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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 March 31, 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)
<TABLE>
<S> <C>
DELAWARE 95-3825313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 March 31, 1996.
Common Stock, no par value 30,560,332 shares
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STAC, INC.
INDEX
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
----
<S> <C> <C>
Condensed Consolidated Balance Sheets
as of March 31, 1996 and
September 30, 1995 3
Condensed Consolidated Statements of
Operations for the three and six
months ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash
Flows for the six months ended
March 31, 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 8
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a vote of Securities
Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
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STAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,914 $ 34,696
Marketable securities 29,521 25,867
Accounts receivable, net 6,035 6,226
Inventories 897 484
Other current assets 1,260 1,854
--------- ---------
Total current assets 66,627 69,127
Property and equipment, net 3,205 3,455
Deferred income taxes 6,514 6,668
Other assets 1,012 1,361
--------- ---------
$ 77,358 $ 80,611
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,889 $ 1,007
Income taxes payable 832 -
Accrued expenses and other
current liabilities 2,317 2,934
-------- --------
Total current liabilities 5,038 3,941
-------- --------
Other liabilities 212 315
-------- ---------
Redeemable preferred stock - 39,960
-------- -------
Common stock and other shareholders'
equity:
Common stock 71,113 29,101
Cumulative translation adjustment (131) (119)
Retained earnings 1,126 7,413
-------- --------
Total common stock and other
shareholders' equity 72,108 36,395
-------- -------
$ 77,358 $ 80,611
======= =======
</TABLE>
3
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STAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------- -----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 12,236 $ 12,582 $ 23,544 $ 23,331
Cost of revenues 1,524 1,440 2,999 2,751
-------- -------- -------- --------
Gross margin 10,712 11,142 20,545 20,580
-------- -------- ------- -------
Operating expenses:
Research and development 2,009 2,050 3,638 3,907
Purchased research and development - 654 12,217 13,354
Sales and marketing 3,272 4,229 6,020 7,164
General and administrative 1,073 915 2,150 2,115
-------- -------- -------- --------
Total operating expenses 6,354 7,848 24,025 26,540
-------- -------- ------- -------
Operating income (loss) 4,358 3,294 (3,480) (5,960)
Interest income 527 502 1,058 925
-------- -------- -------- --------
Income (loss) before income taxes 4,885 3,796 (2,422) (5,035)
Provision for (benefit from) income taxes 1,823 1,331 3,696 (2,377)
-------- --------- ------- --------
Net income (loss) 3,062 2,465 (6,118) (2,658)
Less preferred dividends - 400 168 799
-------- -------- -------- --------
Net income (loss) for common shareholders' $ 3,062 $ 2,065 $ (6,286) $ (3,457)
======== ======== ======== ========
Net income (loss) per common share $ 0.10 $ 0.08 $ (0.21) $ (0.14)
Weighted average common shares
outstanding 31,361 26,336 29,498 25,211
</TABLE>
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STAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,118) $ (2,658)
Adjustments required to reconcile
net loss to net cash provided
by operating activities:
Depreciation and amortization 936 1,202
Purchased research and development 12,217 13,354
Deferred stock compensation 45 57
Changes in assets and liabilities, net of
business combinations:
Accounts receivable 191 (1,782)
Inventories (413) (562)
Other current assets 343 279
Deferred income taxes, non-current 154 (5,074)
Other assets 47 4
Accounts payable 882 (8)
Accrued expenses and other
current liabilities (617) 4
Income taxes payable 1,083 (1,256)
---------- ----------
Net cash provided by
operating activities 8,750 3,560
---------- ----------
Cash flows from investing activities:
Purchases of marketable securities (20,780) (15,441)
Sales of marketable securities 17,126 35,239
Acquisitions, net of cash acquired (11,252) (18,860)
Purchases of property and equipment (384) (1,407)
---------- ----------
Net cash used by
investing activities (15,290) (469)
---------- ----------
Cash flows from financing activities:
Issuance of common stock, net 770 215
Preferred stock dividends - (799)
---------- ----------
Net cash provided (used) by
financing activities 770 (584)
---------- ----------
Effect of exchange rates on cash (12) 32
---------- ----------
Net increase (decrease) in cash (5,782) 2,539
Cash and cash equivalents at
beginning of period 34,696 8,341
---------- ----------
Cash and cash equivalents at
end of period $ 28,914 $ 10,880
========== ==========
Supplemental Non-Cash Disclosure:
Stock issued in business combinations $ 965 $ -
========== ==========
</TABLE>
5
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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 March 31, 1996 and its
results of operations for the three and six month periods ended March 31, 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 six month periods ended March 31, 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 six month periods ended March 31, 1996.
Shares issuable upon the conversion of mandatorily redeemable preferred stock
are excluded from the weighted average shares outstanding for the three and six
month periods ended March 31, 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 six month periods ended
March 31, 1995, respectively.
NOTE 3. Inventories (in thousands; March 31, 1996 unaudited):
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 106 $ 141
Finished goods 791 343
----- ----
$ 897 $ 484
===== ====
</TABLE>
NOTE 4. Stock-Based Compensation:
In October 1995, the financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 123, "Accounting for Stock-Based
Compensation", which the Company adopted as required on January 1, 1996. As
permitted by FAS 123, the Company will continue to measure compensation expense
for its stock-based employee compensation plans using the intrinsic value
method
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prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and will provide pro forma disclosures of net income and earnings per share as
if the fair value-based method prescribed by FAS 123 had been applied in
measuring compensation expense. Consequently, the adoption of FAS 123 did not
have a significant impact on the Company's financial position or results of
operations.
7
<PAGE> 8
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 through resellers, retailers and original equipment
manufacturers (OEM's). Products include ReachOut, a remote access software
suite which allows users to remotely access a PC using another PC, Replica,
which provides software backup and disaster recovery for NetWare servers,
Stacker software which provides fast, convenient and reliable disk compression,
CD- QuickShare, which creates a CD-ROM file server for fast, shared access to
data normally stored on CD's and Stac LZS data compression software libraries
and semiconductors which are used in internetworking, storage hardware and
other applications.
The Company has been and intends to continue diversifying its product
line by developing and by acquiring products and/or technology for the purpose
of replacing revenues from sales of its Stacker product line to end users.
Revenues from Stacker sales to end users have declined as a result of disk
compression being included in Windows and DOS, the standard operating system
for IBM compatible personal computers, and due to the increasing size and
related decline in cost per megabyte of hard disk drives. The Internet
technology acquired in the October 1995 acquisition of California Software,
Inc. has not yet resulted in a stand-alone product for the Internet market.
The Company currently plans to utilize its Internet technology by incorporating
it into its enterprise product line.
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, technological changes in the personal computer
industry, 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," "Windows 95," "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 Form 10-Q for the quarter ended December
31, 1995.
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 Six Months Ended
March 31, March 31,
------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of revenues 12 11 13 12
--- --- --- ---
</TABLE>
8
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<TABLE>
<S> <C> <C> <C> <C>
Gross margin 88 89 87 88
--- --- --- ---
Research and development 16 16 15 17
Purchased research and development - 5 52 57
Sales and marketing 27 34 26 31
General and administrative 9 7 9 9
--- ---- ----- -----
Total operating expenses 52 62 102 114
--- ---- ----- -----
Operating income (loss) 36 27 (15) (26)
Interest income 4 4 5 4
--- ---- ----- -----
Income (loss) before income taxes 40 31 (10) (22)
Provision for (benefit from) income taxes 15 11 16 (10)
--- ---- ----- -----
Net income (loss) 25% 20% (26)% (12)%
=== ==== ===== =====
</TABLE>
Revenues. Revenues decreased 3% to $12.2 million for the quarter
ended March 31, 1996 from $12.6 million in the quarter ended March 31, 1995.
Revenues increased 1% to $23.5 million for the six months ended March 31, 1996
from $23.3 million in the comparable period of fiscal 1995. Changes in
revenues are due primarily to increased sales associated with the Company's
Technology Business Unit, offset by reductions in royalty revenues received
from data compression licenses and decreases in software sales primarily
related to the Stacker product line.
Enterprise Software Business Unit sales, which are comprised of
domestic and international sales and licenses through distribution, retail, OEM
and direct channels, accounted for $5.0 million, or 41% of revenues for the
quarter ended March 31, 1996 compared to $5.4 million, or 43% of revenues in
the quarter ended March 31, 1995, and $9.4 million, or 40% of revenues for the
six months ended March 31, 1996 compared to $11.2 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 six months ended March 31, 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. Offsetting the
decrease in Stacker sales were increased ReachOut revenues, which for the six
months ended March 31, 1996 included revenues for the entire six month period,
verses only five months in the comparable period of fiscal 1995. Also
offsetting the decrease in Stacker sales were revenues from Replica which first
began shipping into distribution in February 1996. Revenues from
CD-QuickShare, first shipped in August 1995, were below Company expectations
for both the quarter and six months ended March 31, 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 development of the reseller sales channels.
Royalties from patent licenses of Stac's data compression technology
accounted for $4.0 million, or 33% of revenues for the quarter ended March 31,
1996, compared to $5.3 million, or 42% of revenues in the quarter ended March
31, 1995, and $8.0 million, or 34% of revenues for the six months ended March
31, 1996 compared to $8.8 million, or 38% of revenues in the comparable period
of fiscal 1995. Royalty revenues decreased for the quarter and six months
ended March 31, 1996 from the comparable periods in fiscal 1995 due primarily
to the recognition of a one time royalty fee of $1.3 million in the quarter
ended March 31, 1995 offset in part by royalty revenues relating to a data
compression license with IBM.
Revenues from Stac's Technology Business Unit (TBU), which develops,
markets, and sells semiconductors and software libraries which implement the
Company's data compression technology, were $3.2 million, or 26% of revenues
for the quarter ended March 31, 1996 compared to $1.9 million, or 15% of
revenues in the quarter ended March 31, 1995, and $6.1 million, or 26% of
revenues for the six months ended March 31, 1996 compared to $3.3 million, or
14% of revenues in the comparable
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period of fiscal 1995. The increase in TBU revenues for the quarter and six
months ended March 31, 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.
International sales, which are included in the above sales and are
primarily comprised of software products, were $1.4 million, or 12% of revenues
for the quarter ended March 31, 1996 compared to $1.3 million, or 10% of
revenues in the quarter ended March 31, 1995, and $2.5 million, or 10% of
revenues for the six months ended March 31, 1996 compared to $2.7 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 88% for the quarter ended March 31, 1996
from 89% in the quarter ended March 31, 1995. Gross margins declined to 87% for
the six months ended March 31, 1996 from 88% in the comparable period of fiscal
1995. Decreases in gross margin percentages for the quarter and six months
ended March 31, 1996 from the comparable periods of fiscal 1995 were due
primarily the higher percentage of lower margin semiconductor sales.
Research and Development. The cost of product development consists
primarily of salaries, employee benefits, overhead, outside contractors and
non-recurring engineering fees. Such expenses were $2.0 million and $2.1
million for the quarters ended March 31, 1996 and 1995, respectively, and $3.6
million and $3.9 million for the six months then ended, respectively. Included
in product development costs for the quarter ended March 31, 1996 is a
non-recurring expense of $0.3 million relating to an incentive earned by the
principal of Crossware Development Corporation following the March 1995
purchase of its assets. Offsetting this increase in the current quarter's
expenses as compared to the March 1995 quarter, and the factor primarily
responsible for the decrease in product development costs for the six month
period ended March 31, 1996 from the comparable period in fiscal 1995, is the
June 1995 closure of the Company's Florida facility, which resulted in a
reduction in personnel and overhead costs and the costs associated with the
amortization of certain intangible assets.
In the quarter ended March 31, 1995 the Company recorded a
non-recurring charge to earnings of $0.7 million for purchased research and
development related to the acquisition of Crossware Development Corporation and
Rememory Corporation. Purchased research and development for the six months
ended March 31, 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 six months
ended March 31, 1995 includes $12.7 million related to the October 1994
acquisition of the ReachOut product from Ocean Isle Software.
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 and overhead.
Such expenses were $3.3 million and $4.2 million for the quarters ended March
31, 1996 and 1995, respectively, and $6.0 million and $7.2 million for the six
months then ended, respectively. The decrease in marketing and sales expense
for the quarter and six months ended March 31, 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.
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
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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 $1.1 million
and $0.9 million for the quarters ended March 31, 1996 and 1995, respectively,
and $2.1 million for both six month periods then ended. The Company may
continue to incur legal fees in its defense of a shareholder class action suit
filed against the Company and certain officers, directors and underwriters of
the Company in July 1992. In a May 1996 ruling by the Ninth Circuit in
response to plaintiff's appeal, an earlier dismissal of this suit was upheld in
favor of the Company. However, there can be no assurance that plaintiffs will
not seek and be granted subsequent reviews of the Ninth Circuit's decision.
Interest Income. Interest income was $0.5 million for both quarters
ended March 31, 1996 and 1995, and $1.0 million and $0.9 million for the six
months then ended, respectively. The increase in interest income for the six
months ended March 31, 1996 over the comparable period of fiscal 1995 is due
primarily to higher average investment balances.
Income Taxes. The effective income tax rate was 37% and 35% for the
quarters ended March 31, 1996 and 1995, respectively. The effective income tax
rate for the six 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 47%, respectively. The
changes in the effective tax rates is due primarily to 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 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.
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.
Windows 95. Microsoft began shipping Windows 95, a new version of its
Windows operating system for IBM compatible personal computers, on August 24,
1995. Windows 95 is expected to replace Windows 3.1 and MS-DOS as the standard
operating systems for personal computers. The Company's current ReachOut 5.0
is compatible with Windows 95 and Windows 3.1. In August 1995 the Company
released a version 4.1 of Stacker for Windows & DOS which has been modified to
work with Windows 95. Windows 95 provides an integrated disk compression
utility at no additional cost and competes directly with the Company's Stacker
product. While compatible with Windows 95, neither
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ReachOut 5.0 nor Stacker 4.1 are full 32-bit products and therefor do not have
use of the Windows 95 logo. The Company does not plan a 32-bit version of
Stacker. It has announced a 32-bit version of ReachOut for Windows NT version
4 which the Company expects to ship later this calendar year. The Company is
uncertain what long-term effect the release of Windows 95 will have on sales of
the Company's current or planned products or on the software buying patterns of
personal computer users.
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.
Microsoft and IBM offer personal computer operating systems that include disk
data compression utilities that compete with the Company's Stacker products.
Also, the declining cost and increasing capacity of disk drives provides
consumers with a viable alternative to disk compression for increasing their
disk capacity.
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., Arcada Software, Inc. (owned by Seagate Technologies, Inc.) and
Palindrome Software, Inc. (also owned by Seagate Technologies, Inc.), all of
which have established channels of distribution and installed customer bases.
As a result, resellers could choose not to sell Replica over its competition
with the result that significant sales of Replica could fail to materialize or
products similar to Replica could be successfully introduced 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 shipping at this time.
InterAp, which is comprised of a suite of Internet utilities, was acquired in
the October 1995 acquisition of California Software. While the Company
continues to develop its Internet technology, products for the Internet from
Microsoft and Netscape Communications Corp., as well as products from other
software developers, have developed significant market positions. Both
Microsoft and Netscape have significantly greater technical resources, sales
channels and broader recognition for their Internet products than does Stac and
have the ability to set and control standards which could limit Stac's ability
to offer competitive products. As a result, the Company may not be able to
introduce an Internet product or utilize its Internet technology in a way that
will successfully compete in the Internet market
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.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and marketable securities decreased by $2.1 million
to $58.4 million at March 31, 1996 from that at September 30, 1995. The
decrease was primarily attributable to amounts paid for the acquisition of
California Software, Inc. and related investment in Dynanet, offset in part by
cash generated from operations. Accounts receivable decreased by $0.2 million
to $6.0 million at March 31, 1996 from that at September 30, 1995. Working
capital decreased by $3.6 million to $61.6 million at March 31, 1996 from that
at September 30, 1995 due primarily to the purchase of California Software and
the related investment in Dynanet.
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.
13
<PAGE> 14
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 on August 1, 1994. On May 7, 1996 the court
rendered its decision affirming the original dismissal by the U.S.
District Court.
Item 4. The Company's Annual Meeting of Shareholders (the "Annual
Meeting") was held on March 12, 1996. At the Annual Meeting, the
shareholders of the Company (i) elected each of the persons listed
below to serve as a director of the Company until the 1997 Annual
Meeting of Shareholders or until his successor is elected, (ii)
ratified a re-incorporation in Delaware, (iii) ratified the
Company's 1992 Stock Option Plan, as amended and (iv) ratified the
selection of Price Waterhouse, LLP as the Company's independent
accountants for the fiscal year ending September 30, 1996.
The Company had 30,471,192 shares of Common Stock outstanding as
of January 19, 1996, the record date for the Annual Meeting. At
the Annual Meeting, holders of a total of 29,767,949 shares of
Common Stock were present in person or represented by proxy. The
following sets forth information regarding the results of the
voting at the Annual Meeting:
Proposal 1: Election of Directors
<TABLE>
<CAPTION>
Voting Shares Voting Shares
In Favor Against
-------- -------
<S> <C> <C>
Director
Gary W. Clow 29,669,691 98,258
Douglas L. Whiting, Ph.D. 29,670,091 97,858
Charles Gaylord 29,669,091 98,858
Robert A. Hoff 29,669,091 98,858
Joseph W. Jennings 29,668,891 99,058
Robert W. Johnson 29,670,091 97,858
Russell J. Robelen 29,670,091 97,858
</TABLE>
Proposal 2: Ratification of Re-incorporation in Delaware
<TABLE>
<S> <C>
Votes in favor: 20,348,624
Votes against 1,900,060
Abstentions: 101,127
</TABLE>
14
<PAGE> 15
Proposal 3: Ratification of 1992 Stock Option Plan, As Amended
<TABLE>
<S> <C>
Votes in favor: 20,714,537
Votes against 2,203,232
Abstentions: 147,878
</TABLE>
Proposal 4: Ratification of Selection of Independent Accountants
<TABLE>
<S> <C>
Votes in favor: 29,689,800
Votes against: 29,425
Abstentions: 48,697
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.01 - Computation of Net Income (Loss) Per Share
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
Items 2, 3, and 5 are not applicable and have been omitted.
15
<PAGE> 16
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: May 14, 1996 /s/ JOHN R. WITZEL
--------------------------------
John R. Witzel
Vice President of Finance and
Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title Page
- ------ ------------- ----
<S> <C> <C>
11.01 Computation of Earnings
Per Share 18
27 Financial Data Schedule --
</TABLE>
17
<PAGE> 1
Exhibit 11.01
STAC, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary earnings (loss) per share:
- ---------------------------------
Net income (loss) $ 3,062 $ 2,465 $ (6,118) $ (2,658)
Less preferred dividends - 400 168 799
------ ------- ------ ------
Income (loss) available for common $ 3,062 $ 2,065 $ (6,286) $ (3,457)
====== ======= ====== ======
shareholders'
Common and common stock
equivalent shares outstanding 31,361 26,336 29,498 25,211
Primary earnings (loss) per share $ 0.10 $ 0.08 $ (0.21) $ (0.14)
Fully diluted earnings (loss) per share:
- ---------------------------------------
Net income (loss) $ 3,062 $ 2,465 $ (6,118) $ (2,658)
Less preferred dividends - 400 - 799
------ ------- ------ ------
Income (loss) available for common $ 3,062 $ 2,065 $ (6,118) $ (3,457)
====== ======= ====== ======
shareholders'
Common and common stock
equivalent shares outstanding 31,360 26,386 30,500 25,211
Fully diluted income (loss) per share $ 0.10 $ 0.08 $ (0.20) $ (0.14)
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 28,914
<SECURITIES> 29,521
<RECEIVABLES> 6,232
<ALLOWANCES> 197
<INVENTORY> 897
<CURRENT-ASSETS> 66,627
<PP&E> 7,293
<DEPRECIATION> 4,088
<TOTAL-ASSETS> 77,358
<CURRENT-LIABILITIES> 5,038
<BONDS> 0
0
0
<COMMON> 71,113
<OTHER-SE> 995
<TOTAL-LIABILITY-AND-EQUITY> 77,358
<SALES> 23,544
<TOTAL-REVENUES> 23,544
<CGS> 2,999
<TOTAL-COSTS> 2,999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,422)
<INCOME-TAX> 3,696
<INCOME-CONTINUING> (6,118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,118)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.20)
</TABLE>
