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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 DECEMBER 30, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13(D) OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
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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)
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
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THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ON FEBRUARY
10, 1996 WAS 17,401,611.
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This report consists of 20 sequentially numbered pages. The exhibit index on
this report is located on sequentially numbered page 19.
RADIUS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1995 and
September 30, 1995 3
Consolidated Statements of Operations for the Three Months
Ended December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 18
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-2-
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RADIUS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
DECEMBER 31, SEPTEMBER 30,
1995 1995 (1)
------------ -------------
(unaudited)
ASSETS:
Current assets:
Cash $ 6,990 $ 4,760
Accounts receivable, net 25,308 61,644
Inventories 12,564 15,071
Prepaid expenses and other current assets 12,091 2,336
Income tax receivable 517 519
-------- --------
Total current assets 57,470 84,330
Property and equipment, net 2,572 3,031
Deposits and other assets 512 517
-------- --------
$ 60,554 $ 87,878
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (Net capital deficiency)
Current liabilities:
Accounts payable $42,886 $73,098
Accrued payroll and related expenses 6,083 5,815
Accrued warranty costs 2,510 3,170
Other accrued liabilities 11,231 11,920
Accrued income taxes 1,636 1,665
Accrued restructuring and other charges 16,980 17,013
Short-term borrowings 43,795 29,489
Obligation under capital leases - current portion 1,524 1,494
-------- --------
Total current liabilities 126,645 143,664
Obligations under capital leases - noncurrent portion 831 1,331
Commitments and contingencies
Shareholders' equity: (Net capital deficiency)
Common stock 117,127 113,791
Common stock to be issued 8,695 12,022
Accumulated deficit (192,776) (182,993)
Accumulated translation adjustment 32 63
-------- --------
Total shareholders' equity (Net capital deficiency) (66,922) (57,117)
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$60,554 $87,878
-------- --------
-------- --------
(1) The balance sheet at September 30, 1995 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.
-3-
RADIUS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
THREE MONTHS ENDED
DECEMBER 31,
------------------
1995 1994
---- ----
Net sales $32,652 $79,235
Cost of sales 28,607 56,758
------- -------
Gross profit 4,045 22,477
------- -------
Operating expenses:
Research and development 3,630 4,118
Selling, general and administrative 9,961 15,882
------- -------
Total operating expenses 13,591 20,000
------- -------
Income (loss) from operations (9,546) 2,477
Other expense (46) (920)
Settlement of litigation - (12,422)
------- -------
Loss before income taxes (9,592) (10,865)
Provision for income taxes 191 156
------- -------
Net loss $(9,783) $(11,021)
------- -------
------- -------
Loss per share:
Net loss per share $ (0.57) $ (0.78)
------- -------
------- -------
Common and common equivalent shares used 17,248 14,215
in computing net loss per share ------- -------
------- -------
See accompanying notes.
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RADIUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands, unaudited)
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
1995 1994
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Cash flows from operating activities:
Net loss $ (9,783) $ (11,021)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 654 688
Common stock to be issued - 12,022
(Increase) decrease in assets:
Accounts receivable 36,352 (1,425)
Allowance for doubtful accounts (47) 283
Inventories 2,507 (10,620)
Prepaid expenses and other current assets (9,755) (16)
Income tax receivable 2 -
Deferred income taxes - -
Increase (decrease) in liabilities:
Accounts payable (30,212) 8,894
Accrued payroll and related expenses 268 499
Accrued warranty costs (660) 15
Other accrued liabilities (689) 3,748
Accrued restructuring costs (33) (7,165)
Accrued income taxes (29) 103
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Net cash used in operating activities (11,425) (3,995)
Cash flows from investing activities:
Capital expenditures (195) (955)
Deposits and other assets 5 (270)
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Net cash used in investing activities (190) (1,225)
Cash flows from financing activities:
Principal borrowings(payments) of short-term borrowings, net 14,306 (17)
Principal payments of long-term debt and capital leases (470) (604)
Issuance of common stock 9 299
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Net cash provided by (used in) financing activities 13,845 (322)
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Net increase (decrease) in cash and cash equivalents 2,230 (5,542)
Cash and cash equivalents, beginning of period 4,760 15,997
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Cash and cash equivalents, end of period $ 6,990 $ 10,455
--------- ---------
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest paid $ 934 $ 389
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--------- ---------
Income taxes paid $ 218 $ -
--------- ---------
--------- ---------
See accompanying notes.
-5-
RADIUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Radius Inc. ("Radius") as of December
31, 1995 and for the three months ended December 31, 1995 and 1994 are
unaudited. In the opinion of management, the consolidated financial statements
reflect all adjustments (consisting only of normal recurring items) necessary
for a fair presentation of the financial position and results of operations for
the interim periods presented. These consolidated financial statements should
be read in conjunction with the Consolidated Financial Statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1995.
During the first quarter of its 1995 fiscal year, the Company changed its fiscal
year end from the Sunday closest to September 30 to the Friday closest to
September 30. During the second quarter of its 1995 fiscal year, the Company
changed its fiscal year end to the Saturday closest to September 30 for
operational efficiency purposes. For clarity of presentation, all fiscal
periods are reported as ending on a calendar month end.
NOTE 2. INVENTORIES
Inventories, stated at the lower of cost or market, consist of (in thousands):
DECEMBER 31, SEPTEMBER 30,
1995 1995
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(unaudited)
Raw materials $ 1,927 $ 1,559
Work in process 1,107 2,258
Finished goods 9,530 11,254
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$ 12,564 $ 15,071
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NOTE 3. COMMITMENTS AND CONTINGENCIES
(a) In November 1995, Electronics for Imaging, Inc. ("EFI") filed a suit in the
United States District Court in the Northern District of California alleging
that the Company infringes a patent allegedly owned by EFI. Although the
complaint does not specify which of the Company's products allegedly infringe
the patent, subsequent pleading indicates that EFI alleges that the Company's
Color Server products allegedly infringe. As of December 31, 1995, the
Company's Color Server products were material to its business. In January 1996,
the Company completed its divestiture of the Color Server Group. The Company
has certain indemnification obligations relating to this litigation. See Item 5
Other Information - Color Server Group Divestiture.
The Company has filed an answer denying all material allegations, and has filed
amended counterclaims against EFI alleging causes of action for interference
with prospective economic benefit, antitrust violations, and unfair business
practices. EFI has filed a motion to dismiss or sever the Company's amended
counterclaims. The Company believes it has meritorious defenses to EFI's claims
and is defending them vigorously. In addition, the Company believes it may have
indemnification rights with respect to EFI's claims. In the opinion of
management, based on the facts known at this time, the eventual outcome of this
case is unlikely to have a material adverse effect on the results of operations
or financial position of the Company.
(b) The Company was named as one of approximately 42 defendants in Shapiro et
al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara
County, case no. CV751685, filed August 14, 1995. Radius was named as one of
approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer et al.,
Superior Court of New Jersey, Essex County, case no. L-13780-95, filed December
15, 1995. Plaintiffs in each case purport to represent alleged classes of
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similarly situated persons and/or the general public, and allege that the
defendants falsely advertise that the viewing areas of their computer monitors
are larger than in fact they are.
The Company was served with the Shapiro complaint on August 22, 1995, and was
served with the Maizes complaint on January 5, 1996. Defendants' petition to
the California State Judicial Council to coordinate the Shapiro case with
similar cases brought in other California jurisdictions was granted in part and
it is anticipated that the coordinated proceedings will be held in Superior
Court of California, San Francisco County. Discovery proceedings have not yet
begun in either case. In the opinion of management, based on the facts known at
this time, the eventual outcome of these cases is unlikely to have a material
adverse effect on the results of operations or financial position of the
Company.
NOTE 4. BUSINESS DIVESTITURES
COLOR SERVER GROUP DIVESTITURE
In December 1995, the Company signed a definitive agreement pursuant to which
the Company will sell its Color Server Group ("CSG") to Splash Merger Company,
Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology Holdings,
Inc. (the "Parent"), a corporation formed by various investment entities
associated with Summit Partners. The Company will receive approximately
$21,945,175 in cash (subject to certain post-closing adjustments) and 4,282
shares of the Parent's 6% Series B Redeemable and Convertible Preferred Stock
(the "Series B Preferred Stock"). The shares of Series B Preferred Stock will be
convertible by the Company at any time into approximately 19.9% of the Parent's
common stock outstanding as of the closing of the transaction. The shares of
Series B Preferred Stock also will be redeemable by the Parent at any time, and
will be subject to mandatory redemption beginning on the sixth anniversary of
issuance, in each case at a redemption price of $1,000 per share plus accrued
dividends. The transaction, as subsequently amended, closed in January 1996.
The Company retains certain indemnification obligations in connection with the
patent lawsuit brought by Electronics for Imaging, Inc. See Item 1 "Legal
Proceedings". The net proceeds of the Color Server Group transaction were paid
to Silicon Valley Bank ("SVB"), in order to repay the Company's indebtedness to
SVB, and to IBM Credit Corp. ("ICC"), in order to reduce the Company's
outstanding indebtedness to ICC.
PORTRAIT DISPLAY LABS
In December 1995, the Company signed a series of agreements with Portrait
Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting
technology to PDL and canceled PDL's on-going royalty obligation to the Company
under an existing license agreement in exchange for a one-time cash payment. PDL
also granted the Company a limited license back to the pivoting technology.
Under these agreements, PDL also settled its outstanding receivable to the
Company by paying the Company $500,000 in cash and issuing to the Company
214,286 shares of PDL's Common Stock. These transactions closed in January
1996.
DISPLAY TECHNOLOGIES ELECTROHOME INC.
In December 1995, the Company signed a Business Purchase Agreement and an Asset
Purchase and License Agreement with Display Technologies Electrohome Inc.
("DTE"). Pursuant to the agreements, DTE purchased Radius' monochrome display
monitor business and certain assets related thereto, for approximately $200,000
in cash and cancellation of $2.5 million of the Company's indebtedness to DTE.
In addition, DTE and Radius canceled outstanding contracts relating to DTE's
manufacture and sale of monochrome display monitors to Radius.
UMAX DATA SYSTEMS, INC.
In January 1996, the Company signed a definitive agreement pursuant to which the
Company will sell its MacOS compatible systems business to UMAX Computer
Corporation ("UCC"), a company formed by UMAX Data Systems, Inc. ("UMAX"). The
Company will receive approximately $2,250,000 in cash and debt relief, and
1,492,500 shares of UCC's Common Stock, representing approximately 19.9% of
UCC's then outstanding shares of Common Stock. After the closing, the Company
has a right to receive royalties based on UCC's net revenues related to the
MacOS compatible systems business. The closing of this transaction is subject
to certain conditions.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the consolidated
interim financial statements and the notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the year ended September 30, 1995.
All assumptions, anticipations, and expectations contained herein are forward-
looking statements that involve uncertainty and risk. Actual results could
differ materially from those projected in such forward-looking statements. Each
forward-looking statement should be read in conjunction with the entire
consolidated interim financial statements and the notes thereto in Part I, Item
1 of this Quarterly Report, with the information contained in Item 2, including,
but not limited to, Management's Discussion and Analysis of Financial Condition
and Results of Operations - Certain Factors That May Affect Future Results, and
with Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the year
ended September 30, 1995, including, but not limited to, Management's Discussion
and Analysis of Financial Condition -- Certain Factors That May Affect the
Company's Future Results of Operations, and Business Divestitures.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operational
data as a percentage of net sales (may not add due to rounding).
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1995 1994
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Net sales 100.0% 100.0%
Cost of sales 87.6 71.6
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Gross profit 12.4 28.4
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Operating expenses:
Research and development 11.1 5.2
Selling, general and administrative 30.5 20.0
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Total operating expenses 41.6 25.2
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Income (loss) from operations (29.2) 3.1
Other expense (0.1) (1.2)
Settlement of litigation - (15.7)
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Loss before income taxes (29.4) (13.7)
Provision for income taxes 0.6 0.2
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Net loss (30.0)% (13.9)%
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NET SALES
The Company's net sales decreased 58.8% to $32.7 million in the first quarter of
fiscal 1996 from $79.2 million for the same quarter in fiscal 1995. This
decline was primarily due to the Company's efforts to refocus its business which
included exiting markets for high-volume low-margin displays and reduced sales
of the Company's video products caused by Apple's shift from Nubus to PCI Bus
computers. The Company anticipates lower revenue from its video product line in
the future, at least until the Company introduces new products now under
development including those which function on PCI Bus computers. These declines
were partially offset by an increase in net sales from the Company's color
server products. As a result of the sale by the Company of its Color Server
Group (as described more fully in the Company's Annual Report on Form 10-K,
Management's Discussion and Analysis of Financial Condition -- "Certain Factors
That May Affect the Company's Future Results of Operations, and Business
Divestitures," and below in Item 5 "Other Information"), revenue from the
Company's color server products will not continue. Net sales of the Company's
graphics cards was essentially unchanged despite the transition from Nubus to
PCI Bus.
-8-
One customer, Ingram Mirco, accounted for 37.5% and 10% of the Company's net
sales for the first quarter of fiscal 1996 and 1995, respectively.
The Company's export sales increased to 63.4% of net sales in first quarter of
fiscal 1996 from 29.2% of net sales in the same quarter of fiscal 1995 primarily
due to increased sales in the Asia-Pacific sales region combined with decreased
sales in the North America sales region. The Company anticipates a continued
significant percentage of net sales will be attributable to the Asia-Pacific
sales region even after the divestiture of the Company's Color Server Group.
Export sales are subject to the normal risks associated with doing business in
foreign countries such as currency fluctuations, longer payment cycles, greater
difficulties in accounts receivable collection, export controls and other
government regulations and, in some countries, a lesser degree of intellectual
property protection as compared to that provided under the laws of the United
States. The Company hedges substantially all of its trade receivables
denominated in foreign currency through the use of foreign currency forward
exchange contracts. Gains and losses associated with currency rate changes on
forward contracts are recognized in the Company's consolidated statements of
operations and were not material in the first quarter of fiscal 1996 or 1995.
GROSS PROFIT
The Company's gross profit margin was 12.4% and 28.4% for the first quarters of
fiscal 1996 and 1995, respectively. The decline in gross margin was primarily
due to pricing pressure and greater competition in PCI Bus products than in
Nubus products, and price declines on lower margin displays related to the
Company's exit from that business.
The Company anticipates continued price reductions and margin pressure within
its industry. The Company is responding to these trends by focusing on higher
margin products, taking further steps to reduce product costs and controlling
expenses. There can be no assurance that the Company's gross margins will
recover or remain at current levels.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased to $3.6 million or 11.1% of net
sales in the first quarter of fiscal 1996 from $4.1 million or 5.2% of net sales
in the same quarter of fiscal 1995. The Company decreased its research and
development expenses primarily by reducing expenses related to headcount
resulting from the Company's efforts to refocus its business. The increase in
research and development expenses expressed as a percentage of net sales was
primarily attributed to the decrease in net sales and the Company's refocusing
on higher-end products, rather than high-volume lower-margin products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $10.0 million or 30.5%
of net sales in the first quarter of fiscal 1996 from $15.9 million or 20.0% of
net sales in the same quarter of fiscal 1995. The Company decreased its
selling, general and administrative expenses primarily by reducing expenses
related to headcount resulting from the Company's efforts to refocus its
business. The increase in selling, general and administrative expenses
expressed as a percentage of net sales was primarily attributed to the decrease
in net sales and the Company's refocusing on higher-end products, rather than
high-volume lower-margin products.
RESTRUCTURING, MERGER AND OTHER CHARGES
During fiscal 1994 and 1995, two restructuring and other charges were recorded.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These charges
include the discontinuance of duplicative product lines and related assets;
elimination of duplicative facilities, property and equipment and other assets;
and personnel severance costs as well as transaction fees and costs incidental
to the merger. The charges (in thousands) are included in: net sales ($3,095);
cost of sales ($25,270); research and development ($4,331); and selling, general
and administrative expenses ($10,711). The elements of the total charge as of
December 31, 1995 are as follows (in thousands):
-9-
Representing
---------------------------------------------
Cash Outlays
------------------------
Asset
Provision Write-Downs Completed Future
Adjust inventory levels $22,296 $19,200 $ 3,096 $ -
Excess facilities 2,790 400 2,239 151
Revision of the operations business model 9,061 7,078 1,268 715
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
------- ------- ------- -------
Total charges $43,407 $26,678 $15,863 $ 866
The adjustment of inventory levels reflects the discontinuance of duplicative
product lines. The provision for excess facility costs represents the write-off
of leaseholds and sublease costs of Radius' previous headquarters, the
consolidation into one main headquarters and the consolidation of sales offices.
The revision of the operations business model reflects the reorganization of the
combined Company's manufacturing operations to mirror Radius' manufacturing
reorganization in 1993. This reorganization was designed to outsource a number
of functions that previously were performed internally, reduce product costs
through increased efficiencies and lower overhead, and focus the Company on a
limited number of products. Employee severance costs are related to employees
or temporary employees who were released due to the revised business model.
Approximately 250 employees were terminated in connection with the Merger. The
provision for merger related costs is for the costs associated with the Merger
transaction, such as legal, investment banking and accounting fees. The
Company has spent $15.9 million of cash for restructuring through December 31,
1995. The Company expects to have substantially completed the restructuring by
September 1996. During fiscal 1995, approximately $2.1 million of merger
related restructuring reserves were reversed and recorded as an expense
reduction due to changes in estimated requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES
In September 1995, Radius recorded charges of $57.9 million in connection with
the Company's efforts to restructure its operations by refocusing its business
on the color publishing and multimedia markets. The charges primarily included
a writedown of inventory and other assets. Additionally, the charges included
expenses related to the cancellation of open purchase orders, excess facilities
and employee severance. The Company continues to record charges relating to its
restructuring during the quarter ended December 31, 1995, and the charges
included expenses related to employee severance of $448,000. The Charges (in
thousands) are included in cost of sales ($47,004), and selling, general and
administrative expense ($10,861). The elements of the total charge as of
December 31, 1995 are as follows (in thousands):
Representing
---------------------------------------------
Cash Outlays
------------
Asset
Provision Write-Downs Completed Future
Adjust inventory levels $ 33,138 $ 32,300 $ - $ 838
Excess facilities 2,004 404 - 1,600
Cancellation fees and asset write-offs 19,061 5,196 - 13,865
Employee severance 3,662 - 448 3,214
--------- --------- -------- ---------
Total charges $ 57,865 $ 37,900 $ 448 $ 19,517
The adjustment of inventory levels reflects the discontinuance of several
product lines. The provision for excess facility costs represent the write-off
of leasehold improvements and the costs associated with anticipated reductions
in facilities. The cancellation fees and asset write-offs reflect the Company's
decision to refocus its efforts on providing solutions for the color publishing
and multimedia markets. Employee severance costs are related to employees or
temporary employees who have been or will be released due to the restructuring.
During the quarter ended December 31, 1995, approximately 200 positions had been
eliminated in connection with the restructuring. The Company had spent
approximately $448,000 of cash for this restructuring during the quarter ended
December 31, 1995. As of December 31, 1995, the Company had cash of $7.0
million. See the Company's Annual Report on Form 10-K, and "Management's
Business Recovery Plans" at Note 1 to the Consolidated Financial Statements
contained therein. The Company expects to have substantially completed the
restructuring by September 1996.
-10-
LITIGATION SETTLEMENT
In September 1992, the Company and certain of its officers and directors were
named as defendants in a securities class action litigation brought in the
United States District Court for the Northern District of California that sought
unspecified damages, prejudgment and post judgment interest, attorneys' fees,
expert witness fees and costs, and equitable relief. In July 1994, SuperMac
Technology, Inc. ("SuperMac") and certain of its officers and directors, several
venture capital firms and several of the underwriters of SuperMac's May 1992
initial public offering and its February 1993 secondary offering were named as
defendants in a class action litigation brought in the same court that sought
unspecified damages, prejudgment and post judgment interest, attorneys' fees,
experts' fees and costs, and equitable relief (including the imposition of a
constructive trust on the proceeds of defendants' trading activities).
In June 1995, the Court approved the settlement of both litigations and entered
a Final Judgment and Order of Dismissal. Under the settlement of the litigation
brought in 1992 against the Company, the Company's insurance carrier paid $3.7
million in cash and the Company is to issue a total of 128,695 shares of its
Common Stock to a class action settlement fund. In the settlement of the
litigation brought in 1994 against SuperMac, the Company paid $250,000 in cash
and is to issue into a class action settlement fund a total of 707,609 shares of
its Common Stock. The number of shares to be issued by the Company will
increase by up to 100,000 if the price of the Company's Common Stock is below
$12 per share during the 60-day period following the initial issuance of shares.
In connection with these settlements, the financial statements for the first
quarter of fiscal 1995 included a charge to other income of $12.4 million,
reflecting settlement costs not covered by insurance as well as related legal
fees, resulting in a reduction in net income from $1.4 million to a net loss of
$11.0 million or $0.78 per share for the quarter.
The settlements will result in dilution to existing shareholders of the Company
ranging from 4.8% to 5.4% depending on the number of shares of Radius Common
Stock issued. The Company had 17,401,094 weighted average common shares
outstanding as of December 31, 1995. As of December 31, 1995, the Company had
issued 259,130 shares of its Common Stock due to the settlements. The Company
anticipates that the remainder will be issued prior to June 30, 1996. See Note
3 of Notes to Consolidated Financial Statements contained herein.
PROVISION FOR INCOME TAXES
The Company recorded a tax provision of $191,000 for the first quarter of fiscal
1996 as compared to a provision for taxes for the first quarter of fiscal 1995
of $156,000. The tax provision is primarily comprised of foreign taxes.
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The Company
has provided a full valuation allowance against its net deferred tax assets due
to uncertainties surrounding their realization. Due to the net losses reported
in the prior three years and as a result of the material changes in operations
reported in its 1995 fiscal fourth quarter, predictability of earnings in future
periods is uncertain. The Company will evaluate the realizability of the
deferred tax asset on a quarterly basis.
FINANCIAL CONDITION
The Company's cash increased approximately $2.2 million in the first quarter of
fiscal 1996 to $7.0 million at December 31, 1995 as compared to the ending
balance at September 30, 1995. This increase was primarily due to the revised
terms of the Inventory and Working Capital Agreement, as recently amended, with
IBM Credit Corp. Approximately $0.9 million of the $7.0 million of cash and
cash equivalents available at December 31, 1995 was restricted under various
letters of credit.
At December 31, 1995, the Company's principal sources of liquidity included
approximately $30.0 million in inventory and working capital financing (and an
additional $20.0 million provided to finance the manufacturing of the Company's
MacOS compatible computers) under an agreement with IBM Credit Corporation (the
"ICC Agreement"), all of which was fully utilized. At December 31, 1995,
approximately $40.1 million was outstanding to IBM Credit Corp., which was
subsequently reduced by approximately $16.6 million in connection with the sale
of the Company's Color Server Group to
-11-
Splash Merger Company, Inc. and the sale of the Company's pivoting technology to
Portrait Display Labs, Inc. in the first calendar quarter of 1996.
In addition, at December 31, 1995, the Company had a $5.0 million credit
arrangement with Silicon Valley Bank ("SVB") which was partially utilized as of
that date. Additionally, the Company's Japanese subsidiary has a revolving line
of credit with a bank in Japan under which $3.0 million has been utilized as of
December 31, 1995.
As of December 31, 1995, IBM Credit Corp. had waived defaults of the Company
with respect to its contractual obligations and financial covenants under the
ICC Agreement, pursuant to an amendment to the ICC Agreement executed in
December 1995 (the "ICC Amendment") which expires March 31, 1995. The ICC
Amendment, among other things, also provides that IBM Credit Corp. will extend
advances to the Company in an amount up to 90% of the Company's collections and
fund the Company's payroll in the event that collections are insufficient to
permit the advances needed for this purpose. Such advances and payroll funding,
however, may be suspended by IBM Credit Corp. (i) immediately following a
default of the ICC Amendment, and (ii) following thirty days notice in the event
of any default of the underlying ICC Agreement. In the first calendar quarter
of 1996, the Company was not in compliance with all its contractual obligations
and financial covenants under its credit arrangement with ICC.
As of December 31, 1995, the Company was not in compliance with all of its
contractual obligations and financial covenants under its credit arrangement
with SVB. As of December 31, 1995 approximately $700,000 was outstanding under
this credit arrangement, all of which the Company repaid SVB during the first
calendar quarter of 1996 from the proceeds of the sale of the Company's Color
Server Group.
The Company's limited cash resources have restricted the Company's ability to
purchase inventory, which in turn has limited its ability to manufacture and
sell products and has resulted in additional costs for expedited deliveries.
The Company also is delinquent in its accounts payable as payments to vendors
are not being made in accordance with vendor terms. Several vendors have
initiated legal action to collect allegedly delinquent accounts and at least two
vendors have threatened the Company with institution of insolvency and/or
bankruptcy proceedings. The adverse effect on the Company's results of
operations due to its limited cash resources can be expected to continue until
such time as the Company is able to return to profitability, or generate
additional cash from other sources. There can be no assurance that the Company
will be able to do so.
Additional funds will be needed to finance the Company's development plans and
for other purposes, and the Company is now investigating possible financing
opportunities. There can be no assurance that additional financing will be
available when needed or, if available, that the terms of such financing will
not adversely affect the Company's results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:
NET CAPITAL DEFICIENCY; CREDITOR DEMANDS AND LITIGATION
As of December 31, 1995, the Company had total assets of approximately $60.6
million and total current liabilities of approximately $126.6 million. The
Company is delinquent in its accounts payable as payments to certain vendors are
not being made in accordance with vendor terms. In addition to the matters
discussed in Part II below under "Item 1. Legal Proceedings," several vendors
have initiated legal action to collect allegedly delinquent accounts. At least
two vendors have orally threatened the Company with initiation of insolvency or
bankruptcy proceedings.
The Company has initiated the process of establishing a creditors' committee in
an effort to work toward resolving the capital deficiency and creditor
litigation issues outside of formal insolvency or bankruptcy proceedings. The
Company anticipates formally proposing a plan under which unsecured creditors'
claims will be exchanged for equity in the Company and/or in certain businesses
or holdings of the Company.
The Company has incurred and expects to continue to incur significant legal
expense in responding to creditor demands, litigation, and the workout process.
There can be no assurance that the Company will be able to reach accommodation
-12-
with its secured creditors and its unsecured creditors outside of
bankruptcy, or that the terms of any accommodation reached will
not dilute shareholder value or adversely affect the Company's
result of operations. There can be no assurance that the Company
will not be placed into an involuntary bankruptcy by its
creditors, or that, if bankruptcy proceedings are initiated, they
will not result in the liquidation of the Company or will not
otherwise materially and adversely affect the Company's result of
operations.
Absent reaching an agreement with its creditors, the Company will
require additional funding to repay its accounts payable and
other indebtedness, in addition to funding its operating and
product development activities. The company is investigating
possible financing alternatives, although there can be no
assurance that additional financing will be available when needed
or, if available, that the terms of such financing will not
adversely affect the Company's results of operations.
CONTINUING OPERATING LOSSES
The Company experienced net operating losses in the fiscal
quarter ended December 31, 1995, and in each of the fiscal years
ended September 30, 1993, 1994 and 1995. The Company's ability
to continue operations will depend, initially, upon the Company's
success in negotiating accommodations with creditors; assuming
such accommodations are reached, the Company's ability to achieve
and sustain profitable operations will depend upon a number of
other factors, including the Company's ability to control costs;
to develop innovative and cost-competitive new products and to
bring those products to market in a timely manner; the continual
commercial acceptance of Apple computers and the rate and mix of
Apple computers and related products sold; competitive factors
such as new product introductions, product enhancements and
aggressive marketing and pricing practices; general economic
conditions; and other factors. The Company has faced and expects
to continue to face increased competition in graphic cards as a
result of Apple's transition of its product line to the PCI Bus.
In addition, the Company anticipates significantly lower revenue
and gross profit from its digital video products primarily due to
lower than anticipated sell through rates for Radius Telecast and
the delayed debut of PCI Bus compatible video products. For
these and other reasons, there can be no assurance that the
Company will be able to achieve profitability in the near term.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced substantial fluctuations in operating
results. The Company's customers generally order on an as-needed
basis, and the Company has historically operated with relatively
small backlogs. Quarterly sales and operating results depend
heavily on the volume and timing of bookings received during the
quarter, which are difficult to forecast. A substantial portion
of the Company's revenues are derived from sales made late in
each quarter, which increases the difficulty in forecasting sales
accurately. Recently, shortages of available cash have delayed
the Company's receipt of products from suppliers and increased
shipping and other costs. The Company recognizes sales upon
shipment of product, and allowances are recorded for estimated
uncollectable amounts, returns, credits and similar costs,
including product warranties and price protection. Due to the
inherent uncertainty of such estimates, there can be no assurance
that the Company's forecasts regarding bookings, collections,
rates of return, credits and related matters will be accurate. A
significant portion of the operating expenses of the Company are
relatively fixed in nature, and planned expenditures are based
primarily on sales forecasts which, as indicated above, are
uncertain. Any inability on the part of the Company to adjust
spending quickly enough to compensate for any failure to meet
sales forecasts or to receive anticipated collections, or any
unexpected increase in product returns or other costs, could also
have an adverse impact on the Company's operating results.
DEPENDENCE ON AND COMPETITION WITH APPLE
Historically, substantially all of the Company's products have
been designed for and sold to users of Apple personal computers,
and it is expected that sales of products for such computers will
continue to represent substantially all of the net sales of the
Company for the foreseeable future. The Company's operating
results would be adversely affected if Apple should lose market
share, if Macintosh sales were to decline or if other
developments were to adversely affect Apple's business.
Furthermore, any difficulty that may be experienced by Apple in
the development, manufacturing, marketing or sale of its
computers, or other disruptions to, or uncertainty in the market
regarding, Apple's business, resulting from these or other
factors could result in reduced demand for Apple computers, which
in turn could materially and adversely affect sales of the
Company's products. As software applications for the color
publishing and multimedia markets become more available on
platforms other than Macintosh, it is likely that these other
platforms will continue to gain acceptance in these markets. For
example, recently introduced versions of the Windows operating
environment support high performance graphics and video
applications similar to those offered on the Macintosh. There is
a risk that this trend will reduce the
-13-
support given to Macintosh products by third party developers and could
substantially reduce demand for Macintosh products and peripherals over
the long term.
A number of the Company's products compete with products marketed
by Apple. As a competitor of the Company, Apple could in the
future take steps to hinder the Company's development of
compatible products and slow sales of the Company's products.
The Company's business is based in part on supplying products
that meet the needs of high-end customers that are not fully met
by Apple's products. As Apple improves its products or bundles
additional hardware or software into its computers, it reduces
the market for Radius products that provide those capabilities.
For example, the Company believes that the on-board performance
capabilities included in Macintosh Power PC products have reduced
and continue to reduce overall sales for the Company's graphics
cards. In the past, the Company has developed new products as
Apple's progress has rendered existing Company products obsolete.
However, in light of the Company's current financial condition
there can be no assurance that the Company will continue to
develop new products on a timely basis or that any such products
will be successful. In order to develop products for the
Macintosh on a timely basis, the Company depends upon access to
advance information concerning new Macintosh products. A
decision by Apple to cease sharing advance product information
with the Company would adversely affect the Company's business.
New products anticipated from and introduced by Apple could cause
customers to defer or alter buying decisions due to uncertainty
in the marketplace, as well as presenting additional direct
competition for the Company. For example, the Company believes
that Apple's transition during 1994 to Power PC products caused
delays and uncertainties in the market place and had the effect
of reducing demand for the Company's products. In addition,
sales of the Company's products have been adversely affected by
Apple's revamping of its entire product line from Nubus-based to
PCI Bus-based computers. In the past, transitions in Apple's
products have been accompanied by shortages in those products and
in key components for them, leading to a slowdown in sales of
those products and in the development and sale by the Company of
compatible products. In addition, it is possible that the
introduction of new Apple products with improved performance
capabilities may create uncertainties in the market concerning
the need for the performance enhancements provided by the
Company's products and could reduce demand for such products.
COMPETITION
The markets for the Company's products are highly competitive,
and the Company expects competition to intensify. Many of the
Company's current and prospective competitors have significantly
greater financial, technical, manufacturing and marketing
resources than the Company. The Company believes that its
ability to compete will depend on a number of factors, including
the amount of financial resources available to the Company,
whether the Company can reach an accommodation with its
creditors, success and timing of new product developments by the
Company and its competitors, product performance, price and
quality, breadth of distribution and customer support. There can
be no assurance that the Company will be able to compete
successfully with respect to these factors. In addition, the
introduction of lower priced competitive products could result in
price reductions that would adversely affect the Company's
results of operations.
DEPENDENCE ON SUPPLIERS
The Company outsources the manufacturing and assembly of its
products to third party suppliers. Although the Company uses a
number of manufacturer/assemblers, each of its products is
manufactured and assembled by a single supplier. The failure of
a supplier to ship the quantities of a product ordered by the
Company could cause a material disruption in the Company's sales
of that product. In the past, the Company has at times
experienced substantial delays in its ability to fill customer
orders for displays and other products, due to the inability of
certain suppliers to meet their volume and schedule requirements
and, more recently, due to the Company's shortages in available
cash. Such shortages have caused some suppliers to put the
Company on a cash basis, and there is a risk that suppliers will
discontinue their relationship with the Company. In the past,
the Company has been vulnerable to delays in shipments from
suppliers because the Company has sought to manage its use of
working capital by, among other things, limiting the backlog of
inventory it purchases. More recently, this vulnerability has
been exacerbated by the Company's shortages in cash reserves.
Delays in shipments from suppliers can cause fluctuations in the
Company's short term results and contribute to order
cancellations. The Company currently has arranged payment terms
for certain of its major suppliers such that certain of the
Company's major customers pay these suppliers directly for
products ordered and shipped.
The Company is also dependent on sole or limited source suppliers
for certain key components used in its products, including
certain digital to analog converters, digital video chips, and
other products. Certain other semiconductor
-14-
components and molded plastic parts are also purchased from sole or
limited source suppliers. The Company purchases these sole or limited
source components primarily pursuant to purchase orders placed
from time to time in the ordinary course of business and has no
guaranteed supply arrangements with sole or limited source
suppliers. The Company expects that these suppliers will
continue to meet its requirements for the components, but there
can be no assurance that they will do so. The introduction of
new products presents additional difficulties in obtaining timely
shipments from suppliers. Additional time may be needed to
identify and qualify suppliers of the new products. Also, the
Company has experienced delays in achieving volume production of
new products due to the time required for suppliers to build
their manufacturing capacity. An extended interruption in the
supply of any of the components for the Company's products,
regardless of the cause, could have an adverse impact on the
Company's results of operations. The Company's products also
incorporate components, such as VRAMs, DRAMs and ASICs that are
available from multiple sources but have been subject to
substantial fluctuations in availability and price. Since a
substantial portion of the total material cost of the Company's
products is represented by these components, significant
fluctuations in their price and availability could affect its
results of operations.
TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS
The personal computer industry in general, and the color
publishing and video applications within the industry, are
characterized by rapidly changing technology, often resulting in
short product life cycles and rapid price declines. The Company
believes that its success will be highly dependent on its ability
to develop innovative and cost-competitive new products and to
bring them to the marketplace in a timely manner. Should the
Company fail to introduce new products on a timely basis, the
Company's operating results could be adversely affected.
Technological innovation is particularly important for the
Company, since its business is based on its ability to provide
functionality and features not included in Apple's products. As
Apple introduces new products with increased functionality and
features, the Company's business will be adversely affected
unless it develops new products that provide advantages over
Apple's latest offerings. Continued reduction in the available
cash resources of the Company could result in the interruption or
cancellation of research and product development efforts.
The Company anticipates that the video editing industry will
follow the pattern of the professional publishing industry in
which desktop publishing products, including those produced by
Radius, replaced more expensive, proprietary products, and the
Company also anticipates that this evolution will lead to a
significant increase in the purchase and use of video editing
products. There is a risk that this evolution will not occur in
the video editing industry as expected by the Company, or that it
will occur at a slower pace than anticipated.
The introduction of new products is inherently subject to risks
of delay. Should the Company fail to introduce new products on a
timely basis, the operating results of the Company could be
adversely affected. The introduction of new products and the
phasing out of older products will require the Company to
carefully manage its inventory to avoid inventory obsolescence
and may require increases in inventory reserves. The long lead
times -- as much as three to five months -- associated with the
procurement of certain components (principally displays and
ASICs) exposes the Company to greater risk in forecasting the
demand for new products. There can be no assurance that the
Company's forecasts regarding new product demand and its
estimates of appropriate inventory levels will be accurate.
Moreover, no assurance can be given that the Company will be able
to cause all of its new products to be manufactured at acceptable
manufacturing yields or that the Company will obtain market
acceptance for these products.
DISTRIBUTION
The Company's primary means of distribution is through a limited
number of third-party distributors and master resellers. As a
result, the Company's business and financial results are highly
dependent on the amount of the Company's products that is ordered
by these distributors and resellers. Such orders are in turn
dependent upon the continued viability and financial condition of
these distributors and resellers as well as on their ability to
resell such products and maintain appropriate inventory levels.
Due in part to the historical volatility of the personal computer
industry, certain of the Company's resellers have from time to
time experienced declining profit margins, cash flow shortages
and other financial difficulties. The future growth and success
of the Company will continue to depend in large part upon its
reseller channels. If its resellers were to experience financial
difficulties, the Company's results of operations could be
adversely affected.
-15-
INTERNATIONAL SALES
The Company's international sales are primarily made through
distributors and the Company's subsidiary in Japan. The Company
expects that international sales will represent a significant
portion of its net sales and that it will be subject to the
normal risks of international sales such as currency
fluctuations, longer payment cycles, export controls and other
governmental regulations and, in some countries, a lesser degree
of intellectual property protection as compared to that provided
under the laws of the United States. In addition, fluctuations
in exchange rates could affect demand for the Company's products.
If for any reason exchange or price controls or other
restrictions on foreign currencies are imposed, the Company's
business and operating results could be materially adversely
affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the
continued contributions of its key management, marketing, product
development and operational personnel and the Company's ability
to retain and continue to attract highly skilled personnel.
Competition for employees in the computer industry is intense,
and there can be no assurance that the Company will be able to
attract and retain qualified employees. The Company has recently
made a number of management changes, including the appointment of
a new Chief Financial Officer and has had substantial layoffs and
other employee departures. If the Company continues to
experience financial difficulties, it may become increasingly
difficult for it to hire new employees and retain current
employees. The Company does not carry any key person life
insurance with respect to any of its personnel.
DEPENDENCE ON PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright,
trademark and trade secret protection, nondisclosure agreements
and licensing arrangements to establish and protect its
proprietary rights. The Company has a number of patents and
patent applications and intends to file additional patent
applications as it considers appropriate. There can be no
assurance that patents will issue from any of these pending
applications or, if patents do issue, that any claims allowed
will be sufficiently broad to protect the Company's technology.
In addition, there can be no assurance that any patents that may
be issued to the Company will not be challenged, invalidated or
circumvented, or that any rights granted thereunder would provide
proprietary protection to the Company. The Company has a number
of trademarks and trademark applications. There can be no
assurance that litigation with respect to trademarks will not
result from the Company's use of registered or common law marks,
or that, if litigation against the Company were successful, any
resulting loss of the right to use a trademark would not reduce
sales of the Company's products in addition to the possibility of
a significant damages award. Although, the Company intends to
defend its proprietary rights, policing unauthorized use of
proprietary technology or products is difficult, and there can be
no assurance that the Company's efforts will be successful. The
laws of certain foreign countries may not protect the proprietary
rights of the Company to the same extent as do the laws of the
United States.
The Company has received, and may receive in the future,
communications asserting that its products infringe the
proprietary rights of third parties, and the Company is engaged
and has been engaged in litigation alleging that the Company's
products infringe others' patent rights. As a result of such
claims or litigation, it may become necessary or desirable in the
future for the Company to obtain licenses relating to one or more
of its products or relating to current or future technologies,
and there can be no assurance that it would be able to do so on
commercially reasonable terms.
VOLATILITY OF STOCK PRICE; DILUTION
The price of the Company's Common Stock has fluctuated widely in
the past. Management believes that such fluctuations may have
been caused by announcements of new products, quarterly
fluctuations in the results of operations and other factors,
including changes in conditions of the personal computer industry
in general and changes in the Company's results of operations and
financial condition. Stock markets, and stocks of technology
companies in particular, have experienced extreme price
volatility in recent years. This volatility has had a
substantial effect on the market prices of securities issued by
the Company and other high technology companies, often for
reasons unrelated to the operating performance of the specific
companies. Due to the factors referred to herein, the dynamic
nature of the Company's industry, general economic conditions and
other factors, the Company's future operating results and stock
prices may be subject to significant volatility in the future.
Such stock price volatility for the Common Stock has in the past
provoked securities litigation, and future volatility could
provoke litigation in the future that could divert substantial
management resources and have an adverse effect on the Company's
results of operations. The Company's Common Stock is listed on
the NASDAQ market pursuant
-16-
to an agreement containing certain financial requirement with which
the Company is currently not in compliance. In its attempt to restructure
its debt to creditors, the Company may propose exchanging equity in the
Company in full or partial satisfaction of creditor claims. Although the
Company has no current agreements with respect to the issuance of
additional equity securities, the issuance of any additional
equity in the Company could exert downward pressure on the price
of the Company's Common Stock.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) In November 1995, Electronics for Imaging, Inc. ("EFI")
filed a suit in the United States District Court in the Northern
District of California alleging that the Company infringes a
patent allegedly owned by EFI. Although the complaint does not
specify which of the Company's products allegedly infringe the
patent, subsequent pleading indicates that EFI alleges that the
Company's Color Server products allegedly infringe. As of
December 31, 1995, the Company's Color Server products were
material to its business. In January 1996, the Company completed
its divestiture of the Color Server Group. The Company has
certain indemnification obligations relating to this litigation.
See Item 5 Other Information - Color Server Group Divestiture.
The Company has filed an answer denying all material allegations,
and has filed amended counterclaims against EFI alleging causes
of action for interference with prospective economic benefit,
antitrust violations, and unfair business practices. EFI has
filed a motion to dismiss or sever the Company's amended
counterclaims. The Company believes it has meritorious defenses
to EFI's claims and is defending them vigorously. In addition,
the Company believes it may have indemnification rights with
respect to EFI's claims. In the opinion of management, based on
the facts known at this time, the eventual outcome of this case
is unlikely to have a material adverse effect on the results of
operations or financial position of the Company.
(b) The Company was named as one of approximately 42 defendants
in Shapiro et al. v. ADI Systems, Inc. et al., Superior Court of
California, Santa Clara County, case no. CV751685, filed August
14, 1995. Radius was named as one of approximately 32 defendants
in Maizes & Maizes et al. v. Apple Computer et al., Superior
Court of New Jersey, Essex County, case no. L-13780-95, filed
December 15, 1995. Plaintiffs in each case purport to represent
alleged classes of similarly situated persons and/or the general
public, and allege that the defendants falsely advertise that the
viewing areas of their computer monitors are larger than in fact
they are.
The Company was served with the Shapiro complaint on August 22,
1995, and was served with the Maizes complaint on January 5,
1996. Defendants' petition to the California State Judicial
Council to coordinate the Shapiro case with similar cases brought
in other California jurisdictions was granted in part and it is
anticipated that the coordinated proceedings will be held in
Superior Court of California, San Francisco County. Discovery
proceedings have not yet begun in either case. In the opinion of
management, based on the facts known at this time, the eventual
outcome of these cases is unlikely to have a material adverse
effect on the results of operations or financial position of the
Company.
ITEM 5. OTHER INFORMATION
COLOR SERVER GROUP DIVESTITURE
In December 1995, the Company signed a definitive agreement
pursuant to which the Company will sell its Color Server Group
("CSG") to Splash Merger Company, Inc. (the "Buyer"), a wholly
owned subsidiary of Splash Technology Holdings, Inc. (the
"Parent"), a corporation formed by various investment entities
associated with Summit Partners. The Company will receive
approximately $21,945,175 in cash (subject to certain post-
closing adjustments) and 4,282 shares of the Parent's 6% Series B
Redeemable and Convertible Preferred Stock (the "Series B
Preferred Stock"). The shares of Series B Preferred Stock will be
convertible by the Company at any time into approximately 19.9%
of the Parent's common stock outstanding as of the closing of the
transaction. The shares of Series B Preferred Stock also will be
redeemable by the Parent at any time, and will be subject to
mandatory redemption beginning on the sixth anniversary of
issuance, in each case at a redemption price of $1,000 per share
plus accrued dividends. The transaction, as subsequently amended,
closed in January 1996. The Company retains certain
indemnification obligations in connection with the patent lawsuit
brought by
-17-
Electronics for Imaging, Inc. See Item 1 "Legal Proceedings". The net
proceeds of the Color Server Group transaction were paid to Silicon
Valley Bank ("SVB"), in order to repay the Company's indebtedness to SVB,
and to IBM Credit Corp. ("ICC"), in order to reduce the Company's
outstanding indebtedness to ICC.
PORTRAIT DISPLAY LABS
In December 1995, the Company signed a series of agreements with
Portrait Display Labs, Inc. ("PDL"). The agreements assigned the
Company's pivoting technology to PDL and canceled PDL's on-going
royalty obligation to the Company under an existing license
agreement in exchange for a one-time cash payment. PDL also
granted the Company a limited license back to the pivoting
technology. Under these agreements, PDL also settled its
outstanding receivable to the Company by paying the Company
$500,000 in cash and issuing to the Company 214,286 shares of
PDL's Common Stock. These transactions closed in January 1996.
UMAX DATA SYSTEMS, INC.
In January 1996, the Company signed a definitive agreement
pursuant to which the Company will sell its MacOS compatible
systems business to UMAX Computer Corporation ("UCC"), a company
formed by UMAX Data Systems, Inc. ("UMAX"). The Company will
receive approximately $2,250,000 in cash and debt relief, and
1,492,500 shares of UCC's Common Stock, representing
approximately 19.9% of UCC's then outstanding shares of Common
Stock. After the closing, the Company has a right to receive
royalties based on UCC's net revenues related to the MacOS
compatible systems business. The closing of this transaction is
subject to certain conditions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See attached exhibit index.
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed during the three months ended
December 31, 1995.
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: February 13, 1996 RADIUS INC.
By: /s/ Dennis J. Dunnigan
____________________________________
Dennis J. Dunnigan
Chief Financial Officer
-18-
EXHIBIT INDEX
Exhibit Sequentially
Number Title Numbered Page
- ------- ----- -------------
2.09 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.
2.10 Amendment No. 1 to Merger Agreement among Radius
Inc., Splash Technology, Inc., Splash Technology
Holdings, Inc., Splash Merger Company, Inc.
et al., dated January 30, 1996.
10.03 B Form of Stock Option Grant as currently in effect
under Registrant's 1995 Stock Option Plan.
10.04 Employee Stock Purchase Plan, as amended on July
20, 1995.
11.01 Computation of per share earnings 20
-19-
EXHIBIT 11.01
COMPUTATION OF NET LOSS PER SHARE
(in thousands, except per share data)
THREE MONTHS ENDED
DECEMBER 31,
1995 1994
----- -----
Primary:
Average common shares outstanding . . . . 17,248 14,215
Net effect of dilutive stock
options - based on the modified treasury
stock method using average
market price . . . . . . . . . . . . . -- --
------ ------
Totals . . . . . . . . . . . . . . . . . 17,248 14,215
Net loss . . . . . . . . . . . . . . . . $(9,783) $(11,021)
Per share amount . . . . . . . . . . . . $(0.57) $(0.78)
Fully diluted:
Average common shares outstanding . . . 17,248 14,215
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 . . . . . . . . . . . . . . . . -- --
------ ------
Totals . . . . . . . . . . . . . . . . . 17,248 14,215
------ ------
------ ------
Net loss . . . . . . . . . . . . . . . . $(9,783) $(11,021)
------ ------
------ ------
Per share amount* . . . . . . . . . . . $(0.57) $(0.78)
* 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-
EXHIBIT INDEX
Exhibit Sequentially
Number Title Numbered Page
- ------- ----- -------------
2.09 Merger Agreement Dated as of December 21, 1995
among Radius, Inc., Splash Technology, Inc., Summit
Subordinated Debt Funds, L.P. Summit Ventures IV,
L.P., Summit Investors II, L.P., Splash Technology
Holdings, Inc., and Splash Merger Company, Inc.
2.10 Amendment No. 1 to Merger Agreement among Radius Inc.,
Splash Technology, Inc., Splash Technology Holdings,
Inc., Splash Merger Company, Inc. et al., dated
January 30, 1996.
10.03 B Form of Stock Option Grant as currently in effect under
Registrant's 1995 Stock Option Plan.
10.04 Employee Stock Purchase Plan, as amended on July 20, 1995.
11.01 Computation of per share earnings.