<PAGE>
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 December 31, 1996 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
------ ------
As of January 31, 1997, there were 3,093,700 shares of common stock outstanding.
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PERFECTDATA CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets -
December 31, 1996 and March 31, 1996 2
Consolidated Statements of Earnings -
quarters ended December 31, 1996 and
1995, and nine months ended December 31,
1996 and 1995 3
Consolidated Statements of Shareholders'
Equity - nine months ended December 31,
1996 4
Consolidated Statements of Cash Flows -
nine months ended December 31, 1996
and 1995 5
Notes to Consolidated Financial Statements 6 - 7
Management's discussion and analysis of
financial condition and results of
operations 8 - 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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PERFECTDATA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except number of shares)
Dec. 31, March 31
1996 1996
--------- --------
ASSETS
Current assets
Cash and cash equivalents, including
short-term certificates of deposit of
$160 at December and at March $ 923 $ 711
Accounts receivable, less allowance
for doubtful receivables of
$14 at December and $11 at March 707 906
Inventories 1,009 1,245
Prepaid expenses and other current assets 121 85
Marketable securities, short-term 354 323
Current assets of discontinued operations 88 88
Deposit on litigation award 305 305
Deferred income tax benefit 118 117
--------- --------
Total current assets 3,625 3,780
Property, plant and equipment, net 172 248
Deferred Income Tax benefit 603 603
Other assets, net 19 19
--------- --------
$ 4,419 $ 4,650
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 145 $ 381
Accrued expenses 185 193
Accrued salaries, wages and vacation 52 68
Current liabilities of discontinued
operations 203 203
--------- --------
Total current liabilities 585 845
--------- --------
Minority Interest 10 12
--------- --------
Shareholders' equity:
Preferred stock. Authorized 2,000,000
shares; none issued - -
Common stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 3,094,500 shares at
December and 3,069,000 shares at March 8,053 8,026
Accumulated deficit (4,225) (4,211)
Allowance for gain (loss) on
marketable securities (4) (22)
--------- --------
Net shareholders' equity 3,824 3,793
--------- --------
$ 4,419 $ 4,650
--------- --------
--------- --------
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
------- ------- ------ ------
Net sales $ 1,387 $ 1,408 $4,297 $4,410
Costs and Expenses:
Cost of sales 938 911 2,868 2,887
Selling, general and
administrative 476 494 1,480 1,508
------- ------- ------ ------
Total costs and expenses 1,414 1,405 4,348 4,395
Income (loss) from operations (27) 3 (51) 15
------- ------- ------ ------
Other income and (expense):
Interest income, net 6 11 20 30
Minority Interest Benefit 3 - 2 -
Other, net 14 10 46 35
------- ------- ------ ------
Total other income and (expense) 23 21 68 65
------- ------- ------ ------
Income (loss) from continuing
operations before income taxes (4) 24 17 80
Income tax benefit (provision) 1 (6) - (30)
------- ------- ------ ------
Income (loss) from continuing
operations (3) 18 17 50
Gain (loss) on disposal of
discontinued operations (12) 14 (31) (105)
------- ------- ------ ------
Net income (loss) $ (15) $ 32 $ (14) $ (55)
------- ------- ------ ------
------- ------- ------ ------
Net income (loss) per common share:
Income (loss) from continuing
operations $ - $ .01 $ .01 $ .02
Gain (loss) on disposal of
discontinued operations - - (.01) (.04)
------- ------- ------ ------
$ - $ .01 - $ (.02)
------- ------- ------ ------
------- ------- ------ ------
Weighted average shares outstanding 3,088 3,096 3,088 3,118
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
- -------------------------------------------------------------------------------
(In thousands)
Period from March 31, 1996 through December 31, 1996
----------------------------------------------------
Allowance Net
Common Stock for gain/ share-
-------------- Accumulated (loss) on holders'
Shares Amount deficit mkt. sec. equity
------ ------ -------- ---------- --------
Balance at
March 31, 1996 3,069 $8,026 $(4,211) $ (22) $3,793
Stock issued upon
exercise of options 28 29 - - 29
Stock repurchased
and retired (2) (2) - - (2)
Net unrealized gain/
(loss) on marketable
securities - - - 18 18
Net earnings (loss) - - (14) - (14)
------ ------ -------- ---------- --------
Balance at
December 31, 1996 3,095 $8,053 $(4,225) $ (4) $3,824
------ ------ -------- ---------- --------
------ ------ -------- ---------- --------
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Month Period Ended
December 31,
----------------------
1996 1995
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (14) $ (55)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
(Gain) loss on disposal of
discontinued operations 31 105
Depreciation and amortization 87 94
Deferred income tax (benefit) provision (1) 30
(Increase) decrease in accounts
receivable 199 279
(Increase) decrease in inventories 236 (104)
(Increase) decrease in prepaid
expenses and other current assets (36) (3)
(Increase) decrease in other assets - 12
Increase (decrease) in accounts
payable (236) 52
Increase (decrease) in accrued
expenses (8) (102)
Increase (decrease) in accrued
salaries, wages and vacation (16) (15)
Increase in current liabilities of
discontinued operations - 106
------ ------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 242 399
------ ------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment $ (11) $ (6)
(Increase) decrease in investment
securities, net (13) (64)
------ ------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (24) (70)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in minority interest (2) -
Exercise of stock options 29 -
Repurchase of common stock (2) (92)
------ ------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 25 (92)
------ ------
NET CASH PROVIDED (USED) BY
CONTINUING OPERATIONS 243 237
CASH PROVIDED (USED) IN
DISCONTINUED OPERATIONS (31) (105)
------ ------
Increase (decrease) in cash and
cash equivalents 212 132
Cash and cash equivalents at
beginning of period 711 929
------ ------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 923 $1,061
------ ------
------ ------
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the unaudited consolidated 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, 1996. 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 December 31, 1996
and the results of its operations and cash flows for the nine months ended
December 31, 1996 and 1995.
2. Marketable securities classified as current assets at December 31, 1996,
include the following (dollars in thousands):
Fair Value Cost
---------- -----
U.S. Treasury obligations $ 54 $ 52
Corporate debt securities 10 10
Marketable equity securities 290 296
----- -----
$ 354 $ 358
----- -----
----- -----
3. Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at
December 31, 1996 and March 31, 1996 consist of the following:
(In thousands)
Dec. 31, 1996 March 31, 1996
------------- --------------
Raw materials $ 374 $ 462
Work in process 120 148
Finished products 515 635
------ ------
$1,009 $1,245
------ ------
------ ------
4. Property, plant and equipment consist of (dollars in thousands):
Dec. 31, 1996 March 31, 1996
------------- --------------
Machinery and equipment $ 488 $ 479
Furniture and fixtures 151 149
Tooling 711 711
Leasehold improvements 155 155
------- -------
1,505 1,494
Less accumulated
depreciation (1,333) (1,246)
------- -------
$ 172 $ 248
------- -------
------- -------
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5. During the quarter ended June 30, 1996, the Company issued 27,500 shares of
Common Stock under the 1985 Employee Stock Option Plan for consideration of
$29,219.
During the quarter ended June 30, 1996, the Company repurchased an
aggregate of 2,000 shares of the Company's Common Stock on the open market,
for an aggregate value of $2,379.
6. 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 third fiscal quarter ended
December 31, 1996 were $1,387,000 compared to $1,408,000 in the year-earlier
period. Net sales for the nine months ended December 31, 1996 were
$4,297,000 compared to $4,410,000 in the year-earlier period. Although sales
have decreased a modest 3% due to lower selling prices, unit volume has
increased approx. 12% from the year-earlier periods.
As previously discussed, in June of 1996 the Company appointed a new Director
of Sales and Marketing, Mr. Al Pramschufer. Mr. Pramschufer came to
PerfectData with vast experience and an accomplished background, having
served as Vice President of Sales and Marketing at several corporations.
The Company also took an aggressive sales posture, reducing selling prices on
some items as well as focusing on new markets. During the quarter ended
December 31, 1996, The Company expanded its distribution channels by becoming
an approved vendor to the 300+ dealers of the National Purchasing
Association. Subsequent to the quarter's end, the Company was also named an
approved vendor to the 200+ dealers of Office Network, a national office
supply buying and marketing group,
The decline in net earnings from continuing operations from the year-earlier
period is directly related to lower selling prices. During September 1996,
the Company restructured and downsized in an effort to minimize its operating
costs while maintaining a high level of efficiency. The Company continues
its aggressive approach to product purchasing on an ongoing basis.
As previously discussed in the Company's Form 10-K for the fiscal year ended
March 31, 1996, the Company appealed the judgement awarded a former employee
relating to an employment contract. The loss on discontinued operations at
December 31, 1996 is due to legal fees incurred relative to the appeal.
Subsequent to the quarter ended December 31, 1996, the Company received two
unsolicited bids from the Polak Investment Group to acquire a controlling
interest in the Company. The Board of Directors considered and rejected both
bids as being inadequate.
The Board of Directors of PerfectData has made a bid to acquire Novaquest
InfoSystems, a privately held company with annual sales of approximately $200
million. There is no assurance that this transaction will be completed, but
the Company will be working diligently to pursue this or other business
opportunities that will enhance shareholder value.
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LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position. Cash and cash
equivalents increased to $923,000 as of December 31, 1996 from $711,000 as of
March 31, 1996. Current assets were $3,625,000 compared to current
liabilities of $585,000 at December 31, 1996 for a current ratio of 6 to 1.
Working capital at December 31, 1996 was $3,040,000 compared to $2,935,000 at
fiscal year end.
During the quarter ended December 31, 1996, the Company renewed its line of
credit for $1,000,000, which it has not yet used. Management believes that
future working capital requirements will be provided primarily from
operations and that the Company's liquidity and working capital requirements
are adequate for the foreseeable future. Management feels that the Company's
credit worthiness is substantial, relative to its size.
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PART II. OTHER INFORMATION
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: February 11, 1997 Joseph Mazin
----------------- ----------------------------
Joseph Mazin
President,
Chief Executive Officer and
Chairman of the Board
Date: February 11, 1997 Irene J. Marino
----------------- ----------------------------
Irene J. Marino
Corporate Secretary,
V.P. Finance and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 923
<SECURITIES> 354
<RECEIVABLES> 718
<ALLOWANCES> 14
<INVENTORY> 1,009
<CURRENT-ASSETS> 3,625
<PP&E> 1,505
<DEPRECIATION> 1,333
<TOTAL-ASSETS> 4,419
<CURRENT-LIABILITIES> 585
<BONDS> 0
0
0
<COMMON> 8,053
<OTHER-SE> (4,229)
<TOTAL-LIABILITY-AND-EQUITY> 4,419
<SALES> 4,297
<TOTAL-REVENUES> 4,297
<CGS> 2,868
<TOTAL-COSTS> 2,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17
<INCOME-TAX> 0
<INCOME-CONTINUING> 17
<DISCONTINUED> (31)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
