<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 2000
--------------------------------------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ___________
--------------------------------------------------------------------------------
Commission File No. 0-20095
PREVIO, 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, 4TH FLOOR, SAN DIEGO, CALIFORNIA 92130-2093
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (858) 794-3789
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K of any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of December 14, 2000 was $17,943,415.*
The number of shares outstanding of the Registrant's Common Stock was 6,843,803
as of December 14, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement to be filed with the Securities and
Exchange Commission (the "Commission") pursuant to Regulation 14A in connection
with the 2001 Annual Meeting of Shareholders to be held on March 7, 2001 (the
"2001 Annual Meeting") is incorporated herein by reference into Part III of this
Report.
------------
* Excludes the Common Stock held by executive officers, directors and
shareholders whose ownership exceeds 5% of the Common Stock outstanding at
December 11, 2000. Exclusion of such shares should not be construed to
indicate that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the
Registrant or that such person is controlled by or under common control with
the Registrant.
================================================================================
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PART I
ITEM 1. BUSINESS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND
UNCERTAINTIES. PREVIO, INC.'S ("PREVIO" OR "THE COMPANY") FUTURE RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO DIFFERENCES IN FUTURE RESULTS INCLUDE BUT ARE NOT LIMITED TO:
FLUCTUATIONS IN THE COMPANY'S OPERATING RESULTS, 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 AND COMMUNICATIONS INDUSTRIES, UNCERTAINTIES REGARDING INTELLECTUAL
PROPERTY RIGHTS AND THE OTHER FACTORS REFERRED TO HEREIN (INCLUDING, BUT NOT
LIMITED TO, THE FACTORS DISCUSSED BELOW IN "OPERATING SYSTEMS" AND "COMPETITION
AND RISKS ASSOCIATED WITH NEW PRODUCT INTRODUCTIONS," AND UNDER "REVENUES,"
"QUARTERLY TRENDS," "SEASONALITY," AND "STOCK PRICE VOLATILITY" IN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS).
Previo's business is focused on developing and marketing software products
that provide automated resolution to problems and the protection/recovery of
data for desktop and notebook computers used by corporate enterprises. These
products are used by helpdesks and desktop support organizations (generally part
of an enterprise's information technology ("IT") group) to provide better
service to the enterprise's employees. Previo's products resolve many kinds of
problems more quickly than a technician would be able to using ordinary
diagnosis and repair techniques. The types of problems addressed include
corrupted software or data, user errors, configuration problems, application
conflicts, virus attacks, accidentally deleted files, hard disk failures, and
lost or stolen personal computers ("PCs"). Simultaneously these products lower
the cost of fixing the problems by reducing the overall amount of technician
time involved, by lowering the skill level required by the technician, and by
resolving more trouble calls during the first contact.
On April 25, 2000, the Company changed its name from Stac Software, Inc.,
("Stac") to Previo concurrent with a change in the Company's focus away from
storage and remote access systems, to enter into the emerging eSupport market
space. Stac's business was focused on storage systems recovery software with its
Replica Tape and Replica Network Data Manager ("NDM") product lines. Replica
Tape and Replica NDM were distributed business systems recovery software
products, which enabled PC server, desktop and notebook replication and disaster
recovery. Stac also developed and marketed ReachOut Enterprise ("ReachOut")
remote communications software, a remote access software suite which allowed
administrators and end users to access a PC using another PC through a network,
the Internet, ISDN lines or modems.
Because of this change of business focus, the Company has largely
discontinued the sale of its ReachOut and Replica Tape products, and has
consummated agreements with third parties for the sale or license of technology
and other attributes associated with these products. The Company has and intends
to continue to retain the rights to such technology as is needed for
incorporation into its current ESUPPORT ESSENTIALS (TM) product line.
Previo began shipping software under the ESUPPORT ESSENTIALS brand in May
2000. ESUPPORT ESSENTIALS implements patented technology that permits the return
of inoperable PCs (both desktops and notebooks) to working condition with
relative ease of use, while providing for the automated recovery of an entire
computer system including the operating system, applications, individual user
preferences and all end user data. The results are increased end-user uptime and
service levels, faster problem resolution, and significant reductions in support
costs and efforts. ESUPPORT ESSENTIALS is based on the technology used in the
Company's former product, Replica NDM, which was introduced to selected customer
sites in April 1998 and became commercially available in January 1999. ESUPPORT
ESSENTIALS builds on the technology introduced in Replica NDM and expands on it
by adding features such as system roll-back, which allows users to restore their
applications, data and user preferences to an earlier point-in-time as well as
adding remote access capabilities (using the technology formerly used in
ReachOut), which provides additional functionality targeted at the enterprise
helpdesk market.
On May 1, 2000, the Company announced that it had signed an exclusive OEM
agreement with Hewlett-Packard Company ("HP"). Under this agreement, Previo's
ESUPPORT ESSENTIALS will serve as the software application core for the HP
SureStore AutoBackup family of products. These products represent off the shelf,
turnkey solutions that provide core features of the ESUPPORT ESSENTIALS software
pre-installed on an HP server appliance. Built on thin-server technology, the
appliance captures changes to hard-drive content whenever a PC connects to the
network. This automated process is transparent to end-users and does not
interfere with other applications. This new class of solutions is designed to
safeguard the high volume of business-critical data residing on mobile computers
and networked desktop systems in workgroup environments.
As mentioned above, on April 25, 2000, the Company changed its name to
Previo, Inc., from Stac Software, Inc., by way of a merger of its wholly-owned
subsidiary Previo, Inc., with and into the Company, pursuant to the Delaware
General Corporation Law. References in this Report on Form 10-K to Stac
Software, Inc. or Stac, Inc. mean the Company. The Company's symbol on the
NASDAQ's Stock Market National Market System, "STAC", was changed to "PRVO" in
connection with the name change.
1
<PAGE>
On December 16, 1998, the Company changed its name to Stac Software, Inc.,
from Stac, Inc., by way of a merger of its wholly owned subsidiary Stac
Software, Inc., with and into the Company, pursuant to the Delaware General
Corporation Law.
In addition, on December 16, 1998, the Company distributed a special
dividend of its stock in its Hi/fn, Inc. ("Hi/fn"), subsidiary to its
stockholders. Hi/fn was a majority-owned subsidiary of the Company and is
engaged in silicon and software implementations of data compression and data
encryption standards for the network communications and storage equipment
markets. As a result of the spin-off, Hi/fn has been accounted for as a
discontinued operation in the Company's Consolidated Statement of Operations and
Balance Sheet. Hi/fn is currently traded on NASDAQ under the symbol HIFN. Please
refer to the Registration Statement on Form 10 filed by Hi/fn with the SEC for a
complete discussion of Hi/fn and the spin-off transaction.
Previo received royalties from Microsoft and IBM Corporation ("IBM") for
licenses of its data compression technology from June 1994 through January 1998
after which the royalties became paid in full. The Company does not expect
further revenues from these agreements. The royalties, net of taxes paid, were
reinvested in the ReachOut and Replica products, and, more recently, the
ESUPPORT ESSENTIALS products that have replaced the Company's former Stacker
disk-compression products.
BACKGROUND
ESUPPORT
eSupport is a growing market segment that centers on keeping PC users
operational, while at the same time reducing the escalating costs of the
helpdesk organizations responsible for this effort by the use of automation.
eSupport solutions are designed to provide helpdesk personnel as well as
end-users with tools to solve the majority of computer support issues. Problems
that once took extended periods to address and fix, or required expensive
second-level escalation, can be handled by less-skilled staff or end-users
themselves. The benefits to companies include increased end-user satisfaction,
higher helpdesk morale, and more effective deployment of scarce technical
personnel. While eSupport technologies can be directed at supporting either
internal enterprise PC users (employees) or external enterprise PC users
(customers), Previo's products are focused on the internal enterprise PC users
only.
The market research firm International Data Corp. (IDC) estimates that the
eSupport market will grow from $3.1 billion in 1999 to $14.2 billion in 2003. It
predicts that this will expand to represent 43% of the total IT support market
in the near future. Helpdesk 2000, the leading industry organization, reports
that 75% of all organizations have plans to implement an eSupport strategy by
2001.
The increasing need for eSupport technology for supporting enterprise
employees has been driven by a variety of factors. Today large enterprises have
on average more PCs per employee than just a few years ago. Further, an
increasing number of these computers are notebook models which are more prone to
loss or damage, or are more dependent upon support simply because they are often
physically removed from the helpdesk organization. What were once adjunct
devices for assisting and simplifying the tasks of employees, desktop and
notebook computers are now essential workplace tools. At the same time that PCs
are proliferating, so is their diversity. Users commonly download or otherwise
install applications, software components and data without the knowledge or
control of central IT organizations. As hard disk storage sizes increase (at
over 50% per year), the opportunity for increased complexity and diversity
increases even more. The inevitable result is that there are more and more PCs
used by corporate employees that have unique characteristics, for which their
uptime and operability are critical to the employees' ability to perform their
jobs. The failure of these PCs can result in lost revenues, missed
opportunities and a variety of other business setbacks.
Industry analysts are predicting that over time eSupport will mature into a
hierarchy of technologies. In the first layer, the computer proactively
diagnoses and preemptively fixes itself. In the next layer, a PC user can
determine and resolve problems him or herself through self-repair technology and
automatic diagnosis. The last layer automates the process of helpdesk
technicians remotely accessing and servicing a PC much more quickly and
certainly than was previously possible.
To date however, a gap has remained between the promise of these eSupport
high-level concepts and the reality of the technology and effort required by the
enterprise to support its PCs. The crux of the eSupport challenge is in the
human resource cost necessary to implement an effective eSupport technology -
one that can keep enterprise PC users working with a minimum of downtime and IT
effort. We believe that Previo's products fill this gap today.
2
<PAGE>
PREVIO'S ESUPPORT ESSENTIALS
Previo focuses on returning the user's system to working condition as
quickly as possible rather than diagnosing or surgically fixing a specific
technology problem. Its ESUPPORT ESSENTIALS product line uses patented
technology to swiftly and certainly return an inoperable desktop or notebook
computer to pre-problem working condition with minimal effort. The ESUPPORT
ESSENTIALS software accomplishes this by taking snapshots of the system hard
disk and storing the compressed information in a network repository. The
computer can then be automatically and transparently "rolled-back" to a
pre-problem state at any time while preserving all of the data, as well as the
user's own unique preference settings. If permitted, non-technical users can
safely and quickly solve their own problems without involving the helpdesk,
reducing costly "first calls" or support escalations. Alternatively, support
desk personnel can remotely access the PC to handle installations, configuration
tasks, or training without requiring expensive "desk-side" visits.
The ESUPPORT ESSENTIALS snapshot automatically captures all of the
information on the system hard disk: operating system, system preferences,
applications and end-user data. Rather than expending scarce and expensive
technician time to diagnose, pinpoint and resolve the specific problem, ESUPPORT
ESSENTIALS simply puts the PC back into a condition that is known to be
functional - simple, direct, fast and sure.
A common usage scenario involves a user whose PC worked without any
interruption three months ago, last month, last week and yesterday -- but not
today -- due to some software problem. The traditional approach is to try to
solve the problem by trial and error, installing application fixes, changing
preferences and settings, and further investigation. Previo's approach is to
simply return the system to yesterday's working condition - while preserving
today's data. Where applicable, further investigation to identify or resolve
recurring problems can be done off-line while the end-user is back in business.
The Previo approach keeps the enterprise's end-user productivity flowing,
protecting the availability of the PCs that reside across the expanses of the
extended enterprise.
STRATEGY
Previo's strategy is to provide automated software solutions for helpdesk
and information systems managers of large enterprises to help them better manage
and resolve issues impacting the operability of the PCs within the organization,
exploiting where applicable, the use of the Internet to enable communications
for non-networked personnel. The Company is partnering with other OEM software
developers, systems integrators and resellers to provide complete IT and
helpdesk management solutions for enterprises. The Company currently has
strategic alliances with Peregrine Systems, Inc., Remedy Corporation, Miramar
Systems ("Miramar") and HP.
The Company intends to implement this strategy as may be required through a
combination of strategic technology acquisitions, technology licensing
agreements and internal product development. In November 2000, the Company
announced an agreement whereby Previo would incorporate Miramar's Desktop DNA
into Previo's eSupport Essentials to provide enterprise-class migration support
for helpdesk automation.
In addition to the perpetual enterprise licenses sold by Previo, the Company
intends to deploy its eSupport Essentials software through a subscription based,
managed service. The first pilot deployments for this business model are
expected to begin in the second quarter of fiscal 2001.
From time to time the Company considers potential strategic alternatives.
However, there is no assurance that any such transaction will ever occur or even
if such a transaction were to occur, that it would be successful.
PRODUCTS
The Company currently sells its ESUPPORT ESSENTIALS software to enterprises
through perpetual license agreements.
The following table shows the Company's principal product and its pricing as
of December 2000.
<TABLE>
<CAPTION>
DATE OF
PRODUCT DESCRIPTION SUGGESTED PRICE FIRST SHIPMENT
------- ----------- --------------- --------------
<S> <C> <C> <C>
ESUPPORT ESSENTIALS Automated software providing $120 per client, May 2000
SNAPSHOT CLIENT AGENT high availability for at 999 client
Windows-based client licenses
desktops, remote PC's and
notebooks.
</TABLE>
3
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RESEARCH AND DEVELOPMENT
The market for the Company's product is characterized by rapid technological
change, requiring continuous investment to develop and bring to market new
features and functionality and logical extensions to this product line. The
Company has invested the majority of its software development resources in its
ESUPPORT ESSENTIALS product line over the past fiscal year. The Company believes
that significant factors in its future success will be its ability to identify
and respond to customer needs, to enhance its existing products, to introduce
new products on a timely and cost-effective basis, to provide integration and
interoperability with major brands of helpdesk call center software, to extend
its core technology into new platforms and applications and to anticipate and
respond to emerging standards and other technological changes.
The Company intends to continue to develop its software as market conditions
warrant and to invest in the development or acquisition of new products. Foreign
language versions of products will be developed as market conditions warrant.
The Company's research and development is conducted primarily by its internal
product development staff and through contractors. Research and development
expenses were $5.0 million in fiscal 2000, $6.2 million in 1999 and $7.6 million
in 1998, which represented 64%, 44% and 39% of revenues in those periods,
respectively.
SALES AND MARKETING
The Company markets and sells its product domestically and internationally
(through Previo Europe, Limited ("Previo Europe"), a wholly-owned subsidiary of
the Company). The Company sells its products principally through its internal
sales and marketing staffs which, primarily with partners, corporate resellers,
value added resellers and systems integrators, sell to corporations, government
entities and other enterprises.
International sales accounted for revenues of $1.7 million, $5.8 million and
$4.8 million in fiscal 2000, 1999 and 1998, respectively. Technical support for
Previo products is provided by Previo, Previo Europe or through contracts with
third parties. Previo provides customer support to customers who purchase
support and maintenance agreements. The Company's international operations are
subject to certain risks common to international activities, such as changes in
foreign governmental regulations, currency exchange rates, tariffs and taxes,
export license requirements, the imposition of trade barriers, difficulties in
staffing and managing foreign operations, and political and economic
instability.
In addition to the above channels used for marketing and selling the
Company's software, the Company licenses its technology and/or software to
software and hardware OEMs such as Legato Systems, Inc. ("Legato") and HP for
incorporation into their own products.
COMPETITION AND RISKS ASSOCIATED WITH NEW PRODUCT INTRODUCTIONS
The market for ESUPPORT ESSENTIALS is intensely competitive, rapidly
changing and significantly affected by new product introductions and other
market activities of industry participants. Companies such as Support.com,
Connected Corporation and Motive Communications, Inc. have also made public
their entrance into the eSupport arena. Competition for ESUPPORT ESSENTIALS and
any new products the Company may offer could result in a failure to establish
significant sales volume, and/or price concessions that could prevent the
Company from ever becoming profitable.
Also, the Company's ESUPPORT ESSENTIALS product may be perceived to compete
with well established back-up products from Computer Associates, Inc., Veritas
Software Corporation and Legato, all of which have established channels of
distribution and installed customer bases. The Company has entered into an OEM
license with HP that authorizes HP to resell core ESUPPORT ESSENTIALS technology
under certain conditions (see discussion in "Business" section above). While the
Company's intent was to expand its sales and marketing reach through this
agreement, the Company expects to realize less revenue per unit than it would if
it sold the products itself. As a result, the Company could realize less revenue
from its relationship with HP than it might have otherwise obtained by only
directly selling ESUPPORT ESSENTIALS. Also, ESUPPORT ESSENTIALS is being
introduced into sophisticated server environments and, while the Company has
invested significant resources in testing ESUPPORT ESSENTIALS under a variety of
conditions, configurations and circumstances, there are likely to be
environments which have not been anticipated for which additional development of
ESUPPORT ESSENTIALS will be necessary.
MANUFACTURING AND BACKLOG
ESUPPORT ESSENTIALS is manufactured by third parties that specialize in the
duplication and assembly of software products, in accordance with the Company's
specifications. The principal materials and components used include CDs which
are used for distribution of the software code and the related user manuals. The
software manufacturing process involves the duplication of media, the printing
of user manuals, assembly of components and final packaging. The Company
believes there is an adequate supply of and source for the raw materials used in
ESUPPORT ESSENTIALS and that multiple sources are available for media
duplication, manual printing and final packaging.
Generally, the Company has relatively little, if any, backlog of orders for
its software products at any given time and does not consider backlog to be a
measure of sales for any future period.
4
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PATENTS, TRADEMARKS AND PRODUCT PROTECTION
The Company attempts to protect its products with a combination of trade
secret, patent, copyright and trademark laws and with license agreements. The
Company owns two issued United States patents relating to its storage management
products, which expire in 2015 and 2016, respectively. One of the patents is
employed in the Company's ESUPPORT ESSENTIALS product. The Company also has a
perpetual, non-royalty bearing license from Hi/fn to implement in the Company's
products the patents assigned by the Company to Hi/fn and to license and
sublicense the resulting products to the Company's customers.
The status of patents covering technology is highly uncertain, involving
complex legal and factual questions. There is no assurance that patent
applications that may be filed by the Company will result in patents being
issued or that its patents, and any patents that may be issued to it in the
future, will afford protection against competitors with similar technology; nor
is there any assurance that patents issued to the Company will not be infringed
upon or designed around by others or that others will not obtain patents that
the Company would need to license or design around or that the Company's
competitors will not independently develop non-infringing technologies or
products that are equivalent or superior in function or performance. If patents
held by competitors or others are upheld by the courts and found to be infringed
by Previo's products, the holders of such patents might be in a position to
require the Company to stop manufacturing, using or selling the infringing
products and to pay up to three times damages to the holders of the infringed
patents. There is no assurance that any licenses that might be required for the
Company's products would be available on reasonable terms, if at all.
The Company has applied for registration of the ESUPPORT ESSENTIALS
trademark in the United States. The Company's rights to register and use
trademarks do not ensure that the Company will have superior rights to others
that may have registered or used identical or related trademarks on related
goods or services, nor that such registrations or uses will not be used to
attempt to foreclose use of a particular trademark by the Company.
Because the computer industry is characterized by rapid technological
change, the policing of the unauthorized use of computer software is a difficult
task and software piracy is expected to continue to be a persistent problem for
the packaged software industry. Despite steps taken by Previo to protect its
software products, third parties may still make unauthorized copies of Previo's
products for their own use or for sale to others. The Company believes that the
knowledge, abilities and experience of its employees, its timely product
enhancements and upgrades and the availability and quality of the support
services it provides to users are more significant factors in influencing end
users to buy its products than are patent, trade secret and copyright protection
laws.
OPERATING SYSTEMS
ESUPPORT ESSENTIALS server component runs on Windows NT 4.0 Server with
client support for Windows 2000 Professional, Windows 98, Windows 95 and Windows
NT Workstations. The Company expects to support Windows 2000 Server during
calendar 2001. Future versions of Microsoft's Windows operating systems may
require significant changes to the Company's products in order to maintain
compatibility.
EMPLOYEES
As of December 14, 2000, Previo employed approximately 116 full-time
employees, of whom approximately 69 were employed in research and development,
32 in sales, marketing and customer support and 15 in operations and
administration. None of the Company's employees are represented by a labor union
or subject to a collective bargaining agreement. Previo has never experienced a
work stoppage due to labor difficulties and believes that its employee relations
are good.
ITEM 2. PROPERTIES
The Company's principal domestic administrative, marketing and sales
activities are located in approximately 14,000 square feet of leased facilities
in San Diego, California. The space is occupied under a lease agreement that
expires in March 2005. The Company has an option to renew the lease for an
additional five-year period on terms specified in the current lease agreement.
The Company's subsidiary in the United Kingdom leases 409 square feet of office
space near London under a one-year lease expiring in September 2001. The
Company's product development subsidiary in Estonia leases 1,137 square meters
of office space in Tallinn, Estonia, under a five year lease expiring March 1,
2005. See Note 9 of Notes to Consolidated Financial Statements for information
regarding the Company's obligations under its facilities leases.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is engaged in legal actions arising in the
ordinary course of its business and believes that the resolution of these
actions will not have a material adverse effect on the Company's results of
operations, liquidity, or financial position.
5
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended September 30, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock of Previo is traded on the NASDAQ Stock Market's National
Market System ("NMS") under the symbol "PRVO." The following table sets forth
the range of high and low sales prices on the NMS for the Common Stock for the
periods indicated and since January 1, 1998. Such quotations represent
inter-dealer prices without retail markup, markdown or commission and may not
necessarily represent actual transactions.
COMMON STOCK PRICES
-------------------
HIGH LOW
---- ---
CALENDAR YEAR 1998:
First Quarter..................................... $ 24.00 $17.52
Second Quarter.................................... $ 21.52 $17.00
Third Quarter..................................... $ 19.00 $10.52
Fourth Quarter.................................... $ 23.25 $ 2.08
CALENDAR YEAR 1999:
First Quarter..................................... $ 5.00 $ 3.08
Second Quarter.................................... $ 6.31 $ 3.52
Third Quarter..................................... $ 6.19 $ 4.06
Fourth Quarter.................................... $ 7.25 $ 3.50
CALENDAR YEAR 2000:
First Quarter..................................... $ 12.88 $ 6.06
Second Quarter.................................... $ 8.50 $ 5.50
Third Quarter..................................... $ 8.00 $ 5.63
Fourth Quarter (through December 14, 2000)........ $ 6.25 $ 3.44
The Company had approximately 326 stockholders of record as of December 14,
2000. The last sales price for the Company's Common Stock, as reported on the
NMS on December 14, 2000, was $3.50.
On December 16, 1998, the Company distributed a special dividend of its
stock in its Hi/fn subsidiary to its stockholders. On December 17, 1998, the
Company's Common Stock traded ex-dividend, and its closing price on the NMS on
such date was $5.88.
On April 30, 1999, the Company's Board of Directors declared a one-for-four
reverse stock split of its common stock, which had been approved by the
Company's stockholders at the 1999 Annual Meeting of Stockholders held on March
11, 1999. The reverse split was effective May 7, 1999. (All references to share
and per share amounts have been adjusted retroactively to reflect this stock
split.)
On April 25, 2000 the Company changed its name from Stac Software, Inc. to
Previo, Inc., and correspondingly changed its NMS symbol from STAC to PRVO.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following data, insofar as it relates to each of the fiscal years 1996
through 2000, have been derived from audited financial statements, including the
balance sheet at September 30, 2000 and 1999 and the related statements of
operations for each of the three years ended September 30, 2000 and notes
thereto included herein. This data should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto for
the corresponding periods.
The Company's consolidated financial statements have been restated to
present Hi/fn as a discontinued operation. Accordingly, Hi/fn's assets and
liabilities; revenues, costs and expenses; and cash flows have been excluded
from the respective captions in the consolidated financial statements, and have
been reported as "Net assets of discontinued operations"; "Income from
discontinued operations, net of taxes"; and "Net cash used in discontinued
operations," respectively, for all periods presented.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED SEPTEMBER 30, 2000 1999 1998 1997 1996
------------------------------- -------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues............................................. $ 7,804 $13,856 $19,403 $33,190 $ 33,871
Operating income (loss).............................. (10,192) (6,132) (4,437) 2,933 (1,240)
Income (loss) from continuing operations............. (6,794) (2,898) (7,882) 3,862 (3,826)
Net income (loss).................................... (6,794) (2,013) (5,815) 5,660 (1,675)
Net income (loss) available for common stockholders (6,794) (2,013) (5,815) 5,660 (1,843)
Earnings per common share, basic:
Income (loss) from continuing operations............. $ (1.06) $ (0.49) $ (1.24) $ 0.50 $ (0.50)
Net income (loss) available for common stockholders.. $ (1.06) $ (0.34) $ (0.92) $ 0.73 $ (0.24)
Common shares used to compute per share data......... 6,386 5,925 6,337 7,732 7,646
Balance Sheet:
Working capital...................................... $ 25,860 $29,421 $22,557 $50,474 $68,864
Total assets......................................... 33,476 34,873 43,866 70,111 81,079
Stockholders' equity................................. 27,910 31,302 39,213 64,123 78,999
</TABLE>
The Company has never declared or paid any cash dividends on its common
stock. The company currently intends to retain remaining future earnings to
finance the growth and development of its business.
Share and per share amounts have been updated to reflect the one-for-four
reverse stock split approved by the Board of Directors April 30, 1999 and made
effective May 7, 1999.
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Previo's business is focused on developing and marketing software products
that provide automated resolutions to problems, and protection/recovery of data
for desktop and notebook computers used by corporate enterprises. These
solutions are aimed at assisting information technology and computer support
organizations within these companies to rapidly resolve their end user systems
and recovery problems and to better manage the functionality of these systems
over their life cycles. Previo's products are sold through a variety of domestic
and international channels.
On December 16, 1998, the Company distributed a special dividend of its
stock in its Hi/fn, Inc. ("Hi/fn"), subsidiary to its stockholders. Hi/fn was a
majority-owned subsidiary of the Company and is engaged in silicon and software
implementations of data compression and data encryption standards for the
network communications and storage equipment markets. As a result of the
spin-off, Hi/fn has been accounted for as a discontinued operation in the
Company's Consolidated Statement of Operations and Balance Sheet. Hi/fn is
currently traded on Nasdaq under the symbol HIFN. Please refer to the
Registration Statement on Form 10 filed by Hi/fn with the SEC for a complete
discussion of Hi/fn and the spin-off transaction.
The following discussion should be read in conjunction with the description
of the company's current business and the consolidated financial statements and
notes thereto, included elsewhere within this annual 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 and the information technology budgets
for companies. Due to such fluctuations, historical results and percentage
relationships are not necessarily indicative of the operating results for any
future period. In addition, due to the Company's re-focus of its business into
the eSupport business in April 2000 and the discontinuation of the sale of its
historical products, the Company's past performance may not be indicative of
future operating results.
RESULTS OF OPERATIONS
The following table sets forth for the Company's results of operations and
the percentage relationship of certain items to revenues during the periods
shown. Unless otherwise indicated, references to years are to fiscal years,
which ended September 30.
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................ 100% 100% 100%
Cost of revenues.................................... 14 6 5
-------- -------- --------
Gross margin........................................ 86 94 95
-------- -------- --------
Research and development............................ 64 44 39
Sales and marketing................................. 117 60 54
General and administrative.......................... 36 25 23
Restructuring....................................... - 9 2
-------- -------- --------
217 138 118
-------- -------- --------
Operating loss...................................... (131) (44) (23)
Interest and other income........................... 44 11 13
-------- -------- --------
Loss before income taxes............................ (87) (33) (10)
Provision (benefit) for income taxes ............... - (12) 31
-------- -------- --------
Loss from continuing operations..................... (87) (21) (41)
Income from discontinued operations, net of taxes... - 6 11
-------- -------- --------
Net loss............................................ (87)% (15)% (30)%
======== ======== ========
</TABLE>
8
<PAGE>
REVENUES
Revenues in fiscal 2000 were $7.8 million, 44% less than the $13.9 million
reported in fiscal 1999. Revenues decreased by 29% to $13.9 million in fiscal
1999 compared to 1998 revenues of $19.4 million. During fiscal 2000 the Company
initiated significant changes to its business strategy, including the third
quarter discontinuation of the marketing for its ReachOut and Replica Tape
products, in order to focus on positioning the Company in the eSupport market.
(Although the Company is no longer actively marketing these products, legacy
revenues associated with these products are expected to continue throughout
fiscal 2001 due to the recognition of previously deferred revenues related to
product maintenance and license fees and the expiration of return rights for box
product sold through the distributor/retail channel in addition to residual
product royalty revenues.) This change in business direction coupled with a
decline in revenues from a major OEM partner for royalties associated with the
Replica Tape product contributed to the decrease in revenues in fiscal 2000. The
decrease in fiscal 1999 revenues from those of 1998 is due to lower revenues
received from royalties related to licenses of Previo's data compression
technology to operating system vendors. Royalty revenues were $5.1 million in
1998. These royalty revenues were solely from agreements with Microsoft and IBM,
who were obligated to continue making payments under the licenses at the rate of
$4.0 million per quarter through December 1997, with a final payment of $1.1
million in the March 1998 quarter. The Company expects no further royalty
revenues under these agreements with Microsoft and IBM. The decline in fiscal
1999 revenues compared to fiscal 1998 was further attributable to declining
sales of ReachOut, which had reached a mature phase of the product life cycle.
This decline was partially offset by increased sales of Replica Tape, primarily
due to higher OEM revenues.
The Company expects current and future revenues to be significantly impacted
by the discontinuance of the ReachOut and Replica Tape products.
<TABLE>
<CAPTION>
2000 1999 1998
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenue ($millions):
Software.......................... $ 7.8 100% $ 13.9 100% $ 14.3 74%
Royalties......................... - - - - 5.1 26
-------- -------- -------- -------- -------- --------
Total.......................... $ 7.8 100% $ 13.9 100% $ 19.4 100%
======== ======== ======== ======== ======== ========
</TABLE>
Software sales, which are comprised of domestic and international sales and
licenses through distributors, retailers, solution providers, OEMs and direct
channels, accounted for 100% of revenues in fiscal 2000 and fiscal 1999 and 74%
of revenues in fiscal 1998. Software sales decreased by 44% in fiscal 2000 from
fiscal 1999, and by 3% in fiscal 1999 from fiscal 1998.
International revenues, which are included above, were $1.7 million or 22%
of revenues in fiscal 2000, $5.8 million, or 42% of revenues in fiscal 1999 and
$4.8 million or 25% of revenues in fiscal 1998. The decrease in international
revenue as a percentage of total revenue in fiscal 2000 compared to fiscal 1999
and the increase in fiscal 1999 from 1998 is primarily due to particularly high
European royalty revenues in fiscal 1999 related to an OEM agreement. The
decrease in actual dollars of international revenues in fiscal 2000 over fiscal
1999 is related to the change in market strategy and corresponding
discontinuation of the Company's ReachOut and Replica Tape product lines as
discussed above. Previo markets and sells to its European accounts from its
office in the United Kingdom and markets and sells primarily to Japan and
Australia through relationships with distributors and resellers abroad.
GROSS MARGIN
Cost of revenues consists primarily of the license fees, user manuals,
packaging, media and assembly associated with the Company's software products,
as well as the costs of rendering product support services pursuant to paid
service offerings. Gross margins were 86% in fiscal 2000, 94% in fiscal 1999 and
95% in fiscal 1998. The decrease in gross margins in fiscal 2000 over fiscal
1999 was primarily due to an increase in customer support capacity as the
Company prepared for customer needs relative to the new product offering, while
at the same time experiencing declining revenues related to the discontinuance
of the ReachOut and Replica Tape products. Gross margins were also less in
fiscal 2000 than in fiscal 1999 due to increased obsolescence reserves taken for
box product inventory, related to the Company's discontinuation of sales of the
ReachOut and Replica Tape products as discussed above. The decrease in gross
margins from fiscal 1998 to 1999 is due to the elimination of royalty revenues,
which carry 100% gross margin.
RESEARCH AND DEVELOPMENT
The cost of product development consists primarily of salaries, employee
benefits, overhead and outside contractors. Such expenses were $5.0 million in
fiscal 2000, $6.2 million in fiscal 1999 and $7.6 million for fiscal 1998. The
decrease in product development costs in fiscal 2000 over fiscal 1999 is
primarily due to lower employee and consulting costs related to the reallocation
of resources among development facilities in conjunction with the restructuring
discussed below. The decrease in product development costs in fiscal 1999 over
fiscal 1998 is primarily due to lower product localization costs as well as
lower employee and consulting costs as discussed above. The increase in product
development expense as a percentage of revenues was primarily due to the
Company's lower revenues in fiscal 2000 as compared to fiscal 1999 and in fiscal
1999 as compared to fiscal 1998. 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 is 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.
9
<PAGE>
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commissions and
benefits of sales, marketing and customer support personnel, and consulting,
advertising, promotional and overhead expenses. These expenses were $9.2 million
in fiscal 2000, $8.2 million fiscal 1999 and $10.5 million for fiscal 1998. The
increase in costs in fiscal 2000 over those of the prior fiscal year is
primarily due to the staffing of the Company's enterprise sales organization and
increased marketing and market research costs incurred in the development and
implementation of the Company's new market-entry strategy. The decrease in
marketing and sales expense in fiscal 1999 from 1998 was due to corporate
restructurings of these functional areas. The restructurings refocused sales and
marketing efforts towards developing corporate enterprise customers, rather than
individual end-users. The increase in selling and marketing expense as a
percentage of revenues was primarily due to the Company's lower revenues in
fiscal 2000 as compared to 1999 and in fiscal 1999 as compared to 1998. 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 and legal and other professional
fees. Such expenses were $2.8 million for fiscal 2000, $3.4 million for fiscal
1999 and $4.4 million for fiscal 1998. The reduction in spending in fiscal 2000
over fiscal 1999 and in fiscal 1999 over fiscal 1998 reflects lower management
costs and non-recurring costs associated with Previo's spin-off of its former
Hi/fn subsidiary. The increase in general and administrative expenses as a
percentage of revenues was primarily due to the Company's lower revenues in
fiscal 2000 as compared to 1999 and in fiscal 1999 as compared to 1998.
RESTRUCTURING CHARGES
In fiscal 1999, the Company charged $1.2 million to operations, related to
two restructurings which occurred during the year. The first restructuring
charge was $0.8 million and was completed in anticipation of the reorganization
related to the December 16, 1998 spin-off of the Hi/fn subsidiary. Primary
components of the charge were losses on property and equipment abandonments
($0.6 million) and severance and employee related liabilities paid for
terminated employees ($0.2 million). The second restructuring was $0.4 million
and was designed to contain development costs by utilizing offshore facilities
for these functions. The amount charged to restructuring included severance and
employee related liabilities paid for terminated employees ($0.3 million) and
lease termination costs ($0.1 million).
As discussed above, in fiscal 1997, the Company reorganized its sales and
marketing departments and recorded a restructuring charge of $0.9 million. The
principal components of the charge were losses on property and equipment
abandonments ($0.4 million), severance and employee related liabilities ($0.3
million), lease termination costs ($0.1 million) and consulting and outplacement
related to the terminated employees ($0.1 million). In fiscal 1998, the Company
incurred an additional $0.3 million related to this restructuring. This
additional amount represented severance and employee related liabilities that
the Company was not permitted to expense until the affected employees were
notified of the termination and the Company had committed to provide for such
costs.
INTEREST AND OTHER INCOME
Interest and other income was $3.4 million in fiscal 2000, $1.6 million in
fiscal 1999 and $2.4 million in fiscal 1998. The fiscal 2000 amount includes
$1.6 million related to the redemption of preferred shares of Dynanet, Inc. held
by the Company which were received in connection with its acquisition of
California Software, Inc. in 1995. As the shares of Dynanet were acquired as an
adjunct to the California Software acquisition, and at that time the fair value
of these shares was not significant, the Dynanet shares were recorded at no
costs basis; therefore, the entire redemption value is currently treated as
other income. Additionally, interest income in fiscal 2000 increased from that
in fiscal 1999 due to higher interest rates and higher average invested cash
balances. The reduction in interest income from fiscal 1998 to 1999 was
primarily due to lower invested balances during the 1999 fiscal year, as a
result of the completion of the Company's stock repurchase program in fiscal
1998.
INCOME TAXES
Although the Company incurred a tax loss for fiscal 2000 it did not
recognize any significant resultant benefit as its opportunity for net operating
loss carrybacks have been depleted. The nominal net income tax charge recognized
for the year is primarily associated with income taxes from foreign source
revenues and the related statutory withholdings required by the foreign
jurisdiction. The Company continues to record a 100% valuation allowance against
its deferred tax assets. For fiscal 1999, the Company reported a benefit from
income taxes of $1.7 million. This amount reflects net operating loss carrybacks
to be applied to prior periods' tax liabilities. The effective tax rate of 37%
for fiscal 1999 was lower than the statutory federal and state rates due to
applicable alternative minimum tax limitations on the Company's net operating
loss carryback. For fiscal 1998, the Company reported a provision for income
taxes of $5.9 million, which is inclusive of a charge to establish a valuation
allowance of $6.4 million against deferred tax assets. Before the valuation
allowance, the benefit for income taxes was $0.5 million for an effective tax
rate of 25% in fiscal 1998. The valuation allowance was recorded as a result of
an assessment made of future taxable income as required by accounting standards,
made in conjunction with the anticipated spin-off of the Company's Hi/fn
subsidiary. The effective tax rate was lower than the statutory federal and
state rates primarily due to non-deductible expenses related to the spin-off and
due to differences in tax rules impacting foreign operations.
10
<PAGE>
QUARTERLY TRENDS
Fluctuations in quarterly results are expected to be significantly impacted
by the cessation of revenues from discontinued product lines, ReachOut and
Replica Tape. Management does not expect the revenue streams from new product
offerings to offset the decrease from the discontinued product lines until the
end of fiscal 2001. In addition, the Company historically has experienced
significant fluctuations in its revenues and operating results, including net
income (loss), 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, 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 usually has 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. In addition, the Company's ESUPPORT ESSENTIALS product offering may
have a lengthy evaluation period before any purchase is made.
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.
STOCK PRICE VOLATILITY
Due to the factors noted above, the Company's stock price may be subject to
significant volatility, particularly on a quarterly basis. Any shortfall in
earnings from levels expected by securities analysts or the investment community
in general 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, cash equivalents and marketable securities decreased by
$0.1 million to $29.7 million at September 30, 2000 from $29.8 million at
September 30, 1999. Accounts receivable decreased by $0.9 million to $1.5
million at September 30, 2000 from that at September 30, 1999, primarily
attributable to Previo's discontinuation of its distribution business and the
corresponding elimination of distributor receivable balances. Working capital
decreased by $3.6 million to $25.9 million at September 30, 2000 from that at
September 30, 1999, primarily as a result of increases in liabilities largely
related to accruals for potential tax liabilities and increases in deferred
revenues.
The Company believes that existing cash balances and funds provided by
operations will be sufficient to finance its working capital requirements for a
minimum of the next twelve months.
MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in the market value of its investments. In the normal
course of business, the Company employs established policies and procedures to
manage its exposure to fluctuations in foreign currency values and changes in
the market value of its investments.
The Company's foreign currency risks are mitigated principally by
maintaining only nominal foreign currency cash balances. Working funds necessary
to facilitate the short term operations of the Company's subsidiary in the
United Kingdom are kept in the local currencies for the European countries in
which they do business, with excess funds converted to United States currency
and transferred to Previo's offices in the United States for investment.
The fair value of the Company's investments in marketable securities at
September 30, 2000, was $11.9 million. The Company's investment policy is to
manage its portfolio of marketable securities in order to preserve principal and
liquidity while maximizing the return. At September 30, 2000, the Company's
portfolio was primarily invested in high quality commercial paper, typically
with maturities of less than six months. These investments are distributed among
several issuers to minimize the credit risk associated with any single
institution.
11
<PAGE>
<TABLE>
SELECTED QUARTERLY DATA (in thousands, except per share data)
<CAPTION>
SEPT. 30, JUNE 30, MAR. 31, DEC. 31,
FISCAL 2000 2000 2000 2000 1999
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues........................................ $ 1,446 $ 1,096 $ 2,084 $ 3,178
Gross margin.................................... 1,224 953 1,631 2,925
Operating loss.................................. (2,396) (4,145) (2,719) (932)
Loss from continuing operations................. (363) (3,672) (2,309) (450)
Net loss per common share....................... $ (0.05) $ (0.56) $ (0.36) $ (0.07)
Common stock price:
High....................................... $ 8.00 $ 8.50 $ 12.88 $ 7.25
Low........................................ $ 5.63 $ 5.50 $ 6.06 $ 3.50
SEPT. 30, JUNE 30, MAR. 31, DEC. 31,
FISCAL 1999 1999 1999 1999 1998
----------- -------- -------- -------- --------
Revenues........................................ $ 3,865 $ 3,615 $ 3,370 $ 3,006
Gross margin.................................... 3,612 3,356 3,165 2,814
Operating loss.................................. (724) (701) (902) (3,805)
Loss from continuing operations................. (221) (563) (188) (1,926)
Net loss per common share....................... $ (0.04) $ (0.09) $ (0.03) $ (0.18)
Common stock price:
High....................................... $ 6.19 $ 6.31 $ 5.00 $ 23.25
Low........................................ $ 4.06 $ 3.52 $ 3.08 $ 2.08
</TABLE>
As of December 14, 2000, there were 326 holders of record of the Company's
common stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements at September 30, 2000 and
1999, and for each of the three fiscal years in the period ended September 30,
2000 and the Report of PricewaterhouseCoopers LLP, Independent Accountants, are
included in this report on pages F-1 through F-15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
Registrant's Definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A in connection with the 2001 Annual Meeting (the "Proxy
Statement") under the headings "Nominees" and "Background of Executive Officers
not Described Above."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation."
12
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of the report:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
(1) Report of Independent Accountants F-1
Consolidated Balance Sheet at
September 30, 2000 and 1999 F-2
Consolidated Statement of Operations for the years ended
September 30, 2000, 1999 and 1998 F-3
Consolidated Statement of Cash Flows for the years ended
September 30, 2000, 1999 and 1998 F-4
Consolidated Statement of Stockholders' Equity and Comprehensive Income (Loss)
for the years ended September 30, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
(2) Schedule I -- Marketable Securities S-1
All other schedules have been omitted because they are not
applicable or required, or the information required to be set
forth therein is included in the consolidated financial statements or notes
thereto.
</TABLE>
(b) The Registrant filed no reports on Form 8-K during the fourth quarter of
the fiscal year ended September 30, 2000.
(c) Exhibits
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION
---------- -------- -----------
(7) 2.1 Agreement and Plan of Merger, dated April 5, 1996,
between the Registrant and Stac, Inc., a California
corporation.
(7) 3.1 Certificate of Incorporation of the Registrant.
(7) 3.2 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2, 10.8, 10.9,
10.10 and 10.12.
(1) 10.1 Form of Indemnity Agreement entered into between the
Registrant and its directors and officers with
related schedule.
(1)(8) 10.2 Registrant's 1992 Stock Option Plan ("the 1992
Plan").
(5)(8) 10.3 Registrant's 1992 Non-Employee Directors' Plan, as
Amended ("the Directors' Plan").
13
<PAGE>
(1)(8) 10.4 Registrant's Employee Stock Purchase Plan and related
Offering document.
(1) 10.5 Securities Purchase Agreement, dated as of March 27,
1990, among the Registrant and the other persons
Named therein.
(1)(8) 10.6 Distributor Agreement, between the Registrant and
Merisel, Inc., dated as of March 1, 1991.
(1)(8) 10.7 Distributor Agreement, between the Registrant and
Ingram Micro, Inc. dated as of March 13, 1991.
(3)(8) 10.8 License Agreement, between the Registrant and
Microsoft Corporation, dated as of June 20, 1994.
(5)(8) 10.9 Forms of Non-statutory Stock Option Agreements under
the Directors' Plan.
(6) 10.10 Stock Purchase Agreement dated October 6, 1995
between the Registrant and William T. Baker.
(6) 10.11 Option Purchase Agreement dated October 6, 1995 among
the Registrant and Certain Holders of Options to
Purchase Common Stock of California Software, Inc.
(6) 10.12 Indemnity Agreement dated October 6, 1995 between the
Registrant and William T. Baker.
(6) 10.13 Series A Preferred Stock Purchase Agreement dated
October 6, 1995 by and between DynaNet, Inc. and the
Registrant.
(7) 10.14 Office Lease date March 22, 1994 between the
Registrant and Weyerhaeuser Mortgage Company and Fort
Wyman, Inc.
(7) 10.15 Office Lease date March 22, 1994 between the
Registrant and Weyerhaeuser Mortgage Company and Fort
Wyman, Inc.
(7) 10.16 Office Lease dated July 12, 1994 between the
Registrant and Weyerhaeuser Mortgage Company and Fort
Wyman, Inc.
(7) 10.17 Amendment No. 1 to the Office Lease dated July 12,
1994 between the Registrant and Weyerhaeuser Mortgage
Company and Fort Wyman, Inc.
(7) 10.18 Amendment No. 2 to the Office Lease dated July 12,
1994 between the Registrant and Weyerhaeuser Mortgage
Company and Fort Wyman, Inc.
(9) 10.19 Cross License Agreement dated as of November 21, 1996
between the Registrant and Hi/fn, Inc.
(9) 10.20 Form of Distribution Agreement.
(9) 10.21 Form of Employee Benefits and Other Matters
Allocation Agreement.
14
<PAGE>
(9) 10.22 Form of Tax Allocation and Indemnity Agreement.
10.23 Distributor Agreement, between the Registrant and
Ingram Micro, Inc. dated as of June 8, 1999.
(10) 10.24 Severance Agreement with Gary Clow.
(10) 10.25 Severance Agreement with John Witzel.
(10) 10.26 1992 Non-Employee Directors' Stock Option Plan, as
Amended.
(8)(12) 10.27 Form of Change of Control Agreement
(11) 10.28 2000 Equity Incentive Plan
(8) 10.29 Employment Agreement with Tom Dilatush
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney. Reference is made to page 20.
----------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 33-46389) or amendments thereto and incorporated herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting Application
Under the Securities Act of 1933, as amended, and Rule 406 thereunder
respecting Confidential Treatment dated May 6, 1992.
(3) Filed as exhibit to the Company's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1994, as amended.
(4) Certain confidential portions deleted pursuant to order Granting Application
for Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934 dated October 21, 1994.
(5) Filed as exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995.
(6) Filed as an exhibit to the Company's Report on Form 8-K filed on October 16,
1995, relating to the Company's (i) acquisition of all of the outstanding
capital stock and options to purchase the capital stock of California
Software, Inc. and (ii) acquisition of Series A Preferred Stock of DynaNet,
Inc.
(7) Filed as exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996.
(8) Indicates management or compensatory plan or arrangement required to be
identified pursuant to Item 14(a)(4).
(9) Filed as an exhibit to the Registration Statement on Form 10, as amended
filed by Hi/fn, Inc. (File No. O-24765) and incorporated herein by
reference.
(10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
(11) Filed as an exhibit to the Company's Form S-8 filed on April 24, 2000.
(12) Incorporated by reference to the form 10-K/A filed on January 28, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PREVIO, INC.
By: /s/ Tom Dilatush
------------------------
Tom Dilatush
Chief Executive Officer
Date: December 20, 2000
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Tom Dilatush and Clifford L. Flowers, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments to this Report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming that all said attorneys-in-fact
and agents, or any of them or their or his substitute or substituted, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Antonio Perez Chairman of the Board December 20, 2000
------------------------------
(Antonio Perez)
/s/ Tom Dilatush Chief Executive Officer December 20, 2000
------------------------------
(Tom Dilatush)
/s/ Clifford L. Flowers Vice President of Finance, December 20, 2000
------------------------------ Chief Financial Officer and
(Clifford L. Flowers) Secretary (Principal
Financial and Accounting
Officer)
/s/ Corey M. Smith Director December 20, 2000
------------------------------
(Corey M. Smith)
/s/ Peter D. Schleider Director December 20, 2000
------------------------------
(Peter D. Schleider)
/s/ Robert W. Johnson Director December 20, 2000
------------------------------
(Robert W. Johnson)
/s/ Gary W. Clow Director December 20, 2000
------------------------------
(Gary W. Clow)
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Previo, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
statements of operations, of cash flows and of changes in stockholders' equity
and comprehensive income (loss) present fairly, in all material respects, the
financial position of Previo, Inc. and its subsidiaries at September 30, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 2000, in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule at September 30, 2000 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/ PricewaterhouseCoopers LLP
San Diego, California
October 25, 2000
F-1
<PAGE>
<TABLE>
PREVIO, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<CAPTION>
SEPTEMBER 30,
----------------------
2000 1999
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................. $ 17,862 $ 9,079
Marketable securities ................................................. 11,872 20,711
Accounts receivable, net .............................................. 1,455 2,381
Inventories ........................................................... -- 240
Prepaid expenses and other current assets ............................. 220 454
--------- ---------
Total current assets ........................................ 31,409 32,865
Property and equipment, net ............................................. 1,723 1,556
Other assets ............................................................ 344 452
--------- ---------
$ 33,476 $ 34,873
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 855 $ 1,132
Income taxes payable .................................................. 1,199 --
Accrued expenses and other current liabilities ........................ 3,495 2,312
--------- ---------
Total current liabilities ................................... 5,549 3,444
Other liabilities ....................................................... 17 127
--------- ---------
5,566 3,571
--------- ---------
Commitments and contingencies (Notes 9 and 11)
Stockholders' equity:
Common stock, par value $0.001 per share, authorized 100,000,000 shares;
8,760,000 and 7,930,000 shares issued in 2000 and 1999, respectively . 9 8
Additional paid in capital ............................................. 80,081 76,633
Treasury stock, at cost; 1,949,000 shares in 2000 and 1999, respectively (41,347) (41,347)
Cumulative translation adjustment ...................................... (70) (23)
Accumulated deficit .................................................... (10,763) (3,969)
--------- ---------
Total stockholders' equity ................................. 27,910 31,302
--------- ---------
$ 33,476 $ 34,873
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
PREVIO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues ................................................... $ 7,804 $ 13,856 $ 19,403
Cost of revenues ........................................... 1,071 909 980
--------- --------- ---------
Gross margin ............................................... 6,733 12,947 18,423
Operating expenses:
Research and development ................................... 4,981 6,179 7,555
Sales and marketing ........................................ 9,156 8,247 10,509
General and administrative ................................. 2,788 3,431 4,446
Restructuring .............................................. -- 1,222 350
--------- --------- ---------
Total operating expenses ................................... 16,925 19,079 22,860
Operating loss ............................................. (10,192) (6,132) (4,437)
Interest and other income .................................. 3,413 1,571 2,434
--------- --------- ---------
Loss before income taxes ................................... (6,779) (4,561) (2,003)
Provision (benefit) for income taxes ....................... 15 (1,663) 5,879
--------- --------- ---------
Loss from continuing operations ............................ (6,794) (2,898) (7,882)
Discontinued operations:
Income from discontinued operations, net of taxes of $550 in
1999 and $1,627 in 1998 .................................. -- 885 2 ,067
--------- --------- ---------
Net loss ................................................... $ (6,794) $ (2,013) $ (5,815)
========= ========= =========
Earnings per common share, basic and diluted
Loss from continuing operations ............................ $ (1.06) $ (0.49) $ (1.24)
Income from discontinued operations ........................ $ 0.00 $ 0.15 $ 0.32
Net loss ................................................... $ (1.06) $ (0.34) $ (0.92)
Weighted average common shares
outstanding, basic and diluted ........................... 6,386 5,925 6,337
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
PREVIO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................................ $ (6,794) $ (2,013) $ (5,815)
Adjustments required to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization ..................................... 1,265 1,744 2,073
Non-cash restructuring charges .................................... -- 204 --
Stock-based compensation .......................................... 81 -- --
Tax benefit from exercise of stock options ........................ -- 165 164
Loss on disposals of property and equipment ....................... -- 589 --
Provision for deferred income taxes ............................... -- -- 7,523
Changes in assets and liabilities:
Accounts receivable, net ........................................ 926 (1,604) 1,968
Income taxes receivable ......................................... -- 1,314 (1,314)
Inventories, net ................................................ 240 (43) (16)
Prepaid expenses and other current assets ....................... 234 (137) 176
Other assets .................................................... 68 13 18
Accounts payable ................................................ (277) (326) 367
Income taxes payable ............................................ 1,199 -- (1,402)
Accrued expenses and other current liabilities .................. 1,183 (914) (236)
--------- --------- ---------
Cash provided by (used in) operating activities of continuing
operations ................................................. (1,875) (1,008) 3,506
--------- --------- ---------
Cash flows from investing activities:
Purchases of marketable securities .................................. (20,161) (47,852) (45,348)
Sales of marketable securities ...................................... 29,000 40,000 65,529
Purchases of treasury stock ......................................... -- -- (19,996)
Purchases of property and equipment ................................. (1,392) (520) (1,363)
--------- --------- ---------
Cash provided by (used in) investing activities of continuing
operations ....................................................... 7,447 (8,372) (1,178)
--------- --------- ---------
Cash flows from financing activities:
Issuance of common stock, net ....................................... 3,258 1,256 596
--------- --------- ---------
Cash provided by financing activities of continuing operations 3,258 1,256 596
--------- --------- ---------
Effect of exchange rate changes on cash ............................... (47) 6 77
--------- --------- ---------
Net cash provided by (used in) discontinued operations ................ -- 5,624 (10,037)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents .................. 8,783 (2,494) (7,036)
Cash and cash equivalents at beginning of year ........................ 9,079 11,573 18,609
--------- --------- ---------
Cash and cash equivalents at end of year .............................. $ 17,862 $ 9,079 $ 11,573
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid for income taxes ......................................... $ 77 $ -- $ 3,007
Cash received from income taxes .................................... $ 1,398 $ 2,548 $ 23
Supplemental non-cash activities:
Stock dividend ...................................................... $ -- $ 7,371 $ --
Conversion of deferred compensation to equity
upon exercise of common stock options ............................ $ 110 $ 46 $ 64
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
PREVIO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<CAPTION>
COMMON STOCK
------------ ADDITIONAL CUMULATIVE RETAINED COMPREHENSIVE
PAID IN TRANSLATION EARNINGS STOCK TREASURY INCOME
SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) DIVIDEND STOCK TOTAL (LOSS)
------ ------ -------- ---------- ---------- -------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 .... 6,763 $ 8 $ 74,342 $ (106) $ 11,230 $ -- $(21,351) $ 64,123 $ 5,672
Acquisitions of treasury
stock .......................... (992) -- -- -- -- -- (19,996) (19,996)
Issuance of common stock
upon exercise of options ....... 62 -- 518 -- -- -- -- 518
Issuance of common stock under
Employee Stock Purchase Plan ... 9 -- 142 -- -- -- -- 142
Tax benefits from exercise of
stock options .................. -- -- 164 -- -- -- -- 164
Equity adjustment from foreign
currency translation ........... -- -- -- 77 -- -- -- 77 77
Net loss ......................... -- -- -- -- (5,815) -- -- (5,815) (5,815)
------- ------ --------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 1998 .... 5,842 8 75,166 (29) 5,415 -- (41,347) 39,213 (5,738)
Stock dividend hi/fn spin-off ... -- -- -- -- -- (7,371) -- (7,371)
Issuance of common stock upon
exercise of options ............ 113 -- 1,089 -- -- -- -- 1,089
Issuance of common stock under
Employee Stock Purchase Plan ... 26 -- 213 -- -- -- -- 213
Tax benefits from exercise of
stock options .................. -- -- 165 -- -- -- -- 165
Equity adjustment from foreign
currency translation ........... -- -- -- 6 -- -- -- 6 6
Net loss ......................... -- -- -- -- (2,013) -- -- (2,013) (2,013)
------- ------ --------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 1999 .... 5,981 8 76,633 (23) 3,402 (7,371) (41,347) 31,302 (2,007)
Issuance of common stock upon
exercise of options ............ 711 1 2,725 -- -- -- -- 2,726
Issuance of common stock ......... 100 -- 581 -- -- -- -- 581
Issuance of common stock under
Employee Stock Purchase Plan ... 19 -- 61 -- -- -- -- 61
Stock-based compensation
for options and warrants granted -- -- 81 -- -- -- -- 81
Equity adjustment from foreign
currency translation ........... -- -- -- (47) -- -- -- (47) (47)
Net loss ......................... -- -- -- -- (6,794) -- -- (6,794) (6,794)
------- ------ --------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 2000 .... 6,811 $ 9 $ 80,081 $ (70) $ (3,392) $ (7,371) $(41,347) $ 27,910 $ (6,841)
======= ====== ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
PREVIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
DESCRIPTION OF BUSINESS
Previo, Inc. (the "Company") develops and markets software products that
provide automated resolutions to problems and protection/recovery of data for
desktop and notebook computers (personal computers or "PCs") used by corporate
enterprises. The Company was incorporated as Stac Electronics, Inc. in February
of 1983. In April 2000, the Company initiated significant changes to its
business strategy, including the third quarter discontinuation of the marketing
of its ReachOut and Replica Tape products, and changed its name to Previo, Inc.
to allow customers to focus on its entry into the emerging eSupport market. The
Company's major product, ESUPPORT Essentials, implements patented technology
that permits the return of inoperable PCs to working condition.
CONSOLIDATION
The financial statements at and for the years ended September 30, 2000 and
1999 consolidate the accounts of the Company and its majority owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
FINANCIAL STATEMENT PREPARATION
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make 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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from perpetual licenses of the Company's software for which there
are no significant continuing obligations and collection of the related
receivable is probable is recognized on delivery of the software and acceptance
by the customer. Revenue from maintenance agreements is generally recognized
ratably over the respective maintenance periods. Revenue from contract services
is generally recognized as the services are performed using the percentage of
completion method based on costs incurred to date compared to total estimated
costs at completion. Amounts received under contracts in advance of performance
are recorded as deferred revenue and are generally recognized within one year of
receipt.
Historically the Company has offered rights of return on its ReachOut and
Replica Tape products. When the right of return exists, revenues are reduced at
the time of sale to reflect expected returns which are based on historical
experience. If no historical experience exists at the date of the sale, revenues
are deferred until such right of return lapses.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
MARKETABLE SECURITIES
The Company's marketable securities are comprised of funds on deposit with a
liquid asset manager that have been invested principally in commercial paper.
The carrying amount of these investments approximates fair value due to the
short maturities or demand nature of the instruments. At September 30, 2000, all
marketable securities are classified as available-for-sale and carried at fair
value. Unrealized gains or losses at September 30, 2000 and 1999 are not
significant. The cost of securities sold is based on the specific identification
method.
F-6
<PAGE>
INVENTORIES
Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market. As the Company has discontinued sales of its
ReachOut and Replica Tape products, inventory is $0 at September 30, 2000.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions to property and
equipment, including significant betterments and renewals, are capitalized.
Maintenance and repair costs are charged to expense as incurred. Depreciation is
computed using the straight-line method over estimated useful lives of three to
five years and totaled $1,225,000, $1,704,000 and $1,966,000 for fiscal 2000,
1999 and 1998, respectively. Leasehold improvements are amortized over the
shorter of the asset life or lease term.
LONG-LIVED ASSETS
The Company investigates potential impairments of long-lived assets, certain
identifiable intangibles and associated goodwill, on an exception basis, when
events or changes in circumstances have made recovery of an asset's carrying
value unlikely. An impairment loss is recognized when the sum of the expected
future net cash flows is less than the carrying amount of the asset. The amount
of the impairment loss, if any, will generally be measured as the difference
between the net book value of the assets and their estimated values. No such
impairments of long-lived assets existed through September 30, 2000.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to expense as
incurred. Development costs for software to be licensed or sold that are
incurred from the time technological feasibility is established until the
product is available for general release to customers are capitalized and
reported at the lower of cost or net realizable value. Through September 30,
2000, no significant development costs were incurred after technological
feasibility was reached.
ADVERTISING
Expenditures for advertising costs are charged to expense as incurred and
totaled $474,000, $151,000 and $97,000 for fiscal 2000, 1999 and 1998,
respectively.
STOCK-BASED COMPENSATION
The Company measures compensation expense for its employee stock-based
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income (loss) and loss per share as if the fair value method
had been applied in measuring compensation expense. Accordingly, compensation
cost for stock awards is measured as the excess, if any, of the fair value
Company's common stock at the date of grant over the amount an employee must pay
to acquire the stock.
Stock-based awards issued to non-employees are accounted for using a fair
value method and are re-measured to fair value at each period end until the
earlier of the date that performance is complete or a performance commitment has
been obtained.
INCOME TAXES
The Company records a provision (benefit) for income taxes using the
liability method. Current income tax expense or benefit represents the amount of
income taxes expected to be payable or refundable for the current year. A
deferred income tax liability or asset, net of valuation allowance, is
established for the expected future consequences resulting from the differences
between the financial reporting and income tax bases of assets and liabilities
and from net operating loss and credit carryforwards. Deferred income tax
expense or benefit represents the net change during the year in the deferred
income tax liability or asset. A valuation allowance is established when
necessary to reduce deferred tax assets to amounts more likely than not to be
realized.
F-7
<PAGE>
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share has been computed by dividing net income (loss)
by the weighted average number of common shares outstanding. Basic EPS is
calculated by dividing the income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period, without
consideration for common stock equivalents. Diluted EPS is calculated by
dividing the income (loss) available to common stockholders by the weighed
average number of common shares outstanding for the period, increased by
dilutive securities that were outstanding during the period. Net income (loss)
remains the same for the calculations of basic EPS and diluted EPS. There were
699,155; 493,164 and 567,517 dilutive securities outstanding for the years ended
September 30, 2000, 1999 and 1998, respectively, which have been excluded from
EPS as their effect is anti-dilutive. For the years ended September 30, 2000,
1999 and 1998 the calculation for basic and diluted EPS are as follows:
YEAR ENDED SEPTEMBER 30, 2000
(in thousands PER SHARE
except per share data) NET LOSS SHARES AMOUNT
Net loss from continuing operations $ (6,794)
Basic EPS 6,386 $ (1.06)
Dilutive securities -
-------- --------
Diluted EPS 6,386 $ (1.06)
======== ========
YEAR ENDED SEPTEMBER 30, 1999
(in thousands PER SHARE
except per share data) NET LOSS SHARES AMOUNT
Net loss from continuing operations $ (2,898)
Basic EPS 5,925 $ (0.49)
Dilutive securities -
-------- --------
Diluted EPS 5,925 $ (0.49)
======== ========
YEAR ENDED SEPTEMBER 30, 1998
(in thousands PER SHARE
except per share data) NET LOSS SHARES AMOUNT
Net loss from continuing operations $ (7,882)
Basic EPS 6,337 $ (1.24)
Dilutive securities -
-------- --------
Diluted EPS 6,337 $ (1.24)
======== ========
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries are
translated into U.S. dollars using period-end exchange rates for assets and
liabilities and weighted average exchange rates during the period for revenues
and expenses. Gains and losses from translation are excluded from results of
operations and accumulated as a separate component of stockholders' equity.
DIVERSIFICATION OF CREDIT RISK
The Company's policy is to place its cash, cash equivalents and marketable
securities in high credit quality financial instruments and to limit the amount
of credit exposure.
SEGMENT REPORTING
Management has determined that the Company operates in one business segment.
F-8
<PAGE>
NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." In May 1999, the FASB delayed
the effective date of FAS 133 by one year. The Company will be required to adopt
FAS 133 for fiscal year 2001. This statement establishes a new model for
accounting for derivatives and hedging activities. Under FAS 133, certain
derivatives must be recognized as assets and liabilities and measured at fair
value. The Company is not currently engaged in hedging activities and does not
anticipate the adoption of FAS 133 to have any effect on its consolidated
financial position or results of operation.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. The Company will be required to adopt
SAB 101 by the fourth quarter of fiscal 2001. The Company does not expect the
adoption of SAB 101 to have a material effect on its consolidated financial
position or results of operation.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 2 -- DISCONTINUED OPERATIONS:
On August 7, 1998, the Company filed a Form 10 information statement with
the Securities and Exchange Commission, announcing its intention to spin-off its
majority owned subsidiary Hi/fn, Inc. ("Hi/fn"). The plan allowed for the
6,000,000 shares of preferred Hi/fn stock, owned by the Company, to be
distributed to the Company's stockholders in a ratio of approximately one Hi/fn
share for every 4 shares of Company stock owned. The distribution was completed
on December 16, 1998.
The Company's consolidated financial statements have been restated to
reflect this distribution as discontinued operations. Accordingly, the revenues,
costs and expenses; assets and liabilities; and cash flows of these discontinued
operations have been excluded from the respective captions in the Consolidated
Statement of Operations, Consolidated Balance Sheet and Consolidated Statement
of Cash Flows, and have been reported through the fiscal year end as "Income
from discontinued operations, net of taxes"; as "Net assets of discontinued
operations," and as "Net cash used in discontinued operations" for all periods
presented.
Summarized financial information for the discontinued operation is as
follows: (Note: 1999 numbers include activity through December 16, 1998 only.
Balance sheet information is not included for 1999 as balances were no longer
consolidated.)
SEPTEMBER 30,
-------------
(in thousands) 1999 1998
-------------- ---- ----
Revenues $5,886 $21,533
Income before income taxes 1,435 3,845
Net income 885 2,218
Current assets 14,382
Total assets 16,611
Current liabilities 9,659
Total liabilities 9,659
F-9
<PAGE>
NOTE 3 -- COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS:
(table amounts in thousands)
SEPTEMBER 30,
------------------------
2000 1999
------- -------
Accounts receivable:
Trade receivables......................... $1,708 $2,644
Less allowance for doubtful accounts...... (253) (263)
------- -------
$1,455 $2,381
======= =======
Many of the Company's customers are large corporate enterprises, resellers
and OEMs, which can result in concentrated credit risk with respect to the
Company's trade receivables. Management believes that its credit policies
substantially mitigate such concentrated credit risk.
SEPTEMBER 30,
-----------------------
2000 1999
-------- --------
Inventories:
Raw materials.............................. $ - $ 203
Finished goods............................. - 37
-------- --------
$ - $ 240
======== ========
Property and equipment:
Computer equipment......................... $ 5,148 $ 4,368
Leasehold improvements..................... 942 678
Office equipment........................... 710 703
Furniture and fixtures..................... 646 619
-------- --------
7,446 6,368
Less accumulated depreciation.............. (5,723) (4,812)
-------- --------
$ 1,723 $ 1,556
======== ========
Accrued expenses and other current liabilities:
Customer support and upgrades.............. $ 1,812 $ 1,106
Compensation and employee benefits......... 653 484
Restructuring.............................. 43 204
Other...................................... 987 518
-------- --------
$ 3,495 $ 2,312
======== ========
SEPTEMBER 30,
----------------------------------
2000 1999 1998
-------- -------- --------
Revenues:
Software........................... $ 7,804 $13,856 $14,292
Royalties and licenses............. - - 5,111
-------- -------- --------
$ 7,804 $13,856 $19,403
======== ======== ========
NOTE 4 -- RESTRUCTURING CHARGES:
During the first quarter of fiscal 1999, the Company recorded a
restructuring charge to operations of $822,000, representing costs incurred in
anticipation of reorganization related to the December 1998 spin-off of its
Hi/fn, Inc. subsidiary. The components of this charge were losses on property
and equipment abandonments ($555,000), severance and benefits paid to terminated
employees ($246,000) and lease termination costs ($21,000). These costs were
incurred and paid prior to the end of the fiscal year.
During the fourth quarter of fiscal 1999, the Company recorded a
restructuring charge to operations of $400,000, representing costs incurred as
the company reorganized its product development department and relocated much of
its development activity to offshore locations. The components of this charge
were severance and benefits paid to terminated employees ($274,000), lease
termination costs ($86,000), losses on property and equipment abandonments
($35,000) and outplacement related to terminated employees ($5,000). By the end
of fiscal 1999, the Company had incurred and paid costs of $161,000 in severance
and benefits to terminated employees, and $35,000 in losses on property and
equipment abandonments. During fiscal 2000 the Company incurred an additional
$123,000 in severance and benefits paid to terminated employees and $38,000 in
lease termination costs.
During the fourth quarter of fiscal 1997, the Company recorded a
restructuring charge to operations of $850,000, representing costs incurred in
conjunction with the Company's reorganization of its software business. During
the first quarter of fiscal 1998, the Company charged another $350,000 to
operations, as additional costs related to the earlier charge, that under
generally accepted accounting principles, the Company was not permitted to
F-10
<PAGE>
accrue for until the affected employees were notified of the termination and the
Company had committed to provide for such costs. These costs were incurred and
paid throughout fiscal 1998, with the final payments being made during the
fourth quarter. The costs were comprised of severance and benefits paid to
terminated employees ($648,000), losses on abandonments of property and
equipment ($380,000), costs for consulting and outplacement related to the
terminated employees ($100,000) and lease termination costs ($72,000).
NOTE 5 -- STOCK REPURCHASES:
During fiscal 1998, the Company acquired 992,400 shares of its own stock, or
Treasury stock, totaling $19,996,000 through open market share repurchases. The
Company did not purchase any Treasury stock during fiscal 1999 or 2000.
NOTE 6 - REVERSE STOCK SPLIT:
On May 7, 1999 the Company executed a one-for-four reverse stock split
whereby one share of common stock was issued in exchange for every four shares
issued and outstanding. Share amounts and prices have been adjusted
retroactively throughout this report to reflect the effect of the split.
NOTE 7 -- INCOME TAXES:
(table amounts in thousands)
At September 30, 2000, the Company has federal and California net operating
loss carryforwards of approximately $16,613,000 and $10,390,000. The federal and
California net operating loss carryforwards expire beginning in 2019 and 2006
respectively. The company also has federal and California research and
development tax credit carryforwards of approximately $156,000 and $123,000
respectively. The federal research and development credit will begin expiring in
2013. The California research and development credit does not expire. The
company also has alternative minimum tax credits of $381,000 which have no
expiration date.
Deferred income taxes are comprised of the following:
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
Deferred tax assets......... $ 12,444 $ 5,957
Deferred tax liabilities.... - -
Valuation allowance......... (12,444) (5,957)
----------- -----------
$ - $ -
=========== ===========
Based on a number of factors, including the lack of current profits and
the fact that the Company competes in a market that is characterized by rapidly
changing technology, management believes that there is sufficient uncertainty
regarding the realization of deferred tax assets that a full valuation allowance
has been provided.
The principal components of deferred income taxes are as follows:
SEPTEMBER 30,
--------------------------
2000 1999
---------- ----------
Revenue recognition for tax purposes.......... $ 390 $ 161
Net operating and capital loss carryforwards.. 6,340 -
Tax credits................................... 799 -
Allowances and accrued expenses............... 251 247
Depreciation and amortization................. 489 548
Purchased research and development............ 4,017 4,680
Other......................................... 158 321
Valuation allowance........................... (12,444) (5,957)
---------- ----------
$ - $ -
========== ==========
F-11
<PAGE>
Components of pre-tax income (loss) are as follows:
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
2000 1999 1998
-------- -------- --------
Domestic .................... $(5,690) $(5,266) $(2,329)
Foreign ..................... (1,089) 705 326
-------- -------- --------
$(6,779) $(4,561) $(2,003)
======== ======== ========
The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
2000 1999 1998
-------- -------- --------
Current tax expense (benefit):
Federal ....................... $ (62) $(1,665) $(1,405)
Foreign ....................... 75 - -
State ......................... 2 2 (239)
-------- -------- --------
15 (1,663) (1,644)
-------- -------- --------
Deferred tax expense (benefit):
Federal ....................... - - 5,921
State ......................... - - 1,602
-------- -------- --------
- - 7,523
-------- -------- --------
$ 15 $(1,663) $ 5,879
======== ======== ========
A reconciliation of the amount computed by applying the statutory federal
income tax rate to income before income taxes, to the provision for income taxes
follows:
YEAR ENDED SEPTEMBER 30,
------------------------------
2000 1999 1998
-------- -------- --------
Amount computed at statutory
Federal rate of 34% ......................... $(2,310) $(1,551) $ (681)
State income taxes, net of Federal
benefit ..................................... (450) (32) 31
Expenses not deductible for tax purposes ...... 15 68 230
Foreign taxes ................................. 412 (22) (42)
Net operating and capital loss carryforwards .. (2,953) - -
Tax exempt interest ........................... - - (38)
Revision of prior year's tax estimates ........ (24) - (127)
Valuation of deferred tax asset ............... 5,349 (91) 6,372
Other ......................................... (24) (35) 134
-------- -------- --------
$ 15 $(1,663) $ 5,879
======== ======== ========
NOTE 8 -- STOCK OPTIONS, WARRANTS AND EMPLOYEE BENEFIT PLANS:
1992 STOCK OPTION PLAN
In March 1992, the Company adopted the 1992 Stock Option Plan (the "1992
Plan"), as amended in March 1999, which provides for the granting of incentive
stock options and non-qualified stock options to purchase up to 3,093,341 shares
of the Company's common stock. The 1992 Plan is administered by the Compensation
Committee of the Board of Directors and provides for options for the purchase of
the Company's common stock to be granted to employees, officers and consultants
of the Company at prices that are not less than 100% and 50% of the estimated
fair market value of the related shares at the date of grant for incentive stock
options and non-qualified stock options, respectively. Options vest as
determined by the Compensation Committee, generally over a period of four or
five years. The maximum term of options granted under the 1992 Plan is ten
years.
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In March 1992, the Company adopted the 1992 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan"), as amended in February 1995 and March 1999,
which provides for the automatic granting of non-qualified stock options to
purchase up to 223,446 shares, as amended, of the Company's common stock. The
1992 Plan is administered by the Board of Directors and provides for options for
the purchase of the Company's common stock to each director of the Company (or
an affiliate of the Company) who is not otherwise employed by the Company (or an
affiliate of the Company). Such directors will automatically be granted an
option to purchase common stock upon election to the Board and on each
anniversary of that date thereafter so long as the director continues to serve
on the Board. Vesting periods are five years for initial options granted, and
four years for options granted in re-election years. The maximum term of options
granted under the Directors' Plan is ten years.
F-12
<PAGE>
2000 EQUITY INCENTIVE PLAN
In April 2000, the Company adopted the 2000 Equity Incentive Plan (the "2000
Plan"), which provides for the granting of non-qualified stock options, stock
awards and the rights to acquire restricted stock for up to 250,000 shares of
the Company's common stock. The 2000 Plan is administered by the Compensation
Committee of the Board of Directors and provides for options for the purchase of
the Company's common stock to be granted to employees, officers and consultants
of the Company at prices that are not less than 50% of the estimated fair market
value of the related shares at the date of grant. Options vest as determined by
the Compensation Committee, generally over a period of four years. The maximum
term of options granted under the 2000 Plan is ten years.
Combined information for all stock option activities for fiscal 2000, 1999
and 1998 is summarized below:
OPTIONS OUTSTANDING
----------------------------
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------ -----
Balance at September 30, 1997......... 3,239,910 $ 3.42
Options granted...................... 444,792 4.38
Options exercised.................... (262,636) 1.69
Options canceled..................... (667,449) 4.95
------------
Balance at September 30, 1998......... 2,754,617 3.95
Options granted...................... 286,117 3.75
Options exercised.................... (307,365) 3.36
Options canceled..................... (693,418) 4.88
------------
Balance at September 30, 1999......... 2,039,951 4.06
Options granted...................... 1,347,849 6.63
Options exercised.................... (729,341) 4.37
Options canceled..................... (830,996) 6.55
------------
Balance at September 30, 2000......... 1,827,463 5.47
============
The following is a summary of stock options outstanding at September 30,
2000:
OPTIONS OUTSTANDING
------------------------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING AVERAGE
CONTRACTUAL EXERCISE
NUMBER LIFE (YEARS) PRICE
------ ------------ -----
Price Range
$1.64 - $3.36.......... 525,124 4.56 $ 3.03
$3.50 - $5.81.......... 524,323 8.36 4.81
$5.82 - $7.00.......... 327,143 9.59 6.03
$7.12 - $12.87......... 450,873 8.17 8.67
-----------
$1.64 - $12.87......... 1,827,463 7.44 5.47
===========
The following is a summary of stock options exercisable at September 30,
2000:
OPTIONS EXERCISABLE
-------------------------
WEIGHTED-
AVERAGE
EXERCISE
NUMBER PRICE
------ -----
Price Range
$1.64 - $3.36...................... 485,569 $ 3.02
$3.50 - $5.81...................... 176,569 4.46
$5.82 - $7.00...................... 7,664 6.25
$7.12 - $12.87..................... 186,541 7.71
--------
$1.64 - $12.87..................... 856,343 4.37
========
F-13
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
In March 1992, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 250,000 shares of the Company's common
stock. The most recent offering under the Purchase Plan terminated on October
31, 2000. The Purchase Plan is administered by the Board of Directors and allows
participating employees to have up to 15% of their earnings withheld and used to
purchase shares of common stock on specified dates. The price of the common
stock purchased under the Purchase Plan will be equal to 85% of the lower of the
fair market value of the common stock at the commencement date or the relevant
purchase date. During fiscal 2000, 10,013 shares were issued under the Plan at a
price of $3.24 per share, and 9,133 shares were issued at a price of $3.08 per
share. At September 30, 2000, 121,599 shares were reserved for future issuance.
PRO FORMA DISCLOSURE
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock-based compensation. No compensation
expense has been recognized for stock option grants, which are fixed in nature,
as the options have been granted at fair market value. No compensation expense
has been recognized for the Purchase Plan. Had compensation cost for the
Company's stock-based compensation awards issued during fiscal 2000, 1999 and
1998 been determined based on the fair value at the grant date consistent with
the rules of Statement of Financial Accounting Standard No. 123, the Company's
net loss and net loss per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
2000 1999 1998
---------------- ---------------- --------------
<S> <C> <C> <C>
Net loss (in thousands):
As reported............................. $ (6,794) $ (2,013) $ (5,815)
========= ========= =========
Pro forma............................... $ (8,359) $ (2,248) $ (9,205)
========= ========= =========
Net loss per share, basic and diluted:
As reported............................. $ (1.06) $ (0.34) $ (0.92)
========= ========= =========
Pro forma............................... $ (1.46) $ (0.42) $ (1.45)
========= ========= =========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the years ended September 30, 2000, 1999 and
1998, respectively: dividend yield of 0.0% for all years, risk free interest
rates of 6.31%, 5.27%, and 5.48%, expected volatility of 140%, 150% and 84%, and
expected lives of 2.02, 2.05 and 2.17. The weighted-average fair value of
options granted during the years ended September 30, 2000, 1999 and 1998 was
$7.06, $3.75 and $4.38 per share, respectively. The fair value of the employees'
purchase rights pursuant to the Purchase Plan is estimated using the
Black-Scholes model with the following assumptions: dividend yield of 0.0% for
all years, risk-free interest rates of 6.30%, 4.87% and 5.00%, expected
volatility of 140%, 150% and 84%, and an expected life of six months for all
years. The weighted-average fair value of those purchase rights granted during
the years ended September 30, 2000, 1999 and 1998 was $3.97, $2.72 and $1.97 per
share, respectively.
401(K) PLAN
In July 1991, the Company adopted an employee savings and retirement plan
(the "401(k) Plan") covering all of the Company's employees. The 401(k) Plan
permits, but does not require matching contributions by the Company on behalf of
all participants. No such contributions were made during fiscal 2000, 1999 or
1998.
WARRANTS
In June 2000, the Company issued a fully vested, immediately exercisable and
non-forfeitable warrant to purchase 10,000 shares of its common stock at an
exercise price of $5.81 in connection with services received prior to the date
of grant. This warrant expires ten years from the date of grant. The fair value
of this warrant at the time of grant, which was determined by management to be
$57,000, based upon application of the Black-Scholes option pricing model using
the following assumptions: dividend yield of 0.0%, risk-free interest rate of
6.00%, volatility of 150% and contractual life of 10 years, was expensed during
2000. At September 30, 2000, all of these warrants remained outstanding.
F-14
<PAGE>
NOTE 9 -- COMMITMENTS:
The Company occupies its facilities under several cancelable and
non-cancelable operating leases that expire at various dates through September
2005, and which contain renewal options. Future minimum lease payments are as
follows:
YEAR ENDED SEPTEMBER 30, AMOUNT
------------
2001.......................................... $ 536,000
2002.......................................... 488,000
2003.......................................... 496,000
2004.......................................... 504,000
2005.......................................... 212,000
------------
$ 2,236,000
============
Rent expense under operating leases was $848,000, $615,000 and $784,000, in
fiscal 2000, 1999 and 1998, respectively. Certain facilities leases provide for
scheduled rent increases. The total lease commitment for such leases is being
charged ratably to operations.
NOTE 10 -- SIGNIFICANT CUSTOMERS AND FOREIGN OPERATIONS:
A significant portion of the Company's revenues has been derived from
technology licenses and sales to major distributors or resellers as follows:
Three customers accounted for 11%, 8% and 6%, respectively, of fiscal 2000
revenues. Two customers accounted for 17% and 10%, respectively, of fiscal 1999
revenues. Three customers accounted for 21%, 13% and 12%, respectively, of
fiscal 1998 revenues.
Software revenues are inclusive of royalties received from Microsoft and IBM
Corporation for licenses of the Company's technology. The Company received
$5,111,000 in such revenues in fiscal 1998, completing all obligations
outstanding related to the underlying license agreements.
In fiscal 2000, 1999 and 1998, international revenues were $1,710,000,
$5,835,000 and $4,794,000, respectively, consisting primarily of sales to
customers in Canada, Europe and the Pacific Rim.
Condensed financial information related to the Company's wholly owned
foreign subsidiaries is as follows:
YEAR ENDED SEPTEMBER 30,
------------------------
(in thousands) 2000 1999 1998
--------------- ------- ------- -------
Revenues.......................... $ 1,715 $ 3,898 $ 3,580
Operating income (loss)........... $(1,099) $ 622 $ 307
Identifiable assets............... $ 288 $ 886 $ 1,218
NOTE 11 -- CONTINGENCIES:
The Company may be contingently liable with respect to certain asserted and
unasserted claims that arise during the normal course of business. In the
opinion of management, the outcome of such matters presently known to management
will not have a material adverse effect on the Company's business, financial
position, or results of operations.
Matters management is currently aware of include ongoing audits by the
Internal Revenue Service and the State of California Franchise Tax Board. The
Internal Revenue Service audit has been ongoing since 1996 and the State of
California Audit was initiated in 1998. Based on the outcomes of these audits
there may be a resulting amount of income taxes and associated interest due and
payable to either or both of these entities.
F-15
<PAGE>
<TABLE>
SCHEDULE I - MARKETABLE SECURITIES
AT SEPTEMBER 30, 2000
(IN THOUSANDS)
<CAPTION>
NAME OF ISSUER PRINCIPAL MARKET CARRYING
TITLE OF ISSUE AMOUNT COST VALUE VALUE
-------------- ------ ---- ----- -----
<S> <C> <C> <C> <C>
CP Prudential Fndg 2,000 1,945 1,976 1,976
CP San Paolo IMI Us 2,500 2,417 2,455 2,455
CP Gen Elec Cap Corp 2,000 1,954 1,958 1,958
CP Deutsche Bk Finl Inc 2,500 2,457 2,492 2,492
CP American Gen Fin Inc 1,000 978 994 994
CP Daimlerchrysler NA 2,000 1,967 1,997 1,997
--------- --------- --------- ---------
Total 12,000 11,718 11,872 11,872
--------- --------- --------- ---------
</TABLE>
S-1
<PAGE>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION
---------- -------- -----------
(7) 2.1 Agreement and Plan of Merger, dated April 5, 1996,
between the Registrant and Stac, Inc., a California
corporation.
(7) 3.1 Certificate of Incorporation of the Registrant.
(7) 3.2 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2, 10.8, 10.9,
10.10 and 10.12.
(1) 10.1 Form of Indemnity Agreement entered into between the
Registrant and its directors and officers with
related schedule.
(1)(8) 10.2 Registrant's 1992 Stock Option Plan ("the 1992
Plan").
(5)(8) 10.3 Registrant's 1992 Non-Employee Directors' Plan, as
Amended ("the Directors' Plan").
(1)(8) 10.4 Registrant's Employee Stock Purchase Plan and related
Offering document.
(1) 10.5 Securities Purchase Agreement, dated as of March 27,
1990, among the Registrant and the other persons
Named therein.
(1)(8) 10.6 Distributor Agreement, between the Registrant and
Merisel, Inc., dated as of March 1, 1991.
(1)(8) 10.7 Distributor Agreement, between the Registrant and
Ingram Micro, Inc. dated as of March 13, 1991.
(3)(8) 10.8 License Agreement, between the Registrant and
Microsoft Corporation, dated as of June 20, 1994.
(5)(8) 10.9 Forms of Non-statutory Stock Option Agreements under
the Directors' Plan.
(6) 10.10 Stock Purchase Agreement dated October 6, 1995
between the Registrant and William T. Baker.
(6) 10.11 Option Purchase Agreement dated October 6, 1995 among
the Registrant and Certain Holders of Options to
Purchase Common Stock of California Software, Inc.
(6) 10.12 Indemnity Agreement dated October 6, 1995 between the
Registrant and William T. Baker.
(6) 10.13 Series A Preferred Stock Purchase Agreement dated
October 6, 1995 by and between DynaNet, Inc. and the
Registrant.
(7) 10.14 Office Lease date March 22, 1994 between the
Registrant and Weyerhaeuser Mortgage Company and Fort
Wyman, Inc.
(7) 10.15 Office Lease date March 22, 1994 between the
Registrant and Weyerhaeuser Mortgage Company and Fort
Wyman, Inc.
<PAGE>
(7) 10.16 Office Lease dated July 12, 1994 between the
Registrant and Weyerhaeuser Mortgage Company and Fort
Wyman, Inc.
(7) 10.17 Amendment No. 1 to the Office Lease dated July 12,
1994 between the Registrant and Weyerhaeuser Mortgage
Company and Fort Wyman, Inc.
(7) 10.18 Amendment No. 2 to the Office Lease dated July 12,
1994 between the Registrant and Weyerhaeuser Mortgage
Company and Fort Wyman, Inc.
(9) 10.19 Cross License Agreement dated as of November 21, 1996
between the Registrant and Hi/fn, Inc.
(9) 10.20 Form of Distribution Agreement.
(9) 10.21 Form of Employee Benefits and Other Matters
Allocation Agreement.
(9) 10.22 Form of Tax Allocation and Indemnity Agreement.
10.23 Distributor Agreement, between the Registrant and
Ingram Micro, Inc. dated as of June 8, 1999.
(10) 10.24 Severance Agreement with Gary Clow.
(10) 10.25 Severance Agreement with John Witzel.
(10) 10.26 1992 Non-Employee Directors' Stock Option Plan, as
Amended.
(8)(12) 10.27 Form of Change of Control Agreement
(11) 10.28 2000 Equity Incentive Plan
(8) 10.29 Employment Agreement with Tom Dilatush
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney. Reference is made to page 20.
----------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 33-46389) or amendments thereto and incorporated herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting Application
Under the Securities Act of 1933, as amended, and Rule 406 thereunder
respecting Confidential Treatment dated May 6, 1992.
(3) Filed as exhibit to the Company's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1994, as amended.
(4) Certain confidential portions deleted pursuant to order Granting Application
for Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934 dated October 21, 1994.
<PAGE>
(5) Filed as exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995.
(6) Filed as an exhibit to the Company's Report on Form 8-K filed on October 16,
1995, relating to the Company's (i) acquisition of all of the outstanding
capital stock and options to purchase the capital stock of California
Software, Inc. and (ii) acquisition of Series A Preferred Stock of DynaNet,
Inc.
(7) Filed as exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996.
(8) Indicates management or compensatory plan or arrangement required to be
identified pursuant to Item 14(a)(4).
(9) Filed as an exhibit to the Registration Statement on Form 10, as amended
filed by Hi/fn, Inc. (File No. O-24765) and incorporated herein by
reference.
(10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
(11) Filed as an exhibit to the Company's Form S-8 filed on April 24, 2000.
(12) Incorporated by reference to the form 10-K/A filed on January 28, 1999.
