<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<CAPTION>
<S> <C> <C>
[x] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
RADIUS INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------
<PAGE> 2
Radius Inc.
215 Moffett Park Drive
Sunnyvale, California 94089
(408) 541-6100
SPECIAL MEETING OF SHAREHOLDERS
To Be Held June 10, 1996
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Meeting") of Radius Inc. to be held at 215 Moffett Park Drive, Sunnyvale,
California, on Monday, June 10, 1996, at 11:00 a.m. P.D.T.
The matter expected to be acted upon at the meeting is described in
detail in the following Notice of Special Meeting of Shareholders and Proxy
Statement.
The Board of Directors has fixed the close of business on April [19],
1996, as the record date for determination of shareholders entitled to notice of
and to vote at the Meeting or any postponements or adjournments thereto.
It is important that you use this opportunity to take part in the
affairs of your Company by voting on the business to come before this Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. Returning the Proxy does not
deprive you of your right to attend the meeting and to vote your shares in
person.
We look forward to seeing you at the Meeting.
Sincerely,
Charles W. Berger
President, Chief Executive Officer
and Chairman of the Board of Directors
Sunnyvale, California
April [20,] 1996
<PAGE> 3
RADIUS INC.
215 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
-----------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Our Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Radius Inc. (the "Company") will be held at 215 Moffett Park
Drive, Sunnyvale, California, on Monday, June 10, 1996, at 11:00 a.m. P.D.T. for
the following purposes:
1. To approve the issuance and convertibility terms of certain
Convertible Preferred Stock of the Company.
2. To approve an amendment to the Company's Articles of Incorporation
to increase the authorized number of shares of Common Stock issuable
by the Company from 50,000,000 to 100,000,000 shares.
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April [19], 1996
are entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
Charles W. Berger
President, Chief Executive Officer
and Chairman of the Board of Directors
Sunnyvale, California
April [20,] 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE> 4
RADIUS INC.
215 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
-----------
PROXY STATEMENT
-----------
APRIL [19,] 1996
The accompanying proxy is solicited on behalf of the Board of Directors of
Radius Inc., a California corporation (the "Company" or "Radius"), for use at a
Special Meeting of Shareholders of the Company to be held at 215 Moffett Park
Drive, Sunnyvale, California, on Monday, June 10, 1996 at 11:00 a.m. P.D.T. (the
"Meeting"). Only holders of record of the Company's Common Stock at the close of
business on April [19], 1996 will be entitled to vote at the Meeting. At the
close of business on April [19], 1996, the Company had [17,415,678] shares of
Common Stock outstanding and entitled to vote. A majority of such shares,
present in person or represented by proxy, will constitute a quorum for the
transaction of business. This Proxy Statement and the accompanying form of proxy
were first mailed to shareholders on or about April [20,] 1996.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the above record date. All votes will be tabulated by the
inspector of election appointed for the Meeting who will tabulate affirmative
and negative votes, abstentions and broker non-votes. Abstentions and broker
non-votes will be counted towards a quorum and have the same effect as negative
votes with regard to the proposal.
In the event that sufficient votes in favor of the proposals are not
received by the date of the meeting, the proxy holder may propose one or more
adjournments of the Meeting to permit further solicitations of proxies. Any such
adjournment would require the affirmative vote of the majority of the shares
present, in person or by proxy, at the Meeting.
The expenses of soliciting proxies to be voted at the Meeting will be paid
by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company and/or its agents may also solicit proxies by
mail, telephone, telegraph or in person. The Company has retained Skinner & Co.,
a proxy solicitation firm, and will pay Skinner & Co. a fee of approximately
$3,500 plus expenses estimated at $3,500. In addition, following the original
mailing of the proxies and other soliciting materials, the Company will request
that brokers, custodians, nominees and other record holders of the Company's
Common Stock forward copies of the proxy and other soliciting materials to
persons for whom they hold shares of Common Stock and request authority for the
exercise of proxies. In such cases, the Company, upon the request of the record
holders, will reimburse such holders for their reasonable expenses.
<PAGE> 5
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to the Meeting or at the Meeting prior to the
vote pursuant to the proxy. A proxy may be revoked by a writing delivered to the
Company stating that the proxy is revoked, by a subsequent proxy that is signed
by the person who signed the earlier proxy and is presented at the Meeting or by
attendance at the Meeting and voting in person. Please note, however, that if a
shareholder's shares are held of record by a broker, bank or other nominee and
that shareholder wishes to vote at the Meeting, the shareholder must bring to
the Meeting a letter from the broker, bank or other nominee confirming that
shareholder's beneficial ownership of the shares.
2
<PAGE> 6
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Voting Rights and Solicitation of Proxies................................................................. 1
Revocability of Proxies................................................................................... 2
Proposal 1: Approval of Issuance and Certain Convertibility Terms of Convertible Preferred Stock......... 4
Proposal 2: Approval of an Amendment of the Company's Articles of Incorporation to Increase
the Authorized Number of Shares of Common Stock of the Company.............................. 7
Security Ownership of Certain Beneficial Owners and Management............................................ 8
Independent Public Accountants............................................................................ 9
Shareholder Proposals..................................................................................... 9
Other Business............................................................................................ 9
Capitalization ........................................................................................... 10
Available Information..................................................................................... 11
Incorporation of Certain Information by Reference......................................................... 11
Index to Financial Statements............................................................................. F-1
</TABLE>
3
<PAGE> 7
PROPOSAL 1:
APPROVAL OF ISSUANCE AND CERTAIN CONVERTIBILITY TERMS OF CONVERTIBLE
PREFERRED STOCK
(a) Background
As of December 31, 1995, the Company had total assets of approximately
$60.6 million and total current liabilities of approximately $126.6 million. The
Company is delinquent in its accounts payable as payments to certain vendors are
not being made in accordance with vendor terms. As of December 31, 1995, the
Company had outstanding accounts payable, short-term borrowings and obligations
under capital leases of approximately $89.0 million, of which approximately
$42.9 million was outstanding under accounts payable, approximately $43.8
million represented short-term borrowings and approximately $2.4 million
represented obligations under capital leases. Several vendors have initiated
legal action to collect allegedly delinquent accounts and at least two vendors
have orally threatened the Company with initiation of insolvency or bankruptcy
proceedings.
As a result, the Company has established a creditors' committee and is
negotiating with this creditors' committee in an effort to resolve the
delinquent accounts payable, capital deficiency and creditor litigation issues
outside of insolvency or bankruptcy proceedings. The Company is seeking to
resolve these claims outside of bankruptcy or insolvency proceedings in order
to avoid the significant costs and uncertainties that would arise in such
proceedings. Furthermore, the Company believes that if these claims are
resolved outside of the bankruptcy process, it may, to the extent possible,
have the opportunity to continue its operations outside of the bankruptcy
process without incurring the adverse affect on its business that it believes
would result by being subjected to voluntary or involuntary bankruptcy
proceedings.
After negotiating with the creditor's committee, the Company
anticipates formally proposing a plan to its creditors pursuant to which
creditors will receive equity in the Company in satisfaction of their claims.
The Company anticipates that these creditors will receive shares of the
Company's Preferred Stock which will be convertible into Common Stock of the
Company (the "Convertible Preferred Stock") instead of Common Stock because it
believes that such creditors will insist upon the superior dividend and
liquidation preferences associated with preferred stock. As described below, the
definitive terms of the Convertible Preferred Stock have yet to be determined
and, except as described below, the issuance of the Convertible Preferred Stock
does not require the approval of the Company's shareholders and, accordingly,
the definitive terms of the Convertible Preferred Stock will be determined by
the Board of Directors. Nevertheless, pursuant to the continued listing
requirements of the National Association of Securities Dealers ("NASD") Nasdaq
National Market System ("Nasdaq National Market"), the Company is required to
obtain the approval of a majority of the total votes cast at the Meeting prior
to the issuance of Common Stock (or securities convertible into or exercisable
into Common Stock) in connection with a transaction (other than a public
offering) involving the sale or issuance by the Company of Common Stock (or
securities convertible into or exercisable into Common Stock) that equals 20% or
more of the Common Stock outstanding for less than the greater of the book or
market value of the Common Stock. In addition, as a condition to the Company's
continued listing on the Nasdaq National Market, the NASD has required the
Company to file preliminary proxy materials with the Securities and Exchange
Commission with respect to the foregoing by April 10, 1996 and that the proposed
issuance of Convertible Preferred Stock to the Company's creditors be
consummated by June 30, 1996.
Because the Company anticipates that the Convertible Preferred Stock
will be convertible into in excess of 20% of the outstanding shares of Common
Stock and such Convertible Preferred Stock may be deemed to be issued at a
price which is less than the greater of the book or market value of the Common
Stock and because the NASD conditioned the Company's continued listing on the
Nasdaq National Market upon obtaining such approval, the Company is seeking
shareholder approval to authorize the issuance and aggregate convertibility of
the Convertible Preferred Stock into greater than 20% of the outstanding shares
of Common Stock.
THE SHAREHOLDERS ARE NOT BEING ASKED TO APPROVE ANY OF THE OTHER TERMS
OF THE CONVERTIBLE PREFERRED STOCK, BUT INSTEAD ARE BEING ASKED TO APPROVE THE
AUTHORIZATION OF THE ISSUANCE AND CONVERTIBILITY OF THE YET TO BE DESIGNATED
4
<PAGE> 8
CONVERTIBLE PREFERRED STOCK INTO AN AGGREGATE AMOUNT OF COMMON STOCK WHICH IS
GREATER THAN 20% OF THE COMPANY'S OUTSTANDING COMMON STOCK.
(b) Description of Convertible Preferred Stock
The Company's Articles of Incorporation currently authorize the Company
to issue up to 2,000,000 shares of Preferred Stock. The Board has the authority,
subject to any limitations prescribed by California law, to issue shares of
Preferred Stock in one or more series, to establish, from time to time, the
number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding), without any further vote or action by the
shareholders.
It is anticipated that the shares of Convertible Preferred Stock, if
issued, will be, in the aggregate, convertible into greater than 20% of the
Company's outstanding Common Stock. If the entire approximately $90 million of
accounts payable, short-term borrowings and capital lease obligations are
forgiven in consideration of the issuance of the shares of Convertible Preferred
Stock, the Company believes that the Convertible Preferred Stock could be
convertible into an aggregate number of shares of Common Stock representing a
range from approximately 67% of the outstanding shares of Common Stock, should
the Common Stock be issuable at a conversion price of $2.56 per share of Common
Stock (the last reported sales of the Common Stock on the Nasdaq National
Market on April 5, 1996, hereafter referred to as the "Market Price"). There can
be no assurance that the conversion price will not represent a substantial
discount to the then current trading price of the Common Stock. To the extent
that the conversion price of the Convertible Preferred Stock represents a
discount to the Market Price, the percentage of the outstanding shares of Common
Stock into which the Convertible Preferred Stock is convertible will increase.
The definitive conversion price of the Convertible Preferred Stock may depend on
a variety of factors including, without limitation, the trading price of the
Common Stock, the amount of outstanding creditors' claims at the time of
issuance and the outcome of the negotiations with the Company's creditors. There
can be no assurance that the holders of any or all of these claims will agree to
receive shares of Convertible Preferred Stock in satisfaction of their claims.
Furthermore, there can be no assurance that the sales price of the Common Stock
will not fluctuate substantially prior to the determination of the conversion
price of the Convertible Preferred Stock. In the event that the price of the
Common Stock declines significantly, the Company believes that the number of
shares of Common Stock into which the Convertible Preferred Stock is convertible
could increase significantly. Furthermore, there can be no assurance that the
conversion price will not represent a substantial discount (which discount could
exceed the 30% discount assumed above) to the then current trading price of the
Common Stock. The other definitive terms of the Convertible Preferred Stock,
including possible dividend or interest rates, conversion prices (including the
aggregate number of shares of Common Stock into which the Convertible Preferred
Stock will be convertible), voting rights, redemption prices, maturity dates and
similar matters, have yet to be determined and will be determined by the Board
of Directors after negotiations with the creditors' committee.
(c) Description of the Transaction in which the Convertible Preferred Stock
is to be Issued
As described above, as of December 31, 1995, the Company had accounts
payable, short-term borrowings and obligations under capital leases of
approximately $89.0 million. The Company anticipates that, if it issues the
Convertible Preferred Stock, it will issue such securities to those creditors
who are accredited investors (as such term is defined in the Securities Act of
1933, as amended (the "Act")) and to no more than 35 creditors who are not
accredited investors in a private placement in reliance upon Regulation D
promulgated under the Act. The Company anticipates that any remaining creditors
who are not "accredited investors" would receive a cash payment in satisfaction
of their claims. The amount of this cash payment has yet to be determined and is
subject to negotiations with the Company's creditors. In connection with such
issuance, it is anticipated that such creditors would release the Company from
any further liability under such claims. At this time, no further definitive
terms with respect to the issuance of the Convertible Preferred Stock have been
agreed upon because negotiations with the creditors' committee are still
ongoing.
The Company does not intend to seek further shareholder approval with
respect to the issuance of the Convertible Preferred Stock other than with
respect to the approval of the issuance and convertibility of such securities
into greater than 20% of the Company's outstanding Common Stock.
5
<PAGE> 9
(d) Effect on Shareholders
The authorization of the issuance and convertibility of the Convertible
Preferred Stock will not, by itself, have any dilutive effect on the presently
issued and outstanding Common Stock; however, upon the issuance of such shares
of Convertible Preferred Stock, the voting powers of the presently outstanding
shares of Common Stock will be reduced depending upon the nature of the voting
rights of the Convertible Preferred Stock that are eventually negotiated with
the creditors' committee. As described above, upon the conversion of the
Convertible Preferred Stock into Common Stock, the voting powers of the
presently outstanding shares of Common Stock will be proportionately reduced.
Although the extent of this reduction in voting power will depend upon the
final conversion terms which are to be negotiated with the creditors'
committee, the Convertible Preferred Stock will be convertible into greater
than 20% of the outstanding shares of Common Stock and the Company believes
that it is likely that such Convertible Preferred Stock will be convertible
into such number of shares of Common Stock which may constitute at least 67%
of the outstanding shares of Common Stock after taking into account such
conversion. Accordingly, the Convertible Preferred Stock will be convertible,
in the aggregate, into a number of shares of Common Stock which would give the
holders of Convertible Preferred Stock, in the aggregate, voting control of the
Company. Furthermore, depending upon the number of shares of Convertible
Preferred Stock issued to the creditors in cancellation of their claims, there
could be a dilution of the book value of the outstanding shares. Holders of
Common Stock do not have preemptive rights to subscribe to shares of
Convertible Preferred Stock (or any shares of Common Stock issuable upon the
conversion thereof).
(e) Vote Required
This proposal must be approved by the affirmative vote of holders of
outstanding shares of Common Stock representing a majority of the voting power
of the Company's outstanding Common Stock present, in person or by proxy, at the
Meeting. The Company believes that the convertibility of the Convertible
Preferred Stock into greater than 20% of the outstanding shares of Common Stock
will be required by its creditors as a condition to receiving Convertible
Preferred Stock in exchange for forgiveness of claims.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO
AUTHORIZE THE ISSUANCE OF CONVERTIBLE PREFERRED STOCK THAT IS
CONVERTIBLE, IN THE AGGREGATE, INTO GREATER THAN 20% OF THE COMPANY'S
OUTSTANDING SHARES OF COMMON STOCK
6
<PAGE> 10
PROPOSAL 2:
APPROVAL OF AN AMENDMENT OF THE COMPANY'S ARTICLES OF
INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF
SHARES OF COMMON STOCK ISSUABLE BY THE COMPANY
On April 8, 1996, the Board of Directors approved an amendment to the
Company's Articles of Incorporation, subject to shareholder approval, to
increase the authorized number of shares of Common Stock of the Company from
50,000,000 shares to 100,000,000 shares.
At April 1, 1996, 17,415,678 shares of Common Stock were issued and
outstanding, 3,153,516 shares were reserved for issuance upon exercise of
options outstanding and options to be granted under the Company's stock option
plans and 146,824 shares were reserved for issuance for purchases under the
Company's employee stock purchase program. Thus, as of that date, the Company
had approximately 29,283,982 shares of Common Stock available for issuance in
the future unless the proposed amendment is adopted by the shareholders. The
proposed increase in the number of authorized shares of Common Stock from
50,000,000 to 100,000,000 would result in additional shares being available
for, among other things, issuance upon conversion of the Convertible Preferred
Stock proposed to be issued to creditors of the Company. These additional
shares of Common Stock would also be available for issuance from time to time
for other corporate purposes (such as raising additional capital, acquisitions
of companies or assets, sales of stock or securities convertible into stock and
issuances pursuant to stock options or other employee benefit plans).
While the Company has sufficient authorized shares of Common Stock for
issuance in the event of the exercise and conversion of all outstanding options,
the Company will not have sufficient authorized shares of Common Stock for
issuance upon conversion of the Convertible Preferred Stock. Because the Company
must have a sufficient number of authorized shares of Common Stock available for
issuance upon conversion of the Convertible Preferred Stock and for other
corporate purposes and because the need to issue additional shares of Common
Stock could arise when it would be inconvenient to hold a shareholders' meeting
or when there would not be time for such a meeting, the Board of Directors
believes that adoption of the proposed amendment is in the best interests of the
Company and its shareholders.
In addition, the Board of Directors considers the proposed increase in
the authorized number of shares of Common Stock advisable in order to afford the
Company the opportunity to obtain its future working capital requirements by
means of the sale of equity securities rather than by incurring additional
indebtedness. It is believed that this will permit the Company greater
flexibility in determining which method of financing would be more advantageous
to the Company. The Company currently has no specific plans, arrangements or
understandings with respect to the issuance of these additional shares, except
for the proposed issuance of the Convertible Preferred Stock to be issued to its
creditors, and no other change in the rights of shareholders is proposed.
The authorization of the additional shares of Common Stock will not, by
itself, have any dilutive effect on the presently issued and outstanding Common
Stock; however, as described above, upon the issuance of such shares, the voting
power of the presently outstanding shares will be substantially reduced, and,
depending upon the consideration received by the Company, there could be a
dilution of the book value of the outstanding shares. As in the case of the
Company's presently authorized but unissued stock, the issuance of additional
shares of Common Stock would, in most cases, be within the discretion of the
Board of Directors without further action by shareholders. Holders of Common
Stock do not have preemptive rights to subscribe to shares issued by the Company
The proposed amendment to the Articles of Incorporation must be
approved by the affirmative vote of holders of outstanding shares of Common
Stock representing a majority of the voting power of the Company's outstanding
Common Stock. The Company believes that the availability of the additional
shares will provide it with the flexibility to meet business needs as they
arise, to take advantage of favorable opportunities and to respond to a changing
corporate environment.
If the shareholders approve the amendment, the Company will file an
Amendment to its Articles of Incorporation with the Secretary of State of the
State of California reflecting the increase in authorized shares.
7
<PAGE> 11
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK AUTHORIZED TO BE ISSUED BY THE COMPANY
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of April
1, 1996, for (i) each shareholder who is known by the Company to be the
beneficial owner of more than 5% of the Company's Common Stock; (ii) the Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers at September 30, 1995, (iii) each of the Company's directors,
and (iv) all current directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and of Beneficial Owner Beneficial Ownership(1) of Class
- - - - ---------------------------- ----------------------- --------
<S> <C> <C>
The Capital Group Companies, Inc.(2) 900,000 5.30%
Michael D. Boich(3) 214,301 1.23%
Charles W. Berger(4) 206,250 1.18%
Gregory M. Millar(5) 50,171 *
Regis McKenna(6) 33,463 *
Douglas W. C. Boake(7) 25,073 *
Keith Harris(8) 22,137 *
David B. Pratt 1,000 *
J. Daniel Shaver(9) 0 *
All current executive officers and 562,420 3.31%
directors as a group (8 persons)(10)
</TABLE>
* Less than one percent.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) Based solely upon the Schedule 13G filed by The Capital Group of
Companies, Inc., Capital Research and Management Company and SMALLCAP
World Fund, Inc. The address of such entities is 333 South Hope Street,
Los Angeles, CA 90071. Each of the aforementioned entities has disclaimed
beneficial ownership of such shares of Common Stock.
(3) Represents 211,801 shares held by Mr. Boich, and 2,500 shares subject to
options exercisable within 60 days of April 1, 1996.
(4) Represents 150 shares held by Mr. Berger as beneficial owner for his
children, and 206,100 shares subject to an option exercisable within 60
days of April 1, 1996.
(5) Represents shares subject to options held by Mr. Millar that are
exercisable within 60 days of April 1, 1996.
(6) Represents 21,276 shares held by Mr. McKenna, and 12,187 shares subject
to options exercisable within 60 days of April 1, 1996.
(7) Represents 1,073 shares held by Mr. Boake, and 24,000 shares subject to
options exercisable within 60 days of April 1, 1996.
(8) Represents 2,397 shares held by Mr. Harris, and 19,740 shares subject to
options exercisable within 60 days of April 1, 1996. Mr. Harris resigned
from the Company on March 4, 1996.
(9) Mr. Shaver resigned from the Company on October 1, 1995 and all of his
stock options expired on November 1, 1995.
(10) Includes the shares described in all footnotes above except (2), (8) and
(9) relating to directors and executive officers, a total of 2,223 shares
not described in the footnotes above held by one executive officer, and a
total of 29,939 shares subject to options held by two executive officers
exercisable within 60 days of April 1, 1996.
8
<PAGE> 12
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP has examined, as independent auditors, the financial
statements of the Company for the year ending September 30, 1995 and has been
appointed as its independent auditors to perform the audit of the Company's
financial statements for the current fiscal year. A representative of Ernst &
Young LLP will attend the meeting and will have the opportunity to make a
statement if he or she desires to do so and to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's 1997
Annual Meeting of Shareholders must be received by the Company at its principal
executive offices no later than September 8, 1996 in order to be included in the
Company's proxy statement and form of proxy relating to that meeting.
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Meeting, and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the Notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.
9
<PAGE> 13
CAPITALIZATION
The following table is intended to provide certain information to
illustrate the effects of the adoption of Proposals 1 and 2 on the Company's
capitalization, based on two hypothetical examples as to the possible issuance
of Convertible Preferred Stock by the Company pursuant to Proposal 1 (the
amount of the actual issuance of such Convertible Preferred Stock is unknown
and may be materially different than either of the examples illustrated). The
table sets forth (i) the historical capitalization of the Company as of
December 31, 1995, (ii) as adjusted to reflect the issuance of Convertible
Preferred Stock to creditors representing 50% of the amount of outstanding
accounts payable, short-term borrowings and capital lease obligations as of
that date (collectively, the "Claims") and the subsequent conversion of such
Convertible Preferred Stock into Common Stock (assuming a one-for-one
conversion ratio of the Convertible Preferred Stock into Common Stock), (iii)
and as further adjusted to reflect the issuance of Convertible Preferred Stock
to creditors representing all of the Claims and the subsequent conversion of
such Convertible Preferred Stock into Common Stock (assuming a one-for-one
conversion ratio of the Convertible Preferred Stock into Common Stock). As of
the date hereof, no agreement has been reached with these creditors.
Accordingly, there can be no assurance as to the number of such creditors, if
any, who ultimately elect to receive Convertible Preferred Stock in
satisfaction of their Claims or as to the number of shares or terms of the
Convertible Preferred Stock will be.
<TABLE>
<CAPTION>
HISTORICAL As Adjusted As Further Adjusted
<S> <C> <C> <C>
Capitalization:
Current Liabilities........................................... 126,645 $ 82,958 $ 38,440
Obligations under capital leases - noncurrent portion......... 831 --(1) --
Shareholders' Equity:
Common stock, no par value;
17,415,678 shares issued and outstanding, actual;
34,805,522 shares outstanding, as adjusted;
52,181,303 shares outstanding, as further adjusted(2)..... 117,127 161,645 206,163
Common stock to be issued..................................... 8,695 8,695 8,695
Accumulated translation adjustment............................ 32 32 32
Accumulated deficit........................................... (192,776) (192,776) (192,776)
--------- --------- ---------
Total shareholder's equity
(net capital deficiency).......................... (66,922) (22,404) 22,114
--------- --------- ---------
Total capitalization................................. $ 60,554 $ 60,554 $ 60,554
========= ========= =========
</TABLE>
- - - - ------------------------
(1) Assumes that all creditors representing noncurrent portions of obligations
under capital leases elect to receive Convertible Preferred Stock in
satisfaction of such claims.
(2) Assumes that creditors will receive a number of shares of Convertible
Preferred Stock such that the Convertible Preferred Stock would be
convertible into the number of shares of Common Stock obtained by dividing
the amount owed to such creditor by the Market Price. There can be no
assurance that the trading price of the Common Stock on the Nasdaq National
Market will not fluctuate prior to the determination of the conversion
price of the Convertible Preferred Stock. If the trading price of the
Common Stock on the Nasdaq National Market declines, the Company
anticipates that the conversion price of the Convertible Preferred Stock
would also decline, resulting in the Convertible Preferred Stock becoming
convertible into a greater number of shares of Common Stock. Furthermore,
there can be no assurance that the conversion price of the Convertible
Preferred Stock will bear any relation to the Market Price, and if it does,
there can be no assurance that the conversion price will not represent a
substantial discount to the then current trading price of the Common Stock.
If the conversion price represents a substantial discount, the Convertible
Preferred Stock would be convertible into a greater number of shares of
Common Stock.
10
<PAGE> 14
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be
obtained form the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Company's Common Stock is quoted for trading on the Nasdaq National
Market and reports, proxy statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom this Proxy Statement is delivered, upon
written or oral request of such person, a copy of any and all of the information
that has been incorporated by reference in this Proxy Statement (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Proxy Statement incorporates). Request should be directed to General
Counsel, Radius Inc., 215 Moffett Park Drive, Sunnyvale, California 94089;
telephone number (408) 541-6100.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following information contained in documents filed with the
Commission are incorporated herein by reference:
(a) Items 6, 7 and 9 of the Company's annual report on Form 10-K
filed with the Commission for the fiscal year ended September
30, 1995.
(b) Item 2 of the Company's quarterly report on Form 10-Q filed
with the Commission for the quarter ended December 30, 1995.
Any statement contained herein or in a document incorporated or deemed
to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein or in any subsequently filed document which also is deemed to
be incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
MATTERS SUBJECT HEREOF, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES. THE DELIVERY OF THIS
PROXY STATEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
11
<PAGE> 15
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
By Order of the Board of Directors
Radius Inc.
Charles W. Berger
President, Chief Executive Officer
and Chairman of the Board of Directors
Sunnyvale, California
April [20], 1996
12
<PAGE> 16
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors F-2
Consolidated Balance Sheets at September 30, 1995 and 1994 F-3
Consolidated Statements of Operations for the Years Ended September 30,
1995, 1994 and 1993 F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 1995, 1994, and 1993 F-5
Consolidated Statements of Cash Flows for the Years Ended September 30,
1995, 1994, and 1993 F-6
Notes to Consolidated Financial Statements F-7
September 30, 1995, 1994 and 1993 F-22
Schedule II: Valuation and Qualifying Accounts
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at December 31, 1995 F-23
Consolidated Statements of Operations for the Three Months Ended
December 31, 1995 and 1994 F-24
Consolidated Statements of Cash Flows for the Three Months Ended
December 31, 1995 and 1994 F-25
Notes to Consolidated Financial Statements F-26
</TABLE>
F-1
<PAGE> 17
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Radius Inc.
We have audited the accompanying consolidated balance sheets of Radius Inc. as
of September 30, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended September 30, 1995. Our audits also
included the financial statement schedule listed in the Index at page F-21.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respect, the consolidated financial position of Radius
Inc. at September 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that Radius Inc. will continue as a going concern. As more fully described in
Note 1, the Company has incurred recurring operating losses, and has a
deficiency in assets and working capital. In addition the Company has not
complied with certain covenants of loan agreements with its lenders. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. (Management's plans in regard to these matters are also described
in Note 1.) The financial statements do not include any adjustment to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
As discussed in Note 1 to the Consolidated Financial Statements, in 1993 the
Company changed its method of accounting for income taxes.
Palo Alto, California
December 8, 1995
except for Note 11, as to which the
date is December 27, 1995
F-2
<PAGE> 18
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
September 30 (in thousands)
1995 1994
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,760 $ 15,997
Accounts receivable, net of allowance for doubtful accounts
of $8,502 in 1995 and $2,548 in 1994 61,644 62,145
Inventories 15,071 21,069
Prepaid expenses and other current assets 2,336 1,473
Income tax receivable 519 9,083
Deferred income taxes - 8,400
-------- --------
Total current assets 84,330 118,167
Property and equipment, net 3,031 7,728
Deposits and other assets 517 964
-------- --------
$ 87,878 $126,859
======== ========
Liabilities and Shareholders' Equity (Net capital deficiency)
Current liabilities:
Accounts payable $ 73,098 $ 39,255
Accrued payroll and related expenses 5,815 4,024
Accrued warranty costs 3,170 2,255
Other accrued liabilities 11,920 6,650
Accrued income taxes 1,665 1,237
Accrued restructuring and other charges 17,013 15,148
Short-term borrowings 29,489 18,095
Obligations under capital leases - current portion 1,494 1,647
-------- --------
Total current liabilities 143,664 88,311
Obligations under capital leases-noncurrent portion 1,331 2,857
Commitments and contingencies
Shareholders' equity: (Net capital deficiency)
Convertible preferred stock, no par value, 1,000 shares
authorized; none issued and outstanding
Common stock, no par value; 50,000 shares authorized;
issued and outstanding -- 17,143 shares in 1995 and
14,046 shares in 1994 113,791 87,017
Common stock to be issued 12,022 --
Accumulated deficit (182,993) (51,251)
Accumulated translation adjustment 63 (75)
-------- --------
Total shareholders' equity (Net capital deficiency) (57,117) 35,691
-------- --------
$ 87,878 $126,859
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 19
CONSOLIDATED STATEMENTS OF OPERATIONS
For years ended September 30
(in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 (1) 1993 (1)
---- -------- --------
<S> <C> <C> <C>
Net sales $ 308,133 $ 324,805 $ 337,373
Cost of sales 302,937 276,948 254,321
--------- --------- ---------
Gross profit 5,196 47,857 83,052
--------- --------- ---------
Operating expenses:
Research and development 19,310 33,956 33,503
Selling, general and administrative 90,068 94,731 84,132
--------- --------- ---------
Total operating expenses 109,378 128,687 117,635
--------- --------- ---------
Loss from operations (104,182) (80,830) (34,583)
Interest and other income (loss) (3,045) (376) 705
Interest expense (3,023) (869) (635)
Litigation settlement (12,422) -- --
--------- --------- ---------
Loss before income taxes (122,672) (82,075) (34,513)
Provision (benefit) for income taxes 9,070 (4,600) (13,774)
--------- --------- ---------
Loss before cumulative
effect of a change in accounting principle (131,742) (77,475) (20,739)
Cumulative effect of a change in method
of accounting for income taxes -- -- 600
--------- --------- ---------
Net loss $(131,742) $ (77,475) $ (20,139)
========= ========= =========
Net loss per share:
Loss before cumulative effect
of a change in accounting principle $ (8.75) $ (5.70) $ (1.61)
Cumulative effect of a change in method
of accounting for income taxes -- -- 0.05
--------- --------- ---------
Net loss per share $ (8.75) $ (5.70) $ (1.56)
========= ========= =========
Common and common equivalent shares used in
computing net loss per share 15,049 13,598 12,905
========= ========= =========
</TABLE>
See accompanying notes.
(1) This period has been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes
to the Consolidated Financial Statements. The consolidated financial statements
for fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to
that of Radius. This period includes Radius' results of operations and balance
sheet data on a September 30 fiscal year basis and SuperMac's on a December 31
calendar year basis. The operating results for both the twelve months ended
September 30, 1994 and September 30, 1993 include the restructuring and other
charges of $16.6 million recorded by SuperMac in December 1993.
F-4
<PAGE> 20
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended September 30, 1995, 1994 and 1993
(in thousands, except share data) Total
Retained Shareholders
Earnings Accumulated Equity
Common (Accumulated Deferred Translation (Net Capital
Stock Deficit) Compensation Adjustment Deficiency)
-------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 (1) $ 60,203 $ 36,449 $ (58) $ 37 $ 96,631
Issuance of 738 shares of common stock
under the SuperMac public offering 15,401 15,401
Issuance of 517 shares of common stock
under Stock Option Plans 1,324 -- -- -- 1,324
Issuance of 159 shares of common stock
under the Employee Stock Purchase Plans 1,663 -- -- -- 1,663
Tax benefit from stock options exercised 3,358 -- -- -- 3,358
Amortization of deferred compensation -- -- 36 -- 36
Currency translation adjustment -- -- -- (119) (119)
Net loss -- (20,139) -- -- (20,139)
-------- --------- ----- ------ ---------
Balance at September 30, 1993 (1) 81,949 16,310 (22) (82) 98,155
Issuance of 350 shares of common stock
under Stock Option Plans 1,800 -- -- -- 1,800
Issuance of 170 shares of common stock
under Employee Stock Purchase Plans 989 -- -- -- 989
Issuance of 206 shares of common stock
pursuant to the acquisition of VideoFusion 1,854 -- -- -- 1,854
Tax benefit from stock options exercised 425 -- -- -- 425
Amortization of deferred compensation -- -- 22 -- 22
Currency translation adjustment -- -- -- 7 7
Net loss -- (77,475) -- -- (77,475)
Elimination of SuperMac net loss
for the three months ended December 31, 1993 9,914 -- -- 9,914
-------- --------- ----- ------ ---------
Balance at September 30, 1994 87,017 (51,251) -- (75) 35,691
Issuance of 214 shares of common stock
under Stock Option Plans 1,254 1,254
Issuance of 162 shares of common stock
under Employee Stock Purchase Plan 1,298 1,298
Issuance of 212 shares pursuant to the
acquisition of VideoFusion 2,857 2,857
Settlement of Litigation-stock to be issued 12,022 12,022
Issuance of 2,509 shares of common stock
through private placement 21,365 21,365
Currency translation adjustment 138 138
Net Loss (131,742) (131,742)
-------- --------- ----- ------ ---------
Balance at September 30, 1995 $125,813 $(182,993) -- $ 63 $ (57,117)
======== ========= ===== ====== =========
</TABLE>
See accompanying notes.
(1) These periods have been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes
to the Consolidated Financial Statements. The consolidated financial statements
for all periods prior to fiscal 1994 have not been restated to adjust SuperMac's
fiscal year end to that of Radius. Such periods include Radius' results of
operations and balance sheet data on a September 30 fiscal year basis and
SuperMac's on a December 31 calendar year basis.
F-5
<PAGE> 21
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For years ended September 30
(in thousands) 1995 1994 1993(1)
---- ---- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(131,742) $(77,475) $(20,139)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,689 4,542 8,160
Acquired in-process research and development expenses -- 2,550 --
Elimination of SuperMac net loss for the three months
ended December 31, 1993 -- 9,914 --
Non-cash restructuring and other charges 57,865 40,775 28,981
Common stock to be issued 12,022 -- --
(Increase) decrease in assets:
Accounts receivable (5,471) (20,171) (7,543)
Allowance for doubtful accounts 5,954 426 297
Inventories (27,140) (1,058) (5,633)
Prepaid expenses and other current assets (862) 1,739 15
Income tax receivable 8,564 468 (9,551)
Deferred income taxes 8,400 11,248 (11,322)
Increase (decrease) in liabilities:
Accounts payable 33,843 3,470 2,570
Accrued payroll and related expenses (1,871) (1,441) 1,014
Accrued warranty costs 915 (1,584) 438
Other accrued liabilities 5,270 (4,039) 2,171
Accrued restructuring and other charges (13,601) (6,117) --
Accrued income taxes 428 (1,534) 4,585
--------- -------- --------
Total adjustments 89,005 39,188 14,182
--------- -------- --------
Net cash used in operating activities (42,737) (38,287) (5,957)
--------- -------- --------
Cash flows from investing activities:
Capital expenditures (1,894) (3,460) (7,739)
Deposits and other assets (238) 71 --
Purchase of short-term investments -- (2,002) (31,914)
Proceeds from sale of short-term investments -- 18,395 35,938
--------- -------- --------
Net cash provided by (used in) investing activities (2,132) 13,004 (3,715)
--------- -------- -------- ------
Cash flows from financing activities:
Issuance of short-term borrowings, net 11,394 15,275 1,158
Issuance of common stock 23,917 3,214 18,388
Principal payments of long-term debt -- (43) (1,388)
Principal payments under capital leases (1,679) (1,179) (1,140)
--------- -------- --------
Net cash provided by
financing activities 33,632 17,267 17,018
--------- -------- --------
Net increase (decrease) in cash and cash equivalents (11,237) (8,016) 7,346
Cash and cash equivalents, beginning of period 15,997 24,013 16,667
--------- -------- --------
Cash and cash equivalents, end of period $ 4,760 $ 15,997 $ 24,013
========= ======== ========
</TABLE>
See accompanying notes.
(1) This period has been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes
to the Consolidated Financial Statements. The consolidated financial statements
for fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to
that of Radius. This period includes Radius' results of operations and balance
sheet data on a September 30 fiscal year basis and SuperMac's on a December 31
calendar year basis.
F-6
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The consolidated financial statements include the accounts of Radius Inc.
("Radius") and its wholly owned subsidiaries after elimination of
significant intercompany transactions and balances.
Radius and SuperMac Technologies, Inc. ("SuperMac") merged into the
combined company (the "Company") effective August 31, 1994 (the "Merger"),
which was accounted for as a pooling of interests. The consolidated
financial statements for fiscal 1993 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. This period includes Radius'
results of operations and balance sheet data on a September 30 fiscal year
basis and SuperMac's on a December 31 calendar year basis.
Financial Statements Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Such estimates include the level of allowance for
potentially uncollectible receivables and sales returns; inventory reserves
for obsolete, slow-moving, or nonsalable inventory; and estimated cost for
installation, warranty and other customer support obligations. Actual
results could differ from these estimates.
Management's Business Recovery Plans
As shown in the accompanying consolidated financial statements, the Company
has incurred recurring operating losses, and has a deficiency in assets and
working capital. In addition, as of September 30, 1995, the Company was not
in compliance with all of its contractual obligations and financial
covenants under its credit agreements. The Company also is delinquent in
its accounts payables as payments to vendors are not being made in
accordance with vendor terms.
The Company's relatively limited cash resources have restricted the
Company's ability to purchase inventory which in turn has limited its
ability to manufacture and sell products and has resulted in additional
costs for expedited deliveries. The adverse effect on the Company's results
of operations due to its limited cash resources can be expected to continue
until such time as the Company is able to return to profitability, or
generate additional cash from other sources.
These conditions raise concerns about the Company's ability to continue
operations as an ongoing concern. Management has implemented, or has
developed plans to implement, a number of actions to address these
conditions including: refocusing its efforts on providing solutions for
high end digital video and graphics customers; discontinuing sales of mass
market and other low value added products; divesting its color server and
monochrome display businesses and exploring opportunities for the
divestiture of its MacOS compatible systems products and other product
lines; significantly reducing expenses and headcount; subleasing all or a
portion of its current facility given its reduced occupancy requirements;
and investigating various strategic partnering opportunities.
Additional funds will be needed to finance the Company's development plans
and for other purposes, and the Company is now investigating possible
financing opportunities. There can be no assurance that additional
financing will be available when needed or, if available, that the terms of
such financing will not adversely affect the Company's results of
operations.
F-7
<PAGE> 23
Fiscal year
The Company's fiscal year ends on the Saturday closest to September 30 and
includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years
presented. During fiscal 1995, the Company changed its fiscal year end from
the Sunday closest to September 30 to the Saturday closest to September 30
for operational efficiency purposes. For clarity of presentation, all
fiscal periods in this Form 10-K are reported as ending on a calendar month
end.
Foreign currency translation
The Company translates the assets and liabilities of its foreign
subsidiaries into dollars at the rates of exchange in effect at the end of
the period and translates revenues and expenses using rates in effect
during the period. Gains and losses from these translations are accumulated
as a separate component of shareholders' equity. Foreign currency
transaction gains or losses, which are included in the results of
operations, are not material.
Inventories
Inventories are stated at the lower of cost or market. The Company reviews
the levels of its inventory in light of current and forecasted demand to
identify and provide reserve for obsolete, slow-moving, or non-salable
inventory. Cost is determined using standard costs that approximate cost on
a first-in, first-out basis. Inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
September 30 1995 1994
---- ----
<S> <C> <C>
Raw materials $ 1,559 $ 4,515
Work in process 2,258 6,852
Finished goods 11,254 9,702
-------- --------
$ 15,071 $ 21,069
======== ========
</TABLE>
Property and equipment
Property and equipment is stated at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
September 30 1995 1994
---- ----
<S> <C> <C>
Computer equipment $ 17,429 $ 18,007
Machinery and equipment 12,335 14,184
Furniture and fixtures 6,023 5,562
Leasehold improvements 1,084 1,683
-------- --------
36,871 39,436
Less accumulated depreciation
and amortization (33,840) (31,708)
-------- --------
$ 3,031 $ 7,728
======== ========
</TABLE>
Depreciation has been provided for using the straight-line method over
estimated useful lives of three to five years. Equipment under capital
leases and leasehold improvements are being amortized on the straight-line
method over six years or the remaining lease term, whichever is shorter.
Long-lived Assets
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS 121 requires recognition of impairment of long-lived assets in
the event the net book value of such assets exceeds the future undiscounted
cash flows attributable to such assets. SFAS 121 is effective for fiscal
years beginning after December 15, 1995. Adoption of
F-8
<PAGE> 24
SFAS 121 is not expected to have a material impact on the Company's
financial position or results of operations.
Revenue recognition
Revenue is recognized when products are shipped. Sales to certain resellers
are subject to agreements allowing certain rights of return and price
protection on unsold merchandise held by these resellers. The Company
provides for estimated returns at the time of shipment and for price
protection following price declines.
Warranty expense
The Company provides at the time of sale for the estimated cost to repair
or replace products under warranty. The warranty period commences on the
end user date of purchase and is normally one year for displays and digital
video products and for the life of the product for graphics cards.
Income taxes
Effective October 1, 1992, the Company adopted FASB Statement 109,
"Accounting for Income Taxes." Under Statement 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Prior to the adoption of Statement 109, income tax
expense was determined using the liability method prescribed by Statement
96, which is superseded by Statement 109. Among other changes, Statement
109 changes the recognition and measurement criteria for deferred tax
assets included in Statement 96.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The cumulative effect of the
change in method of accounting for income taxes decreased the net loss by
$600,000 or $0.05 per share in fiscal 1993 on a combined basis.
Loss per share
Net loss per share is computed using the weighted average number of common
shares outstanding.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents;
investments with maturities between three and twelve months are considered
to be short-term investments. Cash equivalents are carried at cost which
approximates market. There were no short-term investments as of September
30, 1995 or 1994. Approximately $1.6 million of the $4.8 million of cash
and cash equivalents available at September 30, 1995 was restricted under
various letters of credit.
Off balance-sheet risk and concentration of credit risk
The Company sells its products to direct computer resellers in the United
States and to distributors in various foreign countries. The Company
performs on-going credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses.
The Company also hedges substantially all of its trade accounts receivable
denominated in foreign currency through the use of foreign currency forward
exchange contracts based on firm commitments. Gains and losses associated
with currency rate changes on forward contracts are recognized in the
consolidated statements of operations and were not material. At September
30, 1995, the Company had forward contracts to sell three different foreign
currencies which totaled the equivalent of approximately $11.1 million and
mature between October 1995 and November 1995. At September 30, 1995, the
fair value of the Company's forward contracts approximated cost.
F-9
<PAGE> 25
Related Parties
In fiscal 1994, the Company acquired shares of preferred stock of Portrait
Display Labs ("PDL") and a warrant to purchase additional shares of PDL
preferred stock in exchange for the cancellation of certain rights held by
the Company to purchase all of the outstanding equity securities or assets
of the predecessor entity to PDL. The warrant permitted the purchase of
approximately an additional 10% interest in PDL. The Company also was
granted one seat on PDL's Board of Directors. In addition, the Company
licensed PDL certain pivot display technology in exchange for the payment
of royalties. Product revenues were approximately $5.0 million in fiscal
1994. In fiscal 1995, the Company exercised the warrant for an additional
10% interest in PDL in exchange for cancellation of approximately $945,000
in accounts receivable. There were no product revenues for the fiscal 1995
to this related party. The receivable from PDL at September 30, 1995 was
approximately $980,000. Subsequent to September 30, 1995, the Company
signed a series of additional agreements with Portrait Display Labs, see
Note 11 to the Consolidated Financial Statements.
There were no material transactions from this or any other related party
during fiscal 1993.
NOTE TWO. BORROWINGS
Line of credit arrangement
In February 1995, the Company and IBM Credit Corp. ("ICC") entered into a
$30.0 million Inventory and Working Capital Financing Agreement (the "ICC
Agreement"). The ICC Agreement permits advances for inventory and working
capital up to the lesser of $30.0 million or 85% of eligible receivables
("Inventory and Working Capital Advances"). In September 1995, ICC advanced
an additional $20.0 million under the ICC Agreement to finance the
manufacturing of the Company's MacOS compatible products (the "MacOS
Advances"). Advances bear interest at rates ranging from prime rate plus
2.25% to prime rate plus 4% and are secured by all the assets of the
Company. The ICC Agreement expires in March 1996.
As of September 30, 1995, $50.8 million was outstanding under the ICC
Agreement consisting of $30.8 million in Inventory and Working Capital
Advances and approximately $20.0 million in MacOS Advances. The outstanding
Inventory and Working Capital Advances included $18.7 million in working
capital advances supported by eligible receivables, $6.1 million in working
capital advances in excess of the borrowing base, and $6.1 million in
inventory advances. The $24.7 million in working capital advances are
included in Short-term borrowings in the Consolidated Financial Statements.
The $6.1 million in inventory advances, together with the approximately
$20.0 million in MacOS Advances, are included in Accounts payable in the
Consolidated Financial Statements.
As of September 30, 1995, the Company was not in compliance with all of its
contractual obligations and financial covenants under the ICC Agreement
(specifically, revenues to working capital ratio, net profit to revenue,
and total liabilities to total net worth); however, IBM Credit has waived
such defaults pursuant to an amendment to the ICC Agreement. See Note 11 to
the Consolidated Financial Statements.
In addition, the Company entered into a Business Loan Agreement on March
20, 1995 with Silicon Valley Bank. The agreement, which expires on March
19, 1996, allows the Company to issue letters of credit as a sub-facility
under a $5.0 million foreign accounts receivable revolving line of credit
subject to an interest rate of up to the prime rate plus 1.25%. The related
debt outstanding as of September 30, 1995 was $1.7 million and outstanding
letters of credit were $0.8 million. The Company was not in compliance with
all the terms of this credit arrangement.
One of the Company's subsidiaries has a revolving line of credit with a
bank in Japan. Borrowings were approximately $3.1 million at September 30,
1995. This note bears interest at the lesser of the Euro-yen rate or the
bank's prime lending rate (1.5 percent at September 30, 1995, the prime
rate). The line of credit is renewed every six months with the next renewal
in December 1995.
F-10
<PAGE> 26
NOTE THREE. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases facilities under operating leases and certain computer
equipment and office furniture under capital leases. Depreciation expense
for assets under capital leases is included in depreciation and
amortization expense. The cost and net book value of these capitalized
lease assets included in property and equipment are (in thousands):
<TABLE>
<CAPTION>
At September 30, Cost Net Book Value
------ --------------
<S> <C> <C>
1995 $7,437 $2,642
1994 7,437 4,021
</TABLE>
Future minimum lease payments at September 30, 1995, under capital leases
and noncancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1996 $ 1,686 $1,837
1997 1,155 1,887
1998 280 1,843
1999 - 1,750
2000 - 1,759
------- ------
Total minimum lease payments 3,121 $9,076
Amount representing interest (296)
-------
Present value of minimum lease payments 2,825
Amount due within one year (1,494)
-------
Amount due after one year $ 1,331
=======
</TABLE>
Rent expense charged to operations amounted to approximately $3.5 million,
$3.0 million and $3.8 million for the years ended September 30, 1995, 1994
and 1993, respectively. The rent expense amounts for fiscal 1995, 1994 and
1993 exclude a provision for remaining lease obligations on excess
facilities. See Note 8 of Notes to the Consolidated Financial Statements.
Sublease income for fiscal 1995 and 1994 was approximately $0.6 million and
$0.1 million. There was no sublease income for fiscal 1993.
Contingencies
DISPLAY SCREEN SIZE
The Company was named as one of approximately 42 defendants in Shapiro et
al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara
County, case no. CV751685, filed August 14, 1995. Radius was named as one
of approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer
et al., Superior Court of New Jersey, Essex County, case no. L-13780-95,
filed December 15, 1995. Plaintiffs in each case purport to represent
alleged classes of similarly situated persons and/or the general public,
and allege that the defendants falsely advertise that the viewing areas of
their computer monitors are larger than in fact they are.
The Company was served with the Shapiro complaint on August 22, 1995, and
has not yet been served with the Maizes complaint. Defendants' petition to
the California State Judicial Council to coordinate the Shapiro case with
similar cases brought in other California jurisdictions was granted in part
and it is anticipated that the coordinated proceedings will be held in
Superior Court of California, San Francisco County. Discovery proceedings
have not yet begun in either case. In the opinion of management, based on
the facts known at this time, the eventual outcome of these cases is
F-11
<PAGE> 27
unlikely to have a material adverse effect on the results of operations or
financial position of the Company.
ELECTRONICS FOR IMAGING
On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a suit in
the United States District Court in the Northern District of California
alleging that the Company infringes a patent allegedly owned by EFI.
Although the complaint does not specify which Radius products allegedly
infringe the patent, EFI is a prime competitor of Radius in the Color
Server market. Radius' Color Server products are material to its business.
The Company has filed an answer denying all material allegations, and has
filed counterclaims against EFI alleging causes of action for interference
with prospective economic benefit, antitrust violations, and unfair
business practices. The Company believes it has meritorious defenses to
EFI's claims and is defending them vigorously. In addition, the Company
believes it may have indemnification rights with respect to EFI's claims.
In the opinion of management, based on the facts known at this time, the
eventual outcome of this case is unlikely to have a material adverse effect
on the results of operations or financial position of the Company.
SECURITIES LITIGATION.
In September 1992, the Company and certain of its officers and directors
were named as defendants in a securities class action litigation brought in
the United States District Court for the Northern District of California
that sought unspecified damages, prejudgment and postjudgment interest,
attorneys' fees, expert witness fees and costs, and equitable relief. In
July 1994, SuperMac and certain of its officers and directors, several
venture capital firms and several of the underwriters of SuperMac's May
1992 initial public offering and its February 1993 secondary offering were
named as defendants in a class action litigation brought in the same court
that sought unspecified damages, prejudgment and postjudgment interest,
attorneys' fees, experts' fees and costs, and equitable relief (including
the imposition of a constructive trust on the proceeds of defendants'
trading activities).
In June 1995, the Court approved the settlement of both litigations and
entered a Final Judgment and Order of Dismissal. Under the settlement of
the litigation brought in 1992 against the Company, our insurance carrier
paid $3.7 million in cash and the Company will issue 128,695 shares of its
Common Stock to a class action settlement fund. In the settlement of the
litigation brought in 1994 against SuperMac, the Company paid $250,000 in
cash and will issue into a class action settlement fund 707,609 shares of
its Common Stock. The number of shares to be issued by the Company will
increase by up to 100,000 if the price of the Common Stock is below $12 per
share during the 60-day period following the initial issuance of shares. In
connection with these settlements, the Company recorded a charge of $12.4
million in the Consolidated Financial Statements reflecting settlement
costs not covered by insurance as well as related legal fees.
The Company has periodically received communications from third parties
asserting infringement of patent rights on certain of the Company's
products and features. Management does not believe any claims made will
have a material adverse effect on the results of operations or financial
position of the Company.
NOTE FOUR. SHAREHOLDERS' EQUITY
Common Stock
In June 1995, the Company sold approximately 2.5 million shares of its
Common Stock in a series of private placements to a small number of
investors unaffiliated with the Company. Proceeds from the offering, net of
commission and other related expenses were $21.4 million. The net proceeds
were used for working capital.
F-12
<PAGE> 28
Stock options
The Company's 1986 Stock Option Plan, as amended, authorizes the issuance
of up to 2,975,000 shares of common stock upon the exercise of incentive
stock options or nonqualified stock options that may be granted to
officers, employees (including directors who are also employees),
consultants and independent contractors. Under the plan, options are
exercisable for a term of up to ten years after issuance. Options may be
granted at prices ranging from 50% to 100% of the fair market value of the
stock on the date of grant, as determined by the Board of Directors.
Vesting of shares is also determined by the Board of Directors at the date
of grant. The 1986 Stock Option Plan will expire in October 1996.
On August 31, 1994, pursuant to the Merger, Radius assumed 975,239
outstanding options originally issued under the SuperMac 1988 Stock Option
Plan. These options will be administered in accordance with the SuperMac
1988 Stock Option Plan until all options are exercised or expired. Under
the plan, options are exercisable for a term of up to ten years after
issuance.
The following table summarizes the consolidated activity of the 1986 and
1988 Stock Option Plans and the 1992 Non-Employee Directors' Stock Option
Plan:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Outstanding at beginning of year 2,042,481 2,208,783 2,157,040
Granted 707,590 892,131 1,219,514
Exercised (213,791) (294,042) (516,597)
Canceled (838,745) (764,391) (651,174)
------------ ------------ ------------
Outstanding at September 30 1,697,535 2,042,481 2,208,783
============ ============ ============
Price range at September 30 $1.36-$28.96 $0.42-$32.18 $0.42-$30.14
============ ============ ============
Exercisable at September 30 1,325,222 706,474 455,241
============ ============ ============
Available for grant at September 30 415,586 281,726 331,314
============ ============ ============
</TABLE>
The stock option activity as shown in the table for fiscal 1993 has not
been restated to adjust SuperMac's fiscal year end to that of Radius.
Fiscal 1993 includes Radius' activity on a September 30 fiscal year basis
and SuperMac's activity on a December 31 calendar year basis. The fiscal
1994 period includes the Radius activity for fiscal year ended September
30, 1994 and SuperMac activity for the nine months ended September 30,
1994.
The Company has also reserved 100,000 shares of common stock for issuance
to non-employee directors pursuant to options granted under the 1994
Directors' Stock Option Plan (the "1994 Plan"). Such options may only be
nonqualified stock options, must be exercised within ten years from the
date of grant, and must be granted in accordance with a non-discretionary
formula. Under this formula, each new director receives an option to
purchase 10,000 shares when that director is first appointed to the Board
and an option to purchase 2,500 shares on each anniversary of such
director's appointment. As of September 30, 1995, 27,500 shares had been
granted under this plan at exercise prices ranging from $7.44 to $12.00 per
share. Options to purchase 1,250 shares were canceled following the
resignation of a director. None of the options granted under the 1994 Plan
are exercisable.
Prior to the approval of the 1994 Plan, the 1990 Directors' Stock Option
Plan (the "Prior Plan") was in effect. As of September 30, 1995, the Prior
Plan had 33,750 options outstanding at prices ranging from $8.00 to $17.25.
Such options are nonqualified stock options, must be exercised within five
years from the date of grant, and were granted in accordance with a
non-discretionary formula. Options unissued under the Prior Plan become
available for grant under the 1994 Plan. As of September 30, 1995, options
to purchase 37,500 shares became available upon the resignation of
F-13
<PAGE> 29
three directors. In addition, 28,750 options to purchase shares, which were
never granted under the Prior Plan were transferred to the 1994 Plan.
In March 1993, the Company granted a nonqualified stock option to one
officer to purchase a total of 250,000 shares of common stock outside the
Company's 1986 Stock Option Plan at an exercise price of $7.75 per share.
This option is exercisable for a term of ten years and vests over a fifty
month period commencing on the date of grant. During fiscal 1994, 150 of
these shares were exercised by the officer, and as of September 30, 1995 an
additional 149,850 shares were exercisable.
In June 1995, the Company repriced approximately 232,000 of then
outstanding options to an exercise price of $12.00 per share, the fair
market value of the Company's stock on the date of the repricing.
Employee stock purchase plan
The Company has an employee stock purchase plan under which substantially
all employees may purchase common stock through payroll deductions at a
price equal to 85% of its fair market value as of certain specified dates.
Stock purchases under this plan are limited to 10% of an employee's
compensation, and in no event may exceed $21,250 per year. Under this plan
a total of 650,000 shares of common stock have been reserved for issuance
to employees. At September 30, 1995, 255,859 shares remain available for
issuance under the plan.
Employee Stock Plans
The Company account for its stock option plans and the Employee Stock
Purchase Plan in accordance with provisions of the accounting Principles
Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." In 1995, the Financial Accounting Standards Board released the
Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting
for Stock Based Compensation." SFAS 123 provides an alternative to APB 25
and is effective for fiscal years beginning after December 15, 1995. The
Company expects to continue to account for its employee stock plans in
accordance with the provision of APB 25. Accordingly, SFAS 123 is not
expected to have any material impact on the Company's financial position or
results of operations.
NOTE FIVE. FEDERAL AND STATE INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------------------------
For years ended September 30
(in thousands)
<S> <C> <C> <C>
Federal:
Current $ - $(12,583) $ (3,974)
Deferred 7,170 12,311 (7,505)
------ -------- --------
7,170 (272) (11,479)
Foreign:
Current 650 376 297
------ -------- --------
State:
Current 20 (3,641) 844
Deferred 1,230 (1,063) (3,436)
------ -------- --------
1,250 (4,704) (2,592)
------ -------- --------
$9,070 $ (4,600) $(13,774)
====== ========= ========
</TABLE>
F-14
<PAGE> 30
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------------------------------------------------
For years ended September 30
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers $ 27,077 $ 5,100
Reserves and accruals not currently tax deductible 22,342 10,055
Restructuring reserves 22,314 -
Credit carryovers 6,280 3,100
Inventory valuation differences 4,188 12,612
Depreciation 4,079 4,202
Capitalized research & development expenditures 3,202 2,193
Other - 374
--------- ---------
Total deferred tax assets 89,482 37,636
--------- ---------
Valuation allowance for deferred tax assets (85,086) (26,724)
--------- ---------
Deferred tax assets $ 4,396 $ 10,912
========= =========
Deferred tax liabilities:
State income tax $ 3,849 $ 2,512
Other 547 -
--------- ---------
Total deferred tax liabilities 4,396 2,512
--------- ---------
Net deferred tax assets $ - $ 8,400
========= =========
</TABLE>
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The
Company has provided a full valuation allowance against its net deferred
tax assets due to uncertainties surrounding their realization. Due to the
net losses reported in the prior three years and as a result of the
material changes in operations reported in its 1995 fiscal fourth quarter,
predictability of earnings in future periods is uncertain. The Company will
evaluate the realizability of the deferred tax asset on a quarterly basis.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before taxes. The sources
and tax effects of the differences are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------------------------------------------
For years ended September 30
(in thousands)
<S> <C> <C> <C>
Expected tax at statutory rate $(42,935) $(28,726) $(12,080)
Change in valuation allowance 49,820 26,724 -
State income tax, net of federal tax benefit 1,250 (3,105) (1,707)
Non-deductible merger costs - 1,054 -
Non-deductible charge for purchased
research and development - 763 -
Research and development tax credits (497) (458) (734)
Other 1,432 (852) 747
-------- -------- --------
$ 9,070 $ (4,600) $(13,774)
======== ======== ========
</TABLE>
As of September 30, 1995, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $71,000,000 and
$27,900,000, respectively. The state loss carryforwards will
F-15
<PAGE> 31
expire beginning in 1998, if not utilized, and the federal loss
carryforwards will expire beginning in 2010, if not utilized. In addition,
the Company had tax credit carryforwards of approximately $6,280,000 which
will expire beginning in 2005, if not utilized.
Utilization of net operating loss and tax credit carryforwards may be
subject to substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of net
operating losses before utilization.
NOTE SIX. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------------------------
For years ended September 30,
(in thousands)
<S> <C> <C> <C>
Supplemental disclosure of cash
flow information (in thousands):
Cash paid (received) during the year for:
Interest $ 1,620 $ 812 $ 927
======= ======= ======
Income taxes $(8,370) $(8,295) $2,661
======= ======= ======
Supplemental schedule of noncash
investing and financing activities
(in thousands):
Retirement of fully and partially
depreciated assets $ 4,459 $ 6,025 $1,544
======= ======= ======
Tax benefit from stock options
exercised $ - $ 425 $3,358
======= ======= ======
Equipment acquired pursuant to
capital leases $ - $ 2,000 $4,138
======= ======= ======
Common stock issued pursuant to
VideoFusion agreement $ 2,857 $ - $ -
======= ======= ======
</TABLE>
F-16
<PAGE> 32
NOTE SEVEN. EXPORT SALES AND MAJOR CUSTOMERS
The Company currently operates in one principal industry segment: the
design, manufacturing and marketing of color publishing and digital video
computer products. The Company's export sales were approximately
$124,469,000, $112,050,000 and $108,115,000 in the fiscal years ended
September 30, 1995, 1994 and 1993, respectively, and included export sales
to Europe of approximately $57,257,000, $60,621,000, and $59,473,000,
respectively. The Pacific, Asia, and Latin America region sales were
approximately $67,212,000, $51,428,000 and $48,642,000 for fiscal years
ended September 30, 1995, 1994 and 1993, respectively.
One customer accounted for approximately 34.0%, 13.5% and 11.5% of the
Company's net sales during the years ended September 30, 1995, 1994 and
1993, respectively.
NOTE EIGHT. RESTRUCTURING AND OTHER CHARGES
RADIUS JUNE 1993 RESTRUCTURING AND OTHER CHARGES
In June 1993, Radius announced a restructuring program designed to reduce
costs and improve operating efficiencies. The program included, among other
things, the write-down of inventory following Radius' decision to phase out
its older generation of products, lease termination expenses, capital
equipment write-offs, severance payments, and costs associated with the
discontinuation of Radius' minicomputer-class server product. The
restructuring program costs of $15.5 million were recorded during the third
quarter of fiscal 1993. These charges (in thousands) are included in: cost
of sales ($10,993); research and development ($411); and selling, general
and administrative expenses ($4,096). The Company completed this
restructuring event by the end of calendar 1994. There were no material
changes in the restructuring plan or in the estimates of the restructuring
costs from the recognition of the charge in June 1993 with the completion
of the restructuring program in December 1994.
SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES
In December 1993, SuperMac recorded charges of $16.6 million in connection
with a program to adjust inventory levels, eliminate excess facilities,
terminate certain projects and contract arrangements and reduce the number
of employees. The charges (in thousands) are included in: cost of sales
($13,352); research and development ($2,000); and selling, general and
administrative expenses ($1,238). There have been no material changes in
the restructuring plan or in the estimates of the restructuring costs. The
Company has $236,000 remaining in its restructuring reserve related to
facility costs, the balance of which is expected to be eliminated in fiscal
1996. As noted in the Consolidated Financial Statements, the consolidated
results for the Company in both the twelve months ended September 30, 1994
and the fiscal period ended 1993 include SuperMac's $16.6 million charge.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These charges
include the discontinuance of duplicative product lines and related assets;
elimination of duplicative facilities, property and equipment and other
assets; and personnel severance costs as well as transaction fees and costs
incidental to the merger. The charges (in thousands) are included in: net
sales ($3,095); cost of sales ($25,270); research and development ($4,331);
and selling, general and administrative expenses ($10,711). The elements of
the total charge as of September 30, 1995 are as follows (in thousands):
F-17
<PAGE> 33
<TABLE>
<CAPTION>
Representing
------------------------
Cash Outlays
----------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $22,296 $ 19,200 $ 3,096 $ -
Excess facilities 2,790 400 2,236 154
Revision of the operations business model 9,061 7,078 1,268 715
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
------- -------- -------- --------
Total charges $43,407 $26,678 $15,860 $ 869
</TABLE>
The adjustment of inventory levels reflects the discontinuance of
duplicative product lines. The provision for excess facility costs
represents the write-off of leaseholds and sublease costs of Radius'
previous headquarters, the consolidation into one main headquarter and the
consolidation of sales offices. The revision of the operations business
model reflects the reorganization of the combined Company's manufacturing
operations to mirror Radius' manufacturing reorganization in 1993. This
reorganization was designed to outsource a number of functions that
previously were performed internally, reduce product costs through
increased efficiencies and lower overhead, and focus the Company on a
limited number of products. Employee severance costs are related to
employees or temporary employees who were released due to the revised
business model. Approximately 250 employees were terminated in connection
with the Merger. The provision for merger related costs is for the costs
associated with the Merger transaction, such as legal, investment banking
and accounting fees. The Company has spent $15.9 million of cash for
restructuring through September 30, 1995. The Company expects to have
substantially completed the restructuring by September 1996. During fiscal
1995, approximately $2.1 million of merger related restructuring reserves
were reversed and recorded as an expense reduction due to changes in
estimated requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES
In September 1995, Radius recorded charges of $57.9 million in connection
with the Company's efforts to refocus its business on the color publishing
and multimedia markets. The charges primarily included a writedown of
inventory and other assets. Additionally, it included expenses related to
the cancellation of open purchase orders, excess facilities and severance.
The charges (in thousands) are included in cost of sales ($47,004), and
selling, general and administrative expense ($10,861). The elements of the
total charge as of September 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
------------------------
Cash Outlays
----------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $33,138 $ 32,300 $ - $ 838
Excess facilities 2,004 404 - 1,600
Cancellation fees and asset write-offs 19,061 5,196 - 13,865
Employee severance 3,662 - - 3,662
------- -------- ------- --------
Total charges $57,865 $ 37,900 $ - $ 19,965
</TABLE>
The adjustment of inventory levels reflects the discontinuance of several
product lines. The provision for excess facility costs represent the
write-off of leasehold improvements and the costs associated with
anticipated reductions in facilities. The cancellation fees and asset
write-offs reflect the Company's decision to refocus its efforts on
providing solutions for the color publishing and multimedia markets.
Employee severance costs are related to employees or temporary employees
who have been or will be released due to the revised business model. As of
December 15, 1995, approximately 157 positions had been eliminated in
connection with the new business model. The Company had not spent any cash
for this restructuring as of September 30, 1995. As of September 30, 1995,
the Company had cash and cash equivalents of $4.8 million. See
"Management's Business Recovery Plans" at Note 1 due to the Consolidated
Financial Statements. The Company expects to have substantially completed
the restructuring by September 1996.
F-18
<PAGE> 34
NOTE NINE. VIDEOFUSION ACQUISITION
The Company acquired VideoFusion, Inc. ("VideoFusion") on September 9,
1994. VideoFusion is a developer of advanced digital video special effects
software for Apple Macintosh and compatible computers. The Company acquired
VideoFusion in exchange for approximately 890,000 shares of the Company's
Common Stock, 205,900 shares of which were issued at the closing of the
acquisition. The balance of the shares were to be issued in installments
over a period of time contingent on the achievement of certain performance
milestones and other factors. In addition, the Company was required to pay
up to $1.0 million in cash based upon net revenues derived from future
sales of products incorporating VideoFusion's technology. The purchase
price for VideoFusion, including closing costs and the issuance of shares
of Common Stock valued at $500,000 in connection with the achievement of
the first milestone was approximately $2.4 million. This amount was
allocated to the assets and liabilities of VideoFusion and resulted in
identifiable intangibles of approximately $440,000 and an in-process
research and development expense of approximately $2.2 million. The
intangible asset was to be amortized over two years. The Company recognized
the charge of approximately $2.7 million for in-process research and
development and other costs associated with the acquisition of VideoFusion
during the fourth quarter of fiscal 1994.
In May 1995, the Company entered into an agreement with the former holders
of VideoFusion stock to settle the contingent stock and earnout payments
that were originally contemplated. Pursuant to this agreement, the Company
issued approximately 212,000 shares, and paid approximately $200,000, to
the former holders of VideoFusion stock. These transactions resulted in
additional compensation expense of approximately $3.0 million which was
recorded in fiscal 1995.
NOTE TEN. MERGER WITH SUPERMAC TECHNOLOGIES, INC.
On August 31, 1994, Radius merged with SuperMac in exchange for 6,632,561
shares of Radius' common stock. SuperMac was a designer, manufacturer, and
marketer of products that enhanced the power and graphics performance of
personal computers. The Merger was accounted for as a pooling of interests,
and, accordingly, the Company's Consolidated Financial Statements and Notes
to Consolidated Financial Statements have been restated to include the
results of SuperMac for all periods presented.
Separate results of operations for the periods prior to the Merger are as
follows (in thousands):
<TABLE>
<CAPTION>
Merger-
Related
Radius SuperMac Expenses Adjustment Combined
------ -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1994
Net revenues $162,922 $164,978 $ (3,095) $ - $324,805
Net loss (18,293) (15,775) (43,407) - (77,475)
Year ended September 30, 1993
(SuperMac as of December 1993)
Net revenues 134,872 202,501 - - 337,373
Net loss (17,415) (2,724) - - (20,139)
</TABLE>
The merger related expenses reflect the recording of the merger related
restructuring and other charges.
Prior to the Merger, SuperMac's fiscal year end was December 31. SuperMac's
separate results for fiscal 1994 have been restated to conform with the
twelve months ended September 30. The Consolidated Financial Statements for
all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year
basis and SuperMac's on a December 31 calendar year basis. Therefore, the
results for both the fiscal year ended September 30, 1994 and the results
for the fiscal year ended 1993 include the results for SuperMac's three
months ended December 31,
F-19
<PAGE> 35
1993. Unaudited revenues, cost and expenses, and net loss of SuperMac for
the three months ended December 31, 1993 were, $48,478,000, $64,715,000 and
$9,914,000, respectively.
The Company incurred substantial costs in connection with the Merger and
consolidation of operations. Included in the accompanying consolidated
statement of operations for the year ended September 30, 1994 are merger
related expenses totaling $43,407,000 consisting primarily of charges for
the discontinuance of duplicative product lines and related assets,
elimination of duplicative facilities, property and equipment and other
assets, and personnel severance costs as well as transaction fees and costs
incident to the Merger. See Note 8 of Notes to the Consolidated Financial
Statements.
NOTE ELEVEN. SUBSEQUENT EVENTS
PORTRAIT DISPLAY LABS
On December 19, 1995, the Company signed a series of agreements with
Portrait Display Labs, Inc. ("PDL"). The agreements assigned the Company's
pivoting technology to PDL and canceled PDL's on-going royalty obligation
to the Company under an existing license agreement in exchange for a
one-time cash payment. PDL also granted the Company a limited license back
to the pivoting technology. Under these agreements, PDL settled its
outstanding receivable to the Company by paying the Company $500,000 in
cash and issuing to the Company 214,286 shares of PDL's Common Stock. See
Note 1 to the Consolidated Financial Statements.
DISPLAY TECHNOLOGIES ELECTROHOME INC.
On December 21, 1995, the Company signed a Business Purchase Agreement and
an Asset Purchase and License Agreement with Display Technologies
Electrohome Inc. ("DTE"). Pursuant to the agreements and subject to certain
closing conditions, DTE will purchase Radius' monochrome display monitor
business and certain assets related thereto, for approximately $200,000 in
cash and cancellation of $2.5 million of the Company's indebtedness to DTE.
In addition, DTE and Radius will cancel outstanding contracts relating to
DTE's manufacture and sale of monochrome display monitors to Radius.
COLOR SERVER GROUP
On December 23, 1995, the Company signed a definitive agreement pursuant to
which the Company will sell its Color Server business to Splash Merger
Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology
Holdings, Inc. (the "Parent"), a corporation formed by various investment
entities associated with Summit Partners. The Company will receive
approximately $21,945,175 in cash (subject to certain post-closing
adjustments) and 4,282 shares of the Parent's 6% Series B Redeemable and
Convertible Preferred Stock (the " Series B Preferred Stock"). The shares
of Series B Preferred Stock will be convertible by the Company at any time
into 19.9% of the Parent's common stock outstanding as of the closing of
the transaction. The shares of Series B Preferred Stock also will be
redeemable by the Parent at any time, and will be subject to mandatory
redemption beginning on the sixth anniversary of issuance, in each case at
a redemption price of $1,000 per share plus accrued dividends. The
transaction is expected to close in January 1996. Under the Inventory and
Working Capital Agreement, as recently amended, with IBM Credit Corp., the
Company is required to pay all of the net proceeds of the Color Server
business transaction to IBM Credit Corp. in order to reduce the Company's
outstanding indebtedness under that agreement.
IBM CREDIT CORP.
On December 14, 1995, the Company and IBM Credit Corp. ("ICC") amended the
Inventory and Working Capital Financing Agreement (the "ICC Agreement")
entered into by the Company and ICC on February 17, 1995 and subsequently
revised in September 1995 to fund the manufacturing of the Company's MacOS
compatible systems products. See Note 2 to the Consolidated Financial
Statements. Under the amendment, ICC waived the Company's failure to comply
with all of its contractual obligations and financial covenants under the
ICC Agreement. The ICC Amendment, among other things, also provides that
until March 31, 1996 ICC will extend advances to the Company in an amount
up to 90% of the Company's collections and fund the Company's payroll in
the event that collections are insufficient to permit the advances needed
for this purpose. Such advances
F-20
<PAGE> 36
and payroll funding, however, may be suspended by ICC (i) immediately
following a default of the ICC Amendment, and (ii) following thirty (30)
days notice in the event of any default of the ICC Agreement. The ICC
Amendment also requires the Company to pay all of the net proceeds of the
Color Server Group transaction to ICC to reduce the Company's outstanding
indebtedness under the ICC Agreement.
1995 STOCK OPTION PLAN
On December 20, 1995, the Company's Board of Directors adopted the 1995
Stock Option Plan to replace the 1986 Stock Option Plan that expires in
1996, and reserved 850,000 shares (plus all unissued and unexercised shares
available under the existing 1986 Stock Option Plan) for issuance
thereunder. The 1995 Stock Option Plan is subject to shareholder approval.
See Note 4 to the Consolidated Financial Statements.
F-21
<PAGE> 37
SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions(1) period
----------- ---------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended September 30, 1993 (2) $1,825 $1,272 $0 $975 $2,122
Year ended September 30, 1994 $2,018 (2) $1,283 $0 $753 $2,548
Year ended September 30, 1995 $2,548 $6,837 $0 $883 $8,502
</TABLE>
- - - - -----------------------------
(1) Uncollectable accounts written off.
(2) The Consolidated Financial Statements for fiscal 1993 have not been
restated for the change in fiscal year. This period includes Radius'
results of operations and balance sheet data on a September 30 fiscal
year basis and SuperMac's on a December 31 calendar year basis.
F-22
<PAGE> 38
RADIUS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
(unaudited)
------------
<S> <C>
ASSETS:
Current assets:
Cash $ 6,990
Accounts receivable, net 25,308
Inventories 12,564
Prepaid expenses and other current assets 12,091
Income tax receivable 517
---------
Total current assets 57,470
Property and equipment, net 2,572
Deposits and other assets 512
---------
$ 60,554
=========
LIABILITIES AND SHAREHOLDERS' EQUITY (Net capital deficiency)
Current liabilities:
Accounts payable $ 42,886
Accrued payroll and related expenses 6,083
Accrued warranty costs 2,510
Other accrued liabilities 11,231
Accrued income taxes 1,636
Accrued restructuring and other charges 16,980
Short-term borrowings 43,795
Obligation under capital leases - current portion 1,524
---------
Total current liabilities 126,645
Obligations under capital leases - noncurrent portion 831
Commitments and contingencies
Shareholders' equity: (Net capital deficiency)
Common stock 117,127
Common stock to be issued 8,695
Accumulated deficit (192,776)
Accumulated translation adjustment 32
---------
Total shareholders' equity (Net capital deficiency) (66,922)
---------
$ 60,554
=========
</TABLE>
See accompanying notes.
F-23
<PAGE> 39
RADIUS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Net sales $ 32,652 $ 79,235
Cost of sales 28,607 56,758
-------- --------
Gross profit 4,045 22,477
-------- --------
Operating expenses:
Research and development 3,630 4,118
Selling, general and administrative 9,961 15,882
-------- --------
Total operating expenses 13,591 20,000
-------- --------
Income (loss) from operations (9,546) 2,477
Other expense (46) (920)
Settlement of litigation -- (12,422)
-------- --------
Loss before income taxes (9,592) (10,865)
Provision for income taxes 191 156
-------- --------
Net loss $ (9,783) $(11,021)
======== ========
Loss per share:
Net loss per share $ (0.57) $ (0.78)
======== ========
Common and common equivalent shares used 17,248 14,215
in computing net loss per share ======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE> 40
RADIUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,783) $(11,021)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 654 688
Common stock to be issued -- 12,022
(Increase) decrease in assets:
Accounts receivable 36,352 (1,425)
Allowance for doubtful accounts (47) 283
Inventories 2,507 (10,620)
Prepaid expenses and other current assets (9,755) (16)
Income tax receivable 2 --
Deferred income taxes -- --
Increase (decrease) in liabilities:
Accounts payable (30,212) 8,894
Accrued payroll and related expenses 268 499
Accrued warranty costs (660) 15
Other accrued liabilities (689) 3,748
Accrued restructuring costs (33) (7,165)
Accrued income taxes (29) 103
-------- --------
Net cash used in operating activities (11,425) (3,995)
Cash flows from investing activities:
Capital expenditures (195) (955)
Deposits and other assets 5 (270)
-------- --------
Net cash used in investing activities (190) (1,225)
Cash flows from financing activities:
Principal borrowings(payments) of short-term borrowings, net 14,306 (17)
Principal payments of long-term debt and capital leases (470) (604)
Issuance of common stock 9 299
-------- --------
Net cash provided by (used in) financing activities 13,845 (322)
-------- --------
Net increase (decrease) in cash and cash equivalents 2,230 (5,542)
Cash and cash equivalents, beginning of period 4,760 15,997
-------- --------
Cash and cash equivalents, end of period $ 6,990 $ 10,455
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest paid $ 934 $ 389
======== ========
Income taxes paid $ 218 $ --
======== ========
</TABLE>
See accompanying notes.
F-25
<PAGE> 41
RADIUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Radius Inc. ("Radius") as of December
31, 1995 and for the three months ended December 31, 1995 and 1994 are
unaudited. In the opinion of management, the consolidated financial statements
reflect all adjustments (consisting only of normal recurring items) necessary
for a fair presentation of the financial position and results of operations for
the interim periods presented. These consolidated financial statements should be
read in conjunction with the Consolidated Financial Statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1995.
During the first quarter of its 1995 fiscal year, the Company changed its fiscal
year end from the Sunday closest to September 30 to the Friday closest to
September 30. During the second quarter of its 1995 fiscal year, the Company
changed its fiscal year end to the Saturday closest to September 30 for
operational efficiency purposes. For clarity of presentation, all fiscal periods
are reported as ending on a calendar month end.
NOTE 2. INVENTORIES
Inventories, stated at the lower of cost or market, consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
------------ -------------
(unaudited)
<S> <C> <C>
Raw materials $ 1,927 $ 1,559
Work in process 1,107 2,258
Finished goods 9,530 11,254
------- -------
$12,564 $15,071
======= =======
</TABLE>
NOTE 3. COMMITMENTS AND CONTINGENCIES
(a) In November 1995, Electronics for Imaging, Inc. ("EFI") filed a suit in the
United States District Court in the Northern District of California alleging
that the Company infringes a patent allegedly owned by EFI. Although the
complaint does not specify which of the Company's products allegedly infringe
the patent, subsequent pleading indicates that EFI alleges that the Company's
Color Server products allegedly infringe. As of December 31, 1995, the Company's
Color Server products were material to its business. In January 1996, the
Company completed its divestiture of the Color Server Group. The Company has
certain indemnification obligations relating to this litigation. See Item 5
Other Information - Color Server Group Divestiture.
The Company has filed an answer denying all material allegations, and has filed
amended counterclaims against EFI alleging causes of action for interference
with prospective economic benefit, antitrust violations, and unfair business
practices. EFI has filed a motion to dismiss or sever the Company's amended
counterclaims. The Company believes it has meritorious defenses to EFI's claims
and is defending them vigorously. In addition, the Company believes it may have
indemnification rights with respect to EFI's claims. In the opinion of
management, based on the facts known at this time, the eventual outcome of this
case is unlikely to have a material adverse effect on the results of operations
or financial position of the Company.
(b) The Company was named as one of approximately 42 defendants in Shapiro et
al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara
County, case no. CV751685, filed August 14, 1995. Radius was named as one of
approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer et al.,
Superior Court of New Jersey, Essex County, case no. L-13780-95, filed December
15, 1995. Plaintiffs in each case purport to represent alleged classes of
similarly situated persons and/or the general public, and allege that the
defendants falsely advertise that the viewing areas of their computer monitors
are larger than in fact they are.
F-26
<PAGE> 42
The Company was served with the Shapiro complaint on August 22, 1995, and was
served with the Maizes complaint on January 5, 1996. Defendants' petition to the
California State Judicial Council to coordinate the Shapiro case with similar
cases brought in other California jurisdictions was granted in part and it is
anticipated that the coordinated proceedings will be held in Superior Court of
California, San Francisco County. Discovery proceedings have not yet begun in
either case. In the opinion of management, based on the facts known at this
time, the eventual outcome of these cases is unlikely to have a material adverse
effect on the results of operations or financial position of the Company.
NOTE 4. BUSINESS DIVESTITURES
COLOR SERVER GROUP DIVESTITURE
In December 1995, the Company signed a definitive agreement pursuant to which
the Company will sell its Color Server Group ("CSG") to Splash Merger Company,
Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology Holdings,
Inc. (the "Parent"), a corporation formed by various investment entities
associated with Summit Partners. The Company will receive approximately
$21,945,175 in cash (subject to certain post-closing adjustments) and 4,282
shares of the Parent's 6% Series B Redeemable and Convertible Preferred Stock
(the "Series B Preferred Stock"). The shares of Series B Preferred Stock will be
convertible by the Company at any time into approximately 19.9% of the Parent's
common stock outstanding as of the closing of the transaction. The shares of
Series B Preferred Stock also will be redeemable by the Parent at any time, and
will be subject to mandatory redemption beginning on the sixth anniversary of
issuance, in each case at a redemption price of $1,000 per share plus accrued
dividends. The transaction, as subsequently amended, closed in January 1996. The
Company retains certain indemnification obligations in connection with the
patent lawsuit brought by Electronics for Imaging, Inc. See Item 1 "Legal
Proceedings". The net proceeds of the Color Server Group transaction were paid
to Silicon Valley Bank ("SVB"), in order to repay the Company's indebtedness to
SVB, and to IBM Credit Corp. ("ICC"), in order to reduce the Company's
outstanding indebtedness to ICC.
PORTRAIT DISPLAY LABS
In December 1995, the Company signed a series of agreements with Portrait
Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting
technology to PDL and canceled PDL's on-going royalty obligation to the Company
under an existing license agreement in exchange for a one-time cash payment. PDL
also granted the Company a limited license back to the pivoting technology.
Under these agreements, PDL also settled its outstanding receivable to the
Company by paying the Company $500,000 in cash and issuing to the Company
214,286 shares of PDL's Common Stock. These transactions closed in January 1996.
DISPLAY TECHNOLOGIES ELECTROHOME INC.
In December 1995, the Company signed a Business Purchase Agreement and an Asset
Purchase and License Agreement with Display Technologies Electrohome Inc.
("DTE"). Pursuant to the agreements, DTE purchased Radius' monochrome display
monitor business and certain assets related thereto, for approximately $200,000
in cash and cancellation of $2.5 million of the Company's indebtedness to DTE.
In addition, DTE and Radius canceled outstanding contracts relating to DTE's
manufacture and sale of monochrome display monitors to Radius.
UMAX DATA SYSTEMS, INC.
In January 1996, the Company signed a definitive agreement pursuant to which the
Company will sell its MacOS compatible systems business to UMAX Computer
Corporation ("UCC"), a company formed by UMAX Data Systems, Inc. ("UMAX"). The
Company will receive approximately $2,250,000 in cash and debt relief, and
1,492,500 shares of UCC's Common Stock, representing approximately 19.9% of
UCC's then outstanding shares of Common Stock. After the closing, the Company
has a right to receive royalties based on UCC's net revenues related to the
MacOS compatible systems business. The closing of this transaction is subject to
certain conditions.
F-27
<PAGE> 43
RADIUS INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
JUNE 10, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned hereby appoints Charles W. Berger and Cherrie Fosco, or
either of them, each with power of substitution, to represent the
undersigned at the Special Meeting of Shareholders of Radius Inc. (the
"Company") to be held at 215 Moffett Park Drive, Sunnyvale, California
94089 on June 10, 1996, at 11:00 a.m., P.D.T., and any adjournment or
postponement thereof, and to vote the number of shares the undersigned
would be entitled to vote if personally present at the meeting on the
following matters:
SEE REVERSE
SIDE
<PAGE> 44
/X/ Please mark
your choices
like this
-------------- --------------
ACCOUNT NUMBER COMMON
FOR AGAINST ABSTAIN
ISSUANCE OF CERTAIN / / / / / /
CONVERTIBLE
PREFERRED STOCK
FOR AGAINST ABSTAIN
AMENDMENT TO / / / / / /
ARTICLES OF
INCORPORATION TO
INCREASE AUTHORIZED
SHARES OF COMMON
STOCK
The Board of Directors recommends a vote FOR the Proposals.
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY
WILL BE VOTED FOR THE PROPOSALS.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment or postponement
thereof to the extent authorized by Rule 14a-4(c) promulgated by the Securities
and Exchange Commission.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
Dated:____________________________________________________________________, 1996
________________________________________________________________________________
________________________________________________________________________________
Signature(s)
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares are held of record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased shareholder should give
their full title. Please date the proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THIS PROXY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE SO THAT YOUR
SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE> 45
PURSUANT TO NOTE D.4. OF SCHEDULE 14A, THE FOLLOWING INFORMATION FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1995,
WHICH IS INCORPORATED BY REFERENCE IN THE COMPANY'S PROXY STATEMENT, IS BEING
FILED IN ELECTRONIC FORMAT CONCURRENTLY WITH THE PROXY STATEMENT:
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the consolidated
interim financial statements and the notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the year ended September 30, 1995.
All assumptions, anticipations, and expectations contained herein are
forward-looking statements that involve uncertainty and risk. Actual results
could differ materially from those projected in such forward-looking statements.
Each forward-looking statement should be read in conjunction with the entire
consolidated interim financial statements and the notes thereto in Part I, Item
1 of this Quarterly Report, with the information contained in Item 2, including,
but not limited to, Management's Discussion and Analysis of Financial Condition
and Results of Operations - Certain Factors That May Affect Future Results, and
with Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the year
ended September 30, 1995, including, but not limited to, Management's Discussion
and Analysis of Financial Condition -- Certain Factors That May Affect the
Company's Future Results of Operations, and Business Divestitures.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operational
data as a percentage of net sales (may not add due to rounding).
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1995 1994
----- -----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 87.6 71.6
----- -----
Gross profit 12.4 28.4
----- -----
Operating expenses:
Research and development 11.1 5.2
Selling, general and administrative 30.5 20.0
----- -----
Total operating expenses 41.6 25.2
----- -----
Income (loss) from operations (29.2) 3.1
Other expense (0.1) (1.2)
Settlement of litigation -- (15.7)
----- -----
Loss before income taxes (29.4) (13.7)
Provision for income taxes 0.6 0.2
----- -----
Net loss (30.0)% (13.9)%
===== =====
</TABLE>
NET SALES
The Company's net sales decreased 58.8% to $32.7 million in the first quarter of
fiscal 1996 from $79.2 million for the same quarter in fiscal 1995. This decline
was primarily due to the Company's efforts to refocus its business which
<PAGE> 46
included exiting markets for high-volume low-margin displays and reduced sales
of the Company's video products caused by Apple's shift from Nubus to PCI Bus
computers. The Company anticipates lower revenue from its video product line in
the future, at least until the Company introduces new products now under
development including those which function on PCI Bus computers. These declines
were partially offset by an increase in net sales from the Company's color
server products. As a result of the sale by the Company of its Color Server
Group (as described more fully in the Company's Annual Report on Form 10-K,
Management's Discussion and Analysis of Financial Condition -- "Certain Factors
That May Affect the Company's Future Results of Operations, and Business
Divestitures," and below in Item 5 "Other Information"), revenue from the
Company's color server products will not continue. Net sales of the Company's
graphics cards was essentially unchanged despite the transition from Nubus to
PCI Bus.
One customer, Ingram Mirco, accounted for 37.5% and 10% of the Company's net
sales for the first quarter of fiscal 1996 and 1995, respectively.
The Company's export sales increased to 63.4% of net sales in first quarter of
fiscal 1996 from 29.2% of net sales in the same quarter of fiscal 1995 primarily
due to increased sales in the Asia-Pacific sales region combined with decreased
sales in the North America sales region. The Company anticipates a continued
significant percentage of net sales will be attributable to the Asia-Pacific
sales region even after the divestiture of the Company's Color Server Group.
Export sales are subject to the normal risks associated with doing business in
foreign countries such as currency fluctuations, longer payment cycles, greater
difficulties in accounts receivable collection, export controls and other
government regulations and, in some countries, a lesser degree of intellectual
property protection as compared to that provided under the laws of the United
States. The Company hedges substantially all of its trade receivables
denominated in foreign currency through the use of foreign currency forward
exchange contracts. Gains and losses associated with currency rate changes on
forward contracts are recognized in the Company's consolidated statements of
operations and were not material in the first quarter of fiscal 1996 or 1995.
GROSS PROFIT
The Company's gross profit margin was 12.4% and 28.4% for the first quarters of
fiscal 1996 and 1995, respectively. The decline in gross margin was primarily
due to pricing pressure and greater competition in PCI Bus products than in
Nubus products, and price declines on lower margin displays related to the
Company's exit from that business.
The Company anticipates continued price reductions and margin pressure within
its industry. The Company is responding to these trends by focusing on higher
margin products, taking further steps to reduce product costs and controlling
expenses. There can be no assurance that the Company's gross margins will
recover or remain at current levels.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased to $3.6 million or 11.1% of net
sales in the first quarter of fiscal 1996 from $4.1 million or 5.2% of net sales
in the same quarter of fiscal 1995. The Company decreased its research and
development expenses primarily by reducing expenses related to headcount
resulting from the Company's efforts to refocus its business. The increase in
research and development expenses expressed as a percentage of net sales was
primarily attributed to the decrease in net sales and the Company's refocusing
on higher-end products, rather than high-volume lower-margin products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $10.0 million or 30.5%
of net sales in the first quarter of fiscal 1996 from $15.9 million or 20.0% of
net sales in the same quarter of fiscal 1995. The Company decreased its selling,
general and administrative expenses primarily by reducing expenses related to
headcount resulting from the Company's efforts to refocus its business. The
increase in selling, general and administrative expenses expressed as a
percentage of net sales was primarily attributed to the decrease in net sales
and the Company's refocusing on higher-end products, rather than high-volume
lower-margin products.
RESTRUCTURING, MERGER AND OTHER CHARGES
-2-
<PAGE> 47
During fiscal 1994 and 1995, two restructuring and other charges were recorded.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These charges
include the discontinuance of duplicative product lines and related assets;
elimination of duplicative facilities, property and equipment and other assets;
and personnel severance costs as well as transaction fees and costs incidental
to the merger. The charges (in thousands) are included in: net sales ($3,095);
cost of sales ($25,270); research and development ($4,331); and selling, general
and administrative expenses ($10,711). The elements of the total charge as of
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
------------------------
Cash Outlays
----------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $22,296 $19,200 $ 3,096 $ --
Excess facilities 2,790 400 2,239 151
Revision of the operations business model 9,061 7,078 1,268 715
Employee severance 6,311 -- 6,311 --
Merger related costs 2,949 -- 2,949 --
------- ------- ------- -------
Total charges $43,407 $26,678 $15,863 $ 866
</TABLE>
The adjustment of inventory levels reflects the discontinuance of duplicative
product lines. The provision for excess facility costs represents the write-off
of leaseholds and sublease costs of Radius' previous headquarters, the
consolidation into one main headquarters and the consolidation of sales offices.
The revision of the operations business model reflects the reorganization of the
combined Company's manufacturing operations to mirror Radius' manufacturing
reorganization in 1993. This reorganization was designed to outsource a number
of functions that previously were performed internally, reduce product costs
through increased efficiencies and lower overhead, and focus the Company on a
limited number of products. Employee severance costs are related to employees or
temporary employees who were released due to the revised business model.
Approximately 250 employees were terminated in connection with the Merger. The
provision for merger related costs is for the costs associated with the Merger
transaction, such as legal, investment banking and accounting fees. The Company
has spent $15.9 million of cash for restructuring through December 31, 1995. The
Company expects to have substantially completed the restructuring by September
1996. During fiscal 1995, approximately $2.1 million of merger related
restructuring reserves were reversed and recorded as an expense reduction due to
changes in estimated requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES
In September 1995, Radius recorded charges of $57.9 million in connection with
the Company's efforts to restructure its operations by refocusing its business
on the color publishing and multimedia markets. The charges primarily included a
writedown of inventory and other assets. Additionally, the charges included
expenses related to the cancellation of open purchase orders, excess facilities
and employee severance. The Company continues to record charges relating to its
restructuring during the quarter ended December 31, 1995, and the charges
included expenses related to employee severance of $448,000. The Charges (in
thousands) are included in cost of sales ($47,004), and selling, general and
administrative expense ($10,861). The elements of the total charge as of
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
------------------------
Cash Outlays
------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $33,138 $32,300 $ -- $ 838
Excess facilities 2,004 404 -- 1,600
Cancellation fees and asset write-offs 19,061 5,196 -- 13,865
</TABLE>
-3-
<PAGE> 48
<TABLE>
<S> <C> <C> <C> <C>
Employee severance 3,662 -- 448 3,214
------- ------- ------- -------
Total charges $57,865 $37,900 $ 448 $19,517
</TABLE>
The adjustment of inventory levels reflects the discontinuance of several
product lines. The provision for excess facility costs represent the write-off
of leasehold improvements and the costs associated with anticipated reductions
in facilities. The cancellation fees and asset write-offs reflect the Company's
decision to refocus its efforts on providing solutions for the color publishing
and multimedia markets. Employee severance costs are related to employees or
temporary employees who have been or will be released due to the restructuring.
During the quarter ended December 31, 1995, approximately 200 positions had been
eliminated in connection with the restructuring. The Company had spent
approximately $448,000 of cash for this restructuring during the quarter ended
December 31, 1995. As of December 31, 1995, the Company had cash of $7.0
million. See the Company's Annual Report on Form 10-K, and "Management's
Business Recovery Plans" at Note 1 to the Consolidated Financial Statements
contained therein. The Company expects to have substantially completed the
restructuring by September 1996.
LITIGATION SETTLEMENT
In September 1992, the Company and certain of its officers and directors were
named as defendants in a securities class action litigation brought in the
United States District Court for the Northern District of California that sought
unspecified damages, prejudgment and post judgment interest, attorneys' fees,
expert witness fees and costs, and equitable relief. In July 1994, SuperMac
Technology, Inc. ("SuperMac") and certain of its officers and directors, several
venture capital firms and several of the underwriters of SuperMac's May 1992
initial public offering and its February 1993 secondary offering were named as
defendants in a class action litigation brought in the same court that sought
unspecified damages, prejudgment and post judgment interest, attorneys' fees,
experts' fees and costs, and equitable relief (including the imposition of a
constructive trust on the proceeds of defendants' trading activities).
In June 1995, the Court approved the settlement of both litigations and entered
a Final Judgment and Order of Dismissal. Under the settlement of the litigation
brought in 1992 against the Company, the Company's insurance carrier paid $3.7
million in cash and the Company is to issue a total of 128,695 shares of its
Common Stock to a class action settlement fund. In the settlement of the
litigation brought in 1994 against SuperMac, the Company paid $250,000 in cash
and is to issue into a class action settlement fund a total of 707,609 shares of
its Common Stock. The number of shares to be issued by the Company will increase
by up to 100,000 if the price of the Company's Common Stock is below $12 per
share during the 60-day period following the initial issuance of shares. In
connection with these settlements, the financial statements for the first
quarter of fiscal 1995 included a charge to other income of $12.4 million,
reflecting settlement costs not covered by insurance as well as related legal
fees, resulting in a reduction in net income from $1.4 million to a net loss of
$11.0 million or $0.78 per share for the quarter.
The settlements will result in dilution to existing shareholders of the Company
ranging from 4.8% to 5.4% depending on the number of shares of Radius Common
Stock issued. The Company had 17,401,094 weighted average common shares
outstanding as of December 31, 1995. As of December 31, 1995, the Company had
issued 259,130 shares of its Common Stock due to the settlements. The Company
anticipates that the remainder will be issued prior to June 30, 1996. See Note 3
of Notes to Consolidated Financial Statements contained herein.
PROVISION FOR INCOME TAXES
The Company recorded a tax provision of $191,000 for the first quarter of fiscal
1996 as compared to a provision for taxes for the first quarter of fiscal 1995
of $156,000. The tax provision is primarily comprised of foreign taxes.
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The Company
has provided a full valuation allowance against its net deferred tax assets due
to uncertainties surrounding their realization. Due to the net losses reported
in the prior three years and as a result of the material changes in operations
reported in its 1995 fiscal fourth quarter, predictability of earnings in future
periods is uncertain. The Company will evaluate the realizability of the
deferred tax asset on a quarterly basis.
-4-
<PAGE> 49
FINANCIAL CONDITION
The Company's cash increased approximately $2.2 million in the first quarter of
fiscal 1996 to $7.0 million at December 31, 1995 as compared to the ending
balance at September 30, 1995. This increase was primarily due to the revised
terms of the Inventory and Working Capital Agreement, as recently amended, with
IBM Credit Corp. Approximately $0.9 million of the $7.0 million of cash and cash
equivalents available at December 31, 1995 was restricted under various letters
of credit.
At December 31, 1995, the Company's principal sources of liquidity included
approximately $30.0 million in inventory and working capital financing (and an
additional $20.0 million provided to finance the manufacturing of the Company's
MacOS compatible computers) under an agreement with IBM Credit Corporation (the
"ICC Agreement"), all of which was fully utilized. At December 31, 1995,
approximately $40.1 million was outstanding to IBM Credit Corp., which was
subsequently reduced by approximately $16.6 million in connection with the sale
of the Company's Color Server Group to Splash Merger Company, Inc. and the sale
of the Company's pivoting technology to Portrait Display Labs, Inc. in the first
calendar quarter of 1996.
In addition, at December 31, 1995, the Company had a $5.0 million credit
arrangement with Silicon Valley Bank ("SVB") which was partially utilized as of
that date. Additionally, the Company's Japanese subsidiary has a revolving line
of credit with a bank in Japan under which $3.0 million has been utilized as of
December 31, 1995.
As of December 31, 1995, IBM Credit Corp. had waived defaults of the Company
with respect to its contractual obligations and financial covenants under the
ICC Agreement, pursuant to an amendment to the ICC Agreement executed in
December 1995 (the "ICC Amendment") which expires March 31, 1995. The ICC
Amendment, among other things, also provides that IBM Credit Corp. will extend
advances to the Company in an amount up to 90% of the Company's collections and
fund the Company's payroll in the event that collections are insufficient to
permit the advances needed for this purpose. Such advances and payroll funding,
however, may be suspended by IBM Credit Corp. (i) immediately following a
default of the ICC Amendment, and (ii) following thirty days notice in the event
of any default of the underlying ICC Agreement. In the first calendar quarter of
1996, the Company was not in compliance with all its contractual obligations and
financial covenants under its credit arrangement with ICC.
As of December 31, 1995, the Company was not in compliance with all of its
contractual obligations and financial covenants under its credit arrangement
with SVB. As of December 31, 1995 approximately $700,000 was outstanding under
this credit arrangement, all of which the Company repaid SVB during the first
calendar quarter of 1996 from the proceeds of the sale of the Company's Color
Server Group.
The Company's limited cash resources have restricted the Company's ability to
purchase inventory, which in turn has limited its ability to manufacture and
sell products and has resulted in additional costs for expedited deliveries. The
Company also is delinquent in its accounts payable as payments to vendors are
not being made in accordance with vendor terms. Several vendors have initiated
legal action to collect allegedly delinquent accounts and at least two vendors
have threatened the Company with institution of insolvency and/or bankruptcy
proceedings. The adverse effect on the Company's results of operations due to
its limited cash resources can be expected to continue until such time as the
Company is able to return to profitability, or generate additional cash from
other sources. There can be no assurance that the Company will be able to do so.
Additional funds will be needed to finance the Company's development plans and
for other purposes, and the Company is now investigating possible financing
opportunities. There can be no assurance that additional financing will be
available when needed or, if available, that the terms of such financing will
not adversely affect the Company's results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:
-5-
<PAGE> 50
NET CAPITAL DEFICIENCY; CREDITOR DEMANDS AND LITIGATION
As of December 31, 1995, the Company had total assets of approximately $60.6
million and total current liabilities of approximately $126.6 million. The
Company is delinquent in its accounts payable as payments to certain vendors are
not being made in accordance with vendor terms. In addition to the matters
discussed in Part II below under "Item 1. Legal Proceedings," several vendors
have initiated legal action to collect allegedly delinquent accounts. At least
two vendors have orally threatened the Company with initiation of insolvency or
bankruptcy proceedings.
The Company has initiated the process of establishing a creditors' committee in
an effort to work toward resolving the capital deficiency and creditor
litigation issues outside of formal insolvency or bankruptcy proceedings. The
Company anticipates formally proposing a plan under which unsecured creditors'
claims will be exchanged for equity in the Company and/or in certain businesses
or holdings of the Company.
The Company has incurred and expects to continue to incur significant legal
expense in responding to creditor demands, litigation, and the workout process.
There can be no assurance that the Company will be able to reach accommodation
with its secured creditors and its unsecured creditors outside of bankruptcy, or
that the terms of any accommodation reached will not dilute shareholder value or
adversely affect the Company's result of operations. There can be no assurance
that the Company will not be placed into an involuntary bankruptcy by its
creditors, or that, if bankruptcy proceedings are initiated, they will not
result in the liquidation of the Company or will not otherwise materially and
adversely affect the Company's result of operations.
Absent reaching an agreement with its creditors, the Company will require
additional funding to repay its accounts payable and other indebtedness, in
addition to funding its operating and product development activities. The
company is investigating possible financing alternatives, although there can be
no assurance that additional financing will be available when needed or, if
available, that the terms of such financing will not adversely affect the
Company's results of operations.
CONTINUING OPERATING LOSSES
The Company experienced net operating losses in the fiscal quarter ended
December 31, 1995, and in each of the fiscal years ended September 30, 1993,
1994 and 1995. The Company's ability to continue operations will depend,
initially, upon the Company's success in negotiating accommodations with
creditors; assuming such accommodations are reached, the Company's ability to
achieve and sustain profitable operations will depend upon a number of other
factors, including the Company's ability to control costs; to develop innovative
and cost-competitive new products and to bring those products to market in a
timely manner; the continual commercial acceptance of Apple computers and the
rate and mix of Apple computers and related products sold; competitive factors
such as new product introductions, product enhancements and aggressive marketing
and pricing practices; general economic conditions; and other factors. The
Company has faced and expects to continue to face increased competition in
graphic cards as a result of Apple's transition of its product line to the PCI
Bus. In addition, the Company anticipates significantly lower revenue and gross
profit from its digital video products primarily due to lower than anticipated
sell through rates for Radius Telecast and the delayed debut of PCI Bus
compatible video products. For these and other reasons, there can be no
assurance that the Company will be able to achieve profitability in the near
term.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced substantial fluctuations in operating results. The
Company's customers generally order on an as-needed basis, and the Company has
historically operated with relatively small backlogs. Quarterly sales and
operating results depend heavily on the volume and timing of bookings received
during the quarter, which are difficult to forecast. A substantial portion of
the Company's revenues are derived from sales made late in each quarter, which
increases the difficulty in forecasting sales accurately. Recently, shortages of
available cash have delayed the Company's receipt of products from suppliers and
increased shipping and other costs. The Company recognizes sales upon shipment
of product, and allowances are recorded for estimated uncollectable amounts,
returns, credits and similar costs, including product warranties and price
protection. Due to the inherent uncertainty of such estimates, there can be no
assurance that the Company's forecasts regarding bookings, collections, rates of
return, credits and related matters will be accurate. A significant portion of
the operating expenses of the Company are relatively fixed in nature, and
planned expenditures are based primarily on sales forecasts which, as indicated
above, are uncertain. Any inability on the part of the Company to
-6-
<PAGE> 51
adjust spending quickly enough to compensate for any failure to meet sales
forecasts or to receive anticipated collections, or any unexpected increase in
product returns or other costs, could also have an adverse impact on the
Company's operating results.
DEPENDENCE ON AND COMPETITION WITH APPLE
Historically, substantially all of the Company's products have been designed for
and sold to users of Apple personal computers, and it is expected that sales of
products for such computers will continue to represent substantially all of the
net sales of the Company for the foreseeable future. The Company's operating
results would be adversely affected if Apple should lose market share, if
Macintosh sales were to decline or if other developments were to adversely
affect Apple's business. Furthermore, any difficulty that may be experienced by
Apple in the development, manufacturing, marketing or sale of its computers, or
other disruptions to, or uncertainty in the market regarding, Apple's business,
resulting from these or other factors could result in reduced demand for Apple
computers, which in turn could materially and adversely affect sales of the
Company's products. As software applications for the color publishing and
multimedia markets become more available on platforms other than Macintosh, it
is likely that these other platforms will continue to gain acceptance in these
markets. For example, recently introduced versions of the Windows operating
environment support high performance graphics and video applications similar to
those offered on the Macintosh. There is a risk that this trend will reduce the
support given to Macintosh products by third party developers and could
substantially reduce demand for Macintosh products and peripherals over the long
term.
A number of the Company's products compete with products marketed by Apple. As a
competitor of the Company, Apple could in the future take steps to hinder the
Company's development of compatible products and slow sales of the Company's
products. The Company's business is based in part on supplying products that
meet the needs of high-end customers that are not fully met by Apple's products.
As Apple improves its products or bundles additional hardware or software into
its computers, it reduces the market for Radius products that provide those
capabilities. For example, the Company believes that the on-board performance
capabilities included in Macintosh Power PC products have reduced and continue
to reduce overall sales for the Company's graphics cards. In the past, the
Company has developed new products as Apple's progress has rendered existing
Company products obsolete. However, in light of the Company's current financial
condition there can be no assurance that the Company will continue to develop
new products on a timely basis or that any such products will be successful. In
order to develop products for the Macintosh on a timely basis, the Company
depends upon access to advance information concerning new Macintosh products. A
decision by Apple to cease sharing advance product information with the Company
would adversely affect the Company's business.
New products anticipated from and introduced by Apple could cause customers to
defer or alter buying decisions due to uncertainty in the marketplace, as well
as presenting additional direct competition for the Company. For example, the
Company believes that Apple's transition during 1994 to Power PC products caused
delays and uncertainties in the market place and had the effect of reducing
demand for the Company's products. In addition, sales of the Company's products
have been adversely affected by Apple's revamping of its entire product line
from Nubus-based to PCI Bus- based computers. In the past, transitions in
Apple's products have been accompanied by shortages in those products and in key
components for them, leading to a slowdown in sales of those products and in the
development and sale by the Company of compatible products. In addition, it is
possible that the introduction of new Apple products with improved performance
capabilities may create uncertainties in the market concerning the need for the
performance enhancements provided by the Company's products and could reduce
demand for such products.
COMPETITION
The markets for the Company's products are highly competitive, and the Company
expects competition to intensify. Many of the Company's current and prospective
competitors have significantly greater financial, technical, manufacturing and
marketing resources than the Company. The Company believes that its ability to
compete will depend on a number of factors, including the amount of financial
resources available to the Company, whether the Company can reach an
accommodation with its creditors, success and timing of new product developments
by the Company and its competitors, product performance, price and quality,
breadth of distribution and customer support. There can be no assurance that the
Company will be able to compete successfully with respect to these factors. In
addition, the introduction of lower priced competitive products could result in
price reductions that would adversely affect the Company's results of
operations.
-7-
<PAGE> 52
DEPENDENCE ON SUPPLIERS
The Company outsources the manufacturing and assembly of its products to third
party suppliers. Although the Company uses a number of manufacturer/assemblers,
each of its products is manufactured and assembled by a single supplier. The
failure of a supplier to ship the quantities of a product ordered by the Company
could cause a material disruption in the Company's sales of that product. In the
past, the Company has at times experienced substantial delays in its ability to
fill customer orders for displays and other products, due to the inability of
certain suppliers to meet their volume and schedule requirements and, more
recently, due to the Company's shortages in available cash. Such shortages have
caused some suppliers to put the Company on a cash basis, and there is a risk
that suppliers will discontinue their relationship with the Company. In the
past, the Company has been vulnerable to delays in shipments from suppliers
because the Company has sought to manage its use of working capital by, among
other things, limiting the backlog of inventory it purchases. More recently,
this vulnerability has been exacerbated by the Company's shortages in cash
reserves. Delays in shipments from suppliers can cause fluctuations in the
Company's short term results and contribute to order cancellations. The Company
currently has arranged payment terms for certain of its major suppliers such
that certain of the Company's major customers pay these suppliers directly for
products ordered and shipped.
The Company is also dependent on sole or limited source suppliers for certain
key components used in its products, including certain digital to analog
converters, digital video chips, and other products. Certain other semiconductor
components and molded plastic parts are also purchased from sole or limited
source suppliers. The Company purchases these sole or limited source components
primarily pursuant to purchase orders placed from time to time in the ordinary
course of business and has no guaranteed supply arrangements with sole or
limited source suppliers. The Company expects that these suppliers will continue
to meet its requirements for the components, but there can be no assurance that
they will do so. The introduction of new products presents additional
difficulties in obtaining timely shipments from suppliers. Additional time may
be needed to identify and qualify suppliers of the new products. Also, the
Company has experienced delays in achieving volume production of new products
due to the time required for suppliers to build their manufacturing capacity. An
extended interruption in the supply of any of the components for the Company's
products, regardless of the cause, could have an adverse impact on the Company's
results of operations. The Company's products also incorporate components, such
as VRAMs, DRAMs and ASICs that are available from multiple sources but have been
subject to substantial fluctuations in availability and price. Since a
substantial portion of the total material cost of the Company's products is
represented by these components, significant fluctuations in their price and
availability could affect its results of operations.
TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS
The personal computer industry in general, and the color publishing and video
applications within the industry, are characterized by rapidly changing
technology, often resulting in short product life cycles and rapid price
declines. The Company believes that its success will be highly dependent on its
ability to develop innovative and cost-competitive new products and to bring
them to the marketplace in a timely manner. Should the Company fail to introduce
new products on a timely basis, the Company's operating results could be
adversely affected. Technological innovation is particularly important for the
Company, since its business is based on its ability to provide functionality and
features not included in Apple's products. As Apple introduces new products with
increased functionality and features, the Company's business will be adversely
affected unless it develops new products that provide advantages over Apple's
latest offerings. Continued reduction in the available cash resources of the
Company could result in the interruption or cancellation of research and product
development efforts.
The Company anticipates that the video editing industry will follow the pattern
of the professional publishing industry in which desktop publishing products,
including those produced by Radius, replaced more expensive, proprietary
products, and the Company also anticipates that this evolution will lead to a
significant increase in the purchase and use of video editing products. There is
a risk that this evolution will not occur in the video editing industry as
expected by the Company, or that it will occur at a slower pace than
anticipated.
The introduction of new products is inherently subject to risks of delay. Should
the Company fail to introduce new products on a timely basis, the operating
results of the Company could be adversely affected. The introduction of new
products and the phasing out of older products will require the Company to
carefully manage its inventory to avoid inventory obsolescence and may require
increases in inventory reserves. The long lead times -- as much as three to five
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<PAGE> 53
months -- associated with the procurement of certain components (principally
displays and ASICs) exposes the Company to greater risk in forecasting the
demand for new products. There can be no assurance that the Company's forecasts
regarding new product demand and its estimates of appropriate inventory levels
will be accurate. Moreover, no assurance can be given that the Company will be
able to cause all of its new products to be manufactured at acceptable
manufacturing yields or that the Company will obtain market acceptance for these
products.
DISTRIBUTION
The Company's primary means of distribution is through a limited number of
third-party distributors and master resellers. As a result, the Company's
business and financial results are highly dependent on the amount of the
Company's products that is ordered by these distributors and resellers. Such
orders are in turn dependent upon the continued viability and financial
condition of these distributors and resellers as well as on their ability to
resell such products and maintain appropriate inventory levels. Due in part to
the historical volatility of the personal computer industry, certain of the
Company's resellers have from time to time experienced declining profit margins,
cash flow shortages and other financial difficulties. The future growth and
success of the Company will continue to depend in large part upon its reseller
channels. If its resellers were to experience financial difficulties, the
Company's results of operations could be adversely affected.
INTERNATIONAL SALES
The Company's international sales are primarily made through distributors and
the Company's subsidiary in Japan. The Company expects that international sales
will represent a significant portion of its net sales and that it will be
subject to the normal risks of international sales such as currency
fluctuations, longer payment cycles, export controls and other governmental
regulations and, in some countries, a lesser degree of intellectual property
protection as compared to that provided under the laws of the United States. In
addition, fluctuations in exchange rates could affect demand for the Company's
products. If for any reason exchange or price controls or other restrictions on
foreign currencies are imposed, the Company's business and operating results
could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its key management, marketing, product development and
operational personnel and the Company's ability to retain and continue to
attract highly skilled personnel. Competition for employees in the computer
industry is intense, and there can be no assurance that the Company will be able
to attract and retain qualified employees. The Company has recently made a
number of management changes, including the appointment of a new Chief Financial
Officer and has had substantial layoffs and other employee departures. If the
Company continues to experience financial difficulties, it may become
increasingly difficult for it to hire new employees and retain current
employees. The Company does not carry any key person life insurance with respect
to any of its personnel.
DEPENDENCE ON PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and trade
secret protection, nondisclosure agreements and licensing arrangements to
establish and protect its proprietary rights. The Company has a number of
patents and patent applications and intends to file additional patent
applications as it considers appropriate. There can be no assurance that patents
will issue from any of these pending applications or, if patents do issue, that
any claims allowed will be sufficiently broad to protect the Company's
technology. In addition, there can be no assurance that any patents that may be
issued to the Company will not be challenged, invalidated or circumvented, or
that any rights granted thereunder would provide proprietary protection to the
Company. The Company has a number of trademarks and trademark applications.
There can be no assurance that litigation with respect to trademarks will not
result from the Company's use of registered or common law marks, or that, if
litigation against the Company were successful, any resulting loss of the right
to use a trademark would not reduce sales of the Company's products in addition
to the possibility of a significant damages award. Although, the Company intends
to defend its proprietary rights, policing unauthorized use of proprietary
technology or products is difficult, and there can be no assurance that the
Company's efforts will be successful. The laws of certain foreign countries may
not protect the proprietary rights of the Company to the same extent as do the
laws of the United States.
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<PAGE> 54
The Company has received, and may receive in the future, communications
asserting that its products infringe the proprietary rights of third parties,
and the Company is engaged and has been engaged in litigation alleging that the
Company's products infringe others' patent rights. As a result of such claims or
litigation, it may become necessary or desirable in the future for the Company
to obtain licenses relating to one or more of its products or relating to
current or future technologies, and there can be no assurance that it would be
able to do so on commercially reasonable terms.
VOLATILITY OF STOCK PRICE; DILUTION
The price of the Company's Common Stock has fluctuated widely in the past.
Management believes that such fluctuations may have been caused by announcements
of new products, quarterly fluctuations in the results of operations and other
factors, including changes in conditions of the personal computer industry in
general and changes in the Company's results of operations and financial
condition. Stock markets, and stocks of technology companies in particular, have
experienced extreme price volatility in recent years. This volatility has had a
substantial effect on the market prices of securities issued by the Company and
other high technology companies, often for reasons unrelated to the operating
performance of the specific companies. Due to the factors referred to herein,
the dynamic nature of the Company's industry, general economic conditions and
other factors, the Company's future operating results and stock prices may be
subject to significant volatility in the future. Such stock price volatility for
the Common Stock has in the past provoked securities litigation, and future
volatility could provoke litigation in the future that could divert substantial
management resources and have an adverse effect on the Company's results of
operations. The Company's Common Stock is listed on the NASDAQ market pursuant
to an agreement containing certain financial requirement with which the Company
is currently not in compliance. In its attempt to restructure its debt to
creditors, the Company may propose exchanging equity in the Company in full or
partial satisfaction of creditor claims. Although the Company has no current
agreements with respect to the issuance of additional equity securities, the
issuance of any additional equity in the Company could exert downward pressure
on the price of the Company's Common Stock.
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<PAGE> 55
PURSUANT TO NOTE D.4. OF SCHEDULE 14A, THE FOLLOWING INFORMATION FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
1995, WHICH IS INCORPORATED BY REFERENCE IN THE COMPANY'S PROXY STATEMENT, IS
BEING FILED IN ELECTRONIC FORMAT CONCURRENTLY WITH THE PROXY STATEMENT:
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and the notes thereto included
elsewhere herein. The consolidated statements of operations data set forth below
with respect to the years ended September 30, 1995, 1994 and 1993 and the
consolidated balance sheet data at September 30, 1995 and 1994 are derived from,
and are qualified by reference to, the audited consolidated financial statements
included elsewhere herein and should be read in conjunction with those financial
statements and the notes thereto. The consolidated statements of operations data
for the year ended September 30, 1992 and 1991 and the consolidated balance
sheet data as of September 30, 1993, 1992 and 1991 are derived from audited
consolidated financial statements not included herein.
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<PAGE> 56
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
------------------------------------------------------------
1995 1994 (2) 1993 (2) 1992 (2) 1991 (2)
---- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales $ 308,133 $ 324,805 $ 337,373 $ 284,598 $ 199,033
Cost of sales 302,937 276,948 254,321 181,198 130,918
--------- --------- --------- --------- ---------
Gross profit 5,196 47,857 83,052 103,400 68,115
--------- --------- --------- --------- ---------
Operating expenses:
Research and development 19,310 33,956 33,503 21,093 14,576
Selling, general and administrative 90,068 94,731 84,132 61,824 44,054
--------- --------- --------- --------- ---------
Total operating expenses 109,378 128,687 117,635 82,917 58,630
--------- --------- --------- --------- ---------
Income (loss) from operations (104,182) (80,830) (34,583) 20,483 9,485
Interest (expense) income, net (6,068) (1,245) 70 878 731
Litigation settlement (12,422) -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle (122,672) (82,075) (34,513) 21,361 10,216
Provision (benefit) for income taxes 9,070 (4,600) (13,774) 8,329 4,012
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
a change in accounting principle (131,742) (77,475) (20,739) 13,032 6,204
Cumulative effect of a change in method of
accounting for income taxes -- -- 600 -- --
Net income (loss) $(131,742) $ (77,475) $ (20,139) $ 13,032 $ 6,204
========= ========= ========= ========= =========
Net Income (loss) per share:
Income (loss) before cumulative effect of
a change in accounting principle $ (8.75) $ (5.70) $ (1.61) $ 1.04 $ 0.54
Cumulative effect of a change in method
of accounting for income taxes -- -- 0.05 -- --
--------- --------- --------- --------- ---------
Net income (loss) per share $ (8.75) $ (5.70) $ (1.56) $ 1.04 $ 0.54
========= ========= ========= ========= =========
Common and common equivalent shares
used in computing net income (loss)
per share 15,049 13,598 12,905 12,485 11,473
========= ========= ========= ========= =========
</TABLE>
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<PAGE> 57
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
-----------------------------------------------------
1995 1994 (2) 1993 (2) 1992 (2) 1991 (2)
---- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (Working capital deficiency) ($59,334) $ 29,856 $ 86,711 $ 84,303 $ 60,748
Total assets 87,878 126,859 172,275 150,658 106,306
Long-term debt---noncurrent portion 1,331 2,857 3,975 1,935 2,707
Shareholder's equity (Net capital deficiency) (57,117) 35,691 98,155 96,631 70,400
</TABLE>
- - - - --------------------
(1) The Company's fiscal year ends on the Saturday closest to September 30 and
includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years
presented. During fiscal 1995, the Company changed its fiscal year end from the
Sunday closest to September 30 to the Saturday closest to September 30 for
operational efficiency purposes. For clarity of presentation, all fiscal periods
in this Form 10-K are reported as ending on a calendar month end.
(2)These periods have been restated to reflect the Merger of Radius and SuperMac
which has been accounted for as a pooling of interests. See Note 10 of Notes to
the Consolidated Financial Statements. The consolidated financial statements for
all periods prior to fiscal 1994 have not been restated to adjust SuperMac's
fiscal year end to that of Radius. Such periods include Radius' results of
operations and balance sheet data on a September 30 fiscal year basis and
SuperMac's on a December 31 calendar year basis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
RESULTS OF OPERATIONS--ANNUAL PERIODS
The following table sets forth for the years indicated certain operational data
as a percentage of net sales (may not add due to rounding).
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------------------------
1995 1994 (1) 1993 (1)
---- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 98.3 85.3 75.4
----- ----- -----
Gross profit 1.7 14.7 24.6
Operating expenses:
Research and development 6.3 10.5 9.9
Selling, general, and administrative 29.2 29.2 24.9
----- ----- -----
Total operating expenses 35.5 39.6 34.9
Loss from operations (33.8) (24.9) (10.3)
Interest expense, net (2.0) (0.4) -
Litigation settlement (4.0) -
----- ----- ------
Loss before income taxes (39.8) (25.3) (10.2)
Provision (benefit) for income taxes 2.9 (1.4) (4.1)
----- ----- -----
Loss before cumulative effect of
a change in accounting principle (42.8) (23.9) (6.1)
Cumulative effect of change in method of
accounting for income taxes - - 0.2
----- ----- -----
Net loss (42.8)% (23.9)% (6.0)%
===== ===== =====
</TABLE>
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<PAGE> 58
(1) These periods have been restated to reflect the Merger of Radius and
SuperMac which has been accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year basis
and SuperMac's on a December 31 calendar year basis. The operating results for
both the twelve months ended September 30, 1994 and September 30, 1993 include
the restructuring and other charges of $16.6 million recorded by SuperMac in
December 1993.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. The Company's net sales decreased 5.1% to $308.1 million in fiscal
1995 from $324.8 million in fiscal 1994. Fiscal 1995 net sales were reduced by
approximately $11.4 million due to reserves taken by the Company in anticipation
of future price reductions on a number its graphics cards, MacOS compatible
systems and other products that are designed for Apple's NuBus-based computers
which have been largely replaced by Apple's recently introduced PCI Bus-based
computers.
During the fiscal year, net sales of graphics cards declined substantially due
primarily to reduced demand resulting from Apple's incorporation of built-in
graphics capabilities in its PowerPC based Macintosh systems. Net sales from
displays, accelerator cards and printers also declined during the fiscal year.
These declines were largely offset by sales of MacOS compatible systems which
were first introduced in the 1995 fiscal year and by a substantial increase in
net sales from the Company's color server products.
While net sales from the Company's digital video products increased slightly
during the fiscal year, the Company anticipates lower revenue from this product
line until the introduction of new products now under development.
The Company anticipates significantly lower overall net sales in fiscal 1996 as
a result of the Company's decision to focus its efforts on providing solutions
for high end digital video and graphics customers, discontinue selling mass
market displays and other low value added products, and divest of certain
businesses such as color servers and MacOS compatible systems.
On December 23, 1995, the Company entered into a definitive agreement to sell
its color server business to Splash Technology, Inc., a company in which Radius
will retain a 19.9% equity interest, for approximately $21.9 million. That sale
is anticipated to be completed in January 1996. In addition the Company is now
negotiating to sell its MacOS compatible systems business and does not
anticipate significant net sales from this business during the 1996 fiscal year.
Export sales represented approximately 40.4%, 34.5%, and 32.0% of net sales for
fiscal 1995, 1994 and 1993, respectively. See Note 7 of Notes to Consolidated
Financial Statements. Export sales are subject to the normal risks associated
with doing business in foreign countries such as currency fluctuations, longer
payment cycles, greater difficulties in accounts receivable collection, export
controls and other government regulations and, in some countries, a lesser
degree of intellectual property protection as compared to that provided under
the laws of the United States.
Gross Profit. The Company's gross profit margin including restructuring and
other charges declined to 1.7% in fiscal 1995, compared to 14.7%, in fiscal
1994. The Company's gross profit margin excluding the restructuring and other
charges declined to 16.9% in fiscal 1995, compared to 27.3% in fiscal 1994.
Excluding restructuring and other charges, the Company's gross profit margin
declined primarily due to lower sales of higher margin graphics cards, costs
incurred to process higher than expected product returns resulting from the
consolidation of the Radius and SuperMac product lines and slower than expected
sell through of its Radius Telecast digital video product, significant price
erosion on NuBus based MacOS compatible systems combined with high production
costs for these systems, the sale of end
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<PAGE> 59
of life products, and increased pricing pressures. The Company anticipates
continued competitive pricing actions resulting in declining prices in its
industry.
Research and Development Expenses. Research and development expenses decreased
to $19.3 million (6.3% of net sales) in fiscal 1995 from $34.0 million (10.5% of
net sales) in fiscal 1994. The Company's research and development expenses in
fiscal 1994 included restructuring and other charges of $4.3 million. No
restructuring and other charges were included in research and development
expenses in fiscal 1995.
The decrease in research and development expenses during the fiscal year was
primarily due to the reduction of expenses as a result of the Company's
restructuring following the Merger. The merger- related restructuring resulted
in reduced costs primarily related to headcount, depreciation, and facilities.
While there can be no assurance that the Company's product development efforts
will result in commercially successful products, the Company believes that
development of new products and enhancement of existing products are essential
to its continued success, and management intends to continue to devote
substantial resources to research and new product development.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses including restructuring and other charges decreased to
$90.1 million (29.2% of net sales) in fiscal 1995 from $94.7 million (29.2% of
net sales) in fiscal 1994. Selling, general and administrative expenses
excluding restructuring and other charges decreased to $79.2 million (25.7% of
net sales) in fiscal 1995 from $84.0 million (25.9% of net sales) in fiscal
1994.
The decrease in selling, general and administrative expenses during the fiscal
year was primarily due to the reduction of expenses as a result of the Company's
restructuring following the Merger. The merger- related restructuring resulted
in reduced costs primarily related to headcount, depreciation and facilities.
Provision for Income Taxes. The Company's annual combined federal and state
effective income tax rates were approximately (7.4%) (expense) in fiscal 1995
and 6% (benefit) in fiscal 1994. In fiscal 1995, the rate differs from the
combined statutory rate in effect during the period primarily as a result of the
impact of not benefiting the 1995 operating losses and the reversal of existing
deferred tax assets. The fiscal 1994 rate differs from the combined statutory
rate in effect during the period primarily as a result of non-deductible merger
related costs, the one time write-off of purchased research and development
which is not tax deductible and the impact of not benefiting a significant
portion of the 1994 operating loss.
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The Company
has provided a full valuation allowance against its net deferred tax assets due
to uncertainties surrounding their realization. Due to the net losses reported
in the prior three years and as a result of the material changes in operations
reported in its 1995 fiscal fourth quarter, predictability of earnings in future
periods is uncertain. The Company will evaluate the realizability of the
deferred tax asset on a quarterly basis.
FISCAL 1994 COMPARED TO FISCAL 1993
Net Sales. The Company's net sales decreased 3.7% to $324.8 million in fiscal
1994 from $337.4 million in fiscal 1993. The Company believes that this decline
in net sales was in part attributable to the customers postponing purchasing
decisions during the fourth quarter while waiting to see which of the Company's
product lines would be supported and which would be discontinued following the
Merger. Sales were flat for the nine months ended June 30, 1994 prior to the
Merger. Net sales of video products and displays increased but this increase was
offset by pricing pressure on graphics cards. Demand was lower than anticipated
for graphics cards due to the introduction of the Power Macintosh by Apple and
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<PAGE> 60
the resulting customer uncertainty surrounding the need for graphics
acceleration given the built-in video capabilities of this new product.
Gross Profit. The Company's gross profit margin including the restructuring and
other charges declined to 14.7% in fiscal 1994, compared to 24.6%, in fiscal
1993. The Company's gross profit margin excluding the restructuring charges
declined to 27.3% in fiscal 1994, compared to 31.8% in fiscal 1993. See Note 8
of Notes to Consolidated Financial Statements regarding the restructuring and
other charges for SuperMac in December 1993 and Merger related restructuring and
other charges in September 1994. Excluding the restructuring charges, the
decline in gross margins was due to increased pricing pressures and a change in
the product mix favoring lower margin displays over higher margin graphics
accelerator cards.
Research and Development Expenses. Research and development expenses increased
slightly to $34.0 million (10.5% of net sales) in fiscal 1994 from $33.5 million
(9.9% of net sales) in fiscal 1993. The relatively flat absolute dollar
expenditures in research and development activities were due to recording
significant restructuring and other charges related to development project
cancellations, equipment disposal, and severance in fiscal 1994 offset by the
decrease in expenditures in fiscal 1994 as a result of the cancellation of
Radius' efforts to develop a variety of technologies originally intended for a
minicomputer-class server product. Additionally, the research and development
expenses appeared flat due to the SuperMac 1993 restructuring of $2.0 million
for development project cancellations included in both the fiscal 1993 and
fiscal 1994 results of operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $94.7 million (29.2% of net sales) in
fiscal 1994 from $84.1 million (24.9% of net sales) in fiscal 1993. The increase
in absolute dollars was primarily due to increased personnel expense, market
development expenses, restructuring and other charges in fiscal 1994 and the
Company's investment in its information system. The 1993 restructuring and other
charges included the elimination of excess facilities, capital equipment
write-offs, severance payments and the termination of certain contractual
agreements. Restructuring and other charges for fiscal 1994 included the
elimination of duplicative facilities, property and equipment and other assets,
severance payments, as well as transaction fees and costs incidental to the
Merger.
Provision for Income Taxes. The Company's annual combined federal and state
effective income tax rates were approximately 6% in fiscal 1994 and 40% in
fiscal 1993 before the cumulative effect of the change in method of accounting
for income taxes. The fiscal 1994 rate differs from the combined statutory rate
in effect during the period primarily as a result of non-deductible merger
related costs, the one time write-off of purchased research and development
which is not tax deductible and the impact of not benefiting a significant
portion of the 1994 operating loss. The 1993 rate differs from the combined
statutory rate in effect during the period primarily as a result of the
utilization of the research and development tax credit.
RESTRUCTURING, MERGER AND OTHER CHARGES
During fiscal 1993, 1994 and 1995, four restructuring and other charges were
recorded. Radius recorded a $15.5 million restructuring charge during the third
quarter of fiscal 1993 in connection with the implementation of a program
designed to reduce costs and improve operating efficiencies. SuperMac recorded a
$16.6 million restructuring charge during December 1993 in connection with a
program to realign its inventory and facility and personnel resources.
Subsequently, the two companies merged and incurred a restructuring charge of
$43.4 million. In September 1995, Radius recorded $57.9 million restructuring
charge in connection with the Company's efforts to refocus and streamline its
business. A discussion of each of these events follows.
RADIUS JUNE 1993 RESTRUCTURING AND OTHER CHARGES
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<PAGE> 61
In June 1993, Radius announced a restructuring program designed to reduce costs
and improve operating efficiencies. The program included, among other things,
the write-down of inventory following Radius' decision to phase out its older
generation of products, lease termination expenses, capital equipment
write-offs, severance payments, and costs associated with the discontinuation of
Radius' minicomputer-class server product. The restructuring program costs of
$15.5 million were recorded during the third quarter of fiscal 1993. These
charges (in thousands) are included in: cost of sales ($10,993); research and
development ($411); and selling, general and administrative expenses ($4,096).
The Company completed this restructuring event by the end of calendar 1994.
There were no material changes in the restructuring plan or in the estimates of
the restructuring costs from the recognition of the charge in June 1993 with the
completion of the restructuring program in December 1994.
SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES
In December 1993, SuperMac recorded charges of $16.6 million in connection with
a program to adjust inventory levels, eliminate excess facilities, terminate
certain projects and contract arrangements and reduce the number of employees.
The charges (in thousands) are included in: cost of sales ($13,352); research
and development ($2,000); and selling, general and administrative expenses
($1,238). There have been no material changes in the restructuring plan or in
the estimates of the restructuring costs. The Company has $236,000 remaining in
its restructuring reserve related to facility costs, the balance of which is
expected to be eliminated in fiscal 1996. As noted in the Consolidated Financial
Statements, the consolidated results for the Company in both the twelve months
ended September 30, 1994 and the fiscal period ended 1993 include SuperMac's
$16.6 million charge.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These charges
include the discontinuance of duplicative product lines and related assets;
elimination of duplicative facilities, property and equipment and other assets;
and personnel severance costs as well as transaction fees and costs incidental
to the merger. The charges (in thousands) are included in: net sales ($3,095);
cost of sales ($25,270); research and development ($4,331); and selling, general
and administrative expenses ($10,711). The elements of the total charge as of
September 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
------------------------
Cash Outlays
----------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $22,296 $ 19,200 $ 3,096 $ -
Excess facilities 2,790 400 2,236 154
Revision of the operations business model 9,061 7,078 1,268 715
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
------- -------- -------- --------
Total charges $43,407 $26,678 $15,860 $ 869
</TABLE>
The adjustment of inventory levels reflects the discontinuance of duplicative
product lines. The provision for excess facility costs represents the write-off
of leaseholds and sublease costs of Radius' previous headquarters, the
consolidation into one main headquarters and the consolidation of sales offices.
The revision of the operations business model reflects the reorganization of the
combined Company's manufacturing operations to mirror Radius' manufacturing
reorganization in 1993. This reorganization was designed to outsource a number
of functions that previously were performed internally, reduce product costs
through increased efficiencies and lower overhead, and focus the Company on a
limited number of products. Employee severance costs are related to employees or
temporary employees who were released due to the revised business model.
Approximately 250 employees were terminated in connection with the Merger. The
provision for merger related costs is for the costs associated with the Merger
transaction, such as legal, investment banking and accounting fees. The Company
has spent $15.9 million of cash for restructuring through September 30, 1995.
The Company expects to have substantially
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<PAGE> 62
completed the restructuring by September 1996. During fiscal 1995, approximately
$2.1 million of merger related restructuring reserves were reversed and recorded
as an expense reduction due to changes in estimated requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES
In September 1995, Radius recorded charges of $57.9 million in connection with
the Company's efforts to refocus its business on the color publishing and
multimedia markets. The charges primarily included a writedown of inventory and
other assets. Additionally, it included expenses related to the cancellation of
open purchase orders, excess facilities and severance. The charges (in
thousands) are included in cost of sales ($47,004), and selling, general and
administrative expense ($10,861). The elements of the total charge as of
September 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
------------------------
Cash Outlays
----------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $33,138 $ 32,300 $ - $ 838
Excess facilities 2,004 404 - 1,600
Cancellation fees and asset write-offs 19,061 5,196 - 13,865
Employee severance 3,662 - - 3,662
-------- --------- ------- --------
Total charges $ 57,865 $ 37,900 $ - $ 19,965
</TABLE>
The adjustment of inventory levels reflects the discontinuance of several
product lines. The provision for excess facility costs represent the write-off
of leasehold improvements and the costs associated with anticipated reductions
in facilities. The cancellation fees and asset write-offs reflect the Company's
decision to refocus its efforts on providing solutions for the color publishing
and multimedia markets. Employee severance costs are related to employees or
temporary employees who have been or will be released due to the revised
business model. As of December 15, 1995, approximately 157 positions had been
eliminated in connection with the new business model. The Company had not spent
any cash for this restructuring as of September 30, 1995. As of September 30,
1995, the Company had cash and cash equivalents of $4.8 million. See
"Management's Business Recovery Plans" at Note 1 due to the Consolidated
Financial Statements. The Company expects to have substantially completed the
restructuring by September 1996.
BUSINESS DIVESTITURES
COLOR SERVER GROUP
On December 23, 1995, the Company signed a definitive agreement pursuant to
which the Company will sell its Color Server Group ("CSG") to Splash Merger
Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology
Holdings, Inc. (the "Parent"), a corporation formed by various investment
entities associated with Summit Partners. The Company will receive approximately
$21,945,175 in cash (subject to certain post-closing adjustments) and 4,282
shares of the Parent's 6% Series B Redeemable and Convertible Preferred Stock
(the " Series B Preferred Stock"). The shares of Series B Preferred Stock will
be convertible by the Company at any time into 19.9% of the Parent's common
stock outstanding as of the closing of the transaction. The shares of Series B
Preferred Stock also will be redeemable by the Parent at any time, and will be
subject to mandatory redemption beginning on the sixth anniversary of issuance,
in each case at a redemption price of $1,000 per share plus accrued dividends.
The transaction is expected to close in January 1996. Under the Inventory and
Working Capital Agreement, as recently amended, with IBM Credit Corp., the
Company is required to pay all of the net proceeds of the Color Server Group
transaction to IBM Credit Corp. in order to reduce the Company's outstanding
indebtedness under that agreement.
PORTRAIT DISPLAY LABS
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<PAGE> 63
On December 19, 1995, the Company signed a series of agreements with Portrait
Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting
technology to PDL and canceled PDL's on-going royalty obligation to the Company
under an existing license agreement in exchange for a one-time cash payment. PDL
also granted the Company a limited license back to the pivoting technology.
Under these agreements, PDL also settled its outstanding receivable to the
Company by paying the Company $500,000 in cash and issuing to the Company
214,286 shares of PDL's Common Stock. See Note 1 to the Consolidated Financial
Statements.
DISPLAY TECHNOLOGIES ELECTROHOME INC.
On December 21, 1995, the Company signed a Business Purchase Agreement and an
Asset Purchase and License Agreement with Display Technologies Electrohome Inc.
("DTE"). Pursuant to the agreements and subject to certain closing conditions,
DTE will purchase Radius' monochrome display monitor business and certain assets
related thereto, for approximately $200,000 in cash and cancellation of $2.5
million of the Company's indebtedness to DTE. In addition, DTE and Radius will
cancel outstanding contracts relating to DTE's manufacture and sale of
monochrome display monitors to Radius.
RESULTS OF OPERATIONS--QUARTERLY PERIODS
The following table sets forth certain unaudited quarterly financial information
for the Company's last eight fiscal quarters (in thousands, except per share
data). The information includes all adjustments (consisting only of normal
recurring adjustments) that management considers necessary for a fair
presentation thereof. The operating results for any quarter are not necessarily
indicative of results for any future period. The Company's fiscal year ends on
the Sunday closest to September 30.
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<PAGE> 64
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994 (1)
----------------------------------------- ------------------------------------------
9/30/95 6/30/95 3/31/95 12/30/95 9/30/94 6/30/94 3/31/94 12/31/93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 57,126 $87,325 $84,447 79,235 $ 66,940 $86,673 $83,180 $ 88,013
Cost of sales 118,055 65,211 62,913 56,758 86,682 59,931 57,279 73,057
--------- ------- ------- -------- -------- ------- ------- --------
Gross profit (loss) (60,929) 22,114 21,534 22,477 (19,742) 26,742 25,901 14,956
--------- ------- ------- -------- -------- ------- ------- --------
Operating expenses:
Research and development 5,530 4,990 4,672 4,118 13,119 5,645 6,445 8,648
Selling, general and administrative 41,343 18,442 14,401 15,882 35,190 19,232 19,003 21,405
--------- ------- ------- -------- -------- ------- ------- --------
Total operating expenses 46,873 23,432 19,073 20,000 48,309 24,877 25,448 30,053
--------- ------- ------- -------- -------- ------- ------- --------
Income (loss) from operations (107,802) (1,318) 2,461 2,477 (68,051) 1,865 453 (15,097)
Interest (expense) income, net (1,463) (1,531) (2,154) (920) (739) (223) (121) (159)
Litigation settlement - - - (12,422) - - - -
--------- ------- ------- -------- -------- ------- ------- --------
Income (loss) before income taxes (109,265) (2,849) 307 (10,865) (68,790) 1,642 332 (15,256)
Provision (benefit) for income taxes 8,620 263 31 156 209 580 688 (6,077)
--------- ------- ------- -------- -------- ------- ------- --------
Net income (loss) $(117,885) $(3,112) $ 276 $(11,021) $(68,999) $ 1,062 $ (356) $ (9,179)
========= ======= ======= ======== ======== ======= ======= ========
Net income (loss) per share $ (6.92) $ (0.21) $ 0.02 $ (0.78) $ (4.99) $ 0.08 $ (0.03) $ (0.69)
========= ======= ======= ======== ======== ======= ======= ========
Common and common equivalent
shares used in computing
net income (loss) per share 17,039 14,791 14,556 14,215 13,828 14,042 13,496 13,370
========= ======= ======= ======== ======== ======= ======= ========
</TABLE>
(1) These periods have been restated to reflect the Merger of Radius and
SuperMac which has been accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year basis
and SuperMac's on a December 31 calendar year basis. Therefore, results for the
quarter ended September 30, 1993 shown above include a $16.6 million charge
recorded by SuperMac in December 1993. Additionally, the results for the quarter
ended December 31, 1993 reflect this same $16.6 million charge recorded by
SuperMac in December 1993.
The Company's operating results are subject to quarterly fluctuations as a
result of a number of factors, including: the sales rate and mix of Apple
computers; the introduction of new products by Apple, the Company or its
competitors; the timing of sales and marketing expenses by the Company; the
timing of business cycles in the United States and worldwide; the availability
and cost of key components; the Company's ability to develop innovative
products; the Company's product and customer mix; and the level of competition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased approximately $11.2 million
during fiscal 1995 to approximately $4.8 million at September 30, 1995, as
compared with the fiscal 1994 ending balance of cash and cash equivalents of
$16.0 million. Approximately $1.6 million of the $4.8 million of cash and cash
equivalents available at September 30, 1995 was restricted under various letters
of credit. Capital expenditures were $1.9 million in fiscal 1995 and $3.5
million in fiscal 1994.
The decrease in the Company's cash and cash equivalents during fiscal 1995 was
primarily attributable to expenditures made in connection with the development
and introduction of the Company's MacOS compatible systems.
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<PAGE> 65
The Company completed a private placement during the third quarter of the 1995
fiscal year, the proceeds of which allowed the Company to build inventory of
MacOS-compatible systems components and reduce other vendor payables. In the
private placement, the Company sold 2,509,319 shares of its Common Stock
resulting in net proceeds of approximately $21.4 million.
At September 30, 1995, the Company's principal sources of liquidity included
approximately $30.0 million in inventory and working capital financing under an
agreement with IBM Credit Corporation (the "ICC Agreement") together with an
additional $20.0 million provided by IBM Credit Corp. under the ICC Agreement to
finance the manufacturing of the Company's MacOS compatible products, all of
which was fully utilized.
In addition, the Company has a $5.0 million credit arrangement with Silicon
Valley Bank ("SVB") which was partially utilized as of that date. Additionally,
the Company's Japanese subsidiary has a revolving line of credit with a bank in
Japan under which $3.1 million has been utilized as of September 30, 1995.
As of September 30, 1995, the Company was not in compliance with all of its
contractual obligations and financial covenants under the ICC Agreement;
however, IBM Credit Corp. has waived such defaults pursuant to an amendment to
the ICC Agreement executed in December 1995 (the "ICC Amendment"). The ICC
Amendment, among other things, also provides that until March 31, 1996 IBM
Credit Corp. will extend advances to the Company in an amount up to 90% of the
Company's collections and fund the Company's payroll in the event that
collections are insufficient to permit the advances needed for this purpose.
Such advances and payroll funding, however, may be suspended by IBM Credit Corp.
(i) immediately following a default of the ICC Amendment, and (ii) following
thirty (30) days notice in the event of any default of the ICC Agreement.
As of September 30, 1995, the Company was not in compliance with all of its
contractual obligations and financial covenants under its credit arrangement
with SVB. As of December 15, 1995 approximately $1,200,000 was outstanding under
this credit arrangement, all of which the Company anticipates paying SVB during
the first calendar quarter of 1996.
Recently, the Company's limited cash resources have restricted the Company's
ability to purchase inventory which in turn has limited its ability to
manufacture and sell products and has resulted in additional costs for expedited
deliveries. The Company also is delinquent in its accounts payables as payments
to vendors are not being made in accordance with vendor terms. The adverse
effect on the Company's results of operations due to its limited cash resources
can be expected to continue until such time as the Company is able to return to
profitability, or generate additional cash from other sources. There can be no
assurance that the Company will be able to do so.
Additional funds will be needed to finance the Company's development plans and
for other purposes, and the Company is now investigating possible financing
opportunities. There can be no assurance that additional financing will be
available when needed or, if available, that the terms of such financing will
not adversely affect the Company's results of operations.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:
CONTINUING OPERATING LOSSES
The Company experienced net operating losses in the fiscal years ended September
30, 1993, 1994 and 1995. The Company's ability to achieve and sustain profitable
operations will depend upon a number of factors, including the Company's ability
to control costs; to develop innovative and cost-competitive new products and to
bring those products to market in a timely manner; the rate and mix of Apple
computers
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and related products sold; competitive factors such as new product
introductions, product enhancements and aggressive marketing and pricing
practices; general economic conditions; and other factors. The Company has faced
and expects to continue to face increased competition in graphic cards as a
result of Apple's transition of its product line to the PCI Bus. In addition,
the Company anticipates significantly lower revenue and gross profit from its
digital video products primarily due to lower than anticipated sell through
rates for Radius Telecast. For these and other reasons, there can be no
assurance that the Company will be able to achieve profitability in the near
term.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced substantial fluctuations in operating results. The
Company's customers generally order on an as-needed basis, and the Company has
historically operated with relatively small backlogs. Quarterly sales and
operating results depend heavily on the volume and timing of bookings received
during the quarter, which are difficult to forecast. A substantial portion of
the Company's revenues are derived from sales made late in each quarter, which
increases the difficulty in forecasting sales accurately. Recently, shortages of
available cash have delayed the Company's receipt of products from suppliers and
increased shipping and other costs. The Company recognizes sales upon shipment
of product, and allowances are recorded for estimated noncollectable amounts,
returns, credits and similar costs, including product warranties and price
protection. Due to the inherent uncertainty of such estimates, there can be no
assurance that the Company's forecasts regarding bookings, collections, rates of
return, credits and related matters will be accurate. A significant portion of
the operating expenses of the Company are relatively fixed in nature, and
planned expenditures are based primarily on sales forecasts which, as indicated
above, are uncertain. Any inability on the part of the Company to adjust
spending quickly enough to compensate for any failure to meet sales forecasts or
to receive anticipated collections, or any unexpected increase in product
returns or other costs, could also have an adverse impact on the Company's
operating results.
DEPENDENCE ON AND COMPETITION WITH APPLE
Historically, substantially all of the Company's products have been designed for
and sold to users of Apple personal computers, and it is expected that sales of
products for such computers will continue to represent substantially all of the
net sales of the Company for the foreseeable future. The Company's operating
results would be adversely affected if Apple should lose market share, if
Macintosh sales were to decline or if other developments were to adversely
affect Apple's business. As software applications for the color publishing and
multimedia markets become more available on platforms other than Macintosh, it
is likely that these other platforms will continue to gain acceptance in these
markets. For example, recently introduced versions of the Windows operating
environment support high performance graphics and video applications similar to
those offered on the Macintosh. There is a risk that this trend will reduce the
support given to Macintosh products by third party developers and could
substantially reduce demand for Macintosh products and peripherals over the long
term.
A number of the Company's products compete with products marketed by Apple. As a
competitor of the Company, Apple could in the future take steps to hinder the
Company's development of compatible products and slow sales of the Company's
products. The Company's business is based in part on supplying products that
meet the needs of high-end customers that are not fully met by Apple's products.
As Apple improves its products or bundles additional hardware or software into
its computers, it reduces the market for Radius products that provide those
capabilities. For example, the Company believes that the on-board performance
capabilities included in Macintosh Power PC products have reduced and continue
to reduce overall sales for the Company's graphics cards. In the past, the
Company has developed new products as Apple's progress has rendered existing
Company products obsolete, but there can be no assurance that the Company will
continue to develop successful new products on a timely basis in the future. In
order to develop products for the Macintosh on a timely basis, the Company
depends upon access to advance information concerning new Macintosh products. A
decision by Apple to cease sharing advance product information with the Company
would adversely affect the Company's business.
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New products anticipated from and introduced by Apple could cause customers to
defer or alter buying decisions due to uncertainty in the marketplace, as well
as presenting additional direct competition for the Company. For example, the
Company believes that Apple's transition during 1994 to Power PC products caused
delays and uncertainties in the market place and had the effect of reducing
demand for the Company's products. In addition, sales of the Company's products
have been adversely affected by Apple's revamping of its entire product line
from NuBus-based to PCI Bus-based computers. In the past, transitions in Apple's
products have been accompanied by shortages in those products and in key
components for them, leading to a slowdown in sales of those products and in the
development and sale by the Company of compatible products. In addition, it is
possible that the introduction of new Apple products with improved performance
capabilities may create uncertainties in the market concerning the need for the
performance enhancements provided by the Company's products and could reduce
demand for such products.
COMPETITION
The markets for the Company's products are highly competitive, and the Company
expects competition to intensify. Many of the Company's current and prospective
competitors have significantly greater financial, technical, manufacturing and
marketing resources than the Company. The Company believes that its ability to
compete will depend on a number of factors, including the success and timing of
new product developments by the Company and its competitors, product
performance, price and quality, breadth of distribution and customer support.
There can be no assurance that the Company will be able to compete successfully
with respect to these factors. In addition, the introduction of lower priced
competitive products could result in price reductions that would adversely
affect the Company's results of operations.
DEPENDENCE ON SUPPLIERS
The Company outsources the manufacturing and assembly of its products to third
party suppliers. Although the Company uses a number of manufacturer/assemblers,
each of its products is manufactured and assembled by a single supplier. The
failure of a supplier to ship the quantities of a product ordered by the Company
could cause a material disruption in the Company's sales of that product. In the
past, the Company has at times experienced substantial delays in its ability to
fill customer orders for displays and other products, due to the inability of
certain suppliers to meet their volume and schedule requirements and, recently,
due to the Company's shortages in available cash. Due to recent shortages in
cash resources and because the Company seeks to manage its use of working
capital by, among other things, limiting the backlog of inventory it purchases,
the Company is particularly vulnerable to delays in shipments from suppliers.
Such delays can cause fluctuations in the Company's short term results and
contribute to order cancellations.
The Company is also dependent on sole or limited source suppliers for certain
key components used in its products, including certain digital to analog
converters, digital video chips, and other products. Certain other semiconductor
components and molded plastic parts are also purchased from sole or limited
source suppliers. The Company purchases these sole or limited source components
primarily pursuant to purchase orders placed from time to time in the ordinary
course of business and has no guaranteed supply arrangements with sole or
limited source suppliers. The Company expects that these suppliers will continue
to meet its requirements for the components, but there can be no assurance that
they will do so. The introduction of new products presents additional
difficulties in obtaining timely shipments from suppliers. Additional time may
be needed to identify and qualify suppliers of the new products. Also, the
Company has experienced delays in achieving volume production of new products
due to the time required for suppliers to build their manufacturing capacity. An
extended interruption in the supply of any of the components for the Company's
products, regardless of the cause, could have an adverse impact on the Company's
results of operations. The Company's products also incorporate components, such
as VRAMs, DRAMs and ASICs that are available from multiple sources but have been
subject to substantial fluctuations in availability and price. Since a
substantial portion of the total
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material cost of the Company's products is represented by these components,
significant fluctuations in their price and availability could affect its
results of operations.
TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS
The personal computer industry in general, and the color publishing and video
applications within the industry, are characterized by rapidly changing
technology, often resulting in short product life cycles and rapid price
declines. The Company believes that its success will be highly dependent on its
ability to develop innovative and cost-competitive new products and to bring
them to the marketplace in a timely manner. Should the Company fail to introduce
new products on a timely basis, the Company's operating results could be
adversely affected. Technological innovation is particularly important for the
Company, since its business is based on its ability to provide functionality and
features not included in Apple's products. As Apple introduces new products with
increased functionality and features, the Company's business will be adversely
affected unless it develops new products that provide advantages over Apple's
latest offerings. Continued reduction in the available cash resources of the
Company could result in the interruption or cancellation of research and product
development efforts.
The Company anticipates that the video editing industry will follow the pattern
of the professional publishing industry in which desktop publishing products,
including those produced by Radius, replaced more expensive, proprietary
products, and the Company also anticipates that this evolution will lead to a
significant increase in the purchase and use of video editing products. There is
a risk that this evolution will not occur in the video editing industry as
expected by the Company, or that it will occur at a slower pace than
anticipated.
The introduction of new products is inherently subject to risks of delay. Should
the Company fail to introduce new products on a timely basis, the operating
results of the Company could be adversely affected. The introduction of new
products and the phasing out of older products will require the Company to
carefully manage its inventory to avoid inventory obsolescence and may require
increases in inventory reserves. The long lead times -- as much as three to five
months -- associated with the procurement of certain components (principally
displays and ASICs) exposes the Company to greater risk in forecasting the
demand for new products. There can be no assurance that the Company's forecasts
regarding new product demand and its estimates of appropriate inventory levels
will be accurate. Moreover, no assurance can be given that the Company will be
able to cause all of its new products to be manufactured at acceptable
manufacturing yields or that the Company will obtain market acceptance for these
products.
DISTRIBUTION
The Company's primary means of distribution is through a limited number of
third-party distributors and master resellers. As a result, the Company's
business and financial results are highly dependent on the amount of the
Company's products that is ordered by these distributors and resellers. Such
orders are in turn dependent upon the continued viability and financial
condition of these distributors and resellers as well as on their ability to
resell such products and maintain appropriate inventory levels. Due in part to
the historical volatility of the personal computer industry, certain of the
Company's resellers have from time to time experienced declining profit margins,
cash flow shortages and other financial difficulties. The future growth and
success of the Company will continue to depend in large part upon its reseller
channels. If its resellers were to experience financial difficulties, the
Company's results of operations could be adversely affected.
INTERNATIONAL SALES
The Company's international sales are primarily made through distributors and
the Company's subsidiary in Japan. The Company expects that international sales
will represent a significant portion of its net sales and that it will be
subject to the normal risks of international sales such as currency
fluctuations, longer payment cycles, export controls and other governmental
regulations and, in some countries, a lesser degree of intellectual property
protection as compared to that provided under the laws of the United
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States. In addition, fluctuations in exchange rates could affect demand for the
Company's products. If for any reason exchange or price controls or other
restrictions on foreign currencies are imposed, the Company's business and
operating results could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its key management, marketing, product development and
operational personnel and the Company's ability to retain and continue to
attract highly skilled personnel. Competition for employees in the computer
industry is intense, and there can be no assurance that the Company will be able
to attract and retain qualified employees. The Company has recently made a
number of management changes, including the appointment of a new Chief Financial
Officer. If the Company continues to experience financial difficulties, it may
become increasingly difficult for it to hire new employees and retain current
employees. The Company does not carry any key person life insurance with respect
to any of its personnel.
DEPENDENCE ON PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and trade
secret protection, nondisclosure agreements and licensing arrangements to
establish and protect its proprietary rights. The Company has a number of
patents and patent applications and intends to file additional patent
applications as it considers appropriate. There can be no assurance that patents
will issue from any of these pending applications or, if patents do issue, that
any claims allowed will be sufficiently broad to protect the Company's
technology. In addition, there can be no assurance that any patents that may be
issued to the Company will not be challenged, invalidated or circumvented, or
that any rights granted thereunder would provide proprietary protection to the
Company. The Company has a number of trademarks and trademark applications.
There can be no assurance that litigation with respect to trademarks will not
result from the Company's use of registered or common law marks, or that, if
litigation against the Company were successful, any resulting loss of the right
to use a trademark would not reduce sales of the Company's products in addition
to the possibility of a significant damages award. Although, the Company intends
to defend its proprietary rights, policing unauthorized use of proprietary
technology or products is difficult, and there can be no assurance that the
Company's efforts will be successful. The laws of certain foreign countries may
not protect the proprietary rights of the Company to the same extent as do the
laws of the United States.
The Company has received, and may receive in the future, communications
asserting that its products infringe the proprietary rights of third parties,
and the Company is engaged and has been engaged in litigation alleging that the
Company's products infringe others' patent rights. As a result of such claims or
litigation, it may become necessary or desirable in the future for the Company
to obtain licenses relating to one or more of its products or relating to
current or future technologies, and there can be no assurance that it would be
able to do so on commercially reasonable terms.
VOLATILITY OF STOCK PRICE; DILUTION
The price of the Company's Common Stock has fluctuated widely in the past.
Management believes that such fluctuations may have been caused by announcements
of new products, quarterly fluctuations in the results of operations and other
factors, including changes in conditions of the personal computer industry in
general. Stock markets have experienced extreme price volatility in recent
years. This volatility has had a substantial effect on the market prices of
securities issued by the Company and other high technology companies, often for
reasons unrelated to the operating performance of the specific companies. Due to
the factors referred to herein, the dynamic nature of the Company's industry,
general economic conditions and other factors, the Company's future operating
results and stock prices may be subject to significant volatility in the future.
In addition, any change in other operating results could have an immediate and
significant effect on the prices of the Company's Common Stock. Such stock price
volatility for the Common Stock has in the past provoked securities litigation,
and future volatility
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could provoke litigation in the future that could divert substantial management
resources and have an adverse effect on the Company's results of operations.
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