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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR TRANSITION PERIOD FROM TO
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
215 MOFFETT PARK DRIVE
SUNNYVALE, CA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (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 NO /X/
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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)
AS OF DECEMBER 31, 1996
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING
BID PRICE OF SUCH STOCK: $22,167,711
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING: 54,497,796
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD FEBRUARY 25, 1996 ARE INCORPORATED BY REFERENCE INTO
PART III (ITEMS 10, 11, 12, AND 13) HEREOF.
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RADIUS INC.
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I Page
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ITEM 1. Business............................................... 3
ITEM 2. Properties............................................. 11
ITEM 3. Legal Proceedings...................................... 11
ITEM 4. Submission of Matters to a Vote of Securityholders..... 13
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Shareholder Matters.................................. 14
ITEM 6. Selected Financial Data................................ 15
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 16
ITEM 8. Financial Statements and Supplementary Data............ 34
ITEM 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.................. 34
PART III
ITEM 10. Directors and Executive Officers of the Registrant..... 35
ITEM 11. Executive Compensation................................. 35
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 35
ITEM 13. Certain Relationships and Related Transactions......... 35
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K.......................................... 36
SIGNATURES ....................................................... 42
Radius, the Radius logo, SuperMac, Super Match, PressView, PrecisionView,
MultiView, IntelliColor, Precision Color, Cinepak, Thunder, Thunder Storm,
VideoFusion and VideoVision, among others are registered trademarks and/or
registered service marks of Radius Inc. or one of its subsidiaries. Radius
Edit and Super Resolution, among others, are trademarks and/or service marks
of Radius Inc. or one of it subsidiaries. Other brands or products contained
in this document are trademarks, service marks, registered trademarks or
registered service marks of their respective holders and should be treated as
such.
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PART I
ITEM 1. BUSINESS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: The following
discussion contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 that are subject to risks and
uncertainties. Statements indicating that the Company "expects," "estimates"
or "believes" are forward-looking, as are all other statements concerning
future financial results, product offerings or other events that have not yet
occurred. There are several important factors that could cause actual results
or events to differ materially from those anticipated by the forward-looking
statements contained in this discussion and other sections of this Form 10-K.
Such factors include, but are not limited to: the Company's ability to
achieve profitability; the Company's ability to repay its indebtedness to IBM
Credit; the success of the Apple Macintosh computer line and operating
system, the success of Apple as well as the Company's ability to compete
successfully with Apple; the Company's ability to successfully develop and
introduce new products to keep pace with technological innovation,
particularly in light of its limited financial resources; the Company's
ability to compete in its market; the ability of the Company's manufacturers
and suppliers to deliver components and manufacture the Company's products;
the Company's reliance on international sales and the effect of its exclusive
distributor arrangements with respect to Europe and Japan; and the Company's
ability to attract and retain its key personnel.
OVERVIEW
The Company designs, develops, assembles, markets and supports color
publishing and digital video computer products for creative professionals.
The Company's current product line includes: accelerated color graphics
products that facilitate the creation and manipulation of graphical images;
video systems and software that can acquire and manipulate video and audio
information; and high resolution color reference displays that allow users to
view text, graphics, images and video.
The primary target markets for the Company's products are color
publishing and multimedia. These markets encompass creative professionals
involved in such areas as color prepress, graphic arts, video editing, video
and multimedia production and playback and corporate training.
To date, substantially all of the Company's products have been designed
for and sold to users of Macintosh computer products (the "Macintosh")
manufactured by Apple Computer, Inc. ("Apple") as Apple products have been
the preferred platform in the Company's target markets.
As shown in the accompanying consolidated financial statements, the
Company has incurred substantial operating and net losses and, until
recently, had a deficiency in assets and working capital. During fiscal
1996, management implemented a number of actions to address its cash flow and
operating issues including: restructuring its outstanding indebtedness to
trade creditors and its secured creditor; 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 a number
of businesses and product lines; significantly reducing expenses and
headcount; and subleasing all or a portion of its current facility lease
given its reduced occupancy requirements.
The Company, IBM Credit Corporation ("IBM Credit") and its unsecured
creditors recently consummated a restructuring of the Company's outstanding
indebtedness pursuant to which the Company's creditors received equity in
satisfaction of their claims (the "Plan"). The Company issued 36,294,198
shares of Common Stock in satisfaction of approximately $45.9 million in
unsecured claims (including a $1.0 million reserve for unknown or unresolved
claims) and repaid approximately $1.9 million of unsecured claims, most of
which were less than $50,000, at an average discount of approximately 75% of
the amount of the claim. Of these shares of Common Stock issued pursuant to
the Plan, 791,280 were issued to the Radius Creditors Trust for the purpose
of satisfying unresolved or unknown claims. As of September 30, 1996, 444,253
shares of Common Stock were held by the Radius Creditors Trust. The Company
also issued 750,000 shares of its Series A Convertible Preferred Stock and
warrants to purchase 600,000 shares of Common Stock to IBM Credit in
satisfaction of $3.0 million indebtedness and in consideration of
restructuring its remaining approximately $23.4 million indebtedness to IBM
Credit. The Company also issued to its unsecured creditors who received
Common Stock rights ("Rights") to receive an additional 11,046,060 shares of
Common Stock in the event that the Series A Convertible Preferred Stock is
converted into Common Stock (including 240,824 Rights issued to the Radius
Creditors Trust). Subsequent to the end of its fiscal year, the Company
issued warrants to purchase 200,000 shares of Common Stock to Mitsubishi
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Electronics America, ("Mitsubishi Electronics") Inc. in consideration of the
extension of open credit terms to the Company. See "Recent
Developments--Debt for Equity Exchange."
The Company's executive offices are located at 215 Moffett Park Drive,
Sunnyvale, CA 94089, and its telephone number is (408) 541-6100.
RECENT DEVELOPMENTS
DEBT FOR EQUITY EXCHANGE
As of June 30, 1996, the Company had total assets of approximately $43.9
million and total current liabilities of approximately $91.4 million. The
Company was also delinquent in its accounts payable as payments to certain
vendors were not being made in accordance with vendor terms. As of June 30,
1996, the Company had outstanding accounts payable, short-term borrowings and
current portions of obligations under capital leases of approximately $62.2
million, of which approximately $38.0 million was outstanding under accounts
payable, approximately $22.9 million represented short-term borrowings and
approximately $1.3 million represented current portions of obligations under
capital leases. Several vendors had initiated legal action to collect
allegedly delinquent accounts and at least two vendors had orally threatened
the Company with initiation of insolvency or bankruptcy proceedings.
As a result, the Company established an unofficial unsecured creditors
committee (the "Unofficial Creditors Committee") consisting of eight of its
larger unsecured creditors (the "Committee Members") in an effort to resolve
the delinquent accounts payable, capital deficiency and creditor litigation
issues outside of insolvency or bankruptcy proceedings. The Company sought
to resolve these claims outside of bankruptcy or insolvency proceedings in
order to avoid the significant costs and uncertainties that would arise in
such proceedings, including the likely demoralization of employees, customers
and distributors.
The Company, the Unofficial Creditors Committee and the Company's
secured creditor, IBM Credit, agreed to the Plan pursuant to which creditors
would receive equity in the Company in satisfaction of all or a portion of
their claims. Pursuant to the Plan, IBM Credit, the Company's secured
creditor, received 750,000 shares of Series A Convertible Preferred Stock in
satisfaction of $3.0 million of the Company's approximately $26.4 million
secured indebtedness to IBM Credit and in consideration of restructuring IBM
Credit's loan with the Company, including extension by IBM Credit of an
additional advance of approximately $470,000 for making Discount Payments
(defined below). The Company's unsecured creditors with claims of
approximately $47.8 million (including a $1.0 million reserve for unknown or
unresolved claims) received either shares of Common Stock or, in the case of
certain creditors, most of which had claims of less than $50,000
("Convenience Class Creditors"), a discounted cash payment (approximately
$470,000 in the aggregate) in satisfaction of claims of approximately $1.9
million. The Company also issued warrants to purchase 600,000 shares of
Common Stock to IBM Credit and warrants to purchase 200,000 shares of Common
Stock to Mitsubishi Electronics. While the issuance of the Series A
Convertible Preferred Stock, the Common Stock and the warrants to purchase
800,000 shares of Common Stock did not require the approval of the Company's
shareholders, an increase in the authorized number of shares of Common Stock,
which was necessary to implement this Plan, required shareholder approval,
which approval was obtained at a special meeting of shareholders on August
27, 1996.
Pursuant to the Plan, unsecured creditors received 36,294,198 shares of
Common Stock, which represented approximately 60% of the outstanding Common
Stock of the Company after consummation of the Plan (including 791,280 shares
issued to the Radius Creditors Trust for the purpose of satisfying a portion
of any unknown or unresolved claims). The Company's secured creditor, IBM
Credit, received 750,000 shares of Series A Convertible Preferred Stock. The
Series A Convertible Preferred Stock is convertible into an aggregate of
5,523,030 shares of Common Stock of the Company (or 6,075,333 shares in
certain circumstances). The unsecured creditors also received Rights to
receive an aggregate of 11,046,060 additional shares of the Company's Common
Stock in the event that the Series A Convertible Preferred Stock is converted
into Common Stock so that the number of shares of Common Stock received by
such unsecured creditors continues to represent 60% of the shares of the
Company's outstanding Common Stock. In addition, the Company has amended its
1995 Stock Option Plan to reserve for issuance thereunder and under its other
existing Stock Option and Stock Purchase Plans, approximately 10% of the
outstanding shares of the Company's Common Stock. Upon conversion of the
Series A Convertible Preferred Stock, the Company intends to either adopt a
new stock option plan or further amend its 1995 Stock Option Plan to reserve
for issuance thereunder (together with the Company's other Stock Option and
Stock Purchase Plans) approximately 10% of the outstanding shares of the
Company's Common Stock. Therefore, shareholders holding shares of Common
Stock immediately prior to the consummation of the Plan ("Existing
Shareholders") represented approximately 30% of the outstanding shares of
Common Stock immediately after the Plan
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was consummated. Because the Series A Convertible Preferred Stock will vote
on an as-converted basis, Existing Shareholders represent approximately 28%
of the voting power of the Company, assuming all options available or to be
available for issuance are exercised. If and when the Series A Convertible
Preferred Stock is converted into Common Stock, Existing Shareholders will
then represent 23% of the outstanding shares of Common Stock assuming no
other issuances of the Company's securities and exercise of all options
available or to be available for issuance.
Unsecured creditors accepting equity in satisfaction of their claims
generally had claims in excess of $50,000 ("Major Creditors") and represented
accounts payable or other claims in the aggregate of approximately $45.9
million (including a $1.0 million reserve for unknown or unresolved claims)
of which approximately $29.3 million represented claims of the Committee
Members. The Committee Members included SCI Technology, Inc., Mitsubishi
Electronics, Hamilton Hallmark/Avnet Co., Manufacturers Services Limited,
Avex Electronics, Inc., TechData Corporation, Quantum and Mitsubishi
International Corporation, which were generally the Company's largest
unsecured creditors, with claims of approximately $12.3 million, $5.1
million, $4.0 million, $2.2 million, $2.1 million, $1.6 million, $1.6 million
and $380,000, respectively.
The remaining unpaid indebtedness of approximately $1.9 million was owed
to its Convenience Class Creditors and was repaid at an average discount of
approximately 75% of the amount of the applicable claim (the amounts paid to
the Convenience Class Creditors are referred to as the "Discount Payment").
The Company repaid these creditors from the proceeds of an additional advance
of approximately $470,000 from IBM Credit which was made for the purpose of
making Discount Payments. As of the date of the consummation of the Plan,
the Company was unable to conclude settlements with 10 unsecured creditors
with aggregate claims of approximately $200,000. The Company has issued
791,280 shares of Common Stock and an additional 240,824 Rights to the Radius
Creditors Trust, for the purposes of satisfying any unknown claims or claims
not settled. Since September 13, 1996, the Radius Creditors Trust has
transferred 347,027 shares of Common Stock and 105,617 Rights to four
additional creditors, leaving a balance of 444,253 shares of Common Stock and
135,207 Rights in the Trust as of September 30, 1996. The Company intends to
repay any additional remaining unsatisfied or unknown claims in excess of the
Trust reserve out of cash generated from operations, however, there can be no
assurance that these creditors will not seek to enforce their claims or that
the Company will have sufficient available funds to repay such creditors on a
timely basis. Approximately 50 persons whom the Company believed to be
creditors claimed that no balance was owed to such creditors. There can be
no assurance that such persons will not, in the future, assert claims against
the Company.
The Company has no other plans to meet its future working capital needs
other than through cash generated from operations. For fiscal 1996, the
Company had an operating loss of approximately $20.5 million. If the Company
is unable to increase net sales and/or reduce operating expenses or otherwise
fund its working capital needs for operations, it may need to divest assets,
businesses, its holdings in other companies formed after the spinoff of
various lines of business or seek additional financing to meet its working
capital needs. There can be no assurance that the Company will be able to
divest its assets or holdings on favorable terms, if at all, or that such
additional financing will be available to the Company. Furthermore,
substantially all of the Company's assets are subject to a security interest
in favor of IBM Credit and any proceeds would first have to be applied
towards the repayment of amounts owed to IBM Credit and towards redemption of
the Series A Convertible Preferred Stock prior to being available for the
Company's working capital needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors That May
Affect the Company's Future Results of Operations--Need for Additional
Financing Loan Restrictions."
There can also be no assurance that the Company will achieve profitability.
NASDAQ NATIONAL MARKET DELISTING
Until late June 1996, the Company's Common Stock was listed on the
Nasdaq National Market System (the "Nasdaq National Market"). As a
requirement to the continued listing of the Company's Common Stock on the
Nasdaq National Market, the National Association of Securities Dealers, Inc.
(the "NASD") required the Company to obtain shareholder approval of the Plan.
The NASD had required that the Company file preliminary proxy materials with
the Commission with respect to the foregoing by April 10, 1996 and that the
Plan be approved by the Company's shareholders by June 30, 1996 as a
condition to the Company's continued listing on the Nasdaq National Market.
Inasmuch as the Company failed to reach an agreement in principle with IBM
Credit and the Unofficial Creditors Committee until late June 1996, the
Company was not able to meet these conditions. Accordingly, the NASD delisted
the Company's Common Stock from the Nasdaq National Market for failure to
satisfy the minimum net worth requirement. The Company's Common Stock is now
listed on the Nasdaq SmallCap Market (the "Nasdaq SmallCap Market") and the
Company will be required to meet the continued listing requirements of the
Nasdaq SmallCap Market. Pursuant to these requirements, the Company will be
required to maintain capital and surplus of $1.0 million. As a result of the
Company's substantial losses incurred for the 1996 fiscal year, if the
Company experiences a significant loss in a subsequent
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quarterly or annual period, the Company would have insufficient capital and
surplus to satisfy the continued listing requirements of the Nasdaq SmallCap
Market. In addition, the closing price of the Company's Common Stock has
been below $1.00 per share for the entire month of December 1996. The Nasdaq
SmallCap rules require a capital and surplus of $2.0 million, instead of
$1.0 million capital and surplus if a security fails to maintain a minimum
bid price of $1.00 per share. If the Company fails to maintain this minimum
bid price requirement, it will have 90 days to comply with such minimum bid
requirement and maintain $1.0 million in capital and surplus or, in the event
it cannot maintain the minimum bid requirement, it will have to maintain $2.0
million capital and surplus. The failure to maintain the minimum bid
requirement and/or $1.0 million or $2.0 million of capital and surplus would
subject the Common Stock to delisting. As described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Certain Factors That May Affect the Company's Future Results of Operations --
Volatility of Stock Price," the substantial increase in tradable shares of
Common Stock due to the consummation of the Plan could materially and
adversely affect the market price of the Common Stock and if the Company has
insufficient capital and surplus, the Common Stock would be subject to
delisting. Furthermore, the NASD has recently proposed to institute more
stringent initial and continued listing requirements, which, among other
things, would subject any security to delisting if it did not maintain a
minimum bid price of $1.00 per share, regardless of the financial condition
of the issuer. In the event these proposed requirements are adopted, the
Company's Common Stock would not, absent a significant increase in its
trading price, satisfy these proposed new continued listing requirements.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Certain Factors That May Affect the Company's Future Results
of Operations -- Possible Delisting of Common Stock from Nasdaq Small Cap
Market."
PRODUCTS AND APPLICATIONS
A summary of some of the Company's principal products and their typical
applications is set forth below:
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PRODUCT CATEGORY PRODUCT MARKET/APPLICATION SUGGESTED RETAIL
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PRICE
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Accelerated Color ThunderPower 30/1920 Color publishing, prepress, graphics $1,399
ThunderPower 30/1600 design and professional color 999
ThunderColor 30/1600 imaging 2,499
Graphics Products Thunder Color 30/1152* 1,999
(PCI-based) Thunder 30/1600 799
Thunder 30/1152* 799
Precision Color 8/1600* 399
Precision Color 24/1600 499
Color Engine 999
Thunder 3D 3,399
(NuBus-based) PrecisionColor 8XJ* 599
Color Reference PressView 21SR Color publishing, prepress and 3,999
Displays PressView 17SR graphics design 2,499
Precision View 21 2,749
Color Management ProSense Display Color publishing and prepress 799
Products Calibrator
Color Composer
Digital Video Telecast Upgrade for VVS Color publishing, prepress, 4,299
Products VideoVision PCI graphics design and professional 3,999
(PCI-based) color imaging, broadcasting and
advertising
(NuBus-based) Telecast 6,399
VideoVision Style 2.0* 2,999
(Software) Radius Edit 199
* Denotes that product is no longer being manufactured.
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ACCELERATED COLOR GRAPHICS PRODUCTS
The Radius graphics product families offer a wide range of user choices
to enhance the graphics performance of Apple Macintosh computers based on
both the NuBus and PCI bus architectures. The choices range from an entry
level accelerated 8-bit color graphics card (256 colors with up to 1 million
pixels of color display information) to a variety of accelerated 24-bit color
graphics cards (up to 16.7 million colors). All of the Company's graphics
card products offer a range of high speed QuickDraw acceleration features and
support numerous Radius, Apple and other third-party displays ranging from
13-inches to 21-inches in size. The Company's graphics card products also
allow the user to switch resolutions "on-the-fly" without having to reboot
the computer.
The Thunder (PCI), ThunderPower (PCI), ThunderColor (PCI) and Thunder IV
(NuBus) class graphics cards offer enhanced resolutions, as well as a number
of other acceleration capabilities for Adobe Photoshop, a popular application
for working with computer images. These graphics cards also feature
hardware pan and zoom capability, enabling users to quickly change the size
and the amount of the information on their color display. The Company
believes these capabilities allow users working with large amounts of
detailed information to be more productive because they can quickly
accomplish a variety of tasks using these hardware-based acceleration
features.
The ThunderColor (PCI), Thunder 30 (PCI), and Thunder IV (NuBus)
graphics cards include multiple 66 MHz AT&T digital signal processors
("DSPs") that accelerate Adobe Photoshop. Having parallel processing DSPs
rather than the base Macintosh's CPU perform the millions of computations
required to manipulate Photoshop images means that customers can produce
finished results more quickly and are more productive in their creative and
production process. These cards include chip technology that enables users
to use Photoshop's CMYK color mode faster than the native Macintosh. This is
attractive to imaging professionals who use Photoshop to work with and edit
images comprised of 'ink' data which is ready for printing. The Company
believes this special "CMYK acceleration" technology makes working with ink
images on a computer display more interactive.
DIGITAL VIDEO SYSTEMS AND SOFTWARE
Radius offers a number of products for the non-linear digital video
editing and production market. Non-linear digital editing enables video
editors to manipulate pictures and sound in a faster, easier and more cost
effective manner than traditional analog tape-based systems. Editors can
randomly access and digitally "cut and paste" images, videos and sound clips
avoiding the tedious process of winding and rewinding of linear tape and the
subsequent physical cutting and splicing of film segments.
VideoVision Studio and VideoVision PCI, Radius' leading desktop video
product, was the first fully QuickTime compatible video editing and
production system that supported full-screen (640 x 480 pixels), full-motion
video at 60-fields per-second. VideoVision Studio offers JPEG video
compression/decompression capabilities, 16-bit C.D. stereo audio, and allows
users to output their finished product directly and easily to videotape.
VideoVision Studio is compatible with QuickTime based software applications
for editing, effects, titling, graphics, animation and audio.
Radius Telecast (NuBus) offers broadcast quality digital video for short
form projects. Radius Telecast features include: high-quality, Betacam SP
component, S-video and composite digitizing and play back;
QuickTime-compliant video system software; 16-bit analog audio; and a 19"
rack-mountable design. Radius Telecast is designed to provide full QuickTime
support, a high degree of studio integration and professional video and audio
support. Radius also offers a QuickTime compliant digital video non
linear editing, compositing and animation software applications that
facilitate the creation and editing of digital video content. Radius Edit
2.0 is a non-linear professional digital video editing solution that features
an intuitive user interface, FX templates, built-in titling, multiple key
frames, batch digitizing and picture-in-picture capabilities. Radius Edit
2.0 also offers a variety of high-quality special effects for digital video
editing including pan-zoom-rotating, chroma keying and compositing.
DISPLAYS
The Company currently offers a variety of large color reference displays
designed for desktop color publishers and graphic artists. The PressView SR
series (PressView 21SR and PressView 17SR) is designed to offer the color
accuracy, resolution and clarity needed for high quality color prepress,
media authoring, photography, medical imaging and scientific image
processing. These color reference displays offer consistent and accurate
color preproofing at resolutions of up to 1600 by 1200 pixels. The
PrecisionView 21 also offers resolutions of up to 1600 by 1200 pixels but at
a lower price point. The PressView SR
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series supports Kodak PrecisionColor, Agfa FotoFlow, Apple ColorSync 2.0 and
EFI Color management systems to ensure color accuracy.
In the past, the Company has also offered a variety of monochrome
displays. As part of its strategy to refocus its business, the Company
entered into a definitive agreement on December 21, 1995 to sell its
monochrome display business to Display Technologies Electrohome Inc. For a
more complete discussion see "Management's Discussion and Analysis of
Financial Condition -- Business Divestitures."
COLOR MANAGEMENT PRODUCTS
Color peripherals tend to vary over time from their original
specifications, thus causing significant color variances. Display
calibrators control the way peripherals produce color, making the color more
consistent and predictable. The Company's Prosense Display Calibrator works
with sensing technology and Macintosh software to measure the actual color
performance of a display and then adjust information in the Macintosh
graphics card so that the colors will be accurate. This product also
communicates with a number of third party color management systems to provide
color information about the display so that color can be managed from one
peripheral to another.
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company's research and development efforts are focused on creating
new products and technologies for customers who create, review, approve and
utilize high resolution color images and moving video. Current research and
development efforts include: (i) performance improvements and cost
reductions of current products; (ii) development of 3D graphics subsystems;
(iii) development of application software to facilitate the creation and
manipulation of video and high resolution still images; (iv) development of
integrated software that improves ease of use and functionality of the
Company's graphics cards, digital video cards, and color reference displays;
and (v) development of next generation technology to enable new methods of
displaying and creating information with greater flexibility, speed, and
quality.
The principles and features underlying the design of the Company's
products are: identification and reduction of performance bottlenecks in
graphics and video systems; providing consistency of color fidelity across
products and applications; utilization of ASIC technology; and innovation
within standard operating system environments.
The Company believes that the competitive nature of the computer
industry, along with the rapid pace of technological evolution, requires that
it continue to introduce innovative products on a timely basis to compete
effectively. During fiscal 1996, 1995 and 1994, the Company's expenditures
for research and development totaled $7.5 million, $19.3 million and $34.0
million, respectively. To date, all of the Company's research and development
expenditures have been charged to operations as incurred. Because of its
financial condition, the Company does not anticipate having research and
development expenditures equal to its historical levels, which could
adversely affect the Company's ability to develop and introduce new products.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Certain Factors That May Affect the Company's Future Results
of Operations --Technological Change; Continuing to Develop New Products."
There can be no assurance that the Company's development efforts will
result in commercially successful products, or that the Company's products
will not be rendered obsolete by changing technology or new products
introduced by others. Additionally, should the Company fail to introduce
new products on a timely basis, the Company's operating results could be
adversely affected. In the past, the Company expended substantial resources
towards its MacOS product line which did not achieve profitability and which
was subsequently sold. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors That May
Affect the Company's Future Results of Operations -- Technological Change;
Continuing Need to Develop New Products."
IDENTIFICATION AND REDUCTION OF BOTTLENECKS IN GRAPHICS AND VIDEO SYSTEMS
The Company analyzes the performance of applications and hardware
products within the environment of the host CPU and operating system with the
goal of determining which parts of the overall solution are most resource and
time intensive so that products can be developed which outperform the
existing solutions. The Company has developed considerable knowledge of
system software such as Apple's QuickDraw and QuickTime and critical
application software such as Adobe Photoshop. The Company believes that its
ability to eliminate bottlenecks in a manner that is compatible with existing
Apple and third party products is a significant advantage in the marketplace.
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PROVIDING CONSISTENCY OF COLOR FIDELITY ACROSS PRODUCTS AND APPLICATIONS
The Company strives to provide users with the most accurate and
repeatable color available. The Company's high-end color reference displays
provide tools to calibrate the display with both objective standards and
visual perception, and to adjust the color range of the display to fit user
needs.
UTILIZATION OF ASIC TECHNOLOGY
On a selective basis, the Company uses its in-house integrated computer
aided engineering capabilities to develop proprietary ASIC chips for use in
its own products. The use of ASIC chips allows the Company to increase
performance while reducing chip count and board size which thereby reduces
cost. ASICs are used heavily throughout the Company's graphics card line.
In some cases, however, commercially available devices offer better overall
price/performance than proprietary ASICs (given the development cost
involved), and the Company's strategy is to make the tradeoff on a
product-by-product basis to provide the most cost-effective solution.
INNOVATION WITHIN STANDARD OPERATING SYSTEM ENVIRONMENTS
In order to maintain compatibility with the existing base of installed
hardware and software, the Company seeks to innovate in conjunction with
existing standards. For example, the Company's graphics cards are compatible
with third party graphics software (such as Adobe Photoshop and Quark
Pagemaker) as well as NuBus and PCI-based computers. Similarly, the
Company's digital video cards are tightly integrated into Apple's standard
QuickTime environment.
MARKETING, SALES AND DISTRIBUTION
The Company employs a two-tiered distribution model whereby it sells its
products primarily through a limited number of distributors and master
resellers that in turn distribute the Company's products to a variety of
resellers including superstores, independent dealers, educational resellers,
systems integrators, value added resellers and mail order resellers. The
Company's distributors and master resellers purchase products at discounts
from suggested retail prices based on purchase volumes.
In the United States, the Company sells its products primarily through
the following major distributors and master resellers: Ingram Micro, Inc.;
and MicroAge. The Company's business and financial results are highly
dependent on the success of these distributors and master resellers. To
assist these domestic distributors and master resellers and to provide
marketing, training and technical support, the Company maintains field sales
facilities in a number of locations throughout the United States. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors That May Affect the Company's Future Results of
Operations -- International Sales."
Radius provides market development funds that give distributors and
master resellers incentives to increase sales, improve reporting and achieve
a product mix favoring higher margin products.
Internationally, sales are made through worldwide distributors, which
market, sell and service the Company's products, and until the second quarter
of 1996, the Company's wholly owned subsidiary located in Tokyo, Japan.
During fiscal 1996, the Company entered into exclusive distributor
arrangements with respect to Japan and Europe. For fiscal years ended
September 30, 1996, 1995 and 1994, the Company's export sales accounted for
approximately 50.7%, 40.4%, and 34.5%, respectively, of the Company's net
sales. See Note 7 of Notes to Consolidated Financial Statements. The
Company's export sales are subject to certain risks common to international
operations, such as currency fluctuations and governmental regulation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors That May Affect the Company's Future Results of
Operations -- International Sales."
For the fiscal years ended September 30, 1996, 1995 and 1994, Ingram
Micro, Inc. accounted for approximately 34.3%, 34.0% and, 13.5% of the
Company's net sales, respectively.
-9-
<PAGE>
Many of the Company's distributors and master resellers have the right
to return products purchased from the Company. While the Company provides
for estimated product returns, if in the future the Company were to
experience returns from customers significantly in excess of this estimate,
such returns could have a material adverse effect on the Company's results of
operations.
The Company's marketing programs support worldwide sales and
distribution of its products. The Company's principal marketing activities
include frequent participation in industry trade shows and seminars,
advertising in major trade publications worldwide, public relations
activities with the trade and business press, publication of technical
articles, distribution of sales literature and product specifications and
communications with its installed base of end users. The Company's marketing
programs are designed to generate sales leads for its distributors and master
resellers as well as to enhance the Company's brand name recognition.
MANUFACTURING AND SUPPLIERS
As a result of the Company's outsourcing of manufacturing, substantially
all of the Company's assembly, quality control testing, packaging and other
manufacturing operations are performed by the Company's suppliers, contract
manufacturers, and other subcontractors. The Company has developed a quality
assurance program with these third parties.
The Company attempts to utilize standard parts and components available
from multiple vendors. However, certain components used in the Company's
products are available only from sole or limited suppliers, such as certain
ASICs from LSI Logic and NEC and certain VideoVision parts from Toshiba. The
Company's products also incorporate components, such as video random access
memory, that are available from multiple sources but have been subject to
substantial fluctuations in availability and price. Although the Company has
been able to obtain an adequate supply of such components in the past, there
can be no assurance that it will be able to obtain an adequate supply in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Factors That May Affect the Company's Future
Results of Operations -- Dependence on Limited Number of Manufacturers and
Suppliers."
COMPETITION
The color publishing and multimedia markets are, and are expected to
remain, highly competitive. The Company's principal competitors in the color
publishing market include Apple, ATI Technology and Diamond Multimedia
Systems. The Company's principal competitors in the multimedia market
include Truevision (formerly RasterOps Corporation), Data Translation, Inc.,
Matrox, Inc., Avid Technology, Inc., VideoLogic, Inc. and Fast Electronics
GmbH. The market for the Company's products is evolving, and it is difficult
to predict all future sources of competition.
Although Apple is principally a supplier of general purpose computing
platforms upon which third parties are encouraged to build more complete
solutions, the Company also faces competition from Apple. Apple markets a
number of products, including computer systems and color displays, that
compete directly or indirectly with the Company. Apple also could introduce
additional products, add functionality to their computer systems that is
similar to that provided by certain of the Company's products, or alter its
systems' architecture in a manner that could adversely affect the Company's
ability to compete. For example, Apple's PowerPC based products which have
on-board graphic functionality and faster processing speed, could be
considered competitors of specific product lines of the Company's. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Certain Factors That May Affect the Company's Future Results of
Operations --Dependence on and Competition with Apple."
The Company believes that the principal competitive factors for its
product line are product performance, breadth of distribution, brand name
recognition, price and customer support. There can be no assurance that the
Company will be able to compete successfully with respect to these factors.
In addition, many of the Company's current and prospective competitors have
significantly greater technical, manufacturing and marketing resources than
the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Certain Factors That May Affect the
Company's Future Results of Operations -- Competition."
-10-
<PAGE>
PATENTS AND LICENSES
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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors That May Affect the Company's Future Results of
Operations -- Dependence on Proprietary Rights."
EMPLOYEES
As of December 31, 1996, the Company had approximately 100 full time
employees.
The Company's success will depend, in large measure, on its ability to
attract and retain highly qualified technical, marketing, engineering and
management personnel, who are in great demand. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain
Factors That May Affect the Company's Future Results of Operations --
Dependence on Key Personnel."
The Company's employees are not represented by any collective bargaining
agreements, and the Company has never experienced a work stoppage. The
Company believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's primary facility is located in Sunnyvale, California and
consists of leased space of approximately 40,000 square feet. The Company
believes that its current facilities are adequate for its needs. The lease
on the primary facility will expire in March 1998.
The Company has subleased to other companies approximately 194,000
square feet of facilities which the Company is currently not using.
The Company has maintained field sales facilities in a number of
locations throughout the United States as well as in Surrey, England; Paris,
France; Hamburg, Germany; and Tokyo, Japan but no longer does so. See Note 3
of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
(a) On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a
suit in the United States District Court in the Northern District of
California alleging that the Company infringes a patent allegedly owned by
EFI. Although the complaint
-11-
<PAGE>
does not specify which of the Company's products allegedly infringe the
patent, subsequent pleading indicates that EFI alleges that the Company's
Color Server products allegedly infringe. In January 1996, the Company
completed the divestiture of the Color Server Group.
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. EFI's motion to dismiss or sever the Company's
amended counterclaims was granted in part and the ruling permitted the
Company to file an amended counterclaim for antitrust violations. The
Company has filed an amended antitrust claim. The Company believes it has
meritorious defenses to EFI's claims and is defending them vigorously. In
addition, the Company believes it has indemnification rights with respect to
EFI's claims. A motion for summary judgment based on these indemnification
rights disposing of EFI's claims was filed, and the court granted this motion
finding the Company immune from suit under the patent after February 22,
1995. The Company expects to vigorously defend the remaining claims of EFI
and to vigorously prosecute the claims it has asserted against EFI. In the
opinion of management, based on the facts known at this time, although the
eventual outcome of this case is unlikely to have a material adverse effect
on the results of operations or financial position of the Company, the costs
of defense, regardless of outcome, may have a material adverse effect on the
results of operations or financial position of the Company. In addition, in
connection with the divestiture of its Color Server business, the Company has
certain indemnification obligations for which approximately $2.3 million
remains held in escrow to secure such obligations in the event that the
purchaser suffers any losses resulting from such litigation.
(b) The Company was named as one of approximately 42 defendants in
Shapiro et al. v. ADI Systems, Inc. et al., Superior Court of California,
Santa Clara County, case no. CV751685, filed August 14, 1995. Radius was
named as one of approximately 32 defendants in Maizes & Maizes et al. v.
Apple Computer et al., Superior Court of New Jersey, Essex County, case no.
L-13780-95, filed December 15, 1995. Plaintiffs in each case purport to
represent alleged classes of similarly situated persons and/or the general
public, and allege that the defendants falsely advertised that the viewing
areas of their computer monitors are larger than in fact they are.
The Company was served with the Shapiro complaint on August 22, 1995 and
was served with the Maizes complaint on January 5, 1996. Defendants'
petition to the California State Judicial Council to coordinate the Shapiro
case with similar cases brought in other California jurisdictions was granted
in part and it is anticipated that the coordinated proceedings will be held
in Superior Court of California, San Francisco County. An amended
consolidated complaint was filed on March 26, 1996. Discovery proceedings
are scheduled to begin. The Company believes it has meritorious defenses to
the plaintiffs' claims and is defending them vigorously. Extended settlement
discussions began in connection with a successful demurrer in the California
case. Such discussions have been complicated by the refusal of a small
number of the defendants to participate in the proposed settlement. In the
opinion of management, based on the facts known at this time, the eventual
outcome of these cases may have a material adverse effect on the results of
operations or financial position of the Company in the financial period in
which they are resolved. In addition, whether or not the eventual outcomes
of these cases have a material adverse effect on the results of operations or
financial condition of the Company, the costs of defense, regardless of
outcome, may have a material adverse effect on the results of operations and
financial condition of the Company.
(c) On April 17, 1996, the Company was served with a complaint filed by
Colorox Corporation ("Colorox"), in the Circuit Court of the State of Oregon,
County of Multnomah, case no. 9604-02481, which alleges that the Company
breached an alleged oral contract to sell its dye sublimation printer
business to Colorox for $200,000, and seeks both specific performance of the
alleged contract and alleged damages of $2.5 million. The Company believes
it has meritorious defenses to the plaintiff's claims and intends to defend
them vigorously. Nevertheless, the costs of defense, regardless of outcome,
could have an adverse effect on the results of operations and financial
condition of the Company.
(d) The Company is involved in a number of other judicial and
administrative proceedings incidental to its business. The Company intends
to defend such lawsuits vigorously and although adverse decisions (or
settlements) may occur in one or more of such cases, the final resolution of
these lawsuits, individually or in the aggregate, is not expected to have a
material adverse effect on the financial position of the Company. However,
depending on the amount and timing of an unfavorable resolution of these
lawsuits, it is possible that the Company's future results of operations or
cash flows could be materially adversely affected in a particular period. In
addition, the costs of defense -- regardless of the outcome -- could have a
material adverse effect on the results of operations and financial condition
of the Company.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Shareholders (the "Special Meeting") was held on
August 7, 1996. The sole matter voted upon at this Special Meeting was a
proposal to amend the Company's Articles of Incorporation to increase the
authorized number of shares of Common Stock from 50,000,000 to 100,000,000
shares. The proposal was approved with 14,540,913 affirmative votes, 443,795
negative votes, and 111,639 votes abstaining.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
Charles W. Berger 43 Chairman of the Board of Directors,
Chief Executive Officer and President
Cherrie L. Fosco 47 Chief Financial Officer
Mary E. Godwin 37 Vice President, Operations
Gregory M. Millar 40 Vice President, Research
MR. BERGER was appointed President, Chief Executive Officer and a
director of the Company in March 1993 and Chairman of the Board of Directors
in March 1994. From April 1992 until he joined the Company, Mr. Berger was
Senior Vice President, Worldwide Sales, Operations and Support for Claris
Corporation ("Claris"), a subsidiary of Apple that develops and markets
application software. From February 1991 to April 1992, he was President of
Sun Microsystems Federal, Inc., a subsidiary of Sun Microsystems, Inc.
("Sun"), a manufacturer of computer work stations. From July 1989 to
February 1991, he served as Vice President of Business Development for Sun,
and from March 1989 to July 1989, he was Sun's Vice President of Product
Marketing. From April 1982 to March 1989, Mr. Berger held numerous
management positions involving, sales, marketing, business development and
finance for Apple.
MS. FOSCO was appointed Chief Financial Officer in November 1996 and
prior to assuming that position served as the Company's Corporate Controller
from March 1995 to November 1996 and as Director of Financial Planning and
Analysis from February 1994 to March 1995. Prior to joining the Company, Ms.
Fosco was Vice President, Controller and Treasurer of Gigatronics Inc., a
manufacturer of microwave and RF signal generators.
MS. GODWIN was appointed Vice President, Operations in August 1995 and
prior to assuming that position served as the Company's Director of
Operations Engineering beginning when she joined the Company in July 1993 .
Prior to joining the Company, Ms. Godwin spent seven years with Apple as a
supply base manager, and seven years with Xerox Corporation ("Xerox"), a
diversified manufacturer of document copying and processing equipment, as a
technical specialist.
MR. MILLAR was appointed Vice President, Engineering and Chief
Technology Officer in October 1995 and prior to assuming that position served
as the Company's Vice President, Research from October 1993 to October 1995,
and as Vice President, Engineering from July 1991 to October 1993. From
January 1989 to July 1991, he held various managerial positions in the
Company including General Manager of the Advanced Development Group, General
Manager of the Macintosh Business Unit and Director of Software Development.
Prior to joining the Company, Mr. Millar was Vice President of Engineering
and a founder of Infa Corporation, a pen-based computing company, from June
1987 to December 1988.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock has been quoted on the Nasdaq National Market
from August 21, 1991 until July 1, 1996. The Company's Common Stock is now
quoted on the Nasdaq SmallCap Market under the symbol "RDUS." The high and
low sales prices for the Common Stock are indicated below.
Year Ended September 30, 1995 Low High
- ----------------------------- --- ----
First Quarter 7 5/8 10 1/4
Second Quarter 9 14 1/2
Third Quarter 9 1/8 13 3/4
Fourth Quarter 6 15/16 12 1/2
Year Ending September 30, 1996
- ------------------------------
First Quarter 1 15/16 7 1/8
Second Quarter 15/16 2 1/2
Third Quarter 2 3/16 4 5/8
Fourth Quarter 1 1/4 2 13/16
On December 31, 1996, there were approximately 3,606 holders of record
of the Company's Common Stock.
The Company has never declared or paid any cash dividends on its Common
Stock. As explained under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources"
contained elsewhere in this Annual Report, funds will be required to support
future losses and the Company's future working capital needs as well as to
repay the Company's outstanding indebtedness to IBM Credit. In addition, the
terms of the Company's restructured loan agreement with IBM Credit prohibits
the payment of any cash dividends so long as any amounts are outstanding
under the loan agreement. Furthermore, the Company is required to pay an
annual cumulative dividend at the rate of 10% per annum on the Series A
Convertible Preferred Stock which must be paid before any dividends may be
paid on the Common Stock. Accordingly, the Company anticipates that it will
retain any future earnings for use in its business and does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future. The
payment of any future dividends on its Common Stock will be at the discretion
of the Company's Board of Directors and will depend upon, among other things,
future earnings, operations, capital requirements, the general financial
condition of the Company, general business conditions and contractual and
other restrictions on payment of dividends, including restrictions pursuant
to the terms of the Company's outstanding Series A Convertible Preferred
Stock and pursuant to the terms of the Company's restructured loan agreement
with IBM Credit.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
--------------------------------------------------------------------------------
1996 1995 1994 (2) 1993 (2) 1992 (2)
---- ---- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales $ 90,290 $ 308,133 $324,805 $337,373 $284,598
Cost of sales 77,382 302,937 276,948 254,321 181,198
-------- --------- --------- -------- --------
Gross profit 12,908 5,196 47,857 83,052 103,400
Operating expenses:
Research and development 7,478 19,310 33,956 33,503 21,093
Selling, general and administrative 25,886 90,068 94,731 84,132 61,824
-------- --------- --------- -------- --------
Total operating expenses 33,364 109,378 128,687 117,635 82,917
-------- --------- --------- -------- --------
Income (loss) from operations (20,456) (104,182) (80,830) (34,583) 20,483
Other income (expense), net 24,032 (3,045) (376) 70 878
Interest expense (3,736) (3,023) (869) ( ) ( )
Litigation settlement - (12,422) - - -
-------- --------- --------- -------- --------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle (160) (122,672) (82,075) (34,513) 21,361
Provision (benefit) for income taxes 815 9,070 (4,600) (13,774) 8,329
-------- --------- --------- -------- --------
Income (loss) before cumulative effect
of a change in accounting principle $ (975) $(131,742) $ (77,475) $(20,739) $ 13,032
Cumulative effect of a change in method
of accounting for income taxes - - - 600 -
-------- --------- --------- -------- --------
Net income (loss) $ (975) $(131,742) $ (77,475) $(20,139) $ 13,032
-------- --------- --------- -------- --------
-------- --------- --------- -------- --------
Net income (loss) per share:
Income (loss) before cumulative effect
of a change in accounting principle $ (0.05) $ (8.75) $ (5.70) $ (1.61) $ 1.04
Cumulative effect of a change in method
of accounting for income taxes - - - 0.05 -
-------- --------- --------- -------- --------
Net income (loss) per share $ (0.05) $ (8.75) $ (5.70) $ (1.56) $ 1.04
-------- --------- --------- -------- --------
-------- --------- --------- -------- --------
Common shares used in computing
net income (loss) per share 21,251 15,049 13,598 12,905 12,485
-------- --------- --------- -------- --------
-------- --------- --------- -------- --------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
--------------------------------------------------------------------------------
1996 1995 1994 (2) 1993 (2) 1992 (2)
---- ---- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Working capital (Working capital deficiency) $ 8,476 $(59,334) $ 29,856 $ 86,711 $ 84,303
Total assets 45,526 87,878 126,859 172,275 150,658
Long-term debt-noncurrent portion 22,213 1,331 2,857 3,975 1,935
Convertible preferred stock 3,000 - - - -
Shareholders' equity (Net capital deficiency) 3,960 (57,117) 35,691 98,155 96,631
</TABLE>
(1) The Company's fiscal year ends on the Saturday closest to September 30
and includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years
presented. During fiscal 1995, the Company changed its fiscal year end from
the Sunday closest to September 30 to the Saturday closest to September 30
for operational efficiency purposes. For clarity of presentation, all fiscal
periods in this Form 10-K are reported as ending on a calendar month end.
(2) These periods have been restated to reflect the Merger of Radius and
SuperMac which has been accounted for as a pooling of interests. See Note 10
of Notes to the Consolidated Financial Statements. The consolidated
financial statements for all periods prior to fiscal 1994 have not been
restated to adjust SuperMac's fiscal year end to that of Radius. Such
periods include Radius' results of operations and balance sheet data on a
September 30 fiscal year basis and SuperMac's on a December 31 calendar year
basis. The results for both of the fiscal years ended September 30, 1994 and
1993 include the results of SuperMac's operations for the three months ended
December 31, 1993. Revenues, costs and expenses and net loss of SuperMac for
such period were $48.5 million, $64.7 million and $9.9 million, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: The following
discussion contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 that are subject to risks and
uncertainties. Statements indicating that the Company "expects," "estimates"
or "believes" are forward-looking, as are all other statements concerning
future financial results, product offerings or other events that have not yet
occurred. There are several important factors that could cause actual results
or events to differ materially from those anticipated by the forward-looking
statements contained in this discussion and other sections of this Form 10-K.
Such factors include, but are not limited to: the Company's ability to
achieve profitability; the Company's ability to repay its indebtedness to IBM
Credit; the success of the Apple Macintosh computer line as well as the
success of Apple and operating system; the Company's ability to compete
successfully with Apple; Company's ability to successfully develop and
introduce new products to keep pace with technological innovation,
particularly in light of its limited financial resources; the Company's
ability to compete in its market; the ability of the Company's manufacturers
and suppliers to deliver components and manufacture the Company's products;
the Company's dependence on international sales and the effect of its
exclusive distributor arrangements with respect to Europe and Japan; and the
Company's ability to attract and retain its key personnel.
RESULTS OF OPERATIONS
The following table sets forth for the years indicated certain
operational data as a percentage of net sales (may not add due to rounding).
YEAR ENDED SEPTEMBER 30
---------------------------
1996 1995 1994
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 85.7 98.3 85.3
---- ---- ----
Operating expenses: 14.3 1.7 14.7
Gross profit
Research and development 8.3 6.3 10.5
Selling, general, and administrative 28.7 29.2 29.2
---- ---- ----
Total operating expenses 37.0 35.5 39.6
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Loss from operations (22.7) (33.8) (24.9)
Other income (expense), net 26.6 (1.0) (0.3)
Interest expense (4.1) (1.0) (0.1)
Litigation settlement - (4.0) -
---- ----- ----
Loss before income taxes (0.2) (39.8) (25.3)
Provision (benefit) for income taxes 0.9 2.9 (1.4)
--- --- -----
Net loss (1.1)% (42.8)% (23.9)%
----- ------ ------
----- ------ ------
FISCAL 1996 TO FISCAL 1995
NET SALES. Net sales for fiscal 1996 decreased 70.7% to $90.3 million
from $308.1 million in fiscal 1995. This decline was primarily due to the
Company's efforts to refocus its business which included exiting markets for
high-volume low-margin displays, reduced sales of the Company's video and
graphics products caused by Apple's shift from Nubus to PCI Bus computers,
business divestitures and as a result of entering into exclusive distributor
arrangements for Japan and Europe effective April 1,1996 and July 1,1996,
respectively, which relationships provide for the Company to receive as net
sales, a percentage of the sales price of each product sold by those
distributors as compared to the entire sales price of the product prior to
the appointment of the distributor. The Company is highly dependent on the
success of Apple products as the Company's products are designed to provide
additional functionality to Apple products as compared to the entire sales
price of the product prior to the appointment of the distributors.
As a result of the sale by the Company of its Color Server Group, the
Company recorded no net sales of color server products after the second
quarter of its 1996 fiscal year and recorded approximately $7.0 million of
net sales for the first quarter of its 1996 fiscal year. The Company
anticipates significantly lower overall net sales in the immediate future 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 the
divestiture of certain businesses such as its color server group and MacOS
compatible systems. The Company sold its Color Server Group in January 1996
and sold its MacOS business in February 1996. Net sales from the Color Server
Group were approximately $7.0 million for fiscal 1996 and approximately $29.3
million for fiscal 1995 and net sales from the MacOS business were
approximately ($1.5 million) for fiscal 1996 and $21.8 million for fiscal
1995. Had the net sales of these businesses not been included in the
Company's net sales for fiscal 1996 or fiscal 1995, the Company's net sales
for such periods would have been approximately $84.8 million and $257.0
million for fiscal 1996 and fiscal 1995, respectively.
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. There can be no assurance that the Company will be able to
successfully develop, introduce and market these new products or that these
products will achieve commercial success.
One customer accounted for 34.3% of the Company's net sales for fiscal
1996. For fiscal 1995, the same customer accounted for 34.0% of the
Company's net sales.
The Company's export sales for fiscal 1996 were 50.7% of net sales as
compared to 40.4% of net sales for fiscal 1995. Net sales could be adversely
affected in the future as a result of the exclusive distributor relationships
for Japan and Europe because the Company will earn royalties and commissions
on any sales to such regions and therefore will only recognize as net sales a
portion of the sales price of any product sold through such distributor
arrangements. Even if sales for such regions increase or remain similar to
historic levels, the Company would recognize a lesser amount of net sales for
such regions as compared to historic levels. Accordingly, the Company
anticipates a decline in the percentage of net sales attributable to the
Asia-Pacific and European sales regions in connection with the appointments
of an exclusive Japanese and European distributor and, as described above,
the Company could also experience a decline in the dollar amount of net sales
attributable to such regions. Export sales are also subject to the normal
risks associated with doing business in foreign countries such as currency
fluctuations, longer payment cycles, greater difficulties in accounts
receivable collection, export controls and other government regulations and,
in some countries, a lesser degree of intellectual property protection as
compared to that provided under the laws of the United States. The Company
hedges substantially all of its trade receivables denominated in foreign
currency through the use of foreign currency forward exchange contracts based
on third party commitments. Gains and losses associated with currency rate
changes on forward contracts are recognized in the Company's consolidated
statements of operations upon contract settlement and were not material in
fiscal 1996 or 1995.
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GROSS PROFIT. The Company's gross profit margin was 14.3% for fiscal
1996, as compared with 1.7% for fiscal 1995. Included in fiscal 1996 is a
one time charge of $3.5 million resulting from the Company's financial
restructuring completed in September 1996. Excluding this one time charge and
the restructuring and other charges recorded in fiscal 1995, gross profit
margin in fiscal 1996 was 18.2% compared to 16.9% in fiscal 1995.
In addition, the Color Server Group had gross profit of approximately
$2.2 million, for fiscal 1996 and the Color Server Group and MacOS business
had gross profit (loss) of approximately $9.8 million and ($19.2 million),
respectively, for fiscal 1995. Had those businesses not been included in the
calculation of the Company's gross profit for fiscal 1996 and 1995, gross
profit for such fiscal years would have been approximately $10.6 million and
$14.6 million, respectively with a gross profit margin of approximately 12.6%
and 5.7%, respectively.
The Company anticipates continued price reductions and margin pressure
within its industry. The Company is responding to these trends by focusing
on higher margin products, taking further steps to reduce product costs and
controlling expenses. There can be no assurance that the Company's gross
margins will recover or remain at current levels.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased from $19.3 million or 6.3% of net sales for fiscal 1995 to $7.5
million or 8.3% of net sales for fiscal 1996. The Company decreased its
research and development expenses primarily by reducing expenses related to
headcount resulting from the Company's efforts to refocus its business and
business divestitures. The increase in research and development expenses
expressed as a percentage of net sales for fiscal 1996, was primarily
attributed to the decrease in net sales and the Company's refocusing on
higher-end products, rather than high-volume lower-margin products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $90.1 million or 29.2 % of net sales
for fiscal 1995 to $25.9 million or 28.7% of net sales for fiscal 1996. The
Company decreased its selling, general and administrative expenses primarily
by reducing expenses related to headcount resulting from the Company's
efforts to refocus its business and business divestitures. Selling general
and administrative expenses in fiscal 1995 reflected a reduction of
approximately $2.1 million of merger-related restructuring reserves to
reflect current requirements.
During the second quarter of fiscal 1996, the building in which the
Company leases its headquarters was sold. In connection with the sale, the
Company terminated its existing lease and entered into a lease with the new
owner of the building. In connection with the final terms of this new lease,
expenses in the third quarter of fiscal 1996 included a reduction of
approximately $913,000 of restructuring reserves to reflect current
requirements. The Company anticipates that the change of rental terms will
help reduce the Company's occupancy costs and long-term lease obligations.
OTHER INCOME (EXPENSE), NET. Other income was $24.0 million for fiscal
1996, as compared to other expense of $3.0 million for fiscal 1995. The
increase was due primarily to other income of approximately of $23.8 million
resulting from the Company's divestitures of three business lines, including
the Color Server Group.
INTEREST EXPENSE. Interest expense was $3.7 million for fiscal 1996 as
compared to $3.0 million for fiscal 1995. This increase was due to higher
average interest rates on higher average borrowings.
PROVISION FOR INCOME TAXES. The Company recorded a provision for income
taxes of $815,000 for fiscal 1996 as compared to a provision for income taxes
for fiscal 1995 of $9.1 million. The provision for fiscal 1996 differs from
the provision computed utilizing the combined statutory rate in effect during
the period primarily as a result of the impact of foreign taxes. The fiscal
1995 provision differs from the provision computed utilizing 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.
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 prior years and as a result of the material changes in
operations, predictability of earnings in future periods is uncertain. The
Company will evaluate the realizability of the deferred tax asset on a
quarterly basis.
As a result of the issuance of Common Stock and Series A Convertible
Preferred Stock in exchange for certain liabilities of the Company in
September 1996, the Company experienced a "change in ownership" as defined
under Section 382 of the Internal Revenue Code. Accordingly, utilization of
substantial net operating losses and tax credit carryforwards will be subject
to
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<PAGE>
an approximately $2.0 million annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986 (and similar state
provisions), except under limited circumstances. This limitation will result
in the expiration of all of the tax credit carryforwards and a substantial
portion of the net operating loss carryforwards. See Note 5 of Notes to
Consolidated Financial Statements.
NET INCOME (LOSS). As a result of the above factors, the Company had a
net loss of $975,000 for fiscal 1996, as compared to a net loss of $131.7
million for fiscal 1995. The Color Server Group had net income of
approximately $0.9 million and $3.5 million for fiscal 1996 and 1995,
respectively had this business not been included in the calculation of the
Company's net loss for fiscal 1996 and 1995, the Company would have had a net
loss of approximately $1.9 million and $135.2 million for fiscal 1996 and
1995, respectively.
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 of its graphics cards,
MacOS compatible systems and other products that are designed for Apple's
NuBus-based computers which were largely replaced by Apple's PCI Bus-based
computers.
During the 1995 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 1995 fiscal year. These declines were largely
offset by sales of MacOS compatible systems which were first introduced in
the 1995 fiscal year and by a substantial increase of approximately $13.5
million in net sales from the Company's color server products. In January
1996, the Company completed the sale of its color server business and in
February 1996, its MacOS business.
Export sales represented approximately 40.4% and 34.5% of net sales for
fiscal 1995 and 1994, respectively. See Note 7 of Notes to Consolidated
Financial Statements.
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.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $19.3 million, or 6.3% of net sales, in fiscal 1995 from $34.0
million, or 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 remainder of 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 of Radius and SuperMac. The
merger-related restructuring resulted in reduced costs primarily related to
headcount, depreciation, and facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses including restructuring and other charges decreased
to $90.1 million, or 29.2% of net sales, in fiscal 1995 from $94.7 million,
or 29.2% of net sales, in fiscal 1994. Selling, general and administrative
expenses excluding restructuring and other charges decreased to $79.2
million, or 25.7% of net sales, in fiscal 1995 from $84.0 million, or 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
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<PAGE>
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.
OTHER INCOME (EXPENSE), NET. Other expense increased to $3.0 million in
fiscal 1995 from $376,000 in fiscal 1994. This increase was due primarily to
increased cash discounts offered to customers for early payment and flooring
charges relating to the Company's accounts receivable.
INTEREST EXPENSE. Interest expense was $3.0 million for fiscal 1995 as
compared to $869,000 for fiscal 1994. This increase was due primarily to
higher average interest rates on higher average borrowings.
NET INCOME (LOSS). As a result of the above factors net loss increased
69.9% to $131.7 million in fiscal 1995 from $77.5 million in fiscal 1994.
RESTRUCTURING, MERGER AND OTHER CHARGES
During fiscal 1994 and 1995, three restructuring and other charges were
recorded. 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.
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
remaining balance of $236,000 in its restructuring reserve which related to
facility costs, was eliminated in fiscal 1996.
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 (the "Merger").
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, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
Representing
---------------------------------
Cash Outlays
------------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $22,296 $19,200 $ 3,096 $ -
Excess facilities 2,790 400 2,346 44
Revision of the operations business model 9,061 7,078 1,983 -
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
------- ------- ------- -----
Total charges $43,407 $26,678 $16,685 $ 44
</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 $16.7 million of cash for restructuring through September
30, 1996. The Company has substantially completed this restructuring. During
fiscal 1995,
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approximately $2.1 million of merger related restructuring reserves were
reversed and recorded as an expense reduction due to changes in estimated
requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES. In September 1995,
Radius recorded charges of $57.9 million in connection with the Company's
efforts to restructure its operations by refocusing its business on the color
publishing and multimedia markets. The charges primarily included a
writedown of inventory and other assets. Additionally, the charges included
expenses related to the cancellation of open purchase orders, excess
facilities and employee severance. The charges (in thousands) are included in
cost of sales ($47,004), and selling, general and administrative expense
($10,861). The elements of the total charge as of September 30, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
Representing
---------------------------------
Cash Outlays
------------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $ 33,138 $ 32,300 $ 838 $ -
Excess facilities 2,004 404 1,600 -
Cancellation fees and asset write-offs 19,061 5,196 13,800 65
Employee severance 3,662 - 2,599 1,063
-------- -------- -------- ------
Total charges $ 57,865 $ 37,900 $ 18,837 $1,128
</TABLE>
The adjustment of inventory levels reflects the discontinuance of
several product lines. Revenues and gross profit (loss) for significant
product lines discontinued were as follows: Mac-OS compatible systems were
approximately $21.8 million and $(19.2) million, respectively; and low-margin
displays were approximately $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
restructuring. As of September 30, 1996, approximately 230 positions of the
240 total planned had been eliminated in connection with the restructuring.
The Company had satisfied approximately $18.8 million of the originally
anticipated cash outlays for this restructuring during fiscal 1996, of which
$5.0 million represented cash expenditures and $13.8 million represented
cancellation of indebtedness or claims in consideration of the issuance of
equity in the Company. During the quarter ended June 30, 1996,
approximately $913,000 of restructuring charges were reversed and recorded as
an expense reduction due to changes in estimated requirements. The
restructuring is substantially completed and remaining cash outlays relate
primarily to the restructuring of the Company's international operations.
LITIGATION SETTLEMENT
In September 1992, the Company and certain of its officers and directors
were named as defendants in a securities class action litigation brought in
the United States District Court for the Northern District of California that
sought unspecified damages, prejudgment and post judgment interest,
attorneys' fees, expert witness fees and costs, and equitable relief. In
July 1994, SuperMac Technology, Inc. ("SuperMac") and certain of its officers
and directors, several venture capital firms and several of the underwriters
of SuperMac's May 1992 initial public offering and its February 1993
secondary offering were named as defendants in a class action litigation
brought in the same court that sought unspecified damages, prejudgment and
post judgment interest, attorneys' fees, experts' fees and costs, and
equitable relief (including the imposition of a constructive trust on the
proceeds of defendants' trading activities).
In June 1995, the Court approved the settlement of both litigations and
entered a Final Judgment and Order of Dismissal. Under the settlement of the
litigation brought in 1992 against the Company, the Company's insurance
carrier paid $3.7 million in cash and the Company issued a total of 128,695
shares of its Common Stock to a class action settlement fund. In the
settlement of the litigation brought in 1994 against SuperMac, the Company
paid $250,000 in cash and is to issue into a class action settlement fund a
total of 707,609 shares of its Common Stock. The number of shares to be
issued by the Company increased by 100,000 because the price of the Company's
Common Stock was below $12 per share during the 60-day period following the
initial issuance of shares. In connection with these settlements, the
financial statements for the first quarter of fiscal 1995 included a charge
to other income of $12.4 million, reflecting settlement costs not covered by
insurance as well as related legal fees, resulting in a reduction in net
income from $1.4 million to a net loss of $11.0 million or $0.78 per share
for the quarter.
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<PAGE>
As of September 30, 1996, the Company had issued 836,674 shares of its
Common Stock due to the settlements and 99,630 shares remained to be issued.
BUSINESS DIVESTITURES
COLOR SERVER GROUP DIVESTITURE. In January 1996, the Company
completed the sale of its Color Server Group ("CSG") to Splash Merger
Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology
Holdings, Inc. (the "Parent"), a corporation formed by various investment
entities associated with Summit Partners. The Company received approximately
$17.2 million in cash and 4,282 shares of the Parent's 6% Series B Redeemable
and Convertible Preferred Stock (the "Series B Preferred Stock"). An
additional $4.7 million was placed in escrow to secure certain post-closing
and indemnification obligations. In April 1996, approximately $2.3 million
was released from this escrow to the Company and the Company also received
approximately $1.5 million as a result of post-closing adjustments. The
shares of Series B Preferred Stock were converted into shares of Parent
Common Stock in connection with the initial public offering of Parent. Such
stock has been pledged to IBM Credit in order to secure the Company's
obligations to IBM Credit under the restructured loan agreement with IBM
Credit. In connection with the restructuring of the terms of its loan
agreement with IBM Credit, the Company granted IBM Credit an option to
purchase 428 shares of Series B Preferred Stock at $0.01 per share, which now
represents the right to purchase shares of Parent Common Stock. IBM Credit
has not exercised this option. In addition, under the terms of the new loan
agreement with IBM Credit, IBM Credit has the right to require Radius to sell
up to 50% of the shares of Parent Common Stock with in one year of the
initial public offering of Parent, which occurred on October 9, 1996, and up
to 25% of the shares of Parent Common Stock during each of the second and
third year following such initial public offering. If the balance due under
the term loan with IBM Credit exceeds 90% of the market value of such shares
of Parent Common Stock after the initial public offering of Parent, IBM
Credit can require Radius to sell such securities to repay such term loan.
The Company has certain indemnification obligations in connection with the
patent lawsuit brought by Electronics for Imaging, Inc. The net proceeds of
the CSG transaction were paid to Silicon Valley Bank ("SVB"), in order to
repay the Company's indebtedness to SVB, and to IBM Credit, in order to
reduce the Company's outstanding indebtedness to IBM Credit.
PORTRAIT DISPLAY LABS. In January 1996, the Company entered into a
series of agreements with Portrait Display Labs, Inc. ("PDL"). The agreements
assigned the Company's pivoting technology to PDL and canceled PDL's on-going
royalty obligation to the Company under an existing license agreement in
exchange for a one-time cash payment. The Company did not receive any
material amount of payments under such license agreement. 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. The cash proceeds were paid to IBM Credit.
UMAX DATA SYSTEMS, INC. In February 1996, the Company sold its
MacOS compatible systems business to UMAX Computer Corporation ("UCC"), a
company formed by UMAX Data Systems, Inc. ("UMAX"). The Company received
approximately $2.3 million in cash and debt relief, and 1,492,500 shares of
UCC's Common Stock, representing approximately 19.9% of UCC's then
outstanding shares of Common Stock. The cash proceeds were paid to IBM Credit
and the shares of UCC Common Stock were pledged to IBM Credit.
DISPLAY TECHNOLOGIES ELECTROHOME INC. In December 1995, the Company
completed the sale of its monochrome display monitor business to Display
Technologies Electrohome Inc. ("DTE"). DTE purchased Radius' monochrome
display monitor business and certain assets related thereto, for
approximately $200,000 in cash and cancellation of $2.5 million of the
Company's indebtedness to DTE. In addition, DTE and Radius canceled
outstanding contracts relating to DTE's manufacture and sale of monochrome
display monitors to Radius.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased approximately $1.8
million during fiscal 1996 to approximately $3.0 million at September 30,
1996, as compared with the fiscal 1995 ending balance of cash and cash
equivalents of $4.8 million. Approximately $0.6 million of the $3.0 million
of cash and cash equivalents available at September 30, 1996 was restricted
under various letters of credit. The decrease in the Company's cash and cash
equivalents during fiscal 1996 was primarily attributable to funding of
operating losses of the Company.
The Company also holds securities in Splash Technology Holdings, Inc.
("Splash"), Portrait Display Labs and UMAX Computer Corporation ("UMAX"),
which have been pledged to IBM Credit. Splash became a public company on
October 9, 1996, however, these securities are "restricted securities" under
Rule 144 promulgated under the Securities Act and will become available for
sale in January 1998, subject to certain volume, manner of sale, notice and
availability of public information requirements of such rule. However, the
Company also has certain registration rights with respect to those securities
commencing in April 1997. Because PDL and UMAX are private companies, there
is no market for such securities and there can be no assurance that one will
develop in the future. In addition, as described under "-- Business
Divestitures -- Color Server Group Divestiture," the Company will be required
to sell its securities in Splash Technology Holdings, Inc. over no longer
than a three year period ending October 9, 1999 after such Company's initial
public offering if amounts are outstanding under the loan with IBM Credit.
The Company has granted to IBM Credit a security interest in
substantially all of its assets to secure the Company's various obligations
to IBM Credit. The Company has also granted to Mitsubishi Electronics a
security interest (securing an amount up to $4.4 million) in all of the
Company's technology and intellectual property rights related to and
incorporated into the Company's PressView products.
The Company's principal source(s) of liquidity currently are cash
generated by operations, if any, and an up to $5.0 million working line of
credit provided by IBM Credit pursuant to the terms of the restructured loan
with IBM Credit. This working line of credit is not expected to provide the
Company with a significant source of liquidity for the foreseeable future.
Accordingly, for the immediate future, the Company intends to finance its
working capital needs through cash generated from operations, if any. As
described above, the Company has minority ownership interests in Splash, UMAX
and PDL. The Company has certain registration rights with respect to the
shares of Common Stock of Splash owned by it and, as a result, the shares of
Common Stock of Splash could provide the Company with an additional source of
liquidity in the future provided that the retructured loan from IBM Credit is
first repaid with any proceeds from the sale of the Splash securities and
that the Series A Convertible Preferred Stock has either been redeemed or
converted into Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors That May
Affect the Company's Future Results of Operations -- Need for Additional
Financing; Loan Restrictions."
In connection with the Plan, IBM Credit received 750,000 shares of the
Company's Series A Convertible Preferred Stock and warrants to purchase
600,000 shares of Common Stock in consideration of the cancellation of $3.0
million of indebtedness to IBM Credit and for an additional advance of
$470,000. In addition, IBM Credit has restructured the terms of the
remaining approximately $23.4 million indebtedness into a working line of
credit and a term loan. The Company has an up to $5.0 million working line
of credit and IBM Credit will extend advances under this line of credit in an
amount not to exceed the borrowing base (which is defined as (i) the lesser
of 10% of the gross value of eligible inventory or $500,000; plus (ii) 80% of
the Company's eligible domestic accounts receivable; plus (iii) the lesser of
50% of the gross value of certain eligible Japanese and European accounts
receivable or $500,000). The $470,000 advanced by IBM Credit pursuant to the
Plan is included in this working line of credit but will not be included in
the calculation of the borrowing base. The initial amount of indebtedness
outstanding under this line of credit at September 30, 1996 was $1.5 million.
The remaining $21.9 million balance of the Company's indebtedness to IBM
Credit has been converted to a four-year term loan. Principal on such term
loan will be repaid on a mandatory prepayment schedule. The restructured
loan with IBM Credit is subject to mandatory prepayment as follows: (i) upon
the disposition of any assets of the Company outside of the ordinary course
of business, all net proceeds to the Company must be applied towards the
Company's obligations under the loan; (ii) upon the closing of any financing,
10% of the proceeds must be applied towards the Company's obligations under
the loan; (iii) upon the thirtieth day following the end of each fiscal
quarter, an amount of no less than 50% of operating cash flow for such prior
fiscal quarter must be applied towards the Company's obligations under the
loan; and (iv) upon the receipt of any other amounts other than sales of
inventory or used or obsolete equipment in the ordinary course of business,
and not otherwise described in the preceding clause (i) - (iii), all of such
amounts must be applied towards the Company's obligations under the loan. If
the Company's obligations under the term loan, as well as finance charges and
amounts outstanding in excess of the "borrowing base" (described above) under
the working line of credit, are repaid, IBM Credit can
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<PAGE>
require such proceeds to be applied towards a redemption of the Series A
Convertible Preferred Stock. In addition, the Company is required to deposit
its revenues in accounts controlled by IBM Credit. At any time, regardless
of whether the Company is in default of its obligations to IBM Credit, IBM
Credit is permitted to apply these amounts towards the repayment of any of
the Company's obligations to IBM Credit. As a result of IBM Credit's control
over the Company's cash flow and these prepayment and redemption provisions,
together with the other terms and covenants of the restructured loan
agreement, the Company's ability to generate working capital or to undertake
a variety of other merger, disposition or financing activities will be
substantially restricted. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors That May
Affect the Company's Future Results of Operations -- Need for Additional
Financing; Loan Restrictions."
As a result of IBM's control over the Company's cash flow and these
restrictions on the Company's excess cash flow, the Company anticipates that
it will not have significant cash available for expenditures other than for
its ordinary course of business operating expenses. In the event the Company
were unable to generate sufficient net sales or if the Company incurs
unforeseen operating expenses, it may not be able to meet its operating
expenses without additional financing or a restructuring of its loan
agreements with IBM Credit. In the event that the Company desired to acquire
any strategic technologies or businesses, it would probably be unable to do
so without obtaining additional financing or the consent of IBM Credit. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors That May Affect the Company's Future Results of
Operations -- Need for Additional Financing; Loan Restrictions."
Because of the Company's loss for the fourth quarter of fiscal 1996, the
Company failed to comply with several financial covenants of its restructured
loan agreement with IBM Credit (specifically, revenues to working capital
ratio, net profits to revenues ratio and working capital). The Company
obtained a waiver from IBM Credit of this noncompliance through December 31,
1996. There can be no assurance that IBM Credit will grant any additional
waivers in the event that the Company fails to comply with these financial
covenants in the future. Based on preliminary results for the three months
ended December 31, 1996, the Company believes that it will be in breach of
these covenants as of such date. Based on the value of certain assets which
secure the restructured loan, among other considerations, IBM Credit will
grant a waiver of these defaults, but there can be no assurance that IBM
Credit will continue to do so.
Previously, the Company funded its operations through the public and
private sale of equity securities, bank loans and cash flow from operations.
The Company completed a private placement during the third quarter of the
1995 fiscal year, the proceeds of which were utilized to build inventory of
MacOS-compatible systems components and reduce other vendor payables. This
business never generated a positive gross margin and the Company subsequently
sold its MacOs business in February 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect the Company's Future Results of Operations -- Need for
Additional Financing; Loan Restrictions."
In this private placement, the Company sold 2,509,319 shares of its
Common Stock resulting in net proceeds to the Company of approximately $21.4
million. Other than the loan from IBM Credit, the Company currently has no
other bank loans.
Capital expenditures were approximately $0.2 million during fiscal 1996
and were $1.9 million in fiscal 1995 and $3.5 million in fiscal 1994 and were
primarily for leasehold improvements and upgrading the Company's management
information systems. The Company has no present plans for any significant
amount of capital expenditures in the future.
At September 30, 1996, the Company's principal commitments consisted of
obligations under its restructured loan agreement with IBM Credit and its
obligations under building and capital leases. See Notes 2 and 3 to
Consolidated Financial Statements. The Company is also a party to various
litigation proceedings, the costs of defending which or the outcome of which
could adversely affect the Company's liquidity. See "Business -- Legal
Proceedings."
Recently, the Company's limited cash resources have restricted the
Company's ability to purchase inventory which in turn has limited its ability
to procure 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. There can be no assurance that
the Company will be able to do so.
The Company believes it has sufficient funds to finance its operations
for the next 12 months. However, the level of operations which it believes
will be able to sustain for the next 12 months will be significantly lower
than historical periods, particularly in the research and development, sales
and marketing and general administrative areas. Additional funds will be
needed to finance the Company's operations, product development plans and for
other purposes if the Company's operating expenses are higher than
anticipated. During fiscal 1997, additional financing will also be required
if the Company desires to
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acquire or invest in complementary businesses or products or to obtain
the right to use complementary technologies. While the Company plans to
generate cash by divesting certain liquid assets and is 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 operating losses in each of its prior three
fiscal years. In the future, the Company's ability to achieve and
subsequently sustain profitable operations will depend upon a number of
factors, including the Company's ability to control costs; the Company's
ability to service its outstanding indebtedness to IBM Credit; the Company's
ability to realize appreciation in minority ownership interests in Splash
Technology Holdings, Inc. and other investments; the Company's ability to
generate sufficient cash from operations or obtain additional funds to fund
its operating expenses; the Company's ability to develop innovative and
cost-competitive new products and to bring those products to market in a
timely manner; the commercial acceptance of Apple computers and the MacOS and
the rate and mix of Apple computers and related products sold; competitive
factors such as new product introductions, product enhancements and
aggressive marketing and pricing practices; general economic conditions; and
other factors. The Company has faced and expects to continue to face
increased competition in graphic cards as a result of Apple's transition of
its product line to the PCI Bus. For these and other reasons, there can be
no assurance that the Company will be able to achieve or subsequently
maintain profitability in the near term, if at all.
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. Since the end of the Company's 1995 fiscal year, shortages of
available cash have restricted the Company's ability to purchase inventory
and have delayed the Company's receipt of products from suppliers and
increased shipping and other costs. Furthermore, because of its financial
condition, the Company believes that many suppliers are hesitant to continue
their relationships with or extend credit terms to the Company and potential
new suppliers are reluctant to provide goods to the Company. The Company
recognizes sales upon shipment of product, and allowances are recorded for
estimated uncollectable amounts, returns, credits and similar costs,
including product warranties and price protection. Due to the inherent
uncertainty of such estimates, there can be no assurance that the Company's
forecasts regarding bookings, collections, rates of return, credits and
related matters will be accurate. A significant portion of the operating
expenses of the Company are relatively fixed in nature, and planned
expenditures are based primarily on sales forecasts which, as indicated
above, are uncertain. Any inability on the part of the Company to adjust
spending quickly enough to compensate for any failure to meet sales forecasts
or to receive anticipated collections, or any unexpected increase in product
returns or other costs, could also have an adverse impact on the Company's
operating results. As a strategic response to a changing competitive
environment, the Company has elected, and, in the future, may elect from time
to time, to make certain pricing, service or marketing decisions or
acquisitions that could have a material adverse effect on the Company's
business, results of operations and financial condition. Furthermore, the
Company completed a variety of business divestitures during fiscal 1996,
restructured the terms of its indebtedness to IBM Credit and issued a
substantial amount of equity in the Company to its creditors in satisfaction
of approximately $45.9 million in claims and indebtedness during the fourth
quarter of fiscal 1996. As a result, the Company believes that
period-to-period comparisons of its results of operations will not
necessarily be meaningful and should not be relied upon as any indication of
future performance. Due to all of the foregoing factors, it is likely that
in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock would be likely to be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NEED FOR ADDITIONAL FINANCING; LOAN RESTRICTIONS
The Company intends to finance its working capital needs through cash
generated by operations, sales of liquid assets and borrowings under a
restructured working line of credit with IBM Credit. Because the Company has
experienced operating losses in
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each of its prior four fiscal years, the Company must significantly reduce
operating expenses and/or significantly increase net sales in order to
finance its working capital needs with cash generated by operations.
Furthermore, pursuant to the restructured loan with IBM Credit, the Company
is required to deposit its revenues in accounts subject to control by IBM
Credit. At any time, regardless of whether the Company is in default of its
obligations to IBM Credit, IBM Credit is permitted to apply these amounts
towards the repayment of any of the Company's obligations to IBM Credit.
This loan is also subject to mandatory prepayment as follows: (i) upon the
disposition of any assets of the Company outside of the ordinary course of
business, all net proceeds to the Company must be applied towards the
Company's obligations under the loan; (ii) upon the closing of any financing,
10% of the proceeds must be applied towards the Company's obligations under
the loan; (iii) upon the thirtieth day following the end of each fiscal
quarter, an amount of no less than 50% of operating cash flow for such prior
fiscal quarter must be applied towards the Company's obligations under the
loan; and (iv) upon the receipt of any other amounts other than sales of
inventory or used or obsolete equipment in the ordinary course of business,
and not otherwise described in the preceding clause (i) - (iii), all of such
amounts must be applied towards the Company's obligations under the loan. If
the Company's obligations under the term loan, as well as finance charges and
amounts outstanding in excess of the "borrowing base" (described below) under
the working line of credit described below, are repaid, IBM Credit can
require such proceeds to be applied towards a redemption of the Series A
Convertible Preferred Stock. IBM Credit's control over the Company's
financial resources as well as these prepayment provisions will place a
further strain on the ability of the Company to fund its working capital
needs internally. Accordingly, there can be no assurance that the Company
will be able to successfully fund its working capital needs internally.
The restructured loan also provides for a working line of credit of up to
$5.0 million. However, the Company will only be able to borrow amounts up to
the "borrowing base" which is defined as the sum of (i) the lesser of 10% of
the gross value of eligible inventory or $500,000; plus (ii) 80% of the value
of eligible domestic accounts receivable; plus (iii) the lesser of 50% of the
gross value of certain Japanese and European accounts receivable or $500,000.
Upon the closing of the restructured loan, approximately $1.5 million, or an
amount equal to the current borrowing base was deemed to be outstanding under
this line of credit. Therefore, in order to draw on this working line of
credit, the Company will need to increase the amount of the borrowing base by
increasing the amount of certain of its accounts receivable or repay amounts
outstanding under this line of credit. Because most of the Company's cash
flow must be applied towards prepayment of the term loan and, towards the
redemption of the Series A Convertible Preferred Stock, prior to reducing any
amounts outstanding under the working line of credit, there can be no
assurance that the Company will be able to significantly reduce this working
line of credit. Accordingly, there can be no assurance that this working
line of credit will provide a significant source of working capital.
The Company's ability to sell assets in order to satisfy its working
capital needs will also be restricted by the terms of the Series A Convertible
Preferred Stock and the terms of the restructured loan. The Series A
Convertible Preferred Stock will be redeemable at the option of IBM Credit upon
certain dispositions and, as described above, the Company is required to apply
the proceeds of any disposition towards repayment of the term loan component of
the restructured loan.
The restructured loan also imposes certain operating and financial
restrictions on the Company and requires the Company to maintain certain
financial covenants such as minimum cash flow levels, restricts the ability
of the Company to incur additional indebtedness, pay dividends, create liens,
sell assets or engage in mergers or acquisitions, or make certain capital
expenditures. The failure to comply with these covenants would constitute a
default under the loan, which is secured by substantially all of the
Company's assets. In the event of such a default, IBM Credit could elect to
declare all of the funds borrowed pursuant thereto to be due and payable
together with accrued and unpaid interest proceeding and to apply all amounts
on deposit in the Company's bank accounts, which could result in the Company
becoming a debtor in a bankruptcy. The loan restrictions could limit the
ability of the Company to effect future financings or otherwise restrict
corporate activities. Even if additional financing could be obtained, there
can be no assurance that it would be on terms that are favorable or
acceptable to the Company.
As of September 30, 1996, the Company was not in compliance with all of
the financial covenants under the restructured loan agreement (specifically,
revenues to working capital ratio, net profits to revenues ratio and working
capital) however, IBM Credit has waived such defaults. See Note 2 to
Consolidated Financial Statements. Based on preliminary results for the
three months ended December 31, 1996, the Company believes that it will be in
default with these covenants as of such date. Based on the value of certain
assets which secure the restructured loan, among other considerations, IBM
Credit will grant a waiver of these defaults, although there can be no
assurance that IBM Credit will continue to do so.
The restructured loan may also limit the Company's ability to respond to
changing business and economic conditions, insofar as such conditions may
affect the financial condition and financing requirements of the Company. If
the Company is unable to generate sufficient cash flows from operations in
the future, it may be required to refinance all or a portion of its existing
indebtedness to IBM Credit (which indebtedness can be repaid without
prepayment penalties) or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any additional
financing could be obtained on terms
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that are favorable or acceptable to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
VOLATILITY OF STOCK PRICE
Immediately prior to the consummation of the Plan, the Company had
outstanding approximately 18,147,099 shares of Common Stock, most of which
were freely tradeable. Upon the effectiveness of the Registration Statement
relating to the resale of the securities issued pursuant to the Plan, the
number of freely tradeable shares of Common Stock increased by almost 200%
and, upon the conversion of the Series A Convertible Preferred Stock, up to
an additional 17,921,393 shares may be eligible for public resale, an
increase of almost 300% from the number of outstanding shares of Common Stock
prior to the consummation of the Plan. Furthermore, none of the creditors
who received shares of Common Stock pursuant to the Plan have entered into
any agreements restricting their ability to resell the shares of Common Stock
which they received. As a result of this substantially larger public float,
it is likely that a substantial number of creditors may seek to resell their
shares at times when there is an insufficient demand for shares of Common
Stock. In such an event, the trading price of the Common Stock will be
materially and adversely affected. The Company believes that sales by former
creditors have played a significant role in the decline of the trading price
of the Common Stock since November 1996.
The price of the Company's Common Stock has fluctuated widely in the
past. Management believes that such fluctuations may have been caused by
announcements of new products, quarterly fluctuations in the results of
operations and other factors, including changes in conditions of the personal
computer industry in general and of Apple Computer in particular, changes in
the Company's results of operations and financial condition and recent sales
of large numbers of shares of Common Stock by former creditors of the
Company. Stock markets, and stocks of technology companies in particular,
have experienced extreme price volatility in recent years. This volatility
has had a substantial effect on the market prices of securities issued by the
Company and other high technology companies, often for reasons unrelated to
the operating performance of the specific companies. Due to the factors
referred to herein, the dynamic nature of the Company's industry, general
economic conditions, the substantially larger number of freely tradeable
shares of Common Stock held by former creditors of the Company and other
factors, the Company's future operating results and stock prices may be
subject to significant volatility in the future.
Such stock price volatility for the Common Stock has in the past
provoked securities litigation, and future volatility could provoke
litigation in the future that could divert substantial management resources
and have an adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Litigation Settlement."
DEPENDENCE ON AND COMPETITION WITH APPLE
Historically, substantially all of the Company's products have been
designed for and sold to users of Apple personal computers, and it is
expected that sales of products for such computers will continue to represent
substantially all of the sales of the Company for the foreseeable future.
The Company's operating results would be adversely affected if Apple should
continue to lose market share, if Macintosh sales were to decline further or
if other developments were to adversely affect Apple's business.
Furthermore, any difficulty that may be experienced by Apple in the
development, manufacturing, marketing or sale of its computers, or other
disruptions to, or uncertainty in the market regarding, Apple's business,
resulting from these or other factors could result in reduced demand for
Apple computers, which in turn could materially and adversely affect sales of
the Company's products. Recently, Apple has announced large losses,
management changes, headcount reductions, and other significant events which
have led or could lead to uncertainty in the market regarding Apple's
business and products. In addition, news reports indicating that Apple may
be or may have been the target of merger, acquisition, or takeover
negotiations, have led or could lead to uncertainty in the market regarding
Apple's business and products.
As software applications for the color publishing and multimedia markets
become more available on platforms other than Macintosh, it is likely that
these other platforms will continue to gain acceptance in these markets. For
example, newer 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
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fully met by Apple's products. As Apple improves its products or bundles
additional hardware or software into its computers, it reduces the market for
Radius products that provide those capabilities. For example, the Company
believes that the on-board performance capabilities included in Macintosh
Power PC products have reduced and continue to reduce overall sales for the
Company's graphics cards. In the past, the Company has developed new
products as Apple's progress has rendered existing Company products obsolete.
However, in light of the Company's current financial condition there can be
no assurance that the Company will continue to develop new products on a
timely basis or that any such products will be successful. In order to
develop products for the Macintosh on a timely basis, the Company depends
upon access to advance information concerning new Macintosh products. A
decision by Apple to cease sharing advance product information with the
Company would adversely affect the Company's business.
New products anticipated from and introduced by Apple could cause
customers to defer or alter buying decisions due to uncertainty in the
marketplace, as well as presenting additional direct competition for the
Company. For example, the Company believes that Apple's transition during
1994 to Power PC products caused delays and uncertainties in the marketplace
and had the effect of reducing demand for the Company's products. In
addition, sales of the Company's products have been adversely affected by
Apple's revamping of its entire product line from Nubus-based to PCI
Bus-based computers. In the past, transitions in Apple's products have been
accompanied by shortages in those products and in key components for them,
leading to a slowdown in sales of those products and in the development and
sale by the Company of compatible products. In addition, it is possible that
the introduction of new Apple products with improved performance capabilities
may create uncertainties in the market concerning the need for the
performance enhancements provided by the Company's products and could reduce
demand for such products.
COMPETITION
The markets for the Company's products are highly competitive, and the
Company expects competition to intensify. Many of the Company's current and
prospective competitors have significantly greater financial, technical,
manufacturing and marketing resources than the Company. The Company believes
that its ability to compete will depend on a number of factors, including the
amount of financial resources available to the Company, its ability to repay
its indebtedness to IBM Credit, 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. See "Business -- Competition."
DEPENDENCE ON LIMITED NUMBER OF MANUFACTURERS AND SUPPLIERS
The Company outsources the manufacturing and assembly of its products to
third party manufacturers. Although the Company uses a number of
manufacturer/assemblers, each of its products is manufactured and assembled
by a single manufacturer. The failure of a manufacturer 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, most
recently in the fourth quarter of fiscal 1996, the Company has experienced
substantial delays in its ability to fill customer orders for displays and
other products, due to the inability of certain manufacturers to meet their
volume and schedule requirements and, more recently, due to the Company's
shortages in available cash. Such shortages have caused some manufacturers
to put the Company on a cash or prepay basis and/or to require the Company to
provide security for their risk in procuring components or reserving
manufacturing time, and there is a risk that manufacturers will discontinue
their relationship with the Company. In the past, most recently the fourth
quarter of fiscal 1996, the Company has been vulnerable to delays in
shipments from manufacturers because the Company has sought to manage its use
of working capital by, among other things, limiting the backlog of inventory
it purchases. More recently, this vulnerability has been exacerbated by the
Company's shortages in cash reserves. Delays in shipments from manufacturers
can cause fluctuations in the Company's short term results and contribute to
order cancellations. The Company currently has arranged payment terms for
certain of its major manufacturers such that certain of the Company's major
customers pay these manufacturers directly for products ordered and shipped.
In the event these customers do not pay these manufacturers, there can be no
assurance that such manufacturers will not cease supplying the Company. In
addition, as a condition to continuing its manufacturing arrangement with the
Company, the Company granted Mitsubishi Electronics, the manufacturer of the
Company's PressView products, a security interest in all of the Company's
technology and intellectual property rights related to and incorporated into
the Company's PressView products. There can be no assurance that other
manufacturers will not require special terms in order to continue their
relationship with the Company.
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, color-calibrated monitors and other products.
Certain other
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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. Therefore, these
suppliers are not obligated to supply products to the Company for any
specific period, in any specific quantity or at any specific price, except
as may be provided in a particular purchase order. Although the Company
expects that these suppliers will continue to meet its requirements for the
components, there can be no assurance that they will do so, particularly in
light of the Company's financial condition. The Company's reliance on a
limited number of suppliers involves a number of risks, including the absence
of adequate capacity, the unavailability or interruption in the supply of key
components and reduced control over delivery schedules and costs. The
Company expects to continue to rely on a limited number of suppliers for the
foreseeable future. If these suppliers became unwilling or unable to
continue to provide these components the Company would have to develop
alternative sources for these components which could result in delays or
reductions in product shipments which could have a material adverse effect on
the Company's business, operating results and financial condition. Certain
suppliers, due to the Company's shortages in available cash, have put the
Company on a cash or prepay basis and/or required the Company to provide
security for their risk in procuring components or reserving manufacturing
time, and there is a risk that suppliers will discontinue their relationship
with the Company.
The introduction of new products presents additional difficulties in
obtaining timely shipments from suppliers. Additional time may be needed to
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.
As a result of the consummation of the Plan, certain suppliers and
manufacturers agreed to settle amounts owed by the Company for an amount
substantially less than the amount of the balance owed. Accordingly, certain
suppliers and manufacturers may be reluctant to continue to do business with
the Company in the future.
TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS
The personal computer industry in general, and 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. As a result of the
Company's financial condition, it has had to significantly reduce its
research and development expenditures. For the 1996 fiscal year, the Company
spent approximately $7.5 million on research and development as compared with
approximately $19.3 million for the prior fiscal year. Furthermore, as
described in "-- Need for Additional Financing; Loan Restrictions," the terms
of the restructured loan with IBM Credit will restrict the Company's ability
to fund its working capital needs and, as a result, the ability of the
Company to maintain historical levels of research and development
expenditures. Continued reduction in the available cash resources of the
Company could result in the interruption or cancellation of research and
product development efforts which would have a material adverse effect on the
business, operating results and financial condition of the Company.
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 an increase in the purchase and use of video editing products. As a
result, the Company has devoted significant resources to this product line.
There can be no assurance that this evolution will occur in the video editing
industry as expected by the Company, or that even if it does occur that it will
not occur at a slower pace than anticipated. There can also be no assurance
that any video editing products developed by the Company will achieve consumer
acceptance or broad commercial success. For example, the Company initially
began its MacOS compatible systems business in the third quarter of fiscal 1995
and devoted substantial financial resources, including raising approximately
$21.4 million in a private placement of its Common Stock and borrowing an
additional $20.0 million from IBM Credit, and incurring significant research
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and development and sales and marketing expenses. This business was never
profitable and the Company sold this line of business in February 1996. In
the event that the increased use of such video editing products does not
occur or in the event that the Company is unable to successfully develop and
market such products, the Company's business, operating results and financial
condition would be materially adversely affected.
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 write-down 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, that the Company will obtain market acceptance for these products or
that potential manufacturers will not be hesitant to manufacture such new
products as a result of the Company's financial condition.
DEPENDENCE ON INDIRECT DISTRIBUTION CHANNELS
The Company's primary means of distribution is through a limited number
of third-party distributors and master resellers that are not under the
direct control of the Company. Furthermore, the Company relies on one
exclusive distributor for its sales in each of Japan and Europe. The Company
does not maintain a direct sales force. 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. Furthermore, many of
these distributors and resellers generally carry the product lines of a
number of companies, are not subject to minimum order requirements and can
discontinue marketing the Company's products at any time. Accordingly, the
Company must compete for the focus and sales efforts of these third parties.
Because certain of the Company's major suppliers have arrangements with the
Company pursuant to which certain of the Company's major customers are
responsible for payment of goods sent to the Company, the Company is
dependent on certain resellers to make payments to its suppliers. In
addition, due in part to the historical volatility of the personal computer
industry, certain of the Company's resellers have from time to time
experienced declining profit margins, cash flow shortages and other financial
difficulties. The future growth and success of the Company will continue to
depend in large part upon its indirect distribution channels, including its
reseller channels. If its resellers or other distributors were to experience
financial difficulties, the Company's results of operations could be
adversely affected.
INTERNATIONAL SALES
Prior to the second fiscal quarter of 1996, the Company's international
sales were primarily made through distributors and the Company's subsidiary
in Japan. Effective April 1, and July 1, 1996 the Company appointed an
exclusive distributor for Japan and Europe, respectively. The Company
expects that international sales, particularly sales to Japan, will represent
a significant portion of its business activity and that it will be subject to
the normal risks of international sales such as currency fluctuations, longer
payment cycles, export controls and other governmental regulations and, in
some countries, a lesser degree of intellectual property protection as
compared to that provided under the laws of the United States. In addition,
demand for the Company's products in Japan could be affected by the
transition of its Japanese sales and marketing efforts from Radius'
subsidiary to a distributor. Furthermore, a reduction in sales efforts or
financial viability of this distributor could adversely affect the Company's
net sales and its ability to provide service and support to Japanese
customers. Additionally, fluctuations in exchange rates could affect demand
for the Company's products. If for any reason exchange or price controls or
other restrictions on foreign currencies are imposed, the Company's business,
operating results and financial condition could be materially adversely
affected. Net sales could also be adversely affected in the future as a
result of the exclusive distributor relationships for Japan and Europe
because the Company will only recognize as net sales a portion of the sales
price of any product sold through such distributor arrangements. Accordingly,
even if sales for such regions increase or remain similar to historic levels,
the Company would recognize a lesser amount of net sales for such regions as
compared to historic levels.
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
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skilled personnel. The Company does not carry any key person life insurance
with respect to any of its 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. Many members of the
Company's management have departed within the past year, including its former
Chief Financial Officer and three other Vice Presidents, and the Company has
also had substantial layoffs and other employee departures. In addition, the
Company's current Chief Financial Officer has announced her intention to
resign in the near future. Because of the Company's financial difficulties,
it has become increasingly difficult for it to hire new employees and retain
key management and current employees. Moreover, because voting control of
the Company rests in the hands of the Company's former creditors could, if
acting together, effectuate changes in Board composition or management.
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. See
"Business -- Patents and Licenses."
CONTROL BY CREDITORS
After the consummation of the Plan, the Company's unsecured creditors and
IBM Credit owned in the aggregate approximately 69.7% of the voting power of
the Company (assuming exercise of all available options, such creditors would
own approximately 67% of the voting power of the Company). IBM Credit owns
approximately 9.2% of the Company's voting power and the Committee Members
own approximately 38.6% of the voting power of the Company. The Company's
four largest unsecured creditors, SCI Technology, Inc., Mitsubishi
Electronics, Hamilton Hallmark/Avnet Co. and Manufacturers Services Limited,
Inc. own approximately 16.2%, 6.7%, 5.3% and 2.9%, respectively, of the
voting power of the Company. All of the Company's creditors acting together
would have voting control of the management and direction of the Company and
could also impede a merger, consolidation, takeover or other business
combination involving the Company or discourage a potential acquiror from
making a tender offer or otherwise attempting to obtain control of the
Company. The Committee Members have acted cooperatively with respect to the
negotiation of the Plan, and the Company expects such creditors to continue
to act cooperatively with respect to their ownership of the Company's
securities.
One Committee Member, Carl Carlson of Mitsubishi Electronics joined the
Board of Directors in September 1996.
The Company also intends to continue to do business with many of its
unsecured creditors, including Mitsubishi Electronics and SCI Technology,
Inc., each of whom beneficially own more than 5% of the Company's Common
Stock. As a result, such creditors may be able to influence the terms of any
business relationship between the Company and such creditor.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Company's Common Stock. As
of November 12, 1996, the effective date of the Registration Statement on Form
S-1 with respect to the securities issued pursuant to the Plan (the "Effective
Date"), there were approximately 54,451,586 shares of Common
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Stock outstanding, substantially all of which are available for sale without
restriction under the Securities Act of 1933, as amended (the "Act") (as
compared with approximately 18,147,099 shares of Common Stock outstanding as
of August 31, 1996) except for those shares which are held by affiliates of
the Company. If the Series A Convertible Preferred Stock is converted and if
outstanding warrants to purchase 800,000 shares of Common Stock are
exercised, up to an additional 17,921,393 shares (including 11,046,060 shares
issuable pursuant to the Rights) will be available for sale in the public
market. The tradability of such shares of Common Stock could materially and
adversely affect the market price of the Common Stock. See "-- Volatility of
Stock Price."
In addition, the Company is required to pay (on a quarterly basis) an
annual dividend of $300,000 (or $0.40 per share) on the Series A Convertible
Preferred Stock. This dividend may be paid in cash or Common Stock of the
Company. Depending upon its financial position on any dividend payment date,
such dividends may be paid in the form of shares of Common Stock instead of
cash. In the event such dividend is fully paid in shares of Common Stock, a
number of shares having a market value of up to $75,000, the amount of such
quarterly dividend, will be issued each quarter. Based on the closing price
of $0.50 per share on December 31, 1996, an additional 150,000 shares could
be issuable as a dividend on the Series A Convertible Preferred Stock at the
end of each quarter. The Company has registered under the Act, Common Stock
having a market value of $600,000 (representing the first eight quarterly
dividend payments) in the event that such dividend is paid in Common Stock.
Such shares will be freely tradable. Subsequent dividends in the form of
shares of Common Stock will be subject to the provisions of Rule 144,
including the holding period requirements.
As of September 30, 1996, there were 1,135,347 shares of Common Stock
reserved for issuance upon exercise of outstanding options by employees and
consultants. As of such date there were an additional 1,695,331 shares of
Common Stock available for issuance under options to be granted to employees
and consultants and 125,321 shares reserved for issuances for purchases under
the Company's Employee Stock Purchase Plan. Additionally, 173,126 shares of
Common Stock were reserved for issuance under the Company's stock option
plans for non-employee directors, 32,812 of which were subject to outstanding
options. The Company has amended its 1995 Stock Option Plan (the "1995
Plan") to increase the number of shares available for issuance thereunder by
2,716,620 shares, subject to shareholder approval at its Annual Meeting of
Shareholders in February 1997. In accordance with the terms of the
debt-to-equity exchange consummated in September 1996, the 1995 Plan will be
further amended or a new plan adopted in the event that the Series A
Convertible Preferred Stock is converted into Common Stock so that an
aggregate of 7,890,043 shares of Common Stock are covered by the 1995 Plan as
amended and/or any additional plan. The Company may also seek to obtain
Board and/or shareholder approval for grants of options in excess of the
amounts described above. All of the shares of Common Stock to be issued upon
exercise of options granted or to be granted or upon stock purchases will be
available for sale in the public market, subject to the Rule 144 volume
limitations applicable to affiliates. Such availability will further
increase the number of freely tradeable shares of Common Stock outstanding
which could exert downward pressure on the trading price of the Common Stock.
In the event that the Series A Convertible Preferred Stock is not
converted or the warrants to purchase 800,000 shares of Common Stock are not
exercised during the two years following the Effective Date, the holders of
such securities have demand registration rights with respect to the shares of
Common Stock issuable upon conversion of the Series A Convertible Preferred
Stock or upon exercise of the warrants which were not converted or exercised
during such period. IBM Credit also has demand registration rights with
respect to any shares of Common Stock which are paid in lieu of cash
dividends on the Series A Convertible Preferred Stock after such two-year
period. These demand registration rights will permit such holders to cause
the Company, on up to two occasions, to register such unsold shares of
underlying Common Stock commencing November 12, 1998. All expenses incurred
in connection with such registrations (other than underwriters' discounts and
commissions) will be borne by the Company. These registration rights will
expire once all the securities covered thereby may be sold pursuant to Rule
144 in a three month period without registration. Such expiration date will
be no earlier than September 1998.
POSSIBLE DELISTING OF COMMON STOCK FROM NASDAQ SMALLCAP MARKET
The Company's Common Stock is listed on the Nasdaq SmallCap Market
pursuant to an agreement with the NASD which requires that the Company comply
with the continued listing requirements for the Nasdaq SmallCap Market.
Failure to meet the continued listing requirements in the future would
subject the Common Stock to delisting. As described under "Business -- Recent
Developments -- Nasdaq National Market Delisting," the Common Stock could be
delisted from the Nasdaq SmallCap Market if the Company fails to maintain
capital and surplus of $1.0 million or, if the trading price of the Common
Stock remains below $1.00 per share, the Company will be required to maintain
capital and surplus of $2.0 million. Because of the substantial losses
experienced by the Company for fiscal 1996, any significant loss experienced
in a subsequent quarter could cause the Company to have insufficient capital
and surplus for continued listing on the Nasdaq SmallCap Market. Because of
the substantial increase in the number of tradable shares of Common Stock,
there could be continued downward pressure on the trading price of the Common
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Stock (which has not traded over $1.00 per share for the entire month of
December), which makes it less likely that the Company will meet the minimum
bid price requirement for the Nasdaq SmallCap Market and, as a result, the
Company would need to maintain capital and surplus of $2.0 million.
Furthermore under the proposed new continued listing requirements of the
Nasdaq National Market and the Nasdaq SmallCap Market, any securities with a
trading price of less than $1.00 per share would become subject to delisting,
regardless of capital and surplus. If the Company's Common Stock is
delisted, there can be no assurance that the Company will meet the
requirements for initial inclusion in the future, particularly the current
$3.00 minimum per share bid requirement. Trading, if any, in the listed
securities after delisting would be conducted in the over-the-counter market
in what are commonly referred to as the "pink sheets." As a result,
investors may find it more difficult to dispose of, or to obtain accurate
quotations as to the value of, the Company's securities. See "--Volatility
of Stock Price" and "Business --Recent Developments -- Nasdaq National Market
Delisting."
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to the Company's Financial Statements, Financial Schedules, and
the Report of the Independent Auditors appears in Part IV of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
With the exception of the information specifically stated as being
incorporated by reference from the Company's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders (the "Proxy Statement") in Part III
of this Annual Report on Form 10-K, the Company's Proxy Statement is not to
be deemed as filed as part of this report. The Proxy Statement will be filed
with the Securities and Exchange Commission within 120 days of the Company's
fiscal year end.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information concerning the Company's directors required by Item 10
is incorporated by reference herein to section entitled "Proposal No. 1 -
Election of Directors" of the Proxy Statement The information concerning the
Company's executive officers required by Item 10 is incorporated by reference
to Item 4A in Part 1 hereof entitled "Executive Officers of Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the sections entitled "Executive Compensation" and "Proposal No. 1 -
Election of Directors--Compensation of Directors" of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section entitled "Certain Transactions" of the Proxy Statement.
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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:
PAGE
Report of Ernst & Young LLP, Independent Auditors 35
Consolidated Balance Sheets at September 30, 1996 and 1995 36
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994 37
Consolidated Statements of Shareholders' Equity for the
Years Ended September 30, 1996, 1995, and 1994 38
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1996, 1995, and 1994 39
Notes to Consolidated Financial Statements 40
(a) (2) FINANCIAL STATEMENT SCHEDULES. The Company's financial statement
schedule filed herewith is as follows: PAGE
Schedule II: Valuation and Qualifying Accounts 54
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.
(a)(3) The following exhibits are filed herewith or incorporated by
reference herein:
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<PAGE>
EXHIBIT
NUMBER EXHIBIT TITLE
2.01 -- Agreement and Plan of Reorganization dated May 20, 1994 between
Radius Inc. and SuperMac Technology, Inc. (1)
2.02 -- Modification Agreement dated July 21, 1994 to Agreement and Plan
of Reorganization between Radius Inc. and SuperMac
Technology, Inc. (1)
2.03 -- Agreement and Plan of Reorganization dated July 19, 1994 between
Radius Inc. and VideoFusion, Inc. (2)
2.04 -- First Amendment to Agreement and Plan of Reorganization between
Radius Inc. and VideoFusion, Inc. dated August 25, 1994. (3)
2.05 -- Second Amendment to Agreement and Plan of Reorganization between
Radius Inc. and VideoFusion, Inc. dated September 6, 1994. (3)
2.06 -- Third Amendment to Agreement and Plan of Reorganization between
Radius Inc. and VideoFusion, Inc. dated May 10, 1995. (3)
2.07 -- Merger Agreement (the "Merger Agreement") dated as of December
21, 1995 among Radius Inc., Splash Technology, Inc., Summit
Subordinated Debt Fund, L.P., Summit Ventures IV, L.P., Summit
Investors II, L.P., Splash Technology Holdings, Inc. and Splash
Merger Company, Inc. (4)
2.08 -- Amendment No. 1 to Merger Agreement dated as of
January 30, 1996. (4)
3.01 A Registrant's Sixth Amended and Restated Articles of
Incorporation. (5)
B Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation. (3)
C Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation. (18)
D Certificate of Determination of Preferences of Series A
Convertible Preferred Stock of Radius Inc. (18)
3.02 -- Registrant's Bylaws. (6)
4.01 -- Specimen Certificate for shares of Common Stock of
the Registrant. (7)
4.02 -- Specimen Certificate for shares of Series A Convertible Preferred
Stock of the Registrant. (18)
4.03 A Warrant dated September 13, 1995 between IBM Credit Corporation
and the Registrant. (18)
B Warrant dated October 13, 1996, between Mitsubishi Electronics
America, Inc. and the Registrant. (19)
4.04 -- Form of Registration Rights Agreement between the Registrant and
certain shareholders. (18)
A The Registrant's Sixth Amended and Restated Articles of
Incorporation. (5)
B Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation. (3)
C Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation. (See exhibit 3.01)
D Certificate of Determination of Preferences of Series A
Convertible Preferred Stock of Radius Inc. (See exhibit 3.01).
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<PAGE>
EXHIBIT
NUMBER EXHIBIT TITLE
4.05 -- The Registrant's Bylaws. (6)
4.06 -- *Non-Plan Stock Option Grant to Charles W. Berger. (8)
4.07 -- Form of Subscription Agreement. (18)
4.08 -- Form of Right. (19)
10.01 A *Registrant's 401(k) Savings and Investment Plan. (9)
B *Amendment to Registrant's 401(k) Savings and Investment Plan. (3)
C *Registrant's 401(k) Savings and Investment Plan Loan Policy. (3)
10.02 -- *Registrant's 1995 Stock Option Plan. (3)
10.03 -- *Form of Stock Option Agreement and Exercise Request as
currently in effect under 1995 Stock Option Plan. (3)
10.04 -- *Registrant's 1990 Employee Stock Purchase Plan and related
documents. (10)
10.05 -- *Registrant's 1994 Directors' Stock Option Plan. (3)
10.06 -- Form of Indemnity Agreement with Directors. (7)
10.07 -- Credit Agreement by and among Radius Inc., the certain
financial institutions, and Silicon Valley Bank,
dated March 20, 1995. (11)
10.08 A Credit Agreement by and among Radius Inc., the certain financial
institutions, and International Business Machines Credit
Corporation, dated February 17, 1995. (11)
B 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. (3)
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). (7)
B Second Amendment to Lease dated January 27, 1993 amending Lease
Agreement by and between Registrant and the 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). (12)
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). (5)
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). (13)
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<PAGE>
EXHIBIT
NUMBER EXHIBIT TITLE
10.12 A 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). (14)
B Office Lease dated March 18, 1996 between Registrant and CIGNA. (19)
10.13 -- *Employment Agreement by and between Registrant and Charles
W. Berger dated February 26, 1993 as amended on
September 17, 1993. (15)
10.14 -- Full Recourse Promissory Note with Charles W. Berger. (15)
10.15 -- *SuperMac Technology, Inc.'s 1988 Stock Option Plan
("Option Plan"). (16)
10.16 -- *SuperMac Technology, Inc.'s Form of Incentive Stock Option
Agreement under the Option Plan. (16)
10.17 -- *SuperMac Technology, Inc.'s Form of Supplemental Stock Option
Agreement under the Option Plan. (16)
10.18 -- *SuperMac Technology, Inc.'s Form of Early Exercise Stock Purchase
Agreement under the Option Plan. (16)
10.19 -- 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. (17)
10.20 -- Amended and Restated Working Capital and Term Loan Agreement
dated as of August 30, 1996 between IBM Credit Corporation and
the Registrant. (19)
11.01 -- Computation of per share earnings.
21.01 -- List of Registrant's subsidiaries.
23.01 -- Consent of Ernst & Young LLP, Independent Auditors.
27.01 -- Financial Data Schedule (EDGAR version only)
_______________
(1) 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.
(2) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on August 17, 1994.
(3) Incorporated by reference to exhibits to the Company's Report Form 10-K
filed on December 15, 1995.
(4) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on February 13, 1996
(5) Incorporated by reference to exhibits to the Company's Report on Form 10-K
filed on December 24, 1990.
(6) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on April 29, 1992 (File No. 33-47525).
(7) 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.
(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).
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<PAGE>
EXHIBIT
NUMBER EXHIBIT TITLE
(9) Incorporated by reference to exhibits to the Company's Report on Form 10-K
filed on December 28, 1992.
(10) Incorporated by reference to exhibits to the Company's Report on Form 10-K
filed on December 30, 1991.
(11) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on May 10, 1995.
(12) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on August 18, 1993.
(13) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on August 12, 1992.
(14) Incorporated by reference to exhibits to SuperMac's Form S-1 (File No. 33-
58158) filed on February 11, 1993.
(15) Incorporated by reference to exhibits to the Company's Report on Form 10-K
filed on January 3, 1994.
(16) 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.
(17) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
filed on August 15, 1995.
(18) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-12417) filed on September 20, 1996.
(19) Incorporated by reference to Amendment No.1 to the Company's Registration
Statement on Form S-1 (File No. 333-12417) filed on November 12, 1996.
* management contracts or compensatory plans required to be filed as an
exhibit to Form 10-K.
________________
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<PAGE>
(b) REPORTS ON FORM 8-K. The following reports on Form 8-K were filed during
the last quarter of fiscal 1996:
The Company filed the following reports on the Form 8-K during the three month
period ended September 30, 1996:
1. An optional report pursuant to Item 5 of Form 8-K was filed by the
Company on August 2, 1996 reporting an agreement in principle to consummate the
Plan.
2. An optional report pursuant to Item 5 of Form 8-K was filed by the
Company on August 30, 1996 describing the Plan. A pro forma balance sheet
reflecting the consummation of the Plan as of June 30, 1996 was included
therewith.
3. An optional report pursuant to Item 5 of Form 8-K was filed by the
Company on September 13, 1996 reporting the consummation of the Plan.
4. An amendment to the report Form 8-K filed by the Company on August 30,
1996 was filed by the Company on September 19, 1996 to include a pro forma
balance sheet reflecting the consummation of the Plan as of July 31,1996
(c) EXHIBITS - See (a) (3) above.
(d) FINANCIAL STATEMENT SCHEDULES - See (a) (2) above.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
RADIUS INC.
By: /s/ Charles W. Berger
----------------------------
Charles W. Berger
Chief Executive Officer and
Chairman of the Board of Directors
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Charles W.
Berger and Cherrie L. Fosco, jointly and severally, his or her true and
attorneys-in-fact, each with the power of substitution, for him in any and
all capacities, to sign amendments to this Report on Form 10-K, and to file
the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
NAME TITLE DATES
PRINCIPAL EXECUTIVE OFFICER:
/s/ Charles W. Berger
- ------------------------ Chief Executive Officer and January 13, 1997
Charles W. Berger Chairman of the Board of Directors
PRINCIPAL FINANCIAL OFFICER AND CHIEF ACCOUNTING OFFICER:
/s/ Cherrie L. Fosco
- ------------------------ Chief Financial Officer January 13, 1997
Cherrie L. Fosco
DIRECTORS:
/s/ Michael D. Boich
- ------------------------- Director January 13, 1997
Michael D. Boich
/s/ Carl A. Carlson
- ------------------------- Director January 13, 1997
Carl A. Carlson
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<PAGE>
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, 1996 and 1995, 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, 1996. Our audits
also included the financial statement schedule listed in the Index at Item 14
(a). 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, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the
period ended September 30, 1996, 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, presents fairly in all material respects the information set
forth therein.
/s/ Ernst & Young LLP
San Jose, California
November 7, 1996
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CONSOLIDATED BALANCE SHEETS
September 30 (in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,974 $ 4,760
Accounts receivable, net of allowance for doubtful accounts
of $2,132 in 1996 and $8,502 in 1995 8,123 61,644
Inventories 12,852 15,071
Prepaid expenses and other current assets 366 2,336
Income tax receivable 514 519
Total current assets 24,829 84,330
-------- -------
Investment in Splash Technology Holdings, Inc. 19,152 -
Property and equipment, net 1,495 3,031
Deposits and other assets 50 517
-------- -------
$ 45,526 $ 87,878
-------- -------
-------- -------
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 5,004 $ 73,098
Accrued payroll and related expenses 2,678 5,815
Accrued warranty costs 478 3,170
Other accrued liabilities 2,545 11,920
Accrued income taxes 2,227 1,665
Accrued restructuring and other charges 425 17,013
Short-term borrowings 1,922 29,489
Obligations under capital leases - current portion 1,074 1,494
-------- -------
Total current liabilities 16,353 143,664
Long-term borrowings 21,940 -
Obligations under capital leases-noncurrent portion 273 1,331
Commitments and contingencies
Convertible preferred stock, no par value, 750 shares
authorized and issued and outstanding in 1996; none authorized or issued and
outstanding in 1995 3,000 -
Shareholders' Equity: (Net capital deficiency):
Preferred stock, no par value, 2,000 authorized; none - -
issued and outstanding in 1996 and 1995
Common stock, no par value; 100,000 shares authorized;
issued and outstanding--54,408 shares in 1996 and
17,143 shares in 1995 168,746 113,791
Common stock to be issued - 12,022
Accumulated deficit (183,968) (182,993)
Unrealized gain on available-for-sale securities 19,152 -
Accumulated translation adjustment 30 63
-------- -------
-44-
<PAGE>
Total shareholders' equity
(Net capital deficiency) 3,960 (57,117)
-------- -------
$ 45,526 $ 87,878
-------- -------
-------- -------
</TABLE>
See accompanying notes.
-45-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For years ended September 30
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 90,290 $308,133 $324,805
Cost of sales 77,382 302,937 276,948
-------- -------- --------
Gross profit 12,908 5,196 47,857
-------- -------- --------
Operating expenses:
Research and development 7,478 19,310 33,956
Selling, general and administrative 25,886 90,068 94,731
-------- -------- --------
Total operating expenses 33,364 109,378 128,687
-------- -------- --------
Loss from operations ( 20,456) (104,182) (80,830)
Other income (expense), net 24,032 (3,045) (376)
Interest expense (3,736) (3,023) (869)
Litigation settlement - (12,422) -
-------- -------- --------
Loss before income taxes 160 (122,672) (82,075)
Provision (benefit) for income taxes 815 9,070 (4,600)
-------- -------- --------
Net loss $ (975) $(131,742) $(77,475)
-------- -------- --------
-------- -------- --------
Net loss per share $(0.05) (8.75) $ (5.70)
-------- -------- --------
-------- -------- --------
Common shares used in
computing net loss per share 21,251 15,049 13,598
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
-46-
<PAGE>
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized Total
Retained Gain on Shareholders'
Convertible Earnings Available- Equity (Net
Preferred Common (Net Capital for-sale Capital
Stock Stock Deficiency) Securities Deficiency)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 $ - $ 81,949 $ 16,206 $ - $ 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 (51,326) - 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 - - 1,258
Issuance of 212 shares of common stock
pursuant to the acquisition of
VideoFusion - 2,857 - - 2,857
Settlement of Litigation- commonstock 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 (182,930) - (57,117)
Issuance of 120 shares of common stock
under Stock Option Plans - 406 - - 406
Issuance of 14 shares of common stock under
Employee Stock Purchase Plan - 24 - - 24
Issuance of 36,294 shares of common
stock to Creditors - 42,503 - - 42,503
Issuance of 750 shares of preferred stock to IBM 3,000 - - - 3,000
Issuance of 837 shares of common stock
in partial settlement of litigation - - - - -
Unrealized gain on available-for-sale securities - - - 19,152 19,152
Translation gain/(loss) - - (33) - (33)
Net loss - - (975) - (975)
---------------------------------------------------------------------
Balance at September 30, 1996 $3,000 $ 168,746 $(183,938) $ 19,152 $ 3,960
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
See accompanying notes.
-47-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For years ended September 30
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(975) $(131,742) $(77,475)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,453 4,689 4,542
Gain on the sale of the Color Server Group (20,638) - -
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
Common stock to be issued - 12,022 -
Loss on disposal of fixed assets 258 - -
(Increase) decrease in assets:
Accounts receivable 56,698 (5,471) (20,171)
Allowance for doubtful accounts (6,269) 5,954 426
Inventories 811 (27,140) (1,058)
Prepaid expenses and other current assets 1,970 (862) 1,739
Income tax receivable 5 8,564 468
Deferred income taxes - 8,400 11,248
Increase (decrease) in liabilities:
Accounts payable (19,874) 33,843 3,470
Accrued payroll and related expenses (3,007) (1,871) (1,441)
Accrued warranty costs (2,582) 915 (1,584)
Other accrued liabilities (8,235) 5,270 (4,039)
Accrued restructuring and other charges (16,588) (13,601) (6,117)
Accrued income taxes 562 428 (1,534)
-------- -------- --------
Total adjustments (15,436) 89,005 39,188
-------- -------- --------
Net cash used in operating activities (16,411) (42,737) (38,287)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (175) (1,894) (3,460)
Deposits and other assets 467 (238) 71
Net proceeds from the sale of the Color Server Group 20,163 - -
Purchase of short-term investments - - (2,002)
Proceeds from sale of short-term investments - - 18,395
-------- -------- --------
Net cash provided by (used in) investing activities 20,455 (2,132) 13,004
-------- -------- --------
Cash flows from financing activities:
Principal payments of short-term borrowings, net (4,782) 11,394 15,275
Principal payments of long-term borrowings, net - - (43)
Issuance of common stock 430 23,917 3,214
Principal payments under capital leases (1,478) (1,679) (1,179)
-------- -------- --------
Net cash provided by (used in)
financing activities (5,830) 33,632 17,267
-------- -------- --------
Net decrease in cash and cash equivalents (1,786) (11,237) (8,016)
Cash and cash equivalents, beginning of period 4,760 15,997 24,013
-------- -------- --------
Cash and cash equivalents, end of period $ 2,974 $ 4,760 $ 15,997
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
-48-
<PAGE>
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.
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. In addition, as
of September 30, 1996, the Company was not in compliance with all of
the financial covenants under its credit agreement.
The Company's relatively limited cash resources have restricted
the Company's ability to purchase inventory which in turn has limited
its ability to procure 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.
During fiscal 1996, management implemented a number of actions to
address its cash flow and operating issues including: restructuring
its outstanding indebtedness to trade creditors and its secured
creditor, 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 a number of
businesses and product lines; significantly reducing expenses and
headcount; and subleasing all or a portion of its current facility
lease given its reduced occupancy requirements.
During fiscal 1997, additional funds may be needed to finance
ongoing operations and to implement the Company's development plans
and for other purposes. The Company plans to generate cash by
divesting certain liquid assets and is investigating possible
financing and strategic partnering opportunities. Regarding the
Company's Splash Technology Holdings, Inc. securities, these
securities are "restricted securities" under Rule 144 promulgated
under the Securities Act and will become available for sale in
January, 1998, subject to certain volume, manner of sale, notice
and availability of public information requirements of such rule.
However, the Company has certain registration rights with respect
to those securities commencing in April, 1997. The closing price
of Splash common stock on December 31, 1996 was $21 per share
resulting in an estimated total value of approximately $36 million.
There can be no assurance the Company will be able to realize this
value in the Splash securities or that such financing or strategic
partnering opportunities will materialize. There can also 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 52 weeks in all fiscal years presented.
During fiscal 1995, the Company changed its fiscal year end from the
Sunday closest to September 30 to the Saturday closest to September 30
for operational efficiency purposes. For clarity of presentation, all
fiscal periods in this Form 10-K are reported as ending on a calendar
month end.
-49-
<PAGE>
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 balance sheet
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 write down reserves 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):
September 30 1996 1995
---- ----
Raw materials $ 124 $ 1,559
Work in process 4,488 2,258
Finished goods 8,240 11,254
---------- --------
$ 12,852 $ 15,071
---------- --------
---------- --------
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the
following (in thousands):
September 30 1996 1995
---- ----
Computer equipment $ 18,091 $ 17,429
Machinery and equipment 10,660 12,335
Furniture and fixtures 5,793 6,023
Leasehold improvements 770 1,084
---------- --------
35,314 36,871
Less accumulated depreciation
and amortization (33,819) (33,840)
---------- --------
$1,495 $ 3,031
---------- --------
---------- --------
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
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. Revenues
earned under royalty or commission agreements is recognized in the
period in which it is earned.
-50-
<PAGE>
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.
ADVERTISING EXPENSES
The Company expenses advertising expenses as incurred.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number
of common shares outstanding.
Assuming the conversion of accounts payable and other creditor
debt into common stock in the fourth quarter of fiscal 1996 had
occurred at the beginning of fiscal 1996, the supplemental loss per
share would have been $0.02 per share.
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, 1996 or 1995. Approximately $0.6
million of the $3.0 million of cash available at September 30, 1996
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, 1996, the Company had no forward contracts.
RELATED PARTIES
IBM Credit is a related party as a result of its ownership
interests in the Company. See Notes 2, 11 and 12. Also, during the
calendar year 1995, IBM Credit's parent corporation, International
Business Machines Corporation, manufactured systems products
(specifically Mac clones) for the Company for which it was paid
approximately $20 million through the IBM Credit facility.
In addition, SCI Technology, Inc. ("SCI") and Mitsubishi
Electronics America, Inc. ("Mitsubishi") are related parties due to
board membership and/or stock ownership with respect to the Company.
SCI and Mitsubishi are suppliers to the Company. During fiscal 1996,
1995 and 1994 purchases from SCI were approximately $25.2 million,
$10.0 million and $0, respectively, and purchases from Mitsubishi were
approximately $14.1 million, $30.0
-51-
<PAGE>
million and $10.0 million, respectively. As of September 30, 1996
and 1995, the Company had accounts payable amounting to approximately
$0.1 million and $5.3 million to SCI, respectively, and
approximately $0.0 million and $6.6 million to Mitsubishi, respectively.
In fiscal 1994, the Company acquired shares of preferred stock of
Portrait Display Labs ("PDL") and a warrant to purchase additional
shares of PDL preferred stock in exchange for the cancellation of
certain rights held by the Company to purchase all of the outstanding
equity securities or assets of the predecessor entity to PDL. The
warrant permitted the purchase of approximately an additional 10%
interest in PDL. The Company also was granted one seat on PDL's Board
of Directors. In addition, the Company licensed PDL certain pivot
display technology in exchange for the payment of royalties. Product
revenues were approximately $5.0 million in fiscal 1994. In fiscal
1995, the Company exercised the warrant for an additional 10% interest
in PDL in exchange for cancellation of approximately $945,000 in
accounts receivable. There were no product revenues for the fiscal
1995 to this related party. The receivable from PDL at September 30,
1995 was approximately $980,000. In fiscal 1996, the Company signed a
series of additional agreements with Portrait Display Labs, see Note
11 to the Consolidated Financial Statements.
FAIR VALUE DISCLOSURES. The carrying values and fair values of
various financial instruments are summarized as follows as of
September 30, 1996 (inthousands):
Carrying Value Fair Value
-------------- ----------
Cash and cash equivalents $ 2,974 $ 2,974
Investment in Splash Technology
Holdings, Inc. (See Note 11) 19,152 19,152
Short-term Borrowings (1,922) (1,922)
Long-term Borrowings (21,940) (21,940)
IBM Credit Option on
Splash Shares (See Note 11) 0 (1,915)
The fair value of short-term and long-term borrowings are
estimated to approximate their carrying value as the borrowings are
subject to variable interest rates.
Estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation
methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange.
NOTE TWO. BORROWINGS
LINE OF CREDIT ARRANGEMENT
In February 1995, the Company and IBM Credit Corp. ("IBM Credit")
entered into a $30.0 million Inventory and Working Capital Financing
Agreement (the "Loan Agreement"). The Loan 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, IBM Credit advanced an additional $20.0
million under the Loan Agreement to finance the manufacturing of the
Company's MacOS compatible products (the "MacOS Advances").
Immediately prior to the consummation of the restructuring of its
unsecured and secured debt in September 1996 (the "Plan"), amounts
outstanding to IBM Credit were approximately $26.4 million. In
connection with the Plan, IBM Credit received 750,000 shares of the
Company's Series A Convertible Preferred Stock and warrants to
purchase 600,000 shares of Common Stock in consideration of the
cancellation of $3.0 million of indebtedness to IBM Credit and for an
additional advance of approximately $470,000. In addition, IBM Credit
has restructured the terms of the remaining approximately $23.4
million indebtedness into a working line of credit and a term loan.
Amounts outstanding under the term loan bear interest at a rate of
prime rate plus 3.25% and amounts outstanding under the working line
of credit bear interest at a rate of prime rate plus 2.25%. The
Company has an up to $5.0
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<PAGE>
million working line of credit and IBM Credit will extend advances
under this line of credit in an amount not to exceed the borrowing
base (which is defined as (i) the lesser of 10% of the gross value
of eligible inventory or $500,000; plus (ii) 80% of the Company's
eligible domestic accounts receivable; plus (iii) the lesser of
50% of the gross value of certain eligible Japanese and European
accounts receivable or $500,000). The $470,000 advanced by IBM
Credit pursuant to the Plan is included in this working line of
credit but will not be included in the calculation of the borrowing
base. The initial amount of current indebtedness to be outstanding
under this line of credit is $1.5 million, the amount of the
borrowing base on the date of the closing of the restructured
loan. The remaining $21.9 million balance of the Company's
indebtedness to IBM Credit has been converted to a four-year term
loan. Principal on such term loan will be repaid on a mandatory
prepayment schedule. The restructured loan with IBM Credit is subject
to mandatory prepayment as follows: (i) upon the disposition of any
assets of the Company outside of the ordinary course of business, all
net proceeds to the Company must be applied towards the Company's
obligations under the loan; (ii) upon the closing of any financing,
10% of the proceeds must be applied towards the Company's obligations
under the loan; (iii) upon the thirtieth day following the end of each
fiscal quarter, an amount of no less than 50% of operating cash flow
for such prior fiscal quarter must be applied towards the Company's
obligations under the loan; and (iv) upon the receipt of any other
amounts other than sales of inventory or used or obsolete equipment in
the ordinary course of business, and not otherwise described in the
preceding clause (i) - (iii), all of such amounts must be applied
towards the Company's obligations under the loan. If the Company's
obligations under the term loan, as well as finance charges and
amounts outstanding in excess of the "borrowing base" (described
above) under the working line of credit, are repaid, IBM Credit can
require such proceeds to be applied towards a redemption of the Series
A Convertible Preferred Stock. In addition, the Company is required
to deposit its revenues in accounts controlled by IBM Credit. At any
time, regardless of whether the Company is in default of its
obligations to IBM Credit, IBM Credit is permitted to apply these
amounts towards the repayment of any of the Company's obligations to
IBM Credit. As a result of IBM Credit's control over the Company's
cash flow, including payment of dividends, and these prepayment and
redemption provisions, together with the other terms and covenants of
the restructured loan agreement, the Company's ability to generate
working capital or to undertake a variety of other merger, disposition
or financing activities will be substantially restricted.
As of September 30, 1996, approximately $23.8 million was
outstanding under the Loan Agreement consisting of $21.9 million in
term loan and approximately $1.9 million in working line of credit.
The $21.9 million in term loan is included in long-term borrowings in
the Consolidated Financial Statements and the $1.9 million working
line of credit is included in short-term borrowings in the
Consolidated Financial Statements.
The Company has granted to IBM Credit a security interest in
substantially all of its assets to secure the Company's various
obligations to IBM Credit. The Company has also granted to Mitsubishi
Electronics a security interest (securing an amount up to $4.4
million) in all of the Company's technology and intellectual property
rights related to and incorporated into the Company's PressView
products.
As of September 30, 1996, the Company was not in compliance with
all of the financial covenants under the Loan Agreement (specifically,
revenues to working capital ratio, net profits to revenues ratio, and
working capital); however, IBM Credit has waived such defaults. See
Notes 11 and 12 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
expired on March 19, 1996, allowed 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 amounts outstanding under this
agreement were repaid in January 1996. The weighted average interest
rates in fiscal 1996 and 1995 were 9.9% and 13.0%, respectively.
One of the Company's subsidiaries had a revolving line of
credit with a bank in Japan, the outstanding balance having been paid
in full during the third quarter of fiscal 1996. The weighted average
interest rates in fiscal 1996 and 1995 were 2.1% and 4.9%,
respectively.
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<PAGE>
NOTE THREE. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases facilities under operating leases and certain
computer equipment and office furniture under capital leases.
Depreciation expense for assets under capital leases is included in
depreciation and amortization expense. The cost and net book value of
these capitalized lease assets included in property and equipment are
(in thousands):
At September 30, Cost Net Book Value
------- --------------
1996 $ 7,437 $ 250
1995 7,437 2,642
Future minimum lease payments at September 30, 1996, under
capital leases and noncancelable operating leases are as follows (in
thousands):
<TABLE>
<CAPTION>
Gross Net
Capital Operating Sublease Operating
Leases Leases Income Leases
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
1997 $1,138 $1,735 $1,154 $581
1998 280 1,104 842 262
1999 157 155 2
-------- ---------- -------- ---------
Total Minimum Lease Payments 1,418 2,996 $845
Total sublease income $2,151
Amount representing interest (71)
--------
Present value of minimum lease payments 1,347
Amount due within one year (1,074)
--------
Amount due after one year $273
--------
--------
</TABLE>
Rent expense charged to operations amounted to approximately $1.5
million, $3.5 million and $3.0 million for the fiscal years ended
September 30, 1996, 1995 and 1994, respectively. The rent expense
amounts for fiscal 1996, 1995 and 1994 exclude a provision for
remaining lease obligations on excess facilities. See Note 8 of Notes
to the Consolidated Financial Statements.
Sublease income for fiscal 1996, 1995 and 1994 was approximately
$1.2 million, $0.6 million and $0.1 million, respectively.
CONTINGENCIES
(a) On November 16, 1995, Electronics for Imaging, Inc.
("EFI") filed a suit in the United States District Court in the
Northern District of California alleging that the Company infringes a
patent allegedly owned by EFI. Although the complaint does not
specify which of the Company's products allegedly infringe the patent,
subsequent pleading indicates that EFI alleges that the Company's
Color Server products allegedly infringe. In January 1996, the
Company completed the divestiture of the Color Server Group.
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. EFI's motion to
dismiss or sever the Company's amended counterclaims was granted in
part and the ruling permitted the Company to file an amended
counterclaim for antitrust violations. The Company has filed an
amended antitrust claim. The Company believes it has meritorious
defenses to EFI's claims and is defending them vigorously. In
addition, the Company believes it may have indemnification rights with
respect to EFI's claims. In the opinion of management, based on the
facts known at this time, although the eventual outcome of this case
is unlikely to have a material adverse effect on the results of
operations or financial position of the Company, the costs of defense,
regardless of outcome, may have a material adverse effect on the
results of operations or financial position of the Company. In
addition, in connection with the divestiture of its Color Server
business, the Company
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<PAGE>
has certain indemnification obligations for which approximately
$2.3 million remains held in escrow to secure such obligations
in the event that the purchaser suffers any losses resulting
from such litigation.
(b) The Company was named as one of approximately 42
defendants in Shapiro et al. v. ADI Systems, Inc. et al., Superior
Court of California, Santa Clara County, case no. CV751685, filed
August 14, 1995. Radius was named as one of approximately 32
defendants in Maizes & Maizes et al. v. Apple Computer et al.,
Superior Court of New Jersey, Essex County, case no. L-13780-95, filed
December 15, 1995. Plaintiffs in each case purport to represent
alleged classes of similarly situated persons and/or the general
public, and allege that the defendants falsely advertised that the
viewing areas of their computer monitors are larger than in fact they
are.
The Company was served with the Shapiro complaint on August
22, 1995 and was served with the Maizes complaint on January 5, 1996.
Defendants' petition to the California State Judicial Council to
coordinate the Shapiro case with similar cases brought in other
California jurisdictions was granted in part and it is anticipated
that the coordinated proceedings will be held in Superior Court of
California, San Francisco County. An amended consolidated complaint
was filed on March 26, 1996. Discovery proceedings are scheduled to
begin. The Company believes it has meritorious defenses to the
plaintiffs' claims and is defending them vigorously. Extended
settlement discussions began in connection with a successful demurrer
in the California case. Such discussions have been complicated by the
refusal of a small number of the defendants to participate in the
proposed settlement. In the opinion of management, based on the facts
known at this time, the eventual outcome of these cases may have a
material adverse effect on the results of operations or financial
position of the Company in the financial period in which they are
resolved. In addition, whether or not the eventual outcomes of these
cases have a material adverse effect on the results of operations or
financial condition of the Company, the costs of defense, regardless
of outcome, may have a material adverse effect on the results of
operations and financial condition of the Company.
(c) On April 17, 1996, the Company was served with a
complaint filed by Colorox Corporation ("Colorox"), in the Circuit
Court of the State of Oregon, County of Multnomah, case no. 9604-
02481, which alleges that the Company breached an alleged oral
contract to sell its dye sublimation printer business to Colorox for
$200,000, and seeks both specific performance of the alleged contract
and alleged damages of $2.5 million. The Company believes it has
meritorious defenses to the plaintiff's claims and intends to defend
them vigorously. Nevertheless, the costs of defense, regardless of
outcome, could have an adverse effect on the results of operations and
financial condition of the Company.
(d) The Company is involved in a number of other judicial and
administrative proceedings incidental to its business. The Company
intends to defend such lawsuits vigorously and although adverse
decisions (or settlements) may occur in one or more of such cases, the
final resolution of these lawsuits, individually or in the aggregate,
is not expected to have a material adverse effect on the financial
position of the Company. However, depending on the amount and timing
of an unfavorable resolution of these lawsuits, it is possible that
the Company's future results of operations or cash flows could be
materially adversely affected in a particular period. In addition,
the costs of defense -- regardless of the outcome -- could have a
material adverse effect on the results of operations and financial
condition of the Company.
(e) 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, the Company's insurance carrier paid $3.7 million in cash and
the Company is required to 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 is required to issue into a class action settlement fund 707,609
shares of its Common Stock. The number of shares required to be
issued by the Company increased by 100,000 since the price of the
Common Stock was below $12 per share during the 60-day period
following the initial issuance of shares. In
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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.
As of September 30, 1996, the Company had issued 836,674 of its
Common Stock due to the settlement and 99,630 shares remained to be
issued.
NOTE FOUR. CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
SERIES A CONVERTIBLE PREFERRED STOCK
The dividend, liquidation and certain redemption features of the
Series A Convertible Preferred Stock, each of which is discussed in
greater detail below, are determined by reference to the Liquidation
Price of the Series A Convertible Preferred Stock, which is defined in
the aggregate as $3.0 million plus any accrued but unpaid dividends.
Dividends on the Series A Convertible Preferred Stock accrue
cumulatively at a rate of 10% per annum of the Liquidation Price and
are payable on a quarterly basis in cash or in shares of Common Stock,
at the Company's discretion. The Series A Convertible Preferred Stock
ranks senior to any other Preferred Stock and the Common Stock with
respect to the declaration and payment of dividends.
Upon dissolution, liquidation or winding up of the Company,
holders of the Series A Convertible Preferred Stock will be entitled
to receive from the assets of the Company available for distribution
to shareholders an amount in cash or property or a combination thereof
per share equal to the Liquidation Price. The Series A Convertible
Preferred Stock ranks senior to the Common Stock and any other
Preferred Stock which may subsequently be issued with respect to the
receipt of liquidation proceeds.
The Series A Convertible Preferred Stock is redeemable at the
option of holders of a majority of the shares of Series A Convertible
Preferred Stock at the Liquidation Price as of the date of redemption
upon the sale by the Company of any part of the Company's interest in
Splash Technology Holdings, Inc. or its other portfolio interests,
upon the occurrence of certain extraordinary events such as the sale
or disposition of the Company's other portfolio interests or the sale
of some or all of its operating assets, the sale of the Company's
inventory outside of the ordinary course of business or the merger or
consolidation of the Company with another entity.
The Series A Convertible Preferred Stock will vote on all matters
submitted to a vote of the Company's shareholders together as a single
class with all other classes of the Company's capital stock with each
share of Series A Convertible Preferred Stock having the number of
votes which would be cast if such shares were converted at the option
of the holders into Common Stock on the day prior to the date of the
vote except as otherwise required by applicable law.
The Series A Convertible Preferred Stock will be convertible from
time to time, in whole or in part, at the option of the holder, into
an aggregate of 5,523,030 shares of Common Stock with each share being
convertible into 7.364 shares of Common Stock, subject to adjustment
in the event of a stock dividend, stock split, combination or
reclassification of the Common Stock.
The Series A Convertible Preferred Stock is automatically
convertible at any time 90 days after the effective date of a
Registration Statement declared effective in November 1996 in the
event that the trading price of the Company's Common Stock exceeds,
for a period of 15 consecutive trading days, a price per share equal
to $0.5432. Upon such a conversion, the Series A Convertible
Preferred Stock would be convertible into an aggregate of 6,075,353
shares of Common Stock (or 8.1004 shares of Common Stock for each
share of Series A Convertible Preferred Stock). No more than 93,750
shares of Series A Convertible Preferred Stock may be so converted in
any fiscal quarter.
COMMON STOCK
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<PAGE>
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 (the
"1986 Plan"), authorized 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 common
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 Plan expired in October 1996. Outstanding
grants of options to purchase 779,274 shares of Common Stock continue
to be exercisable according to the terms of the grant, however, and
all unused shares under the 1986 Plan are reserved for issuance under
the 1995 Stock Option Plan.
The Company's 1995 Stock Option Plan (the "1995 Plan")
authorizes the issuance of up to 1,780,305 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. Shares
available for grant under the 1995 Stock Option Plan include 930,305
shares which were not issued under the 1986 Stock Option Plan. Under
the 1995 Plan, options are exercisable for a term of up to ten years
after issuance. Options may be granted at prices ranging from 85% to
100% of the fair market value of the common 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. As of
September 30, 1996, 87,522 options were outstanding under the 1995
Plan. The 1995 Plan will expire in December 2005.
On August 31, 1994, pursuant to the Merger, Radius assumed
975,239 outstanding options originally issued under the SuperMac 1988
Stock Option Plan (the "SuperMac Plan"). These options will be
administered in accordance with the SuperMac Plan until all options
are exercised or expired. As of September 30, 1996, 18,701 Options
remain outstanding under this Plan. Under the SuperMac Plan, options
are exercisable for a term of up to ten years after issuance.
The following table summarizes the consolidated activity under the
1986 Plan, the 1995 Plan and the SuperMac Plan:
<TABLE>
<CAPTION>
September 30,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year 1,697,535 2,042,481 2,208,783
Granted 1,178,095 707,590 892,131
Exercised (111,522) (213,791) (294,042)
Canceled (1,878,611) (838,745) (764,391)
----------- ------------ ------------
Outstanding at September 30 885,497 1,697,535 2,042,481
----------- ------------ ------------
----------- ------------ ------------
Price range at September 30 $1.28-10.56 $0.42-$28.96 $0.42-$32.18
----------- ------------ ------------
----------- ------------ ------------
Price range of options exercised $1.36-$2.37 $0.42-$13.13 $0.42-$13.13
----------- ------------ ------------
----------- ------------ ------------
Exercisable at September 30 322,492 1,325,222 706,474
----------- ------------ ------------
----------- ------------ ------------
Available for grant at September 30 1,695,331 415,586 281,726
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
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.
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The Company has also reserved 173,126 shares of common stock
for issuance to non-employee directors pursuant to options granted
under the 1994 Directors' Stock Option Plan (the "1994 Plan"),
including 73,126 shares which were not issued under the Company's 1990
Directors Stock Option 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, 1996, 5,938 options
were outstanding under this plan at exercise prices ranging from
$7.4375 to $12.00 per share. None of the options granted under the
1994 Plan are exercisable at September 30, 1996.
Prior to the approval of the 1994 Plan, the 1990 Directors' Stock
Option Plan (the "Prior Plan") was in effect. As of September 30,
1996, the Prior Plan had 26,874 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.
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, 1996 an additional 209,850 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 common stock on the date of the
repricing.
In December 1995, the Company repriced approximately 930,000 of
then outstanding options for an exercise price of $2.375 per share,
the fair market value of the Company's common stock on the date of
repricing.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under which
substantially all employees may purchase common stock through payroll
deductions at a price equal to 85% of its fair market value as of
certain specified dates. Stock purchases under this plan are limited
to 10% of an employee's compensation, and in no event may exceed
$21,250 per year. Under this plan a total of 650,000 shares of common
stock have been reserved for issuance to employees. At September 30,
1996, 146,824 shares remain available for issuance under the plan.
EMPLOYEE STOCK PLANS
The Company accounts 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.
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NOTE FIVE. FEDERAL AND STATE INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
For years ended September 30
(in thousands)
Federal:
Current $ - $ - $ (12,583)
Deferred - 7,170 12,311
------- -------- ----------
- 7,170 (272)
Foreign:
Current 765 650 376
------- -------- ----------
State:
Current 50 20 (3,641)
Deferred - 1,230 (1,063)
------- -------- ----------
50 1,250 (4,704)
------- -------- ----------
$ 815 $ 9,070 $ (4,600)
------- -------- ----------
------- -------- ----------
</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>
1996 1995
---- ----
<S> <C> <C>
For years ended September 30
(in thousands)
Deferred tax assets:
Net operating loss carryovers $ 25,232 $ 26,079
Inventory valuation differences 6,364 3,926
Restructuring reserves 3,536 22,995
Reserves and accruals not currently tax deductible 3,424 20,891
Depreciation 2,390 3,787
Capitalized research & development expenditures 2,144 2,113
Credit carryovers - 5,807
Other 2,703 -
---------- ----------
Total deferred tax assets 45,793 85,598
---------- ----------
Valuation allowance for deferred tax assets (38,295) (85,086)
---------- ----------
Deferred tax assets $ 7,498 $ 512
---------- ----------
---------- ----------
Deferred tax liabilities:
Valuation of investment portfolio $ 7,498 -
Other - 512
---------- ----------
Total deferred tax liabilities 7,498 512
---------- ----------
Net deferred tax assets $ - $ -
---------- ----------
---------- ----------
</TABLE>
FASB Statement 109 provides for the recognition of deferred tax
assets if realization of such assets is more likely than not. The
Company's valuation allowance reduced the deferred tax asset to the
amount realizable. The Company has provided a full valuation allowance
against its net deferred tax assets due to uncertainties surrounding
their realization. Due to the net losses reported in prior years and as
a result of the material changes in operations, predictability of
earnings in future periods is uncertain. The Company will evaluate the
realizability of the deferred tax asset on a quarterly basis.
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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>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
For years ended September 30
(in thousands)
Expected tax at statutory rate $ (56) $ (42,935) $ (28,726)
Change in valuation allowance 241 49,820 26,724
State income tax, net of federal tax benefit 50 1,250 (3,105)
Non-deductible merger costs - - 1,054
Non-deductible charge for purchased
research and development - - 763
Other 580 935 (1,310)
---------- ---------- ---------
$ 815 $ 9,070 $ (4,600)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
As of September 30, 1996, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $60,000,000 and $56,000,000, respectively. The federal
loss carryforwards will expire beginning in 2011, if not utilized and
the state loss carryforwards will expire beginning in 2007, if not
utilized.
As a result of the issuance of Common Stock and Series A
Convertible Preferred Stock in exchange for certain liabilities of the
Company in September 1996, the Company experienced a "change in
ownership" as defined under Section 382 of the Internal Revenue Code.
Accordingly, utilization of net operating loss and tax credit
carryforwards will be subject to an annual limitation of approximately
$2.0 million due to the ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions, except
under limited circumstances. This limitation will result in the
expiration of all of the tax credit carryforwards and a substantial
portion of the net operating loss carryforwards.
NOTE SIX. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
For years ended September 30,
(in thousands)
Supplemental disclosure of cash
flow information:
Cash paid (received) during the year for:
Interest $ 3,792 $ 1,620 $ 812
---------- ---------- ---------
---------- ---------- ---------
Income taxes $ 253 $ (8,370) $ (8,295)
---------- ---------- ---------
---------- ---------- ---------
Supplemental schedule of noncash
investing and financing activities:
Common and preferred stock issued
to creditors $ 45,503 $ - $ -
---------- ---------- ---------
---------- ---------- ---------
Conversion of short-term borrowings
to long-term borrowings $ 21,940 $ - $ -
---------- ---------- ---------
---------- ---------- ---------
Retirement of fully and partially
depreciated assets $ - $ 4,459 $ 6,025
---------- ---------- ---------
---------- ---------- ---------
Tax benefit from stock options exercised $ - $ - $ 425
---------- ---------- ---------
---------- ---------- ---------
Equipment acquired pursuant to
capital leases $ - $ - $ 2,000
---------- ---------- ---------
---------- ---------- ---------
Common stock issued pursuant to
VideoFusion agreement $ - $ 2,857 $ -
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
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NOTE SEVEN. EXPORT SALES AND MAJOR CUSTOMERS
The Company currently operates in one principal industry segment:
the design, assembling and marketing of color publishing and digital
video computer products. The Company is highly dependent on the
success of Apple products as the Company's products are designed to
provide additional functionality to Apple products. The Company's
export sales were approximately $45.8 million, $124.5 million and
$112.1 million in the fiscal years ended September 30, 1996, 1995 and
1994, respectively, and included export sales to Europe of
approximately $21.2 million, $57.3 million and $60.6 million,
respectively. The Pacific, Asia, and Latin America region sales were
approximately $24.6 million, $67.2 million and $51.4 million for
fiscal years ended September 30, 1996, 1995 and 1994, respectively.
During fiscal 1996, the Company entered into exclusive distributor
arrangements with respect to Japan and Europe. In the future, the
Company will earn royalties and commissions under such arrangements.
One customer accounted for approximately 34.3 %, 34.0% and 13.5%
of the Company's net sales during the years ended September 30, 1996,
1995 and 1994, respectively.
NOTE EIGHT. RESTRUCTURING AND OTHER CHARGES
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 (the "Merger"). 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, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
Representing
------------------------------------------------
Cash Outlays
--------------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $ 22,296 $ 19,200 $ 3,096 $ -
Excess facilities 2,790 400 2,346 44
Revision of the operations business model 9,061 7,078 1,983 -
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
---------- --------- -------- -------
Total charges $ 43,407 $ 26,678 $ 16,685 $ 44
</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 had spent approximately
$16.7 of cash for restructuring through September 1996. The Company
has substantially completed this restructuring. 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.
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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, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
--------------------------------
Cash Outlays
--------------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $ 33,138 $ 32,300 $ 838 $ -
Excess facilities 2,004 404 1,600 -
Cancellation fees and asset write-offs 19,061 5,196 13,800 65
Employee severance 3,662 - 2,599 1,063
---------- --------- -------- -------
Total charges $ 57,865 $ 37,900 $ 18,837 $ 1,128
</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 16,
1996, approximately 230 positions of the 240 total planned had been
eliminated in connection with the new business model. The Company has
satisfied $18.8 million of the originally anticipated cash outlays for
this restructuring as of September 30, 1996 of which approximately
$5.0 million represented cash expenditures and approximately $13.8
million represented cancellation of indebtedness or claims in
consideration of the issuance of equity in the Company. As of
September 30, 1996, the Company had cash of $3.0 million. See
"Management's Business Recovery Plans" at Note 1 to the Consolidated
Financial Statements. The Company expects to complete the
restructuring by September 1997. During the quarter ended June
30, 1996, approximately $913,000 of restructuring charges were
reversed and recorded as an expense reduction due to changes in
estimated requirements. The restructuring is substantially completed
and remaining cash outlays relate primarily to the restructuring of
the Company's international operations.
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
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Company issued approximately 212,000 shares, and paid approximately
$200,000, to the former holders of VideoFusion stock. These
transactions resulted in additional compensation expense of
approximately $3.0 million which was recorded in fiscal 1995.
NOTE TEN. MERGER WITH SUPERMAC TECHNOLOGIES, INC.
On August 31, 1994, Radius merged with SuperMac in exchange for
6,632,561 shares of Radius' common stock. SuperMac was a designer,
manufacturer, and marketer of products that enhanced the power and
graphics performance of personal computers. The Merger was accounted
for as a pooling of interests, and, accordingly, the Company's
Consolidated Financial Statements and Notes to Consolidated Financial
Statements have been restated to include the results of SuperMac for
all periods presented.
Separate results of operations for the periods prior to the Merger are
as follows (in thousands):
<TABLE>
<CAPTION>
Merger-
Related
Radius SuperMac Expenses Adjustment Combined
------ --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1994
Net revenues $162,922 $164,978 $ (3,095) $ - $324,805
Net loss (18,293) (15,775) (43,407) - (77,475)
</TABLE>
The merger related expenses reflect the recording of the merger
related restructuring and other charges.
The results for both the fiscal years ended September 30, 1994
and 1993 include the results of SuperMac's operations for the three
months ended December 31, 1993.
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. BUSINESS DIVESTITURES
COLOR SERVER GROUP. In January 1996, the Company completed the
sale of its Color Server Group ("CSG") to Splash Merger Company, Inc.
(the "Buyer"), a wholly owned subsidiary of Splash Technology
Holdings, Inc. (the "Parent"), a corporation formed by various
investment entities associated with Summit Partners. In fiscal 1996,
the Company received approximately $21.0 million in cash and an
additional $2.4 million is being maintained in escrow to secure
certain indemnification obligations. The Company also received 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 were converted into shares of the Parent's common
stock outstanding in connection with the initial public offering of
Parent. In June 1996, the Company granted IBM Credit, its secured
lender, an option to purchase 428 shares of Series B Preferred (now
Parent Common Stock) in connection with the restructuring of the terms
of its loan agreement with IBM Credit (Also, see Note 12, regarding
the conversion of accounts payable and other creditor debt to equity
in the fourth quarter of fiscal 1996.). These shares of Parent Common
Stock have been pledged to IBM Credit. IBM Credit has not exercised
its option.
On October 8, 1996, the Parent completed its initial public
offering of common stock which reduced the Company's ownership
position to approximately 14.6 percent. Consequently, the investment
which will be available for sale, subject to certain market trading
restrictions, approximating 1.7 million shares, is accounted for in
accordance with FASB 115. The unrealized gain of $19.1 million based
upon the initial public offering price of $11.00 per share is
recorded, net of deferred taxes, as a component of shareholders'
equity at September 30, 1996.
-63-
<PAGE>
PORTRAIT DISPLAY LABS. In January 1996, the Company entered into
a series of agreements with Portrait Display Labs, Inc. ("PDL"). The
agreements assigned the Company's pivoting technology to PDL and
canceled PDL's on-going royalty obligation to the Company under an
existing license agreement in exchange for a one-time cash payment.
The Company did not receive any material amount of payments under such
license agreement. 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. The cash proceeds were paid to IBM Credit. The
shares of PDL Common Stock are pledged to IBM Credit.
UMAX DATA SYSTEMS, INC. In February 1996, the Company sold its
MacOS compatible systems business to UMAX Computer Corporation
("UCC"), a company formed by UMAX Data Systems, Inc. ("UMAX"). The
Company received approximately $2.3 million in cash and debt relief,
and 1,492,500 shares of UCC's Common Stock, representing approximately
19.9% of UCC's then outstanding shares of Common Stock. The cash
proceeds were paid to IBM Credit and the shares of UCC Common Stock
are pledged to IBM Credit.
DISPLAY TECHNOLOGIES ELECTROHOME INC. In December 1995, the
Company completed the sale of its monochrome display monitor business
to Display Technologies Electrohome Inc. ("DTE"). DTE purchased
Radius' monochrome display monitor business and certain assets related
thereto, for approximately $200,000 in cash and cancellation of $2.5
million of the Company's indebtedness to DTE. In addition, DTE and
Radius canceled outstanding contracts relating to DTE's manufacture
and sale of monochrome display monitors to Radius.
NOTE TWELVE. STOCK ISSUED TO CREDITORS
In September 1996, the Company, IBM Credit and its unsecured
creditors consummated a restructuring of the Company's outstanding
indebtedness pursuant to which the Company's creditors received equity
in satisfaction of their claims (the "Plan"). The Company issued
36,294,198 shares of Common Stock in satisfaction of approximately
$45.9 million in unsecured claims (including a $1.0 million reserve
for unknown or unresolved claims) and repaid approximately $1.9
million of unsecured claims, most of which were less than $50,000, at
an average discount of approximately 75% of the amount of the claim.
Of these shares of Common Stock issued pursuant to the Plan, 791,280
were issued to the Radius Creditors Trust for the purpose of
satisfying unresolved or unknown claims. As of September 30, 1996,
444,253 shares of Common Stock were held by the Radius Creditors
Trust. The Company also issued 750,000 shares of its Series A
Convertible Preferred Stock (convertible into an aggregate of
5,523,030 shares of Common Stock, or 6,075,333 shares in certain
circumstances) and warrants to purchase 600,000 shares of Common Stock
to IBM Credit in satisfaction of $3.0 million indebtedness and in
consideration of restructuring its remaining approximately $23.4
million indebtedness to IBM Credit. The Company also issued warrants
to purchase 200,000 shares of Common Stock to Mitsubishi in
consideration of the extension of open credit terms to the Company.
The Company also issued to its unsecured creditors, who received
Common Stock, Rights ("Rights") to receive up to an additional
11,046,060 shares of Common Stock in the event that the Series A
Convertible Preferred Stock is converted into Common Stock (including
240,824 Rights issued to the Radius Creditors Trust).
Considering the value of the Common and Preferred Stock issued or
issuable to the creditors, the percentage of the Company's ownership
issued to the creditors, the large blocks of stock issued to a certain
few creditors, Common Stock warrants issued and other costs, such as
cash settlements, legal and accounting expenses and the option to IBM
Credit to purchase 10% of the Company's investment in Parent, and
considering appropriate discounts on the stock issued, the Company
concluded that the value of consideration given up was equal to the
indebtedness forgiven. As a result, the accompanying financial
statements do not include any extraordinary gain or loss resulting
from the execution of the Plan.
-64-
<PAGE>
SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions(1) period
----------- --------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended September 30, 1994 $2,018 $1,283 $0 $ 753 $2,548
Year ended September 30, 1995 $2,548 $6,837 $0 $ 883 $8,502
Year ended September 30, 1996 $8,502 $ 91 $0 $ 6,461 $2,132
</TABLE>
_____________________________
(1) Uncollectable accounts written off.
-65-
<PAGE>
EXHIBIT 11.01 --- COMPUTATION OF PER SHARE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary:
Average shares outstanding 21,251 15,049 13,598
Net effect of dilutive stock options -
based on the treasury stock method
using average market price - - -
------- ---------- ----------
Totals 21,251 15,049 13,598
------- ---------- ----------
------- ---------- ----------
Net loss ($975) $(131,742) $ (77,475)
------- ---------- ----------
------- ---------- ----------
Per share amount $(0.05) $ (8.75) $ (5.70)
------- ---------- ----------
------- ---------- ----------
Fully diluted:
Average shares outstanding 21,251 15,049 13,598
Net effect of dilutive stock options -
based on the treasury stock method
using quarter end market price
which is greater than average
market price - - -
------- ---------- ----------
Totals 21,251 15,049 13,598
------- ---------- ----------
------- ---------- ----------
Net loss $ (975) $(131,742) $ (77,475)
------- ---------- ----------
------- ---------- ----------
Per share amount $(0.05) $ (8.75) $ (5.70)
------- ---------- ----------
------- ---------- ----------
</TABLE>
* The primary net loss per share is shown in the statements of operations.
Net loss per share under the primary and fully diluted calculations are
equivalent.
<PAGE>
EXHIBIT 21.01 --- LIST OF SUBSIDIARIES
SUBSIDIARY ADDRESS
FRANCE
Radius France S.A. BP422 World Trade Center
CNIT-2 Place De La Defense
92053 La Defense, France
Radius S.A.R.L.
ASIA
Radius KK Yanada Bld. 5F
6-7-10 Roppongi
Minato-ku, Tokyo
Japan
Nihon SuperMac K.K. Japan
SuperMac Asia Pacific Hong Kong
UNITED KINGDOM
Radius UK Ltd. 13 Westminster Court
Hipley Street
Old Woking,
Surrey GU22 9LQ
United Kingdom
SuperMac Technology Europe
GERMANY
Radius GmbH Grosse Bleichen 35
20354 Hamburg
Germany
OTHERS
Radius FSC Inc. Bay Street
Bridgetown
Barbados
Radius (Australia) Pty. Ltd. Level 5, 18-20 Orion Road
Lane Cove, NSW 2066
Australia
Radius Canada Canada
All subsidiaries are either inactive or in dissolution or preparation therefor.
<PAGE>
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. 33-37376, 33-43116, 33-47525, 33-71636, 33-77238, 33-83824,
33-59571, 333-17881 and 333-04765) pertaining to the 1986 Stock Option Plan,
the 1988 SuperMac Technology, Inc. Stock Option Plan, the Directors' Stock
Option Plan, the 1990 Employee Stock Purchase Plan, Non-Plan Stock Options
and the 1995 Stock Option Plan, as amended, of Radius Inc. of our report
dated November 7, 1996 with respect to the consolidated financial statements
and schedule of Radius Inc. included in the Annual Report (Form 10-K) for the
year ended September 30, 1996.
/s/ Ernst & Young LLP
San Jose, California
January 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1996
<CASH> 2974
<SECURITIES> 0
<RECEIVABLES> 10255
<ALLOWANCES> (2132)
<INVENTORY> 12852
<CURRENT-ASSETS> 366
<PP&E> 35314
<DEPRECIATION> (33819)
<TOTAL-ASSETS> 45526
<CURRENT-LIABILITIES> 16353
<BONDS> 273
0
3000
<COMMON> 168746
<OTHER-SE> 164786
<TOTAL-LIABILITY-AND-EQUITY> 45526
<SALES> 90290
<TOTAL-REVENUES> 90290
<CGS> 77382
<TOTAL-COSTS> 77382
<OTHER-EXPENSES> 33364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3736
<INCOME-PRETAX> 160
<INCOME-TAX> 815
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (975)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
