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, 1999 0-22065
RADIANT SYSTEMS, INC.
- --------------------------------------------------------------------------------
(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
incorporation or organization) Identification No.)
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
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of the registrant's shares outstanding as of November 10, 1999 was
16,629,450.
1
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-13
Item 3: Quantitative and Qualitative Disclosures About Market Risks 13
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 14
Signature 14
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, 1999 December 31, 1998
------------------ -----------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 43,464 $ 25,537
Accounts receivable, net of allowance for doubtful
accounts of $1,000 million and $750 20,029 17,645
Inventories 13,776 11,965
Other short-term assets 2,955 2,997
--------- ---------
Total current assets 80,224 58,144
Property and equipment, net 8,289 8,341
Software development costs, net 5,420 3,718
Intangibles and other long-term assets 10,344 13,963
--------- ---------
$ 104,277 $ 84,166
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,947 $ 4,844
Accrued liabilities 5,029 3,210
Client deposits and unearned revenue 8,129 2,600
Current portion of long-term debt 112 161
--------- ---------
Total current liabilities 23,217 10,815
Long-term debt, less current portion 4,194 4,106
--------- ---------
Total liabilities 27,411 14,921
Shareholders' equity
Common stock, no par value; 30,000,000 shares authorized;
16,608,186 and 15,505,565 shares issued and outstanding -- --
Additional paid-in capital 95,324 92,144
Deferred compensation (278) (353)
Accumulated deficit (18,180) (22,546)
--------- ---------
Total shareholders' equity 76,866 69,245
--------- ---------
$ 104,277 $ 84,166
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements
3
RADIANT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
----------- ---------- ---------- ---------
Revenues:
System sales $ 24,949 $ 13,706 $ 63,500 $ 44,146
Client support, maintenance and other services 9,981 6,072 26,284 16,701
-------- -------- -------- --------
Total revenues 34,930 19,778 89,784 60,847
Cost of revenues:
System sales 12,295 6,284 31,298 21,430
Client support, maintenance and other services 7,893 5,293 21,013 14,509
-------- -------- -------- --------
Total cost of revenues 20,188 11,577 52,311 35,939
-------- -------- -------- --------
Gross profit 14,742 8,201 37,473 24,908
Operating expenses:
Product development 2,640 2,748 8,160 8,561
Sales and marketing 3,034 3,105 9,120 9,001
Depreciation and amortization 1,536 1,214 4,466 3,389
Non-recurring charges -- 455 -- 455
General and administrative 3,190 3,072 9,543 9,176
-------- -------- -------- --------
Income (loss) from operations 4,342 (2,393) 6,184 (5,674)
Interest income, net (408) (407) (1,093) (1,418)
-------- -------- -------- --------
Income (loss) before income tax provision (benefit) 4,750 (1,986) 7,277 (4,256)
Income tax provision (benefit) 1,900 (795) 2,911 (1,703)
-------- -------- -------- --------
Net income (loss) $ 2,850 $ (1,191) $ 4,366 $ (2,553)
======== ======== ======== ========
Earnings (loss) per share:
Basic $ 0.17 $ (0.07) $ 0.27 $ (0.16)
======== ======== ======== ========
Diluted $ 0.15 $ (0.07) $ 0.24 $ (0.16)
======== ======== ======== ========
Weighted average shares outstanding
Basic 16,536 16,062 16,324 15,989
======== ======== ======== ========
Diluted 18,479 16,062 18,056 15,989
======== ======== ======== ========
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,
-------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,366 $ (2,553)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of deferred compensation 75 137
Depreciation and amortization 5,146 3,389
Imputed interest on shareholder note 171 171
Changes in assets and liabilities:
Accounts receivable (2,383) (3,824)
Inventories (1,812) (4,070)
Other assets 2,682 (2,719)
Accounts payable 5,102 340
Accrued liabilities 1,819 452
Client deposits and deferred revenue 5,529 (2,257)
-------- --------
Net cash provided by (used in) operating activities 20,695 (10,934)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,127) (4,985)
Capitalized software development costs (2,383) (1,842)
-------- --------
Net cash used in investing activities (5,510) (6,827)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of employee stock options 3,185 1,339
Repurchase of common stock (514) --
Issuance of shareholder loans, net (306) (1,500)
Stock issued under employee stock purchase plan 507 --
Principal payments under capital lease obligations (18) (178)
Principal payments under long-term debt (112) (457)
-------- --------
Net cash provided by (used in) financing activities 2,742 (796)
-------- --------
Increase (decrease) in cash and cash equivalents 17,927 (18,557)
Cash and cash equivalents at beginning of year 25,537 47,567
-------- --------
Cash and cash equivalents at end of period $ 43,464 $ 29,010
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 10 $ 36
-------- --------
Income taxes $ -- $ 359
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applicable
to interim financial statements. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of Radiant Systems, Inc. (the
"Company") management, these condensed consolidated financial statements contain
all adjustments (which comprise only normal and recurring accruals) necessary
for fair presentation of the consolidated financial condition and results of
operations for these periods. The interim results for the three months and nine
months ended September 30, 1999 are not necessarily indicative of the results to
be expected for the full year. These statements should be read in conjunction
with the Company's consolidated financial statements as filed in its Annual
Report on Form 10-K for the year ended December 31, 1998.
2. Net Income (Loss) Per Share
Basic net income (loss) per common share is computed by dividing net income
(loss) by the weighted-average number of shares outstanding. Diluted net income
(loss) per share includes the dilutive effect of stock options. The following
table represents a reconciliation of basic and dilutive weighted average shares
and earnings (loss) per share.
For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
In thousands, except per share data 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding shares of 16,536 16,062 16,324 15,989
Common stock assumed issued upon exercise of
Common stock equivalents using the "treasury
Stock" method as it applies to the computation
of diluted earnings per share 1,943 -- 1,732 --
------- -------- -------- --------
Diluted weighted average shares outstanding 18,479 16,062 18,056 15,989
======= ======== ======== ========
Net earnings (loss) used in the computation of basic
and diluted earnings (loss) per share $ 2,850 $ (1,191) $ 4,366 $ (2,553)
======= ======== ======= ========
Earnings (loss) per share:
Basic $ 0.17 $ (0.07) $ 0.27 $ (0.16)
======= ======== ======= ========
Diluted $ 0.15 $ (0.07) $ 0.24 $ (0.16)
======= ======== ======= ========
For the three and nine month periods ended September 30, 1999, options to
purchase approximately 7,500 and 38,000 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 September 30,
1998 all common stock equivalents were excluded from the calculation of diluted
weighted average shares outstanding as their impact was antidilutive.
6
3. Segment Reporting Data
The Company operates through two primary reportable segments (i) Global
Solutions and (ii) Regional Solutions. Although both groups provide
enterprisewide technology solutions to the retail industry, the distinguishing
factor between them is primarily the size of the clients served and the nature
of the services performed. Global Solutions' clients tend to be clients with
greater than fifty owned and operated sites, while Regional Solutions' clients
typically have less than fifty owned and operated sites. Additionally, the
purchasing behavior of the Global Solutions clients is typically characterized
by the use of fewer, larger contracts. These contracts typically involve longer
negotiating cycles, and often require the dedication of substantial amounts of
working capital and other resources.
The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting polices included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
Company's management evaluates the performance of the segments based on an
internal measure of contribution margin, or income and loss from operations,
before certain allocated costs of development and corporate overhead.
The Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties that is, at current market prices.
The Other nonreportable segment includes miscellaneous businesses, certain
unallocated corporate operating expenses and the elimination of intersegment
sales.
The summary of the Company's operating segments is as follows (in thousands):
For the three months ended September 30, 1999
------------------------------------------------
Global Regional
Solutions Solutions Other Consolidation
--------- --------- -------- -------------
Revenues $ 31,697 $ 3,233 $ -- $ 34,930
Contribution margin 10,361 (439) (202) 9,720
Operating income (loss) 5,435 (891) (202) 4,342
For the three months ended September 30, 1998
------------------------------------------------
Global Regional
Solutions Solutions Other Consolidation
--------- --------- -------- -------------
Revenues $ 15,869 $ 3,909 $ -- $ 19,778
Contribution margin 4,043 (376) (561) 3,106
Non-recurring charges 325 130 -- 455
Operating income (loss) (524) (1,308) (561) (2,393)
For the nine months ended September 30, 1999
------------------------------------------------
Global Regional
Solutions Solutions Other Consolidation
--------- --------- -------- -------------
Revenues $ 77,875 $ 11,909 $ -- $ 89,784
Contribution margin 24,012 (429) (1,254) 22,329
Operating income (loss) 10,284 (2,846) (1,254) 6,184
For the nine months ended September 30, 1998
------------------------------------------------
Global Regional
Solutions Solutions Other Consolidation
--------- --------- -------- -------------
Revenues $ 49,403 $ 11,444 $ -- $ 60,847
Contribution margin 9,855 (1,167) (616) 8,072
Non-recurring charges 325 130 -- 455
Operating income (loss) (1,876) (3,182) (616) (5,674)
7
Identifiable assets allocated between the segments are comprised primarily of
accounts receivable, inventory and intangible assets. There have been no
material changes in these balances from those reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
4. Significant Event
On August 1, 1999, the Company entered into a agreement with America Online,
Inc. ("AOL") and MovieFone, Inc., a subsidiary of AOL ("MF"), to form a
strategic relationship in the retail point of sale business. This relationship,
among other things, entails a ten-year marketing and development agreement
whereby the Company will develop and manufacture point of sale systems and
services for sale to the entertainment segment pursuant to MF's specifications,
which will make such point of sale systems interoperable with MF's remote
entertainment and event ticketing services. The relationship also contemplates
future collaborative efforts between the companies. As part of this
relationship, AOL is making two investments. First, $10.0 million of the
Company's common stock at a price of $15 per share. Secondly, upon completion of
a mutually agreed-upon business plan, AOL has agreed to invest $25.0 million in
a subsidiary of the Company to be formed that will engage in consumer
interactive businesses other than in the entertainment segment (e.g.,
interactive fuel and dispenser business and interactive restaurant self-ordering
business). In return for its investment, AOL will receive a 15% equity interest
in the form of preferred stock of this subsidiary.
5. Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS 133) which established accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value, and changes in
the derivative fair value be recognized currently in earnings unless specific
accounting criteria are met. The Company plans to adopt SFAS 133 in the first
quarter of fiscal 2001. Management does not believe that adoption of this
statement will have a material effect on the consolidated financial statements
of the Company.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Under SOP 98-1, computer
software costs incurred in the preliminary project state are expensed as
incurred. Additional, specified upgrades and enhancements may be capitalized;
however, external costs related to maintenance, unspecified upgrades, and
enhancements should be recognized as expense over the contract period on a
systematic basis. Internal costs incurred for maintenance should be expensed as
incurred. SOP 98-1 is effective for the Company's fiscal year beginning January
1, 1999. The adoption of SOP 98-1 during the first quarter ended March 31, 1999
did not have a material effect on the consolidated financial statements of the
Company.
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company provides innovative technology to businesses that serve the
consumer. The Company provides transaction and management systems to support
enterprise processes for clients ranging in size from multi-national to single-
site operators. The Company also delivers comprehensive client care and
consulting services to maximize speed of implementation and the client's return
on technology investment. Headquartered in Atlanta, Georgia, the Company has
approximately 800 employees and has deployed its technology to hundreds of
companies worldwide.
The Company derives its revenues primarily from the sale of integrated systems,
including software, hardware and related support and consulting services. The
Company plans to increase licensing of certain of its software products on a
stand-alone basis. In addition, the Company offers implementation and
integration services which are billed on a per diem basis. The Company's
revenues from its various technology solutions are typically dependent on the
number of installed sites a client has. Accordingly, while the typical sale is
the result of a long, complex process, the Company's clients usually continue
installing additional sites over an extended period of time. Revenues from
software and systems sales are recognized as products are shipped, provided that
collection is probable and no significant post shipment vendor obligations
remain. Revenues from client support, maintenance and other services are
generally recognized as the service is performed.
Throughout the course of 1997 and 1998, the Company entered additional retail
markets, facilitated primarily through the acquisition of several companies and
product offerings. Combined with its existing products, the Company began
developing, marketing, deploying and supporting a variety of products. During
1998, the Company's management determined that significant internal cost
efficiencies and increased market appeal could be obtained through the
consolidation of its legacy products into a single family of products,
Lighthouse(TM). This consolidation effort integrated the best business and
technical knowledge from multiple markets.
During 1998, the Company began developing Lighthouse, its next generation
software technology. Management believes its Lighthouse generation of software
products, which leverages both Microsoft Windows(R) CE and NT operating systems,
represents an innovative platform based on open, modular software and hardware
architecture and offers increased functionality and stability compared to other
open systems in the marketplace. Additionally, management believes the
Lighthouse family of products will uniquely position the Company to serve the
needs of retailers who cross business segments (i.e., a convenience store or
cinema with a fast food operation), further differentiating the Company's
systems from those of its competitors and allowing the Company to better
leverage its development and support investments. Additionally, the Company
continues to review products and solutions utilizing the Internet.
In 1998, a number of factors impacted the Company's revenue growth and operating
results. Most notable was the fact that a number of the Company's larger clients
were involved in mergers and acquisitions which, for a variety of reasons,
interrupted or delayed roll outs of the Company's products. In addition, the
purchasing behavior of the Company's largest clients became increasingly
characterized by the use of fewer, larger contracts. These contracts typically
involve longer negotiating cycles, require the dedication of substantial amounts
of working capital and other resources, and in general require costs that may
substantially precede recognition of associated revenues. Moreover, in return
for larger, longer-term purchase commitments, clients often demand more
stringent acceptance criteria, which can also cause revenue recognition delays.
The above, coupled with investments by the Company in product development and
other areas of business, negatively impacted operating results and contributed
to losses during 1998.
Results of Operations
9
Three and nine months ended September 30, 1999 compared to three and nine months
ended September 30, 1998
System Sales. The Company derives the majority of its revenues from sales and
licensing fees of its headquarters-based, back office management, and point of
sale solutions. System sales increased 82.0% to $24.9 million for the quarter
ended September 30, 1999 (the "third quarter 1999"), compared to $13.7 million
for the quarter ended September 30, 1998 (the "third quarter 1998"). System
sales increased 43.8% to $63.5 million for the nine months ended September 30,
1999 (the "fiscal year 1999"), compared to $44.1 million for the nine months
ended September 30, 1998 (the "fiscal year 1998"). In addition to increased
sales and license fees from new and existing clients during fiscal year 1999,
the Company's Lighthouse software product was released to food service clients
during the period, which contributed to this increase in system sales.
Client Support, Maintenance and Other Services. The Company also derives
revenues from client support, maintenance and other services, which increased
64.4% to $10.0 million for the third quarter 1999, compared to $6.1 million for
the third quarter 1998 and increased 57.4% to $26.3 million for the fiscal year
1999, compared to $16.7 million for the fiscal year 1998. These increases were
due to increased support, maintenance and services revenues resulting from an
increased install base and increased client demand for professional services
such as training, custom software development, project management and
implementation services.
Cost of System Sales. Cost of system sales consists primarily of hardware and
peripherals for site-based system and labor. These costs are expensed as
associated revenues are recognized. Cost of system sales increased 95.7% to
$12.3 million for the third quarter 1999, compared to $6.3 million for the third
quarter 1998. Cost of system sales increased 46.0% to $31.3 million for the
fiscal year 1999 from $21.4 million for the fiscal year 1998. These increases
were directly attributable to the increase in system sales for fiscal year 1999.
Cost of system sales as a percentage of system sales increased to 49.3% for the
third quarter 1999 from 45.8% for the third quarter 1998, and to 49.3% during
fiscal year 1999 from 48.5% for fiscal year 1998. The increases were due
primarily to decreases in software-only sales as a percentage of total system
revenues, partially offset by increased efficiencies associated with the
manufacture of site-based systems.
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 49.1% to $7.9 million for the third
quarter 1999 from $5.3 million for the third quarter 1998 and increased 44.8% to
$21.0 million for fiscal year 1999 from $14.5 million for fiscal year 1998. The
increases were due primarily to increases in personnel 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 79.1% from 87.2% for the third quarter
1999 and 1998, respectively, and to 79.9% from 86.9% for fiscal year 1999 and
1998, respectively, as a result of increased efficiences and staff utilization.
Product Development Expenses. Product development expenses consist primarily of
wages and materials expended on product development efforts. Product development
expenses decreased 3.9% to $2.6 million for the third quarter 1999, compared to
$2.7 million for the third quarter 1998 due primarily to increased custom
software development projects during the quarter which were billed to clients.
As a result, these related costs are included in costs of client support
maintenance and other services noted above. Product development expenses
decreased 4.7% to $8.2 million for fiscal year 1999, compared to $8.6 million
for fiscal year 1998. This decrease was due primarily to higher capitalization
of software costs associated with the Company's development of its Lighthouse
generation of products. In the third quarter 1999 and 1998, the Company
capitalized software development costs of $700,000, or 20.9% of its total
product development costs, and $744,000, or 21.3% of its total product
development costs, respectively. For fiscal year 1999 and 1998, the Company
capitalized software development costs of $2.4 million, or 22.6%
10
of its total product development costs, and $1.8 million, or 17.7% of its total
product development costs, respectively. Product development expenses as a
percentage of total revenues decreased to 7.6% from 13.9% for the third quarter
1999 and 1998, respectively, and to 9.1% from 14.1% for fiscal year 1999 and
1998, respectively, as total revenues increased while product development
expenses decreased.
Sales and Marketing Expenses. Sales and marketing expenses decreased 2.3% to
$3.0 million during the third quarter 1999, compared to $3.1 million in the
third quarter 1998. This decrease was associated with reductions in travel and
certain personnel costs which were offset by increased commission expense
attributable to higher sales. Sales and marketing expenses increased 1.3% to
$9.1 million during fiscal year 1999, compared to $9.0 million for fiscal year
1998 due primarily to increased personnel costs and sales commissions associated
with higher revenues. Sales and marketing expenses as a percentage of total
revenues were 8.7% and 15.7% for the third quarter 1999 and 1998, respectively,
and 10.2% and 14.8% for fiscal year 1999 and 1998, respectively as total
revenues increased at a pace higher than related sales and marketing expenses.
Depreciation and Amortization. Depreciation and amortization expenses increased
26.5% to $1.5 million for the third quarter 1999, compared to $1.2 million for
the third quarter 1998 and increased 31.8% to $4.5 million for fiscal year 1999,
compared to $3.4 million for fiscal year 1998. The increase resulted from an
increase in computer equipment, leasehold improvements and other assets required
to support an increased number of employees and locations. Depreciation and
amortization as a percentage of total revenues was 4.4% and 6.1% for the third
quarter 1999 and 1998, respectively, and 5.0% and 5.6% for both fiscal years
1999 and 1998, respectively. The decrease in the third quarter 1999 was
primarily due to associated revenues increasing at a pace higher than associated
personnel support. Amortization of capitalized software development costs was
approximately $251,000 and $217,000 for the third quarter 1999 and 1998,
respectively, and approximately $680,000 and $440,000 for fiscal year 1999 and
1998, respectively.
Non-Recurring Charges. During the third quarter 1998 the Company recorded
approximately $455,000 of non-recurring charges related to severance
arrangements associated with certain personnel. No such charges were incurred
during the third quarter 1999.
General and Administrative Expenses. General and administrative expenses
increased 3.8% to $3.2 million for the third quarter 1999, compared to $3.1
million for the third quarter 1998 and increased 4.0% to $9.5 million for fiscal
year 1999, compared to $9.2 million for fiscal year 1998. The increase was due
primarily to personnel increases needed to support additional revenues. General
and administrative expenses as a percentage of total revenues were 9.1% and
15.5% for the third quarter 1999 and 1998, respectively, and 10.6% and 15.1% for
fiscal year 1999 and 1998, respectively, as total revenues grew at a pace faster
than associated personnel and related expenses.
Interest Income, Net. Net interest income increased 0.2% to $408,000 for the
third quarter 1999, compared to $407,000 for the third quarter 1998. For fiscal
year 1999, net interest income decreased 22.9% to $1.1 million, compared to net
interest income of $1.4 million for fiscal year 1998. The Company's interest
income is derived from the investment of its cash and cash equivalents. The
decrease in net interest income in fiscal year 1999 over fiscal year 1998
resulted primarily from a decline in cash and cash equivalents from an average
cash balance of $38.3 million during the fiscal year 1998 to an average cash
balance $34.5 million during fiscal year 1999. See--"Liquidity and Capital
Resources."
Income Tax Provision (Benefit). The Company recorded a tax provision of 40.0%
in both the third quarter 1999 and fiscal year 1999 compared to a tax benefit of
40% in both the third quarter 1998 and fiscal year 1998.
Net Income (Loss). Net income for the third quarter 1999 was $2.9 million, or
$0.15 per diluted share, an increase of $4.0 million, or $0.22 per diluted share
over a net loss of $1.2 million, or $0.07 per diluted share for the third
quarter 1998. Net income fiscal year 1999 was $4.4 million or $0.24 per diluted
share, an increase of $6.9 million or $0.40 per diluted share over a net loss of
$2.6 million or $0.16 per diluted share for fiscal year 1998.
11
Liquidity and Capital Resources
As of September 30, 1999, the Company had $43.5 million in cash and cash
equivalents and working capital of $57.0 million. As more fully described in
Note 4 of the Condensed Consolidated Financial Statements, AOL has agreed to
purchase $10.0 million of the Company's stock at a price of $15 per share and
may invest an additional $25.0 million in subsidiary of the Company at a later
date.
The Company provided cash from operating activities in fiscal year 1999 of $20.7
million compared to a use of cash of $10.9 million in fiscal year 1998. In
fiscal year 1999, the Company provided cash from operating activities primarily
due to 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 year 1999 as the Company received cash from clients in advance of
products and/or services being delivered. In fiscal year 1998, the Company's
uses of cash were the primary result of the net loss for the period then ended;
increased accounts receivables and inventories due to increased sales; decreased
accounts payable and accrued liabilities due to timing of certain vendor
payments; and client deposits and unearned revenues as the Company delivered
products and/or services previously paid by clients.
Cash used in investing activities during fiscal year 1999 and 1998 was $5.5
million and $6.8 million, respectively. The uses of cash in investing activities
for fiscal year 1999 consisted primarily of the purchases of property and
equipment for $3.1 million and capitalized software costs of $2.4 million. The
uses of cash in investing activities during fiscal year 1998 consisted primarily
of the purchases of property and equipment of $5.0 million and capitalized
software costs of $1.8 million. During fiscal year 1998, the Company's moved
into two new leased facilities in Alpharetta, Georgia with approximately 161,000
combined square feet. As a result, the Company purchased equipment and furniture
to accommodate the moves.
Cash of $2.7 million was provided by financing activities during fiscal year
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. Cash of
$796,000 was used in financing activities during fiscal year 1998 due primarily
to an advance made by the Company to the former sole shareholder of RapidFire
under an agreement to loan up to $1.5 million to that individual, which debt
matures October 31, 2005 and bears interest at 5.0% per annum, offset by cash
received from the exercise of employee stock options of $1.3 million.
In September 1998, the Board of Directors of the Company authorized a stock
repurchase program pursuant to which management is authorized to repurchase up
to 3,000,000 shares of common stock of the Company. As of November 10, 1999, the
Company had repurchased in the open market an aggregate of 680,154 shares of its
common stock for a total of $4.5 million. These purchases were, and any future
purchase will be, financed from the Company's cash reserves.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or invoices sent, or
engage in similar normal business activities.
The Company has substantially completed the process of reviewing its internal
systems, including those that support financial, manufacturing and general
business operations. To date, the Company has identified some systems that
require upgrades to be Year 2000 compliant, including certain business software
applications. The business application upgrades are in progress, and are
accommodated by
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existing software maintenance contracts with outside providers. To date, updates
have been completed to all critical business software applications. The Company
anticipates that it will complete its review of its less critical internal
systems and expects that all-necessary upgrades to ensure Year 2000 compliance
will be completed by the end of the fourth quarter of 1999. All costs associated
with analyzing the Year 2000 Issue or making conversions to existing systems are
being expensed as incurred. Management presently believes that the costs to
modify its information technology infrastructure to be Year 2000 compliant will
not have a material adverse impact to its financial condition or results of
operations during any quarterly or annual reporting period.
Additionally, the Company is in the process of conducting an inventory and
business risk assessment of its non-information technology systems. Company
personnel are conducting communications with its significant suppliers of goods
and services to determine the extent to which the Company's operations and
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. To date, the Company's analysis of key third parties has not
revealed any issues that would prevent them from continuing to provide products
and services through the Year 2000 transition. There can be no guarantee that
the systems of other companies on which the Company's operations and systems
rely will be timely converted and would not have an adverse effect on the
Company's systems or results of operations. However, the Company is currently
identifying and considering various contingency options to minimize the risk of
any Year 2000 problems.
Finally, the Company has substantially completed the testing of its existing
product offerings. The testing includes analysis of both standard products
currently offered, and all custom products that have been offered or developed,
which the Company currently supports. The testing is not performed with respect
to any legacy products that the Company does not currently sell or support. In
the event that the testing determines that a product may not be Year 2000
compliant, the Company has or will develop either a fix, or a migration path to
a product that is Year 2000 compliant. To date, the costs to modify the
Company's software to be Year 2000 compliant has not been material. Furthermore,
management believes that any additional costs to be incurred will not be
material nor have a material adverse impact on its financial condition or
results of operations during any quarter or annual reporting period. The
Company, to date, has utilized predominantly internal resources to reprogram, or
replace, and test its hardware and software for Year 2000 modifications.
The Company has not fully completed a contingency plan for business activities
that are susceptible to substantial risk of any disruptions from a Year 2000
related event. Because the Company has not fully assessed its risk from
potential Year 2000 failures, the Company has not yet developed detailed
contingency plans to Year 2000 events for any business activity. The Company is
aware of the possibility that certain business activities may be hereafter
identified as at risk.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material difference include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
Forward-Looking Statements
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for the future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors, which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
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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, 1999, the weighted average interest rate on its cash balances was
approximately 5.09% and 4.95%, respectively. A 10.0% decrease in this rate would
have impacted interest income by approximately $45,000 and $105,000,
respectively, during the three and nine month periods ended September 30, 1999.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibit is filed with this Report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1999
RADIANT SYSTEMS, INC
Dated: November 12, 1999 By: /s/ John H. Heyman
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John H. Heyman,
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number Description of Exhibit
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27.1 Financial Data Schedule
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