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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13(d) OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
215 MOFFETT PARK DRIVE
SUNNYVALE, CA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(408) 541-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
---- -----
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ON
MAY 12, 1997 WAS 54,939,948.
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RADIUS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1997
and September 30, 1996 3
Consolidated Statements of Operations for the Three
and Six Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 19
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RADIUS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996 (1)
--------- -------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 1,408 $ 2,974
Accounts receivable, net 11,612 8,123
Inventories 4,526 12,852
Investment in Splash Technology Holdings, Inc. - current portion 17,235 -
Prepaid expenses and other current assets 400 366
Income tax receivable - 514
--------- ---------
Total current assets 35,181 24,829
Investment in Splash Technology Holdings, Inc. - noncurrent portion 21,940 19,152
Property and equipment, net 969 1,495
Deposits and other assets 50 50
--------- ---------
$ 58,140 $ 45,526
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 5,081 $ 5,004
Accrued payroll and related expenses 1,447 2,678
Accrued warranty costs 402 478
Other accrued liabilities 1,825 2,545
Accrued income taxes 2,042 2,227
Accrued restructuring and other charges 106 425
Short-term borrowings 3,809 1,922
Obligation under capital leases - current portion 646 1,074
--------- ---------
Total current liabilities 15,358 16,353
Long term borrowings 21,940 21,940
Obligations under capital leases - noncurrent portion 60 273
Commitments and contingencies
Convertible preferred stock 3,000 3,000
Shareholders' equity:
Common stock 168,928 168,746
Unrealized gain on available-for-sale securities 39,175 19,152
Accumulated deficit (190,353) (183,968)
Accumulated translation adjustment 32 30
--------- ---------
Total shareholders' equity 17,782 3,960
--------- ---------
$ 58,140 $ 45,526
--------- ---------
--------- ---------
</TABLE>
(1) The balance sheet at September 30, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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RADIUS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 8,249 $30,575 $19,051 $ 63,227
Commissions and royalties 1,898 - 3,193 -
------- ------- ------- --------
Total net sales 10,147 30,575 22,244 63,227
Cost of sales 8,409 25,098 15,435 53,705
------- ------- ------- --------
Gross profit 1,738 5,477 6,809 9,522
------- ------- ------- --------
Operating expenses:
Research and development 997 1,519 1,901 5,149
Selling, general and administrative 5,223 6,951 9,321 16,912
------- ------- ------- --------
Total operating expenses 6,220 8,470 11,222 22,061
------- ------- ------- --------
Loss from operations (4,482) (2,993) (4,413) (12,539)
Other income (expense), net (7) 18,132 (12) 19,269
Interest expense (757) (971) (1,494) (2,154)
------- ------- ------- --------
Income (loss) before income taxes (5,246) 14,168 (5,919) 4,576
Provision for income taxes 195 249 316 440
------- ------- ------- --------
Net income (loss) $(5,441) $13,919 $(6,235) $ 4,136
------- ------- ------- --------
------- ------- ------- --------
Preferred stock dividend 75 - 150 -
Net income (loss) applicable to
common shareholders $(5,516) $13,919 $(6,385) $ 4,136
------- ------- ------- --------
------- ------- ------- --------
Net income (loss) per share:
Net income (loss) per share applicable to
common shareholders $ (0.10) $ 0.77 $ (0.12) $ 0.23
------- ------- ------- --------
------- ------- ------- --------
Common and common equivalent shares used
in computing net income (loss) per share 54,879 18,082 54,770 18,058
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
See accompanying notes.
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RADIUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands, unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(6,235) $ 4,136
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 580 1,128
Gain on the sale of the Color Hard Copy Group - (16,993)
(Increase) decrease in assets:
Accounts receivable (3,487) 33,519
Inventories 8,326 1,084
Prepaid expenses and other current assets (34) 1,190
Income tax receivable 514 2
Increase (decrease) in liabilities:
Accounts payable 77 (28,137)
Accrued payroll and related expenses (1,231) (1,404)
Accrued warranty costs (76) (2,728)
Other accrued liabilities (720) (777)
Accrued restructuring costs (319) (574)
Accrued income taxes (185) 179
------- --------
Total adjustments 3,445 (13,511)
------- --------
Net cash used in operating activities (2,790) (9,375)
Cash flows from investing activities:
Capital expenditures (54) (201)
Deposits and other assets - 84
Net proceeds from the sale of the Color Hard Copy Group - 16,438
------- --------
Net cash provided by (used in) investing activities (54) 16,321
Cash flows from financing activities:
Short-term borrowings, net 1,887 (8,109)
Principal payments of long-term debt and capital leases (641) (834)
Issuance of common stock 32 16
------- --------
Net cash provided by (used in) financing activities 1,278 (8,927)
------- --------
Net decrease in cash and cash equivalents (1,566) (1,981)
Cash and cash equivalents, beginning of period 2,974 4,760
------- --------
Cash and cash equivalents, end of period $ 1,408 $ 2,779
------- --------
------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest paid $ 1,489 $ 1,084
------- --------
------- --------
Income taxes paid $ 7 $ 259
------- --------
------- --------
Non-cash financing activity:
Dividend to be paid in stock $ 150 $ -
------- --------
------- --------
</TABLE>
See accompanying notes.
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RADIUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Radius Inc. ("Radius" or the
"Company") as of March 31, 1997 and for the three and six months ended March
31, 1997 and 1996 are unaudited. In the opinion of management, the
consolidated financial statements reflect all adjustments (consisting only of
normal recurring items) necessary for a fair presentation in conformity with
generally accepted accounting principles. Preparing financial statements
requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Examples
include provisions for returns and bad debts and the length of product life
cycles. The information included in this Form 10-Q should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1996.
For clarity of presentation, all fiscal periods are reported as ending on a
calendar month end.
NOTE 2. INVENTORIES
Inventories, stated at the lower of cost or market, consist of (in thousands):
MARCH 31, SEPTEMBER 30,
1997 1996
----------- -------------
(unaudited)
Raw materials $ 21 $ 124
Work in process 1,086 4,488
Finished goods 3,418 8,240
------ -------
$4,526 $12,852
------ -------
------ -------
Cost of sales for the three and six month periods ended March 31, 1997
includes write down reserves for obsolete, slow-moving, or non-salable
inventory of $3.6 million.
NOTE 3. COMMITMENTS AND 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. A
motion for summary judgment based on these indemnification rights 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 Group, the Company has certain indemnification obligations for which
approximately $2.4 million remains held in escrow to secure such obligations
in the event that the purchaser suffers any losses resulting from such
litigation.
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(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. On March 11, 1997, all but two of the named defendants agreed to settle
the suits, subject to final court approval. The settlement provides that
class members are eligible for a $13 rebate per monitor purchased during the
class period on applicable new purchases over a three year period, subject to
specific limitations. Class members who are consumers and do not elect to
use the rebate fully can thereafter elect to receive a $6 refund per monitor
(up to a maximum of $30 per consumer class member) during the following six
months. The Company is responsible only to class members who purchased
Radius branded monitors during the class period of May 1, 1991 to May 1,
1995. Additionally, Radius will pay its share of publication and
administration costs associated with the implementation of the settlement,
pay its share of plaintiffs' stipulated attorneys' fees (estimated to be
approximately $75,000 and currently payable) and will agree to abide by
certain limitations in the description of its monitors. Final court approval
is expected after a court hearing currently set for June 30, 1997. The
Company's estimate of the impact of this settlement, excluding the attorneys
fees and publication costs, is that it will not be material to its financial
condition or results of operations.
NOTE 4. INVESTMENT IN SPLASH TECHNOLOGY HOLDINGS, INC.
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. ("Splash"), 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
Splash'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 Splash's common stock in connection with the initial public
offering of Splash. In June 1996, the Company granted IBM Credit, its
secured lender, an option to purchase 428 shares of Series B Preferred Stock
(now Splash Common Stock) in connection with the restructuring of the terms
of its loan agreement with IBM Credit. These shares of Splash Common Stock
have been pledged to IBM Credit. IBM Credit has not exercised its option.
On October 8, 1996, Splash 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 1.6 million
shares, is accounted for in accordance with FASB 115. The unrealized gain of
$39.2 million based upon the closing price of $25.00 per share on March 27,
1997 is recorded, net of deferred taxes of none, as a component of
shareholders' equity at March 31, 1997.
NOTE 5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" (FAS 128), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. The application of the FAS 128 new "basic earnings per share"
calculation results in basic earnings (loss) per share that is not materially
different from net income (loss) per share applicable to common shareholders
as reported for the three and six months ended March 31, 1997 and 1996. The
Company does not expect the new diluted calculation to be materially
different from fully diluted earnings per share.
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NOTE 6. SUBSEQUENT EVENTS
Effective in the third fiscal quarter, the Company licensed certain
technology from Reply Corporation and agreed to purchase such technology
along with certain assets and inventory, subject to the approval of the
bankruptcy court with jurisdiction over Reply and its assets. A royalty
payment will be due on products incorporating such technology pursuant to the
license and in connection with such purchase. The purchase price of such
assets and inventory is expected to be less than $500,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All assumptions, anticipations, and expectations contained herein are
forward-looking statements that involve uncertainty and risk. Actual results
could differ materially from those projected in such forward-looking
statements and there are certain important factors that could cause results
to differ materially from those in the forward-looking statements. Among
such important factors are: (i) the ability of Radius to generate sufficient
cash from operations to finance its working capital needs and to generate
sufficient income to repay its indebtedness to IBM Credit in a timely manner;
(ii) the value of the Company's holdings in Splash Technology Holdings, Inc.
("Splash") and the Company's ability to timely dispose of such holdings on
favorable terms; (iii) the Company's ability to attract and retain key
personnel, particularly in light of its financial condition; (iv) the
Company's ability to successfully compete against Apple Computer and other
competitors; (v) the continued acceptance of Macintosh computers for use by
the color publishing and multimedia markets; (vi) the Company's ability to
successfully develop and market products for, and the acceptance of the
Company's products by, the video editing industry; (vii) the continued
willingness of third party manufacturers and suppliers to assemble and/or
supply components for the Company's products, particularly in light of the
Company's financial condition; (viii) the ability of the Company's exclusive
distributors in Europe and Japan to increase sales of the Company's products;
(ix) the Company's ability to develop new products and improve on existing
products, particularly in light of its significantly reduced research and
development budgets; and (x) the Company's ability to successfully develop,
manufacture and market the "PC on a Card" products licensed from Reply
Corporation.
Each forward-looking statement should be read in conjunction with the entire
consolidated interim financial statements and the notes thereto in Part I,
Item 1 of this Quarterly Report, with the information contained in Item 2,
including, but not limited to, "- Certain Factors That May Affect Future
Results," and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Company's Annual Report
on Form 10-K for the year ended September 30, 1996, including, but not
limited to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Factors That May Affect the Company's Future
Results of Operations."
RESULTS OF OPERATIONS
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.
On March 31, 1997 the Company licensed certain technology from Reply
Corporation (see Note 6 to the financial statements) that will allow it to
develop and market PCI bus adapter cards featuring Windows compatibility to
users of Macintosh products. This technology is intended to enable a "PC on
a card" which can be added to various versions of Mac compatible personal
computers. When using such products, a Mac compatible user would therefore
have coprocessing ability and be able to participate in various PC-based
network functions without sacrificing Mac performance levels on various
desktop, color publishing and other applications. These products will be
marketed to the Company's existing customers and as well as to a broader
customer base.
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The following table sets forth for the periods indicated certain operational
data as a percentage of net sales (may not add due to rounding).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 82.9 82.1 69.4 84.9
----- ----- ----- -----
Gross profit 17.1 17.9 30.6 15.1
----- ----- ----- -----
Operating expenses:
Research and development 9.8 5.0 8.5 8.1
Selling, general and administrative 51.5 22.7 41.9 26.7
----- ----- ----- -----
Total operating expenses 61.3 27.7 50.4 34.9
----- ----- ----- -----
Income (loss) from operations (44.2) (9.8) (19.8) (19.8)
Other income (expense), net (0.1) 59.3 (0.1) 30.5
Interest Expense (7.5) (3.2) (6.7) (3.4)
----- ----- ----- -----
Income (loss) before income taxes (51.7) 46.3 (26.6) 7.2
Provision for income taxes 1.9 0.8 1.4 0.7
----- ----- ----- -----
Net income (loss) (53.6)% 45.5% (28.0)% 6.5%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
NET SALES
The Company's net sales decreased 66.8% to $10.1 million in the second
quarter of fiscal 1997 from $30.6 million for the same quarter in fiscal
1996. Net sales for the first six months of fiscal 1997 decreased 64.8% to
$22.2 million from $63.2 million in the same period of fiscal 1996. The
decline is due to three primary factors: first is the result of the Company's
efforts to refocus its business on higher margin products; the second is the
divestiture of certain of its former business units; and the third is 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 recognize 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 which was formerly recognized by the
Company as net sales prior to the appointment of these distributors. As a
result of these factors, product sales decreased 73.8% and 69.9% for the
second quarter and the first six months of fiscal 1997 from the corresponding
periods of fiscal 1996. They also account for the decrease of the Company's
export sales to 20.4% of net sales in the second quarter of fiscal 1997 from
53.1% of net sales in the same quarter of fiscal 1996. Export sales declined
to 15.2% of net sales for the six month period in fiscal 1997, compared to a
58.4% of net sales for the corresponding period in fiscal 1996. These factors
also lead to the commission and royalties of $1.9 million and $3.2 million
for the second quarter and the first six months of fiscal 1997, respectively.
One customer, Ingram Micro, accounted for 55.0% and 69.4% of the Company's
net sales for the three and six months ended March 31,1997, respectively.
For the corresponding periods of fiscal 1996, the same customer accounted for
29.8% and 34.4% of the Company's net sales.
GROSS PROFIT
The Company's gross profit margin was 17.1% and 30.6% for the three and six
month periods ended March 31, 1997, as compared with 17.9% and 15.1% for the
corresponding periods in fiscal 1996. The decrease in gross profit margin
for the three month period was primarily due to a net charge of $3.6 million
relating to inventory write downs. Excluding the charge for inventory write
down reserves, gross profit margin would have been 53% and 47% for the three
and six month periods ended March 31, 1997, respectively, which increase was
primarily attributed to the Company's focus on higher margin products and
continuing efforts to reduce product costs and controlling expenses.
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.
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There can be no assurance that the Company's gross margins will remain at
current levels for subsequent quarters or for the entire fiscal year.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased to $0.9 million or 9.8% of net
sales in the second quarter of fiscal 1997 from $1.5 million or 5.0% of net
sales in the same quarter of fiscal 1996. Research and development expenses
decreased from $5.1 million or 8.1% of net sales for the fist six months of
fiscal 1996 to $1.9 million or 8.5% of net sales for the corresponding period
of fiscal 1997. The Company decreased its research and development expenses
primarily by reducing expenses related to headcount resulting from the
Company's efforts to refocus its business and business divestitures. The
increase in research and development expenses expressed as a percentage of
net sales was primarily attributed to the decrease in net sales and the
Company's refocusing on higher-end products, rather than high-volume
lower-margin products. Although the Company expects research and development
expenses to increase gradually over time, the Company does not expect
research and development expenses to approach historical levels in absolute
amount. The Company's ability to introduce new products or to compete
successfully could be adversely affected if it is unable to increase its
research and development efforts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $5.2 million or
51.5% of net sales in the second quarter of fiscal 1997 from $7.0 million
or 22.7% of net sales in the same quarter of fiscal 1996. Included in the
second quarter of fiscal 1997 expenses is a charge of $1.2 million for
increasing the allowance for doubtful accounts due to one account which the
Company determined was unlikely to be collected in full. Selling, general and
administrative expenses decreased from $16.9 million or 26.7% of net sales
for the first six months of fiscal 1996 to $9.3 million or 41.9% of net sales
for the corresponding period in fiscal 1997. The Company decreased its
selling, general and administrative expenses primarily by reducing expenses
related to headcount resulting from the Company's efforts to refocus its
business and business divestitures. The increase in selling, general and
administrative expenses expressed as a percentage of net sales was primarily
attributed to the decrease in net sales and the Company's refocusing on
higher-end products, rather than high-volume lower-margin products. Although
the Company expects selling, general and administrative expenses to increase
gradually over time, the Company does not expect them to approach historical
levels in absolute amount.
OTHER INCOME (EXPENSE), NET
There was no other income recorded in the second quarter of fiscal 1997. The
Company had other income of $18.1 million in the second quarter of fiscal
1996 resulting from income of approximately $17.2 million, primarily related
to product group divestitures.
INTEREST EXPENSE
Interest expense was $0.8 million in the second quarter of fiscal 1997 as
compared to $1.0 million in the same period of fiscal 1996. This decrease
was due to lower average interest rates on lower average borrowings.
NET LOSS
As a result of the above factors, the Company had a net loss of $5.4 million
and $6.2 million for the three and six months ended March 31, 1997,
respectively, as compared to a net income of $13.9 million and $4.1 million
for the three and six months ended March 31, 1996.
LITIGATION SETTLEMENT
In September 1992, the Company and certain of its officers and directors were
named as defendants in a securities class action litigation brought in the
United States District Court for the Northern District of California that
sought unspecified damages, prejudgment and post judgment interest,
attorneys' fees, expert witness fees and costs, and equitable relief. In
July 1994, SuperMac 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).
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<PAGE>
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.
As of March 31, 1997, the Company had issued 836,304 shares of its Common
Stock due to the settlements and 100,000 shares remained to be issued.
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.
Although the Company believes it has meritorious defenses to the plaintiffs'
claims, due to the costs of defense regardless of outcome, on March 11, 1997,
the Company along with all but two of the other named defendants agreed to
settle the suits, subject to final court approval. The settlement provides
that class members are eligible for a $13 rebate per monitor purchased during
the class period on applicable new purchases over a three year period,
subject to specific limitations. Class members who are consumers and do not
elect to use the rebate fully can thereafter elect to receive a $6 refund per
monitor (up to a maximum of $30 per consumer class member) during the
following six months. The Company is responsible only to class members who
purchased Radius branded monitors during the class period of May 1, 1991 to
May 1, 1995. Additionally, the Company will pay its share of publication and
administration costs associated with the implementation of the settlement,
pay its share of plaintiffs' stipulated attorneys' fees (estimated to be
approximately $75,000 and currently payable) and will agree to abide by
certain limitations in the description of its monitors. Final court approval
is expected after a court hearing currently set for June 30, 1997. See Note
3 to Consolidated Financial Statements - Commitments and Contingencies.
FINANCIAL CONDITION
The Company's cash decreased approximately $1.6 million in the first half
of fiscal 1997 to $1.4 million at March 31, 1997 as compared to the ending
balance at September 30, 1996. This decrease is primarily a result of the
loss from operations in the first half of fiscal 1997, less the non-cash
charges and changes in working capital items during this period, and the
interest payments associated with the Company's indebtedness with IBM Credit.
Approximately $0.5 million of the $1.4 million of cash and cash equivalents
available at March 31, 1997 was restricted under various letters of credit.
The Company's financial condition is extremely constrained under the terms of
its current loan agreement with IBM Credit, which includes an approximately
$21.9 million term loan and a $5 million working capital line of credit.
Under this agreement the Company has granted to IBM Credit a security
interest in substantially all of its assets including its securities in
Splash, Portrait Displays, Inc. ("PDI"), and UMAX Computer Corporation
("UMAX"). The securities in Splash are valued at $39.2 million on March 31,
1997, net of taxes which are estimated to be zero, and based on a closing
price of $25 per share as of such date. As the Company is an affiliate of
Splash, it can only sell its shares subject to the SEC Rule 144 volume
limitations, and is eligible to do so at this time.
The agreement with IBM Credit was amended in the second quarter of fiscal
1997 to reduce the interest rates on outstanding borrowings effective April
1, 1997 to prime rate plus 1.75% for the working capital line of credit and
to the prime rate plus 2.50% for the term loan. Additionally, the borrowing
base calculation under the working capital line of credit was modified to
include in the amounts available for borrowing, an amount equal to 25% of the
"excess value" of Splash Stock, as defined in the amendment to the agreement.
In the event the closing price of the Splash Common Stock is below $25 per
share, the "excess value" of the Splash Common Stock is excluded from the
calculation of the amounts available for borrowing under the working line of
credit.
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<PAGE>
The Company is currently negotiating with IBM Credit so that the "excess
value" of the Splash Common Stock is only excluded when it is below $22 per
share and expects to complete this negotiation within the third quarter.
There can be no assurance that this negotiation will be concluded favorably
to the Company.
Because of the exclusion of Splash Common Stock from the borrowing base
calculation when it is below $25 per share, and because of the Company's
pattern of product shipments with shipments higher at the end of the quarter
than at the beginning of the quarter, the Company may not have a sufficient
borrowing base to fully utilize the $5 million working capital line of credit
at all times. This could result in the delay in payments to vendors and may
delay product shipments when the Company is on credit hold.
As of March 31, 1997 the Company was in compliance with all of the financial
covenants under the amended loan agreement dated February 14, 1997. There
can be no assurance that IBM Credit will grant a waiver in the event the
Company fails to comply with these financial covenants in the future. See
Note 2 to Consolidated Financial Statements - Borrowings- contained in the
Company's Annual Report on Form 10K for the year ended September 30, 1996.
As a result of IBM's control over the Company's cash flow and restrictions
on the use of 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, which will be
significantly lower than historical amounts. 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. This consent was
granted prior to the Company's entering into the agreement with Reply
Corporation. 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."
The Company believes it has sufficient funds to finance its operations for
the remainder of the fiscal year. However, the level of operations which it
believes will be able to sustain for the next 6 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. Additional financing will be required if the Company desires to
acquire or invest in additional 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 a net operating loss in the second quarter and for
the six months ended March 31, 1997. The Company also experienced net
operating losses in each of the fiscal years ended September 30, 1993, 1994,
1995 and 1996. 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
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.
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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.
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. Amounts available under
this line of credit are affected by the amount eligible of accounts
receivable as well as the market price of Splash Common Stock, which if below
$25 per share, significantly reduces amounts available under this line of
credit. Because the Company has experienced operating losses in 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. See
"Financial Condition."
VOLATILITY OF STOCK PRICE
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 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 tradable
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.
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DEPENDENCE ON AND COMPETITION WITH APPLE
Historically, substantially all of the Company's products have been designed
for and sold to users of Apple computers, and it is expected that sales of
products relating to such computers will continue to represent substantially
all of the Company's product sales 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.
A number of the Company's products compete with products marketed by Apple.
As a competitor of the Company, Apple could in the future take steps to
hinder the Company's development of compatible products and slow sales of the
Company's products. The Company's business is based in part on supplying
products that meet the needs of high-end customers that are not fully met by
Apple's products. As Apple improves its products or bundles additional
hardware or software into its computers, the potential market for Radius
products that provide those capabilities will be reduced.
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 restructuring
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, customer support and its ability to
attract and retain key personnel, particularly in light of the Company's
financial condition. There can be no assurance that the Company will be able
to compete successfully with respect to these factors. In addition, the
introduction of lower priced competitive products could result in price
reductions that would adversely affect the Company's results of operations.
DEPENDENCE ON 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. 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
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.
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.
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<PAGE>
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. As a result of the Company's financial
condition, it has had to significantly reduce its research and development
expenditures. For the second quarter of fiscal 1997, the Company spent
approximately $997,000 on research and development as compared with
approximately $1.9 million for the second quarter of fiscal 1996. 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. See "Need for Additional Financing;
Loan Restrictions".
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. Third parties
carry many lines and have no minimum order requirements.
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. See "Results
of Operations - Net Sales".
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 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
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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 $0.5313
per share on December 27, 1996 and $0.3438 per share on March 28, 1997, an
additional 359,358 shares will be issued as dividend on the Series A
Convertible Preferred Stock. 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 March 31, 1997, there were 6,571,700 shares of Common Stock reserved
for issuance upon exercise by employees and consultants of outstanding
options. As of such date there were 900,111 shares of Common Stock
available for issuance under options to be granted to employees and
consultants and 158,998 shares reserved for issuances for purchases under the
Company's Employee Stock Purchase Plan. Additionally, 200,000 shares of
Common Stock were reserved for issuance under the Company's stock option
plans for non-employee directors, 45,000 of which were subject to outstanding
options. The Company amended its 1995 Stock Option Plan (the "1995 Plan")
to increase the number of shares available for issuance thereunder by
2,716,620 shares 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 tradable shares of
Common Stock outstanding which could exert downward pressure on the trading
price of the Common Stock.
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," in the Company's Annual
Report on Form 10-K for the year ended September 30, 1996, 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 Stock (which has not traded over $1.00 per share since
November 1996) 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 on such markets 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 3 to Consolidated Financial Statements - Commitments and Contingencies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on February 25, 1997, the
following proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until the next annual
meeting of shareholders and until their respective successors have been
elected and qualified or until their earlier resignation or removal.
Number of Shares
For Withheld
Charles W. Berger 37,197,248 1,883,530
Michael D. Boich 37,424,096 1,656,682
Carl A. Carlson 37,429,342 1,651,436
Dee Cravens 37,414,496 1,666,282
Mark M Housley 37,392,101 1,688,677
John C. Kirby 37,405,353 1,675,425
2. To approve an amendment to the Company's 1995 Stock Option Plan to
reserve an additional 2,716,620 shares of Common Stock for issuance
thereunder.
For 35,859,129
Against 2,857,759
Abstain 261,304
Broker Non-Vote 15,494,897
3. To ratify the appointment of Ernst & Young LLP as independent auditors of
the Company for it's fiscal year ending September 30, 1997.
For 38,654,662
Against 286,263
Abstain 139,853
Broker Non-Vote 15,392,311
ITEM 5. OTHER INFORMATION
Henry V. Morgan joined the Company on February 24, 1997 as Chief Financial
Officer and Senior Vice President, Finance and Administration. During 1995
and 1996, Mr. Morgan was Chief Financial Officer of Connect, Inc., Mountain
View, California, an Internet-based interactive commerce applications
software company. From 1989 through 1994, Mr. Morgan was Chief Financial
Officer of Logitech International, S.A., a computer mouse manufacturer.
On February 25, 1997, the shareholders approved the addition of Mark Housley,
Dee Cravens and John C. Kirby to the Board of Directors. See Item 4.
Mr. Cravens has been Vice President of Worldwide Corporate Marketing and
Communications at Adaptec, Inc. since February 1996. Mr. Cravens was Vice
President of Marketing of the Company from 1992 until 1996. Before joining
the Company, Mr. Cravens was a principal of the Cravens Group, a marketing
company for technology related businesses. Mr. Cravens is a board member of
the USL Entertainment Council and the IMagic Technology Group.
Mr. Kirby has been a principal and Executive Vice President of KH Consulting
Group since 1986. Mr. Kirby is responsible for this firm's reorganization
and financial restructuring practice. In this capacity, Mr. Kirby has
represented various debtors, secured parties, trade creditors and corporate
buyers and frequently assumes a management role in the client.
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Since early 1991, Mr. Kirby has been President and CEO of Cabrillo Crane &
Rigging, Inc., a wholly-owned subsidiary of Wells Fargo Bank. From 1992
until 1994, Mr. Kirby was Vice President and CFO of Everex Systems, Inc.
Mr. Housley has been President and Chief Operating Officer of the Company
since January 1997. From March 1995 until October 1996, Mr. Housley was
founder and Vice President of marketing of Spectrum Wireless, inc., a
manufacturer of wireless infrastructure products. From May 1992 until March
1995, Mr. Housley held various positions of responsibility for the Company
and its predecessor SuperMac Technologies, Inc., including Vice President and
General Manager of the Company's Color Publishing Division. From October
1990 until May 1992, Mr. Housley was a Vice President for Siemens in Santa
Clara, a multinational manufacturer of electronic equipment, directing
product marketing and planning.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed with this Quarterly Report:
11.01 Computation of per share earnings.
27.01 Financial Data Schedule (EDGAR version only).
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed during the three months ended March 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 12, 1997 RADIUS INC.
By: /s/
--------------------------------
Henry V. Morgan
Chief Financial Officer
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EXHIBIT 11.01
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Average common shares outstanding 54,879 18,079 54,770 18,002
Net effect of dilutive stock
options - based on the modified treasury
stock method using average
market price - 3 - 56
-------- ------- -------- -------
Totals 54,879 18,082 54,770 18,058
-------- ------- -------- -------
-------- ------- -------- -------
Net income (loss) $(5,516) $13,919 $(6,385) $ 4,136
-------- ------- -------- -------
-------- ------- -------- -------
Per share amount $ (0.10) $ 0.77 $ (0.12) $ 0.23
-------- ------- -------- -------
-------- ------- -------- -------
Fully diluted:
Average common shares outstanding 54,879 18,079 54,770 18,002
Net effect of dilutive stock
options - based on the modified treasury stock method
using quarter end market price which is greater than
average market price - 3 - 56
-------- ------- -------- -------
Totals 54,879 18,082 54,770 18,058
-------- ------- -------- -------
-------- ------- -------- -------
Net income (loss) $(5,516) $13,919 $(6,385) $ 4,136
-------- ------- -------- -------
-------- ------- -------- -------
Per share amount* $ (0.10) $ 0.77 $ (0.12) $ 0.23
-------- ------- -------- -------
-------- ------- -------- -------
</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.
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,408
<SECURITIES> 0
<RECEIVABLES> 15,407
<ALLOWANCES> (3,795)
<INVENTORY> 4,526
<CURRENT-ASSETS> 35,181
<PP&E> 35,368
<DEPRECIATION> (34,399)
<TOTAL-ASSETS> 58,140
<CURRENT-LIABILITIES> 15,358
<BONDS> 60
0
3,000
<COMMON> 168,928
<OTHER-SE> (151,146)
<TOTAL-LIABILITY-AND-EQUITY> 58,140
<SALES> 10,147
<TOTAL-REVENUES> 10,147
<CGS> 8,409
<TOTAL-COSTS> 8,409
<OTHER-EXPENSES> 6,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 757
<INCOME-PRETAX> (5,246)
<INCOME-TAX> 195
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,441)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
