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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1997 Commission File Number 0-12817
PERFECTDATA CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3087593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 West Easy Street
Simi Valley, California 93065-1689
(Address of principal executive offices)
(Zip Code)
(805) 581-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changes since last report)
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 report), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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As of July 31, 1997, there were 3,093,700 shares of common stock outstanding.
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PERFECTDATA CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Balance Sheets - June 30, 1997 and
March 31, 1997 2
Statements of Earnings - quarters
ended June 30, 1997 and 1996 3
Statements of Shareholders' Equity -
three months ended June 30, 1997 4
Statements of Cash Flows - three months
ended June 30, 1997 and 1996 5
Notes to Financial Statements 6 - 7
Management's discussion and analysis of
financial condition and results of
operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
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PERFECTDATA CORPORATION
BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except number of shares)
June 30, March 31
1997 1997
-------- --------
ASSETS
Current assets
Cash and cash equivalents, including
short-term certificates of deposit of
$160 at June and at March $ 760 $ 891
Accounts receivable, less allowance
for doubtful receivables of
$9 at June and at March 759 707
Inventories 995 1,183
Prepaid expenses and other current assets 61 77
Marketable securities, short-term 475 399
Current assets of discontinued operations 115 115
Deposit on litigation award 75 305
Deferred income tax benefit 57 61
-------- --------
Total current assets 3,297 3,738
Property, plant and equipment, net 148 155
Deferred Income Tax benefit 374 369
Investment in affiliate 5 5
Other assets, net 31 31
-------- --------
$ 3,855 $ 4,298
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 179 $ 324
Accrued expenses 107 153
Accrued salaries, wages and vacation 52 56
Current liabilities of discontinued
operations 35 265
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Total current liabilities 373 798
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Shareholders' equity:
Preferred stock. Authorized 2,000,000
shares; none issued - -
Common stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 3,093,700 shares at
June and at March 8,051 8,051
Accumulated deficit (4,545) (4,546)
Allowance for gain (loss) on
marketable securities (24) (5)
-------- --------
Net shareholders' equity 3,482 3,500
-------- --------
$ 3,855 $ 4,298
-------- --------
-------- --------
See accompanying notes to financial statements.
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PerfectData Corporation
STATEMENTS OF EARNINGS
(Unaudited)
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Three Months Ended
June 30,
1997 1996
- -------------------------------------------------------------------------------
Net sales $ 1,452 $ 1,436
Costs and Expenses:
Cost of sales 970 918
Selling, general and administrative 500 511
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Total costs and expenses 1,470 1,429
Income (loss) from operations (18) 7
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Other income and (expense):
Interest income, net 8 9
Other, net 20 8
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Total other income and (expense) 28 17
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Income from continuing operations before
income taxes 10 24
Income tax (provision) benefit 1 (3)
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Income from continuing operations 11 21
Gain (loss) on disposal of
discontinued operations (10) (19)
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Net income (loss) $ 1 $ 2
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Net income (loss) per common share:
Income from continuing operations $ - $ .01
Gain (loss) on disposal of
discontinued operations - (.01)
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$ - $ -
------- -------
------- -------
Weighted average shares outstanding 3,094 3,074
See accompanying notes to financial statements.
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PerfectData Corporation
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(In thousands)
PERIOD FROM MARCH 31, 1997 THROUGH JUNE 30, 1997
- --------------------------------------------------------------------------------------------------
Allowance Net
Common Stock for gain/ share-
------------------- Accumulated (loss) on holders'
Shares Amount deficit mkt. sec. Equity
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
March 31, 1997 3,094 $8,051 $(4,546) $ (5) $3,500
Net unrealized gain/
(loss) on marketable
securities - - - (19) (19)
Net earnings - - 1 - 1
- --------------------------------------------------------------------------------------------------
Balance at
June 30, 1997 3,094 $8,051 $(4,545) $ (24) $3,482
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Month Period Ended
JUNE 30,
------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1 $ 2
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
(Gain) loss on disposal of
discontinued operations 10 19
Depreciation and amortization 9 32
Deferred income tax (benefit) provision (1) 2
Decrease in litigation deposit 230 -
(Increase) decrease in accounts
receivable (52) 81
(Increase) decrease in inventories 188 (172)
(Increase) decrease in prepaid
expenses and other current assets 16 (32)
(Increase) decrease in other assets - -
Increase (decrease) in accounts
payable (145) 42
Increase (decrease) in accrued
expenses (45) (6)
Increase (decrease) in accrued
salaries, wages and vacation (4) (7)
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NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 207 (39)
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment $ (2) $ -
(Increase) decrease in investment
securities, net (95) 20
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NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (97) 20
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CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options - 29
Repurchase of common stock - (2)
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NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES - 27
------- -------
NET CASH PROVIDED (USED) BY
CONTINUING OPERATIONS 110 8
CASH PROVIDED (USED) IN
DISCONTINUED OPERATIONS (241) (19)
------- -------
Increase (decrease) in cash and
cash equivalents (131) (11)
Cash and cash equivalents at
beginning of period 891 711
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 760 $ 700
------- -------
------- -------
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of the Company, the unaudited financial statements
contained in this report have been prepared on a basis consistent with
the financial statements contained in the Company's Annual Report on Form
10-K for the year ended March 31, 1997. All adjustments included in the
financial statements are of a normal recurring nature and are necessary
to present fairly the Company's financial position as of June 30, 1997
and the results of its operations and cash flows for the three months
ended June 30, 1997 and 1996.
2. Marketable securities classified as current assets at June 30, 1997,
include the following (dollars in thousands):
Fair Value Cost
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Government Securities $ 154 $ 153
Corporate debt securities 10 10
Marketable equity securities 311 336
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$ 475 $ 499
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3. Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at June 30, 1997 and March 31,
1997 consist of the following:
(In thousands)
June 30, 1997 March 31, 1997
------------- --------------
Raw materials $ 323 $ 384
Work in process 111 132
Finished products 561 667
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$ 995 $1,183
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4. Property, plant and equipment consist of (dollars in thousands):
June 30, 1997 March 31, 1997
------------- --------------
Machinery and equipment $ 481 $ 479
Furniture and fixtures 151 151
Tooling 711 711
Leasehold improvements 155 155
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1,498 1,496
Less accumulated
depreciation (1,350) (1,341)
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$ 148 $ 155
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5. Net earnings (loss) per share is based on the weighted average number of
shares outstanding during each of the respective periods. Common stock
equivalents are excluded from the calculation of weighted average shares
outstanding as their effect is immaterial or antidilutive.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales from continuing operations for the first fiscal quarter ended June
30, 1997 were $1,452,000 compared to $1,436,000 in the year-earlier period.
The decline in net earnings from continuing operations from the year-earlier
period is related to increased sales during the current period to
warehouse/superstore accounts, with a decline in sales to office products
catalog customers. Products sold to warehouse/superstore accounts have lower
profit margins.
As previously discussed in the Company's Form 10-K for the fiscal year ended
March 31, 1997, the Company reached a settlement with a former employee
during the current quarter to settle two legal actions. The loss on
discontinued operations for the current quarter is due to legal fees incurred
relative to the settlement.
As previously disclosed in the Company's Form 10-K for the fiscal year ended
March 31, 1997, during June the Company learned that its bid for the
continuing business of PriceCostco had been rejected. For the quarter ended
June 30, 1997, PriceCostco accounted for 43% of the Company's total sales.
The Company will realize the loss of this business during the second fiscal
quarter ended September 30, 1997. The loss of this customer could possibly
have a significant adverse effect on future earnings of the Company. As a
result, the Company has begun implementing severe cost cutting measures as
well as develop programs to gain new customers, new products and promotions
to increase business with existing accounts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at June 30, 1997 was $760,000 including
certificates of deposit of $160,000. Working capital at June 30, 1997 was
$2,924,000 compared to $2,940,000 at fiscal year end. The Company has a
current ratio of better than 8 to 1 at the end of the first quarter.
As discussed, during the quarter the Company reached a settlement with a
former employee. As part of the settlement, the Company paid the former
employee $185,000. These funds were paid from the litigation deposit the
Company made when it appealed the judgement. The bond and litigation deposit
have been reduced as agreed upon by both parties pending the resolution of
the attorney's fees owed the former employee's counsel.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In November 1995, in the Superior Court of Ventura County, California, a
former employee won an award against the Company for $203,403. The lawsuit
related to the termination, in October 1993, of an employment contract
entered into between the Company and the individual during July 1993. The
Company appealed this award and posted an appeal bond with the Court. On
March 31, 1997 the Appeals Court issued its opinion affirming the judgement
against the Company. The judgement became final on April 30, 1997.
In December 1995, in the United States District Court, Northern District of
California, the Company filed a complaint against the same former employee
and his company alleging that they copied PerfectData's trademark and trade
dress. On December 21, 1995, the Court granted the Company's motions for a
restraining order and preliminary injunction which enjoin the defendants from
the manufacture and distribution of the product in question. This case had
been set for trial December 1, 1997.
During May 1997, the parties reached a global settlement of both actions.
The Company paid the former employee the sum of $185,000 in exchange for its
right to seek further appeal. Defendants in the trademark infringement
action have agreed to assign and transfer any and all right, title and
interest in the trademark, trade name, and trade dress of their canned air
product "Perfect Cleaner" and any and all goodwill of the Perfect Cleaner
business to the Company. The former employee and his company have further
agreed not to sell a canned air product in the United States or Canada for
three years. Unresolved is the amount of attorney's fees owed to the former
employee's counsel for services rendered during the Company's appeal of the
original judgement against the Company. The parties agreed to have the issue
decided by a judge. On July 21, 1997, a hearing was held in the Superior
Court of Ventura County, California. As of the date of this Form 10-Q
filing, no ruling has been made.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Inapplicable.
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the quarter for which this
report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERFECTDATA CORPORATION
Date: AUGUST 11, 1997 /s/ JOSEPH MAZIN
---------------- -------------------------------
Joseph Mazin
President,
Chief Executive Officer and
Chairman of the Board
Date: AUGUST 11, 1997 /s/ IRENE J. MARINO
---------------- -------------------------------
Irene J. Marino
Corporate Secretary,
V.P. Finance and
Chief Financial Officer
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<PAGE>
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<PERIOD-TYPE> 3-MOS
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<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 760
<SECURITIES> 475
<RECEIVABLES> 768
<ALLOWANCES> 9
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<PP&E> 1,498
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<COMMON> 8,051
<OTHER-SE> (4,569)
<TOTAL-LIABILITY-AND-EQUITY> 3,855
<SALES> 1,452
<TOTAL-REVENUES> 1,452
<CGS> 970
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