Quarterdeck Corp – ‘10-K/A’ for 9/30/96

As of:  Thursday, 8/14/97   ·   For:  9/30/96   ·   Accession #:  950148-97-2135   ·   File #:  0-19207

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Amendment to Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K/A      Amendment to Annual Report                            39    242K 
 2: EX-23.1     Independent Auditors Consent                           1      6K 
 3: EX-23.2     Consent of Independent Public Accountants              1      6K 

10-K/A   —   Amendment to Annual Report
Document Table of Contents

10-K/A
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=============================================================================   

SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549

 FORM 10-K/A

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 1996

 Commission File No. 0-19207

 QUARTERDECK CORPORATION
(Exact name of registrant as specified in its charter)

Delaware                             95-4320650       
(State or other jurisdiction of              (I.R.S. Employer             
incorporation or organization)             Identification No.)          

13160 Mindanao Way, Marina del Rey, California        90292         
(Address of principal executive offices)         (Zip Code)   

Registrant's telephone number, including area code: (310) 309-3700
Securities registered pursuant to Section 12(b) of the Act: None

 Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001

       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 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 or any       
amendment to this Form 10-K. [ ]                                                

      The aggregate market value of the voting stock (based on the last sale
price of such stock as reported by the National Association of Securities       
Dealers Automated Quotation National Market System) held by non-affiliates of   
the registrant as of November 30, 1996 was $233,497,695.                        

       The number of shares of the Registrant's common stock outstanding as of
November 30, 1996 was 37,665,882.                                               

DOCUMENTS INCORPORATED BY REFERENCE:

   Portions of the Company's definitive Proxy Statement for the Annual
Meeting held on February 12, 1997 are incorporated by reference into Part III of
the Form 10-K.                                                                  

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EXPLANATORY NOTE

  This amendment to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996 (the "Form 10-K") is being filed to include
the Report of the Independent Public Accountants for the years ended            
December 31, 1994 and 1995 for Datastorm Technologies, Inc., a wholly owned     
subsidiary of the Company and include such accountant's consent as an exhibit   
(Exhibit 23.2) to the Form 10-K. The financial statements included herein have  
not been amended, but are included herein as this amendment must set forth      
the complete text of the amended item.                                          

PART II 

Item 8.   Financial Statements and Supplementary Data                           

   The Company's financial statements included with this Form 10-K
are set forth under Item 14 hereof.                         

PART IV 

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K      

(a)  The following documents are filed as part of this report:  

1.  Consolidated Financial Statements                     

        Consolidated Balance Sheets at September 30, 1996 and 1995

          Consolidated Statements of Operations for fiscal years ended
September 30, 1996, 1995 and 1994                 

              Consolidated Statements of Stockholders' Equity for fiscal years
ended September 30, 1996, 1995 and 1994           

          Consolidated Statements of Cash Flows for fiscal years ended
September 30, 1996, 1995 and 1994                 

Notes to Consolidated Financial Statements        

2.  Consolidated Financial Statement Schedule             

Schedule II--Valuation and Qualifying Accounts    

               All other schedules are omitted because they are not required, or
        are not applicable, or because the required information is
included in Item 8.                               

3.  Exhibits                                              

EXHIBIT NUMBER                                                  
--------------                                                  

 DESCRIPTION
 -----------

3.1(2)       Certificate of Incorporation of the Company

3.2(19)       Certificate of Amendment of Certificate of  
Incorporation of the Company. 

       3.3(16)       Certificate of Designations of Series B Convertible
Preferred Stock.              

         3.4(19)       Amended Designations of Series A Junior Participating
 Preferred Stock of the Company.

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3.5(6)       Amended and Restated Bylaws of the Company.

           4.1(4)       Rights Agreement, dated as of August 11, 1992, between
                     Registrant and Bank of America NT & SA (the "Rights
Agreement").                  

4.2(16)       Form of Amendment to the Rights Agreement.  

       *10.1(2)      Amended and Restated 1990 Stock Plan, as amended to
date.                         

           *10.2(3)      Form of Option Agreement utilized with 1990 Stock Plan.

         *10.3(5)      Amended and Restated 1990 Directors Stock Option Plan
and Form of Option Agreement. 

*10.4(12)      1996 Acquisition Stock Incentive Plan.       

          *10.5(19)      Consulting Agreement between the Company, King R. Lee &
                Associates, Inc., and King R. Lee, dated as of
August 27, 1996.              

         *10.6(2)      Form of Indemnification Agreement between the Company
            and certain of its officers and directors.

     *10.7(10)      Management Employment Contract between the Company
                    and Gaston Bastiaens,dated as of January 13, 1995.

     *10.8(10)      Management Employment Contract between the Company
              and Jim Moise, dated as of January 27, 1995.

     *10.9(10)      Management Employment Contract between Company and
             Steve Tropp, dated as of February 14, 1995.

          *10.10(19)     Employment Agreement between the Company and Bradley D.
         Schwartz, dated as of January 16, 1995.

*10.11(19)     Employment Agreement between the Company and 
             Anatoly Tikhman, dated as of July 24, 1996.

     *10.12(19)     Employment Agreement between the Company and Joe F
       usco, dated as of September 19, 1996.

        10.13(10)      Lease between the Company and Marina Business Center,
                         dated as of July 17, 1995, with respect to headquarters
property.                     

10.14(10)      Lease between Landmark Research International
                     Corporation, a subsidiary of the Company, and Chase
                        Federal Bank, dated as of March 15, 1995, with respect
         to property used by Quarterdeck Select.

  10.15(2)      Domestic (U.S.) Distribution License Agreement
                    between the Company and Merisel, Inc., dated as of
April 4, 1991.                

  10.16(2)      Domestic (U.S.) Distribution License Agreement
                      between the Company and Ingram Micro, Inc., dated as
of May 16, 1991.              

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           10.17(7)      Agreement and Plan of Reorganization among the Company,
                     Landmark Acquisition Corporation, Landmark Research
               International Corporation, and certain of the
                 shareholders of Landmark Research International
         Corporation, dated as of June 30, 1995.

           10.18(8)      Agreement and Plan of Reorganization among the Company,
                    IW/QD Acquisition Corporation, Internetware, Inc.,
                     Mango Systems, Inc., Mango Acquisition Corporation,
                       and certain of the shareholders of Internetware, Inc.
                       and Mango Systems, Inc., dated as of August 25, 1995.

10.19(9)      Amended and Restated Agreement and Plan of  
                     Reorganization among the Company, Inset Acquisition
                      Corporation, Inset Systems, Inc., and certain of the
                  shareholders of Inset Systems, Inc., dated as of
September 5, 1995.            

          10.20(10)      Agreement and Plan of Reorganization among the Company,
            StarNine Acquisition Corporation, StarNine
                        Technologies, Inc., and certain of the shareholders of
         StarNine Technologies, Inc. dated as of
September 27, 1995.           

         10.21(10)      Amended and Restated Asset Purchase Agreement and Plan
                       of Reorganization among the Company, Prospero Systems
                    Research, Inc., and certain of the shareholders of
                        Prospero Systems Research, Inc., dated as of September
28, 1995.                     

          10.22(11)      Agreement and Plan of Reorganization among the Company,
                      DTI Acquisition Corporation, Datastorm Technologies,
                       Inc., and the shareholders of Datastorm Technologies,
                      Inc. listed on the execution pages thereto, dated as
of March 28, 1996.            

      10.23(13)      Asset Purchase Agreement and Plan of Reorganization
                        among the Company, FLS Acquisition Corp., Future Labs,
                        Inc., and the shareholders of FutureLabs listed on the
                    execution pages thereto, dated as of May 15, 1996.

          10.24(14)      Agreement and Plan of Reorganization among the Company,
                      VSI Acquisition Corporation, Vertisoft Systems, Inc.
                   ("Vertisoft"), Vertisoft Direct, Inc. ("Direct"),
                       and the shareholders of each of Vertisoft and Direct,
dated July 15, 1996.          

          10.25(15)      Agreement and Plan of Reorganization among the Company,
                    Limbex Corporation, and the shareholders of Limbex
           Corporation, dated as of August 13, 1996.

        10.26(16)      Credit Agreement (the "Credit Agreement") between the
                Company and Bank of America National Trust and
                     Savings Association, dated as of February 14, 1996.

       10.27(17)      First Amendment to the Credit Agreement, dated as of
                       March 28, 1996, and incorporated herein by reference.

       10.28(18)      Waiver and Second Amendment to the Credit Agreement,
                      dated as of August 13, 1996, and incorporated herein
by reference.                 

       10.29(19)      Third Amendment to the Credit Agreement, dated as of
                September 30, 1996, and incorporated herein by
reference.                    

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       10.30(19)      Waiver and Fourth Amendment to the Credit Agreement,
dated as of December 17, 1996.

21.1(19)      Subsidiaries of the Company.                

23.1(1)      Consent of KPMG Peat Marwick LLP, independent
certified public accountants. 

         23.2(1)       Consent of Arthur Andersen LLP, independent certified
public accountants.           

27(19)       Financial Data Schedule                    

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

*        Denotes a compensation plan or other arrangement under which directors 
or executive officers may participate.                        

(1)      Filed herewith.                                                        

(2)      Filed as an exhibit to the Company's Registration Statement on         
     Form S-1, as amended (File No. 33-40094) and incorporated herein by
reference.                                                    

(3)      Filed as an exhibit to the Company's Form 10-Q for the quarter ended   
March 31, 1992, and incorporated herein by reference.         

(4)      Filed as an exhibit to the Company's Current Report on Form 8-K dated  
August 11, 1992, and incorporated herein by reference.        

(5)      Filed as an exhibit to the Company's Form 10-K for the year ended      
September 30, 1993, and incorporated herein by reference.     

(6)      Filed as an exhibit to the Company's Form 10-K for the year ended      
September 30, 1994, and incorporated herein by reference.     

(7)      Filed as an exhibit to the Company's Current Report on Form 8-K dated  
June 30, 1995, and incorporated herein by reference.          

(8)      Filed as an exhibit to the Company's Current Report on Form 8-K dated  
August 28, 1995, and incorporated herein by reference.        

(9)      Filed as an exhibit to the Company's Registration Statement on         
       Form S-4, as amended (File No. 33-984456), and incorporated herein by
reference.                                                    

(10)     Filed as an exhibit to the Company's Annual Report on Form 10-K for    
the year ended September 30, 1995, and incorporated herein by 
reference.                                                    

(11)     Filed as an exhibit to the Company's Current Report on Form 8-K dated  
March 28, 1996, and incorporated herein by reference.         

(12)     Filed as an exhibit to the Company's Registration Statement on         
     Form S-8 (File No. 333-4602), and incorporated herein by reference.

(13)     Filed as an exhibit to the Company's Current Report on Form 8-K dated  
May 15, 1996, and incorporated herein by reference.           

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(14)     Filed as an exhibit to the Company's Current Report on Form 8-K, dated 
July 18, 1996, and incorporated herein by reference.          

(15)     Filed as an exhibit to the Company's Current Report on Form 8-K, dated 
August 14, 1996, and incorporated herein by reference.        

(16)     Filed as an exhibit to the Company's Current Report on Form 8-K dated  
November 25, 1996, and incorporated herein by reference.      

(17)     Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for 
         the quarter ended March 31, 1996, and incorporated herein by reference.

(18)     Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for 
        the quarter ended June 30, 1996, and incorporated herein by reference.

(19)     Filed as an exhibit to the Company's Annual Report on Form 10-K for    
the year ended September 30, 1996, and incorporated herein by 
reference.                                                    

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to 
be signed on its behalf by the undersigned, thereunto duly authorized, in the   
City of Marina del Rey, State of California, on July 18, 1997.                  

   QUARTERDECK CORPORATION

     By: /s/ Curtis A. Hessler
                           -----------------------------------------
           Curtis A. Hessler
                               President and Chief Executive Officer

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS 

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       ----
                                                                                           
Independent Auditors' Reports.........................................................   9 

Consolidated Balance Sheets at September 30, 1996 and 1995............................  11 

Consolidated Statements of Operations for fiscal years ended September 30, 1996, 1995      
  and 1994............................................................................  12 

Consolidated Statements of Stockholders' Equity for fiscal years ended September 30,       
  1996, 1995 and 1994.................................................................  13 

Consolidated Statements of Cash Flows for fiscal years ended September 30, 1996, 1995      
  and 1994............................................................................  16 

Notes to Consolidated Financial Statements............................................  17 

                      CONSOLIDATED FINANCIAL STATEMENT SCHEDULE                            

Schedule II -- Valuation and Qualifying Accounts......................................  38 

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INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders                                         
Quarterdeck Corporation:                                                        

We have audited the consolidated financial statements of Quarterdeck  
Corporation and subsidiaries as of September 30, 1996 and 1995 and the related  
consolidated statements of operations, stockholders' equity, and cash flows for 
each of the years in the three-year period ended September 30, 1996. In         
connection with our audits of the consolidated financial statements, we have    
audited the financial statement schedule. These consolidated financial          
statements and financial statement schedule are the responsibility of the       
Company's management. Our responsibility is to express an opinion on these      
consolidated financial statements and financial statement schedule based on our 
audits. We did not audit the financial statements of Datastorm Technologies,    
Inc., a wholly-owned subsidiary, for 1995 and 1994, which statements reflect    
total assets constituting 28 percent of the related consolidated totals at      
September 30, 1995 and total revenues constituting 34 percent and 50 percent for
each of the years in the two-year period ended September 30, 1995, respectively,
of the related consolidated totals. Those statements were audited by other      
auditors whose report has been furnished to us, and our opinion, insofar as it  
relates to the amounts included for Datastorm Technologies, Inc. is based solely
on the report of the other auditors.                                            

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

   In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all  
material respects, the financial position of Quarterdeck Corporation and        
subsidiaries as of September 30, 1996 and 1995, and the results of their        
operations and their cash flows for each of the years in the three-year period  
ended September 30, 1996, in conformity with generally accepted accounting      
principles. Also in our opinion, the related financial statement schedule, when 
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth     
therein.                                                                        

                         KPMG PEAT MARWICK LLP

Los Angeles, California                                                         
November 22, 1996,                                                              
except as to the                                                            
last paragraph of                                                           
Note 13, which is as                                                        
of December 19, 1996                                                        

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of                                                    
DATASTORM Technologies, Inc.:                                                   

We have audited the balance sheet of DATASTORM Technologies, Inc. (a Missouri   
corporation) as of December 31, 1995, and the related statements of income and  
changes in retained earnings, and cash flows for the years ended December 31,   
1995 and 1994 (not presented herein). These financial statements are the        
responsibility of the Company's management. Our responsibility is to express an 
opinion on these financial statements based on our audits.                      

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

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the financial position of DATASTORM Technologies, Inc.,  
as of December 31, 1995, and the results of its operations and its cash flows   
for the years ended December 31, 1995 and 1994, in conformity with generally    
accepted accounting principles.                                                 

ARTHUR ANDERSEN LLP                                                             

St. Louis, Missouri,                                                            
March 1, 1996                                                                   

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QUARTERDECK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 
(IN THOUSANDS)

ASSETS

                                                        [Enlarge/Download Table]

                                                                              SEPTEMBER 30,    
                                                                           ------------------- 
                                                                            1996        1995   
                                                                           -------     ------- 
                                                                                               
Current assets:                                                                                
  Cash and short-term investments........................................  $25,554     $39,669 
  Trade accounts receivable..............................................    9,265      13,621 
  Inventories............................................................    2,151       2,281 
  Deferred income taxes..................................................       --       2,178 
  Other current assets...................................................    5,594       4,006 
                                                                           -------     ------- 
     Total current assets................................................   42,564      61,755 
Property, plant and equipment............................................   21,252       8,335 
Capitalized software costs, net..........................................    3,448       2,807 
Note receivable from related party -- building...........................       --         469 
Other assets.............................................................    9,517       3,333 
                                                                           -------     ------- 
                                                                           $76,781     $76,699 
                                                                           =======     ======= 
                            LIABILITIES AND STOCKHOLDERS' EQUITY                               

Current liabilities:                                                                           
  Notes payable to banks.................................................  $ 8,280     $    -- 
  Accounts payable.......................................................   10,685      13,582 
  Accrued liabilities....................................................   17,232      13,880 
  Accrued acquisition and restructuring charges..........................   10,940       3,455 
  Notes payable to related parties.......................................       --       1,093 
  Current portion of long-term obligations...............................      111         255 
                                                                           -------     ------- 
          Total current liabilities......................................   47,248      32,265 
Convertible notes........................................................   25,000          -- 
Other long-term obligations, less current portion........................      108         164 
                                                                           -------     ------- 
          Total liabilities..............................................   72,356      32,429 
Liquidity (Note 16)                                                                            
Commitments and litigation (Notes 7 and 10)                                                    
  Stockholders' equity:                                                                        
  Series B preferred stock (authorized: 2,000; issued and outstanding:                         
     200 and 0 shares, liquidation preference $20,000)...................   20,000          -- 
  Common stock (authorized: 50,000 shares; issued and outstanding: 37,666                      
     and 34,673 shares)..................................................       38          35 
  Treasury stock.........................................................     (559)       (559)
  Additional paid-in capital.............................................   64,819      39,873 
  Retained earnings (accumulated deficit)................................  (79,766)      5,359 
  Foreign currency translation adjustment................................     (468)       (563)
  Notes receivable from directors for sale of stock......................      (18)        (70)
  Net unrealized gain on marketable securities...........................      379         195 
                                                                           -------     ------- 
          Total stockholders' equity.....................................    4,425      44,270 
                                                                           -------     ------- 
                                                                           $76,781     $76,699 
                                                                           =======     ======= 

See accompanying notes to consolidated financial statements.

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QUARTERDECK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                 YEAR ENDED SEPTEMBER 30,      
                                                            ---------------------------------- 
                                                              1996         1995         1994   
                                                            --------     --------     -------- 
                                                                                               
Net revenues............................................... $133,100     $117,606     $ 84,715 
Cost of revenues...........................................   49,600       34,884       27,403 
                                                            --------     --------     -------- 
  Gross profit.............................................   83,500       82,722       57,312 
Operating expenses:                                                                            
  Research and development.................................   21,314       14,286        7,520 
  Sales and marketing......................................   66,355       30,624       27,107 
  General and administrative...............................   32,128       20,704       20,908 
  Acquisition, restructuring and other charges.............   37,789        7,409       12,863 
  Litigation settlement....................................       --           --          615 
                                                            --------     --------     -------- 
  Total operating expenses.................................  157,586       73,023       69,013 
Operating income (loss)....................................  (74,086)       9,699      (11,701)
Other income (expense), net................................       38          (38)        (271)
Interest income (expense), net.............................     (105)       1,922        1,365 
                                                            --------     --------     -------- 
Income (loss) before income taxes..........................  (74,153)      11,583      (10,607)
Provision (benefit) for income taxes.......................      806          331       (5,982)
                                                            --------     --------     -------- 
Net income (loss).......................................... $(74,959)    $ 11,252     $ (4,625)
                                                            ========     ========     ======== 
Net income (loss) per share:                                                                   
  Primary.................................................. $  (2.15)    $   0.32     $  (0.15)
                                                            --------     --------     -------- 
  Fully diluted............................................ $  (2.15)    $   0.31     $  (0.15)
                                                            --------     --------     -------- 
Shares used to compute net income (loss) per share:                                            
  Primary..................................................   34,894       35,557       31,825 
                                                            --------     --------     -------- 
  Fully diluted............................................   34,894       36,499       31,825 
                                                            --------     --------     -------- 
Additional unaudited pro forma data:                                                           
  Income (loss) before taxes............................... $(74,153)    $ 11,583     $(10,607)
  Pro forma income tax expense.............................      806        3,406          576 
                                                            --------     --------     -------- 
     Pro forma net income (loss)........................... $(74,959)    $  8,177     $(11,183)
                                                            ========     ========     ======== 
Pro forma income (loss) per share:                                                             
  Primary.................................................. $  (2.15)    $   0.23     $  (0.35)
                                                            --------     --------     -------- 
  Fully diluted............................................ $  (2.15)    $   0.22     $  (0.35)
                                                            ========     ========     ======== 

See accompanying notes to consolidated financial statements.

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QUARTERDECK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                                               NOTES   
                                                                                                             RECEIVABLE
                            SERIES B                                                RETAINED      FOREIGN       FROM   
                         PREFERRED STOCK    COMMON STOCK              ADDITIONAL    EARNINGS     CURRENCY    DIRECTORS 
                        -----------------  ---------------  TREASURY   PAID-IN    (ACCUMULATED  TRANSLATION   FOR SALE 
                        SHARES    AMOUNT   SHARES   AMOUNT   STOCK     CAPITAL      DEFICIT)    ADJUSTMENT    OF STOCK 
                        ------   --------  ------   ------  --------  ----------  ------------  -----------  ----------
                                                                                                                       
Balance, September 30,                                                                                                 
  1993, as reported in                                                                                                 
  June 25, 1996 Form                                                                                                   
  8K...................     --   $     --  29,503    $  29   $  (27)   $ 28,408     $ 25,565       $(581)        $   --
Adjustments to reflect                                                                                                 
  acquisitions,........     --         --   3,500        4       --          --           --          --             --
Common stock options                                                                                                   
  exercised............     --         --      30       --       --          10           --          --             --
Tax benefits arising                                                                                                   
  from exercise of                                                                                                     
  nonqualified stock                                                                                                   
  options..............     --         --      --       --       --          16           --          --             --
Net loss...............     --         --      --       --       --          --       (4,625)         --             --
Undistributed earnings                                                                                                 
  of subchapter-S                                                                                                      
  subsidiaries.........     --         --      --       --       --      18,476      (18,476)         --             --
Distributions to                                                                                                       
  shareholders.........     --         --      --       --       --     (12,215)          --          --             --
Foreign currency                                                                                                       
  translation                                                                                                          
  adjustment...........     --         --      --       --       --          --           --          25             --
                            --                                                                                         
                                      ---  ------      ---    -----    --------     --------       -----            ---
Balance, September 30,                                                                                                 
  1994.................     --   $     --  33,033    $  33   $  (27)   $ 34,695     $  2,464       $(556)        $   --
                            ==        ===  ======      ===    =====    ========     ========       =====            ===



                           NET                                                                                         
                        UNREALIZED                                                                                     
                         GAIN ON         TOTAL                                                                         
                        MARKETABLE   STOCKHOLDERS'                                                                     
                        SECURITIES      EQUITY                                                                         
                        ----------   -------------                                                                     
                                                                                                                       
Balance, September 30,                                                                                                 
  1993, as reported in                                                                                                 
  June 25, 1996 Form                                                                                                   
  8K...................     $   --     $  53,394                                                                       
Adjustments to reflect                                                                                                 
  acquisitions,........         --             4                                                                       
Common stock options                                                                                                   
  exercised............         --            10                                                                       
Tax benefits arising                                                                                                   
  from exercise of                                                                                                     
  nonqualified stock                                                                                                   
  options..............         --            16                                                                       
Net loss...............         --        (4,625)                                                                      
Undistributed earnings                                                                                                 
  of subchapter-S                                                                                                      
  subsidiaries.........         --            --                                                                       
Distributions to                                                                                                       
  shareholders.........         --       (12,215)                                                                      
Foreign currency                                                                                                       
  translation                                                                                                          
  adjustment...........         --            25                                                                       

                               ---      --------                                                                       
Balance, September 30,                                                                                                 
  1994.................     $   --     $  36,609                                                                       
                               ===      ========                                                                       

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                                                NOTES   
                                                                                                              RECEIVABLE
                             SERIES B                                                RETAINED      FOREIGN       FROM   
                          PREFERRED STOCK    COMMON STOCK              ADDITIONAL    EARNINGS     CURRENCY    DIRECTORS 
                         -----------------  ---------------  TREASURY   PAID-IN    (ACCUMULATED  TRANSLATION   FOR SALE 
                         SHARES    AMOUNT   SHARES   AMOUNT   STOCK     CAPITAL      DEFICIT)    ADJUSTMENT    OF STOCK 
                         ------   --------  ------   ------  --------  ----------  ------------  -----------  ----------
                                                                                                                        
Balance, September 30,                                                                                                  
  1994.................      --   $     --  33,033    $  33   $  (27)   $ 34,695     $  2,464       $(556)        $   --
Adjustment for                                                                                                          
  Internetware, Inc.                                                                                                    
  pooling of                                                                                                            
  interest.............      --         --     460        1       --           9          (46)         --             --
Adjustment for StarNine                                                                                                 
  Technologies, Inc.                                                                                                    
  pooling of                                                                                                            
  interest.............      --         --     524        1       --         223          245          --             --
Adjustment for                                                                                                          
  Datastorm, Ltd.                                                                                                       
  pooling of                                                                                                            
  interest.............      --         --      --       --       --         441           --          --             --
Acquisition of assets                                                                                                   
  from Prospero........      --         --     155       --       --       2,900           --          --             --
Exercise of StarNine                                                                                                    
  Technologies, Inc.                                                                                                    
  stock options........      --         --     149       --       --         224           --          --             --
Issuance of common                                                                                                      
  stock by Inset                                                                                                        
  Systems, Inc.........      --         --      63       --       --           5           --          --             --
Common stock options                                                                                                    
  exercised............      --         --     351       --       --         579           --          --           (70)
Treasury shares, at                                                                                                     
  cost.................      --         --     (62)      --     (532)         22           --          --             --
Tax benefits arising                                                                                                    
  from exercise of                                                                                                      
  nonqualified stock                                                                                                    
  options..............      --         --      --       --       --          59           --          --             --
Undistributed earnings                                                                                                  
  of subchapter-S                                                                                                       
  subsidiaries.........      --         --      --       --       --       8,154       (8,154)         --             --
Capital contribution...      --         --      --       --       --         450           --          --             --
Net income.............      --         --      --       --       --          --       11,252          --             --
Distributions to                                                                                                        
  shareholders.........      --         --      --       --       --      (7,888)         (18)         --             --
Duplicate earnings                                                                                                      
  elimination for                                                                                                       
  Landmark pooling.....      --         --      --       --       --          --         (384)         --             --
Net increase in                                                                                                         
  unrealized gain......      --         --      --       --       --          --           --          --             --
Foreign currency                                                                                                        
  translation                                                                                                           
  adjustment...........      --         --      --       --       --          --           --          (7)            --
                            ---       ----  ------     ----   ------    --------      -------       -----          -----
Balance, September 30,                                                                                                  
  1995.................      --   $     --  34,673    $  35   $ (559)   $ 39,873     $  5,359       $(563)        $ (70)
                            ===       ====  ======     ====   ======    ========      =======       =====          =====



                            NET                                                                                         
                         UNREALIZED                                                                                     
                          GAIN ON         TOTAL                                                                         
                         MARKETABLE   STOCKHOLDERS'                                                                     
                         SECURITIES      EQUITY                                                                         
                         ----------   -------------                                                                     
                                                                                                                        
Balance, September 30,                                                                                                  
  1994.................      $   --     $  36,609                                                                       
Adjustment for                                                                                                          
  Internetware, Inc.                                                                                                    
  pooling of                                                                                                            
  interest.............          --           (36)                                                                      
Adjustment for StarNine                                                                                                 
  Technologies, Inc.                                                                                                    
  pooling of                                                                                                            
  interest.............          33           502                                                                       
Adjustment for                                                                                                          
  Datastorm, Ltd.                                                                                                       
  pooling of                                                                                                            
  interest.............          --           441                                                                       
Acquisition of assets                                                                                                   
  from Prospero........          --         2,900                                                                       
Exercise of StarNine                                                                                                    
  Technologies, Inc.                                                                                                    
  stock options........          --           224                                                                       
Issuance of common                                                                                                      
  stock by Inset                                                                                                        
  Systems, Inc.........          --             5                                                                       
Common stock options                                                                                                    
  exercised............          --           509                                                                       
Treasury shares, at                                                                                                     
  cost.................          --          (510)                                                                      
Tax benefits arising                                                                                                    
  from exercise of                                                                                                      
  nonqualified stock                                                                                                    
  options..............          --            59                                                                       
Undistributed earnings                                                                                                  
  of subchapter-S                                                                                                       
  subsidiaries.........          --            --                                                                       
Capital contribution...          --           450                                                                       
Net income.............          --        11,252                                                                       
Distributions to                                                                                                        
  shareholders.........          --        (7,906)                                                                      
Duplicate earnings                                                                                                      
  elimination for                                                                                                       
  Landmark pooling.....          --          (384)                                                                      
Net increase in                                                                                                         
  unrealized gain......         162           162                                                                       
Foreign currency                                                                                                        
  translation                                                                                                           
  adjustment...........          --            (7)                                                                      
                               ----      --------                                                                       
Balance, September 30,                                                                                                  
  1995.................      $  195     $  44,270                                                                       
                               ====      ========                                                                       

See accompanying notes to consolidated financial statements.

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QUARTERDECK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                                                NOTES   
                                                                                                              RECEIVABLE
                             SERIES B                                                RETAINED      FOREIGN       FROM   
                          PREFERRED STOCK    COMMON STOCK              ADDITIONAL    EARNINGS     CURRENCY    DIRECTORS 
                         -----------------  ---------------  TREASURY   PAID-IN    (ACCUMULATED  TRANSLATION   FOR SALE 
                         SHARES    AMOUNT   SHARES   AMOUNT   STOCK     CAPITAL      DEFICIT)    ADJUSTMENT    OF STOCK 
                         ------   --------  ------   ------  --------  ----------  ------------  -----------  ----------
                                                                                                                        
Balance, September 30,                                                                                                  
  1995.................      --   $     --  34,673    $  35   $ (559)   $ 39,873     $  5,359       $(563)        $ (70)
Adjustment for                                                                                                          
  Datastorm and Inset                                                                                                   
  poolings of                                                                                                           
  interest.............      --         --      35       --       --         385           --          23             --
Adjustment for                                                                                                          
  Vertisoft pooling of                                                                                                  
  interests............      --         --      --       --       --          40          999          --             --
Adjustment for Future                                                                                                   
  Labs pooling of                                                                                                       
  interests............      --         --     664        1                1,987       (1,481)         --             --
Duplicate earnings                                                                                                      
  elimination for                                                                                                       
  Datastorm pooling....      --         --      --       --       --          --         (717)         --             --
Purchase of Limbex.....      --         --   1,310        1       --      14,370           --          --             --
Stock issuance for                                                                                                      
  purchase of                                                                                                           
  InterLink............      --         --     205       --       --       3,000           --          --             --
Stock issuance for                                                                                                      
  purchase of assets                                                                                                    
  from Pinnacle........      --         --     198       --       --       1,800           --          --             --
Net loss...............      --         --      --       --       --          --      (74,959)         --             --
Undistributed earnings                                                                                                  
  of subchapter-S                                                                                                       
  subsidiaries.........      --         --      --       --       --       8,967       (8,967)         --             --
Distribution to                                                                                                         
  shareholders.........      --         --      --       --       --      (7,307)          --          --             --
Net increase in                                                                                                         
  unrealized gain......      --         --      --       --       --          --           --          --             --
Common stock options                                                                                                    
  exercised............      --         --     581        1       --       2,979           --          --             52
Foreign currency                                                                                                        
  translation                                                                                                           
  adjustment...........      --         --      --       --       --          --           --          72             --
Issuance of convertible                                                                                                 
  preferred stock......     200     20,000      --       --       --          --           --          --             --
Cost of preferred stock                                                                                                 
  issuance.............      --         --      --       --       --      (1,275)          --          --             --
                            ---   --------  ------     ----   ------    --------     --------       -----          -----
Balance, September 30,                                                                                                  
  1996.................     200   $ 20,000  37,666    $  38   $ (559)   $ 64,819     $(79,766)      $(468)        $ (18)
                            ===   ========  ======     ====   ======    ========     ========       =====          =====



                            NET                                                                                         
                         UNREALIZED                                                                                     
                          GAIN ON         TOTAL                                                                         
                         MARKETABLE   STOCKHOLDERS'                                                                     
                         SECURITIES      EQUITY                                                                         
                         ----------   -------------                                                                     
                                                                                                                        
Balance, September 30,                                                                                                  
  1995.................      $  195     $  44,270                                                                       
Adjustment for                                                                                                          
  Datastorm and Inset                                                                                                   
  poolings of                                                                                                           
  interest.............          --           408                                                                       
Adjustment for                                                                                                          
  Vertisoft pooling of                                                                                                  
  interests............          --         1,039                                                                       
Adjustment for Future                                                                                                   
  Labs pooling of                                                                                                       
  interests............          --           507                                                                       
Duplicate earnings                                                                                                      
  elimination for                                                                                                       
  Datastorm pooling....          --          (717)                                                                      
Purchase of Limbex.....          --        14,371                                                                       
Stock issuance for                                                                                                      
  purchase of                                                                                                           
  InterLink............          --         3,000                                                                       
Stock issuance for                                                                                                      
  purchase of assets                                                                                                    
  from Pinnacle........          --         1,800                                                                       
Net loss...............          --       (74,959)                                                                      
Undistributed earnings                                                                                                  
  of subchapter-S                                                                                                       
  subsidiaries.........          --            --                                                                       
Distribution to                                                                                                         
  shareholders.........          --        (7,307)                                                                      
Net increase in                                                                                                         
  unrealized gain......         184           184                                                                       
Common stock options                                                                                                    
  exercised............          --         3,032                                                                       
Foreign currency                                                                                                        
  translation                                                                                                           
  adjustment...........          --            72                                                                       
Issuance of convertible                                                                                                 
  preferred stock......          --        20,000                                                                       
Cost of preferred stock                                                                                                 
  issuance.............          --        (1,275)                                                                      
                              -----      --------                                                                       
Balance, September 30,                                                                                                  
  1996.................      $  379     $   4,425                                                                       
                              =====      ========                                                                       

See accompanying notes to consolidated financial statements.

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QUARTERDECK CORPORATION AND SUBSIDIARIES

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

                                                        [Enlarge/Download Table]

                                                                            YEAR ENDED SEPTEMBER 30,     
                                                                         ------------------------------- 
                                                                           1996       1995        1994   
                                                                         --------   ---------   -------- 
                                                                                                         
Cash flows from operating activities:                                                                    
  Net income (loss)..................................................... $(74,959)  $  11,252   $ (4,625)
  Adjustments to reconcile net income (loss) to net cash provided by                                     
    operating activities:                                                                                
    Depreciation and amortization of equipment and leasehold                                             
      improvements......................................................    6,063       3,610      3,960 
    Amortization of capitalized software cost & other intangibles.......    3,770       1,575      3,171 
    Write-off of property and equipment.................................    1,409          --      1,719 
    Write-off of capitalized software costs and prepaid royalties.......    4,860          --      3,701 
    Stock compensation..................................................       --          59         -- 
    Elimination of duplicate net income from acquired entities..........     (717)       (384)        -- 
    Loss on sale or abandonment of assets...............................       --          38        271 
    Write-off of in process research and development....................   14,993       2,900         -- 
  Changes in assets and liabilities:                                                                     
    Trade accounts receivable...........................................    4,591      (7,749)     5,333 
    Refundable income taxes.............................................       --       6,301     (6,301)
    Deferred income taxes...............................................    3,072      (2,178)        -- 
    Inventories.........................................................      130        (435)       937 
    Other current assets................................................   (3,420)     (1,565)     7,079 
    Other assets........................................................   (4,092)       (203)    (5,453)
    Accounts payable....................................................   (6,171)      5,342      4,267 
    Accrued liabilities.................................................       68       1,865      4,526 
    Accrued restructuring charges.......................................      558      (3,476)     5,321 
    Foreign currency translation adjustment.............................       95          16         25 
                                                                         --------   ---------   -------- 
         Net cash provided by (used in) operating activities............  (49,750)     16,968     23,931 
                                                                         --------   ---------   -------- 
Cash flows from investing activities:                                                                    
  Purchases of short-term investments...................................       --    (111,989)   (61,351)
  Proceeds from sales and maturities of short-term investments..........   34,285     106,289     59,131 
  Capital expenditures..................................................  (19,669)     (6,029)    (3,396)
  Capitalized software costs............................................   (4,504)     (2,564)    (3,617)
  Purchase of minority interest in affiliates...........................       --      (2,700)        -- 
  Loan to related party for note receivable -- building.................       --        (469)        -- 
  Advances (to) from affiliates.........................................       52        (100)       137 
  Opening cash balance of previously unconsolidated subsidiaries........    5,054         559         -- 
  Proceeds from sale of assets..........................................       --          12          5 
  Accrued acquisition charges, net of cash acquired.....................    6,493       2,525         -- 
                                                                         --------   ---------   -------- 
         Net cash provided by (used in) investing activities............   21,711     (14,466)    (9,091)
                                                                         --------   ---------   -------- 
Cash flows from financing activities:                                                                    
  Net proceeds from issuance of preferred stock.........................   20,000          --         -- 
  Net proceeds from issuance of common stock............................    3,529       1,439         11 
  Proceeds from issuance of long-term convertible notes.................   25,000          43        544 
  Proceeds from issuance of bank debt...................................    8,280          --         -- 
  Principal payments under long-term obligations........................     (200)       (482)      (555)
  Notes payable to related parties......................................   (1,093)        441        635 
  Acquisition of treasury stock.........................................       --        (532)        -- 
  Distributions to stockholders.........................................   (7,307)     (7,906)   (12,215)
                                                                         --------   ---------   -------- 
         Net cash provided by (used in) financing activities............   48,209      (6,997)   (11,580)
                                                                         --------   ---------   -------- 
         Net increase (decrease) in cash and cash equivalents...........   20,170      (4,495)     3,260 
Cash and cash equivalents at beginning of period........................    5,384       9,879      6,619 
                                                                         --------   ---------   -------- 
Cash and cash equivalents at end of period.............................. $ 25,554   $   5,384   $  9,879 
                                                                         ========   =========   ======== 
Supplemental disclosure of cash flow information:                                                        
  Cash paid during the period for:                                                                       
    Interest............................................................ $    468   $      20   $     34 
    Income taxes........................................................    1,993       1,534         -- 

See accompanying notes to consolidated financial statements.

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QUARTERDECK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                              

Quarterdeck Corporation ("the Company") commenced operations as a     
California corporation on September 16, 1982, and was reincorporated in Delaware
in 1991. The consolidated financial statements include the accounts of the      
Company and its wholly owned subsidiaries. See note 2 for a description of      
pooling of interests and purchase transactions. All significant intercompany    
transactions have been eliminated in consolidation.                             

Revenue Recognition -- Revenue from the sale of software products is  
recognized upon shipment, where collection of the resulting receivable is       
probable and there are no significant obligations remaining. The estimated cost 
to fulfill technical support obligations to end users arising from the sale of  
software is accrued upon shipment. Certain limited rights of return and exchange
from customers exist as defined by the Company's general distributor agreements.
The Company establishes allowances for estimated product returns and exchanges  
as a reserve against revenues. Provisions for sales returns and exchanges were  
approximately $31,889,000, $9,136,000 and $7,510,000 in fiscal 1996, 1995 and   
1994, respectively. Revenue from the sale or licensing of intellectual property 
is recognized when all significant obligations of the Company have been met and 
no customer right of return exists.                                             

   Capitalized Software Costs -- Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or    
Otherwise Marketed," requires the capitalization of certain software development
and production costs once technological feasibility has been achieved. The cost 
of purchased software is capitalized when related to a product which has        
achieved technological feasibility or that has an alternative future use. For   
the year ended September 30, 1996, the Company did not capitalize any internal  
software development costs. Internal software development costs related to new  
products reaching technological feasibility during fiscal 1996 were immaterial. 
During fiscal 1996, the Company purchased and capitalized software amounting to 
$4,504,000. For the years ended September 30, 1995 and 1994, the Company        
capitalized $2,564,000 and $3,617,000, respectively, of software development and
purchased software costs. Software development costs incurred prior to achieving
technological feasibility as well as certain licensing costs are charged to     
research and development expense as incurred.                                   

    Capitalized software development and purchased software costs are reported
at the lower of unamortized cost or net realizable value. Commencing upon       
initial product release, these costs are amortized based on the straight-line   
method over the estimated life, generally one year for internal software        
development costs and twelve to thirty-six months for purchased software. Fully 
amortized software costs are removed from the financial records. For the years  
ended September 30, 1996, 1995 and 1994, the Company recorded $3,711,000,       
$1,575,000 and $3,171,000 of amortization of capitalized software costs,        
respectively, based on the straight-line method. Amortization of capitalized    
software costs is included in cost of revenues in the accompanying consolidated 
statement of operations.                                                        

Inventories -- Inventories, consisting primarily of product packaging,
documentation and media, is stated at the lower of cost or market (net          
realizable value). Cost is determined by the first-in, first-out (FIFO) method. 

  Cash Equivalents and Short-Term Investments -- The Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents. Cash and cash equivalents at September 30, 1996 and
1995 amounted to $25,554,000 and $5,384,000, respectively. $20,000,000 of the   
September 30, 1996 balance of $25,554,000 was received pursuant to the Series B 
Convertible Preferred Stock (note 15) issuance on September 30, 1996.           

     As of September 30, 1996, $22,226,000 of the total cash and cash equivalent
balance was invested in interest bearing bank accounts and cash equivalent money
funds.                                                                          

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QUARTERDECK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

Short-term investments at September 30, 1995 amounted to $34,285,000  
consisting of municipal bonds of $31,755,000, U.S. debt securities of $2,375,000
and corporate securities of $155,000. Effective October 1, 1994, the Company    
adopted the provisions of Statement of Financial Accounting Standards No. 115   
(FAS 115), "Accounting for Certain Investments in Debt and Equity Securities."  
Under FAS 115, the Company has classified its short-term investments and        
long-term marketable securities as available-for-sale. Available-for-sale       
securities are stated at market value and unrealized holding gains and losses,  
net of the related tax effect, are excluded from earnings and are reported as a 
separate component of stockholders' equity until realized. A decline in the     
market value of the security below cost that is deemed other than temporary is  
charged to earnings resulting in the establishment of a new cost basis for the  
security.                                                                       

Since the market value of short-term investments at October 1, 1994   
approximated cost, the adoption of FAS 115 did not have a material effect on the
Company's consolidated financial statements.                                    

     Computation of Net Income (Loss) per Share -- The primary net income (loss)
per common and common equivalent share for the years ended September 30, 1996,  
1995 and 1994 has been computed using the weighted average number of common and 
dilutive common stock equivalent shares outstanding for each year as summarized 
below:                                                                          

                                                        [Enlarge/Download Table]

                                                                YEAR ENDED SEPTEMBER 30,        
                                                        ----------------------------------------
                                                           1996           1995           1994   
                                                        ----------     ----------     ----------
                                                                                                
Weighted average common stock outstanding during the                                            
  year................................................. 34,893,937     34,112,914     31,824,560
Common stock equivalents of stock options and warrants                                          
  outstanding..........................................         --      1,443,997             --
                                                        ----------     ----------     ----------
Shares used in primary EPS calculation................. 34,893,937     35,556,911     31,824,560
                                                        ==========     ==========     ==========
Shares used in fully diluted EPS calculation........... 34,893,937     36,498,634     31,824,560
                                                        ==========     ==========     ==========

  The weighted average number of shares of common stock outstanding during
each of the years has been adjusted to reflect the issuance of common stock in  
connection with the following acquisitions which are accounted for as poolings  
of interest: 3,500,000 shares for Landmark Research International Corporation   
("Landmark") (note 2), 921,218 shares for Inset Systems, Inc. ("Inset") (note   
2), 5,200,000 shares for Datastorm Technologies, Inc. and Datastorm Limited     
(together "Datastorm") (note 2), and 3,499,999 shares for Vertisoft Systems,    
Inc. ("Vertisoft") (note 2). The weighted average number of shares of common    
stock outstanding during fiscal 1996 includes 663,768 shares issued in the      
Future Labs, Inc. ("Future Labs") pooling of interests as if the shares were    
issued at the beginning of fiscal 1996. Additionally the following shares were  
issued in connection with purchase acquisitions and are included as of the      
respective acquisition dates: 1,309,890 shares for Limbex Corporation           
("Limbex"), 205,000 shares for InterLink Technology, Inc. ("InterLink"), and    
198,000 shares for the Pinnacle Software, Inc. ("Pinnacle") technology purchase.
The weighted average number of shares of common stock outstanding for the year  
ended September 30, 1996 excludes 1,028,000 shares issued in connection with the
above acquisitions, which are held in escrow, as their inclusion would be       
anti-dilutive to the loss per share. The weighted average number of shares of   
common stock outstanding for the year ended September 30, 1994, excluded 962,000
shares issued in connection with the above acquisitions, which are held in      
escrow, as their inclusion would be anti-dilutive.                              

     Additionally, effective October 1, 1994 (fiscal 1995), the weighted average
number of common shares has been adjusted to reflect the issuance of 459,950 and
523,667 shares of common stock issued in connection with the Internetware, Inc. 
and a related party (together "Internetware") and StarNine Technologies, Inc.   
("StarNine") mergers, accounted for as immaterial pooling of interests,         
respectively, and 149,000 shares of common stock issued during the year ended   
September 30, 1995 relating to the Company equivalent shares issued on the      
exercise of StarNine options.                                                   

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QUARTERDECK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

  Reclassification -- Certain items in prior year's consolidated financial
statements have been reclassified to conform to the current year's presentation.

Use of Estimates -- Management of the Company has made a number of    
estimates and assumptions relating to the reporting of assets and liabilities to
prepare these financial statements in conformity with generally accepted        
accounting principles. Significant estimates are primarily related to provisions
for sales returns, inventory reserve, allowance for doubtful accounts and       
valuation of long-term investments. Actual results could differ from these      
estimates.                                                                      

  Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of       
short-term investments and trade accounts receivable. As of September 30, 1996, 
the Company had no short-term investments. As of September 30, 1995, the        
Company's investment portfolio was diversified and consisted of investment grade
securities. The credit risk associated with trade accounts receivable is        
mitigated by the Company's credit evaluation process, reasonably short          
collection terms and the geographical dispersion of sales transactions.         

     Depreciation and Amortization -- Depreciation and amortization of equipment
and leasehold improvements is provided by the straight-line method over the     
estimated useful lives of the related assets as follows:                        

                                                                [Download Table]
                                                                         
Building.............................  40 years                          
Computer equipment...................  3 to 7 years                      
Office furniture and equipment.......  5 to 7 years                      
                                       Shorter of lease or useful life of
Leasehold improvements...............  asset                             
Equipment under capital lease........  3 to 7 years                      

  Income Taxes -- The Company accounts for income taxes in accordance with
Financial Accounting Standards Board Statement No. 109 "Accounting for Income   
Taxes" (FAS 109). SFAS 109 requires the assets and liability method of          
accounting for income taxes. Under SFAS 109, deferred tax assets and liabilities
are recognized with respect to the tax consequences attributable to differences 
between the financial statement carrying values and the tax bases of existing   
assets and liabilities. Deferred tax assets and liabilities are measured using  
enacted tax rates expected to apply to the taxable income in the years in which 
these temporary differences are expected to be recovered or settled. Further,   
the effect on deferred tax assets and liabilities of a change in tax rates is   
recognized in income in the period that includes the enactment date.            

Stock-Based Compensation -- In October 1995, the Financial Accounting 
Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation.   
SFAS No. 123 will be effective for fiscal years beginning after December 15,    
1995, and will require that the Company either recognize in its financial       
statements costs related to its employee stock-based compensation plans, such as
stock option and stock purchase plans, or make pro forma disclosures of such    
costs in a footnote to the financial statements.                                

    The Company expects to continue to use the intrinsic value-based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to   
account for all of its employee stock-based compensation plans. Therefore, in   
its financial statements for fiscal 1997, the Company will make the required pro
forma disclosures in a footnote to the financial statements. SFAS No. 123 is not
expected to have a material effect on the Company's results of operations or    
financial position.                                                             

Non-Cash Transactions -- The Company has recorded certain significant 
non-cash transactions relating to certain mergers and purchases which included  
Common Stock as all or a portion of the consideration and has commenced a       
restructuring program which includes recording certain non-cash charges. See    
also Notes 2 and 4 herein.                                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

 Fair Value of Financial Instruments -- The fair values of the Company's
cash and cash equivalents, trade accounts receivable, accounts payable, accrued 
liabilities and accrued acquisition and restructuring charges approximate their 
carrying value due to the relatively short maturities of these instruments. The 
fair value of the loans payable to banks approximate the fair value of the      
instruments due to the stated interest rates on such notes and the collateral   
supporting the notes. The fair value of the convertible debentures approximates 
face value due to the stated interest rate on such instrument and the           
indeterminate nature of the value of the convertibility feature of such debt    
instrument.                                                                     

Long-Lived Assets -- In March 1995, Statement of Financial Accounting 
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for  
Long-Lived Assets to Be Disposed Of" (SFAS No. 121), was issued. This statement 
provides guidelines for the recognition of impairment losses related to         
long-term assets and is effective for fiscal years beginning after December 15, 
1995, with earlier application encouraged. The Company will adopt SFAS No. 121  
during fiscal 1997. The Company believes that such adoption will not have a     
material impact on the consolidated financial statements.                       

Foreign Currency Translation -- Assets and liabilities denominated in 
foreign currencies are translated to U.S. dollars at the exchange rate on the   
balance sheet date. Revenues, costs and expenses are translated at average rates
of exchange prevailing during the year. Translation adjustments resulting from  
this process are shown separately in stockholders' equity. Foreign currency     
transaction gains and losses are not material and are included in the           
determination of net income (loss).                                             

NOTE 2. ACQUISITIONS AND STRATEGIC INVESTMENTS                                  

POOLINGS OF INTERESTS                                                           

FISCAL 1996:                                                                

     On December 29, 1995, the Company merged with Inset, a developer of utility
application software for personal computers. The Company issued 921,218 shares  
of common stock in exchange for all of the outstanding common stock of Inset.   
This merger has been accounted for as a pooling of interests combination and    
accordingly, the consolidated financial statements for all periods presented    
herein have been restated to include the accounts and results of operations of  
Inset.                                                                          

 On March 28, 1996, the Company consummated a merger with Datastorm. The
Company issued 5,200,000 shares of common stock in exchange for all of the      
outstanding stock of Datastorm. The merger has been accounted for as a pooling  
of interests and therefore, the consolidated financial statements for all       
periods presented herein have been restated to reflect the combined operations  
of the Company and Datastorm.                                                   

    Datastorm had a calendar year end and accordingly, the Datastorm statement
of operations for the year ended December 31, 1995, was restated and combined   
with the Company's statement of operations for the fiscal year ended September  
30, 1995. In order to conform Datastorm's year end to the Company's fiscal year 
end, the consolidated statement of operations for the year ended September 30,  
1996, includes three months (October 1995 through December 1995) for Datastorm, 
which are included in the consolidated statement of operations for the fiscal   
year ended September 30, 1995. Accordingly an adjustment has been made to       
retained earnings during fiscal 1996 to eliminate the duplication of net income 
of $717,000 for the three month period ended December 31, 1995. Financial       
information related to Datastorm's fiscal years ended December 31, 1994 and 1993
were combined with financial information related to the Company's fiscal years  
ended September 30, 1994 and 1993, respectively.                                

     Datastorm's S corporation status terminated upon consummation of the merger
and undistributed earnings at March 28, 1996, and all prior periods, have been  
reclassified to additional paid-in-capital.                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

   The Company's Datastorm subsidiary leased office and warehouse space from
Three Guys With a Building partnership, a company that was affiliated to        
Datastorm through common ownership. As a result of the acquisition and          
completion of a new office building for the Company by the partnership, the     
existing lease has been terminated at no cost to the Company (see note 14).     
Lease expense for 1996, 1995 and 1994 totaled $698,000, $686,000 and $667,000   
respectively.                                                                   

     The Company's Datastorm subsidiary owed Intersoft, Inc., an Interest Charge
Domestic International Sales Corporation ("IC-DISC") affiliated with Datastorm  
through common ownership, $1,015,000 and $527,000 as of December 31, 1995 and   
1994, respectively, for commission expenses and interest related to             
international sales. These amounts are included in notes payable to related     
parties.                                                                        

  On May 15, 1996, the Company acquired substantially all of the assets of
Future Labs, a developer of real-time collaborative technology. The Company     
issued 663,768 shares of common stock in exchange for all of the outstanding    
stock of Future Labs. The transaction was accounted for as an immaterial pooling
of interests and therefore, the consolidated financial statements for all       
periods beginning on or after October 1, 1995 have been restated to reflect the 
combined operations of the Company and Future Labs.                             

On July 18, 1996, the Company acquired 100% of the common stock of    
Vertisoft in exchange for 3,499,999 shares of Company common stock. This        
transaction has been accounted for as an immaterial pooling of interests, and as
a result, the accompanying financial statements are presented as if the         
combining companies had been combined commencing October 1, 1995. The number of 
shares issued in the Vertisoft pooling of interests is material to the Company  
for all periods, and accordingly the number of common shares outstanding and    
earnings per share have been restated for all periods after October 1, 1992, to 
reflect the 3,499,999 shares issued in such transaction.                        

FISCAL 1995:                                                                

 On June 30, 1995, the Company acquired Landmark, a developer of utility
application software for personal computers. The Company issued 3,500,000 shares
of common stock in exchange for all of the outstanding common stock of Landmark.
The transaction was accounted for as a pooling of interests and therefore, the  
consolidated financial statements for all periods presented herein reflect the  
combined operations of the Company and Landmark.                                

     Landmark's S corporation status terminated upon acquisition by the Company.
Landmark's undistributed earnings at September 30, 1995, and 1994, have been    
re-classified to additional paid-in capital. Distributions to Landmark's        
stockholders, amounting to $2,114,000, and $587,000 for the years ended         
September 30, 1995, and 1994, respectively have been charged to additional      
paid-in capital.                                                                

   On August 28, 1995, the Company issued 459,950 shares of its common stock
in exchange for 100% of the outstanding shares of Internetware. The transaction 
was accounted for as an immaterial pooling of interests, and accordingly, the   
consolidated financial statements have been prepared as if Internetware had been
combined beginning October 1, 1994. The Company recorded an adjustment to       
beginning equity to reflect the 459,950 shares issued in the transaction and    
Internetware's stockholders' deficiency of $36,000 at September 30, 1994.       
Acquisition costs paid by certain stockholders of Internetware, amounting to    
$450,000 have been recorded as acquisition expenses of the combined entities and
a capital contribution.                                                         

On September 29, 1995, the Company issued 672,667 shares of its common
stock in exchange for 100% of the outstanding shares of StarNine. This          
transaction was accounted for as an immaterial pooling of interests, and        
accordingly, the consolidated financial statements have been prepared as if     
StarNine had been combined beginning October 1, 1994.                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

     In connection with the 1996 mergers, the following merger transaction costs
and expenses were recorded and have been charged to expense in fiscal 1996.     
These merger transaction costs and expenses include the following (in           
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                          INSET    DATASTORM  FUTURELABS  VERTISOFT   TOTAL  
                                         -------   ---------  ----------  ---------  ------- 
                                                                                             
Acquisition costs....................... $ 1,846    $ 4,782    $  1,417    $ 1,175   $ 9,220 
Non-cash charges........................      --       (863)         --         --      (863)
Cash payments...........................  (1,746)    (3,040)     (1,058)      (400)   (6,244)
                                         -------    -------    --------    -------   ------- 
Balance, September 30, 1996............. $   100    $   879    $    359    $   775   $ 2,113 
                                         =======    =======    ========    =======   ======= 

     In connection with the 1995 mergers, the following merger transaction costs
and expenses were recorded and charged to expense in fiscal 1995. These merger  
transaction costs and expenses include the following (in thousands):            

                                                        [Enlarge/Download Table]

                                                  LANDMARK  STARNINE   INTERNETWARE   TOTAL  
                                                  --------  --------   ------------  ------- 
                                                                                             
Acquisition costs................................ $ 3,600   $  1,200      $  300     $ 5,100 
Non-cash charges.................................      --       (450)         --        (450)
Cash payments....................................  (1,860)       (98)       (175)     (2,133)
Reversal of acquisition costs....................    (488)        --          --        (488)
                                                  -------    -------      ------     ------- 
Balance, September 30, 1995......................   1,252        652         125       2,029 
Cash payments....................................  (1,688)      (565)       (125)     (2,378)
Additional acquisition costs.....................     482         99          --         581 
                                                  -------    -------      ------     ------- 
Balance, September 30, 1996...................... $    46   $    186      $   --     $   232 
                                                  =======    =======      ======     ======= 

    The results of operations previously reported by the separate enterprises,
that are discussed above and the combined amounts presented in the accompanying 
consolidated financial statements are summarized below (in thousands):          

                                                        [Enlarge/Download Table]

                                                    YEAR ENDED SEPTEMBER 30,                         
                            ------------------------------------------------------------------------ 
                                    1996                      1995                     1994          
                            ---------------------     --------------------     --------------------- 
                                           NET                       NET                      NET    
                              NET         INCOME        NET        INCOME        NET         INCOME  
                            REVENUES      (LOSS)      REVENUES     (LOSS)      REVENUES      (LOSS)  
                            --------     --------     --------     -------     --------     -------- 
                                                                                                     
Quarterdeck................ $ 92,030     $(86,856)    $ 54,986     $ 2,744     $ 26,753     $(21,171)
Landmark...................       --           --       11,236       1,309       11,953        2,323 
StarNine...................       --           --        3,981          38           --           -- 
Internetware...............       --           --          444        (202)          --           -- 
Inset......................    2,669          424        6,394         134        4,022       (1,929)
Datastorm..................   29,413       12,576       40,499       6,990       42,402       16,242 
Future Labs................    1,312         (335)          --          --           --           -- 
Vertisoft..................    7,676         (623)          --          --           --           -- 
Pooling Adjustments........       --         (145)          66         239         (415)         (90)
                            --------     --------     --------     -------     --------     -------- 
Restated Quarterdeck....... $133,100     $(74,959)    $117,606     $11,252     $ 84,715     $ (4,625)
                            ========     ========     ========     =======     ========     ======== 

  Net revenues and net income(loss) for Vertisoft, Future Labs, Datastorm,
Inset, Landmark, StarNine and Internetware for the years ended September 30,    
1996 and 1995 reflect the results of each entity for only the period prior to   
the date of acquisition by the Company. Results subsequent to the date of the   
mergers are included with the Company's operations. Net revenue and net income  
(loss) for 1994 reflect the separate                                            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

results of Landmark, Inset and Datastorm. Pooling adjustments were made         
primarily to conform accounting policies to those of the Company.               

PURCHASES                                                                       

FISCAL 1996:                                                                

On June 6, 1996, the Company acquired certain software and related    
intellectual property rights from Pinnacle in exchange for common stock with a  
market value, as defined, of $1,800,000, or 198,000 shares. The entire amount   
has been recorded as capitalized software. This transaction has been accounted  
for using the purchase method of accounting. The Company is also obligated to   
pay certain minimum royalties of $200,000 per year for four years commencing no 
later than March 31, 1997. The Company has paid $100,000 and is obligated for an
additional $200,000, as payment for consulting services and a non-competition   
agreement with the principal of Pinnacle.                                       

On July 16, 1996, the Company purchased certain assets and technology 
relating to remote control software from InterLink as an essential part of the  
Company's communication product line. The Company issued 205,000 shares of      
common stock and is obligated to issue approximately $1,381,000 worth of        
additional shares, up to a maximum of 205,000 additional shares, on the six     
month anniversary of the closing date based on the trading price of the Company 
common stock at such time. The acquisition has been accounted for as a purchase.
The total consideration for the InterLink acquisition was $3,155,000, including 
the Company's obligation to issue an additional $1,381,000 of Common Stock.     

     On August 14, 1996, the Company acquired the remaining shares of Limbex not
owned by the Company. Prior to such acquisition the Company owned approximately 
20% of Limbex. Limbex is the developer of WebCompass product line. As a result  
of the merger, the Company owns 100% of Limbex. The total consideration for the 
acquisition was $16,295,000, including approximately $3,300,000 of consideration
to be settled one year from the closing in cash or common stock of the Company, 
at the Company's option. The Company's previous investment of 20% was allocated 
using the historical cost of the investment.                                    

    The purchase price allocation for the acquisitions of InterLink and Limbex
was made among the identifiable tangible and intangible assets, based on the    
fair market value of those assets utilizing the discounted cash flow of the     
technology acquired, as well as applying a factor incorporating the cost of the 
working capital employed. Specifically, purchased in process research and       
development was identified and valued through extensive interviews and analysis 
of data concerning each InterLink or Limbex development project. Expected future
cash flows of each development project were discounted taking into account risks
associated with the inherent difficulties and uncertainties in completing the   
project, and thereby achieving technological feasibility, and risks related to  
the viability of and potential changes in future target markets.                

  This analysis resulted in an allocation of $2,872,000 and $12,121,000 of
purchased research and development for InterLink and Limbex, respectively, which
had not yet reached technological feasibility and did not have alternative      
future uses. The $2,872,000 and $12,121,000 of purchased research and           
development is included in acquisition, restructuring and other charges in the  
accompanying consolidated statements of operations. Using the same methodology, 
goodwill for InterLink and Limbex was calculated to be $283,000 and $2,546,000, 
respectively, and is included in other assets, to be amortized over 10 years. In
addition, the Company allocated $328,000 of the Limbex purchase price to        
intangible assets which will be amortized over a period of 24 to 36 months and  
$396,000 to a capitalized software technology which will be amortized over 14   
months.                                                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

     The results of operations of these purchased entities for the periods prior
to the acquisitions were immaterial to the Company and, accordingly, pro forma  
disclosures of the effect of such transactions have not been presented.         

FISCAL 1995:                                                                

On September 28, 1995, the Company acquired the intellectual property 
assets of Prospero in exchange for common stock with a market value, as defined,
of $2,950,000, or 154,693 shares, plus the assumption of $60,000 of liabilities,
and transaction costs amounting to approximately $125,000. This transaction has 
been accounted for using the purchase method of accounting. At September 30,    
1995, accrued transaction costs, assumed liabilities and stock registration fees
amounted to approximately $196,000 and were classified as accrued acquisition   
and restructuring charges.                                                      

An allocation of the purchase price was made among the identifiable   
tangible and intangible assets, using the same methodology previously discussed 
for the Limbex and InterLink purchase price allocations. This allocation        
resulted in $2,578,000 of purchased research and development which had not yet  
reached technological feasibility and did not have alternative future uses.     
Therefore, in accordance with generally accepted accounting principles, the     
$2,578,000 of purchased research and development is included in acquisition,    
restructuring and other charges in the accompanying consolidated statements of  
operations.                                                                     

   Using the same methodology, purchased software was identified and valued.
This analysis resulted in $557,000 of purchased software which had reached      
technological feasibility, and therefore was capitalized. The purchased software
will be amortized over a period of 24 months.                                   

OTHER INVESTMENTS                                                               

     On February 7, 1996, the Company acquired, in a private placement of common
stock, less than a 5% interest in Infonautics Corporation ("Infonautics") in    
exchange for $3,250,000. This transaction is accounted for under the cost method
of accounting and the investment is included on the balance sheet in other      
assets and is carried at lower of cost or market. Infonautics consummated an    
initial public offering of its common stock during May of 1996. The Company's   
shares in Infonautics were not registered at that time and therefore remain     
subject to certain limitations on resale. Infonautics stock has traded at prices
below the Company's cost basis for several months prior to September 30, 1996.  
The Company determined that a portion of the reduction in the stock price was   
due to an other than temporary decline and accordingly recorded a charge to     
other income (expense) of $720,000 to reduce the carrying value of the          
investment.                                                                     

During fiscal 1996, the Company also recorded a charge in other income
(expense) for $727,000 to write off its investment in Streetwise, a software    
development firm.                                                               

On December 24, 1995, the Company and a Belgian venture capital group 
formed a new entity, Quarterdeck Flanders N.V. ("QDF"). The Company entered into
an agreement to purchase 50.002% of QDF in exchange for an agreement to make a  
capital contribution of $900,000. In September 1996, the Company transferred its
interest in QDF to a third party who assumed the Company's obligation to make   
the capital contribution.                                                       

   In June 1995, the Company purchased a minority equity position in LHSP, a
company that develops and licenses speech compression technology. The cash      
investment of $1,500,000 was accounted for using the cost method. During the    
year, LHSP completed an initial public offering. During fiscal 1996, the company
sold a portion of this investment for $2,346,000 and recorded a gain of         
$1,435,000 which is included in other income (expense) on the statement of      
operations. The Company wrote up the value of the remaining investment by       
$379,000 during the period ended September 30, 1996. This increase is recorded  
directly to the equity section                                                  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

of the balance sheet and does not affect net income. Therefore, the Company's   
remaining investment is carried at $968,000 and included in other assets on the 
balance sheet.                                                                  

    In June 1995, the Company agreed to purchase a minority equity position in
Intelligence at Large, Inc. ("IAL"), a company that develops Internet audio     
technology. The agreement required the Company to make a total investment of    
$1,250,000, payable upon IAL achieving specified development milestones. The    
Company has accounted for this investment using the cost method. As of September
30, 1996, the Company had remitted $1,250,000 to IAL. This investment is carried
at cost and is included in other assets.                                        

NOTE 3. BALANCE SHEET AND INCOME STATEMENT INFORMATION                          

                                                        [Enlarge/Download Table]

                                                                            SEPTEMBER 30,     
                                                                        --------------------- 
                                                                          1996         1995   
                                                                        --------     -------- 
                                                                           (IN THOUSANDS)     
                                                                                              
Cash and short-term investments:                                                              
  Cash and cash equivalents............................................ $ 25,554     $  5,384 
  Short-term investments...............................................       --       34,285 
                                                                        --------     -------- 
                                                                        $ 25,554     $ 39,669 
                                                                        ========     ======== 
Trade accounts receivable:                                                                    
  Receivables.......................................................... $ 22,284     $ 18,822 
  Less: allowance for doubtful accounts................................   (2,032)        (870)
  Less: allowance for sales returns and marketing development funds....  (10,987)      (4,331)
                                                                        --------     -------- 
                                                                        $  9,265     $ 13,621 
                                                                        ========     ======== 
Other current assets:                                                                         
  Prepaid royalties.................................................... $    901     $  1,427 
  Income tax receivable................................................    2,825           -- 
  Other prepaid expenses...............................................    1,150        1,345 
  Notes receivable.....................................................        1          100 
  Advances to employees................................................       26            5 
  Acquisition costs....................................................       --          287 
  Other................................................................      691          842 
                                                                        --------     -------- 
                                                                        $  5,594     $  4,006 
                                                                        ========     ======== 
Property, plant and equipment:                                                                
  Construction in progress (building).................................. $ 11,069     $     -- 
  Computer equipment...................................................   20,406       14,710 
  Office furniture and equipment.......................................    2,252        3,046 
  Office furniture and equipment under capital leases..................      252           26 
  Leasehold improvements...............................................    1,586        1,696 
                                                                        --------     -------- 
                                                                          35,565       19,478 
Less: accumulated depreciation and amortization........................  (14,313)     (11,143)
                                                                        --------     -------- 
                                                                        $ 21,252     $  8,335 
                                                                        ========     ======== 
Capitalized software costs:                                                                   
  Capitalized software costs........................................... $  5,254     $  4,184 
  Less: accumulated amortization.......................................   (1,806)      (1,377)
                                                                        --------     -------- 
                                                                        $  3,448     $  2,807 
                                                                        ========     ======== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

                                                        [Enlarge/Download Table]

                                                                            SEPTEMBER 30,    
                                                                        ---------------------
                                                                          1996         1995  
                                                                        --------     --------
                                                                           (IN THOUSANDS)    
                                                                                             
Other assets:                                                                                
  Marketable securities................................................ $    968     $     --
  Other investments....................................................    3,788        2,700
  Notes receivable from employee.......................................       13          125
  Goodwill and other intangible assets acquired, net...................    3,125           --
  Other................................................................    1,623          508
                                                                        --------     --------
                                                                        $  9,517     $  3,333
                                                                        ========     ========
Accrued liabilities:                                                                         
  Accrued expenses..................................................... $ 13,824     $  7,447
  Accrued postcontract customer support................................      456          584
  Accrued vacation.....................................................    1,460        1,877
  Accrued advertising..................................................    1,121        1,608
  Deferred revenue.....................................................      273          431
  Other................................................................       98        1,387
  Income taxes payable.................................................       --          546
                                                                        --------     --------
                                                                        $ 17,232     $ 13,880
                                                                        ========     ========
Accrued acquisition and restructuring charges:                                               
  Acquisitions......................................................... $  2,345     $  2,029
  Restructurings.......................................................    8,280        1,230
  Purchase transaction costs...........................................      315          196
                                                                        --------     --------
                                                                        $ 10,940     $  3,455
                                                                        ========     ========
Income Statement:                                                                            
Acquisition, restructuring and other charges:                                                
  Restructuring........................................................ $ 12,995     $    219
  Acquisitions.........................................................    9,801        4,612
  In-process research and development..................................   14,993        2,578
                                                                        --------     --------
                                                                        $ 37,789     $  7,409
                                                                        ========     ========

NOTE 4. RESTRUCTURING AND OTHER CHARGES                                         

     During fiscal 1996, the Company implemented a comprehensive, corporate wide
restructuring plan. As a result of the plan, the Company recorded a charge of   
$12,995,000 and reduced its workforce by approximately 40%, eliminating nearly  
500 positions. As a component of the restructuring, the Company will also close 
offices or reduce the amount of space utilized at its current locations. The    
restructuring charge includes an estimate of the impact of the affected lease   
obligations (net of estimated sublease income or settlements). The Company also 
wrote off excess equipment, furniture and leasehold improvement in connection   
with the employee and space reductions. Finally, the charge includes write-offs 
of capitalized software and prepaid royalties relating to products which the    
Company no longer plans to actively market. This restructuring focuses the      
Company around two core business units (utilities and communications and        
Internet solutions) and a direct marketing unit. As part of the restructuring,  
the Company has centralized operations and eliminated duplicate functions that  
resulted from certain acquisitions. The Company believes that these actions     
should improve its competitive position.                                        

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QUARTERDECK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

  The following is an analysis of the significant components of the fiscal
1996 restructuring and other charges and 1996 activity (in thousands):          

                                                        [Enlarge/Download Table]

                                                 TOTAL                   CASH PAID                    
                                           RESTRUCTURING AND   NON-CASH  IN FISCAL    ACCRUED AS OF   
                                          NON-RECURRING COSTS   COSTS      1996     SEPTEMBER 30, 1996
                                          -------------------  --------  ---------  ------------------
                                                                                                      
Reduction of non-core product lines......       $ 2,754         $2,754     $  --          $   --      
Discontinuance and consolidation of                                                                   
  offices................................         1,420             --        --           1,420      
Severance costs..........................         6,513             --       550           5,963      
Write-off property and equipment and                                                                  
  other charges..........................         2,308          1,240       413             655      
                                                -------         ------     -----          ------      
          Total..........................       $12,995         $3,994     $ 963          $8,038      
                                                =======         ======     =====          ======      

     During the fourth fiscal quarter of 1994, management adopted a Company-wide
restructuring plan designed to focus the Company's efforts on strategic product 
and market opportunities. The results for the fourth quarter and fiscal year    
1994 included a pre-tax charge totaling $12,863,000 relating to the             
restructuring activities and other non-recurring charges. Of the total,         
$7,416,000 were non-cash charges and $741,000 of the remaining charges were paid
prior to September 30, 1994. During fiscal 1995, $219,000 of additional         
restructuring charges were recorded and $3,695,000 of the restructuring charges 
were paid during fiscal 1995, leaving an accrual as of September 30, 1995 of    
$1,230,000. During fiscal 1996, $890,000 of this amount was paid prior to       
September 30, 1996, while $98,000 of prior accrual was reversed leaving a       
balance of $242,000 at September 30, 1996.                                      

NOTE 5. INCOME TAXES                                                            

   The components of the provision (benefit) for income taxes for the fiscal
years ended September 30, 1996, 1995 and 1994, respectively, are as follows (in 
thousands):                                                                     

                                                                [Download Table]

                                                      FEDERAL   STATE    TOTAL  
                                                      -------   -----   ------- 
                                                                                
1996:                                                                           
  Current...........................................  $   201   $   0   $   201 
  Deferred..........................................      605       0       605 
                                                      -------   -----   ------- 
          Total.....................................  $   806   $   0   $   806 
                                                      =======   =====   ======= 
1995:                                                                           
  Current...........................................  $ 2,330   $ 179   $ 2,509 
  Deferred..........................................   (2,021)   (157)   (2,178)
                                                      -------   -----   ------- 
          Total.....................................  $   309   $  22   $   331 
                                                      =======   =====   ======= 
1994:                                                                           
  Current...........................................  $(5,984)  $   2   $(5,982)
  Deferred..........................................       --      --        -- 
                                                      -------   -----   ------- 
          Total.....................................  $(5,984)  $   2   $(5,982)
                                                      =======   =====   ======= 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

    The actual income tax expense (benefit) differs from the "expected" income
tax expense (benefit) computed by applying the effective Federal income tax rate
of 34% to income (loss) before income taxes as follows (in thousands):          

                                                        [Enlarge/Download Table]

                                                            YEAR ENDED SEPTEMBER 30,   
                                                          ---------------------------- 
                                                            1996      1995      1994   
                                                          --------   -------   ------- 
                                                                                       
Expected income tax expense (benefit).................... $(25,212)  $ 3,938   $(3,606)
Change in valuation allowance............................   20,294       483     2,853 
State income taxes, net of Federal income tax benefit....   (2,393)       14        -- 
Net (income) loss on foreign subsidiary..................    3,005      (608)    1,510 
Net income of Subchapter S subsidiary....................   (3,300)   (3,014)   (6,444)
Tax exempt income benefit................................     (106)     (339)     (250)
Alternative minimum tax and other tax credits............      300      (257)       -- 
Acquisition costs........................................    9,916        --        -- 
Other....................................................   (1,698)      114       (45)
                                                          --------   -------   ------- 
                                                          $    806   $   331   $(5,982)
                                                          ========   =======   ======= 

 At September 30, 1994, the Company had deferred tax assets amounting to
$2,853,000, for which a full valuation allowance was provided. The deferred tax 
assets consisted of the tax effect from the expected future reversal of         
temporary differences, resulting in part from restructuring charges in fiscal   
1994, which were not deductible for federal income tax purposes until the       
amounts are actually paid. Recognition of the deferred tax assets is dependent  
on a number of factors, including the timing of reversal of the temporary       
differences and an assessment of the future realizability of the deferred tax   
assets.                                                                         

     The net change in the total valuation allowance for the twelve months ended
September 30, 1995 was an increase of $483,000. Of this amount, $2,661,000      
resulted from increases in gross deferred tax assets offset by an increase in   
the total net deferred assets of $2,178,000. The increase in total net deferred 
assets resulted from the Company's revaluation of the realizability of the      
future income tax benefit occasioned by various events which occurred during the
third and fourth quarters of fiscal 1995. The acquisition of four new businesses
in the third and fourth quarters of fiscal 1995, which significantly increased  
revenues and the occurrence of other events, made it more likely than not that  
the various tax benefits would be realized. As a result, the carrying value of  
the net deferred tax benefit was increased by $2,178,000, which was recognized  
as a current period income tax benefit.                                         

     The net change in the total valuation allowance for the twelve months ended
September 30, 1996, was an increase of $20,294,000. Of this amount, $18,116,000 
resulted from an increase in gross deferred tax assets and $2,178,000 resulted  
from a decrease in net deferred tax assets. Management has concluded that the   
future realization of the deferred tax asset is uncertain. Accordingly, a full  
valuation allowance has been applied.                                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

   Under FAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of differences between the carrying amount of  
assets and liabilities and their respective tax bases using enacted tax rates in
effect for the year in which the differences are expected to reverse. Deferred  
tax assets (liabilities) consist of the following (in thousands):               

                                                        [Enlarge/Download Table]

                                                           YEAR ENDED SEPTEMBER 30,     
                                                       -------------------------------- 
                                                         1996        1995        1994   
                                                       --------     -------     ------- 
                                                                                        
Accrued restructuring charges........................  $  2,222     $   311     $   684 
Software development costs recognized as incurred for                                   
  tax purposes.......................................      (223)         12        (401)
State taxes..........................................     2,393           7         486 
Allowance for sales returns..........................     1,819         837         669 
Depreciation.........................................       834         825         563 
Allowance for doubtful accounts and other reserves...     3,111         997         879 
Acquisition costs....................................        --       1,591          -- 
Tax net operating losses.............................    17,265          --          -- 
Other, net...........................................      (782)        934         (27)
Deferred tax assets, valuation allowance.............   (26,639)     (3,336)     (2,853)
                                                       --------     -------     ------- 
  Total net deferred tax assets......................  $     --     $ 2,178     $    -- 
                                                       ========     =======     ======= 

The valuation allowance at September 30, 1996 of $26,639,000 includes 
$3,009,000 of tax benefits related to stock options exercised. These tax        
benefits will be credited to equity when realized.                              

  Prior to June 30, 1995, Landmark elected to be taxed as an S corporation
whereby the income tax effects of Landmark's activities accrued directly to its 
shareholders. Landmark's S corporation election terminated on June 30, 1995, at 
the time of the acquisition. Prior to being acquired by the Company, Datastorm  
elected to be taxed as an S corporation whereby the income tax effects of       
Datastorm's activities accrued directly to the shareholders. Datastorm's S      
corporation election terminated at the time of acquisition. As a result,        
deferred income taxes for both Landmark and Datastorm, under the provisions of  
FAS 109 were established and the effects are included in the accompanying       
consolidated financial statements.                                              

     The Company has a Federal tax net operating loss of $50,779,000 expiring in
2011.                                                                           

NOTE 6. STOCK OPTIONS AND WARRANTS                                              

In fiscal 1990, the Company adopted two stock option plans, the 1990  
Directors' Stock Option Plan and the 1990 Stock Plan. Both plans have           
subsequently been amended. During 1995, the Company's Board of Directors        
approved an amendment to increase the number of shares of stock authorized for  
issuance under the 1990 Stock Plan from 3,000,000 to 6,000,000 shares, which    
amendment was approved by the shareholders on February 2, 1996. Under the       
amended terms of the 1990 Stock Plan, shares of common stock are reserved for   
issuance to employees and consultants pursuant to incentive stock options,      
nonqualified stock options, stock appreciation rights, restricted stock awards  
or stock bonuses. The Company has never issued a stock appreciation right, a    
restricted stock award or a stock bonus. Under the terms of the 1990 Directors' 
Stock Option Plan, 300,000 shares are reserved for issuance to non-employee     
directors. In fiscal 1996, the Company adopted the 1996 Acquisition Stock       
Incentive Plan.                                                                 

1996 Acquisition Stock Incentive Plan -- Under the terms of the 1996  
Acquisition Stock Incentive Plan, options may not exceed 10 years in length. All
grants under this plan must be non-qualified stock options. These options may   
not be granted at less than 85% of fair market value at the time the option is  
granted, unless utilized in exchange for options previously issued by a         
combining company in conjunction with a                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

pooling transaction. During fiscal 1996, the Company granted 105,610 stock      
options at exercise prices between $0.00 and $7.75 per share, 297,600 stock     
options at an exercise price of $8.81 per share, 665,000 stock options at an    
exercise price of $13.63 per share, and 67,715 stock options at exercise prices 
between $13.94 and $35.50 per share. During fiscal 1996, 64,036 options were    
exercised and 164,037 options were cancelled. At September 30, 1996, 1,117,844  
options were outstanding and 68,154 options were exercisable under the 1996     
Acquisition Stock Incentive Plan.                                               

    1990 Stock Plan -- Under the terms of the 1990 Stock Plan, options may not
exceed 10 years in length. Incentive stock options are granted at 100% of fair  
market value. Non-qualified stock options may not be granted at less than 85% of
fair market value. Options outstanding under the 1990 Stock Plan are exercisable
in varying increments commencing one year after date of grant and expire five to
ten years from date of grant or upon earlier termination. During fiscal 1996,   
the Company granted 769,500 stock options at exercise prices between $5.00 and  
$10.00, 353,500 stock options at exercise prices between $10.01 and $15.00,     
756,641 stock options at exercise prices between $15.01 and $20.00, and 181,946 
stock options at exercise prices between $20.01 and $34.63. During fiscal 1995, 
the Company granted 522,772 stock options at exercise prices between $2.50 and  
$5.00 per share, 40,000 stock options at exercise prices between $5.01 and      
$10.37 per share, and 1,639,583 stock options at exercise prices between $10.38 
and $17.50 per share. During fiscal 1994, the Company granted 10,000 stock      
options at an exercise price of $2.50, 485,700 stock options at an exercise     
price of $2.00 per share and 503,600 stock options at an exercise price of $2.25
per share.                                                                      

     During fiscal 1996, 516,767 options were exercised and 738,207 options were
cancelled. During fiscal 1995, 205,650 options were exercised and 268,550       
options were cancelled. During fiscal 1994, 7,501 options were exercised and    
481,399 options were cancelled. At September 30, 1996, 4,828,037 options were   
outstanding and 1,077,431 options were exercisable under the 1990 Stock Plan.   

     1990 Directors' Stock Option Plan -- Under the terms of the 1990 Directors'
Stock Option Plan, options are exercisable in varying increments and expire     
within five years or upon earlier directorship termination. During fiscal 1996, 
52,500 stock options were granted at exercise prices between $8.00 and $16.50   
per share, zero options were exercised, and zero options were cancelled. During 
fiscal 1995, 15,000 stock options were granted at an exercise price of $4.00 per
share, 52,500 options were exercised, and no options were cancelled. During     
fiscal 1994, 30,000 options were granted at an exercise price of $2.625 per     
share and 15,000 options were granted at an exercise price of $2.25 per share.  
During fiscal 1994, 2,500 options were exercised and no options were cancelled. 
At September 30, 1996, 102,500 options were outstanding under the 1990          
Directors' Stock Option Plan and 50,000 options were exercisable.               

   1989 Non-Qualified Stock Plan -- In October 1989, the Company adopted its
1989 Non-Qualified Stock Plan pursuant to which options were granted at prices  
determined by the Board of Directors. The options were exercisable in varying   
increments and expire five years from date of grant or upon earlier termination 
of employment. No additional options may be granted under this plan. A total of 
385,000 option shares at an option price of $0.10 per share have been granted   
pursuant to the plan, all of which were granted in October 1989. During fiscal  
1995, 93,125 options were exercised and no options were cancelled. During fiscal
1994, 20,250 options were exercised and no options were cancelled. At September 
30, 1995, no options were outstanding and exercisable under the 1989            
Non-Qualified Stock Plan and accordingly, the plan was terminated.              

   To the extent the Company derives a tax benefit from options exercised by
employees, such benefit is credited to paid-in capital when realized on the     
Company's income tax return. Tax benefits realized totaling $0, $59,000 and     
$16,000 were credited to additional paid-in capital in fiscal 1996, 1995 and    
1994, respectively.                                                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

     A summary of all stock option and warrant activity in the three-year period
ended September 30, 1996 is as follows:                                         

                                                        [Enlarge/Download Table]

                                                             SHARES       OPTION RANGE     
                                                            ---------   -----------------  
                                                                                           
Outstanding at September 30, 1993.......................... 1,302,200    $0.10    -  $17.50
  Options granted.......................................... 1,044,300     2.00    -    2.63
  Options exercised........................................   (30,251)    0.10    -    3.56
  Options cancelled........................................  (481,399)    0.62    -   17.50
                                                            ---------                      
Outstanding at September 30, 1994.......................... 1,834,850    $0.10    -  $17.50
  Options granted.......................................... 2,217,355     2.50    -   17.50
  Options exercised........................................  (351,275)    0.10    -   17.50
  Options cancelled........................................  (268,550)    2.00    -   17.50
                                                            ---------                      
Outstanding at September 30, 1995.......................... 3,432,380    $2.00    -  $17.50
  Options granted.......................................... 4,099,048     0.00    -   35.50
  Options exercised........................................  (580,803)    6.25    -   39.00
  Options cancelled........................................  (902,244)    0.25    -   27.50
                                                            ---------                      
Outstanding at September 30, 1996.......................... 6,048,381    $0.25    -  $34.63
                                                            =========    =====       ======

NOTE 7. COMMITMENTS                                                             

  The Company leases facilities under operating leases that expire through
fiscal 2016. Rental expense for the years ended September 30, 1996, 1995 and    
1994 amounted to approximately $4,367,000, $3,076,000, and $3,468,000           
respectively.                                                                   

Minimum annual rental payments under these leases are as follows (in  
thousands):                                                                     

Year ending September 30:                                             

                                                                [Download Table]
                                                                    
1997.......................................................  $ 2,421
1998.......................................................    2,367
1999.......................................................    2,257
2000.......................................................    1,954
2001.......................................................      408
Thereafter.................................................    4,643
                                                             -------
          Total............................................  $14,050
                                                             =======

Accumulated depreciation related to equipment under capital leases was
$143,000 at September 30, 1994. The Company has no equipment under capital      
leases as of September 30, 1996 and 1995.                                       

NOTE 8. STOCKHOLDER RIGHTS PLAN                                                 

In September 1992, the Company made a dividend distribution of one    
preferred share purchase right for each outstanding share of common stock. The  
rights trade with the common stock and only become exercisable, or transferable 
apart from the common stock, ten business days after a person or group          
(Acquiring Person) acquires beneficial ownership of, or commences a tender or   
exchange offer for, 15% or more of the Company's common stock. Each right, under
certain circumstances, entitles its holder to acquire one one-hundredth of a    
share of a newly created Series A Junior Participating Preferred Stock, par     
value $0.001 per share, at a price of $35, subject to adjustment. If 15% of the 
Company's common stock is acquired, or a tender offer to acquire 15% of the     
Company's common stock is made, each right not owned by an Acquiring Person     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

will entitle the holder to purchase at the exercise price, Company common stock 
having a market value of twice the exercise price of the rights. In addition, if
the Company is acquired in a merger or other business combination, the rights   
will entitle a holder to buy a number of shares of common stock of the acquiring
Company having a market value of twice the exercise price of each right. The    
rights may be redeemed by the Company at $0.01 per right at any time until a 15%
position has been acquired. The rights expire on August 22, 2002, and at no time
have voting power.                                                              

 In connection with the issuance of the Series B Preferred Stock and the
Warrant during fiscal 1996, (see Note 15), the Company amended the Rights       
Agreement dated August 11, 1992 (the "Rights Agreement") between the Company and
Bank of America, National Trust and Savings Association, as rights agent, to    
provide that the institutional investor that acquired the Series B Preferred    
Stock and Warrant will not be deemed to be an Acquiring Person (as defined in   
the Rights Agreement) as a result of its acquisition of the Series B Preferred  
Stock, the Warrant or any shares of Common Stock received upon conversion of the
Series B Preferred Stock or exercise of the Warrants; provided, however, if the 
institutional investor becomes the Beneficial Owner (as defined in the Rights   
Agreement) of any additional number of shares of Common Stock in excess of 5% of
the outstanding shares of Common Stock other than as a result of the conversion 
of the Series B Preferred Stock and/or exercise of the Warrant, then the        
institutional investor will be deemed to be an Acquiring Person.                

NOTE 9. EMPLOYEE BENEFIT PLANS                                                  

  In January 1991, the Company adopted a defined contribution 401(k) plan.
Employees must work a minimum of 1,000 hours per year and be at least 21 years  
of age and must have completed at least 12 consecutive months of service to be  
eligible for the plan. Participants may contribute 1% to 15% of their           
compensation. During fiscal 1993, the Board of Directors approved a Company     
match of 25% of employee contributions up to 5% of eligible compensation. The   
Company match was increased to 50% of employee contributions up to 5% of        
eligible compensation for calendar 1995. As of January 1996, the plan was       
amended to allow employee participation in the plan after at least 3 consecutive
months of service. Additionally, the Company matching was increased to 50% of   
employee contributions up to 6% of eligible compensation for calendar 1996. The 
Company's matching contributions totaled $1,243,000, $112,000 and $96,000 for   
fiscal 1996, 1995 and 1994, respectively.                                       

Employees of the Company's Datastorm subsidiary participated in the   
Datastorm Technologies, Inc., Integrated Profit Sharing Plan and Trust ("Plan").
Annually, Datastorm contributed to the Plan an amount determined by the         
Datastorm Board of Directors at its discretion. Profit sharing expense totaled  
$713,000 and $451,000 for the years ended September 30, 1995 and 1994,          
respectively. To participate in the Plan, an employee must have completed six   
months of service with Datastorm and attain the age of 20.5 years. To qualify   
for the Employer Contribution to the Plan, participants must complete 1,000     
hours of service during a Plan year and be employed by the Company on the last  
day of the Plan year. For each Plan year the Employer contributes to the Plan,  
the Trustees will allocate this contribution to the separate accounts maintained
for participants. An employee-participant may (but is not required to)          
contribute to the Plan. Participant accounts are invested among five investment 
funds as directed by the participant. As of March 29, 1996 the Datastorm Plan   
was suspended and all Datastorm employees became eligible to participate in the 
Company's 401k plan as of June 1, 1996.                                         

    Subsequent to the acquisition of Datastorm, the Plan has been modified and
merged with the Company plan discussed above.                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

NOTE 10. LITIGATION                                                             

     On May 26, 1995, a Final Judgment and Order of Dismissal was entered in the
In Re Quarterdeck Office Systems, Inc. securities litigation in the United      
States District Court, Central District of California. The judgment approved the
settlement of the litigation. The settlement involved a payment of $3,900,000 of
which approximately $585,000 was paid by the Company in 1995 and the balance was
paid directly by the Company's insurance carrier.                               

  The Company was a defendant in an action initially commenced on June 29,
1995 by Corum Group Ltd., in King County (Washington) Superior Court against    
Landmark. On July 7, 1995, Corum filed an amended complaint asserting tort and  
breach of contract claims against the Company and two former shareholders of    
Landmark. The lawsuit arose from the Company's acquisition of Landmark on June  
30, 1995. Corum claimed that it acted as a "broker" in the transaction and      
sought approximately $2,900,000 it claimed it was owed a commission with respect
to the acquisition. The Company removed the action to U.S. District Court (Case 
No. 95-1126WD, United States District Court, Western District of Washington) and
asserted affirmative defenses, counter claims and third-party claims. During    
fiscal 1996, the Company settled the case. The settlement of this matter did not
have a material impact on the results of operations of the Company.             

   On or about September 3, 1996, a class action lawsuit, Marjorie Williams,
et al. v. Quarterdeck Corporation, was filed in the Circuit Court of the Eighth 
Judicial Circuit, Alachua County, Florida (Case No. 96-3041), by Marjorie       
William's and Penelope Claire Satterwhite on behalf of all licensees of         
MagnaRAM2 residing in the United States. The complaint alleged that MagnaRaAM2  
fails to significantly increase Random Access Memory or otherwise help Windows  
95 and Windows 3.x users. Plaintiffs asserted the following causes of action:   
breach of express contract; breach of implied contract; breach of express       
warranties; breach of implied warranty of merchantability; breach of implied    
warranty of fitness for particular purpose; fraudulent misrepresentation;       
negligence; and gross negligence. Plaintiffs sought compensatory damages in an  
unspecified amount, injunctive relief, and attorney fees and costs.             

  On October 10, 1996, the Company filed a motion seeking dismissal of the
entire action pursuant to the forum non conveniens doctrine and, in the         
alternative, dismissal of certain allegations and causes of action for failure  
to state a claim. On November 25, 1996 (the date upon which the Company's motion
was scheduled to be heard), counsel for plaintiffs agreed to dismiss the entire 
action, without prejudice. A stipulation to this effect was entered on the      
record before the Court. Pursuant to Florida law, plaintiffs may, within 120    
days of November 25, 1996, refile the action in California and have the         
complaint "relate back" to the original September 3, 1996 filing date. Counsel  
for the Company has received no communication from plaintiffs' counsel since the
dismissal and cannot determine whether plaintiffs intend to refile in           
California. If a new class action complaint is filed, the Company intends to    
defend the case vigorously and to oppose any effort to certify the claims for   
class resolution.                                                               

Shareholder complaints were filed in November and December 1996 in the
Superior Court of the State of California, County of Los Angeles, against the   
Company and one former and one current officer of the Company alleging, among   
other things, violations of certain provisions of California securities laws    
relating to statements made about the Company. The suits are purportedly brought
on behalf of all persons who purchased the Company's common stock during the    
period January 26, 1996 through June 13, 1996 and seeks damages in an           
unspecified amount and other relief. The Company intends to vigorously defend   
against these actions.                                                          

  The Company is a defendant in various other pending claims and lawsuits.
Management believes that the disposition of such matters will not have a        
material adverse impact on the results of operation or financial position of the
Company.                                                                        

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

NOTE 11. MAJOR CUSTOMERS AND SEGMENT INFORMATION                                

    The Company sells its products primarily through distributors and dealers.
Sales to the two largest distributors by the Company individually account for   
20% and 11%; 31% and 14%; and 39% and 19% of the Company's consolidated net     
revenues for the years ended September 30, 1996, 1995 and 1994, respectively.   

   The Company is engaged in a single business segment - the development and
marketing of personal computer software.                                        

Geographic information is as follows (in thousands):                  

                                                                [Download Table]

                                                    YEAR ENDED SEPTEMBER 30,   
                                                  -----------------------------
                                                    1996       1995      1994  
                                                  --------   --------   -------
                                                                               
Net revenues:                                                                  
  United States.................................  $109,200   $ 98,591   $75,425
  Europe........................................    18,700     13,809     5,833
  Other.........................................     5,200      5,206     3,457
                                                  --------   --------   -------
                                                  $133,100   $117,606   $84,715
                                                  ========   ========   =======

Net revenues from all foreign locations are attributable to export    
shipments from the Company's United States operations of $1,486,000, $4,968,000 
and $3,184,000, respectively, and $22,414,000, $14,047,000, and $6,106,000,     
respectively of shipments from the Company's European operations based in       
Ireland during fiscal 1996, 1995 and 1994.                                      

                                                                [Download Table]
                                                                                
Operating income (loss):                                                        
  United States.................................  $(65,444)  $ 7,342   $ (7,589)
  Europe........................................    (8,642)    2,357     (4,112)
                                                  --------   -------   -------- 
                                                  $(74,086)  $ 9,699   $(11,701)
                                                  ========   =======   ======== 
Identifiable assets:                                                            
  United States.................................  $ 73,184   $71,130   $ 60,215 
  Europe........................................     3,597     5,569      2,256 
                                                  --------   -------   -------- 
                                                  $ 76,781   $76,699   $ 62,471 
                                                  ========   =======   ======== 

NOTE 12. CONVERTIBLE NOTES                                                      

  On March 28, 1996, the Company issued $25,000,000 principal amount of 6%
Convertible Senior Subordinated Notes, due 2001 ("Notes"), to an institutional  
investor in a private placement pursuant to the terms of a Note Agreement, dated
March 1, 1996. The Notes are convertible generally after April 1, 1997, at an   
initial conversion price of $21.18 per share. The conversion price is adjustable
for certain below market equity issuances and the Notes contain other customary 
anti-dilution provisions. Subject to complying with other certain terms, the    
Notes may be prepaid without penalty, subject to conversion, anytime between    
April 1997 and April 1999 if the Company's Common Stock had been trading, for 20
of the 30 trading days preceding notice of prepayment, approximately 18% above  
the then current conversion price.                                              

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QUARTERDECK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

NOTE 13. NOTES PAYABLE TO BANKS                                                 

Notes payable to banks at September 30, 1996 was comprised of:        

                                                                [Download Table]
                                                             
Revolving credit facility........................  $3,550,000
Building loan....................................   2,000,000
Secured construction financing...................   2,730,000
                                                   ----------
                                                   $8,280,000
                                                   ==========

  As of September 30, 1996, the maximum borrowing the Company was eligible
for under this line was approximately $4,100,000. The line is secured by the    
Company's domestic accounts receivable and inventory. The current term of the   
line of credit matures June 30, 1997. The line can be used for general corporate
purposes, including investments and acquisitions, and bears interest, at the    
bank's reference (prime) interest rate plus 0.50%. The line is subject to the   
Company complying with certain customary financial covenants and restrictions,  
including a compensating balance of $3,000,000, the prohibition of the payment  
of dividends, other than those payable solely in capital stock, and a           
prohibition of any stock repurchase activity.                                   

 In April 1996, the Company borrowed $2,000,000 from a bank to partially
finance the completion of the building in Columbia, Missouri. The loan is       
secured by Datastorm's equipment and bears interest, at a rate of 4.5% per      
annum. The rate was subsidized, in part, by the State of Missouri in exchange   
for certain local employment targets. As part of the Company's restructuring,   
the Company has revised downward the personnel complement at this location. This
loan will not be renewed upon maturity. The Company has agreed with the bank to 
repay $750,000 between January 1997 and March 1997, and to repay the remainder  
by April 7, 1997.                                                               

    On August 6, 1996, the Company's Datastorm subsidiary secured construction
financing from a bank of up to $5,000,000 with an interest rate equal to the    
bank's commercial base rate, currently 8.25%, secured by the Columbia, Missouri 
building and guaranteed by the Company. The principal amount plus any unpaid    
interest is due February 7, 1997.                                               

    On December 19, 1996, the Company's revolving credit facility with Bank of
America was amended, and the bank waived the Company's non-compliance with      
certain financial covenants therein for the quarter ended September 30, 1996.   
The Company may borrow the lesser of 65% of Eligible Accounts Receivable or     
$15,000,000.                                                                    

NOTE 14. BUILDING AND NOTE RECEIVABLE FROM RELATED PARTY                        

     Prior to merging with the Company, Datastorm loaned to a partnership, whose
partners were Datastorm shareholders, funds which the partnership used to       
commence the construction of a new building which now houses Datastorm. At      
September 30, 1995, the partnership owned the building. The note bore interest  
at the applicable federal midterm rate and was payable on demand. The advances  
were carried in note receivable from related party on the balance sheet. The    
partners are now shareholders and consultants of the Company. In connection with
the acquisition, the Company was obligated to acquire the building from the     
partnership. During the quarter ended June 30, 1996, the Company completed the  
acquisition of the building in exchange for, among other things, cancellation of
the note receivable.                                                            

NOTE 15. CONVERTIBLE PREFERRED STOCK                                            

On September 30, 1996, the Company issued 200,000 shares of Series B  
Convertible Preferred Stock, stated value $100 per share (the "Series B         
Preferred Stock"), and a warrant (the "Warrant") to acquire shares of Common    
Stock of the Company for $20,000,000 in cash. The securities were issued to an  

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QUARTERDECK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

institutional investor in an overseas offering pursuant to Regulation S of the  
Securities Act of 1933, as amended.                                             

    The Series B Preferred Stock is convertible into shares of Common Stock on
or after November 15, 1996 and will automatically convert into Common Stock on  
September 30, 2002 to the extent any shares of Series B Preferred Stock remain  
outstanding at that time. Each share of Series B Preferred Stock is convertible 
into the number of shares of Common Stock equal to the quotient of (i) $100.00  
divided by (ii) the Conversion Price. The Conversion Price is the lesser of (i) 
101% of the average of the daily volume-weighted average prices of the Common   
Stock on the Nasdaq National Market System (the "Market Price") during the 40   
trading day period ending two trading days before the date on which the Company 
receives a notice of conversion from a holder of the Series B Preferred Stock   
(the "Conversion Date"), and (ii) 125% of the average of the Market Price of the
Common Stock during the first five trading days of the 40 trading day period    
ending two trading days before the Conversion Date. Assuming a Conversion Price 
of $5.3365 (based on 101% of the average of the Market Price for the 40 trading 
day period ending on December 12, 1996), each share of Series B Preferred Stock 
would be convertible into 18.74 shares of Common Stock, or an aggregate of      
3,747,802 shares of Common Stock upon conversion of all shares of Series B      
Preferred Stock.                                                                

 If stockholder approval of the issuance of Common Stock pursuant to the
conversion of the Series B Preferred Stock and exercise of the Warrant is       
required either because the number of shares so issuable would equal or exceed  
20% of the number of shares of Common Stock outstanding on September 30, 1996,  
or the number of shares issuable pursuant to conversion or exercise notices     
received would exceed the number of then authorized but unissued shares of      
Common Stock not reserved for other issuances, the Series B Preferred Stock will
not be convertible with respect to the number of shares of Common Stock that    
would cause either (a) the 20% threshold to be exceeded or (b) the number of    
authorized but unissued shares to be exceeded, and the Company will be required 
to seek the necessary stockholder approval. If such stockholder approval is not 
obtained within specified periods of time, the Company will be required, to the 
extent permitted by applicable law, to redeem the number of shares of Series B  
Preferred Stock that could not be converted for a redemption price of $100.00   
per share as soon as practicable, but in no event no later than September 30,   
2001. Although the Preferred Stock was not convertible at September 30, 1996,   
the Company would have had adequate shares to satisfy a conversion, based upon  
the closing stock price at that date. In the event the Company does not have    
adequate shares, the amount of Preferred Stock which could not be converted     
would be reclassified to redeemable Preferred Stock.                            

   The Warrant may be exercised from and after March 30, 1998 (or earlier if
certain mergers, acquisitions or combinations (a "Combination") occur prior to  
that date) for a number of shares of Common Stock determined by dividing (i)    
12,666,667 by (ii) the Exercise Price; provided that the number of shares of    
Common Stock issuable upon exercise in full of the Warrant shall not be less    
than 567,885 nor greater than 1,703,653. The Exercise Price per share will be   
equal to 150% of the daily volume-weighted average prices of the Common Stock   
for the period from, and including September 30, 1996, to, and including, April 
30, 1997, but in any event shall not be less than $7.435 per share nor greater  
than $22.305 per share. Notwithstanding the foregoing, if the Warrant becomes   
exercisable prior to April 30, 1997 as a result of the occurrence of a          
Combination, the Exercise Price shall be $10.037 and the number of shares of    
Common Stock to be issued upon exercise of the Warrant shall be 1,200,000       
shares.                                                                         

 In connection with the issuance of the Series B Preferred Stock and the
Warrant, the Company amended the Rights Agreement dated August 11, 1992 (the    
"Rights Agreement") (Note 8) between the Company and Bank of America, National  
Trust and Savings Association, as rights agent, to provide that the             
institutional investor that acquired the Series B Preferred Stock and Warrant   
will not be deemed to be an Acquiring Person (as defined in the Rights          
Agreement) as a result of its acquisition of the Series B Preferred Stock, the  
Warrant or any shares of Common Stock received upon conversion of the Series B  
Preferred Stock or exercise                                                     

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QUARTERDECK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1995 AND 1994 

of the Warrants; provided, however, if the institutional investor becomes the   
Beneficial Owner (as defined in the Rights Agreement) of any additional number  
of shares of Common Stock in excess of 5% of the outstanding shares of Common   
Stock other than as a result of the conversion of the Series B Preferred Stock  
and/or exercise of this Warrant, then the institutional investor will be deemed 
to be an Acquiring Person.                                                      

NOTE 16. LIQUIDITY                                                              

At September 30, 1996, the Company's cash and short-term investments  
totaled $25,554,000, compared to $39,669,000 at September 30, 1995. In addition,
working capital at September 30, 1996 amounted to a deficit of $4,684,000, a    
decrease of $34,174,000 as compared to $29,490,000 at September 30, 1995.       

During 1996, the Company utilized $49,750,000 of cash in operating    
activities. In addition, approximately $24,173,000 of cash was utilized relating
to fixed asset and software additions. This was financed by sales of marketable 
securities of $34,285,000, the issuance of $25,000,000 of convertible notes,    
$20,000,000 of Series B preferred stock and notes payable to banks of           
$8,280,000.                                                                     

  Although the Company has negative working capital at September 30, 1996,
and has incurred significant operating losses, the Company believes existing    
cash and cash equivalents, plus funds provided by operations, borrowing capacity
under the line of credit and projected borrowing against, or sale of, real      
estate should be sufficient to fund operations for the coming twelve months.    
Nevertheless, the Company is presently exploring various financing alternatives,
including equipment financing, secured debt, convertible debt, additional sales 
of equity securities and the sale of certain of its prior investments in order  
to finance the core business of the Company and help provide adequate working   
capital for operations. In addition, the expense reductions resulting from the  
restructuring are anticipated to provide additional funds from operations in    
future quarters. However, there is no assurance that increased sales will occur 
or that any such increase will result in adequate operating funds, or that such 
additional financing will be available, or if available, will be available on   
acceptable terms. Should product shipments be delayed or should the Company     
experience significant shortfalls in planned revenues, or not achieve sufficient
cost savings as a result of the restructuring, or experience unforeseen fixed   
expenses, the Company believes it has the ability to make additional reductions 
to variable expenses to extend its capital. Accordingly, the Company believes it
has sufficient capital to fund operations through Fiscal 1997. Any decision or  
ability to obtain financing through debt or through equity investment will      
depend on various factors, including, among others, financial market conditions,
strategic acquisition and investment opportunities, and developments in the     
Company's markets. The sale of additional equity securities or future conversion
of any convertible debt would result in additional dilution to the Company's    
stockholders.                                                                   

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QUARTERDECK CORPORATION AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                           BALANCE    ADDITIONS                            
                                                             AT        CHARGED                    BALANCE  
                                                          BEGINNING      TO                       AT END   
SEPTEMBER 30,                    ITEM                    OF THE YEAR  EXPENSES   DEDUCTIONS     OF THE YEAR
-------------  ----------------------------------------  -----------  ---------  ----------     -----------
                                                                                                           
     1996      Allowance for doubtful accounts.........    $   870     $ 1,903    $   (741)(1)    $ 2,032  
     1995      Allowance for doubtful accounts.........        803         333        (266)(1)        870  
     1994      Allowance for doubtful accounts.........        724         265        (186)(1)        803  
     1996      Inventory obsolescence reserve..........        676       3,914        (612)         3,978  
     1995      Inventory obsolescence reserve..........      1,086         119        (529)           676  
     1994      Inventory obsolescence reserve..........        633         453          --          1,086  
     1996      Sales returns and marketing development                                                     
                 fund reserve..........................      4,331      43,562     (36,906)(2)     10,987  
     1995      Sales returns and marketing development                                                     
                 fund reserve..........................      2,823       8,205      (6,697)(2)      4,331  
     1994      Sales returns and marketing development                                                     
                 fund reserve..........................      3,941       7,510      (8,628)(2)      2,823  

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

(1) Uncollectible accounts written off, net of recoveries.                      

(2) Products returned and reduction of reserve.                                 

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 EXHIBIT INDEX

                                                        [Enlarge/Download Table]

                                                                              SEQUENTIAL 
EXHIBIT                           DESCRIPTION                                 PAGE NUMBER
-------                           -----------                                 -----------
                                                                                         

23.1     Consent of KPMG Peat Marwick LLP, independent certified accountants.            

23.2     Consent of Arthur Andersen LLP, independent certified accountants.              

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K/A’ Filing		Date		First		Last			Other Filings
		9/30/02		36
		8/22/02		32
		9/30/01		36
		3/30/98		36
		8/19/97
Filed on:		8/14/97							10-Q,  POS AM,  S-3/A
		7/18/97		7
		6/30/97		35					10-Q
		4/30/97		36					8-K
		4/7/97		35
		4/1/97		34
		3/31/97		23					10-Q
		2/12/97		1
		2/7/97		35
		12/19/96		9		35
		12/17/96		5
		12/12/96		36
		11/30/96		1
		11/25/96		6		33			8-K
		11/22/96		9
		11/15/96		36
		10/10/96		33					S-3/A
For Period End:		9/30/96		1		38			10-K,  8-K/A
		9/19/96		3
		9/3/96		33
		8/27/96		3					8-K
		8/14/96		6		23			10-Q,  8-K
		8/13/96		4
		8/6/96		35
		7/24/96		3
		7/18/96		6		21			8-K,  8-K/A
		7/16/96		23
		7/15/96		4
		6/30/96		6		35			10-Q
		6/25/96		13
		6/13/96		33					8-K
		6/6/96		23
		6/1/96		32
		5/15/96		4		21			10-Q,  8-K
		3/31/96		6					10-Q
		3/29/96		32
		3/28/96		4		34			8-K,  8-K/A
		3/1/96		10		34
		2/14/96		4
		2/7/96		24
		2/2/96		29
		1/26/96		33
		12/31/95		2		21
		12/29/95		20
		12/24/95		24
		12/15/95		19		20
		10/1/95		21
		9/30/95		2		38
		9/29/95		21
		9/28/95		4		24
		9/27/95		4
		9/5/95		4
		8/28/95		5		21
		8/25/95		4
		7/17/95		3
		7/7/95		33
		6/30/95		4		33
		6/29/95		33
		5/26/95		33
		3/15/95		3
		2/14/95		3
		1/27/95		3
		1/16/95		3
		1/13/95		3
		12/31/94		2		21
		10/1/94		18		21
		9/30/94		2		38
		12/31/93		20
		9/30/93		5		31
		10/1/92		21
		8/11/92		3		36
		3/31/92		5
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