RADIANT SYSTEMS INC - FORM 10-Q

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EX-4.1 - AMENDMENT NO. 4 TO CREDIT AGREEMENT - RADIANT SYSTEMS INC	dex41.htm
EX-32 - CERTIFICATIONS PURSUANT TO SECTION 906 - RADIANT SYSTEMS INC	dex32.htm
EX-31.2 - SECTION 302 CERTIFICATION OF MARK E. HAIDET, CHIEF FINANCIAL OFFICER - RADIANT SYSTEMS INC	dex312.htm
EX-31.1 - SECTION 302 CERTIFICATION OF JOHN H. HEYMAN, CHIEF EXECUTIVE OFFICER - RADIANT SYSTEMS INC	dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2010

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

For the transition period from to

Commission File Number: 0-22065

RADIANT SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Georgia

11-2749765

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


3925 Brookside Parkway, Alpharetta, Georgia		30022
(Address of principal executive offices)		(Zip code)

(770) 576-6000

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

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

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

As of August 4, 2010, there were 34,429,147 shares of the registrant’s no par value common stock outstanding.

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


		PAGE
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009 (unaudited)	3
	Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2010 (unaudited) and 2009 (unaudited)	4
	Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended June 30, 2010 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 (unaudited) and 2009 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II	OTHER INFORMATION
Item 6.	Exhibits	30
Signatures		31

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)


	June 30, 2010			December 31, 2009
ASSETS
Current assets
Cash and cash equivalents	$	17,232		$	15,521
Accounts receivable, net		59,321			42,515
Inventories		32,428			29,662
Deferred tax assets		5,981			5,690
Other current assets		6,128			4,587

Total current assets		121,090			97,975
Property and equipment, net		24,018			24,923
Software development costs, net		12,573			11,810
Deferred tax assets, non-current		2,603			1,323
Goodwill		104,895			107,819
Intangible assets, net		35,737			42,428
Other long-term assets		9,633			2,319

Total assets	$	310,549		$	288,597

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	6,000		$	6,000
Accounts payable		22,509			17,724
Accrued liabilities		27,046			23,462
Customer deposits and unearned revenues		27,829			21,157
Current portion of capital lease payments		653			842

Total current liabilities		84,037			69,185
Capital lease payments, net of current portion		323			576
Long-term debt, net of current portion		44,933			56,626
Deferred tax liabilities, non-current		4,492			4,265
Other long-term liabilities		11,737			4,602

Total liabilities		145,522			135,254

Shareholders’ equity
Preferred stock, no par value; 5,000,000 shares authorized, no shares issued		—			—
Common stock, no par value; 100,000,000 shares authorized; 34,349,765 and 33,239,198 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively		—			—
Additional paid-in capital		175,347			164,769
Accumulated deficit		(722	)		(9,081	)
Accumulated other comprehensive loss		(9,598	)		(2,345	)

Total shareholders’ equity		165,027			153,343

Total liabilities and shareholders’ equity	$	310,549		$	288,597

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	For the three months ended June 30,						For the six months ended June 30,
	2010			2009			2010			2009
Revenues:
Systems	$	42,057		$	29,834		$	76,385		$	56,880
Maintenance, subscription and transaction services		35,836			32,069			71,776			63,280
Professional services		9,134			9,229			18,414			18,575

Total revenues		87,027			71,132			166,575			138,735
Cost of revenues:
Systems		22,585			15,207			42,366			29,227
Maintenance, subscription and transaction services		16,913			15,572			34,526			31,090
Professional services		6,647			5,890			13,473			12,048

Total cost of revenues		46,145			36,669			90,365			72,365

Gross profit		40,882			34,463			76,210			66,370

Operating expenses:
Product development		6,155			5,529			11,897			10,713
Sales and marketing		11,925			10,509			23,557			21,090
Depreciation of fixed assets		1,460			1,231			2,950			2,482
Amortization of intangible assets		2,142			2,338			4,352			4,589
General and administrative		9,922			9,106			19,144			18,441
Impairment of goodwill (see Note 4)		(313	)		—			(313	)		—
Other charges and income, net (see Note 8)		—			—			—			1,153

Total operating expenses		31,291			28,713			61,587			58,468

Income from operations		9,591			5,750			14,623			7,902
Interest income		(5	)		(31	)		(12	)		(39	)
Interest expense		365			643			757			1,326
Other income, net		(77	)		(33	)		(120	)		(67	)

Income before taxes		9,308			5,171			13,998			6,682
Income tax provision		3,546			1,992			5,639			2,475

Net income	$	5,762		$	3,179		$	8,359		$	4,207

Net income per share:
Basic income per share	$	0.17		$	0.10		$	0.25		$	0.13
Diluted income per share	$	0.16		$	0.09		$	0.24		$	0.13
Weighted average shares outstanding:
Basic		34,126			32,916			33,749			32,748
Diluted		35,764			33,633			35,295			32,952

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(in thousands)

(unaudited)


									Accumulated Other Comprehensive Loss
				Additional Paid-in Capital
	Common Stock					Accumulated Deficit
	Shares	Amount				Accumulated Deficit						Total
BALANCE, December 31, 2009	33,239	$	—	$	164,769	$	(9,081	)	$	(2,345	)	$	153,343

Components of comprehensive income:
Net income	—		—		—		8,359			—			8,359
Foreign currency translation adjustment	—		—		—		—			(7,253	)		(7,253	)

Total comprehensive income (loss)	—		—		—		8,359			(7,253	)		1,106
Exercise of employee stock options	891		—		6,078		—			—			6,078
Stock issued under Employee Stock Purchase Plan	8		—		107		—			—			107
Net tax benefits related to stock-based compensation	—		—		1,731		—			—			1,731
Restricted stock awards	212		—		1,338		—			—			1,338
Stock-based compensation	—		—		1,324		—			—			1,324

BALANCE, June 30, 2010	34,350	$	—	$	175,347	$	(722	)	$	(9,598	)	$	165,027

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	For the six months ended June 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,359		$	4,207
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,715			7,937
Provision for deferred income taxes		(1,519	)		544
Impairment of goodwill		(313	)		—
Stock-based compensation expense		2,656			2,589
Other charges and income, net (see Note 8)		—			(190	)
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable		(17,262	)		5,903
Inventories		(3,147	)		886
Other assets		(481	)		(2,102	)
Accounts payable		5,323			(3,641	)
Accrued liabilities		3,992			4,151
Customer deposits and unearned revenue		2,600			4,404
Other liabilities		3,044			(418	)

Net cash provided by operating activities		11,967			24,270
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(3,034	)		(2,621	)
Capitalized software development costs		(2,006	)		(2,206	)
Purchase of customer list		—			(2,000	)
Proceeds from sale of building		—			216
Purchase price adjustment for Hospitality EPoS		—			(97	)

Net cash used in investing activities		(5,040	)		(6,708	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options		6,078			54
Proceeds from shares issued under Employee Stock Purchase Plan		107			126
Tax benefits related to stock-based compensation		1,731			208
Principal payments on capital lease obligations		(442	)		(411	)
Principal payments on term loan under JPM Credit Agreement		(3,000	)		(3,000	)
Proceeds from revolving loan under the JPM Credit Agreement		13,350			20,000
Repayments of revolving loan under the JPM Credit Agreement		(21,950	)		(35,000	)

Net cash used in financing activities		(4,126	)		(18,023	)

Effect of exchange rate changes on cash and cash equivalents		(1,090	)		892

Increase in cash and cash equivalents		1,711			431
Cash and cash equivalents at beginning of period		15,521			16,450

Cash and cash equivalents at end of period	$	17,232		$	16,881


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	628		$	1,340
Cash paid for income taxes	$	4,649		$	2,033

SCHEDULE OF NON-CASH TRANSACTIONS:
Assets acquired under capital leases	$	—		$	155
Purchases of property and equipment	$	151		$	72
Amendment to agreement with Century Payments, Inc. (see Note 12)	$	11,230		$	—
Non-cash transactions related to acquisitions:
Purchase price adjustment related to Hospitality EPoS	$	—		$	(16	)
Purchase price adjustment related to Jadeon	$	—		$	(108	)
Purchase price adjustment related to Orderman	$	—		$	(214	)

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. BASIS OF PRESENTATION AND ACCOUNTING PRONOUNCEMENTS

Basis of Presentation

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

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

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

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

Treasury Stock

The Company records treasury stock purchases at cost and allocates this value to additional paid-in capital.

Net Income Per Share

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


	Three Months Ended June 30,		Six Months Ended June 30,
	2010	2009	2010	2009
Weighted average common shares outstanding	34,126	32,916	33,749	32,748
Dilutive effect of outstanding stock options	1,638	717	1,546	204

Weighted average common shares outstanding assuming dilution	35,764	33,633	35,295	32,952

For the three months ended June 30, 2010 and 2009, options to purchase approximately 0.9 million and 3.9 million shares of common stock, respectively, were excluded from the above reconciliation, as the options were anti-dilutive for the periods then ended. For the six months ended June 30, 2010 and 2009, options to purchase approximately 1.6 million and 5.0 million shares of common stock, respectively, were excluded from the above reconciliation, as the options were anti-dilutive for the periods then ended.

Comprehensive Income

The Company follows FASB ASC Topic 220, Comprehensive Income, (“ASC 220”). ASC 220 establishes the rules for the reporting of comprehensive income and its components. The Company’s comprehensive income (loss) includes net income and foreign currency translation adjustments. Total comprehensive (loss) income for the three months ended June 30, 2010 and 2009 was approximately $(0.2) million and $15.1 million, respectively. Total comprehensive income for the six months ended June 30, 2010 and 2009 was approximately $1.1 million and $13.2 million, respectively.

Financing Costs Related to Long-Term Debt

Costs associated with obtaining long-term debt are deferred and amortized over the term of the related debt. The Company incurred financing costs in 2008 related to the credit agreement with JP Morgan Chase Bank, N.A. equal to approximately $1.2 million. The costs were deferred and are being amortized over five years. Amortization of financing costs was approximately $0.1 million for the three-month periods ended June 30, 2010 and 2009. Amortization of these financing costs was approximately $0.1 million and $0.2 million for the six-month periods ended June 30, 2010 and 2009, respectively.

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Fair Value of Financial Instruments

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

•

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

•

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

•

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

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

•

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

•

Long-term debt — Term loan – To estimate the fair value of our term loan, which is not quoted on an exchange, the Company used those interest rates that were currently available to it for issuance of debt with similar terms and remaining maturities. At June 30, 2010, the fair value of the $17.0 million principal amount of the term loan under the JPM Credit Agreement was approximately $16.6 million.

•

Long-term debt — Revolving credit loan – To estimate the fair value of our revolving credit facility, which is not quoted on an exchange, the Company used those interest rates currently available to it in conjunction with management’s estimate of the amounts and timing of the repayment of principal amounts and related interest. At June 30, 2010, the fair value of the $33.4 million principal amount of the revolving credit loan under the JPM Credit Agreement was approximately $32.3 million.

Accounting Pronouncements

Recently Issued Standards

In July 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-20 (“ASU 2010-20”), Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires enhanced disclosures with disaggregated information regarding the credit quality of an entity’s financing receivables and its allowance for credit losses. The update also requires disclosure of credit quality indicators, past due information, and modifications of its financing receivables. We are required to adopt this ASU effective for interim and annual reporting periods ending after December 15, 2010. We are currently evaluating the impact of this guidance. However, except for the additional required disclosures, we do not anticipate that application of this guidance will have an impact on the Company.

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

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

2. STOCK-BASED COMPENSATION

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

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Cost of revenues - systems	$	49		$	35		$	83		$	77
Cost of revenues - maintenance, subscription and transaction services		27			19			45			43
Cost of revenues - professional services		41			66			66			161
Product development		123			51			203			120
Sales and marketing		241			165			408			429
General and administrative		1,069			743			1,851			1,759

Total non-cash stock-based compensation expense		1,550			1,079			2,656			2,589
Estimated income tax benefit		(586	)		(396	)		(1,004	)		(912	)

Total non-cash stock-based compensation expense, net of tax benefit	$	964		$	683		$	1,652		$	1,677

Impact on diluted net income per share	$	0.03		$	0.02		$	0.05		$	0.05

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Stock Options

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


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

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

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


(in thousands, except per share data)	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2009	5,875		$	9.37	3.30	$	14,656
Granted	530		$	13.45
Exercised	(891	)	$	6.82
Forfeited or cancelled	(45	)	$	18.05

Outstanding at June 30, 2010	5,469		$	10.10	3.26	$	24,577


Vested or expected to vest at June 30, 2010	5,396		$	10.10	3.22	$	24,277
Exercisable at June 30, 2010	4,180		$	10.14	2.65	$	18,819
Exercisable at December 31, 2009	4,455		$	9.51	2.98	$	10,278

No options were granted during the three-month periods ended June 30, 2010 and 2009. The weighted average grant-date fair value of options granted during the six-month periods ended June 30, 2010 and 2009 were $7.20 and $1.63, respectively. The total intrinsic value, the difference between the exercise price and the market price on the date of exercise, of options exercised during the three-month periods ended June 30, 2010 and 2009, was $3.7 million and less than $0.1 million, respectively, and $6.0 million and less than $0.1 million for the six-month periods ended June 30, 2010, and 2009, respectively. The total fair value of options that vested during the three-month periods ended June 30, 2010 and 2009, was approximately $0.2 million and $1.0 million, respectively. The total fair value of options that vested during the six-month periods ended June 30, 2010 and 2009, was approximately $2.8 million and $3.0 million, respectively. There were unvested options outstanding to purchase approximately 1.3 million shares and 1.8 million shares as of June 30, 2010 and 2009, respectively, with a weighted-average grant-date fair value of $4.91 and $3.41, respectively. None of the 1.3 million shares that were unvested at June 30, 2010 had a vesting period based on stock performance requirements. Of the 1.8 million shares that were unvested at June 30, 2009, there were 0.3 million shares that had a vesting period based on stock performance requirements. The unvested shares have a total unrecognized compensation expense as of June 30, 2010 and 2009 equal to approximately $3.8 million and $2.5 million, respectively, net of estimated forfeitures, which will be recognized over the weighted average periods of 1.3 years and 1.2 years, respectively. The Company recognized stock-based compensation expense related to employee and director stock options equal to approximately $0.8 million and $0.6 million for the three months ended June 30, 2010 and 2009, respectively, and approximately $1.3 million and $1.7 million for the six months ended June 30, 2010 and 2009, respectively. Cash received from stock options exercised was approximately $4.1 million and $0.1 million during the three-month periods ended June 30, 2010 and 2009, respectively, and $6.1 million and $0.1 million for the six-month periods ended June 30, 2010 and 2009, respectively.

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Restricted Stock Awards

During the three-month period ended June 30, 2010, the Company awarded less than 0.1 million shares of restricted stock to employees under the Amended and Restated 2005 Long-Term Incentive Plan. No shares of restricted stock were awarded during the three-month period ended June 30, 2009. The Company awarded approximately 0.2 million shares and 0.4 million shares of restricted stock to employees under the Amended and Restated 2005 Long-Term Incentive Plan during the six months ended June 30, 2010 and 2009, respectively. These restricted stock awards vest at various terms over a three-year period from the date of grant. The weighted average grant-date fair value of restricted stock awards at June 30, 2010 and 2009 was $13.49 and $3.25 per share, respectively. The Company recognized stock-based compensation expense related to restricted stock awards equal to approximately $0.8 million and $0.4 million for the three months ended June 30, 2010 and 2009, respectively, and approximately $1.4 million and $0.9 million for the six months ended June 30, 2010 and 2009, respectively. The total fair value of restricted stock awards that vested during the three-month periods ended June 30, 2010 and 2009 was approximately $0.4 million and $0.2 million, respectively. The total fair value of restricted stock awards that vested during the six-month periods ended June 30, 2010 and 2009 was approximately $0.7 million and $0.4 million, respectively. There were unvested restricted stock awards outstanding at June 30, 2010 and 2009 equal to approximately 0.8 million shares and 0.6 million shares, respectively, with a weighted-average grant-date fair value of $8.57 and $6.89, respectively. The unvested restricted stock awards had a total unrecognized compensation expense as of June 30, 2010 and 2009 equal to approximately $4.0 million and $2.8 million, respectively, which will be recognized over the weighted average periods of 1.7 years and 2.3 years, respectively. The unvested restricted stock awards outstanding are included in the calculation of common shares outstanding as of June 30, 2010.

3. ACQUISITIONS

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

4. GOODWILL AND INTANGIBLE ASSETS

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

Goodwill

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


	Hospitality- Americas			Retail & Entertainment- Americas			International			Total
Gross goodwill		47,770			58,346			24,883			130,999
Accumulated impairment losses		(2,252	)		(17,008	)		(3,920	)		(23,180	)

BALANCE, December 31, 2009	$	45,518		$	41,338		$	20,963		$	107,819

Impairment charge adjustment for Quest (1)					313						313
Currency translation adjustments related to acquisitions		—			(856	)		(2,381	)		(3,237	)

Gross goodwill		47,770			57,490			22,502			127,762
Accumulated impairment losses		(2,252	)		(16,695	)		(3,920	)		(22,867	)

BALANCE, June 30, 2010	$	45,518		$	40,795		$	18,582		$	104,895

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Intangible Assets

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


	Weighted Average Amortization Lives	June 30, 2010					December 31, 2009
	Weighted Average Amortization Lives	Gross Carrying Value		Accumulated Amortization			Gross Carrying Value		Accumulated Amortization
Hospitality-Americas
Core and developed technology	3.2 years	$	12,500	$	(12,500	)	$	12,500	$	(12,500	)
Reseller network	15.0 years		9,200		(3,961	)		9,200		(3,654	)
Direct sales channel	10.0 years		3,600		(2,325	)		3,600		(2,145	)
Covenants not to compete	3.3 years		1,600		(1,590	)		1,600		(1,569	)
Trademarks and tradenames	Indefinite		1,300		—			1,300		—
Trademarks and tradenames	5.0 years		300		(284	)		300		(254	)
Customer list and contracts	4.2 years		7,195		(4,003	)		7,195		(3,147	)

Total Hospitality-Americas			35,695		(24,663	)		35,695		(23,269	)

Retail & Entertainment-Americas
Core and developed technology	4.5 years		7,870		(5,942	)		7,952		(5,540	)
Reseller network	10.1 years		9,293		(4,580	)		9,437		(4,004	)
Subscription sales	4.0 years		1,400		(1,400	)		1,400		(1,400	)
Covenants not to compete	10.0 years		150		(93	)		150		(86	)
Trademarks and tradenames	Indefinite		1,151		—			1,200		—
Trademarks and tradenames	6.0 years		700		(525	)		700		(467	)
Customer list and contracts	9.7 years		4,738		(1,336	)		4,719		(1,109	)
Backlog	2 months		92		(92	)		92		(92	)

Total Retail & Entertainment-Americas			25,394		(13,968	)		25,650		(12,698	)

International
Core and developed technology	4.3 years		8,119		(2,679	)		9,148		(1,623	)
Reseller network	7.0 years		5,720		(1,796	)		6,428		(1,361	)
Trademarks and tradenames	Indefinite		1,465		—			1,720		—
Customer list and contracts	10.0 years		1,828		(441	)		1,910		(350	)

Total International			17,132		(4,916	)		19,206		(3,334	)

Other intangible assets			2,021		(958	)		2,021		(843	)

Total intangible assets		$	80,242	$	(44,505	)	$	82,572	$	(40,144	)

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


12-month period ended June 30,
2011	$	8,337
2012		5,547
2013		4,521
2014		3,915
2015		3,102
Thereafter		6,399

	$	31,821

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

5. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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


	June 30, 2010			December 31, 2009
Trade receivables billed	$	58,447		$	43,220
Trade receivables unbilled		4,775			3,127

		63,222			46,347
Less allowance for doubtful accounts		(3,901	)		(3,832	)

	$	59,321		$	42,515

The Company maintains allowances for doubtful accounts for estimated losses that may result from the inability of customers to make required payments. Estimates are developed by using standard quantitative measures based on customer payment practices and history, inquiries, credit reports from third parties and other financial information. If the financial condition of the Company’s customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required. Bad debt expense totaled approximately $0.1 million and $0.2 million for the three-month periods ended June 30, 2010 and 2009, respectively, and totaled approximately $0.2 million and $0.4 million for the six-month periods ended June 30, 2010 and 2009, respectively.

6. INVENTORY

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


	June 30, 2010		December 31, 2009
Raw materials	$	20,130	$	14,451
Work in process		278		375
Finished goods		12,020		14,836

	$	32,428	$	29,662

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

7. DEBT

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

The WFF Credit Agreement was scheduled to expire on March 31, 2010. However, it was refinanced on January 2, 2008 upon the execution of the credit agreement with JPMorgan Chase Bank, N.A., as arranger and administrative agent, and JPMorgan Chase Bank, N.A, SunTrust Bank, Bank of America, BBVA Compass Bank and Wachovia Bank, N.A., as lenders (the “JPM Credit Agreement”). The JPM Credit Agreement and subsequent amendments thereto provide for extensions of credit, upon satisfaction of certain conditions, in the form of revolving loans in an aggregate principal amount of up to $80 million and a term loan facility in an aggregate principal amount of up to $30 million. The Company has the right to increase the revolving credit commitment by up to $25 million, subject to the terms and conditions set forth in the JPM Credit Agreement. As of June 30, 2010, aggregate borrowings under this facility totaled $50.4 million, comprised of $33.4 million in revolving loans and $17.0 million in term loan facility borrowings. As of June 30, 2010, revolving loan borrowings available to the Company were equal to $46.6 million.

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

In the third quarter of 2008, the Company assumed research and development loans with the Austrian government in the amount of $0.1 million in conjunction with the acquisition of Orderman, bearing interest at approximately 2.50%, which were repaid in the third quarter of 2009. In the fourth quarter of 2008, the Company entered into an additional research and development loan with the Austrian government in the amount of $0.7 million, bearing interest at approximately 2.50%. As of June 30, 2010, approximately $0.5 million was outstanding on this loan. This loan matures on March 31, 2013.

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

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


Description of Debt	June 30, 2010		December 31, 2009
Revolving credit loan under the JPM Credit Agreement bearing interest at LIBOR plus the applicable margin, as defined (1.80% as of June 30, 2010) and at the Alternative Base Rate plus the applicable margin, as defined (3.50% as of June 30, 2010), maturing on January 2, 2013	$	33,400	$	42,000
Term loan under the JPM Credit Agreement bearing interest at LIBOR plus the applicable margin, as defined (1.78% as of June 30, 2010), maturing on January 2, 2013		17,000		20,000
Research and development loans from the Austrian government bearing interest at approximately 2.50%, maturing on various dates through March 31, 2013		533		626

Total		50,933		62,626
Less: Current portion of long-term debt		6,000		6,000

Long-term debt, net of current portion	$	44,933	$	56,626

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


12-month period ended June 30,
2011	$	6,000
2012		7,000
2013		37,933

	$	50,933

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

8. OTHER CHARGES AND INCOME

Write-off of Third-Party Software Licenses

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

Severance and Restructuring Charge

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

Sale of Building

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

Lease Restructuring Charges – Brookside II Building, Alpharetta, Georgia

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

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


	Short-Term			Long-Term			Total
Balance, December 31, 2009	$	183		$	233		$	416

Expenses charged against restructuring reserve		(30	)		(50	)		(80	)

Balance, June 30, 2010	$	153		$	183		$	336

Lease Restructuring Charges – Alexander Building, Alpharetta, Georgia

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

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


	Short-Term			Long-Term		Total
Balance, December 31, 2009	$	180		$	—	$	180

Expenses charged against restructuring reserve		(83	)		—		(83	)

Balance, June 30, 2010	$	97		$	—	$	97

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

9. SEGMENT INFORMATION

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

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

The accounting policies of the segments are substantially the same as those described in the summary of significant accounting policies included in the Company’s Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission. Management evaluates the financial performance of the segments based on direct operating income, which is profit or loss before the allocation of certain corporate costs.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenues:
Hospitality-Americas	$	51,566		$	41,292		$	100,014		$	81,333
Retail & Entertainment-Americas		21,938			19,794			42,639			37,955
International		12,098			9,543			21,851			18,305
Corporate		1,425			503			2,071			1,142

Total revenues	$	87,027		$	71,132		$	166,575		$	138,735

Direct operating income:
Hospitality-Americas	$	12,834		$	9,666		$	23,895		$	18,906
Retail & Entertainment-Americas		6,637			6,024			12,277			10,906
International		2,753			1,230			3,761			2,158
Corporate		423			(42	)		448			26

Total segment direct operating income		22,647			16,878			40,381			31,996
Indirect corporate operating costs (a)		(8,624	)		(6,965	)		(16,996	)		(14,286	)
Indirect depreciation and amortization expense (b)		(3,195	)		(3,084	)		(6,419	)		(6,066	)
Stock-based compensation expense (c)		(1,550	)		(1,079	)		(2,656	)		(2,589	)
Interest and other, net (d)		30			(579	)		(312	)		(2,373	)

Total income before taxes	$	9,308		$	5,171		$	13,998		$	6,682

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

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

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

(d)

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

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

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


	June 30, 2010		December 31, 2009
Assets:
Hospitality-Americas	$	105,149	$	98,349
Retail & Entertainment-Americas		73,196		72,082
International		54,392		59,242
Corporate		77,812		58,924

Total assets	$	310,549	$	288,597

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Depreciation and amortization:
Hospitality-Americas	$	1,071	$	1,053	$	2,124	$	2,120
Retail & Entertainment-Americas		718		1,021		1,444		2,010
International		1,022		710		2,115		1,373
Corporate		1,539		1,223		3,032		2,434

Total depreciation and amortization	$	4,350	$	4,007	$	8,715	$	7,937

RADIANT SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

10. INCOME TAX

The Company follows the guidance issued by the FASB related to accounting for uncertainty in income taxes. This guidance, included in ASC Topic 740, Income Taxes, prescribes a consistent recognition threshold and measurement attribute, as well as clear criteria for subsequently recognizing, derecognizing and measuring such tax positions, for financial statement purposes. The guidance also requires expanded disclosure with respect to the uncertainty in income taxes. During the three-month and six-month periods ended June 30, 2010, the reserve for uncertainty in income taxes was increased by approximately $0.1 million and $0.2 million, respectively, which resulted in an increase to income tax expense.

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

The Company’s effective tax rates for the three months ended June 30, 2010 and 2009 were equal to 38.1% and 38.5%, respectively, inclusive of discrete events. The Company’s effective tax rate for the six months ended June 30, 2010 and 2009 were 40.3% and 37.0%, respectively. The year-over-year increase is primarily attributable to the tax expected on the amount of subpart F income that would be recognized for the current year assuming IRC Section 954(c)(6), Look-Thru Rule for Related Controlled Foreign Corporations, is not extended. The look-thru rule generally excludes from U.S. federal income tax certain dividends, interest, rents, and royalties received or accrued by one controlled foreign corporation (“CFC”) of a U.S. multinational enterprise from a related CFC that would otherwise be taxable pursuant to the subpart F regime. The tax provision permitting the look-thru rule lapsed on December 31, 2009. A proposal to extend the look-thru rule retroactively to January 1, 2010, has been included in proposed legislation but has not been enacted as of June 30, 2010. If the proposal is enacted later in 2010, the annual effective tax rate will be adjusted discretely in the interim period that includes the enactment date. A discrete adjustment will have a significant impact on reducing the effective tax rate.

11. RELATED PARTY TRANSACTIONS

None

12. SIGNIFICANT EVENTS

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

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

Approximately $2.8 million of the consideration from Century to RPS relates to repayment of the unamortized balance of capitalized contract costs that RPS had previously paid to Century. The $2.8 million balance was being amortized by the Company over the expected life of the customer contracts but was removed from our balance sheet upon repayment by Century under the amended agreement. The Company deferred the remaining $8.4 million of consideration related to the products and services in the amended agreement and expects to recognize these revenues over the next three to four years as they are earned. Approximately $0.7 million of the deferred revenue was recognized during the second quarter of 2010.

As of June 30, 2010, RPS had approximately $7.7 million in deferred revenue associated with this agreement. Of this amount, $3.5 million is included in the condensed consolidated balance sheets under the caption “Customer deposits and unearned revenue” in current liabilities and $4.2 million is included in the caption “Other long-term liabilities”.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

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

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Overview: A summary of Radiant’s business and opportunities

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Results of Operations: A discussion of operating results

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

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

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

Overview

We are a leading international provider of technology focused on the development, installation and delivery of solutions for managing site operations of hospitality and retail businesses including restaurants, convenience stores, stadiums, arenas, movie theatres and specialty retailers. Our point-of-sale and back-office technology is designed to enable businesses to deliver exceptional customer service while improving profitability. We offer a full range of products and services that are tailored to specific market needs, including hardware, software, professional services and electronic payment processing. We believe we offer best-of-breed solutions designed for ease of integration in managing site operations, thus enabling operators to improve customer service while reducing costs. We believe our approach to site operations is unique in that our product solutions provide enterprise visibility and control at the site, field, and headquarters levels.

Our growth continues to be driven by the long-term industry shift toward a full system solution provider, the ability to have vertical solutions and non-payment applications residing at the point-of-sale, and new technology that enables operators to enhance their revenue drivers, such as speed and consistency of service, customer loyalty programs, order accuracy, loss prevention and providing customers with greater value and a broader selection of products. Most recently, there have been well publicized breaches of point-of-sale and back-office systems that handle consumer card details, spurring widespread interest in more secure payment terminals and end-to-end encryption technology. We believe we are well positioned to meet the needs of our industry segments and the concerns around security with our suite of product offerings, which consist of hardware and software for point-of-sale and operational applications, as well as our back-office application offerings, which include inventory, labor, financial management, fraud management and other centrally hosted enterprise solutions.

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

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

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

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

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

Results of Operations

Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009 and March 31, 2010, and the Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009

Systems – Systems revenues are derived from sales and licensing fees for our point-of-sale hardware and software, site management software solutions and peripherals. Systems sales during the second quarter of 2010 were approximately $42.1 million. This is an increase of $12.2 million, or 41%, from the same period in 2009, and an increase of $7.7 million, or 23%, from the first quarter of 2010. Systems sales during the six-month period ended June 30, 2010 were $76.4 million compared to $56.9 million for the same period in 2009, an increase of 34%. The increases are primarily attributable to the improvements being seen in the global economy, which in turn has resulted in increased new site openings and capital spending from new and existing customers across all areas of our business. The increases are also attributable to several significant contracts being signed within the past couple of quarters and a significant number of those installations occurring during the second quarter of 2010.

Maintenance, subscription and transaction services – The Company derives revenues from maintenance, subscription and transaction services, including hardware maintenance, software support and maintenance, hosted solutions and electronic payment processing services. The majority of these revenues are derived from support and maintenance, which is structured on a renewable basis and is directly attributable to the base of installed sites. A majority of all subscription, maintenance and support contracts are renewed annually. Revenues from maintenance, subscription and transaction services during the second quarter of 2010 were approximately $35.8 million. This is an increase of $3.8 million, or 12%, from the same period in 2009, and a decrease of $0.1 million, or less than 1%, from the first quarter of 2010. Revenues from maintenance, subscription and transaction services during the six-month period ended June 30, 2010 were $71.8 million compared to $63.3 million for the same period in 2009, an increase of 13%. The increases are primarily due to increased demand for hosted solutions and the additional revenues generated in both hardware and software support and maintenance resulting from increased systems sales (which added to our site base for recurring revenue). The slight decline from the first quarter of 2010 is due to lower revenues associated with our electronic payment processing services. During the second quarter of 2010, we amended our agreement with the third party providing sales services to our electronic payment processing service. This amendment changed the financial structure of the business and resulted in the accounting of the associated revenues and costs from gross to net. The impact was a reduction of revenue. However, this change had no effect on the Company’s profit associated with this business.

Professional services – The Company also derives revenues from professional services such as consulting, training, custom software development and systems installations. Revenues from professional services during the second quarter of 2010 were approximately $9.1 million. This is a decrease of $0.1 million, or 1%, from the same period in 2009 and a decrease of $0.1 million, or 2%, from the first quarter of 2010. Revenues from professional services during the six-month period ended June 30, 2010 were $18.4 million compared to $18.6 million for the same period in 2009, a decrease of 1%. In recent months we have begun to see a shift in customer spending away from consulting and custom development projects and towards capital purchases of systems. This shift has resulted in a decrease in our one-time consulting and custom development revenues, but has been partially offset by increases in installations revenues related to increased systems sales.

Systems gross profit – Cost of systems consists primarily of hardware and peripherals for site-based systems and amortization of capitalized labor costs for internally developed software. All costs, other than capitalized software development costs, are expensed as products are shipped, while capitalized software development costs are amortized on a straight-line basis over the estimated useful life of the software. In the second quarter of 2010, systems gross profit increased by $4.8 million, or 33%, as compared to the same period in 2009, and increased by $4.9 million, or 34%, as compared to the first quarter of 2010. In the second quarter of 2010, the gross profit percentage decreased by three points to 46% as compared to 49% for the same period in 2009, and increased by 4 percentage points as compared to the first quarter of 2010. For the six-month period ended June 30, 2010 as compared to the same period in 2009, systems gross profit increased by approximately $6.4 million, or 23%, while the gross profit percentage decreased by four points to 45% as compared to 49% for the same period in 2009. The fluctuations in the gross profit percentage are primarily due to variations in product mix as our hardware products have lower margins than our software products.

Maintenance, subscription and transaction services gross profit – Cost of maintenance, subscription and transaction services consists primarily of personnel and other costs to provide support and maintenance services, hosted solutions and electronic payment processing services. In the second quarter of 2010, the gross profit on maintenance, subscription and transaction services increased by approximately $2.4 million, or 15%, as compared to the same period in 2009, and increased by $0.6 million, or 3%, as compared to the first quarter of 2010. The gross profit percentage increased by one point to 53% in the second quarter of 2010 as compared to 52% for the same period in 2009, and increased by two percentage points as compared to the first quarter of 2010. For the six-month period ended June 30, 2010, the gross profit on maintenance, subscription and transaction services increased by approximately $5.1 million, or 16%, as compared to the same period in 2009, while the gross profit percentage increased by one point to 52%. The slight increases in the gross profit percentages are primarily due to increased revenues from hosted solutions, which have higher margins than support and maintenance. In addition, the change in accounting treatment of our electronic payment processing services (as previously discussed) contributed to a higher margin in the second quarter of 2010 than in previous quarters.

Professional services gross profit – Cost of professional services consists primarily of personnel costs for consulting, training, custom software development and installation services. The gross profit on professional services revenue for the second quarter of 2010 decreased by approximately $0.9 million, or 26%, as compared to the same period in 2009, and increased by less than $0.1 million, or 1%, as compared to the first quarter of 2010. The gross profit percentage decreased by nine points to 27% in the second quarter of 2010 as compared to the same period in 2009, and increased by one percentage point as compared to the first quarter of 2010. For the six-month period ended June 30, 2010, the gross profit on professional services decreased by approximately $1.6 million, or 24%, as compared to the same period in 2009, and the gross profit percentage decreased by eight percentage points to 27%. The decreases in the gross profit percentages are the result of a change in mix, where more revenues came from lower margin services, such as installations, than from higher margin services, such as consulting and custom development services.

Segment revenues – During the second quarter of 2010, total revenues in the Hospitality-Americas business segment were approximately $51.6 million. This is an increase of $10.3 million, or 25%, as compared to the same period in 2009, and an increase of $3.1 million, or 6%, as compared to the first quarter of 2010. Total revenues in the Hospitality-Americas segment for the six-month period ended June 30, 2010 were $100.0 million, which is an increase of $18.7 million, or 23%, as compared to the same period in 2009. The increases are primarily the result of improved economic conditions, which resulted in increased demand for new systems in both our direct and channel businesses. The increases are also due to several significant contracts being signed within the last couple of quarters and a significant amount of installations occurring in the second quarter of 2010.

In the second quarter of 2010, total revenues in the Retail & Entertainment-Americas business segment were approximately $21.9 million. This is an increase of $2.1 million, or 11%, as compared to the same period in 2009, and an increase of $1.2 million, or 6%, as compared to the first quarter of 2010. Total revenues in the Retail & Entertainment-Americas segment for the six-month period ended June 30, 2010 were $42.6 million, which is an increase of $4.7 million, or 12%, as compared to the same period in 2009. The increases are primarily attributable to strength in systems sales along with increases in related support and maintenance revenues across each business within the segment, largely due to improved economic and industry conditions. The increases were partially offset by decreases in one-time consulting and custom development services within our convenience retail business, which did not repeat in 2010.

In the second quarter of 2010, total revenues in the International business segment were approximately $12.1 million. This is an increase of $2.6 million, or 27%, as compared to the same period in 2009, and an increase of $2.3 million, or 24%, as compared to the first quarter of 2010. Total revenues in the International segment for the six-month period ended June 30, 2010 were $21.9 million, which is an increase of $3.6 million, or 20%, as compared to the same period in 2009. The increases are primarily the result of increased systems sales along with hardware and software support and maintenance within our convenience retail business and channel business in Europe.

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

In the second quarter of 2010, direct operating income in the Hospitality-Americas business segment was approximately $12.8 million. This is an increase of $3.2 million, or 33%, as compared to the same period in 2009, and an increase of $1.8 million, or 16%, as compared to the first quarter of 2010. Total direct operating income in the Hospitality-Americas segment for the six-month period ended June 30, 2010 was $23.9 million, which is an increase of $5.0 million, or 26%, over the same period in 2009. The increases are primarily attributable to increased profits from systems sales, hosted solutions and hardware and software support and maintenance. These increases were partially offset by an increase in operating expenses, primarily sales commissions, which increased as expected in line with the overall increase in revenues.

In the second quarter of 2010, direct operating income in the Retail & Entertainment-Americas business segment was approximately $6.6 million. This is an increase of $0.6 million, or 10%, as compared to the same period in 2009, and an increase of $1.0 million, or 18%, as compared to the first quarter of 2010. Total direct operating income in the Retail & Entertainment-Americas segment for the six-month period ended June 30, 2010 was $12.3 million, which is an increase of $1.4 million, or 13%, over the same period in 2009. The increases are primarily the result of additional profits resulting from increased systems sales and related support and maintenance revenues, as previously discussed. The increases were partially offset by reduced consulting service profits within our convenience retail business due to one-time projects that were not repeated in 2010.

In the second quarter of 2010, direct operating income in the International business segment was approximately $2.8 million. This is an increase of $1.5 million, or 115%, as compared to the same period in 2009, and an increase of $1.7 million, or 155%, as compared to the first quarter of 2010. Total direct operating income in the International segment for the six-month period ended June 30, 2010 was $3.8 million, which is an increase of $1.6 million, or 73%, over the same period in 2009. The increases are primarily due to additional profits resulting from increased systems sales, including handhelds in the European market, and increased hardware and software support and maintenance revenues.

Total operating expenses – The Company’s total operating expenses increased by approximately $2.6 million, or 9%, during the second quarter of 2010 as compared to the same period in 2009, and by approximately $1.0 million, or 3%, as compared to the first quarter of 2010. Total operating expenses for the six months ended June 30, 2010 increased by approximately $3.1 million, or 5%, as compared to the same period in 2009. Total operating expenses as a percentage of total revenues were 36% in the second quarter of 2010 compared to 40% in the second quarter of 2009 and 38% in the first quarter of 2010. Total operating expenses as a percentage of revenue were 37% for the six months ended June 30, 2010 as compared to 42% for the same period in 2009. The components of operating expenses are discussed below:

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Product development expenses – Product development expenses consist primarily of wages and materials expended on product development efforts, excluding any development expenses related to associated revenues, which are included in costs of maintenance, subscription and transaction services. Product development expenses increased during the second quarter of 2010 by approximately $0.6 million, or 11%, as compared to the same period in 2009, increased by $0.4 million, or 7%, as compared to the first quarter of 2010, and increased by $1.2 million, or 11%, during the six months ended June 30, 2010 as compared to the same period in 2009. The increases are primarily due to normal fluctuations among maintenance, custom development, capitalized software projects and product development. Product development expenses as a percentage of revenues were 7% for the second quarter of 2010 as compared to 8% for the same period in 2009, 7% for the first quarter of 2010, and 7% for the six-month period ended June 30, 2010 as compared to 8% for the same period in 2009.

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Sales and marketing expenses – Sales and marketing expenses increased during the second quarter of 2010 by approximately $1.4 million, or 13%, as compared to the same period in 2009, increased by $0.3 million or 3% as compared to the first quarter of 2010, and increased by $2.5 million, or 12%, during the six months ended June 30, 2010 as compared to the same period in 2009. The increases are primarily due to incremental sales commissions expense directly related to the increase in revenues and an increased focus on marketing activities. Sales and marketing expenses as a percentage of revenues were 14% for the second quarter of 2010 as compared to 15% for the same period in 2009, 15% for the first quarter of 2010, and 14% for the six months ended June 30, 2010 as compared to 15% for the same period in 2009.

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Depreciation and amortization expenses – Depreciation and amortization expenses increased during the second quarter of 2010 by less than $0.1 million, or 1%, as compared to the same period of 2009, decreased by $0.1 million, or 3%, compared to the first quarter of 2010, and increased by approximately $0.2 million, or 3%, during the six months ended June 30, 2010 as compared to the same period in 2009. The slight increases are due to additional depreciation expense resulting from routine capital spending to support our business operations, which was partially offset by a decline in amortization expense for assets that became fully amortized during these periods. Depreciation and amortization expenses as a percentage of revenues were 4% for the second quarter of 2010 as compared to 5% for the same period in 2009, 5% for the first quarter of 2010 and 4% for the six-month period ended June 30, 2010 as compared to 5% for the same period in 2009.

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General and administrative expenses – General and administrative expenses increased during the second quarter of 2010 by approximately $0.8 million, or 9%, as compared to the same period in 2009, increased by $0.7 million, or 8%, as compared to the first quarter of 2010, and increased by $0.7 million, or 4%, during the six months ended June 30, 2010 as compared to the same period in 2009. The increases are primarily due to additional bonus expense related to the Company’s performance as compared to its operating budget. General and administrative expenses as a percentage of revenues were 11% for the second quarter of 2010 as compared to 13% for the same period in 2009, 12% for the first quarter of 2010, and 11% for the six months ended June 30, 2010 compared to 13% for the same period in 2009.

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

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Other income and charges, net – The amounts contained under this heading are generally non-recurring in nature and, as such, it is not practical to compare amounts between the current period and previous periods. However, a description of the items which comprise these amounts follows:

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

Interest expense, net – The Company’s interest expense includes interest expense incurred on its long-term debt, revolving line of credit and capital lease obligations. Interest expense decreased by approximately $0.3 million, or 41%, in the second quarter of 2010 as compared to the same period in 2009, decreased by less than $0.1 million, or 6%, as compared to the first quarter of 2010, and decreased by $0.5 million, or 42%, during the six months ended June 30, 2010 as compared to the same period in 2009. These decreases are due to continued paydown of the Company’s outstanding indebtedness and a reduction in interest rates. See Note 7 to the condensed consolidated financial statements for additional discussion of the Company’s credit facility.

Income tax provision – The Company’s effective tax rates for the three months ended June 30, 2010 and 2009 were equal to 38.1% and 38.5%, respectively, inclusive of discrete events. The Company’s effective tax rate for the six-month periods ended June 30, 2010 and 2009 were 40.3% and 37.0%, respectively. The year-over-year increase is primarily attributable to the tax expected on the amount of subpart F income that would be recognized for the current year assuming IRC Section 954(c)(6), Look-Thru Rule for Related Controlled Foreign Corporations, is not extended. The look-thru rule generally excludes from U.S. federal income tax certain dividends, interest, rents, and royalties received or accrued by one controlled foreign corporation (“CFC”) of a U.S. multinational enterprise from a related CFC that would otherwise be taxable pursuant to the subpart F regime. The tax provision permitting the look-thru rule lapsed on December 31, 2009. A proposal to extend the look-thru rule retroactively to January 1, 2010, has been included in proposed legislation but has not been enacted as of June 30, 2010. If the proposal is enacted later in 2010, the annual effective tax rate will be adjusted discretely in the interim period that includes the enactment date. A discrete adjustment will have a significant impact on reducing the effective tax rate.

Liquidity and Capital Resources

The WFF Credit Agreement was scheduled to expire on March 31, 2010. However, it was refinanced on January 2, 2008 upon the execution of the credit agreement with JPMorgan Chase Bank, N.A., as arranger and administrative agent, and JPMorgan Chase Bank, N.A, SunTrust Bank, Bank of America, BBVA Compass Bank and Wachovia Bank, N.A., as lenders (the “JPM Credit Agreement”). The JPM Credit Agreement provides for extensions of credit, upon satisfaction of certain conditions, in the form of revolving loans in an aggregate principal amount of up to $80 million and a term loan facility in an aggregate principal amount of up to $30 million. An amendment to the JPM Credit Agreement was signed in July 2008, whereby the Company has the right to increase its revolving credit commitment by up to $25 million, subject to the terms and conditions set forth in the JPM Credit Agreement. As of June 30, 2010, aggregate borrowings under this facility totaled $50.4 million, comprised of $33.4 million in revolving loans and $17.0 million in term loan facility borrowings. As of June 30, 2010, revolving loan borrowings available to the Company were equal to $46.6 million.

The Company’s working capital increased by approximately $8.3 million, or 29%, to $37.1 million at June 30, 2010 as compared to $28.8 million at December 31, 2009. The changes in working capital during the first half of 2010 resulted from an increase in the Company’s current assets, equal to approximately $23.1 million, offset by an increase in current liabilities of approximately $14.9 million, as more fully explained below. The Company has historically funded its business through cash generated by operations.

Cash provided by operating activities during the six months ended June 30, 2010 was approximately $12.0 million. Cash from operations was mainly generated through income from operations, adjusted to exclude the effect of non-cash charges, including depreciation, amortization, stock-based compensation and other charges. Changes in assets and liabilities increased operating cash flows during the first half of 2010, primarily due to increases in accounts payable, bonus accruals and accrued expenses (which have a positive impact on cash flow), which were a direct result of the increase in inventory and the fact that payments due to our vendors that supplied the Company with inventory were not due at quarter-end. These increases were partially offset by increases in accounts receivable and inventory (which have a negative effect on cash flow) that were attributable to increased sales, the timing of certain cash collections and anticipation of increases in hardware shipments in future quarters. In addition, there was also an increase in customer deposits and unearned revenue which was a result of collecting calendar year support and maintenance billings, which have been deferred and are being recognized as revenue over the course of 2010. If near-term demand for the Company’s products weakens, or if significant anticipated sales in any quarter do not close when expected, the availability of funds from operations may be adversely affected.

Cash provided by operating activities during the six months ended June 30, 2009 was approximately $24.3 million. Cash from operations was mainly generated through income from operations, adjusted to exclude the effect of non-cash charges, including depreciation, amortization, stock-based compensation and other charges. Changes in assets and liabilities increased operating cash flows during the first half of 2009, principally due to our continued focus on collections which resulted in a reduction in accounts receivable, a focus on inventory management which resulted in a decrease in inventories, and an increase in customer deposits and unearned revenue which was a result of collecting on calendar year support and maintenance billings, which were deferred and were recognized as revenue over the course of 2009. These increases in operating cash flows were offset by a decrease in accounts payable due to normal quarterly fluctuations and annual bonuses and commissions paid during the first half of 2009.

Cash used in investing activities during the six months ended June 30, 2010 was approximately $5.0 million. Approximately $3.0 million was used to invest in property and equipment. In addition, the Company continued to increase its investment in future products by investing $2.0 million in internally developed, capitalizable software during the first half of 2010.

Cash used in investing activities during the six months ended June 30, 2009 was approximately $6.7 million. Approximately $2.6 million was used to invest in property and equipment and $2.0 million related to the purchase of a customer list related to our RPS business. The Company continued to increase its investment in future products by investing $2.2 million in internally developed, capitalizable software during the first half of 2009. Lastly, the Company recognized cash proceeds of $0.2 million from the sale of a building located in Australia.

Cash used in financing activities during the six months ended June 30, 2010 was approximately $4.1 million. Financing activities included scheduled payments under the JPM Credit Agreement and payments against the revolving loan facility, scheduled payments against the Company’s capital lease obligations and the impact of tax benefits related to share-based compensation. Lastly, the Company received cash proceeds from employees for the exercise of stock options and the purchase of shares issued under the employee stock purchase plan.

Cash used in financing activities during the six months ended June 30, 2009 was approximately $18.0 million. Financing activities included scheduled payments under the JPM Credit Agreement and payments against the revolving loan facility, scheduled payments against the Company’s capital lease obligations and the impact of tax benefits related to share-based compensation. In addition, the Company received cash proceeds from employees for the exercise of stock options and the purchase of shares issued under the employee stock purchase plan.

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

The Company believes there are opportunities to grow its business through the acquisition of complementary and synergistic companies, products and technologies. We look for acquisitions that can be readily integrated and accretive to earnings, although we may pursue smaller non-accretive acquisitions that will shorten our time to market with new technologies. The Company expects the general size of cash acquisitions it would currently consider would be in the $5 million to $50 million range. Any material acquisition could result in a decrease in the Company’s working capital, depending on the amount, timing and nature of the consideration to be paid. In addition, any material acquisitions of complementary or synergistic companies, products or technologies could require that we obtain additional debt or equity financing. There can be no assurance that such additional financing will be available to us or that, if available, such financing will be obtained on favorable terms and would not result in additional dilution to our stockholders.

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


	Payments Due by Period
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
Capital leases	$	1,043	$	704	$	337	$	2	$	—
Operating leases (1)		21,855		5,162		8,515		4,683		3,495
Other obligations:
Revolving credit facility (JPM Credit Agreement)		33,400		—		33,400		—		—
Term loan facility (JPM Credit Agreement)		17,000		6,000		11,000		—		—
Austrian research & development loan		533		—		533		—		—
Estimated interest payments on credit facility and term notes (2)		4,344		1,949		2,395		—		—
Purchase commitments (3)		16,853		15,500		1,353		—		—

Total contractual obligations	$	95,028	$	29,315	$	57,533	$	4,685	$	3,495

(1)	This schedule includes the future minimum lease payments related to facilities that are being subleased. The total minimum rentals to be received in the future under subleases as of June 30, 2010 are approximately $1.7 million in less than one year and $2.4 million in one to three years.

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

(3)	The Company has entered into certain noncancelable purchase orders for manufacturing supplies to be used in its normal operations. The related supplies are to be delivered at various dates through December 2011.

At June 30, 2010, the Company had a $2.9 million reserve for unrecognized tax benefits, which is not reflected in the table above. Substantially all of this tax reserve is classified in other long-term liabilities and deferred income taxes on the accompanying condensed consolidated balance sheet.

Critical Accounting Policies and Procedures

General

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

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

Accounting Pronouncements

Recently Issued Standards

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

Forward-Looking Statements

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rates

The Company’s financial instruments that are subject to market risks are its long-term debt instruments. During the second quarter of 2010, the weighted average interest rate on its long-term debt was approximately 2.5%. A 10% increase in this rate would have impacted interest expense by less than $0.1 million for the three-month period ended June 30, 2010.

Foreign Exchange

The Company’s revenues derived from sources outside of the United States were approximately $14.3 million and $10.7 million for the three months ended June 30, 2010 and 2009, respectively, and approximately $26.5 million and $20.3 million for the six months ended June 30, 2010 and 2009, respectively. The Company’s business outside the United States is subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. Accordingly, the Company’s future results could be materially adversely impacted by changes in these or other factors.

ITEM 4.

CONTROLS AND PROCEDURES

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

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

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

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

PART II. OTHER INFORMATION

ITEM 6.

EXHIBITS

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


Exhibit No.		Description
*2.1		Share Purchase Agreement, dated December 11, 2007, by and among Radiant Systems, Inc., Quest Retail Technology Pty Ltd, and David Brown (December 17, 2007 8-K).

*2.1.1		First Amendment to Share Purchase Agreement, dated as of January 4, 2008, by and among Radiant Systems, Inc., RADS Australia Holdings Pty Ltd, Quest Retail Technology Pty Ltd, and David Brown (January 8, 2008 8-K).

*2.2		Stock Purchase Agreement dated as of July 3, 2008, by and among Radiant Systems GmbH, Orderman GmbH, Alois Eisl, Franz Blatnik, Gottfried Kaiser, and Ing. Willi Katamay (July 9, 2008 8-K).

*3.1		Amended and Restated Articles of Incorporation (6/97 S-1).

*3.2		Amended and Restated Bylaws (2/97 S-1).

*3.3		Articles of Amendment to Amended and Restated Articles of Incorporation of Radiant Systems, Inc. (10/09 S-3).

4.1		Amendment No. 4 dated as of June 30, 2010 to the Credit Agreement dated as of January 2, 2008, by and among Radiant Systems, Inc., the Lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent.

31.1		Certification of John H. Heyman, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Mark E. Haidet, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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: August 6, 2010	By:	/s/ MARK E. HAIDET
		Mark E. Haidet,
		Chief Financial Officer
		(Duly authorized officer and principal financial officer)

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