RADIUS INC, PRER14A, 1996-07-05

RADIUS INC
PRER14A, 1996-07-05
COMPUTER PERIPHERAL EQUIPMENT, NEC

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<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:

/X/ Preliminary Proxy Statement

/ / Definitive Proxy Statement

/ / Definitive Additional Materials

/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12

/ / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

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:

- - --------------------------------------------------------------------------------

/X/ 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 WEDNESDAY, AUGUST 28, 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 Wednesday, August 28, 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 August 1, 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

August , 1996

<PAGE> 3

RADIUS INC.
215 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089

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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 Wednesday, August 28, 1996, at 11:00 a.m.
P.D.T. for the following purposes:

1. To approve the issuance of Common Stock, certain Convertible
Preferred Stock and Warrants 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 August 1, 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

August , 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
------------------------

AUGUST , 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 Wednesday, August 28, 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 August 1, 1996 will be entitled to vote at the Meeting. At
the close of business on August 1, 1996, the Company had [18,240,789] 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 August , 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.

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.

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.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Voting Rights and Solicitation of Proxies............................................ 1
Revocability of Proxies.............................................................. 1
Proposal 1: Approval of Issuance of Convertible Preferred Stock, Common Stock and
Warrants................................................................. 3
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........... 9
Security Ownership of Certain Beneficial Owners and Management....................... 11
Independent Public Accountants....................................................... 12
Shareholder Proposals................................................................ 12
Other Business....................................................................... 12
Capitalization....................................................................... 13
Available Information................................................................ 14
Incorporation of Certain Information by Reference.................................... 14
Index to Financial Statements........................................................ F-1
</TABLE>

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PROPOSAL 1:

APPROVAL OF ISSUANCE OF

CONVERTIBLE PREFERRED STOCK, COMMON STOCK AND WARRANTS

(A) BACKGROUND

As of March 30, 1996, the Company had total assets of approximately $44.7
million and total current liabilities of approximately $97.1 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 March 30, 1996, the
Company had outstanding accounts payable, short-term borrowings and obligations
under capital leases of approximately $64.8 million, of which approximately
$41.4 million was outstanding under accounts payable, approximately $21.4
million represented short-term borrowings and approximately $2.0 million
represented obligations under capital leases. Furthermore, the Company's
operating activities used net cash of approximately $9.4 million during the
three months ended March 30, 1996. 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 an unsecured creditors committee
and is negotiating with this creditors committee and the Company's secured
creditor, IBM Credit Corporation ("ICC"), 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,
including the likely demoralization of employees, customers and distributors.

The Company, the creditors committee and ICC have agreed in principal to a
plan (the "Plan") pursuant to which creditors will receive equity in the Company
in satisfaction of all or a portion of their claims. The Company anticipates
that ICC will receive shares of the Company's yet to be issued Series A
Convertible Preferred Stock (the "Convertible Preferred Stock") which will be
convertible into Common Stock of the Company and its unsecured creditors will
receive shares of the Company's Common Stock. It is also anticipated that ICC
and certain creditors who agree to continue to extend credit to the Company will
receive warrants to purchase up to an aggregate of 3,000,000 shares of Common
Stock (the "Warrants"). The issuance of the Convertible Preferred Stock, the
Common Stock and the Warrants does not require the approval of the Company's
shareholders. Accordingly, the definitive terms of the Convertible Preferred
Stock and Warrants will be determined by the Board of Directors after
negotiations with the Company's creditors. An increase in the authorized number
of shares of Common Stock, however, which is necessary to implement this Plan,
does require shareholder approval. Moreover, pursuant to the continued listing
requirements of the National Association of Securities Dealers ("NASD") Nasdaq
National Market System ("Nasdaq National Market"), the Company was 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, the NASD had required that the
Company 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 and Common Stock to the Company's
creditors be consummated by June 30, 1996 as a condition to the Company's
continued listing on the Nasdaq National Market. After failing to reach an
agreement in principal with ICC and the creditors committee until late June, the
NASD has delisted the Company's Common Stock from the Nasdaq National Market and
the Common Stock is now listed on the Nasdaq SmallCap Market (the "Nasdaq
SmallCap Market"). The NASD has required that the Company comply with the
continued listing requirements for the Nasdaq SmallCap Market by August 30,
1996. Even if the shareholders approve the issuance of the Convertible Preferred
Stock, the Common Stock and the Warrants to the Company's creditors and the Plan
is implemented, there can be no assurance that the Company will meet the NASD's
other requirements for continued listing on the Nasdaq SmallCap Market.

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It is currently proposed that ICC, the Company's secured creditor, would
receive Series A Convertible Preferred Stock in satisfaction of $3 million of
the Company's approximately $22 million indebtedness to ICC and in consideration
of loaning the Company an additional $500,000 and that the Company's unsecured
creditors would receive shares of Common Stock in satisfaction of up to
approximately $45 million in claims or, in the case of smaller creditors, would
receive a discounted cash payment (not exceeding $500,000 in the aggregate)
instead of shares of Common Stock. There can be no assurance that any of these
creditors will elect to receive Convertible Preferred Stock or Common Stock in
satisfaction of their claims. The Company also expects to issue Warrants to ICC
and up to four of the largest unsecured creditors to ensure favorable credit
terms for continuing supply and credit arrangements. The number of shares of
Common Stock covered by the Warrants is expected to be no more than 3,000,000
and the exercise price is expected to equal the lower of the average closing
price per share of the Common Stock for the five trading days preceding and five
trading days following the date of the issuance of the Common Stock, Convertible
Preferred Stock and Warrants and $1.25 (the "Average Price").

SHAREHOLDERS ARE NOT BEING ASKED TO APPROVE ANY OF THE SPECIFIC TERMS OF
THE CONVERTIBLE PREFERRED STOCK OR WARRANTS, BUT INSTEAD ARE BEING ASKED TO
APPROVE THE AUTHORIZATION OF THE ISSUANCE OF THE COMMON STOCK, WARRANTS AND THE
YET TO BE DESIGNATED CONVERTIBLE PREFERRED STOCK WHICH WOULD REPRESENT, IN THE
AGGREGATE, AN AMOUNT OF COMMON STOCK WHICH IS AT LEAST 67% OF THE COMPANY'S
OUTSTANDING COMMON STOCK.

(B) DESCRIPTION OF CONVERTIBLE PREFERRED STOCK AND WARRANTS

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.

The definitive terms of the Convertible Preferred Stock are still subject
to negotiation and will be determined by the Board of Directors after
negotiations with the creditors' committee and ICC. No further authorization for
the issuance of the Convertible Preferred Stock by a vote of the Company's
shareholders will be solicited prior to the issuance of the Convertible
Preferred Stock.

It is anticipated that the dividend, liquidation and redemption features of
the Series A Convertible Preferred Stock, each of which is discussed in greater
detail below, will be determined by reference to the Liquidation Price of the
Series A Convertible Preferred Stock, which is defined, in the aggregate as $3
million plus any accrued but unpaid dividends.

Dividends on the Series A Convertible Preferred Stock will accrue
cumulatively at a rate of 10% per annum of the Liquidation Price and are payable
in cash or in shares of Common Stock, at the Company's discretion. The Series A
Convertible Preferred Stock will rank senior to any other Preferred Stock and
the Common Stock with respect to the declaration and payment of dividends.

Upon dissolution, liquidation or winding up of the Company, it is
anticipated that holders of the Series A Convertible Preferred Stock will be
entitled to receive from the assets of the Company available for distribution to
shareholders an amount in cash or property or a combination thereof per share
equal to the Liquidation Price. The Series A Convertible Preferred Stock will
rank senior to the Common Stock and any other Preferred Stock with respect to
the receipt of liquidation proceeds.

The Series A Convertible Preferred Stock will be redeemable at the option
of ICC at the Liquidation Price as of the date of redemption upon the occurrence
of certain extraordinary events such as the sale or

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disposition of a significant amount of the Company's assets or the merger or
consolidation of the Company with another entity, if such events generate
significant liquidity.

The Series A Convertible Preferred Stock will vote on all matters submitted
to a vote of the Company's shareholders together as a single class with all
other classes of the Company's capital stock with each share of Series A
Convertible Preferred Stock having the number of votes which would be cast if
such shares were converted into Common Stock on the day prior to the date of the
vote except as otherwise required by applicable law.

The Series A Convertible Preferred Stock will be convertible from time to
time, in whole or in part, at the option of the holder, into such number of
shares of Common Stock as represents at least 7% of the outstanding shares of
Common Stock at the time of conversion of the debt into equity. For example if
the total number of shares of Common Stock outstanding were 18,000,000, then
5,478,260 is the maximum number of shares of Common Stock into which the Series
A Convertible Preferred Stock would be convertible.

The Series A Convertible Preferred Stock is expected to be convertible into
Common Stock at the Company's election in the event that the closing price of
the Common Stock exceeds a price per share equal to 1.5 times $3 million divided
by the maximum number of shares of Common Stock into which the Series A
Convertible Preferred Stock is convertible for a period of 15 consecutive
trading days. Assuming there are 18,000,000 shares of Common Stock outstanding
immediately prior to the consummation of the Plan, this price per share would
equal approximately $0.82.

Warrants

The Company anticipates that it will issue Warrants to purchase up to an
aggregate of 3,000,000 shares of Common Stock to ICC and up to four other
unsecured creditors who continue to extend credit to the Company. In the event
the Company issues Warrants which cover less than 3,000,000 shares of Common
Stock to ICC and its four largest unsecured creditors, the Company may issue the
remaining Warrants to other creditors if necessary to obtain approval of the
Plan.

The exercise price of the Warrants is expected to be the Average Price and
it is anticipated that the Warrants will be exercisable as long as the favorable
credit relationship lasts or until any indebtedness is repaid, up to a four year
period.

The Warrants will contain standard antidilution provisions in the event of
a stock dividend, stock split, combination or reclassification of the Common
Stock.

Registration Rights and Resale Restrictions

The Company anticipates that it will file a registration statement under
the Securities Act of 1933, as amended, prior to the consummation of the Plan,
which registration statement will include the maximum number of shares of Common
Stock to be issued upon the conversion of the Convertible Preferred Stock and
the exercise of any Warrants. The Company expects the shares of Common Stock
issuable upon exercise of Warrants and upon conversion of the Convertible
Preferred Stock will be available for public resale from time to time after the
effectiveness of the registration statement for a six month period. The holders
of such securities are expected to have demand registration rights with respect
to the shares of such underlying Common Stock which were not sold during such
six month period. It is anticipated that these demand registration rights will
permit such holders to cause the Company, on up to two occasions, to register
such unsold shares of underlying Common Stock commencing one year after the
consummation of the Plan.

The Company expects that certain of the Major Creditors will enter into a
shareholders agreement which it expects will contain resale restrictions on the
Common Stock held by them. The Company will not be a party to this agreement.

This proxy statement shall not constitute an offer to sell or the
solicitation of any offer to buy any securities of Radius Inc. The offering of
the Convertible Preferred Stock, Common Stock and Warrants will be made only by
means of a prospectus.

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The Company anticipates that it will issue all of the Convertible Preferred
Stock to ICC in satisfaction of $3 million of the Company's approximately $22
million indebtedness to ICC. The Company would then amend the terms of its
remaining approximately $19 million of indebtedness to ICC and ICC will loan the
Company an additional $500,000. The Company also expects to issue Warrants to
purchase up to 600,000 shares of Common Stock to ICC in order to secure
favorable credit terms on the remaining approximately $19.5 million of
indebtedness to ICC. The exercise price for these Warrants is expected to be the
Average Price, and the Warrants may be exercisable for up to four years.

The Company anticipates that it will offer Common Stock to its unsecured
creditors with claims of at least $50,000 ("Major Creditors") representing
accounts payable or other claims in the aggregate of approximately $43.1
million, of which sum approximately $6 million, $6 million, $4 million and $2
million is owed to Mitsubishi Electronics, SCI Technology, Inc., Hamilton
Hallmark-Avnet Co. and Quantum, respectively, the Company's largest unsecured
creditors. In consideration of the issuance, it is anticipated that
participating Major Creditors will release the Company from any further
liability related to the applicable claims. There are approximately 50 Major
Creditors, many of whom continue to do business with the Company.

The Company also anticipates that it will issue Warrants to purchase shares
of its Common Stock to the Major Creditors who are key suppliers, who agree to
receive shares of Common Stock in satisfaction of their claims and who agree to
continue their supply relationships with the Company on favorable credit terms.
The Company anticipates that each such continuing supplier will receive a
Warrant to purchase up to 600,000 shares of Common Stock at an exercise price
equal to the Average Price. Additionally if fewer than 3,000,000 Warrants have
been issued to ICC and the key suppliers, the Company may issue Warrants to
other creditors if necessary to obtain Plan approval.

The Company anticipates that the remaining unpaid indebtedness of
approximately $1.9 million owed to its unsecured creditors with claims of less
than $50,000 (the "Convenience Class") would remain outstanding and would be
repaid at a discount of approximately 75% of the amount of the applicable claim
(the "Discount Payment"). The Company would repay these creditors from the
proceeds of the additional loan of $500,000 from ICC. There can be no assurance
that these remaining creditors will agree to settle their accounts at such a
discount. Alternatively, these smaller creditors could elect to receive Common
Stock on the same terms as the Major Creditors. If the Convenience Class as a
group demands more consideration in order to satisfy their claims and does not
elect to accept equity, the Company may be unable to generate sufficient cash
flow or obtain additional financing to repay these nonparticipating creditors,
and there can be no assurance that nonparticipating creditors will not seek to
enforce their claims. There are approximately 300 Convenience Class creditors,
many of whom continue to do business with the Company.

The Company anticipates that it will issue the Convertible Preferred Stock,
Common Stock and Warrants pursuant to a Registration Statement under the Act.
Assuming that the Plan is consummated, the Common Stock together with the Common
Stock issuable upon conversion of the Convertible Preferred Stock would
constitute at least 67% of the issued and outstanding shares of Common Stock
(assuming all shares authorized for issuance under the Company's stock option
plans were granted and exercised). If there were 18,000,000 shares of Common
Stock outstanding upon the consummation of the Plan, an aggregate of 52,434,781
shares of Common Stock would be issued to creditors (assuming the conversion of
Convertible Preferred Stock into Common Stock). All of such shares of Common
Stock would be available for public resale upon the effectiveness of the
registration statement, subject to any restrictions on resale agreed upon by the
Company's creditors among themselves. The offering will be made only by means of
a prospectus, and this proxy statement shall not constitute an offer to sell or
the solicitation of any offer by any such securities.

At this time, no further definitive terms with respect to the issuance of
the Common Stock, Convertible Preferred Stock and Warrants have been agreed upon
because negotiations with the creditors committee and ICC are still ongoing.
Furthermore, only some of the larger unsecured creditors of the Company have
participated in the creditors committee. Accordingly, there can be no assurance
that a significant portion of

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the Company's unsecured creditors will agree to receive equity in satisfaction
of their claims. The shares of Common Stock to be issued to the Major Creditors,
together with the shares issued to the Convenience Class shall represent at
least 60% of, and the shares of Series A Convertible Preferred Stock to be
issued to ICC shall be convertible into at least 7% of, the issued and
outstanding of the Company's Common Stock (assuming the issuance and exercise of
stock options pursuant to the Company's Stock Option Plans which plans will
cover 10% of the Company's outstanding Common Stock). The shares of Common Stock
to be issued to the consenting Major Creditors and the electing members of the
Convenience Class shall be allocated on a pro rata basis based upon the amount
of their undisputed claims. For example, a creditor with claims of $4.5 million
would receive approximately 10% of the 60% of the Company's equity allocated for
the unsecured creditors and the four largest Major Creditors having claims of
approximately $18 million would receive in the aggregate approximately 40% of
the 60% of the Company's equity allocated for the unsecured creditors.
Appropriate amounts of Common Stock will be reserved for any disputed claims.

It is a condition to the consummation of the Plan that all Major Creditors
agree to receive shares of Common Stock in satisfaction of their claims. It is
also a condition to the consummation of the Plan that Convenience Class
creditors representing 95% of the total amount of claims held by all Convenience
Class creditors agree to receive shares of Common Stock or the Discount Payment.
There can be no assurance that a sufficient percentage of either class of
creditors will agree to receive Common Stock, or if applicable, the Discount
Payment in satisfaction of their claims. In such event the Company may be unable
to consummate the proposed debt for equity exchange and would likely be unable
to generate or obtain sufficient funds to repay such obligations. Furthermore,
even if the Company achieves the requisite consent of creditors, there can be no
assurance that any remaining nonparticipating creditors will not elect to
enforce their obligations or institute bankruptcy proceedings. In the event the
Plan is not approved by the creditors or cannot be implemented for any reason,
the Company, as a condition obtaining the creditors committee's and ICC's
agreement in principle of the Plan, has agreed to seek approval of the Plan
through a "pre-packaged" bankruptcy (a Chapter 11 proceeding in which the plan
of reorganization has been approved by a sufficient number of creditors prior to
filing for bankruptcy). Any such filing may have material adverse effects on the
Company's business and there can be no assurance that a court would ultimately
approve the plan of reorganization.

The Company expects to agree to and to implement the Plan as discussed
above. Given the large number of creditors, however, the Company retains
discretion to adjust these terms if necessary to obtain the requisite approval
of the Plan. For example, some Major Creditors may insist on receiving Preferred
Stock (rather than Common Stock). In such case, the Board may need to designate
a new series of Preferred Stock which will be identical to the Series A
Convertible Preferred Stock except in respect of: the Liquidation Price and
preferences (this Preferred Stock would be junior to the Series A Convertible
Preferred Stock); dividends would be payable only if dividends are paid on the
Common Stock; and there would be no redemption rights. The number of shares of
Common Stock into which any such Preferred Stock would be convertible would not
exceed the amount of Common Stock which would have been issued directly to such
creditor had such creditor elected to receive Common Stock. If fewer than
3,000,000 Warrants have been issued to ICC and other key suppliers, the Company
may issue Warrants to other creditors if necessary to obtain the requisite
consents for the Plan. If less than all of the Major Creditors agree to the
Plan, the Company, with the consent of ICC and the other Major Creditors, may
also elect to consummate the plan if the Company can secure the necessary funds
to satisfy the claims of the nonparticipating creditors. Nevertheless, if there
are too many specific demands placed on the Company from other creditors, the
Company may have no alternative other than to seek bankruptcy protection.

There can also be no assurance that the Company will ever achieve
profitability even if all creditors consent to the Plan.

The Company does not intend to seek further shareholder approval with
respect to the issuance of the Convertible Preferred Stock, the Common Stock and
Warrants other than with respect to the approval of the issuance of such
securities representing at least 67% of the Company's outstanding Common Stock.
As presently structured, this percentage would be approximately 75% if no
options or Warrants are exercised. This

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percentage could increase significantly as negotiations with creditors are still
ongoing, but is not expected to do so.

(D) EFFECT ON SHAREHOLDERS

The authorization of the issuance of the Common Stock, Convertible
Preferred Stock and Warrants 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 and Common Stock, the voting powers
of the presently outstanding shares of Common Stock will be reduced commensurate
with the voting rights of the amount of Convertible Preferred Stock and Common
Stock issued to participating creditors. It is currently anticipated that the
Convertible Preferred Stock would vote on an "as converted basis" together with
the Common Stock as a single class. Holders of Warrants will not have voting
rights unless such Warrants are exercised. As currently proposed, Common Stock
and Convertible Preferred Stock will represent at least 67% of the voting power
of the outstanding shares of Common Stock assuming full conversion of the
Convertible Preferred Stock and issuance and exercise of all stock options
available, or to be available under such plans (assuming that shareholders
approve an increase in the number of shares of Common Stock covered by such
plans to 10% of the outstanding shares of Common Stock at the next regular
meeting of shareholders). Accordingly, creditors receiving Convertible Preferred
Stock and Common Stock will, in the aggregate, have voting control of the
Company. Holders of Common Stock do not have preemptive rights to subscribe to
shares of Common Stock or Convertible Preferred Stock or Warrants (or any shares
of Common Stock issuable upon the exercise or conversion thereof) proposed to be
issued to creditors. Information concerning pro forma adjustments that would be
made to the Company's capitalization as of March 30, 1996, to give effect to the
adoption of this Proposal, as well as certain other events, is set forth below
in "Capitalization."

(E) VOTE REQUIRED

Although the Company does not believe that shareholder approval of this
Proposal is required for its continued listing on the Nasdaq SmallCap Market,
the NASD, prior to the Company's delisting from the Nasdaq National Market, had
conditioned its listing on the Nasdaq National Market on obtaining shareholder
approval of the Proposal. Therefore, the Company is seeking shareholder approval
of the Proposal. In the event that shareholder approval of this Proposal is
required for the Company's continued listing on the Nasdaq SmallCap Market, 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.
In the event this Proposal is not approved and Proposal 2 is approved, the
Company intends to proceed with the consummation of the Plan. If both Proposals
are not approved, the Company has no plans with respect to the issuance of
equity in the Company in satisfaction of creditors' claims or with respect to
the repayment of creditors' claims outside of bankruptcy.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
PROPOSAL TO AUTHORIZE THE ISSUANCE OF COMMON STOCK, CONVERTIBLE
PREFERRED STOCK AND WARRANTS THAT (ASSUMING FULL CONVERSION OF THE
CONVERTIBLE PREFERRED STOCK AND FULL EXERCISE OF ALL AVAILABLE STOCK
OPTIONS) CONSTITUTES, IN THE AGGREGATE, AT LEAST 67% OF THE COMPANY'S
OUTSTANDING SHARES OF COMMON STOCK

8
<PAGE> 12

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 May 13, 1996, 18,240,789 shares of Common Stock were issued and
outstanding, approximately 2,969,929 shares were reserved for issuance upon
exercise of options outstanding and options to be granted under the Company's
stock option plans and approximately 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 28,642,458 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 of approximately 52,434,781
shares of Common Stock to its unsecured creditors, issuance of approximately
5,478,260 shares of Common Stock upon conversion of the Convertible Preferred
Stock or upon the exercise of Warrants to purchase 3,000,000 shares of Common
Stock proposed to be issued to creditors of the Company and the increase
(subject to shareholder approval at the next regular shareholders meeting) in
the number of shares of Common Stock, to 10% of the outstanding shares of Common
Stock, covered by the Company's stock option plans. 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 of all outstanding options or, if issued,
upon the exercise of the Warrants and upon conversion of the Convertible
Preferred Stock, the Company does not have sufficient authorized shares of
Common Stock for issuance to unsecured creditors who agree to receive shares of
Common Stock in satisfaction of their claims. Because the Company must have a
sufficient number of authorized shares of Common Stock available for issuance to
unsecured creditors and for issuance upon conversion of the Convertible
Preferred Stock and the Warrants 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 Common Stock, Convertible Preferred Stock and
Warrants to its creditors as set forth in Proposal 1, 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. Because
the Company has had a negative tangible net worth prior to the Plan, there will
be no dilution of the book value of 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.

9
<PAGE> 13

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 implement the proposed debt to equity
conversion, 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. If
shareholders do not approve this Proposal, the Company will not have a
sufficient number of authorized shares of Common Stock for issuance to unsecured
creditors, upon conversion of the Convertible Preferred Stock and upon exercise
of the Warrants. If the Company does not have a sufficient number of shares of
Common Stock reserved for issuance at the time the Common Stock, Convertible
Preferred Stock and Warrants are to be issued, the Company believes that its
creditors will not accept such securities in satisfaction of their claims and,
as a result if the Company is unable to generate funds from operations or obtain
additional financing, it will not be able to repay its obligations to such
creditors. In the event this proposal is not approved and as a result the
Company has insufficient shares of Common Stock available for issuance to
creditors, the Company will not have sufficient means to repay its creditors.
Accordingly, the Company has agreed with the creditors committee and ICC to seek
bankruptcy protection if the Plan is not approved or implemented, and there can
also be no assurance that creditors will not institute involuntary bankruptcy
proceedings.

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

10
<PAGE> 14

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 June 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 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 directors as a group
(8 persons)(10)....................................... 562,420 3.31%
</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.

11
<PAGE> 15

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.

12
<PAGE> 16

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 upon two hypothetical examples as to the possible issuance
of Common Stock and 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 March 30, 1996, and (ii) such capitalization, as adjusted to
reflect the issuance of Series A Convertible Preferred Stock to ICC and Common
Stock to all of the Major Creditors and to all Convenience Class creditors, the
additional borrowing of $500,000 from ICC under its amended credit agreement and
the subsequent conversion of such Convertible Preferred Stock into Common Stock.
As of the date hereof, a definitive agreement has not 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
or Common Stock in satisfaction of their claims or as to what the number of
shares of Common Stock or Convertible Preferred Stock or what the definitive
terms of the Convertible Preferred Stock will be.

<TABLE>
<CAPTION>
AS
HISTORICAL ADJUSTED(1)
--------- -----------
<S> <C> <C>
Capitalization:
Current Liabilities................................................... 97,122 51,201
Obligations under capital leases -- noncurrent portion................ 560 --
Shareholders' Equity:
Common Stock, no par value; 50,000,000 shares authorized, 17,415,678
shares issued and outstanding, actual; 100,000,000 shares authorized
57,913,041 shares outstanding, as adjusted.......................... 117,128 163,609
Common Stock to be issued............................................. 8,695 8,695
Accumulated translation adjustment.................................... 9 9
Accumulated deficit................................................... (178,857) (178,857)
Total shareholder's equity (net capital deficiency).............. (53,025) (6,544)
--------- -----------
Total capitalization........................................ $ 44,657 $ 44,657
========= =========
</TABLE>

- - ---------------

(1) Excludes shares issuable upon exercise of any Warrants which may be issued
to creditors who agree to extend credit to the Company. Assumes that there
are outstanding 18,000,000 shares of Common Stock on the date of the
consummation of the Plan. Also assumes that all members of the Convenience
Class agree to receive Common Stock in satisfaction of their claims in lieu
of the Discount Payment.

13
<PAGE> 17

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 Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission. The address of the Commission's World
Wide Web site is: http://www.sec.gov. 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 March 30, 1996.

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.

14
<PAGE> 18

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

August [ ], 1996

15
<PAGE> 19

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 March 30, 1996.................................... F-23
Consolidated Statements of Operations for the Three Months Ended March 30, 1995
and 1996 and for the Six Months Ended March 30, 1995 and 1996.................. F-24
Consolidated Statements of Cash Flows for the Six Months Ended March 30, 1995
and 1996...................................................................... F-25
Notes to Consolidated Financial Statements...................................... F-26
</TABLE>

F-1
<PAGE> 20

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> 21

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------
1995 1994
--------- --------
(IN THOUSANDS)
<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> 22

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR YEARS ENDED SEPTEMBER 30
----------------------------------
1995 1994(1) 1993(1)
--------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<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>

- - ---------------
(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.

See accompanying notes.

F-4
<PAGE> 23

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
RETAINED
EARNINGS
ACCUMULATED
COMMON (ACCUMULATED
TRANSLATION (NET CAPITAL
STOCK DEFICIT) DEFERRED TOTAL
ADJUSTMENT DEFICIENCY) COMPENSATION EQUITY SHAREHOLDERS
----------- ------------ ------------ ------ ------------
<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>

- - ---------------

(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.

See accompanying notes.

F-5
<PAGE> 24

CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
FOR YEARS ENDED SEPTEMBER 30
---------------------------------
1995 1994 1993(1)
--------- -------- --------
(IN THOUSANDS)
<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.

F-6
<PAGE> 25

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 non-salable 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.

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

F-7
<PAGE> 26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 SFAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.

F-8
<PAGE> 27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 shortterm 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 third party commitments. Gains and losses
associated with currency rate changes on forward contracts are recognized in the
consolidated statements of operations upon contract settlement 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> 28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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"). The weighted
average interest rate during 1995 was approximately 12.6%. 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 weighted average interest
rate during 1995 was approximately 13.0%. 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 weighted
average interest rate during 1995 was approximately 4.9%. The line of credit is
renewed every six months with the next renewal in December 1995.

F-10
<PAGE> 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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>
COST NET BOOK VALUE
------ --------------
<S> <C> <C>
At September 30,
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

F-11
<PAGE> 30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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> 31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
============== ============== ==============
Price range of options exercised.............. $0.42 - $13.13 $0.42 - $13.13 $0.42 - $22.35
============== ============== ==============
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

F-13
<PAGE> 32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares became available upon the resignation of 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>
FOR YEARS ENDED SEPTEMBER 30
--------------------------------
1995 1994 1993
------ -------- --------
(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> 33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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>
FOR YEARS ENDED
SEPTEMBER 30
---------------------
1995 1994
-------- --------
(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 and 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>
FOR YEARS ENDED SEPTEMBER 30,
----------------------------------
1995 1994 1993
-------- -------- --------
(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>

F-15
<PAGE> 34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 expire as follows;
$8,000,000 in 1998, $5,000,000 in 1999; and $14,900,000 in 2000, if not
utilized, and the federal loss carryforwards will expire primarily in 2009 and
2010, if not utilized. In addition, the Company had tax credit carryforwards of
approximately $6,280,000 which will expire 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>
FOR YEARS ENDED SEPTEMBER 30,
------------------------------
1995 1994 1993
------- ------- ------
(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>

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. Export sales to Japan
were approximately $57,173,000, $35,701,000 and $33,042,000 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

F-16
<PAGE> 35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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.

F-17
<PAGE> 36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. Revenues and product margins for significant product lines
discontinued were as follows: MacOS-compatible systems were $30,387,000 and
$(7,390,000), respectively; and low-margin displays $82,931,000 and $19,611,000,
respectively. 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 of the 240
total planned 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.

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

F-18
<PAGE> 37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 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.

F-19
<PAGE> 38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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-20
<PAGE> 39

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER DESCRIPTION AT END OF
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-21
<PAGE> 40

RADIUS INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, UNAUDITED)

<TABLE>
<CAPTION>
MARCH 30,
1996
---------
<S> <C>
ASSETS:
Current assets:
Cash........................................................................... $ 2,779
Accounts receivable, net....................................................... 24,471
Inventories.................................................................... 13,207
Prepaid expenses and other current assets...................................... 1,146
Income tax receivable.......................................................... 517
---------
Total current assets................................................... 42,120
Property and equipment, net...................................................... 2,104
Deposits and other assets........................................................ 433
---------
$ 44,657
=========
LIABILITIES AND SHAREHOLDERS' EQUITY (Net capital deficiency)
Current liabilities:
Accounts payable............................................................... $ 41,430
Accrued payroll and related expenses........................................... 4,267
Accrued warranty costs......................................................... 332
Other accrued liabilities...................................................... 9,999
Accrued income taxes........................................................... 1,844
Accrued restructuring and other charges........................................ 16,439
Short-term borrowings.......................................................... 21,380
Obligations under capital leases -- current portion............................ 1,431
---------
Total current liabilities.............................................. 97,122
Obligations under capital leases -- noncurrent portion........................... 560
Shareholders' equity: (Net capital deficiency)
Common stock................................................................... 117,128
Common stock to be issued...................................................... 8,695
Accumulated deficit............................................................ (178,857)
Accumulated translation adjustment............................................. 9
Total shareholders' equity (Net capital deficiency).................... (53,025)
---------
$ 44,657
=========
</TABLE>

See accompanying notes.

F-22
<PAGE> 41

RADIUS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 30, MARCH 30,
------------------- ---------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales......................................... $30,575 $84,447 $ 63,227 $163,682
Cost of sales..................................... 25,098 62,913 53,705 119,671
------- ------- -------- --------
Gross profit............................ 5,477 21,534 9,522 44,011
------- ------- -------- --------
Operating expenses:
Research and development........................ 1,519 4,672 5,149 8,790
Selling, general and administrative............. 6,951 14,401 16,912 30,283
------- ------- -------- --------
Total operating expenses................ 8,470 19,073 22,061 39,073
------- ------- -------- --------
Income (loss) from operations..................... (2,993) 2,461 (12,539) 4,938
Other income (expense), net....................... 17,161 (2,154) 17,115 (3,074)
Settlement of litigation.......................... -- -- -- (12,422)
Income (loss) before income taxes................. 14,168 307 4,576 (10,558)
Provision for income taxes........................ 249 31 440 187
------- ------- -------- --------
Net income (loss)....................... $13,919 $ 276 $ 4,136 $(10,745)
======= ======= ======== ========
Income (loss) per share:
Net income (loss) per share..................... $ 0.77 $ 0.02 $ 0.23 $ (0.76)
======= ======= ======== ========
Common and common equivalent shares used in
computing net income (loss) per share........... 18,082 14,556 18,058 14,183
======= ======= ======== ========
</TABLE>

See accompanying notes.

F-23
<PAGE> 42

RADIUS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS, UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................... $ 4,136 $(10,745)
-------- --------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization..................................... 1,128 2,184
Gain on the sale of the Color Hard Copy Group..................... (16,993) --
-------- --------
Common stock to be issued......................................... -- 12,022
(Increase) decrease in assets:
Accounts receivable............................................. 35,187 (25,825)
Allowance for doubtful accounts................................. (1,668) (487)
Inventories..................................................... 1,084 (10,212)
Prepaid expenses and other current assets....................... 1,190 (2,857)
Income tax receivable........................................... 2 7,829
Increase (decrease) in liabilities:
Accounts payable................................................ (28,137) 27,522
Accrued payroll and related expenses............................ (1,404) (699)
Accrued warranty costs.......................................... (2,728) 128
Other accrued liabilities....................................... (777) 3,524
Accrued restructuring costs..................................... (574) (11,655)
Accrued income taxes............................................ 179 (155)
-------- --------
Net cash used in operating activities........................ (9,375) (9,426)
Cash flows from investing activities:
Capital expenditures................................................. (201) (2,983)
Deposits and other assets............................................ 84 (153)
Net proceeds from the sale of the Color Hard Copy Group.............. 16,438 --
-------- --------
Net cash provided by (used in) investing activities.......... 16,321 (3,136)
Cash flows from financing activities:
Principal payments of short-term borrowings, net..................... (8,109) 388
Principal payments of long-term debt and capital leases.............. (834) (896)
Issuance of common stock............................................. 16 1,446
-------- --------
Net cash provided by (used in) financing activities.......... (8,927) 938
Net decrease in cash and cash equivalents.............................. (1,981) (11,624)
Cash and cash equivalents, beginning of period......................... 4,760 15,997
-------- --------
Cash and cash equivalents, end of period............................... $ 2,779 $ 4,373
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest paid..................................................... $ 1,084 $ 1,082
Income taxes paid................................................. $ 259 $ 0
</TABLE>

See accompanying notes.

F-24
<PAGE> 43

RADIUS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The consolidated financial statements of Radius Inc. ("Radius") as of March
30, 1996 and for the three months ended March 30, 1996 and 1995 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.

NOTE 2. INVENTORIES

Inventories, stated at the lower of cost or market, consist of (in
thousands):

<TABLE>
<CAPTION>
MARCH
30, SEPTEMBER 30,
1996 1995
-------- -------------
<S> <C> <C>
Raw materials........................................ $ 2,952 $ 1,559
Work in process...................................... 3,608 2,258
Finished goods....................................... 6,647 11,254
------- -------
$13,207 $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. 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's motion to dismiss or sever the Company's amended
counterclaims was granted in part; the ruling permitted the Company to file an
amended counterclaim for antitrust violations. The Company has filed an amended
antitrust claim. 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, although 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, the costs of defense --
regardless of the outcome -- may have a material adverse effect on the results
of operations and 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

F-25
<PAGE> 44

RADIUS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
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. An amended consolidated complaint was
filed on March 26, 1996. Discovery proceedings are scheduled to begin. The
Company believes it has meritorious defenses to the plaintiffs' claims and is
defending them vigorously. In the opinion of management, based on the facts
known at this time, the eventual outcome of these cases may have a material
adverse effect on the results of operations or financial position of the Company
in the financial period in which they are resolved, in addition, whether or not
the eventual outcome of these cases have a material adverse effect on the
results of operations or financial position of the Company, the costs of
defense -- regardless of the outcome -- may have a material adverse effect on
the results of operations and financial position of the Company.

(c) On April 17, 1996, the Company was served with a complaint filed by
Colorx Corporation ("Colorx"), in the Circuit Court of the State of Oregon,
County of Multnomah, case no. 9604-02481, which alleges that the Company
breached an alleged contract to sell its dye sublimation printer business to
Colorx for $200,000, and seeks both specific performance of the alleged contract
and alleged damages of $2.5 million. The lawsuit also alleges that an officer of
the Company interfered with the alleged contract. The Company believes it has
meritorious defenses to the plaintiff's claims and intends to defend them
vigorously.

NOTE 4. BUSINESS DIVESTITURES

COLOR SERVER GROUP DIVESTITURE

In January 1996, the Company completed the sale of 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
received approximately $17.2 million in cash and $4.7 million was placed in
escrow for certain post-closing adjustments and to secure certain
indemnification obligations, 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 Company has not converted any shares of this
Series B Preferred Stock into Common Stock of the Parent. 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 Company has 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 January 1996, the Company entered into 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

F-26
<PAGE> 45

RADIUS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

UMAX DATA SYSTEMS, INC.

In February 1996, the Company sold its MacOS compatible systems business to
UMAX Computer Corporation ("UCC"), a company formed by UMAX Data Systems, Inc.
("UMAX"). The Company received approximately $2.3 million 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. The Company has a right
to receive royalties based on UCC's net revenues related to the MacOS compatible
systems business.

F-27
<PAGE> 46

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 MARCH 30, 1996,
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, 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, and with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Quarterly Report on Form 10-Q for the quarter ended
December 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 forwardlooking 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,
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, and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended December 30, 1995, including, but not limited to, Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors That May Affect Future Results.

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 SIX MONTHS
ENDED ENDED
MARCH 30, MARCH 30,
--------------- ---------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 82.1 74.5 84.9 73.1
---- ---- ---- ----
Gross profit.............................. 17.9 25.5 15.1 26.9
Operating expenses:
Research and development.......................... 5.0 5.5 8.1 5.4
Selling, general and administrative............... 22.7 17.1 26.7 18.5
Total operating expenses.................. 27.7 22.6 34.9 23.9
Income (loss) from operations....................... (9.8) 2.9 (19.8) 3.0
Other income (expense), net......................... 56.1 (2.6) 27.1 (1.9)
Settlement of litigation............................ -- -- -- (7.6)
---- ---- ---- ----
Income (loss) before income taxes................... 46.3 0.4 7.2 (6.5)
Provision (benefit) for income taxes................ 0.8 0.0 0.7 0.1
---- ---- ---- ----
Net income (loss)................................... 45.5% 0.3% 6.5% (6.6)%
==== ==== ==== ====
</TABLE>

F-28
<PAGE> 47

NET SALES

The Company's net sales decreased 63.8% to $30.6 million in the second
quarter of fiscal 1996 from $84.4 million for the same quarter in fiscal 1995.
This decline was primarily due to the Company's efforts to refocus its business
which included exiting markets for high-volume low-margin displays, reduced
sales of the Company's video and graphics products caused by Apple Computer's
("Apple") shift from Nubus to PCI Bus computers, and business divestitures. 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"), the Company recorded no revenue from sales of color server
products in the second quarter of its fiscal year.

Net sales for the first half of fiscal 1996 decreased 61.4% to $63.2
million from $163.7 million in the same period in fiscal 1995. This decline was
primarily due to the Company's efforts to refocus its business which included
exiting markets for high-volume low-margin displays, reduced sales of the
Company's video and graphics products caused by Apple's shift from Nubus to PCI
Bus computers, and business divestitures.

One customer accounted for 29.8% and 34.4% of the Company's net sales for
the three and six months ended March 30, 1996, respectively. For the
corresponding periods of fiscal 1995, one customer accounted for 19.7% and 15.1%
of the Company's net sales.

The Company's second quarter export sales increased to 53.1% from 36.5% of
net sales in the same quarter of fiscal 1995 primarily due to sales decline in
export sales being less than the sales decline in the North America sales
region. Export sales were 58.4% of net sales for the six month period in fiscal
1996. The Company anticipates a decline in the percentage of net sales
attributable to the Asia-Pacific sales region in connection with the appointment
of a Japanese distributor. 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
second quarter of fiscal 1996 or 1995.

GROSS PROFIT

The Company's gross profit margin was 17.9% and 15.1% for the three and six
month periods ending March 30, 1996, as compared with 25.5% and 26.9% for the
corresponding periods in fiscal 1995. 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 $1.5 million or 5.0% of net
sales in the second quarter of fiscal 1996 from $4.7 million or 5.5% of net
sales in the same quarter of fiscal 1995. Research and development expenses
decreased from $8.8 million or 5.4% of net sales for the first six months of
fiscal 1995 to $5.1 million or 8.1% of net sales for the corresponding period in
fiscal 1996. 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 and business divestitures. 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.

F-29
<PAGE> 48

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased to $7.0 million or
22.7% of net sales in the second quarter of fiscal 1996 from $14.4 million or
17.1% of net sales in the same quarter of fiscal 1995. Selling, general and
administrative expenses decreased from $30.3 million or 18.5% of net sales for
the first six months of fiscal 1995 to $16.9 million or 26.7% of net sales for
the corresponding period in fiscal 1996. Expenses in the second quarter of
fiscal 1995 included a reduction of approximately $2.1 million of merger-related
restructuring reserves to reflect current requirements.

During the second quarter of fiscal 1996, the building in which the Company
leases its headquarters was sold. In connection with the sale, the Company
terminated its existing lease and entered into a lease with the new owner of the
building. The Company anticipates that the change of rental terms will help
reduce the Company's occupancy costs and long-term lease obligations.

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 and business divestitures. 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

During fiscal 1994 and 1995, two restructuring and other charges were
recorded.

RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES

<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 2,256 134
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 $15,880 $849
======= ======= ======= ====
</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

F-30
<PAGE> 49

March 30, 1996. 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 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 March 30, 1996 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 $ 838
Excess facilities....................... 2,004 404 500 1,100
Cancellation fees and asset
write-offs............................ 19,061 5,196 -- 13,865
Employee severance...................... 3,662 -- 1,419 2,243
------- ------- ------- ----
Total charges........................... $ 57,865 $37,900 $ 2,757 $17,208
======= ======= ======= ====
</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.
As of March 30, 1996, approximately 228 positions had been eliminated in
connection with the restructuring. The Company had spent approximately $2.8
million of cash for this restructuring during the quarter ended March 30, 1996.
As of March 30, 1996, the Company had cash of $2.8 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

F-31
<PAGE> 50

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 17,401,611 common shares outstanding as of
March 30, 1996. As of March 30, 1996, 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 $249,000 for the second quarter of
fiscal 1996 as compared to a provision for taxes for the second quarter of
fiscal 1995 of $31,000. The tax provision is primarily comprised of foreign
taxes.

FINANCIAL CONDITION

The Company's cash decreased approximately $4.2 million in the second
quarter of fiscal 1996 to $2.8 million at March 30, 1996 as compared to the
ending balance at December 31, 1995 of $7.0 million. This decrease was primarily
due to principal payments of the Company's short-term borrowings and payments of
other current obligations. Approximately $0.4 million of the $2.8 million of
cash and cash equivalents available at March 30, 1996 was restricted under
various letters of credit.

At March 30, 1996, the Company's principal source of liquidity included
approximately $30.0 million in inventory and working capital financing (which
was temporarily augmented by 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. In December 1995, IBM Credit Corp. and the Company executed an
amendment to the ICC Agreement (the "ICC Amendment") which expired March 31,
1996. 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. At March 30, 1996,
approximately $20.4 million was outstanding to IBM Credit Corp. During the
second quarter of fiscal 1996, ICC notified the Company that it was not in
compliance with all its contractual obligations under its agreement with ICC. As
of March 30, 1996, the Company was not in compliance with all its contractual
obligations, including financial covenants, under the ICC Amendment.

Additionally, the Company's Japanese subsidiary has a revolving line of
credit with a bank in Japan under which $1.0 million has been utilized as of
March 30, 1996. The Company anticipates that the outstanding balance will be
paid in full during the third quarter of fiscal 1996.

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

F-32
<PAGE> 51

delinquent accounts. Several vendors have threatened the Company with
institution of insolvency and/or bankruptcy proceedings. In addition, as
described above, the Company's largest creditor, ICC, has informed the Company
that it is not in compliance with all its contractual obligations, including
financial covenants, under its agreements with ICC which confers to ICC a
security interest in most of the Company's assets. An unsecured creditors'
committee has been established in an effort to work toward resolving the capital
deficiency and creditor litigation issues outside of formal insolvency or
bankruptcy proceedings. There can be no assurance that bankruptcy proceedings
can be avoided. The Company has proposed a plan under which creditors' claims
will be exchanged for equity in the Company and/or in certain businesses or
holdings of the Company. There can be no assurance that the creditors will
approve this plan. The Company has filed with the Securities and Exchange
Commission (the "SEC") a preliminary proxy statement to seek shareholder
approval, if necessary, the issuance of convertible preferred stock of the
Company in satisfaction of these claims. The terms of this convertible preferred
stock will be determined by negotiations with the Company's creditors. The
Company anticipates that the shares of this convertible preferred stock will be
convertible into an excess of 50% of the currently outstanding shares of the
Company's Common Stock. Accordingly, the Company's current shareholders will
experience significant dilution depending upon the number of shares of Common
Stock into which these yet to be determined shares of convertible preferred
stock are convertible.

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 all of its creditors outside of bankruptcy, or that the terms of any
accommodation reached will not dilute shareholder value or adversely affect the
Company's results of operations. In the event that no accommodation is reached
with its creditors or in the event that not all of the Company's creditors agree
to such an accommodation, 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, Even if an accommodation with the Company's creditors can
be reached and the Company is unable to obtain or generate additional funds, it
still may not be able to repay its other obligations. Accordingly, the Company
may have to reorganize or liquidate under Chapter 11 or Chapter 7 of the United
States Bankruptcy Code.

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 operational profitability, or generate additional
cash from other sources. There can be no assurance that the Company will be able
to do so.

Absent reaching an agreement with most of its creditors including ICC, the
Company will require additional funding to repay its accounts payable and other
indebtedness, in addition to funding its operating and product development
activities. While the Company is investigating possible financing alternatives,
there can be no assurance that additional financing will be available or, if
available, that the terms of such financing will not adversely affect the
Company's results of operations or result in substantial shareholder dilution.

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:

NET CAPITAL DEFICIENCY; CREDITOR DEMANDS AND LITIGATION

As of March 30, 1996, the Company had total assets of approximately $44.7
million and total current liabilities of approximately $97.1 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. Several
vendors have threatened the Company with initiation of insolvency or bankruptcy
proceedings. In addition, as described above, the Company's largest secured
creditor, ICC, has informed the Company that it is not in compliance with all of
its contractual obligations, including financial

F-33
<PAGE> 52

covenants, under its agreements with ICC. In connection with the ICC Amendment,
the Company granted to ICC a security interest in substantially all of its
assets.

The Company has established an unsecured 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 has proposed
a plan under which creditors' claims will be exchanged for equity in the Company
and/or in certain businesses or holdings of the Company. The Company has filed
with the SEC a preliminary proxy statement to seek shareholder approval, if
necessary, the issuance of convertible preferred stock of the Company in
satisfaction of these claims. The terms of this convertible preferred stock will
be determined by negotiations with the Company's creditors. The Company
anticipates that the shares of this convertible preferred stock will be
convertible into an excess of 50% of the currently outstanding shares of the
Company's Common Stock. Accordingly, the Company's current shareholders will
experience significant dilution depending upon the number of shares of Common
Stock into which these yet to be determined shares of convertible preferred
stock are convertible.

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 all of its creditors outside of bankruptcy, or that the terms of any
accommodation reached will not dilute shareholder value or adversely affect the
Company's results of operations. In the event that no accommodation is reached
with its creditors or in the event that not all of the Company's creditors agree
to such an accommodation, 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
results of operations. Even if an accommodation with the Company's creditors can
be reached and if the Company is unable to obtain or generate additional funds,
it still may not be able to repay its other obligations. Accordingly, the
Company may have to reorganize or liquidate under Chapter 11 or Chapter 7 of the
United States Bankruptcy Code.

Absent reaching an agreement with most of its creditors including ICC, the
Company will require additional funding to repay its accounts payable and other
indebtedness, in addition to funding its operating and product development
activities. While the company is investigating possible financing alternatives,
there can be no assurance that additional financing will be available or, if
available, that the terms of such financing will not adversely affect the
Company's results of operations or result in substantial shareholder dilution.

CONTINUING OPERATING LOSSES

The Company experienced net operating losses in the fiscal quarters ended
March 30, 1996 and December 30, 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 substantially all of its creditors and the Company's ability to repay
creditors with whom accommodations cannot be reached (assuming such remaining
creditors have not instituted bankruptcy or other insolvency proceedings against
the Company). In the future, if the Company is able to continue its operations,
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. For these and other reasons, there can be no
assurance that the Company will be able to achieve profitability in the near
term, if at all.

F-34
<PAGE> 53

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 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 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. Recently, Apple has announced large losses,
management changes, headcount reductions, and other significant events which has
led or could lead to uncertainty in the market regarding Apple's business and
products. In addition, news reports indicating that Apple may be or may have
been the target of merger, acquisition, or takeover negotiations, have led or
could lead to uncertainty in the market regarding Apple's business and 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.

F-35
<PAGE> 54

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.

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 or
prepay basis and/or to require the Company provide security for their risk in
procuring components or reserving manufacturing time, 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. Although the Company expects that these suppliers will
continue to meet its requirements for the components, there can be no assurance
that they will do so. Certain suppliers, due to the Company's shortages in
available cash, have put the Company on a cash or prepay basis and/or to require
the Company provide security for their risk in procuring components or reserving
manufacturing time, and there is a risk that suppliers will discontinue their
relationship with the Company. The introduction of new products presents
additional difficulties in obtaining timely shipments from suppliers. Additional
time may be needed to

F-36
<PAGE> 55

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, 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. This risk may
also affect the Company's supply of products under arrangements wherein certain
of the Company's major suppliers rely on certain of the Company's major
customers for payment. 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.

F-37
<PAGE> 56

INTERNATIONAL SALES

During the second fiscal quarter, the Company's international sales were
primarily made through distributors and the Company's subsidiary in Japan.
Effective April 1, 1996, the Company has appointed an exclusive distributor for
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, demand for the Company's products in
Japan could be affected by the transition of its Japanese sales and marketing
efforts from Radius' subsidiary to a distributor. Additionally, 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 departure of its Chief Financial
Officer and three other Vice Presidents, and has had substantial layoffs and
other employee departures. As the Company's financial difficulties continue, it
may become increasingly difficult for it to hire new employees and retain key
management and current employees. Moreover, the terms of any arrangement with
creditors may require changes in Board composition or management. 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.

F-38
<PAGE> 57

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 of Apple Computer in particular, 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 national market pursuant
to an agreement containing certain financial requirements with which the Company
is currently not in compliance. NASDAQ has granted the Company a limited
conditional waiver with respect to these requirements which will expire on June
30, 1996 at which time the Company must be in compliance with all of the
requirements for listing on the NASDAQ national market. There is no assurance
that the Company will fulfill the conditions in the times prescribed by NASDAQ,
or that NASDAQ will deem that the Company has not fulfilled such conditions.

In its attempt to restructure its debt, the Company has proposed exchanging
equity in the Company in full or partial satisfaction of creditor claims.
Although the Company has no agreements or understandings with respect to the
issuance of additional equity securities to creditors, the issuance of any
additional equity in the Company could exert downward pressure or otherwise
affect the volatility of the price of the Company's Common Stock.

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.

F-39
<PAGE> 58

<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 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>

- - ---------------
(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.

F-40
<PAGE> 59

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>

- - ---------------
(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.

F-41
<PAGE> 60

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 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

F-42
<PAGE> 61

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.

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 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

F-43
<PAGE> 62

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

SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES

RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES

F-44
<PAGE> 63

general and administrative expenses ($10,711). The elements of the total charge
as of September 30, 1995 are as follows (in thousands):

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 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

<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>

F-45
<PAGE> 64

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

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.

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

F-46
<PAGE> 65

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.

<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 453)
operations................. (107,802) (1,318) 2,461 2,477 (68,051) 1,865 (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.

F-47
<PAGE> 66

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.

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.

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

F-48
<PAGE> 67

products and to bring those products to market in a timely manner; 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. 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.

F-49
<PAGE> 68

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 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.

F-50
<PAGE> 69

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.

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.

F-51
<PAGE> 70

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

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 could provoke litigation in the future that could divert
substantial management resources and have an adverse effect on the Company's
results of operations.

F-52
<PAGE> 71
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:

<PAGE> 72
PLEASE MARK
[X] YOUR CHOICE
LIKE THIS

--------------------- ----------------------
ACCOUNT NUMBER COMMON

ISSUANCE OF CERTAIN CONVERTIBLE PREFERRED STOCK

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED
SHARES OF COMMON STOCK

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

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.