Back to GetFilings.com

Table of Contents

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 June 30, 2004

Commission File Number: 0-22065

RADIANT SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Issuer’s telephone number, including area code: (770) 576-6000

(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 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 ¨

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

The number of the registrant’s shares outstanding as of August 3, 2004 was 28,822,968.

Table of Contents

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

2

Table of Contents

PART I. FINANCIAL INFORMATION

The information contained in this report is furnished for the Registrant, Radiant Systems, Inc. (“Radiant” or the “Company”). In the opinion of management, the information in this report contains all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the results for the interim periods presented. The financial information presented herein should be read in conjunction with the financial statements included in the Registrant’s Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission.

3

Table of Contents

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

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

4

Table of Contents

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

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

5

Table of Contents

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2004

(in thousands)

(Unaudited)

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

6

Table of Contents

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

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

7

Table of Contents

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Stock-Based Compensation

Basis of Presentation

In the opinion of management, the unaudited interim condensed consolidated financial statements of Radiant Systems, Inc. (“Radiant” or the “Company”), included herein, have been prepared on a basis consistent with the December 31, 2003 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, 2003. Radiant’s results of operations for the six months ended June 30, 2004 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 of 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.

Discontinued Operations

As a result of Radiant’s disposal of its Enterprise segment and operations in the first quarter of 2004, the Company’s previously reported condensed consolidated statement of operations for the period ended June 30, 2003 has been restated to present the discontinued Enterprise segment and operations separate from continuing operations (Note 2).

Reclassifications

Certain reclassifications have been made to the first quarter 2004 financial information in order to conform with the current quarter’s presentation.

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. In the event of a net loss, basic loss per share is the same as dilutive loss per share. For the three months and six months ended June 30, 2004 and 2003, Radiant reported a loss from continuing operations. Therefore, basic and dilutive weighted average shares outstanding for such periods were approximately 28.8 million for the three and six months ended June 30, 2004 and were approximately 27.9 million for the three and six months ended June 30, 2003.

For the three and six month periods ended June 30, 2004, options to purchase approximately 6.1 million and 6.5 million shares of common stock were excluded from the above reconciliation, as the options were antidilutive for the periods then ended. For the three and six month periods ended June 30, 2003, options to purchase approximately 5.6 million and 5.1 million shares of common stock were excluded from the above reconciliation, as the options were antidilutive for the periods then ended.

8

Table of Contents

Accounting for Stock-Based Compensation

Radiant measures compensation expense for its stock-based employee compensation plans using the intrinsic value method. As the exercise of all options granted under these plans was equal to the fair market price of the underlying common stock on the grant date, no stock-based employee compensation cost is recognized in the condensed consolidated statements of operations.

In accordance with Statement of Financial Accounting Standards No. 148 (“SFAS 148”), Accounting for Stock-Based Compensation — Transition and Disclosure—, an Amendment of the Financial Accounting Standards Board (“FASB”) Statement No. 123 and Statement of Financial Accounting Standards No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation, Radiant’s pro forma option expense is computed using the Black-Scholes option pricing model. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. Radiant’s employee stock options have characteristics significantly different from those of traded options; therefore, in the opinion of management, the Black-Scholes option pricing model generally used to comply with SFAS 148 and SFAS 123 does not necessarily provide a reliable measure of the fair value of Radiant’s options.

To comply with SFAS 148, Radiant presents the following table to illustrate the effect on the net (loss) income and (loss) earnings per share if it had applied the fair value recognition provisions of SFAS 123, as amended, to options granted under its stock-based employee compensation plans. For purposes of this pro forma disclosure, the estimated value of the options is amortized ratably to expense over the options’ vesting period.

Accounting Pronouncements

On March 31, 2003, the Financial Accounting Standards Board (“FASB”) issued an exposure draft of its proposed standard on accounting for stock compensation amending FASB Statement No. 123 “Accounting for Stock-Based Compensation.” The exposure draft would require all grants of employee stock options to be expensed based on their fair values. The FASB expects to issue a final standard late in 2004 that would be effective for public companies for fiscal years beginning after December 15, 2004. The Company is currently evaluating the impact of the proposed standard.

In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities. Variable interest entities are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit it to operate on a stand alone basis. In December 2003, the FASB published FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46(R)). FIN 46(R), among other things, defers the effective date of implementation for certain entities. The revised interpretation is effective for the first interim or annual reporting period ending after March 15, 2004, with the exception of structures that are commonly referred to as special-purpose entities, for which the statement is effective for periods ending after December 15, 2003. The Company does not participate in variable interest entities.

9

Table of Contents

2. Acquisitions and Divestitures

Acquisition of E Needs, Inc.

On April 14, 2004, the Company acquired substantially all of the assets of E Needs, Inc., a mutually held Company. E Needs is engaged in the business of developing, marketing, licensing and selling software and services in the movie-theatre circuit and related financial management marketplaces. The operating results of E Needs are included in the condensed consolidated financial statements from the date of acquisition. Pro forma information has not been presented as it is not material to the Company’s financial statements.

The transaction included the purchase of certain software technology source code and customer lists. Total consideration was approximately $700,000 and consisted of $300,000 in cash, the issuance of 46,133 shares of common stock with a fair value of $6.50 per share based on the average close price for the 10 days prior to the date of announcement (March 17, 2004) and approximately $100,000 of assumed liabilities and direct expenses. The purchase agreement also provides for additional cash payments if certain future operating targets are achieved. The additional payments may aggregate to approximately $1.6 million. Intangible assets of approximately $600,000 were recorded and will be amortized over the assets estimated useful lives, which range from three to ten years. The remaining $100,000 purchase price was recorded as goodwill and assigned to the entertainment segment. The goodwill is expected to be deductible for tax purposes over the next 15 years. The purchase price allocation has been prepared on a preliminary basis, and reasonable changes may occur if additional information becomes available.

Acquisition of Aloha Technologies, Inc.

On January 13, 2004, the Company acquired substantially all of the assets of Aloha Technologies and certain affiliated entities (collectively, “Aloha”). Aloha, a privately-held company, is a leading provider of point of sale systems for the hospitality industry. The results of Aloha have been included in the condensed consolidated financial statements from the date of the acquisition.

Total consideration of approximately $48.6 million and consisted of an $11 million cash payment, a five-year note in the principal amount of $19.7 million at an interest rate of prime plus one percent, a one-year note in the principal amount of $1.7 million at an interest rate of prime plus one percent, the issuance of 2.4 million shares of restricted common stock with a fair value of $6.50 per share on the date of announcement (December 15, 2003), and $900,000 of direct expenses Radiant incurred related to the acquisition and the assumption of certain liabilities. The transaction was accounted for using the purchase method of accounting as required by FASB Statement No. 141, “Business Combinations,” and Radiant has accordingly allocated the purchase price of Aloha based upon the fair values of the net assets acquired and liabilities assumed.

The purchase price allocation has been prepared on a preliminary basis, and reasonable changes may occur if additional information becomes available. The intangible assets acquired were valued by independent appraisers utilizing customary valuation procedures and techniques. Goodwill and identifiable intangible assets recorded in the acquisition will be tested periodically for impairment as required by FASB Statement No. 142, “Goodwill and Other Intangible Assets.” The following is a summary of the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition:

10

Table of Contents

The goodwill of $23.9 million has been assigned to the hospitality segment and is expected to be deductible for tax purposes over the next 15 years. The following is a summary of the intangible assets acquired and the weighted-average useful lives that these assets will be amortized over:

The following unaudited pro forma financial information presents results as if the acquisition had occurred at the beginning of the respective periods:

These pro forma results have been prepared for comparative purposes only and include certain adjustments such as additional amortization expense as a result of identifiable intangible assets arising from the acquisition and from increased interest expense on acquisition debt. The pro forma results are not necessarily indicative either of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the respective periods or of future results.

Divestiture of Enterprise Software Systems Business

On August 5, 2003, the Company announced that its Board of Directors had authorized the Company to pursue a divestment of the Company’s Enterprise Software Systems (“Enterprise”) business. On October 13, 2003 the Company announced it had entered into a definitive agreement with Erez Goren, the Company’s then Co-Chairman and Co-Chief Executive Officer, in connection with the Company’s announced plan to split-off its Enterprise business. The Board of Directors authorized and approved the divestment and the transaction, subject to shareholder approval, based on the recommendation of a special committee comprised of the Company’s independent directors.

On January 31, 2004, the Company completed a tax-free split-off of Enterprise, now known as BlueCube Software, to Erez Goren, the Company’s former Co-Chairman and Co-Chief Executive Officer. The split-off transaction received the approval of approximately 70% of the disinterested shareholders of Radiant at the special meeting of shareholders held on January 30, 2004. Approval of a majority of the disinterested shareholders was a condition to the closing of the transaction. Pursuant to the terms of the Share Exchange Agreement, Radiant contributed specified assets and liabilities of the Enterprise business, together with $4.0 million in cash, to the newly formed subsidiary, and then transferred all of the shares of the new company to Erez Goren in exchange for the redemption of 2.0 million shares of common stock of the Company, valued at $16.3 million. The shares redeemed represented approximately 7.0% of the Company’s outstanding shares. The consideration for the transaction was determined based on negotiations between the special committee of the Company’s independent directors and Mr. Goren. At the completion of this transaction, Mr. Goren resigned as Co-Chairman and Co-CEO of Radiant and as a member of the Company’s Board of Directors.

During the quarter ended June 30, 2004, the Company recorded an additional $183,000 of expenses related to the divestiture of Enterprise business.

11

Table of Contents

For the one month ended January 31, 2004 and the three and six months ended June 30, 2003, Enterprise generated revenues of approximately $1.8 million, $5.3 million and $9.6 million, respectively, and generated a net loss of approximately $913,000, $33.9 million and $36.9 million, respectively. Approximately $31.6 million of the loss generated by Enterprise during the three and six months ended June 30, 2003 were the result of non-recurring charges related to impairment of goodwill, intangible assets and capitalized software. The Enterprise results are included in discontinued operations in the condensed consolidated statement of operations. The following is a summary of asset and liabilities of the Enterprise business that were contributed to BlueCube Software, the proceeds received, and the resulting gain on disposal:

Commitments and Contingencies from Divestiture

Radiant has a contractual obligation for performance under certain existing customer contracts that have not been assigned to BlueCube at Radiant’s choice or because they require the consent of the customer (Legacy contracts). Under a Reseller and Services Agreement, BlueCube is obligated to fulfill the terms of these Legacy contracts, including providing hosting, support, maintenance and professional services. BlueCube will act as Radiant’s subcontractor, and indemnify Radiant for any losses associated with its performance or non-performance of the Legacy contract obligations. Additionally, Radiant maintains rights to access product source code and information needed to fulfill Legacy contract obligations if BlueCube fails to perform. For a limited number of existing customer contracts, Radiant and BlueCube have shared liability, which includes penalties, for a period of 18 months after January 31, 2004, based upon the revenue received by each party under the contract. For one of these contracts, milestones defined in the original contract were amended. Failure to meet these amended milestones could result in penalties and/or losses, the amount of which cannot be estimated. In management’s opinion, it is not probable that Radiant will incur penalties/losses on this contract. In addition to the initial cash included in the transaction, it was agreed that approximately $5.3 million of unearned revenue will be transferred to BlueCube. Approximately, $1.6 million and $2.7 million was paid during the three months and five months ended June 30, 2004, respectively. Management expects the majority of the remaining cash to be transferred to BlueCube over the next 9 months. The remaining liability of approximately $2.6 million is included in accrued contractual obligations in the accompanying condensed consolidated balance sheet as of June 30, 2004.

Radiant has also agreed to sublease a portion of Radiant’s property, currently under an operating lease, to BlueCube. This sublease will expire concurrently with Radiant’s operating lease on the property in January 2013. BlueCube has the right to early termination beginning on January 31, 2007, and must provide Radiant with an 18 month notice that early termination will occur. Payments received from BlueCube regarding this sublease equated to approximately $400,000 and $600,000 during the three months and five months ended June 30, 2004. Aggregate future minimum lease payments under this sublease agreement as of June 30, 2004, are approximately: $600,000 due in 2004, $1.3 million in 2005, $1.5 million per year for years 2006 through 2010, and a total of $3.0 million over the remaining 25 months of the lease. In conjunction with this sublease agreement, Radiant and BlueCube entered into a right of refusal and option agreement pertaining to real property currently owned by Radiant and adjacent to the property being subleased by BlueCube. Under this agreement, BlueCube has an option to purchase the real property at a stated value, which management believes is the fair value at the time of the split-off. BlueCube has the right of refusal if Radiant obtains an offer to sell the real property to another party. The exercising of this right will result in BlueCube purchasing the real property at a price based on a formula and the third-party offer obtained by Radiant. This agreement is subordinate to a pre-existing right of first refusal with a third-party.

12

Table of Contents

3. Goodwill and Other Intangibles, Net

Goodwill

In accordance with SFAS No. 142 the Company evaluates the carrying value of goodwill as of January 1^st of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of the reporting unit’s goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Company’s evaluation of goodwill completed during 2004 in accordance with SFAS No. 142 resulted in no impairment losses. Changes in the carrying value of goodwill from continuing operations for the six months ended June 30, 2004 is as follows:

Intangible assets

A summary of the Company’s intangible assets as of June 30, 2004 and December 31, 2003 is as follows (in thousands):