<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 March 31, 1997
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 March 31, 1997.
Common Stock, no par value 30,752,933 shares
1
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STAC, INC.
<TABLE>
<CAPTION>
INDEX
Part I. Financial Information
Item 1. Financial Statements Page
----
<S> <C> <C>
Condensed Consolidated Balance Sheets
as of March 31, 1997 and
September 30, 1996 3
Condensed Consolidated Statements of
Operations for the three and six
months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash
Flows for the six months ended
March 31, 1997 and 1996 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 4. Submission of Matters to a vote of Securities
Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
</TABLE>
<PAGE> 3
STAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
---- ----
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 28,767 $ 35,942
Marketable securities 40,781 29,463
Accounts receivable 5,515 5,577
Inventories 487 754
Other current assets 1,352 1,211
--------- ---------
Total current assets 76,902 72,947
Property and equipment, net 4,474 3,673
Deferred income taxes 6,167 6,322
Other assets 454 748
--------- ---------
$ 87,997 $ 83,690
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,858 $ 1,389
Income taxes payable 229 390
Accrued expenses and other
current liabilities 2,880 2,670
-------- --------
Total current liabilities 4,967 4,449
Other liabilities 233 242
--------- ---------
5,200 4,691
-------- -------
Stockholders' equity:
Common stock 73,834 73,547
Cumulative translation adjustment (91) (118)
Retained earnings 9,054 5,570
-------- --------
Total stockholders' equity 82,797 78,999
------- -------
$ 87,997 $ 83,690
======= =======
</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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 11,624 $ 12,236 $ 22,520 $ 23,544
Cost of revenues 1,555 1,524 2,608 2,999
-------- -------- -------- --------
Gross margin 10,069 10,712 19,912 20,545
-------- -------- -------- --------
Operating expenses:
Research and development 2,886 2,009 5,219 3,638
Purchased research and development -- -- -- 12,217
Sales and marketing 4,327 3,272 7,903 6,020
General and administrative 1,362 1,073 2,559 2,150
-------- -------- -------- --------
Total operating expenses 8,575 6,354 15,681 24,025
-------- -------- -------- --------
Operating income (loss) 1,494 4,358 4,231 (3,480)
Interest income 567 527 1,168 1,058
-------- -------- -------- --------
Income (loss) before income taxes 2,061 4,885 5,399 (2,422)
Provision for income taxes 781 1,823 1,915 3,696
-------- -------- -------- --------
Net income (loss) 1,280 3,062 3,484 (6,118)
Less preferred dividends -- -- -- 168
-------- -------- -------- --------
Net income (loss) for common stockholders $ 1,280 $ 3,062 $ 3,484 $ (6,286)
======== ======== ======== ========
Net income (loss) per common share,
primary $ 0.04 $ 0.10 $ 0.11 $ (0.21)
======== ======== ======== ========
Net income (loss) per common share,
fully diluted $ 0.04 $ 0.10 $ 0.11 $ (0.20)
======== ======== ======== ========
Weighted average common shares
outstanding, primary 31,113 31,361 31,148 29,498
======== ======== ======== ========
Weighted average common shares
outstanding, fully diluted 31,113 31,360 31,148 30,500
======== ======== ======== ========
</TABLE>
4
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STAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,484 $ (6,118)
Adjustments required to reconcile
net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 1,205 936
Purchased research and development -- 12,217
Deferred stock compensation (9) 45
Provision for deferred income taxes 387 677
Changes in assets and liabilities, net of business combinations:
Accounts receivable 62 191
Inventories 267 (413)
Other current assets (373) (180)
Other assets (8) 47
Accounts payable 469 882
Income taxes payable (161) 198
Accrued expenses and other
current liabilities 210 (617)
-------- --------
Net cash provided by
operating activities 5,533 7,865
-------- --------
Cash flows from investing activities:
Purchases of marketable securities (16,818) (20,780)
Sales of marketable securities 5,500 17,126
Acquisitions, net of cash acquired -- (11,252)
Purchases of property and equipment (1,704) (384)
-------- --------
Net cash used by
investing activities (13,022) (15,290)
-------- --------
Cash flows from financing activities:
Issuance of common stock, net 243 770
Tax benefit from exercise of stock options 44 885
-------- --------
Net cash provided by
financing activities 287 1,655
-------- --------
Effect of exchange rates on cash 27 (12)
-------- --------
Net decrease in cash (7,175) (5,782)
Cash and cash equivalents at
beginning of period 35,942 34,696
-------- --------
Cash and cash equivalents at
end of period $ 28,767 $ 28,914
======== ========
Supplemental Non-Cash Disclosure:
Conversion of preferred stock to common stock $ -- $ 39,960
======== ========
Issuance of common stock for business combinations $ -- $ 965
======== ========
Issuance of preferred stock dividends in common stock $ -- $ 168
======== ========
</TABLE>
5
<PAGE> 6
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, 1996. 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, 1997 and its
results of operations for the three and six month periods ended March 31, 1997
and 1996, 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 period ended March 31, 1996, as they have a
dilutive effect on the loss per share computation for this period.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 will be adopted by the Company as required in the first quarter of fiscal
1998. Upon adoption of SFAS No. 128, the Company will present basic earnings per
share and diluted earnings per share. Basic earnings per share will be computed
based on the weighted average number of shares outstanding during the period.
Diluted earnings per share will be computed based on the weighted average number
of shares outstanding during the period increased by the effect of dilutive
stock options using the treasury stock method. Pro forma basic earnings per
share for the three and six months ended March 31, 1997 and 1996 are and , and
and , respectively. Pro forma diluted earnings per share for the three and six
months ended March 31, 1997 and 1996 are and , and and , respectively.
NOTE 3. Inventories (in thousands; March 31, 1997 unaudited):
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 103 $ 88
Finished goods 384 666
----- ----
$ 487 $ 754
===== ====
</TABLE>
6
<PAGE> 7
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 storage management and communications software products. The Company
also designs, develops and markets software and semiconductor implementations of
its patented data compression technology and is developing and marketing
software and semiconductor implementations of data encryption standards for use
with its data compression products.
Stac's software business designs, develops, markets and supports
storage management and communications solutions that feature disaster recovery,
and communications and security capabilities important to Internet-connected
enterprises and individuals. Both the storage management solutions and
communications solutions are sold world-wide through solution providers,
resellers, original equipment manufacturers (OEMs), distributors and directly
through Stac's Internet site and sales personnel.
Stac's storage management software is comprised of Replica, a software
product which provides disaster recovery and backup for servers. Replica for
NetWare was introduced in February 1996, and Replica for NT was made available
in April 1997. The Company plans to invest a significant amount of its future
product development resources in Replica and extensions to Replica.
Stac's communications software is comprised of ReachOut Remote Control
software ("ReachOut"), a remote access software suite which allows users to
access a remote PC using another PC through the Internet, or over ISDN lines,
modems or networks. ReachOut works with Microsoft Corporation's Windows NT,
Windows 95, Windows 3.x and DOS operating systems.
Stac's semiconductor products business has been organized as HI/FN INC.
("Hi/fn"), a Stac subsidiary. Hi/fn is focused on improving the efficiency,
security and manageability of networks by providing solutions in software and
silicon to packet processing bottlenecks. Hi/fn implements lossless data
compression in software libraries and semiconductors which are marketed and sold
to manufacturers of routers, firewalls, remote access servers, ISDN connectivity
products, storage hardware and printers. Hi/fn is also implementing data
encryption standards in software and silicon for use with data compression to
provide fast, efficient and secure data transmission capabilities for its
customers' products. Hi/fn's products are sold world-wide to OEMs both directly
and through manufacturers' representatives.
Stac also receives royalties from Microsoft and IBM Corporation for
licenses of its data compression technology. The Company will receive $4.0
million in royalties quarterly through December 1997, after which the license
agreements will be fully paid-up.
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.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risk and
uncertainties. The Company's future 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 and distributor inventory levels and customer demand for the products
incorporating Hi/fn 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
7
<PAGE> 8
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, 1996 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 Six Months Ended
March 31, March 31,
------------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of revenues 13 12 12 13
---- ---- ---- ----
Gross margin 87 88 88 87
---- ---- ---- ----
Research and development 25 16 23 15
Purchased research and development -- -- -- 52
Sales and marketing 37 27 35 26
General and administrative 12 9 11 9
---- ---- ---- ----
Total operating expenses 74 52 69 102
---- ---- ---- ----
Operating income (loss) 13 36 19 (15)
Interest income 5 4 5 5
---- ---- ---- ----
Income (loss) before income taxes 18 40 24 (10)
Provision for income taxes 7 15 9 16
---- ---- ---- ----
Net income (loss) 11% 25% 15% (26)%
==== ==== ==== ====
</TABLE>
Revenues. Revenues decreased 5% to $11.6 million for the quarter ended
March 31, 1997 from $12.2 million in the quarter ended March 31, 1996. Revenues
decreased 4% to $22.5 million for the six months ended March 31, 1997 from $23.5
million in the comparable period of fiscal 1996. Decreases in revenue are due
primarily to a decrease in Hi/fn semiconductor sales for the three and six month
periods ended March 31, 1997 over the comparable periods of the prior fiscal
year, in conjunction with decreases in software revenue in the quarter ended
March 31, 1997 over the March 1996 quarter.
Software sales, which are comprised of domestic and international sales
and licenses through distributors, retailers, solution providers, OEMs and
direct channels, accounted for $4.6 million, or 40% of revenues for the quarter
ended March 31, 1997 compared to $5.0 million, or 41% of revenues in the quarter
ended March 31, 1996, and $9.4 million, or 42% of revenues for the six months
ended March 31, 1997 compared to $9.4 million, or 40% of revenues in the
comparable period of fiscal 1996 . Sales of the Company's Stacker disk
compression software for the quarter and six months ended March 31, 1997
continued to decline from the comparable periods of fiscal 1996 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. For the three months
ended March 31, 1997 there were no net Stacker sales and the Company does not
expect any significant future Stacker sales.
Revenues from Hi/fn, which are comprised of sales and licenses of
semiconductors and software libraries derived from the Company's data
compression technology, were $3.0 million, or 26% of revenues for the quarter
ended March 31, 1997 compared to $3.2 million, or 26% of revenues in the quarter
ended March 31, 1996, and $5.1 million, or 23% of revenues for the six months
ended March 31,
8
<PAGE> 9
1997 compared to $6.1 million, or 26% of revenues in the comparable period of
fiscal 1996. The decrease in Hi/fn's revenues for the six months ended March 31,
1997 from the comparable period in fiscal 1996 is due primarily to high levels
of inventory held by some OEM customers in the December 1996 quarter, consistent
with OEM's practice of building product in large lots in order to achieve
manufacturing efficiencies.
Royalties from licenses of Stac's data compression technology to
operating systems vendors were $4.0 million in each of the quarters ended March
31, 1997 and 1996, or 34% and 33% of total revenues, respectively, and $8.0
million in each of the six month periods ended March 31, 1997 and 1996, or 35%
and 34% of total revenues, respectively. The Company 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 and the
license fees will end.
International sales, which are included in the above sales, are
comprised primarily of software products and were $1.2 million, or 10% of
revenues for the quarter ended March 31, 1997 compared to $1.4 million, or 12%
of revenues in the quarter ended March 31, 1996, and $2.6 million, or 11% of
revenues for the six months ended March 31, 1997 compared to $2.5 million, or
10% of revenues in the comparable period of fiscal 1996. Stac markets and sells
to its European accounts from its office in the United Kingdom and markets and
sells to the other principal international markets through sales personnel in
its San Diego office and through relationships with distributors and resellers
abroad.
Cost of Revenues and Gross Margin. Cost of revenues consists primarily
of Hi/fn's proprietary design semiconductors which are manufactured by third
party foundries for resale by Hi/fn, and the user manuals, packaging, media and
assembly associated with the Company's software products. Gross margins declined
to 87% for the quarter ended March 31, 1997 from 88% in the quarter ended March
31, 1996. Gross margins increased to 88% for the six months ended March 31, 1997
from 87% in the comparable period of fiscal 1996.
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 $2.9 million and $2.0 million
for the quarters ended March 31, 1997 and 1996, respectively, and $5.2 million
and $3.6 million for the six months then ended, respectively. The increase in
product development costs for the quarter and six months ended March 31, 1997
over the comparable periods of fiscal 1996 was due primarily to increased
developmental activity associated with NT versions for both the ReachOut and
Replica product lines, and increased developmental activity for semiconductor
products. The Company expects to continue to invest in the development of
products for which it believes there is a need in the 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.
Purchased research and development for the three months ended December
31, 1995 includes $12.2 million recognized in connection with the October 1995
acquisition of California Software, Inc. and the related investment in Dynanet.
Sales and Marketing Expense. Selling and marketing expenses consist
primarily of the salaries, commissions and benefits of sales, marketing and
customer support personnel, and consulting, advertising, promotion and overhead
expenses. Such expenses were $4.3 million and $3.3 million for the quarters
ended March 31, 1997 and 1996, respectively, and $7.9 million and $6.0 million
for the six months then ended, respectively. The increase in marketing and sales
expense for the quarter and six months ended March 31, 1997 over the comparable
periods of fiscal 1996 was due primarily to the hiring of software sales
personnel to reach corporate and enterprise end users of storage management and
communications products.
The Company expects to continue to increase its spending on sales
personnel and marketing programs in 1997 in association with the introduction of
new and enhanced versions of ReachOut and
9
<PAGE> 10
Replica. As a result, consolidated sales and marketing expenses are expected to
remain the Company's most significant ongoing expense.
General and Administrative. General and administrative expenses are
comprised primarily of salaries for administrative and corporate services
personnel, legal, and other professional fees. Such expenses were $1.4 million
and $1.1 million for the quarters ended March 31, 1997 and 1996, respectively,
and $2.6 million and $2.2 million for the six month periods then ended,
respectively. The increase in the current period's general and administrative
expenses over expenses incurred in the comparable periods of the prior fiscal
year is primarily due to the hiring of additional management personnel. As a
result, consolidated general and administrative expenses are expected to
increase in 1997 from the levels incurred in 1996.
Interest Income. Interest income was $0.6 million for the quarter ended
March 31, 1997, and $0.5 million for the quarter ended March 31, 1996, and $1.2
million and $1.1 million for the six months then ended, respectively. The
increase in interest income for the quarter and six months ended March 31, 1997
over the comparable periods of fiscal 1996 is due primarily to interest earned
on net positive cash flow from operations.
Income Taxes. The effective income tax rate was 38% and 37% for the
quarters ended March 31, 1997 and 1996, respectively. The effective income tax
rate for the six month periods then ended was 35% and 38%, respectively, before
the charge in the December 1995 quarter for purchased research and development
stemming from the acquisition of California Software, Inc. and related
investment in Dynanet. Changes in effective tax rates are 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 in the December 1995 quarter 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, Channel Inventories, New Product Introductions. The
Company historically has 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
retail demand, the Company's operating results for that quarter could 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. In
addition, new products typically have a lengthy evaluation period before any
purchase is made.
Hi/fn's customers order semiconductor products 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 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 experienced some seasonal
variations in demand, with sales activity 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,
may 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.
10
<PAGE> 11
Operating Systems. Stac's ReachOut and Replica products currently
operate on a limited number of personal computer and network operating systems.
ReachOut supports Microsoft Windows NT, Windows 95, Windows 3.x and DOS. Replica
supports Windows NT and Novell NetWare servers. Windows NT versions of both the
ReachOut and Replica products were made available during the March 1997 quarter.
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 and Traveling Software, Inc.'s Laplink. ReachOut also competes
against remote access products from companies such as Citrix, Inc. and Shiva
Corporation. Further, Microsoft could elect to incorporate remote control or
additional remote access capabilities into its operating systems which are
pre-installed on most personal computers.
The Company began shipping Replica back-up and disaster recovery
software for Novell NetWare during the second quarter of fiscal 1996 and Replica
for Windows NT in April. Replica competes with well established back-up products
from Cheyenne Software, Inc., recently purchased by Computer Associates, 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 by the
Company's competitors. Also, Replica is being introduced into sophisticated
server environments and, 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.
The Company's license agreement with IBM Corporation grants IBM the
right to implement the Company's patented data compression technology in IBM
hardware and software products. Also, microprocessor and chip set suppliers,
customers and others could seek to expand their product offerings by designing
and selling products using competitive data compression or other technology that
could render obsolete or adversely affect sales of Hi/fn's semiconductor and
softwareproducts.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and marketable securities increased by $4.1 million
to $69.5 million at March 31, 1997 from that at September 30, 1996. The increase
was primarily attributable to cash generated from operations. Working capital
increased by $3.4 million to $71.9 million at December 31, 1997 from that at
September 30, 1996.
During the December 1995 quarter the Company paid $.2 million in
dividends on its Series A Preferred Stock. The obligation to pay the preferred
dividend terminated when the preferred stock was converted to common stock in
November 1995.
11
<PAGE> 12
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
<PAGE> 13
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. The suits
were 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. The dismissal of the plaintiffs' claims
by the U.S. District Court was upheld by the Appellate Court
and,on March 3, 1997, the U.S. Supreme Court reported that it had
refused to hear the appeal, rendering the lower court's dismissal
final.
Item 4. The Company's Annual Meeting of Stockholders (the "Annual
Meeting") was held on February 26, 1997. At the Annual Meeting,
the stockholders of the Company (i) elected each of the persons
listed below to serve as a director of the Company until the 1998
Annual Meeting of Stockholders or until his successor is elected
and (ii) ratified the selection of Price Waterhouse, LLP as the
Company's independent accountants for the fiscal year ending
September 30, 1997.
The Company had 30,729,018 shares of Common Stock outstanding as
of January 3, 1997, the record date for the Annual Meeting. At the
Annual Meeting, holders of a total of 28,978,477 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:
<TABLE>
<CAPTION>
Proposal 1: Election of Directors
----------------------------------
Voting Shares Voting Shares
In Favor Against
-------- -------
<S> <C> <C>
Director
Gary W. Clow 28,634,441 344,036
Douglas L. Whiting, Ph.D. 28,639,651 338,826
Charles Gaylord 28,641,451 337,026
Joseph W. Jennings 28,641,451 337,026
Robert W. Johnson 28,641,151 337,326
Russell J. Robelen 28,640,951 337,526
</TABLE>
<TABLE>
<CAPTION>
Proposal 2: Ratification of Selection of Independent Accountants
-----------------------------------------------------------------
<S> <C>
Votes in favor: 28,819,956
Votes against: 49,635
Abstentions: 108,886
</TABLE>
13
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.01 - Computation of Earnings 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.
14
<PAGE> 15
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 9, 1997
---------------------------------
John R. Witzel
Vice President of Finance and
Chief Financial Officer
15
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Exhibit Title Page
- ------ ------------- ----
<S> <C> <C>
11.01 Computation of Earnings
Per Share 17
27 Financial Data Schedule
</TABLE>
16
<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,
--------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary earnings (loss) per share:
Net income (loss) $ 1,280 $ 3,062 $ 3,484 $ (6,118)
Less preferred dividends -- -- -- 168
-------- -------- -------- --------
Income (loss) available for common
shareholders' $ 1,280 $ 3,062 $ 3,484 $ (6,286)
======== ======== ======== ========
Common and common stock
equivalent shares outstanding 31,113 31,361 31,148 29,498
Primary earnings (loss) per share $ 0.04 $ 0.10 $ .11 $ (0.21)
Fully diluted earnings (loss) per share:
Net income (loss) $ 1,280 $ 3,062 $ 22,520 $ (6,118)
Less preferred dividends -- -- -- --
-------- -------- -------- --------
Income (loss) available for common $ 1,280 $ 3,062 $ 22,520 $ (6,118)
======== ======== -------- ========
shareholders'
Common and common stock
equivalent shares outstanding 31,113 31,360 31,148 30,500
Fully diluted income (loss) per share $ 0.04 $ 0.10 $ 0.11 $ (0.20)
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 28,767
<SECURITIES> 40,781
<RECEIVABLES> 5,895
<ALLOWANCES> 380
<INVENTORY> 487
<CURRENT-ASSETS> 76,902
<PP&E> 10,041
<DEPRECIATION> 5,567
<TOTAL-ASSETS> 87,997
<CURRENT-LIABILITIES> 4,967
<BONDS> 0
0
0
<COMMON> 73,834
<OTHER-SE> 8,963
<TOTAL-LIABILITY-AND-EQUITY> 87,997
<SALES> 11,624
<TOTAL-REVENUES> 11,624
<CGS> 1,555
<TOTAL-COSTS> 1,555
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,061
<INCOME-TAX> 781
<INCOME-CONTINUING> 1,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,280
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
