<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549


                                       FORM 10-K
     (MARK ONE)
     /X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
              SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

     FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 

     / /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
                      EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

     FOR TRANSITION PERIOD FROM                    TO                       

                              COMMISSION FILE NUMBER 0-18690

                                          RADIUS INC.
                (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

           CALIFORNIA                                    68-0101300
(STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)             



          215 MOFFETT PARK DRIVE
          SUNNYVALE, CA                                       94089
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)              (ZIP CODE)

                                            (408) 541-6100
                    (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


      SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:   NONE

   SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  COMMON STOCK

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS 
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE 
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO 
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.  YES      NO /X/               
                                                   -----   ----

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO 
THE BEST OF THE REGISTRANTS KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION 
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY 
AMENDMENT TO THIS FORM 10-K. (X)

                                                         AS OF DECEMBER 31, 1996

AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY 
NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING
BID PRICE OF SUCH STOCK:                                             $22,167,711

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING:                         54,497,796

                        DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF 
SHAREHOLDERS TO BE HELD FEBRUARY 25, 1996 ARE INCORPORATED BY REFERENCE INTO 
PART III (ITEMS 10, 11, 12, AND 13) HEREOF.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>

                                          RADIUS INC.
                               1996 ANNUAL REPORT ON FORM 10-K

                                       TABLE OF CONTENTS

PART I                                                                Page
                                                                      ----

ITEM 1.     Business...............................................      3
ITEM 2.     Properties.............................................     11
ITEM 3.     Legal Proceedings......................................     11
ITEM 4.     Submission of Matters to a Vote of Securityholders.....     13

PART II

ITEM 5.     Market for Registrant's Common Equity and Related
              Shareholder Matters..................................     14
ITEM 6.     Selected Financial Data................................     15
ITEM 7.     Management's Discussion and Analysis of Financial
              Condition and Results of Operations..................     16
ITEM 8.     Financial Statements and Supplementary Data............     34
ITEM 9.     Changes in and Disagreements With Accountants on 
              Accounting and Financial Disclosure..................     34

PART III

ITEM 10.    Directors and Executive Officers of the Registrant.....     35
ITEM 11.    Executive Compensation.................................     35
ITEM 12.    Security Ownership of Certain Beneficial Owners and
              Management...........................................     35
ITEM 13.    Certain Relationships and Related Transactions.........     35

PART IV

ITEM 14.    Exhibits, Financial Statement Schedule, and Reports
              on Form 8-K..........................................     36

SIGNATURES  .......................................................     42


Radius, the Radius logo, SuperMac, Super Match, PressView, PrecisionView, 
MultiView, IntelliColor, Precision Color, Cinepak, Thunder, Thunder Storm, 
VideoFusion and VideoVision, among others are registered trademarks and/or 
registered service marks of Radius Inc. or one of its subsidiaries. Radius 
Edit and Super Resolution, among others, are trademarks and/or service marks 
of Radius Inc. or one of it subsidiaries. Other brands or products contained 
in this document are trademarks, service marks, registered trademarks or 
registered service marks of their respective holders and should be treated as 
such.

                                       -2-

<PAGE>

                                      PART I

ITEM 1.   BUSINESS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: The following 
discussion contains forward-looking statements within the meaning of Section 
21E of the Securities Exchange Act of 1934 that are subject to risks and 
uncertainties. Statements indicating that the Company "expects," "estimates" 
or "believes" are forward-looking, as are all other statements concerning 
future financial results, product offerings or other events that have not yet 
occurred. There are several important factors that could cause actual results 
or events to differ materially from those anticipated by the forward-looking 
statements contained in this discussion and other sections of this Form 10-K. 
Such factors include, but are not limited to: the Company's ability to 
achieve profitability; the Company's ability to repay its indebtedness to IBM 
Credit; the success of the Apple Macintosh computer line and operating 
system, the success of Apple as well as the Company's ability to compete 
successfully with Apple; the Company's ability to successfully develop and 
introduce new products to keep pace with technological innovation, 
particularly in light of its limited financial resources; the Company's 
ability to compete in its market; the ability of the Company's manufacturers 
and suppliers to deliver components and manufacture the Company's products; 
the Company's reliance on international sales and the effect of its exclusive 
distributor arrangements with respect to Europe and Japan; and the Company's 
ability to attract and retain its key personnel.

OVERVIEW

     The Company designs, develops, assembles, markets and supports color 
publishing and digital video computer products for creative professionals.  
The Company's current product line includes: accelerated color graphics 
products that facilitate the creation and manipulation of graphical images; 
video systems and software that can acquire and manipulate video and audio 
information; and high resolution color reference displays that allow users to 
view text, graphics, images and video.

     The primary target markets for the Company's products are color 
publishing and multimedia. These markets encompass creative professionals 
involved in such areas as color prepress, graphic arts, video editing, video 
and multimedia production and playback and corporate training.

     To date, substantially all of the Company's products have been designed 
for and sold to users of Macintosh computer products (the "Macintosh") 
manufactured by Apple Computer, Inc. ("Apple") as Apple products have been 
the preferred platform in the Company's target markets.

     As shown in the accompanying consolidated financial statements, the 
Company has incurred substantial operating and net losses and, until 
recently, had a deficiency in assets and working capital.  During fiscal 
1996, management implemented a number of actions to address its cash flow and 
operating issues including: restructuring its outstanding indebtedness to 
trade creditors and its secured creditor; refocusing its efforts on providing 
solutions for high end digital video and graphics customers; discontinuing 
sales of mass market and other low value added products; divesting a number 
of businesses and product lines; significantly reducing expenses and 
headcount; and subleasing all or a portion of its current facility lease 
given its reduced occupancy requirements.

     The Company, IBM Credit Corporation ("IBM Credit") and its unsecured 
creditors recently consummated a restructuring of the Company's outstanding 
indebtedness pursuant to which the Company's creditors received equity in 
satisfaction of their claims (the "Plan").  The Company issued 36,294,198 
shares of Common Stock in satisfaction of approximately $45.9 million in 
unsecured claims (including a $1.0 million reserve for unknown or unresolved 
claims) and repaid approximately $1.9 million of unsecured claims, most of 
which were less than $50,000, at an average discount of approximately 75% of 
the amount of the claim.  Of these shares of Common Stock issued pursuant to 
the Plan, 791,280 were issued to the Radius Creditors Trust for the purpose 
of satisfying unresolved or unknown claims. As of September 30, 1996, 444,253 
shares of Common Stock were held by the Radius Creditors Trust. The Company 
also issued 750,000 shares of its Series A Convertible Preferred Stock and 
warrants to purchase 600,000 shares of Common Stock to IBM Credit in 
satisfaction of $3.0 million indebtedness and in consideration of 
restructuring its remaining  approximately $23.4 million indebtedness to IBM 
Credit.  The Company also issued  to its unsecured creditors who received  
Common Stock rights ("Rights") to receive an additional 11,046,060 shares of 
Common Stock in the event that the Series A Convertible Preferred Stock is 
converted into Common Stock (including 240,824 Rights issued to the Radius 
Creditors Trust). Subsequent to the end of its fiscal year, the Company 
issued warrants to purchase 200,000 shares of Common Stock to Mitsubishi 

                                       -3-

<PAGE>

Electronics America, ("Mitsubishi Electronics") Inc. in consideration of the 
extension of open credit terms to the Company.  See "Recent 
Developments--Debt for Equity Exchange."

     The Company's executive offices are located at 215 Moffett Park Drive,
Sunnyvale, CA 94089, and its telephone number is (408) 541-6100.


RECENT DEVELOPMENTS

DEBT FOR EQUITY EXCHANGE
     
     As of June 30, 1996, the Company had total assets of approximately $43.9 
million and total current liabilities of approximately $91.4 million.  The 
Company was also delinquent in its accounts payable as payments to certain 
vendors were not being made in accordance with vendor terms.  As of June 30, 
1996, the Company had outstanding accounts payable, short-term borrowings and 
current portions of obligations under capital leases of approximately $62.2 
million, of which approximately $38.0 million was outstanding under accounts 
payable, approximately $22.9 million represented short-term borrowings and 
approximately $1.3 million represented current portions of obligations under 
capital leases. Several vendors had initiated legal action to collect 
allegedly delinquent accounts and at least two vendors had orally threatened 
the Company with initiation of insolvency or bankruptcy proceedings.  
     
     As a result, the Company established an unofficial unsecured creditors 
committee (the "Unofficial Creditors Committee") consisting of eight of its 
larger unsecured creditors (the "Committee Members") in an effort to resolve 
the delinquent accounts payable, capital deficiency and creditor litigation 
issues outside of insolvency or bankruptcy proceedings.  The Company sought 
to resolve these claims outside of bankruptcy or insolvency proceedings in 
order to avoid the significant costs and uncertainties that would arise in 
such proceedings, including the likely demoralization of employees, customers 
and distributors.
     
     The Company, the Unofficial Creditors Committee and the Company's 
secured creditor, IBM Credit, agreed to the Plan pursuant to which creditors 
would receive equity in the Company in satisfaction of all or a portion of 
their claims.  Pursuant to the Plan, IBM Credit, the Company's secured 
creditor, received 750,000 shares of Series A Convertible Preferred Stock in 
satisfaction of $3.0 million of the Company's approximately $26.4 million 
secured indebtedness to IBM Credit and in consideration of restructuring IBM 
Credit's loan with the Company, including extension by IBM Credit of an 
additional advance of approximately $470,000 for making Discount Payments 
(defined below). The Company's unsecured creditors with claims of 
approximately $47.8 million (including a $1.0 million reserve for unknown or 
unresolved claims) received either shares of Common Stock or, in the case of 
certain creditors, most of which had claims of less than $50,000 
("Convenience Class Creditors"), a discounted cash payment (approximately 
$470,000 in the aggregate) in satisfaction of claims of approximately $1.9 
million.  The Company also issued warrants to purchase 600,000 shares of 
Common Stock to IBM Credit and warrants to purchase 200,000 shares of Common 
Stock to Mitsubishi Electronics. While the issuance of the Series A 
Convertible Preferred Stock, the Common Stock and the warrants to purchase 
800,000 shares of Common Stock did not require the approval of the Company's 
shareholders, an increase in the authorized number of shares of Common Stock, 
which was necessary to implement this Plan, required shareholder approval, 
which approval was obtained at a special meeting of shareholders on August 
27, 1996.
     
     Pursuant to the Plan, unsecured creditors received 36,294,198 shares of 
Common Stock, which represented approximately  60% of the outstanding Common 
Stock of the Company after consummation of the Plan (including 791,280 shares 
issued to the Radius Creditors Trust for the purpose of satisfying a portion 
of any unknown or unresolved claims).  The Company's secured creditor, IBM 
Credit, received 750,000 shares of Series A Convertible Preferred Stock.  The 
Series A Convertible Preferred Stock is convertible into  an aggregate of 
5,523,030 shares of Common Stock of the Company (or 6,075,333 shares in 
certain circumstances).  The unsecured creditors also received Rights to 
receive an aggregate of 11,046,060 additional shares of the Company's Common 
Stock in the event that the Series A Convertible Preferred Stock is converted 
into Common Stock so that the number of shares of Common Stock received by 
such unsecured creditors continues to represent 60% of the shares of the  
Company's outstanding Common Stock.  In addition, the Company has amended its 
1995 Stock Option Plan to reserve for issuance thereunder and under its other 
existing Stock Option and Stock Purchase Plans, approximately 10% of the 
outstanding shares of the Company's Common Stock.  Upon conversion of the 
Series A Convertible Preferred Stock, the Company intends to either adopt a 
new stock option plan or further amend its 1995 Stock Option Plan to reserve 
for issuance thereunder  (together with the Company's other Stock Option and 
Stock Purchase Plans) approximately 10% of the outstanding shares of the 
Company's Common Stock.  Therefore, shareholders holding shares of Common 
Stock immediately prior to the consummation of the Plan ("Existing 
Shareholders") represented approximately 30% of the outstanding shares of 
Common Stock immediately after the Plan 

                                       -4-

<PAGE>

was consummated.  Because the Series A Convertible Preferred Stock will vote 
on an as-converted basis, Existing Shareholders represent approximately 28% 
of the voting power of the Company, assuming all options available or to be 
available for issuance are exercised. If and when the Series A Convertible 
Preferred Stock is converted into Common Stock, Existing Shareholders will 
then represent 23% of the outstanding shares of Common Stock assuming no 
other issuances of the Company's securities and exercise of all options 
available or to be available for issuance.
     
     Unsecured creditors accepting equity in satisfaction of their claims 
generally had claims in excess of $50,000 ("Major Creditors") and represented 
accounts payable or other claims in the aggregate of approximately $45.9 
million (including a $1.0 million reserve for unknown or unresolved claims) 
of which approximately $29.3 million represented claims of the Committee 
Members.  The Committee Members included SCI Technology, Inc., Mitsubishi 
Electronics, Hamilton Hallmark/Avnet Co., Manufacturers Services Limited, 
Avex Electronics, Inc., TechData Corporation, Quantum and Mitsubishi 
International Corporation, which were generally the Company's largest 
unsecured creditors, with claims of approximately $12.3 million, $5.1 
million, $4.0 million, $2.2 million, $2.1 million, $1.6 million, $1.6 million 
and $380,000, respectively.  
     
     The remaining unpaid indebtedness of approximately $1.9 million was owed 
to its Convenience Class Creditors and was repaid at an average discount of 
approximately 75% of the amount of the applicable claim (the amounts paid to 
the Convenience Class Creditors are referred to as the "Discount Payment").  
The Company repaid these creditors from the proceeds of an additional advance 
of approximately $470,000 from IBM Credit which was made for the purpose of 
making Discount Payments.  As of the date of the consummation of the Plan, 
the Company was unable to conclude settlements with 10 unsecured creditors 
with aggregate claims of approximately $200,000.  The Company has issued 
791,280 shares of Common Stock and an additional 240,824 Rights to the Radius 
Creditors Trust, for the purposes of satisfying any unknown claims or claims 
not settled.  Since September 13, 1996, the Radius Creditors Trust has 
transferred 347,027 shares of Common Stock and 105,617 Rights to four 
additional creditors, leaving a balance of 444,253 shares of Common Stock and 
135,207 Rights in the Trust as of September 30, 1996.  The Company intends to 
repay any additional remaining unsatisfied or unknown claims in excess of the 
Trust reserve out of cash generated from operations, however, there can be no 
assurance that these creditors will not seek to enforce their claims or that 
the Company will have sufficient available funds to repay such creditors on a 
timely basis. Approximately 50 persons whom the Company believed to be 
creditors claimed that no balance was owed to such creditors.  There can be 
no assurance that such persons will not, in the future, assert claims against 
the Company.
     
     The Company has no other plans to meet its future working capital needs 
other than through cash generated from operations.  For fiscal 1996, the 
Company had an operating loss of approximately $20.5 million.  If the Company 
is unable to increase net sales and/or reduce operating expenses or otherwise 
fund its working capital needs for operations, it may need to divest assets, 
businesses, its holdings in other companies formed after the spinoff of 
various lines of business or seek additional financing to meet its working 
capital needs.  There can be no assurance that the Company will be able to 
divest its assets or holdings on favorable terms, if at all, or that such 
additional financing will be available to the Company.  Furthermore, 
substantially all of the Company's assets are subject to a security interest 
in favor of IBM Credit and any proceeds would first have to be applied 
towards the repayment of amounts owed to IBM Credit and towards redemption of 
the Series A Convertible  Preferred Stock prior to being available for the 
Company's working capital needs. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations -- Certain Factors That May 
Affect the Company's Future Results of Operations--Need for Additional 
Financing Loan Restrictions."

     There can also be no assurance that the Company will achieve profitability.

NASDAQ NATIONAL MARKET DELISTING

     Until late June 1996, the Company's Common Stock was listed on the 
Nasdaq National Market System (the "Nasdaq National Market").  As a 
requirement to the continued listing of the Company's Common Stock on the 
Nasdaq National Market, the National Association of Securities Dealers, Inc. 
(the "NASD") required the Company to obtain shareholder approval of the Plan. 
The NASD had required that the Company file preliminary proxy materials with 
the Commission with respect to the foregoing by April 10, 1996 and that the 
Plan be approved by the Company's shareholders by June 30, 1996 as a 
condition to the Company's continued listing on the Nasdaq National Market.  
Inasmuch as the Company failed to reach an agreement in principle with IBM 
Credit and the Unofficial Creditors Committee until late June 1996, the 
Company was not able to meet these conditions. Accordingly, the NASD delisted 
the Company's Common Stock from the Nasdaq National Market for failure to 
satisfy the minimum net worth requirement.  The Company's Common Stock is now 
listed on the Nasdaq SmallCap Market (the "Nasdaq SmallCap Market") and the 
Company will be required to meet the continued listing requirements of the 
Nasdaq SmallCap Market.  Pursuant to these requirements, the Company will be 
required to maintain capital and surplus of $1.0 million.  As a result of the 
Company's substantial losses incurred for the 1996 fiscal year, if the 
Company experiences a significant loss in a subsequent 


                                       -5-

<PAGE>


quarterly or annual period, the Company would have insufficient capital and 
surplus to satisfy the continued listing requirements of the Nasdaq SmallCap 
Market.  In addition, the closing price of the Company's Common Stock has 
been below $1.00 per share for the entire month of December 1996. The Nasdaq 
SmallCap rules require a capital and surplus of  $2.0 million, instead of 
$1.0 million capital and surplus if a security fails to maintain a minimum 
bid price of $1.00 per share.  If the Company fails to maintain this minimum 
bid price requirement, it will have 90 days to comply with such minimum bid 
requirement and maintain $1.0 million in capital and surplus or, in the event 
it cannot maintain the minimum bid requirement, it will have to maintain $2.0 
million capital and surplus. The failure to maintain the minimum bid 
requirement and/or $1.0 million or $2.0 million of capital and surplus would 
subject the Common Stock to delisting. As described under "Management's 
Discussion and Analysis of Financial Condition and Results of Operations -- 
Certain Factors That May Affect the Company's Future Results of Operations -- 
Volatility of Stock Price," the substantial increase in tradable shares of 
Common Stock due to the consummation of the Plan could materially and 
adversely affect the market price of the Common Stock and if the Company has 
insufficient capital and surplus, the Common Stock would be subject to 
delisting.  Furthermore, the NASD has recently proposed to institute more 
stringent initial and continued listing requirements, which, among other 
things, would subject any security to delisting if it did not maintain a 
minimum bid price of $1.00 per share, regardless of the financial condition 
of the issuer. In the event these proposed requirements are adopted, the 
Company's Common Stock would not, absent a significant increase in its 
trading price, satisfy these proposed new continued listing requirements.  
See "Management's Discussion and Analysis of Financial Condition and Results 
of Operations -- Certain Factors That May Affect the Company's Future Results 
of Operations -- Possible Delisting of Common Stock from Nasdaq Small Cap 
Market."

PRODUCTS AND APPLICATIONS

     A summary of some of the Company's principal products and their typical 
applications is set forth below:

<TABLE>
<CAPTION>

PRODUCT CATEGORY               PRODUCT                 MARKET/APPLICATION              SUGGESTED RETAIL
----------------               -------                 ------------------              ----------------
                                                                                             PRICE
                                                                                             -----
<S>                     <C>                      <C>                                      <C>
 Accelerated Color       ThunderPower 30/1920     Color publishing, prepress, graphics          $1,399
                         ThunderPower 30/1600     design and professional color                    999
                         ThunderColor 30/1600     imaging                                        2,499
 Graphics Products       Thunder Color 30/1152*                                                  1,999
 (PCI-based)             Thunder 30/1600                                                           799
                         Thunder 30/1152*                                                          799
                         Precision Color 8/1600*                                                   399
                         Precision Color 24/1600                                                   499
                         Color Engine                                                              999
                         Thunder 3D                                                              3,399
                         

 (NuBus-based)           PrecisionColor 8XJ*                                                       599

 Color Reference         PressView 21SR           Color publishing, prepress and                 3,999
 Displays                PressView 17SR           graphics design                                2,499
                         Precision View 21                                                       2,749
                                                                                                 
                    

 Color Management        ProSense Display         Color publishing and prepress                    799
 Products                Calibrator    
                         Color Composer

Digital Video            Telecast Upgrade for VVS Color publishing, prepress,                    4,299
Products                 VideoVision PCI          graphics design and professional               3,999
(PCI-based)                                       color imaging, broadcasting and
                                                  advertising

(NuBus-based)            Telecast                                                                6,399
                         VideoVision Style 2.0*                                                  2,999

(Software)               Radius Edit                                                               199


* Denotes that product is no longer being manufactured.

                                       -6-
</TABLE>

<PAGE>


ACCELERATED COLOR GRAPHICS PRODUCTS

     The Radius graphics product families offer a wide range of user choices 
to enhance the graphics performance of Apple Macintosh computers based on 
both the NuBus and PCI bus architectures.  The choices range from an entry 
level accelerated 8-bit color graphics card (256 colors with up to 1 million 
pixels of color display information) to a variety of accelerated 24-bit color 
graphics cards (up to 16.7 million colors).  All of the Company's graphics 
card products offer a range of high speed QuickDraw acceleration features and 
support numerous Radius, Apple and other third-party displays ranging from 
13-inches to 21-inches in size.  The Company's graphics card products also 
allow the user to switch resolutions "on-the-fly" without having to reboot 
the computer.

     The Thunder (PCI), ThunderPower (PCI), ThunderColor (PCI) and Thunder IV 
(NuBus) class graphics cards offer enhanced resolutions, as well as a number 
of other acceleration capabilities for Adobe Photoshop, a popular application 
for working with computer images.   These graphics cards also feature 
hardware pan and zoom capability, enabling users to quickly change the size 
and the amount of the information on their color display.  The Company 
believes these capabilities allow users working with large amounts of 
detailed information to be more productive because they can quickly 
accomplish a variety of tasks using these hardware-based acceleration 
features.

     The ThunderColor (PCI), Thunder 30 (PCI), and Thunder IV (NuBus) 
graphics cards include multiple 66 MHz AT&T digital signal processors 
("DSPs") that accelerate Adobe Photoshop.  Having parallel processing DSPs 
rather than the base Macintosh's CPU perform the millions of computations 
required to manipulate Photoshop images means that customers can produce 
finished results more quickly and are more productive in their creative and 
production process.  These cards include chip technology that enables users 
to use Photoshop's CMYK color mode faster than the native Macintosh.  This is 
attractive to imaging professionals who use Photoshop to work with and edit 
images comprised of 'ink' data which is ready for printing.  The Company 
believes this special "CMYK acceleration" technology makes working with ink 
images on a computer display more interactive.

DIGITAL VIDEO SYSTEMS AND SOFTWARE

     Radius offers a number of products for the non-linear digital video 
editing and production market.  Non-linear digital editing enables video 
editors to manipulate pictures and sound in a faster, easier and more cost 
effective manner than traditional analog tape-based systems.  Editors can 
randomly access and digitally "cut and paste" images, videos and sound clips 
avoiding the tedious process of winding and rewinding of linear tape and the 
subsequent physical cutting and splicing of film segments.

     VideoVision Studio and VideoVision PCI, Radius' leading desktop video 
product, was the first fully QuickTime compatible video editing and 
production system that supported full-screen (640 x 480 pixels), full-motion 
video at 60-fields per-second.  VideoVision Studio offers JPEG video 
compression/decompression capabilities, 16-bit C.D. stereo audio, and allows 
users to output their finished product directly and easily to videotape. 
VideoVision Studio is compatible with QuickTime based software applications 
for editing, effects, titling, graphics, animation and audio.

     Radius Telecast (NuBus) offers broadcast quality digital video for short 
form projects.  Radius Telecast features include: high-quality, Betacam SP 
component, S-video and composite digitizing and play back; 
QuickTime-compliant video system software; 16-bit analog audio; and a 19" 
rack-mountable design. Radius Telecast is designed to provide full QuickTime 
support, a high degree of studio integration and professional video and audio 
support.      Radius also offers a QuickTime compliant digital video non 
linear editing, compositing and animation software applications that 
facilitate the creation and editing of digital video content.  Radius Edit 
2.0 is a non-linear professional digital video editing solution that features 
an intuitive user interface, FX templates, built-in titling, multiple key 
frames, batch digitizing and picture-in-picture capabilities.  Radius Edit 
2.0 also offers a variety of high-quality special effects for digital video 
editing including pan-zoom-rotating, chroma keying and compositing. 

DISPLAYS

     The Company currently offers a variety of large color reference displays 
designed for desktop color publishers and graphic artists.  The PressView SR 
series (PressView 21SR and PressView 17SR) is designed to offer the color 
accuracy, resolution and clarity needed for high quality color prepress, 
media authoring, photography, medical imaging and scientific image 
processing.  These color reference displays offer consistent and accurate 
color preproofing at resolutions of up to 1600 by 1200 pixels.  The 
PrecisionView 21 also offers resolutions of up to 1600 by 1200 pixels but at 
a lower price point.  The PressView SR 

                                       -7-

<PAGE>


series supports Kodak PrecisionColor, Agfa FotoFlow, Apple ColorSync 2.0 and 
EFI Color management systems to ensure color accuracy.

     In the past, the Company has also offered a variety of monochrome 
displays. As part of its strategy to refocus its business, the Company 
entered into a definitive agreement on December 21, 1995 to sell its 
monochrome display business to Display Technologies Electrohome Inc.  For a 
more complete discussion see "Management's Discussion and Analysis of 
Financial Condition -- Business Divestitures." 

COLOR MANAGEMENT PRODUCTS

     Color peripherals tend to vary over time from their original 
specifications, thus causing significant color variances.  Display 
calibrators control the way peripherals produce color, making the color more 
consistent and predictable. The Company's Prosense Display Calibrator works 
with sensing technology and Macintosh software to measure the actual color 
performance of a display and then adjust information in the Macintosh 
graphics card so that the colors will be accurate.  This product also 
communicates with a number of third party color management systems to provide 
color information about the display so that color can be managed from one 
peripheral to another.

TECHNOLOGY AND PRODUCT DEVELOPMENT  

     The Company's research and development efforts are focused on creating 
new products and technologies for customers who create, review, approve and 
utilize high resolution color images and moving video.  Current research and 
development efforts include:  (i) performance improvements and cost 
reductions of current products; (ii) development of 3D graphics subsystems; 
(iii) development of application software to facilitate the creation and 
manipulation of video and high resolution still images; (iv) development of 
integrated software that improves ease of use and functionality of the 
Company's graphics cards, digital video cards, and color reference displays; 
and (v) development of next generation technology to enable new methods of 
displaying and creating information with greater flexibility, speed, and 
quality.

     The principles and features underlying the design of the Company's 
products are: identification and reduction of performance bottlenecks in 
graphics and video systems; providing consistency of color fidelity across 
products and applications; utilization of ASIC technology; and innovation 
within standard operating system environments.

     The Company believes that the competitive nature of the computer 
industry, along with the rapid pace of technological evolution, requires that 
it continue to introduce innovative products on a timely basis to compete 
effectively. During fiscal 1996, 1995 and 1994, the Company's expenditures 
for research and development totaled $7.5 million, $19.3 million and $34.0 
million, respectively. To date, all of the Company's research and development 
expenditures have been charged to operations as incurred.  Because of its 
financial condition, the Company does not anticipate having research and 
development expenditures equal to its historical levels, which could 
adversely affect the Company's ability to develop and introduce new products. 
 See "Management's Discussion and Analysis of Financial Condition and Results 
of Operations -- Certain Factors That May Affect the Company's Future Results 
of Operations --Technological Change; Continuing to Develop New Products."

     There can be no assurance that the Company's development efforts will 
result in commercially successful products, or that the Company's products 
will not be rendered obsolete by changing technology or new products 
introduced  by others.  Additionally, should the Company fail to introduce 
new products on a timely basis, the Company's operating results could be 
adversely affected.  In the past, the Company expended substantial resources 
towards its MacOS product line which did not achieve profitability and which 
was subsequently sold.  See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations -- Certain Factors That May 
Affect the Company's Future Results of Operations -- Technological Change; 
Continuing Need to Develop New Products."

IDENTIFICATION AND REDUCTION OF BOTTLENECKS IN GRAPHICS AND VIDEO SYSTEMS

     The Company analyzes the performance of applications and hardware 
products within the environment of the host CPU and operating system with the 
goal of determining which parts of the overall solution are most resource and 
time intensive so that products can be developed which outperform the 
existing solutions. The Company has developed considerable knowledge of 
system software such as Apple's QuickDraw and QuickTime and critical 
application software such as Adobe Photoshop. The Company believes that its 
ability to eliminate bottlenecks in a manner that is compatible with existing 
Apple and third party products is a significant advantage in the marketplace. 

                                       -8-

<PAGE>


PROVIDING CONSISTENCY OF COLOR FIDELITY ACROSS PRODUCTS AND APPLICATIONS

     The Company strives to provide users with the most accurate and 
repeatable color available.  The Company's high-end color reference displays 
provide tools to calibrate the display with both objective standards and 
visual perception, and to adjust the color range of the display to fit user 
needs.

UTILIZATION OF ASIC TECHNOLOGY

     On a selective basis, the Company uses its in-house integrated computer 
aided engineering capabilities to develop proprietary ASIC chips for use in 
its own products.  The use of ASIC chips allows the Company to increase 
performance while reducing chip count and board size which thereby reduces 
cost.  ASICs are used heavily throughout the Company's graphics card line.  
In some cases, however, commercially available devices offer better overall 
price/performance than proprietary ASICs (given the development cost 
involved), and the Company's strategy is to make the tradeoff on a 
product-by-product basis to provide the most cost-effective solution.

INNOVATION WITHIN STANDARD OPERATING SYSTEM ENVIRONMENTS

     In order to maintain compatibility with the existing base of installed 
hardware and software, the Company seeks to innovate in conjunction with 
existing standards.  For example, the Company's graphics cards are compatible 
with third party graphics software (such as Adobe Photoshop and Quark 
Pagemaker) as well as NuBus and PCI-based computers.  Similarly, the 
Company's digital video cards are tightly integrated into Apple's standard 
QuickTime environment.

MARKETING, SALES AND DISTRIBUTION

     The Company employs a two-tiered distribution model whereby it sells its 
products primarily through a limited number of distributors and master 
resellers that in turn distribute the Company's products to a variety of 
resellers including superstores, independent dealers, educational resellers, 
systems integrators, value added resellers and mail order resellers.  The 
Company's distributors and master resellers purchase products at discounts 
from suggested retail prices based on purchase volumes.

     In the United States, the Company sells its products primarily through 
the following major distributors and master resellers:  Ingram Micro, Inc.; 
and MicroAge. The Company's business and financial results are highly 
dependent on the success of these distributors and master resellers. To 
assist these domestic distributors and master resellers and to provide 
marketing, training and technical support, the Company maintains field sales 
facilities in a number of locations throughout the United States. See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations -- Certain Factors That May Affect the Company's Future Results of 
Operations -- International Sales."

      Radius provides market development funds that give distributors and 
master resellers incentives to increase sales, improve reporting and achieve 
a product mix favoring higher margin products.

     Internationally, sales are made through worldwide distributors, which 
market, sell and service the Company's products, and until the second quarter 
of 1996, the Company's wholly owned subsidiary located in Tokyo, Japan.  
During fiscal 1996, the Company entered into exclusive distributor 
arrangements with respect to Japan and Europe.  For fiscal years ended 
September 30, 1996, 1995 and 1994, the Company's export sales accounted for 
approximately 50.7%, 40.4%, and 34.5%, respectively, of the Company's net 
sales.  See Note 7 of Notes to Consolidated Financial Statements.  The 
Company's export sales are subject to certain risks common to international 
operations, such as currency fluctuations and governmental regulation.  See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations -- Certain Factors That May Affect the Company's Future Results of 
Operations -- International Sales."

     For the fiscal years ended September 30, 1996, 1995 and 1994, Ingram 
Micro, Inc. accounted for approximately 34.3%, 34.0%  and, 13.5% of the 
Company's net sales, respectively.

                                       -9-

<PAGE>

     Many of the Company's distributors and master resellers have the right 
to return products purchased from the Company.  While the Company provides 
for estimated product returns, if in the future the Company were to 
experience returns from customers significantly in excess of this estimate, 
such returns could have a material adverse effect on the Company's results of 
operations.

     The Company's marketing programs support worldwide sales and 
distribution of its products. The Company's principal marketing activities 
include frequent participation in industry trade shows and seminars, 
advertising in major trade publications worldwide, public relations 
activities with the trade and business press, publication of technical 
articles, distribution of sales literature and product specifications and 
communications with its installed base of end users. The Company's marketing 
programs are designed to generate sales leads for its distributors and master 
resellers as well as to enhance the Company's brand name recognition.

MANUFACTURING AND SUPPLIERS

     As a result of the Company's outsourcing of manufacturing, substantially 
all of the Company's assembly, quality control testing, packaging and other 
manufacturing operations are performed by the Company's suppliers, contract 
manufacturers, and other subcontractors.  The Company has developed a quality 
assurance program with these third parties.

     The Company attempts to utilize standard parts and components available 
from multiple vendors.  However, certain components used in the Company's 
products are available only from sole or limited suppliers, such as certain 
ASICs from LSI Logic and NEC and certain VideoVision parts from Toshiba.  The 
Company's products also incorporate components, such as video random access 
memory, that are available from multiple sources but have been subject to 
substantial fluctuations in availability and price.  Although the Company has 
been able to obtain an adequate supply of such components in the past, there 
can be no assurance that it will be able to obtain an adequate supply in the 
future. See "Management's Discussion and Analysis of Financial Condition and 
Results of Operations -- Certain Factors That May Affect the Company's Future 
Results of Operations -- Dependence on Limited Number of Manufacturers and 
Suppliers."

COMPETITION

     The color publishing and multimedia markets are, and are expected to 
remain, highly competitive.  The Company's principal competitors in the color 
publishing market include Apple, ATI Technology and Diamond Multimedia 
Systems.  The Company's principal competitors in the multimedia market 
include Truevision (formerly RasterOps Corporation), Data Translation, Inc., 
Matrox, Inc., Avid Technology, Inc., VideoLogic, Inc. and Fast Electronics 
GmbH.  The market for the Company's products is evolving, and it is difficult 
to predict all future sources of competition.  

     Although Apple is principally a supplier of general purpose computing 
platforms upon which third parties are encouraged to build more complete 
solutions, the Company also faces competition from Apple.  Apple markets a 
number of products, including computer systems and color displays, that 
compete directly or indirectly with the Company.  Apple also could introduce 
additional products, add functionality to their computer systems that is 
similar to that provided by certain of the Company's products, or alter its 
systems' architecture in a manner that could adversely affect the Company's 
ability to compete.  For example, Apple's PowerPC based products which have 
on-board graphic functionality and faster processing speed, could be 
considered competitors of specific product lines of the  Company's.  See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations --Certain Factors That May Affect the Company's Future Results of 
Operations --Dependence on and Competition with Apple."

     The Company believes that the principal competitive factors for its 
product line are product performance, breadth of distribution, brand name 
recognition, price and customer support.  There can be no assurance that the 
Company will be able to compete successfully with respect to these factors.  
In addition, many of the Company's current and prospective competitors have 
significantly greater technical, manufacturing and marketing resources than 
the Company.   See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations -- Certain Factors That May Affect the 
Company's Future Results of Operations -- Competition."

                                       -10-

<PAGE>

PATENTS AND LICENSES

     The Company relies on a combination of patent, copyright, trademark and 
trade secret protection, nondisclosure agreements and licensing arrangements 
to establish and protect its proprietary rights.  The Company has a number of 
patents and patent applications and intends to file additional patent 
applications as it considers appropriate.  There can be no assurance that 
patents will issue from any of these pending applications or, if patents do 
issue, that any claims allowed will be sufficiently broad to protect the 
Company's technology.  In addition, there can be no assurance that any 
patents that may be issued to the Company will not be challenged, invalidated 
or circumvented, or that any rights granted thereunder would provide 
proprietary protection to the Company.  The Company has a number of 
trademarks and trademark applications.  There can be no assurance that 
litigation with respect to trademarks will not result from the Company's use 
of registered or common law marks, or that, if litigation against the Company 
were successful, any resulting loss of the right to use a trademark would not 
reduce sales of the Company's products in addition to the possibility of a 
significant damages award. Although, the Company intends to defend its 
proprietary rights, policing unauthorized use of proprietary technology or 
products is difficult, and there can be no assurance that the Company's 
efforts will be successful.  The laws of certain foreign countries may not 
protect the proprietary rights of the Company to the same extent as do the 
laws of the United States.

     The Company has received, and may receive in the future, communications 
asserting that its products infringe the proprietary rights of third parties, 
and the Company is engaged and has been engaged in litigation alleging that 
the Company's products infringe others' patent rights.  As a result of such 
claims or litigation, it may become necessary or desirable in the future for 
the Company to obtain licenses relating to one or more of its products or 
relating to current or future technologies, and there can be no assurance 
that it would be able to do so on commercially reasonable terms.  See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations -- Certain Factors That May Affect the Company's Future Results of 
Operations -- Dependence on Proprietary Rights."

EMPLOYEES

     As of December 31, 1996, the Company had approximately 100 full time 
employees. 

     The Company's success will depend, in large measure, on its ability to 
attract and retain highly qualified technical, marketing, engineering and 
management personnel, who are in great demand. See "Management's Discussion 
and Analysis of Financial Condition and Results of Operations -- Certain 
Factors That May Affect the Company's Future Results of Operations -- 
Dependence on Key Personnel."

     The Company's employees are not represented by any collective bargaining 
agreements, and the Company has never experienced a work stoppage.  The 
Company believes that its employee relations are good.


ITEM 2.        PROPERTIES

     The Company's primary facility is located in Sunnyvale, California and 
consists of leased space of approximately 40,000 square feet.  The Company 
believes that its current facilities are adequate for its needs.  The lease 
on the primary facility will expire in March 1998.  

     The Company has subleased to other companies approximately 194,000 
square feet of facilities which the Company is currently not using.

     The Company has maintained field sales facilities in a number of 
locations throughout the United States as well as in Surrey, England; Paris, 
France; Hamburg, Germany; and Tokyo, Japan but no longer does so.  See Note 3 
of Notes to Consolidated Financial Statements.

ITEM 3.        LEGAL PROCEEDINGS  

     (a)  On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a 
suit in the United States District Court in the Northern District of 
California alleging that the Company infringes a patent allegedly owned by 
EFI.  Although the complaint 

                                       -11-

<PAGE>

does not specify which of the Company's products allegedly infringe the 
patent, subsequent pleading indicates that EFI alleges that the Company's 
Color Server products allegedly infringe.  In January 1996, the Company 
completed the divestiture of the Color Server Group.

     The Company has filed an answer denying all material allegations, and 
has filed counterclaims against EFI alleging causes of action for 
interference with prospective economic benefit, antitrust violations, and 
unfair business practices.  EFI's motion to dismiss or sever the Company's 
amended counterclaims was granted in part and the ruling permitted the 
Company to file an amended counterclaim for antitrust violations.  The 
Company has filed an amended antitrust claim.  The Company believes it has 
meritorious defenses to EFI's claims and is defending them vigorously.  In 
addition, the Company believes it has indemnification rights with respect to 
EFI's claims.  A motion for summary judgment based on these indemnification 
rights disposing of EFI's claims was filed, and the court granted this motion 
finding the Company immune from suit under the patent after February 22, 
1995.  The Company expects to vigorously defend the remaining claims of EFI 
and to vigorously prosecute the claims it has asserted against EFI.  In the 
opinion of management, based on the facts known at this time, although the 
eventual outcome of this case is unlikely to have a material adverse effect 
on the results of operations or financial position of the Company, the costs 
of defense, regardless of outcome, may have a material adverse effect on the 
results of operations or financial position of the Company.  In addition, in 
connection with the divestiture of its Color Server business, the Company has 
certain indemnification obligations for which approximately $2.3 million 
remains held in escrow to secure such obligations in the event that the 
purchaser suffers any losses resulting from such litigation.

     (b)  The Company was named as one of approximately 42 defendants in 
Shapiro et al. v. ADI Systems, Inc. et al., Superior Court of California, 
Santa Clara County, case no. CV751685, filed August 14, 1995.  Radius was 
named as one of approximately 32 defendants in Maizes & Maizes et al. v. 
Apple Computer et al., Superior Court of New Jersey, Essex County, case no. 
L-13780-95, filed December 15, 1995.  Plaintiffs in each case purport to 
represent alleged classes of similarly situated persons and/or the general 
public, and allege that the defendants falsely advertised that the viewing 
areas of their computer monitors are larger than in fact they are.  

     The Company was served with the Shapiro complaint on August 22, 1995 and 
was served with the Maizes complaint on January 5, 1996.  Defendants' 
petition to the California State Judicial Council to coordinate the Shapiro 
case with similar cases brought in other California jurisdictions was granted 
in part and it is anticipated that the coordinated proceedings will be held 
in Superior Court of California, San Francisco County.  An amended 
consolidated complaint was filed on March 26, 1996.  Discovery proceedings 
are scheduled to begin.  The Company believes it has meritorious defenses to 
the plaintiffs' claims and is defending them vigorously.  Extended settlement 
discussions began in connection with a successful demurrer in the California 
case.  Such discussions have been complicated by the refusal of a small 
number of the defendants to participate in the proposed settlement.  In the 
opinion of management, based on the facts known at this time, the eventual 
outcome of these cases may have a material adverse effect on the results of 
operations or financial position of the Company in the financial period in 
which they are resolved.  In addition, whether or not the eventual outcomes 
of these cases have a material adverse effect on the results of operations or 
financial condition of the Company, the costs of defense, regardless of 
outcome, may have a material adverse effect on the results of operations and 
financial condition of the Company.

     (c)  On April 17, 1996, the Company was served with a complaint filed by 
Colorox Corporation ("Colorox"), in the Circuit Court of the State of Oregon, 
County of Multnomah, case no. 9604-02481, which alleges that the Company 
breached an alleged oral contract to sell its dye sublimation printer 
business to Colorox for $200,000, and seeks both specific performance of the 
alleged contract and alleged damages of $2.5 million.  The Company believes 
it has meritorious defenses to the plaintiff's claims and intends to defend 
them vigorously.  Nevertheless, the costs of defense, regardless of outcome, 
could have an adverse effect on the results of operations and financial 
condition of the Company.

     (d)  The Company is involved in a number of other judicial and 
administrative proceedings incidental to its business.  The Company intends 
to defend such lawsuits vigorously and although adverse decisions (or 
settlements) may occur in one or more of such cases, the final resolution of 
these lawsuits, individually or in the aggregate, is not expected to have a 
material adverse effect on the financial position of the Company.  However, 
depending on the amount and timing of an unfavorable resolution of these 
lawsuits, it is possible that the Company's future results of operations or 
cash flows could be materially adversely affected in a particular period.  In 
addition, the costs of defense -- regardless of the outcome -- could have a 
material adverse effect on the results of operations and financial condition 
of the Company.

                                       -12-

<PAGE>

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     A Special Meeting of Shareholders (the "Special Meeting") was held on 
August 7, 1996.  The sole matter voted upon at this Special Meeting was a 
proposal to amend the Company's Articles of Incorporation to  increase the 
authorized number of shares of Common Stock from 50,000,000 to 100,000,000 
shares.  The proposal was approved with 14,540,913 affirmative votes, 443,795 
negative votes, and 111,639 votes abstaining.

ITEM 4A.  EXECUTIVE OFFICERS OF REGISTRANT

     The executive officers of the Company are as follows:

         NAME                 AGE                POSITION
         ----                 ---                --------

Charles W. Berger              43         Chairman of the Board of Directors,
                                          Chief Executive Officer and President

Cherrie L. Fosco               47         Chief Financial Officer

Mary E. Godwin                 37         Vice President, Operations

Gregory M. Millar              40         Vice President, Research


     MR. BERGER was appointed President, Chief Executive Officer and a 
director of the Company in March 1993 and Chairman of the Board of Directors 
in March 1994.  From April 1992 until he joined the Company, Mr. Berger was 
Senior Vice President, Worldwide Sales, Operations and Support for Claris 
Corporation ("Claris"), a subsidiary of Apple that develops and markets 
application software.  From February 1991 to April 1992, he was President of 
Sun Microsystems Federal, Inc., a subsidiary of Sun Microsystems, Inc. 
("Sun"), a manufacturer of computer work stations.  From July 1989 to 
February 1991, he served as Vice President of Business Development for Sun, 
and from March 1989 to July 1989, he was Sun's Vice President of Product 
Marketing.  From April 1982 to March 1989, Mr. Berger held numerous 
management positions involving, sales, marketing, business development and 
finance for Apple.

     MS. FOSCO was appointed Chief Financial Officer in November 1996 and 
prior to assuming that position served as the Company's Corporate Controller 
from March 1995 to November 1996 and as Director of Financial Planning and 
Analysis from February 1994 to March 1995. Prior to joining the Company, Ms. 
Fosco was Vice President, Controller and Treasurer of Gigatronics Inc., a 
manufacturer of microwave and RF signal generators.

     MS. GODWIN was appointed Vice President, Operations in August 1995 and 
prior to assuming that position served  as the Company's Director of 
Operations Engineering beginning when she joined the Company in July 1993 .  
Prior to joining the Company, Ms. Godwin spent seven years with Apple as a 
supply base manager, and seven years with Xerox Corporation ("Xerox"), a 
diversified manufacturer of document copying and processing equipment, as a 
technical specialist.

     MR. MILLAR was appointed Vice President, Engineering and Chief 
Technology Officer in October 1995 and prior to assuming that position served 
as the Company's Vice President, Research from October 1993 to October 1995, 
and as Vice President, Engineering from July 1991 to October 1993.  From 
January 1989 to July 1991, he held various managerial positions in the 
Company including General Manager of the Advanced Development Group, General 
Manager of the Macintosh Business Unit and Director of Software Development.  
Prior to joining the Company, Mr. Millar was Vice President of Engineering 
and a founder of Infa Corporation, a pen-based computing company, from June 
1987 to December 1988.

                                       -13-

<PAGE>

                                      PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          SHAREHOLDER MATTERS

     The Company's Common Stock has been quoted on the Nasdaq National Market 
from August 21, 1991 until July 1, 1996.  The Company's Common Stock is now 
quoted on the Nasdaq SmallCap Market under the symbol "RDUS."  The high and 
low sales prices for the Common Stock are indicated below.

Year Ended September 30, 1995                      Low            High
-----------------------------                      ---            ----

First Quarter                                     7 5/8         10 1/4
Second Quarter                                        9         14 1/2
Third Quarter                                     9 1/8         13 3/4
Fourth Quarter                                   6 15/16        12 1/2

Year Ending September 30, 1996
------------------------------

First Quarter                                    1 15/16         7 1/8
Second Quarter                                     15/16         2 1/2
Third Quarter                                     2 3/16         4 5/8
Fourth Quarter                                    1 1/4         2 13/16

     On December 31, 1996, there were approximately  3,606 holders of record 
of the Company's Common Stock.

     The Company has never declared or paid any cash dividends on its Common 
Stock.  As explained under "Management's Discussion and Analysis of Financial 
Condition and Results of Operations -- Liquidity and Capital Resources" 
contained elsewhere in this Annual Report, funds will be required to support 
future losses and the Company's future working capital needs as well as to 
repay the Company's outstanding indebtedness to IBM Credit.  In addition, the 
terms of the Company's restructured loan agreement with IBM Credit prohibits 
the payment of any cash dividends so long as any amounts are outstanding 
under the loan agreement. Furthermore, the Company is required to pay an 
annual cumulative dividend at the rate of 10% per annum on the Series A 
Convertible Preferred Stock which must be paid before any dividends may be 
paid on the Common Stock. Accordingly, the Company anticipates that it will 
retain any future earnings for use in its business and does not anticipate 
paying any cash dividends on its Common Stock in the foreseeable future.  The 
payment of any future dividends on its Common Stock will be at the discretion 
of the Company's Board of Directors and will depend upon, among other things, 
future earnings, operations, capital requirements, the general financial 
condition of the Company, general business conditions and contractual and 
other  restrictions on payment of dividends, including restrictions pursuant 
to the terms of the Company's outstanding Series A Convertible Preferred 
Stock and pursuant to the terms of the Company's restructured loan agreement 
with IBM Credit.

                                       -14-

<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                       SEPTEMBER 30, (1)   
                                           --------------------------------------------------------------------------------
                                           1996            1995            1994 (2)            1993 (2)            1992 (2)
                                           ----            ----            --------            --------            --------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>             <C>               <C>                  <C>                 <C>
 CONSOLIDATED STATEMENTS OF 
     OPERATIONS DATA:

 Net sales                               $ 90,290        $ 308,133          $324,805           $337,373            $284,598
 Cost of sales                             77,382          302,937           276,948            254,321             181,198
                                         --------        ---------         ---------           --------            --------
     Gross profit                          12,908            5,196            47,857             83,052             103,400
 Operating expenses:
     Research and development               7,478           19,310            33,956             33,503              21,093
     Selling, general and administrative   25,886           90,068            94,731             84,132              61,824
                                         --------        ---------         ---------           --------            --------
          Total operating expenses         33,364          109,378           128,687            117,635              82,917
                                         --------        ---------         ---------           --------            --------
 Income (loss) from operations            (20,456)        (104,182)          (80,830)           (34,583)             20,483
 Other income (expense), net               24,032           (3,045)             (376)                70                 878
 Interest expense                          (3,736)          (3,023)             (869)              (   )               (   )
 Litigation settlement                          -          (12,422)                -                  -                   -
                                         --------        ---------         ---------           --------            --------
 Income (loss) before income taxes and
     cumulative effect of a change in 
     accounting principle                    (160)        (122,672)          (82,075)           (34,513)             21,361
 Provision (benefit) for income taxes         815            9,070            (4,600)           (13,774)              8,329
                                         --------        ---------         ---------           --------            --------
 Income (loss) before cumulative effect
     of a change in accounting principle $   (975)       $(131,742)        $ (77,475)          $(20,739)           $ 13,032
 Cumulative effect of a change in method
     of accounting for income taxes             -                -                 -                600                   -
                                         --------        ---------         ---------           --------            --------
 Net income (loss)                       $   (975)       $(131,742)        $ (77,475)          $(20,139)           $ 13,032
                                         --------        ---------         ---------           --------            --------
                                         --------        ---------         ---------           --------            --------
 Net income (loss) per share:
 Income (loss) before cumulative effect
     of a change in accounting principle $  (0.05)       $   (8.75)        $   (5.70)          $  (1.61)           $   1.04
 Cumulative effect of a change in method
     of accounting for income taxes             -                -                 -               0.05                   -
                                         --------        ---------         ---------           --------            --------
 Net income (loss) per share             $  (0.05)       $   (8.75)        $   (5.70)          $  (1.56)           $   1.04
                                         --------        ---------         ---------           --------            --------
                                         --------        ---------         ---------           --------            --------
 Common shares used in computing 
     net income (loss) per share           21,251           15,049            13,598             12,905              12,485
                                         --------        ---------         ---------           --------            --------
                                         --------        ---------         ---------           --------            --------

</TABLE>

                                       -15-

<PAGE>
<TABLE>
<CAPTION>

                                                                             SEPTEMBER 30, (1)   
                                                 --------------------------------------------------------------------------------
                                                 1996            1995            1994 (2)            1993 (2)            1992 (2)
                                                 ----            ----            --------            --------            --------
                                                                              (IN THOUSANDS)
<S>                                          <C>             <C>               <C>                  <C>                 <C>

 CONSOLIDATED BALANCE SHEET DATA
 Working capital (Working capital deficiency)   $ 8,476          $(59,334)       $ 29,856            $ 86,711            $ 84,303
 Total assets                                    45,526            87,878         126,859             172,275             150,658
 Long-term debt-noncurrent portion               22,213             1,331           2,857               3,975               1,935
 Convertible preferred stock                      3,000                 -               -                   -                   -
 Shareholders' equity (Net capital deficiency)    3,960           (57,117)         35,691              98,155              96,631

</TABLE>

(1)  The Company's fiscal year ends on the Saturday closest to September 30 
and includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years 
presented.  During fiscal 1995, the Company changed its fiscal year end from 
the Sunday closest to September 30 to the Saturday closest to September 30 
for operational efficiency purposes.  For clarity of presentation, all fiscal 
periods in this Form 10-K are reported as ending on a calendar month end.  

(2)  These periods have been restated to reflect the Merger of Radius and 
SuperMac which has been accounted for as a pooling of interests.  See Note 10 
of Notes to the Consolidated Financial Statements.  The consolidated 
financial statements for all periods prior to fiscal 1994 have not been 
restated to adjust SuperMac's fiscal year end to that of Radius.  Such 
periods include Radius' results of operations and balance sheet data on a 
September 30 fiscal year basis and SuperMac's on a December 31 calendar year 
basis.  The results for both of the fiscal years ended September 30, 1994 and 
1993 include the results of SuperMac's operations for the three months ended 
December 31, 1993.  Revenues, costs and expenses and net loss of SuperMac for 
such period were $48.5 million, $64.7 million and $9.9 million, respectively.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: The following 
discussion contains forward-looking statements within the meaning of Section 
21E of the Securities Exchange Act of 1934 that are subject to risks and 
uncertainties. Statements indicating that the Company "expects," "estimates" 
or "believes" are forward-looking, as are all other statements concerning 
future financial results, product offerings or other events that have not yet 
occurred. There are several important factors that could cause actual results 
or events to differ materially from those anticipated by the forward-looking 
statements contained in this discussion and other sections of this Form 10-K. 
Such factors include, but are not limited to: the Company's ability to 
achieve profitability; the Company's ability to repay its indebtedness to IBM 
Credit; the success of the Apple Macintosh computer line as well as the 
success of Apple and operating system; the Company's ability to compete 
successfully with Apple; Company's ability to successfully develop and 
introduce new products to keep pace with technological innovation, 
particularly in light of its limited financial resources; the Company's 
ability to compete in its market; the ability of the Company's manufacturers 
and suppliers to deliver components and manufacture the Company's products; 
the Company's dependence on international sales and the effect of its 
exclusive distributor arrangements with respect to Europe and Japan; and the 
Company's ability to attract and retain its key personnel.
     
RESULTS OF OPERATIONS

     The following table sets forth for the years indicated certain 
operational data as a percentage of net sales (may not add due to rounding).  

                                             YEAR ENDED SEPTEMBER 30  
                                           ---------------------------
                                           1996        1995       1994
                                           ----        ----       ----

  Net sales                               100.0%      100.0%     100.0%
  Cost of sales                            85.7        98.3       85.3
                                           ----        ----       ----
  Operating expenses:                      14.3         1.7       14.7
     Gross profit                                 
  Research and development                  8.3         6.3       10.5
  Selling, general, and administrative     28.7        29.2       29.2
                                           ----        ----       ----
     Total operating expenses              37.0        35.5       39.6

                                       -16-

<PAGE>

  Loss from operations                    (22.7)      (33.8)     (24.9)
  Other income (expense), net              26.6        (1.0)      (0.3)
  Interest expense                         (4.1)       (1.0)      (0.1)
  Litigation settlement                       -        (4.0)         -
                                           ----        -----      ----
  Loss before income taxes                 (0.2)      (39.8)     (25.3)
  Provision (benefit) for income taxes      0.9         2.9       (1.4)
                                            ---         ---       -----
     Net loss                              (1.1)%     (42.8)%    (23.9)%
                                           -----      ------     ------
                                           -----      ------     ------

FISCAL 1996 TO FISCAL 1995
     
     NET SALES.  Net sales for fiscal 1996 decreased 70.7% to $90.3 million 
from $308.1 million in fiscal 1995. This decline was primarily due to the 
Company's efforts to refocus its business which included exiting markets for 
high-volume low-margin displays, reduced sales of the Company's video and 
graphics products caused by Apple's shift from Nubus to PCI Bus computers, 
business divestitures and as a result of entering into exclusive distributor 
arrangements for Japan and Europe effective April 1,1996 and July 1,1996, 
respectively, which relationships provide for the Company to receive as net 
sales, a percentage of the sales price of each product sold by those 
distributors as compared to the entire sales price of the product prior to 
the appointment of the distributor. The Company is highly dependent on the 
success of Apple products as the Company's products are designed to provide 
additional functionality to Apple products as compared to the entire sales 
price of the product prior to the appointment of the distributors.  

     As a result of the sale by the Company of its Color Server Group, the 
Company recorded no net sales of color server products after the second 
quarter of its 1996 fiscal year and recorded approximately $7.0 million of 
net sales for the first quarter of its 1996 fiscal year. The Company 
anticipates significantly lower overall net sales in the immediate future as 
a result of the Company's decision to focus its efforts on providing 
solutions for high end digital video and graphics customers, discontinue 
selling mass market displays and other low value added products, and the 
divestiture of certain businesses such as its color server group and MacOS 
compatible systems. The Company sold its Color Server Group in January 1996 
and sold its MacOS business in February 1996. Net sales from the Color Server 
Group were approximately $7.0 million for fiscal 1996 and approximately $29.3 
million for fiscal 1995 and net sales from the MacOS business were 
approximately ($1.5 million) for fiscal 1996 and $21.8 million for fiscal 
1995. Had the net sales of these businesses not been included in the 
Company's net sales for fiscal 1996 or fiscal 1995, the Company's net sales 
for such periods would have been approximately $84.8 million and $257.0 
million for fiscal 1996 and fiscal 1995, respectively.
     
     While net sales from the Company's digital video products increased 
slightly during the fiscal year, the Company anticipates lower revenue from 
this product line until the introduction of new products now under 
development. There can be no assurance that the Company will be able to 
successfully develop, introduce and market these new products or that these 
products will achieve commercial success.

     One customer accounted for 34.3% of the Company's net sales for fiscal 
1996.  For fiscal 1995, the same customer accounted for 34.0% of the 
Company's net sales.

     The Company's export sales for fiscal 1996 were 50.7% of net sales as 
compared to 40.4% of net sales for fiscal 1995.  Net sales could be adversely 
affected in the future as a result of the exclusive distributor relationships 
for Japan and Europe because the Company will earn royalties and commissions 
on any sales to such regions and therefore will only recognize as net sales a 
portion of the sales price of any product sold through such distributor 
arrangements.  Even if sales for such regions increase or remain similar to 
historic levels, the Company would recognize a lesser amount of net sales for 
such regions as compared to historic levels.  Accordingly, the Company 
anticipates a decline in the percentage of net sales attributable to the 
Asia-Pacific and European sales regions in connection with the appointments 
of an exclusive Japanese and  European distributor and, as described above, 
the Company could also experience a decline in the dollar amount of net sales 
attributable to such regions.  Export sales are also subject to the normal 
risks associated with doing business in foreign countries such as currency 
fluctuations, longer payment cycles, greater difficulties in accounts 
receivable collection, export controls and other government regulations and, 
in some countries, a lesser degree of intellectual property protection as 
compared to that provided under the laws of the United States.  The Company 
hedges substantially all of its trade receivables denominated in foreign 
currency through the use of foreign currency forward exchange contracts based 
on third party commitments.  Gains and losses associated with currency rate 
changes on forward contracts are recognized in the Company's consolidated 
statements of operations upon contract settlement and were not material in 
fiscal 1996 or 1995.

                                       -17-

<PAGE>

     GROSS PROFIT.  The Company's gross profit margin was 14.3% for fiscal 
1996, as compared with 1.7% for  fiscal 1995. Included in fiscal 1996 is a 
one time charge of $3.5 million resulting from the Company's financial 
restructuring completed in September 1996. Excluding this one time charge and 
the restructuring and other charges recorded in fiscal 1995, gross profit 
margin in fiscal 1996 was 18.2% compared to 16.9% in fiscal 1995. 

     In addition, the Color Server Group had gross profit of approximately 
$2.2 million, for fiscal 1996 and the Color Server Group and MacOS business 
had gross profit (loss) of approximately $9.8 million and ($19.2 million), 
respectively, for fiscal 1995.  Had those businesses not been included in the 
calculation of the Company's gross profit for fiscal 1996 and 1995, gross 
profit for such fiscal years would have been approximately $10.6 million and 
$14.6 million, respectively with a gross profit margin of approximately 12.6% 
and 5.7%, respectively.

     The Company anticipates continued price reductions and margin pressure 
within its industry.  The Company is responding to these trends by focusing 
on higher margin products, taking further steps to reduce product costs and 
controlling expenses.  There can be no assurance that the Company's gross 
margins will recover or remain at current levels.

     RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses 
decreased from $19.3 million or 6.3% of net sales for fiscal 1995 to $7.5 
million or 8.3% of net sales for fiscal 1996.  The Company decreased its 
research and development expenses primarily by reducing expenses related to 
headcount resulting from the Company's efforts to refocus its business and 
business divestitures.  The increase in research and development expenses 
expressed as a percentage of net sales for fiscal 1996, was primarily 
attributed to the decrease in net sales and the Company's refocusing on 
higher-end products, rather than high-volume lower-margin products.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative expenses decreased from $90.1 million or  29.2 % of net sales 
for fiscal 1995 to $25.9 million or 28.7% of net sales for fiscal 1996. The 
Company decreased its selling, general and administrative expenses primarily 
by reducing expenses related to headcount resulting from the Company's 
efforts to refocus its business and business divestitures. Selling general 
and administrative expenses in fiscal 1995 reflected a reduction of 
approximately $2.1 million of merger-related restructuring reserves to 
reflect current requirements.

     During the second quarter of fiscal 1996, the building in which the 
Company leases its headquarters was sold.  In connection with the sale, the 
Company terminated its existing lease and entered into a lease with the new 
owner of the building.  In connection with the final terms of this new lease, 
expenses in the third quarter of fiscal 1996 included a reduction of 
approximately $913,000 of restructuring reserves to reflect current 
requirements.  The Company anticipates that the change of rental terms will 
help reduce the Company's occupancy costs and long-term lease obligations.

     OTHER INCOME (EXPENSE), NET.  Other income was $24.0 million for fiscal 
1996, as compared to other expense of $3.0 million for fiscal 1995. The 
increase was due primarily to other income of approximately of $23.8 million 
resulting from the Company's divestitures of three business lines, including 
the Color Server Group.

     INTEREST EXPENSE.  Interest expense was $3.7 million for fiscal 1996 as 
compared to $3.0 million for fiscal 1995.  This increase was due to higher 
average interest rates on higher average borrowings.

     PROVISION FOR INCOME TAXES.  The Company recorded a provision for income 
taxes of $815,000 for fiscal 1996 as compared to a provision for income taxes 
for fiscal 1995 of $9.1 million.  The provision for fiscal 1996 differs from 
the provision computed utilizing the combined statutory rate in effect during 
the period primarily as a result of the impact of foreign taxes.  The fiscal 
1995 provision differs from the provision computed utilizing the combined 
statutory rate in effect during the period primarily as a result of the 
impact of not benefiting the 1995 operating losses and the reversal of 
existing deferred tax assets.

     FASB Statement 109 provides for the recognition of deferred tax assets 
if realization of such assets is more likely than not.  The Company's 
valuation allowance reduced the deferred tax asset to the amount realizable.  
The Company has provided a full valuation allowance against its net deferred 
tax assets due to uncertainties surrounding their realization.  Due to the 
net losses reported in prior years and as a result of the material changes in 
operations, predictability of earnings in future periods is uncertain.  The 
Company will evaluate the realizability of the deferred tax asset on a 
quarterly basis.

     As a result of the issuance of Common Stock and Series A Convertible 
Preferred Stock in exchange for certain liabilities of the Company in 
September 1996, the Company experienced a "change in ownership" as defined 
under Section 382 of the Internal Revenue Code.  Accordingly, utilization of 
substantial net operating losses and tax credit carryforwards will be subject 
to

                                       -18-

<PAGE>

an approximately $2.0 million annual limitation due to the ownership change 
limitations provided by the Internal Revenue Code of 1986 (and similar state 
provisions), except under limited circumstances.  This limitation will result 
in the expiration of all of the tax credit carryforwards and a substantial 
portion of the net operating loss carryforwards.  See Note 5 of Notes to 
Consolidated Financial Statements.

     NET INCOME (LOSS).  As a result of the above factors, the Company had a 
net loss of $975,000 for fiscal 1996, as compared to a net loss of $131.7 
million for fiscal 1995. The Color Server Group had net income of 
approximately $0.9 million and $3.5 million for fiscal 1996 and 1995, 
respectively had this business not been included in the calculation of the 
Company's net loss for fiscal 1996 and 1995, the Company would have had a net 
loss of approximately $1.9 million and $135.2 million for fiscal 1996 and 
1995, respectively.

FISCAL 1995 COMPARED TO FISCAL 1994

     NET SALES.  The Company's net sales decreased 5.1% to $308.1 million in 
fiscal 1995 from $324.8 million in fiscal 1994. Fiscal 1995 net sales were 
reduced by approximately $11.4 million due to reserves taken by the Company 
in anticipation of future price reductions on a number of its graphics cards, 
MacOS compatible systems and other products that are designed for Apple's 
NuBus-based computers which were largely replaced by Apple's PCI Bus-based 
computers.

     During the 1995 fiscal year, net sales of graphics cards declined 
substantially due primarily to reduced demand resulting from Apple's 
incorporation of built-in graphics capabilities in its PowerPC based 
Macintosh systems.  Net sales from displays, accelerator cards and printers 
also declined during the 1995 fiscal year.  These declines were largely 
offset by sales of MacOS compatible systems which were first introduced in 
the 1995 fiscal year and by a substantial increase of approximately $13.5 
million in net sales from the Company's color server products.  In January 
1996, the Company completed the sale of its color server business and in 
February 1996, its MacOS business.
     
     Export sales represented approximately 40.4% and 34.5% of net sales for 
fiscal 1995 and 1994, respectively. See Note 7 of Notes to Consolidated 
Financial Statements.
     
     GROSS PROFIT.  The Company's gross profit margin including restructuring 
and other charges declined to 1.7% in fiscal 1995, compared to 14.7%, in 
fiscal 1994.  The Company's gross profit margin excluding the restructuring 
and other charges declined to 16.9% in fiscal 1995, compared to 27.3% in 
fiscal 1994. Excluding restructuring and other charges, the Company's gross 
profit margin declined primarily due to lower sales of higher margin graphics 
cards, costs incurred to process higher than expected product returns 
resulting from the consolidation of the Radius and SuperMac product lines and 
slower than expected sell through of its Radius Telecast digital video 
product, significant price erosion on NuBus based MacOS compatible systems 
combined with high production costs for these systems, the sale of end of 
life products, and increased pricing pressures.
     
     RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses 
decreased to $19.3 million, or 6.3% of net sales, in fiscal 1995 from $34.0 
million, or 10.5% of net sales, in fiscal 1994.  The Company's research and 
development expenses in fiscal 1994 included restructuring and other charges 
of $4.3 million.  No restructuring and other charges were included in 
research and development expenses in fiscal 1995.  The remainder of the 
decrease in research and development expenses during the fiscal year was 
primarily due to the reduction of expenses as a result of the Company's 
restructuring following the merger of Radius and SuperMac.  The 
merger-related restructuring resulted in reduced costs primarily related to 
headcount, depreciation, and facilities.
     
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative expenses including restructuring and other charges decreased 
to $90.1 million, or 29.2% of net sales, in fiscal 1995 from $94.7 million, 
or 29.2% of net sales, in fiscal 1994.  Selling, general and administrative 
expenses excluding restructuring and other charges decreased to $79.2 
million, or 25.7% of net sales,  in fiscal 1995 from $84.0 million,  or 25.9% 
of net sales, in fiscal 1994.   The decrease in selling, general and 
administrative expenses during the fiscal year was primarily due to the 
reduction of expenses as a result of the Company's restructuring following 
the merger.  The merger-related restructuring resulted in reduced costs 
primarily related to headcount, depreciation and facilities.
     
     PROVISION FOR INCOME TAXES.  The Company's annual combined federal and 
state effective income tax rates were approximately (7.4%) (expense) in 
fiscal 1995 and 6% (benefit) in fiscal 1994.  In fiscal 1995, the rate 
differs from the combined statutory rate in effect during the period 
primarily as a result of the impact of not benefiting the 1995 operating 
losses and the reversal of existing deferred tax assets.  The fiscal 1994 
rate differs from the combined statutory rate in effect during the period 

                                       -19-

<PAGE>

primarily as a result of non-deductible merger related costs, the one time 
write-off of purchased research and development which is not tax deductible 
and the impact of not benefiting a significant portion of the 1994 operating 
loss.
     
     OTHER INCOME (EXPENSE), NET.  Other expense increased to $3.0 million in 
fiscal 1995 from $376,000 in fiscal 1994.  This increase was due primarily to 
increased cash discounts offered to customers for early payment and flooring 
charges relating to the Company's accounts receivable.
     
     INTEREST EXPENSE.  Interest expense was $3.0 million for fiscal 1995 as 
compared to $869,000 for fiscal 1994.  This increase was due primarily to 
higher average interest rates on higher average borrowings.
     
     NET INCOME (LOSS).  As a result of the above factors net loss increased 
69.9% to $131.7 million in fiscal 1995 from $77.5 million in fiscal 1994. 

RESTRUCTURING, MERGER AND OTHER CHARGES

     During fiscal 1994 and 1995, three restructuring and other charges were 
recorded. SuperMac recorded a $16.6 million restructuring charge during 
December 1993 in connection with a program to realign its inventory and 
facility and personnel resources.  Subsequently, the two companies merged and 
incurred a restructuring charge of $43.4 million.  In September 1995, Radius 
recorded $57.9 million restructuring charge in connection with the Company's 
efforts to refocus and streamline its business.  A discussion of each of 
these events follows.

          SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES:  In 
December 1993, SuperMac recorded charges of $16.6 million in connection with 
a program to adjust inventory levels, eliminate excess facilities, terminate 
certain projects and contract arrangements and reduce the number of 
employees.  The charges (in thousands) are included in:  cost of sales 
($13,352); research and development ($2,000); and selling, general and 
administrative expenses ($1,238).  There have been no material changes in the 
restructuring plan or in the estimates of the restructuring costs.  The 
remaining balance of $236,000 in its restructuring reserve which related to 
facility costs, was eliminated in fiscal 1996.  

     RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES.  In 
the fourth quarter of fiscal 1994, the Company recorded charges of $43.4 
million in connection with the Merger of Radius and SuperMac (the "Merger").  
These charges include the discontinuance of duplicative product lines and 
related assets; elimination of duplicative facilities, property and equipment 
and other assets; and personnel severance costs as well as transaction fees 
and costs incidental to the merger.  The charges (in thousands) are included 
in:  net sales ($3,095); cost of sales ($25,270); research and development 
($4,331); and selling, general and administrative expenses ($10,711).  The 
elements of the total charge as of September 30, 1996 are as follows (in 
thousands):

<TABLE>
<CAPTION>
                                                                    Representing
                                                         ---------------------------------
                                                                                    Cash Outlays
                                                                              ------------------------
                                                                     Asset
                                                   Provision      Write-Downs     Completed     Future
<S>                                               <C>            <C>             <C>           <C>
 Adjust inventory levels                           $22,296        $19,200         $ 3,096       $   -
 Excess facilities                                   2,790            400           2,346          44
 Revision of the operations business model           9,061          7,078           1,983           -
 Employee severance                                  6,311              -           6,311           -
 Merger related costs                                2,949              -           2,949           -
                                                   -------        -------         -------       -----
 Total charges                                     $43,407        $26,678         $16,685       $  44

</TABLE>

     The adjustment of inventory levels reflects the discontinuance of 
duplicative product lines.  The provision for excess facility costs 
represents the write-off of leaseholds and sublease costs of Radius' previous 
headquarters, the consolidation into one main headquarters and the 
consolidation of sales offices.  The revision of the operations business 
model reflects the reorganization of the combined Company's manufacturing 
operations to mirror Radius' manufacturing reorganization in 1993.  This 
reorganization was designed to outsource a number of functions that 
previously were performed internally, reduce product costs through increased 
efficiencies and lower overhead, and focus the Company on a limited number of 
products.  Employee severance costs are related to employees or temporary 
employees who were released due to the revised business model.  Approximately 
250 employees were terminated in connection with the merger.  The provision 
for merger related costs is for the costs associated with the merger 
transaction, such as legal, investment banking and accounting fees.   The 
Company has spent $16.7 million of cash for restructuring through September 
30, 1996.  The Company has substantially completed this restructuring. During 
fiscal 1995, 

                                       -20-

<PAGE>

approximately $2.1 million of merger related restructuring reserves were 
reversed and recorded as an expense reduction due to changes in estimated 
requirements.

     RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES.  In September 1995, 
Radius recorded charges of $57.9 million in connection with the Company's 
efforts to restructure its operations by refocusing its business on the color 
publishing and multimedia markets.  The charges primarily included a 
writedown of inventory and other assets.  Additionally, the charges included 
expenses related to the cancellation of open purchase orders, excess 
facilities and employee severance. The charges (in thousands) are included in 
cost of sales ($47,004), and selling, general and administrative expense 
($10,861).  The elements of the total charge as of September 30, 1996 are as 
follows (in thousands):

<TABLE>
<CAPTION>
                                                                    Representing
                                                         ---------------------------------
                                                                                    Cash Outlays
                                                                              ------------------------
                                                                     Asset
                                                   Provision      Write-Downs     Completed     Future
<S>                                               <C>            <C>             <C>           <C>
 Adjust inventory levels                           $ 33,138       $ 32,300        $    838      $    -
 Excess facilities                                    2,004            404           1,600           -
 Cancellation fees and asset write-offs              19,061          5,196          13,800          65
 Employee severance                                   3,662              -           2,599       1,063
                                                   --------       --------        --------      ------
 Total charges                                     $ 57,865       $ 37,900        $ 18,837      $1,128

</TABLE>

     The adjustment of inventory levels reflects the discontinuance of 
several product lines.  Revenues and gross profit (loss) for significant 
product lines discontinued were as follows:  Mac-OS compatible systems were 
approximately $21.8 million and $(19.2) million, respectively; and low-margin 
displays were approximately $82.9 million and $19.6 million, respectively.  
The provision for excess facility costs represent the write-off of leasehold 
improvements and the costs associated with anticipated reductions in 
facilities. The cancellation fees and asset write-offs reflect the Company's 
decision to refocus its efforts on providing solutions for the color 
publishing and multimedia markets. Employee severance costs are related to 
employees or temporary employees who have been or will be released due to the 
restructuring. As of September 30, 1996, approximately 230 positions of the 
240 total planned had been eliminated in connection with the restructuring.  
The Company had satisfied approximately $18.8 million of the originally 
anticipated cash outlays for this restructuring during fiscal 1996, of which 
$5.0 million represented cash expenditures and $13.8 million represented 
cancellation of indebtedness or claims in consideration of the issuance of 
equity in the Company. During the quarter ended June 30, 1996, 
approximately $913,000 of restructuring charges were reversed and recorded as 
an expense reduction due to changes in estimated requirements.  The 
restructuring is substantially completed and remaining cash outlays relate 
primarily to the restructuring of the Company's international operations.

LITIGATION SETTLEMENT

     In September 1992, the Company and certain of its officers and directors 
were named as defendants in a securities class action litigation brought  in 
the United States District Court for the Northern District of California that 
sought unspecified damages, prejudgment and post judgment interest, 
attorneys' fees, expert witness fees and costs, and equitable relief.  In 
July 1994, SuperMac Technology, Inc. ("SuperMac") and certain of its officers 
and directors, several venture capital firms and several of the underwriters 
of SuperMac's May 1992 initial public offering and its February 1993 
secondary offering were named as defendants in a class action litigation 
brought in the same court that sought unspecified damages, prejudgment and 
post judgment interest, attorneys' fees, experts' fees and costs, and 
equitable relief (including the imposition of a constructive trust on the 
proceeds of defendants' trading activities). 

     In June 1995, the Court approved the settlement of both litigations and 
entered a Final Judgment and Order of Dismissal.  Under the settlement of the 
litigation brought in 1992 against the Company, the Company's insurance 
carrier paid $3.7 million in cash and the Company issued a total of 128,695 
shares of its Common Stock to a class action settlement fund.  In the 
settlement of the litigation brought in 1994 against SuperMac, the Company 
paid $250,000 in cash and is to issue into a class action settlement fund a 
total of 707,609 shares of its Common Stock.  The number of shares to be 
issued by the Company increased by 100,000 because the price of the Company's 
Common Stock was below $12 per share during the 60-day period following the 
initial issuance of shares.  In connection with these settlements, the 
financial statements for the first quarter of fiscal 1995 included a charge 
to other income of $12.4 million, reflecting settlement costs not covered by 
insurance as well as related legal fees, resulting in a reduction in net 
income from $1.4 million to a net loss of $11.0 million or $0.78 per share 
for the quarter.

                                       -21-

<PAGE>

     As of September 30, 1996, the Company had issued 836,674 shares of its 
Common Stock due to the settlements and 99,630 shares remained to be issued.

BUSINESS DIVESTITURES
     
          COLOR SERVER GROUP DIVESTITURE.  In January 1996, the Company 
completed the sale of its Color Server Group ("CSG") to Splash Merger 
Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology 
Holdings, Inc. (the "Parent"), a corporation formed by various investment 
entities associated with Summit Partners. The Company received approximately 
$17.2 million in cash and 4,282 shares of the Parent's 6% Series B Redeemable 
and Convertible Preferred Stock (the "Series B Preferred Stock"). An 
additional $4.7 million was placed in escrow to secure certain post-closing 
and indemnification obligations. In April 1996, approximately $2.3 million 
was released from this escrow to the Company and the Company also received 
approximately $1.5 million as a result of post-closing adjustments. The 
shares of Series B Preferred Stock were converted into shares of Parent 
Common Stock in connection with the initial public offering of Parent. Such 
stock has been pledged to IBM Credit in order to secure the Company's 
obligations to IBM Credit under the restructured loan agreement with IBM 
Credit.  In connection with the restructuring of the terms of its loan 
agreement with IBM Credit, the Company granted IBM Credit an option to 
purchase 428 shares of Series B Preferred Stock at $0.01 per share, which now 
represents the right to purchase shares of Parent Common Stock. IBM Credit 
has not exercised this option. In addition, under the terms of the new loan 
agreement with IBM Credit, IBM Credit has the right to require Radius to sell 
up to 50% of the shares of Parent Common Stock with in one year of the 
initial public offering of Parent, which occurred on October 9, 1996, and up 
to 25% of the shares of Parent Common Stock during each of the second and 
third year following such initial public offering. If the balance due under 
the term loan with IBM Credit exceeds 90% of the market value of such shares 
of Parent Common Stock after the initial public offering of Parent, IBM 
Credit can require Radius to sell such securities to repay such term loan. 
The Company has certain indemnification obligations in connection with the 
patent lawsuit brought by Electronics for Imaging, Inc. The net proceeds of 
the CSG transaction were paid to Silicon Valley Bank ("SVB"), in order to 
repay the Company's indebtedness to SVB, and to IBM Credit, in order to 
reduce the Company's outstanding indebtedness to IBM Credit.

     PORTRAIT DISPLAY LABS.  In January 1996, the Company entered into a 
series of agreements with Portrait Display Labs, Inc. ("PDL"). The agreements 
assigned the Company's pivoting technology to PDL and canceled PDL's on-going 
royalty obligation to the Company under an existing license agreement in 
exchange for a one-time cash payment. The Company did not receive any 
material amount of payments under such license agreement. PDL also granted 
the Company a limited license back to the pivoting technology. Under these 
agreements, PDL also settled its outstanding receivable to the Company by 
paying the Company $500,000 in cash and issuing to the Company 214,286 shares 
of PDL's Common Stock. The cash proceeds were paid to IBM Credit.

          UMAX DATA SYSTEMS, INC.  In February 1996, the Company sold its 
MacOS compatible systems business to UMAX Computer Corporation ("UCC"), a 
company formed by UMAX Data Systems, Inc. ("UMAX"). The Company received 
approximately $2.3 million in cash and debt relief, and 1,492,500 shares of 
UCC's Common Stock, representing approximately 19.9% of UCC's then 
outstanding shares of Common Stock. The cash proceeds were paid to IBM Credit 
and the shares of UCC Common Stock were pledged to IBM Credit.

     DISPLAY TECHNOLOGIES ELECTROHOME INC.  In December 1995, the Company 
completed the sale of its monochrome display monitor business to Display 
Technologies Electrohome Inc. ("DTE"). DTE purchased Radius' monochrome 
display monitor business and certain assets related thereto, for 
approximately $200,000 in cash and cancellation of $2.5 million of the 
Company's indebtedness to DTE. In addition, DTE and Radius canceled 
outstanding contracts relating to DTE's manufacture and sale of monochrome 
display monitors to Radius.

                                       -22-
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES 

     The Company's cash and cash equivalents decreased approximately $1.8 
million during fiscal 1996 to approximately $3.0 million at September 30, 
1996, as compared with the fiscal 1995 ending balance of cash and cash 
equivalents of $4.8 million.  Approximately $0.6 million of the $3.0 million 
of cash and cash equivalents available at September 30, 1996 was restricted 
under various letters of credit.  The decrease in the Company's cash and cash 
equivalents during fiscal 1996 was primarily attributable to funding of 
operating losses of the Company.

     The Company also holds securities in Splash Technology Holdings, Inc. 
("Splash"), Portrait Display Labs and UMAX Computer Corporation ("UMAX"), 
which have been pledged to IBM Credit.  Splash became a public company on 
October 9, 1996, however, these securities are "restricted securities" under 
Rule 144 promulgated under the Securities Act and will become available for 
sale in January 1998, subject to certain volume, manner of sale, notice and 
availability of public information requirements of such rule.  However, the 
Company also has certain registration rights with respect to those securities 
commencing in April 1997.  Because PDL and UMAX are private companies, there 
is no market for such securities and there can be no assurance that one will 
develop in the future. In addition, as described under "-- Business 
Divestitures -- Color Server Group Divestiture," the Company will be required 
to sell its securities in Splash Technology Holdings, Inc. over no longer 
than a three year period ending October 9, 1999 after such Company's initial 
public offering if amounts are outstanding under the loan with IBM Credit.

     The Company has granted to IBM Credit a security interest in 
substantially all of its assets to secure the Company's various obligations 
to IBM Credit. The Company has also granted to Mitsubishi Electronics a 
security interest (securing an amount up to $4.4 million) in all of the 
Company's technology and intellectual property rights related to and 
incorporated into the Company's PressView products.

     The Company's principal source(s) of liquidity currently are cash 
generated by operations, if any, and  an up to $5.0 million working line of 
credit provided by IBM Credit pursuant to the terms of the restructured loan 
with IBM Credit. This working line of credit is not expected to provide the 
Company with a significant source of liquidity for the foreseeable future.  
Accordingly, for the immediate future, the Company intends to finance its 
working capital needs through cash generated from operations, if any.  As 
described above, the Company has minority ownership interests in Splash, UMAX 
and PDL.  The Company has certain registration rights with respect to the 
shares of Common Stock of Splash owned by it and, as a result, the shares of 
Common Stock of Splash could provide the Company with an additional source of 
liquidity in the future provided that the retructured loan from IBM Credit is 
first repaid with any proceeds from the sale of the Splash securities and 
that the Series A Convertible Preferred Stock has either been redeemed or 
converted into Common Stock.  See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations -- Certain Factors That May 
Affect the Company's Future Results of Operations -- Need for Additional 
Financing; Loan Restrictions." 

     In connection with the Plan, IBM Credit received 750,000 shares of the 
Company's Series A Convertible Preferred Stock and warrants to purchase 
600,000 shares of Common Stock in consideration of the cancellation of $3.0 
million of indebtedness to IBM Credit and for an additional advance of 
$470,000.  In addition, IBM Credit has restructured the terms of the 
remaining approximately $23.4 million indebtedness into a working line of 
credit and a term loan.  The Company has an up to $5.0 million working line 
of credit and IBM Credit will extend advances under this line of credit in an 
amount not to exceed the borrowing base (which is defined as (i) the lesser 
of 10% of the gross value of eligible inventory or $500,000; plus (ii) 80% of 
the Company's eligible domestic accounts receivable; plus (iii) the lesser of 
50% of the gross value of certain eligible Japanese and European accounts 
receivable or $500,000).  The $470,000 advanced by IBM Credit pursuant to the 
Plan is included in this working line of credit but will not be included in 
the calculation of the borrowing base.  The initial amount of indebtedness 
outstanding under this line of credit at September 30, 1996 was $1.5 million. 
 The remaining $21.9 million balance of the Company's indebtedness to IBM 
Credit has been converted to a four-year term loan.  Principal on such term 
loan will be repaid on a mandatory prepayment schedule.  The restructured 
loan with IBM Credit is subject to mandatory prepayment as follows:  (i) upon 
the disposition of any assets of the Company outside of the ordinary course 
of business, all net proceeds to the Company must be applied towards the 
Company's obligations under the loan; (ii) upon the closing of any financing, 
10% of the proceeds must be applied towards the Company's obligations under 
the loan; (iii) upon the thirtieth day following the end of each fiscal 
quarter, an amount of no less than 50% of operating cash flow for such prior 
fiscal quarter must be applied towards the Company's obligations under the 
loan; and (iv) upon the receipt of any other amounts other than sales of 
inventory or used or obsolete equipment in the ordinary course of business, 
and not otherwise described in the preceding clause (i) - (iii), all of such 
amounts must be applied towards the Company's obligations under the loan.  If 
the Company's obligations under the term loan, as well as finance charges and 
amounts outstanding in excess of the "borrowing base" (described above) under 
the working line of credit, are repaid, IBM Credit can

                                       -23-
<PAGE>

require such proceeds to be applied towards a redemption of the Series A 
Convertible Preferred Stock.  In addition, the Company is required to deposit 
its revenues in accounts controlled by IBM Credit.  At any time, regardless 
of whether the Company is in default of its obligations to IBM Credit, IBM 
Credit is permitted to apply these amounts towards the repayment of any of 
the Company's obligations to IBM Credit.  As a result of IBM Credit's control 
over the Company's cash flow and these prepayment and redemption provisions, 
together with the other terms and covenants of the restructured loan 
agreement, the Company's ability to generate working capital or to undertake 
a variety of other merger, disposition or financing activities will be 
substantially restricted.  See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations -- Certain Factors That May 
Affect the Company's Future Results of Operations -- Need for Additional 
Financing; Loan Restrictions." 

     As a result of IBM's control over the Company's cash flow and these 
restrictions on the Company's excess cash flow, the Company anticipates that 
it will not have significant cash available for expenditures other than for 
its ordinary course of business operating expenses.  In the event the Company 
were unable to generate sufficient net sales or if the Company incurs 
unforeseen operating expenses, it may not be able to meet its operating 
expenses without additional financing or a restructuring of its loan 
agreements with IBM Credit. In the event that the Company desired to acquire 
any strategic technologies or businesses, it would probably be unable to do 
so without obtaining additional financing or the consent of IBM Credit.  See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations -- Certain Factors That May Affect the Company's Future Results of 
Operations -- Need for Additional Financing; Loan Restrictions."

     Because of the Company's loss for the fourth quarter of fiscal 1996, the 
Company failed to comply with several financial covenants of its restructured 
loan agreement with IBM Credit (specifically, revenues to working capital 
ratio, net profits to revenues ratio and working capital).  The Company 
obtained a waiver from IBM Credit of this noncompliance through December 31, 
1996.  There can be no assurance that IBM Credit will grant any additional 
waivers in the event that the Company fails to comply with these financial 
covenants in the future. Based on preliminary results for the three months 
ended December 31, 1996, the Company believes that it will be in breach of 
these covenants as of such date. Based on the value of certain assets which 
secure the restructured loan, among other considerations, IBM Credit will 
grant a waiver of these defaults, but there can be no assurance that IBM 
Credit will continue to do so.

     Previously, the Company funded its operations through the public and 
private sale of equity securities, bank loans and cash flow from operations. 
The Company completed a private placement during the third quarter of the 
1995 fiscal year, the proceeds of which were utilized to build inventory of 
MacOS-compatible systems components and reduce other vendor payables.  This 
business never generated a positive gross margin and the Company subsequently 
sold its MacOs business in February 1996.  See "Management's Discussion and 
Analysis of Financial Condition and Results of Operations -- Certain Factors 
That May Affect the Company's Future Results of Operations -- Need for 
Additional Financing; Loan Restrictions."   

     In this private placement, the Company sold 2,509,319 shares of its 
Common Stock resulting in net proceeds to the Company of approximately $21.4 
million. Other than the loan from IBM Credit, the Company currently has no 
other bank loans.

     Capital expenditures were approximately $0.2 million during fiscal 1996 
and were $1.9 million in fiscal 1995 and $3.5 million in fiscal 1994 and were 
primarily for leasehold improvements and upgrading the Company's management 
information systems.  The Company has no present plans for any significant 
amount of capital expenditures in the future.

     At September 30, 1996, the Company's principal commitments consisted of 
obligations under its restructured loan agreement with IBM Credit and its 
obligations under building and capital leases.  See Notes 2 and 3 to 
Consolidated Financial Statements.  The Company is also a party to various 
litigation proceedings, the costs of defending which or the outcome of which 
could adversely affect the Company's liquidity.  See "Business -- Legal 
Proceedings." 

     Recently, the Company's limited cash resources have restricted the 
Company's ability to purchase inventory which in turn has limited its ability 
to procure and sell products and has resulted in additional costs for 
expedited deliveries.  The adverse effect on the Company's results of 
operations due to its limited cash resources can be expected to continue 
until such time as the Company is able to return to profitability, or 
generate additional cash from other sources.  There can be no assurance that 
the Company will be able to do so.

     The Company believes it has sufficient funds to finance its operations 
for the next 12 months. However, the level of operations which it believes 
will be able to sustain for the next 12 months will be significantly lower 
than historical periods, particularly in the research and development, sales 
and marketing and general administrative areas.  Additional funds will be 
needed to finance the Company's operations, product development plans and for 
other purposes if the Company's operating expenses are higher than 
anticipated. During fiscal 1997, additional financing will also be required 
if the Company desires to


                                      -24- 

<PAGE>

     acquire or invest in complementary businesses or products or to obtain 
the right to use complementary technologies.  While the Company plans to 
generate cash by divesting certain liquid assets and is investigating 
possible financing opportunities, there can be no assurance that additional 
financing will be available when needed or, if available, that the terms of 
such financing will not adversely affect the Company's results of operations.

CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS

     A number of uncertainties exist that could affect the Company's future 
operating results, including, without limitation, the following:

CONTINUING OPERATING LOSSES

     The Company experienced operating losses in each of its prior three 
fiscal years.  In the future, the Company's ability to achieve and 
subsequently sustain profitable operations will depend upon a number of 
factors, including the Company's ability to control costs; the Company's 
ability to service its outstanding indebtedness to IBM Credit; the Company's 
ability to realize appreciation in minority ownership interests in Splash 
Technology Holdings, Inc. and other investments; the Company's ability to 
generate sufficient cash from operations or obtain additional funds to fund 
its operating expenses; the Company's ability to develop innovative and 
cost-competitive new products and to bring those products to market in a 
timely manner; the commercial acceptance of Apple computers and the MacOS and 
the rate and mix of Apple computers and related products sold; competitive 
factors such as new product introductions, product enhancements and 
aggressive marketing and pricing practices; general economic conditions; and 
other factors.  The Company has faced and expects to continue to face 
increased competition in graphic cards as a result of Apple's transition of 
its product line to the PCI Bus.  For these and other reasons, there can be 
no assurance that the Company will be able to achieve or subsequently 
maintain profitability in the near term, if at all. 

FLUCTUATIONS IN OPERATING RESULTS

     The Company has experienced substantial fluctuations in operating 
results. The Company's customers generally order on an as-needed basis, and 
the Company has historically operated with relatively small backlogs.  
Quarterly sales and operating results depend heavily on the volume and timing 
of bookings received during the quarter, which are difficult to forecast.  A 
substantial portion of the Company's revenues are derived from sales made 
late in each quarter, which increases the difficulty in forecasting sales 
accurately.  Since the end of the Company's 1995 fiscal year, shortages of 
available cash have restricted the Company's ability to purchase inventory 
and have delayed the Company's receipt of products from suppliers and 
increased shipping and other costs.  Furthermore, because of its financial 
condition, the Company believes that many suppliers are hesitant to continue 
their relationships with or extend credit terms to the Company and potential 
new suppliers are reluctant to provide goods to the Company.  The Company 
recognizes sales upon shipment of product, and allowances are recorded for 
estimated uncollectable amounts, returns, credits and similar costs, 
including product warranties and price protection.  Due to the inherent 
uncertainty of such estimates, there can be no assurance that the Company's 
forecasts regarding bookings, collections, rates of return, credits and 
related matters will be accurate.  A significant portion of the operating 
expenses of the Company are relatively fixed in nature, and planned 
expenditures are based primarily on sales forecasts which, as indicated 
above, are uncertain.  Any inability on the part of the Company to adjust 
spending quickly enough to compensate for any failure to meet sales forecasts 
or to receive anticipated collections, or any unexpected increase in product 
returns or other costs, could also have an adverse impact on the Company's 
operating results.  As a strategic response to a changing competitive 
environment, the Company has elected, and, in the future, may elect from time 
to time, to make certain pricing, service or marketing decisions or 
acquisitions that could have a material adverse effect on the Company's 
business, results of operations and financial condition. Furthermore, the 
Company completed a variety of business divestitures during fiscal 1996, 
restructured the terms of its indebtedness to IBM Credit and issued a 
substantial amount of equity in the Company to its creditors in satisfaction 
of approximately $45.9 million in claims and indebtedness during the fourth 
quarter of fiscal 1996. As a result, the Company believes that 
period-to-period comparisons of its results of operations will not 
necessarily be meaningful and should not be relied upon as any indication of 
future performance.  Due to all of the foregoing factors, it is likely that 
in some future quarter the Company's operating results will be below the 
expectations of public market analysts and investors.  In such event, the 
price of the Company's Common Stock would be likely to be materially 
adversely affected.  See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations."

NEED FOR ADDITIONAL FINANCING; LOAN RESTRICTIONS

     The Company intends to finance its working capital needs through cash
generated by operations, sales of liquid assets and borrowings under a
restructured working line of credit with IBM Credit.  Because the Company has
experienced operating losses in

                                       -25-

<PAGE>

each of its prior four fiscal years, the Company must significantly reduce 
operating expenses and/or significantly increase net sales in order to 
finance its working capital needs with cash generated by operations.  
Furthermore, pursuant to the restructured loan with IBM Credit, the Company 
is required to deposit its revenues in accounts subject to control by IBM 
Credit.  At any time, regardless of whether the Company is in default of its 
obligations to IBM Credit, IBM Credit is permitted to apply these amounts 
towards the repayment of any of the Company's obligations to IBM Credit.  
This loan is also subject to mandatory prepayment as follows:  (i) upon the 
disposition of any assets of the Company outside of the ordinary course of 
business, all net proceeds to the Company must be applied towards the 
Company's obligations under the loan; (ii) upon the closing of any financing, 
10% of the proceeds must be applied towards the Company's obligations under 
the loan; (iii) upon the thirtieth day following the end of each fiscal 
quarter, an amount of no less than 50% of operating cash flow for such prior 
fiscal quarter must be applied towards the Company's obligations under the 
loan; and (iv) upon the receipt of any other amounts other than sales of 
inventory or used or obsolete equipment in the ordinary course of business, 
and not otherwise described in the preceding clause (i) - (iii), all of such 
amounts must be applied towards the Company's obligations under the loan.  If 
the Company's obligations under the term loan, as well as finance charges and 
amounts outstanding in excess of the "borrowing base" (described below) under 
the working line of credit described below, are repaid, IBM Credit can 
require such proceeds to be applied towards a redemption of the Series A 
Convertible Preferred Stock.  IBM Credit's control over the Company's 
financial resources as well as these prepayment provisions will place a 
further strain on the ability of the Company to fund its working capital 
needs internally.  Accordingly, there can be no assurance that the Company 
will be able to successfully fund its working capital needs internally.      

     The restructured loan also provides for a working line of credit of up to 
$5.0 million.  However, the Company will only be able to borrow amounts up to 
the "borrowing base" which is defined as the sum of (i) the lesser of 10% of 
the gross value of eligible inventory or $500,000; plus (ii) 80% of the value 
of eligible domestic accounts receivable; plus (iii) the lesser of 50% of the 
gross value of certain Japanese and European accounts receivable or $500,000. 
 Upon the closing of the restructured loan, approximately $1.5 million, or an 
amount equal to the current borrowing base was deemed to be outstanding under 
this line of credit.  Therefore, in order to draw on this working line of 
credit, the Company will need to increase the amount of the borrowing base by 
increasing the amount of certain of its accounts receivable or repay amounts 
outstanding under this line of credit.  Because most of the Company's cash 
flow must be applied towards prepayment of the term loan and, towards the 
redemption of the Series A Convertible Preferred Stock, prior to reducing any 
amounts outstanding under the working line of credit, there can be no 
assurance that the Company will be able to significantly reduce this working 
line of credit.  Accordingly, there can be no assurance that this working 
line of credit will provide a significant source of working capital.

     The Company's ability to sell assets in order to satisfy its working
capital needs will also be restricted by the terms of the Series A Convertible
Preferred Stock and the terms of the restructured loan.  The Series A
Convertible Preferred Stock will be redeemable at the option of IBM Credit upon
certain dispositions and, as described above, the Company is required to apply
the proceeds of any disposition towards repayment of the term loan component of
the restructured loan.

     The restructured loan also imposes certain operating and financial 
restrictions on the Company and requires the Company to maintain certain 
financial covenants such as minimum cash flow levels, restricts the ability 
of the Company to incur additional indebtedness, pay dividends, create liens, 
sell assets or engage in mergers or acquisitions, or make certain capital 
expenditures.  The failure to comply with these covenants would constitute a 
default under the loan, which is secured by substantially all of the 
Company's assets.  In the event of such a default, IBM Credit could elect to 
declare all of the funds borrowed pursuant thereto to be due and payable 
together with accrued and unpaid interest proceeding and to apply all amounts 
on deposit in the Company's bank accounts, which could result in the Company 
becoming a debtor in a bankruptcy.  The loan restrictions could limit the 
ability of the Company to effect future financings or otherwise restrict 
corporate activities.  Even if additional financing could be obtained, there 
can be no assurance that it would be on terms that are favorable or 
acceptable to the Company.  

     As of September 30, 1996, the Company was not in compliance with all of 
the financial covenants under the restructured loan agreement (specifically, 
revenues to working capital ratio, net profits to revenues ratio and working 
capital) however, IBM Credit has waived such defaults.  See Note 2 to 
Consolidated Financial Statements.  Based on preliminary results for the 
three months ended December 31, 1996, the Company believes that it will be in 
default with these covenants as of such date.  Based on the value of certain 
assets which secure the restructured loan, among other considerations, IBM 
Credit will grant a waiver of these defaults, although there can be no 
assurance that IBM Credit will continue to do so.

     The restructured loan may also limit the Company's ability to respond to 
changing business and economic conditions, insofar as such conditions may 
affect the financial condition and financing requirements of the Company.  If 
the Company is unable to generate sufficient cash flows from operations in 
the future, it may be required to refinance all or a portion of its existing 
indebtedness to IBM Credit (which indebtedness can be repaid without 
prepayment penalties) or to obtain additional financing.  There can be no 
assurance that any such refinancing would be possible or that any additional 
financing could be obtained on terms

                                     -26-

<PAGE>

that are favorable or acceptable to the Company.  See "Management's 
Discussion and Analysis of Financial Condition and Results of Operations -- 
Liquidity and Capital Resources."

VOLATILITY OF STOCK PRICE

     Immediately prior to the consummation of the Plan, the Company had 
outstanding approximately 18,147,099 shares of Common Stock, most of which 
were freely tradeable.  Upon the effectiveness of the Registration Statement 
relating to the resale of the securities issued pursuant to the Plan, the 
number of freely tradeable shares of Common Stock increased by almost 200% 
and, upon the conversion of the Series A Convertible Preferred Stock, up to 
an additional 17,921,393 shares may be eligible for public resale, an 
increase of almost 300% from the number of outstanding shares of Common Stock 
prior to the consummation of the Plan.  Furthermore, none of the creditors 
who received shares of Common Stock pursuant to the Plan have entered into 
any agreements restricting their ability to resell the shares of Common Stock 
which they received.  As a result of this substantially larger public float, 
it is likely that a substantial number of creditors may seek to resell their 
shares at times when there is an insufficient demand for shares of Common 
Stock.  In such an event, the trading price of the Common Stock will be 
materially and adversely affected. The Company believes that sales by former 
creditors have played a significant role in the decline of the trading price 
of the Common Stock since November 1996.

     The price of the Company's Common Stock has fluctuated widely in the 
past. Management believes that such fluctuations may have been caused by 
announcements of new products, quarterly fluctuations in the results of 
operations and other factors, including changes in conditions of the personal 
computer industry in general and of Apple Computer in particular, changes in 
the Company's results of operations and financial condition and recent sales 
of large numbers of shares of Common Stock by former creditors of the 
Company.  Stock markets, and stocks of technology companies in particular, 
have experienced extreme price volatility in recent years.  This volatility 
has had a substantial effect on the market prices of securities issued by the 
Company and other high technology companies, often for reasons unrelated to 
the operating performance of the specific companies.  Due to the factors 
referred to herein, the dynamic nature of the Company's industry, general 
economic conditions, the substantially larger number of freely tradeable 
shares of Common Stock held by former creditors of the Company and other 
factors, the Company's future operating results and stock prices may be 
subject to significant volatility in the future.

     Such stock price volatility for the Common Stock has in the past 
provoked securities litigation, and future volatility could provoke 
litigation in the future that could divert substantial management resources 
and have an adverse effect on the Company's results of operations.  See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations --Litigation Settlement."

DEPENDENCE ON AND COMPETITION WITH APPLE

     Historically, substantially all of the Company's products have been 
designed for and sold to users of Apple personal computers, and it is 
expected that sales of products for such computers will continue to represent 
substantially all of the sales of the Company for the foreseeable future.  
The Company's operating results would be adversely affected if Apple should 
continue to lose market share, if Macintosh sales were to decline further or 
if other developments were to adversely affect Apple's business.  
Furthermore, any difficulty that may be experienced by Apple in the 
development, manufacturing, marketing or sale of its computers, or other 
disruptions to, or uncertainty in the market regarding, Apple's business, 
resulting from these or other factors could result in reduced demand for 
Apple computers, which in turn could materially and adversely affect sales of 
the Company's products.  Recently, Apple has announced large losses, 
management changes, headcount reductions, and other significant events which 
have led or could lead to uncertainty in the market regarding Apple's 
business and products.  In addition, news reports indicating that Apple may 
be or may have been the target of merger, acquisition, or takeover 
negotiations, have led or could lead to uncertainty in the market regarding 
Apple's business and products.

     As software applications for the color publishing and multimedia markets 
become more available on platforms other than Macintosh, it is likely that 
these other platforms will continue to gain acceptance in these markets.  For 
example, newer versions of the Windows operating environment support high 
performance graphics and video applications similar to those offered on the 
Macintosh. There is a risk that this trend will reduce the support given to 
Macintosh products by third party developers and could substantially reduce 
demand for Macintosh products and peripherals over the long term.  

     A number of the Company's products compete with products marketed by Apple.
As a competitor of the Company, Apple could in the future take steps to hinder
the Company's development of compatible products and slow sales of the Company's
products.  The Company's business is based in part on supplying products that
meet the needs of high-end customers that are not

                                     -27-   
<PAGE>

fully met by Apple's products. As Apple improves its products or bundles 
additional hardware or software into its computers, it reduces the market for 
Radius products that provide those capabilities.  For example, the Company 
believes that the on-board performance capabilities included in Macintosh 
Power PC products have reduced and continue to reduce overall sales for the 
Company's graphics cards.  In the past, the Company has developed new 
products as Apple's progress has rendered existing Company products obsolete. 
 However, in light of the Company's current financial condition there can be 
no assurance that the Company will continue to develop new products on a 
timely basis or that any such products will be successful.  In order to 
develop products for the Macintosh on a timely basis, the Company depends 
upon access to advance information concerning new Macintosh products.  A 
decision by Apple to cease sharing advance product information with the 
Company would adversely affect the Company's business.  

     New products anticipated from and introduced by Apple could cause 
customers to defer or alter buying decisions due to uncertainty in the 
marketplace, as well as presenting additional direct competition for the 
Company.  For example, the Company believes that Apple's transition during 
1994 to Power PC products caused delays and uncertainties in the marketplace 
and had the effect of reducing demand for the Company's products.  In 
addition, sales of the Company's products have been adversely affected by 
Apple's revamping of its entire product line from Nubus-based to PCI 
Bus-based computers.  In the past, transitions in Apple's products have been 
accompanied by shortages in those products and in key components for them, 
leading to a slowdown in sales of those products and in the development and 
sale by the Company of compatible products.  In addition, it is possible that 
the introduction of new Apple products with improved performance capabilities 
may create uncertainties in the market concerning the need for the 
performance enhancements provided by the Company's products and could reduce 
demand for such products. 

COMPETITION

     The markets for the Company's products are highly competitive, and the 
Company expects competition to intensify.  Many of the Company's current and 
prospective competitors have significantly greater financial, technical, 
manufacturing and marketing resources than the Company.  The Company believes 
that its ability to compete will depend on a number of factors, including the 
amount of financial resources available to the Company, its ability to repay 
its indebtedness to IBM Credit, success and timing of new product 
developments by the Company and its competitors, product performance, price 
and quality, breadth of distribution and customer support.  There can be no 
assurance that the Company will be able to compete successfully with respect 
to these factors.  In addition, the introduction of lower priced competitive 
products could result in price reductions that would adversely affect the 
Company's results of operations.   See "Business -- Competition."

DEPENDENCE ON LIMITED NUMBER OF MANUFACTURERS AND SUPPLIERS

     The Company outsources the manufacturing and assembly of its products to 
third party manufacturers.  Although the Company uses a number of 
manufacturer/assemblers, each of its products is manufactured and assembled 
by a single manufacturer.  The failure of a manufacturer to ship the 
quantities of a product ordered by the Company could cause a material 
disruption in the Company's sales of that product.  In the past, most 
recently in the fourth quarter of fiscal 1996, the Company has experienced 
substantial delays in its ability to fill customer orders for displays and 
other products, due to the inability of certain manufacturers to meet their 
volume and schedule requirements and, more recently, due to the Company's 
shortages in available cash.  Such shortages have caused some manufacturers 
to put the Company on a cash or prepay basis and/or to require the Company to 
provide security for their risk in procuring components or reserving 
manufacturing time, and there is a risk that manufacturers will discontinue 
their relationship with the Company. In the past, most recently the fourth 
quarter of fiscal 1996, the Company has been vulnerable to delays in 
shipments from manufacturers because the Company has sought to manage its use 
of working capital by, among other things, limiting the backlog of inventory 
it purchases.  More recently, this vulnerability has been exacerbated by the 
Company's shortages in cash reserves.  Delays in shipments from manufacturers 
can cause fluctuations in the Company's short term results and contribute to 
order cancellations.  The Company currently has arranged payment terms for 
certain of its major manufacturers such that certain of the Company's major 
customers pay these manufacturers directly for products ordered and shipped.  
In the event these customers do not pay these manufacturers, there can be no 
assurance that such manufacturers will not cease supplying the Company.  In 
addition, as a condition to continuing its manufacturing arrangement with the 
Company, the Company granted Mitsubishi Electronics, the manufacturer of the 
Company's PressView products, a security interest in all of the Company's 
technology and intellectual property rights related to and incorporated into 
the Company's PressView products.  There can be no assurance that other 
manufacturers will not require special terms in order to continue their 
relationship with the Company.

     The Company is also dependent on sole or limited source suppliers for
certain key components used in its products, including certain digital to analog
converters, digital video chips, color-calibrated monitors and other products. 
Certain other

                                      -28-

<PAGE>

semiconductor components and molded plastic parts are also purchased from sole 
or limited source suppliers. The Company purchases these sole or limited 
source components primarily pursuant to purchase orders placed from time to 
time in the ordinary course of business and has no guaranteed supply 
arrangements with sole or limited source suppliers.  Therefore, these 
suppliers are not obligated to supply products to the Company for any 
specific period, in any specific quantity  or at any specific price, except 
as may be provided in a particular purchase order.  Although the Company 
expects that these suppliers will continue to meet its requirements for the 
components, there can be no assurance that they will do so, particularly in 
light of the Company's financial condition. The Company's reliance on a 
limited number of suppliers involves a number of risks, including the absence 
of adequate capacity, the unavailability or interruption in the supply of key 
components and reduced control over delivery schedules and costs.  The 
Company expects to continue to rely on a limited number of suppliers for the 
foreseeable future.  If these suppliers became unwilling or unable to 
continue to provide these components the Company would have to develop 
alternative sources for these components which could result in delays or 
reductions in product shipments which could have a material adverse effect on 
the Company's business, operating results and financial condition.  Certain 
suppliers, due to the Company's shortages in available cash, have put the 
Company on a cash or prepay basis and/or required the Company to provide 
security for their risk in procuring components or reserving manufacturing 
time, and there is a risk that suppliers will discontinue their relationship 
with the Company.  

     The introduction of new products presents additional difficulties in 
obtaining timely shipments from suppliers.  Additional time may be needed to 
identify and qualify suppliers of the new products.  Also, the Company has 
experienced delays in achieving volume production of new products due to the 
time required for suppliers to build their manufacturing capacity.  An 
extended interruption in the supply of any of the components for the 
Company's products, regardless of the cause, could have an adverse impact on 
the Company's results of operations.  The Company's products also incorporate 
components, such as VRAMs, DRAMs and ASICs that are available from multiple 
sources but have been subject to substantial fluctuations in availability and 
price.  Since a substantial portion of the total material cost of the 
Company's products is represented by these components, significant 
fluctuations in their price and availability could affect its results of 
operations.  

     As a result of the consummation of the Plan, certain suppliers and 
manufacturers agreed to settle amounts owed by the Company for an amount 
substantially less than the amount of the balance owed. Accordingly, certain 
suppliers and manufacturers may be reluctant to continue to do business with 
the Company in the future.

TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS

     The personal computer industry in general, and color publishing and 
video applications within the industry, are characterized by rapidly changing 
technology, often resulting in short product life cycles and rapid price 
declines.  The Company believes that its success will be highly dependent on 
its ability to develop innovative and cost-competitive new products and to 
bring them to the marketplace in a timely manner.  Should the Company fail to 
introduce new products on a timely basis, the Company's operating results 
could be adversely affected.  Technological innovation is particularly 
important for the Company, since its business is based on its ability to 
provide functionality and features not included in Apple's products.  As 
Apple introduces new products with increased functionality and features, the 
Company's business will be adversely affected unless it develops new products 
that provide advantages over Apple's latest offerings.  As a result of the 
Company's financial condition, it has had to significantly reduce its 
research and development expenditures.  For the 1996 fiscal year, the Company 
spent approximately $7.5 million on research and development as compared with 
approximately $19.3 million for the prior fiscal year.  Furthermore, as 
described in "-- Need for Additional Financing; Loan Restrictions," the terms 
of the restructured loan with IBM Credit will restrict the Company's ability 
to fund its working capital needs and, as a result, the ability of the 
Company to maintain historical levels of  research and development 
expenditures.  Continued reduction in the available cash resources of the 
Company could result in the interruption or cancellation of research and 
product development efforts which would have a material adverse effect on the 
business, operating results and financial condition of the Company.

     The Company anticipates that the video editing industry will follow the
pattern of the professional publishing industry in which desktop publishing
products, including those produced by Radius, replaced more expensive,
proprietary products, and the Company also anticipates that this evolution will
lead to an increase in the purchase and use of video editing products.  As a
result, the Company has devoted significant resources to this product line. 
There can be no assurance that this evolution will occur in the video editing
industry as expected by the Company, or that even if it does occur that it will
not occur at a slower pace than anticipated.  There can also be no assurance
that any video editing products developed by the Company will achieve consumer
acceptance or broad commercial success.  For example, the Company initially
began its MacOS compatible systems business in the third quarter of fiscal 1995
and devoted substantial financial resources, including raising approximately
$21.4 million in a private placement of its Common Stock and borrowing an
additional $20.0 million from IBM Credit, and incurring significant research

                                      -29-

<PAGE>

and development and sales and marketing expenses.  This business was never 
profitable and the Company sold this line of business in February 1996. In 
the event that the increased use of such video editing products does not 
occur or in the event that the Company is unable to successfully develop and 
market such products, the Company's business, operating results and financial 
condition would be materially adversely affected.

     The introduction of new products is inherently subject to risks of 
delay. Should the Company fail to introduce new products on a timely basis, 
the operating results of the Company could be adversely affected.  The 
introduction of new products and the phasing out of older products will 
require the Company to carefully manage its inventory to avoid inventory 
obsolescence and may require increases in inventory write-down reserves.  The 
long lead times -- as much as three to five months -- associated with the 
procurement of certain components (principally displays and ASICs) exposes 
the Company to greater risk in forecasting the demand for new products.  
There can be no assurance that the Company's forecasts regarding new product 
demand and its estimates of appropriate inventory levels will be accurate.  
Moreover, no assurance can be given that the Company will be able to cause 
all of its new products to be manufactured at acceptable manufacturing 
yields, that the Company will obtain market acceptance for these products or 
that potential manufacturers will not be hesitant to manufacture such new 
products as a result of the Company's financial condition.  

DEPENDENCE ON INDIRECT DISTRIBUTION CHANNELS

     The Company's primary means of distribution is through a limited number 
of third-party distributors and master resellers that are not under the 
direct control of the Company.  Furthermore, the Company relies on one 
exclusive distributor for its sales in each of Japan and Europe.  The Company 
does not maintain a direct sales force.  As a result, the Company's business 
and financial results are highly dependent on the amount of the Company's 
products that is ordered by these distributors and resellers.  Such orders 
are in turn dependent upon the continued viability and financial condition of 
these distributors and resellers as well as on their ability to resell such 
products and maintain appropriate inventory levels.  Furthermore, many of 
these distributors and resellers generally carry the product lines of a 
number of companies, are not subject to minimum order requirements and can 
discontinue marketing the Company's products at any time.  Accordingly, the 
Company must compete for the focus and sales efforts of these third parties.  
Because certain of the Company's major suppliers have arrangements with the 
Company pursuant to which certain of the Company's major customers are 
responsible for payment of goods sent to the Company, the Company is 
dependent on certain resellers to make payments to its suppliers.  In 
addition, due in part to the historical volatility of the personal computer 
industry, certain of the Company's resellers have from time to time 
experienced declining profit margins, cash flow shortages and other financial 
difficulties.  The future growth and success of the Company will continue to 
depend in large part upon its indirect distribution channels, including its 
reseller channels.  If its resellers or other distributors were to experience 
financial difficulties, the Company's results of operations could be 
adversely affected.

INTERNATIONAL SALES

     Prior to the second fiscal quarter of 1996, the Company's international 
sales were primarily made through distributors and the Company's subsidiary 
in Japan.  Effective April 1, and July 1, 1996 the Company appointed an 
exclusive distributor for Japan and Europe, respectively.  The Company 
expects that international sales, particularly sales to Japan, will represent 
a significant portion of its business activity and that it will be subject to 
the normal risks of international sales such as currency fluctuations, longer 
payment cycles, export controls and other governmental regulations and, in 
some countries, a lesser degree of intellectual property protection as 
compared to that provided under the laws of the United States.  In addition, 
demand for the Company's products in Japan could be affected by the 
transition of its Japanese sales and marketing efforts from Radius' 
subsidiary to a distributor.  Furthermore, a reduction in sales efforts or 
financial viability of this distributor could adversely affect the Company's 
net sales and its ability to provide service and support to Japanese 
customers.  Additionally, fluctuations in exchange rates could affect demand 
for the Company's products.  If for any reason exchange or price controls or 
other restrictions on foreign currencies are imposed, the Company's business, 
operating results and financial condition could be materially adversely 
affected.  Net sales could also be adversely affected in the future as a 
result of the exclusive distributor relationships for Japan and Europe 
because the Company will only recognize as net sales a portion of the sales 
price of any product sold through such distributor arrangements. Accordingly, 
even if sales for such regions increase or remain similar to historic levels, 
the Company would recognize a lesser amount of net sales for such regions as 
compared to historic levels. 

DEPENDENCE ON KEY PERSONNEL

     The Company's success depends to a significant degree upon the continued
contributions of its key management, marketing, product development and
operational personnel and the Company's ability to retain and continue to
attract highly

                                      -30-

<PAGE>

skilled personnel.  The Company does not carry any key person life insurance 
with respect to any of its personnel.  Competition for employees in the 
computer industry is intense, and there can be no assurance that the Company 
will be able to attract and retain qualified employees.  Many members of the 
Company's management have departed within the past year, including its former 
Chief Financial Officer and three other Vice Presidents, and the Company has 
also had substantial layoffs and other employee departures.  In addition, the 
Company's current Chief Financial Officer has announced her intention to 
resign in the near future.  Because of the Company's financial difficulties, 
it has become increasingly difficult for it to hire new employees and retain 
key management and current employees.  Moreover, because voting control of 
the Company rests in the hands of the Company's former creditors could, if 
acting together, effectuate changes in Board composition or management.

DEPENDENCE ON PROPRIETARY RIGHTS

     The Company relies on a combination of patent, copyright, trademark and 
trade secret protection, nondisclosure agreements and licensing arrangements 
to establish and protect its proprietary rights.  The Company has a number of 
patents and patent applications and intends to file additional patent 
applications as it considers appropriate.  There can be no assurance that 
patents will issue from any of these pending applications or, if patents do 
issue, that any claims allowed will be sufficiently broad to protect the 
Company's technology.  In addition, there can be no assurance that any 
patents that may be issued to the Company will not be challenged, invalidated 
or circumvented, or that any rights granted thereunder would provide 
proprietary protection to the Company.  The Company has a number of 
trademarks and trademark applications.  There can be no assurance that 
litigation with respect to trademarks will not result from the Company's use 
of registered or common law marks, or that, if litigation against the Company 
were successful, any resulting loss of the right to use a trademark would not 
reduce sales of the Company's products in addition to the possibility of a 
significant damages award. Although, the Company intends to defend its 
proprietary rights, policing unauthorized use of proprietary technology or 
products is difficult, and there can be no assurance that the Company's 
efforts will be successful.  The laws of certain foreign countries may not 
protect the proprietary rights of the Company to the same extent as do the 
laws of the United States.

     The Company has received, and may receive in the future, communications 
asserting that its products infringe the proprietary rights of third parties, 
and the Company is engaged and has been engaged in litigation alleging that 
the Company's products infringe others' patent rights.  As a result of such 
claims or litigation, it may become necessary or desirable in the future for 
the Company to obtain licenses relating to one or more of its products or 
relating to current or future technologies, and there can be no assurance 
that it would be able to do so on commercially reasonable terms.  See 
"Business -- Patents and Licenses."

CONTROL BY CREDITORS

    After the consummation of the Plan, the Company's unsecured creditors and 
IBM Credit owned in the aggregate approximately 69.7% of the voting power of 
the Company (assuming exercise of all available options, such creditors would 
own approximately 67% of the voting power of the Company).  IBM Credit owns 
approximately 9.2% of the Company's voting power and the Committee Members 
own approximately 38.6% of the voting power of the Company.  The Company's 
four largest unsecured creditors, SCI Technology, Inc., Mitsubishi 
Electronics, Hamilton Hallmark/Avnet Co. and Manufacturers Services Limited, 
Inc. own approximately 16.2%, 6.7%, 5.3% and 2.9%, respectively, of the 
voting power of the Company.  All of the Company's creditors acting together 
would have voting control of the management and direction of the Company and 
could also impede a merger, consolidation, takeover or other business 
combination involving the Company or discourage a potential acquiror from 
making a tender offer or otherwise attempting to obtain control of the 
Company.  The Committee Members have acted cooperatively with respect to the 
negotiation of the Plan, and the Company expects such creditors to continue 
to act cooperatively with respect to their ownership of the Company's 
securities.

    One Committee Member, Carl Carlson of Mitsubishi Electronics joined the
Board of Directors in September 1996.

    The Company also intends to continue to do business with many of its 
unsecured creditors, including Mitsubishi Electronics and SCI Technology, 
Inc., each of whom beneficially own more than 5% of the Company's Common 
Stock.  As a result, such creditors may be able to influence the terms of any 
business relationship between the Company and such creditor.

SHARES ELIGIBLE FOR FUTURE SALE

     Sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Company's Common Stock.  As
of November 12, 1996, the effective date of the Registration Statement on Form
S-1 with respect to the securities issued pursuant to the Plan (the "Effective
Date"), there were approximately 54,451,586 shares of Common

                                     -31-

<PAGE>

Stock outstanding, substantially all of which are available for sale without 
restriction under the Securities Act of 1933, as amended (the "Act") (as 
compared with approximately 18,147,099 shares of Common Stock outstanding as 
of August 31, 1996) except for those shares which are held by affiliates of 
the Company.  If the Series A Convertible Preferred Stock is converted and if 
outstanding warrants to purchase 800,000 shares of Common Stock are 
exercised, up to an additional 17,921,393 shares (including 11,046,060 shares 
issuable pursuant to the Rights) will be available for sale in the public 
market.  The tradability of such shares of Common Stock could materially and 
adversely affect the market price of the Common Stock.  See "-- Volatility of 
Stock Price."

     In addition, the Company is required to pay (on a quarterly basis) an 
annual dividend of $300,000 (or $0.40 per share) on the Series A Convertible 
Preferred Stock.  This dividend may be paid in cash or Common Stock of the 
Company.  Depending upon its financial position on any dividend payment date, 
such dividends may be paid in the form of shares of Common Stock instead of 
cash.  In the event such dividend is fully paid in shares of Common Stock, a 
number of shares having a market value of up to $75,000, the amount of such 
quarterly dividend, will be issued each quarter.  Based on the closing price 
of $0.50 per share on December 31, 1996, an additional 150,000 shares could 
be issuable as a dividend on the Series A Convertible Preferred Stock at the 
end of each quarter.  The Company has registered under the Act, Common Stock 
having a market value of $600,000 (representing the first eight quarterly 
dividend payments) in the event that such dividend is paid in Common Stock.  
Such shares will be freely tradable.  Subsequent dividends in the form of 
shares of Common Stock will be subject to the provisions of Rule 144, 
including the holding period requirements.

     As of September 30, 1996, there were 1,135,347 shares of Common Stock 
reserved for issuance upon exercise of outstanding options by employees and 
consultants.  As of such date there were an additional 1,695,331 shares of 
Common Stock available for issuance under options to be granted to employees 
and consultants and 125,321 shares reserved for issuances for purchases under 
the Company's Employee Stock Purchase Plan.  Additionally, 173,126 shares of 
Common Stock were reserved for issuance under the Company's stock option 
plans for non-employee directors, 32,812 of which were subject to outstanding 
options.  The Company has amended its 1995 Stock Option Plan (the "1995 
Plan") to increase the number of shares available for issuance thereunder by 
2,716,620 shares, subject to shareholder approval at its Annual Meeting of 
Shareholders in February 1997. In accordance with the terms of the 
debt-to-equity exchange consummated in September 1996, the 1995 Plan will be 
further amended or a new plan adopted in the event that the Series A 
Convertible Preferred Stock is converted into Common Stock so that an 
aggregate of 7,890,043 shares of Common Stock are covered by the 1995 Plan as 
amended and/or any additional plan.  The Company may also seek to obtain 
Board and/or shareholder approval for grants of options in excess of the 
amounts described above.  All of the shares of Common Stock to be issued upon 
exercise of options granted or to be granted or upon stock purchases will be 
available for sale in the public market, subject to the Rule 144 volume 
limitations applicable to affiliates.  Such availability will further 
increase the number of freely tradeable shares of Common Stock outstanding 
which could exert downward pressure on the trading price of the Common Stock.

     In the event that the Series A Convertible Preferred Stock is not 
converted or the warrants to purchase 800,000 shares of Common Stock are not 
exercised during the two years following the Effective Date, the holders of 
such securities have demand registration rights with respect to the shares of 
Common Stock issuable upon conversion of the Series A Convertible Preferred 
Stock or upon exercise of the warrants which were not converted or exercised 
during such period.  IBM Credit also has demand registration rights with 
respect to any shares of Common Stock which are paid in lieu of cash 
dividends on the Series A Convertible Preferred Stock after such two-year 
period.  These demand registration rights will permit such holders to cause 
the Company, on up to two occasions, to register such unsold shares of 
underlying Common Stock commencing November 12, 1998.  All expenses incurred 
in connection with such registrations (other than underwriters' discounts and 
commissions) will be borne by the Company.  These registration rights will 
expire once all the securities covered thereby may be sold pursuant to Rule 
144 in a three month period without registration.  Such expiration date will 
be no earlier than September 1998.

POSSIBLE DELISTING OF COMMON STOCK FROM NASDAQ SMALLCAP MARKET

     The Company's Common Stock is listed on the Nasdaq SmallCap Market 
pursuant to an agreement with the NASD which requires that the Company comply 
with the continued listing requirements for the Nasdaq SmallCap Market.  
Failure to meet the continued listing requirements in the future would 
subject the Common Stock to delisting. As described under "Business -- Recent 
Developments -- Nasdaq National Market Delisting," the Common Stock could be 
delisted from the Nasdaq SmallCap Market  if the Company fails to maintain 
capital and surplus of $1.0 million or, if the trading price of the Common 
Stock remains below $1.00 per share, the Company will be required to maintain 
capital and surplus of $2.0 million. Because of the substantial losses 
experienced by the Company for fiscal 1996, any significant loss experienced 
in a subsequent quarter could cause the Company to have insufficient capital 
and surplus for continued listing on the Nasdaq SmallCap Market. Because of 
the substantial increase in the number of tradable shares of Common Stock, 
there could be continued downward pressure on the trading price of the Common

                                      -32-

<PAGE>

Stock (which has not traded over $1.00 per share for the entire month of 
December), which makes it less likely that the Company will meet the minimum 
bid price requirement for the Nasdaq SmallCap Market and, as a result, the 
Company would need to maintain capital and surplus of $2.0 million. 
Furthermore under the proposed new continued listing requirements of the 
Nasdaq National Market and the Nasdaq SmallCap Market, any securities with a 
trading price of less than $1.00 per share would become subject to delisting, 
regardless of capital and surplus.  If the Company's Common Stock is 
delisted, there can be no assurance that the Company will meet the 
requirements for initial inclusion in the future, particularly the current 
$3.00 minimum per share bid requirement.  Trading, if any, in the listed 
securities after delisting would be conducted in the over-the-counter market 
in what are commonly referred to as the "pink sheets."  As a result, 
investors may find it more difficult to dispose of, or to obtain accurate 
quotations as to the value of, the Company's securities.  See "--Volatility 
of Stock Price" and "Business --Recent Developments -- Nasdaq National Market 
Delisting."

                                      -33-

<PAGE>

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The index to the Company's Financial Statements, Financial Schedules, and
the Report of the Independent Auditors appears in Part IV of this Form 10-K.


ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND  
               FINANCIAL DISCLOSURE

     Not Applicable.

     With the exception of the information specifically stated as being 
incorporated by reference from the Company's  definitive Proxy Statement for 
its 1997 Annual Meeting of Shareholders (the "Proxy Statement") in Part III 
of this Annual Report on Form 10-K, the Company's Proxy Statement is not to 
be deemed as filed as part of this report.  The Proxy Statement will be filed 
with the Securities and Exchange Commission within 120 days of the Company's 
fiscal year end. 

                                      -34

<PAGE>

                                      PART III


ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

     The information concerning the Company's directors required by Item 10 
is incorporated by reference herein to section entitled "Proposal No. 1 - 
Election of Directors" of the Proxy Statement The information concerning the 
Company's executive officers required by Item 10 is incorporated by reference 
to Item 4A in Part 1 hereof entitled "Executive Officers of Registrant."

ITEM 11.       EXECUTIVE COMPENSATION

     The information required by Item 11 is incorporated herein by reference 
to the sections entitled "Executive Compensation" and "Proposal No. 1 - 
Election of Directors--Compensation of Directors" of the Proxy Statement. 

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
               AND MANAGEMENT

     The information required by Item 12 is incorporated herein by reference 
to the section entitled "Security Ownership of Certain Beneficial Owners and 
Management"  of the Proxy Statement.  

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 13 is incorporated herein by reference 
to the section entitled "Certain Transactions" of the Proxy Statement.  

                                      -35-

<PAGE>

                                    PART IV

ITEM 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
               REPORTS ON FORM 8-K

(a) (1)   FINANCIAL STATEMENTS.  The Company's financial statements filed
          herewith are as follows:
     
                                                                            PAGE
          Report of Ernst & Young LLP, Independent Auditors                  35
      
          Consolidated Balance Sheets at September 30, 1996 and 1995         36

          Consolidated Statements of Operations for the Years Ended
          September 30, 1996, 1995 and 1994                                  37
          
          Consolidated Statements of Shareholders' Equity for the
          Years Ended September 30, 1996, 1995, and 1994                     38 

          Consolidated Statements of Cash Flows for the
          Years Ended September 30, 1996, 1995, and 1994                     39

          Notes to Consolidated Financial Statements                         40
          

(a) (2)   FINANCIAL STATEMENT SCHEDULES.  The Company's financial statement
          schedule filed herewith is as follows:                            PAGE
               
          Schedule II:  Valuation and Qualifying Accounts                     54

          All other financial statement schedules are omitted because the
          information called for is not present in amounts sufficient to
          require submission of the schedules or because the information
          required is shown either in the financial statements or the notes
          thereto.

(a)(3)  The following exhibits are filed herewith or incorporated by
reference herein:

                                      -36-

<PAGE>

EXHIBIT
NUMBER                           EXHIBIT TITLE


 2.01 --   Agreement and Plan of Reorganization dated May 20, 1994 between
           Radius Inc. and SuperMac Technology, Inc. (1)

 2.02 --   Modification Agreement dated July 21, 1994 to Agreement and Plan
           of Reorganization between Radius Inc. and SuperMac
           Technology, Inc. (1)

 2.03 --   Agreement and Plan of Reorganization dated July 19, 1994 between
           Radius Inc. and VideoFusion, Inc. (2)

 2.04 --   First Amendment to Agreement and Plan of Reorganization between
           Radius Inc. and VideoFusion, Inc. dated August 25, 1994. (3)

 2.05 --   Second Amendment to Agreement and Plan of Reorganization between
           Radius Inc. and VideoFusion, Inc. dated September 6, 1994. (3)

 2.06 --   Third Amendment to Agreement and Plan of Reorganization between
           Radius Inc. and VideoFusion, Inc. dated May 10, 1995. (3)

 2.07 --   Merger Agreement (the "Merger Agreement") dated as of December
           21, 1995 among Radius Inc., Splash Technology, Inc., Summit
           Subordinated Debt Fund, L.P., Summit Ventures IV, L.P., Summit
           Investors II, L.P., Splash Technology Holdings, Inc. and Splash
           Merger Company, Inc. (4)

 2.08 --   Amendment No. 1 to Merger Agreement dated as of
           January 30, 1996. (4)

 3.01 A    Registrant's Sixth Amended and Restated Articles of
           Incorporation. (5)

      B    Certificate of Amendment of Registrant's Sixth Amended and
           Restated Articles of Incorporation. (3)

      C    Certificate of Amendment of Registrant's Sixth Amended and
           Restated Articles of Incorporation. (18)

      D    Certificate of Determination of Preferences of Series A
           Convertible Preferred Stock of Radius Inc. (18)

 3.02 --   Registrant's Bylaws. (6)

 4.01 --   Specimen Certificate for shares of Common Stock of
           the Registrant. (7)

 4.02 --   Specimen Certificate for shares of Series A Convertible Preferred
           Stock of the Registrant. (18)

 4.03 A    Warrant dated September 13, 1995 between IBM Credit Corporation
           and the Registrant. (18)

      B    Warrant dated October 13, 1996, between Mitsubishi Electronics
           America, Inc. and the Registrant. (19)

 4.04 --   Form of Registration Rights Agreement between the Registrant and
           certain shareholders. (18)

      A    The Registrant's Sixth Amended and Restated Articles of
           Incorporation. (5)

      B    Certificate of Amendment of Registrant's Sixth Amended and
           Restated Articles of Incorporation. (3)

      C    Certificate of Amendment of Registrant's Sixth Amended and
           Restated Articles of Incorporation.  (See exhibit 3.01)

      D    Certificate of Determination of Preferences of Series A
           Convertible Preferred Stock of Radius Inc.  (See exhibit 3.01).

                                      -37-

<PAGE>

EXHIBIT
NUMBER                               EXHIBIT TITLE


 4.05   --   The Registrant's Bylaws. (6)

 4.06   --   *Non-Plan Stock Option Grant to Charles W. Berger. (8)

 4.07   --   Form of Subscription Agreement. (18)

 4.08   --   Form of Right. (19)

 10.01   A   *Registrant's 401(k) Savings and Investment Plan. (9)

         B   *Amendment to Registrant's 401(k) Savings and Investment Plan. (3)

         C   *Registrant's 401(k) Savings and Investment Plan Loan Policy. (3)

 10.02  --   *Registrant's 1995 Stock Option Plan. (3)

 10.03  --   *Form of Stock Option Agreement and Exercise Request as
               currently in effect under 1995 Stock Option Plan. (3)

 10.04  --   *Registrant's 1990 Employee Stock Purchase Plan and related
               documents. (10)

 10.05  --   *Registrant's 1994 Directors' Stock Option Plan. (3)

 10.06  --   Form of Indemnity Agreement with Directors. (7)

 10.07  --   Credit Agreement by and among Radius Inc., the certain
             financial institutions, and Silicon Valley Bank,
             dated March 20, 1995. (11)

 10.08   A   Credit Agreement by and among Radius Inc., the certain financial
             institutions, and International Business Machines Credit
             Corporation, dated February 17, 1995. (11)

        B    Acknowledgment, Waiver and Amendment to Radius Inc. Inventory and
             Working Capital Financing Agreement by and between Radius Inc.
             and International Business Machines Credit Corporation dated
             December 14, 1995. (3)

 10.09  A    Lease Agreement by and between Registrant and the Equitable
             Life Assurance Society of the United States dated June 22, 1988,
             as amended by the Commencement of Term Agreement dated February
             13, 1989 and Amendment No. One dated July 20, 1989, and related
             documents (1710 Fortune Drive, San Jose, California offices). (7)

        B    Second Amendment to Lease dated January 27, 1993 amending Lease
             Agreement by and between Registrant and the Fortune Drive
             Partners (successor in interest to the Equitable Life Assurance
             Society of the United States) dated June 22, 1988 (1710 Fortune
             Drive, San Jose, California offices). (12)


 10.10 --   Lease Agreement by and between Registrant and Board of
            Administration, as Trustee for the Police and Fire Department
            Fund, and Board of Administration, as Trustee for the Federated
            City Employees Retirement Fund dated December 11, 1990, and
            related documents (Milpitas, California warehouse space). (5)

 10.11 --   Lease Agreement by and between Registrant and South
            Bay/Copley Associates III Joint Venture dated May 11, 1992;
            Sublease by and between Core Industries, Inc. and Registrant
            dated May 12, 1992; and related documents (2040 Fortune Drive,
            San Jose California offices). (13)
                         
                                      -38-

<PAGE>

EXHIBIT
NUMBER                             EXHIBIT TITLE


 10.12  A   Lease Agreement between SuperMac Technologies, Inc. and Connecticut
            General Life Insurance Company dated as of May 4, 1993
            (215 Moffett Park Drive, Sunnyvale, California offices). (14)

        B   Office Lease dated March 18, 1996 between Registrant and CIGNA. (19)

 10.13 --   *Employment Agreement by and between Registrant and Charles
            W. Berger dated February 26, 1993 as amended on
            September 17, 1993. (15)   

 10.14 --   Full Recourse Promissory Note with Charles W. Berger. (15)

 10.15 --   *SuperMac Technology, Inc.'s 1988 Stock Option Plan
            ("Option Plan"). (16)

 10.16 --   *SuperMac Technology, Inc.'s Form of Incentive Stock Option
            Agreement under the Option Plan. (16)

 10.17 --   *SuperMac Technology, Inc.'s Form of Supplemental Stock Option
            Agreement under the Option Plan. (16)

 10.18 --   *SuperMac Technology, Inc.'s Form of Early Exercise Stock Purchase
            Agreement under the Option Plan. (16)

 10.19 --   Distribution Agreement between Radius Inc. and Ingram Micro,
            Inc. dated June 5, 1991 as amended on April 1, 1992, May 31, 1995
            and July 14, 1995.  (17)

 10.20 --   Amended and Restated Working Capital and Term Loan Agreement
            dated as of August 30, 1996 between IBM Credit Corporation and
            the Registrant. (19)

 11.01 --   Computation of per share earnings.

 21.01 --   List of Registrant's subsidiaries.

 23.01 --   Consent of Ernst & Young LLP, Independent Auditors.

 27.01 --   Financial Data Schedule (EDGAR version only)

     
_______________

(1)  Incorporated by reference to exhibits to the Company's Amendment No. 2
     (File No. 33-79732) to Form S-4 filed on July 25, 1994.

(2)  Incorporated by reference to exhibits to the Company's Report on Form 10-Q
     filed on August 17, 1994.

(3)  Incorporated by reference to exhibits to the Company's Report Form 10-K
     filed on December 15, 1995.

(4)  Incorporated by reference to exhibits to the Company's Report on Form 10-Q
     filed on February 13, 1996

(5)  Incorporated by reference to exhibits to the Company's Report on Form 10-K
     filed on December 24, 1990.

(6)  Incorporated by reference to exhibits to the Company's Registration
     Statement on Form S-8 filed on April 29, 1992 (File No. 33-47525).

(7)  Incorporated by reference to exhibits to the Company's Registration
     Statement on Form S-1 (File No. 33-35769) which became effective on August
     16, 1990.

(8)  Incorporated by reference to exhibits to the Company's Registration
     Statement on Form S-8 filed on November 15, 1993 (File No. 33-71636).

                                      -39-

<PAGE>


EXHIBIT
NUMBER                             EXHIBIT TITLE

(9)  Incorporated by reference to exhibits to the Company's Report on Form 10-K
     filed on December 28, 1992.

(10) Incorporated by reference to exhibits to the Company's Report on Form 10-K
     filed on December 30, 1991.

(11) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
     filed on May 10, 1995.

(12) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
     filed on August 18, 1993.

(13) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
     filed on August 12, 1992.

(14) Incorporated by reference to exhibits to SuperMac's Form S-1 (File No. 33-
     58158) filed on February 11, 1993.

(15) Incorporated by reference to exhibits to the Company's Report on Form 10-K
     filed on January 3, 1994.

(16) Incorporated by reference to exhibits to SuperMac Technology, Inc.'s
     Registration Statement on Form S-1, as amended (File No. 33-46800), which
     became effective on May 15, 1992.

(17) Incorporated by reference to exhibits to the Company's Report on Form 10-Q
     filed on August 15, 1995.

(18) Incorporated by reference to the Company's Registration Statement on
     Form S-1 (File No. 333-12417) filed on September 20, 1996.

(19) Incorporated by reference to Amendment No.1 to the Company's Registration
     Statement on Form S-1 (File No. 333-12417) filed on November 12, 1996.

* management contracts or compensatory plans required to be filed as an
     exhibit to Form 10-K.
________________

                                       -40-

<PAGE>

(b)  REPORTS ON FORM 8-K.  The following reports on Form 8-K were filed during
     the last quarter of fiscal 1996:

The Company filed the following reports on the Form 8-K during the three month
period ended September 30, 1996:

     1.  An optional report pursuant to Item 5 of Form 8-K was filed by the
Company on August 2, 1996 reporting an agreement in principle to consummate the
Plan.

     2.  An optional report pursuant to Item 5 of Form 8-K was filed by the
Company on August 30, 1996 describing the Plan.  A pro forma balance sheet
reflecting the consummation of the Plan as of June 30, 1996 was included
therewith.

     3.  An optional report pursuant to Item 5 of Form 8-K was filed by the
Company on September 13, 1996 reporting the consummation of the Plan.

     4.  An amendment to the report Form 8-K filed by the Company on August 30,
1996 was filed by the Company on September 19, 1996 to include a pro forma
balance sheet reflecting the consummation of the Plan as of July 31,1996 

(c)  EXHIBITS - See (a) (3) above.

(d)  FINANCIAL STATEMENT SCHEDULES -  See (a) (2) above.



                                      -41-

<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                           RADIUS INC.


                                           By:  /s/ Charles W. Berger
                                             ----------------------------
                                              Charles W. Berger
                                              Chief Executive Officer and
                                              Chairman of the Board of Directors


                             POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Charles W. 
Berger and Cherrie L. Fosco, jointly and severally, his or her true and 
attorneys-in-fact, each with the power of substitution, for him in any and 
all capacities, to sign amendments to this Report on Form 10-K, and to file 
the same, with all exhibits thereto and other documents in connection 
therewith, with the Securities and Exchange Commission, hereby ratifying and 
confirming all that said attorneys-in-fact, or his or her substitute or 
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
Registrant and in the capacities and on the dates indicated:

NAME                              TITLE                               DATES

PRINCIPAL EXECUTIVE OFFICER:


/s/ Charles W. Berger
------------------------     Chief Executive Officer and        January 13, 1997
Charles W. Berger            Chairman of the Board of Directors


PRINCIPAL FINANCIAL OFFICER AND CHIEF ACCOUNTING OFFICER: 


/s/ Cherrie L. Fosco         
------------------------     Chief Financial Officer            January 13, 1997
Cherrie L. Fosco         


DIRECTORS:


/s/ Michael D. Boich
-------------------------     Director                          January 13, 1997
Michael D. Boich


/s/ Carl A. Carlson
-------------------------     Director                          January 13, 1997
Carl A. Carlson


                                      -42-

<PAGE>


                    REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND SHAREHOLDERS
RADIUS INC.

We have audited the accompanying consolidated balance sheets of Radius Inc. 
as of September 30, 1996 and 1995, and the related consolidated statements of 
operations, shareholders' equity (net capital deficiency) and cash flows for 
each of the three years in the period ended September 30, 1996.  Our audits 
also included the financial statement schedule listed in the Index at Item 14 
(a). These financial statements and schedule are the responsibility of the 
Company's management.  Our responsibility is to express an opinion on these 
financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respect, the consolidated financial position 
of Radius Inc. at September 30, 1996 and 1995, and the consolidated results 
of its operations and its cash flows for each of the three years in the 
period ended September 30, 1996, in conformity with generally accepted 
accounting principles. Also, in our opinion, the related financial statement 
schedule, when considered in relation to the basic financial statements taken 
as a whole, presents fairly in all material respects the information set 
forth therein.


                                        /s/ Ernst & Young LLP

San Jose, California
November 7, 1996

                                      -43-
<PAGE>

CONSOLIDATED BALANCE SHEETS

September 30  (in thousands)

<TABLE>
<CAPTION>
                                                                                        1996            1995
                                                                                        ----            ----
<S>                                                                                   <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                           $  2,974        $ 4,760
   Accounts receivable, net of allowance for doubtful accounts
      of $2,132 in 1996 and $8,502 in 1995                                                8,123         61,644
   Inventories                                                                           12,852         15,071
   Prepaid expenses and other current assets                                                366          2,336
   Income tax receivable                                                                    514            519
   Total current assets                                                                  24,829         84,330
                                                                                       --------        -------

Investment in Splash Technology Holdings, Inc.                                           19,152              -
Property and equipment, net                                                               1,495          3,031
Deposits and other assets                                                                    50            517
                                                                                       --------        -------
                                                                                       $ 45,526       $ 87,878
                                                                                       --------        -------
                                                                                       --------        -------

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
   Accounts payable                                                                    $  5,004       $ 73,098
   Accrued payroll and related expenses                                                   2,678          5,815
   Accrued warranty costs                                                                   478          3,170
   Other accrued liabilities                                                              2,545         11,920
   Accrued income taxes                                                                   2,227          1,665
   Accrued restructuring and other charges                                                  425         17,013
   Short-term borrowings                                                                  1,922         29,489
   Obligations under capital leases - current portion                                     1,074          1,494
                                                                                       --------        -------
         Total current liabilities                                                       16,353        143,664
    
Long-term borrowings                                                                     21,940              -
Obligations under capital leases-noncurrent portion                                         273          1,331
Commitments and contingencies 

   Convertible preferred stock, no par value, 750 shares
      authorized and issued and outstanding in 1996; none authorized or issued and
      outstanding in 1995                                                                 3,000              -
   Shareholders' Equity: (Net capital deficiency):
   Preferred stock, no par value, 2,000 authorized; none                                      -              -
      issued and outstanding in 1996 and 1995
   Common stock, no par value; 100,000 shares authorized;
      issued and outstanding--54,408 shares in 1996 and
      17,143 shares in 1995                                                             168,746        113,791
   Common stock to be issued                                                                  -         12,022
   Accumulated deficit                                                                 (183,968)      (182,993)
   Unrealized gain on available-for-sale securities                                      19,152              -
   Accumulated translation adjustment                                                        30             63
                                                                                       --------        -------



                                                         -44-

<PAGE>


      Total shareholders' equity
         (Net capital deficiency)                                                         3,960        (57,117)
                                                                                       --------        -------
                                                                                      $  45,526       $ 87,878
                                                                                       --------        -------
                                                                                       --------        -------




</TABLE>

See accompanying notes.


                                                         -45-

<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS


For years ended September 30  
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                      1996           1995          1994
                                                      ----           ----          ----
<S>                                                 <C>            <C>            <C>
   Net sales                                        $ 90,290       $308,133       $324,805
   Cost of sales                                      77,382        302,937        276,948
                                                    --------       --------       --------
         Gross profit                                 12,908          5,196         47,857
                                                    --------       --------       --------
   Operating expenses:
      Research and development                         7,478         19,310         33,956
      Selling, general and administrative             25,886         90,068         94,731
                                                    --------       --------       --------
          Total operating expenses                    33,364        109,378        128,687
                                                    --------       --------       --------
   Loss from operations                             ( 20,456)      (104,182)       (80,830)
   Other income (expense), net                        24,032         (3,045)          (376)
   Interest expense                                   (3,736)        (3,023)          (869)
   Litigation settlement                                   -        (12,422)             -
                                                    --------       --------       --------
   Loss before income taxes                              160       (122,672)       (82,075)
   Provision (benefit) for income taxes                  815          9,070         (4,600)
                                                    --------       --------       --------

   Net loss                                           $ (975)     $(131,742)      $(77,475)
                                                    --------       --------       --------
                                                    --------       --------       --------
   Net loss per share                                 $(0.05)         (8.75)      $  (5.70)
                                                    --------       --------       --------
                                                    --------       --------       --------
   Common shares used in 
    computing net loss per share                      21,251         15,049         13,598
                                                    --------       --------       --------
                                                    --------       --------       --------
</TABLE>

See accompanying notes.

                                                -46-

<PAGE>

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                                   Unrealized       Total 
                                                                                      Retained       Gain on     Shareholders'
                                                         Convertible                  Earnings      Available-    Equity (Net
                                                          Preferred     Common      (Net Capital     for-sale       Capital  
                                                            Stock        Stock       Deficiency)    Securities     Deficiency)
                                                         ---------------------------------------------------------------------
<S>                                                      <C>          <C>           <C>            <C>           <C>
Balance at September 30, 1993                               $   -     $   81,949     $   16,206     $        -     $   98,155
Issuance of 350 shares of common stock                      
   under Stock Option Plans                                      -          1,800              -              -          1,800
Issuance of 170 shares of common stock 
   under Employee Stock Purchase Plans                          -            989              -              -            989
Issuance of 206 shares of common stock 
   pursuant to the acquisition of VideoFusion                   -          1,854              -              -          1,854
Tax benefit from stock options exercised                        -            425              -              -            425
Amortization of deferred compensation                           -              -             22              -             22
Currency translation adjustment                                 -              -              7              -              7
Net loss                                                        -                       (77,475)             -        (77,475)
Elimination of SuperMac net loss
   for the three months ended December 31, 1993                 -              -          9,914              -          9,914
                                                         ---------------------------------------------------------------------

Balance at September 30, 1994                                   -         87,017        (51,326)             -         35,691
 Issuance of 214 shares of common stock                     
   under Stock Option Plans                                     -          1,254              -              -          1,254
 Issuance of 162 shares of common stock
   under Employee Stock Purchase Plan                           -          1,298              -              -          1,258
 Issuance of 212 shares of common stock 
   pursuant to the acquisition of
   VideoFusion                                                  -          2,857              -              -          2,857
 Settlement of Litigation- commonstock to be issued             -         12,022              -              -         12,022
 Issuance of 2,509 shares of common stock
   through private placement                                    -         21,365              -              -         21,365
 Currency translation adjustment                                -              -            138              -            138
 Net loss                                                       -              -       (131,742)             -       (131,742)
                                                         ---------------------------------------------------------------------

Balance at September 30, 1995                                   -        125,813       (182,930)             -        (57,117)
 Issuance of 120 shares of common stock                     
   under Stock Option Plans                                     -            406              -              -            406
 Issuance of 14 shares of common stock under 
   Employee Stock Purchase Plan                                 -             24              -              -             24
 Issuance of 36,294 shares of common                        
   stock to Creditors                                           -         42,503              -              -         42,503
 Issuance of 750 shares of preferred stock to IBM           3,000              -              -              -          3,000
 Issuance of 837 shares of common stock                     
   in partial settlement of litigation                          -              -              -              -              -
 Unrealized gain on available-for-sale securities               -              -              -         19,152         19,152
 Translation gain/(loss)                                        -              -            (33)             -            (33)
 Net loss                                                       -              -           (975)             -           (975)
                                                         ---------------------------------------------------------------------
                                                                 
Balance at September 30, 1996                               $3,000    $  168,746     $(183,938)     $   19,152     $    3,960
                                                         ---------------------------------------------------------------------
                                                         ---------------------------------------------------------------------

</TABLE>

See accompanying notes.

                                     -47-



<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS



For years ended September 30  
(in thousands)

<TABLE>
<CAPTION>
                                                                                1996               1995                1994
                                                                                ----               ----                ----
<S>                                                                          <C>                <C>                  <C>
Cash flows from operating activities:
   Net loss                                                                     $(975)          $(131,742)           $(77,475)
   Adjustments to reconcile net loss to net cash 
   used in operating activities:
      Depreciation and amortization                                             1,453               4,689               4,542
      Gain on the sale of the Color Server Group                              (20,638)                  -                   -
      Acquired in-process research and development expenses                         -                   -               2,550
      Elimination of SuperMac net loss for the three months
          ended December 31, 1993                                                   -                   -               9,914
      Non-cash restructuring and other charges                                      -              57,865              40,775
      Common stock to be issued                                                     -              12,022                   -
      Loss on disposal of fixed assets                                            258                   -                   -
   (Increase) decrease in assets:
      Accounts receivable                                                      56,698              (5,471)            (20,171)
      Allowance for doubtful accounts                                          (6,269)              5,954                 426
      Inventories                                                                 811             (27,140)             (1,058)
      Prepaid expenses and other current assets                                 1,970                (862)              1,739
      Income tax receivable                                                         5               8,564                 468
      Deferred income taxes                                                         -               8,400              11,248
   Increase (decrease) in liabilities:                                     
      Accounts payable                                                        (19,874)             33,843               3,470
      Accrued payroll and related expenses                                     (3,007)             (1,871)             (1,441)
      Accrued warranty costs                                                   (2,582)                915              (1,584)
      Other accrued liabilities                                                (8,235)              5,270              (4,039)
      Accrued restructuring and other charges                                 (16,588)            (13,601)             (6,117)
      Accrued income taxes                                                        562                 428              (1,534)
                                                                             --------            --------            --------
      Total adjustments                                                       (15,436)             89,005              39,188
                                                                             --------            --------            --------
      Net cash used in operating activities                                   (16,411)            (42,737)            (38,287)
                                                                             --------            --------            --------
Cash flows from investing activities:
   Capital expenditures                                                          (175)             (1,894)             (3,460)
   Deposits and other assets                                                      467                (238)                 71
   Net proceeds from the sale of the Color Server Group                        20,163                   -                   -
   Purchase of short-term investments                                               -                   -              (2,002)
   Proceeds from sale of short-term investments                                     -                   -              18,395
                                                                             --------            --------            --------
      Net cash provided by (used in) investing activities                      20,455              (2,132)             13,004
                                                                             --------            --------            --------
Cash flows from financing activities:
   Principal payments of short-term borrowings, net                            (4,782)             11,394              15,275
   Principal payments of long-term borrowings, net                                  -                   -                 (43)
   Issuance of common stock                                                       430              23,917               3,214
   Principal payments under capital leases                                     (1,478)             (1,679)             (1,179)
                                                                             --------            --------            --------
      Net cash provided by (used in) 
          financing activities                                                 (5,830)             33,632              17,267
                                                                             --------            --------            --------
Net decrease in cash and cash equivalents                                      (1,786)            (11,237)             (8,016)
Cash and cash equivalents, beginning of period                                  4,760              15,997              24,013
                                                                             --------            --------            --------
Cash and cash equivalents, end of period                                     $  2,974            $  4,760            $ 15,997
                                                                             --------            --------            --------
                                                                             --------            --------            --------

</TABLE>

See accompanying notes.


                                          -48-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     
NOTE ONE.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          
     ORGANIZATION AND BASIS OF PRESENTATION
     
               The consolidated financial statements include the accounts
     of Radius Inc. ("Radius") and its wholly-owned subsidiaries after
     elimination of significant intercompany transactions and balances.
          
          Radius and SuperMac Technologies, Inc. ("SuperMac") merged into
     the combined company (the "Company") effective August 31, 1994 (the
     "Merger"), which was accounted for as a pooling of interests.  
     
     FINANCIAL STATEMENTS ESTIMATES
     
          The preparation of financial statements in conformity with
     generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets,
     liabilities, revenues and expenses. Such estimates include the level
     of allowance for potentially uncollectible receivables and sales
     returns; inventory reserves for obsolete, slow-moving, or non-salable
     inventory; and estimated cost for installation, warranty and other
     customer support obligations. Actual results could differ from these
     estimates.
     
     MANAGEMENT'S BUSINESS RECOVERY PLANS
     
          As shown in the accompanying consolidated financial statements,
     the Company has incurred recurring operating losses.  In addition, as
     of September 30, 1996, the Company was not in compliance with all of
     the  financial covenants under its credit agreement. 
     
          The Company's relatively limited cash resources have restricted
     the Company's ability to purchase inventory which in turn has limited
     its ability to procure and sell products and has resulted in
     additional costs for expedited deliveries. The adverse effect on the
     Company's results of operations due to its limited cash resources can
     be expected to continue until such time as the Company is able to
     return to profitability, or generate additional cash from other
     sources.
     
          During fiscal 1996, management implemented a number of actions to
     address its cash flow and operating issues including: restructuring
     its outstanding indebtedness to trade creditors and its secured
     creditor,  refocusing its efforts on providing solutions for high end
     digital video and graphics customers; discontinuing sales of mass
     market and other low value added products; divesting a number of
     businesses and product lines; significantly reducing expenses and
     headcount; and subleasing all or a portion of its current facility
     lease given its reduced occupancy requirements.

          During fiscal 1997, additional funds may be needed to finance 
     ongoing operations and to implement the Company's development plans 
     and for other purposes.  The Company plans to generate cash by 
     divesting certain liquid assets and is investigating possible 
     financing and strategic partnering opportunities. Regarding the 
     Company's Splash Technology Holdings, Inc. securities, these 
     securities are "restricted securities" under Rule 144 promulgated 
     under the Securities Act and will become available for sale in 
     January, 1998, subject to certain volume, manner of sale, notice 
     and availability of public information requirements of such rule.  
     However, the Company has certain registration rights with respect 
     to those securities commencing in April, 1997.  The closing price 
     of Splash common stock on December 31, 1996 was $21 per share 
     resulting in an estimated total value of approximately $36 million. 
     There can be no assurance the Company will be able to realize this 
     value in the Splash securities or that such financing or strategic 
     partnering opportunities will materialize.  There can also be no 
     assurance that additional financing will be available when needed 
     or, if available, that the terms of such financing will not 
     adversely affect the Company's results of operations.

     FISCAL YEAR
     
          The Company's fiscal year ends on the Saturday closest to
     September 30 and includes 52 weeks in all fiscal years presented. 
     During fiscal 1995, the Company changed its fiscal year end from the
     Sunday closest to September 30 to the Saturday closest to September 30
     for operational efficiency purposes.  For clarity of presentation, all
     fiscal periods in this Form 10-K are reported as ending on a calendar
     month end.  


                                      -49-

<PAGE>

     FOREIGN CURRENCY TRANSLATION
     
          The Company translates the assets and liabilities of its foreign
     subsidiaries into dollars at the rates of exchange in effect at the
     end of the period and translates revenues and expenses using rates in
     effect during the period.  Gains and losses from these balance sheet
     translations are accumulated as a separate component of shareholders'
     equity.  Foreign currency transaction gains or losses, which are
     included in the results of operations, are not material.
     
     INVENTORIES
     
          Inventories are stated at the lower of cost or market. The
     Company reviews the levels of its inventory in light of current and
     forecasted demand to identify and provide write down reserves for
     obsolete, slow-moving, or non-salable inventory. Cost is determined
     using standard costs that approximate cost on a first-in, first-out
     basis.  Inventories consist of the following (in thousands):
     
          September 30                               1996           1995
                                                     ----           ----
          Raw materials                           $      124       $  1,559
          Work in process                              4,488          2,258
          Finished goods                               8,240         11,254
                                                  ----------       --------
                                                  $   12,852       $ 15,071
                                                  ----------       --------
                                                  ----------       --------

          PROPERTY AND EQUIPMENT
          
          Property and equipment is stated at cost and consists of the
          following (in thousands):
          
          September 30                               1996           1995
                                                     ----           ----
          Computer equipment                      $   18,091     $   17,429
          Machinery and equipment                     10,660         12,335
          Furniture and fixtures                       5,793          6,023
          Leasehold improvements                         770          1,084
                                                  ----------       --------
                                                      35,314         36,871
          Less accumulated depreciation 
             and amortization                        (33,819)      (33,840)
                                                  ----------       --------
                                                      $1,495     $    3,031
                                                  ----------       --------
                                                  ----------       --------

         Depreciation has been provided for using the straight-line method
     over estimated useful lives of three to five years.  Equipment under
     capital leases and leasehold improvements are being amortized on the
     straight-line method over six years or the remaining lease term,
     whichever is shorter.
     
     LONG-LIVED ASSETS
     
         In 1995, the Financial Accounting Standards Board released the
     Statement of Financial Accounting Standards No. 121 (SFAS 121),
     "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to be Disposed of." SFAS 121 requires recognition of impairment
     of long-lived assets in the event the net book value of such assets
     exceeds the future undiscounted cash flows attributable to such
     assets. SFAS 121 is effective for fiscal years beginning after
     December 15, 1995. Adoption of SFAS 121 is not expected to have a
     material impact on the Company's financial position or results of
     operations.
     
     REVENUE RECOGNITION
          
          Revenue is recognized when products are shipped.  Sales to
     certain resellers are subject to agreements allowing certain rights of
     return and price protection on unsold merchandise held by these
     resellers.  The Company provides for estimated returns at the time of
     shipment and for price protection following price declines.  Revenues
     earned under royalty or commission agreements is recognized in the
     period in which it is earned.
     

                                       -50-

<PAGE>

     WARRANTY EXPENSE
     
         The Company provides at the time of sale for the estimated cost to
     repair or replace products under warranty.  The warranty period
     commences on the end user date of purchase and is normally one year
     for displays and digital video products and for the life of the
     product for graphics cards.

     ADVERTISING EXPENSES

         The Company expenses advertising expenses as incurred.

     NET LOSS PER SHARE
     
         Net loss per share is computed using the weighted average number
     of common shares outstanding.
     
         Assuming the conversion of accounts payable and other creditor
     debt into common stock in the fourth quarter of fiscal 1996 had
     occurred at the beginning of fiscal 1996, the supplemental loss per
     share would have been $0.02 per share.
     
     CASH AND CASH EQUIVALENTS 
     
          The Company considers all highly liquid investments with a
     maturity from date of purchase of three months or less to be cash
     equivalents; investments with maturities between three and twelve
     months are considered to be short-term investments.  Cash equivalents
     are carried at cost which approximates market.  There were no short-
     term investments as of September 30, 1996 or 1995.  Approximately $0.6
     million of the $3.0 million of cash available at September 30, 1996
     was restricted under various letters of credit.
     
     OFF BALANCE-SHEET RISK AND CONCENTRATION OF CREDIT RISK
     
          The Company sells its products to direct computer resellers in
     the United States and to distributors in various foreign countries. 
     The Company performs on-going credit evaluations of its customers and
     generally does not require collateral.  The Company maintains reserves
     for potential credit losses. 
          
          The Company also hedges substantially all of its trade accounts
     receivable denominated in foreign currency through the use of foreign
     currency forward exchange contracts based on firm third party
     commitments.  Gains and losses associated with currency rate changes
     on forward contracts are recognized in the consolidated statements of
     operations upon contract settlement and were not material.  At
     September 30, 1996, the Company had no forward contracts.
     
     RELATED PARTIES   
     
          IBM Credit is a related party as a result of its ownership
     interests in the Company. See Notes 2, 11 and 12. Also, during the 
     calendar year 1995, IBM Credit's parent corporation, International 
     Business Machines Corporation, manufactured systems products 
     (specifically Mac clones) for the Company for which it was paid 
     approximately $20 million through the IBM Credit facility.

          In addition, SCI Technology, Inc. ("SCI") and Mitsubishi
     Electronics America, Inc. ("Mitsubishi") are related parties due to
     board membership and/or stock ownership with respect to the Company. 
     SCI and Mitsubishi are suppliers to the Company.  During fiscal 1996,
     1995 and 1994 purchases from SCI were approximately $25.2 million,
     $10.0 million and $0, respectively, and purchases from Mitsubishi were
     approximately $14.1 million, $30.0 


                                       -51-

<PAGE>

     million and $10.0 million, respectively.  As of September 30, 1996 
     and 1995, the Company had accounts payable amounting to approximately 
     $0.1 million and $5.3 million to SCI, respectively, and 
     approximately $0.0 million and $6.6 million to Mitsubishi, respectively.

          In fiscal 1994, the Company acquired shares of preferred stock of
     Portrait Display Labs ("PDL") and a warrant to purchase additional
     shares of PDL preferred stock in exchange for the cancellation of
     certain rights held by the Company to purchase all of the outstanding
     equity securities or assets of the predecessor entity to PDL. The
     warrant permitted the purchase of approximately an additional 10%
     interest in PDL. The Company also was granted one seat on PDL's Board
     of Directors. In addition, the Company licensed PDL certain pivot
     display technology in exchange for the payment of royalties. Product
     revenues were approximately $5.0 million in fiscal 1994. In fiscal
     1995, the Company exercised the warrant for an additional 10% interest
     in PDL in exchange for cancellation of approximately $945,000 in
     accounts receivable.  There were no product revenues for the fiscal
     1995 to this related party.  The receivable from PDL at September 30,
     1995 was approximately $980,000.  In fiscal 1996, the Company signed a
     series of additional agreements with Portrait Display Labs, see Note
     11 to the Consolidated Financial Statements.
          
          FAIR VALUE DISCLOSURES.  The carrying values and fair values of
     various financial instruments are summarized as follows as of
     September 30, 1996 (inthousands):
          
                                      Carrying Value    Fair Value
                                      --------------    ----------

     Cash and cash equivalents            $  2,974       $  2,974
     Investment in Splash Technology
        Holdings, Inc. (See Note 11)        19,152         19,152
     Short-term Borrowings                  (1,922)        (1,922)
     Long-term Borrowings                  (21,940)       (21,940)
     IBM Credit Option on 
        Splash Shares (See Note 11)              0         (1,915)

          The fair value of short-term and long-term borrowings are
     estimated to approximate their carrying value as the borrowings are
     subject to variable interest rates.
     
          Estimated fair value amounts have been determined by the Company
     using available market information and appropriate valuation
     methodologies.  However, considerable judgment is required in
     interpreting market data to develop the estimates of fair value. 
     Accordingly, the estimates presented herein are not necessarily
     indicative of the amounts that the Company could realize in a current
     market exchange.
     
NOTE TWO.  BORROWINGS
     
     LINE OF CREDIT ARRANGEMENT
     
          In February 1995, the Company and IBM Credit Corp. ("IBM Credit")
     entered into a $30.0 million Inventory and Working Capital Financing
     Agreement (the "Loan Agreement"). The Loan Agreement permits advances
     for inventory and working capital up to the lesser of $30.0 million or
     85% of eligible receivables ("Inventory and Working Capital
     Advances"). In September 1995, IBM Credit advanced an additional $20.0
     million under the Loan Agreement to finance the manufacturing of the
     Company's MacOS compatible products (the "MacOS Advances").  
          
          Immediately prior to the consummation of the restructuring of its
     unsecured and secured debt in September 1996 (the "Plan"), amounts
     outstanding to IBM Credit were approximately $26.4 million. In
     connection with the Plan, IBM Credit received 750,000 shares of the
     Company's Series A Convertible Preferred Stock and warrants to
     purchase 600,000 shares of Common Stock in consideration of the
     cancellation of $3.0 million of indebtedness to IBM Credit and for an
     additional advance of approximately $470,000.  In addition, IBM Credit
     has restructured the terms of the remaining approximately $23.4
     million indebtedness into a working line of credit and a term loan.
     Amounts outstanding under the term loan bear interest at a rate of
     prime rate plus 3.25% and amounts outstanding under the working  line
     of credit bear interest at a rate of prime rate plus 2.25%. The
     Company has an up to $5.0 


                                       -52-

<PAGE>

     million working line of credit and IBM Credit will extend advances 
     under this line of credit in an amount not to exceed the borrowing 
     base (which is defined as (i) the lesser of 10% of the gross value 
     of eligible inventory or $500,000; plus (ii) 80% of the Company's 
     eligible domestic accounts receivable; plus (iii) the lesser of 
     50% of the gross value of certain eligible Japanese and European 
     accounts receivable or $500,000).  The $470,000 advanced by IBM 
     Credit pursuant to the Plan is included in this working line of 
     credit but will not be included in the calculation of the borrowing 
     base.  The initial amount of current indebtedness to be outstanding 
     under this line of credit is $1.5 million, the amount of the 
     borrowing base on the date of the closing of the restructured
     loan.  The remaining $21.9 million balance of the Company's
     indebtedness to IBM Credit has been converted to a four-year term
     loan.  Principal on such term loan will be repaid on a mandatory
     prepayment schedule.  The restructured loan with IBM Credit is subject
     to mandatory prepayment as follows:  (i) upon the disposition of any
     assets of the Company outside of the ordinary course of business, all
     net proceeds to the Company must be applied towards the Company's
     obligations under the loan; (ii) upon the closing of any financing,
     10% of the proceeds must be applied towards the Company's obligations
     under the loan; (iii) upon the thirtieth day following the end of each
     fiscal quarter, an amount of no less than 50% of operating cash flow
     for such prior fiscal quarter must be applied towards the Company's
     obligations under the loan; and (iv) upon the receipt of any other
     amounts other than sales of inventory or used or obsolete equipment in
     the ordinary course of business, and not otherwise described in the
     preceding clause (i) - (iii), all of such amounts must be applied
     towards the Company's obligations under the loan.  If the Company's
     obligations under the term loan, as well as finance charges and
     amounts outstanding in excess of the "borrowing base" (described
     above) under the working line of credit, are repaid, IBM Credit can
     require such proceeds to be applied towards a redemption of the Series
     A Convertible Preferred Stock.  In addition, the Company is required
     to deposit its revenues in accounts controlled by IBM Credit.  At any
     time, regardless of whether the Company is in default of its
     obligations to IBM Credit, IBM Credit is permitted to apply these
     amounts towards the repayment of any of the Company's obligations to
     IBM Credit.  As a result of IBM Credit's control over the Company's
     cash flow, including payment of dividends, and these prepayment and
     redemption provisions, together with the other terms and covenants of
     the restructured loan agreement, the Company's ability to generate
     working capital or to undertake a variety of other merger, disposition
     or financing activities will be substantially restricted. 
          
          As of September 30, 1996, approximately $23.8 million was
     outstanding under the Loan Agreement consisting of $21.9 million in
     term loan and approximately $1.9  million in working line of credit.
     The $21.9 million in term loan is included in long-term borrowings in
     the Consolidated Financial Statements and the $1.9 million working
     line of credit is included in short-term borrowings in the
     Consolidated Financial Statements.
          
             The Company has granted to IBM Credit a security interest in
     substantially all of its assets to secure the Company's various
     obligations to IBM Credit.  The Company has also granted to Mitsubishi
     Electronics a security interest (securing an amount up to $4.4
     million) in all of the Company's technology and intellectual property
     rights related to and incorporated into the Company's PressView
     products.  

          As of September 30, 1996, the Company was not in compliance with
     all of the financial covenants under the Loan Agreement (specifically,
     revenues to working capital ratio, net profits to revenues ratio, and
     working capital); however, IBM Credit has waived such defaults.  See
     Notes 11 and 12 to the Consolidated Financial Statements.

          In addition, the Company entered into a Business Loan Agreement
     on March 20, 1995 with Silicon Valley Bank. The agreement, which
     expired on March 19, 1996, allowed the Company to issue letters of
     credit as a sub-facility under a $5.0 million foreign accounts
     receivable revolving line of credit subject to an interest rate of up
     to the prime rate plus 1.25%.  The amounts outstanding under this
     agreement were repaid in January 1996.  The weighted average interest
     rates in fiscal 1996 and 1995 were 9.9% and 13.0%, respectively.

               One of the Company's subsidiaries had a revolving line of
     credit with a bank in Japan, the outstanding balance having been paid
     in full during the third quarter of fiscal 1996.  The weighted average
     interest rates in fiscal 1996 and 1995 were 2.1% and 4.9%,
     respectively.

                                       -53-

<PAGE>


NOTE THREE.  COMMITMENTS AND CONTINGENCIES
     
     LEASES
     
          The Company leases facilities under operating leases and certain
     computer equipment and office furniture under capital leases. 
     Depreciation expense for assets under capital leases is included in
     depreciation and amortization expense.  The cost and net book value of
     these capitalized lease assets included in property and equipment are
     (in thousands):
     
     At September 30,                Cost      Net Book Value
                                   -------     --------------
     1996                          $ 7,437         $ 250
     1995                            7,437         2,642
     
          Future minimum lease payments at September 30, 1996,  under
     capital leases and noncancelable operating leases are as follows (in
     thousands):

<TABLE>
<CAPTION>
                                                                Gross                            Net
                                              Capital         Operating       Sublease        Operating
                                               Leases           Leases         Income           Leases
                                              --------        ----------      --------        ---------
<S>                                           <C>             <C>             <C>             <C>
      1997                                      $1,138           $1,735         $1,154           $581
      1998                                         280            1,104            842            262
      1999                                                          157            155              2
                                              --------        ----------      --------        ---------
      Total Minimum Lease Payments               1,418            2,996                          $845
      Total sublease income                                                    $2,151
      Amount representing interest                 (71)
                                              --------

      Present value of minimum lease payments    1,347
      Amount due within one year                (1,074)
                                              --------
      Amount due after one year                   $273
                                              --------
                                              --------

</TABLE>

          Rent expense charged to operations amounted to approximately $1.5
     million, $3.5 million and $3.0 million for the fiscal years ended
     September 30, 1996, 1995 and 1994, respectively.  The rent expense
     amounts for fiscal 1996, 1995 and 1994 exclude a provision for
     remaining lease obligations on excess facilities.  See Note 8 of Notes
     to the Consolidated Financial Statements.  
     
          Sublease income for fiscal 1996, 1995 and 1994 was approximately
     $1.2 million, $0.6 million and $0.1 million, respectively.  
     
     CONTINGENCIES
      
             (a)  On November 16, 1995, Electronics for Imaging, Inc.
     ("EFI") filed a suit in the United States District Court in the
     Northern District of California alleging that the Company infringes a
     patent allegedly owned by EFI.  Although the complaint does not
     specify which of the Company's products allegedly infringe the patent,
     subsequent pleading indicates that EFI alleges that the Company's
     Color Server products allegedly infringe.  In January 1996, the
     Company completed the divestiture of the Color Server Group.

             The Company has filed an answer denying all material
     allegations, and has filed counterclaims against EFI alleging causes
     of action for interference with prospective economic benefit,
     antitrust violations, and unfair business practices.  EFI's motion to
     dismiss or sever the Company's amended counterclaims was granted in
     part and the ruling permitted the Company to file an amended
     counterclaim for antitrust violations.  The Company has filed an
     amended antitrust claim.  The Company believes it has meritorious
     defenses to EFI's claims and is defending them vigorously.  In
     addition, the Company believes it may have indemnification rights with
     respect to EFI's claims.  In the opinion of management, based on the
     facts known at this time, although the eventual outcome of this case
     is unlikely to have a material adverse effect on the results of
     operations or financial position of the Company, the costs of defense,
     regardless of outcome, may have a material adverse effect on the
     results of operations or financial position of the Company.  In
     addition, in connection with the divestiture of its Color Server
     business, the Company 


                                   -54-
<PAGE>

     has certain indemnification obligations for which approximately 
     $2.3 million remains held in escrow to secure such obligations 
     in the event that the purchaser suffers any losses resulting 
     from such litigation.

             (b)  The Company was named as one of approximately 42
     defendants in Shapiro et al. v. ADI Systems, Inc. et al., Superior
     Court of California, Santa Clara County, case no. CV751685, filed
     August 14, 1995.  Radius was named as one of approximately 32
     defendants in Maizes & Maizes et al. v. Apple Computer et al.,
     Superior Court of New Jersey, Essex County, case no. L-13780-95, filed
     December 15, 1995.  Plaintiffs in each case purport to represent
     alleged classes of similarly situated persons and/or the general
     public, and allege that the defendants falsely advertised that the
     viewing areas of their computer monitors are larger than in fact they
     are.  
             The Company was served with the Shapiro complaint on August
     22, 1995 and was served with the Maizes complaint on January 5, 1996. 
     Defendants' petition to the California State Judicial Council to
     coordinate the Shapiro case with similar cases brought in other
     California jurisdictions was granted in part and it is anticipated
     that the coordinated proceedings will be held in Superior Court of
     California, San Francisco County.  An amended consolidated complaint
     was filed on March 26, 1996.  Discovery proceedings are scheduled to
     begin.  The Company believes it has meritorious defenses to the
     plaintiffs' claims and is defending them vigorously.  Extended
     settlement discussions began in connection with a successful demurrer
     in the California case.  Such discussions have been complicated by the
     refusal of a small number of the defendants to participate in the
     proposed settlement.  In the opinion of management, based on the facts
     known at this time, the eventual outcome of these cases may have a
     material adverse effect on the results of operations or financial
     position of the Company in the financial period in which they are
     resolved.  In addition, whether or not the eventual outcomes of these
     cases have a material adverse effect on the results of operations or
     financial condition of the Company, the costs of defense, regardless
     of outcome, may have a material adverse effect on the results of
     operations and financial condition of the Company.

             (c)  On April 17, 1996, the Company was served with a
     complaint filed by Colorox Corporation ("Colorox"), in the Circuit
     Court of the State of Oregon, County of Multnomah, case no. 9604-
     02481, which alleges that the Company breached an alleged oral
     contract to sell its dye sublimation printer business to Colorox for
     $200,000, and seeks both specific performance of the alleged contract
     and alleged damages of $2.5 million.  The Company believes it has
     meritorious defenses to the plaintiff's claims and intends to defend
     them vigorously.  Nevertheless, the costs of defense, regardless of
     outcome, could have an adverse effect on the results of operations and
     financial condition of the Company.

             (d)  The Company is involved in a number of other judicial and
     administrative proceedings incidental to its business.  The Company
     intends to defend such lawsuits vigorously and although adverse
     decisions (or settlements) may occur in one or more of such cases, the
     final resolution of these lawsuits, individually or in the aggregate,
     is not expected to have a material adverse effect on the financial
     position of the Company.  However, depending on the amount and timing
     of an unfavorable resolution of these lawsuits, it is possible that
     the Company's future results of operations or cash flows could be
     materially adversely affected in a particular period.  In addition,
     the costs of defense -- regardless of the outcome -- could have a
     material adverse effect on the results of operations and financial
     condition of the Company.

          (e) In September 1992, the Company and certain of its officers
     and directors were named as defendants in a securities class action
     litigation brought  in the United States District Court for the
     Northern District of California that sought unspecified damages,
     prejudgment and postjudgment interest, attorneys' fees, expert witness
     fees and costs, and equitable relief.  In July 1994, SuperMac and
     certain of its officers and directors, several venture capital firms
     and several of the underwriters of SuperMac's May 1992 initial public
     offering and its February 1993 secondary offering were named as
     defendants in a class action litigation brought in the same court that
     sought unspecified damages, prejudgment and postjudgment interest,
     attorneys' fees, experts' fees and costs, and equitable relief
     (including the imposition of a constructive trust on the proceeds of
     defendants' trading activities). 
          
          In June 1995, the Court approved the settlement of both
     litigations and entered a Final Judgment and Order of Dismissal. 
     Under the settlement of the litigation brought in 1992 against the
     Company, the Company's insurance carrier paid $3.7 million in cash and
     the Company is required to issue 128,695 shares of its Common Stock to
     a class action settlement fund.  In the settlement of the litigation
     brought in 1994 against SuperMac, the Company paid $250,000 in cash
     and is required to issue into a class action settlement fund 707,609
     shares of its Common Stock.  The number of shares required to be
     issued by the Company increased by 100,000 since the price of the
     Common Stock was below $12 per share during the 60-day period
     following the initial issuance of shares.  In 


                                   -55-

<PAGE>

     connection with these settlements, the Company recorded a charge 
     of $12.4 million in the Consolidated Financial Statements reflecting 
     settlement costs not covered by insurance as well as related legal fees.
          
          As of September 30, 1996, the Company had issued 836,674 of its
     Common Stock due to the settlement and 99,630 shares remained to be
     issued.
     
     NOTE FOUR.  CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY 
     
     SERIES A CONVERTIBLE PREFERRED STOCK
     
          The dividend, liquidation and certain redemption features of the
     Series A Convertible Preferred Stock, each of which is discussed in
     greater detail below, are determined by reference to the Liquidation
     Price of the Series A Convertible Preferred Stock, which is defined in
     the aggregate as $3.0 million plus any accrued but unpaid dividends.
          
          Dividends on the Series A Convertible Preferred Stock accrue
     cumulatively at a rate of 10% per annum of the Liquidation Price and
     are payable on a quarterly basis in cash or in shares of Common Stock,
     at the Company's discretion.  The Series A Convertible Preferred Stock
     ranks senior to any other Preferred Stock and the Common Stock with
     respect to the declaration and payment of dividends.
          
          Upon dissolution, liquidation or winding up of the Company,
     holders of the Series A Convertible Preferred Stock will be entitled
     to receive from the assets of the Company available for distribution
     to shareholders an amount in cash or property or a combination thereof
     per share equal to the Liquidation Price.  The Series A Convertible
     Preferred Stock ranks senior to the Common Stock and any other
     Preferred Stock which may subsequently be issued with respect to the
     receipt of liquidation proceeds.
          
          The Series A Convertible Preferred Stock is redeemable at the
     option of holders of a majority of the shares of Series A Convertible
     Preferred Stock at the Liquidation Price as of the date of redemption
     upon the sale by the Company of any part of the Company's interest in
     Splash Technology Holdings, Inc. or its other portfolio interests,
     upon the occurrence of certain extraordinary events such as the sale
     or disposition of the Company's other portfolio interests or the sale
     of some or all of its operating assets, the sale of the Company's
     inventory outside of the ordinary course of business or the merger or
     consolidation of the Company with another entity.
          
          The Series A Convertible Preferred Stock will vote on all matters
     submitted to a vote of the Company's shareholders together as a single
     class with all other classes of the Company's capital stock with each
     share of Series A Convertible Preferred Stock having the number of
     votes which would be cast if such shares were converted at the option
     of the holders into Common Stock on the day prior to the date of the
     vote except as otherwise required by applicable law.
          
          The Series A Convertible Preferred Stock will be convertible from
     time to time, in whole or in part, at the option of the holder, into
     an aggregate of 5,523,030 shares of Common Stock with each share being
     convertible into 7.364 shares of Common Stock, subject to adjustment
     in the event of a stock dividend, stock split, combination or
     reclassification of the Common Stock.
          
          The Series A Convertible Preferred Stock is automatically
     convertible at any time 90 days after the effective date of a
     Registration Statement declared effective in November 1996 in the
     event that the trading price of the Company's Common Stock exceeds,
     for a period of 15 consecutive trading days, a price per share equal
     to $0.5432.  Upon such a conversion, the Series A Convertible
     Preferred Stock would be convertible into an aggregate of 6,075,353
     shares of Common Stock (or 8.1004 shares of Common Stock for each
     share of Series A Convertible Preferred Stock).  No more than 93,750
     shares of Series A Convertible Preferred Stock may be so converted in
     any fiscal quarter.

     COMMON STOCK


                                       -56-
<PAGE>

     
          In June 1995, the Company sold approximately 2.5 million shares
     of its Common Stock in a series of private placements to a small
     number of investors unaffiliated with the Company.  Proceeds from the
     offering, net of commission and other related expenses were $21.4
     million.  The net proceeds were used for working capital.
     
     STOCK OPTIONS
     
                  The Company's 1986 Stock Option Plan, as amended (the
     "1986 Plan"), authorized the issuance of up to 2,975,000 shares of
     common stock upon the exercise of incentive stock options or
     nonqualified stock options that may  be granted to officers, employees
     (including directors who are also employees), consultants and
     independent contractors.  Under the plan, options are exercisable for
     a term of up to ten years after issuance.  Options may be granted at
     prices ranging from 50% to 100% of the fair market value of the common
     stock on the date of grant, as determined by the Board of Directors. 
     Vesting of shares is also determined by the Board of Directors at the
     date of grant.  The 1986 Plan expired in October 1996.  Outstanding
     grants of options to purchase 779,274 shares of Common Stock continue
     to be exercisable according to the terms of the grant, however, and
     all unused shares under the 1986 Plan are reserved for issuance under
     the 1995 Stock Option Plan.
     
                  The Company's 1995 Stock Option Plan (the "1995 Plan")
     authorizes the issuance of up to 1,780,305 shares of common stock upon
     the exercise of incentive stock options or nonqualified stock options
     that may be granted to officers, employees (including directors who
     are also employees), consultants and independent contractors.  Shares
     available for grant under the 1995 Stock Option Plan include 930,305
     shares which were not issued under the 1986 Stock Option Plan.  Under
     the 1995 Plan, options are exercisable for a term of up to ten years
     after issuance.  Options may be granted at prices ranging from 85% to
     100% of the fair market value of the common stock on the date of
     grant, as determined by the Board of Directors.  Vesting of shares is
     also determined by the Board of Directors at the date of grant.  As of
     September 30, 1996, 87,522 options were outstanding under the 1995
     Plan.  The 1995 Plan will expire in December 2005.
                  
          On August 31, 1994, pursuant to the Merger, Radius assumed
     975,239 outstanding options originally issued under the SuperMac 1988
     Stock Option Plan (the "SuperMac Plan").  These options will be
     administered in accordance with the SuperMac Plan until all options
     are exercised or expired.  As of September 30, 1996, 18,701 Options
     remain outstanding under this Plan.  Under the SuperMac Plan, options
     are exercisable for a term of up to ten years after issuance. 
     
     The following table summarizes the consolidated activity under the
     1986 Plan, the 1995 Plan and the SuperMac Plan:

<TABLE>
<CAPTION>
                                                       September 30,  
                                               -----------------------------------
                                               1996            1995           1994
                                               ----            ----           ----
<S>                                        <C>           <C>            <C>
     Outstanding at beginning of year        1,697,535      2,042,481      2,208,783
     Granted                                 1,178,095        707,590        892,131
     Exercised                                (111,522)      (213,791)      (294,042)
     Canceled                               (1,878,611)      (838,745)      (764,391)
                                           -----------   ------------   ------------
     Outstanding at September 30               885,497      1,697,535      2,042,481
                                           -----------   ------------   ------------
                                           -----------   ------------   ------------
     Price range at September 30           $1.28-10.56   $0.42-$28.96   $0.42-$32.18
                                           -----------   ------------   ------------
                                           -----------   ------------   ------------
     Price range of options exercised      $1.36-$2.37   $0.42-$13.13   $0.42-$13.13
                                           -----------   ------------   ------------
                                           -----------   ------------   ------------
     Exercisable at September 30               322,492      1,325,222        706,474
                                           -----------   ------------   ------------
                                           -----------   ------------   ------------
     Available for grant at September 30     1,695,331        415,586        281,726
                                           -----------   ------------   ------------
                                           -----------   ------------   ------------
</TABLE>

          The fiscal 1994 period includes the Radius activity for fiscal
     year ended September 30, 1994 and SuperMac activity for the nine
     months ended September 30, 1994.

                                    -57-

<PAGE>

             The Company has also reserved 173,126 shares of common stock
     for issuance to non-employee directors pursuant to options granted
     under the 1994 Directors' Stock Option Plan (the "1994 Plan"),
     including 73,126 shares which were not issued under the Company's 1990
     Directors Stock Option Plan.  Such options may only be nonqualified
     stock options, must be exercised within ten years from the date of
     grant, and must be granted in accordance with a non-discretionary
     formula.  Under this formula, each new director receives an option to
     purchase 10,000 shares when that director is first appointed to the
     Board and an option to purchase 2,500 shares on each anniversary of
     such director's appointment.  As of September 30, 1996, 5,938 options
     were outstanding under this plan at exercise prices ranging from
     $7.4375 to $12.00 per share.  None of the options granted under the
     1994 Plan are exercisable at September 30, 1996.
          
          Prior to the approval of the 1994 Plan, the 1990 Directors' Stock
     Option Plan (the "Prior Plan") was in effect.  As of September 30,
     1996, the Prior Plan had 26,874 options outstanding at prices ranging
     from $8.00 to $17.25.  Such options are nonqualified stock options,
     must be exercised within five years from the date of grant, and were
     granted in accordance with a non-discretionary formula.  Options
     unissued under the Prior Plan become available for grant under the
     1994 Plan. 
          
          In March 1993, the Company granted a nonqualified stock option to
     one officer to purchase a total of 250,000 shares of common stock
     outside the Company's 1986 Stock Option Plan at an exercise price of
     $7.75 per share.  This option is exercisable for a term of ten years
     and vests over a fifty month period commencing on the date of grant. 
     During fiscal 1994, 150 of these shares were exercised by the officer,
     and as of September 30, 1996 an additional 209,850 shares were
     exercisable.
          
          In June 1995, the Company repriced approximately 232,000 of then
     outstanding options to an exercise price of $12.00 per share, the fair
     market value of the Company's common stock on the date of the
     repricing.
          
          In December 1995, the Company repriced approximately 930,000 of
     then outstanding options for an exercise price of $2.375 per share,
     the fair market value of the Company's common stock on the date of
     repricing.
          
     EMPLOYEE STOCK PURCHASE PLAN
     
          The Company has an employee stock purchase plan under which
     substantially all employees may purchase common stock through payroll
     deductions at a price equal to 85% of its fair market value as of
     certain specified dates.  Stock purchases under this plan are limited
     to 10% of an employee's compensation, and in no event may exceed
     $21,250 per year.  Under this plan a total of 650,000 shares of common
     stock have been reserved for issuance to employees.  At September 30,
     1996, 146,824 shares remain available for issuance under the plan.
     
     EMPLOYEE STOCK PLANS
     
          The Company accounts for its stock option plans and the Employee
     Stock Purchase Plan in accordance with provisions of the accounting
     Principles Board's Opinion  No. 25 (APB 25),  "Accounting for Stock
     Issued to Employees."  In 1995, the Financial Accounting Standards
     Board released the Statement of Financial Accounting Standard No. 123
     (SFAS 123),  "Accounting for Stock Based Compensation."  SFAS 123
     provides an alternative to APB 25 and is effective for fiscal years
     beginning after December 15, 1995.  The Company expects to continue to
     account for its employee stock plans in accordance with the provision
     of APB 25.  Accordingly, SFAS 123 is not expected to have any material
     impact on the Company's financial position or results of operations.
     


                                  -58-

<PAGE>

NOTE FIVE.  FEDERAL AND STATE INCOME TAXES  
     
     The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
                                       1996               1995             1994
                                       ----               ----             ----
<S>                                 <C>                <C>            <C>
     For years ended September 30
     (in thousands) 

     Federal:
       Current                       $     -            $      -       $  (12,583)
       Deferred                            -               7,170           12,311
                                     -------            --------       ----------
                                           -               7,170             (272)
     Foreign:
       Current                           765                 650              376
                                     -------            --------       ----------
     State:
       Current                            50                  20           (3,641)
       Deferred                            -               1,230           (1,063)
                                     -------            --------       ----------
                                          50               1,250           (4,704)
                                     -------            --------       ----------
                                     $   815            $  9,070       $   (4,600)
                                     -------            --------       ----------
                                     -------            --------       ----------
</TABLE>

          Deferred income taxes reflect the net tax effects of temporary
     differences between the carrying amounts of assets and liabilities for
     financial reporting purposes and the amounts used for income tax
     purposes.  Significant components of the Company's deferred tax assets
     and liabilities are as follows:

<TABLE>
<CAPTION>

                                                                    1996            1995
                                                                    ----            ----
<S>                                                             <C>            <C>
     For years ended September 30
     (in thousands)

     Deferred tax assets:

          Net operating loss carryovers                          $   25,232     $   26,079
          Inventory valuation differences                             6,364          3,926
          Restructuring reserves                                      3,536         22,995
          Reserves and accruals not currently tax deductible          3,424         20,891
          Depreciation                                                2,390          3,787
          Capitalized research & development expenditures             2,144          2,113
          Credit carryovers                                               -          5,807
          Other                                                       2,703              -
                                                                 ----------     ----------
          Total deferred tax assets                                  45,793         85,598
                                                                 ----------     ----------
          Valuation allowance for deferred tax assets               (38,295)       (85,086)
                                                                 ----------     ----------
          Deferred tax assets                                    $    7,498     $      512
                                                                 ----------     ----------
                                                                 ----------     ----------
     Deferred tax liabilities:
     
          Valuation of investment portfolio                        $  7,498              -
          Other                                                           -            512
                                                                 ----------     ----------
          Total deferred tax liabilities                              7,498            512
                                                                 ----------     ----------
          Net deferred tax assets                                $        -     $        -
                                                                 ----------     ----------
                                                                 ----------     ----------
</TABLE>

          FASB Statement 109 provides for the recognition of deferred tax 
     assets if realization of such assets is more likely than not. The 
     Company's valuation allowance reduced the deferred tax asset to the 
     amount realizable. The Company has provided a full valuation  allowance 
     against its net deferred tax assets due to uncertainties surrounding 
     their realization. Due to the net losses reported in  prior years and as 
     a result of the material changes in operations, predictability of 
     earnings in future periods is uncertain. The Company will evaluate the 
     realizability of the deferred tax asset on a quarterly basis.


                                      -59-

<PAGE>

          The provision for income taxes differs from the amount computed by 
     applying the statutory federal income tax rate to income before taxes.  
     The sources and tax effects of the differences are as follows:

<TABLE>
<CAPTION>

                                                          1996           1995           1994
                                                          ----           ----           ----
<S>                                                    <C>           <C>            <C>
     For years ended September 30
     (in thousands)

     Expected tax at statutory rate                    $      (56)    $  (42,935)    $  (28,726)
     Change in valuation allowance                            241         49,820         26,724
     State income tax, net of federal tax benefit              50          1,250         (3,105)
     Non-deductible merger costs                                -              -          1,054
     Non-deductible charge for purchased 
         research and development                               -              -            763
     Other                                                    580            935         (1,310)
                                                       ----------     ----------      ---------
                                                       $      815     $    9,070      $  (4,600)
                                                       ----------     ----------      ---------
                                                       ----------     ----------      ---------
</TABLE>

          As of September 30, 1996, the Company had net operating loss
     carryforwards for federal and state income tax purposes of
     approximately $60,000,000 and $56,000,000, respectively.  The federal
     loss carryforwards will expire beginning in 2011, if not utilized and
     the state loss carryforwards will expire beginning in 2007, if not
     utilized.
     
          As a result of the issuance of Common Stock and Series A
     Convertible Preferred Stock in exchange for certain liabilities of the
     Company in September 1996, the Company experienced a "change in
     ownership" as defined under Section 382 of the Internal Revenue Code. 
     Accordingly, utilization of net operating loss and tax credit
     carryforwards will be subject to an annual limitation of approximately
     $2.0 million due to the ownership change limitations provided by the
     Internal Revenue Code of 1986 and similar state provisions, except 
     under limited circumstances.  This limitation will result in the 
     expiration of all of the tax credit carryforwards and a substantial 
     portion of the net operating loss carryforwards.

NOTE SIX.  STATEMENTS OF CASH FLOWS  


<TABLE>
<CAPTION>

                                                          1996           1995           1994
                                                          ----           ----           ----
<S>                                                    <C>           <C>            <C>
   For years ended September 30,
   (in thousands)
          
     Supplemental disclosure of cash 
       flow information:

     Cash paid (received) during the year for:
       Interest                                        $    3,792     $    1,620     $      812
                                                       ----------     ----------      ---------
                                                       ----------     ----------      ---------
     Income taxes                                      $      253     $   (8,370)    $   (8,295)
                                                       ----------     ----------      ---------
                                                       ----------     ----------      ---------
     Supplemental schedule of noncash 
      investing and financing activities: 
      Common and preferred stock issued
      to creditors                                     $   45,503     $        -     $        -
                                                       ----------     ----------      ---------
                                                       ----------     ----------      ---------
     Conversion of short-term borrowings
      to long-term borrowings                          $   21,940     $        -     $        -
                                                       ----------     ----------      ---------
                                                       ----------     ----------      ---------
     Retirement of fully and partially
       depreciated assets                              $        -     $    4,459      $   6,025
                                                       ----------     ----------      ---------
                                                       ----------     ----------      ---------
      
     Tax benefit from stock options exercised          $        -     $        -     $      425
                                                       ----------     ----------      ---------
                                                       ----------     ----------      ---------
                                                       
     Equipment acquired pursuant to
       capital leases                                  $        -     $        -     $    2,000
                                                       ----------     ----------      ---------
                                                       ----------     ----------      ---------
      
     Common stock issued pursuant to 
       VideoFusion agreement                           $        -     $    2,857     $        -
                                                       ----------     ----------      ---------
                                                       ----------     ----------      ---------

</TABLE>

                                         -60-

<PAGE>

NOTE SEVEN.  EXPORT SALES AND MAJOR CUSTOMERS

          The Company currently operates in one principal industry segment: 
     the design, assembling and marketing of color publishing and digital
     video computer products.  The Company is highly dependent on the
     success of Apple products as the Company's products are designed to
     provide additional functionality to Apple products.  The Company's
     export sales were approximately $45.8 million, $124.5 million and
     $112.1 million in the fiscal years ended September 30, 1996, 1995 and
     1994, respectively, and included export sales to Europe of
     approximately $21.2 million, $57.3 million and $60.6 million,
     respectively.  The Pacific, Asia, and Latin America region sales were
     approximately $24.6 million, $67.2 million and $51.4 million for
     fiscal years ended September 30, 1996, 1995 and 1994, respectively.
     During fiscal 1996, the Company entered into exclusive distributor
     arrangements with respect to Japan and Europe.  In the future, the
     Company will earn royalties and commissions under such arrangements.
          
          One customer accounted for approximately 34.3 %, 34.0% and 13.5% 
     of the Company's net sales during the years ended September 30, 1996,
     1995 and 1994, respectively.
     

NOTE EIGHT.  RESTRUCTURING AND OTHER CHARGES
     
     RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES

          In the fourth quarter of fiscal 1994, the Company recorded
     charges of $43.4 million in connection with the merger of Radius and
     SuperMac (the "Merger").  These charges include the discontinuance of
     duplicative product lines and related assets; elimination of
     duplicative facilities, property and equipment and other assets; and
     personnel severance costs as well as transaction fees and costs
     incidental to the merger.  The charges (in thousands) are included in: 
     net sales ($3,095); cost of sales ($25,270); research and development
     ($4,331); and selling, general and administrative expenses ($10,711). 
     The elements of the total charge as of September 30, 1996 are as
     follows (in thousands):

<TABLE>
<CAPTION>
                                                                           Representing       
                                                               ------------------------------------------------
                                                                                           Cash Outlays   
                                                                                     --------------------------
                                                                            Asset
                                                       Provision      Write-Downs     Completed        Future    
<S>                                                    <C>            <C>            <C>            <C>
     Adjust inventory levels                           $   22,296     $   19,200     $    3,096     $        -
     Excess facilities                                      2,790            400          2,346             44
     Revision of the operations business model              9,061          7,078          1,983              -
     Employee severance                                     6,311              -          6,311              -
     Merger related costs                                   2,949              -          2,949              -
                                                       ----------      ---------       --------        -------
     Total charges                                     $   43,407     $   26,678     $   16,685     $       44
     
</TABLE>

          The adjustment of inventory levels reflects the discontinuance of
     duplicative product lines.  The provision for excess facility costs
     represents the write-off of leaseholds and sublease costs of Radius'
     previous headquarters, the consolidation into one main headquarter and
     the consolidation of sales offices.  The revision of the operations
     business model reflects the reorganization of the combined Company's
     manufacturing operations to mirror Radius' manufacturing
     reorganization in 1993.  This reorganization was designed to outsource
     a number of functions that previously were performed internally,
     reduce product costs through increased efficiencies and lower
     overhead, and focus the Company on a limited number of products. 
     Employee severance costs are related to employees or temporary
     employees who were released due to the revised business model. 
     Approximately 250 employees were terminated in connection with the
     Merger.  The provision for merger related costs is for the costs
     associated with the Merger transaction, such as legal, investment
     banking and accounting fees.   The Company had spent approximately
     $16.7 of cash for restructuring through September 1996.   The Company
     has substantially completed this restructuring.  During fiscal 1995,
     approximately $2.1 million of merger related restructuring reserves
     were reversed and recorded as an expense reduction due to changes in
     estimated requirements.

                                      -61-

<PAGE>
     
     RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES

          In September 1995, Radius recorded charges of $57.9 million in
     connection with the Company's efforts to refocus its business on the
     color publishing and multimedia markets.  The charges primarily
     included a writedown of inventory and other assets.  Additionally, it
     included expenses related to the cancellation of open purchase orders,
     excess facilities and severance.  The charges (in thousands) are
     included in cost of sales ($47,004), and selling, general and
     administrative expense ($10,861).  The elements of the total charge as
     of September 30, 1996 are as follows (in thousands):
     

<TABLE>
<CAPTION>
                                                                           Representing       
                                                               --------------------------------
                                                                                           Cash Outlays   
                                                                                     --------------------------
                                                                            Asset
                                                       Provision      Write-Downs     Completed        Future  
<S>                                                    <C>            <C>            <C>            <C>
     Adjust inventory levels                           $   33,138      $  32,300       $    838        $     -
     Excess facilities                                      2,004            404          1,600              -
     Cancellation fees and asset write-offs                19,061          5,196         13,800             65
     Employee severance                                     3,662              -          2,599          1,063
                                                       ----------      ---------       --------        -------
     Total charges                                     $   57,865      $  37,900       $ 18,837        $ 1,128

</TABLE>

          The adjustment of inventory levels reflects the discontinuance of
     several product lines.  Revenues and product margins for significant
     product lines discontinued were as follows:  MacOS-compatible systems
     were $21.8 million and $(19.2 million), respectively; and low-margin
     displays $82.9 million and $19.6 million, respectively.  The provision
     for excess facility costs represent the write-off of leasehold
     improvements and the costs associated with anticipated reductions in
     facilities. The cancellation fees and asset write-offs reflect the
     Company's decision to refocus its efforts on providing solutions for
     the color publishing and multimedia markets.  Employee severance costs
     are related to employees or temporary employees who have been or will
     be released due to the revised business model. As of December 16,
     1996, approximately 230 positions of the 240 total planned had been
     eliminated in connection with the new business model.  The Company has
     satisfied $18.8 million of the originally anticipated cash outlays for
     this restructuring as of September 30, 1996 of which approximately
     $5.0 million represented cash expenditures and approximately $13.8
     million represented cancellation of indebtedness or claims in
     consideration of the issuance of equity in the Company. As of
     September 30, 1996, the Company had cash of $3.0 million.   See
     "Management's Business Recovery Plans" at Note 1 to the Consolidated
     Financial Statements. The Company expects to complete the
     restructuring by September 1997. During the quarter ended June
     30, 1996, approximately $913,000 of restructuring charges were
     reversed and recorded as an expense reduction due to changes in
     estimated requirements.  The restructuring is substantially completed
     and remaining cash outlays relate primarily to the restructuring of
     the Company's international operations. 
     
NOTE NINE.  VIDEOFUSION ACQUISITION
     
          The Company acquired VideoFusion, Inc. ("VideoFusion") on
     September 9, 1994.  VideoFusion is a developer of advanced digital
     video special effects software for Apple Macintosh and compatible
     computers.  The Company acquired VideoFusion in exchange for
     approximately 890,000 shares of the Company's Common Stock, 205,900
     shares of which were issued at the closing of the acquisition. The
     balance of the shares were to be issued in installments over a period
     of time contingent on the achievement of certain performance
     milestones and other factors.  In addition, the Company was required
     to pay up to $1.0 million in cash based upon net revenues derived from
     future sales of products incorporating VideoFusion's technology.  The
     purchase price for VideoFusion, including closing costs and the
     issuance of shares of Common Stock valued at $500,000 in connection
     with the achievement of the first milestone was approximately $2.4
     million. This amount was allocated to the assets and liabilities of
     VideoFusion and resulted in identifiable intangibles of approximately
     $440,000 and an in-process research and development expense of
     approximately $2.2 million.  The intangible asset was to be amortized
     over two years.  The Company recognized the charge of approximately
     $2.7 million for in-process research and development and other costs
     associated with the acquisition of VideoFusion during the fourth
     quarter of fiscal 1994.
     
          In May 1995, the Company entered into an agreement with the
     former holders of VideoFusion stock to settle the contingent stock and
     earnout payments that were originally contemplated. Pursuant to this
     agreement, the 


                                       -62-


<PAGE>

     Company issued approximately 212,000 shares, and paid approximately 
     $200,000, to the former holders of VideoFusion stock. These 
     transactions resulted in additional compensation expense of 
     approximately $3.0 million which was recorded in fiscal 1995.  
     
     
NOTE TEN.  MERGER WITH SUPERMAC TECHNOLOGIES, INC.  
     
          On August 31, 1994, Radius merged with SuperMac in exchange for
     6,632,561 shares of Radius' common stock.  SuperMac was a designer,
     manufacturer, and marketer of products that enhanced the power and
     graphics performance of personal computers.  The  Merger was accounted
     for as a pooling of interests, and, accordingly, the Company's
     Consolidated Financial Statements and Notes to Consolidated Financial
     Statements have been restated to include the results of SuperMac for
     all periods presented.
     
     Separate results of operations for the periods prior to the Merger are
     as follows (in thousands):
     
<TABLE>
<CAPTION>
                                                             Merger-
                                                             Related
                                      Radius     SuperMac    Expenses  Adjustment   Combined
                                      ------    ---------    --------  ----------  ----------
<S>                                  <C>        <C>          <C>       <C>         <C>
     Year ended September 30, 1994 
          Net revenues               $162,922    $164,978    $ (3,095)    $ -       $324,805
          Net loss                    (18,293)    (15,775)    (43,407)      -        (77,475)
</TABLE>

     The merger related expenses reflect the recording of the merger
     related restructuring and other charges. 

             The results for both the fiscal years ended September 30, 1994
     and 1993 include the results of SuperMac's operations for the three
     months ended December 31, 1993. 
     
             The Company incurred substantial costs in connection with the
     Merger and consolidation of operations.  Included in the accompanying
     consolidated statement of operations for the year ended September 30,
     1994 are merger related expenses totaling $43.4 million consisting
     primarily of charges for the discontinuance of duplicative product
     lines and related assets, elimination of duplicative facilities,
     property and equipment and other assets, and personnel severance costs
     as well as transaction fees and costs incident to the Merger.  See
     Note 8 of Notes to the  Consolidated Financial Statements. 
     
     
NOTE ELEVEN. BUSINESS DIVESTITURES

          COLOR SERVER GROUP.  In January 1996, the Company completed the
     sale of  its Color Server Group ("CSG") to Splash Merger Company, Inc.
     (the "Buyer"), a wholly owned subsidiary of Splash Technology
     Holdings, Inc. (the "Parent"), a corporation formed by various
     investment entities associated with Summit Partners.  In fiscal 1996,
     the Company received approximately $21.0 million in cash and an
     additional $2.4 million is being maintained in escrow to secure
     certain indemnification obligations.  The Company also received 4,282
     shares of the Parent's 6% Series B Redeemable and Convertible
     Preferred Stock (the "Series B Preferred Stock"). The shares of Series
     B Preferred Stock were converted into shares of the Parent's common
     stock outstanding in connection with the initial public offering of
     Parent.  In June 1996, the Company granted IBM Credit, its secured
     lender, an option to purchase 428 shares of Series B Preferred (now
     Parent Common Stock) in connection with the restructuring of the terms
     of its loan agreement with IBM Credit (Also, see Note 12, regarding
     the conversion of accounts payable and other creditor debt to equity
     in the fourth quarter of fiscal 1996.).  These shares of Parent Common
     Stock have been pledged to IBM Credit.  IBM Credit has not exercised
     its option.

          On October 8, 1996, the Parent completed its initial public
     offering of common stock which reduced the Company's ownership
     position to approximately 14.6 percent. Consequently, the investment
     which will be available for sale, subject to certain market trading
     restrictions, approximating 1.7 million shares, is accounted for in
     accordance with FASB 115. The unrealized gain of $19.1 million based
     upon the initial public offering price of $11.00 per share is
     recorded, net of deferred taxes, as a component of shareholders'
     equity at September 30, 1996.

                                     -63-

<PAGE>

          PORTRAIT DISPLAY LABS.  In January 1996, the Company entered into
     a series of agreements with Portrait Display Labs, Inc. ("PDL").  The
     agreements assigned the Company's pivoting technology to PDL and
     canceled PDL's on-going royalty obligation to the Company under an
     existing license agreement in exchange for a one-time cash payment. 
     The Company did not receive any material amount of payments under such
     license agreement.  PDL also granted the Company a limited license
     back to the pivoting technology.  Under these agreements, PDL also
     settled its outstanding receivable to the Company by paying the
     Company $500,000 in cash and issuing to the Company 214,286 shares of
     PDL's Common Stock.  The cash proceeds were paid to IBM Credit.  The
     shares of PDL Common Stock are pledged to IBM Credit.

          UMAX DATA SYSTEMS, INC.  In February 1996, the Company sold its
     MacOS compatible systems business to UMAX Computer Corporation
     ("UCC"), a company formed by UMAX Data Systems, Inc. ("UMAX").  The
     Company received approximately $2.3 million in cash and debt relief,
     and 1,492,500 shares of UCC's Common Stock, representing approximately
     19.9% of UCC's then outstanding shares of Common Stock.  The cash
     proceeds were paid to IBM Credit and the shares of UCC Common Stock
     are pledged to IBM Credit.

          DISPLAY TECHNOLOGIES ELECTROHOME INC.  In December 1995, the
     Company completed the sale of its monochrome display monitor business
     to Display Technologies Electrohome Inc. ("DTE").  DTE purchased
     Radius' monochrome display monitor business and certain assets related
     thereto, for approximately $200,000 in cash and cancellation of $2.5
     million of the Company's indebtedness to DTE.  In addition, DTE and
     Radius canceled outstanding contracts relating to DTE's manufacture
     and sale of monochrome display monitors to Radius.

     NOTE TWELVE.  STOCK ISSUED TO CREDITORS

          In September 1996, the Company, IBM Credit and its unsecured
     creditors consummated a restructuring of the Company's outstanding
     indebtedness pursuant to which the Company's creditors received equity
     in satisfaction of their claims (the "Plan").  The Company issued
     36,294,198 shares of Common Stock in satisfaction of approximately
     $45.9 million in unsecured claims (including a $1.0 million reserve
     for unknown or unresolved claims) and repaid approximately $1.9
     million of unsecured claims, most of which were less than $50,000, at
     an average discount of approximately 75% of the amount of the claim. 
     Of these shares of Common Stock issued pursuant to the Plan, 791,280
     were issued to the Radius Creditors Trust for the purpose of
     satisfying unresolved or unknown claims.  As of September 30, 1996,
     444,253 shares of Common Stock were held by the Radius Creditors
     Trust.  The Company also issued 750,000 shares of its Series A
     Convertible Preferred Stock (convertible into an aggregate of
     5,523,030 shares of Common Stock, or 6,075,333 shares in certain
     circumstances) and warrants to purchase 600,000 shares of Common Stock
     to IBM Credit in satisfaction of $3.0 million indebtedness and in
     consideration of restructuring its remaining approximately $23.4
     million indebtedness to IBM Credit.  The Company also issued warrants
     to purchase 200,000 shares of Common Stock to Mitsubishi in
     consideration of the extension of open credit terms to the Company. 
     The Company also issued to its unsecured creditors, who received
     Common Stock, Rights ("Rights") to receive up to an additional
     11,046,060 shares of Common Stock in the event that the Series A
     Convertible Preferred Stock is converted into Common Stock (including
     240,824 Rights issued to the Radius Creditors Trust).

          Considering the value of the Common and Preferred Stock issued or
     issuable to the creditors, the percentage of the Company's ownership
     issued to the creditors, the large blocks of stock issued to a certain
     few creditors, Common Stock warrants issued and other costs, such as
     cash settlements, legal and accounting expenses and the option to IBM
     Credit to purchase 10% of the Company's investment in Parent, and
     considering appropriate discounts on the stock issued, the Company
     concluded that the value of consideration given up was equal to the
     indebtedness forgiven.   As a result, the accompanying financial
     statements do not include any extraordinary gain or loss resulting
     from the execution of the Plan.


                                    -64-

<PAGE>



     SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>

                                      Balance at  Charged to    Charged                      Balance 
                                      beginning   costs and     to other                     at end of
     Description                      of period   expenses      accounts     Deductions(1)    period 
     -----------                      ---------   ----------    --------     -------------   ---------
<S>                                   <C>         <C>           <C>          <C>             <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:

     Year ended September 30, 1994      $2,018     $1,283          $0          $    753       $2,548                             
     Year ended September 30, 1995      $2,548     $6,837          $0          $    883       $8,502              
     Year ended September 30, 1996      $8,502     $   91          $0          $  6,461       $2,132

</TABLE>
_____________________________

(1)  Uncollectable accounts written off.



                                          -65-