<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
--- ---
----------
Commission File Number 0-20095
STAC, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12636 High Bluff Drive, San Diego, California 92130-2093
(Address of principal executive office, including zip code)
(619) 794-4300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of June 30, 1996.
Common Stock, no par value 30,652,818 shares
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STAC, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets
as of June 30, 1996 and
September 30, 1995 3
Condensed Consolidated Statements of
Operations for the three and nine
months ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash
Flows for the nine months ended
June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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STAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
--------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,584 $ 34,696
Marketable securities 29,700 25,867
Accounts receivable, net 5,695 6,226
Inventories 958 484
Other current assets 1,267 1,854
--------- -------------
Total current assets 70,204 69,127
Property and equipment, net 3,428 3,455
Deferred income taxes 6,436 6,668
Other assets 833 1,361
--------- -------------
$ 80,901 $ 80,611
========= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,302 $ 1,007
Income taxes payable 1,072 --
Accrued expenses and other
current liabilities 1,951 2,934
--------- -------------
Total current liabilities 5,325 3,941
--------- -------------
Other liabilities 234 315
--------- -------------
Redeemable preferred stock -- 39,960
--------- -------------
Common stock and other shareholders'
equity:
Common stock 72,421 29,101
Cumulative translation adjustment (121) (119)
Retained earnings 3,042 7,413
--------- -------------
Total common stock and other
shareholders' equity 75,342 36,395
--------- -------------
$ 80,901 $ 80,611
========= =============
</TABLE>
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STAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 10,988 $ 11,196 $ 34,532 $ 34,527
Cost of revenues 1,820 1,261 4,819 4,012
-------- -------- -------- --------
Gross margin 9,168 9,935 29,713 30,515
-------- -------- -------- --------
Operating expenses:
Research and development 2,132 1,765 5,770 5,672
Purchased research and development -- -- 12,217 13,354
Sales and marketing 3,402 3,719 9,421 10,883
General and administrative 1,016 1,115 3,166 3,230
Restructuring -- 2,428 -- 2,428
-------- -------- -------- --------
Total operating expenses 6,550 9,027 30,574 35,567
-------- -------- -------- --------
Operating income (loss) 2,618 908 (861) (5,052)
Interest income 519 507 1,576 1,432
-------- -------- -------- --------
Income (loss) before income taxes 3,137 1,415 715 (3,620)
Provision for (benefit from) income taxes 1,221 101 4,917 (2,275)
-------- -------- -------- --------
Net income (loss) 1,916 1,314 (4,202) (1,345)
Less preferred dividends -- 400 168 1,199
-------- -------- -------- --------
Net income (loss) for common shareholders $ 1,916 $ 914 $ (4,370) $ (2,544)
======== ======== ======== ========
Net income (loss) per common share,
primary $ 0.06 $ 0.03 $ (0.15) $ (0.10)
Net income (loss) per common share,
fully diluted $ 0.06 $ 0.03 $ (0.14) $ (0.10)
Weighted average common shares
outstanding, primary 31,423 26,305 29,886 25,297
Weighted average common shares
outstanding, fully diluted 31,423 26,463 30,551 25,297
</TABLE>
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STAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,202) $ (1,345)
Adjustments required to reconcile
net loss to net cash provided
by operating activities:
Depreciation and amortization 1,425 1,871
Write down of intangible assets -- 985
(Gain) loss on disposal of fixed assets (10) 536
Purchased research and development 12,217 13,354
Deferred stock compensation 67 97
Changes in assets and liabilities, net of business combinations:
Accounts receivable 531 (254)
Inventories (474) (19)
Other current assets 336 (518)
Deferred income taxes, non-current 232 (5,451)
Other assets 75 3
Accounts payable 1,295 74
Accrued expenses and other
current liabilities (983) 426
Income taxes payable 1,323 (2,379)
---------- ----------
Net cash provided by
operating activities 11,832 7,380
---------- ----------
Cash flows from investing activities:
Purchases of marketable securities (25,090) (19,489)
Sales of marketable securities 21,257 48,486
Acquisitions, net of cash acquired (11,252) (18,860)
Purchases of property and equipment (935) (1,860)
---------- ----------
Net cash (used) provided by
investing activities (16,020) 8,277
---------- ----------
Cash flows from financing activities:
Issuance of common stock, net 1,126 892
Tax benefits from exercise of stock options 952 548
Preferred stock dividends -- (1,199)
---------- ----------
Net cash provided by
financing activities 2,078 241
---------- ----------
Effect of exchange rates on cash (2) 13
---------- ----------
Net (decrease) increase in cash (2,112) 15,911
Cash and cash equivalents at
beginning of period 34,696 8,341
---------- ----------
Cash and cash equivalents at
end of period $ 32,584 $ 24,252
========== ===========
Supplemental Non-Cash Disclosure:
Stock issued in business combinations $ 965 $ --
========== ===========
</TABLE>
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STAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation:
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 and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The accompanying condensed consolidated unaudited financial statements of Stac,
Inc. ("Stac" or the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the Consolidated
Financial Statements and notes thereto included in the Company's annual report
for the year ended September 30, 1995. In the opinion of management the
accompanying condensed consolidated unaudited financial statements contain all
adjustments, consisting of only normal recurring items, necessary for a fair
presentation of the Company's financial position as of June 30, 1996 and its
results of operations for the three and nine month periods ended June 30, 1996
and 1995, respectively. These condensed consolidated financial statements are
not necessarily indicative of the results to be expected for the entire year.
NOTE 2. Net Income (Loss) Per Share:
Net income (loss) per share is computed on the basis of the weighted average
number of common shares outstanding using the treasury stock method. Shares
issuable upon exercise of stock options are not included in the weighted average
shares outstanding for the nine month periods ended June 30, 1996 and 1995, as
they have a dilutive effect on the loss per share computation for those periods.
Shares issued upon the November 7, 1995 conversion of the mandatorily redeemable
preferred stock are included in the weighted average shares outstanding for the
three and nine month periods ended June 30, 1996. Shares issuable upon the
conversion of mandatorily redeemable preferred stock are excluded from the
weighted average shares outstanding for the three and nine month periods ended
June 30, 1995 as the shares had not been issued and would have had an
anti-dilutive effect on the income per share and a dilutive effect on the loss
per share computations for the three and nine month periods ended June 30, 1995,
respectively.
NOTE 3. Inventories (in thousands; June 30, 1996 unaudited):
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
-------- -------------
<S> <C> <C>
Raw materials $ 106 $ 141
Finished goods 852 343
-------- -------------
$ 958 $ 484
======== =============
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Stac, Inc. ("Stac" or the "Company") designs, develops, markets and
supports networking technologies, systems management software and applications
for the storage and communication of data for personal computers and computer
networks. The Company's products have been implemented in software and silicon
and are sold worldwide directly and through resellers, retailers and original
equipment manufacturers (OEM's). Stac's principal products include ReachOut, a
remote access software suite which allows users to remotely access a PC using
another PC; Replica, a software product which provides software backup and
disaster recovery for NetWare servers; and Stac LZS data compression software
libraries and semiconductors which are used in internetworking, storage hardware
and other applications. The Company also sells Stacker software which provides
fast, convenient and reliable disk compression, and CD-QuickShare software for
creating CD-ROM file servers for fast, shared access to data normally stored on
CDs.
The following discussion should be read in conjunction with the
consolidated financial statements included elsewhere within this quarterly
report. Fluctuations in annual and quarterly results may occur as a result of
factors affecting demand for the Company's products such as the timing of the
Company's and competitors' new product introductions and upgrades. Due to such
fluctuations, historical results and percentage relationships are not
necessarily indicative of the operating results for any future period.
In addition, except for the historical information contained herein,
the following discussion contains forward-looking statements that involve risk
and uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such differences
include but are not limited to, fluctuations in the Company's operating results,
continued new product introductions by the Company, market acceptance of the
Company's new product introductions, new product introductions by competitors,
OEM inventory levels and customer demand for OEM products incorporating Stac
semiconductors, technological changes in the personal computer and
communications industries, uncertainties regarding intellectual property rights
and the other factors referred to herein (including, but not limited to, the
factors discussed below under "Quarterly Trends and Channel Inventories,"
"Seasonality," "Operating Systems," "Competition and Risks Associated with New
Product Introductions" and "Stock Price Volatility") and in the Company's Form
10-K for the year ended September 30, 1995 and Forms 10-Q.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations and
the percentage relationship of certain items to revenues during the periods
shown:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of revenues 17 11 14 12
-------- -------- -------- --------
Gross margin 83 89 86 88
-------- -------- -------- --------
Research and development 20 16 17 16
Purchased research and development -- -- 36 39
Sales and marketing 31 33 27 32
General and administrative 9 10 9 9
Restructuring -- 22 -- 7
-------- -------- -------- --------
</TABLE>
7
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<TABLE>
<S> <C> <C> <C> <C>
Total operating expenses 60 81 89 103
-------- -------- -------- --------
Operating income (loss) 23 8 (3) (15)
Interest income 5 5 5 4
-------- -------- -------- --------
Income (loss) before income taxes 28 13 2 (11)
Provision for (benefit from) income taxes 11 1 14 (7)
-------- -------- -------- --------
Net income (loss) 17% 12% (12)% (4)%
======== ======== ======== ========
</TABLE>
Revenues. Revenues decreased 2% to $11.0 million for the quarter ended
June 30, 1996 from $11.2 million in the quarter ended June 30, 1995. Revenues
remained unchanged at $34.5 million for the nine months ended June 30, 1996
compared to the comparable period of fiscal 1995. The revenue decrease for the
three months ended June 30, 1996 from the comparable period of the prior fiscal
year was due primarily to decreases in Enterprise Software Business Unit (ESBU)
sales, offset in part by increased sales associated with the Company's
Technology Business Unit (TBU). Revenues for the nine month period ended June
30, 1996 as contrasted to the comparable period of the prior fiscal year saw
reduced levels of software sales and royalty revenues received from data
compression licenses, offset by increased TBU sales.
ESBU sales, which are comprised of domestic and international sales and
licenses through distribution, retail, OEM and direct channels, accounted for
$3.4 million, or 31% of revenues for the quarter ended June 30, 1996 compared to
$5.3 million, or 47% of revenues in the quarter ended June 30, 1995, and $12.9
million, or 37% of revenues for the nine months ended June 30, 1996 compared to
$16.5 million, or 48% of revenues in the comparable period of fiscal 1995 .
Sales of the Company's Stacker disk compression software for the quarter and
nine months ended June 30, 1996 continued to decline from the comparable periods
of fiscal 1995 due primarily to the inclusion of disk compression in Windows and
DOS and the availability of large capacity, low cost per megabyte hard disk
drives. Stacker revenues now account for less than 10% of ESBU revenues.
Contributing further to the revenue decrease for the three month period ended
June 30, 1996 were reduced sales of the Company's ReachOut 5.0 product which has
been competing against newer versions of remote control software developed and
marketed by Symantec Corporation (pcAnywhere), MicroCom, Inc. (Carbon Copy) and
Traveling Software, Inc. (Laplink). The Company has developed version 6.0 of
ReachOut which is expected to ship in August 1996. Revenues from Replica, which
first began shipping into distribution in the second quarter of fiscal 1996,
have not yet reached significant levels. The Company is continuing to invest
significant marketing, sales and development resources in Replica. Offsetting
the decrease in Stacker sales for the nine month period ended June 30, 1996 were
increased ReachOut revenues, which included revenues for the entire nine month
period, versus only eight months in the comparable period of fiscal 1995.
Revenues from CD-QuickShare, which first shipped in August 1995, were below
Company expectations for both the quarter and nine months ended June 30, 1996.
Acceptance of Replica and CD-QuickShare will be dependent on successfully
developing further market awareness, being responsive to customer requests for
product features and support for other operating systems, and development of the
reseller sales channels.
Royalties from patent licenses of Stac's data compression technology
accounted for $4.0 million, or 36% of revenues for the quarters ended June 30,
1996 and 1995, and $12.0 million, or 35% of revenues for the nine months ended
June 30, 1996 compared to $12.8 million, or 37% of revenues in the comparable
period of fiscal 1995. Stac will receive a total of $4.0 million per quarter in
license fees from Microsoft and IBM through the December 1997 quarter, after
which the licenses will be fully paid-up.
Revenues from Stac's TBU, which develops, markets, and sells
semiconductors and software libraries which implement the Company's data
compression technology, were $3.6 million, or 33% of revenues for the quarter
ended June 30, 1996 compared to $1.9 million, or 17% of revenues in the
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quarter ended June 30, 1995, and $9.7 million, or 28% of revenues for the nine
months ended June 30, 1996 compared to $5.2 million, or 15% of revenues in the
comparable period of fiscal 1995. The increase in TBU revenues for the quarter
and nine months ended June 30, 1996 from the comparable periods in fiscal 1995
is due primarily to increased sales of the Company's data compression
coprocessors and software licenses to networking and storage OEMs. During the
next two quarters, the Company does not expect TBU semiconductor sales to
increase from their current levels due to high levels of inventory held by some
OEM customers and OEMs practice of building product in large lots in order to
achieve manufacturing efficiencies. If OEM inventory levels are not reduced over
the next quarter, TBU semiconductor sales could decrease in the December 1996
quarter from current levels.
International sales, which are included in the above sales and are
primarily comprised of software products, were $0.8 million, or 7% of revenues
for the quarter ended June 30, 1996 compared to $1.4 million, or 12% of revenues
in the quarter ended June 30, 1995, and $3.2 million, or 9% of revenues for the
nine months ended June 30, 1996 compared to $4.1 million, or 12% of revenues in
the comparable period of fiscal 1995.
Gross Margin. Cost of revenues consists primarily of Stac's proprietary
design semiconductors which are manufactured by third party foundries for resale
by Stac, and the user manuals, packaging, diskettes, diskette duplication and
assembly associated with licenses of software products. Gross margins declined
to 83% for the quarter ended June 30, 1996 from 89% in the quarter ended June
30, 1995. Gross margins declined to 86% for the nine months ended June 30, 1996
from 88% in the comparable period of fiscal 1995. Decreases in gross margin
percentages for the quarter and nine months ended June 30, 1996 from the
comparable periods of fiscal 1995 were due primarily to the higher percentage of
semiconductor sales which carry a lower gross margin than ESBU sales.
Research and Development. Research and development costs consist
primarily of salaries, employee benefits, overhead, outside contractors and
non-recurring engineering fees. Such expenses were $2.1 million and $1.8 million
for the quarters ended June 30, 1996 and 1995, respectively, and $5.8 million
and $5.7 million for the nine months then ended, respectively. The increase in
product development costs for the quarter and nine months ended June 30, 1996
over the comparable periods of fiscal 1995 is due primarily to increased
developmental activity associated with both the ReachOut product line and the
Company's Technology Business Unit, partially offset by cost reductions stemming
from the June 1995 closure of the Company's Florida facility.
Purchased research and development for the nine months ended June 30,
1996 includes $12.2 million recognized in connection with the October 1995
acquisition of California Software, Inc. and the related investment in Dynanet.
Purchased research and development for the nine months ended June 30, 1995
includes $12.7 million related to the October 1994 acquisition of the ReachOut
product from Ocean Isle Software and $0.7 million related to the March 1995
acquisition of assets from Crossware Development Corporation and Rememory
Corporation.
The Company expects to continue to invest in the development of
products for which it believes there is a market. However, there can be no
assurance that product development programs invested in by the Company will be
successful or that products resulting from such programs will achieve market
acceptance.
Sales and Marketing Expense. Selling and marketing expenses consist
primarily of salaries of sales and marketing personnel, customer service,
product technical support, advertising and promotion expenses, sales seminars
and training, and overhead. Such expenses were $3.4 million and $3.7 million for
the quarters ended June 30, 1996 and 1995, respectively, and $9.4 million and
$10.9 million for the nine months then ended, respectively. The decrease in
marketing and sales expense for the quarter and nine months ended June 30, 1996
over the comparable periods of fiscal 1995 is due primarily to the June 1995
closure of the Company's Florida facility, which resulted in a reduction in
personnel and overhead costs.
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The Company expects to continue to invest in its sales and marketing
operations as well as in advertising and promotion associated with the
introduction of products in 1996. In particular, the Company is investing in
relationships with third party solution providers such as corporate resellers
and value added resellers through the addition of sales personnel and sales
programs. As a result, consolidated sales and marketing expenses are expected to
remain the Company's most significant ongoing operating expense.
General and Administrative. General and administrative expenses are
comprised primarily of salaries for administrative and corporate services
personnel, professional fees, and legal fees. Such expenses were $1.0 million
and $1.1 million for the quarters ended June 30, 1996 and 1995, respectively,
and $3.2 million for both nine month periods then ended.
Restructuring. Included in the June 30, 1995 three and nine month
periods' operating expenses are restructuring charges totaling $2.4 million
associated with the closure of the Company's Florida facility and consolidation
to its San Diego, California headquarters. The principal components of the
charge include $.6 million for lease termination and closing costs, $.5 million
for intangibles written down, $.5 million for losses on fixed asset disposals,
and $.3 million for severance and employee related liabilities. Also included in
the restructuring component is a $.5 million charge based on the resolution of a
contingency resulting in a decrease to the amount of intangibles initially
recorded in the purchase accounting associated with the October 1994 acquisition
of Ocean Isle.
Interest Income. Interest income was $0.5 million for both quarters
ended June 30, 1996 and 1995, and $1.6 million and $1.4 million for the nine
months then ended, respectively. The increase in interest income for the nine
months ended June 30, 1996 over the comparable period of fiscal 1995 is due
primarily to higher average investment balances.
Income Taxes. The effective income tax rate was 39% and 7% for the
quarters ended June 30, 1996 and 1995, respectively. The effective income tax
rate for the nine month periods then ended before the charge for purchased
research and development stemming from the acquisition of California Software,
Inc. and related investment in Dynanet was 38% and 63%, respectively. The
fluctuation in the effective tax rate for the quarter and nine months ended June
30, 1996 over the comparable periods in the prior fiscal year is due primarily
to the recognition of a tax benefit in the June 1995 quarter associated with
case law changes to the allowed method for calculating research and development
tax credits. Changes in effective tax rates are also impacted by the proportion
of earnings from interest income and foreign operations and the different
statutory tax rates associated with them. Consistent with statutory guidelines,
no tax benefit was recognized on the purchased research and development charged
to operations related to the acquisition of California Software, Inc. and
related investment in Dynanet due to the tax attributes of the underlying
acquisition.
Quarterly Trends and Channel Inventories. The Company has historically
experienced significant fluctuations in its revenues and operating results,
including net income, and anticipates that these fluctuations will continue. The
Company operates with relatively little backlog of its software sales, and the
majority of its software revenues each quarter result from orders received in
that quarter. Consequently, if near-term demand for the Company's products
weakens in a given quarter or if inventory of the Company's products in the
retail and distribution channels satisfies near-term demand, the Company's
operating results for that quarter would be adversely affected. In addition,
when the Company announces enhanced versions of its software products, the
announcement may have the effect of slowing sales of the current version of the
product as buyers delay their purchase. Quarterly results have been or may in
the future be influenced by the timing of announcements or introductions of new
products and product upgrades by the Company or its competitors, distributor
ordering patterns, product returns, delays in product development and licensing
of the Company's products and core technology.
The Company's OEM semiconductor customers order semiconductors from the Company
to meet production schedules based on forecasts of demand for their products.
Additionally, OEMs contract with third party manufacturers to build their
products in large lot sizes to achieve manufacturing
10
<PAGE> 11
efficiencies. As a result of these practices, OEM semiconductor and finished
product inventories can vary significantly depending on actual sales, the
continuation of sales trends, and the timing of contractor manufacturing cycles,
with the result that demand for the Company's semiconductor products may have
cyclical increases and decreases.
Seasonality. The software industry has typically experienced some
seasonal variations in demand, with sales declining somewhat in the summer
months. The Company believes that its software sales are subject to similar
seasonal variations which, when combined with the other factors described above,
are likely to result in fluctuations in the Company's quarterly results. As a
result, historical quarter-to-quarter comparisons should not be relied upon as
indicative of future performance.
Operating Systems. Stac's ReachOut and Replica products currently
operate on a limited number of personal computer and network operating systems.
ReachOut is compatible with Microsoft Windows 95, Windows 3.x and DOS, while
Replica supports Novell NetWare servers. However, customer use of and demand for
products that support Microsoft's Windows NT server and workstation operating
systems is increasing. To respond to customer requests, the Company has
announced that it intends to have versions of its ReachOut and Replica products
for Windows NT available by the end of calendar 1996. However, if the Company is
unable to provide customers with products compatible with Windows NT, the
Company's ability to market and sell ReachOut and Replica will be adversely
affected.
Competition and Risks Associated with New Product Introductions. The
market for the Company's products is intensely competitive. Increased
competition could result not only in a decline in sales volume, but also in
price reductions that could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company's ReachOut product competes in the remote control software market
against more established products such as Symantec Corporation's pcAnywhere,
MicroCom, Inc.'s Carbon Copy and Traveling Software, Inc.'s Laplink. Symantec,
MicroCom and Traveling Software are shipping versions of their remote control
products that were introduced subsequent to ReachOut 5.0. ReachOut 6.0 is
expected to ship to customers in August 1996.
The Company began shipping Replica, a Novell NetWare back-up and disaster
recovery software product, during the second quarter of fiscal 1996. Replica
will compete with well established back-up products from Cheyenne Software, Inc.
and Seagate Software, Inc. (owned by Seagate Technologies, Inc.), both of which
have established channels of distribution and installed customer bases.
Resellers could choose not to sell Replica over competitors' products with the
result that significant sales of Replica could fail to materialize or products
similar to Replica could be successfully introduced to resellers and end users
by the Company's competitors. Also, Replica is being introduced into a
sophisticated NetWare server environment. While the Company has invested
significant resources in testing Replica under a variety of conditions,
configurations and circumstances, there are likely to be environments which have
not been anticipated for which additional development of Replica will be
necessary. In addition, many enterprises operate in a mixed server environment
which includes NetWare and Windows NT. Also, customers may require client
back-up support. While the Company intends to provide support for a mixed server
environment and for client back-up, such versions are not expected to be
available until the end of calendar 1996.
Stock Price Volatility. Due to the factors noted above, the Company's
future earnings and stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in earnings from levels
expected by securities analysts could have an immediate and significant adverse
effect on the trading price of the Company's common stock in any given period.
Shortfalls could be caused by shortfalls in revenues, timing of the receipt of
technology license fees, and/or increased levels of expenditures. Additionally,
the Company participates in a highly dynamic industry, which often results in
significant volatility of the Company's stock price.
11
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and marketable securities increased by $1.7 million
to $62.3 million at June 30, 1996 from that at September 30, 1995. The increase
was primarily attributable to cash generated from operations offset in part by
amounts paid for the acquisition of California Software, Inc. and related
investment in Dynanet. Accounts receivable decreased by $0.5 million to $5.7
million at June 30, 1996 from that at September 30, 1995. Working capital
decreased by $0.3 million to $64.9 million at June 30, 1996 from that at
September 30, 1995.
The Company believes that existing cash balances and funds provided by
operations will be sufficient to finance its working capital requirements for
the foreseeable future.
12
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PART II - OTHER INFORMATION
Item 1. In July 1992, separate shareholder class action complaints were
filed in the United States District Court for the Southern District of
California, alleging substantially identical violations of the federal
securities laws against the Company and certain of its Directors for
omitting material facts required to be stated in the Company's May 7,
1992 prospectus in order to artificially inflate the price of the
Company's stock. Each suit is purportedly brought on behalf of all
persons who purchased the Company's common stock during the period May
7, 1992 through July 19, 1992, inclusive. Each suit seeks compensatory
damages in unspecified amounts and other relief. A motion to
consolidate the two actions has been granted. Following the dismissal
of plaintiff's claims by the U.S. District Court, an amended complaint
was filed by plaintiff's in November 1993, which was subsequently
dismissed in July 1994. The plaintiff filed an appeal to the judgment
in the Ninth Circuit on August 1, 1994. On May 7, 1996 the court
rendered its decision affirming the original dismissal by the U.S.
District Court. Plaintiffs' request for a re-hearing by the Ninth
Circuit has been denied, however, plaintiffs have for a second time
asked the Ninth Circuit for a re-hearing. In addition, there can be no
assurance that plaintiffs will not seek and be granted a review of the
Ninth Circuit's decision by the U.S. Supreme Court.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.01 - Computation of Earnings Per Share
(b) Reports on Form 8-K
None
Items 2, 3, 4, and 5 are not applicable and have been omitted.
13
<PAGE> 14
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Stac, Inc.
------------------------------------
(Registrant)
Date: August 12, 1996 /s/ John R. Witzel
------------------------------------
John R. Witzel
Vice President of Finance and
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title Page
- -------- ------------- ----
<S> <C> <C>
11.01 Computation of Earnings
Per Share 16
</TABLE>
15
<PAGE> 1
Exhibit 11.01
STAC, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Primary earnings (loss) per share:
Net income (loss) $ 1,916 $ 1,314 $ (4,202) $ (1,345)
Less preferred dividends - 400 168 1,199
-------- -------- ------- -------
Income (loss) available for common $ 1,916 $ 914 $ (4,370) $ (2,544)
shareholders' ======== ======== ========= =========
Common and common stock
equivalent shares outstanding 31,423 26,305 29,886 25,297
Primary earnings (loss) per share $ 0.06 $ 0.03 $ (0.15) $ (0.10)
Fully diluted earnings (loss) per share:
Net income (loss) $ 1,916 $ 1,314 $ (4,202) $ (1,345)
Less preferred dividends -- 400 -- 1,199
-------- -------- ------- -------
Income (loss) available for common $ 1,916 $ 914 $ (4,202) $ (2,544)
shareholders' ======== ======== ========= =========
Common and common stock
equivalent shares outstanding 31,423 26,463 30,551 25,297
Fully diluted income (loss) per share $ 0.06 $ 0.03 $ (0.14) $ (0.10)
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001003513
<NAME> STAC, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 32584
<SECURITIES> 29700
<RECEIVABLES> 5945
<ALLOWANCES> 250
<INVENTORY> 958
<CURRENT-ASSETS> 70204
<PP&E> 7845
<DEPRECIATION> 4417
<TOTAL-ASSETS> 80901
<CURRENT-LIABILITIES> 5325
<BONDS> 0
0
0
<COMMON> 72421
<OTHER-SE> 2921
<TOTAL-LIABILITY-AND-EQUITY> 80901
<SALES> 34532
<TOTAL-REVENUES> 34532
<CGS> 4819
<TOTAL-COSTS> 4819
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 715
<INCOME-TAX> 4917
<INCOME-CONTINUING> (4202)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4202)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.14)
</TABLE>
