interest income, net 792 408 2,384 1,093
------- ------- ------- -------
Income before income tax provision and extraordinary
item 818 4,750 6,178 7,277
Income tax provision 328 1,900 2,468 2,911
------- ------- ------- -------
Income before extraordinary item 490 2,850 3,710 4,366
Extraordinary item:
Gain on early extinguishment of debt, net of taxes -- -- 1,520 --
------- ------- ------- -------
Net income $ 490 $ 2,850 $ 5,230 $ 4,366
======= ======= ======= =======
Basic income per share:
Income before extraordinary item $ 0.02 $ 0.11 $ 0.14 $ 0.18
Extraordinary income on early extinguishment of
debt -- -- 0.05 --
------- ------- ------- -------
Total basic income per share $ 0.02 $ 0.11 $ 0.19 $ 0.18
======= ======= ======= =======
Diluted income per share:
Income before extraordinary item $ 0.02 $ 0.10 $ 0.13 $ 0.16
Extraordinary income on early extinguishment of
debt -- -- 0.05 --
------- ------- ------- -------
Total diluted income per share $ 0.02 $ 0.10 $ 0.18 $ 0.16
======= ======= ======= =======
Weighted average shares outstanding:
Basic 27,571 24,804 27,169 24,486
======= ======= ======= =======
Diluted 29,727 27,719 29,812 27,084
======= ======= ======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements
4
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the nine months ended
September 30,
2000 1999
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,230 $ 4,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on early extinguishment of debt (1,520) --
Amortization of deferred compensation 39 75
Depreciation and amortization 6,899 5,146
Imputed interest on shareholder note 57 171
Changes in assets and liabilities:
Accounts receivable (2,221) (2,383)
Inventories (1,883) (1,812)
Other assets 992 2,682
Accounts payable and accrued liabilities (1,390) 6,921
Client deposits and deferred revenue (882) 5,529
-------- --------
Net cash provided by operating activities 5,321 20,695
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of TimeCorp, Inc. (6,000) --
Purchases of property and equipment (9,139) (3,127)
Capitalized software development costs (3,963) (2,383)
-------- -------
Net cash used in investing activities (19,102) (5,510)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of employee stock options 2,074 3,185
Repurchase of common stock -- (514)
Issuance of shareholder loans, net -- (306)
Stock issued under employee stock purchase plan 990 507
Issuance of common stock 10,000 --
Principal payments under capital lease obligations -- (18)
Principal payments under long-term debt (304) (112)
-------- -------
Net cash provided by financing activities 12,760 2,742
-------- -------
(Decrease) increase in cash and cash equivalents (1,021) 17,927
Cash and cash equivalents at beginning of year 53,435 25,537
-------- -------
Cash and cash equivalents at end of period $ 52,414 $43,464
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ -- $ 10
-------- -------
Income taxes $ -- $ --
======== =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applicable
to interim financial statements, the instructions to Form 10-Q and Regulation S-
X. Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of Radiant Systems, Inc. (the "Company") management, these condensed
consolidated financial statements contain all adjustments (which comprise only
normal and recurring accruals) necessary for fair presentation of the
consolidated financial condition and results of operations for these periods.
The interim results for the three and nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the Company's consolidated
financial statements as filed in its Annual Report on Form 10-K for the year
ended December 31, 1999, as amended.
2. Net Income Per Share
Basic net income per common share is computed by dividing net income by the
weighted-average number of shares outstanding. 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):
For the three months For the nine months
ended September 30, ended September 30,
--------------------- ----------------------
2000 1999 2000 1999
------ ------ ------ ------
Average common shares outstanding 27,571 24,804 27,169 24,486
Dilutive effect of outstanding stock options 2,156 2,915 2,643 2,598
------ ------ ------ ------
Average common shares outstanding assuming dilution 29,727 27,719 29,812 27,084
====== ====== ====== ======
For the three and nine month periods ended September 30, 2000, options to
purchase approximately 409,000 and 62,000 shares of common stock, respectively,
were excluded from the above reconciliation, as the options were antidilutive
for the periods then ended. For the three and nine month periods ended
September 30, 1999, options to purchase approximately 11,250 and 57,000 shares
of common stock, respectively, were excluded from the above reconciliation, as
the options were antidilutive for the periods then ended.
On April 1, 2000 the Company effected a 3-for-2 stock split. As such, all
historical shares and weighted average shares have been restated to account for
this split.
6
3. Segment Reporting Data
Prior to January 1, 2000 the Company operated through two primary reportable
segments (i) Global Solutions and (ii) Regional Solutions. Effective January 1,
2000, the Company restructured its business units and as a result, currently
operates under one segment, providing enterprise technology solutions to
businesses that serve the consumer. To date, the Company's product
applications have been focused on the convenience store, hospitality and food
service, entertainment, and convenient automotive service center markets, as
these markets require many of the same product features and functionality.
Revenues from these markets for the three and nine months ended September 30,
2000 and 1999 are as follows (in thousands):
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------- ------- ------- -------
Convenience store $18,515 $16,387 $52,407 $44,383
Entertainment and cinema 3,591 10,710 17,212 22,396
Hospitality and food service 8,786 7,526 23,051 21,594
Automotive service centers 354 307 1,269 1,411
------- ------- ------- -------
Total revenues $31,246 $34,930 $93,939 $89,784
======= ======= ======= =======
The Company distributes it's technology both within the United States and
internationally, however, to date, international sales have not been material.
The majority of the Company's assets are shared among these segments and as such
are not identifiable by segment.
4. Significant Events
On June 22, 2000, the Company consummated the acquisition of TimeCorp, Inc.
("TimeCorp"), a workforce management and planning software business operation
owned by VeriFone, Inc., a subsidiary of Hewlett-Packard, Inc. The purchase
price was $6.0 million in cash and the purchase included substantially all the
assets of TimeCorp, including software products, intellectual property and
client contracts. Intangibles of approximately $6.4 million were recorded, which
are being amortized over four to ten years.
On March 30, 2000 the Company and the former sole shareholder of RapidFire
Software, Inc. and Equilease Financial Services, Inc. (collectively "RapidFire")
reached an agreement whereby the Company paid to the former shareholder $200,000
and forgave a $1.5 million note receivable, and in return, was relieved in full
of its indebtedness to the shareholder. This indebtedness consisted of a
noninterest-bearing note with a lump-sum payment of $6.0 million due October 31,
2005 ($4.3 million at December 31, 1999) and was issued October 31, 1997 as part
of the Company's acquisition of RapidFire. As a result of this early
extinguishment of debt, the Company recorded an extraordinary gain of
approximately $1.5 million, net of tax, during the first quarter ended March 31,
2000.
On March 3, 2000, the Company finalized an agreement with America Online, Inc.
("AOL") and MovieFone, Inc., a subsidiary of AOL ("MF"), to form a strategic
relationship in the retail point of sale business. This relationship, among
other aspects, entails a ten-year marketing and development agreement whereby
the Company will develop and manufacture point of sale systems and services for
sale to the entertainment industry pursuant to MF's specifications, which will
make such point of sale systems interoperable with MF's remote entertainment and
event ticketing services. The relationship also contemplates future
collaborative efforts between the companies. As part of this relationship, AOL
purchased $10.0 million of the Company's common stock at a price of $15 per
share. In addition, AOL has agreed to invest $25.0 million in a to be formed
subsidiary of the Company to engage in consumer interactive businesses other
than in the entertainment industry (e.g., interactive fuel and dispenser
7
business and interactive restaurant self-ordering business). In return for its
investment, AOL will receive a 15% equity interest in the form of preferred
stock of this subsidiary. To the extent AOL does not invest $25.0 million in the
to be formed subsidiary, AOL has agreed to invest the balance in another to be
formed subsidiary of the Company or purchase common stock of the Company at the
then current market price.
On March 1, 2000, the Company and Microsoft Corporation jointly announced,
subject to execution of a definitive agreement, that both companies have joined
forces to develop and market an integrated Web-enabled management system and
supply chain solution to enable retailers to conduct business to business e-
commerce over the Internet. In addition, Microsoft agreed to make an equity
investment in the Company and committed to support the Company's solution
through joint marketing programs, funding for product development, consulting
services, developer support, and distribution via the Microsoft(R) bCentral(TM)
small-business portal.
5. Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
Company will be required to adopt FAS 133 for the quarter ended March 31, 2001.
The Company does not expect the adoption to have a material impact on its
results of operations.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Overview
Radiant Systems, Inc. (the "Company" or "Radiant") provides enterprise-wide
technology solutions to businesses that serve the consumer. The Company offers
fully integrated retail automation solutions including point of sale systems,
consumer-activated ordering systems, back office management systems,
headquarters-based management systems and Web-enabled decision support systems.
The Company's products provide integrated, end-to-end solutions that span from
the consumer to the supply chain. The Company's products enable retailers to
interact electronically with consumers, capture data at the point of sale,
manage site operations, analyze data, communicate electronically with their
sites, and interact with vendors through electronic data interchange and Web-
based marketplaces. The Company also develops and markets a variety of
intelligent, Windows CE based devices that are specific to the retail industry.
In addition, the Company offers professional services focusing on technical
implementation, process improvement and change management as well as hardware
maintenance services and 24-hour help desk support.
The Company derives its revenues primarily from the sale of integrated systems,
including software, hardware and related support and professional services. As
discussed below, in the second quarter of 2000, the Company announced and began
offering these products pursuant to a new subscription-based pricing model. In
addition, the Company offers implementation and integration services which are
billed on a per diem basis. The Company's revenues from its various technology
solutions are, for the most part, dependent on the number of installed sites a
client has. Accordingly, while the typical sale is the result of a long,
complex process, the Company's clients usually continue installing additional
sites over an extended period of time. Revenues from software and systems sales
are recognized as products are shipped, provided that collection is probable and
no significant post shipment vendor obligations remain. Revenues from client
support, maintenance and other services are generally recognized as the service
is performed.
In 1999, the Company began developing its new generation of management systems
products--WAVE. This product architecture is designed to combine and expand the
functionality of its Site Management Systems and Headquarter-Based Management
Systems. The Company's architecture and platforms for these products are
entirely web-based, which the Company believes will enable it to increase the
functionality while decreasing the costs of implementing and maintaining
technology solutions for retailers. Additionally, the Company has extended its
WAVE technology to include web-enabled, centrally hosted management software and
integrated purchasing software built around industry-specific marketplaces.
Management believes that these products will strengthen its product offerings by
providing integrated, end-to-end solutions that span from the consumer to the
supply chain.
The Company intends to offer its WAVE software through the application service
provider, or "ASP", delivery model. In the ASP delivery model, the Company
would remotely host applications from an off-site central server that users can
access over dedicated lines, virtual private networks or the Internet.
Additionally, the Company plans to offer the product through installations
directly in client locations as "client-hosted" systems. The Company also
intends to offer Internet solutions that will allow clients to utilize the
Internet to enhance site management and conduct business-to-business e-commerce.
The Company is continuing to develop its WAVE solution and to establish
strategic relationships to facilitate these product offerings.
In connection with its strategy to develop ASP-delivered products, in April 2000
the Company began converting certain new and existing products to a
subscription-based pricing model.
9
Under this subscription-pricing model, clients will pay a fixed, monthly fee for
use of the Company's site and headquarters solutions and the computer hardware
necessary to utilize those applications and solutions. This represents a change
in the Company's historical pricing model in which clients were charged an
initial licensing fee for use of the Company's products and continuing
maintenance and support during the license period. The Company began offering
its products and services on the subscription-pricing model in the second
quarter of 2000. The Company will initially continue to derive a majority of its
revenue from its traditional sales model of one-time software license revenues,
hardware sales and software maintenance and support fees that will be paid by
existing clients. However, as a result of the transition to the subscription-
pricing model, the Company expects to see a decline in the one-time revenues
from software license fees and hardware sales, replaced over time by monthly
subscription fees. In addition, the Company expects revenue from maintenance and
support from existing clients to decline and to be replaced by subscription fees
as existing clients convert to the subscription-pricing model. The Company
expects the percentage of revenue that is recurring in nature to increase
substantially as a result of the change to a subscription-pricing model.
This change in the Company's product strategy to develop and offer ASP-delivered
and Internet solutions and the transition to a subscription-pricing model
involve certain risks and assumptions. There can be no assurance that the
Company will successfully implement these changes in its organization, product
strategy or pricing model or that the changes will not have a material adverse
effect on the Company's business, financial condition or results of operations.
On April 1, 2000 the Company effected a 3-for-2 stock split. As such, all
historical shares and weighted average shares have been restated to account for
this split.
Results of Operations
Three and nine months ended September 30, 2000 compared to three and nine months
ended September 30, 1999
System Sales. The Company derives the majority of its revenues from sales and
licensing fees of its headquarters-based, back office management, and point of
sale solutions. System sales decreased 24.4% to $18.9 million for the quarter
ended September 30, 2000 (the "third quarter 2000"), compared to $24.9 million
for the quarter ended September 30, 1999 (the "third quarter 1999"). This
decrease was primarily the result of the Company's strategy to convert certain
new and existing products and clients to the subscription-pricing model, as well
as declining sales to entertainment clients as a result of financial
difficulties being experienced by the clients. See "--Overview". System sales
decreased 7.2% to $58.9 million for the nine months ended September 30, 2000
(the "fiscal period 2000"), compared to $63.5 million for the nine months ended
September 30, 1999 (the "fiscal period 1999"). This decrease was due to lower
sales during the second and third quarters of 2000 due to the implementation of
the subscription-pricing model.
Client Support, Maintenance and Other Services. The Company also derives
revenues from client support, maintenance and other services, which increased
24.1% to $12.4 million for the third quarter 2000, compared to $10.0 million for
the third quarter 1999 and increased 33.1% to $35.0 million for the fiscal
period 2000, compared to $26.3 million for the fiscal period 1999. These
increases were due to increases in both software and hardware maintenance
revenues as well as increased demand of solutions personnel associated with new
and existing clients.
Cost of System Sales. Cost of system sales consists primarily of hardware and
peripherals for site-based systems and labor. These costs are expensed as
products are shipped. Cost of system sales decreased 22.9% to $9.5 million for
the third quarter 2000, compared to $12.3 million for the third quarter 1999.
This decrease was directly attributable to reduced system sales in the third
quarter 2000 over the third quarter 1999 due to the implementation of the
subscription-pricing model. Cost of system sales decreased 10.3% to $28.1
million for the fiscal period 2000 from $31.3 million for the fiscal period 1999
due to
10
increased software-only sales as a percentage of total systems sales during
fiscal period 2000. Cost of system sales as a percentage of system sales
increased to 50.2% for the third quarter 2000 from 49.3% for the third quarter
1999. This increase was due to changes in product mix during the current
quarter, primarily reduced software sales as a result of the change to the
subscription and ASP-based pricing model. Cost of system sales as a percentage
of system sales decreased to 47.6% during fiscal period 2000 from 49.3% for
fiscal period 1999 due to increased software-only sales as a percentage of total
systems sales during fiscal period 2000. Amortization of capitalized software
development costs was approximately $513,000 and $251,000 for the third quarter
2000 and 1999, respectively, and approximately $1.4 million and $680,000 for
fiscal periods 2000 and 1999, respectively.
Cost of Client Support, Maintenance and Other Services. Cost of client support,
maintenance and other services consists primarily of personnel and other costs
associated with the Company's services operations. Cost of client support,
maintenance and other services increased 22.6% to $9.7 million for the third
quarter 2000 from $7.9 million for the third quarter 1999 and increased 32.5% to
$27.8 million for fiscal period 2000 from $21.0 million for fiscal period 1999.
These increases were due primarily to increased wages associated with the effort
of supporting higher revenues in this area. Cost of client support, maintenance
and other services as a percentage of client support, maintenance and other
services revenues decreased to 78.1% for the third quarter 2000 from 79.1% for
the third quarter 1999 and decreased slightly to 79.6% for fiscal period 2000
from 79.9% for fiscal period 1999 due to increased utilization of services
personnel as well as support and maintenance revenues grew at a slightly faster
pace than the related costs of revenues.
Product Development Expenses. Product development expenses consist primarily of
wages and materials expended on product development efforts. Product
development expenses increased 15.9% to $3.1 million for the third quarter 2000,
compared to $2.6 million for the third quarter 1999. This increase was due
primarily to new hires during the third quarter 2000 over the same period a year
ago. Product development expenses remained flat at $8.2 million for fiscal
period 2000, compared to fiscal period 1999. Product development expenses as a
percentage of total revenues increased to 9.8% from 7.6% for the third quarter
2000 and 1999, respectively, as product development expenses increased while
associated revenues declined. Product development expenses as a percentage of
total revenues decreased to 8.7% from 9.1% for fiscal period 2000 and 1999,
respectively, as total revenues increased at a faster pace than the related
product development expenses. In the third quarter 2000 and 1999, the Company
capitalized software development costs of $1.7 million, or 36.1%, and $700,000
or 20.9%, of its total product development costs, respectively. For fiscal
period 2000 and 1999, the Company capitalized software development costs of $4.0
million, or 32.5%, and $2.4 million, or 22.6%, of its total product development
costs, respectively.
Sales and Marketing Expenses. Sales and marketing expenses increased 0.9% to
$3.1 million during the third quarter 2000, compared to $3.0 million in the
third quarter 1999 and increased 1.3% to $9.2 million during fiscal period 2000,
compared to $9.1 million for fiscal period 1999. These increases were
associated with continued expansion of sales activities including new hires.
Sales and marketing expenses as a percentage of total revenues were 9.8% and
8.7% for the third quarter 2000 and 1999, respectively, as sales and marketing
expenses increased while revenues declined over the period a year ago. Sales
and marketing expense as a percentage of total revenues were 9.8% and 10.2% for
fiscal period 2000 and 1999, respectively as total revenues increased at a
quicker pace than related sales and marketing expenses.
Depreciation and Amortization. Depreciation and amortization expenses increased
36.1% to $2.1 million for the third quarter 2000, compared to $1.5 million for
the third quarter 1999 and increased 23.1% to $5.5 million for fiscal period
2000, compared to $4.5 million for fiscal period 1999. The increases resulted
from an increase in computer equipment, leasehold improvements and other assets
required to support an increased number of employees and locations as well as
amortization of intangible assets
11
associated with the Company's acquisition of TimeCorp (see Note 4 of the
condensed consolidated financial statements). Depreciation and amortization as a
percentage of total revenues was 6.7% and 4.4% for the third quarter 2000 and
1999, respectively, and 5.9% and 5.0% for fiscal periods 2000 and 1999,
respectively. These increases were primarily due to associated personnel support
costs increasing at a quicker pace than associated revenues.
General and Administrative Expenses. General and administrative expenses
increased 20.8% to $3.9 million for the third quarter 2000, compared to $3.2
million for the third quarter 1999 and increased 18.2% to $11.3 million for
fiscal period 2000, compared to $9.5 million for fiscal period 1999. The
increases were due primarily to personnel increases needed to support additional
revenues, as well as to support the Company's move to the subscription-pricing
model. General and administrative expenses as a percentage of total revenues
were 12.3% and 9.1% for the third quarter 2000 and 1999, respectively, and 12.0%
and 10.6% for fiscal period 2000 and 1999, respectively, as personnel and
related expenses grew at a pace faster than associated total revenues.
Interest Income, Net. Net interest income increased 94.1% to $792,000 for the
third quarter 2000, compared to $408,000 for the third quarter 1999. For fiscal
period 2000, net interest income increased 118.1% to $2.4 million, compared to
net interest income of $1.1 million for fiscal period 1999. The Company's
interest income is derived from the investment of its cash and cash equivalents.
The increases in net interest income resulted primarily from an increase in cash
and cash equivalents from an average cash balance of $37.7 million during the
third quarter 1999 and $34.5 million during the fiscal period 1999 to an average
cash balance of $51.9 million during the third quarter 2000 and $52.9 million
during the fiscal period 2000. See "--Liquidity and Capital Resources."
Income Tax Provision. The Company recorded a tax provision of 40.0% in both
the third quarter 2000 and the third quarter 1999, as well for fiscal period
2000 and fiscal period 1999.
Extraordinary Item. On March 30, 2000, the Company and the former sole
shareholder of RapidFire reached an agreement whereby the Company paid to the
former shareholder $200,000 and forgave a $1.5 million note receivable, and in
return, the Company was relieved in full of its indebtedness to the shareholder.
This indebtedness consisted of a noninterest-bearing note with a lump-sum
payment of $6.0 million due October 31, 2005 ($4.3 million at December 31, 1999)
and was issued October 31, 1997 as part of the Company's acquisition of
RapidFire. As a result of this early extinguishment of debt, the Company
recorded an extraordinary gain of approximately $1.5 million, net of tax, during
the first quarter 2000. No such item was recorded in the first quarter 1999.
Net Income. Net income for the third quarter 2000 was approximately $490,000,
or $0.02 per diluted share compared to $2.9 million, or $0.10 per diluted share
in the third quarter 1999. Excluding the extraordinary gain described above,
net income for fiscal period 2000 was approximately $3.7 million, or $0.13 per
diluted share compared to $4.4 million, or $0.16 per diluted share, in fiscal
period 1999. Including the extraordinary gain, net income for fiscal period
2000 was $5.2 million, or $0.18 per diluted share compared to $4.4 million, or
$0.16 per diluted share in fiscal period 1999.
Liquidity and Capital Resources
As of September 30, 2000, the Company had $52.4 million in cash and cash
equivalents and working capital of $72.0 million. As more fully described in
Note 4 of the condensed consolidated financial statements, on June 22, 2000, the
Company acquired substantially all the assets of TimeCorp, Inc. for $6.0
million. On March 3, 2000, AOL purchased $10.0 million of the Company's stock at
a price of $15 per share and may invest an additional $25.0 million in a to be
formed subsidiary of the Company at a later date. Additionally, on March 1,
2000, the Company and Microsoft Corporation
12
jointly announced, subject to execution of a definitive agreement, that both
companies have joined forces to develop and market an integrated Web-enabled
management system and supply chain solution to enable retailers to conduct
business-to-business e-commerce over the Internet. In addition to agreeing to
make an equity investment in the Company, Microsoft committed to support the
Company's technology solution through joint marketing programs, funding for
product development, consulting services, developer support, and distribution
via the Microsoft(R) bCentral(TM) small-business portal.
Cash provided by operating activities in fiscal period 2000 was $5.3 million
compared to $20.7 million in fiscal period 1999. In fiscal period 2000, cash
provided by operating activities consisted primarily of net income of $5.2
million during the period, offset by increased accounts receivable, inventory,
and the gain on early extinguishment of debt, as well as decreased accounts
payable due to timing of certain vendor payments. Additionally, client deposits
and unearned revenues decreased during the fiscal period 2000 as the Company
delivered products and/or services previously paid for by clients. In fiscal
period 1999, cash provided by operating activities consisted primarily of net
income of $4.4 million during the period, as well as increased accounts payable
and accrued liabilities due to timing of certain vendor payments liabilities,
partially offset by increases in accounts receivable and inventory.
Additionally, client deposits and unearned revenues increased during the fiscal
period 1999 as the Company received cash from clients in advance of products
and/or services being delivered.
Cash used in investing activities during fiscal period 2000 and 1999 was $19.1
million and $5.5 million, respectively. The uses of cash in investing
activities for fiscal period 2000 consisted primarily of the acquisition of
TimeCorp, Inc. for $6.0 million, as more fully described in Note 4 of the
condensed consolidated financial statements, and purchases of property and
equipment for $9.1 million and capitalized software costs of $4.0 million. The
uses of cash in investing activities during fiscal period 1999 consisted
primarily of the purchases of property and equipment of $3.1 million and
capitalized software costs of $2.4 million.
Cash of $12.8 million was provided by financing activities during fiscal period
2000 due primarily to cash received from AOL's purchase of $10.0 million of the
Company's stock at a price of $15 per share, as more fully described in Note 4
of the condensed consolidated financial statements and from the exercise of
employee stock options of $2.1 million. Cash of $2.7 million was provided by
financing activities during fiscal period 1999 due primarily to cash received
from the exercise of employee stock options of $3.2 million, partially offset by
the Company's purchase of common stock pursuant to its stock repurchase program
for approximately $514,000.
The Company anticipates that for the next twelve months it will be able to meet
its funding needs for the possible acquisition of companies, working capital,
capital expenditures and addition stock purchases through current cash levels
and internally generated cash.
In April 2000, the Board of Directors of the Company authorized a stock
repurchase program pursuant to which management is authorized to repurchase up
to 1.0 million shares of common stock of the Company. As of November 6, 2000,
the Company has repurchased in the open market 90,000 shares of its common stock
for a total of $1.8 million. These purchases were, and any future purchase will
be, financed from the Company's cash reserves.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
Company will be required to adopt FAS 133 for the quarter ended March 31, 2001.
The Company does not expect the adoption to have a material impact on its
results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). In June 2000, the SEC staff
issued SAB 101B to provide registrants additional time to implement guidance
contained in SAB 101. SAB 101B delays the implementation date of SAB 101 until
no later than the fourth fiscal quarter of fiscal years beginning after December
15, 1999. The Company is evaluating the implications of SAB 101 and to date
nothing has been identified that would significantly change the Company's
historical practices with respect to the events that trigger revenue recogition
and the measurement of revenue.
Forward-Looking Statements
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. These statements appear in a
number of places in this Annual Report and include all statements that are not
statements of historical fact regarding intent, belief or current expectations
of the Company, its directors or its officers with respect to, among other
things: (i) the Company's financing plans; (ii) trends affecting the Company's
financial condition or results of operations; (iii) the Company's growth
strategy and operating strategy (including the development of its products and
services); and (iv) the declaration and payment of dividends. The words "may,"
"would," "could," "will," "expect," "estimate," "anticipate," "believe,"
"intend," "plans,"
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and similar expressions and variations thereof are intended to identify forward-
looking statements. Investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, many of which are beyond the Company's ability to control. Actual
results may differ materially from those projected in the forward-looking
statements as a result of various factors. Among the key risks, assumptions and
factors that may affect operating results, performance and financial condition
are the Company's reliance on a small number of customers for a larger portion
of its revenues, fluctuations in its quarterly results, ability to continue and
manage its growth, liquidity and other capital resources issues, competition and
the other factors discussed in detail in the Company's Form 10-K (as amended)
filed with the Securities and Exchange Commission, including the "Risk Factors"
therein.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
- --------------------------------------------------------------------
The Company's financial instruments that are subject to market risks are its
cash and cash equivalents. During the three and nine month periods ended
September 30, 2000, the weighted average interest rate on its cash balances was
approximately 6.54% and 6.25%, respectively. A 10.0% decrease in this rate
would have impacted interest income by approximately $79,000 and $238,000,
respectively, during the three and nine month periods ended September 30, 2000.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits.
The following exhibit is filed with this Report:
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
2000.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RADIANT SYSTEMS, INC
Dated: November 13, 2000 By: /s/ John H. Heyman
----------------- ---------------------------
John H. Heyman, Executive
Vice President and Chief Financial Officer
(Duly authorized officer and principal
financial officer)
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EXHIBIT INDEX
Exhibit Number Description of Exhibit
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27.1 Financial Data Schedule (for SEC use only)
16