<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 September 30, 1998 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 October 31, 1998, there were 3,155,506 shares of common stock
outstanding.
<PAGE>
PERFECTDATA CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Balance Sheets - September 30, 1998 and
March 31, 1998 2
Statements of Earnings - quarters
ended September 30, 1998 and 1997
and six months ended September 30, 1998
and 1997 3
Statements of Shareholders' Equity -
six months ended September 30, 1998 4
Statements of Cash Flows - six months
ended September 30, 1998 and 1997 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 6. Exhibits and Reports on Form 8-K 9
</TABLE>
- 1 -
<PAGE>
PERFECTDATA CORPORATION
BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except number of shares)
<TABLE>
<CAPTION>
Sept. 30, March 31
1998 1998
----------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents, including
short-term certificates of deposit of
$218 at September and $365 at March $ 981 $ 1,328
Accounts receivable, less allowance
for doubtful receivables of
$5 at September and $12 at March 229 289
Inventories 612 571
Prepaid expenses and other current assets 223 87
Marketable securities, short-term 416 448
Deferred income tax benefit 83 58
----------- ----------
Total current assets 2,544 2,781
Property, plant and equipment, net 100 118
Deferred Income Tax benefit 80 123
Other assets, net 31 31
----------- ----------
$ 2,755 $ 3,053
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 130 $ 111
Accrued expenses 88 94
Accrued salaries, wages and vacation 43 54
----------- ----------
Total current liabilities 261 259
----------- ----------
Shareholders' equity:
Preferred stock. Authorized 2,000,000
shares; none issued - -
Common stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 3,155,506 shares at
September and 3,163,606 shares at March 8,111 8,117
Accumulated deficit (5,518) (5,345)
Allowance for gain (loss) on
marketable securities (99) 22
----------- ----------
Net shareholders' equity 2,494 2,794
----------- ----------
$ 2,755 $ 3,053
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to financial statements.
- 2 -
<PAGE>
PerfectData Corporation
STATEMENTS OF EARNINGS
(Unaudited)
- ------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 423 $ 740 $ 875 $ 2,192
Costs and Expenses:
Cost of sales 248 470 534 1,440
Selling, general and
administrative 278 351 568 851
------- ------- ------ ------
Total costs and expenses 526 821 1,102 2,291
Income (loss) from operations (103) (81) (227) (99)
------- ------- ------ ------
Other income and (expense):
Interest income, net 7 8 14 16
Other, net 18 18 59 38
------- ------- ------ ------
Total other income and (expense) 25 26 73 54
------- ------- ------ ------
Income (loss) from continuing
operations before income taxes (78) (55) (154) (45)
Income tax (provision) benefit (23) (49) (19) (48)
------- ------- ------ ------
Income (loss) from continuing
operations (101) (104) (173) (93)
Gain (loss) on disposal of
discontinued operations - (53) - (63)
------- ------- ------ ------
Net income (loss) $ (101) $ (157) $ (173) $ (156)
------- ------- ------ ------
------- ------- ------ ------
Net income (loss) per common share:
Income (loss) from continuing
operations $ (.03) $ (.03) $ (.05) $ (.03)
Gain (loss) on disposal of
discontinued operations - (.02) - (.02)
------- ------- ------ ------
$ (.03) $ (.05) $ (.05) $ (.05)
------- ------- ------ ------
------- ------- ------ ------
Weighted average shares outstanding 3,161 3,094 3,162 3,094
</TABLE>
See accompanying notes to financial statements.
- 3 -
<PAGE>
PerfectData Corporation
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
- ----------------------------------------------------------------------------
(In thousands)
Period from March 31, 1998 through September 30, 1998
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION> 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, 1998 3,164 $8,117 $(5,345) $ 22 $2,794
Stock repurchased
and retired (8) (6) - - (6)
Net unrealized
gain/(loss) on
marketable securities - - - (121) (121)
Net earnings (loss) - - (173) - (173)
- --------------------------------------------------------------------------------
Balance at
September 30, 1998 3,156 $8,111 $(5,518) $ (99) $2,494
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
- 4 -
<PAGE>
PERFECTDATA CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Month Period Ended
September 30,
----------------------
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (173) $ (156)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
(Gain) loss on disposal of
discontinued operations - 63
Depreciation and amortization 20 19
Deferred income tax (benefit) provision 18 (26)
Decrease in litigation deposit - 230
(Increase) decrease in accounts
receivable 60 352
(Increase) decrease in inventories (41) 337
(Increase) decrease in prepaid
expenses and other current assets (136) 4
(Increase) decrease in other assets - -
Increase (decrease) in accounts
payable 19 (288)
Increase (decrease) in accrued
expenses (6) (36)
Increase (decrease) in accrued
salaries, wages and vacation (11) (9)
------- -------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (250) 490
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment $ (2) $ (2)
(Increase) decrease in investment
securities, net (89) (75)
------- -------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (91) (77)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options - -
Repurchase of common stock (6) -
------- -------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (6) -
------- -------
NET CASH PROVIDED (USED) BY
CONTINUING OPERATIONS (347) 413
CASH PROVIDED (USED) IN
DISCONTINUED OPERATIONS - (172)
------- -------
Increase (decrease) in cash and
cash equivalents (347) 241
Cash and cash equivalents at
beginning of period 1,328 891
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 981 $1,132
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements.
- 5 -
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Company and its representatives may from time to time make written
or oral forward-looking statements, including statements contained in
the Company's filings with the Securities and Exchange Commission and in
its reports to stockholders. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the
Company is hereby identifying information that is forward-looking,
including, without limitation, statements regarding the Company's future
financial performance, the effect of government regulations, national
and local economic conditions, the competitive environment in which the
Company operates, results or success of discussions with other entities
on mergers, acquisitions, or alliance possibilities and expansion of
product offering. Actual results may differ materially from those
described in the forward-looking statement. The Company cautions that
the foregoing list of important factors is not exclusive. The Company
does not undertake to update any forward-looking statement that may be
made from time to time by or on behalf of the Company either oral or
written.
2. 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, 1998. 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
September 30, 1998 and the results of its operations and cash flows for
the six months ended September 30, 1998 and 1997.
3. Marketable securities classified as current assets at September 30, 1998,
include the following (dollars in thousands):
<TABLE>
<CAPTION>
Fair Value Cost
---------- -----
<S> <C> <C>
U.S. Treasury Obligations $ 60 $ 60
Other Government Obligations 26 26
Marketable equity securities 330 429
---------- -----
$ 416 $ 515
---------- -----
---------- -----
</TABLE>
4. Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at September 30, 1998 and
March 31, 1998 consist of the following:
<TABLE>
<CAPTION>
(In thousands)
September 30, 1998 March 31, 1998
------------------ ---------------
<S> <C> <C>
Raw materials $ 255 $ 238
Work in process 73 68
Finished products 284 265
------ ------
$ 612 $ 571
------ ------
------ ------
</TABLE>
- 6 -
<PAGE>
5. Property, plant and equipment consist of (dollars in thousands):
<TABLE>
<CAPTION>
Sept. 30, 1998 March 31, 1998
-------------- --------------
<S> <C> <C>
Machinery and equipment $ 462 $ 467
Furniture and fixtures 149 149
Tooling 387 444
Leasehold improvements 155 155
------- -------
1,153 1,215
Less accumulated
depreciation (1,053) (1,097)
------- -------
$ 100 $ 118
------- -------
------- -------
</TABLE>
6. The components of the income tax (benefit) provision were (dollars in
thousands):
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
Current:
Federal $ -
State 1
-----
1
Deferred:
Net (increase) decrease in
deferred tax asset 18
(Increase) decrease in benefit of
NOL carryforwards (113)
Increase (decrease) in valuation allowance 113
-----
$ 19
-----
-----
</TABLE>
At September 30, 1998, the Company had net operating loss (NOL)
carryforwards of approximately $3,211,000 for federal income tax
purposes expiring in varying amounts through 2012. The NOL
carryforwards, which are available to offset future profits of the
Company and are subject to limitations should a "change in ownership" as
defined in the Internal Revenue Code occur, will begin to expire in 2001
if not utilized. Additionally, the Company has general business tax
credit carryforwards of $174,109 which will begin to expire in 1998.
SFAS 109 requires that the tax benefit of such NOLs be recorded using
current tax rates as an asset to the extent management assesses the
utilization of such NOLs to be more likely than not. Management has
determined that future taxable income of the Company will likely not be
sufficient to realize the recorded deferred tax asset of $1,168,000. As
such, the Company has recorded a valuation allowance of $1,168,000.
Realization of the future tax benefits of the NOL carryforwards is
dependent on a Company's ability to generate taxable income within the
carryforward period. In assessing the likelihood of utilization of
existing NOL carryforwards, management considered the historical results
of continuing operations, the current economic environment in which the
Company operates, and the
- 7 -
<PAGE>
projections. Management did not consider any non-routine transactions
in assessing the likelihood of realization of the recorded deferred tax
asset.
7. During the quarter ended September 30, 1998, the Company repurchased an
aggregate of 8,100 shares of the Company's Common Stock on the open
market for an aggregate value of $6,275.
8. 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.
- 8 -
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales from continuing operations for the second fiscal quarter ended
September 30, 1998 were $423,000 compared to $740,000 in the year-earlier
period. Net sales for the six months ended September 30, 1998 were $875,000
compared to $2,192,000 in the year-earlier period. The dramatic decline in
sales is primarily due to the loss of the Company's major customer,
PriceCostco. The last sales made to this customer were shipped in the
year-earlier period.
The loss from continuing operations for the three and six months ended
September 30, 1998 is directly related to the loss of this major customer.
Subsequent to the loss of this customer, there were severe cost cutting
measures taken to reduce costs and expenses. There has been a reduction in
staff as well as a very tight control of all expenditures. Management
continues further to negotiate with its suppliers to obtain the best possible
pricing and reduce its cost of materials. During the quarter ended September
30, 1998, the Company reorganized its sales and marketing departments and
appointed a new director to seek ways to further broaden its product lines
and expand distribution. Management has been involved in discussions with
other entities involving joint ventures, alliances and merger possibilities.
LIQUIDITY AND CAPITAL RESOURCES
The cash position at September 30, 1998 is $981,000 including certificates of
deposit of $218,000. Working capital at September 30, 1998 is $2,283,000.
The Company has a current ratio of better than 9 to 1 at the end of the
second quarter.
Management believes that the Company's liquidity and working capital
requirements are adequate for the foreseeable future.
The Company has completed its review of its computer systems and determined
that those systems will be compatible with the Company's year 2000 needs. No
significant year 2000 issues are anticipated by the Company based on our
complete systems review.
- 9 -
<PAGE>
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.
- 10 -
<PAGE>
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: November 10, 1998 Joseph Mazin
---------------------- ------------------------------------
Joseph Mazin
President,
Chief Executive Officer and
Chairman of the Board
Date: November 10, 1998 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 981
<SECURITIES> 416
<RECEIVABLES> 234
<ALLOWANCES> 5
<INVENTORY> 612
<CURRENT-ASSETS> 2,544
<PP&E> 1,153
<DEPRECIATION> (1,053)
<TOTAL-ASSETS> 2,755
<CURRENT-LIABILITIES> 261
<BONDS> 0
0
0
<COMMON> 8,111
<OTHER-SE> (5,617)
<TOTAL-LIABILITY-AND-EQUITY> 2,755
<SALES> 875
<TOTAL-REVENUES> 875
<CGS> 534
<TOTAL-COSTS> 534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (154)
<INCOME-TAX> 19
<INCOME-CONTINUING> (173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (173)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
