Quarterdeck Corp · 10-K · For 9/30/96

Filed On 12/30/96   ·   SEC File 0-19207   ·   Accession Number 950148-96-3006

Annual Report   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Exhibit 10-K                                          70    416K 
 2: EX-3.2      Articles of Incorporation/Organization or By-Laws      1      8K 
 3: EX-3.4      Articles of Incorporation/Organization or By-Laws      1      9K 
 4: EX-10.5     Material Contract                                      4     16K 
 5: EX-10.10    Material Contract                                      5     29K 
 6: EX-10.11    Material Contract                                     11     42K 
 7: EX-10.12    Material Contract                                     10     40K 
 8: EX-10.29    Material Contract                                      4     17K 
 9: EX-10.30    Material Contract                                      9     33K 
10: EX-21.1     Subsidiaries of the Registrant                         1      7K 
11: EX-23.1     Consent of Experts or Counsel                          1      8K 
12: EX-27       Financial Data Schedule                                1     10K 

10-K   ·   Exhibit 10-K
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549

 FORM 10-K

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 to be held on February 12, 1997 (the "Proxy Statement") are incorporated
by reference into Part III of this Form 10-K.                                   

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PART I                                                                          

ITEM 1.  BUSINESS                                                               

GENERAL                                                                         

     Quarterdeck Corporation develops, markets and supports computer
software products and offers services in two strategic business units: Utilities
and Communications and Internet Solutions. Quarterdeck creates smart tools that 
enhance computing on Desktop PC's, the Internet, and intranet.  The Company     
offers software solutions for corporate, small business, government, education  
and individual users in a number of areas including performance enhancement;    
disk, file and space management; software and hardware diagnostics/conflict     
resolution; communications; internet search and enablement; and graphics        
conversion.                                                                     

       The Company was incorporated in California in 1982 as Quarterdeck
Office Systems. In June 1991, the Company changed its state of incorporation    
from California to Delaware. In February 1995, the Company changed its name to  
Quarterdeck Corporation. The Company's principal offices are located at 13160   
Mindanao Way, Marina del Rey, California, 90292; its telephone number is (310)  
309-3700. Quarterdeck's Internet home page can be located on the World Wide Web 
at http://www.quarterdeck.com/.  Quarterdeck also has offices in England and    
Australia, with its European headquarters based in Dublin, Ireland. Unless the  
context otherwise indicates, the "Company" and "Quarterdeck" refer to           
Quarterdeck Corporation, its predecessor and its subsidiaries.                  

        During the last two years, management pursued a strategy to expand
the number of products offered by the Company in the utilities market and to    
enter the Internet/intranet related markets and reduce reliance on memory       
management products. This strategy was effected, in part, through eleven        
significant acquisitions including two which also provided direct marketing     
capabilities to supplement the established distributor network upon which the   
Company had historically relied. Along with the technology and products obtained
by the Company, it also acquired a much larger administrative organization. The 
expenses associated with the acquisitions are reflected in the accompanying     
financial statements and contributed to the significant losses incurred in the  
fourth quarter and for the fiscal year ended September 30, 1996. As a result,   
management has focused on accelerating the slower than anticipated acquisition  
integration process during the last quarter of fiscal 1996 culminating in the   
announcement and adoption of a comprehensive corporate-wide restructuring plan. 
The Company is currently completing such restructuring which includes a         
reduction of approximately 40% of the workforce, elimination of redundant       
functions, integration of redundant operations, reduction and elimination of    
development and marketing efforts in certain non-core product lines, and is     
focusing on improving its ability to develop and release new products or        
enhanced versions of its existing products to better compete in a rapidly       
changing marketplace.                                                           

ACQUISITIONS                                                                    

      One element of Quarterdeck's current strategy is to focus on the
integration of the acquisitions that have been completed over the past two      
years. Partially as a result of the acquisitions and subsequent restructuring,  
the Company believes it is now well positioned to provide a broad range of      
software products that enhance computing on desktop PCs, the Internet and       
intranet. Quarterdeck, though it has no current plans to do so, may continue    
to make strategic acquisitions and investments, as necessary, to provide        
certain technology and products for its overall product strategy.               

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  In the last fiscal year, the Company has completed acquisitions of the
following companies:                                                            

                                                        · Enlarge/Download Table

Company Acquired                       Date of Acquisition  Software or Activity Acquired
----------------                       -------------------  -----------------------------
                                                                                         
Inset Systems, Inc. ("Inset")          December 29, 1995    Utility applications (Hijaak)
Datastorm Technologies, Inc.           March 28, 1996       Data communications          
(and Limited)  ("Datastorm")                                (Procomm)                    
Future Labs, Inc. ("Future Labs")      May 15, 1996         Collaborative technology     
                                                            (TALKShow)                   
Interlink Technology ("Interlink")     July 16, 1996        Remote control software      
Vertisoft Systems, Inc. ("Vertisoft")  July 18, 1996        Utility products and         
                                                            Direct mail distribution     
Limbex Corporation ("Limbex")          August 14, 1996      Metasearch technology,       
                                                            WebCompass product line      

Additionally, on June 6, 1996, the Company acquired the CleanSweep utility      
technology from Pinnacle Software, Inc. ("Pinnacle")                            

During the fiscal year ended September 30, 1995, the Company completed          
acquisitions of the following companies:                                        

                                                        · Enlarge/Download Table

Company Acquired                             Date of Acquisition  Software or Activity Acquired                 
----------------                             -------------------  -----------------------------                 
                                                                                                                
Landmark Research International Corporation  June 30, 1995        Utilities software (MagnaRAM and WINProbe) and
("Landmark")                                                      direct marketing organization                 
Internetware, Inc. ("Internetware")          August 28, 1995      Internet software for Novell networks (IWare  
                                                                  Connect) and development resources            
Prospero Systems Research,Inc. ("Prospero")  September 28, 1995   Internet Relay Chat software and development  
                                                                  resources                                     
StarNine Technologies, Inc. ("StarNine")     September 29, 1995   Macintosh based Internet server software      
                                                                  (WebStar) and on-line marketing capabilities  

PRODUCTS                                                                        

        The following table summarizes Quarterdeck's principal products by
its two strategic business units and the operating system(s) on which they run: 

                                                                · Download Table

PRINCIPAL PRODUCTS                       OPERATING SYSTEMS                  
----------------------------------------------------------                  
                                                                            
UTILITIES PRODUCTS                                                          
  QEMM (Quarterdeck Expanded                                                
    Memory Manager)                      Windows 95, Windows 3.x, DOS       
  MagnaRAM 97                            Windows 95, Windows 3.x            
  SpeedyROM                              Windows 95                         
  DESQview                               DOS                                
  WINProbe 95                            Windows 95, Windows 3.x            
  Fix-It                                 Windows 95                         
  CleanSweep                             Windows NT, Windows 95, Windows 3.x
  Remove-It                              Windows 95, Windows 3.x            
  Partition-It                           Windows 95, Windows 3.x            
  Zip-It                                 Windows NT, Windows 95, Windows 3.x

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                                                                · Download Table
                                                                              
  Name-It                                Windows 95                           
  Hijaak 95                              Windows 95                           
  Hijaak Pro                             Windows 95                           

COMMUNICATIONS AND INTERNET PRODUCTS                                          

  Procomm Plus 95                        Windows 95                           
  Procomm Plus                           Windows 3.x, Windows 95 compatible   
  Procomm Rapid Remote                   Windows 95                           
  WebCompass                             Windows NT, Windows 95, Windows 3.x  
  WebTalk                                Windows 3.x, Windows 95 compatible   
  Quarterdeck WebSTAR for Windows 95/NT  Windows 95, Windows NT               
  Quarterdeck WebSTAR for Macintosh      Apple Macintosh                      
  Quarterdeck WebAuthor                  Windows 3.x, Windows 95 compatible   
  Quarterdeck TotalWeb                   Windows NT, Windows 95, Windows 3.x  
  Quarterdeck Iware Connect              Novell NetWare 3.x and above, Windows
                                         3.x, Windows                         
                                         95 compatible                        
  Iware InternetSuite                    Novell NetWare 3.x and above, Windows
                                         3.x, Windows 95 compatible           
  DESQview/X                             DOS                                  

UTILITIES -                                                                     

Quarterdeck's utility products are designed to enhance the performance of       
personal computers running Microsoft Windows 3.x, Windows 95, Windows NT and DOS
software.                                                                       

The Company produces utility products in four primary categories: Performance   
Enhancement; Software and Hardware Diagnostics/Conflict Resolution; Disk, File  
and Space Management; and Graphic Utilities.                                    

Performance Enhancement                                                         

QEMM (QUARTERDECK EXPANDED MEMORY MANAGER)                                      

QEMM(R), Quarterdeck's flagship memory management product, is a memory manager  
for personal computers providing more available memory for applications running 
under Windows 95, Windows 3.x and DOS. The latest version, QEMM 8, was released 
in November 1995. Version 8 includes memory solutions and reporting utilities   
for Windows 95 and Windows 3.x, as well as continued support for DOS systems.   
QEMM 8 incorporates memory optimizing technology which helps both Windows 95 and
Windows 3.x users maximize their available memory for applications, as well as  
the Resource Manager, which allows more applications to run and multitask under 
Windows 3.x. Incorporated within QEMM is Manifest, a system reporting           
information utility program that runs under Windows and DOS. Manifest displays  
memory usage and recommends changes to make more efficient use of available     
memory resources. Under Windows 95 or Windows 3.x, Manifest gives detailed      
reports on memory usage by the operating system itself and the programs running 
under it.                                                                       

MAGNARAM 97                                                                     

In September 1996, Quarterdeck began shipping MagnaRAM(TM) 97, an updated       
version of MagnaRAM 2. This 32-bit program combines data compression technology 
with other technologies that are designed to improve the operating performance  
of personal computers running Windows 95. The resultant gains allow most users  
to run more and larger programs and, in many cases, load and run programs       
faster. The benefits of MagnaRAM 97 accrue primarily to users of Pentium-based  
Windows 95 systems with 16 mega bytes or more of memory.                        

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SPEEDYROM                                                                       

Released in March 1996, SpeedyROM(TM) is a performance enhancement utility for  
CD-ROMs running under Windows 95. Using caching technology, SpeedyROM is        
designed to intelligently access frequently used information from CD-ROMs,      
automatically providing user performance improvements.                          

Software and Hardware Diagnostics/Conflict Resolution                           

FIX-IT                                                                          

Launched in July 1996, Vertisoft Fix-It(TM) is a comprehensive troubleshooter   
and problem solver for Windows 95. Fix-It automatically detects and corrects    
errors in hundreds of applications including games, utilities, and Internet     
software, utilizing an extensive problem-solving database of over 1,000 popular 
applications. Fix-It also provides automatic detection and correction of        
application conflicts, hardware configuration problems, and Windows environment 
problems. Fix-It is designed to automatically alert a user when new conflicts or
problems arise and provide a solution to many problems. Fix-It also includes a  
crash-protection system that intercepts many fatal errors caused by applications
before those errors cause a system to crash. As a result, many system crashes   
are prevented. The product also includes an online directory of support contact 
information for hundreds of leading software and hardware manufacturers.        

WINPROBE 95                                                                     

WINProbe(TM) is a troubleshooting toolbox designed to diagnose hardware problems
in Windows 95 and Windows 3.1 systems. Quarterdeck began shipping the latest    
version, WINProbe 95, in June 1996. WINProbe 95 provides over 200 comprehensive 
tests that let users determine the cause of many hardware problems.             

Disk, File and Space Management                                                 

PARTITION-IT                                                                    

Partition-It(TM) for Windows 95 and Windows 3.1 is a new utility specifically   
designed for today's large hard drives. Partition-It is designed to             
improve a computer's storage capacity by dividing it into                       
more manageable sections, without putting the users data at risk.               
Partition-It automatically calculates the optimal cluster size for maximum      
storage; divides a high-capacity drive into many smaller partitions; and moves  
data and applications between partitions utilizing the Move-It(TM) technology.  

CLEANSWEEP 3.0                                                                  

CleanSweep(R) is designed to enhance the performance of Windows by safely       
finding and removing outdated, unnecessary or unwanted files, applications and  
system components, thus freeing up valuable disk space.                         

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Quarterdeck began shipping CleanSweep 3.0, the first Internet-enabled 32-bit    
application removal and system clean-up utility, in October 1996. The new       
version incorporates SafetySweep(TM) technology designed to provide safe,       
effective removal of unwanted files and programs. Automatic wizards, which can  
be accessed from the program or directly from within the Windows 95 Explorer,   
can be used to easily uninstall, backup or move most applications. Its Registry 
Genie(TM) guides the user through understanding and editing the windows system  
Registry that contains the inner-workings of Windows 95 and NT. CleanSweep is   
currently the only application removal software that supports Windows 95, NT and
3.1. Finally, the program's new Update-It(TM) feature is designed to            
automatically download updated versions of CleanSweep and its Application       
Knowledge Base from the Internet. The Update-It technology is planned to be     
incorporated into future versions of other Quarterdeck products. Update-It and  
WebCompass, illustrate Quarterdeck's efforts into the area of intelligent       
agent technology.                                                               

REMOVE-IT                                                                       

Vertisoft Remove-It(TM) for Windows 95 is a comprehensive application and file  
removal system. It is specifically designed to remove any 32-bit or 16-bit      
application, duplicate or orphaned file, old faxes, unneeded backups and a host 
of other electronic debris that builds up on the hard drive. Remove-It's Log-It 
feature automatically records new installations for accurate removal. It's      
Cleanup Coach guides the user through cleaning unneeded applications and files  
off the hard drive. It's Smart Disk Agent is designed to automatically keep the 
system efficient by alerting users to new unneeded applications and files, and  
low system resources. Both Remove-It for Windows 95 and Remove-It 2 for Windows 
3.1 are included.                                                               

ZIP-IT                                                                          

Vertisoft Zip-It(TM) makes creating PKZIP-compatible compressed files as easy as
dragging and dropping, letting users quickly view and extract compressed files  
downloaded from online services or the Internet by simply pointing and clicking.
Files can be reduced in size by up to 98% in Windows 95, 3.1 or NT. Zip-It      
features Windows drag-and-drop file compression; point-and-click file unzipping;
a built-in viewer for popular Windows file types; and the ability to view, edit,
and run zipped files without extracting them. Internet functionality is provided
through a Netscape Navigator(R) plug-in module. The product is fully integrated 
with Windows 95 Explorer and File Manager.                                      

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Graphic Utilities                                                               

HIJAAK PRO                                                                      

Quarterdeck shipped HiJAAK(R) Pro 4.0 in July 1996. HiJAAK Pro is designed to   
provide an extensive set of graphic tools to aid productivity. The product      
allows the user to convert, view and manage graphics in over 85 raster, vector  
and metafile formats. Shortcut menus provide access to view and convert most    
graphics file, including complex formats such as Postscript, DXF, DWG, IGES, 3DS
and VRML. Extensive screen capture functionality enables users to capture       
portions of their screen and save it as a graphic file. Cataloging and          
thumbnailing features allow users to create personalized catalogs within the    
Windows 95 Explorer containing detailed information on graphics files, including
user-defined key words.                                                         

COMMUNICATIONS AND INTERNET SOLUTIONS                                           

Quarterdeck's Internet and Communications products are designed to provide      
solutions for users to view, share, find and communicate information over the   
Internet, inside intranets (private distributed data networks) or through other 
standard communications methods. Key categories include Communications and      
Internet Search and Enabling.                                                   

Communications:                                                                 

PROCOMM PLUS FOR WINDOWS 95                                                     

ProComm Plus(R) for Windows 95, which started shipping in September 1996, is the
latest iteration of the PC communications program, ProComm Plus. The product is 
specifically designed to provide a wide range of communication options,         
including a new remote control feature, fax, data communications and Internet   
support. Each communications module is accessible from within a single intuitive
interface, and can run concurrently by utilizing Windows 95 multitasking        
technology. Fax capabilities include OCR, annotation, fax viewer, broadcast fax,
and fax request. Extensive data communications support includes 11 file         
transfers and 36 terminal emulations, as well as RIPscript support. The included
remote control functionality allows control of a remote PC, with a host of      
advanced security features including data encryption and Turbo Transfer(TM)     
technology for high speed file transfers. Extensive Internet functionality is   
provided, including news, mail, Microsoft(R) Internet Explorer browser, FTP and 
Telnet.                                                                         

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PROCOMM PLUS 3.0 (WINDOWS 3.1)                                                  

ProComm Plus(R) 3.0, for users of Windows 3.1 systems, includes all the         
functionality of the Windows 95 version, without the inclusion of Microsoft     
Internet Explorer and the remote control software.                              

PROCOMM RAPIDREMOTE                                                             

ProComm(R) RapidRemote(TM) is targeted at the market for departmental and small 
business telecommunications. Shipped in December 1996, the product is designed  
to be an effective method to control another PC, including copying files or     
opening remote applications. The initial version supports Windows 95, while     
subsequent versions are expected to support Windows 3.1 and Windows NT. The     
product features a broad range of remote control technologies, including        
advanced fast screen refresh technology, high-speed access, SmartWizards, which 
automatically walk the user through set-up to get connected securely and easily,
and a host of security features.                                                

Internet Search & Enabling:                                                     

WEBCOMPASS                                                                      

WebCompass(TM) 2.0, first shipped in December 1996, is a PC-based metasearch    
tool for the World Wide Web, capable of simultaneously accessing and retrieving 
information from multiple information sources. Once a subject has been searched,
WebCompass is designed to create detailed summaries of the data, rank the       
results for relevancy, and allow the user to update the subject(s)              
automatically. Organization options allow the user to further categorize a      
search subject, and fine-tune subsequent searches. Search results can also be   
posted to a web page, allowing users to maintain a constantly updated           
information source published to other users. The new version provides a Windows 
Explorer-style interface and a significant increase in speed.                   

IWARE CONNECT 2.0                                                               

Quarterdeck IWare Connect(TM), is designed to provide secure and cost-effective 
Internet access for Novell NetWare LANs. It installs onto a single central      
NetWare server using resident TCP/IP, eliminating the need for installation on  
each networked PC. Quarterdeck IWare Connect provides network security, and can 
hide the identity of each workstation and safeguard against most break-in       
attempts. The network administrator can control Internet access by user, group, 
time-of-day, application and destination. Quarterdeck IWare Connect also        
provides Intranet access, so users can distribute internal information on local 
NetWare networks.                                                               

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WEBSTAR FOR MACINTOSH                                                           

StarNine began shipping WebSTAR(R) for Macintosh 2.0 in November 1996. WebSTAR  
is designed to allow the user to publish and serve information onto the World   
Wide Web using a Macintosh. Key features of WebSTAR for Macintosh include: (i)  
compatibility with Microsoft and Netscape, (ii) support for forms and clickable 
maps, (iii) integration with both Macintosh and SQL databases, (iv) scriptable  
and recordable with AppleScript, (v) domain and IP address level access         
controls, (vi) support for thousands of connections per hour, (vii) remote      
administration from anywhere on the Internet, (viii) control of multiple servers
from one Macintosh, and (ix) the ability to publish information from many       
sources. Through the power of AppleScript, WebSTAR for Macintosh can communicate
with other applications on the user's Macintosh to publish many items contained 
in those programs. The WebSTAR Security Toolkit is specifically designed to     
provide authentication and encryption using the Secure Sockets Layer (SSL)      
standard to ensure that Web connections are completely private. This enables    
WebSTAR for Macintosh to encrypt the data transmitted.                          

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Product Development                                                             

Quarterdeck plans to focus its internal development efforts and service         
offerings in the areas of Utilities and Communications and Internet Solutions   
and to license and publish tactical and opportunistic products to leverage      
Quarterdeck's channels of distribution. Quarterdeck's products and services are 
planned, designed, developed, documented, and tested using both internal        
resources and outside contracting.                                              

The Company's product development activities expanded and diversified during    
fiscal 1996. The Company continued to enhance its proprietary core software     
technologies and released a number of new products and new product versions. In 
particular, development activities were focused on delivering products which    
enhance Windows 95 and Windows NT operating systems. The Company believes its   
expertise and experience in DOS and Windows operating systems and communications
give it a strong technology foundation from which to achieve it's goal of       
delivering products that enhance the user's computing experience.               

The Company focused substantial development efforts on the Internet market in   
the past year. The Company is now moving its focus away from providing          
infrastructure technology for the Internet as this area continues to be in flux 
and is dominated by Microsoft and other major companies who in many cases       
provide this technology free. The Company is refocusing its efforts on Internet 
development in two areas; making all products Internet aware and making use of  
the Internet to expand the capabilities of products, and marketing products that
add value to the Internet/intranet. These value-added products directly address 
use of the Internet and intranet by managing, connecting, searching, and        
organizing Internet/intranet information.                                       

The Company has developed and acquired certain technologies which will help it  
achieve its goals. The memory management technology provides expertise in       
delivering capabilities aimed at controlling software conflicts and             
automatically resolving certain problems in Microsoft Windows. The intelligent  
search agent technology in WebCompass provides a core for searching and managing
information from the Internet and intranets.                                    

The Company anticipates that its development activities over the next year will 
continue to focus on products for the Microsoft Windows environments, including 
products for Windows 95 and its successors, and Windows NT. The Company is      
investing in expanding its development using COM, ActiveX, and Java and expects 
these tools and approaches to positively impact the Company's development       
schedules to better compete in a rapidly changing competitive environment.      

         Research and development expenses were $21,314,000, $14,286,000 and
$7,520,000 in fiscal 1996, 1995 and 1994 and represented 16.0%, 12.1%, and 8.9% 
of net revenues, respectively.                                                  

 Although the Company believes that its product planning and
development strategies and processes will result in successful development of   
technology innovations in the future, because of the inherent uncertainties of  
software development projects and the software market in general, there can be  
no assurance that the Company's software development efforts will result in     
successful product introductions or increased revenues. Even with normal        
development cycles, the market environment can change so quickly that features  
in certain products can become outdated before or soon after market             
introduction.                                                                   

MARKETING AND SALES                                                             

    Quarterdeck uses multiple distribution channels to deliver its
products worldwide, including software distributors and dealers, value added    
resellers, system integrators, original equipment manufacturers, direct         
telemarketing, direct mail, as well as over the Internet.                       

        Quarterdeck supports its distributors and dealers by targeting end
users directly through a variety of programs designed to create demand for its  
products. The Company seeks to educate individuals and key decision makers in   
corporations, and in the SOHO (small office/home office) and home markets, as   
well as government and independent software vendors about the uses for and      
benefits of its products. Programs include the following: (i) extensive         
worldwide advertising in industry magazines, local computer newspapers, trade   
journals and the internet; (ii) targeted direct mail campaigns using customer   
response cards, sales                                                           

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brochures and postcards; (iii) cooperative channel market development and       
promotional activities, and (iv) trade show and user group participation.       

      The Company's sales force specializes in educating corporate and
government end users as well as dealers about the Company's products. The sales 
organization develops leads and introduces potential customers and corporate    
accounts to dealers in their geographic area. In situations where large site    
license sales are required, the sales organization will offer the customer the  
option to purchase products directly from the Company. The sales organization   
also provides basic product support and training directly to end users.         

       The Company sells its products to major software distributors for
resale through software dealers. Quarterdeck's principal North American         
distributors are Ingram Micro, Inc., Tech Data Corporation, and Merisel, Inc.   
See Note 11 to the Company's Consolidated Financial Statements. Each of these   
distributors resells the Company's products on a non-exclusive basis. Pursuant  
to its domestic distribution agreements with these distributors, the Company    
licenses the resale of its products in the United States for one-year terms with
automatic one-year renewal periods. The Company retains ownership of its        
proprietary rights associated with its products and agrees to indemnify the     
distributor for third party claims of proprietary rights infringement to the    
extent such claims are brought against the distributor. The distribution        
agreements are terminable by either party, without cause, upon written notice in
advance. The Company also distributes internationally through foreign based     
subsidiaries of Ingram Micro, Inc., and Merisel, Inc. as well as a variety of   
other international distributors. The Company estimates it has more than 35,000 
distribution outlets selling its products on a worldwide basis, including       
computer superstores, office warehouse clubs, software specialty stores,        
consumer electronics stores, mass merchants, general warehouse clubs, value     
added resellers (VAR's) and corporate resellers. Stores selling the Company's   
products include Egghead, CompUSA, Computer City, Best Buy, Staples, Sam's Club,
Wal-Mart, Price-Costco, Stream, Software Spectrum, Harvey Norman, FNAC, Dixons, 
and Vobis among others. Quarterdeck trains and supports distributors and key    
dealers and sponsors joint marketing programs.                                  

  The Company's return and exchange policies generally allow its
distributors to return, within a contractually defined period of time,          
contractually limited amounts of any immediately-prior product releases in      
exchange for new releases. In addition, distributors may participate, quarterly,
in a stock balancing program which, subject to certain limitations, allows them 
to return purchased products for full credit toward future purchases. The       
Company may also elect to accept additional returns based upon market conditions
and other factors. The Company also provides its distributors with price        
protection rights for a contractually defined period of time from the date of   
purchase. End users may return defective products at any time to their dealer or
distributor and the Company will make a full refund or exchange through the     
distributor. The Company provides allowances against trade accounts receivable  
for the estimated amount of product that will be returned or exchanged in       
accordance with these policies.                                                 

          DIRECT MARKETING: With the acquisition of Landmark in fiscal 1995, the
Company obtained a direct telemarketing organization now called Quarterdeck     
Select. This organization was further bolstered by the direct mail organization 
acquired with Vertisoft in fiscal 1996. Through direct telemarketing, the       
Company is able to target and reach the expanding SOHO and home markets.        
Quarterdeck Select sells Quarterdeck software products directly to businesses   
and individuals. Its outbound sales division conducts telemarketing campaigns to
existing and new customers using a state-of-the-art Predictive Dialing System   
(PDS). Its mail order sales division mails millions of pieces of direct mail    
annually to individuals and small businesses. Both outbound and mail order sales
representatives receive on-going product and sales training, and are well-versed
in effective, proprietary selling techniques for cross-selling Quarterdeck      
products to maximize average order revenue. Orders are entered using an on-line 
order entry system that promotes efficient processing, and a high level of      
customer service. Quarterdeck Select's Clearwater, Florida facility also houses 
a large warehouse, and is fully-staffed with customer service and administrative
personnel dedicated to servicing and supporting the direct-selling activities.  

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INTERNATIONAL SALES: The Company's European operations are
headquartered in Dublin, Ireland, with a marketing support office in Slough,    
England. The Company also has a sales office in Sydney, Australia, and          
agreements with third parties to distribute its products in Japan, Asia Pacific 
and Latin America.                                                              

       The Company's international marketing support offices, along with
third party representatives in countries where the Company does not have        
marketing support offices, prepare marketing programs for each local market,    
educate end users and support the international distributor and dealer networks.
The Company's Dublin office was established to handle order processing,         
technical support, localization and production for European and other           
international sales. The Company ships international english language versions  
and translated foreign language versions of its products from its Dublin        
facilities.                                                                     

Sales by the Company to European and other international  
distributors, dealers and end users outside of North America represented        
approximately 18%, 16% and 11% of the Company's total net revenues for fiscal   
years 1996, 1995 and 1994, respectively. See Note 11 of Notes to the Company's  
Consolidated Financial Statements for information regarding the Company's       
domestic and foreign operations and export sales.                               

      CUSTOMER SUPPORT: The Company believes a significant competitive
factor in the personal computer software business is the ability to provide a   
high level of technical customer support. The Company provides extensive        
customer support to its distributors, dealers and end users. All registered     
users receive 90 days of pre-paid telephone technical support, which commences  
upon the user's initial inquiry. The Company offers several levels of paid-for  
telephone support programs including special "priority" programs for corporate  
customers.                                                                      

     The Company provides 24-hour end-user support through its Q/Fax
service and 1-800 ROBOTECH automated voice-response system, from which users can
receive up-to-date technical information including troubleshooting techniques   
for advanced applications of Quarterdeck's products. Technical support notes are
also available worldwide on the Company's own Bulletin Board System (BBS) and   
via other on-line services including the Internet and CompuServe.               

COMPETITION                                                                     

       The personal computer market is intensely competitive, subject to
strategic alliances of hardware and software companies and characterized by     
rapid changes in technology and frequent introductions of new products and      
features. The Company's primary competitors include utility, communications and 
Internet software vendors. The Company's current revenues and profitability are 
dependent on the viability of Microsoft Windows, including Windows 95 and       
Windows NT, and Apple Macintosh operating systems. Additionally, the continued  
viability and growth of the Internet and the Worldwide Web may have an          
influence on revenue and revenue growth although the Company's revenues and     
profitability are not as dependent on Internet and Worldwide Web growth. The    
Company expects to encounter continued competition both from the established    
companies and from new companies that are now developing, or may develop,       
competing products. Many of Quarterdeck's existing and potential competitors    
have financial, marketing and technological resources significantly greater than
those of Quarterdeck.                                                           

       The Company's products are designed to provide added features and
functions for users of DOS, Microsoft Windows, Windows 95, Windows NT and Apple 
Macintosh operating systems. In some cases the Company's products compete       
directly with features of those operating systems. In most cases, however, the  
Company's products compete directly with products from other utility and        
communications software vendors.                                                

   Since the introduction of Windows 95, the software market has
experienced a shift to this platform. In addition, Windows NT is showing        
significant increased acceptance as a server and desktop operating system in    

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corporate settings. As application programs and device drivers have been        
developed to take advantage of these 32-bit operating environments, the         
perceived need for software specifically designed to address the memory         
limitations inherent in DOS and Windows 3.x and in DOS-based applications has   
declined, resulting in a decline in the memory management segment of            
Quarterdeck's business. In response to these changing market conditions, the    
Company is now focusing substantial development efforts on new value-added      
products for Windows 95 and Windows NT, while continuing to support Windows 3.x,
Apple Macintosh and DOS platforms. Quarterdeck released several new products for
Windows 95 in fiscal 1996, including MagnaRAM 97, Fix-It 1.0, WinProbe95, Hijaak
Pro 4.0, WebCompass and Procomm Plus 95 among others. However, Microsoft may    
incorporate advanced utilities or other features in Windows 95 or Windows NT    
that could have the effect of decreasing the demand for certain of the Company's
products, including certain of those under development. Should Quarterdeck not  
be able to successfully and timely develop products that function under         
Windows 95 and Windows NT, and offer perceived value to Windows 95 and          
Windows NT users, future revenues would be adversely affected.                  

         Future competitive product releases may cause disruptions in orders
for the Company's products while users and the marketplace evaluate the         
competitive products. The extent of the disruption in orders and the impact on  
future orders of the Company's products will depend on various factors that are 
not known at this time, including the level of functionality, performance and   
features included in the final release of these competitive products and the    
market's evaluation of competitive products compared to the then current        
functionality, performance and features of the Company's products.              

           The Company's Internet-related products may compete with tools from a
variety of companies, including networking and Internet software application    
developers. Internet access providers, on-line service providers, and Microsoft 
have made versions of their Internet access, creation and server products       
available on the Internet for users to download at no charge or for extended    
evaluation. This practice has adversely impacted Quarterdeck's market for       
comparable products. Quarterdeck is dedicating its efforts in the areas of      
communications and Internet Solutions towards providing value-added products and
services as opposed to Internet infrastructure products. Quarterdeck is also    
focusing on leveraging the existence of the Internet in all of its products to  
provide extended capabilities for its products through the use of the Internet. 
Quarterdeck expects that its Procomm product line, together with its other      
Communications and Internet products, will provide a significant portion of     
future revenues. However, the revenues from such new products and services may  
be less than Quarterdeck anticipates due to various factors including the timing
of release in relation to competitive products and services, and uncertainties  
surrounding the rate and extent of development of these new and emerging        
markets.                                                                        

    The Company anticipates that the type and level of competition
experienced to date will continue and may increase and that future sales of its 
products will be dependent upon the Company's ability to timely and successfully
develop or acquire new products or enhanced versions of its existing products   
for Windows 95 and Windows NT, Apple Macintosh and/or other operating systems   
that may gain market acceptance, and to demonstrate to the user a need for the  
Company's products while developers of operating systems and competitive        
software products continue to enhance their products. To the extent that        
operating system enhancements, competitive products or bundling of competitive  
products with operating systems or computer hardware reduce the number of users 
who perceive a benefit from the Company's products, sales of the Company's      
products in the future would be adversely impacted. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."                 

      The Company believes that the primary competitive factors in the
personal computer software market are product features and performance, time to 
market, product reliability, ease of use, product and vendor reputation, price, 
timeliness of product upgrades and the quality of customer support and service. 
Of these, time to market and price are becoming increasingly significant        
factors.                                                                        

    The Company also competes with other companies in the personal
computer software market for distributors and dealers, as well as for alliances 
with hardware and software vendors. The Company competes                        

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for distributors and dealers on the basis of the revenue opportunities presented
by the Company's products, in addition to discounts, credit terms and           
promotional support.                                                            

PRODUCTION AND BACKLOG                                                          

           The principal materials and components used in the Company's products
include CD-ROM, diskettes, user manuals and product display boxes, and are      
purchased directly from third party vendors. The Company currently utilizes both
internal and third party contracted resources for the assembly, warehousing and 
fulfillment of its products. Outside vendors perform in accordance with Company 
specifications, and material quality is ensured prior to the assembly of its    
products. Capacity shortages for components, assembly, warehousing and          
fulfillment are not anticipated due to multiple third party resources available 
for contract; however, if such shortages did occur the Company's operating      
results could be materially impacted. The Company believes there are adequate   
supplies of and sources for the raw materials used in its products and that     
multiple sources are available for CD and diskette duplication, manual printing 
and final packaging.                                                            

          Customer order turnaround is generally within one week of receipt of
the order, unless such orders are pre-orders for unreleased products. Generally 
the Company has relatively little, if any, order backlog at any given time and  
does not consider backlog to be a significant or important measure of sales for 
any future period.                                                              

PATENTS, TRADEMARKS AND PRODUCT PROTECTION                                      

          Quarterdeck protects its products and technology under a combination
of trade secret, patent, copyright, unfair competition and trademark laws.      
Quarterdeck holds two United States patents relating to memory management, one  
of which expires in 2010 and the other of which expires in 2011, and one of     
Quarterdeck's subsidiaries holds a patent relating to virtual screen overlays   
that expires in 2013. Quarterdeck provides its products to end users under a    
non-exclusive license that limits the warranties provided by and liability of   
Quarterdeck. The ability of software companies to enforce such licenses has not 
been finally determined by the United States Supreme Court, although Quarterdeck
believes that its licenses are enforceable. Quarterdeck's trademark and service 
mark rights include rights associated with its use of its trademarks and service
marks, and rights obtained by registrations of its trademarks and service marks 
("marks"). Quarterdeck has applied for or obtained United States trademark      
registrations for certain marks and has applied for or obtained registrations in
various international jurisdictions. The use and registration rights of         
Quarterdeck for its marks do not assure that Quarterdeck has superior rights to 
others that may have registered or used identical or related marks on related   
goods or services.                                                              

    The extent to which U.S. and foreign copyright and patent laws
protect software has not been fully determined. In addition, changes in the     
interpretation of copyright and patent laws could expand or reduce the extent to
which the Company or its competitors are able to protect their software and     
related intellectual property.                                                  

     Because the computer industry is characterized by technological
changes, the policing of the unauthorized use of computer software is a         
difficult task. Software piracy is expected to continue to be a persistent      
problem for the packaged software industry. Despite steps taken by Quarterdeck  
to protect its software products, third parties still make unauthorized copies  
of Quarterdeck's products for their own use or for sale to others. These        
concerns are particularly acute in certain international markets. The Company   
believes that the knowledge, abilities and experience of its employees, its     
timely product enhancements and upgrades and the availability and quality of its
support services provided to users are as significant in protecting its software
products as patent, trade secret and copyright protection laws.                 

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EMPLOYEES                                                                       

          As of September 30, 1996, Quarterdeck employed 960 people worldwide.
None of the Company's employees are represented by a labor union or subject to a
collective bargaining agreement. Quarterdeck has never experienced a work       
stoppage due to labor difficulties and believes that its employee relations are 
good. During September 1996, the Company commenced a comprehensive restructuring
program and as of November 30, 1996 the Company employed approximately 600      
people worldwide.                                                               

          Recruitment of personnel in the computer software industry is highly
competitive. The Company believes that its future success will depend, in part, 
on its ability to continue to attract and retain highly skilled technical,      
marketing and management personnel.                                             

ITEM 2. PROPERTIES                                                              

           The Company's principal administrative, production, marketing product
development and support facilities are presently located in Marina del Rey,     
California, occupying approximately 75,500 square feet. The Company owns a      
building in Columbia, Missouri, which was acquired as part of the acquisition of
Datastorm. The building is approximately 152,000 square feet of which           
approximately 30,000 square feet is occupied by the Company. The Company also   
leases office space amounting to 47,900 square feet in Clearwater, Florida, and 
12,500 square feet in Northern California for research and development,         
marketing and certain administrative functions. In addition, the Company leases 
space for production, sales and support offices in Dublin, Ireland, and         
marketing offices in Slough, England and Sydney, Australia.                     

          The Company is currently seeking to terminate certain existing lease
obligations or sub-lease certain space as part of the comprehensive             
restructuring program.                                                          

ITEM 3. LEGAL PROCEEDINGS                                                       

        In November and December, two shareholder complaints were filed in
the Superior Court of the State of California, County of Los Angeles, against   
Quarterdeck Corporation and a former officer and 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 of January 26, 1996 through June 13, 1996 and seeks     
damages in an unspecified amount and other relief. The Company intends to       
vigorously defend these actions.                                                

      On or about September 3, 1996, a purported class action lawsuit,
Marjorie Williams, et al. v. Quarterdeck Corporation, Case No. 96-3041, was     
filed in the Circuit Court of the Eighth Judicial Circuit, Alachua County,      
Florida. The complaint purports to allege claims against Quarterdeck on behalf  
of all licensees of MagnaRAM2 residing in the United States. The complaint      
alleges, among other things that MagnaRAM2 fails to significantly increase      
Random Access Memory or otherwise help Windows 95 and Windows 3.x users. The    
plaintiffs seek compensatory damages in an unspecified amount, injunctive       
relief, and attorney fees and costs. On October 10, 1996, Quarterdeck 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 Quarterdeck'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. Quarterdeck 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,       
Quartedeck intends to defend the case vigorously and to oppose any effort to    
certify the claims for class resolution.                                        

           The Company is a defendant in various other pending claims (including
intellectual property disputes and employee claims), none of which is expected  
to have a material adverse impact on the results of operations or financial     
position of the Company.                                                        

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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                    

        No matters were submitted to a vote of security holders during the
last quarter of fiscal 1996.                                                    

EXECUTIVE OFFICERS OF THE REGISTRANT                                            

The executive officers of the Company are as follows:     

                                                                · Download Table

NAME                 AGE  POSITION                                                
----                 ---  --------                                                
                                                                                  
King R. Lee          56   Office of the President                                 
Anatoly Tikhman      40   Office of the President                                 
James Moise          42   Senior Vice President and President - Quarterdeck U.S.A.
Frank R. Greico      39   Senior Vice President and Chief Financial Officer       
Bradley D. Schwartz  37   Senior Vice President, General Counsel and Secretary    
Joseph Fusco         46   Vice President - Utilities                              
Suzanne Dickson      36   Vice President - Communications and Internet Solutions  

Mr. Lee was appointed as a member of the Office of the President of the Company 
on August 27, 1996 and currently serves in such capacity. Mr. Lee served as     
Interim Chief Executive Officer of the Company from December 1994 until February
1995 and served as Interim Chief Operating Officer of the Company between July  
and December 1994. He was elected to the Board of Directors of the Company in   
July 1994. Mr. Lee is the Chief Executive Officer and Chairman of Wynd          
Communications Corporation, a two-way wireless messaging service provider and is
President of King R. Lee & Associates, Inc., a management consulting firm, which
provides consulting services to the Company. From 1987 to 1993, Mr. Lee was     
President and Chief Executive Officer of XTree Company, a developer of computer 
systems software. He serves as a director of NetSoft, Inc., Nettech Systems,    
Inc., Outback Resource Group, Inc., Boss Entertainment and World Childrens      
Transplant Fund.                                                                

Mr. Tikhman was appointed as a Senior Vice President in July 1996 and as a      
member of the Office of the President on August 27, 1996. Prior to July 1996,   
Mr. Tikhman was the Chief Executive Officer of Vertisoft Systems, Inc., a       
software company, which he founded in 1987 and which was acquired by the Company
in July 1996.                                                                   

Mr. Moise was appointed Senior Vice President and President -- Quarterdeck      
U.S.A. in December 1995. Mr. Moise joined Quarterdeck as Senior Vice President  
World Wide Sales in January 1995. Prior to joining Quarterdeck, Mr. Moise       
worked as a consultant for a variety of companies in the computer software      
industry. Mr. Moise was Vice President of Sales with XTree Corporation from     
April 1990 to October 1993, where he was responsible for sales and channel      
marketing. Earlier he had been the North American Sales Manager for Aldus       
Corporation. Mr. Moise was also founder and President of Market Share, a        
manufacturer's representative firm specializing in PC hardware and software     
products. Other assignments included Channel Sales Manager with Fujitsu Business
Communications and Marketing Representative with IBM.                           

Mr. Greico joined the Company in January 1996 as Senior Vice President and Chief
Financial Officer. Prior to joining the Company, Mr. Greico was Chief Financial 
Officer and Vice President of Finance and Operations at Knowledge Adventure,    
Inc., an educational software publisher. Mr. Greico, a certified public         
accountant, has also held several MIS and finance positions within W.R. Grace's 
distributor units, most notably as Chief Financial Officer and Vice President of
Finance for their B&T Software distribution company (formerly Soft-Kat). He was 
also a senior accountant with Price Waterhouse in New York.                     

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Mr. Schwartz joined the Company in February 1996 as Senior Vice President,      
General Counsel and Secretary. During 1994 and 1995, Mr. Schwartz was a partner 
in the law firm of Gibson, Dunn & Crutcher LLP and from 1985 through 1993 he was
an associate of that law firm.                                                  

Mr. Fusco was appointed as a Vice President of the Company after his hiring in  
September 1996. Prior thereto, Mr. Fusco held various positions with Symantec   
Corporation commencing in 1992, most recently the General Manager of Symantec's 
Strategic Technologies business unit. Prior to Symantec, Mr. Fusco held various 
positions with Peter Norton Computing commencing in 1989 until its acquisition  
by Symantec in 1992.                                                            

Ms. Dickson was appointed as a Vice President of the Company in September 1996, 
and prior thereto held other positions with the Company commencing in February  
1995. Ms. Dickson had held several product and marketing positions with other   
software utility companies, including XTree Corporation, Fifth Generation       
Systems and Symantec Corporation.                                               

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 PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  

      The Company's common stock trades on the Nasdaq National Market,
under the symbol QDEK. The following table sets forth, for the periods          
indicated, the high and low closing sales prices of the common stock on the     
Nasdaq National Market as reported by the National Association of Securities    
Dealers, Inc.                                                                   

                                                                · Download Table

                                              HIGH            LOW  
                                              ----            ---  
                                                                   
Fiscal 1995:                                                       
  First Quarter ......................      $ 3-1/4         $ 1-7/8
  Second Quarter .....................      $ 4-7/16        $ 2-7/8
  Third Quarter ......................      $12-1/2         $ 3-5/8
  Fourth Quarter .....................      $21-7/16        $10-3/8

Fiscal 1996:                                                       
  First Quarter ......................      $38-1/4         $17-1/8
  Second Quarter .....................      $26-3/8         $12    
  Third Quarter ......................      $16-1/2         $ 8    
  Fourth Quarter .....................      $ 9-7/8         $ 6    

     As of November 30, 1996, Quarterdeck Corporation had 37,665,882
shares outstanding and 589 shareholders of record. The Company estimates there  
are more than 20,000 shareholders represented through accounts held by clearing 
agencies.                                                                       

    The Company paid no dividends during fiscal 1996. However, the
Company acquired certain entities in pooling of interest transactions who made  
certain distributions to their shareholders prior to being acquired by the      
Company. Those distributions are reflected in the accompanying consolidated     
financial statements. The Company intends to retain earnings for use in its     
business and does not anticipate paying any cash dividends in the foreseeable   
future. The Company is a party to certain financing agreements in connection    
with certain borrowings which prohibit the payment of cash dividends.           

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ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA                                   

         The following selected consolidated financial data are derived from
the Company's consolidated financial statements. Historical results should not  
be taken as necessarily indicative of the results that may be expected for any  
future period. This consolidated data should be read in conjunction with the    
consolidated financial statements and notes thereto. Certain items in the prior 
years' consolidated financial statements have been reclassified to conform to   
the 1996 presentation. During fiscal 1996, Quarterdeck acquired Inset,          
Datastorm, Futurelabs, and Vertisoft in transactions accounted for as poolings  
of interests. During fiscal 1995, Quarterdeck acquired Landmark Research        
International, Inc., Internetware, Inc. and StarNine Technologies, Inc. in      
transactions accounted for as poolings of interest. All financial information   
subsequent to October 1, 1992 has been restated to reflect the combined         
operations of Landmark, Datastorm, Inset and Quarterdeck. StarNine and          
Internetware had results of operations that were not material to Quarterdeck's  
consolidated financial statements and therefore, periods prior to October 1,    
1994 were not restated for these two transactions. Vertisoft and Futurelabs had 
results of operations that were not material to Quarterdeck's consolidated      
financial statements and therefore, periods prior to October 1, 1995 were not   
restated for these two transactions. However the number of shares of the        
Company's common stock issued in the Vertisoft acquisition are material and     
accordingly shares outstanding and earnings per share have been restated to     
reflect those shares. All amounts shown are in thousands, except per share data.

                                                        · Enlarge/Download Table

                                                                           YEAR ENDED SEPTEMBER 30,                       
                                                     ---------------------------------------------------------------------
                                                        1996            1995           1994           1993           1992 
                                                        ----            ----           ----           ----           ---- 
                                                                                                                          
STATEMENTS OF OPERATIONS DATA:                                                                                            
Net revenues ......................................  $ 133,100        $117,606       $ 84,715        $83,578       $88,602
Cost of revenues ..................................     49,600          34,884         27,403         24,534        21,247
                                                     ---------        --------       --------        -------       -------
      Gross margin ................................     83,500          82,722         57,312         59,044        67,355

Operating expenses:                                                                                                       
      Research and development ....................     21,314          14,286          7,520          2,589         1,414
      Sales and marketing .........................     66,355          30,624         27,107         25,775        27,170
      General and administrative ..................     32,128          20,704         20,908         20,716        17,671
      Acquisition, restructuring                                                                                          
       and other charges ..........................     37,789           7,409         12,863             --            --
      Litigation settlement .......................         --              --            615             --            --
                                                     ---------        --------       --------        -------       -------
      Total operating expenses ....................    157,586          73,023         69,013         49,080        46,255

Operating income (loss) ...........................    (74,086)          9,699        (11,701)         9,964        21,100
Other income (expense), net .......................         38             (38)          (271)            --            --
Interest income (expense), net ....................       (105)          1,922          1,365          1,144         1,331
                                                     ---------        --------       --------        -------       -------
Income (loss) before income  taxes ................    (74,153)         11,583        (10,607)        11,108        22,431
Provision (benefit) for income  taxes .............        806             331         (5,982)           639         4,820
                                                     ---------        --------       --------        -------       -------

Net income (loss) .................................  $ (74,959)       $ 11,252      $  (4,625)       $10,469       $17,611
                                                     =========        ========       ========        =======       =======

Net income (loss) per share:                                                                                              

      Primary .....................................  $   (2.15)       $   0.32       $  (0.15)       $  0.32       $  0.53
                                                     =========        ========       ========        =======       =======
      Fully diluted ...............................  $   (2.15)       $   0.31       $  (0.15)       $  0.32       $  0.53
                                                     =========        ========       ========        =======       =======

Shares used to compute net income (loss) per share:                                                                       
      Primary .....................................     34,894          35,557         31,825         33,221        33,261
                                                     =========        ========       ========        =======       =======
      Fully diluted ...............................     34,894          36,499         31,825         33,221        33,261
                                                     =========        ========       ========        =======       =======

Additional unaudited pro forma data:                                                                                      
      Income (loss) before income taxes ...........  $ (74,153)       $ 11,583       $(10,607)       $11,108       $22,431
      Pro forma income taxes ......................        806           3,406            576          3,977         7,764
                                                     ---------        --------       --------        -------       -------
      Pro forma net income (loss) .................  $ (74,959)       $  8,177       $(11,183)       $ 7,131       $14,667
                                                     =========        ========       ========        =======       =======

Pro forma income (loss) per share:                                                                                        
      Primary .....................................  $   (2.15)       $   0.23       $  (0.35)       $  0.21       $  0.44
                                                     ---------        --------       --------        -------       -------
      Fully diluted ...............................  $   (2.15)       $   0.22       $  (0.35)       $  0.21       $  0.44
                                                     =========        ========       ========        =======       =======

                                                        · Enlarge/Download Table

                                                                               AS OF SEPTEMBER 30,                       
                                                    ---------------------------------------------------------------------
                                                       1996            1995           1994           1993           1992 
                                                       ----            ----           ----           ----           ---- 
                                                                                                                         
BALANCE SHEET DATA:                                                                                                      

Working capital (deficiency) ...................... $  (4,684)       $ 29,490       $ 29,147        $35,619       $38,661
Total assets ......................................    76,781          76,699         62,471         64,673        65,499
Long-term obligations .............................    25,108             164            701            130           598
Stockholders' equity ..............................     4,425          44,270         36,606         53,606        52,937

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Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS                                                 

General                                                                         

     Management's discussion and analysis of financial condition and
results of operations focuses primarily on liquidity, capital resources and the 
results of the Company's operations. This Item should be read in conjunction    
with the Consolidated Financial Statements and the notes thereto. The           
historical results of operations are not necessarily indicative of results to   
be expected from future performance.                                            

           The Company has invested substantial equity and effort to evolve from
a one-product (QEMM) provider to a more diversified software producer.          
Quarterdeck has recently commenced a substantial restructuring of its operations
and has experienced, and anticipates further, substantial changes to its        
competitive environment. Elements of Quarterdeck's strategy are to focus on the 
integration of the acquisitions that have been completed since June 1995 and to 
improve the speed of development and release of new products or enhanced        
versions of existing products to better compete in a rapidly changing           
marketplace. Partially as a result of the acquisitions and subsequent           
restructuring, the Company believes it is now well positioned to provide        
a broad range of software products that enhance computing on desktop PC's, the  
Internet and intranet.                                                          

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   In addition to an analysis of recent and historical financial
results, the following discussion includes an analysis of certain of the        
Company's business risks, including risks which are inherent to software        
development as well as specific trends and uncertainties relating to the        
competitive environment in which the Company operates. The Company has sought to
identify the most significant risks to its business. However, the Company cannot
predict whether, or to what extent any of such risks may be realized nor can    
there be any assurance that the Company has identified all possible issues which
the Company might face. In particular, the Company has recently completed a     
number of acquisitions and made investments in certain companies and is in the  
process of restructuring its operations in an attempt to maximize the benefit of
such acquisitions. There can be no guarantee that such acquisitions will        
ultimately be beneficial.                                                       

       This Form 10-K contains forward-looking statements which are made
pursuant to the safe-harbor provisions of the Private Securities Litigation     
Reform Act of 1995. Within this Form 10-K, words such as "believes",            
"anticipates", "plans", "expects", "intends", "designed to" and similar         
expressions reflecting something other than historical fact are intended to     
identify forward-looking statements, but are not the exclusive means of         
identifying such statements. These forward-looking statements involve a number  
of risks and uncertainties, including the timely development and market         
acceptance of products and technologies, sell-through of products in the sales  
channel, successful integration of acquisitions, the ability to secure          
additional sources of financing, the ability to reduce operating expenses and   
other factors described throughout this Form 10-K and in the Company's other    
filings with the Securities and Exchange Commission. The actual results that the
Company achieves may differ materially from any forward-looking statements due  
to such risks and uncertainties. The Company undertakes no obligations to revise
or update any forward-looking statements in order to reflect events or          
circumstances that may arise after the date of this report.                     

RESULTS OF OPERATIONS                                                           

    The following table sets forth, for the periods indicated, the
percentage of net revenues represented by certain data derived from the         
Company's Consolidated Statements of Operations:                                

                                                        · Enlarge/Download Table

                                                                YEAR ENDED            
                                                               SEPTEMBER 30,          
                                                    --------------------------------  
                                                     1996          1995         1994  
                                                    -----         -----        -----  
                                                                                      
Net revenues ...................................... 100.0%        100.0%       100.0% 
Cost of revenues ..................................  37.3          29.7         32.3  
                                                    -----         -----        -----  
       Gross margin ...............................  62.7          70.3         67.7  
Operating expenses:                                                                   
       Research and development ...................  16.0          12.1          8.9  
       Sales and marketing ........................  49.9          26.0         32.0  
       General and administrative .................  24.1          17.6         24.7  
       Acquisition, restructuring and other                                           
          charges..................................  28.4           6.3         15.2  
       Litigation settlement ......................     0             0          0.7  
                                                    -----         -----        -----  
       Total operating expenses ................... 118.4          62.1         81.5  
Operating income (loss) ........................... (55.7)          8.2        (13.8) 
Interest income, net ..............................  (0.0)          1.6          1.3  
                                                    -----         -----        -----  

Income (loss) before income taxes ................. (55.7)          9.8        (12.5) 
Provision (benefit) for income taxes ..............   0.6           0.3         (7.1) 
                                                    -----         -----        -----  
Net income (loss) ................................. (56.3)%         9.6%        (5.5%)
                                                    =====         =====        =====  

FISCAL 1996 COMPARED TO FISCAL 1995                                             

        Net Revenues: Net revenues for the fiscal year ended September 30,
1996 increased by 13.2% or $15,494,000 over the fiscal year ended September 30, 
1995. The increase in net revenues compared with the prior year period resulted 
primarily from broadening the Company's product portfolio throughout fiscal 1996
through acquisitions and product development. After adding back returns and     
allowances, gross revenues for the year were $165,000,000 representing a 30.2%  
increase or $38,200,000 over the prior fiscal year. The $31,900,000 difference  
between net and gross revenues for the fiscal year ended September 30, 1996     
primarily represents returns and allowances charged to operations during        
the fiscal year with $7,213,000 remaining in the reserve for returns at fiscal  
year-end versus $3,302,000 at the prior fiscal year-end. The increase in        
revenues is also the result of the Company's efforts to broaden its distribution
competency through expansion of its distribution network and acquisition of a   
direct sales organization. However, the Company experienced a significant       
decline in net revenues in the second half of fiscal 1996 as compared to the    
first half of the year primarily due to reduced demand for many of its products 
(particularly memory management products). This decline continued during the    
September quarter which resulted in the recording of $8,400,000 of additional   
return reserves for fiscal 1996.                                                

     The Company believes that the decline in sell-through of memory
management products is primarily attributed to the continuing decrease in the   
cost of memory (DRAM), controversy surrounding the efficacy of a competitor's   
product (SoftRAM), together with the fact that current versions of the Company's
memory management products are nearing the end of their product life-cycle (see 
page 27 for further discussion). The Company released a new version of MagnaRAM 
in September of 1996 and                                                        

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plans to release an updated version of QEMM in the coming months. The delayed   
release of PROCOMM 3.0 from Fall 1995 to February 1996, among other factors, led
to unusually high initial sell-through levels during the quarter ended March 31 
1996. A return to normal sales levels during the third and fourth quarters of   
fiscal 1996 negatively impacted net revenue in the second half of fiscal 1996.  
The Company released a new version of PROCOMM for Windows95 at the end of the   
fiscal year. Continued weakness in sales of the Company's memory management     
and/or communications products would have a material adverse effect on future   
revenues.                                                                       

          The reduction in sell-through of the Company's memory management and
communication products resulted in higher channel inventory levels. In order to 
bring inventory levels in line with current and anticipated sell-through levels 
the Company reduced shipments of these products during the second half of fiscal
1996. In addition to the revenue reductions resulting from the reduced shipment 
levels during the second half of fiscal 1996, the Company recorded an           
additional reserve for sales returns to provide for estimated returns as well as
actual returns during the September quarter. This additional reserve further    
reduced net revenues for the three months ended September 30, 1996 to           
approximately $19.7 million. Consistent with prior years, the Company           
establishes allowances for estimated returns and exchanges as a reserve against 
revenues. Once the Company recognized that sell-through was less than           
anticipated, additional reserves were recorded. Quarterdeck is taking steps to  
improve its ability to receive accurate, sell-through information on a timely   
basis.                                                                          

      Net revenues from European and other international distributors,
dealers and end users outside of the United States amounted to $23,900,000 and  
$19,015,000 for the fiscal years ended September 30, 1996 and 1995 respectively.

          Due to the inherent uncertainties in software development and in the
microcomputer software industry, the Company is unable to predict whether the   
net revenue trends noted above will continue.                                   

       Cost of Revenues: The Company's cost of revenues includes product
packaging, documentation and media, manufacturing expenses, amortization of     
capitalized software costs, technical support and production costs as well as   
translation costs and certain license fees paid to third parties. Cost of       
revenues amounted to $49,600,000 in fiscal 1996 and $34,884,000 in fiscal 1995. 
The cost of revenues increased from 29.7% of net revenues in fiscal 1995 to     
37.3% of net revenues in fiscal 1996. This increase was primarily due to higher 
production and support costs as a result of slower than expected integration of 
acquired operations. In addition, the Company increased reserves for obsolete or
slow-moving inventory by $3,914,000. The increase primarily resulted from       
increased levels of product in inventory with respect to the Company's memory   
management, communication and other utility products the Company has and is     
continuing to release updates for, in addition to Internet products the Company 
no longer plans to actively market.                                             

       Capitalized software development and purchased software costs are
generally amortized over one to three year periods, commencing upon initial     
product release. Fluctuations in amortization expense between periods may arise 
depending on the amount of software costs incurred and capitalized for          
particular software products and their respective release dates. Amortization of
capitalized software costs increased to $3,711,000 in fiscal 1996 from          
$1,575,000 in fiscal 1995. The increase in cost of revenues is also due to      
amortization acceleration or write-off of $1,746,000 of capitalized third party 
software development costs relating to products that have experienced reductions
in demand or Internet products the Company no longer plans to actively market.  
See further discussion under Research and Development.                          

          Future cost of revenues as a percentage of net revenues will depend,
in addition to the amount of amortization of capitalized software, on the mix of
sales by product, by domestic versus international, by single unit versus       
multiple license packages, and the mix of third party developed and licensed    
products versus internally developed products, among other things. In accordance
with generally accepted accounting principles, cost of revenues includes certain
expenses that do not vary directly with sales; therefore higher net revenues may
produce a lower percentage of cost of revenues and vice versa.                  

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         The microcomputer software industry has experienced increased price
competition in recent years. The Company anticipates that increased price       
competition will continue in the future and may result in reduced average unit  
selling prices and corresponding reduced margins.                               

           Operating Expenses: Approximately $12,200,000 of fiscal 1996 expenses
relating to certain acquisitions consummated during the year were treated as    
immaterial poolings. Consequently, prior year results of operations exclude     
comparable prior year expenses.                                                 

         Research and Development: Research and development expenses consist
primarily of salaries and benefits and consulting fees to support product       
development, including product testing and documentation. Research and          
development expense increased by $7,028,000 from fiscal 1995, while increasing  
as a percentage of net revenues from 12.1% to 16.0%. The increase in research   
and development expense is due in part to increased research and development    
staffing levels and to increases in payments to third parties for contracted    
product development required to support the Company's expanded product          
development efforts. The increased expense as a percent of net revenues is also 
due to investment R&D spending for Internet products which did not have revenue 
in proportion to development spending as compared to more established utility   
products. Additionally, in fiscal 1996, development resources continued to focus
on products for which technological feasibility had not yet been established and
therefore development costs were expensed, rather than capitalized.             

    The costs of software product development are capitalized once
technological feasibility is achieved. Costs incurred prior to attaining        
technological feasibility are expensed in the period incurred as research and   
development expenses. During fiscal 1996 and 1995, the Company did not          
capitalize any internal software development costs, since the majority of       
development efforts incurred during the period related to new products for which
technological feasibility had not been established. Software development costs  
relating to products for which technological feasibility had been established   
during 1996 were immaterial. In addition, the recoverability of the cost of new 
product development, including products in lines of business the Company has not
engaged in previously, is more uncertain than that for product upgrades         
resulting in expense rather than capitalization. During fiscal 1996 and 1995,   
the Company purchased and capitalized software costs amounting to $4,262,000 and
$2,563,000, respectively. The increase was primarily due to the addition of     
$1,800,000 of capitalized software relating to the Pinnacle technology          
acquisition (Cleansweep) and $900,000 relating to the Limbex acquisition        
(WebCompass) partially offset by write-offs relating to restructuring, and      
acquisition related expenses and accelerated amortization due primarily to      
Internet products which the company does not intend to actively market.         

        The Company believes that to remain competitive it is necessary to
continue to invest in software development efforts while at the same time       
considering the acquisition and/or license of complementary software products.  
The Company anticipates that spending for software development and purchased    
software will continue as a significant expense in the future. However, because 
of the inherent uncertainties of software development projects and the software 
market in general, there can be no assurance that software development efforts  
or additional purchased software will result in successful product introductions
or increased sales.                                                             

    Sales and Marketing, and General and Administrative: Sales and
marketing, and general and administrative expenses consist of salaries and      
related costs of administrative, sales and marketing, customer service and      
support personnel as well as advertising, trade show and promotional expenses   
and facilities costs. Sales and marketing expenses increased by $35,731,000 from
fiscal 1995, while increasing as a percentage of net revenues from 26.0% to     
49.9%. Market development funds, advertising and other variable sales and       
marketing expenses were budgeted based upon expected sales levels which did not 
occur and as a result such expenses significantly increased as a percentage of  
net revenues. The Company has since changed its practice such that variable     
sales and marketing expenses are based to a greater extent upon underlying      
sell-through levels and to a lesser extent upon future sales estimates. The     
increase in dollars primarily consists of increases in sales and marketing      
salaries of $10,400,000 relating in part to increases in telemarketing staff. In
addition, direct and channel marketing expenses increased by $7,100,000 over the
prior year primarily relating to increased direct mail activities at the        
Company's Clearwater, Florida telemarketing facility as well as the Vertisoft   
acquisition which included a direct mail operation. Channel marketing increases 
are primarily due to increased spending relating to the launch of new products  
in the retail market as well as the outsourcing of the sales function for       
Vertisoft products. Finally, marketing development funds, packaging and         
collateral related expenses increased by approximately $9,000,000 and $2,400,000
versus prior year respectively, which also contributed to the increase.         

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      Quarterdeck believes substantial sales and marketing efforts are
essential to achieve revenue growth and to maintain and enhance the Company's   
competitive position. Accordingly, with the continued expansion of its product  
lines and international operations, as well as the introduction of new and      
upgraded products, including products recently released and currently being     
developed for Windows 95 and Windows NT, Quarterdeck expects the expenses       
associated with these efforts to continue to constitute its most significant    
operating expense. There can be no assurance that these sales and marketing     
efforts will be successful in achieving their intended results.                 

       General and administrative expenses increased by $11,424,000 from
fiscal 1995 and also increased as a percentage of net revenues from 17.6% to    
24.1%. General and administrative expenses were adversely impacted by           
redundancies relating to acquisitions which were not integrated as quickly as   
expected. Components of the increase include $3,500,000 relating to increased   
facilities costs including rent, depreciation/amortization and associated costs,
$2,000,000 of increased corporate communications, public and investor relations 
costs, $1,500,000 of increased salary expense primarily relating to finance and 
MIS functions that were not integrated, $1,000,000 of increased outside legal   
services and $1,000,000 of increased telephone, insurance and travel related    
spending. Primarily as a result of operations integration and overall spending  
reductions, general and administrative expenses may decrease during fiscal 1997.

   Acquisition and Other Charges: In connection with the various
acquisitions completed in fiscal 1996 (see above, and Summary of Significant    
Accounting Policies and Note 2 of Notes to Consolidated Financial Statements),  
significant acquisition costs were incurred. Through the first nine months of   
fiscal 1996 the Company incurred acquisition charges of $8,688,000 related      
primarily to the acquisitions of Inset, Datastorm and Future Labs versus        
$7,190,000 as a result of the 1995 acquisitions. During the fourth quarter the  
Company incurred an additional $16,106,000 of acquisition charges related to    
Vertisoft, Limbex, Interlink, and Pinnacle technology. Of that amount,          
$14,993,000 was incurred as a result of the write off of acquired in process    
research and development.                                                       

     Restructuring Costs: During September of 1996 the Company began
the implementation of a comprehensive corporate-wide restructuring plan. The    
plan is designed to focus the Company's development and marketing efforts on    
those products and technologies with the most significant growth opportunities  
while optimizing profitability on certain of the Company's products that have   
experienced lower demand and are at the end of their product life cycle. The    
plan focuses on the reduction and elimination of development and marketing      
efforts in areas where the market has either not materialized, the product has  
become a commodity or a part of the operating system or browser. In addition,   
the plan calls for the Company to minimize redundancies resulting from the      
recent acquisitions through integration of the finance, administrative, sales,  
marketing and operations related functions.                                     

           The Company recorded a charge of $12,995,000 for fiscal 1996 relating
to restructuring. Restructuring charges include $6,200,000 of severance,        
$3,500,000 of facility related costs to reserve for estimated lease obligations 
(net of estimated sublease income or negotiated settlements) as well as closing,
consolidating or relocating offices and related costs including write-offs of   
excess equipment, furniture, fixtures and leasehold improvements. Charges also  
include write-offs of $2,700,000 of prepaid royalties and capitalized software  
costs relating to products the Company no longer plans to actively market. As   
part of the plan, the Company reduced its work force by approximately 40%,      
eliminating approximately 500 positions. The Company believes the focusing of   
the development and marketing efforts combined with the cost structure          
reductions will improve its competitiveness and position the Company to return  
to profitability.                                                               

         Income Taxes: At September 30, 1996, the Company did not have a net
deferred tax asset on the balance sheet due to a valuation allowance of 100% of 
the net deferred tax asset of $26.6 million. (See also Note 5 to the            
accompanying financial statements). The net deferred tax asset of $26.6 million 
(before applying the valuation allowance) is comprised of the estimated tax     
effect of expected future reversing temporary differences and tax net operating 
losses, relating in part to charges taken for book purposes that are not        
deductible for federal income tax purposes until the amounts are paid in the    
future. Management believes that in light of recent financial results it is not 
appropriate to record a deferred tax asset until such time that the Company is  
able to establish that it becomes more likely than not that the Company will    
realize some or all of the benefit of the net deferred tax asset.               

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FISCAL 1995 COMPARED TO FISCAL 1994                                             

        Net Revenues: Net revenues for the fiscal year ended September 30,
1995 increased by 38.8% or $32,891,000 over the fiscal year ended September 30, 
1994. The increase in net revenues compared with the prior year period results  
primarily from broadening the Company's product portfolio throughout fiscal 1995
through product development and acquisitions. The Company has also broadened its
distribution capabilities through expansion of its distribution network and     
acquisition of a direct sales organization.                                     

  The Company released several new products during fiscal 1995
including a complete line of products for use on the Internet and private       
distributed data networks. The first of these products, Quarterdeck WebAuthor,  
was released in March 1995. Three other Internet related applications,          
Quarterdeck Mosaic, Quarterdeck InternetSuite, and Quarterdeck WebServer, were  
released in June 1995. The Company also released several new utility products   
during fiscal 1995 which included MagnaRAM 2, CleanSweep 95, WINProbe 4, and    
GameRunner. The Company's largest subsidiary, Datastorm, did not have any new   
releases during fiscal 1995.                                                    

      Net revenues from European and other international distributors,
dealers and end users outside of the United States amounted to $19,015,000 and  
$9,290,000 representing 16.2% and 11.0% of the Company's total net revenues for 
the 1995 and 1994 fiscal years, respectively.                                   

                 Cost of Revenues: Cost of revenues amounted to $34,884,000 in
fiscal 1995 and $27,403,000 in fiscal 1994. The cost of revenues decreased from 
32.3% of net revenues in fiscal 1994 to 29.7% of net revenues in fiscal 1995.   
This decrease was primarily due to a decrease in the amortization of capitalized
software costs, as well as substantially higher revenues in fiscal 1995 over    
which indirect costs and expenses, including production and technical support   
costs, were spread.                                                             

                 Capitalized software development and purchased software costs
are generally amortized over one to three year periods, commencing upon initial 
product release. Fluctuations in amortization expense between periods may arise 
depending on the amount of software costs incurred and capitalized for          
particular software products and their respective release dates. Amortization of
capitalized software costs decreased from $3,171,000 in fiscal 1994 to          
$1,575,000 in fiscal 1995. The decrease in amortization of software development 
costs resulted primarily from the shift in the nature of product development    
from 1994 to 1995. See further discussion under Research and Development.       

          Research and Development: Research and development expense increased
by $6,766,000 from fiscal 1994, while increasing as a percentage of net revenues
from 8.9% to 12.1%. The increase in research and development expense is due in  
part to increases in research and development staffing levels and to increases  
in payments to third parties for contracted product development required to     
support the Company's expanded product development efforts. Additionally, in    
fiscal 1995, development resources were shifted to products for which           
technological feasibility had not been established and therefore more           
development costs were expensed, rather than capitalized, in the periods        
incurred.                                                                       

         The Company capitalized $3,617,000 of internal software development
and purchased software costs during fiscal 1994. During fiscal 1995, the        
Company did not capitalize any internal software development costs, since       
the majority of development efforts incurred during the period related to new   
products for which technological feasibility had not been established. Software 
development costs relating to new products for which technological feasibility  
had been established during fiscal 1995 are immaterial. The development of new  
products requires significantly more resources to reach technological           
feasibility as compared to the development effort required to reach             
technological feasibility for upgraded products.                                

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Accordingly, the decrease in the amounts capitalized from 1994 to 1995 was      
attributable to the development during fiscal 1995 of a number of new products  
which had not yet reached technological feasibility as compared to prior year   
product development consisting primarily of upgrades to existing products. In   
addition, the recoverability of the cost of new product development, including  
products in lines of business the Company has not engaged in previously, is more
uncertain than that for product upgrades. During fiscal 1995, the Company       
purchased and capitalized software amounting to $2,564,000.                     

                Sales and Marketing, and General and Administrative Expense:
Sales and marketing expenses increased by $3,517,000 from fiscal 1994, while    
decreasing as a percentage of net revenues from 32.0% to 26.0%. General and     
administrative expenses decreased by $204,000 from fiscal 1994 and also         
decreased as a percentage of net revenues from 24.7% to 17.6%, primarily        
resulting from the benefits realized in 1995 relating to the fiscal 1994        
restructuring.                                                                  

               Acquisition, Restructuring and Other Charges: In connection
with the various acquisitions completed in fiscal 1995 (see Summary of          
Significant Accounting Policies and Note 2 of Notes to Consolidated Financial   
Statements), significant acquisition costs were incurred. In connection with the
acquisition of Landmark in June 1995, acquisition costs amounting to $3,600,000 
were recorded. In connection with the acquisitions of StarNine and Internetware 
in September 1995, acquisition costs amounting to $1,200,000 and $300,000 were  
recorded. These expenses principally include fees for financial advisory, legal 
and accounting services, personnel severance and benefits, and other related    
expenses. In connection with the acquisition of assets from Prospero Systems    
Research, Inc. in September 1995, $2,578,000 of purchased, in-process research  
and development was charged to Acquisition, Restructuring and Other Charges.    

                 The results for fiscal 1994 included a pretax charge totaling
$12,863,000 relating to restructuring activities and other non recurring        
charges. The charges related to the reduction or elimination of non-core product
lines and related development efforts. Capitalized costs of $4,367,000 relating 
to the reductions and eliminations were written down or written off as          
restructuring and non-recurring charges at September 30, 1994. Other related    
restructuring costs of $5,320,000 included the estimated lease obligations for  
offices and facilities which were or planned to be closed, consolidated or      
relocated and the costs of closing as well as other related costs.              

       As part of the 1994 restructuring plan, the company
reorganized its staff and reduced its workforce from approximately 300 at June  
30, 1994 to approximately 200 at September 30, 1994. Restructuring costs        
relating to the reduction in workforce amounted to $586,000, consisting of      
severance and termination payments and related costs. The Company also wrote-off
excess equipment and recorded other pretax charges amounting to $2,590,000 which
resulted from the above restructuring activities.                               

         Income Taxes: At September 30, 1995, the Company had a net deferred
tax asset of $2,178,000, net of a valuation allowance of $3,336,000. This net   
deferred tax asset is comprised of the estimated tax effect of expected future  
reversing temporary differences, relating in part to charges taken for book     
purposes that are not deductible for federal income tax purposes until the      
amounts are paid in the future, net of the valuation allowance.                 

TRENDS AND UNCERTAINTIES:                                                       

            The computer software industry is subject to rapid technological
changes often evidenced by new competing products and improvements in existing  
products. Quarterdeck depends on the successful development or acquisition and  
resulting sales of new products, including upgrades of existing products, to    
replace revenues from products introduced in prior periods that may have begun  
to experience reduced revenues. If Quarterdeck's current leading products become
outdated and lose market share faster than those revenues are replaced by new   
products, or if new products or existing product upgrades are not introduced    
when planned or do not achieve the revenues anticipated by Quarterdeck,         
Quarterdeck's operating results could be materially adversely affected. Even    
with normal development cycles, the market environment can                      

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change so quickly that features in products can become outdated soon after      
market introduction. These events may occur in the future and may have an       
adverse effect on future revenues and operating results.                        

       While Quarterdeck expects that memory management will continue to
provide benefit to users of Windows 95 and legacy systems, the Company has      
expanded its focus from a sole reliance on memory management to a broader base  
of desktop utilities. In September 1995, Quarterdeck released the first of      
several new desktop utility products for Windows 95, including: WinProbe (a     
system and hardware diagnostic tool), CleanSweep (a disk management utility) and
MagnaRAM (a memory compression utility). QEMM, Quarterdeck's leading memory     
management product, was upgraded to version 8.0 with the inclusion of several   
new technologies and is targeted to provide solutions for Windows 95 as well as 
new enhanced support for Windows 3.1 and continued support for DOS. With the    
acquisition of Datastorm Technologies in March 1996, the Company acquired the   
PROCOMM communications product line. In July 1996, Quarterdeck released a new   
utility for Windows 95 with the release of Fix-IT (a Software and Hardware      
Diagnostic/Conflict Resolution tool). Also in July, the Company released a new  
version of Winprobe for Windows 95. With the acquisition of Vertisoft in July   
1996, Quarterdeck acquired additional utility products including Zip-IT (a      
drag-and-drop utility for creating and maintaining compressed files), Name-IT (a
utility to allow Windows 95 long filenames in 16-bit applications) and Remove-IT
(a windows uninstaller utility). The combination of Remove-IT and CleanSweep    
give Quarterdeck a leading position in the Windows uninstaller market. While    
Quarterdeck has reduced its reliance on memory management with the acquisition  
of additional utility and communications products, there can be no assurance    
that any of these products and/or technologies will continue to provide         
sufficient benefit to the user over and above what the base operating systems,  
applications and hardware can provide.                                          

       Quarterdeck is devoting substantial efforts to the development of
software products that are designed to operate on Windows 95 and Windows NT.    
Microsoft Corporation may incorporate advanced utilities or other features in   
Windows 95 or Windows NT that may decrease the demand for certain of the        
Company's products, including those under development. If Quarterdeck is not    
able to continue to successfully, and timely develop and market products that   
function under Windows 95 and Windows NT, and offer value to Windows 95 and     
Windows NT users beyond that which is offered in the base operating systems,    
future revenues would be adversely affected.                                    

         Future competitive product releases may cause disruptions in orders
for the Company's products while users and the marketplace evaluate the         
competitive products. The extent of the disruption in orders and the impact on  
future orders of the Company's products will depend on various factors that are 
not fully known at this time. Among those factors are the level of              
functionality, performance and features included in the final release of        
competitive products and the market's evaluation of those products as compared  
to the then current functionality, performance and features of the Company's    
products.                                                                       

   The Company's Internet-related products compete with Internet
connectivity, search, information management, access, creation and server tools 
from a variety of companies, including Microsoft Corporation, Netscape          
Communications Corporation and other connectivity, networking and Internet      
software application developers, Internet access providers and other on-line    
service providers, as well as operating system vendors, including Microsoft     
Corporation and IBM. Certain competitors have also made versions of their       
Internet connectivity, search, access, information management, creation and     
server products available on the Internet for users to download at no charge or 
for extended evaluation. In addition, the market for Internet products has been 
adversely impacted as a result of PC hardware, PC operating system and browser  
vendors incorporating Internet tools, functions or capabilities within their    
software or PC hardware and thereby reducing the market for stand-alone Internet
products.                                                                       

   Quarterdeck is dedicating substantial efforts on products and
services for the communications and Internet markets and expects that a         
significant portion of future revenues will come from these products and        
services. The revenues from such new products and services may be less than     
Quarterdeck anticipates due to various factors including the timing of release  
in relation to competitive products and services, and uncertainties surrounding 
the rate and extent of development of these new and emerging markets.           
Quarterdeck's Internet-related products and services are dependent on the       
viability and continued growth of                                               

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the Internet and World Wide Web, and its expanded use by businesses and         
individuals for networking and communications.                                  

        There are currently few laws or regulations directly applicable to
access or to commerce on the Internet. However, due to the increasing popularity
and use of the Internet, it is possible that a number of laws and regulations   
may be adopted with respect to the Internet. Such laws and regulations may cover
issues such as user privacy, pricing and characteristics and quality of products
and services. The Telecommunications Act of 1996 (the "1996 Act"), which was    
recently enacted and the judicial interpretation of which is uncertain, imposes 
criminal penalties for transmission of or allowing access to certain obscene    
communications over the Internet and other computer services and contains       
additional provisions intended to protect minors. The enactment of the 1996 Act,
and of any similar laws or regulations in the future, may decrease the growth or
use of the Internet, which could in turn decrease the demand for the Company's  
services and products and increase the Company's cost of doing business or      
otherwise have an adverse effect on the Company's business, operating results   
and financial condition.                                                        

          The acquisition of Limbex, Vertisoft, Future Labs, Datastorm, Inset,
and other acquisitions completed during fiscal 1996 have broadened the Company's
product portfolio and sales distribution channels. However, the acquisitions    
have resulted in the Company competing with other companies and in markets where
it has not previously competed. The Company has also made investments in certain
companies and technologies. There are significant business risks associated with
acquisitions, including the successful integration of the companies in an       
efficient and timely manner, the coordination of research and development and   
sales efforts, the retention of key personnel, diversion of management's        
attention away from day-to-day matters and the integration of the acquired      
products. Additionally, there may be an adverse impact on revenues of acquired  
companies due to the transition of products' sales and marketing and research   
and development activities. The Company's results for fiscal 1996 were          
negatively impacted by slower than anticipated integration and the Company's    
future success will depend, in part, on its ability to integrate the operations 
of acquired companies and effectively utilize the acquired intellectual         
property.                                                                       

     The Company's distributor and reseller customers also carry the
products of Microsoft Corporation and other of the Company's competitors, many  
of whom have substantially greater financial resources than the Company. The    
distributors and resellers have limited capital to invest in inventory and their
decisions to purchase the Company's products and in the case of resellers, to   
give them critical shelf space, is partly a function of pricing, terms and      
special promotions offered by the Company's competitors, over which the Company 
has no control and which it cannot predict. There can be no assurance that the  
Company will negotiate successfully with resellers to obtain shelf space and    
other terms needed to sell company's products at the levels currently           
anticipated.                                                                    

         The Company's pattern of revenues and earnings were affected during
the third and fourth quarters of fiscal 1996, and may be affected in the future,
by the phenomenon known as "channel fill." Channel fill occurs following the    
introduction of a new product or a new version of products as distributors buy  
significant quantities of the new product or version in anticipation of sales of
such product or version. Following such purchases, the rate of distributors'    
purchases often declines, depending on the rates of purchases by end users or   
"sell-through." The phenomenon of "channel fill" may also occur in anticipation 
of price increases or in response to sales promotions or incentives, some of    
which may be designed to encourage customers to accelerate purchases that might 
otherwise occur in later periods. Channels may also become filled simply because
the distributors are unable to, or do not, sell their inventories to retail     
distribution or end users as anticipated. If sell-through does not occur at a   
sufficient rate, distributors will delay purchases or cancel orders in later    
periods or return prior purchases in order to reduce their inventories.         
Consequently, there can be no assurance that existing inventories will not      
adversely impact the sales in future periods. In addition, between the date the 
Company announces a new version or new product and the date of release,         
distributors, dealers and end users often delay purchases, cancel orders or     
return products in anticipation of the availability of the new version or new   
product. Such order delays or cancellations may cause material fluctuations in  
revenues from one quarter to the next. Net revenues may be materially affected  
favorably or adversely by these effects.                                        

           The Company operates with relatively little order backlog; therefore,
if near-term demand for the Company's products weaken in a given quarter, there 
could be a material adverse effect on revenues and on                           

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the Company's operating results. Like other manufacturers of packaged software  
products, Quarterdeck is exposed to the risk of product returns from            
distributors, reseller and individual customers. There can be no assurance that 
actual returns in excess of recorded allowances will not result in a material   
adverse effect on business, operating results and financial condition.          

FACTORS AFFECTING QUARTERLY RESULTS AND STOCK PRICE                             

      The Company has in the past experienced wide fluctuations in its
operating results and stock price, and the Company's future operating results   
and stock price could be subject to significant volatility, particularly on a   
quarterly basis. The Company's revenues and quarterly operating results may     
experience significant fluctuations and be unpredictable as the result of a     
number of factors including, among others, introduction of new or enhanced      
products by the Company or its competitors, rapid technological changes in the  
Company's markets, seasonality of revenues, changes in operating expenses and   
general economic conditions. Any shortfalls in revenues or quarterly results    
could have an immediate and significant adverse effect on the trading price of  
the Company's common stock in any given period.                                 

        Net income per share is calculated using the treasury stock method
(see Note 1 of Notes to Consolidated Financial Statements). Increases in the    
price of Quarterdeck's stock can have an adverse impact on the calculation of   
net income per share in that period as more outstanding instruments are included
as common shares outstanding.                                                   

           As a result of the foregoing factors and other factors that may arise
in the future, the market price of the Company's common stock may be subject to 
significant fluctuations over a short period of time. These fluctuations may be 
due to factors specific to the Company, to changes in analysts' earnings        
estimates, or to factors affecting the computer industry or the securities      
markets in general.                                                             

LIQUIDITY AND CAPITAL RESOURCES                                                 

           At September 30, 1996, cash and cash equivalents totaled $25,554,000,
and had further declined to approximately $10,500,000 as of December 15, 1996.  
These amounts can be compared to $39,669,000 at September 30, 1995. 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 the year ended September 30, 1996 the Company's total cash and
short term investments has declined by the net amount of $14,115,000. The       
decrease in cash and short-term investment balances resulted primarily from the 
Company's losses for fiscal 1996, including significant acquisition and         
restructuring costs, payment of distributions to stockholders of acquired       
companies prior to acquisition, approximately $5.9 million of investments made  
by the Company in strategic technologies, including the stock of certain        
companies possessing such technology, and $18.0 million in capital investments, 
including $10.6 million for the construction of a new facility in Columbia,     
Missouri. On August 6, 1996, the Company's Datastorm subsidiary secured         
construction financing for its new facility (the "Datastorm Facility") from a   
bank for up to $5.0 million with an interest rate equal to the bank's commercial
base rate, currently 8.25%, secured by the Datastorm Facility. The loan is      
guaranteed by Quarterdeck and is believed to be sufficient to complete          
construction. The principal amount outstanding as of September 30, 1996 was     
$2,730,000. The principal amount plus any unpaid interest is due February 7,    
1997. It is the Company's intention to extend the term of this loan and it has  
received a preliminary commitment from the lender to do so. Management is       
presently exploring the potential of a sale-leaseback transaction and other     
long-term financing options with respect to the Datastorm Facility. There can be
no assurance that the Company will be successful in obtaining such long-term    
financing with acceptable terms and conditions.                                 

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 for $20 million 
in cash. The securities were issued to an institutional investor in an overseas 
offering pursuant to Regulation S of the Securities Act of 1933, as amended. The
Series B Preferred Stock became convertible into shares of common stock on      
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

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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 periods 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.                                                                

             On March 28, 1996, the Company issued $25.0 million
principal amount of 6% Convertible Senior Subordinated Notes, due 2001, to a    
single institutional investor in a private placement pursuant to the terms of a 
Note Agreement, dated March 1, 1996 (the "Note Agreement"). 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.
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, at approximately 18%     
above the then current conversion price. The Note Agreement limits the Company's
indebtedness for borrowed funds, other than the Notes, to 50% of Consolidated   
Net Worth (as defined in the Note Agreement.)                                   

     In April 1996, the Company's Datastorm subsidiary borrowed $2.0
million from a bank to partially finance the completion of the Datastorm        
Facility. 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 level of personnel 
at this location. In addition, as a result of the restructuring it has written  
off a significant portion of the equipment collateral. The Company and the      
lender have agreed to a repayment plan providing for the repayment of $750,000  
between January 1997 and March 1997 with the balance payable by April 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 65% of Eligible Accounts Receivable (as defined in 
the credit agreement) up to $15.0 million. As of September 30, 1996, the maximum
borrowing the Company was eligible for under this line was approximately $4.1   
million. The line is secured by Quarterdeck'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 $3.0  
million, a prohibition of the payment of dividends, other than those payable    
solely in capital stock, and a prohibition of any stock repurchase activity. As 
of September 30, 1996, the Company had borrowings of $3.55 million outstanding  
under the line.                                                                 

         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, the Datastorm Facility 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                                                                     

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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. Any decision 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.                              

        The Company conducts business in various foreign currencies and is
therefore subject to the transaction exposures that arise from foreign exchange 
rate movements between the dates that foreign currency transactions are recorded
and the date that they are consummated. The Company is also subject to certain  
exposures arising from the translation and consolidation of the financial       
results of its foreign subsidiaries. There can be no assurance that actions     
taken to manage such exposures will be successful or that future changes        
in currency exchange rates will not have a material impact on the Company's     
future operating results. The Company does not hedge either its translation     
risk or its economic risk.                                                      

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.                                                 

ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                   

None.                                                     

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PART III

ITEM 10.   EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT                   

   The information required by Item 10 is set forth in the Proxy
Statement under the caption "Directors" and is incorporated herein by reference 
except that the information regarding the Company's executive officers is       
included in Part I under the heading "Executive Officers".                      

ITEM 11.  EXECUTIVE COMPENSATION                                                

   The information required by Item 11 is set forth in the Proxy
Statement under the caption "Executive Compensation" and is incorporated herein 
by this reference.                                                              

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT        

   The information required by Item 12 is set forth in the Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by this reference.                       

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                        

   The information required by Item 13 is set forth in the Proxy
Statement under the caption "Certain Relationships and Related Transactions" and
is incorporated herein by this reference.                                       

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 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(1)         Certificate of Amendment of
                                       Certificate of Incorporation of the
            Company.

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

                     3.4(1)         Amended Designations of Series A
                                        Junior Participating Preferred Stock
                   of the Company.

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

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

                   *10.11(1)        Employment Agreement between the
                                         Company and Anatoly Tikhman, dated as
                     of July 24, 1996.

                   *10.12(1)        Employment Agreement between the
                                      Company and Joe Fusco, 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.

                        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.

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                        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., FutureLabs, 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(1)        Third Amendment to the Credit
                                        Agreement, dated as of September 30,
                                    1996, and incorporated herein by
              reference.

                      10.30(1)        Waiver and Fourth Amendment to the
                                          Credit Agreement, dated as of December
             17, 1996.

                21.1(1)         Subsidiaries of the Company.

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

           27(1)           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.

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(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.         

(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.

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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 December 29, 1996.              

 Quarterdeck Corporation

By  /s/   KING R. LEE       
      --------------------------
   King R. Lee
   Office of the President

         Pursuant to the requirements of the Securities Exchange Act of 1934
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.                               

                                                                · Download Table

SIGNATURE                              TITLE                         DATE       
---------                              -----                         ----       
                                                                                
/s/  KING R. LEE               Office of the President         December 29 1996 
-----------------------------  (Principal Executive Officer),                   
King R. Lee                    Director                                         

/s/  FRANK W.T. LAHAYE                                                          
-----------------------------                                                   
Frank W.T. LaHaye              Chairman of the Board           December 29, 1996

/s/  HOWARD L. MORGAN                                                           
----------------------------                                                    
Howard L. Morgan               Director                        December 29, 1996

/s/  WILLIAM H. LANE III                                                        
----------------------------                                                    
William H. Lane III            Director                        December 29, 1996

/s/  FRANK R. GREICO                                                            
----------------------------                                                    
Frank R. Greico                Senior Vice President and       December 29, 1996
                               Chief Financial Officer                          

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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                       CONSOLIDATED FINANCIAL STATEMENTS                      

                                                                          PAGE
                                                                          ----
                                                                              

Independent Auditors' Report.............................................  39 

Consolidated Balance Sheets at                                                
           September 30, 1996 and 1995...................................  40 

Consolidated Statements of Operations                                         
           for fiscal years ended September 30, 1996, 1995 and 1994......  41 

Consolidated Statements of Stockholders' Equity                               
           for fiscal years ended September 30, 1996, 1995 and 1994......  42 

Consolidated Statements of Cash Flows                                         
           for fiscal years ended September 30, 1996, 1995 and 1994......  45 

Notes to Consolidated Financial Statements...............................  46 

                    CONSOLIDATED FINANCIAL STATEMENT SCHEDULE                 

Schedule II   - Valuation and Qualifying Accounts........................  69 

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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.                                                  

\s\ 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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QUARTERDECK CORPORATION AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

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                                                     ASSETS                                             

                                                                                    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)

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                                                                      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)

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                                       SERIES B                                         ADDITIONAL   RETAINED   
                                    PREFERRED STOCK         COMMON STOCK                  PAID-      EARNINGS   
                                    ---------------         ------------      TREASURY     IN       (ACCUMULATED
                                  SHARES        AMOUNT  SHARES        AMOUNT    STOCK    CAPITAL      DEFICIT)  
                                  ------        ------  ------        ------    -----    -------      -------   
                                                                                                                
Balance, September 30, 1993,                                                                                    
  as reported in June 25, 1996                                                                                  
  Form 8K........................    --         $  --    29,503        $29     $(27)    $28,408      $25,565    
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.....................    --            --        --         --       --           --          --    
                                  ------        ------   ------        ---      ---     --------     -------    
Balance, September 30, 1994          --         $  --    33,033        $33     $(27)    $34,695      $ 2,464    
                                  ======        ======   ======        ===      ===     =======      =======    

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                                                  NOTES                             
                                               RECEIVABLE     NET                   
                                    FOREIGN       FROM     UNREALIZED               
                                    CURRENCY    DIRECTORS   GAIN ON        TOTAL    
                                  TRANSLATION   FOR SALE   MARKETABLE  STOCKHOLDERS'
                                   ADJUSTMENT   OF STOCK   SECURITIES     EQUITY    
                                   ----------   --------   ----------     ------    
                                                                                    
Balance, September 30, 1993,                                                        
  as reported in June 25, 1996                                                      
  Form 8K........................   $(581)        $ --       $ --        $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            --         --             25    
                                    ----           ---        ---        -------    
Balance, September 30, 1994        $(556)         $ --       $ --        $36,609    
                                    ====           ===        ===        =======    

See accompanying notes to consolidated financial statements.  

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QUARTERDECK CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

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                                                                                                RETAINED              
                                           SERIES B                                             EARNINGS    FOREIGN   
                                        PREFERRED STOCK   COMMON STOCK              ADDITIONAL  (ACCUMU-    CURRENCY  
                                        ---------------   ------------    TREASURY   PAID-IN     LATED     TRANSLATION
                                        SHARES   AMOUNT  SHARES   AMOUNT   STOCK     CAPITAL    DEFICIT)   ADJUSTMENT 
                                        ------   ------  ------   ------   -----     -------    --------   ---------- 
                                                                                                                      
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         --        --    
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)   
                                        ======   ======  ======    ===     =====     ========   ========     =====    

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                                           NOTES                            
                                        RECEIVABLE    NET                   
                                           FROM    UNREALIZED               
                                         DIRECTORS  GAIN ON        TOTAL    
                                         FOR SALE  MARKETABLE  STOCKHOLDERS'
                                         OF STOCK  SECURITIES     EQUITY    
                                         --------  ----------     ------    
                                                                            
Balance, September 30, 1994 ..........    $ --        $ --       $ 36,609   
Adjustment for Internetware, Inc. ....                                      
  pooling of interests ...............      --          --            (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 .......     (70)         --            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 poolings .......................      --          --           (384)  
Net increase in unrealized gain ......      --         162            162   
Foreign currency                                                            
  translation adjustment .............      --          --             (7)  
                                          ----        ----       --------   
Balance, September 30, 1995 ..........   $ (70)       $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)

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                                                                                                 RETAINED
                                        SERIES B                                                 EARNINGS
                                     PREFERRED STOCK     COMMON STOCK               ADDITIONAL   (ACCUMU-
                                     ---------------     ------------     TREASURY   PAID-IN      LATED  
                                    SHARES    AMOUNT   SHARES     AMOUNT    STOCK    CAPITAL     DEFICIT)
                                    ------    ------   ------     ------    -----    -------     --------
                                                                                                         
Balance, September 30, 1995......     --         $--   34,673        $35   $(559)    $39,873    $ 5,359  
Adjustment for Datastorm and Inset                                                                       
  poolings of interest...........     --          --       35         --      --         385         --  
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         --  
Foreign currency                                                                                         
  translation adjustment.........     --          --       --         --      --          --         --  
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)
                                     ===     =======  =======       ====  ======     =======    ======== 

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                                                   NOTES                              
                                                 RECEIVABLE     NET                   
                                     CURRENCY       FROM     UNREALIZED               
                                      FOREIGN    DIRECTORS    GAIN ON        TOTAL    
                                    TRANSLATION   FOR SALE   MARKETABLE  STOCKHOLDERS'
                                    ADJUSTMENT    OF STOCK   SECURITIES     EQUITY    
                                    ----------    --------   ----------     ------    
                                                                                      
Balance, September 30, 1995......        $(563)     $(70)        $195      $ 44,270   
Adjustment for Datastorm and Inset                                                    
  poolings of interest...........           23        --           --           408   
Adjustment for Vertisoft pooling                                                      
  of interests...................           --        --           --         1,039   
Adjustment for Future Labs                                                            
  pooling of interests...........           --        --           --           507   
Duplicate earnings elimination                                                        
  for poolings ..................           --        --           --          (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...           --        52           --         3,032   
Foreign currency                                                                      
  translation adjustment.........           72        --           --            72   
Issuance of convertible                                                               
  preferred stock................           --        --           --        20,000   
Cost of preferred stock issuance.           --        --           --        (1,275)  
                                         -----      ----         ----      --------   
Balance, September 30, 1996......        $(468)     $(18)        $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)

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                                                                                       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.                                                         

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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 million 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.                                             

          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:    

                                                                · 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),

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    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.

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:                                      

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

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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.                             

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.                    

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       On March 28, 1996, the Company consummated a merger with Datastorm. The
    Company issued 5.2 million 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.      

    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                 

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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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     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,l75   $ 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):                                                         

                                                                · 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):                                                     

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                                                        · 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 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.

     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.                                                          

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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,                                  

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      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                                                           

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   investment by $379,000 during the period ended September 30, 1996. This
    increase is recorded directly to the equity section 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.

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NOTE 3.  BALANCE SHEET AND INCOME STATEMENT INFORMATION             

                                                                · 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 
                                                     ========        ======== 

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 
                                                     ========        ======== 


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                                                                · Download Table
                                                                        
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
                                                      ========  ========

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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.                    

        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
                       ====            ====            ====

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                                                                · Download Table
                                                                       
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)
                       =======             =======             ======= 

   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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     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.                                                            

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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 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                                                             

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      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.                                  

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

                                                                · 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):                                                         

                                                                · Download Table

Year ending September 30:                                                       

                                                                                
      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                                    

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  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 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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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 
                                                      --------
  William's, 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.                                                     

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.                                                 

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     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.        

                                                                      
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 million 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.                                  

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 $4.1 million. 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
 $3.0 million, the prohibition of the payment of dividends, other than
 those payable solely in capital stock, and a prohibition of any stock
repurchase activity.                                                

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In April 1996, the Company borrowed $2.0 million 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 $5.0 million 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 million.                                          

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 million in cash. The securities were
   issued to an 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                             

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   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 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  
SEPTEMBER                                                  BEGINNING       TO                      AT END  
   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

                                                                · Download Table

                                                                         SEQUENTIAL 
EXHIBIT                           DESCRIPTION                            PAGE NUMBER
-------                           -----------                            -----------
                                                                                    
 3.2     Certificate of Amendment of Certificate of Incorporation                   
         of the Company                                                             

 3.4     Amended Designations of Series A Junior Participating                      
         Preferred Stock of the Company                                             

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

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

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

10.12    Employment Agreement between the Company and Joe Fusco,                    
         dated as of September 16, 1996.                                            

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

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

21.1     Subsidiaries of the Company.                                               

23.1     Accountant's Consent                                                       

27       Financial Data Schedule                                                    

70

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K Filing		Date		First		Last			Other Filings
		3/31/92		35
		8/11/92		33		68
		10/1/92		19		51
		9/30/93		35		50
		12/31/93		50
		6/30/94		26
		9/30/94		25		69
		10/1/94		19		51
		12/31/94		50
		1/13/95		34
		1/16/95		34		70
		1/27/95		34
		2/14/95		34
		3/15/95		34
		5/26/95		65
		6/29/95		65
		6/30/95		3		65
		7/7/95		65
		7/17/95		34
		8/25/95		34
		8/28/95		3		51
		9/5/95		34
		9/27/95		34
		9/28/95		3		54
		9/29/95		3		51
		9/30/95		3		69
		10/1/95		19		51
		12/15/95		49
		12/24/95		55
		12/29/95		3		49
		12/31/95		50
		1/26/96		15		65
		2/2/96		62
		2/7/96		55
		2/14/96		35
		3/1/96		30		66
		3/28/96		3		66			8-K, 8-K/A
		3/29/96		64
		3/31/96		36					10-Q
		5/15/96		3		50			10-Q, 8-K
		6/1/96		64
		6/6/96		3		53
		6/13/96		15		65			8-K
		6/25/96		42
		6/30/96		36		67			10-Q
		7/15/96		35
		7/16/96		3		53
		7/18/96		3		50			8-K, 8-K/A
		7/24/96		34		70
		8/6/96		29		67
		8/13/96		35
		8/14/96		3		53			10-Q, 8-K
		8/27/96		16		70			8-K
		9/3/96		15		65
		9/16/96		70
		9/19/96		34
For The Period Ended		9/30/96		1		70			10-K/A, 8-K/A
		10/10/96		15		65			S-3/A
		11/15/96		29		67
		11/22/96		39
		11/25/96		15		65			8-K
		11/30/96		1		18
		12/12/96		30		67
		12/15/96		29
		12/17/96		35		70
		12/19/96		30		67
		12/29/96		37
Filed On / Filed As Of		12/30/96
		2/7/97		29		67
		2/12/97		1
		3/31/97		53					10-Q
		4/1/97		30		66
		4/7/97		30		67
		4/30/97		68					8-K
		6/30/97		30		66			10-Q
		3/30/98		68
		9/30/1		68
		8/22/2		64
		9/30/2		29		67
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