This excerpt taken from the RADS 10-K filed Mar 15, 2005.
Year ended December 31, 2003 compared to year ended December 31, 2002
The Companys revenues decreased during 2003 by approximately $30.9 million, or 25%, compared to the year ended December 31, 2002 and gross profit decreased by approximately $18.2 million, or 34%, from 2002.
System sales. System sales for 2003 were $42.9 million, a decrease of $28.6 million from 2002. Hardware and software revenues decreased 41% and 38%, respectively, from 2002. This decrease was primarily the result of decreased spending for large information technology initiatives by the Companys customers compared to a high level of spending in the previous year. In 2003 several implementations with customers were put on hold due to economic uncertainties and budget constraints, while new purchase decisions were delayed by many of the large retailers in the industry. During 2002 the Company had a large number of systems shipments associated with implementation projects, including record revenue in the fourth quarter of the year.
Client support, maintenance and other services. Client support, maintenance and other services remained relatively constant with a decrease of 4% from 2003.
System sales gross profit. System sales gross profit decreased during 2003 by approximately $15.6 million, or 49%, compared to 2002. This decrease was directly attributable to reduced system sales in 2003 over 2002 as well as decreased amortization of capitalized software and acquired software technology primarily related to the impairment of capitalized software and acquired software technology during the fiscal period 2003 as more fully described in Notes 3 and 4 to the consolidated financial statements. Cost of system sales as a percentage of system revenues increased to 62% in 2003 from 55% in 2002. This increase was due primarily to the allocation of certain fixed costs over a smaller revenue base due to the decrease in system sales revenues over the prior periods, offset by the decrease in the amortization of capitalized software costs and acquired technology.
Client support, maintenance and other services gross profit. Client support, maintenance and other services gross profit decreased by approximately $2.6 million, or 12%, compared to 2002 primarily due to the Company making services investments in specific brand template development activities in the food service industry during 2003. The total cost of client support, maintenance and other services as a percentage of client support, maintenance and other services revenues increased to 64% for 2003 from 61% in 2002, as a result of the professional services investments.
Segment Revenues: Total revenues in the Petroleum and Convenience Retail business segment decreased by approximately $23.0 million, or 31%, to $52.0 million primarily due to reduced system sales in the petroleum and convenience retail industry during the year due to economic uncertainties and decreased spending for large information technology initiatives by our customers compared to a high level of spending in the previous year. Total revenues in the Hospitality and Food Service business segment decreased by approximately $4.7 million, or 19%, to $19.5 million and Entertainment business segment revenues decreased by approximately $2.5 million, or 10.9%, to $20.5 million primarily due to economic uncertainties.
Total operating expenses. The Companys total operating expenses decreased during 2003 by approximately $4.5 million, or 10%, compared to 2002 due to the following:
Interest income, net. Net interest income decreased 20% to $605,000 during 2003, compared to net interest and other income of $754,000 for 2002. The Companys net interest income includes interest income derived from the investment of its cash and cash equivalents, less interest expense incurred on its long-term debt. The decrease in net interest income resulted primarily from a decrease in the Companys weighted average interest rate it received on cash balances in 2003 compared to 2002 and the decrease in the average cash balance in 2003 compared to 2002.
Income tax provision. The Company recorded an income tax provision of $1.7 million, or an effective tax rate of 3.7% in 2003 compared to a tax provision of $4.6 million, or an effective tax rate of 41.4% in 2002. No tax benefit was recorded on the 2003 loss due to the uncertainty of realizing the benefit of the net operating losses generated during the year. In addition, as part of the provision for taxes a $1.2 million reserve was placed on existing tax assets due to the uncertainty of realizing future benefit. At December 31, 2003, a valuation allowance had been established for all net deferred tax assets. The remaining tax provision represents various foreign and state income taxes.
Income (loss) from discontinued Enterprise business net. The financial statements for prior periods have been restated to report the revenues and expenses of Radiants Enterprise business separately as discontinued operations.
Impairment of Capitalized Software and Acquired Software Technology: Impairment charges in 2003 of $1.4 million included $734,000 related to the acquired software technology associated with the HotelTools software, $535,000 related to capitalized software costs associated with specific software modules that were no longer planned for active sale, and $169,000 for the acquired software technology related to the ICON software source code which is recorded as a component of cost of revenues in the consolidated statements of operations.