<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, 1999 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, 1999, there were 3,249,806 shares of common stock outstanding.
<PAGE>
PERFECTDATA CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Balance Sheets - September 30, 1999 and
March 31, 1999 2
Statements of Earnings and Comprehensive Income
- quarters ended September 30, 1999 and 1998
and six months ended September 30, 1999
and 1998 3
Statements of Shareholders' Equity -
six months ended September 30, 1999 4
Statements of Cash Flows - six months
ended September 30, 1999 and 1998 5
Notes to Financial Statements 6 - 8
Management's discussion and analysis of
financial condition and results of
operations 9 - 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
-1-
<PAGE>
PERFECTDATA CORPORATION
BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except number of shares)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------ ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents, including
short-term certificates of deposit of
$255 at September and at March $ 1,045 $ 1,074
Accounts receivable, less allowance
for doubtful receivables of
$73 at September and $9 at March 258 186
Inventories 496 639
Prepaid expenses and other current assets 41 57
Marketable securities, short-term 452 327
Deferred income tax benefit 113 113
------- -------
Total current assets 2,405 2,396
Property, plant and equipment, net 71 86
Deferred Income Tax benefit 71 73
Other assets, net 31 31
------- -------
$ 2,578 $ 2,586
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 97 $ 149
Accrued expenses 100 85
Accrued salaries, wages and vacation 39 47
------- -------
Total current liabilities 236 281
------- -------
Deferred Income Tax liability 34 -
------- -------
Total Liabilities 270 281
Shareholders' equity:
Preferred stock. Authorized 2,000,000
shares; none issued - -
Common stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 3,249,806 shares at
Sept. and 3,154,806 shares at March 8,181 8,110
Accumulated deficit (5,953) (5,747)
Allowance for gain (loss) on
marketable securities 80 (58)
------- -------
Net shareholders' equity 2,308 2,305
------- -------
$ 2,578 $ 2,586
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
PerfectData Corporation
STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 472 $ 423 $ 996 $ 875
Costs and Expenses:
Cost of sales 318 248 648 534
Selling, general and administrative 327 278 615 568
-------------------------------------------------------------------
Total costs and expenses 645 526 1,263 1,102
Income (loss) from operations (173) (103) (267) (227)
-------------------------------------------------------------------
Other income and (expense):
Interest income, net 6 7 11 14
Other, net 48 18 87 59
-------------------------------------------------------------------
Total other income and (expense) 54 25 98 73
-------------------------------------------------------------------
Income (loss) before income taxes (119) (78) (169) (154)
Income tax (provision) benefit (16) (23) (37) (19)
-------------------------------------------------------------------
Net income (loss) (135) (101) (206) (173)
Other Comprehensive Income,
Net of Income Tax
Unrealized holdings gain (loss) (96) (41) 81 (71)
-------------------------------------------------------------------
Comprehensive income (loss) $ (231) $ (142) $ (125) $ (244)
===================================================================
Net income (loss) per common share $ (.04) $ (.03) $ (.06) $ (.05)
===================================================================
Weighted average shares outstanding 3,224 3,161 3,200 3,162
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
PerfectData Corporation
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(In thousands)
Period from March 31, 1999 through September 30, 1999
- ----------------------------------------------------------------------------------------------------------------
Common Stock Allowance Net
---------------------- Accumulated for gain/(loss) shareholders
Shares Amount deficit on mkt. sec. equity
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
March 31, 1999 3,155 $ 8,110 $(5,747) $ (58) $ 2,305
Stock Issued for Services 75 52 - - 52
Stock Issued upon exercise
of Stock Options 20 19 - - 19
Net unrealized gain/
(loss) on marketable
securities - - - 138 138
Net earnings (loss) - - (206) - (206)
- ----------------------------------------------------------------------------------------------------------------
Balance at
September 30, 1999 3,250 $ 8,181 $(5,953) $ 80 $ 2,308
================================================================================================================
</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,
------------------------
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (206) $ (173)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 15 20
Stock Issued for Services 52 -
Deferred income tax (benefit) provision 36 18
(Increase) decrease in accounts
receivable (72) 60
(Increase) decrease in inventories 143 (41)
(Increase) decrease in prepaid
expenses and other current assets 16 (136)
(Increase) decrease in other assets - -
Increase (decrease) in accounts
payable (52) 19
Increase (decrease) in accrued
expenses 15 (6)
Increase (decrease) in accrued
salaries, wages and vacation (8) (11)
------- -------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (61) (250)
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment $ - $ (2)
(Increase) decrease in investment
securities, net 13 (89)
------- -------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 13 (91)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 19 -
Repurchase of common stock - (6)
------- -------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 19 (6)
------- -------
Increase (decrease) in cash and
cash equivalents (29) (347)
Cash and cash equivalents at
beginning of period 1,074 1,328
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,045 $ 981
======= =======
</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, 1999. 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, 1999 and the results of its operations
and cash flows for the six months ended September 30, 1999 and 1998.
3. Marketable securities classified as current assets at September 30, 1999,
include the following (dollars in thousands):
<TABLE>
<CAPTION>
FAIR VALUE COST
---------- ----
<S> <C> <C>
Other Government Obligations $ 26 $ 26
Marketable equity securities 426 346
---- ----
$452 $372
==== ====
</TABLE>
4. Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at September 30, 1999 and March 31,
1999 consist of the following:
<TABLE>
<CAPTION>
(In thousands)
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------ --------------
<S> <C> <C>
Raw materials $189 $243
Work in process 49 63
Finished products 258 333
---- ----
$496 $639
==== ====
</TABLE>
-6-
<PAGE>
5. Property, plant and equipment consist of (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 MARCH 31, 1999
------------------ --------------
<S> <C> <C>
Machinery and equipment $ 452 $ 452
Furniture and fixtures 99 124
Tooling 387 387
Leasehold improvements 155 155
------- -------
1,093 1,118
Less accumulated
depreciation (1,022) (1,032)
------- -------
$ 71 $ 86
======= =======
</TABLE>
6. The components of the income tax (benefit) provision were (dollars in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
<S> <C>
Current:
Federal $ -
State 1
----
1
Deferred:
Net (increase) decrease in
deferred tax asset 2
Increase (decrease) in deferred tax liability 34
(Increase) decrease in benefit of
NOL carryforwards (72)
Increase (decrease) in valuation allowance 72
----
$ 37
----
----
</TABLE>
At September 30, 1999, the Company had net operating loss (NOL) carryforwards of
approximately $3,601,000 for federal income tax purposes expiring in varying
amounts through 2019. 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 1999.
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 $1,307,000. As such, the Company has recorded a valuation
allowance of $1,307,000.
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>
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. During the six months ended September 30, 1999, the company issued an
aggregate of 75,000 shares of the Company's Common Stock as a form of
compensation to retain the Hudson Consulting Group, Inc. to assist the
Company in acquisitions and mergers and assist with creating a market for
the securities of the Company.
8. During the quarter ended September 30, 1999, the Company issued 20,000
shares of Common Stock to Mr. Mazin under the 1985 Employee Stock Option
Plan for consideration of $18,750.00.
9. 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 for the second fiscal quarter ended September 30, 1999 increased
approximately 12% to $472,000 from $423,000 in the year-earlier period. Net
sales for the six months ended September 30, 1999 increased approximately 14% to
$996,000 from $875,000 in the year-earlier period. Since the loss of the
Company's major customer in fiscal 1997, the Company has been pursuing new
customers as well as increasing business with its existing customers.
Cost of sales as a percentage of net sales has increased during the second
fiscal quarter ended September 30, 1999. The increase primarily relates to an
increase in the material cost of the gases used in the Company's principal
selling product line of compressed gas dusters.
During April 1999, the Company signed an agreement with the Hudson Consulting
Group, Inc. to assist the Company in acquisitions and mergers and assist with
creating a market for the securities of the Company. The Company agreed to issue
shares of its Common Stock to the Hudson Consulting Group as a retainer. During
the first quarter ended June 30, 1999 the Company issued 37,500 shares. During
the quarter ended September 30, 1999 the Company issued an additional 37,500
shares. Included in Selling, General and Administrative for the six months ended
September 30, 1999 is $52,732 consulting expense which represents the value of
an aggregate of 75,000 shares issued.
In August 1999, one of the Company's customers filed a Chapter 11 Bankruptcy
Petition. This customer accounted for less than 10% of the Company's net sales.
Included in Selling, General and Administrative Expenses for the quarter ended
September 30, 1999, is a $60,000 allowance for doubtful receivables.
The Company continues to tightly control expenditures. During the first quarter
ended June 30, 1999 it successfully found a sub-tenant to occupy a portion of
its facility, thereby helping to reduce the Company's overhead costs.
PerfectData's management continues its discussions with potential merger and
joint venture entities and continues to seek strategic growth opportunities.
LIQUIDITY AND CAPITAL RESOURCES
The cash position at September 30, 1999 is $1,045,000 including certificates of
deposit of $255,000. The Company has a current ratio of 10 to 1 and no
outstanding bank debt.
Management believes that the Company's liquidity and working capital
requirements are adequate to fund the Company's Operations and Capital
requirements for the 2000 fiscal year.
-9-
<PAGE>
YEAR 2000 UPDATE
In 1998, the Company established and began to implement a program to address the
Year 2000 issue. The Year 2000 program included the implementation of previously
planned systems as well as specific Year 2000 programs. All programs are on
track for completion before the year 2000 with various applications being
upgraded or replaced as needed. The Company does not expect the Year 2000
program to have a material impact on its results of operations, liquidity, or
financial condition. Additionally, the Year 2000 program has not deferred any
other company projects that will have a material impact on its results of
operations, liquidity, or financial condition.
IT SYSTEMS
In 1998, with the development of the Year 2000 program the Company began
undertaking changes to bring compliant systems and accompanying methodology on
board.
The IT systems have been inventoried and the necessary Year 2000 upgrades,
replacements and retrofits identified. These projects are presently in various
stages of analysis, development and implementation. The Year 2000 program is
currently scheduled to be completed by the fourth quarter of 1999.
NON-IT SYSTEMS
Non-IT Systems may contain date sensitive embedded technology requiring the Year
2000 upgrades. Examples of this technology include security equipment such as
access and alarm systems, as well as facilities equipment such as heating and
air conditioning units.
The Company is a product manufacturer; therefore the "embedded chip" issue
relates to production line components as well as to the equipment used by the
Company. Production line components and facilities and equipment are being
inventoried and assessments are in progress.
COSTS
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's results of operations,
liquidity and financial condition. The estimated total cost of the Year 2000
effort is expected to be under $20,000. This estimate does not include the cost
of the Company's previously planned business systems upgrades, which have not
been accelerated due to the Year 2000 problem.
RISKS AND CONTINGENCY PLANNING
The Company has identified and assessed the areas that may result in an
interruption in, or failure of, certain normal business operations or
activities. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company is
unable to
-10-
<PAGE>
determine at this time whether the consequences of the Year 2000 failures will
have a material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 program is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem. The Company
believes that through its Year 2000 program, the possibility of significant
interruptions of normal business operations should be reduced.
Readers are cautioned that forward looking statements contained in the Year 2000
Update should be read in conjunction with the Company's disclosures under the
heading "Forward Looking Statements".
-11-
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of shareholders was held on September 23, 1999.
Tracie Savage, Ronald M. Chodorow and Joseph Mazin were
elected at the meeting to serve as directors until the next
annual meeting of shareholders and until their successors are
elected and qualify.
The selection of Beckman, Kirkland & Whitney as independent
accountants for the Company was ratified with 2,813,636
affirmative votes, 10,750 negative votes, and 30,800 votes
abstaining.
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.
-12-
<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 8, 1999 Joseph Mazin
---------------- -----------------------------
Joseph Mazin
President,
Chief Executive Officer and
Chairman of the Board
Date: NOVEMBER 8, 1999 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-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,045
<SECURITIES> 452
<RECEIVABLES> 331
<ALLOWANCES> (73)
<INVENTORY> 496
<CURRENT-ASSETS> 2,405
<PP&E> 1,093
<DEPRECIATION> (1,022)
<TOTAL-ASSETS> 2,578
<CURRENT-LIABILITIES> 236
<BONDS> 0
0
0
<COMMON> 8,181
<OTHER-SE> (5,873)
<TOTAL-LIABILITY-AND-EQUITY> 2,578
<SALES> 996
<TOTAL-REVENUES> 996
<CGS> 648
<TOTAL-COSTS> 648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (169)
<INCOME-TAX> (37)
<INCOME-CONTINUING> (206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (206)
<EPS-BASIC> (.06)
<EPS-DILUTED> 0
</TABLE>
