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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, 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 July 31, 1999, there were 3,212,306 shares of common stock outstanding.
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PERFECTDATA CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Balance Sheets - June 30, 1999 and
March 31, 1999 2
Statements of Earnings - quarters
ended June 30, 1999 and 1998 3
Statements of Shareholders' Equity -
three months ended June 30, 1999 4
Statements of Cash Flows - three months
ended June 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 6. Exhibits and Reports on Form 8-K 12
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PERFECTDATA CORPORATION
BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except number of shares)
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents, including
short-term certificates of deposit of
$255 at June and at March $ 1,094 $ 1,074
Accounts receivable, less allowance
for doubtful receivables of
$12 at June and $9 at March 317 186
Inventories 623 639
Prepaid expenses and other current assets 41 57
Marketable securities, short-term 607 327
Deferred income tax benefit 94 113
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Total current assets 2,776 2,396
Property, plant and equipment, net 78 86
Deferred Income Tax benefit 72 73
Other assets, net 31 31
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$ 2,957 $ 2,586
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 246 $ 149
Accrued expenses 105 85
Accrued salaries, wages and vacation 46 47
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Total current liabilities 397 281
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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 3,192,306 shares at
June and 3,154,806 shares at March 8,136 8,110
Accumulated deficit (5,818) (5,747)
Allowance for gain (loss) on
marketable securities 242 (58)
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Net shareholders' equity 2,560 2,305
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$ 2,957 $ 2,586
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</TABLE>
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
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Three Months Ended
June 30,
1999 1998
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<S> <C> <C>
Net Sales $ 524 $ 452
Costs and Expenses:
Cost of sales 330 286
Selling, general and administrative 288 290
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Total costs and expenses 618 576
Income (loss) from operations (94) (124)
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Other income and (expense):
Interest income, net 5 7
Other, net 39 41
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Total other income and (expense) 44 48
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Income (loss) before income taxes (50) (76)
Income tax (provision) benefit (21) 4
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Net income (loss) (71) (72)
Other Comprehensive Income,
Net of Income Tax
Unrealized holdings gain (loss) 177 (30)
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Comprehensive income (loss) $ 106 $ (102)
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Net income (loss) per common share $(0.02) $(0.02)
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Weighted average shares outstanding 3,175 3,164
</TABLE>
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, 1999 through June 30, 1999
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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 37 26 - - 26
Net unrealized gain/
(loss) on marketable
securities - - - 300 300
Net earnings (loss) - - (71) - (71)
- ------------------------------------------------------------------------------------------------
Balance at
June 30, 1999 3,192 $8,136 $(5,818) $242 $2,560
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- ------------------------------------------------------------------------------------------------
</TABLE>
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,
-------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (71) $ (72)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 7 9
Stock Issued for Services 26 -
Deferred income tax (benefit) provision 21 (4)
(Increase) decrease in accounts
receivable (131) 22
(Increase) decrease in inventories 16 3
(Increase) decrease in prepaid
expenses and other current assets 16 46
(Increase) decrease in other assets - -
Increase (decrease) in accounts
payable 97 (32)
Increase (decrease) in accrued
expenses 20 (1)
Increase (decrease) in accrued
salaries, wages and vacation (1) (4)
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NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES - (33)
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment $ - $ -
(Increase) decrease in investment
securities, net 20 (130)
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NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 20 (130)
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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 - -
------ ------
Increase (decrease) in cash and
cash equivalents 20 (163)
Cash and cash equivalents at
beginning of period 1,074 1,328
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,094 $1,165
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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, 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 June 30, 1999 and the results
of its operations and cash flows for the three months ended June 30, 1999 and
1998.
3. Marketable securities classified as current assets at June 30, 1999,
include the following (dollars in thousands):
<TABLE>
<CAPTION>
Fair Value Cost
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<S> <C> <C>
Other Government Obligations $ 26 $ 26
Marketable equity securities 581 339
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$607 $365
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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, 1999 and March 31, 1999
consist of the following:
<TABLE>
<CAPTION>
(In thousands)
June 30, 1999 March 31, 1999
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<S> <C> <C>
Raw materials $237 $243
Work in process 62 63
Finished products 324 333
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$623 $639
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5. Property, plant and equipment consist of (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
Machinery and equipment $ 452 $ 452
Furniture and fixtures 124 124
Tooling 387 387
Leasehold improvements 155 155
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1,118 1,118
Less accumulated
depreciation (1,040) (1,032)
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$ 78 $ 86
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</TABLE>
6. The components of the income tax (benefit) provision were (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 1999
-------------
<S> <C>
Current:
Federal $ -
State 1
----
1
Deferred:
Net (increase) decrease in
deferred tax asset 20
(Increase) decrease in benefit of
NOL carryforwards (18)
Increase (decrease) in valuation allowance 18
----
$ 21
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</TABLE>
At June 30, 1999, the Company had net operating loss (NOL) carryforwards of
approximately $3,474,000 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 $1,253,000. As such, the Company has recorded
a valuation allowance of $1,253,000.
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
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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 quarter ended June 30, 1999, the Company issued 37,500 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. 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 for the first fiscal quarter ended June 30, 1999 increased
approximately 16% to $524,000 from $452,000 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. During the current quarter the Company has continued to cut its
overhead costs by tightly controlling expenditures and successfully finding a
sub-tenant to occupy a portion of its facility, thereby helping to reduce the
Company's overhead costs.
The loss from operations for the first fiscal quarter ended June 30, 1999 was
$94,000 compared to a loss of $124,000 in the year-earlier period. The loss
before income taxes was $50,000 compared to a loss of $76,000 in the
year-earlier period. The net loss was $71,000 or $.02 per share compared to a
net loss of $72,000 or $.02 per share in the year-earlier period.
During the quarter ended June 30, 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.
For the quarter, the Company issued shares of its Common Stock to the Hudson
Consulting Group as a retainer. Included in Selling, General and
Administrative Expenses is $26,366 consulting expense which represents the
value of the 37,500 shares issued.
Also during the quarter ended June 30, 1999, the Company received shares of
stock in Staruni Corporation as consideration for the Company providing
consulting services to Staruni regarding mergers and acquisitions. Included
in Other Income is $13,000, which represents the value of the shares received.
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 June 30, 1999 is $1,094,000 including certificates of
deposit of $255,000. Working capital at June 30, 1999 is $2,379,000 compared
to $2,115,000 at March 31, 1999.
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.
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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
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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".
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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, 1999 Joseph Mazin
--------------- ---------------------------
Joseph Mazin
President,
Chief Executive Officer and
Chairman of the Board
Date: August 10, 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,094
<SECURITIES> 607
<RECEIVABLES> 329
<ALLOWANCES> (12)
<INVENTORY> 623
<CURRENT-ASSETS> 2,776
<PP&E> 1,118
<DEPRECIATION> (1,040)
<TOTAL-ASSETS> 2,957
<CURRENT-LIABILITIES> 397
<BONDS> 0
0
0
<COMMON> 8,136
<OTHER-SE> (5,576)
<TOTAL-LIABILITY-AND-EQUITY> 2,957
<SALES> 524
<TOTAL-REVENUES> 524
<CGS> 330
<TOTAL-COSTS> 330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (51)
<INCOME-TAX> 20
<INCOME-CONTINUING> (71)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71)
<EPS-BASIC> (.02)
<EPS-DILUTED> 0
</TABLE>
