<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                             _____________________

                                   FORM 10-K
                             _____________________

        Annual Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
                  For the fiscal year ended December 31, 1996

                         ______________________________

                          Commission File No. 0-22065

                             RADIANT SYSTEMS, INC.

                             A Georgia Corporation
                  (IRS Employer Identification No. 11-2749765)
                          1000 Alderman Drive, Suite A
                              Alpharetta, Georgia
                                 (770) 772-3000

                Securities Registered Pursuant to Section 12(b)
                    of the Securities Exchange Act of 1934:

                                      NONE
                          ----------------------------

                Securities Registered Pursuant to Section 12(g)
                    of the Securities Exchange Act of 1934:

                           Common Stock, no par value
                           --------------------------

Indicate by check mark whether the registrant (1) has 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 _____    No   X
                                                        -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]

The aggregate market value of the common stock of the registrant held by
nonaffiliates of the registrant (3,656,310 shares) on March 24, 1997 was
approximately $35,649,000 based on the closing price of the registrant's common
stock as reported on the Nasdaq National Market on March 24, 1997.  For the
purposes of this response, officers, directors and holders of 5% or more of the
registrant's common stock are considered the affiliates of the registrant at
that date.

The number of shares outstanding of the registrant's common stock, as of March
24, 1997: 11,694,726 shares of no par value common stock.

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------

                                     None.
<PAGE>
 
                                     PART I

ITEM 1.   BUSINESS.
------    -------- 

     Radiant Systems, Inc. (the "Company" or "Radiant") provides enterprise-wide
technology solutions to selected vertical markets within the retail industry.
The Company offers fully integrated retail automation solutions including point
of sale ("POS") systems, consumer-activated ordering systems, back office
management systems and headquarters-based management systems. The Company's
products enable retailers to interact electronically with consumers, capture
data at the point of sale, manage site operations and logistics and communicate
electronically with their sites, vendors and credit networks. In addition, the
Company offers system planning, design and implementation services that tailor
the automation solution to each retailer's specifications.

     Radiant is currently a leading provider of integrated retail automation
solutions to the convenience store market and has a growing presence in the
entertainment market through its PrysmTech division. In addition, the Company
intends to expand its presence in the QSR market in 1997. Since these markets
require many of the same product features and functionality, the Company
believes it can leverage its existing technology across these markets with
limited incremental product development efforts.

INDUSTRY BACKGROUND

  Successful retailers increasingly require information systems that capture a
detailed picture of consumer activity at the point of sale and store that data
in an accessible fashion. Early technology innovators in the retail industry
deployed robust, integrated information systems at the point of sale and used
the information to react rapidly to changing consumer preferences, ultimately
gaining market share in the process. In addition, these integrated information
systems helped retailers achieve operational efficiencies. Many large national
retailers have followed suit by investing in proprietary information systems.

  For many types of retailers, however, this type of automation did not make
economic or business sense. In particular, merchants with a large number of
relatively small sites, such as convenience stores, petroleum retailers,
restaurants and entertainment venues, generally have not been able to cost-
effectively develop and deploy sophisticated, enterprise-wide information
systems. Economic and standardization problems for these markets are exacerbated
by the fact that many sites operate as franchises, dealerships or other
decentralized ownership and control structures. Without an investment in
technology, these retailers continue to depend on labor and paper to process
transactions. Management believes that high labor costs, lack of centralized
management control of remote sites and inadequate informational reporting,
together with emerging technology trends, have caused many of these retailers to
reexamine how technology solutions can benefit their operations.

  A large number of retail sites face these challenges. At the end of 1995,
there were more than 90,000 convenience stores nationwide, while the cinema
industry had approximately 27,000 screens at 6,500 sites nationwide. At the end
of 1994, the quick service restaurant ("QSR") industry had over 170,000 domestic
units. Typically, the existing systems in these industries consist of stand-
alone devices such as cash registers or other POS systems with little or no
integration with either the back office of the site or an enterprise-wide
information system. Implementation of such systems providing this functionality
typically involves three or more vendors and an independent systems integration
firm. The resulting proprietary solutions are often difficult to support and
have inherently high risks associated with implementation. Management believes
that technology solutions that are highly functional and scalable, relatively
inexpensive, and easy to deploy are critical for successful implementation in
these retail markets.

  In the absence of an integrated solution, retailers in these markets typically
rely on manual reporting to capture data on site activity and disseminate it to
different levels of management at the 
<PAGE>
 
regional and national headquarters. Basic information on consumers (i.e., who
they are, when they visit and what they buy) is not captured in sufficient
detail, at the right time or in a manner that can be communicated easily to
others in the organization. Similarly, information such as price changes does
not flow from headquarters to individual sites in a timely manner. In addition,
communications with vendors often remain manual, involving paperwork, delays and
related problems.

  Recent trends in the retailing industry have accelerated the need for
enterprise-wide information and have heightened demand for integrated retailing
systems. Based in part upon industry association reports and other studies, as
well as the Company's experience in marketing its products, the Company believes
consumer preferences have shifted away from retailer loyalty toward value and
convenience, creating a greater need for timely data concerning consumer buying
patterns and preferences. Management also believes that convenient consumer-
activated ordering and payment systems, such as ATMs, voice response units and
"pay at the pump" systems, have become important to retailers who wish to retain
and build a customer base. Additionally, retailers can improve operational and
logistical efficiencies through better management of inventory, purchasing,
merchandising, pricing, promotions and shrinkage control. Management believes
that the constant flow of information among the point of sale, the back office,
headquarters and the supply chain has become a key competitive advantage in the
retail industry, causing retailers to demand more sophisticated, integrated
solutions from their systems vendors.

  In a parallel development, technological advances have improved the capability
of systems available to retailers. With the price of computing power declining,
technology investments have become economically feasible for many retailers.
Further, computing power has become increasingly flexible and distributable,
facilitating data capture and processing by applications located at the point of
sale. Also, new front-end graphical user interfaces are making systems easier to
use, which reduces training time and transaction costs and facilitates more
types of consumer-activated applications.

  To meet increasing systems demands from retailers, providers of hardware and
software point of sale solutions are attempting to integrate existing products.
This process often requires independent systems integrators to provide
enterprise-wide data communications. These systems often are based on
proprietary, closed protocols and technology platforms from several different
vendors. As a result, the effort required to implement and maintain these
systems can be difficult, time consuming and expensive.

THE RADIANT SOLUTION

  The Company offers fully integrated technology solutions that enable retailers
to improve site operations, serve consumers better and route information
throughout their organization and supply chains. The Company believes its core
technology and solutions are applicable to a variety of retail markets. The
Company's suite of products links store level point of sale information with
centralized merchandising and financial functions that ultimately drive
replenishment communications with suppliers and vendors. The Company believes
that its site solutions are easy to implement, typically requiring less than a
week to install and a few hours to train individual users. The following
summarizes the solutions provided by Radiant:

                                      -2-
<PAGE>
 
  A five segment diagram presenting in brief form the principal features and
functions of the Company's primary technology solutions and services.  The
diagram includes the text:

CONSUMER-ACTIVATED                           HEADQUARTERS
- - - - - - - - - -                          - - - - - - -
Touch Screen Interactive                     Executive Information
Video, Graphics, Audio                       Electronic Price Book
Credit/Cash Payment                          Vendor EDI
Compact, Enclosed Terminals                  Centralized Menu Management
Suggestive Selling

POINT OF SALE                                BACK OFFICE            
- - - - - - -                                - - - - - -  
Touch Screen Interactive                     Inventory Control      
Transaction Auditing                         Vendor Management      
Credit Processing                            Purchasing/Receiving   
Data Capture                                 Employee Management     
Peripheral Integration
Cash Reconciliation

SERVICES
- - - - -
Consulting
Training
Maintenance
Technical Support
Integration


  The Company's technology solutions enable retailers to: allow consumers to
place their own orders for items such as food, movie tickets and concessions
through graphical touch screen interfaces; capture transaction information and
communicate with credit card networks; manage and analyze in-store inventory
movement, including electronic ordering; schedule and manage staffing; and
connect headquarters to each of the retailer's local sites and vendors, enabling
management to quickly change pricing and review operating performance in a
timely and efficient manner. The Company's products have been deployed
successfully in retail operations ranging in size from one to more than 600
sites.

  Retailers derive the following benefits from Radiant's solutions:

  Integrated information flows.   The Company's technology solutions provide
  retailers with tools for monitoring and analyzing sales data, stock status,
  vendor relationships, merchandising and other important activities, both at
  their sites and headquarters. These products further enable retailers to
  communicate electronically with their suppliers in order to exchange purchase
  orders, invoices and payments.

  Centralized management of highly decentralized operations.   Information
  provided by the Company's solutions enables headquarters management to monitor
  site performance in a consistent manner on a near-real time basis, implement
  price changes simultaneously throughout the enterprise and rapidly initiate
  targeted marketing programs.

  Tighter on-site control over operations.   The Company's back office systems
  enable site managers to closely manage inventory, reconcile accounts and
  control issues such as shift scheduling and 

                                      -3-
<PAGE>
 
  hourly wage calculations. The Company's solutions incorporate sophisticated
  inventory management techniques to help a retailer optimize its merchandising
  strategy.

  Improved labor productivity.   The Company incorporates user friendly graphics
  within its solutions, reducing employee training and order processing times
  which are important benefits in retail environments due to high employee
  turnover. The Company's back office solutions can alleviate extensive
  paperwork required of site managers, allowing them more time to focus on
  operations.

  Improved customer service.   The Company's consumer-activated ordering systems
  permit customers to place their own orders, answer surveys and electronically
  communicate with the retailer. These systems can improve customer service,
  reduce site labor costs and, through automating suggestive selling concepts,
  help the retailer implement revenue enhancement opportunities.

  Lower cost of technology deployment.   In addition to the cost savings
  realized through better site management, the actual cost of deploying the
  Company's multimedia networking platform is less than networked PC systems due
  to platform efficiencies. Software modification requirements are limited due
  to the high degree of functionality inherent in the core applications, and
  systems integration problems are minimized because the Company offers an
  integrated solution based on an open-architecture design which facilitates
  integration with other systems.

COMPANY STRATEGY

  The Company's objective is to be the leading worldwide provider of enterprise-
wide technology solutions to the vertical retail markets it serves. The Company
is pursuing the following strategies to achieve this objective:

  Expand existing position in selected markets.    The Company believes that it
  is in a strong position to expand its current market share in the convenience
  store and cinema markets due to its highly functional solutions and its
  practical experience in deploying and implementing retail solutions. The
  Company has experience integrating all aspects of its solutions into existing
  retail technology infrastructures. In particular, the Company has developed
  interfaces with a number of the widely-used electronic information and payment
  networks, including networks of certain major petroleum retailers. The Company
  currently is developing interfaces to credit networks of additional major
  petroleum retailers, which if certified, will allow the Company access to a
  large number of potential sites.

  Introduce new products to current markets.   The Company has introduced a
  variety of new products and services in 1996, including consumer-activated
  systems, a headquarters-based, enterprise-wide management system, a Windows NT
  version of its local site-based products, consulting services and its
  multimedia networking platform. Additional products and services, such as on-
  line consumer loyalty systems and solutions utilizing the Internet, are in
  development or under review.

  Continue to develop sales and services infrastructure.  To meet the
  anticipated requirements of growth in its business, the Company intends to
  continue expanding its direct sales force and its professional services
  organization. The Company also plans to develop relationships with additional
  distributors.

  Expand markets for the Company's solutions.  The Company believes that its
  core technology and solutions are applicable to a variety of retail markets.
  The Company acquired LSI to accelerate its entry into the QSR market, and the
  Company plans to expand its presence in the QSR market with 

                                      -4-
<PAGE>
 
  pilot installations of certain new solutions scheduled for the first half of
  1997. The Company believes that additional markets such as full service
  restaurants, stadiums, arenas and amusement parks represent additional
  opportunities for the Company's solutions.

  Attract and retain outstanding personnel.   The Company believes its strongest
  asset is its people. To attract and retain top talent, the Company intends to
  maintain its entrepreneurial culture and to continue offering competitive
  benefit programs. The Company has granted stock options to a majority of its
  employees and will strive to continue to align employee interests with those
  of the Company's shareholders.

COMPANY OPERATIONS

  The Company is a leading provider of integrated technology solutions to the
convenience store market, has a growing presence in the entertainment market and
currently has plans to apply its core technologies to the QSR market.
Substantially all of the Company's total revenues in 1995 and approximately
74.8% of the Company's total revenues in 1996 were related to the convenience
store market. The Company believes that its core technology may be adapted to
provide solutions to a variety of vertical markets, but it has concentrated its
efforts to date in these three markets. The Company's principal products, sales
and marketing efforts, customers and competitors are discussed below for each of
these three markets. The following table depicts the Company's main offerings
and the vertical markets served by those offerings:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------- 
                                                                                    QUICK SERVICE
                               CONVENIENCE STORE        ENTERTAINMENT               RESTAURANT(1)
                             ------------------------------------------------------------------------------
<S>                            <C>                      <C>                         <C>
Software:
Consumer-Activated Ordering    OrderPoint               OrderPoint                  OrderPoint
Point of Sale                  Compu-Touch              BoxMan, ConcMan                 (2)
Back Office                    Compu-Touch              OfficeMan                       (3)
Headquarters-Based             Core-Tech                Core-Tech(4)                Core-Tech(4)
 
Services:
Consulting and Training        Radiant Solutions Group  Radiant Solutions Group     Radiant Solutions Group
Integration and Logistics      Integration Services     Integration Services        Integration Services
 
Platform:                      MediaClient              MediaClient                 MediaClient
</TABLE>

(1) Does not reflect products acquired with LSI.
(2) Under development, with planned release in the first half of 1997.
(3) To be developed.
(4) Modifications for these markets currently are under development.

CONVENIENCE STORE MARKET

  In the United States, there currently are approximately 90,000 convenience
store sites which derive a significant portion of revenues from selling products
other than gasoline. The Company believes that the international convenience
store market represents a substantial opportunity for its solutions. Management
believes that the industry is currently under-invested in technology. Only 16.1%
of the industry's retail sites use scanning equipment, compared to grocery
stores, which have implemented scanning at approximately 90.0% of their
locations. Yet, in a recent convenience store industry survey, 71.0% of
respondents perceive integrated scanning and price book management as being
important for 

                                      -5-
<PAGE>
 
their operations, and a majority of respondents indicated that they were
investigating whether to implement scanning at their retail locations. The same
survey further reveals that 54.0% of respondents plan to increase spending for
technology solutions. The Company thus believes that the demand for the
Company's solutions for the foreseeable future will remain strong.

  This demand is fueled in part by the fact that many convenience store
operators are finding that their consumers prefer "pay at the pump" systems, and
many operators are upgrading their POS systems to interface with these consumer-
activated systems. Seventeen percent of convenience stores currently utilize pay
at the pump technology. Implementing this technology requires a site to upgrade
its system for controlling and managing fuel sales. Management believes that
installation of pay at the pump systems will remain strong for the foreseeable
future, encouraging additional investment in store automation.

  The Company markets a variety of products and services as part of its strategy
to serve as an integrated solutions provider. From consumer-activated ordering
solutions to feature-rich, highly functional point of sale and back office
systems tied into headquarters through advanced client/server software, the
Company's enterprise-wide solutions interact with the consumer, site employees
and management and the senior management of a retailer's operations. To help
retailers optimize the impact these systems have on their operations, the
Company also offers a wide array of consulting, training and support services
provided by experienced professionals. The Company further provides "ruggedized"
hardware systems designed to cope with harsh retailing environments.

Site-Based Products

  Compu-Touch.   Compu-Touch is the Company's principal product serving the
convenience store market. Compu-Touch, which can be licensed as modules or as a
complete system, is a comprehensive site-based solution that allows retailers to
process transactions and capture data at the point of sale, as well as to manage
other front and back office operations. Compu-Touch consists of several modules,
as described below. As of December 31, 1996, the Company has licensed Compu-
Touch systems to over 2,000 convenience store sites.

  The following modules are offered with Compu-Touch:

  CT POS -- provides point of sale functionality. Its PC-based architecture
  allows non-POS functions (adding inventory and employees, changing fuel
  prices, etc.) to be performed through a menu driven, user friendly interface.
  In addition, CT POS produces reports that provide store managers with valuable
  insight into their businesses. CT POS can be interfaced to other systems using
  industry standard file formats.

  CT Inventory -- allows convenience stores to manage inventory on an item level
  basis, enabling two critical processes: item level audits and electronic
  ordering. CT Inventory accepts sales data from either CT POS or a third party
  system.

  CT Fuel -- manages fuel inventory using the same closed loop approach as CT
  Inventory. Real time fuel sales, received from CT POS, are combined with
  deliveries, pump tests and stick readings, allowing for instant reconciliation
  and analysis. CT Fuel includes a competitive survey feature so fuel managers
  can set prices to maximize volume and margin.

  CT Lottery -- utilizes the business logic embodied in CT Inventory. Lottery
  sales, received from CT POS in real-time, are combined with deliveries
  allowing for instant reconciliation.

  CT Employee -- records and monitors key employee data such as hire date,
  advanced payments and termination date. Operators can compare budgeted and
  scheduled hours against actual hours worked 

                                      -6-
<PAGE>
 
  with the labor schedule feature. An electronic task list, complete with
  instructions, can be scheduled to appear automatically on CT POS during an
  employee's shift.

  CT Money -- allows store managers quickly to compare funds collected against
  safe drops, pay-ins and pay-outs and make adjustments as necessary.

  Compu-Touch includes features such as a touch screen interface, user friendly
applications and flexibility in set-up and configuration to accommodate
operational variables at each site. The Compu-Touch system is based on an open
architecture and runs on either the Windows NT or Novell platform. The
application supports multiple POS terminals and a separate back office system.
The product is upgradable so that customers can phase in their investment with
additional hardware and software modules. It also offers customers scalability,
such that the same application can be run in chains with widely varying numbers
and sizes of sites; yet the enterprise solution remains consistent and
supportive of each site.

  OrderPoint.   Within the convenience store market, the trend toward increased
branded food service offerings has created a demand for consumer-activated
ordering systems. In response, the Company has developed its easy to use,
consumer-activated OrderPoint system. OrderPoint allows a consumer to place an
order, answer a survey, pay with a plastic card, make inquiries and view
promotions through the use of a touch screen. OrderPoint's development
environment and authoring tools allow various media, such as video clips, logos,
pictures and recordings, to be quickly integrated into a consumer-friendly
application.

  Management believes OrderPoint allows a retailer to increase labor
productivity, increase revenues through suggestive selling, increase consumer
ordering speed and accuracy, capture consumer information at the point of sale
and respond quickly to changing consumer preferences. OrderPoint was
commercially released in the second quarter of 1996, and, to date, the Company
has sold systems or licensed software to a number of convenience store chains.

Headquarters-Based Product

  Core-Tech.   In 1996, the Company introduced Core-Tech, a client/server based
software application which allows retailers to better manage multiple
convenience store sites. As of December 31, 1996, the Company had installed
Core-Tech at several headquarters locations, including those at Wawa, Inc.,
Sheetz, Inc., Conoco, Inc., Ultramar Diamond Shamrock Corporation and Petronas
Dagangan Berhad, the national petroleum company of Malaysia. The following is a
summary of the features and functionality of Core-Tech:

  Price book -- allows retailers to set prices for products in a timely manner
  on a site-by-site, zone-by-zone or system wide basis. Price book also allows
  retailers to target prices based on a variety of different factors, including
  markups based on cost, gross margins, and target margins.

  Site configuration and management -- allows retailers to define and control
  the parameters of site operations, such as prohibiting clerks from authorizing
  fuel dispensing without prepayment.

  Fuel management -- allows retailers to manage fuel inventory movement and
  pricing. Such features allow management to define and regulate site pricing
  and strategies, including responding to price changes at competitors' sites.

  Executive Information System ("EIS") -- supports headquarters analysis of site
  operations, such as sales vs. cost analysis, sales vs. budget analysis, labor
  productivity analysis and category management analysis. EIS also facilitates
  "what if" analyses, allowing retailers to incorporate and ascertain the
  sensitivities of operational variables such as price, cost and volume.

                                      -7-
<PAGE>
 
  Electronic Data Interchange -- supports the routing and analysis of purchase
  orders and vendor invoices.

  The Company believes that Core-Tech is one of the most functional and
comprehensive headquarters management applications widely marketed to
convenience store chains. The Core-Tech product is built with state of the art
software tools and is flexible and expandable based on application architecture
and database structure. The application is written in PowerBuilder, and the
database, Microsoft SQL Server, is highly scalable. The user interface is
intuitive and easy to use.

Sales and Marketing

  The Company has independent sales efforts in each of its vertical markets. The
Company believes this strategy positions its sales force to understand its
customers' businesses, trends in the marketplace, competitive products and
opportunities for new product development and allows the Company to take a
consultative approach to working with customers.

  Within the convenience store market, the Company's Director of National
Accounts manages a staff focusing on national accounts, including all major
petroleum companies. Further, the Company's Director of Sales manages two
distinct efforts: sales to large independent accounts via a geographically
dispersed sales force and sales to international accounts primarily through
distributors. The Company also has implemented a telemarketing effort directed
at chains with a limited number of sites. All sales personnel are compensated
with a base salary and commission based on gross margins and other profitability
measures.

  To date, the Company's primary marketing objective has been to increase
awareness of all of the Company's technology solutions. To this end, the Company
has attended industry trade shows and selectively advertised in industry
publications. The Company intends to increase its sales and marketing activities
both domestically and internationally in 1997, and will expand its advertising
in relevant industry publications. Additionally, the Company intends to continue
developing an independent distribution network to sell and service its products
to certain segments of the domestic and international markets.

Customers

  Convenience store customers who have selected the Company as their technology
solutions provider operate over 7,000 sites. As of December 31, 1996, the
Company has installed its technology solutions in over 2,000 of these sites. In
1994 and 1995, two customers accounted for 75.9% and 59.4% of the Company's
total revenues, respectively, as follows: Conoco, Inc. (52.1% in 1994 and 15.8%
in 1995) and Emro Marketing Company (23.8% in 1994 and 43.6% in 1995). During
1996, four convenience store customers accounted for 51.5% of the Company's
total revenues, as follows: Ultramar Diamond Shamrock Corporation (21.5%), Emro
Marketing Company (13.2%), Sheetz, Inc. (11.7%) and Conoco, Inc. (5.1%). The
following is a partial list of major convenience store customers who have
licensed and purchased the Company's products and services:

 
   Boardman Petroleum (Smile Gas)                    Go-Mart, Inc.
   Conoco, Inc.                                      Petronas Dagangan Berhad
   Dillon Companies, Inc.                            Sheetz, Inc.
   Emro Marketing Company (Speedway/Starvin'         Ultramar Diamond Shamrock
    Marvin)                                          Corporation
   Giant Industries, Inc.                            Wawa, Inc.

                                      -8-
<PAGE>
 
Competition

  In marketing its technology solutions, the Company faces intense competition,
including internal efforts by potential customers. The Company believes the
principal competitive factors are product quality, reliability, performance,
price, vendor and product reputation, financial stability, features and
functions, ease of use, quality of support and degree of integration effort
required with other systems.

  Within the convenience store market, the Company believes it is the only
integrated technology solution provider of POS, back office and headquarters
management systems. Within these product lines, the Company faces different
levels of competition. Verifone, Ltd., Dresser Industries, Inc., Gilbarco, Inc.,
Tokheim Corporation, Stores Automated Software, Inc., Matsushita Electric
Corporation of America (Panasonic), Auto-Gas Systems, Inc. and others provide
POS systems with varying degrees of functionality. Back office and headquarters
client/server software providers include The Software Works!, Professional
Datasolutions Inc. and JDA Software Group, Inc. In addition, the Company faces
competition from systems integrators and other companies such as Tandem
Computers, Inc. who offer an integrated technology solutions approach by
integrating other third party products.

  The Company believes there are barriers to entry in the market for convenience
store automation solutions. The Company has invested a significant amount of
time and effort to create the functionality of Compu-Touch and Core-Tech. The
Company believes that the time required for a competitor to duplicate the
functionality of Compu-Touch or Core-Tech is substantial and would require
detailed knowledge of a retailer's operations at local sites and headquarters.
Also, developing a credit card network interface often can take an additional
six to nine months, as the certification process can be time consuming.
Moreover, the major petroleum companies are extremely selective about which
automation system providers are permitted to interface to their credit networks.
As of December 31, 1996, the Company was certified on seven credit networks, and
it currently has initiated the process to become certified on four other major
petroleum company credit networks.

ENTERTAINMENT MARKET

  Within the entertainment market, the Company has focused on the cinema market
and plans to expand into amusement parks and stadiums. The Company markets its
products to the cinema market through its PrysmTech division. There are
approximately 27,000 cinema screens in the United States. These screens are
operated at approximately 6,500 sites, with recent trends emphasizing more
screens per site.

  The domestic cinema industry is concentrated, with the top six chains
operating approximately 33.0% of the cinema screens. In addition to increasing
screens per site, "megaplexes" have evolved, which combine restaurants, movies
and other forms of entertainment in one facility. While cinema sites typically
are operated in a decentralized manner, the Company believes cinema operators
are focused on implementing cost controls from headquarters.

  The Company believes its core technology and products are easily adaptable for
other entertainment venues, such as amusement parks, stadiums and arenas. To
date, the Company has installed systems in one of these facilities and has pilot
installations scheduled for two other amusement parks. While fewer in number
than cinemas, these venues are typically much larger, and management believes
that technology solutions for such operators represents significant revenue
potential for the Company.

Site-Based Products

  To date, a majority of the Company's sales to the entertainment market has
consisted of comprehensive site-based solutions that allow retailers to process
transactions and capture data at the point of sale and to manage other front and
back office operations. As of December 31, 1996, the 

                                      -9-
<PAGE>
 
Company had installed these products at approximately 175 sites. These site-
based solutions are marketed under the "BoxMan," "ConcMan," "OrderPoint," and
"OfficeMan" names. These systems include features such as a touch screen
interface, user-friendly applications and flexibility in configuration to
accommodate operational variables at each site.

  These systems are based on an open architecture and run on the Windows NT or
Novell platform. The applications are made to be highly configurable, typically
supporting multiple POS terminals and a separate back office system. The
products are upgradable so that customers can phase in their investment with
additional hardware and software modules. These solutions offer customers
scalability, such that the same application can be run in chains with widely
varying numbers and sizes of sites; yet the enterprise solutions remain
consistent and supportive of each site.

  BoxMan.   BoxMan processes ticket sales, incorporating touch screen technology
at the point of sale. BoxMan provides for a variety of ticket alternatives and
payment options (such as cash, credit card or coupons). Individual sales and
performance are easily tracked, and all of the information gathered at the point
of sale can be communicated throughout the system on a real-time basis. BoxMan
also provides for advanced ticketing and teleticketing, as well as will-call and
self-service ticketing.

  ConcMan.   ConcMan processes concession sales, incorporating touch screen
technology at the point of sale. ConcMan communicates real-time information to
other POS and back office systems. In addition, ConcMan allows a number of
payment methods, such as cash, credit card or coupons, and tracks point of sale
performance data, such as average transaction value and rate of sales.

  OrderPoint.   OrderPoint is the Company's consumer-activated, multimedia
software. It utilizes graphics, full motion video and audio and allows consumers
to preview movies and purchase tickets and concessions by placing orders through
the use of a touch screen ordering system. It further allows for remote
ticketing and simple credit card purchases. By properly positioning high profit
items, retailers can use OrderPoint to promote combination sales and implement
suggestive selling programs. As of December 31, 1996, OrderPoint is installed in
over 50 cinema sites. See "--Convenience Store Market--Site-Based Products" for
a further description of the OrderPoint system.

  OfficeMan.   OfficeMan is a back office manager that provides the means for
cinemas to readily gather point of sale and management information. OfficeMan
provides real-time sales monitoring, with automatic updates of point of sale
information, thereby allowing cinemas to manage multiple sites more effectively.
Additionally, OfficeMan permits a cinema operator to define an employee's
security level, manage changes in movie schedules and manage inventory.
OfficeMan also provides an interface to other open systems and credit card
networks.

Headquarters-Based Product

  Core-Tech.   Core-Tech is the Company's client/server based solution that
permits retailers to manage individual sites from headquarters. Management
believes that there is demand within the entertainment market for a solution
with Core-Tech's features. As a result, the Company currently is adapting Core-
Tech for this market. See "--Convenience Store Market--Headquarters-Based
Product" for a description of the Core-Tech system.

Sales and Marketing

  To date, the Company's sales and marketing efforts have consisted primarily of
involvement of senior management of PrysmTech. The Company's primary marketing
objective has been to increase awareness of all of the Company's technology
solutions. In November 1996, the Company hired a manager to plan and manage the
Company's efforts in the amusement park market. The Company intends to increase
its sales and marketing efforts in 1997.

                                      -10-
<PAGE>
 
Customers

  Cinema customers who have selected the Company as their technology solutions
provider operate a total of 890 sites, or approximately 13.7% of the domestic
cinema sites. As of December 31, 1996, the Company has installed its technology
solutions in approximately 175 of these sites. In 1996, Loews Theatre Management
Corporation accounted for 13.8% of the Company's total revenues. The following
is a partial list of major cinema customers who have licensed and purchased the
Company's products and services:

     Cobb Theatres
     Loews Theatre Management Corporation
     Mann Theatres
     The Marcus Corporation
     Regal Cinemas

Competition

  The market for the Company's technology solutions is intensely competitive and
includes internal efforts by potential customers. The Company believes the
principal competitive factors are product quality, reliability, performance,
price, vendor and product reputation, financial stability, features and
functions, ease of use, quality of support and degree of integration effort
required with other systems. Within the cinema market, the Company faces
competition from Pacer/CATS, a subsidiary of Ticketmaster, Inc., and several
smaller software providers.

QUICK SERVICE RESTAURANT MARKET

  The Company believes that its core technology and capabilities effectively
address the needs of the QSR market. To accelerate its entry into this market,
the Company in May 1996 acquired LSI -- an established provider of technology
solutions to the QSR market. LSI provided the Company with a team of experienced
QSR software developers, a functional product line and a customer base that
includes approximately 150 sites, including KFC Corporation and UNO Restaurant
Corporation (Pizzeria Uno). The Company does not intend to actively market LSI's
existing product line. However, the Company believes that its core technology
can be combined with LSI's industry expertise to create a highly functional
technology solution for the QSR market.

  The QSR market is the largest and fastest growing segment in the food service
market. As of the end of 1994, there were over 170,000 QSRs in the United
States. Restaurants increasingly require real time information access and
management that permit employees to increase the speed and accuracy with which
they take an order, prepare the food and fill the order, and they must
accommodate numerous concurrent consumer orders at multiple counter top and
drive-through locations. Multiple order input devices, such as wireless, hand-
held terminals and touch screen monitors, may be required to handle high-order
volumes at peak periods.

  The captured transaction data may be shared with store management, as well as
regional headquarters management. Such data can be analyzed to provide
performance, market and trend information. Such tasks are substantially similar
to those required in the convenience store and entertainment markets. The
Company is developing a new suite of products based on its Radiant solution
tailored to address the QSR market. Pilots for these products are scheduled for
the first half of 1997.

  In marketing its technology solutions, the Company faces intense competition,
including internal efforts by potential customers. The Company believes the
principal competitive factors are product quality, reliability, performance,
price, vendor and product reputation, financial stability, features and

                                      -11-
<PAGE>
 
functions, ease of use, quality of support and degree of integration effort
required with other systems. Within the QSR market, the Company faces
competition from companies such as International Business Machines Corporation,
NCR Corporation, Matsushita Electric Corporation of America (Panasonic), Par
Technology Corporation, Compris Technologies, Inc., Progressive Software, Inc.,
Micros Systems, Inc. and many others who currently deliver technology solutions
to the market.

PROFESSIONAL SERVICES

  In 1995, the Company determined that the integration, design, implementation,
application and installation of technology solutions were critical to its
ability to effectively market its solutions. Consequently, in early 1996, the
Company established its Radiant Solutions Group to provide these services to its
customers. The Radiant Solutions Group operates as a stand-alone profit center.
The following is a summary of some of the professional services the Company
provides:

     Consulting.   Business consultants, systems analysts and technical
     personnel assist retailers in all phases of systems development, including
     systems planning and design, customer-specific configuration of application
     modules and on-site implementation or conversion from existing systems.
     Directors in the Company's consulting organization typically have
     significant consulting or retail technology experience. The Company's
     consulting personnel undergo extensive training in retail operations and
     the Company's products. Consulting services typically are billed on a per
     diem basis.

     Customization.   The Company provides custom application development work
     for customers billed on a project or per diem basis. Such enhancements
     remain the property of the Company.

     Training.   The Company has a formalized training program available to its
     customers, which is provided on a per diem rate at the Company's offices or
     at the customer's site.

     Integration.   Typically, as part of its site solution, the Company
     integrates standard PC components for its customers. This is done as part
     of the overall technology solution for the customers to protect the quality
     of the overall site solution and to provide the customers with a system
     that is easy to support over the long term.

  The market for the Company's professional services is intensively competitive.
The Company believes the principal competitive factors are the professional
qualifications, expertise and experience of individual consultants. In the
market for professional services, the Company competes with the consulting
divisions of the big six accounting firms, Electronic Data Systems, Inc. and
other systems integrators.

MAINTENANCE AND CUSTOMER SUPPORT

  The Company offers customer support on a 24-hour basis, a service which
historically has been purchased by a majority of its customers and also entitles
the customer to product upgrades. In some cases, hardware support is provided by
third parties. The Company can remotely access its customers' systems in order
to perform quick diagnostics and provide on-line assistance. The annual support
option is typically priced at a percentage of the software and hardware cost.

PRODUCT DEVELOPMENT AND TECHNOLOGY PLATFORM

  The Company's product development strategy is focused on creating common
technology elements that can be leveraged in applications across various
vertical retail markets. The base technology architecture is designed so that it
can be integrated with products developed by other vendors and can be phased
into a retailer's operations. The Company has developed numerous applications
running on 

                                      -12-
<PAGE>
 
a Windows NT platform. The software architecture incorporates Microsoft's
Component Object Model, providing an efficient environment for application
development.

  To implement its strategy, the Company has created Radiant Labs ("Labs"), with
responsibility for developing common technology elements intended for use across
the Company's vertical markets. In addition, the Company maintains development
groups for each of the convenience store, entertainment and QSR markets. The
vertical market development efforts focus on developing industry-specific
applications that leverage the common technology elements developed by Labs. To
facilitate new product development, teams are formed to combine technical
expertise from Labs and industry knowledge from the vertical groups.

  The Company's MediaClient platform, graphically depicted below, was developed
for use across the Company's various vertical markets. It allows multiple,
multimedia software applications to run on separate workstation clients
simultaneously, all driven by a single PC acting as a server. With a MediaClient
platform, only one PC is required -- functionality is duplicated through
specialty peripherals ("MediaClient Nodes") connected by a fiber optic ring. The
server is responsible for almost all data processing and functionality and
serves as a repository for multimedia data.

TITLE:      DESCRIPTION OF RADIANT SYSTEMS, INC.
            RADIANT PLATFORM DIAGRAM

STRUCTURE:  Diagram illustrating the operating system of the Company's Radiant
            platform. The diagram depicts a personal computer acting as a host
            to nine nodes, all connected by a solid line representing a fiber
            optic connection. The nodes are depicted as rectangular boxes
            arranged in a loop to the right of the depiction of the personal
            computer.

            The diagram is meant to illustrate the fact that as many as 50 nodes
            may operate as specialty peripherals or workstations when connected
            to the personal computer acting as a server. A brief description is
            included of the host personal computer, the nodes and the fibre
            optic line. Each of these descriptions point to the relevant
            component with an arrow.

SUPPORTING
TEXT:       Connected by an arrow to the personal computer:
            "MediaClient Host
            . IBM PC compatible
            . Windows NT
            . Serves in excess of 50 nodes
            . Second host provides redundancy"

            Connected by an arrow to the nodes:
            "MediaClient Nodes
            . Solid-state multimedia device
            . MPEG I & II, SVGA
            . Stereo/mono sound
            . Intercom
            . Mag stripe reader
            . 8 Serial devices
            . Compact, enclosed design"

                                      -13-
<PAGE>
 
            Connected by an arrow to the line:
            "Bidirectional
            Fault-tolerant
            Fiber-optic loop"
 
  The Company's MediaClient platform offers a number of advantages to the
retailer. Principally, it extends the processing power and functionality of a PC
throughout a dedicated network. A MediaClient platform is highly scalable,
depending on the requirements of the customer. It reduces software and network
maintenance costs because the retailer only manages applications on one server.
Moreover, MediaClient Nodes require substantially less space than a PC, improve
reliability and reduce cost of ownership.

PROPRIETARY RIGHTS

  The Company's success and ability to compete is dependent in part upon its
proprietary technology, including its software source code. To protect its
proprietary technology, the Company relies on a combination of trade secret,
nondisclosure, copyright and patent law, which may afford only limited
protection. In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. Although the Company relies
on the limited protection afforded by such intellectual property laws, it also
believes that factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements, name
recognition and reliable maintenance are essential to establishing and
maintaining a technology leadership position. The Company presently has one
patent pending. The source code for the Company's proprietary software is
protected both as a trade secret and as a copyrighted work. The Company
generally enters into confidentiality or license agreements with its employees,
consultants and customers and generally controls access to and distribution of
its software, documentation and other proprietary information. Although the
Company restricts the use by the customer of the Company's software and does not
permit the re-sale, sublicense or other transfer of such software, there can be
no assurance that unauthorized use of the Company's technology will not occur.

  Despite the measures taken by the Company to protect its proprietary rights,
unauthorized parties may attempt to reverse engineer or copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult.
In addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.

  Certain technology used in conjunction with the Company's products is licensed
from third parties, generally on a non-exclusive basis. These licenses usually
require the Company to pay royalties and fulfill confidentiality obligations.
The Company believes that there are alternative resources for each of the
material components of technology licensed by the Company from third parties.
However, the termination of any such licenses, or the failure of the third-party
licensors to adequately maintain or update their products, could result in delay
in the Company's ability to ship certain of its products while it seeks to
implement technology offered by alternative sources. Any required replacement
licenses could prove costly. Also, any such delay, to the extent it becomes
extended or occurs at or near the end of a fiscal quarter, could result in a
material adverse effect on the Company's results of operations. While it may be
necessary or desirable in the future to obtain other licenses relating to one or
more of the Company's products or relating to current or future technologies,
there can be no assurance that the Company will be able to do so on commercially
reasonable terms or at all.

                                      -14-
<PAGE>
 
  In the future, the Company may receive notices claiming that it is infringing
on the proprietary rights of third parties, and there can be no assurance that
the Company will not become the subject of infringement claims or legal
proceedings by third parties with respect to current or future products. In
addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claim could be time
consuming, result in costly litigation, cause product shipment delays or force
the Company to enter into royalty or license agreements rather than dispute the
merits of such claims. Moreover, an adverse outcome in litigation or similar
adversarial proceedings could subject the Company to significant liabilities to
third parties, require the expenditure of significant resources to develop non-
infringing technology, require disputed rights to be licensed from others or
require the Company to cease the marketing or use of certain products, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. To the extent the Company desires or is
required to obtain licenses to patents or proprietary rights of others, there
can be no assurance that any such licenses will be made available on terms
acceptable to the Company, if at all. As the number of software products in the
industry increases and the functionality of these products further overlaps, the
Company believes that software developers may become increasingly subject to
infringement claims. Any such claims against the Company, with or without merit,
as well as claims initiated by the Company against third parties, can be time
consuming and expensive to defend, prosecute or resolve.

EMPLOYEES

  As of December 31, 1996, the Company employed 265 persons. None of the
Company's employees is represented by a collective bargaining agreement nor has
the Company experienced any work stoppage. The Company considers its relations
with its employees to be good.

  The Company's future operating results depend in significant part upon the
continued service of its key technical, consulting and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will retain its key managerial or
technical personnel or attract such personnel in the future. The Company has at
times experienced and continues to experience difficulty recruiting qualified
personnel, and there can be no assurance that the Company will not experience
such difficulties in the future. The Company, either directly or through
personnel search firms, actively recruits qualified product development,
consulting and sales and marketing personnel. If the Company is unable to hire
and retain qualified personnel in the future, such inability could have a
material adverse effect on the Company's business, operating results and
financial condition.

FORWARD-LOOKING STATEMENTS

  Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective.  Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements.  Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.

                                      -15-
<PAGE>
 
ITEM 2.  PROPERTIES.
------   ---------- 

  The Company's principal facility occupies approximately 60,000 square feet in
Alpharetta, Georgia, under two lease agreements. These lease agreements expire
on January 31, 2000 and August 31, 2000, respectively. In January 1997, the
Company leased additional space at its current location, which increased the
square footage leased by the Company from 43,000 to 60,000 square feet.

ITEM 3.   LEGAL PROCEEDINGS.
------    ----------------- 

  There are no material pending legal proceedings to which the Company is a
party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority. There are no material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company, or any associate of any of the foregoing is a
party or has an interest adverse to the Company.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------    --------------------------------------------------- 

  On October 21, 1996, by unanimous written consent in lieu of a special meeting
of the Board and Common Stock Shareholders of the Company, the following persons
were elected to serve on the Company's Board until the next annual meeting of
the shareholders and until their successors are elected and have qualified or
until their earlier resignation, removal from office or death: Erez Goren, Alon
Goren, John H. Heyman and Eric B. Hinkle.  In addition, the Company's
shareholders elected officers of the Company to serve until the next annual
meeting of the Board and until their successors are duly elected and have
qualified or until their earlier resignation, removal from office or death.

  On December 10, 1996, by unanimous written consent in lieu of a special
meeting of the Board and Common Stock Shareholders of the Company, the
shareholders approved the issuance of Common Stock and certain other matters in
connection with the initial public offering of the Common Stock of the Company.
Furthermore, the Company's shareholders approved and adopted the Amended and
Restated 1995 Stock Option Plan for the Company's directors, officers, employees
and consultants. The shareholders reserved an aggregate of 4,000,000 of Common
Stock for issuance upon the exercise of options under the 1995 Stock Option
Plan.

  Also, the Company's shareholders approved and adopted the Amended and Restated
Articles of Incorporation of the Company; approved a staggered Board to consist
of Erez Goren and Alon Goren serving as Class I Directors, John H. Heyman
serving as a Class II Director, and Eric B. Hinkle serving as a Class III
Director; and approved Amended and Restated By-Laws.

  The Company's shareholders also authorized the Company to take all actions
necessary to qualify the Company to conduct business as a foreign corporation in
each jurisdiction where the officers of the Company deemed qualification to be
necessary. The Shareholders then elected H. Martin Rice to serve as Vice
President and Managing Director of the PrysmTech Division of the Company,
effective as of the date of acquisition by the Company of PrysmTech, LLC.

                                      -16-
<PAGE>
 
                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
------    --------------------------------------------------------------------- 

  The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "RADS."  The Common Stock began trading on the Nasdaq National Market on
February 13, 1997.

     As of March 24, 1997, there were 20 holders of record of the Common Stock.
Management of the Company believes that these are in excess of 400 beneficial
holders of its Common Stock.

     The Company currently anticipates that all of its earnings will be retained
for development of the Company's business and does not anticipate paying any
cash dividends in the foreseeable future. Future cash dividends, if any, will be
at the discretion of the Company's Board of Directors and will depend upon,
among other things, the Company's future earnings, operations, capital
requirements and surplus, general financial condition, contractual restrictions
and such other factors as the Board of Directors may deem relevant.

     Recent Sales of Unregistered Securities.  On December 31, 1996, the Company
issued 300,000 shares of Common Stock to the two principals of Billmart, LLC in
connection with the acquisition by the Company of Billmart's interest in
PrysmTech, LLC.  The issuances of securities described above were made in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933 as transactions by an issuer not involving a public
offering.  All of the securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof.  In each
instance, the purchaser had a pre-existing relationship with the Company, the
offers and sales were made without any public solicitation, the certificates
bear restrictive legends and appropriate stop transfer instructions have been or
will be given to the transfer agent.  No underwriter was involved in the
transactions and no commissions were paid.

                                      -17-
<PAGE>
 
ITEM 6.   SELECTED COMBINED FINANCIAL DATA.
------    -------------------------------- 

     The following table sets forth selected combined financial data of the
Company for the periods indicated, which data has been derived from the combined
financial statements of the Company. The combined financial statements of the
Company as of December 31, 1994, 1995 and 1996, and for each of the years in the
four-year period ended December 31, 1996, have been audited by Arthur Andersen
LLP, independent public accountants. This selected combined financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the combined financial
statements of the Company and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                             ---------------------------------------------------
                                                               1992      1993      1994       1995       1996
                                                             --------  --------  ---------  ---------  ---------
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                          <C>       <C>       <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
 Systems sales............................................    $1,079    $3,748    $13,529    $14,078    $35,888
 Customer support, maintenance and other services.........       412       552        919      1,804      5,055
                                                              ------    ------    -------    -------    -------
 Total revenues...........................................     1,491     4,300     14,448     15,882     40,943
Cost of revenues:
 Systems sales............................................       462     2,307      9,459      9,863     22,270
 Customer support, maintenance and other services.........       366       588      1,208      2,300      5,465
                                                              ------    ------    -------    -------    -------
 Total cost of revenues...................................       828     2,895     10,667     12,163     27,735
                                                              ------    ------    -------    -------    -------
Gross profit..............................................       663     1,405      3,781      3,719     13,208
Operating expenses:
 Product development......................................       196       271        984      1,640      3,328
 Purchased research and development costs.................        --        --         --         --      3,930
 Sales and marketing......................................       203       209        470        607      1,487
 Depreciation and amortization............................        19        46        178        583        948
 General and administrative...............................       219       332      2,243      2,990      5,664
                                                              ------    ------    -------    -------    -------
Income (loss) from operations.............................        26       547        (94)    (2,101)    (2,149)
Interest expense, net.....................................         3        19         82        166        712
Minority interest in earnings of PrysmTech................        --        --         --         --        628
Other (income)............................................        --        --         --       (406)        --
                                                              ------    ------    -------    -------    -------
Income (loss) before provision for pro forma income taxes.        23       528       (176)    (1,861)    (3,489)
Pro forma income tax provision (benefit)(1)...............        11       206        (61)      (709)    (1,333)
                                                              ------    ------    -------    -------    -------
Pro forma net income (loss)...............................    $   12    $  322    $  (115)   $(1,152)   $(2,156)
                                                              ======    ======    =======    =======    =======
Pro forma net income (loss) per common and
 common equivalent shares(2)..............................                                              $ (0.19)
                                                                                                        =======
Weighted average common and common equivalent
 shares outstanding.......................................                                               11,100
                                                                                                        ======= 

                                                                                DECEMBER 31,
                                                             --------------------------------------------------
                                                                1992      1993       1994       1995       1996
                                                              ------    ------    -------    -------    -------
 
Balance Sheet Data:
Working capital  ................................             $ (310)   $ (102)   $(1,027)   $(3,664)   $   812
Total assets  ...................................                409     2,716      4,818      4,235     14,616
Long-term debt and shareholder loan,
 including current portion  .....................                  7        89      1,067        970      9,174
Shareholders' equity (deficit)  .................               (273)      145       (722)    (3,154)    (4,500)
</TABLE> 

                                      -18-
<PAGE>
 
--------------
(1) As a result of its election to be treated as an S Corporation for income tax
    purposes prior to its initial public offering in February 1997, the Company
    was not subject to federal or state income taxes. Pro forma net income
    amounts include additional provisions for income taxes determined by
    applying the Company's anticipated statutory tax rate to pretax income
    (loss), adjusted for permanent tax differences.
(2) Pro forma net income (loss) per share is computed by dividing pro forma net
    income (loss) available to common shareholders by weighted average shares
    outstanding.
 
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
---------  ----------------------------------------------------------------
           RESULTS OF OPERATIONS.
           ---------------------

  The following discussion should be read in conjunction with the combined
financial statements of the Company (including the notes thereto) contained
elsewhere in this Report.

OVERVIEW

  The Company historically has focused on providing integrated technology
solutions to selected vertical markets within the retail industry. The Company
derives its revenues primarily from the sale of integrated systems, including
software, hardware and related support and consulting services. The Company
plans to increase licensing of certain of its software products on a stand-alone
basis. In addition, the Company, through its Radiant Solutions Group, offers
implementation and integration services which are billed on a per diem basis.
The Company's revenues from its various technology solutions are, for the most
part, dependent on the number of installed sites a customer has. Accordingly,
while the typical sale is the result of a long, complex process, the Company's
customers usually continue installing additional sites over an extended period
of time. Revenues from systems sales are recognized as products are shipped,
provided that collection is probable and no significant post shipment vendor
obligations remain. Revenues from customer support, maintenance and other
services are generally recognized as the service is performed.

  Prior to 1993, the Company developed software solutions for the video rental
and car care markets. The Company entered the convenience store market in 1993
by establishing relationships with two customers. Sales to these two customers
represented approximately 75.9%, 59.4% and 18.3% of the Company's total revenues
in 1994, 1995 and 1996, respectively. In order to increase the Company's focus
on revenue growth and profitability, the Company expanded its senior management
team in 1995 and 1996. In addition, the Company responded to strong demand for
its technology solutions by investing heavily in new product development. The
Company also identified additional market opportunities for its new products. As
a result, the Company has substantially increased its sales, marketing and
product development activities.

  Since November 1995, a number of events resulted in strong revenue growth for
the Company. The Company developed new products, established relationships with
new customers and increased sales to existing customers. The Company also
entered two new vertical markets -- the entertainment market and the QSR market.
The Company expanded its presence in the entertainment market in November 1995
by entering into a joint venture (PrysmTech) to market enterprise-wide
technology solutions to this industry. On December 31, 1996, the Company
purchased the remaining interest in PrysmTech. Accordingly, the operations of
PrysmTech are reflected in the 1996 financial statements of the Company. To
accelerate its entry into the QSR market, in May 1996 the Company purchased
Liberty Systems International, Inc. ("LSI"), a technology solution provider to
the QSR industry. During this period, the Company also expanded its sales force
and continued to add management, consulting and product development personnel.
The revenue growth of the Company has resulted in profitability since the second
quarter of 1996, before accounting for one-time, nonrecurring purchased research
and development costs.

  As a result of its election to be treated as an S Corporation for income tax
purposes, the Company, prior to the completion of its initial public offering in
February 1997, was not subject to federal or state 

                                      -19-
<PAGE>
 
income taxes. Pro forma net income amounts discussed herein include additional
provisions for income taxes determined by applying the Company's anticipated
statutory tax rate to pretax income (loss), adjusted for permanent tax
differences. The Company's S Corporation status was terminated upon completion
of its initial public offering in February 1997.

RESULTS OF OPERATIONS

  The following table sets forth, for the periods indicated, the percentage
relationship of certain statement of operation items to total revenues:


                                                      YEAR ENDED DECEMBER 31,
                                                     --------------------------
                                                       1994     1995     1996
                                                     --------  -------  -------

Revenues:
 Systems sales                                         93.6 %   88.6 %   87.7 %
 Customer support, maintenance and other services        6.4     11.4     12.3
                                                       -----    -----    -----
    Total revenues                                     100.0    100.0    100.0
 
Cost of revenues:
 Systems sales                                          65.4     62.1     54.4
 Customer support, maintenance and other services        8.4     14.5     13.3
                                                       -----    -----    -----
    Total cost of revenues                              73.8     76.6     67.7
 
Gross profit                                            26.2     23.4     32.3
 
Operating expenses:
 Product development                                     6.8     10.3      8.1
 Purchased research and development costs                 --       --      9.6
 Sales and marketing                                     3.3      3.8      3.6
 Depreciation and amortization                           1.3      3.7      2.3
 General and administrative                             15.5     18.8     13.9
                                                       -----    -----    -----
Income (loss) from operations                           (0.7)   (13.2)    (5.2)
 
Interest expense, net                                    0.5      1.0      1.7
Minority interest                                         --       --      1.6
Other (income)                                            --     (2.5)      --
                                                       -----    -----    -----
 
(Loss) before pro forma income taxes                    (1.2)   (11.7)    (8.5)
Pro forma income tax (benefit)                          (0.4)    (4.4)    (3.3)
                                                       -----    -----    -----
Pro forma net (loss)                                   (0.8)%   (7.3)%   (5.2)%
                                                       =====    =====    =====

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

  Systems Sales.   The Company derives the majority of its revenues from sales
and licensing fees for its headquarters and site-based solutions. Systems sales
increased 154.9% to $35.9 million for the year ended December 31, 1996 ("fiscal
1996"), compared to $14.1 million for the year ended December 31, 1995 ("fiscal
1995"). The increase related to sales and license fees from new and existing
customers, as well as the acquisition and consolidation of PrysmTech that
contributed $9.1 million to system sales in fiscal 1996. Additionally, the
Company introduced several new products in fiscal 1996, including Core-Tech,
OrderPoint, its MediaClient platform and a Windows NT version of Compu-Touch.
Initial demand for these products contributed to the Company's increase in
revenues.

  Customer Support, Maintenance and Other Services.   The Company also derives
revenues from customer support, maintenance and other services, which increased
180.2% to $5.1 million for fiscal 1996, compared to $1.8 million for fiscal
1995. The increase was due to increased support, maintenance 

                                      -20-
<PAGE>
 
and services revenues, including $1.1 million related to PrysmTech, and the
establishment and expansion of Company's Radiant Solutions Group.

  Cost of Systems Sales.   Cost of systems sales consist primarily of hardware
and peripherals for site-based systems and labor. These costs are expended as
products are shipped. Cost of systems sales increased 125.8% to $22.3 million
for fiscal 1996, compared to $9.9 million for fiscal 1995. The increase was
directly attributable to the increase in systems sales, including PrysmTech's
sales. Cost of systems sales as a percentage of total revenues declined to 54.4%
from 62.1%. Cost of systems sales as a percentage of systems revenues declined
to 62.1% from 70.1%. The decreases were due to increased sales of existing and
newly introduced and acquired products, such as Core-Tech and the PrysmTech
product line, which have higher margins than site-based systems sold by the
Company in prior years.

  Cost of Customer Support, Maintenance and Other Services.   Cost of customer
support, maintenance and other services consists primarily of personnel and
other costs associated with the Company's services operations. Cost of customer
support, maintenance and other services increased 137.6% to $5.5 million for
fiscal 1996 from $2.3 million for fiscal 1995. The increase was due primarily to
the Company's decision to establish the Radiant Solutions Group and the related
increase in wages associated with this effort, as well as the inclusion of
PrysmTech's results. Cost of customer support, maintenance and other services as
a percentage of total revenues declined to 13.3% from 14.5%. Cost of customer
support, maintenance and other services as a percentage of customer support,
maintenance and other services revenues declined to 108.1% from 127.5%. These
declines reflect higher service margins from PrysmTech operations, partially
offset by the Company's investment in the Radiant Solutions Group.

  Product Development Expenses.   Product development expenses consist primarily
of wages and materials expended on product development efforts. Product
development expenses increased 102.9% to $3.3 million for fiscal 1996, compared
to $1.6 million for fiscal 1995. The increase was due to higher development
costs associated with new product development, including development activity
associated with the Company's QSR industry efforts and development of new credit
card network interfaces, as well as the inclusion of PrysmTech's results.
Product development expenses as a percentage of total revenues declined to 8.1%
from 10.3% because total revenues increased at a faster pace than product
development expenses. The Company capitalizes a portion of its software
development costs. In fiscal 1996, software development costs of $635,000 were
capitalized by the Company, as compared to $329,000 for fiscal 1995. The Company
capitalized 16.0% of its product development costs in fiscal 1996, as compared
to 16.7% for fiscal 1995.

  Purchased Research and Development Costs.   Purchased research and development
costs were $3.9 million for fiscal 1996. These one-time, nonrecurring costs
represent in-process research and development costs expended by the Company in
connection with its acquisition of PrysmTech.

  Sales and Marketing Expenses.   Sales and marketing expenses increased 145.1%
to $1.5 million during fiscal 1996, compared to $607,000 for fiscal 1995. The
increase was associated with the Company's expansion of its sales force, the
inclusion of PrysmTech's results and increased commission expense attributable
to higher sales. Sales and marketing expenses as a percentage of total revenues
declined to 3.6% from 3.8%.

  Depreciation and Amortization.   Depreciation and amortization expenses
increased 62.5% to $948,000 for fiscal 1996, compared to $583,000 for fiscal
1995. The increase resulted from an increase in computer equipment and other
assets required to support an increased number of employees, as well as the
inclusion of PrysmTech's results. Depreciation and amortization as a percentage
of total revenues declined to 2.3% from 3.7% during the period, primarily
because revenues increased at a faster pace than associated personnel support
costs. Additionally, amortization of capitalized software development 

                                      -21-
<PAGE>
 
costs increased 140.8% to $239,000 for fiscal 1996, compared to $99,000 for
fiscal 1995 as a result of higher capitalized software development costs.

  General and Administrative Expenses.   General and administrative expenses
increased 89.4% to $5.7 million for fiscal 1996, compared to $3.0 million for
fiscal 1995. The increase was due primarily to personnel increases in fiscal
1996, as well as the inclusion of PrysmTech's results. General and
administrative expenses as a percentage of total revenues declined to 13.9% from
18.8% as a result of higher sales volumes.

  Interest Expense.   Interest expense increased 327.6% to $712,000 for fiscal
1996, compared to $166,000 for fiscal 1995. The increase resulted from the
Company borrowing $4.5 million in the second and third quarters of fiscal 1996
and the borrowing costs associated therewith. Interest expense as a percentage
of total revenues increased to 1.7% from 1.0% due to the increase in borrowings.

  Minority Interest in Earnings of PrysmTech.   In fiscal 1996, the minority
interest in earnings of PrysmTech was $628,000, compared to none in fiscal 1995.
This amount reflects the pro rata ownership interest not owned by the Company.

  Other Income.   In fiscal 1996, the Company recognized no other income. In
fiscal 1995, the Company recognized $406,000 in other income, which primarily
represented a gain on the sale of Company assets.

  Pro Forma Income Tax Provision (Benefit).   The pro forma effective tax rate
for fiscal 1996 was a benefit of 38.2%, compared to a benefit of 38.1% for
fiscal 1995.

  Pro Forma Net Income (Loss).   Pro forma net loss increased 87.2% to $2.2
million for fiscal 1996, compared to $1.2 million for fiscal 1995. The increase
in net loss resulted primarily from one-time, nonrecurring charges for purchased
research and development costs, partially offset by increased revenues and
improved margins in fiscal 1996 over fiscal 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

  Systems Sales.   Systems sales increased 4.1% to $14.1 million for fiscal
1995, compared to $13.5 million for the year ended December 31, 1994 ("fiscal
1994"). The increase related to sales and license fees from new customers and
increased sales and license fees to existing customers.

  Customer Support, Maintenance and Other Services.   Customer support,
maintenance and other services increased 96.4% to $1.8 million for fiscal 1995,
compared to $919,000 for fiscal 1994. The increase was due to a greater number
of customer sites supported by the Company.

  Cost of Systems Sales.   Cost of systems sales increased 4.3% to $9.9 million
for fiscal 1995, compared to $9.5 million for fiscal 1994. The increase was
directly attributable to increased systems sales. Cost of systems sales as a
percentage of total revenues declined to 62.1% from 65.5%. Cost of systems sales
as a percentage of systems sales increased to 70.1% from 69.9%.

  Cost of Customer Support, Maintenance and Other Services.   Cost of customer
support, maintenance and other services increased 90.5% to $2.3 million for
fiscal 1995 from $1.2 million for fiscal 1994. The increase was due primarily to
increased personnel costs associated with the support of more customers and
sites. Cost of customer support, maintenance and other services as a percentage
of total revenues increased to 14.5% from 8.4%. Cost of support, maintenance and
other services as a percentage of customer support, maintenance and other
services revenues declined to 127.5% from 131.4%, as growth in support and
maintenance revenues grew at a faster rate than expenses.

                                      -22-
<PAGE>
 
  Product Development Expenses.   Product development expenses increased 66.6%
to $1.6 million for fiscal 1995, compared to $984,000 million for fiscal 1994.
The increase was associated with increased development costs associated with new
product development and new credit card network interfaces. Product development
expenses as a percentage of total revenues increased to 10.3% from 6.8% due to
the development efforts discussed above. In fiscal 1995, software development
costs of $329,000 were capitalized by the Company, as compared to $133,000 for
fiscal 1994. The Company capitalized 16.7% of its product development costs in
fiscal 1995, as compared to 11.9% in fiscal 1994.

  Sales and Marketing Expenses.   Sales and marketing expenses increased 29.0%
to $607,000 during fiscal 1995, compared to $470,000 for fiscal 1994. The
increase was associated with increased salaries and commissions. Sales and
marketing expenses as a percentage of total revenues increased to 3.8% from 3.3%
in fiscal 1995 primarily because of commission plans introduced during the
period.

  Depreciation and Amortization.   Depreciation and amortization expense
increased 228.2% to $583,000 for fiscal 1995, compared to $178,000 for fiscal
1994. The increase resulted from an increase in computer equipment and other
assets required to support a greater number of employees. Depreciation and
amortization as a percentage of total revenues increased to 3.7% from 1.3%
during the period due to the increased expense. Additionally, amortization of
capitalized software development costs increased 350.0% to $99,000 for fiscal
1995, compared to $22,000 for fiscal 1994 as a result of higher capitalized
software development costs.

  General and Administrative Expenses.   General and administrative expenses
increased 33.3% to $3.0 million for fiscal 1995, compared to $2.2 million for
fiscal 1994, due to the Company's investment in infrastructure. General and
administrative expenses as a percentage of total revenues increased to 18.8%
from 15.5%.

  Interest Expense.   Interest expense increased 103.6% to $166,000 for fiscal
1995, compared to $82,000 for fiscal 1994.

  Other Income.   Other income increased to $406,000 for fiscal 1995, compared
to none for fiscal 1994. Other income in 1995 primarily represented gain on the
sale of Company assets of $374,000 and equity in earnings of PrysmTech of
$32,000.

  Pro Forma Income Tax Provision (Benefit).   The pro forma effective tax rate
for fiscal 1995 was a benefit of 38.1%, compared to a benefit of 34.5% for
fiscal 1994. The increase in the benefit relates to a decrease in the relative
significance of permanent tax differences to pretax loss.

  Pro Forma Net Income (Loss).   Pro forma net loss increased 898.9% to $1.2
million for fiscal 1995, compared to $115,000 for fiscal 1994. The increase in
the loss was the result of increased research and development costs and
continued investments in infrastructure.

                                      -23-
<PAGE>
 
QUARTERLY INFORMATION

  The following tables set forth certain unaudited financial data for each of
the Company's last eight calendar quarters and such data expressed as a
percentage of the Company's total revenues for the respective quarters. The
information has been derived from unaudited combined financial statements that,
in the opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such quarterly
information. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
 
                                                                        QUARTER ENDED
                                  ---------------------------------------------------------------------------------------
                                    MAR. 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUNE 30,  SEPT. 30,  DEC. 31,
                                      1995       1995        1995       1995       1996       1996      1996       1996
                                    ---------  ---------  ----------  ---------  ---------  --------  ---------  ---------
<S>                                 <C>        <C>        <C>         <C>        <C>        <C>       <C>        <C> 
Revenues:
 Systems sales....................    $4,521     $2,377      $2,549     $4,631    $ 3,849    $ 9,752    $ 9,741   $12,546
 Customer support,
  maintenance and other
  services........................       461        461         444        438        698      1,097      1,448     1,812
                                      ------     ------      ------     ------    -------    -------    -------   -------
   Total revenues.................     4,982      2,838       2,993      5,069      4,547     10,849     11,189    14,358
 
Cost of revenues:
 Systems sales....................     3,436      1,549       1,784      3,093      2,768      6,331      5,592     7,579
 Customer support,
  maintenance and other
  services........................       555        538         568        640      1,003      1,215      1,600     1,646
                                      ------     ------      ------     ------    -------    -------    -------   -------
   Total cost of revenues.........     3,991      2,087       2,352      3,733      3,771      7,546      7,192     9,225
                                      ------     ------      ------     ------    -------    -------    -------   -------
 
Gross profit......................       991        751         641      1,336        776      3,303      3,997     5,133
 
Operating expenses:
 Product development..............       347        409         417        467        701        768        900       959
 Purchased research and
  development costs...............        --         --          --         --         --         30         --     3,900
 Sales and marketing..............       149        179         109        170        285        292        311       599
 Depreciation and
  amortization....................       128        126         133        196        194        224        265       265
 General and administrative.......       706        719         738        827      1,010      1,407      1,394     1,854
                                      ------     ------      ------     ------    -------    -------    -------   -------
 
Income (loss) from operations.....      (339)      (682)       (756)      (324)    (1,414)       582      1,127    (2,444)
 
Interest expense, net.............        31         27          25         84         39         40        229       404
Other (income)....................        --       (374)         --        (33)        --         --         --        --
Minority interest in earnings of
 PrysmTech........................        --         --          --         --         55        215        206       152
                                      ------     ------      ------     ------    -------    -------    -------   -------
Income (loss) before pro forma
 income taxes.....................      (370)      (335)       (781)      (375)    (1,508)       327        692    (3,000)
 
Pro forma income tax provision
 (benefit)........................      (141)      (128)       (297)      (143)      (576)       125        264    (1,146)
                                      ------     ------      ------     ------    -------    -------    -------   -------
 
Pro forma net income (loss).......    $ (229)    $ (207)     $ (484)    $ (232)   $  (932)   $   202    $   428   $(1,854)
                                      ======     ======      ======     ======    =======    =======    =======   =======
</TABLE>

                                      -24-
<PAGE>
 
<TABLE>
<CAPTION>
                                                                       QUARTER ENDED
                                  ----------------------------------------------------------------------------------------
                                  MAR. 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUNE 30,   SEPT. 30,   DEC. 31,
                                    1995       1995        1995       1995       1996       1996        1996       1996
                                  ---------  ---------  ----------  ---------  ---------  ---------  ----------  ---------
<S>                               <C>        <C>        <C>         <C>        <C>        <C>        <C>         <C>
Revenues:
 Systems sales..................      90.7%      83.8%       85.2%      91.4%      84.7%      89.9%       87.1%      87.4%
 Customer support, maintenance
  and other services............       9.3       16.2        14.8        8.6       15.3       10.1        12.9       12.6
                                     -----      -----     -------      -----    -------      -----       -----     ------
   Total revenues...............     100.0      100.0       100.0      100.0      100.0      100.0       100.0      100.0
 
Cost of revenues:
 Systems sales..................      69.0       54.6        59.6       61.0       60.9       58.4        50.0       52.8
 Customer support, maintenance
  and other services............      11.1       18.9        19.0       12.6       22.1       11.2        14.3       11.5
                                     -----      -----     -------      -----    -------      -----       -----     ------
   Total cost of revenues.......      80.1       73.5        78.6       73.6       83.0       69.6        64.3       64.3
 
Gross profit....................      19.9       26.5        21.4       26.4       17.0       30.4        35.7       35.7
 
Operating expenses:
 Product development............       7.0       14.5        13.9        9.2       15.4        7.1         8.0        6.7
 Purchased research and devel-
  opment costs..................        --         --          --         --         --        0.2          --       27.2
 Sales and marketing............       3.0        6.3         3.6        3.4        6.3        2.7         2.8        4.1
 Depreciation and amortization..       2.5        4.4         4.5        3.9        4.2        2.1         2.4        1.8
 General and administrative.....      14.2       25.3        24.7       16.3       22.2       12.9        12.4       12.9
                                     -----      -----     -------      -----    -------      -----       -----     ------
 
Income (loss) from operations...      (6.8)     (24.0)      (25.3)      (6.4)     (31.1)       5.4        10.1      (17.0)
 
Interest expense, net...........       0.6        1.0         0.8        1.7        0.9        0.4         2.1        2.8
Other (income)..................        --      (13.2)         --         --         --         --          --         --
Minority interest...............        --         --          --         --        1.2        2.0         1.8        1.1
 
Income (loss) before pro forma
 income taxes...................      (7.4)     (11.8)      (26.1)      (7.4)     (33.2)       3.0         6.2      (20.9)
 
Pro forma income tax provision
 (benefit)......................      (2.8)      (4.5)       (9.9)      (2.8)     (12.7)       1.1         2.4       (8.0)
                                     -----      -----     -------      -----    -------      -----       -----     ------
 
Pro forma net income (loss).....      (4.6)%     (7.3)%     (16.2)%     (4.6)%    (20.5)%      1.9%        3.8%     (12.9)%
                                     =====      =====     =======      =====    =======      =====       =====     ======
 
</TABLE>

                                      -25-
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

  In February 1997, the Company completed its initial public offering, in which
the Company received net proceeds of approximately $24.5 million.  The Company
applied the proceeds of the offering to (i) repay all of the Company's
outstanding indebtedness to Sirrom Capital Corporation ($4.5 million), (ii)
repay debt incurred in connection with its acquisition of PrysmTech ($3.1
million), (iii) repay outstanding shareholder notes ($1.1 million) and (iv) to
repurchase an aggregate of 793,073 shares of Common Stock from two shareholders
from whom the Company had a right of repurchase at a substantial discount to the
initial public offering price ($2.1 million).  The balance of the net proceeds
of the offering (approximately $13.7 million) will be utilized for general
corporate purposes, including research and development, sales and marketing,
possible strategic acquisitions and the increased working capital requirements
of the Company generated by its growth.

  The exercise of outstanding warrants to purchase 1,333,002 shares of Common
Stock in connection with the initial public offering in February 1997 provided
the Company with proceeds of approximately $960,000.

  Prior to the initial public offering, the Company has financed its operations
primarily through cash generated from operations and recently from financing
obtained during fiscal 1996.  As of March 1, 1997, the Company had $14.0 million
in cash and cash equivalents.

  The Company's operating activities provided cash in fiscal 1994 and 1995 of
$844,000 and $841,000, respectively, while during fiscal 1996 the Company's
operating activities used cash of $1.4 million. In fiscal 1993, cash flow from
operating activities arose principally from the Company's profitable operations,
partially offset by an increase in accounts receivable. Additionally, in fiscal
1994, cash from operating activities was significantly increased due to customer
deposits received in advance of product shipment. In fiscal 1995, the Company's
operating cash was the result of extended payment terms with vendors. During
fiscal 1996, the Company's uses of cash were the result of increased accounts
receivables due to increased sales somewhat offset by continued receipt of
customer deposits in advance of sales.

  Cash used in investing activities in fiscal 1994, 1995 and 1996 was $537,000,
$641,000 and $727,000, respectively. Such investing activities primarily
consisted of purchases of property and equipment and capitalized software
development costs.

  Cash used in financing activities was $249,000 and $402,000 in fiscal 1994 and
1995, respectively, while $4.3 million was provided by financing activities
during fiscal 1996. Financing activities during fiscal 1994 and 1995 consisted
of shareholder distributions and repayment of a shareholder note beginning in
fiscal 1995. Additionally, in fiscal 1994 and 1995 the Company's repayment of
borrowings under capital lease agreements increased as the Company purchased
equipment under capital lease agreements of $599,000 and $218,000, respectively,
in those years. Financing activities in fiscal 1996 consisted primarily of
borrowings of $4.5 million from Sirrom Capital Corporation and $3.2 million in
connection with the PrysmTech acquisition. These loan proceeds were offset
somewhat by payment of loan origination fees as well as continued repayments of
borrowings under capital lease agreements. See Note 6 of the combined financial
statements of the Company.

  Purchases of property and equipment were approximately $303,000, $312,000 and
$493,000 in fiscal 1994, 1995 and 1996, respectively. These expenditures were
primarily for purchases of computer equipment, furniture and fixtures. Total
product development expenditures were $1.1 million, $2.0 million and $4.0
million in fiscal 1994, 1995 and 1996, respectively. The cost of research and
development is expected to approximate $6.0 million in 1997, while the cost of
marketing new releases and existing products is expected to approximate $4.5
million in 1997. These expenditures are expected to be financed from operations
and from the proceeds of the Company's initial public offering.

                                      -26-
<PAGE>
 
  In order to finance its recent growth, the Company in fiscal 1996 borrowed
$4.5 million from Sirrom Capital Corporation (the "Sirrom Debt"). Funds were
disbursed to the Company in two installments; the first in June 1996 ($3.0
million) and the second in September 1996 ($1.5 million), which borrowings were
utilized to finance the Company's working capital requirements. The Sirrom Debt
is secured by substantially all the assets of the Company, bears interest at a
fixed rate of 14.0% and is payable in equal monthly installments of accrued
interest to maturity (due June 2001 with respect to the $3.0 million tranche and
due September 2001 with respect to the $1.5 million tranche). As of December 31,
1996, the Sirrom Debt had a balance of $4.5 million. The Sirrom Debt was repaid
from the proceeds of the Company's initial public offering in February 1997.

  In connection with the acquisition of PrysmTech in December 1996 the Company
issued promissory notes in the principal amount of $3.2 million. These notes are
due December 1998 and bear interest at a rate of 8.5%. Substantially all of the
PrysmTech Debt was repaid from the proceeds of the Company's initial public
offering in February 1997.

  The Company believes that the net proceeds from the initial public offering
and the exercise of the warrants referred to above will provide adequate
liquidity to meet the Company's planned capital, research and development and
operating requirements for at least the twelve month period following this
offering. Thereafter, if the Company's spending plans change, the Company may
find it necessary to seek to obtain additional sources of financing to support
its operations. There can be no assurance that such financing will be available
on commercially reasonable terms, if at all.

ACCOUNTING PRONOUNCEMENTS

  In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company's
adoption of SFAS No. 121 in the first quarter of 1996 did not have a significant
impact on the Company's combined financial statements.

  The American Institute of Certified Public Accountants has issued an exposure
draft to amend the provisions of Statement of Position ("SOP") 91-1, "Software
Revenue Recognition." The adoption of the standards in the current version of
the exposure draft is not expected to have a significant impact on the Company's
combined financial statements.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
------    ------------------------------------------- 

  The following financial statements are filed with this report:

  Report of Independent Public Accountants
  Combined Balance Sheets--December 31, 1995 and 1996 and pro forma
    shareholders' deficit at December 31, 1996
  Combined Statements of Operations for the years ended December 31, 1994, 1995,
    and 1996
  Combined Statements of Shareholders' Equity (Deficit) for the years ended
    December 31, 1994, 1995, and 1996
  Combined Statements of Cash Flows for the years ended December 31, 1994, 1995,
    and 1996
  Notes to Combined Financial Statements

                                      -27-
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Radiant Systems, Inc.:
     
  We have audited the accompanying combined balance sheets of RADIANT SYSTEMS,
INC. (a Georgia corporation) and LIBERTY SYSTEMS INTERNATIONAL, INC. (a
Georgia corporation) as of December 31, 1995 and 1996 and the related
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Radiant Systems, Inc. and
Liberty Systems International, Inc. as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.     
         
 
                                      /s/ ARTHUR ANDERSEN LLP
 
Atlanta, Georgia
    
January 15, 1997     
 
                                     -28-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
                            COMBINED BALANCE SHEETS
 
                           DECEMBER 31, 1995 AND 1996
 
<TABLE>
<CAPTION>
                                                                    PRO FORMA
                                                                  SHAREHOLDERS'
                                                                   DEFICIT AT
                                                                  DECEMBER 31,
                                            1995        1996          1996
                                         ----------  -----------  -------------
                                                                   (UNAUDITED)
<S>                                      <C>         <C>          <C>
                 ASSETS
CURRENT ASSETS:
  Cash and cash equivalents............. $  164,550  $ 2,342,079
  Accounts receivable, net of allowances
   for doubtful accounts of $41,500, and
   $120,000 in 1995 and 1996,
   respectively.........................    624,179    4,885,209
  Inventories...........................  1,802,716    3,304,933
  Other.................................    116,971      417,351
                                         ----------  -----------
    Total current assets................  2,708,416   10,949,572
PROPERTY AND EQUIPMENT, net of
 accumulated depreciation of $670,266
 and $1,438,681 in 1995 and 1996,
 respectively...........................  1,030,669    1,517,902
SOFTWARE DEVELOPMENT COSTS, net of
 accumulated amortization of $121,365,
 and $360,203 in 1995 and 1996,
 respectively...........................    340,630      736,418
INTANGIBLES.............................          0      957,405
OTHER ASSETS............................    155,224      454,579
                                         ----------  -----------
                                         $4,234,939  $14,615,876
                                         ==========  ===========
  LIABILITIES AND SHAREHOLDERS' EQUITY
               (DEFICIT)
CURRENT LIABILITIES:
  Accounts payable...................... $2,298,068  $ 4,400,654
  Accrued liabilities...................  1,264,465    1,975,909
  Customer deposits and deferred
   revenue..............................  2,399,596    3,052,518
  Current portion of shareholder loans..    157,361      126,536
  Current portion of long term debt.....    252,979      582,230
                                         ----------  -----------
    Total current liabilities...........  6,372,469   10,137,847
  Accrued customer rebates..............    457,317            0
  Shareholder loans, less current
   portion..............................    170,423    3,193,888
  Long term debt, less current portion..    389,044    5,271,368
                                         ----------  -----------
    Total liabilities...................  7,389,253   18,603,103
                                         ----------  -----------
COMMITMENTS
 
 
PUT WARRANTS............................          0      513,200
                                         ----------  -----------
SHAREHOLDERS' EQUITY (DEFICIT):
  Common stock, no par value; 20,000,000
   shares authorized; 6,857,112 shares
   issued and outstanding in 1995 and
   1996.................................         63           63            76
  Class A common stock, no par value;
   10,000,000 shares authorized;
   1,142,889 shares issued and
   outstanding in 1995 and 1,442,889
   shares issued and outstanding in
   1996.................................         10           13
  Additional paid-in capital............          0    2,099,997     4,204,997
  Warrants..............................    240,000    1,185,000        40,000
  Deferred sales discount...............   (111,900)    (132,105)            0
  Accumulated deficit................... (3,282,487)  (7,653,395)   (7,653,395)
                                         ----------  -----------  ------------
                                         (3,154,314)  (4,500,427) $ (3,408,322)
                                         ----------  -----------  ============
                                         $4,234,939  $14,615,876
                                         ==========  ===========
</TABLE>
 
 The accompanying notes are an integral part of these combined balance sheets.
 
                                     -29-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
                       COMBINED STATEMENTS OF OPERATIONS
 
              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
 
<TABLE>   
<CAPTION>
                                           FOR THE YEARS ENDED DECEMBER 31,
                                          -------------------------------------
                                             1994         1995         1996
                                          -----------  -----------  -----------
<S>                                       <C>          <C>          <C>
REVENUES:
 Systems sales..........................  $13,528,808  $14,077,704  $35,888,342
 Customer support, maintenance, and
  other services........................      918,801    1,804,291    5,054,979
                                          -----------  -----------  -----------
 Total revenues.........................   14,447,609   15,881,995   40,943,321
                                          -----------  -----------  -----------
COST OF REVENUES:
 Systems sales..........................    9,459,034    9,862,477   22,270,161
 Customer support, maintenance, and
  other services........................    1,207,684    2,300,239    5,464,533
                                          -----------  -----------  -----------
 Total cost of revenues.................   10,666,718   12,162,716   27,734,694
                                          -----------  -----------  -----------
GROSS PROFIT............................    3,780,891    3,719,279   13,208,627
                                          -----------  -----------  -----------
OPERATING EXPENSES:
 Product development....................      983,999    1,639,669    3,327,630
 Purchased research and development
  costs.................................            0            0    3,930,000
 Sales and marketing....................      470,177      606,658    1,487,087
 Depreciation and amortization..........      177,790      583,483      948,385
 General and administrative.............    2,243,097    2,990,039    5,664,246
                                          -----------  -----------  -----------
 Total operating expenses...............    3,875,063    5,819,849   15,357,348
                                          -----------  -----------  -----------
(LOSS) FROM OPERATIONS..................      (94,172)  (2,100,570)  (2,148,721)
INTEREST EXPENSE, net...................       81,748      166,478      711,848
MINORITY INTEREST IN EARNINGS OF
 PRYSMTECH..............................            0            0      628,137
OTHER (INCOME)..........................            0     (406,292)           0
                                          -----------  -----------  -----------
(LOSS) BEFORE PRO FORMA INCOME TAXES....     (175,920)  (1,860,756)  (3,488,706)
PRO FORMA INCOME TAX (BENEFIT)..........      (60,632)    (709,165)  (1,333,142)
                                          -----------  -----------  -----------
PRO FORMA NET (LOSS)....................  $  (115,288) $(1,151,591) $(2,155,564)
                                          ===========  ===========  ===========
PRO FORMA NET (LOSS) PER COMMON AND
 COMMON EQUIVALENT SHARE................                            $     (0.19)
                                                                    ===========
WEIGHTED AVERAGE COMMON AND COMMON
 EQUIVALENT SHARES OUTSTANDING..........                             11,099,532
                                                                    ===========
</TABLE>    
 
   The accompanying notes are an integral part of these combined statements.
 
                                     -30-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
             COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
 
              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
 
<TABLE>
<CAPTION>
                                                CLASS A
                           COMMON STOCK       COMMON STOCK                        DEFERRED   ACCUMULATED
                         ------------------ ----------------                        SALES     EARNINGS
                           SHARES    AMOUNT  SHARES   AMOUNT   APIC     WARRANTS  DISCOUNT    (DEFICIT)      TOTAL
                         ----------  ------ --------- ------ --------- ---------- ---------  -----------  -----------
<S>                      <C>         <C>    <C>       <C>    <C>       <C>        <C>        <C>          <C>
BALANCE, December 31,
 1993................... 13,714,224   125           0    0           0          0         0      145,215      145,340
 Issuance of customer
  warrant...............          0     0           0    0           0    240,000  (240,000)           0            0
 Sales of software
  licenses under
  customer warrant......          0     0           0    0           0          0    37,500            0       37,500
 Treasury stock
  purchase.............. (3,428,556)  (31)    342,856    3           0          0         0     (573,057)    (573,085)
 Distributions to
  shareholders..........          0     0           0    0           0          0         0     (156,266)    (156,266)
 Loss before pro forma
  income taxes..........          0     0           0    0           0          0         0     (175,920)    (175,920)
                         ----------   ---   ---------  ---   --------- ---------- ---------  -----------  -----------
BALANCE, December 31,
 1994................... 10,285,668    94     342,856    3           0    240,000  (202,500)    (760,028)    (722,431)
 Sales of software
  licenses under
  customer warrants.....          0     0           0    0           0          0    90,600            0       90,600
 Treasury stock
  purchase.............. (3,428,556)  (31)    800,033    7           0          0         0     (616,000)    (616,024)
 Distributions to
  shareholders..........          0     0           0    0           0          0         0      (45,703)     (45,703)
 Loss before pro forma
  income taxes..........          0     0           0    0           0          0         0   (1,860,756)  (1,860,756)
                         ----------   ---   ---------  ---   --------- ---------- ---------  -----------  -----------
BALANCE, December 31,
 1995...................  6,857,112    63   1,142,889   10           0    240,000  (111,900)  (3,282,487)  (3,154,314)
 Issuance of customer
  warrant...............          0     0           0    0           0     79,000   (79,000)           0            0
 Sales of software
  licenses under
  customer warrants.....          0     0           0    0           0          0    58,795            0       58,795
 Shares issued in
  PrysmTech
  acquisition...........          0     0     300,000    3   2,099,997          0         0            0    2,100,000
 Issuance of warrant for
  loan origination
  fees..................          0     0           0    0           0     40,000         0            0       40,000
 Accretion of put
  warrants..............          0     0           0    0           0                    0      (45,200)     (45,200)
 Accretion of customer
  warrant...............          0     0           0    0           0    826,000         0     (826,000)           0
 Distributions to
  shareholders..........          0     0           0    0           0          0         0      (11,002)     (11,002)
 Loss before pro forma
  income taxes..........          0     0           0    0           0          0         0   (3,488,706)  (3,488,706)
                         ----------   ---   ---------  ---   --------- ---------- ---------  -----------  -----------
BALANCE, December 31,
 1996 ..................  6,857,112   $63   1,442,889  $13   2,099,997 $1,185,000 $(132,105) $(7,653,395) $(4,500,427)
                         ==========   ===   =========  ===   ========= ========== =========  ===========  ===========
</TABLE>
 
   The accompanying notes are an integral part of these combined statements.
 
                                     -31-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
                       COMBINED STATEMENTS OF CASH FLOWS
 
             FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
 
<TABLE>
<CAPTION>
                                              FOR THE YEARS ENDED
                                                 DECEMBER 31,
                                      -------------------------------------
                                         1994         1995         1996
                                      -----------  -----------  -----------
<S>                                   <C>          <C>          <C>          <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
 Pro forma net (loss)...............  $  (115,288) $(1,151,591) $(2,155,564)
 Adjustments to reconcile pro forma
  net (loss) to net cash provided by
  (used in) operating activities:
  Pro forma income tax (benefit)....      (60,632)    (709,165)  (1,333,142)
  Depreciation and amortization.....      177,790      583,483      948,385
  Amortization of debt discount.....            0            0      305,731
  Gain on disposition of assets.....            0     (374,018)           0
  Discounts earned on software
   license sales....................       37,500       90,600       58,795
  Purchased research and development
   costs............................            0            0    3,930,000
  Minority interest in earnings of
   PrysmTech........................            0            0     (628,137)
  Changes in assets and liabilities:
   Accounts receivable..............      294,010      255,303   (3,229,660)
   Inventories......................   (1,443,175)     287,754     (774,048)
   Other assets.....................      (37,618)    (132,587)    (502,992)
   Accounts payable.................      539,560    1,177,653      562,634
   Accrued liabilities..............      116,744    1,147,721      711,444
   Accrued customer rebates.........      132,804      324,513       57,834
   Customer deposits and deferred
    revenue.........................    1,201,922     (659,111)     673,790
                                      -----------  -----------  -----------
   Net cash provided by (used in)
    operating activities............      843,617      840,555   (1,374,930)
                                      -----------  -----------  -----------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
 Purchases of property and
  equipment.........................     (303,499)    (312,104)    (492,650)
 Capitalized software development
  costs.............................     (133,095)    (328,900)    (634,642)
 Purchase of treasury stock.........     (100,000)           0            0
 Net cash acquired upon purchase of
  PrysmTech.........................            0            0      369,950
 Purchase of LSI, net of $30,919
  cash acquired.....................            0            0       30,819
                                      -----------  -----------  -----------
   Net cash used in investing
    activities......................     (536,594)    (641,004)    (726,523)
                                      -----------  -----------  -----------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
 Repayments of shareholder loans....            0     (145,302)    (157,361)
 Borrowings of long-term debt.......            0            0    4,594,203
 Repayments of long-term debt.......      (92,928)    (169,878)    (328,072)
 Dividends received from PrysmTech..            0            0      255,355
 Payment of loan origination fees...            0            0     (129,639)
 Distributions to shareholders......     (156,266)     (45,703)     (11,002)
 Repayments of note from
  shareholder.......................            0       13,628       30,500
 Other..............................            0      (55,000)      25,000
                                      -----------  -----------  -----------
   Net cash (used in) provided by
    financing activities............     (249,194)    (402,255)   4,278,982
                                      -----------  -----------  -----------
INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS........................       57,829     (202,704)   2,177,529
CASH AND CASH EQUIVALENTS, beginning
 of period..........................      309,425      367,254      164,550
                                      -----------  -----------  -----------
CASH AND CASH EQUIVALENTS, end of
 period.............................  $   367,254  $   164,550  $ 2,342,079
                                      ===========  ===========  ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
 Cash paid during the period for
  interest..........................  $    81,748  $   166,478  $   432,042
                                      ===========  ===========  ===========
NONCASH INVESTING AND FINANCING
 ACTIVITIES:
 Equipment purchases under capital
  lease obligations.................  $   598,538  $   217,568  $   306,945
                                      ===========  ===========  ===========
 Note issued for treasury stock
  purchase..........................  $   473,085  $         0  $         0
                                      ===========  ===========  ===========
 Treasury stock acquired on sale of
  noncash assets....................  $         0  $   616,024  $         0
                                      ===========  ===========  ===========
 Warrants issued to customer........  $   240,000  $         0  $    79,000
                                      ===========  ===========  ===========
 Note payable issued for customer
  rebates...........................  $         0  $         0  $   872,501
                                      ===========  ===========  ===========
 Put warrants issued in connection
  with Sirrom Notes.................  $         0  $         0  $   468,000
                                      ===========  ===========  ===========
 Warrant issued for loan origination
  fees..............................  $         0  $         0  $    40,000
                                      ===========  ===========  ===========
 Accretion of Put Warrants..........  $         0  $         0  $    45,200
                                      ===========  ===========  ===========
 Assumption of net liabilities in
  connection with LSI purchase......  $         0  $         0  $    78,349
                                      ===========  ===========  ===========
 Notes payable issued on purchase of
  PrysmTech.........................  $         0  $         0  $ 3,150,000
                                      ===========  ===========  ===========
 Stock issued on purchase of
  PrysmTech.........................  $         0  $         0  $ 2,100,000
                                      ===========  ===========  ===========
</TABLE>
 
 
   The accompanying notes are an integral part of these combined statements.
 
                                     -32-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
 
                          DECEMBER 31, 1995 AND 1996
 
1. ORGANIZATION AND BACKGROUND
 
  Radiant Systems, Inc. (the "Company") provides enterprise-wide technology
solutions to selected vertical markets within the retail industry. The Company
offers fully integrated retail automation solutions, including point of sale
systems, consumer-activated order systems, back office management systems and
headquarters-based management systems. The Company's products enable retailers
to interact electronically with consumers, capture data at the point of sale,
manage site operations and logistics and communicate electronically with their
sites, vendors and credit networks. In addition, the Company offers system
planning, design and implementation services that tailor the automation
solution to each retailer's specifications.
 
  The Company originally was organized under the laws of the state of New York
on August 1, 1985 and subsequently reincorporated under the laws of the state
of Georgia on October 27, 1995. The name of the company was changed to Radiant
Systems, Inc. from Softsense Computer Products, Inc. on November 13, 1996. In
connection with the reincorporation of the Company in October 1995, each
outstanding share of Common Stock and Class A Common Stock of the Company was
exchanged for 109,714 shares of Common Stock and Class A Common Stock, as
applicable. The shares outstanding and all other references to shares of
Common Stock and Class A Common Stock reported have been restated to give
effect to the reincorporation.
 
  In the first quarter of 1997, the Company is planning an initial public
offering (the "Offering") of its Common Stock. In connection with the planned
Offering, the Company will convert from an S corporation to a C corporation
and one of the Company's principal shareholders will contribute his 21%
ownership in Liberty Systems International, Inc. ("LSI") to the Company,
whereby LSI will become a wholly owned subsidiary of the Company.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principles of Combination
 
  The accompanying combined financial statements include the accounts of
Radiant Systems, Inc. and, since May 1996, its 79%-owned subsidiary, LSI. The
remaining 21% ownership of LSI has been combined with the Company's financial
statements since it will be contributed to the Company in connection with the
planned Offering. All significant intercompany accounts have been eliminated.
 
 Presentation
 
  The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Revenue Recognition
 
  The Company's revenue is generated primarily through software and system
sales, support and maintenance, and installation and training:
 
  . Software and System Sales. The Company sells its products, which include
     both hardware and software licenses, directly to end users. Revenue from
     software licenses and system sales is generally recognized as products
     are shipped, provided that no significant vendor and post-contract
     support obligations remain, and the collection of the related receivable
     is probable.
 
                                     -33-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
 
  .  Support and Maintenance. The Company offers to its customers post-
     contract support in the form of maintenance, telephone support, and
     unspecified software enhancements. Revenue from support and maintenance
     is generally recognized as the service is performed.
 
  .  Installation and Training. The Company offers installation and training
     services to its customers through its Radiant Solutions Group. Revenues
     from installation and training is generally recognized at the time the
     service is performed.
 
  Payments received in advance are recorded as customer deposits and deferred
revenue in the accompanying balance sheets and are recognized as revenue when
the related product is shipped or related revenue is earned.
 
 Inventories
 
  Inventories consist principally of computer hardware and software media and
are stated at the lower of cost (first-in, first-out method) or market.
 
 Property and Equipment
 
  Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method over estimated useful lives of three to five years.
 
  Property and equipment at December 31, 1995 and 1996 are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                           1995        1996
                                                        ----------  -----------
   <S>                                                  <C>         <C>
   Computers and office equipment...................... $1,201,747  $ 2,295,579
   Furniture and fixtures..............................    383,869      488,961
   Purchased software..................................    115,319      172,043
                                                        ----------  -----------
                                                         1,700,935    2,956,583
   Less accumulated depreciation and amortization......   (670,266)  (1,438,681)
                                                        ----------  -----------
                                                        $1,030,669  $ 1,517,902
                                                        ==========  ===========
</TABLE>
 
 Software Development Costs
 
  Capitalized software development costs consist principally of salaries and
certain other expenses directly related to development and modification of
software products. Capitalization of such costs begins when a working model
has been produced as evidenced by the completion of design, planning, coding
and testing such that the product meets its design specifications and has
thereby established technological feasibility. Capitalization of such costs
ends when the resulting product is available for general release to the
public. Amortization of capitalized software development costs is provided at
the greater of the ratio of current product revenue to the total of current
and anticipated product revenue or on a straight-line basis over the estimated
economic life of the software, which the Company has determined is not more
than three years.
 
                                     -34-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
 
 Purchased Research and Development Costs
 
  In connection with the acquisition of LSI in May 1996 and PrysmTech, L.L.C.
("PrysmTech") in December 1996 (Note 4), the Company allocated $30,000 and
$3,900,000, respectively, of the purchase prices to incomplete research and
development projects as determined by independent appraisal. Accordingly,
these costs were expensed as of the acquisition dates. These allocations
represent the estimated fair value based on risk adjusted cash flows (assuming
a 40% discount rate) related to incomplete projects. The development of these
projects had not yet reached technological feasibility, and the technology has
no alternative future use. The technology acquired in these acquisitions will
require substantial additional development by the Company.
 
 Income Taxes
 
  The Company has elected to be treated as an S corporation for federal and
state income tax purposes. As a result, the income tax effects of the Company
accrue directly to its shareholders. Amounts are distributed to shareholders
for making applicable tax payments.
 
  The accompanying combined financial statements reflect a provision for
income taxes on a pro forma basis as if the Company were liable for federal
and state income taxes as a taxable corporate entity throughout the years
presented. The pro forma income tax provision has been computed by applying
the Company's anticipated statutory tax rate to pretax income (loss), adjusted
for permanent tax differences.
 
 Pro Forma Net Income (Loss) Per Share
 
  Pro forma net income (loss) per share is computed using the weighted average
number of shares of Common Stock and dilutive Common Stock equivalent shares
("CSEs") from stock options and warrants (using the treasury stock method).
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
Common Stock and CSEs issued at prices below the expected public offering
price during the 12-month period prior to the Company's planned Offering have
been included in the calculation as if they were outstanding for all periods
prior to the Offering presented, regardless of whether they are dilutive. Net
income is not reduced by the $45,200 provision for accretion of Put Warrants
redemption values because the calculation assumes the related Common Stock was
outstanding in lieu of the Put Warrants (Notes 5 and 7).
 
  Historical net income per share has not been presented in view of the S
corporation status in prior periods and the anticipated change in capital
structure upon closing of the planned Offering.
 
 Fair Value of Financial Instruments
 
  The book values of cash, trade accounts receivable, trade accounts payable,
and other financial instruments approximate their fair values principally
because of the short-term maturities of these instruments. The fair value of
the Company's long-term debt is estimated based on the current rates offered
to the Company for debt of similar terms and maturities. Under this method,
the Company's fair value of long-term debt was not significantly different
than the stated value at December 31, 1996.
 
 Statement of Cash Flows
 
  The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash.
 
                                     -35-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
 
 Significant Customer Concentration
 
  A majority of the Company's customers operate within the convenience store
market, and a significant portion of the Company's revenues are derived from a
limited number of customers. During the years ended December 31, 1994, 1995,
and 1996, the following clients individually accounted for more than 10% of
the Company's revenue:
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                               ----------------
                                                               1994  1995  1996
                                                               ----  ----  ----
     <S>                                                       <C>   <C>   <C>
     Customer A............................................... 52.1% 15.8%  *  %
     Customer B............................................... 23.8  43.6  13.2
     Customer C...............................................  *     *    21.5
     Customer D...............................................  *     *    11.7
     Customer E...............................................  *     *    13.8
</TABLE>
--------
 
  * Accounted for less than 10% of total revenues for the period indicated.
 
  At December 31, 1996, 57.2% of the Company's accounts receivable related to
these 5 customers.
 
 New Accounting Pronouncements
 
  In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company's adoption of SFAS No. 121 in the first quarter of 1996 did not
have a significant impact on the Company's combined financial statements.
 
  The American Institute of Certified Public Accountants has issued an
exposure draft to amend the provisions of Statement of Position ("SOP") 91-1,
"Software Revenue Recognition." The adoption of the standards in the current
version of the exposure draft is not expected to have a significant impact on
the Company's combined financial statements.
 
 Reclassifications
 
  Certain reclassifications have been made to prior year financial statements
to conform the current year presentation.
 
3. PRODUCT DEVELOPMENT EXPENDITURES
 
  Product development expenditures for the years ended December 31, 1995 and
1996 are summarized as follows:
 
<TABLE>
<CAPTION>
                                                             1995       1996
                                                          ---------- ----------
   <S>                                                    <C>        <C>
   Total development expenditures........................ $1,968,569 $3,962,272
    Less additions to capitalized software development
       costs prior to amortization.......................    328,900    634,642
                                                          ---------- ----------
   Product development expense........................... $1,639,669 $3,327,630
                                                          ========== ==========
</TABLE>
 
                                     -36-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
 
  The activity in the capitalized software development account during 1995 and
1996 is summarized as follows:
 
<TABLE>
<CAPTION>
                                                               1995      1996
                                                             --------  --------
   <S>                                                       <C>       <C>
   Balance at beginning of period, net...................... $110,912  $340,630
    Additions...............................................  328,900   634,642
    Amortization expense....................................  (99,182) (238,854)
                                                             --------  --------
   Balance at end of period, net............................ $340,630  $736,418
                                                             ========  ========
</TABLE>
 
4. ACQUISITIONS
 
 PrysmTech
 
  In November 1995, the Company and Billmart, L.L.C. ("Billmart") formed
PrysmTech to pursue the development and sale of integrated site solutions to
the entertainment market. The Company contributed an exclusive license to
market its software to the entertainment market while Billmart contributed net
assets of $143,253 and an exclusive license to modify and market the Billmart
software. Each party received a 50% interest for its contribution.
 
  On December 31, 1996, the Company acquired Billmart's interest in PrysmTech
for 300,000 shares of Common Stock and $3,150,000 in notes. Total
consideration, including transaction costs of approximately $100,000, was
$5,350,000. The transaction was accounted for as a purchase. Based on the
preliminary purchase price allocation, intangibles of $869,000 were recorded,
after adjusting for purchased research and development costs (Note 2), which
are being amortized over five years. The accompanying financial statements
include the operating results of PrysmTech since January 1, 1995 with
deductions for minority interest earnings. Results for 1995 include $32,274 of
earnings from the Company's investment in PrysmTech, which is included in
other income.
 
  The Company's unaudited pro forma results of operations are presented
assuming that the purchase had been consummated January 1, 1996 and are not
necessarily indicative of the results of operations which would have actually
been attained during the year ended December 31, 1996.
 
<TABLE>
      <S>                                                           <C>
      Pro forma revenue............................................ $40,943,321
                                                                    ===========
      Pro forma net income......................................... $   364,745
                                                                    ===========
      Pro forma earnings per share................................. $      0.03
                                                                    ===========
</TABLE>
 
  Pro forma adjustments were recorded to include (i) increased interest
expense to reflect interest expense on long-term debt that would have been
incurred to finance the purchase and (ii) increased amortization expense as a
result of the excess of the purchase price over the book value (iii)
elimination of minority interest in earnings (iv) elimination of the one-time,
non-recurring charge for purchased research and development costs of
$3,900,000 (v) income taxes for the tax effect of pro forma adjustments and a
pro forma tax provision for PrysmTech as if PrysmTech were liable for federal
and state income taxes using the Company's effective tax rate of 39%. Weighted
average shares were adjusted to give effect to the 300,000 shares issued and
the dilutive effect of CSEs outstanding before the 12-month period prior to
the planned Offering.
 
 LSI
 
  On May 17, 1996, the Company acquired LSI for $100 cash and assumed net
liabilities of $78,349. The transaction was accounted for as a purchase.
Intangibles of $48,349 were recorded, after adjusting for purchased research
and development costs (Note 2), which are being amortized over seven years.
The financial statements include the operating results of LSI from the date of
acquisition. Pro forma results of operations have not been presented because
the effect of this acquisition is not significant.
 
                                     -37-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
 
5. LONG-TERM DEBT
 
  Long-term debt, including obligations under capital leases, consists of the
following:
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                         --------------------
                                                           1995       1996
                                                         --------  ----------
   <S>                                                   <C>       <C>
   Notes payable to Sirrom Capital Corporation
    ("Sirrom") ("Sirrom Notes"), interest at 14%,
    $3,000,000 principal due June 2001, $1,500,000 due
    September 2001, secured by all of the assets of the
    Company and all shares of the Company's principal
    shareholders........................................ $      0  $4,266,000
   Note payable to Emro Marketing Corporation, interest
    at 6%, due in five annual installments of $174,500
    through 2001........................................        0     872,501
   Capital lease obligations, interest ranging from 5%
    to 31%, payable monthly through 2000, secured by
    equipment...........................................  642,023     715,097
                                                         --------  ----------
                                                          642,023   5,853,598
   Less current portion................................. (252,979)   (582,230)
                                                         --------  ----------
                                                         $389,044  $5,271,368
                                                         ========  ==========
</TABLE>
 
  At December 31, 1996, aggregate maturities of long-term debt, including
obligations under capital leases, are as follows:
 
<TABLE>
         <S>                                           <C>
         1997........................................  $  582,230
         1998........................................     410,559
         1999........................................     226,496
         2000........................................     193,813
         2001........................................   4,440,500
                                                       ----------
                                                       $5,853,598
                                                       ==========
</TABLE>
 
  The Sirrom Notes were issued in June 1996 and September 1996 for $3,000,000
and $1,500,000, respectively. As discussed in Note 7, warrants ("Put
Warrants") to purchase 174,642 shares at $.01 per share were issued with the
notes. The value of these warrants was determined to be $468,000 based on the
relative fair value of the warrants to the notes. A corresponding amount of
the proceeds that has been allocated to the warrants has been accounted for as
a debt discount and is being amortized over the expected life of the related
notes using the effective interest method. At December 31, 1996, the
unamortized debt discount amounted to $234,000.
 
  On May 27, 1994, the Company entered into an agreement with a customer
whereby the customer would receive a cash rebate upon purchasing a defined
number of software licenses. In the event the Company was unable to pay the
rebates when due, the agreement provided the customer the option of applying
the rebate to the purchase of additional licenses or requiring the Company to
deliver a promissory note for any remaining portion of the rebate. At December
31, 1995, the Company had recorded a customer rebate accrual of $457,317, as
it was probable that such purchase criteria would ultimately be met. During
1996, the customer met the purchase criteria, at which time the Company
delivered a promissory note in the amount of $872,501.
 
                                     -38-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
 
6. INCOME TAXES
 
  In connection with the planned Offering, the Company will convert from an S
corporation to a C corporation and, accordingly, will be subject to future
federal and state income taxes. Upon conversion to C corporation status, the
Company will record deferred taxes for which it will be responsible following
termination of S corporation status. The components of the pro forma net
deferred tax asset as of December 31, 1996 are as follows:
 
<TABLE>
   <S>                                                              <C>
   Deferred tax assets:
     Allowance for doubtful accounts..............................  $   46,200
     Intangibles..................................................   1,027,565
     Other........................................................       9,593
                                                                    ----------
       Total deferred tax assets..................................   1,083,358
                                                                    ----------
   Deferred tax liabilities:
     Depreciation.................................................  $  (78,376)
     Capitalized software.........................................    (283,521)
                                                                    ----------
       Total deferred tax liabilities.............................    (361,897)
                                                                    ----------
   Net pro forma deferred tax asset...............................  $  721,461
                                                                    ==========
</TABLE>
 
  The following summarizes the components of the pro forma income tax
(benefit):
 
 
<TABLE>
<CAPTION>
                                                   FOR THE YEARS ENDED
                                                       DECEMBER 31,
                                              --------------------------------
                                                1994      1995        1996
                                              --------  ---------  -----------
   <S>                                        <C>       <C>        <C>
   Current taxes:
     Federal................................. $      0  $       0  $         0
     State...................................        0          0            0
   Deferred..................................  (60,632)  (709,165)  (1,333,142)
                                              --------  ---------  -----------
   Pro forma income tax (benefit)............ $(60,632) $(709,166) $(1,333,142)
                                              ========  =========  ===========
</TABLE>
 
  A reconciliation from the federal statutory rate to the pro forma tax
provision (benefit) is as follows:
 
 
<TABLE>
<CAPTION>
                             1994    1995    1996
                             -----   -----   -----
   <S>                       <C>     <C>     <C>
   Statutory federal tax
   rate....................  (34.0)% (34.0)% (34.0)%
   State income taxes, net
   of federal tax benefit..   (4.5)   (4.5)   (4.5)
   Other...................    4.0     0.4     0.3
                             -----   -----   -----
                             (34.5)% (38.1)% (38.2)%
                             =====   =====   =====
</TABLE>
 
7. SHAREHOLDERS' EQUITY (DEFICIT)
 
 Common Stock
 
  As of January 15, 1997, the authorized capital of the Company consists of
40,000,000 shares of capital stock comprised of 30,000,000 shares of no par
Common Stock and 10,000,000 shares of no par Class A Common Stock. Both
classes of stock have a stated value of $.00001 per share. The Class A Common
Stock is nonvoting and is automatically convertible into Common Stock without
further action on the part of the Company or its shareholders, at a rate of
one share of Common Stock for one share of Class A
 
                                     -39-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
Common Stock on the earlier of (i) the closing time of an initial public
offering by the Company, as defined, or (ii) the closing time of a change in
control of the Company, as defined. Upon completion of the planned Offering,
the Class A Common Stock will cease to be authorized.
 
 Options
 
  In December 1995, the Company adopted the 1995 Stock Option Plan, as amended
(the "Plan"), under which the Company may grant up to 4,000,000 incentive
Class A Common Stock options to key employees. Options are granted at an
exercise price which is not less than fair value as estimated by the Board of
Directors and become exercisable as determined by the Board of Directors,
generally over a period of four to five years. Options granted under the Plan
expire ten years from the date of grant. At December 31, 1996, options to
purchase 928,250 of Class A Common Stock were available for future grant under
the Plan.
 
  The Company has granted 264,000 nonqualified stock options outside the Plan.
Of these options, 164,000 vest over four years. The remaining 100,000 options
vest at the end of eight years, subject to acceleration based on specified
terms within the agreement.
 
  Transactions related to stock options for the years ended December 31, 1995
and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                                       PRICE
                                                           SHARES    PER SHARE
                                                          ---------  ----------
   <S>                                                    <C>        <C>
   Options outstanding at December 31, 1994.............          0  $     0.00
    Granted.............................................  1,774,000        1.00
    Exercised...........................................          0        0.00
                                                          ---------
   Options outstanding at December 31, 1995.............  1,774,000        1.00
    Granted.............................................  1,625,750   1.00-7.00
    Canceled............................................    (64,000)  1.00-4.50
    Exercised...........................................          0        0.00
                                                          ---------  ----------
   Options outstanding at December 31, 1996.............  3,335,750  $1.00-7.00
                                                          =========  ==========
   Exercisable December 31, 1996........................
                                                            337,500
                                                          =========
</TABLE>
 
  During 1995, the Financial Accounting Standards Board issued SFAS No. 123
("Accounting for Stock-Based Compensation") which defines a fair value-based
method of accounting for an employee stock option plan or similar equity
instrument. However, it also allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." Entities electing to remain with the accounting in APB
No. 25 must make pro forma disclosures of net income and, if presented,
earnings per share, as if the fair value-based method of accounting defined in
the statement had been applied.
 
  The Company has elected to account for its stock-based compensation plan
under APB No. 25; however, the Company has computed for pro forma disclosure
purposes the value of all options granted during 1995 and 1996 using the Black
Scholes option pricing model as prescribed by SFAS No. 123 using the following
weighted average assumptions used for grants in 1995 and 1996:
 
<TABLE>
      <S>                                                                <C>
      Risk free interest rate...........................................    5.8%
      Expected dividend yield...........................................    0.0%
      Expected lives.................................................... 4 years
      Expected volatility...............................................   56.0%
</TABLE>
 
 
                                     -40-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
  The total value of the options granted during the years ended December 31,
1995 and 1996 were computed as approximately $867,000 and $3,527,000,
respectively, which would be amortized over the vesting period of the options.
If the Company had accounted for these plans in accordance with SFAS No. 123,
the Company's reported pro forma net loss and pro forma net loss per share for
the years ended December 31, 1995 and 1996 would have increased to the
following pro forma amounts:
 
<TABLE>
<CAPTION>
                                                      DECEMBER 31,  DECEMBER 31,
                                                          1995          1996
                                                      ------------  ------------
   <S>                                                <C>           <C>
   Net loss:
    As reported...................................... $(1,151,591)  $(2,155,564)
    Pro forma........................................  (1,202,028)   (2,984,410)
   Primary EPS:
    As reported......................................         --    $     (0.19)
    Pro forma........................................         --          (0.27)
</TABLE>
 
 Warrants
 
  Customer Warrants
 
  In May 1994, the Company and one of its major customers (the "Customer")
entered into an agreement (the "Agreement") whereby the Customer was granted
the right (the "Customer Warrant") to acquire 10% of the Company's outstanding
Class A Common Stock for $800,000, provided the Customer meets certain
purchase criteria. The Customer Warrant may be exercised at any time on or
after May 27, 1999 or at the earlier of (i) the closing time of an initial
public offering or (ii) the closing time of a change in control of the
Company. The Customer Warrant terminates on the earlier of (i) May 27, 1999 in
the event the specified purchase criteria are not met, (ii) the closing time
of an initial public offering by the Company, or (iii) 5:00 p.m. eastern time
on May 27, 2014, the twentieth anniversary of the Agreement. A deferred sales
discount of $240,000 was charged on the date of grant, which represented the
fair market value of the Customer Warrant on such date, and is being amortized
as a reduction of sales as the Customer makes purchases under the Agreement.
 
  In February 1996, the Company amended the Agreement such that the Customer
Warrant was increased to 12% of the Company's outstanding common shares. An
additional deferred sales discount of $79,000 was charged on the date of
grant, which represented the fair market value on the date of the increase of
the Customer Warrant. The Company has the option to repurchase one-sixth of
the shares issuable under the Customer Warrant at a price midway between the
Customer's exercise price and the fair market value of the shares. The Company
is accreting to the expected redemption value of the shares, subject to the
call option. For the year ended December 31, 1996, accretion of $826,000 was
recorded.
 
  Put Warrants
 
  In connection with issuance of the Sirrom Notes (Note 5), the Company issued
Put Warrants to purchase 1.5% of the Company's outstanding Common Stock at an
exercise price of $.01. In the event that the notes remain outstanding on
March 31, 1997, Sirrom receives an additional warrant to purchase .5% of the
Company's shares, and if the notes remain outstanding on July 1, 1997, Sirrom
receives an additional warrant to purchase 1.5% of the Company's Common Stock.
Beginning July 1, 1998, warrants to purchase additional shares of Common Stock
accrue at 2% per year until prepayment or maturity of the notes.
 
                                     -41-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
 
  Sirrom also has the option to require the Company to redeem the warrants
beginning in 2001 for fair value, as defined. The excess of the redemption
value over the carrying value is being accrued by periodic charges to retained
earnings in the absence of additional paid-in capital over the redemption
period. This accretion amounted to $45,200 for the year ended December 31,
1996.
 
 Loan Origination Warrant
 
  In 1996, the Company issued warrants to purchase 20,000 shares of Class A
Common Stock at an exercise price of $.01 for payment of loan origination fees
("Loan Origination Warrant"). The fair value of the warrant was determined to
be $40,000 and has been capitalized as loan origination fees.
 
  A summary of the warrants to purchase shares of Class A Common Stock which
remain outstanding (and for which shares of Common Stock and Class A Common
Stock are reserved for issuance) is as follows as of December 31, 1996:
 
<TABLE>
<CAPTION>
                                                              PRICE
                                                   SHARES   PER SHARE EXPIRATION
                                                  --------- --------- ----------
   <S>                                            <C>       <C>       <C>
   Customer warrants............................. 1,158,360   $.83       2014
   Put warrants..................................   174,642    .01       2001
   Loan origination warrant......................    20,000    .01       2001
</TABLE>
 
8. COMMITMENTS
 
 Leases
 
  The Company leases office space, equipment, and certain vehicles under
noncancelable operating lease agreements expiring on various dates through
2000. At December 31, 1996, future minimum rental payments for noncancelable
leases with terms in excess of one year were as follows:
 
<TABLE>
            <S>                                  <C>
            1997................................ $490,242
            1998................................  466,883
            1999................................  460,979
            2000................................  201,589
</TABLE>
 
  Total rent expense under operating leases was $227,267, $374,206, and
$503,530 for the years ended December 31, 1994, 1995, and 1996, respectively.
 
 Benefit Plan
 
  The Company has a 401(k) profit-sharing plan (the "Plan") available to all
employees of the company who have completed six months of service and have
attained age 21. The Plan includes a salary deferral arrangement pursuant to
which employees may contribute a minimum of 3% and a maximum of 15% of their
salary on a pretax basis. The Company may make both matching and additional
contributions at the discretion of the board of directors. The Company made no
such contributions during 1994, 1995, or 1996.
 
 Employment Agreements
 
  The Company has entered into employment agreements with two employees. Under
each agreement, in the event employment is terminated (other than voluntarily
by the employee or by the Company for cause or upon the death of the
employee), the Company is committed to pay certain benefits, including $16,666
per month from the date of termination to December 31, 2000.
 
9. RELATED-PARTY TRANSACTIONS
 
  In October 1994, the Company repurchased 3,085,700 shares of Common Stock
for a note in the amount of $473,086. The note is unsecured, bears interest at
8% per annum, and is payable in monthly installments of $14,825 through
December 31, 1997.
 
                                     -42-
<PAGE>

 
                             RADIANT SYSTEMS, INC.
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
                          DECEMBER 31, 1995 AND 1996
 
 
  In connection with the share repurchase, the Company entered into an
agreement with the shareholder whereby the Company would pay the shareholder
an initial payment of $150,000 and a monthly payment of $14,000 for five years
in return for certain consulting services, as defined. In October 1995, this
agreement was amended in order to reduce the quantity of services and related
monthly payment. Fees paid under the consulting agreement were $131,000 and
$27,500 in 1995 and 1996, respectively.
 
  In May 1995, the Company entered into an agreement with a shareholder to
transfer certain assets and technology to the shareholder in a tax-free
exchange in return for 2,628,523 shares of Common Stock. A gain of $374,018,
included in other income, was recorded in connection with the transaction
which represents the excess of the fair market value of the stock acquired
over the net assets distributed. As part of the transaction, the Company
recorded a note receivable in the amount of $61,171, which is payable in
monthly installments of $2,966 through May 1997.
 
  In June 1996, a shareholder sold 200,000 shares of Class A Common Stock for
$1.875 per share. The shareholder also issued to one of the Company's
principal shareholders an option to repurchase the remaining 600,033 shares of
Class A Common Stock for $1.875 per share through June 1997. The principal
shareholder intends to assign this option to the Company prior to the planned
Offering.
 
  In connection with the acquisition of Billmart's interest in PrsymTech, the
Company issued notes in the amount of $3,150,000 to the former owners of
Billmart (Note 4). These notes are secured by the assets of PrysmTech, bear
interest at 8.5% per annum, and are payable on the earlier of December 31,
1998 or the tenth day following the closing of a stock offering, as defined.
 
10. SUBSEQUENT EVENTS
 
 Initial Public Offering
 
  In the first quarter of 1997, the Company is planning an initial public
offering of its Common Stock. The Company plans to issue 2,500,000 shares at
an estimated initial public offering price of between $9.00 and $11.00 per
share. There can be, however, no assurance that the offering will be completed
at a per share price within the estimated range, or at all.
 
 Pro Forma Shareholders' Equity (Deficit)
 
  The pro forma shareholders' equity (deficit) at December 31, 1996, gives
effect to the conversion of 1,442,889 shares of Class A Common Stock and
1,158,360 shares issuable under Customer Warrants into Common Stock upon the
close of the Company's planned Offering.
 
 Preferred Stock
 
  In January 1997, the Company authorized 5,000,000 shares of preferred stock
with no par value. The Board of Directors has the authority to issue these
shares and to fix dividends, voting and conversion rights, redemption
provisions, liquidation preferences, and other rights and restrictions.
 
                                     -43-
<PAGE>
 
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------    ---------------------------------------------------------------
          FINANCIAL DISCLOSURE.
          -------------------- 

  There has been no occurrence requiring a response to this Item.

                                    PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
-------        -------------------------------------------------- 

  The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
 
 NAME                        AGE   POSITION WITH THE COMPANY
 ----                        ---   -------------------------
<S>                          <C>   <C>                          
 
  Erez Goren                   32  Co-Chairman of the Board and Chief Executive 
                                   Officer
  Alon Goren                   31  Co-Chairman of the Board and Chief Technology 
                                   Officer
  Eric B. Hinkle               36  President, Chief Operating Officer and Director
  John H. Heyman               35  Executive Vice President, Chief Financial
                                   Officer and Director
  Andrew S. Heyman             33  Vice President and Managing Director of
                                   Radiant Solutions Group
  Carlyle M. Taylor            43  Vice President--Integration and Support
  H. Martin Rice               44  Vice President and Managing Director of
                                   PrysmTech Division
  Christopher Lybeer           35  Vice President--Convenience Store Division
</TABLE>

DIRECTORS AND EXECUTIVE OFFICERS

  The following persons serve as the directors and executive officers of the
Company:

  MR. EREZ GOREN has served as Co-Chairman of the Board and Chief Executive
Officer of the Company since its inception in 1985 and as its President from
1985 to October 1996. Mr. Goren attended State University of New York at Stony
Brook prior to devoting his full time and energy to the Company. He is the
brother of Alon Goren.

  MR. ALON GOREN has served as Co-Chairman of the Board and Chief Technology
Officer of the Company since its inception in 1985. Mr. Goren has a B.S. in
Computer Systems Engineering from Rensselaer Polytechnic Institute. He is the
brother of Erez Goren.

  MR. HINKLE has served as President, Chief Operating Officer and a Director of
the Company since October 1996. Mr. Hinkle served in various capacities with the
Avionics Divisions of AlliedSignal Corporation from January 1994 to October
1996, including most recently as Vice President of Communications and Navigation
Products. From 1991 to January 1994, Mr. Hinkle served as a Senior Engagement
Manager for McKinsey & Co., a consulting firm. Mr. Hinkle has an M.B.A. from
Harvard Business School, a M.S. degree in Electrical Engineering from Stanford
University, and a B.S. degree in Computer Engineering from Brown University.

  MR. JOHN H. HEYMAN has served as Executive Vice President, Chief Financial
Officer of the Company since September 1995 and as a director of the Company
since June 1996. Mr. Heyman served as Vice President and Chief Financial Officer
of Phoenix Communications, Inc., a commercial printer, from March 1991 to August
1995. From 1989 to 1991, Mr. Heyman served as Vice President, 

                                      -44-
<PAGE>
 
Acquisitions of Forsch Corporation, a diversified manufacturing company. From
1983 to 1987, Mr. Heyman served in a variety of capacities with Arthur Andersen
LLP, where he worked primarily with middle market companies and technology
firms. Mr. Heyman has an M.B.A. from Harvard Business School and a B.B.A. degree
in Accounting from the University of Georgia. He is the brother of Andrew S.
Heyman.

  MR. ANDREW S. HEYMAN has served as Vice President and Managing Director of the
Radiant Solutions Group of the Company since January 1996. Mr. Heyman served as
a senior manager with Andersen Consulting from 1987 to December 1995. He holds a
M.S. degree in Computer Information Systems from Georgia State University and a
B.B.A. in Finance from the University of Georgia. He is the brother of John H.
Heyman.

  MR. TAYLOR has served as Vice President--Integration and Support of the
Company since September 1995. Mr. Taylor served in various capacities with NCR
Corporation (formerly AT&T Global Information Solutions) in the retail
information systems area from 1978 to September 1995, including most recently as
Assistant Vice President of the scanner business unit. Mr. Taylor received a
B.S. degree in Mathematics from North Carolina Wesleyan College.

  MR. RICE has served as Vice President of the Company and the Managing Director
of its PrysmTech Division since December 1996. From September 1994 until its
acquisition by the Company in December 1996, Mr. Rice served as President and
Chief Executive Officer of PrysmTech, LLC. From 1989 to September 1994, Mr. Rice
served as President of The R.L. Sterling Company, a consulting company. Prior to
1989, Mr. Rice served as Chief Financial Officer of Maryland Realty Trust, a
publicly traded REIT, and as a staff accountant for Price Waterhouse LLP.

  MR. LYBEER has served as Vice President--Convenience Store Division of the
Company since January 1996. From 1993 to 1995, Mr. Lybeer served as Assistant
Vice President--Software Solutions of NCR Corporation (formerly AT&T Global
Information Solutions), a telecommunications company. From 1991 to 1993, Mr.
Lybeer served as a Director of Product Development of NCR Corporation, in the
retail information systems area. Mr. Lybeer received a B.S.E. in Computer
Engineering from the University of Michigan.

  No  later than May 12, 1997, the Company intends to appoint at least two
independent directors who will be unaffiliated with the Company.

BOARD OF DIRECTORS

  The number of directors of the Company is currently fixed at four. The
Company's Board of Directors is divided into three classes, with members of each
class of directors serving for staggered three-year terms. The Board consists of
two Class I Directors (Mr. Erez Goren and Mr. Alon Goren), one Class II Director
(Mr. John H. Heyman) and one Class III Director (Mr. Hinkle), whose initial
terms shall expire at the 1997, 1998 and 1999 annual meetings of the
shareholders, respectively.

  The Company will establish two standing Committees of the Board of Directors:
the Compensation Committee and the Audit Committee. The Compensation Committee,
which will be composed of the two independent directors to be appointed prior to
May 12, 1997, will review and make recommendations to the Board of Directors
regarding salaries, compensation and benefits of executive officers and key
employees of the Company. In addition, the Compensation Committee will
administer the Company's 1995 Stock Option Plan. The Audit Committee will be
composed of the two independent directors to be appointed prior to May 12, 1997.
Among other duties, the Audit Committee will review the internal and external
financial reporting of the Company, review the scope of the independent audit
and consider comments by the auditors regarding internal controls and accounting
procedures and 

                                      -45-
<PAGE>
 
management's response to these comments. The Board of Directors does not have a
nominating committee.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

  Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than 10% of the
outstanding Common Stock of the Company, to file with the Securities and
Exchange Commission reports of changes in ownership of the Common Stock of the
Company held by such persons.  Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation.  The Company was not subject to such reporting
requirements during fiscal 1996.

  Although it is not the Company's obligation to make filings pursuant to
Section 16 of the Securities Exchange Act of 1934, the Company has adopted a
policy requiring all Section 16 reporting persons to report monthly to the
Controller of the Company as to whether any transactions in the Company's Common
Stock occurred during the previous month.

ITEM 11.   EXECUTIVE COMPENSATION.
-------    ---------------------- 

  The following table presents certain information concerning compensation
earned for services rendered in all capacities by the Company's Chief Executive
Officer and the two other executive officers of the Company whose total annual
salary and bonus exceeded $100,000 during fiscal 1996 (the "Named Executive
Officers").

                           SUMMARY COMPENSATION TABLE


                                                          LONG TERM
                                                         COMPENSATION
NAME AND                     ANNUAL COMPENSATION            AWARDS
                            ---------------------        ------------
PRINCIPAL POSITION          SALARY($)   BONUS($)   SECURITIES UNDERLYING OPTIONS
------------------          ----------  ---------  -----------------------------

Erez Goren...............    $ 80,769    $11,197                      --
   Co-Chairman and Chief
   Executive Officer
Carlyle M. Taylor........      80,000     28,000                      --
   Vice President
H. Martin Rice...........     100,000     98,504                 137,500
   Vice President


STOCK OPTION PLAN

  On December 20, 1995, the Company's directors and shareholders adopted the
1995 Stock Option Plan (the "Plan") for employees who are contributing
significantly to the business of the Company  or its subsidiaries as determined
by the Company's Board of Directors or the committee administering the Plan. The
Plan currently provides for the grant of incentive and non-qualified stock
options to purchase up to 4,000,000 shares of Common Stock at the discretion of
the Board of Directors of the Company or a committee designated by the Board of
Directors to administer the Plan. The option exercise price of incentive stock
options must be at least 100.0% (110.0% in the case of a holder of 10.0% or more
of the Common Stock) of the fair market value of the stock on the date the
option is granted and the options are exercisable by the holder thereof in full
at any time prior to their expiration in accordance with the terms of the Plan.
Incentive stock options granted pursuant to the Plan will expire on or before
(1) the date which is the tenth anniversary of the date the option is granted,
or (2) the date which is the fifth anniversary of the date the option is granted
in the event that the option is granted to a key employee who owns more than
10.0% of the total combined voting power of all classes of stock of the 

                                      -46-
<PAGE>
 
Company or any subsidiary of the Company. Options granted under the Plan
typically vest over a period of four to five years. As of January 15, 1997,
options to purchase 3,121,762 shares of Common Stock were outstanding pursuant
to the Plan. In addition, non-qualified options to purchase 264,000 shares of
Common Stock have been granted by the Company outside of the Plan as of January
15, 1997.

  The following table provides certain information concerning individual grants
of stock options made during fiscal 1996 to each of the Named Executive
Officers.

                       OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                                                         POTENTIAL REALIZABLE
                     NUMBER OF     % OF TOTAL                              VALUE AT ASSUMED
                     SECURITIES      OPTIONS      EXERCISE                   ANNUAL RATES
                     UNDERLYING    GRANTED TO        OR                      STOCK PRICE
                      OPTIONS       EMPLOYEES       BASE    EXPIRATION     APPRECIATION FOR
NAME                  GRANTED    IN FISCAL YEAR    PRICE       DATE        OPTION TERM (2)
----                 ----------  ---------------  --------  ----------  ----------------------
<S>                  <C>         <C>              <C>       <C>         <C>        <C>
                                                                               5%          10%
                                                                        --------   ----------
Erez Goren.........          --              --         --          --        --           --
Carlyle M. Taylor..          --              --         --          --        --           --
H. Martin Rice(1)..     137,500             8.5%     $7.00        2006  $605,311   $1,533,977
</TABLE>

--------------
(1) Of the total, 57,140 are incentive stock options and 80,360 are non-
    qualified stock options. Subject to acceleration upon the occurrence of
    certain events, the incentive stock options vest in increments of 14,285 on
    each of the first, second, third and fourth anniversaries of the date of
    grant, December 31, 1996. The non-qualified stock options vest on December
    31, 2004, subject to acceleration upon the attainment of certain performance
    targets. See "--Employment Agreement."
(2) The dollar amounts under these columns represent the potential realizable
    value of each grant of option assuming that the market price of the
    Company's Common Stock appreciates in value from the date of grant at the
    5.0% and 10.0% annual rates prescribed by the SEC and therefore are not
    intended to forecast possible future appreciation, if any, of the price of
    the Company's Common Stock.

    The following table provides certain information concerning the value of
unexercised options held by the Named Executive Officers under the Company's
1995 Stock Option Plan as of December 31, 1996. No stock options were exercised
during fiscal 1996 by the Named Executive Officers.
<TABLE>
<CAPTION>
 
                                                      VALUE OF UNEXERCISED IN-
                       NUMBER OF UNEXERCISED            THE-MONEY OPTIONS AT
   NAME              OPTIONS AT FISCAL YEAR END          FISCAL YEAR END (1)
  ------             --------------------------  --------------------------------------
                     EXERCISABLE  UNEXERCISABLE  EXERCISABLE        UNEXERCISABLE
                     -----------  -------------  -----------  -------------------------
<S>                  <C>          <C>            <C>          <C>
Erez Goren.........           --             --           --                        --
Carlyle M. Taylor..           --        200,000           --                $1,700,000
H. Martin Rice.....           --        137,500           --                $  343,750
</TABLE> 

-------------
(1) Dollar values were calculated by determining the difference between the
    public offering price of $9.50 per share and the exercise price of the
    options.

                                      -47-
<PAGE>
 
EMPLOYMENT AGREEMENT

  On December 31, 1996, in connection with the acquisition of PrysmTech, the
Company entered into an Employment Agreement with H. Martin Rice to serve as
Managing Director of the PrysmTech Division of the Company (the "Agreement").
The term of the Agreement is four years subject to a one-year automatic
extension under certain circumstances. Under the Agreement, Mr. Rice will be
entitled to a base salary of $100,000 per year or a higher amount equal to that
of the Company's highest paid executive officer plus a bonus based upon the
PrysmTech division's net income (as defined in the Agreement), provided that the
base compensation and bonus payable to Mr. Rice under the Agreement is limited
to the greater of $200,000 and the maximum non-contingent and potential
contingent compensation available to any other executive officer of the Company.
The Agreement also provides (i) that Mr. Rice will receive a loan from the
Company in the amount of $165,000 on the closing date of this offering, which
loan will be payable, together with interest at the rate of 7.0% per annum, on
December 31, 2001 or earlier out of the proceeds of the sale of shares of the
Company's Common Stock received by Mr. Rice in the PrysmTech acquisition and
(ii) certain insurance, automobile allowance and other benefits. Under the
Agreement, Mr. Rice has been granted options to purchase 137,500 shares of the
Company's Common Stock (the "Stock Options"). See "--Stock Option Plan."

  Upon termination of the Agreement (other than voluntarily by Mr. Rice, or by
the Company for cause or upon the death of Mr. Rice), Mr. Rice will be entitled
to a termination payment equal to $16,666 for each partial and full calendar
month then remaining in the term of the Agreement, less any amount payable to
Mr. Rice under any long-term disability insurance maintained by the Company.

  The Agreement provides that if Mr. Rice's employment is terminated during the
term of the Agreement (other than voluntarily by Mr. Rice, or by the Company for
cause or upon the death of Mr. Rice) the Stock Options shall fully vest on the
date of such termination. Also upon such termination Mr. Rice may require the
Company to pay an income tax related bonus and to lend him the amount payable
upon the exercise of his remaining Stock Options.

  The Agreement also contains provisions restricting Mr. Rice's ability to
compete with the Company and solicit its customers and employees and obligating
him to protect the confidentiality of the Company's information following
termination of his employment.

AGREEMENTS WITH EMPLOYEES

  All employees of the Company, including executive officers, are required to
sign a confidentiality and noncompete agreement with the Company restricting the
ability of the employee to compete with the Company during his or her employment
and for a period ranging from six months to two years thereafter, restricting
solicitation of customers and employees following employment with the Company,
and providing for ownership and assignment of intellectual property rights to
the Company. The agreements have an indefinite term, but the employee may
terminate employment with the Company at any time.

401(K) PROFIT SHARING PLAN

  The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan") which
is intended to be a tax-qualified defined contribution plan under Section 401(k)
of the Internal Revenue Code of 1986, as amended (the "Code"). In general, all
employees of the Company who have completed six months of service and have
attained age 21 are eligible to participate. The 401(k) Plan includes a salary
deferral arrangement pursuant to which participants may contribute, subject to
certain Code limitations, a minimum of 3.0% and a maximum of 15.0% of their
salary on a pre-tax basis (up to 

                                      -48-
<PAGE>
 
$9,500 per year). Subject to certain Code limitations, the Company may make both
matching and additional contributions at the discretion of the Board of
Directors of the Company each year. To date, no contributions have been made by
the Company to the 401(k) Plan. A separate account is maintained for each
participant in the 401(k) Plan. The portion of a participant's account
attributable to his or her own contributions is 100.0% vested. Distributions
from the 401(k) Plan may be made in the form of a lump-sum cash payment or in
installment payments.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
-------    -------------------------------------------------------------- 

     The following table sets forth information with respect to the beneficial
ownership of shares of the Company's Common Stock as of March 1, 1997 by (i)
each director of the Company; (ii) each Named Executive Officer; (iii) each
person known by the Company to own beneficially more than 5.0% of the
outstanding shares of the Common Stock; and (v) all executive officers and
directors of the Company as a group. Unless otherwise indicated, each
shareholder has sole voting and investment power with respect to the indicated
shares.


                                         SHARES BENEFICIALLY
                                                OWNED
                                    -----------------------------
     NAME OF BENEFICIAL OWNER           NUMBER      PERCENT/(1)/
     ------------------------       --------------  -------------

Erez Goren/(2)/..................        3,303,556          28.3%

Alon Goren/(2)/..................        3,303,556          28.3

Eric B. Hinkle...................           55,000/(3)/        *

John H. Heyman...................          340,000/(4)/      2.9

Carlyle M. Taylor................               --            --

H. Martin Rice...................          150,000           1.3

Emro Marketing Company/(5)/......          646,304           5.7

Executive officers and directors
  as a group (8 persons).........        7,162,112/(6)/     60.1

--------------
*    Less than 1.0% of outstanding shares.
(1)  Pursuant to the rules of the Commission, certain shares of the Company's
     Common Stock that a beneficial owner has the right to acquire within 60
     days pursuant to the exercise of stock options or warrants are deemed to be
     outstanding for the purpose of computing the percentage ownership of such
     owner but are not deemed outstanding for the purpose of computing the
     percentage ownership of any other person.
(2)  The address of Erez Goren and Alon Goren is 1000 Alderman Drive, Suite A,
     Alpharetta, Georgia 30202.
(3)  Represents 55,000 shares of Common Stock subject to stock options
     exercisable within the next 60 days.
(4)  Includes 165,000 shares of Common Stock subject to stock options
     exercisable within the next 60 days.
(5)  The address of Emro Marketing Company is P.O. Box 1500, Springfield, Ohio
     45501.
(6)  Includes 230,000 shares of Common Stock subject to stock options
     exercisable within the next 60 days.

                                      -49-
<PAGE>
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED CERTAIN TRANSACTIONS.
-------   ------------------------------------------------------ 

     On May 29, 1995, the Company repurchased 2,628,523 shares of Common Stock
(representing 24.7% of the Company's then outstanding shares of Common Stock)
from Thomas J. Barrella in exchange for certain assets and technology. In
connection therewith, Mr. Barrella resigned his positions as an executive
officer and director of the Company. The transferred assets and technology had a
value of approximately $616,000. As part of the transaction, Mr. Barrella issued
to the Company a note in the amount of $61,000 due in May 1997 and bearing
interest at a rate of 8.0%. As of December 31, 1996, $17,000 remained
outstanding under this note.

     On June 7, 1996, Mr. Barrella granted to Erez Goren, the Chief Executive
Officer of the Company, an option to purchase all 600,033 remaining shares of
Common Stock held by Mr. Barrella. This option, exercisable for a period of one
year thereafter at an exercise price of $1.875 per share, was assigned to the
Company by Mr. Goren for nominal consideration in February 1997. The Company
utilized a portion of the proceeds of its initial public offering to repurchase
all of such shares from Mr. Barrella on February 21, 1997.

     On October 31, 1994, the Company repurchased 3,085,700 shares of Common
Stock (representing 22.5% of the Company's then outstanding shares of Common
Stock) from Lawrence D. Parker in exchange for a note in the amount of $473,000
due December 31, 1997, and bearing interest at a rate of 8.0%. As of December
31, 1996, $170,000 remained outstanding under this note. The Company utilized a
portion of the proceeds of its initial public offering to repay this note on
March 6, 1997.  In connection with this transaction, Mr. Parker resigned his
positions as an executive officer and director of the Company and entered into a
five-year consulting agreement with the Company. In October 1995, the monthly
consulting fees payable to Mr. Parker were reduced to $2,500 from $14,000.
Consulting fees totalling $150,000, $131,000 and $28,000 were paid by the
Company to Mr. Parker in 1994, 1995 and 1996, respectively.

     On May 27, 1994, the Company entered into a Software License, Support and
Equipment Purchase Agreement (the "Emro License Agreement") with Emro Marketing
Company (Speedway/Starvin' Marvin) ("Emro") pursuant to which Emro agreed to
purchase licenses for Compu-Touch systems. The Emro License Agreement includes
price discounts on certain of the Company's products, rebates and extended
warranty coverage on products purchased thereunder, and credits (based on the
number of systems purchased by Emro) for technical support services. Although
the rebates, the extended warranty terms and the credits for technical support
services are not currently available to other customers of the Company, the
price discounts are based on the number of potential sites to be installed by
Emro and are no more favorable than those given to the only other customer of
the Company who has a comparable number of potential sites.

     Under the terms of the Emro License Agreement, Emro is to receive a cash
rebate upon purchasing a defined number of software licenses. In the event the
Company is unable to pay the rebates when due, Emro has the option of applying
the rebate to the purchase of additional licenses or requiring the Company to
deliver a promissory note therefor. Accordingly, on March 27, 1996, the Company
issued to Emro a promissory note for accrued rebates in the amount of $873,000
due March 2001, and bearing interest at a rate of 6.0%. As of December 31, 1996,
$918,000, including accrued interest, remained outstanding under this note.  The
Company utilized a portion of the proceeds of its initial public offering to
repay this note on February 19, 1997.

     Emro will continue to receive the preferential terms described above with
respect to purchases of Compu-Touch systems in the future for as long as Emro
purchases such products from the Company under the Emro License Agreement.
Revenues of $5.4 million were recorded by the Company for systems sales and
customer support, maintenance and other services pursuant to the Emro License
Agreement in 1996.

                                      -50-
<PAGE>
 
     In connection with the Emro License Agreement, the Company granted to Emro
a stock purchase warrant (the "Emro Warrant") to purchase 10.0% of the
outstanding shares of Common Stock of the Company at an exercise price of
$80,000 per percentage unit exercised. The Emro Warrant was subsequently amended
to increase the number of shares of Common Stock issuable thereunder to 12.0% of
the outstanding shares of Common Stock of the Company and to provide the Company
with the right to repurchase 2.0% upon the exercise of the Emro Warrant at a
price equal to the average of the exercise price of the Emro Warrant and the
fair market value of the Common Stock. The Emro Warrant was exercised in full
prior to the completion of the Company's initial public offering in February
1997, whereupon 318,996 shares of Common Stock were sold by Emro in the initial
public offering, 193,060 shares of Common Stock were repurchased by the Company
for $1.0 million from the proceeds of the initial public offering and 646,304
shares of Common Stock were retained by Emro.

     On December 31, 1996, the Company, which previously owned a 50.0% interest
in PrysmTech, acquired the remaining 50.0% interest of PrysmTech from its
owners, including H. Martin Rice, a Vice President of the Company and the
Managing Director of the Company's PrysmTech division. In connection therewith,
Mr. Rice received 150,000 shares of Common Stock of the Company and the Company
issued to Mr. Rice and his affiliates promissory notes totalling $1.5 million.
These notes bear interest at a rate of 8.5% and are due on the earlier of (i)
December 31, 1998 or (ii) the closing of the Company's initial public offering.
The Company utilized a portion of the proceeds of its initial public offering to
repay a substantial portion these notes on February 19, 1997.  As of March 17,
1997, approximately $100,000  of these notes remained outstanding.  The Company
has also entered into an employment agreement with Mr. Rice. See "-- Employment
Agreement."

                                      -51-
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
-------   --------------------------------------------------------------- 

     (a)  1.   Financial Statements.  The following financial statements and
accountants' reports have been filed as Item 8 in Part II of this Report:

          Report of Independent Public Accountants
          Combined Balance Sheets--December 31, 1995 and 1996 and pro forma
            shareholders' deficit at December 31, 1996
          Combined Statements of Operations for the years ended December 31,
            1994, 1995   and 1996
          Combined Statements of Shareholders' Equity (Deficit) for the years
            ended December 31, 1994, 1995 and 1996
          Combined Statements of Cash Flows for the years ended December 31,
            1994, 1995 and 1996
          Notes to Combined Financial Statements

          2.   Financial Statement Schedules.  No schedules are included with
this Report, as they are not applicable or the information required to be set
forth therein is included in the combined financial statements or notes thereto.

     3.   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 a
Registration Statement on Form S-1 under the Securities Act of 1933 for the
Registrant, Registration No. 333-17723, initially filed with the Securities
Exchange Commission on December 12, 1996, as amended.  The exhibit number
corresponds to the exhibit number in the referenced document.

     EXHIBIT
     NUMBER            DESCRIPTION OF EXHIBIT
     -------           ----------------------

     *3.(i)            Amended and Restated Articles of Incorporation

     *3.(ii)           Amended and Restated Bylaws

     *4.1              Specimen Certificate of Common Stock

     *10.1             Form of License, Support and Equipment Purchase Agreement

     *10.2             Stock Transfer and Redemption Agreement dated May 29,
                       1995 by and between the Registrant and Thomas Barrella

     *10.3             Amended and Restated 1995 Stock Option Plan

     *10.5             Promissory Note dated March 27, 1996 from the 
                       Registrant to Emro Marketing Company in the principal 
                       amount of $872,501
 
     *10.6             Promissory Note dated October 31, 1994 from the 
                       Registrant to Lawrence D. Parker in the principal 
                       amount of $473,086

                                      -52-
<PAGE>
 
     *10.7             Consulting Agreement dated October 31, 1994, as amended
                       on October 24, 1995, by and between the Registrant and LP
                       Technologies, Inc.

     *10.8             Commercial Lease Agreement dated December 19, 1994 by and
                       between the Registrant and Digital Communications
                       Associates, Inc. for lease of office space in Alpharetta,
                       Georgia

     *10.9             Office Lease dated June 30, 1995 by and between the
                       Registrant and Attachmate Corporation for lease of office
                       space in Alpharetta, Georgia
 
     *10.9.1           Office Lease Amendment dated January 15, 1997 by and 
                       between the Registrant and Equifax, Inc. for lease of 
                       office space in Alpharetta, Georgia
                     
     *10.10            Software License, Support and Equipment Purchase
                       Agreement dated May 27, 1994, as amended, by and between
                       the Registrant and Emro Marketing Company
                                          
     *10.11            Acquisition Agreement and Plan of Merger dated December 
                       31, 1996 regarding acquisition of PrysmTech, LLC by the
                       Registrant

     *10.12            Employment Agreement dated December 31, 1996 by and
                       between the Registrant and H. Martin Rice

     *11.1             Statement regarding computation of per share earnings

     *21.1             Subsidiaries of the Registrant

      23.1             Consent of Arthur Andersen LLP

      27.1             Financial Data Schedule (for SEC use only)

                                      -53-
<PAGE>
 
                                   SIGNATURES

     In accordance with the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, in the City of Kennesaw, State of Georgia on
March 25, 1997.

                              RADIANT SYSTEMS, INC.


                              By:   /s/ Erez Goren
                                 -------------------------------------------
                                   Erez Goren
                                   Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.


 
     SIGNATURE                      TITLE                      DATE
     ---------                      -----                      ----      
 
/s/ Erez Goren        Co-Chairman of the Board and        March 25, 1997
--------------------  Chief Executive Officer
Erez Goren            (principal executive officer)
 
 
/s/ Alon Goren        Co-Chairman of the Board and        March 25, 1997
--------------------  Chief Technology Officer
Alon Goren

/s/ Eric B. Hinkle    President, Chief Operating          March 25, 1997
--------------------  Officer and Director
Eric B. Hinkle
 
/s/ John H. Heyman    Executive Vice President, Chief     March 25, 1997
--------------------  Financial Officer and Director
John H. Heyman        (principal financial officer)

/s/ Paul Ilse         Controller                          March 25, 1997
--------------------  (principal accounting officer)
Paul Ilse