-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KRrdSE9aoAbSQ/wfiD0oYjUrUsW4CyrOHWrHPxSNd3hkbDU+x99jc7k956d7IukC z9hBqsAWulNhFh9VW+vEPw== 0000891618-96-001438.txt : 19960731 0000891618-96-001438.hdr.sgml : 19960731 ACCESSION NUMBER: 0000891618-96-001438 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19960730 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RADIUS INC CENTRAL INDEX KEY: 0000805574 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 680101300 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-35769 FILM NUMBER: 96601146 BUSINESS ADDRESS: STREET 1: 215 MOFFETT PARK DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089-1374 BUSINESS PHONE: 4085416100 MAIL ADDRESS: STREET 1: RADIUS INC STREET 2: 215 MOFFETT PARK DR CITY: SUNNYVALE STATE: CA ZIP: 94089-1374 10-K/A 1 RADUIS FORM 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 0-18690 RADIUS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 68-0101300 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 215 MOFFETT PARK DRIVE SUNNYVALE, CA 94089 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (408) 541-6100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF THE REGISTRANTS KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. (X)
AS OF DECEMBER 15, 1995 AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING BID PRICE OF SUCH STOCK: $43,739,556 NUMBER OF SHARES OF COMMON STOCK OUTSTANDING: 17,401,094
DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD FEBRUARY 21, 1996 ARE INCORPORATED BY REFERENCE INTO PART III (ITEMS 10, 11, 12, AND 13) HEREOF. 2 RADIUS INC. 1995 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART II Page ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .............................................. 3 PART IV ITEM 14. Exhibits, Financial Statements, Financial Statement Schedule, and Reports on Form 8-K ................................................ 15 SIGNATURES..................................................................................... 20
-2- 3 The undersigned Registrant hereby amends the following items, exhibits and other portions of its Annual Report on Form 10-K for the period ended September 30, 1995, as set forth in the pages attached hereto. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION This item contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of the factors described below and elsewhere in this Annual Report. RESULTS OF OPERATIONS--ANNUAL PERIODS The following table sets forth for the years indicated certain operational data as a percentage of net sales (may not add due to rounding).
YEAR ENDED SEPTEMBER 30 -------------------------------------------- 1995 1994 (1) 1993 (1) ---- -------- -------- Net sales 100.0% 100.0% 100.0% Cost of sales 98.3 85.3 75.4 ---- ---- ---- Gross profit 1.7 14.7 24.6 Operating expenses: Research and development 6.3 10.5 9.9 Selling, general, and administrative 29.2 29.2 24.9 ---- ---- ---- Total operating expenses 35.5 39.6 34.9 Loss from operations (33.8) (24.9) (10.3) Interest expense, net (2.0) (0.4) - Litigation settlement (4.0) - ----- ------ ----- Loss before income taxes (39.8) (25.3) (10.2) Provision (benefit) for income taxes 2.9 (1.4) (4.1) ----- ----- ----- Loss before cumulative effect of a change in accounting principle (42.8) (23.9) (6.1) Cumulative effect of change in method of accounting for income taxes - - 0.2 ----- ----- ----- Net loss (42.8)% (23.9)% (6.0)% ====== ====== =====
(1) These periods have been restated to reflect the Merger of Radius and SuperMac which has been accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. The consolidated financial statements for all periods prior to fiscal 1994 have not been restated to adjust SuperMac's fiscal year end to that of Radius. Such periods include Radius' results of operations and balance sheet data on a September 30 fiscal year basis and SuperMac's on a December 31 calendar year basis. The operating results for both the twelve months ended September 30, 1994 and September 30, 1993 include the restructuring and other charges of $16.6 million recorded by SuperMac in December 1993. FISCAL 1995 COMPARED TO FISCAL 1994 Net Sales. The Company's net sales decreased 5.1% to $308.1 million in fiscal 1995 from $324.8 million in fiscal 1994. Fiscal 1995 net sales were reduced by approximately $11.4 million due to reserves taken by the Company in anticipation of future price reductions on a number its graphics cards, MacOS compatible systems and other products that are designed for Apple's NuBus-based computers which have been largely replaced by Apple's recently introduced PCI Bus-based computers. During the fiscal year, net sales of graphics cards declined substantially due primarily to reduced demand resulting from Apple's incorporation of built-in graphics capabilities in its PowerPC based Macintosh systems. Net sales from displays, accelerator cards and printers also declined during the fiscal year. These declines were largely offset -3- 4 by sales of MacOS compatible systems which were first introduced in the 1995 fiscal year and by a substantial increase in net sales from the Company's color server products. While net sales from the Company's digital video products increased slightly during the fiscal year, the Company anticipates lower revenue from this product line until the introduction of new products now under development. The Company anticipates significantly lower overall net sales in fiscal 1996 as a result of the Company's decision to focus its efforts on providing solutions for high end digital video and graphics customers, discontinue selling mass market displays and other low value added products, and divest of certain businesses such as color servers and MacOS compatible systems. Net sales attributable to the Company's Color Server Group and MacOS compatible systems were approximately $29.3 million and $21.8 million, respectively, for fiscal 1995. Had the net sales of these businesses not been included in net sales for the 1995 fiscal year, the Company's net sales for such fiscal year would have been approximately $257 million. On December 23, 1995, the Company entered into a definitive agreement to sell its color server business to Splash Technology, Inc., a company in which Radius will retain a 19.9% equity interest, for approximately $21.9 million. That sale is anticipated to be completed in January 1996. In addition the Company is now negotiating to sell its MacOS compatible systems business and does not anticipate significant net sales from this business during the 1996 fiscal year. Export sales represented approximately 40.4%, 34.5%, and 32.0% of net sales for fiscal 1995, 1994 and 1993, respectively. See Note 7 of Notes to Consolidated Financial Statements. Export sales are subject to the normal risks associated with doing business in foreign countries such as currency fluctuations, longer payment cycles, greater difficulties in accounts receivable collection, export controls and other government regulations and, in some countries, a lesser degree of intellectual property protection as compared to that provided under the laws of the United States. Gross Profit. The Company's gross profit margin including restructuring and other charges declined to 1.7% in fiscal 1995, compared to 14.7%, in fiscal 1994. The Company's gross profit margin excluding the restructuring and other charges declined to 16.9% in fiscal 1995, compared to 27.3% in fiscal 1994. Excluding restructuring and other charges, the Company's gross profit margin declined primarily due to lower sales of higher margin graphics cards, costs incurred to process higher than expected product returns resulting from the consolidation of the Radius and SuperMac product lines and slower than expected sell through of its Radius Telecast digital video product, significant price erosion on NuBus based MacOS compatible systems combined with high production costs for these systems, the sale of end of life products, and increased pricing pressures. The Company anticipates continued competitive pricing actions resulting in declining prices in its industry. In addition, the Color Server Group and MacOS businesses had gross profit of approximately $9.8 million and ($19.2 million), respectively for fiscal 1995. Had these businesses not been included in the calculation of the Company's gross profit for 1995, gross profit for such fiscal year would have been approximately $14.6 million, with a gross profit margin of approximately 5.7%. Research and Development Expenses. Research and development expenses decreased to $19.3 million (6.3% of net sales) in fiscal 1995 from $34.0 million (10.5% of net sales) in fiscal 1994. The Company's research and development expenses in fiscal 1994 included restructuring and other charges of $4.3 million. No restructuring and other charges were included in research and development expenses in fiscal 1995. The decrease in research and development expenses during the fiscal year was primarily due to the reduction of expenses as a result of the Company's restructuring following the Merger. The merger-related restructuring resulted in reduced costs primarily related to headcount, depreciation, and facilities. While there can be no assurance that the Company's product development efforts will result in commercially successful products, the Company believes that development of new products and enhancement of existing products are essential to its continued success, and management intends to continue to devote substantial resources to research and new product development. -4- 5 Selling, General and Administrative Expenses. Selling, general and administrative expenses including restructuring and other charges decreased to $90.1 million (29.2% of net sales) in fiscal 1995 from $94.7 million (29.2% of net sales) in fiscal 1994. Selling, general and administrative expenses excluding restructuring and other charges decreased to $79.2 million (25.7% of net sales) in fiscal 1995 from $84.0 million (25.9% of net sales) in fiscal 1994. The decrease in selling, general and administrative expenses during the fiscal year was primarily due to the reduction of expenses as a result of the Company's restructuring following the Merger. The merger-related restructuring resulted in reduced costs primarily related to headcount, depreciation and facilities. Provision for Income Taxes. The Company's annual combined federal and state effective income tax rates were approximately (7.4%) (expense) in fiscal 1995 and 6% (benefit) in fiscal 1994. In fiscal 1995, the rate differs from the combined statutory rate in effect during the period primarily as a result of the impact of not benefiting the 1995 operating losses and the reversal of existing deferred tax assets. The fiscal 1994 rate differs from the combined statutory rate in effect during the period primarily as a result of non-deductible merger related costs, the one time write-off of purchased research and development which is not tax deductible and the impact of not benefiting a significant portion of the 1994 operating loss. FASB Statement 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company's valuation allowance reduced the deferred tax asset to the amount realizable. The Company has provided a full valuation allowance against its net deferred tax assets due to uncertainties surrounding their realization. Due to the net losses reported in the prior three years and as a result of the material changes in operations reported in its 1995 fiscal fourth quarter, predictability of earnings in future periods is uncertain. The Company will evaluate the realizability of the deferred tax asset on a quarterly basis. Net Loss. As a result of the above factors, net loss increased to $131.7 million in fiscal 1995 from $77.5 million in fiscal 1994. The Color Server Group had net income of approximately $3.5 million for fiscal 1995. Had this business not been included in the calculation of the Company's net loss for fiscal 1995, the Company would have had a net loss of approximately $135.2 million for such fiscal year. FISCAL 1994 COMPARED TO FISCAL 1993 Net Sales. The Company's net sales decreased 3.7% to $324.8 million in fiscal 1994 from $337.4 million in fiscal 1993. The Company believes that this decline in net sales was in part attributable to the customers postponing purchasing decisions during the fourth quarter while waiting to see which of the Company's product lines would be supported and which would be discontinued following the Merger. Sales were flat for the nine months ended June 30, 1994 prior to the Merger. Net sales of video products and displays increased but this increase was offset by pricing pressure on graphics cards. Demand was lower than anticipated for graphics cards due to the introduction of the Power Macintosh by Apple and the resulting customer uncertainty surrounding the need for graphics acceleration given the built-in video capabilities of this new product. Gross Profit. The Company's gross profit margin including the restructuring and other charges declined to 14.7% in fiscal 1994, compared to 24.6%, in fiscal 1993. The Company's gross profit margin excluding the restructuring charges declined to 27.3% in fiscal 1994, compared to 31.8% in fiscal 1993. See Note 8 of Notes to Consolidated Financial Statements regarding the restructuring and other charges for SuperMac in December 1993 and Merger related restructuring and other charges in September 1994. Excluding the restructuring charges, the decline in gross margins was due to increased pricing pressures and a change in the product mix favoring lower margin displays over higher margin graphics accelerator cards. Research and Development Expenses. Research and development expenses increased slightly to $34.0 million (10.5% of net sales) in fiscal 1994 from $33.5 million (9.9% of net sales) in fiscal 1993. The relatively flat absolute dollar expenditures in research and development activities were due to recording significant restructuring and other charges related to development project cancellations, equipment disposal, and severance in fiscal 1994 offset by the decrease in expenditures in fiscal 1994 as a result of the cancellation of Radius' efforts to develop a variety of technologies originally intended for a minicomputer-class server product. Additionally, the research and development expenses appeared flat due to the SuperMac 1993 restructuring of $2.0 million for development project cancellations included in both the fiscal 1993 and fiscal 1994 results of operations. -5- 6 Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $94.7 million (29.2% of net sales) in fiscal 1994 from $84.1 million (24.9% of net sales) in fiscal 1993. The increase in absolute dollars was primarily due to increased personnel expense, market development expenses, restructuring and other charges in fiscal 1994 and the Company's investment in its information system. The 1993 restructuring and other charges included the elimination of excess facilities, capital equipment write-offs, severance payments and the termination of certain contractual agreements. Restructuring and other charges for fiscal 1994 included the elimination of duplicative facilities, property and equipment and other assets, severance payments, as well as transaction fees and costs incidental to the Merger. Provision for Income Taxes. The Company's annual combined federal and state effective income tax rates were approximately 6% in fiscal 1994 and 40% in fiscal 1993 before the cumulative effect of the change in method of accounting for income taxes. The fiscal 1994 rate differs from the combined statutory rate in effect during the period primarily as a result of non-deductible merger related costs, the one time write-off of purchased research and development which is not tax deductible and the impact of not benefiting a significant portion of the 1994 operating loss. The 1993 rate differs from the combined statutory rate in effect during the period primarily as a result of the utilization of the research and development tax credit. Net Loss. As a result of the above factors, net loss increased to $77.5 million in fiscal 1994 from $20.1 million in fiscal 1993. RESTRUCTURING, MERGER AND OTHER CHARGES During fiscal 1993, 1994 and 1995, four restructuring and other charges were recorded. Radius recorded a $15.5 million restructuring charge during the third quarter of fiscal 1993 in connection with the implementation of a program designed to reduce costs and improve operating efficiencies. SuperMac recorded a $16.6 million restructuring charge during December 1993 in connection with a program to realign its inventory and facility and personnel resources. Subsequently, the two companies merged and incurred a restructuring charge of $43.4 million. In September 1995, Radius recorded $57.9 million restructuring charge in connection with the Company's efforts to refocus and streamline its business. A discussion of each of these events follows. RADIUS JUNE 1993 RESTRUCTURING AND OTHER CHARGES In June 1993, Radius announced a restructuring program designed to reduce costs and improve operating efficiencies. The program included, among other things, the write-down of inventory following Radius' decision to phase out its older generation of products, lease termination expenses, capital equipment write-offs, severance payments, and costs associated with the discontinuation of Radius' minicomputer-class server product. The restructuring program costs of $15.5 million were recorded during the third quarter of fiscal 1993. These charges (in thousands) are included in: cost of sales ($10,993); research and development ($411); and selling, general and administrative expenses ($4,096). The Company completed this restructuring event by the end of calendar 1994. There were no material changes in the restructuring plan or in the estimates of the restructuring costs from the recognition of the charge in June 1993 with the completion of the restructuring program in December 1994. SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES In December 1993, SuperMac recorded charges of $16.6 million in connection with a program to adjust inventory levels, eliminate excess facilities, terminate certain projects and contract arrangements and reduce the number of employees. The charges (in thousands) are included in: cost of sales ($13,352); research and development ($2,000); and selling, general and administrative expenses ($1,238). There have been no material changes in the restructuring plan or in the estimates of the restructuring costs. The Company has $236,000 remaining in its restructuring reserve related to facility costs, the balance of which is expected to be eliminated in fiscal 1996. As noted in the Consolidated Financial Statements, the consolidated results for the Company in both the twelve months ended September 30, 1994 and the fiscal period ended 1993 include SuperMac's $16.6 million charge. RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4 million in connection with the Merger of Radius and SuperMac. These charges include the discontinuance of duplicative product lines and related assets; elimination of duplicative facilities, property and equipment and other assets; and personnel severance costs as well -6- 7 as transaction fees and costs incidental to the merger. The charges (in thousands) are included in: net sales ($3,095); cost of sales ($25,270); research and development ($4,331); and selling, general and administrative expenses ($10,711). The elements of the total charge as of September 30, 1995 are as follows (in thousands):
Representing Cash Outlays Asset Provision Write-Downs Completed Future Adjust inventory levels $22,296 $ 19,200 $ 3,096 $ - Excess facilities 2,790 400 2,236 154 Revision of the operations business model 9,061 7,078 1,268 715 Employee severance 6,311 - 6,311 - Merger related costs 2,949 - 2,949 - ------- -------- -------- -------- Total charges $43,407 $26,678 $15,860 $ 869
The adjustment of inventory levels reflects the discontinuance of duplicative product lines. The provision for excess facility costs represents the write-off of leaseholds and sublease costs of Radius' previous headquarters, the consolidation into one main headquarters and the consolidation of sales offices. The revision of the operations business model reflects the reorganization of the combined Company's manufacturing operations to mirror Radius' manufacturing reorganization in 1993. This reorganization was designed to outsource a number of functions that previously were performed internally, reduce product costs through increased efficiencies and lower overhead, and focus the Company on a limited number of products. Employee severance costs are related to employees or temporary employees who were released due to the revised business model. Approximately 250 employees were terminated in connection with the Merger. The provision for merger related costs is for the costs associated with the Merger transaction, such as legal, investment banking and accounting fees. The Company has spent $15.9 million of cash for restructuring through September 30, 1995. The Company expects to have substantially completed the restructuring by September 1996. During fiscal 1995, approximately $2.1 million of merger related restructuring reserves were reversed and recorded as an expense reduction due to changes in estimated requirements. RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES In September 1995, Radius recorded charges of $57.9 million in connection with the Company's efforts to refocus its business on the color publishing and multimedia markets. The charges primarily included a writedown of inventory and other assets. Additionally, it included expenses related to the cancellation of open purchase orders, excess facilities and severance. The charges (in thousands) are included in cost of sales ($47,004), and selling, general and administrative expense ($10,861). The elements of the total charge as of September 30, 1995 are as follows (in thousands):
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 - - 3,662 -------- --------- ------- -------- Total charges $ 57,865 $ 37,900 $ - $ 19,965
The adjustment of inventory levels reflects the discontinuance of several product lines. The provision for excess facility costs represent the write-off of leasehold improvements and the costs associated with anticipated reductions in facilities. The cancellation fees and asset write-offs reflect the Company's decision to refocus its efforts on providing solutions for the color publishing and multimedia markets. Employee severance costs are related to employees or temporary employees who have been or will be released due to the revised business model. As of December 15, 1995, approximately 157 positions had been eliminated in connection with the new business model. The Company had not spent any cash for this restructuring as of September 30, 1995. As of September 30, 1995, the Company had cash and cash equivalents of $4.8 million. See "Management's Business Recovery Plans" at Note 1 -7- 8 due to the Consolidated Financial Statements. The Company expects to have substantially completed the restructuring by September 1996. BUSINESS DIVESTITURES COLOR SERVER GROUP On December 23, 1995, the Company signed a definitive agreement pursuant to which the Company will sell its Color Server Group ("CSG") to Splash Merger Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology Holdings, Inc. (the "Parent"), a corporation formed by various investment entities associated with Summit Partners. The Company will receive approximately $21.9 million in cash (subject to certain post-closing adjustments) and 4,282 shares of the Parent's 6% Series B Redeemable and Convertible Preferred Stock (the " Series B Preferred Stock"). The shares of Series B Preferred Stock will be convertible by the Company at any time into 19.9% of the Parent's common stock outstanding as of the closing of the transaction. The shares of Series B Preferred Stock also will be redeemable by the Parent at any time, and will be subject to mandatory redemption beginning on the sixth anniversary of issuance, in each case at a redemption price of $1,000 per share plus accrued dividends. The transaction is expected to close in January 1996. Under the Inventory and Working Capital Agreement, as recently amended, with IBM Credit Corp., the Company is required to pay all of the net proceeds of the Color Server Group transaction to IBM Credit Corp. in order to reduce the Company's outstanding indebtedness under that agreement. PORTRAIT DISPLAY LABS On December 19, 1995, the Company signed a series of agreements with Portrait Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting technology to PDL and canceled PDL's on-going royalty obligation to the Company under an existing license agreement in exchange for a one-time cash payment. PDL also granted the Company a limited license back to the pivoting technology. Under these agreements, PDL also settled its outstanding receivable to the Company by paying the Company $500,000 in cash and issuing to the Company 214,286 shares of PDL's Common Stock. See Note 1 to the Consolidated Financial Statements. DISPLAY TECHNOLOGIES ELECTROHOME INC. On December 21, 1995, the Company signed a Business Purchase Agreement and an Asset Purchase and License Agreement with Display Technologies Electrohome Inc. ("DTE"). Pursuant to the agreements and subject to certain closing conditions, DTE will purchase Radius' monochrome display monitor business and certain assets related thereto, for approximately $200,000 in cash and cancellation of $2.5 million of the Company's indebtedness to DTE. In addition, DTE and Radius will cancel outstanding contracts relating to DTE's manufacture and sale of monochrome display monitors to Radius. RESULTS OF OPERATIONS--QUARTERLY PERIODS The following table sets forth certain unaudited quarterly financial information for the Company's last eight fiscal quarters (in thousands, except per share data). The information includes all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation thereof. The operating results for any quarter are not necessarily indicative of results for any future period. The Company's fiscal year ends on the Sunday closest to September 30.
FISCAL 1995 FISCAL 1994 (1) -------------------------------------- --------------------------------------- 9/30/95 6/30/95 3/31/95 12/30/95 9/30/94 6/30/94 3/31/94 12/31/93 Net sales $57,126 $87,325 $84,447 79,235 $66,940 $ 86,673 $83,180 $88,013 Cost of sales 118,055 65,211 62,913 56,758 86,682 _59,931_ 57,279 73,057 ------- ------ ------ ------ ------ ------ ------ ------- Gross profit (loss) (60,929) 22,114 21,534 22,477 (19,742) 26,742 25,901 14,956 -------- ------ ------ ------ ------- -------- ------- ------- Operating expenses: Research and development 5,530 4,990 4,672 4,118 13,119 5,645 6,445 8,648 Selling, general and administrative 41,343 18,442 14,401 15,882 _ 35,190 _ 19,232 _19,003 _21,405 ------- ------ ------ ------ ------ ------ ------ ------ Total operating expenses 46,873 23,432 19,073 20,000 48,309 _24,877 25,448 30,053 ------ ------ ------ ------ ------ ------ ------ ------ Income (loss) from operations (107,802) (1,318) 2,461 2,477 (68,051) 1,865 453 (15,097) Interest (expense) income, net (1,463) (1,531) (2,154) (920) (739) (223) (121) (159) Litigation settlement - - - (12,422) - - - - ----- ----- --- ------- ------ ------ ------ -------
-8- 9
Income (loss) before income taxes (109,265) (2,849) 307 (10,865) (68,790) 1,642 332 (15,256) Provision (benefit) for income taxes 8,620 263 31 156 209 _580 688 _(6,077) ------- ----- --- ------ ----- ----- --- ----- Net income (loss) $(117,885) $(3,112) $ 276 $(11,021) $(68,999) $1,062 $ (356) $(9,179) ======== ====== ===== ========= ========= ====== ======= ======== Net income (loss) per share $ (6.92) $ (0.21) $0.02 $ (0.78) $ (4.99) $ 0.08 $(0.03) $ (0.69) ======== ====== ===== ========= ========= ====== ======= ======== Common and common equivalent shares used in computing net income (loss) per share 17,039 14,791 14,556 14,215 13,828 14,042 13,496 13,370 ======== ====== ===== ========= ========= ====== ======= ========
(1) These periods have been restated to reflect the Merger of Radius and SuperMac which has been accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. The consolidated financial statements for all periods prior to fiscal 1994 have not been restated to adjust SuperMac's fiscal year end to that of Radius. Such periods include Radius' results of operations and balance sheet data on a September 30 fiscal year basis and SuperMac's on a December 31 calendar year basis. Therefore, results for the quarter ended September 30, 1993 shown above include a $16.6 million charge recorded by SuperMac in December 1993. Additionally, the results for the quarter ended December 31, 1993 reflect this same $16.6 million charge recorded by SuperMac in December 1993. The Company's operating results are subject to quarterly fluctuations as a result of a number of factors, including: the sales rate and mix of Apple computers; the introduction of new products by Apple, the Company or its competitors; the timing of sales and marketing expenses by the Company; the timing of business cycles in the United States and worldwide; the availability and cost of key components; the Company's ability to develop innovative products; the Company's product and customer mix; and the level of competition. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents decreased approximately $11.2 million during fiscal 1995 to approximately $4.8 million at September 30, 1995, as compared with the fiscal 1994 ending balance of cash and cash equivalents of $16.0 million. Approximately $1.6 million of the $4.8 million of cash and cash equivalents available at September 30, 1995 was restricted under various letters of credit. Capital expenditures were $1.9 million in fiscal 1995 and $3.5 million in fiscal 1994. The decrease in the Company's cash and cash equivalents during fiscal 1995 was primarily attributable to expenditures made in connection with the development and introduction of the Company's MacOS compatible systems. The Company completed a private placement during the third quarter of the 1995 fiscal year, the proceeds of which allowed the Company to build inventory of MacOS-compatible systems components and reduce other vendor payables. In the private placement, the Company sold 2,509,319 shares of its Common Stock resulting in net proceeds of approximately $21.4 million. At September 30, 1995, the Company's principal sources of liquidity included approximately $30.0 million in inventory and working capital financing under an agreement with IBM Credit Corporation (the "ICC Agreement") together with an additional $20.0 million provided by IBM Credit Corp. under the ICC Agreement to finance the manufacturing of the Company's MacOS compatible products, all of which was fully utilized. In addition, the Company has a $5.0 million credit arrangement with Silicon Valley Bank ("SVB") which was partially utilized as of that date. Additionally, the Company's Japanese subsidiary has a revolving line of credit with a bank in Japan under which $3.1 million has been utilized as of September 30, 1995. As of September 30, 1995, the Company was not in compliance with all of its contractual obligations and financial covenants under the ICC Agreement; however, IBM Credit Corp. has waived such defaults pursuant to an amendment to the ICC Agreement executed in December 1995 (the "ICC Amendment"). The ICC Amendment, among other things, also provides that until March 31, 1996 IBM Credit Corp. will extend advances to the Company in an amount up to 90% of the Company's collections and fund the Company's payroll in the event that collections -9- 10 are insufficient to permit the advances needed for this purpose. Such advances and payroll funding, however, may be suspended by IBM Credit Corp. (i) immediately following a default of the ICC Amendment, and (ii) following thirty (30) days notice in the event of any default of the ICC Agreement. As of September 30, 1995, the Company was not in compliance with all of its contractual obligations and financial covenants under its credit arrangement with SVB. As of December 15, 1995 approximately $1,200,000 was outstanding under this credit arrangement, all of which the Company anticipates paying SVB during the first calendar quarter of 1996. Recently, the Company's limited cash resources have restricted the Company's ability to purchase inventory which in turn has limited its ability to manufacture and sell products and has resulted in additional costs for expedited deliveries. The Company also is delinquent in its accounts payables as payments to vendors are not being made in accordance with vendor terms. The adverse effect on the Company's results of operations due to its limited cash resources can be expected to continue until such time as the Company is able to return to profitability, or generate additional cash from other sources. There can be no assurance that the Company will be able to do so. Additional funds will be needed to finance the Company's development plans and for other purposes, and the Company is now investigating possible financing opportunities. There can be no assurance that additional financing will be available when needed or, if available, that the terms of such financing will not adversely affect the Company's results of operations. CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS A number of uncertainties exist that could affect the Company's future operating results, including, without limitation, the following: CONTINUING OPERATING LOSSES The Company experienced net operating losses in the fiscal years ended September 30, 1993, 1994 and 1995. The Company's ability to achieve and sustain profitable operations will depend upon a number of factors, including the Company's ability to control costs; to develop innovative and cost-competitive new products and to bring those products to market in a timely manner; the rate and mix of Apple computers and related products sold; competitive factors such as new product introductions, product enhancements and aggressive marketing and pricing practices; general economic conditions; and other factors. The Company has faced and expects to continue to face increased competition in graphic cards as a result of Apple's transition of its product line to the PCI Bus. In addition, the Company anticipates significantly lower revenue and gross profit from its digital video products primarily due to lower than anticipated sell through rates for Radius Telecast. For these and other reasons, there can be no assurance that the Company will be able to achieve profitability in the near term. FLUCTUATIONS IN OPERATING RESULTS The Company has experienced substantial fluctuations in operating results. The Company's customers generally order on an as-needed basis, and the Company has historically operated with relatively small backlogs. Quarterly sales and operating results depend heavily on the volume and timing of bookings received during the quarter, which are difficult to forecast. A substantial portion of the Company's revenues are derived from sales made late in each quarter, which increases the difficulty in forecasting sales accurately. Recently, shortages of available cash have delayed the Company's receipt of products from suppliers and increased shipping and other costs. The Company recognizes sales upon shipment of product, and allowances are recorded for estimated noncollectable amounts, returns, credits and similar costs, including product warranties and price protection. Due to the inherent uncertainty of such estimates, there can be no assurance that the Company's forecasts regarding bookings, collections, rates of return, credits and related matters will be accurate. A significant portion of the operating expenses of the Company are relatively fixed in nature, and planned expenditures are based primarily on sales forecasts which, as indicated above, are uncertain. Any inability on the part of the Company to adjust spending quickly enough to compensate for any failure to meet sales forecasts or to receive anticipated collections, or any unexpected increase in product returns or other costs, could also have an adverse impact on the Company's operating results. -10- 11 DEPENDENCE ON AND COMPETITION WITH APPLE Historically, substantially all of the Company's products have been designed for and sold to users of Apple personal computers, and it is expected that sales of products for such computers will continue to represent substantially all of the net sales of the Company for the foreseeable future. The Company's operating results would be adversely affected if Apple should lose market share, if Macintosh sales were to decline or if other developments were to adversely affect Apple's business. As software applications for the color publishing and multimedia markets become more available on platforms other than Macintosh, it is likely that these other platforms will continue to gain acceptance in these markets. For example, recently introduced versions of the Windows operating environment support high performance graphics and video applications similar to those offered on the Macintosh. There is a risk that this trend will reduce the support given to Macintosh products by third party developers and could substantially reduce demand for Macintosh products and peripherals over the long term. A number of the Company's products compete with products marketed by Apple. As a competitor of the Company, Apple could in the future take steps to hinder the Company's development of compatible products and slow sales of the Company's products. The Company's business is based in part on supplying products that meet the needs of high-end customers that are not fully met by Apple's products. As Apple improves its products or bundles additional hardware or software into its computers, it reduces the market for Radius products that provide those capabilities. For example, the Company believes that the on-board performance capabilities included in Macintosh Power PC products have reduced and continue to reduce overall sales for the Company's graphics cards. In the past, the Company has developed new products as Apple's progress has rendered existing Company products obsolete, but there can be no assurance that the Company will continue to develop successful new products on a timely basis in the future. In order to develop products for the Macintosh on a timely basis, the Company depends upon access to advance information concerning new Macintosh products. A decision by Apple to cease sharing advance product information with the Company would adversely affect the Company's business. New products anticipated from and introduced by Apple could cause customers to defer or alter buying decisions due to uncertainty in the marketplace, as well as presenting additional direct competition for the Company. For example, the Company believes that Apple's transition during 1994 to Power PC products caused delays and uncertainties in the market place and had the effect of reducing demand for the Company's products. In addition, sales of the Company's products have been adversely affected by Apple's revamping of its entire product line from NuBus-based to PCI Bus-based computers. In the past, transitions in Apple's products have been accompanied by shortages in those products and in key components for them, leading to a slowdown in sales of those products and in the development and sale by the Company of compatible products. In addition, it is possible that the introduction of new Apple products with improved performance capabilities may create uncertainties in the market concerning the need for the performance enhancements provided by the Company's products and could reduce demand for such products. COMPETITION The markets for the Company's products are highly competitive, and the Company expects competition to intensify. Many of the Company's current and prospective competitors have significantly greater financial, technical, manufacturing and marketing resources than the Company. The Company believes that its ability to compete will depend on a number of factors, including the success and timing of new product developments by the Company and its competitors, product performance, price and quality, breadth of distribution and customer support. There can be no assurance that the Company will be able to compete successfully with respect to these factors. In addition, the introduction of lower priced competitive products could result in price reductions that would adversely affect the Company's results of operations. DEPENDENCE ON SUPPLIERS The Company outsources the manufacturing and assembly of its products to third party suppliers. Although the Company uses a number of manufacturer/assemblers, each of its products is manufactured and assembled by a single supplier. The failure of a supplier to ship the quantities of a product ordered by the Company could cause a material disruption in the Company's sales of that product. In the past, the Company has at times experienced substantial delays in its ability to fill customer orders for displays and other products, due to the inability of certain suppliers to meet their volume and schedule requirements and, recently, due to the Company's shortages in available cash. Due to recent shortages in cash resources and because the Company seeks to manage its use of working -11- 12 capital by, among other things, limiting the backlog of inventory it purchases, the Company is particularly vulnerable to delays in shipments from suppliers. Such delays can cause fluctuations in the Company's short term results and contribute to order cancellations. The Company is also dependent on sole or limited source suppliers for certain key components used in its products, including certain digital to analog converters, digital video chips, and other products. Certain other semiconductor components and molded plastic parts are also purchased from sole or limited source suppliers. The Company purchases these sole or limited source components primarily pursuant to purchase orders placed from time to time in the ordinary course of business and has no guaranteed supply arrangements with sole or limited source suppliers. The Company expects that these suppliers will continue to meet its requirements for the components, but there can be no assurance that they will do so. The introduction of new products presents additional difficulties in obtaining timely shipments from suppliers. Additional time may be needed to identify and qualify suppliers of the new products. Also, the Company has experienced delays in achieving volume production of new products due to the time required for suppliers to build their manufacturing capacity. An extended interruption in the supply of any of the components for the Company's products, regardless of the cause, could have an adverse impact on the Company's results of operations. The Company's products also incorporate components, such as VRAMs, DRAMs and ASICs that are available from multiple sources but have been subject to substantial fluctuations in availability and price. Since a substantial portion of the total material cost of the Company's products is represented by these components, significant fluctuations in their price and availability could affect its results of operations. TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS The personal computer industry in general, and the color publishing and video applications within the industry, are characterized by rapidly changing technology, often resulting in short product life cycles and rapid price declines. The Company believes that its success will be highly dependent on its ability to develop innovative and cost-competitive new products and to bring them to the marketplace in a timely manner. Should the Company fail to introduce new products on a timely basis, the Company's operating results could be adversely affected. Technological innovation is particularly important for the Company, since its business is based on its ability to provide functionality and features not included in Apple's products. As Apple introduces new products with increased functionality and features, the Company's business will be adversely affected unless it develops new products that provide advantages over Apple's latest offerings. Continued reduction in the available cash resources of the Company could result in the interruption or cancellation of research and product development efforts. The Company anticipates that the video editing industry will follow the pattern of the professional publishing industry in which desktop publishing products, including those produced by Radius, replaced more expensive, proprietary products, and the Company also anticipates that this evolution will lead to a significant increase in the purchase and use of video editing products. There is a risk that this evolution will not occur in the video editing industry as expected by the Company, or that it will occur at a slower pace than anticipated. The introduction of new products is inherently subject to risks of delay. Should the Company fail to introduce new products on a timely basis, the operating results of the Company could be adversely affected. The introduction of new products and the phasing out of older products will require the Company to carefully manage its inventory to avoid inventory obsolescence and may require increases in inventory reserves. The long lead times -- as much as three to five months -- associated with the procurement of certain components (principally displays and ASICs) exposes the Company to greater risk in forecasting the demand for new products. There can be no assurance that the Company's forecasts regarding new product demand and its estimates of appropriate inventory levels will be accurate. Moreover, no assurance can be given that the Company will be able to cause all of its new products to be manufactured at acceptable manufacturing yields or that the Company will obtain market acceptance for these products. DISTRIBUTION The Company's primary means of distribution is through a limited number of third-party distributors and master resellers. As a result, the Company's business and financial results are highly dependent on the amount of the Company's products that is ordered by these distributors and resellers. Such orders are in turn dependent upon the continued viability and financial condition of these distributors and resellers as well as on their ability to resell such products and maintain appropriate inventory levels. Due in part to the historical volatility of the personal computer industry, certain of the Company's resellers have from time to time experienced declining profit margins, cash flow -12- 13 shortages and other financial difficulties. The future growth and success of the Company will continue to depend in large part upon its reseller channels. If its resellers were to experience financial difficulties, the Company's results of operations could be adversely affected. INTERNATIONAL SALES The Company's international sales are primarily made through distributors and the Company's subsidiary in Japan. The Company expects that international sales will represent a significant portion of its net sales and that it will be subject to the normal risks of international sales such as currency fluctuations, longer payment cycles, export controls and other governmental regulations and, in some countries, a lesser degree of intellectual property protection as compared to that provided under the laws of the United States. In addition, fluctuations in exchange rates could affect demand for the Company's products. If for any reason exchange or price controls or other restrictions on foreign currencies are imposed, the Company's business and operating results could be materially adversely affected. DEPENDENCE ON KEY PERSONNEL The Company's success depends to a significant degree upon the continued contributions of its key management, marketing, product development and operational personnel and the Company's ability to retain and continue to attract highly skilled personnel. Competition for employees in the computer industry is intense, and there can be no assurance that the Company will be able to attract and retain qualified employees. The Company has recently made a number of management changes, including the appointment of a new Chief Financial Officer. If the Company continues to experience financial difficulties, it may become increasingly difficult for it to hire new employees and retain current employees. The Company does not carry any key person life insurance with respect to any of its personnel. DEPENDENCE ON PROPRIETARY RIGHTS The Company relies on a combination of patent, copyright, trademark and trade secret protection, nondisclosure agreements and licensing arrangements to establish and protect its proprietary rights. The Company has a number of patents and patent applications and intends to file additional patent applications as it considers appropriate. There can be no assurance that patents will issue from any of these pending applications or, if patents do issue, that any claims allowed will be sufficiently broad to protect the Company's technology. In addition, there can be no assurance that any patents that may be issued to the Company will not be challenged, invalidated or circumvented, or that any rights granted thereunder would provide proprietary protection to the Company. The Company has a number of trademarks and trademark applications. There can be no assurance that litigation with respect to trademarks will not result from the Company's use of registered or common law marks, or that, if litigation against the Company were successful, any resulting loss of the right to use a trademark would not reduce sales of the Company's products in addition to the possibility of a significant damages award. Although, the Company intends to defend its proprietary rights, policing unauthorized use of proprietary technology or products is difficult, and there can be no assurance that the Company's efforts will be successful. The laws of certain foreign countries may not protect the proprietary rights of the Company to the same extent as do the laws of the United States. The Company has received, and may receive in the future, communications asserting that its products infringe the proprietary rights of third parties, and the Company is engaged and has been engaged in litigation alleging that the Company's products infringe others' patent rights. As a result of such claims or litigation, it may become necessary or desirable in the future for the Company to obtain licenses relating to one or more of its products or relating to current or future technologies, and there can be no assurance that it would be able to do so on commercially reasonable terms. VOLATILITY OF STOCK PRICE; DILUTION The price of the Company's Common Stock has fluctuated widely in the past. Management believes that such fluctuations may have been caused by announcements of new products, quarterly fluctuations in the results of operations and other factors, including changes in conditions of the personal computer industry in general. Stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of securities issued by the Company and other high technology companies, often for reasons unrelated to the operating performance of the specific companies. Due to the factors referred to herein, the dynamic nature of the Company's industry, general economic conditions and other factors, the Company's future operating results and stock prices may be subject to significant volatility in the future. In addition, any change in other operating results -13- 14 could have an immediate and significant effect on the prices of the Company's Common Stock. Such stock price volatility for the Common Stock has in the past provoked securities litigation, and future volatility could provoke litigation in the future that could divert substantial management resources and have an adverse effect on the Company's results of operations. -14- 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements. The Company's financial statements filed herewith are as follows:
Page ---- Report of Ernst & Young LLP, Independent Auditors F-1 Consolidated Balance Sheets at September 30, 1995 and 1994 F-2 Consolidated Statements of Operations for the Years Ended September 30, 1995, 1994 and 1993 F-3 Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 1995, 1994, and 1993 F-4 Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1994, and 1993 F-5 Notes to Consolidated Financial Statements F-6 (a) (2) Financial Statement Schedules. The Company's financial statement schedule filed herewith is as follows: Page ---- Schedule II: Valuation and Qualifying Accounts F-22 All other financial statement schedules are omitted because the information called for is not present in amounts sufficient to require submission of the schedules or because the information required is shown either in the financial statements or the notes thereto.
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(a) (3) Exhibits. Exhibit Number Title 2.01 Agreement and Plan of Reorganization dated May 20, 1994 between Radius Inc. and SuperMac Technology, Inc. (9) 2.02 Modification Agreement dated July 21, 1994 to Agreement and Plan of Reorganization between Radius Inc. and SuperMac Technology, Inc. (9) 2.03 Agreement of Merger dated August 31, 1994 between Radius Acquisition Corp. and SuperMac Technology, Inc. 2.04 Certificate of Ownership and Merger of SuperMac Technologies, Inc. into Radius Inc. dated September 7, 1994 and Certificate of Ownership of SuperMac Technologies, Inc. by Radius Inc. dated September 8, 1994 2.05 Agreement and Plan of Reorganization dated July 19, 1994 between Radius Inc. and VideoFusion, Inc. (12) 2.06 First Amendment to Agreement and Plan of Reorganization between Radius Inc. and Video Fusion, Inc. dated August 25, 1994 2.07 Second Amendment to Agreement and Plan of Reorganization between Radius Inc. and VideoFusion, Inc. dated September 6, 1994. 2.08 Third Amendment to Agreement and Plan of Reorganization between Radius Inc. and VideoFusion, Inc. dated May 10, 1995 3.01 A Registrant's Sixth Amended and Restated Articles of Incorporation. (2) B Certificate of Amendment of Registrant's Sixth Amended and Restated Articles of Incorporation. 3.02 Registrant's Bylaws. (4) 4.01 Form of Specimen Certificate for Registrant's Common Stock. (1) 4.04 * Non-Plan Stock Option Grant to Charles W. Berger. (8) 10.01 * A Registrant's 401(k) Savings and Investment Plan. (6) * B Amendment to the Registrant's 401(k) Savings and Investment Plan. * C Registrant's 401(k) Savings and Investment Plan Loan Policy 10.02 * Registrant's 1995 Stock Option Plan. 10.03 * Form of Stock Option Agreement and Exercise Request as currently in effect under 1995 Stock Option Plan. 10.04 * Registrant's 1990 Employee Stock Purchase Plan and related documents. (3) 10.05 * Registrant's 1994 Directors' Stock Option Plan.
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Exhibit Number Title 10.07 Form of Indemnity Agreement with Directors. (1) 10.08 A Credit Agreement by and among Radius Inc., the certain financial institutions, and Silicon Valley Bank, dated March 20, 1995. (14) B Credit Agreement by and among Radius Inc., the certain financial institutions, and International Business Machines Credit Corporation, dated February 17, 1995. (14) C Acknowledgment, Waiver and Amendment to Radius Inc. Inventory and Working Capital Financing Agreement by and between Radius Inc. and International Business Machines Credit Corporation dated December 14, 1995. 10.09 A Lease Agreement by and between Registrant and the Equitable Life Assurance Society of the United States dated June 22, 1988, as amended by the Commencement of Term Agreement dated February 13, 1989 and Amendment No. One dated July 20, 1989, and related documents (1710 Fortune Drive, San Jose, California offices). (1) B Second Amendment to Lease dated January 27, 1993 amending Lease Agreement by and between Registrant and Fortune Drive Partners (successor in interest to the Equitable Life Assurance Society of the United States) dated June 22, 1988 (1710 Fortune Drive, San Jose, California offices). (7) 10.10 Lease Agreement by and between Registrant and Board of Administration, as Trustee for the Police and Fire Department Fund, and Board of Administration, as Trustee for the Federated City Employees Retirement Fund dated December 11, 1990, and related documents (Milpitas, California warehouse space). (2) 10.11 Lease Agreement by and between Registrant and South Bay/Copley Associates III Joint Venture dated May 11, 1992; Sublease by and between Core Industries, Inc. and Registrant dated May 12, 1992; and related documents (2040 Fortune Drive, San Jose, California offices). (5) 10.12 A Lease Agreement between SuperMac Technologies, Inc. and Connecticut General Life Insurance Company dated as of November 13, 1993 (215 Moffett Park Drive, Sunnyvale, California offices). (10) B First Amendment to Lease Agreement between SuperMac Technologies, Inc. and Connecticut General Life Insurance Company dated as of May 4, 1993 (215 Moffett Park Drive, Sunnyvale, California offices). 10.13 Lease Agreement between SuperMac Technologies, Inc. and RREEF USA Fund-II, Inc. dated as of June 16, 1993 (Borregas Avenue, Sunnyvale, California warehouse space). 10.14 * Employment Agreement by and between Registrant and Charles W. Berger dated February 26, 1993 as amended on September 17, 1993. (11) 10.17 Full Recourse Promissory Note with Charles W. Berger. (11)
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Exhibit Number Title 10.18 Full Recourse Promissory Notes with J. Daniel Shaver. 10.19 Full Recourse Promissory Note from Michael A. McConnell. 10.20 * SuperMac Technology, Inc.'s 1988 Stock Option Plan ("Option Plan"). (13) 10.21 * SuperMac Technology, Inc.'s Form of Incentive Stock Option Agreement under the Option Plan. (13) 10.22 * SuperMac Technology, Inc.'s Form of Supplemental Stock Option Agreement under the Option Plan. (13) 10.23 * SuperMac Technology, Inc.'s Form of Early Exercise Stock Purchase Agreement under the Option Plan. (13) 10.24 Distribution Agreement between Radius Inc. and Ingram Micro, Inc. dated June 5, 1991 as amended on April 1, 1992, May 31, 1995 and July 14, 1995. (Confidential treatment has been requested with respect to certain portions of this exhibit). (15) 11.01 Computation of per share earnings 21.01 List of Registrant's subsidiaries 23.01 Consent of Ernst & Young, LLP, Independent Auditors 27 Financial Data Schedule
* Management contracts or compensatory plans required to be filed as an exhibit to Form 10-K. (1) Incorporated by reference to exhibits to the Company's Registration Statement on Form S-1 (File No. 33-35769), which became effective on August 16, 1990. (2) Incorporated by reference to exhibits to the Company's Report on Form 10-K filed on December 24, 1990. (3) Incorporated by reference to exhibits to the Company's Report on Form 10-K filed on December 30, 1991. (4) Incorporated by reference to exhibits to the Company's Registration Statement on Form S-8 filed on April 29, 1992 (File No. 33-47525). (5) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on August 12, 1992. (6) Incorporated by reference to exhibits to the Company's Report on Form 10-K filed on December 28, 1992. (7) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on August 18, 1993. (8) Incorporated by reference to exhibits to the Company's Registration Statement on Form S-8 filed on November 15, 1993 (File No. 33-71636). (9) Incorporated by reference to exhibits to the Company's Amendment No. 2 (File No. 33-79732) to Form S- 4 filed on July 25, 1994. (10) Incorporated by reference to exhibits to SuperMac's Form S-1 (File No. 33-58158) filed on February 11, 1993. (11) Incorporated by reference to exhibits to the Company's Report on Form 10-K filed on January 3, 1994. -18- 19 (12) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on August 17, 1994. (13) Incorporated by reference to exhibits to SuperMac Technology, Inc.'s Registration Statement on Form S-1, as amended (File No. 33-46800), which became effective on May 15, 1992. (14) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on May 10, 1995. (15) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on August 15, 1995. (b) Reports on Form 8-K. No report on Form 8-K was filed during the last quarter of the period covered by this report. (c) Exhibits - See (a) (3) above. (d) Financial Statement Schedules - See (a) (2) above. -19- 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. RADIUS INC. By: /s/ Charles W. Berger -------------------------------------- Charles W. Berger President, Chief Executive Officer and Director -20- 21 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Radius Inc. We have audited the accompanying consolidated balance sheets of Radius Inc. as of September 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity (net capital deficiency) and cash flows for each of the three years in the period ended September 30, 1995. Our audits also included the financial statement schedule listed in the Index at page F-21. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respect, the consolidated financial position of Radius Inc. at September 30, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that Radius Inc. will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses, and has a deficiency in assets and working capital. In addition the Company has not complied with certain covenants of loan agreements with its lenders. These conditions raise substantial doubt about the Company's ability to continue as a going concern. (Management's plans in regard to these matters are also described in Note 1.) The financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. As discussed in Note 1 to the Consolidated Financial Statements, in 1993 the Company changed its method of accounting for income taxes. Palo Alto, California Ernst & Young LLP December 8, 1995 except for Note 11, as to which the date is December 27, 1995 F-1 22 CONSOLIDATED BALANCE SHEETS September 30 (in thousands)
1995 1994 ---- ---- Assets Current assets: Cash and cash equivalents $ 4,760 $ 15,997 Accounts receivable, net of allowance for doubtful accounts of $8,502 in 1995 and $2,548 in 1994 61,644 62,145 Inventories 15,071 21,069 Prepaid expenses and other current assets 2,336 1,473 Income tax receivable 519 9,083 Deferred income taxes -- 8,400 --------- --------- Total current assets 84,330 118,167 Property and equipment, net 3,031 7,728 Deposits and other assets 517 964 --------- --------- $ 87,878 $ 126,859 ========= ========= Liabilities and Shareholders' Equity (Net capital deficiency) Current liabilities: Accounts payable $ 73,098 $ 39,255 Accrued payroll and related expenses 5,815 4,024 Accrued warranty costs 3,170 2,255 Other accrued liabilities 11,920 6,650 Accrued income taxes 1,665 1,237 Accrued restructuring and other charges 17,013 15,148 Short-term borrowings 29,489 18,095 Obligations under capital leases - current portion 1,494 1,647 --------- --------- Total current liabilities 143,664 88,311 Obligations under capital leases-noncurrent portion 1,331 2,857 Commitments and contingencies Shareholders' equity: (Net capital deficiency) Convertible preferred stock, no par value, 1,000 shares authorized; none issued and outstanding Common stock, no par value; 50,000 shares authorized; issued and outstanding -- 17,143 shares in 1995 and 14,046 shares in 1994 113,791 87,017 Common stock to be issued 12,022 -- Accumulated deficit (182,993) (51,251) Accumulated translation adjustment 63 (75) --------- --------- Total shareholders' equity (Net capital deficiency) (57,117) 35,691 --------- --------- $ 87,878 $ 126,859 ========= =========
See accompanying notes. F-2 23 CONSOLIDATED STATEMENTS OF OPERATIONS For years ended September 30 (in thousands, except per share data)
1995 1994 (1) 1993 (1) ---- -------- -------- Net sales $ 308,133 $ 324,805 $ 337,373 Cost of sales 302,937 276,948 254,321 --------- --------- --------- Gross profit 5,196 47,857 83,052 --------- --------- --------- Operating expenses: Research and development 19,310 33,956 33,503 Selling, general and administrative 90,068 94,731 84,132 --------- --------- --------- Total operating expenses 109,378 128,687 117,635 --------- --------- --------- Loss from operations (104,182) (80,830) (34,583) Interest and other income (loss) (3,045) (376) 705 Interest expense (3,023) (869) (635) Litigation settlement (12,422) -- -- --------- --------- --------- Loss before income taxes (122,672) (82,075) (34,513) Provision (benefit) for income taxes 9,070 (4,600) (13,774) --------- --------- --------- Loss before cumulative effect of a change in accounting principle (131,742) (77,475) (20,739) Cumulative effect of a change in method of accounting for income taxes -- -- 600 --------- --------- --------- Net loss $(131,742) $ (77,475) $ (20,139) ========= ========= ========= Net loss per share: Loss before cumulative effect of a change in accounting principle $ (8.75) $ (5.70) $ (1.61) Cumulative effect of a change in method of accounting for income taxes -- -- 0.05 --------- --------- --------- Net loss per share $ (8.75) $ (5.70) $ (1.56) ========= ========= ========= Common and common equivalent shares used in computing net loss per share 15,049 13,598 12,905 ========= ========= =========
See accompanying notes. (1) This period has been restated to reflect the 1994 Merger of Radius and SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. The consolidated financial statements for fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to that of Radius. This period includes Radius' results of operations and balance sheet data on a September 30 fiscal year basis and SuperMac's on a December 31 calendar year basis. The operating results for both the twelve months ended September 30, 1994 and September 30, 1993 include the restructuring and other charges of $16.6 million recorded by SuperMac in December 1993. F-3 24 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended September 30, 1995, 1994 and 1993 (in thousands, except share data)
Total Retained Shareholders Earnings Accumulated Equity Common (Accumulated Deferred Translation (Net Capital Stock Deficit) Compensation Adjustment Deficiency) ----- -------- ------------ ---------- ----------- Balance at September 30, 1992 (1) $ 60,203 $ 36,449 $ (58) $ 37 $ 96,631 Issuance of 738 shares of common stock under the SuperMac public offering 15,401 15,401 Issuance of 517 shares of common stock under Stock Option Plans 1,324 -- -- -- 1,324 Issuance of 159 shares of common stock under the Employee Stock Purchase Plans 1,663 -- -- -- 1,663 Tax benefit from stock options exercised 3,358 -- -- -- 3,358 Amortization of deferred compensation -- -- 36 -- 36 Currency translation adjustment -- -- -- (119) (119) Net loss -- (20,139) -- -- (20,139) --------- --------- --------- --------- --------- Balance at September 30, 1993 (1) 81,949 16,310 (22) (82) 98,155 Issuance of 350 shares of common stock under Stock Option Plans 1,800 -- -- -- 1,800 Issuance of 170 shares of common stock under Employee Stock Purchase Plans 989 -- -- -- 989 Issuance of 206 shares of common stock pursuant to the acquisition of VideoFusion 1,854 -- -- -- 1,854 Tax benefit from stock options exercised 425 -- -- -- 425 Amortization of deferred compensation -- -- 22 -- 22 Currency translation adjustment -- -- -- 7 7 Net loss -- (77,475) -- -- (77,475) Elimination of SuperMac net loss for the three months ended December 31, 1993 9,914 -- -- 9,914 --------- --------- --------- --------- --------- Balance at September 30, 1994 87,017 (51,251) -- (75) 35,691 Issuance of 214 shares of common stock under Stock Option Plans 1,254 1,254 Issuance of 162 shares of common stock under Employee Stock Purchase Plan 1,298 1,298 Issuance of 212 shares pursuant to the acquisition of VideoFusion 2,857 2,857 Settlement of Litigation-stock to be issued 12,022 12,022 Issuance of 2,509 shares of common stock through private placement 21,365 21,365 Currency translation adjustment 138 138 Net Loss (131,742) (131,742) --------- --------- --------- --------- --------- Balance at September 30, 1995 $ 125,813 $(182,993) -- $ 63 $ (57,117) ========= ========= ========= ========= =========
See accompanying notes. (1) These periods have been restated to reflect the 1994 Merger of Radius and SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. The consolidated financial statements for all periods prior to fiscal 1994 have not been restated to adjust SuperMac's fiscal year end to that of Radius. Such periods include Radius' results of operations and balance sheet data on a September 30 fiscal year basis and SuperMac's on a December 31 calendar year basis. F-4 25 CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For years ended September 30 (in thousands) 1995 1994 1993(1) ---- ---- ------- Cash flows from operating activities: Net loss $(131,742) $ (77,475) $ (20,139) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,689 4,542 8,160 Acquired in-process research and development expenses -- 2,550 -- Elimination of SuperMac net loss for the three months ended December 31, 1993 -- 9,914 -- Non-cash restructuring and other charges 57,865 40,775 28,981 Common stock to be issued 12,022 -- -- (Increase) decrease in assets: Accounts receivable (5,471) (20,171) (7,543) Allowance for doubtful accounts 5,954 426 297 Inventories (27,140) (1,058) (5,633) Prepaid expenses and other current assets (862) 1,739 15 Income tax receivable 8,564 468 (9,551) Deferred income taxes 8,400 11,248 (11,322) Increase (decrease) in liabilities: Accounts payable 33,843 3,470 2,570 Accrued payroll and related expenses (1,871) (1,441) 1,014 Accrued warranty costs 915 (1,584) 438 Other accrued liabilities 5,270 (4,039) 2,171 Accrued restructuring and other charges (13,601) (6,117) -- Accrued income taxes 428 (1,534) 4,585 --------- --------- --------- Total adjustments 89,005 39,188 14,182 --------- --------- --------- Net cash used in operating activities (42,737) (38,287) (5,957) --------- --------- --------- Cash flows from investing activities: Capital expenditures (1,894) (3,460) (7,739) Deposits and other assets (238) 71 -- Purchase of short-term investments -- (2,002) (31,914) Proceeds from sale of short-term investments -- 18,395 35,938 --------- --------- --------- Net cash provided by (used in) investing activities (2,132) 13,004 (3,715) --------- --------- --------- Cash flows from financing activities: Issuance of short-term borrowings, net 11,394 15,275 1,158 Issuance of common stock 23,917 3,214 18,388 Principal payments of long-term debt -- (43) (1,388) Principal payments under capital leases (1,679) (1,179) (1,140) --------- --------- --------- Net cash provided by financing activities 33,632 17,267 17,018 --------- --------- --------- Net increase (decrease) in cash and cash equivalents (11,237) (8,016) 7,346 Cash and cash equivalents, beginning of period 15,997 24,013 16,667 --------- --------- --------- Cash and cash equivalents, end of period $ 4,760 $ 15,997 $ 24,013 ========= ========= =========
See accompanying notes (1) This period has been restated to reflect the 1994 Merger of Radius and SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. The consolidated financial statements for fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to that of Radius. This period includes Radius' results of operations and balance sheet data on a September 30 fiscal year basis and SuperMac's on a December 31 calendar year basis. F-5 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation The consolidated financial statements include the accounts of Radius Inc. ("Radius") and its wholly owned subsidiaries after elimination of significant intercompany transactions and balances. Radius and SuperMac Technologies, Inc. ("SuperMac") merged into the combined company (the "Company") effective August 31, 1994 (the "Merger"), which was accounted for as a pooling of interests. The consolidated financial statements for fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to that of Radius. This period includes Radius' results of operations and balance sheet data on a September 30 fiscal year basis and SuperMac's on a December 31 calendar year basis. Financial Statements Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Such estimates include the level of allowance for potentially uncollectible receivables and sales returns; inventory reserves for obsolete, slow-moving, or non-salable inventory; and estimated cost for installation, warranty and other customer support obligations. Actual results could differ from these estimates. Management's Business Recovery Plans As shown in the accompanying consolidated financial statements, the Company has incurred recurring operating losses, and has a deficiency in assets and working capital. In addition, as of September 30, 1995, the Company was not in compliance with all of its contractual obligations and financial covenants under its credit agreements. The Company also is delinquent in its accounts payables as payments to vendors are not being made in accordance with vendor terms. The Company's relatively limited cash resources have restricted the Company's ability to purchase inventory which in turn has limited its ability to manufacture and sell products and has resulted in additional costs for expedited deliveries. The adverse effect on the Company's results of operations due to its limited cash resources can be expected to continue until such time as the Company is able to return to profitability, or generate additional cash from other sources. These conditions raise concerns about the Company's ability to continue operations as an ongoing concern. Management has implemented, or has developed plans to implement, a number of actions to address these conditions including: refocusing its efforts on providing solutions for high end digital video and graphics customers; discontinuing sales of mass market and other low value added products; divesting its color server and monochrome display businesses and exploring opportunities for the divestiture of its MacOS compatible systems products and other product lines; significantly reducing expenses and headcount; subleasing all or a portion of its current facility given its reduced occupancy requirements; and investigating various strategic partnering opportunities. Additional funds will be needed to finance the Company's development plans and for other purposes, and the Company is now investigating possible financing opportunities. There can be no assurance that additional financing will be available when needed or, if available, that the terms of such financing will not adversely affect the Company's results of operations. Fiscal year The Company's fiscal year ends on the Saturday closest to September 30 and includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years presented. During fiscal 1995, the Company changed its fiscal year end F-6 27 from the Sunday closest to September 30 to the Saturday closest to September 30 for operational efficiency purposes. For clarity of presentation, all fiscal periods in this Form 10-K are reported as ending on a calendar month end. Foreign currency translation The Company translates the assets and liabilities of its foreign subsidiaries into dollars at the rates of exchange in effect at the end of the period and translates revenues and expenses using rates in effect during the period. Gains and losses from these translations are accumulated as a separate component of shareholders' equity. Foreign currency transaction gains or losses, which are included in the results of operations, are not material. Inventories Inventories are stated at the lower of cost or market. The Company reviews the levels of its inventory in light of current and forecasted demand to identify and provide reserve for obsolete, slow-moving, or non-salable inventory. Cost is determined using standard costs that approximate cost on a first-in, first-out basis. Inventories consist of the following (in thousands):
September 30 1995 1994 ---- ---- Raw materials $ 1,559 $ 4,515 Work in process 2,258 6,852 Finished goods 11,254 9,702 -------- --------- $ 15,071 $ 21,069 ======== ========
Property and equipment Property and equipment is stated at cost and consists of the following (in thousands):
September 30 1995 1994 ---- ---- Computer equipment $ 17,429 $ 18,007 Machinery and equipment 12,335 14,184 Furniture and fixtures 6,023 5,562 Leasehold improvements 1,084 1,683 -------- --------- 36,871 39,436 Less accumulated depreciation and amortization (33,840) (31,708) --------- --------- $ 3,031 $ 7,728 ======== =========
Depreciation has been provided for using the straight-line method over estimated useful lives of three to five years. Equipment under capital leases and leasehold improvements are being amortized on the straight-line method over six years or the remaining lease term, whichever is shorter. Long-lived Assets In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. SFAS 121 is effective for fiscal years beginning after December 15, 1995. Adoption of SFAS 121 is not expected to have a material impact on the Company's financial position or results of operations. Revenue recognition F-7 28 Revenue is recognized when products are shipped. Sales to certain resellers are subject to agreements allowing certain rights of return and price protection on unsold merchandise held by these resellers. The Company provides for estimated returns at the time of shipment and for price protection following price declines. Warranty expense The Company provides at the time of sale for the estimated cost to repair or replace products under warranty. The warranty period commences on the end user date of purchase and is normally one year for displays and digital video products and for the life of the product for graphics cards. Income taxes Effective October 1, 1992, the Company adopted FASB Statement 109, "Accounting for Income Taxes." Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement 109, income tax expense was determined using the liability method prescribed by Statement 96, which is superseded by Statement 109. Among other changes, Statement 109 changes the recognition and measurement criteria for deferred tax assets included in Statement 96. As permitted by Statement 109, the Company has elected not to restate the financial statements of any prior years. The cumulative effect of the change in method of accounting for income taxes decreased the net loss by $600,000 or $0.05 per share in fiscal 1993 on a combined basis. Loss per share Net loss per share is computed using the weighted average number of common shares outstanding. Cash and cash equivalents The Company considers all highly liquid investments with a maturity from date of purchase of three months or less to be cash equivalents; investments with maturities between three and twelve months are considered to be short-term investments. Cash equivalents are carried at cost which approximates market. There were no short-term investments as of September 30, 1995 or 1994. Approximately $1.6 million of the $4.8 million of cash and cash equivalents available at September 30, 1995 was restricted under various letters of credit. Off balance-sheet risk and concentration of credit risk The Company sells its products to direct computer resellers in the United States and to distributors in various foreign countries. The Company performs on-going credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses. The Company also hedges substantially all of its trade accounts receivable denominated in foreign currency through the use of foreign currency forward exchange contracts based on firm third party commitments. Gains and losses associated with currency rate changes on forward contracts are recognized in the consolidated statements of operations upon contract settlement and were not material. At September 30, 1995, the Company had forward contracts to sell three different foreign currencies which totaled the equivalent of approximately $11.1 million and mature between October 1995 and November 1995. At September 30, 1995, the fair value of the Company's forward contracts approximated cost. Related Parties In fiscal 1994, the Company acquired shares of preferred stock of Portrait Display Labs ("PDL") and a warrant to purchase additional shares of PDL preferred stock in exchange for the cancellation of certain rights held by the Company to purchase all of the outstanding equity securities or assets of the predecessor entity to PDL. The warrant permitted the purchase of approximately an additional 10% interest in PDL. The Company also was F-8 29 granted one seat on PDL's Board of Directors. In addition, the Company licensed PDL certain pivot display technology in exchange for the payment of royalties. Product revenues were approximately $5.0 million in fiscal 1994. In fiscal 1995, the Company exercised the warrant for an additional 10% interest in PDL in exchange for cancellation of approximately $945,000 in accounts receivable. There were no product revenues for the fiscal 1995 to this related party. The receivable from PDL at September 30, 1995 was approximately $980,000. Subsequent to September 30, 1995, the Company signed a series of additional agreements with Portrait Display Labs, see Note 11 to the Consolidated Financial Statements. There were no material transactions from this or any other related party during fiscal 1993. NOTE TWO. BORROWINGS Line of credit arrangement In February 1995, the Company and IBM Credit Corp. ("ICC") entered into a $30.0 million Inventory and Working Capital Financing Agreement (the "ICC Agreement"). The ICC Agreement permits advances for inventory and working capital up to the lesser of $30.0 million or 85% of eligible receivables ("Inventory and Working Capital Advances"). In September 1995, ICC advanced an additional $20.0 million under the ICC Agreement to finance the manufacturing of the Company's MacOS compatible products (the "MacOS Advances"). The weighted average interest rate during 1995 was approximately 12.6%. Advances bear interest at rates ranging from prime rate plus 2.25% to prime rate plus 4% and are secured by all the assets of the Company. The ICC Agreement expires in March 1996. As of September 30, 1995, $50.8 million was outstanding under the ICC Agreement consisting of $30.8 million in Inventory and Working Capital Advances and approximately $20.0 million in MacOS Advances. The outstanding Inventory and Working Capital Advances included $18.7 million in working capital advances supported by eligible receivables, $6.1 million in working capital advances in excess of the borrowing base, and $6.1 million in inventory advances. The $24.7 million in working capital advances are included in Short-term borrowings in the Consolidated Financial Statements. The $6.1 million in inventory advances, together with the approximately $20.0 million in MacOS Advances, are included in Accounts payable in the Consolidated Financial Statements. As of September 30, 1995, the Company was not in compliance with all of its contractual obligations and financial covenants under the ICC Agreement (specifically, revenues to working capital ratio, net profit to revenue, and total liabilities to total net worth); however, IBM Credit has waived such defaults pursuant to an amendment to the ICC Agreement. See Note 11 to the Consolidated Financial Statements. In addition, the Company entered into a Business Loan Agreement on March 20, 1995 with Silicon Valley Bank. The agreement, which expires on March 19, 1996, allows the Company to issue letters of credit as a sub-facility under a $5.0 million foreign accounts receivable revolving line of credit subject to an interest rate of up to the prime rate plus 1.25%. The weighted average interest rate during 1995 was approximately 13.0%. The related debt outstanding as of September 30, 1995 was $1.7 million and outstanding letters of credit were $0.8 million. The Company was not in compliance with all the terms of this credit arrangement. One of the Company's subsidiaries has a revolving line of credit with a bank in Japan. Borrowings were approximately $3.1 million at September 30, 1995. This note bears interest at the lesser of the Euro-yen rate or the bank's prime lending rate (1.5 percent at September 30, 1995, the prime rate). The weighted average interest rate during 1995 was approximately 4.9% The line of credit is renewed every six months with the next renewal in December 1995. NOTE THREE. COMMITMENTS AND CONTINGENCIES Leases The Company leases facilities under operating leases and certain computer equipment and office furniture under capital leases. Depreciation expense for assets under capital leases is included in depreciation and amortization F-9 30 expense. The cost and net book value of these capitalized lease assets included in property and equipment are (in thousands):
At September 30, Cost Net Book Value ------- --------------- 1995 $ 7,437 $ 2,642 1994 7,437 4,021
Future minimum lease payments at September 30, 1995, under capital leases and noncancelable operating leases are as follows (in thousands):
Capital Operating Leases Leases 1996 $1,686 $ 1,837 1997 1,155 1,887 1998 280 1,843 1999 - 1,750 2000 - 1,759 ------- -------- Total minimum lease payments 3,121 $ 9,076 Amount representing interest (296) ------- Present value of minimum lease payments 2,825 Amount due within one year (1,494) ------- Amount due after one year $ 1,331 =======
Rent expense charged to operations amounted to approximately $3.5 million, $3.0 million and $3.8 million for the years ended September 30, 1995, 1994 and 1993, respectively. The rent expense amounts for fiscal 1995, 1994 and 1993 exclude a provision for remaining lease obligations on excess facilities. See Note 8 of Notes to the Consolidated Financial Statements. Sublease income for fiscal 1995 and 1994 was approximately $0.6 million and $0.1 million. There was no sublease income for fiscal 1993. Contingencies DISPLAY SCREEN SIZE The Company was named as one of approximately 42 defendants in Shapiro et al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara County, case no. CV751685, filed August 14, 1995. Radius was named as one of approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer et al., Superior Court of New Jersey, Essex County, case no. L-13780-95, filed December 15, 1995. Plaintiffs in each case purport to represent alleged classes of similarly situated persons and/or the general public, and allege that the defendants falsely advertise that the viewing areas of their computer monitors are larger than in fact they are. The Company was served with the Shapiro complaint on August 22, 1995, and has not yet been served with the Maizes complaint. Defendants' petition to the California State Judicial Council to coordinate the Shapiro case with similar cases brought in other California jurisdictions was granted in part and it is anticipated that the coordinated proceedings will be held in Superior Court of California, San Francisco County. Discovery proceedings have not yet begun in either case. In the opinion of management, based on the facts known at this time, the eventual outcome of these cases is unlikely to have a material adverse effect on the results of operations or financial position of the Company. ELECTRONICS FOR IMAGING On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a suit in the United States District Court in the Northern District of California alleging that the Company infringes a patent allegedly owned by EFI. F-10 31 Although the complaint does not specify which Radius products allegedly infringe the patent, EFI is a prime competitor of Radius in the Color Server market. Radius' Color Server products are material to its business. The Company has filed an answer denying all material allegations, and has filed counterclaims against EFI alleging causes of action for interference with prospective economic benefit, antitrust violations, and unfair business practices. The Company believes it has meritorious defenses to EFI's claims and is defending them vigorously. In addition, the Company believes it may have indemnification rights with respect to EFI's claims. In the opinion of management, based on the facts known at this time, the eventual outcome of this case is unlikely to have a material adverse effect on the results of operations or financial position of the Company. SECURITIES LITIGATION. In September 1992, the Company and certain of its officers and directors were named as defendants in a securities class action litigation brought in the United States District Court for the Northern District of California that sought unspecified damages, prejudgment and postjudgment interest, attorneys' fees, expert witness fees and costs, and equitable relief. In July 1994, SuperMac and certain of its officers and directors, several venture capital firms and several of the underwriters of SuperMac's May 1992 initial public offering and its February 1993 secondary offering were named as defendants in a class action litigation brought in the same court that sought unspecified damages, prejudgment and postjudgment interest, attorneys' fees, experts' fees and costs, and equitable relief (including the imposition of a constructive trust on the proceeds of defendants' trading activities). In June 1995, the Court approved the settlement of both litigations and entered a Final Judgment and Order of Dismissal. Under the settlement of the litigation brought in 1992 against the Company, our insurance carrier paid $3.7 million in cash and the Company will issue 128,695 shares of its Common Stock to a class action settlement fund. In the settlement of the litigation brought in 1994 against SuperMac, the Company paid $250,000 in cash and will issue into a class action settlement fund 707,609 shares of its Common Stock. The number of shares to be issued by the Company will increase by up to 100,000 if the price of the Common Stock is below $12 per share during the 60-day period following the initial issuance of shares. In connection with these settlements, the Company recorded a charge of $12.4 million in the Consolidated Financial Statements reflecting settlement costs not covered by insurance as well as related legal fees. The Company has periodically received communications from third parties asserting infringement of patent rights on certain of the Company's products and features. Management does not believe any claims made will have a material adverse effect on the results of operations or financial position of the Company. NOTE FOUR. SHAREHOLDERS' EQUITY Common Stock In June 1995, the Company sold approximately 2.5 million shares of its Common Stock in a series of private placements to a small number of investors unaffiliated with the Company. Proceeds from the offering, net of commission and other related expenses were $21.4 million. The net proceeds were used for working capital. Stock options The Company's 1986 Stock Option Plan, as amended, authorizes the issuance of up to 2,975,000 shares of common stock upon the exercise of incentive stock options or nonqualified stock options that may be granted to officers, employees (including directors who are also employees), consultants and independent contractors. Under the plan, options are exercisable for a term of up to ten years after issuance. Options may be granted at prices ranging from 50% to 100% of the fair market value of the stock on the date of grant, as determined by the Board of Directors. Vesting of shares is also determined by the Board of Directors at the date of grant. The 1986 Stock Option Plan will expire in October 1996. On August 31, 1994, pursuant to the Merger, Radius assumed 975,239 outstanding options originally issued under the SuperMac 1988 Stock Option Plan. These options will be administered in accordance with the F-11 32 SuperMac 1988 Stock Option Plan until all options are exercised or expired. Under the plan, options are exercisable for a term of up to ten years after issuance. The following table summarizes the consolidated activity of the 1986 and 1988 Stock Option Plans and the 1992 Non-Employee Directors' Stock Option Plan:
September 30, ------------------------------------------- 1995 1994 1993 Outstanding at beginning of year 2,042,481 2,208,783 2,157,040 Granted 707,590 892,131 1,219,514 Exercised (213,791) (294,042) (516,597) Canceled (838,745) (764,391) (651,174) ------------ ------------ ------------ Outstanding at September 30 1,697,535 2,042,481 2,208,783 ============ ============ ============ Price range at September 30 $1.36-$28.96 $0.42-$32.18 $0.42-$30.14 ============ ============ ============ Price range of options exercised $0.42-$13.13 $0.42-$13.13 $0.42-$22.35 ============ ============ ============ Exercisable at September 30 1,325,222 706,474 455,241 ============ ============ ============ Available for grant at September 30 415,586 281,726 331,314 ============ ============ ============
The stock option activity as shown in the table for fiscal 1993 has not been restated to adjust SuperMac's fiscal year end to that of Radius. Fiscal 1993 includes Radius' activity on a September 30 fiscal year basis and SuperMac's activity on a December 31 calendar year basis. The fiscal 1994 period includes the Radius activity for fiscal year ended September 30, 1994 and SuperMac activity for the nine months ended September 30, 1994. The Company has also reserved 100,000 shares of common stock for issuance to non-employee directors pursuant to options granted under the 1994 Directors' Stock Option Plan (the "1994 Plan"). Such options may only be nonqualified stock options, must be exercised within ten years from the date of grant, and must be granted in accordance with a non-discretionary formula. Under this formula, each new director receives an option to purchase 10,000 shares when that director is first appointed to the Board and an option to purchase 2,500 shares on each anniversary of such director's appointment. As of September 30, 1995, 27,500 shares had been granted under this plan at exercise prices ranging from $7.44 to $12.00 per share. Options to purchase 1,250 shares were canceled following the resignation of a director. None of the options granted under the 1994 Plan are exercisable. Prior to the approval of the 1994 Plan, the 1990 Directors' Stock Option Plan (the "Prior Plan") was in effect. As of September 30, 1995, the Prior Plan had 33,750 options outstanding at prices ranging from $8.00 to $17.25. Such options are nonqualified stock options, must be exercised within five years from the date of grant, and were granted in accordance with a non-discretionary formula. Options unissued under the Prior Plan become available for grant under the 1994 Plan. As of September 30, 1995, options to purchase 37,500 shares became available upon the resignation of three directors. In addition, 28,750 options to purchase shares, which were never granted under the Prior Plan were transferred to the 1994 Plan. In March 1993, the Company granted a nonqualified stock option to one officer to purchase a total of 250,000 shares of common stock outside the Company's 1986 Stock Option Plan at an exercise price of $7.75 per share. This option is exercisable for a term of ten years and vests over a fifty month period commencing on the date of grant. During fiscal 1994, 150 of these shares were exercised by the officer, and as of September 30, 1995 an additional 149,850 shares were exercisable. In June 1995, the Company repriced approximately 232,000 of then outstanding options to an exercise price of $12.00 per share, the fair market value of the Company's stock on the date of the repricing. Employee stock purchase plan F-12 33 The Company has an employee stock purchase plan under which substantially all employees may purchase common stock through payroll deductions at a price equal to 85% of its fair market value as of certain specified dates. Stock purchases under this plan are limited to 10% of an employee's compensation, and in no event may exceed $21,250 per year. Under this plan a total of 650,000 shares of common stock have been reserved for issuance to employees. At September 30, 1995, 255,859 shares remain available for issuance under the plan. Employee Stock Plans The Company account for its stock option plans and the Employee Stock Purchase Plan in accordance with provisions of the accounting Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based Compensation." SFAS 123 provides an alternative to APB 25 and is effective for fiscal years beginning after December 15, 1995. The Company expects to continue to account for its employee stock plans in accordance with the provision of APB 25. Accordingly, SFAS 123 is not expected to have any material impact on the Company's financial position or results of operations. F-13 34 NOTE FIVE. FEDERAL AND STATE INCOME TAXES The provision (benefit) for income taxes consists of the following: 1995 1994 1993 - -------------------------------------------------------------------------------- For years ended September 30 (in thousands)
Federal: Current $ -- $(12,583) $ (3,974) Deferred 7,170 12,311 (7,505) -------- -------- -------- 7,170 (272) (11,479) Foreign: Current 650 376 297 -------- -------- -------- State: Current 20 (3,641) 844 Deferred 1,230 (1,063) (3,436) -------- -------- -------- 1,250 (4,704) (2,592) -------- -------- -------- $ 9,070 $ (4,600) $(13,774) ======== ======== ========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
1995 1994 ------------------------------------------------------------------------------------- For years ended September 30 (in thousands) Deferred tax assets: Net operating loss carryovers $ 27,077 $ 5,100 Reserves and accruals not currently tax deductible 22,342 10,055 Restructuring reserves 22,314 -- Credit carryovers 6,280 3,100 Inventory valuation differences 4,188 12,612 Depreciation 4,079 4,202 Capitalized research & development expenditures 3,202 2,193 Other -- 374 -------- -------- Total deferred tax assets 89,482 37,636 -------- -------- Valuation allowance for deferred tax assets (85,086) (26,724) -------- -------- Deferred tax assets $ 4,396 $ 10,912 ======== ======== Deferred tax liabilities: State income tax $ 3,849 $ 2,512 Other 547 -- -------- -------- Total deferred tax liabilities 4,396 2,512 -------- -------- Net deferred tax assets $ -- $ 8,400 ======== ========
FASB Statement 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company's valuation allowance reduced the deferred tax asset to the amount realizable. The Company has provided a full valuation allowance against its net deferred tax assets due to uncertainties F-14 35 surrounding their realization. Due to the net losses reported in the prior three years and as a result of the material changes in operations reported in its 1995 fiscal fourth quarter, predictability of earnings in future periods is uncertain. The Company will evaluate the realizability of the deferred tax asset on a quarterly basis. The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before taxes. The sources and tax effects of the differences are as follows:
1995 1994 1993 - ------------------------------------------------------------------------------------------- For years ended September 30 (in thousands) Expected tax at statutory rate $(42,935) $(28,726) $(12,080) Change in valuation allowance 49,820 26,724 -- State income tax, net of federal tax benefit 1,250 (3,105) (1,707) Non-deductible merger costs -- 1,054 -- Non-deductible charge for purchased research and development -- 763 -- Research and development tax credits (497) (458) (734) Other 1,432 (852) 747 -------- -------- -------- $ 9,070 $ (4,600) $(13,774) ======== ======== ========
As of September 30, 1995, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $71,000,000 and $27,900,000, respectively. The state loss carryforwards will expire as follows; $8,000,000 in 1998, $5,000,000 in 1999; and $14,900,000 in 2000, if not utilized, and the federal loss carryforwards will expire primarily in 2009 and 2010, if not utilized. In addition, the Company had tax credit carryforwards of approximately $6,280,000 which will expire in 2005, if not utilized. Utilization of net operating loss and tax credit carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. F-15 36 NOTE SIX. STATEMENTS OF CASH FLOWS
1995 1994 1993 ------------------------------------------------------------------------------------ For years ended September 30, (in thousands) Supplemental disclosure of cash flow information (in thousands): Cash paid (received) during the year for: Interest $ 1,620 $ 812 $ 927 ======= ======= ====== Income taxes $(8,370) $(8,295) $2,661 ======= ======= ====== Supplemental schedule of noncash investing and financing activities (in thousands): Retirement of fully and partially depreciated assets $ 4,459 $ 6,025 $1,544 ======= ======= ====== Tax benefit from stock options exercised $ -- $ 425 $3,358 ======= ======= ====== Equipment acquired pursuant to capital leases $ -- $ 2,000 $4,138 ======= ======= ====== Common stock issued pursuant to VideoFusion agreement $ 2,857 $ -- $ -- ======= ======= ======
NOTE SEVEN. EXPORT SALES AND MAJOR CUSTOMERS The Company currently operates in one principal industry segment: the design, manufacturing and marketing of color publishing and digital video computer products. The Company's export sales were approximately $124,469,000, $112,050,000 and $108,115,000 in the fiscal years ended September 30, 1995, 1994 and 1993, respectively, and included export sales to Europe of approximately $57,257,000, $60,621,000, and $59,473,000, respectively. Export sales to Japan were approximately $57,173,000, $35,701,000 and $33,042,000 for fiscal years ended September 30, 1995, 1994 and 1993, respectively. One customer accounted for approximately 34.0%, 13.5% and 11.5% of the Company's net sales during the years ended September 30, 1995, 1994 and 1993, respectively. NOTE EIGHT. RESTRUCTURING AND OTHER CHARGES RADIUS JUNE 1993 RESTRUCTURING AND OTHER CHARGES In June 1993, Radius announced a restructuring program designed to reduce costs and improve operating efficiencies. The program included, among other things, the write-down of inventory following Radius' decision to phase out its older generation of products, lease termination expenses, capital equipment write-offs, severance payments, and costs associated with the discontinuation of Radius' minicomputer-class server product. The restructuring program costs of $15.5 million were recorded during the third quarter of fiscal 1993. These charges (in thousands) are included in: cost of sales ($10,993); research and development ($411); and selling, general and administrative expenses ($4,096). The Company completed this restructuring event by the end of calendar 1994. There were no material changes in the restructuring plan or in the estimates of the restructuring costs from the recognition of the charge in June 1993 with the completion of the restructuring program in December 1994. F-16 37 SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES In December 1993, SuperMac recorded charges of $16.6 million in connection with a program to adjust inventory levels, eliminate excess facilities, terminate certain projects and contract arrangements and reduce the number of employees. The charges (in thousands) are included in: cost of sales ($13,352); research and development ($2,000); and selling, general and administrative expenses ($1,238). There have been no material changes in the restructuring plan or in the estimates of the restructuring costs. The Company has $236,000 remaining in its restructuring reserve related to facility costs, the balance of which is expected to be eliminated in fiscal 1996. As noted in the Consolidated Financial Statements, the consolidated results for the Company in both the twelve months ended September 30, 1994 and the fiscal period ended 1993 include SuperMac's $16.6 million charge. RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4 million in connection with the Merger of Radius and SuperMac. These charges include the discontinuance of duplicative product lines and related assets; elimination of duplicative facilities, property and equipment and other assets; and personnel severance costs as well as transaction fees and costs incidental to the merger. The charges (in thousands) are included in: net sales ($3,095); cost of sales ($25,270); research and development ($4,331); and selling, general and administrative expenses ($10,711). The elements of the total charge as of September 30, 1995 are as follows (in thousands):
Representing -------------------------------- Cash Outlays ------------------------- Asset Provision Write-Downs Completed Future Adjust inventory levels $22,296 $ 19,200 $ 3,096 $ - Excess facilities 2,790 400 2,236 154 Revision of the operations business model 9,061 7,078 1,268 715 Employee severance 6,311 - 6,311 - Merger related costs 2,949 - 2,949 - ------- -------- -------- -------- Total charges $43,407 $26,678 $ 15,860 $ 869
The adjustment of inventory levels reflects the discontinuance of duplicative product lines. The provision for excess facility costs represents the write-off of leaseholds and sublease costs of Radius' previous headquarters, the consolidation into one main headquarter and the consolidation of sales offices. The revision of the operations business model reflects the reorganization of the combined Company's manufacturing operations to mirror Radius' manufacturing reorganization in 1993. This reorganization was designed to outsource a number of functions that previously were performed internally, reduce product costs through increased efficiencies and lower overhead, and focus the Company on a limited number of products. Employee severance costs are related to employees or temporary employees who were released due to the revised business model. Approximately 250 employees were terminated in connection with the Merger. The provision for merger related costs is for the costs associated with the Merger transaction, such as legal, investment banking and accounting fees. The Company has spent $15.9 million of cash for restructuring through September 30, 1995. The Company expects to have substantially completed the restructuring by September 1996. During fiscal 1995, approximately $2.1 million of merger related restructuring reserves were reversed and recorded as an expense reduction due to changes in estimated requirements. RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES In September 1995, Radius recorded charges of $57.9 million in connection with the Company's efforts to refocus its business on the color publishing and multimedia markets. The charges primarily included a writedown of inventory and other assets. Additionally, it included expenses related to the cancellation of open purchase orders, excess facilities and severance. The charges (in thousands) are included in cost of sales ($47,004), and selling, general and administrative expense ($10,861). The elements of the total charge as of September 30, 1995 are as follows (in thousands): F-17 38
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 - - 3,662 -------- --------- ------- -------- Total charges $ 57,865 $ 37,900 $ - $ 19,965
The adjustment of inventory levels reflects the discontinuance of several product lines. Revenues and product margins for significant product lines discontinued were as follows: MacOS-compatible systems were $21.8 million and $(19.2 million), respectively; and low-margin displays $82.9 million and $19.6 million, respectively. The provision for excess facility costs represent the write-off of leasehold improvements and the costs associated with anticipated reductions in facilities. The cancellation fees and asset write-offs reflect the Company's decision to refocus its efforts on providing solutions for the color publishing and multimedia markets. Employee severance costs are related to employees or temporary employees who have been or will be released due to the revised business model. As of December 15, 1995, approximately 157 positions of the 240 total planned had been eliminated in connection with the new business model. The Company had not spent any cash for this restructuring as of September 30, 1995. As of September 30, 1995, the Company had cash and cash equivalents of $4.8 million. See "Management's Business Recovery Plans" at Note 1 due to the Consolidated Financial Statements. The Company expects to have substantially completed the restructuring by September 1996. NOTE NINE. VIDEOFUSION ACQUISITION The Company acquired VideoFusion, Inc. ("VideoFusion") on September 9, 1994. VideoFusion is a developer of advanced digital video special effects software for Apple Macintosh and compatible computers. The Company acquired VideoFusion in exchange for approximately 890,000 shares of the Company's Common Stock, 205,900 shares of which were issued at the closing of the acquisition. The balance of the shares were to be issued in installments over a period of time contingent on the achievement of certain performance milestones and other factors. In addition, the Company was required to pay up to $1.0 million in cash based upon net revenues derived from future sales of products incorporating VideoFusion's technology. The purchase price for VideoFusion, including closing costs and the issuance of shares of Common Stock valued at $500,000 in connection with the achievement of the first milestone was approximately $2.4 million. This amount was allocated to the assets and liabilities of VideoFusion and resulted in identifiable intangibles of approximately $440,000 and an in-process research and development expense of approximately $2.2 million. The intangible asset was to be amortized over two years. The Company recognized the charge of approximately $2.7 million for in-process research and development and other costs associated with the acquisition of VideoFusion during the fourth quarter of fiscal 1994. In May 1995, the Company entered into an agreement with the former holders of VideoFusion stock to settle the contingent stock and earnout payments that were originally contemplated. Pursuant to this agreement, the Company issued approximately 212,000 shares, and paid approximately $200,000, to the former holders of VideoFusion stock. These transactions resulted in additional compensation expense of approximately $3.0 million which was recorded in fiscal 1995. NOTE TEN. MERGER WITH SUPERMAC TECHNOLOGIES, INC. On August 31, 1994, Radius merged with SuperMac in exchange for 6,632,561 shares of Radius' common stock. SuperMac was a designer, manufacturer, and marketer of products that enhanced the power and graphics performance of personal computers. The Merger was accounted for as a pooling of interests, and, accordingly, the Company's Consolidated Financial Statements and Notes to Consolidated Financial Statements have been restated to include the results of SuperMac for all periods presented. Separate results of operations for the periods prior to the Merger are as follows (in thousands): F-18 39
Merger- Related Radius SuperMac Expenses Adjustment Combined ------ -------- -------- ---------- -------- Year ended September 30, 1994 Net revenues $162,922 $164,978 $ (3,095) $ - $324,805 Net loss (18,293) (15,775) (43,407) - (77,475) Year ended September 30, 1993 (SuperMac as of December 1993) Net revenues 134,872 202,501 - - 337,373 Net loss (17,415) (2,724) - - (20,139)
The merger related expenses reflect the recording of the merger related restructuring and other charges. Prior to the Merger, SuperMac's fiscal year end was December 31. SuperMac's separate results for fiscal 1994 have been restated to conform with the twelve months ended September 30. The Consolidated Financial Statements for all periods prior to fiscal 1994 have not been restated to adjust SuperMac's fiscal year end to that of Radius. Such periods include Radius' results of operations and balance sheet data on a September 30 fiscal year basis and SuperMac's on a December 31 calendar year basis. Therefore, the results for both the fiscal year ended September 30, 1994 and the results for the fiscal year ended 1993 include the results for SuperMac's three months ended December 31, 1993. Revenues, cost and expenses, and net loss of SuperMac for the three months ended December 31, 1993 were, $48.5 million, $64.7 million and $9.9 million, respectively. The Company incurred substantial costs in connection with the Merger and consolidation of operations. Included in the accompanying consolidated statement of operations for the year ended September 30, 1994 are merger related expenses totaling $43.4 million consisting primarily of charges for the discontinuance of duplicative product lines and related assets, elimination of duplicative facilities, property and equipment and other assets, and personnel severance costs as well as transaction fees and costs incident to the Merger. See Note 8 of Notes to the Consolidated Financial Statements. NOTE ELEVEN. SUBSEQUENT EVENTS PORTRAIT DISPLAY LABS On December 19, 1995, the Company signed a series of agreements with Portrait Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting technology to PDL and canceled PDL's on-going royalty obligation to the Company under an existing license agreement in exchange for a one-time cash payment. PDL also granted the Company a limited license back to the pivoting technology. Under these agreements, PDL settled its outstanding receivable to the Company by paying the Company $500,000 in cash and issuing to the Company 214,286 shares of PDL's Common Stock. See Note 1 to the Consolidated Financial Statements. DISPLAY TECHNOLOGIES ELECTROHOME INC. On December 21, 1995, the Company signed a Business Purchase Agreement and an Asset Purchase and License Agreement with Display Technologies Electrohome Inc. ("DTE"). Pursuant to the agreements and subject to certain closing conditions, DTE will purchase Radius' monochrome display monitor business and certain assets related thereto, for approximately $200,000 in cash and cancellation of $2.5 million of the Company's indebtedness to DTE. In addition, DTE and Radius will cancel outstanding contracts relating to DTE's manufacture and sale of monochrome display monitors to Radius. F-19 40 COLOR SERVER GROUP On December 23, 1995, the Company signed a definitive agreement pursuant to which the Company will sell its Color Server business to Splash Merger Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology Holdings, Inc. (the "Parent"), a corporation formed by various investment entities associated with Summit Partners. The Company will receive approximately $21.9 million in cash (subject to certain post-closing adjustments) and 4,282 shares of the Parent's 6% Series B Redeemable and Convertible Preferred Stock (the " Series B Preferred Stock"). The shares of Series B Preferred Stock will be convertible by the Company at any time into 19.9% of the Parent's common stock outstanding as of the closing of the transaction. The shares of Series B Preferred Stock also will be redeemable by the Parent at any time, and will be subject to mandatory redemption beginning on the sixth anniversary of issuance, in each case at a redemption price of $1,000 per share plus accrued dividends. The transaction is expected to close in January 1996. Under the Inventory and Working Capital Agreement, as recently amended, with IBM Credit Corp., the Company is required to pay all of the net proceeds of the Color Server business transaction to IBM Credit Corp. in order to reduce the Company's outstanding indebtedness under that agreement. IBM CREDIT CORP. On December 14, 1995, the Company and IBM Credit Corp. ("ICC") amended the Inventory and Working Capital Financing Agreement (the "ICC Agreement") entered into by the Company and ICC on February 17, 1995 and subsequently revised in September 1995 to fund the manufacturing of the Company's MacOS compatible systems products. See Note 2 to the Consolidated Financial Statements. Under the amendment, ICC waived the Company's failure to comply with all of its contractual obligations and financial covenants under the ICC Agreement. The ICC Amendment, among other things, also provides that until March 31, 1996 ICC will extend advances to the Company in an amount up to 90% of the Company's collections and fund the Company's payroll in the event that collections are insufficient to permit the advances needed for this purpose. Such advances and payroll funding, however, may be suspended by ICC (i) immediately following a default of the ICC Amendment, and (ii) following thirty (30) days notice in the event of any default of the ICC Agreement. The ICC Amendment also requires the Company to pay all of the net proceeds of the Color Server Group transaction to ICC to reduce the Company's outstanding indebtedness under the ICC Agreement. 1995 STOCK OPTION PLAN On December 20, 1995, the Company's Board of Directors adopted the 1995 Stock Option Plan to replace the 1986 Stock Option Plan that expires in 1996, and reserved 850,000 shares (plus all unissued and unexercised shares available under the existing 1986 Stock Option Plan) for issuance thereunder. The 1995 Stock Option Plan is subject to shareholder approval. See Note 4 to the Consolidated Financial Statements. F-20 41 SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
Balance at Charged to Charged Balance beginning costs and to other at end of Description of period expenses accounts Deductions(1) period ----------- ---------- ---------- -------- ------------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year ended September 30, 1993 (2) $1,825 $1,272 $0 $975 $2,122 Year ended September 30, 1994 $2,018 (2) $1,283 $0 $753 $2,548 Year ended September 30, 1995 $2,548 $6,837 $0 $883 $8,502
- ----------------------------- (1) Uncollectable accounts written off. (2) The Consolidated Financial Statements for fiscal 1993 have not been restated for the change in fiscal year. This period includes Radius' results of operations and balance sheet data on a September 30 fiscal year basis and SuperMac's on a December 31 calendar year basis. F-21 EX-23.01 2 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23.01 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-04765, 33-37376, 33-43116, 33-47525, 33-71636, 33-77238, 33-83824 and 33-59571) pertaining to the 1995 Stock Option Plan, the 1986 Stock Option Plan, the 1990 Employee Stock Purchase Plan, and Non-Plan Stock Options of Radius Inc. of our report dated December 8, 1995, except for Note 11, as to which the date is December 27, 1995, with respect to the consolidated financial statements and schedule of Radius Inc. included in the Annual Report (Form 10-K/A) for the year ended September 30, 1995. ERNST & YOUNG LLP Palo Alto, California July 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----