<PAGE>


                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                                   ----------

                                    FORM 10-Q

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

                  For the Quarterly Period Ended March 31, 1999

                                       OR

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


                   For the Transition Period From ____ to ____

                                   ----------

                         Commission File Number 0-20095


                               STAC SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)

                DELAWARE                                  95-3825313
     (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                   Identification No.)


            12636 High Bluff Drive, San Diego, California 92130-2093
          (Address of principal executive office, including zip code)

                                 (619) 794-4300
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                  YES  X                                NO    
                     ----                                 ----

Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 31, 1999.

Common Stock, par value $0.001 per share                      23,730,544 shares


<PAGE>


                               STAC SOFTWARE, INC.



                                      INDEX


PART I.           FINANCIAL INFORMATION

     Item 1.  Financial Statements                                          Page
                                                                            ----
                     Condensed Consolidated Balance Sheets
                            as of March 31, 1999 and
                            September 30, 1998                                 3

                     Condensed Consolidated Statements of
                            Operations for the three and six months
                            ended March 31, 1999 and 1998                      4

                     Condensed Consolidated Statements of Cash
                            Flows for the three and six months ended
                            March 31, 1999 and 1998                            6

                     Notes to Condensed Consolidated Financial
                            Statements                                         7

     Item 2.         Management's Discussion and Analysis of
                            Financial Condition and Results of
                            Operations                                         9

     Item 3.         Market Risk                                              15


PART II.          OTHER INFORMATION

     Item 4.         Submission of Matters to a vote of Securities Holders    15

     Item 6.         Exhibits and Reports on Form 8-K                         16

SIGNATURES                                                                    17


                                       2
<PAGE>

<TABLE>

                                                 STAC SOFTWARE, INC.
                                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                                    (IN THOUSANDS)
<CAPTION>

                                                        ASSETS

                                                                             March 31,        September 30,                    
                                                                               1999               1998
                                                                          -------------      -------------
                                                                            (UNAUDITED)           

<S>                                                                       <C>                <C>
Current assets:
     Cash and cash equivalents                                            $     14,955       $     11,573
     Marketable securities                                                      14,423             12,859
     Accounts receivable                                                         1,707                777
     Inventories                                                                   257                197
     Income taxes receivable                                                     1,677              1,314
     Other current assets                                                          502                317
                                                                          -------------      -------------
         Total current assets                                                   33,521             27,037

Property and equipment, net                                                      2,132              3,329

Net assets of discontinued operations                                                -             12,995
Other assets                                                                       474                505
                                                                          -------------      -------------
                                                                          $     36,127       $     43,866
                                                                          =============      =============


                                         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                     $      1,181            $ 1,458
     Accrued expenses and other
       current liabilities                                                       2,914              3,022
                                                                          -------------      -------------
         Total current liabilities                                               4,095              4,480

Other liabilities                                                                  157                173
                                                                          -------------      -------------
                                                                                 4,252              4,653
                                                                          -------------      -------------

Stockholders' equity
     Common stock at par value                                                      31                 31
     Additional paid in capital                                                 76,403             75,143
     Treasury stock                                                            (41,347)           (41,347)
     Cumulative translation adjustment                                             (27)               (29)
     Retained earnings                                                          (3,185)             5,415
                                                                          -------------      -------------
         Total stockholders' equity                                             31,875             39,213
                                                                          -------------      -------------
                                                                          $     36,127       $     43,866
                                                                          =============      =============
</TABLE>


      See accompanying notes to condensed consolidated financial statements


                                       3
<PAGE>

<TABLE>
                                                 STAC SOFTWARE, INC.
                                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                     (UNAUDITED)
<CAPTION>

                                                          Three Months Ended                   Six Months Ended
                                                               March 31,                            March 31,  
                                                    ----------------------------        ----------------------------
                                                        1999             1998               1999             1998
                                                    -----------      -----------        -----------      -----------

<S>                                                 <C>              <C>                <C>              <C>
Revenues:
    Software and service                            $    3,370       $    3,803         $    6,376       $    7,508
    Royalties                                                -            1,111                  -            5,111
                                                    -----------      -----------        -----------      -----------
        Net revenues                                     3,370            4,914              6,376           12,619

Cost of revenues                                           205              213                397              460
                                                    -----------      -----------        -----------      -----------

Gross margin                                             3,165            4,701              5,979           12,159
                                                    -----------      -----------        -----------      -----------

Operating expenses:
    Research and development                             1,388            1,814              3,373            3,678
    Sales and marketing                                  1,925            2,470              4,336            5,241
    General and administrative                             754              800              2,155            2,238
    Restructuring                                            -               -                 822              350
                                                    -----------      -----------        -----------      -----------

        Total operating expenses                         4,067            5,084             10,686           11,507
                                                    -----------      -----------        -----------      -----------

Operating income (loss)                                   (902)            (383)            (4,707)             652

Interest income                                            420              643                860            1,354
                                                    -----------      -----------        -----------      -----------

Income (loss) before income taxes                         (482)             260             (3,847)           2,006

Provision (benefit) for income taxes                      (294)             121             (1,733)           1,073
                                                    -----------      -----------        -----------      -----------

Income (loss) from continuing operations                  (188)             139             (2,114)             933

Discontinued operations:
Income from discontinued operations,
   net of taxes of $550 in 1999 and
   $425 and $1,047 in the three and
   six months ended 3/31/98 respectively                     -              625                885            1,559
                                                    -----------      -----------        -----------      -----------

Net income (loss)                                   $     (188)      $      764         $   (1,229)      $    2,492
                                                    ===========      ===========        ===========      ===========

Earnings per common share, basic
Income (loss) from continuing operations            $    (0.01)      $     0.01         $    (0.09)      $     0.04
Income from discontinued operations                       0.00             0.02               0.04             0.06
Net income (loss)                                        (0.01)            0.03              (0.05)            0.09

</TABLE>


                                       4
<PAGE>
<TABLE>
<CAPTION>


<S>                                                 <C>              <C>                <C>              <C>
Earnings per common share, diluted
Income (loss) from continuing operations            $    (0.01)      $     0.01         $    (0.09)      $     0.03
Income from discontinued operations                       0.00             0.02               0.04             0.06
Net income (loss)                                        (0.01)            0.03              (0.05)            0.09

Weighted average common shares
    outstanding, basic                                  23,705           25,699             23,586           26,264

Weighted average common shares
    outstanding, diluted                                23,705           26,294             23,586           27,023

</TABLE>


      See accompanying notes to condensed consolidated financial statements










                                       5
<PAGE>

<TABLE>

                                                 STAC SOFTWARE, INC.
                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              (IN THOUSANDS; UNAUDITED)
<CAPTION>

                                                                                         Six Months Ended
                                                                                             March 31,
                                                                                   ----------------------------
                                                                                       1999             1998
                                                                                   -----------      -----------
<S>                                                                                <C>              <C>
Cash flows from operating activities:
     Net income (loss)                                                             $   (1,229)      $    2,492
     Adjustments required to reconcile net income
        to net cash provided by operating activities:
        Depreciation and amortization                                                     933            1,038
        Loss on disposals of property and equipment                                       554                -
        Provision for deferred income taxes                                                 -              555
     Changes in assets and liabilities:
        Accounts receivable                                                              (930)             493
        Inventories                                                                       (60)             (54)
        Other assets                                                                     (174)            (108)
        Accounts payable                                                                 (277)             479
        Income taxes receivable/payable                                                  (363)            (791)
        Accrued expenses and other current liabilities                                   (108)          (1,118)
                                                                                   -----------      -----------
           Net cash provided (used) by operating activities                            (1,654)           2,986
                                                                                   -----------      -----------

Cash flows from investing activities:
     Purchases of marketable securities                                               (19,564)         (23,436)
     Sales of marketable securities                                                    18,000           40,556
     Acquisitions of treasury stock                                                         -          (10,682)
     Purchases of property and equipment                                                 (270)            (842)
                                                                                   -----------      -----------
           Net cash provided (used) by investing activities                            (1,834)           5,596
                                                                                   -----------      -----------

Cash flows from financing activities:
     Issuance of common stock                                                           1,105              759
     Tax benefit from exercise of stock options                                           139              157
                                                                                   -----------      -----------
           Net cash provided by financing activities                                    1,244              916
                                                                                   -----------      -----------

Effect of exchange rates on cash                                                            2               45
                                                                                   -----------      -----------
Cash received from repayment of note                                                    5,000                -
                                                                                   -----------      -----------
Net cash provided by discontinued operations                                              624              779
                                                                                   -----------      -----------

Net increase in cash                                                                    3,382           10,322

Cash and cash equivalents at beginning of period                                       11,573           18,609
                                                                                   -----------      -----------
Cash and cash equivalents at end of period                                         $   14,955       $   28,931
                                                                                   ===========      ===========
Supplemental non-cash activities:
      Stock dividend                                                               $    7,371       $        -
                                                                                   ===========      ===========
     Conversion of deferred compensation to equity
          upon exercise of common stock options                                    $       16       $        -
                                                                                   ===========      ===========
</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                       6
<PAGE>


                               STAC SOFTWARE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  Basis of Presentation:
         ----------------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

The accompanying condensed consolidated unaudited financial statements of Stac
Software, Inc. ("Stac" or the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in the Company's
annual report for the year ended September 30, 1998. In the opinion of
management, the accompanying condensed consolidated unaudited financial
statements contain all adjustments, consisting of only normal recurring items,
necessary for a fair presentation of the Company's financial position as of
March 31, 1999 and its results of operations for the three and six month periods
ended March 31, 1999 and 1998, respectively. These condensed consolidated
unaudited financial statements are not necessarily indicative of the results to
be expected for the entire year.


NOTE 2.  Earnings (Loss) Per Share: (in thousands, except per share amounts; 
         unaudited)
         -------------------------------------------------------------------

Basic EPS is calculated by dividing net income by the weighted average number of
common shares outstanding for the period, without consideration for the dilutive
impact of potential common shares ("dilutive securities") that were outstanding
during the period. Diluted EPS is computed by dividing net income by the
weighted average number of common shares outstanding for the period, increased
by dilutive securities that were outstanding during the period unless the effect
of these securities is anti-dilutive. Net income remains the same for the
calculations of basic EPS and diluted EPS. A reconciliation of the numerators
and denominators of the basic and diluted EPS calculations for the three and six
months ended March 31, 1999 and 1998 is presented below.

<TABLE>
<CAPTION>

                                     Three Months Ended                      Six Months Ended
                                       March 31, 1999                          March 31, 1999 
                                     ------------------                      ----------------

                                                    Per-Share                                 Per-Share
                              Net Loss     Shares     Amount            Net Loss     Shares     Amount
                              --------    -------   ---------            --------    -------  ---------

<S>                           <C>         <C>         <C>               <C>          <C>        <C>
Net Loss                      $  (188)                                  $(1,229)

Basic EPS                                 23,705      ($0.01)                        23,586     $(0.05)

Dilutive Securities                            -                                          -
                                          -------                                    -------

Diluted EPS                               23,705      ($0.01)                        23,586     $(0.05)
                                          =======                                    =======

</TABLE>


                                       7
<PAGE>

<TABLE>
<CAPTION>

                                       Three Months Ended                         Six Months Ended
                                         March 31, 1998                             March 31, 1998
                                       ------------------                         ----------------

                                                       Per-Share                                   Per-Share
                              Net Income     Shares     Amount            Net Income     Shares      Amount
                              ----------    -------    ---------          ----------    -------    ---------

<S>                           <C>           <C>        <C>                <C>           <C>        <C>
Net Income                    $     764                                   $   2,492

Basic EPS                                   25,699     $   0.03                         26,264     $   0.09

Dilutive Securities                            595                                         759
                                            -------                                     -------

Diluted EPS                                 26,294     $   0.03                         27,023     $   0.09
                                            =======                                     =======

</TABLE>

NOTE 3. Inventories (in thousands, March 31, 1999 unaudited):
        -----------

                                                   March 31,       September 30,
                                                     1999               1998
                                                  ----------       -------------

                  Raw materials                   $    115          $    132
                  Finished goods                       142                65
                                                  ---------         ---------
                                                  $    257          $    197
                                                  =========         =========

NOTE 4. Stock Option Plan Summary (unaudited)
        ------------------------------------

On March 11, 1999 the Company's stockholders voted to increase the number of
shares subject to outstanding options under the Company's 1992 Stock Option Plan
by 6,935,702 shares in order to adjust for the diminution in the value of
options outstanding as a result of the spin-off of the Company's Hi/fn
subsidiary. The following is a summary of stock options outstanding at March 31,
1999:
<TABLE>
<CAPTION>

                                                                   OPTIONS OUTSTANDING
                                                      ---------------------------------------------
                                                                         WEIGHTED-     
                                                                          AVERAGE         WEIGHTED-
                                                                         REMAINING         AVERAGE
                                                                        CONTRACTUAL       EXERCISE
                                                        NUMBER         LIFE (YEARS)         PRICE
                                                      ----------       ------------       ---------
               <S>                                    <C>                  <C>               <C> 
               Price Range                                                             
                    $0.06 - $0.83..............       1,958,318            5.88              $0.65
                    $0.84 - $0.84..............       3,360,058            7.34              $0.84
                    $0.88 - $1.35..............       2,138,932            8.49              $1.04
                    $1.39 - $2.40..............       1,556,725            7.59              $1.71
                                                      ----------
                    $0.06 - $2.40..............       9,014,033            7.34              $1.00
                                                      ==========
</TABLE>

    The following is a summary of stock options exercisable at March 31, 1999:
<TABLE>
<CAPTION>

                                                                    OPTIONS EXERCISABLE
                                                               ----------------------------
                                                                                 WEIGHTED-
                                                                                  AVERAGE
                                                                                 EXERCISE
                                                                 NUMBER           PRICE
                                                               ----------        ---------
               <S>                                             <C>                  <C>
               Price Range                                                    
                     $0.06 - $0.83......................       1,452,844            $0.63
                     $0.84 - $0.84......................       1,929,707            $0.84
                     $0.88 - $1.35......................         568,161            $1.09
                     $1.39 - $2.40......................       1,318,953            $1.75
                                                               ----------
                     $0.06 - $2.40......................       5,269,665            $1.04
                                                               ==========
</TABLE>


                                       8
<PAGE>


NOTE 5.  Subsequent Event
         ----------------

On May 3, 1999, the Company announced that the Board of Directors had approved a
one-for-four reverse stock split that would be effective with the close of
business May 7, 1999. The Company's stockholders of record as of the close of
business May 7, 1999 received one share of the new stock for each four shares
owned as of the date of record. The reverse stock split had previously been
approved by the Company's stockholders at the Company's Annual Meeting of
Stockholders held on March 11, 1999. As a result of the reverse stock split, the
number of shares outstanding and the number of options outstanding,
exerciseable, and available for future grant, were reduced by a factor of four.
Option exercise prices and historical earnings per share amounts were increased
by a factor of four. These changes are not currently reflected in the
information presented by this 10-Q.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

         Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risk and
uncertainties. Stac Software, Inc.'s ("Stac" or "the Company") future results
could differ materially from those discussed here. Factors that could cause or
contribute to such differences include but are not limited to; fluctuations in
the Company's operating results, continued new product introductions by the
Company, market acceptance of the Company's new product introductions, new
product introductions by competitors, OEM and distributor inventory levels,
technological changes in the personal computer and communications industries,
uncertainties regarding intellectual property rights and the other factors
referred to herein (including, but not limited to, the factors discussed below
under "Revenues," "Quarterly Trends and Channel Inventories" "Seasonality,"
"Operating Systems," "Competition and Risks Associated with New Product
Introductions," and "Stock Price Volatility"), in the Company's Form 10-K for
the year ended September 30, 1998 and in the Company's Form 10-Q for the quarter
ended December 31, 1998.

OVERVIEW

         Stac's storage systems recovery software business is comprised of its
Replica Tape and Replica Network Data Manager ("NDM") product lines. Replica
Tape and Replica NDM are high-performance, easy-to-deploy, distributed business
systems recovery software products, which enable fast PC server, desktop and
notebook replication and disaster recovery. Replica Tape for NetWare was
introduced in February 1996 and Replica for NT was made available in April 1997.
Replica NDM was introduced to selected customer sites in April 1998 and became
commercially available in January 1999. The Company intends to focus on the
development of relationships with key OEMs in the storage management software
sector and with system integration partners, and is investing the majority of
its product development, marketing and sales resources in the Replica product
line and extensions to Replica.

         The Company also develops and markets ReachOut Enterprise ("ReachOut")
remote communications software, a remote access software suite which allows
administrators and end users to access a PC using another PC through a network,
the Internet, ISDN lines or modems. ReachOut works with Microsoft Corporation's
("Microsoft") Windows NT, Windows 98/95, Windows 3.x and DOS operating systems.

         On December 16, 1998, the Company distributed a special dividend of its
stock in its Hi/fn, Inc. ("Hi/fn") subsidiary to its stockholders. Hi/fn was a
majority owned subsidiary of the Company and is engaged in silicon and software
implementations of data compression and data encryption standards for the
network communications and storage equipment markets. As a result of the
spin-off, Hi/fn has been accounted for as a discontinued operation in the
Company's financial statements. Hi/fn is currently traded on Nasdaq under the
symbol HIFN. Please refer to the December 8, 1998 General Form for Registration
of Securities on Form 10 filed by Hi/fn with the SEC for a complete discussion
of Hi/fn and the spin-off transaction.

         Stac received royalties from Microsoft and IBM Corporation ("IBM") for
licenses of its data compression technology from June 1994 through January 1998
after which the royalty agreements became paid in full. The Company does not
expect further revenues from these agreements.


                                       9
<PAGE>


         The following discussion should be read in conjunction with the
consolidated financial statements included elsewhere within this quarterly
report. Fluctuations in annual and quarterly results may occur as a result of
factors affecting demand for the Company's products such as the timing of the
Company's and competitors' new product introductions and upgrades. Due to such
fluctuations, historical results and percentage relationships are not
necessarily indicative of the operating results for any future period. In
addition, the Company believes that certain individuals and entities that
traditionally buy software from both the Company and others may defer purchases
of software in the third and fourth quarters of the 1999 calendar year due to
concern over the Year 2000 issue, which could impact the Company's financial
results.


RESULTS OF OPERATIONS

         The following table sets forth the Company's results of operations and
the percentage relationship of certain items to revenues during the periods
shown:

<TABLE>
<CAPTION>


                                                               Three Months Ended                Six Months Ended
                                                                    March 31,                        March 31,
                                                           --------------------------       -------------------------
                                                                1999           1998            1999            1998
                                                           ----------      ----------       ----------      ----------

<S>                                                              <C>             <C>             <C>              <C> 
Revenues                                                         100%            100%            100%             100%
Cost of revenues                                                   6               4               6                4
                                                           ----------      ----------       ---------       ----------
Gross margin                                                      94              96              94               96
                                                           ----------      ----------       ---------       ----------

Research and development                                          41              37              53               29
Sales and marketing                                               57              50              68               42
General and administrative                                        23              17              34               17
Restructuring                                                      -               -              13                3
                                                           ----------      ----------       ---------       ----------
Total operating expenses                                         121             104             168               91
                                                           ----------      ----------       ---------       ----------

Operating income (loss)                                          (27)             (8)            (74)               5
Interest income                                                   12              13              14               11
                                                           ----------      ----------       ---------       ----------

Income (loss) before income taxes                                (15)              5             (60)              16

Provision for (benefit from) income taxes                         (9)              2             (27)               8
                                                           ----------      ----------       ---------       ----------

Net income (loss) from continuing operations                      (6)              3             (33)               8

Net income from discontinued operations                           (-)             13              14               12
                                                           ----------      ----------       ---------       ----------

Net income (loss)                                                 (6)%            16%            (19)%             20%
                                                           ==========      ==========       =========       ==========
</TABLE>


                                       10
<PAGE>


         REVENUES. Revenues decreased 31% to $3.4 million for the quarter ended
March 31, 1999 from $4.9 million in the quarter ended March 31, 1998, and 49% to
$6.4 million for the six months ended March 31, 1999 from $12.6 million for the
six months ended March 31, 1998. The decrease in revenues from the comparable
periods of the prior fiscal year was primarily due to the completion of royalty
payments from IBM and Microsoft in January 1998, and due to declining sales of
REACHOUT.

         Software sales, which are comprised of domestic and international sales
through distributors, retailers, solution providers, OEMs and direct channels,
accounted for $3.4 million in the March 1999 quarter, compared to $3.8 million
in the comparable quarter of the prior fiscal year, a decrease of 11%. Software
sales were $6.4 million in the six months ended March 31, 1999, a 15% decrease
from $7.5 million in the six months ended March 31, 1998. The decrease in
revenues for both the quarter and six month periods, is due to declining sales
of REACHOUT, which has reached a mature phase of the product life cycle, and is
partially offset by increasing sales of the Company's REPLICA product family.

         International sales, which are included in the above software sales,
are comprised primarily of software products and were $1.8 million, or 53% of
revenues for the quarter ended March 31, 1999 compared to $1.3 million, or 26%
of revenues in the quarter ended March 31, 1998. International sales were $2.9
million or 45% of revenues in the six months ended March 31, 1999 and $2.6
million, or 21% of revenues for the comparable period of the prior fiscal year.
The increase in international revenues as a percentage of revenues in the
quarter and six month periods ended March 31, 1999, over the comparable periods
in the prior fiscal year was primarily due to the decrease in domestic license
revenues as a result of the completion of the Company's royalty agreements with
Microsoft and IBM, and stronger penetration in the European marketplace with its
current product offerings. Stac markets and sells to its European accounts from
its office in the United Kingdom and markets and sells to the other principal
international markets through sales personnel in its San Diego office and
through relationships with distributors and resellers abroad.

         There were no revenues from licenses of Stac's data compression
technology to operating systems vendors in the quarter or six months ended March
31, 1999, compared to $1.1 million, or 23% of revenues in the March 31, 1998
quarter and $5.1 million, or 41% of revenues for the six months ended March 31,
1998, due to the completion of the underlying license agreements with IBM and
Microsoft. The Company expects no further revenues from these agreements.

         COST OF REVENUES AND GROSS MARGIN. Cost of revenues consists primarily
of the user manuals, packaging, media and assembly associated with the Company's
software products. Gross margins decreased to 94% for the quarter and six months
ended March 31, 1999 from 96% in the quarter and six months ended March 31, 1998
primarily due to the decrease in IBM and Microsoft royalty revenues which
carried 100% gross margins.

         RESEARCH AND DEVELOPMENT. The research and development costs consist
primarily of salaries, employee benefits, overhead, outside contractors and
non-recurring engineering fees. Such expenses were $1.4 million and $1.8 million
for the quarters ended March 31, 1999 and March 31, 1998 respectively, and $3.4
million and $3.7 million for the six months ended March 31, 1999 and March 31,
1998, respectively. The decrease in research and development costs from the
prior year's quarter and six month period is primarily due to the timing of
localization costs associated with new product versions. The Company expects to
continue to invest in the development of products for which it believes there is
a need in the market; however, there can be no assurance that research and
development programs invested in by the Company will be successful or that
products resulting from such programs will achieve market acceptance.

         SALES AND MARKETING EXPENSE. Selling and marketing expenses consist
primarily of the salaries, commissions and benefits of sales, marketing and
customer support personnel, and consulting, advertising, promotion and overhead
expenses. Such expenses were $1.9 million for the quarter ended March 31, 1999
and $2.5 million for the quarter ended March 31, 1998, and $4.3 million for the
six months ended March 31, 1999 and $5.2 million for the six months ended March
31, 1998. The reduced spending in the quarter and six months ended March 31,
1999 from the prior year's comparable quarter and six month period is primarily
due to reductions in staffing and marketing program costs attributable to the
corporate restructurings completed in the December 1997 and 1998 quarters.
Consolidated sales and marketing expenses are expected to remain a significant
ongoing operating expense.



                                       11
<PAGE>


         GENERAL AND ADMINISTRATIVE. General and administrative expenses are
comprised primarily of salaries for administrative and corporate services
personnel, legal, and other professional fees. Such expenses were $.8 million
for each of the quarters ended March 31, 1999 and March 31, 1998, and $2.2
million for each of the six month periods ended March 31, 1999 and March 31,
1998.

         RESTRUCTURING. The restructuring charge of $0.8 million in the quarter
ended December 31, 1998 reflects $0.5 million of fixed assets abandoned and
written off as a result of the restructuring, $0.2 million in severance costs
and benefits, and $0.1 million in lease termination costs. The restructuring was
initiated to better align the Company's costs and resources with the needs of a
stand-alone, partner-focused software company. The restructuring charge of $0.4
million in the December 31, 1997 quarter is primarily for the costs of severance
benefits and is part of a total restructuring charge of $1.2 million, $0.8
million of which was charged to operations in fiscal 1997. The severance
benefits had not been communicated to the affected employees at September 30,
1997, and therefore could not be expensed until the subsequent quarter, when the
notification and restructuring were completed. The restructuring began in the
September 1997 quarter and was completed in the December 1997 quarter, and was
initiated to better align costs and resources with the Company's focus on the
storage systems recovery needs of enterprise customers.

         INTEREST INCOME. Interest income was $0.4 million for the quarter ended
March 31, 1999 and $0.6 million for the quarter ended March 31, 1998, and $0.9
million and $1.4 million for the six month periods ended March 31, 1999 and
March 31, 1998, respectively. The decrease in interest income for the three and
six months ended March 31, 1999 compared to the three and six months ended March
31, 1998 was due primarily to lower invested cash balances during the March 1999
periods as a result of the Company's share repurchase programs executed
beginning in July 1997.

         INCOME TAXES. The effective income tax rate for the quarters ended
March 31,1999 and 1998 was 61% and 47%, respectively, and was 45% and 53% for
the six months ended March 31, 1999 and March 31, 1998, respectively. The
effective tax rate for the March 1999 quarter and six months was based on the
Company's forecasted taxable results for the year and the anticipated carry-back
benefit for income taxes paid in previous years. The effective tax rate for the
March 1998 quarter and six months reflects the non-deductible nature of certain
costs associated with the Hi/fn spin-off transaction, for which, consistent with
statutory guidelines, no tax benefit was recognized.

         QUARTERLY TRENDS AND CHANNEL INVENTORIES. The Company historically has
experienced significant fluctuations in its revenues and operating results,
including net income, and anticipates that these fluctuations will continue. The
Company operates with relatively little backlog of its software sales, and the
majority of its software revenues each quarter result from orders received in
that quarter. Consequently, if near-term demand for the Company's products
weakens in a given quarter or if inventory of the Company's products in the
retail and distribution channels satisfies near-term demand, the Company's
operating results for that quarter would be adversely affected. In addition,
when the Company announces enhanced versions of its software products, the
announcement may have the effect of slowing sales of the current version of the
product as buyers delay their purchase. Quarterly results have been or may in
the future be influenced by the timing of announcements or introductions of new
products and product upgrades by the Company or its competitors, distributor
ordering patterns, product returns, delays in product development and licensing
of the Company's products and core technology. In addition, the Company's new
products typically have a lengthy evaluation period before any purchase is made.

         SEASONALITY. The software industry has typically experienced some
seasonal variations in demand, with sales declining somewhat in the summer
months. The Company believes that its software sales are subject to similar
seasonal variations which, when combined with the other factors described above,
are likely to result in fluctuations in the Company's quarterly results. As a
result, historical quarter-to-quarter comparisons should not be relied upon as
indicative of future performance.


                                       12
<PAGE>


         OPERATING SYSTEMS. Stac's ReachOut, Replica Tape and Replica NDM
products currently operate on a limited number of personal computer and network
operating systems. ReachOut supports Microsoft Windows NT, Windows 98, Windows
95, Windows 3.x and DOS, while Replica Tape supports Windows NT. Previous
versions of Replica Tape are still available to support Novell NetWare servers.
Replica Tape customers may require support of the Unix operating system, which
the Company does not currently provide. Replica NDM server component supports
only Windows NT with client support for Windows 98, Windows 95 and Windows NT
workstations. In addition, future versions of Microsoft's Windows operating
systems may require significant changes to the Company's products in order to
maintain compatibility.

         COMPETITION AND RISKS ASSOCIATED WITH NEW PRODUCT INTRODUCTIONS. The
market for the Company's products is intensely competitive. Increased
competition could result not only in a decline in sales volume, but also in
price reductions that could have a material adverse effect on the Company's
business, operating results and financial condition.

    The Company's Replica product line competes with well established back-up
products from Computer Associates, Inc., Seagate Software ("Seagate") (currently
owned by Seagate Technologies, Inc. but in the process of being acquired by
Veritas Software Corporation ("Veritas")), Legato Systems, Inc. ("Legato") and
Veritas, all of which have established channels of distribution and installed
customer bases. The Company has entered into OEM licenses with Legato, Seagate,
Hewlett-Packard Company and Tivoli Systems, Inc. (a wholly owned subsidiary of
IBM) which authorize those companies to resell Replica products under certain
conditions. While the Company hopes to expand its sales and marketing reach
through these agreements, the Company expects to realize less revenue per unit
than it would if it sold the products itself. As a result, the Company could
realize less revenue from sales of Replica than it might have otherwise obtained
by only directly selling Replica. In addition, resellers could choose not to
sell Replica over competitors' products with the result that significant sales
of Replica could fail to materialize, or products similar to Replica could be
successfully introduced to resellers by the Company's competitors. In addition,
Microsoft's current operating systems incorporate back-up functionality and
future operating systems are expected to include some disaster recovery
functionality. Also, Replica is being introduced into sophisticated server
environments and, while the Company has invested significant resources in
testing Replica under a variety of conditions, configurations and circumstances,
there are likely to be environments which have not been anticipated for which
additional development of Replica will be necessary.

    The Company's ReachOut product competes in the remote control software
market against more established products such as Symantec Corporation's
pcAnywhere, Compaq Corporation's Carbon Copy, Computer Associate Inc.'s Control
IT, Netopia's Timbuktu and Traveling Software, Inc.'s Laplink. ReachOut also
competes against remote access products from companies such as Citrix, Inc.
Further, Microsoft could elect to incorporate remote control or additional
remote access capabilities into its operating systems which are pre-installed on
most personal computers. The Company believes that the rate of growth of the
remote control market it serves has decreased from prior years' growth rates or
may actually be declining and that it will have a difficult time gaining further
sales growth against its competitors.

         STOCK PRICE VOLATILITY. Due to the factors noted above, the Company's
future earnings and stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in earnings from levels
expected by securities analysts could have an immediate and significant adverse
effect on the trading price of the Company's common stock in any given period.
Shortfalls could be caused by shortfalls in revenues, timing of the receipt of
technology license fees, and/or increased levels of expenditures. Additionally,
the Company participates in a highly dynamic industry, which often results in
significant volatility of the Company's stock price.


                                       13
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         The Company's cash and marketable securities increased by $4.9 million
to $29.4 million at March 31, 1999 from those at September 30, 1998. The
increase is primarily due to the repayment of the $5.0 million note receivable,
by the Company's recently spun-off Hi/fn subsidiary, partially offset by cash
used in general operations. Working capital increased by $6.9 million to $29.3
million at March 31, 1999 from that at September 30, 1998.

         The Company believes that existing cash balances and funds provided by
operations will be sufficient to finance the working capital requirements of the
consolidated companies for at least the next twelve months.

YEAR 2000

         The term "Year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from dates in the "1900's." These problems
may also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.

         However, the Company believes that certain individuals and entities
that traditionally buy software from both the Company and others may defer
purchases of software in the third and fourth quarters of calendar 1999 due to
concerns over the Year 2000 issue, which could impact the Company's financial
results.

         To date, the Company's primary focus in its analysis of its Year 2000
issue has been on its product offerings. Stac has performed extensive year 2000
compliance testing of its current products and believes, to its best knowledge,
that all of its significant current product offerings are year 2000 compliant;
provided that the underlying operating system and other software are year 2000
compliant.

         The Company has also completed its initial evaluation of Year 2000
compliance with respect to all of its internal computer, telephone and security
systems (hardware and software). As a result of this evaluation, the Company has
determined that all business critical systems are Year 2000 compliant, or will
be made compliant through available product upgrades prior to the end of the
June 1999 quarter at an estimated cost to the Company of $100,000.

         In addition, the Company has had initial communications with certain
third parties with which it does significant business to discuss and evaluate
their Year 2000 compliance plans and state of readiness and to determine the
extent to which the Company's systems may be affected by the failure of others
to remediate their own Year 2000 issues. To date, the Company has received only
preliminary feedback from such parties indicating that they are in the process
of implementing measures to ensure Year 2000 compliance, and further
representing that they will achieve compliance before the close of calendar
1999. The Company has not independently confirmed any information received from
other parties with respect to the Year 2000 issues. As such, there can be no
assurance that such other parties will complete their Year 2000 conversion in a
timely fashion or will not suffer a Year 2000 business disruption that may
adversely affect the Company's financial condition and results of operations.

         To date, the Company has not identified any system which presents a
material risk of not being Year 2000 ready in a timely fashion or for which a
suitable alternative cannot be implemented. However, the Company may ultimately
identify systems which do present a material risk of Year 2000 disruption. Such
disruption may include, among other things, the inability to process
transactions or information, procure inventory, or engage in similar normal
business activities. The failure of the Company to identify systems which
require Year 2000 conversion that are critical to the Company's operations or
the failure of the Company or others with which the Company does business to
become Year 2000 ready in a timely manner could have a material adverse effect
on the Company's financial condition and results of operations.


                                       14
<PAGE>


         The Company has not yet completed the development of a comprehensive
Year 2000-specific contingency plan. However, as part of its contingency Year
2000 effort, information received from external sources is examined for date
integrity before being brought into the Company's internal systems. The Company
will incorporate alternatives into its contingency plan, should the software
upgrades described above prove to not fully resolve Year 2000 compliance issues.
If the Company determines that its business is at material risk of disruption
due to currently unforeseen Year 2000 issue or anticipates that its Year 2000
compliance will not be achieved in a timely fashion, the Company will work to
enhance its contingency plan.

         The discussion above contains certain forward-looking statements. The
costs of the Year 2000 conversion, and possible risks associated with the Year
2000 issue are based on the Company's current estimates and are subject to
various uncertainties that could cause the actual results to differ materially
from the Company's expectations. Such uncertainties include, among others, the
success of the Company in identifying systems that are not Year 2000 compliant,
the nature and amount of programming required to upgrade or replace each of the
affected systems, the availability of qualified personnel, consultants and other
resources, and the success of the Year 2000 conversion efforts of others.

ITEM 3.  MARKET RISK.

         The Company is exposed to a variety of risks, including foreign
currency fluctuations and changes in the market value of its investments. In the
normal course of business, the Company employs established policies and
procedures to manage its exposure to fluctuations in foreign currency values and
changes in the market value of its investments.

         The Company's foreign currency risks are mitigated principally by
maintaining only nominal foreign currency cash balances. Working funds necessary
to facilitate the short term operations of the Company's Subsidiary in the
United Kingdom are kept in the local currencies for the European countries in
which they do business, with excess funds transferred to Stac's offices in the
United States for investment.

         The fair value of the Company's investments in marketable securities at
March 31, 1999 was $14,423,000. The Company's investment policy is to manage its
portfolio of marketable securities in order to preserve principal and liquidity
while maximizing the return. At March 31, 1999 the Company's portfolio was
primarily invested in high quality commercial paper, typically with maturities
of less than six months. These investments are distributed among several issuers
to minimize the credit risk associated with any single institution.


                            PART II-OTHER INFORMATION


ITEM 4.   The Company's Annual Meeting of Stockholders (the "Annual Meeting")
          was held on March 11, 1999. At the Annual Meeting, the stockholders of
          the Company (i) elected each of the persons listed below to serve as a
          director of the Company until the 2000 Annual Meeting of Stockholders
          or until his successor is elected, (ii) approved a series of
          amendments to the Company's Certificate of Incorporation to effect a
          reverse stock split, within a range of one to two and one to four,
          (iii) ratified and approved an increase in the aggregate number of
          shares of Common Stock authorized for issuance under the 1992 Stock
          Option Plan by 7,373,363 shares, (iv) ratified and approved an
          increase in the aggregate number of shares of Common Stock authorized
          for issuance under the 1992 Non-Employee Directors' Stock Option Plan
          by 493,785 shares and (v) ratified the selection of
          PricewaterhouseCoopers, LLP as the Company's independent accountants
          for the fiscal year ending September 30, 1999.

          The Company had 23,680,670 shares of Common Stock outstanding as of
          January 14, 1999, the record date for the Annual Meeting. At the
          Annual Meeting, holders of a total of 22,582,484 shares of Common
          Stock were present in person or represented by proxy. The following
          sets forth information regarding the results of the voting at the
          Annual Meeting:



                                       15
<PAGE>


Proposal 1:  Election of Directors
----------------------------------
                                             Voting Shares        Voting Shares
                                             In Favor             Withheld
                                             -------------        -------------
            Director

            Gary W. Clow                      22,426,546           155,938
            Robert W. Johnson, Ph.D.          22,426,871           155,613
            Antonio Perez                     22,422,871           159,613
            Peter D. Schleider                22,426,871           155,613
            Corey M. Smith                    22,422,871           159,613
            John T. Ticer                     22,426,871           155,613


Proposal 2:  Approval of amendments to the Company's Certificate of 
Incorporation to Effect a Reverse Stock Split
-------------------------------------------------------------------

            Votes in favor:                   21,812,237
            Votes against:                       558,041
            Abstentions:                          50,725


Proposal 3:  Ratification of Increase of Shares Authorized under the 1992 Stock 
Option Plan
-------------------------------------------------------------------------------

            Votes in favor:                   13,288,385
            Votes against:                       775,601
            Abstentions:                          48,925


Proposal 4:  Ratification of Increase of Shares Authorized under the 1992 
Non-Employee Directors' Stock Option Plan
-------------------------------------------------------------------------

            Votes in favor:                    13,419,665
            Votes against:                        798,452
            Abstentions:                           56,275


Proposal 5:  Ratification of Selection of Independent Accountants
-----------------------------------------------------------------

            Votes in favor:                    22,475,114
            Votes against:                         66,065
            Abstentions:                           41,305



Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits
               10.1 Severance agreement with Gary Clow
               10.2 Severance agreement with John Witzel
               10.3 1992 Non-Employee Directors' Stock Option Plan
               27   Financial Data Schedule

          (b)  Reports on Form 8-K

               None

Items 1 through 3 and 5 are not applicable and have been omitted.



                                       16
<PAGE>



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.






                                                     Stac Software, Inc.        
                                             -----------------------------------
                                                       (Registrant)



Date:  May 14, 1999                                /s/ Clifford L. Flowers 
                                             -----------------------------------
                                                     Clifford L. Flowers
                                                Vice President of Finance and
                                                   Chief Financial Officer
                                             Principal Financial and Accounting
                                             Officer and Duly Authorized Officer






                                       17