<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 0-18690
RADIUS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 68-0101300
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
215 MOFFETT PARK DRIVE
SUNNYVALE, CA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)
(408) 541-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANTS KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. (X)
<TABLE>
<CAPTION>
AS OF DECEMBER 15, 1995
<S> <C>
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING
BID PRICE OF SUCH STOCK: $43,739,556
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING: 17,401,094
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD FEBRUARY 21, 1996 ARE INCORPORATED BY REFERENCE INTO
PART III (ITEMS 10, 11, 12, AND 13) HEREOF.
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<TABLE>
RADIUS INC.
1995 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART II Page
<S> <C>
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................................. 3
PART IV
ITEM 14. Exhibits, Financial Statements, Financial Statement
Schedule, and Reports on Form 8-K ................................................ 15
SIGNATURES..................................................................................... 20
</TABLE>
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The undersigned Registrant hereby amends the following items, exhibits
and other portions of its Annual Report on Form 10-K for the period ended
September 30, 1995, as set forth in the pages attached hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
This item contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of the
factors described below and elsewhere in this Annual Report.
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
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by sales of MacOS compatible systems which were first introduced in the 1995
fiscal year and by a substantial increase in net sales from the Company's color
server products.
While net sales from the Company's digital video products increased slightly
during the fiscal year, the Company anticipates lower revenue from this product
line until the introduction of new products now under development.
The Company anticipates significantly lower overall net sales in fiscal 1996 as
a result of the Company's decision to focus its efforts on providing solutions
for high end digital video and graphics customers, discontinue selling mass
market displays and other low value added products, and divest of certain
businesses such as color servers and MacOS compatible systems. Net sales
attributable to the Company's Color Server Group and MacOS compatible systems
were approximately $29.3 million and $21.8 million, respectively, for fiscal
1995. Had the net sales of these businesses not been included in net sales for
the 1995 fiscal year, the Company's net sales for such fiscal year would have
been approximately $257 million.
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.
In addition, the Color Server Group and MacOS businesses had gross profit of
approximately $9.8 million and ($19.2 million), respectively for fiscal 1995.
Had these businesses not been included in the calculation of the Company's gross
profit for 1995, gross profit for such fiscal year would have been approximately
$14.6 million, with a gross profit margin of approximately 5.7%.
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.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses including restructuring and other charges decreased to
$90.1 million (29.2% of net sales) in fiscal 1995 from $94.7 million (29.2% of
net sales) in fiscal 1994. Selling, general and administrative expenses
excluding restructuring and other charges decreased to $79.2 million (25.7% of
net sales) in fiscal 1995 from $84.0 million (25.9% of net sales) in fiscal
1994.
The decrease in selling, general and administrative expenses during the fiscal
year was primarily due to the reduction of expenses as a result of the Company's
restructuring following the Merger. The merger-related restructuring resulted in
reduced costs primarily related to headcount, depreciation and facilities.
Provision for Income Taxes. The Company's annual combined federal and state
effective income tax rates were approximately (7.4%) (expense) in fiscal 1995
and 6% (benefit) in fiscal 1994. In fiscal 1995, the rate differs from the
combined statutory rate in effect during the period primarily as a result of the
impact of not benefiting the 1995 operating losses and the reversal of existing
deferred tax assets. The fiscal 1994 rate differs from the combined statutory
rate in effect during the period primarily as a result of non-deductible merger
related costs, the one time write-off of purchased research and development
which is not tax deductible and the impact of not benefiting a significant
portion of the 1994 operating loss.
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The Company
has provided a full valuation allowance against its net deferred tax assets due
to uncertainties surrounding their realization. Due to the net losses reported
in the prior three years and as a result of the material changes in operations
reported in its 1995 fiscal fourth quarter, predictability of earnings in future
periods is uncertain. The Company will evaluate the realizability of the
deferred tax asset on a quarterly basis.
Net Loss. As a result of the above factors, net loss increased to $131.7 million
in fiscal 1995 from $77.5 million in fiscal 1994. The Color Server Group had net
income of approximately $3.5 million for fiscal 1995. Had this business not been
included in the calculation of the Company's net loss for fiscal 1995, the
Company would have had a net loss of approximately $135.2 million for such
fiscal year.
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.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $94.7 million (29.2% of net sales) in
fiscal 1994 from $84.1 million (24.9% of net sales) in fiscal 1993. The increase
in absolute dollars was primarily due to increased personnel expense, market
development expenses, restructuring and other charges in fiscal 1994 and the
Company's investment in its information system. The 1993 restructuring and other
charges included the elimination of excess facilities, capital equipment
write-offs, severance payments and the termination of certain contractual
agreements. Restructuring and other charges for fiscal 1994 included the
elimination of duplicative facilities, property and equipment and other assets,
severance payments, as well as transaction fees and costs incidental to the
Merger.
Provision for Income Taxes. The Company's annual combined federal and state
effective income tax rates were approximately 6% in fiscal 1994 and 40% in
fiscal 1993 before the cumulative effect of the change in method of accounting
for income taxes. The fiscal 1994 rate differs from the combined statutory rate
in effect during the period primarily as a result of non-deductible merger
related costs, the one time write-off of purchased research and development
which is not tax deductible and the impact of not benefiting a significant
portion of the 1994 operating loss. The 1993 rate differs from the combined
statutory rate in effect during the period primarily as a result of the
utilization of the research and development tax credit.
Net Loss. As a result of the above factors, net loss increased to $77.5 million
in fiscal 1994 from $20.1 million in fiscal 1993.
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
In June 1993, Radius announced a restructuring program designed to reduce costs
and improve operating efficiencies. The program included, among other things,
the write-down of inventory following Radius' decision to phase out its older
generation of products, lease termination expenses, capital equipment
write-offs, severance payments, and costs associated with the discontinuation of
Radius' minicomputer-class server product. The restructuring program costs of
$15.5 million were recorded during the third quarter of fiscal 1993. These
charges (in thousands) are included in: cost of sales ($10,993); research and
development ($411); and selling, general and administrative expenses ($4,096).
The Company completed this restructuring event by the end of calendar 1994.
There were no material changes in the restructuring plan or in the estimates of
the restructuring costs from the recognition of the charge in June 1993 with the
completion of the restructuring program in December 1994.
SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES
In December 1993, SuperMac recorded charges of $16.6 million in connection with
a program to adjust inventory levels, eliminate excess facilities, terminate
certain projects and contract arrangements and reduce the number of employees.
The charges (in thousands) are included in: cost of sales ($13,352); research
and development ($2,000); and selling, general and administrative expenses
($1,238). There have been no material changes in the restructuring plan or in
the estimates of the restructuring costs. The Company has $236,000 remaining in
its restructuring reserve related to facility costs, the balance of which is
expected to be eliminated in fiscal 1996. As noted in the Consolidated Financial
Statements, the consolidated results for the Company in both the twelve months
ended September 30, 1994 and the fiscal period ended 1993 include SuperMac's
$16.6 million charge.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These charges
include the discontinuance of duplicative product lines and related assets;
elimination of duplicative facilities, property and equipment and other assets;
and personnel severance costs as well
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as transaction fees and costs incidental to the merger. The charges (in
thousands) are included in: net sales ($3,095); cost of sales ($25,270);
research and development ($4,331); and selling, general and administrative
expenses ($10,711). The elements of the total charge as of September 30, 1995
are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
Cash Outlays
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $22,296 $ 19,200 $ 3,096 $ -
Excess facilities 2,790 400 2,236 154
Revision of the operations business model 9,061 7,078 1,268 715
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
------- -------- -------- --------
Total charges $43,407 $26,678 $15,860 $ 869
</TABLE>
The adjustment of inventory levels reflects the discontinuance of duplicative
product lines. The provision for excess facility costs represents the write-off
of leaseholds and sublease costs of Radius' previous headquarters, the
consolidation into one main headquarters and the consolidation of sales offices.
The revision of the operations business model reflects the reorganization of the
combined Company's manufacturing operations to mirror Radius' manufacturing
reorganization in 1993. This reorganization was designed to outsource a number
of functions that previously were performed internally, reduce product costs
through increased efficiencies and lower overhead, and focus the Company on a
limited number of products. Employee severance costs are related to employees or
temporary employees who were released due to the revised business model.
Approximately 250 employees were terminated in connection with the Merger. The
provision for merger related costs is for the costs associated with the Merger
transaction, such as legal, investment banking and accounting fees. The Company
has spent $15.9 million of cash for restructuring through September 30, 1995.
The Company expects to have substantially completed the restructuring by
September 1996. During fiscal 1995, approximately $2.1 million of merger related
restructuring reserves were reversed and recorded as an expense reduction due to
changes in estimated requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES
In September 1995, Radius recorded charges of $57.9 million in connection with
the Company's efforts to refocus its business on the color publishing and
multimedia markets. The charges primarily included a writedown of inventory and
other assets. Additionally, it included expenses related to the cancellation of
open purchase orders, excess facilities and severance. The charges (in
thousands) are included in cost of sales ($47,004), and selling, general and
administrative expense ($10,861). The elements of the total charge as of
September 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
Cash Outlays
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $ 33,138 $ 32,300 $ - $ 838
Excess facilities 2,004 404 - 1,600
Cancellation fees and asset write-offs 19,061 5,196 - 13,865
Employee severance 3,662 - - 3,662
-------- --------- ------- --------
Total charges $ 57,865 $ 37,900 $ - $ 19,965
</TABLE>
The adjustment of inventory levels reflects the discontinuance of several
product lines. The provision for excess facility costs represent the write-off
of leasehold improvements and the costs associated with anticipated reductions
in facilities. The cancellation fees and asset write-offs reflect the Company's
decision to refocus its efforts on providing solutions for the color publishing
and multimedia markets. Employee severance costs are related to employees or
temporary employees who have been or will be released due to the revised
business model. As of December 15, 1995, approximately 157 positions had been
eliminated in connection with the new business model. The Company had not spent
any cash for this restructuring as of September 30, 1995. As of September 30,
1995, the Company had cash and cash equivalents of $4.8 million. See
"Management's Business Recovery Plans" at Note 1
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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
$21.9 million 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.
On December 21, 1995, the Company signed a Business Purchase Agreement and an
Asset Purchase and License Agreement with Display Technologies Electrohome Inc.
("DTE"). Pursuant to the agreements and subject to certain closing conditions,
DTE will purchase Radius' monochrome display monitor business and certain assets
related thereto, for approximately $200,000 in cash and cancellation of $2.5
million of the Company's indebtedness to DTE. In addition, DTE and Radius will
cancel outstanding contracts relating to DTE's manufacture and sale of
monochrome display monitors to Radius.
RESULTS OF OPERATIONS--QUARTERLY PERIODS
The following table sets forth certain unaudited quarterly financial information
for the Company's last eight fiscal quarters (in thousands, except per share
data). The information includes all adjustments (consisting only of normal
recurring adjustments) that management considers necessary for a fair
presentation thereof. The operating results for any quarter are not necessarily
indicative of results for any future period. The Company's fiscal year ends on
the Sunday closest to September 30.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994 (1)
-------------------------------------- ---------------------------------------
9/30/95 6/30/95 3/31/95 12/30/95 9/30/94 6/30/94 3/31/94 12/31/93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $57,126 $87,325 $84,447 79,235 $66,940 $ 86,673 $83,180 $88,013
Cost of sales 118,055 65,211 62,913 56,758 86,682 _59,931_ 57,279 73,057
------- ------ ------ ------ ------ ------ ------ -------
Gross profit (loss) (60,929) 22,114 21,534 22,477 (19,742) 26,742 25,901 14,956
-------- ------ ------ ------ ------- -------- ------- -------
Operating expenses:
Research and development 5,530 4,990 4,672 4,118 13,119 5,645 6,445 8,648
Selling, general and
administrative 41,343 18,442 14,401 15,882 _ 35,190 _ 19,232 _19,003 _21,405
------- ------ ------ ------ ------ ------ ------ ------
Total operating expenses 46,873 23,432 19,073 20,000 48,309 _24,877 25,448 30,053
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations (107,802) (1,318) 2,461 2,477 (68,051) 1,865 453 (15,097)
Interest (expense) income, net (1,463) (1,531) (2,154) (920) (739) (223) (121) (159)
Litigation settlement - - - (12,422) - - - -
----- ----- --- ------- ------ ------ ------ -------
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes (109,265) (2,849) 307 (10,865) (68,790) 1,642 332 (15,256)
Provision (benefit) for income
taxes 8,620 263 31 156 209 _580 688 _(6,077)
------- ----- --- ------ ----- ----- --- -----
Net income (loss) $(117,885) $(3,112) $ 276 $(11,021) $(68,999) $1,062 $ (356) $(9,179)
======== ====== ===== ========= ========= ====== ======= ========
Net income (loss) per share $ (6.92) $ (0.21) $0.02 $ (0.78) $ (4.99) $ 0.08 $(0.03) $ (0.69)
======== ====== ===== ========= ========= ====== ======= ========
Common and common equivalent
shares used in computing
net income (loss) per share 17,039 14,791 14,556 14,215 13,828 14,042 13,496 13,370
======== ====== ===== ========= ========= ====== ======= ========
</TABLE>
(1) These periods have been restated to reflect the Merger of Radius and
SuperMac which has been accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year basis
and SuperMac's on a December 31 calendar year basis. Therefore, results for the
quarter ended September 30, 1993 shown above include a $16.6 million charge
recorded by SuperMac in December 1993. Additionally, the results for the quarter
ended December 31, 1993 reflect this same $16.6 million charge recorded by
SuperMac in December 1993.
The Company's operating results are subject to quarterly fluctuations as a
result of a number of factors, including: the sales rate and mix of Apple
computers; the introduction of new products by Apple, the Company or its
competitors; the timing of sales and marketing expenses by the Company; the
timing of business cycles in the United States and worldwide; the availability
and cost of key components; the Company's ability to develop innovative
products; the Company's product and customer mix; and the level of competition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased approximately $11.2 million
during fiscal 1995 to approximately $4.8 million at September 30, 1995, as
compared with the fiscal 1994 ending balance of cash and cash equivalents of
$16.0 million. Approximately $1.6 million of the $4.8 million of cash and cash
equivalents available at September 30, 1995 was restricted under various letters
of credit. Capital expenditures were $1.9 million in fiscal 1995 and $3.5
million in fiscal 1994.
The decrease in the Company's cash and cash equivalents during fiscal 1995 was
primarily attributable to expenditures made in connection with the development
and introduction of the Company's MacOS compatible systems.
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
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<PAGE> 10
are insufficient to permit the advances needed for this purpose. Such advances
and payroll funding, however, may be suspended by IBM Credit Corp. (i)
immediately following a default of the ICC Amendment, and (ii) following thirty
(30) days notice in the event of any default of the ICC Agreement.
As of September 30, 1995, the Company was not in compliance with all of its
contractual obligations and financial covenants under its credit arrangement
with SVB. As of December 15, 1995 approximately $1,200,000 was outstanding under
this credit arrangement, all of which the Company anticipates paying SVB during
the first calendar quarter of 1996.
Recently, the Company's limited cash resources have restricted the Company's
ability to purchase inventory which in turn has limited its ability to
manufacture and sell products and has resulted in additional costs for expedited
deliveries. The Company also is delinquent in its accounts payables as payments
to vendors are not being made in accordance with vendor terms. The adverse
effect on the Company's results of operations due to its limited cash resources
can be expected to continue until such time as the Company is able to return to
profitability, or generate additional cash from other sources. There can be no
assurance that the Company will be able to do so.
Additional funds will be needed to finance the Company's development plans and
for other purposes, and the Company is now investigating possible financing
opportunities. There can be no assurance that additional financing will be
available when needed or, if available, that the terms of such financing will
not adversely affect the Company's results of operations.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:
CONTINUING OPERATING LOSSES
The Company experienced net operating losses in the fiscal years ended September
30, 1993, 1994 and 1995. The Company's ability to achieve and sustain profitable
operations will depend upon a number of factors, including the Company's ability
to control costs; to develop innovative and cost-competitive new products and to
bring those products to market in a timely manner; the rate and mix of Apple
computers 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.
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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.
New products anticipated from and introduced by Apple could cause customers to
defer or alter buying decisions due to uncertainty in the marketplace, as well
as presenting additional direct competition for the Company. For example, the
Company believes that Apple's transition during 1994 to Power PC products caused
delays and uncertainties in the market place and had the effect of reducing
demand for the Company's products. In addition, sales of the Company's products
have been adversely affected by Apple's revamping of its entire product line
from NuBus-based to PCI Bus-based computers. In the past, transitions in Apple's
products have been accompanied by shortages in those products and in key
components for them, leading to a slowdown in sales of those products and in the
development and sale by the Company of compatible products. In addition, it is
possible that the introduction of new Apple products with improved performance
capabilities may create uncertainties in the market concerning the need for the
performance enhancements provided by the Company's products and could reduce
demand for such products.
COMPETITION
The markets for the Company's products are highly competitive, and the Company
expects competition to intensify. Many of the Company's current and prospective
competitors have significantly greater financial, technical, manufacturing and
marketing resources than the Company. The Company believes that its ability to
compete will depend on a number of factors, including the success and timing of
new product developments by the Company and its competitors, product
performance, price and quality, breadth of distribution and customer support.
There can be no assurance that the Company will be able to compete successfully
with respect to these factors. In addition, the introduction of lower priced
competitive products could result in price reductions that would adversely
affect the Company's results of operations.
DEPENDENCE ON SUPPLIERS The Company outsources the manufacturing and assembly of
its products to third party suppliers. Although the Company uses a number of
manufacturer/assemblers, each of its products is manufactured and assembled by a
single supplier. The failure of a supplier to ship the quantities of a product
ordered by the Company could cause a material disruption in the Company's sales
of that product. In the past, the Company has at times experienced substantial
delays in its ability to fill customer orders for displays and other products,
due to the inability of certain suppliers to meet their volume and schedule
requirements and, recently, due to the Company's shortages in available cash.
Due to recent shortages in cash resources and because the Company seeks to
manage its use of working
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<PAGE> 12
capital by, among other things, limiting the backlog of inventory it purchases,
the Company is particularly vulnerable to delays in shipments from suppliers.
Such delays can cause fluctuations in the Company's short term results and
contribute to order cancellations.
The Company is also dependent on sole or limited source suppliers for certain
key components used in its products, including certain digital to analog
converters, digital video chips, and other products. Certain other semiconductor
components and molded plastic parts are also purchased from sole or limited
source suppliers. The Company purchases these sole or limited source components
primarily pursuant to purchase orders placed from time to time in the ordinary
course of business and has no guaranteed supply arrangements with sole or
limited source suppliers. The Company expects that these suppliers will continue
to meet its requirements for the components, but there can be no assurance that
they will do so. The introduction of new products presents additional
difficulties in obtaining timely shipments from suppliers. Additional time may
be needed to identify and qualify suppliers of the new products. Also, the
Company has experienced delays in achieving volume production of new products
due to the time required for suppliers to build their manufacturing capacity. An
extended interruption in the supply of any of the components for the Company's
products, regardless of the cause, could have an adverse impact on the Company's
results of operations. The Company's products also incorporate components, such
as VRAMs, DRAMs and ASICs that are available from multiple sources but have been
subject to substantial fluctuations in availability and price. Since a
substantial portion of the total material cost of the Company's products is
represented by these components, significant fluctuations in their price and
availability could affect its results of operations.
TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS
The personal computer industry in general, and the color publishing and video
applications within the industry, are characterized by rapidly changing
technology, often resulting in short product life cycles and rapid price
declines. The Company believes that its success will be highly dependent on its
ability to develop innovative and cost-competitive new products and to bring
them to the marketplace in a timely manner. Should the Company fail to introduce
new products on a timely basis, the Company's operating results could be
adversely affected. Technological innovation is particularly important for the
Company, since its business is based on its ability to provide functionality and
features not included in Apple's products. As Apple introduces new products with
increased functionality and features, the Company's business will be adversely
affected unless it develops new products that provide advantages over Apple's
latest offerings. Continued reduction in the available cash resources of the
Company could result in the interruption or cancellation of research and product
development efforts.
The Company anticipates that the video editing industry will follow the pattern
of the professional publishing industry in which desktop publishing products,
including those produced by Radius, replaced more expensive, proprietary
products, and the Company also anticipates that this evolution will lead to a
significant increase in the purchase and use of video editing products. There is
a risk that this evolution will not occur in the video editing industry as
expected by the Company, or that it will occur at a slower pace than
anticipated.
The introduction of new products is inherently subject to risks of delay. Should
the Company fail to introduce new products on a timely basis, the operating
results of the Company could be adversely affected. The introduction of new
products and the phasing out of older products will require the Company to
carefully manage its inventory to avoid inventory obsolescence and may require
increases in inventory reserves. The long lead times -- as much as three to five
months -- associated with the procurement of certain components (principally
displays and ASICs) exposes the Company to greater risk in forecasting the
demand for new products. There can be no assurance that the Company's forecasts
regarding new product demand and its estimates of appropriate inventory levels
will be accurate. Moreover, no assurance can be given that the Company will be
able to cause all of its new products to be manufactured at acceptable
manufacturing yields or that the Company will obtain market acceptance for these
products.
DISTRIBUTION The Company's primary means of distribution is through a limited
number of third-party distributors and master resellers. As a result, the
Company's business and financial results are highly dependent on the amount of
the Company's products that is ordered by these distributors and resellers. Such
orders are in turn dependent upon the continued viability and financial
condition of these distributors and resellers as well as on their ability to
resell such products and maintain appropriate inventory levels. Due in part to
the historical volatility of the personal computer industry, certain of the
Company's resellers have from time to time experienced declining profit margins,
cash flow
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<PAGE> 13
shortages and other financial difficulties. The future growth and success of the
Company will continue to depend in large part upon its reseller channels. If its
resellers were to experience financial difficulties, the Company's results of
operations could be adversely affected.
INTERNATIONAL SALES
The Company's international sales are primarily made through distributors and
the Company's subsidiary in Japan. The Company expects that international sales
will represent a significant portion of its net sales and that it will be
subject to the normal risks of international sales such as currency
fluctuations, longer payment cycles, export controls and other governmental
regulations and, in some countries, a lesser degree of intellectual property
protection as compared to that provided under the laws of the United States. In
addition, fluctuations in exchange rates could affect demand for the Company's
products. If for any reason exchange or price controls or other restrictions on
foreign currencies are imposed, the Company's business and operating results
could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its key management, marketing, product development and
operational personnel and the Company's ability to retain and continue to
attract highly skilled personnel. Competition for employees in the computer
industry is intense, and there can be no assurance that the Company will be able
to attract and retain qualified employees. The Company has recently made a
number of management changes, including the appointment of a new Chief Financial
Officer. If the Company continues to experience financial difficulties, it may
become increasingly difficult for it to hire new employees and retain current
employees. The Company does not carry any key person life insurance with respect
to any of its personnel.
DEPENDENCE ON PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and trade
secret protection, nondisclosure agreements and licensing arrangements to
establish and protect its proprietary rights. The Company has a number of
patents and patent applications and intends to file additional patent
applications as it considers appropriate. There can be no assurance that patents
will issue from any of these pending applications or, if patents do issue, that
any claims allowed will be sufficiently broad to protect the Company's
technology. In addition, there can be no assurance that any patents that may be
issued to the Company will not be challenged, invalidated or circumvented, or
that any rights granted thereunder would provide proprietary protection to the
Company. The Company has a number of trademarks and trademark applications.
There can be no assurance that litigation with respect to trademarks will not
result from the Company's use of registered or common law marks, or that, if
litigation against the Company were successful, any resulting loss of the right
to use a trademark would not reduce sales of the Company's products in addition
to the possibility of a significant damages award. Although, the Company intends
to defend its proprietary rights, policing unauthorized use of proprietary
technology or products is difficult, and there can be no assurance that the
Company's efforts will be successful. The laws of certain foreign countries may
not protect the proprietary rights of the Company to the same extent as do the
laws of the United States.
The Company has received, and may receive in the future, communications
asserting that its products infringe the proprietary rights of third parties,
and the Company is engaged and has been engaged in litigation alleging that the
Company's products infringe others' patent rights. As a result of such claims or
litigation, it may become necessary or desirable in the future for the Company
to obtain licenses relating to one or more of its products or relating to
current or future technologies, and there can be no assurance that it would be
able to do so on commercially reasonable terms.
VOLATILITY OF STOCK PRICE; DILUTION The price of the Company's Common Stock has
fluctuated widely in the past. Management believes that such fluctuations may
have been caused by announcements of new products, quarterly fluctuations in the
results of operations and other factors, including changes in conditions of the
personal computer industry in general. Stock markets have experienced extreme
price volatility in recent years. This volatility has had a substantial effect
on the market prices of securities issued by the Company and other high
technology companies, often for reasons unrelated to the operating performance
of the specific companies. Due to the factors referred to herein, the dynamic
nature of the Company's industry, general economic conditions and other factors,
the Company's future operating results and stock prices may be subject to
significant volatility in the future. In addition, any change in other operating
results
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<PAGE> 14
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.
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<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) (1) Financial Statements. The Company's financial statements filed
herewith are as follows:
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Page
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<S> <C> <C>
Report of Ernst & Young LLP, Independent Auditors F-1
Consolidated Balance Sheets at September 30, 1995 and 1994 F-2
Consolidated Statements of Operations for the Years Ended September 30,
1995, 1994 and 1993 F-3
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 1995, 1994, and 1993 F-4
Consolidated Statements of Cash Flows for the Years Ended September 30,
1995, 1994, and 1993 F-5
Notes to Consolidated Financial Statements F-6
(a) (2) Financial Statement Schedules. The Company's financial statement
schedule filed herewith is as follows: Page
----
Schedule II: Valuation and Qualifying Accounts F-22
All other financial statement schedules are omitted because the
information called for is not present in amounts sufficient to
require submission of the schedules or because the information
required is shown either in the financial statements or the notes
thereto.
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<TABLE>
<CAPTION>
(a) (3) Exhibits.
Exhibit
Number Title
<S> <C> <C>
2.01 Agreement and Plan of Reorganization dated May 20, 1994 between
Radius Inc. and SuperMac Technology, Inc. (9)
2.02 Modification Agreement dated July 21, 1994 to Agreement and Plan
of Reorganization between Radius Inc. and SuperMac Technology, Inc. (9)
2.03 Agreement of Merger dated August 31, 1994 between Radius
Acquisition Corp. and SuperMac Technology, Inc.
2.04 Certificate of Ownership and Merger of SuperMac Technologies, Inc.
into Radius Inc. dated September 7, 1994 and Certificate of Ownership of
SuperMac Technologies, Inc. by Radius Inc. dated September 8, 1994
2.05 Agreement and Plan of Reorganization dated July 19, 1994 between
Radius Inc. and VideoFusion, Inc. (12)
2.06 First Amendment to Agreement and Plan of Reorganization between Radius Inc.
and Video Fusion, Inc. dated August 25, 1994
2.07 Second Amendment to Agreement and Plan of Reorganization between Radius Inc.
and VideoFusion, Inc. dated September 6, 1994.
2.08 Third Amendment to Agreement and Plan of Reorganization between Radius Inc.
and VideoFusion, Inc. dated May 10, 1995
3.01 A Registrant's Sixth Amended and Restated Articles of Incorporation. (2)
B Certificate of Amendment of Registrant's Sixth Amended and Restated
Articles of Incorporation.
3.02 Registrant's Bylaws. (4)
4.01 Form of Specimen Certificate for Registrant's Common Stock. (1)
4.04 * Non-Plan Stock Option Grant to Charles W. Berger. (8)
10.01 * A Registrant's 401(k) Savings and Investment Plan. (6)
* B Amendment to the Registrant's 401(k) Savings and Investment Plan.
* C Registrant's 401(k) Savings and Investment Plan Loan Policy
10.02 * Registrant's 1995 Stock Option Plan.
10.03 * Form of Stock Option Agreement and Exercise Request as currently
in effect under 1995 Stock Option Plan.
10.04 * Registrant's 1990 Employee Stock Purchase Plan and related documents. (3)
10.05 * Registrant's 1994 Directors' Stock Option Plan.
</TABLE>
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<PAGE> 17
<TABLE>
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Exhibit
Number Title
<S> <C> <C>
10.07 Form of Indemnity Agreement with Directors. (1)
10.08 A Credit Agreement by and among Radius Inc., the certain financial
institutions, and Silicon Valley Bank, dated March 20, 1995. (14)
B Credit Agreement by and among Radius Inc., the certain financial
institutions, and International Business Machines Credit Corporation,
dated February 17, 1995. (14)
C Acknowledgment, Waiver and Amendment to Radius Inc. Inventory and
Working Capital Financing Agreement by and between Radius Inc. and
International Business Machines Credit Corporation dated December 14, 1995.
10.09 A Lease Agreement by and between Registrant and the
Equitable Life Assurance Society of the United States
dated June 22, 1988, as amended by the Commencement of
Term Agreement dated February 13, 1989 and Amendment No.
One dated July 20, 1989, and related documents (1710
Fortune Drive, San Jose, California offices). (1)
B Second Amendment to Lease dated January 27, 1993
amending Lease Agreement by and between Registrant and
Fortune Drive Partners (successor in interest to the
Equitable Life Assurance Society of the United States)
dated June 22, 1988 (1710 Fortune Drive, San Jose,
California offices). (7)
10.10 Lease Agreement by and between Registrant and Board of
Administration, as Trustee for the Police and Fire
Department Fund, and Board of Administration, as Trustee
for the Federated City Employees Retirement Fund dated
December 11, 1990, and related documents (Milpitas,
California warehouse space). (2)
10.11 Lease Agreement by and between Registrant and South Bay/Copley Associates III
Joint Venture dated May 11, 1992; Sublease by and
between Core Industries, Inc. and Registrant dated May 12, 1992;
and related documents (2040 Fortune Drive, San Jose, California offices). (5)
10.12 A Lease Agreement between SuperMac Technologies, Inc. and Connecticut
General Life Insurance Company dated as of November 13, 1993 (215 Moffett
Park Drive, Sunnyvale, California offices). (10)
B First Amendment to Lease Agreement between SuperMac
Technologies, Inc. and Connecticut General Life Insurance
Company dated as of May 4, 1993 (215 Moffett Park Drive,
Sunnyvale, California offices).
10.13 Lease Agreement between SuperMac Technologies, Inc. and RREEF
USA Fund-II, Inc. dated as of June 16, 1993 (Borregas Avenue,
Sunnyvale, California warehouse space).
10.14 * Employment Agreement by and between Registrant and Charles W. Berger
dated February 26, 1993 as amended on September 17, 1993. (11)
10.17 Full Recourse Promissory Note with Charles W. Berger. (11)
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<TABLE>
<CAPTION>
Exhibit
Number Title
<S> <C> <C>
10.18 Full Recourse Promissory Notes with J. Daniel Shaver.
10.19 Full Recourse Promissory Note from Michael A. McConnell.
10.20 * SuperMac Technology, Inc.'s 1988 Stock Option Plan ("Option Plan"). (13)
10.21 * SuperMac Technology, Inc.'s Form of Incentive Stock Option Agreement
under the Option Plan. (13)
10.22 * SuperMac Technology, Inc.'s Form of Supplemental Stock Option Agreement
under the Option Plan. (13)
10.23 * SuperMac Technology, Inc.'s Form of Early Exercise Stock Purchase Agreement
under the Option Plan. (13)
10.24 Distribution Agreement between Radius Inc. and Ingram Micro, Inc. dated June 5,
1991 as amended on April 1, 1992, May 31, 1995 and July 14, 1995. (Confidential
treatment has been requested with respect to certain portions of this exhibit). (15)
11.01 Computation of per share earnings
21.01 List of Registrant's subsidiaries
23.01 Consent of Ernst & Young, LLP, Independent Auditors
27 Financial Data Schedule
</TABLE>
* Management contracts or compensatory plans required to be filed as an
exhibit to Form 10-K.
(1) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-35769), which became effective on August
16, 1990.
(2) Incorporated by reference to exhibits to the Company's Report on Form 10-K
filed on December 24, 1990.
(3) Incorporated by reference to exhibits to the Company's Report on Form 10-K
filed on December 30, 1991.
(4) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on April 29, 1992 (File No. 33-47525).
(5) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on August 12, 1992.
(6) Incorporated by reference to exhibits to the Company's Report on Form 10-K
filed on December 28, 1992.
(7) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on August 18, 1993.
(8) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on November 15, 1993 (File No. 33-71636).
(9) Incorporated by reference to exhibits to the Company's Amendment No. 2
(File No. 33-79732) to Form S- 4 filed on July 25, 1994.
(10) Incorporated by reference to exhibits to SuperMac's Form S-1 (File No.
33-58158) filed on February 11, 1993.
(11) Incorporated by reference to exhibits to the Company's Report on Form 10-K
filed on January 3, 1994.
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<PAGE> 19
(12) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on August 17, 1994.
(13) Incorporated by reference to exhibits to SuperMac Technology, Inc.'s
Registration Statement on Form S-1, as amended (File No. 33-46800), which
became effective on May 15, 1992.
(14) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on May 10, 1995.
(15) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on August 15, 1995.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the last
quarter of the period covered by this report.
(c) Exhibits - See (a) (3) above.
(d) Financial Statement Schedules - See (a) (2) above.
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<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
RADIUS INC.
By: /s/ Charles W. Berger
--------------------------------------
Charles W. Berger
President, Chief Executive Officer and Director
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<PAGE> 21
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 Ernst & Young LLP
December 8, 1995
except for Note 11, as to which the
date is December 27, 1995
F-1
<PAGE> 22
CONSOLIDATED BALANCE SHEETS
September 30 (in thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,760 $ 15,997
Accounts receivable, net of allowance for doubtful accounts
of $8,502 in 1995 and $2,548 in 1994 61,644 62,145
Inventories 15,071 21,069
Prepaid expenses and other current assets 2,336 1,473
Income tax receivable 519 9,083
Deferred income taxes -- 8,400
--------- ---------
Total current assets 84,330 118,167
Property and equipment, net 3,031 7,728
Deposits and other assets 517 964
--------- ---------
$ 87,878 $ 126,859
========= =========
Liabilities and Shareholders' Equity (Net capital deficiency)
Current liabilities:
Accounts payable $ 73,098 $ 39,255
Accrued payroll and related expenses 5,815 4,024
Accrued warranty costs 3,170 2,255
Other accrued liabilities 11,920 6,650
Accrued income taxes 1,665 1,237
Accrued restructuring and other charges 17,013 15,148
Short-term borrowings 29,489 18,095
Obligations under capital leases - current portion 1,494 1,647
--------- ---------
Total current liabilities 143,664 88,311
Obligations under capital leases-noncurrent portion 1,331 2,857
Commitments and contingencies
Shareholders' equity: (Net capital deficiency)
Convertible preferred stock, no par value, 1,000 shares
authorized; none issued and outstanding
Common stock, no par value; 50,000 shares authorized;
issued and outstanding -- 17,143 shares in 1995 and
14,046 shares in 1994 113,791 87,017
Common stock to be issued 12,022 --
Accumulated deficit (182,993) (51,251)
Accumulated translation adjustment 63 (75)
--------- ---------
Total shareholders' equity (Net capital deficiency) (57,117) 35,691
--------- ---------
$ 87,878 $ 126,859
========= =========
</TABLE>
See accompanying notes.
F-2
<PAGE> 23
CONSOLIDATED STATEMENTS OF OPERATIONS
For years ended September 30
(in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 (1) 1993 (1)
---- -------- --------
<S> <C> <C> <C>
Net sales $ 308,133 $ 324,805 $ 337,373
Cost of sales 302,937 276,948 254,321
--------- --------- ---------
Gross profit 5,196 47,857 83,052
--------- --------- ---------
Operating expenses:
Research and development 19,310 33,956 33,503
Selling, general and administrative 90,068 94,731 84,132
--------- --------- ---------
Total operating expenses 109,378 128,687 117,635
--------- --------- ---------
Loss from operations (104,182) (80,830) (34,583)
Interest and other income (loss) (3,045) (376) 705
Interest expense (3,023) (869) (635)
Litigation settlement (12,422) -- --
--------- --------- ---------
Loss before income taxes (122,672) (82,075) (34,513)
Provision (benefit) for income taxes 9,070 (4,600) (13,774)
--------- --------- ---------
Loss before cumulative
effect of a change in accounting principle (131,742) (77,475) (20,739)
Cumulative effect of a change in method
of accounting for income taxes -- -- 600
--------- --------- ---------
Net loss $(131,742) $ (77,475) $ (20,139)
========= ========= =========
Net loss per share:
Loss before cumulative effect
of a change in accounting principle $ (8.75) $ (5.70) $ (1.61)
Cumulative effect of a change in method
of accounting for income taxes -- -- 0.05
--------- --------- ---------
Net loss per share $ (8.75) $ (5.70) $ (1.56)
========= ========= =========
Common and common equivalent shares used in
computing net loss per share 15,049 13,598 12,905
========= ========= =========
</TABLE>
See accompanying notes.
(1) This period has been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes
to the Consolidated Financial Statements. The consolidated financial statements
for fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to
that of Radius. This period includes Radius' results of operations and balance
sheet data on a September 30 fiscal year basis and SuperMac's on a December 31
calendar year basis. The operating results for both the twelve months ended
September 30, 1994 and September 30, 1993 include the restructuring and other
charges of $16.6 million recorded by SuperMac in December 1993.
F-3
<PAGE> 24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended September 30, 1995, 1994 and 1993
(in thousands, except share data)
<TABLE>
<CAPTION>
Total
Retained Shareholders
Earnings Accumulated Equity
Common (Accumulated Deferred Translation (Net Capital
Stock Deficit) Compensation Adjustment Deficiency)
----- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 (1) $ 60,203 $ 36,449 $ (58) $ 37 $ 96,631
Issuance of 738 shares of common stock
under the SuperMac public offering 15,401 15,401
Issuance of 517 shares of common stock
under Stock Option Plans 1,324 -- -- -- 1,324
Issuance of 159 shares of common stock
under the Employee Stock Purchase Plans 1,663 -- -- -- 1,663
Tax benefit from stock options exercised 3,358 -- -- -- 3,358
Amortization of deferred compensation -- -- 36 -- 36
Currency translation adjustment -- -- -- (119) (119)
Net loss -- (20,139) -- -- (20,139)
--------- --------- --------- --------- ---------
Balance at September 30, 1993 (1) 81,949 16,310 (22) (82) 98,155
Issuance of 350 shares of common stock
under Stock Option Plans 1,800 -- -- -- 1,800
Issuance of 170 shares of common stock
under Employee Stock Purchase Plans 989 -- -- -- 989
Issuance of 206 shares of common stock
pursuant to the acquisition of VideoFusion 1,854 -- -- -- 1,854
Tax benefit from stock options exercised 425 -- -- -- 425
Amortization of deferred compensation -- -- 22 -- 22
Currency translation adjustment -- -- -- 7 7
Net loss -- (77,475) -- -- (77,475)
Elimination of SuperMac net loss
for the three months ended December 31, 1993 9,914 -- -- 9,914
--------- --------- --------- --------- ---------
Balance at September 30, 1994 87,017 (51,251) -- (75) 35,691
Issuance of 214 shares of common stock
under Stock Option Plans 1,254 1,254
Issuance of 162 shares of common stock
under Employee Stock Purchase Plan 1,298 1,298
Issuance of 212 shares pursuant to the
acquisition of VideoFusion 2,857 2,857
Settlement of Litigation-stock to be issued 12,022 12,022
Issuance of 2,509 shares of common stock
through private placement 21,365 21,365
Currency translation adjustment 138 138
Net Loss (131,742) (131,742)
--------- --------- --------- --------- ---------
Balance at September 30, 1995 $ 125,813 $(182,993) -- $ 63 $ (57,117)
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
(1) These periods have been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes
to the Consolidated Financial Statements. The consolidated financial statements
for all periods prior to fiscal 1994 have not been restated to adjust SuperMac's
fiscal year end to that of Radius. Such periods include Radius' results of
operations and balance sheet data on a September 30 fiscal year basis and
SuperMac's on a December 31 calendar year basis.
F-4
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
For years ended September 30
(in thousands) 1995 1994 1993(1)
---- ---- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(131,742) $ (77,475) $ (20,139)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,689 4,542 8,160
Acquired in-process research and development expenses -- 2,550 --
Elimination of SuperMac net loss for the three months
ended December 31, 1993 -- 9,914 --
Non-cash restructuring and other charges 57,865 40,775 28,981
Common stock to be issued 12,022 -- --
(Increase) decrease in assets:
Accounts receivable (5,471) (20,171) (7,543)
Allowance for doubtful accounts 5,954 426 297
Inventories (27,140) (1,058) (5,633)
Prepaid expenses and other current assets (862) 1,739 15
Income tax receivable 8,564 468 (9,551)
Deferred income taxes 8,400 11,248 (11,322)
Increase (decrease) in liabilities:
Accounts payable 33,843 3,470 2,570
Accrued payroll and related expenses (1,871) (1,441) 1,014
Accrued warranty costs 915 (1,584) 438
Other accrued liabilities 5,270 (4,039) 2,171
Accrued restructuring and other charges (13,601) (6,117) --
Accrued income taxes 428 (1,534) 4,585
--------- --------- ---------
Total adjustments 89,005 39,188 14,182
--------- --------- ---------
Net cash used in operating activities (42,737) (38,287) (5,957)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (1,894) (3,460) (7,739)
Deposits and other assets (238) 71 --
Purchase of short-term investments -- (2,002) (31,914)
Proceeds from sale of short-term investments -- 18,395 35,938
--------- --------- ---------
Net cash provided by (used in) investing activities (2,132) 13,004 (3,715)
--------- --------- ---------
Cash flows from financing activities:
Issuance of short-term borrowings, net 11,394 15,275 1,158
Issuance of common stock 23,917 3,214 18,388
Principal payments of long-term debt -- (43) (1,388)
Principal payments under capital leases (1,679) (1,179) (1,140)
--------- --------- ---------
Net cash provided by
financing activities 33,632 17,267 17,018
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (11,237) (8,016) 7,346
Cash and cash equivalents, beginning of period 15,997 24,013 16,667
--------- --------- ---------
Cash and cash equivalents, end of period $ 4,760 $ 15,997 $ 24,013
========= ========= =========
</TABLE>
See accompanying notes
(1) This period has been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes
to the Consolidated Financial Statements. The consolidated financial statements
for fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to
that of Radius. This period includes Radius' results of operations and balance
sheet data on a September 30 fiscal year basis and SuperMac's on a December 31
calendar year basis.
F-5
<PAGE> 26
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
F-6
<PAGE> 27
from the Sunday closest to September 30 to the Saturday closest to
September 30 for operational efficiency purposes. For clarity of
presentation, all fiscal periods in this Form 10-K are reported as ending
on a calendar month end.
Foreign currency translation
The Company translates the assets and liabilities of its foreign
subsidiaries into dollars at the rates of exchange in effect at the end of
the period and translates revenues and expenses using rates in effect
during the period. Gains and losses from these translations are accumulated
as a separate component of shareholders' equity. Foreign currency
transaction gains or losses, which are included in the results of
operations, are not material.
Inventories
Inventories are stated at the lower of cost or market. The Company reviews
the levels of its inventory in light of current and forecasted demand to
identify and provide reserve for obsolete, slow-moving, or non-salable
inventory. Cost is determined using standard costs that approximate cost on
a first-in, first-out basis. Inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
September 30 1995 1994
---- ----
<S> <C> <C>
Raw materials $ 1,559 $ 4,515
Work in process 2,258 6,852
Finished goods 11,254 9,702
-------- ---------
$ 15,071 $ 21,069
======== ========
</TABLE>
Property and equipment
Property and equipment is stated at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
September 30 1995 1994
---- ----
<S> <C> <C>
Computer equipment $ 17,429 $ 18,007
Machinery and equipment 12,335 14,184
Furniture and fixtures 6,023 5,562
Leasehold improvements 1,084 1,683
-------- ---------
36,871 39,436
Less accumulated depreciation
and amortization (33,840) (31,708)
--------- ---------
$ 3,031 $ 7,728
======== =========
</TABLE>
Depreciation has been provided for using the straight-line method over
estimated useful lives of three to five years. Equipment under capital
leases and leasehold improvements are being amortized on the straight-line
method over six years or the remaining lease term, whichever is shorter.
Long-lived Assets
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS 121 requires recognition of impairment of long-lived assets in
the event the net book value of such assets exceeds the future undiscounted
cash flows attributable to such assets. SFAS 121 is effective for fiscal
years beginning after December 15, 1995. Adoption of SFAS 121 is not
expected to have a material impact on the Company's financial position or
results of operations.
Revenue recognition
F-7
<PAGE> 28
Revenue is recognized when products are shipped. Sales to certain resellers
are subject to agreements allowing certain rights of return and price
protection on unsold merchandise held by these resellers. The Company
provides for estimated returns at the time of shipment and for price
protection following price declines.
Warranty expense
The Company provides at the time of sale for the estimated cost to repair
or replace products under warranty. The warranty period commences on the
end user date of purchase and is normally one year for displays and digital
video products and for the life of the product for graphics cards.
Income taxes
Effective October 1, 1992, the Company adopted FASB Statement 109,
"Accounting for Income Taxes." Under Statement 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Prior to the adoption of Statement 109, income tax
expense was determined using the liability method prescribed by Statement
96, which is superseded by Statement 109. Among other changes, Statement
109 changes the recognition and measurement criteria for deferred tax
assets included in Statement 96.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The cumulative effect of the
change in method of accounting for income taxes decreased the net loss by
$600,000 or $0.05 per share in fiscal 1993 on a combined basis.
Loss per share
Net loss per share is computed using the weighted average number of common
shares outstanding.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents;
investments with maturities between three and twelve months are considered
to be short-term investments. Cash equivalents are carried at cost which
approximates market. There were no short-term investments as of September
30, 1995 or 1994. Approximately $1.6 million of the $4.8 million of cash
and cash equivalents available at September 30, 1995 was restricted under
various letters of credit.
Off balance-sheet risk and concentration of credit risk
The Company sells its products to direct computer resellers in the United
States and to distributors in various foreign countries. The Company
performs on-going credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses.
The Company also hedges substantially all of its trade accounts receivable
denominated in foreign currency through the use of foreign currency forward
exchange contracts based on firm 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.
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
F-8
<PAGE> 29
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.
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
F-9
<PAGE> 30
expense. The cost and net book value of these capitalized lease assets
included in property and equipment are (in thousands):
<TABLE>
<CAPTION>
At September 30, Cost Net Book Value
------- ---------------
<S> <C> <C>
1995 $ 7,437 $ 2,642
1994 7,437 4,021
</TABLE>
Future minimum lease payments at September 30, 1995, under capital leases
and noncancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
1996 $1,686 $ 1,837
1997 1,155 1,887
1998 280 1,843
1999 - 1,750
2000 - 1,759
------- --------
Total minimum lease payments 3,121 $ 9,076
Amount representing interest (296)
-------
Present value of minimum lease payments 2,825
Amount due within one year (1,494)
-------
Amount due after one year $ 1,331
=======
</TABLE>
Rent expense charged to operations amounted to approximately $3.5 million,
$3.0 million and $3.8 million for the years ended September 30, 1995, 1994
and 1993, respectively. The rent expense amounts for fiscal 1995, 1994 and
1993 exclude a provision for remaining lease obligations on excess
facilities. See Note 8 of Notes to the Consolidated Financial Statements.
Sublease income for fiscal 1995 and 1994 was approximately $0.6 million and
$0.1 million. There was no sublease income for fiscal 1993.
Contingencies
DISPLAY SCREEN SIZE
The Company was named as one of approximately 42 defendants in Shapiro et
al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara
County, case no. CV751685, filed August 14, 1995. Radius was named as one
of approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer
et al., Superior Court of New Jersey, Essex County, case no. L-13780-95,
filed December 15, 1995. Plaintiffs in each case purport to represent
alleged classes of similarly situated persons and/or the general public,
and allege that the defendants falsely advertise that the viewing areas of
their computer monitors are larger than in fact they are.
The Company was served with the Shapiro complaint on August 22, 1995, and
has not yet been served with the Maizes complaint. Defendants' petition to
the California State Judicial Council to coordinate the Shapiro case with
similar cases brought in other California jurisdictions was granted in part
and it is anticipated that the coordinated proceedings will be held in
Superior Court of California, San Francisco County. Discovery proceedings
have not yet begun in either case. In the opinion of management, based on
the facts known at this time, the eventual outcome of these cases is
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.
F-10
<PAGE> 31
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.
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
F-11
<PAGE> 32
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 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
F-12
<PAGE> 33
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.
F-13
<PAGE> 34
NOTE FIVE. FEDERAL AND STATE INCOME TAXES
The provision (benefit) for income taxes consists of the following:
1995 1994 1993
- --------------------------------------------------------------------------------
For years ended September 30
(in thousands)
<TABLE>
<CAPTION>
<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>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------------------------------------------
For years ended September 30
(in thousands)
Deferred tax assets:
<S> <C> <C>
Net operating loss carryovers $ 27,077 $ 5,100
Reserves and accruals not currently tax deductible 22,342 10,055
Restructuring reserves 22,314 --
Credit carryovers 6,280 3,100
Inventory valuation differences 4,188 12,612
Depreciation 4,079 4,202
Capitalized research & development expenditures 3,202 2,193
Other -- 374
-------- --------
Total deferred tax assets 89,482 37,636
-------- --------
Valuation allowance for deferred tax assets (85,086) (26,724)
-------- --------
Deferred tax assets $ 4,396 $ 10,912
======== ========
Deferred tax liabilities:
State income tax $ 3,849 $ 2,512
Other 547 --
-------- --------
Total deferred tax liabilities 4,396 2,512
-------- --------
Net deferred tax assets $ -- $ 8,400
======== ========
</TABLE>
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The
Company has provided a full valuation allowance against its net deferred
tax assets due to uncertainties
F-14
<PAGE> 35
surrounding their realization. Due to the net losses reported in the prior
three years and as a result of the material changes in operations reported
in its 1995 fiscal fourth quarter, predictability of earnings in future
periods is uncertain. The Company will evaluate the realizability of the
deferred tax asset on a quarterly basis.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before taxes. The sources
and tax effects of the differences are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------
For years ended September 30
(in thousands)
<S> <C> <C> <C>
Expected tax at statutory rate $(42,935) $(28,726) $(12,080)
Change in valuation allowance 49,820 26,724 --
State income tax, net of federal tax benefit 1,250 (3,105) (1,707)
Non-deductible merger costs -- 1,054 --
Non-deductible charge for purchased
research and development -- 763 --
Research and development tax credits (497) (458) (734)
Other 1,432 (852) 747
-------- -------- --------
$ 9,070 $ (4,600) $(13,774)
======== ======== ========
</TABLE>
As of September 30, 1995, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $71,000,000 and
$27,900,000, respectively. The state loss carryforwards will 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.
F-15
<PAGE> 36
NOTE SIX. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------------------------------------------
For years ended September 30,
(in thousands)
Supplemental disclosure of cash
flow information (in thousands):
Cash paid (received) during the year for:
<S> <C> <C> <C>
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 restructuring
costs from the recognition of the charge in June 1993 with the completion
of the restructuring program in December 1994.
F-16
<PAGE> 37
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.
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):
F-17
<PAGE> 38
<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 $21.8 million
and $(19.2 million), respectively; and low-margin displays $82.9 million
and $19.6 million, 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 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):
F-18
<PAGE> 39
<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. Revenues, cost and expenses, and net loss
of SuperMac for the three months ended December 31, 1993 were, $48.5
million, $64.7 million and $9.9 million, 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 $43.4 million consisting primarily of charges for
the discontinuance of duplicative product lines and related assets,
elimination of duplicative facilities, property and equipment and other
assets, and personnel severance costs as well as transaction fees and costs
incident to the Merger. See Note 8 of Notes to the Consolidated Financial
Statements.
NOTE ELEVEN. SUBSEQUENT EVENTS
PORTRAIT DISPLAY LABS
On December 19, 1995, the Company signed a series of agreements with
Portrait Display Labs, Inc. ("PDL"). The agreements assigned the Company's
pivoting technology to PDL and canceled PDL's on-going royalty obligation
to the Company under an existing license agreement in exchange for a
one-time cash payment. PDL also granted the Company a limited license back
to the pivoting technology. Under these agreements, PDL settled its
outstanding receivable to the Company by paying the Company $500,000 in
cash and issuing to the Company 214,286 shares of PDL's Common Stock. See
Note 1 to the Consolidated Financial Statements.
DISPLAY TECHNOLOGIES ELECTROHOME INC.
On December 21, 1995, the Company signed a Business Purchase Agreement and
an Asset Purchase and License Agreement with Display Technologies
Electrohome Inc. ("DTE"). Pursuant to the agreements and subject to certain
closing conditions, DTE will purchase Radius' monochrome display monitor
business and certain assets related thereto, for approximately $200,000 in
cash and cancellation of $2.5 million of the Company's indebtedness to DTE.
In addition, DTE and Radius will cancel outstanding contracts relating to
DTE's manufacture and sale of monochrome display monitors to Radius.
F-19
<PAGE> 40
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 $21.9 million 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> 41
SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions(1) period
----------- ---------- ---------- -------- ------------- ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<S> <C> <C> <C> <C> <C>
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> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-04765, 33-37376, 33-43116, 33-47525, 33-71636, 33-77238,
33-83824 and 33-59571) pertaining to the 1995 Stock Option Plan, the 1986 Stock
Option Plan, the 1990 Employee Stock Purchase Plan, and Non-Plan Stock Options
of Radius Inc. of our report dated December 8, 1995, except for Note 11, as to
which the date is December 27, 1995, with respect to the consolidated financial
statements and schedule of Radius Inc. included in the Annual Report (Form
10-K/A) for the year ended September 30, 1995.
ERNST & YOUNG LLP
Palo Alto, California
July 30, 1996
