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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, 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
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As of July 31, 1998, there were 3,163,606 shares of common stock outstanding.
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PERFECTDATA CORPORATION
INDEX
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<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
Balance Sheets - June 30, 1998 and
March 31, 1998 2
Statements of Earnings - quarters
ended June 30, 1998 and 1997 3
Statements of Shareholders' Equity -
three months ended June 30, 1998 4
Statements of Cash Flows - three months
ended June 30, 1998 and 1997 5
Notes to Financial Statements 6 - 8
Management's discussion and analysis of
financial condition and results of
operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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PERFECTDATA CORPORATION
BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except number of shares)
<TABLE>
<CAPTION>
June 30, March 31
1998 1998
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents, including
short-term certificates of deposit of
$367 at June and $365 at March $ 1,165 $ 1,328
Accounts receivable, less allowance
for doubtful receivables of
$4 at June and $12 at March 267 289
Inventories 568 571
Prepaid expenses and other current assets 41 87
Marketable securities, short-term 527 448
Deferred income tax benefit 102 58
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Total current assets 2,670 2,781
Property, plant and equipment, net 109 118
Deferred Income Tax benefit 83 123
Other assets, net 31 31
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$ 2,893 $ 3,053
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 79 $ 111
Accrued expenses 93 94
Accrued salaries, wages and vacation 50 54
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Total current liabilities 222 259
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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 3,163,606 shares at
June and at March 8,117 8,117
Accumulated deficit (5,417) (5,345)
Allowance for gain (loss) on
marketable securities (29) 22
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Net shareholders' equity 2,671 2,794
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$ 2,893 $ 3,053
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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,
1998 1997
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<S> <C> <C>
Net sales $ 452 $ 1,452
Costs and Expenses:
Cost of sales 286 970
Selling, general and administrative 290 500
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Total costs and expenses 576 1,470
Income (loss) from operations (124) (18)
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Other income and (expense):
Interest income, net 7 8
Other, net 41 20
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Total other income and (expense) 48 28
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Income (loss) from continuing operations before
income taxes (76) 10
Income tax (provision) benefit 4 1
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Income (loss) from continuing operations (72) 11
Gain (loss) on disposal of
discontinued operations - (10)
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Net income (loss) $ (72) $ 1
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Net income (loss) per common share:
Income from continuing operations $ (.02) $ -
Gain (loss) on disposal of
discontinued operations - -
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$ (.02) $ -
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Weighted average shares outstanding 3,164 3,094
</TABLE>
See accompanying notes to financial statements.
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PerfectData Corporation
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
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(In thousands)
Period from March 31, 1998 through June 30, 1998
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Allowance Net
Common Stock for gain/ share-
-------------- Accumulated (loss) on holders'
Shares Amount deficit mkt. sec. equity
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<S> <C> <C> <C> <C> <C>
Balance at
March 31, 1998 3,164 $8,117 $(5,345) $ 22 $2,794
Net unrealized gain/
(loss) on marketable
securities - - - (51) (51)
Net earnings (loss) - - (72) - (72)
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Balance at
June 30, 1998 3,164 $8,117 $(5,417) $ (29) $2,671
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See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Month Period Ended
June 30,
------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (72) $ 1
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
(Gain) loss on disposal of
discontinued operations - 10
Depreciation and amortization 9 9
Deferred income tax (benefit) provision (4) (1)
Decrease in litigation deposit - 230
(Increase) decrease in accounts
receivable 22 (52)
(Increase) decrease in inventories 3 188
(Increase) decrease in prepaid
expenses and other current assets 46 16
(Increase) decrease in other assets - -
Increase (decrease) in accounts
payable (32) (145)
Increase (decrease) in accrued
expenses (1) (45)
Increase (decrease) in accrued
salaries, wages and vacation (4) (4)
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NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (33) 207
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment $ - $ (2)
(Increase) decrease in investment
securities, net (130) (95)
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NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (130) (97)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options - -
Repurchase of common stock - -
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NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES - -
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NET CASH PROVIDED (USED) BY
CONTINUING OPERATIONS (163) 110
CASH PROVIDED (USED) IN
DISCONTINUED OPERATIONS - (241)
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Increase (decrease) in cash and
cash equivalents (163) (131)
Cash and cash equivalents at
beginning of period 1,328 891
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,165 $ 760
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</TABLE>
See accompanying notes to financial statements.
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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 June
30, 1998 and the results of its operations and cash flows for the three
months ended June 30, 1998 and 1997.
3. Marketable securities classified as current assets at June 30, 1998,
include the following (dollars in thousands):
<TABLE>
<CAPTION>
Fair Value Cost
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<S> <C> <C>
U.S. Treasury Obligations $ 59 $ 59
Other Government Obligations 27 27
Marketable equity securities 441 470
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$ 527 $ 556
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4. Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at June 30, 1998 and March 31,
1998 consist of the following:
<TABLE>
<CAPTION>
(In thousands)
June 30, 1998 March 31, 1998
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<S> <C> <C>
Raw materials $ 237 $ 238
Work in process 67 68
Finished products 264 265
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$ 568 $ 571
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5. Property, plant and equipment consist of (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998
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<S> <C> <C>
Machinery and equipment $ 467 $ 467
Furniture and fixtures 149 149
Tooling 444 444
Leasehold improvements 155 155
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1,215 1,215
Less accumulated
depreciation (1,106) (1,097)
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$ 109 $ 118
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6. The components of the income tax (benefit) provision were (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 1998
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<S> <C>
Current:
Federal $ -
State 1
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1
Deferred:
Net (increase) decrease in
deferred tax asset (5)
(Increase) decrease in benefit of
NOL carryforwards (53)
Increase (decrease) in valuation allowance 53
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$ (4)
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At June 30, 1998, the Company had net operating loss (NOL) carryforwards
of approximately $3,072,000 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 more likely
than not be sufficient to realize the recorded deferred tax asset of
$1,108,000 net of a valuation allowance of $1,108,000.
Realization of the future tax benefits of the NOL carryforwards is
dependent on a Company's ability to generate taxable income within
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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 projected results of the Company's
cost-cutting measures as well as sales projections. Management did not
consider any non-routine transactions in assessing the likelihood of
realization of the recorded deferred tax asset.
7. 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, 1998 were $452,000 compared to $1,452,000 in the year-earlier period.
During the year-earlier period the Company lost its bid for the continuing
business of PriceCostco. The Company realized the loss of this business
during the second fiscal quarter ended September 30, 1997, and as a result
sales declined dramatically. During the year-earlier quarter ended June 30,
1997, sales to PriceCostco represented 44% of the Company's total sales.
The loss from continuing operations for the first fiscal quarter ended June
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.
The Company plans to re-bid for the PriceCostco business and seeks to further
broaden 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 June 30, 1998 is $1,165,000 including certificates of
deposit of $367,000. Working capital at June 30, 1998 is $2,448,000. The
Company has a current ratio of better than 12 to 1 at the end of the first
quarter.
Management believes that the Company's liquidity and working capital
requirements are adequate for the foreseeable future.
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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: August 10, 1998 Joseph Mazin
-----------------------------------
Joseph Mazin
President,
Chief Executive Officer and
Chairman of the Board
Date: August 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,165
<SECURITIES> 527
<RECEIVABLES> 271
<ALLOWANCES> 4
<INVENTORY> 568
<CURRENT-ASSETS> 2,670
<PP&E> 1,215
<DEPRECIATION> (1,106)
<TOTAL-ASSETS> 2,893
<CURRENT-LIABILITIES> 222
<BONDS> 0
0
0
<COMMON> 8,117
<OTHER-SE> (5,446)
<TOTAL-LIABILITY-AND-EQUITY> 2,893
<SALES> 452
<TOTAL-REVENUES> 452
<CGS> 286
<TOTAL-COSTS> 286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (76)
<INCOME-TAX> (4)
<INCOME-CONTINUING> (72)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
