<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended March 31, 1999 Commission File No. 0-12817
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PERFECTDATA CORPORATION
(Exact name of registrant as specified in its charter)
California 95-3087593
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
110 West Easy Street
Simi Valley, California 93065
(Address of principal executive offices) (Zip Code)
(805) 581-4000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock NASDAQ
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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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of May 31, 1999, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $5,131,894.
As of May 31, 1999, the registrant had 3,192,306 shares of Common Stock
outstanding.
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<PAGE>
PART I
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.
ITEM 1. BUSINESS
PerfectData Corporation (the Company) was incorporated in the state of
California on June 8, 1976. The Company was originally founded by an experienced
group of engineers and data processing professionals to design and manufacture a
proprietary line of Magnetic Media Maintenance equipment - Disk Pack Cleaners
and Inspectors. This line of equipment, which has since been discontinued, was
originally sold to Original Equipment Manufacturers (OEMs) such as Burroughs
(now Unisys), DEC (Digital Equipment Corporation), NCR (National Cash Register)
and 3M Corporation. Sales of these products by such well known companies
contributed to increased user awareness as to the need for routine computer care
and maintenance. It also brought credibility to the Company as a key
manufacturer in the industry.
With the evolution of the computer work environment from the sterile,
climate-controlled surroundings of a clean room to the mainstream office and
home environments, simple preventative maintenance has become a key element in
maintaining equipment efficiency and personal productivity. The Company's line
of CareWare Cleaning and Maintenance supplies are designed to address the needs
of the end users of computers and office automation equipment and by maintenance
organizations as part of preventative maintenance programs to reduce equipment
"down time" and service costs and to increase product life.
In November of 1990, the Company acquired the assets of Coverware
Company, a manufacturer of high quality computer and office equipment dust
covers. On June 20, 1991, the Company acquired the assets of Anchor Automation,
Inc., a modem manufacturer. During the first quarter of fiscal 1995 the Company
formally discontinued its modem and other telecommunications operations.
The Company first entered the ergonomic accessory market with the
introduction of its CopyHolder Systems and Accessories line in fiscal year 1992.
During fiscal years 1993 and 1995 the Company expanded its ergonomic line with
additional products. During the fourth quarter of fiscal 1998 the Company made
the decision to discontinue its line of ergonomic products and accessories.
During the third quarter of fiscal 1996, the Company acquired a
majority interest in Starnet Universe Internet, Inc., a web server and Internet
provider. During August 1997, PerfectData distributed the majority of these
shares to its shareholders as a form of dividend.
THE INDUSTRY
The computer accessories and supplies market has grown with the
addition of accessory products in channels other than those serviced by
traditional office product catalogs, which have catered mostly to medium and
large sized businesses.
<PAGE>
Currently the largest growth area in these other channels is the retail
SOHO (Small Office Home Office) segment of the market. This market is serviced
mainly by office superstores, mass merchants, consumer electronics retailers,
warehouse clubs, and computer superstores. The Company is organized to service
all distribution channels. The Company feels that the market potential for its
products will continue to grow and increase in size.
PRODUCTS
PerfectData Corporation designs and assembles all of its cleaning and
maintenance products which it markets and distributes. The Company sub-contracts
for its components from a variety of established suppliers and manufacturers.
The consumable cleaning and preventative maintenance products are for
Home, Office and Computer environments. These products are designed to eliminate
or minimize contamination in and around computer and office automation
equipment. Use of the Company's products on a regular basis reduces equipment
downtime and the need for unnecessary service and repairs.
The Company's principal selling product is the PerfectDuster EcoDuster
line of compressed gas dusters. This product is offered in a variety of
formulations to meet competitive pressures and buyer demand. All of these
dusters are 100% CFC free and contain no ozone depleting chemicals that could
damage the ozone layer in the earth's upper atmosphere.
Other products that the Company presently sells are computer disk drive
cleaners, CD and tape drive cleaners, CD player cleaners, static control
products, laser and inkjet printer cleaners, fax and copy machine cleaners, and
a variety of premoistened cleaning wipes for specific equipment.
MARKETING
CUSTOMERS. Since May of 1982, the Company has been selling its
products primarily through retail distribution under the Company's
"PerfectData" trademark. The retail distribution channel is comprised of
office product catalogs, office product distributors and dealers, stationery
and computer retail stores and large Warehouse/Superstore type accounts.
Prior to May 1982, the Company sold substantially all of its products
to companies commonly referred to as "Original Equipment Manufacturers" (OEMs)
for resale under their own product packaging and through their own channels of
distribution. Only 3% of the Company's sales are to OEM customers.
The Company actively pursues foreign distribution of its products
through a network of International distributors and customers. Sales are almost
exclusively of "PerfectData" branded products. To support this channel of
distribution, "PerfectData" product packaging and instructions are multi-lingual
with most products available with a minimum of four languages. For fiscal years
ended March 31, 1999, 1998 and 1997, approximately 9%, 16%, and 11% respectively
of the Company's net sales were to International accounts.
While the Company sold products to more than 400 customers throughout
the world during fiscal 1999, approximately 66% of the Company's net sales were
accounted for by its 10 largest customers. Two of these customers, Eskel-Porter
and Azerty, Inc. each accounted for 14% of total sales. Sales to these customers
were made pursuant to specific purchase orders and neither customer is obligated
under any other agreement. The loss of these customers could have an adverse
effect on the Company's business. No other customer accounted for more than 10%
of the Company's net sales.
<PAGE>
SALES ORGANIZATION
DOMESTIC SALES. Sales of products under the trademark "PerfectData"
are made by independent manufacturers' representative groups, dealers and
large distributors. Sales of the Company's products to Original Equipment
Manufacturers under private label arrangements are handled by Company sales
personnel located in California and, on a selected basis, by certain assigned
independent manufacturers' representatives. Agreements between the Company
and manufacturers' representatives or distributors may be terminated on short
notice by either party.
INTERNATIONAL SALES. Prior to February 1988, virtually all sales to
accounts in Western Europe were under the supervision of the Company's
wholly-owned subsidiary, PerfectData International (PDI). Originally acquired
in March 1984, PDI was terminated as the Company's sales agent for Western
Europe in February 1988. The Company substantially completed the liquidation
of PDI during fiscal 1991.
Amaray Data International Limited, a wholly-owned subsidiary of Amaray
International Corporation was appointed as the Company's exclusive distributor
for the United Kingdom in February of 1988. In June 1989, Hunt Manufacturing,
Inc., a U.S. company, purchased the Computer Products Division of Amaray
International Corporation. The United Kingdom subsidiary then became Hunt Data
Products Europe, Ltd. The Company terminated its distribution agreement with
Hunt Data Products Europe Ltd. in April 1992. S.C.E., a newly formed stationery
and computer equipment products distributor staffed by experienced former
employees of the Hunt organization was appointed as the Company's sole European
distributor effective May 1, 1992.
In January 1990, Hunt Canada International became the exclusive
distributor of "PerfectData" branded products for all of Canada. Due to a change
in their corporate strategic direction, they discontinued this segment of their
business and, effective November 1997, Hunt Canada International did not renew
the exclusive agreement it had held for the distribution of PerfectData products
in Canada. As a result it was decided that PerfectData would continue its
presence in the Canadian market utilizing independent manufacturers'
representatives. Canadian sales agency groups were interviewed and
representative agreements finalized. Effective May 1, 1998, independent sales
agencies now represent the Company in the seven Canadian provinces and the
northwest territories.
In addition to S.C.E., approximately 15 International Distributors sell
the Company's products worldwide.
Agreements between the Company and its foreign distributors may be
terminated on short notice by either party.
CUSTOMER SERVICE AND SUPPORT. In order to enhance customer service,
training, field support and technical support, the Company has a toll free 800
phone number.
All products are sold with a "return to manufacturer" warranty for
replacement of damaged or defective goods only. All CareWare cleaning and
maintenance products are warranted for ninety days from date of purchase; all
CopyHolder Systems and Accessories are warranted for a one year period of time.
Dealers and Distributors are required to perform this replacement service on
behalf of the Company. All products returned for warranty replacement must
receive a written return authorization receipt from the Company prior to the
return of any goods. Costs incurred annually by the Company for product
warranties have been insignificant.
BACKLOG
At March 31, 1999 the Company had orders, scheduled for delivery
within a ninety day period or less, aggregating approximately $60,000 as
compared with a backlog of approximately $40,000 at March 31, 1998. Purchase
order release lead-times depend upon the scheduling practice of the
individual customer, and the
<PAGE>
rate of booking new orders fluctuates from month-to-month; however, most
orders are placed for immediate shipment. Under certain conditions, customers
may cancel or delay orders without significant monetary penalties. Therefore,
the level of backlog at any one time is not necessarily indicative of the trends
in the Company's business.
COMPETITION
The Company believes that during fiscal year 1999, neither the Company
nor any of its competitors had a dominant position in the cleaning and
maintenance market. There are many competitors in this market. However, some of
the competitors are substantially larger in size and have greater financial
resources than the Company.
The Company believes that the effectiveness, quality, service and the
price competitiveness of its products, along with its marketing efforts and
programs, new product introductions and responsiveness to accounts' needs, have
been the principal basis on which it competes in these industry segments.
The Company's ability to maintain or increase its market share and
expand its business will depend in large measure, on its ability to conceive,
design, develop and introduce new products to its existing product lines; to
continue to offer more products within the Company's established channels of
distribution; to enter new markets and/or open new channels of distribution with
related product offerings.
MATERIALS AND SUPPLIES
The nature of the raw materials used in the Company's products are
various chemicals, metals, plastics and paper goods. The Company assembles
and/or packages its products in the United States from materials and supplies
purchased primarily from domestic vendors and sub-contractors. Some of the
assembled component parts are manufactured by vendors located in Mexico and the
Far East because it is more cost effective to obtain goods and fabrication
expertise at significantly reduced costs when compared with purchasing the same
goods domestically.
The Company believes that its established relationships with its
vendors and suppliers are in good order and that it has not experienced any
significant production delays or loss of revenue due to the lack of parts or
material shortages.
The Company, as a matter of standard business procedures regularly
reviews its vendor relationships and continually searches for new sources and
ways to produce its products both domestically and internationally with the
improvement of quality, delivery or lowered cost of goods as its goals.
PATENTS AND LICENSES
The Company believes strongly in enforcing its patent rights and has
taken, and will continue to take, appropriate action against anyone whom it
believes is marketing products which infringe upon its patents.
EMPLOYEES
At March 31, 1999 the Company employed 14 persons, of whom
approximately 5 were engaged in assembly and testing, 4 in marketing and sales,
and 5 in general management and administration.
The Company believes that its relations with its employees are good.
The Company has never had a work stoppage and none of its employees are
represented by a labor union. The expansion of the Company's operations will be
dependent, in part, on its ability to attract and retain highly qualified
employees.
<PAGE>
DISCONTINUED OPERATIONS
The Company previously entered the Telecommunications industry during
fiscal 1992 through the purchase of assets of Anchor Automation, Inc., a modem
manufacturer. Subsequently the Company designed and developed a new family of
data and data/fax modems. Over the next two years the Company's sales of modems
declined and profit margins eroded dramatically. Competitors added more advanced
features to their products while lowering pricing, making it difficult if not
impossible for the Company to successfully market modems. The Telecommunications
business belongs to the major corporations who have all the financial resources
and technology necessary to compete in the increasingly volatile marketplace.
The Company could not compete with these corporations.
In its continuing effort to sustain sales growth, during the end of the
first quarter of fiscal 1994 the Company purchased certain inventory and fixed
assets of SubSystems Company, a distributor of computer accessories associated
with the transmission of data. The Company immediately began selling the cables
and switch boxes through its existing telecommunication channels of
distribution. It quickly became apparent that the marketplace was highly
competitive. The Company found it could not compete domestically with off-shore
pricing from the Far East as well as Mexico.
In the first quarter of fiscal 1995 the Company made the decision to
discontinue operations of these products and stop the outflow of cash associated
with these operations and refocus as a lean and restructured company on its
continuing business lines, which include its core business, care and maintenance
products. During fiscal 1996, the Company completed liquidation of its remaining
inventory of these discontinued products.
ITEM 2. PROPERTIES
The Company relocated its Corporate offices and production facilities
during June 1993. The Company had previously leased a 13,000 square foot
building in Simi Valley, California, on a month-to-month basis. It had entered
into a long-term lease for a building to be constructed in Simi Valley for the
specific needs of the Company. The modern industrial building, comprising
approximately 24,500 square feet, was completed during June 1993. The lease is
for a term of ten years and includes an option to purchase.
ITEM 3. LEGAL PROCEEDINGS
In November 1995, in the Superior Court of Ventura County, California,
a former employee won an award against the Company for $203,403. The lawsuit
related to the termination, in October 1993, of an employment contract entered
into between the Company and the individual during July 1993. The Company
appealed this award and posted an appeal bond with the Court. On March 31, 1997,
the Appeals Court issued its opinion affirming the judgement against the
Company. The judgement became final on April 30, 1997.
In December 1995, in the United States District Court, Northern
District of California, the Company filed a complaint against the same former
employee and his company alleging that they copied PerfectData's trademark and
trade dress. On December 21, 1995, the Court granted the Company's motions for a
restraining order and preliminary injunction which enjoin the defendants from
the manufacture and distribution of the product in question. This case had been
set for trial December 1, 1997.
During May 1997, the parties reached a global settlement of both
actions. The Company paid the former employee the sum of $185,000 in exchange
for its right to seek further appeal. Defendants in the trademark infringement
action have agreed to assign and transfer any and all right, title and interest
in the trademark, trade name, and trade dress of their canned air product
"Perfect Cleaner" and any and all goodwill of the Perfect Cleaner business to
the Company. The former employee and his company have further agreed not to sell
a canned air product in the United States or Canada for three years. Unresolved
was the amount of attorney's fees owed to the former employee's counsel for
services rendered during the Company's appeal of the original judgement against
the Company. The parties agreed to have the issue decided by a judge. On
<PAGE>
July 21, 1997, a hearing was held in the Superior Court of Ventura County,
California. On October 17, 1997, the judge ruled in favor of the former
employee and awarded post-judgement attorney fees in the amount of
$96,268.32. During November 1997, the parties settled the post-judgement
attorney's fees for the sum of $82,500, which the Company paid the former
employee and his attorneys in December 1997.
The past CFO of PermaByte Magnetics, Inc. (PMI) filed a complaint in
the Superior Court of San Diego County, California, for unpaid wages and
fraudulent conveyance against PMI, the Company, the Company's chairman and a
director of the Company. The former CFO claimed that PMI owed her approximately
$30,000 for unpaid vacation which had accrued prior to her termination. She also
alleges that the defendants, including the Company, improperly diverted PMI
assets to the Company. During a demurrer to the First Amended Complaint, the
former CFO failed to properly seek leave of court to file a second amended
complaint. Consequently, the court dismissed the entire action. In August 1996,
the former CFO filed a notice of appeal with the 4th appellate District Court of
Appeal in San Diego, California. On June 11, 1998, in the San Diego Court of
Appeal, Fourth Appellate District, oral arguments were heard.
In March of 1999, the parties agreed to a settlement and Mutual Release
of All Claims whereby the Company paid the former CFO $14,000 to fully and
completely settle the action. The court dismissed the action without prejudice.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company is traded in the over-the-counter
market and is quoted on NASDAQ under the symbol PERF. It is located in the
NASDAQ Small Cap listing. The following table sets forth the range of high and
low sales price per share of Common Stock of the Company for the indicated
quarters of the fiscal years ended March 31, 1999 and 1998, as reported by
NASDAQ. Such prices represent inter-dealer quotations without adjustment for
retail markup, markdown, or commission and do not necessarily represent actual
transactions.
The approximate number of shareholders at March 31, 1999 was 1,000
determined by security position listings. On July 18, 1996 the Company
distributed to its shareholders a dividend in the form of one share of stock in
Starnet Universe Internet, Inc., a privately held corporation, for each twenty
shares of PerfectData stock. On June 27, 1997, the Company distributed to its
shareholders a dividend in the form of one share of stock in Vision Aerospace,
Inc., a privately held corporation, for each thirty shares of PerfectData stock.
On August 14, 1997, the Company distributed to its shareholders a dividend in
the form of one share of stock in Staruni Corporation, traded under the symbol
SRUN, for each four shares of PerfectData Stock.
<TABLE>
<CAPTION>
SALES PRICE
HIGH LOW
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<S> <C> <C>
1999
First Quarter $ 1.625 $ .875
Second Quarter $ 1.188 $ .563
Third Quarter $ 2.375 $ .750
Fourth Quarter $ 1.188 $ .750
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1998
First Quarter $ 2.813 $ 1.625
Second Quarter $ 2.250 $ 1.000
Third Quarter $ 3.000 $ 1.063
Fourth Quarter $ 3.375 $ 1.250
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</TABLE>
The last sales price for the Company's Common Stock as of June 14, 1999
was $1.688.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data which
are derived from and qualified in their entirety by the more detailed Financial
Statements included in Item 14 herein.
SELECTED STATEMENTS OF EARNINGS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
1999 1998 1997 1996 1995
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(Dollars in thousands, except per share information)
<S> <C> <C> <C> <C> <C>
Net Sales $ 1,689 $ 3,299 $ 5,761 $ 6,054 $ 7,214
Income (loss) from
continuing operations
before income taxes (406) (367) 25 144 171
Income tax benefit
(or provision) 4 (250) (290) (20) 359
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Income (loss) from
continuing operations (402) (617) (265) 124 530
Income (loss) from
discontinued operations - - - - 18
Gain (loss) on disposal of
discontinued operations - (182) (69) (101) (179)
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Net Income/(Loss) $ (402) $ (799) $ (334) $ 23 $ 369
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Earnings (loss)
per share of
common stock:
Continuing operations (.13) (.20) (.09) .04 .16
Discontinued operations - (.06) (.02) (.03) (.05)
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Net earnings (loss) $ (.13) $ (.26) $ (.11) $ .01 $ .11
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Weighted average
shares outstanding 3,159 3,123 3,089 3,107 3,422
</TABLE>
<PAGE>
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF MARCH 31,
1999 1998 1997 1996 1995
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(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Working Capital $2,115 $2,522 $2,940 $2,900 $2,892
Total Assets 2,586 3,053 4,298 4,630 4,705
Net Shareholders' Equity 2,305 2,794 3,500 3,792 3,889
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1999 net sales from continuing operations decreased to
$1,689,000 from $3,299,000 in fiscal 1998 and $5,761,000 in fiscal 1997.
The dramatic decline in sales in fiscal 1999 and 1998 is directly
related to the loss of a major customer. In June 1997, the Company lost its bid
for the continuing business of PriceCostco. During fiscal 1997, PriceCostco
accounted for 42% of the Company's total sales. The Company realized the loss of
this business during the second quarter of fiscal 1998.
Further contributing to the decline in fiscal 1999 sales was a decline
in the Company's international business. During the fourth quarter of fiscal
1998, the Company's exclusive Canadian distributor discontinued this segment of
their business and no longer distributed the company's products. During fiscal
1998 sales to this Canadian distributor accounted for 6% of the Company's sales.
Also, the Company's European distributor lost one of its major accounts during
the fourth quarter of fiscal 1998. During fiscal 1998, sales to this European
distributor accounted for 7% of the Company's sales. The Company's sales to this
European distributor declined 50% during fiscal 1999.
The decrease in fiscal 1997 sales from fiscal 1996 was due to lower
selling prices, although the actual unit sales for fiscal 1997 had increased
over fiscal 1996.
The United States Environmental Protection Agency announced a ban,
effective January 1, 1994 on Chlorodifluoromethane. This chemical was contained
in a compressed gas duster that represented approximately 16% of net sales in
fiscal 1995, and approximately 10% of net sales in fiscal 1996. This product was
offered in two different sizes. The Company promoted this product and depleted
its inventory of the most popular size in fiscal 1995, and the less popular size
in fiscal 1996. Approximately 47% of the decrease in fiscal 1996 sales was
attributed to the close-out sale of this product held during fiscal 1995.
The Company developed and offered replacement products during fiscal
1994 that did not contain the banned chemical. The Company offered a choice of
chemical fills in various sizes. During fiscal 1995, the replacement products
were more readily accepted and sales increased. Sales of the replacement
products during fiscal 1995 represented approximately 47% of net sales and 56%
of net sales during fiscal 1996.
<PAGE>
The decrease in fiscal 1996 net sales was also due to increased
competition in the marketplace and inadequate sales and marketing efforts by
the Company. The Company subsequently reorganized its sales structure as well
as set up a new Sales Coordination Department to interface with an expanded
sales representative network.
Cost of sales from continuing operations as a percentage of net
sales for fiscal 1999, 1998 and 1997 were 62%, 67% and 66% respectively. The
decrease in cost of sales for fiscal 1999 is a result of a reduction in the
Company's labor costs as well as management's ability to negotiate with its
suppliers to obtain the best possible pricing for its materials.
The slight increase in cost of sales for fiscal 1998 directly
relates to inventory reserves made for the ergonomic products and accessories
line. The Company made the decision to discontinue this product line during
the fourth quarter of fiscal 1998.
Selling, General and Administrative Expenses from continuing
operations for fiscal 1999, 1998 and 1997 were $1,180,000, $1,535,000 and
$2,030,000 respectively. The decrease in expenses in fiscal 1999 and 1998
directly relates to the loss of the Company's major customer. Included in
Selling, General and Administrative Expenses are prepaid freight on
qualifying orders, commission paid to sales representatives, and co-op
advertising allowances which are variable expenses that fluctuate with sales.
As sales declined, so did these expenses. The decrease in costs and expenses
in fiscal 1999 and 1998 also relates to severe cost-cutting measures which
included, amongst others, a reduction in staff and a very tight control of
all expenditures.
During the quarter ended September 30, 1998 the Company reorganized
its Sales and Marketing Departments and appointed a new director. When the
Company lost its major customer, it commenced seeking out a sub-tenant to
share the facility the Company occupies. Subsequent to fiscal 1999 year end,
the Company successfully found a sub-tenant to occupy a portion of its
facility and reduce the Company's facility costs.
Other income and expense for fiscal 1999, 1998 and 1997 was
primarily interest income of $39,000, $33,000 and $28,000 respectively;
royalty income of $2,000, $7,000 and $10,000 respectively; and dividend and
option income of $79,000, $55,000 and $47,000 respectively.
During the first quarter of fiscal 1995, the Company made the
decision to discontinue its operations in the telecommunications industry
which consisted of modems, cables and switch boxes. The substantial losses
from this operation were a result of declining sales, dramatically eroding
profit margins and major competitors who had all the financial resources and
technology necessary to compete in the increasingly volatile marketplace. The
Company immediately stopped the outflow of cash associated with these
operations. By March 31, 1996, the inventory had been liquidated. The loss
from discontinued operations for fiscal 1996 directly related to a judgement
against the Company in favor of a former employee for breach of an employment
contract. The employee had been employed to work exclusively in the Company's
cable segment which had been discontinued. The Company appealed the judgement
and posted an appeal bond with the Court. On March 31, 1997 the Appeals Court
issued its opinion affirming the judgement against the Company. The judgement
became final on April 30, 1997. The loss on discontinued operations for
fiscal 1997 was primarily due to legal fees relative to the appeal.
On October 17, 1997 the judge ruled in favor of the former employee
and awarded post judgement attorney fees in the amount of $96,268. During
November 1997, the parties settled the post judgement attorney's fees for the
sum of $82,500. The loss from discontinued operations for fiscal 1998
directly relates to legal fees incurred by the Company relative to the
settlement, additional reserves to cover the $82,500 settlement, and
elimination of deferred tax assets which are not expected to be recognized in
the future.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The cash position at March 31, 1999 is $1,074,000 including
Certificates of Deposit of $255,000. The Company has short-term marketable
securities of $327,000.
The Company has a current ratio of better than 8 to 1 at fiscal year
end and no long-term debt.
The Company believes that liquidity and working capital are adequate
to fund the Company's operations and Capital requirements for the 2000 fiscal
year.
The Company continues to follow a plan to expand its distribution
and sales base by focusing on profitable new accounts using outside sales
professionals and electronic commerce.
At March 31, 1999 the Company had net operating loss and general
business tax credit carry forwards for income tax purposes of approximately
$3,431,233 and $174,109 respectively, available to reduce future potential
Federal income taxes.
On December 8, 1998, the Company announced the signing of an
agreement of its intent to merge with Pego Systems, Inc. of Long Beach,
California. Pego Systems, Inc., an engineering and manufacturing Company, is
a subsidiary of The Hartcourt Companies. The merger was subject to further
due diligence and the signing of a definitive agreement as well as
shareholder and regulatory approvals. As part of the transaction, PerfectData
and PerfectData shareholders were to receive shares in The Hartcourt
Companies. In reviewing the Pego financials prior to closing of the
agreement, they reflected a slight loss for the year rather than the
anticipated gain. Hartcourt has since spun off Pego Systems to Hartcourt
shareholders, along with other assets, by distributing shares in ENOVA.
Managements of both PerfectData and The Hartcourt Companies continue
to seek ways to create shareholder value by addressing the needs of each
entity and focusing on a transaction that is mutually beneficial.
PerfectData's management continues its discussions with potential
merger and joint venture partners including The Hartcourt Companies.
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.
<PAGE>
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 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".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by
reference to the financial statements and supplementary data listed in Item
14 of Part IV of this report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph Mazin 52 President, Chief Executive
Officer, Director and
Chairman of the Board
Tracie Savage 36 Director
Ronald M. Chodorow 58 Director
Irene J. Marino 55 Vice President Finance,
Chief Financial Officer
and Corporate Secretary
</TABLE>
Mr. Joseph Mazin was appointed in June 1993 to be a Director of the
Company by the unanimous consent of the Board. Mr. Mazin was appointed
Chairman, President and Chief Executive Officer of the Company in October
1993. He is the Chairman of the Board, President and Chief Executive Officer
of Flamemaster Corporation, a publicly traded specialty chemicals
manufacturer. Mr. Mazin has held this position for more than five years. He
previously served as Chairman of the Board of Altius Corporation, a former
manufacturer of industrial steel products.
Ms. Tracie Savage was appointed in July 1995 to be a Director of the
Company by the unanimous consent of the Board. She joined NBC-TV Los Angeles,
a Television Subsidiary of National Broadcasting Company, Inc. in March 1994.
Ms. Savage is the co-anchor of NBC 4's "Today in LA: Weekend" and also serves
as a general assignment reporter for the "Channel 4 News". From 1991 to 1994
she was a general assignment reporter for the independent Los Angeles
station, KCAL. Ms. Savage has been in broadcast journalism for ten years and
has been the recipient of numerous awards and honors in her field.
Mr. Ronald M. Chodorow was appointed in July 1997 to be a Director
of the Company by unanimous consent of the Board. Mr. Chodorow is an
accountant and has been in Public Accounting since 1966. In 1978 he opened
his own practice and is the president of Ronald M. Chodorow & Associates,
Inc., Accountants and Tax Consultants. Mr. Chodorow has sat on the Board of
Directors of many small corporations (non-publicly listed companies).
Ms. Irene J. Marino originally joined the Company in March 1982 and
rejoined the Company in September 1987 after a leave of approximately four
months. Ms. Marino was promoted to Manager of Finance and Administration in
March 1983 and to Controller and Assistant Secretary in March 1986. Upon
rejoining the Company in September 1987, Ms. Marino assumed the positions of
Controller, Chief Financial Officer and Secretary of the Company. She was
appointed Vice President of Finance in August 1989, and has more than 30
years experience in finance, accounting and administration.
<PAGE>
Directors of the Company are elected annually. The present term of
office of each director will expire at the next annual meeting of
shareholders of the Company or at such time as his successor is duly elected
and qualifies. Officers serve at the discretion of the Board of Directors of
the Company.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning
the compensation earned for services rendered in all capacities to the
Company during each of the last three fiscal years by the Company's Chief
Executive Officer. No other executive officer of the Company earned in excess
of $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Annual Compensation
Principal Position Year Salary($) (1)
- ------------------ ---- -------------
<S> <C> <C>
Joseph Mazin 1999 $60,023
President, Chief 1998 61,317
Executive Officer and 1997 63,365
Chairman of the Board
</TABLE>
(1) There are no employment agreements or contracts between the Company and
Joseph Mazin.
EMPLOYEE STOCK OPTION PLAN
In 1979 the Company adopted its Employee Stock Option Plan and
amended it in 1981 (the "1979 Plan"). The 1979 Plan, which expired December
31, 1988, provided for the grant of incentive stock options to officers and
other key employees of the Company. The 1979 Plan covers an aggregate of
290,660 shares of Common Stock. During the year ended March 31, 1996, options
to purchase 1,000 shares of Common Stock expired. There was no activity under
the Plan during the year ended March 31, 1999. A total of 99,166 shares of
Common Stock have been issued upon the exercise of options granted under the
1979 Plan. No options remain outstanding.
1985 EMPLOYEE STOCK OPTION PLAN
In January 1985, the Board of Directors of the Company established
the Company's 1985 Employee Stock Option Plan (the "1985 Plan"). In November
1985, the shareholders of the Company approved the Plan. The Board of
Directors voted to extend the term of the plan by twelve months thereby
making the new expiration date December 31, 1996. The 1985 Plan, provided for
the grant of both non-qualified stock options and incentive stock options to
officers and other key employees of the Company and for the grant of
non-qualified stock options to non-employee Directors of the Company. The
1985 Plan covers an aggregate of 500,000 shares of Common Stock. At March 31,
1999, options covering a total of 103,000 shares of Common Stock were
outstanding at an average exercise price of $ .9945 per share. Options
covering a total of 290,250 shares of the Company's Common Stock have been
cancelled through March 31, 1999. A total of 286,250 shares of Common Stock
have been issued upon the exercise of options granted under the 1985 Plan.
The 1985 Plan is administered by the Board of Directors of the Company. The
exercise price of options granted must not be less than 100% of the fair
market price of the Common Stock of the Company on the date of grant. The
rate at which options granted under the 1985 Plan will be exercisable shall
be determined by the
<PAGE>
Board of Directors at the time of the grant of the option, provided that the
option may become exercisable in full no faster than annually over a two-year
period and no slower than annually over a five-year period. Options which
have been granted under the 1985 Plan are exercisable annually with respect
to 25% of the total number of shares covered by the option. Options may not
be exercised after the expiration of ten years from the date of grant, are
non-transferable, other than by will or inheritance, and may be exercised
only while an optionee is employed by the Company, except that an option may
provide that it will be wholly or partially exercisable (a) within three
months after an optionee's termination of employment for any reason other
than cause, (b) within one year after an optionee's termination of
employment, if such employment is terminated by reason of the optionee's
death or permanent disability or if the optionee dies or becomes permanently
disabled within three months after the termination of the optionee's
employment, and (c) within thirty days after the termination of an optionee's
employment for cause. The termination of a non-employee Director's employment
is deemed to occur on the termination of his status as a Director of the
Company.
1983 STOCK BONUS AND PURCHASE PLAN
In May 1983, the Company adopted an Employee Stock Bonus and
Purchase Plan (the "Bonus Plan") and amended it in 1987 and 1989. The Bonus
Plan, which expired May 17, 1993, provided for the issuance of a maximum of
745,330 shares of Common Stock of the Company to certain officers or other
key employees of the Company. The Bonus Plan is administered by the Board of
Directors of the Company which determines to whom shares shall be issued, the
number of shares which may be issued to any participant, whether shares shall
be issued as a stock bonus without consideration (other than services), or
alternatively, the price for which shares shall be purchased by the
participant and the manner and time of payment of such price, the length of
time during which shares may be issued to the participant (which may not be
more than five years from the date the agreement providing for the issuance
is executed), whether the participant must continue to serve as an officer or
key employee for a specified period of time following execution of such
agreement to avoid forfeiture of some or all of such shares to the Company or
a right in the Company to repurchase such shares, and such other terms and
conditions as the Board of Directors may specify which are not inconsistent
with the provisions of the Bonus Plan.
The Company had entered into stock bonus agreements to issue through
1992 under the Bonus Plan up to an aggregate of 126,269 shares of Common
Stock (net of shares covered by agreements cancelled through March 31, 1993)
as stock bonuses to certain key employees. At March 31, 1993, all 126,269
shares had been issued.
The Company had also entered into stock purchase agreements to issue
under the Bonus Plan up to an aggregate of 101,000 shares of Common Stock
(net of shares covered by agreements cancelled or expired through March 31,
1995), at an average price of $.5687 per share. At March 31, 1995, all
101,000 shares had been issued.
<PAGE>
OPTION GRANTS, EXERCISES AND HOLDINGS
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights (Scars) were granted
to the Company's Chief Executive Officer named in the Summary Compensation
Table during the fiscal year ended March 31, 1999.
The following table provides certain summary information concerning
the exercise of options during the 1999 fiscal year and unexercisable options
held as of the end of the 1999 fiscal year by the Chief Executive Officer
named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF VALUE OF
ACQUIRED UNEXERCISED UNEXERCISED IN-THE-
ON VALUE OPTIONS HELD AT MONEY OPTIONS
NAME EXERCISE REALIZED FISCAL YEAR END AT FY-END (2)
(#) ($) (#)
<S> <C> <C> <C> <C>
Joseph Mazin - $ - 90,000(1) $ -
</TABLE>
(1) As of March 31, 1999, all 90,000 options were exercisable.
(2) Such value is based upon the market value of the Company's Common Stock
as of March 31, 1999, less the exercise price payable per share under
such options.
DIRECTOR COMPENSATION
No director receives cash compensation from the Company for services
provided as a director. Non-employee directors may be granted non-qualified
stock options as provided for under the Company's 1985 Employee Stock Option
Plan ("1985 Plan"). During the fiscal year ended March 31, 1999, no new
options were granted to non-employee directors of the Company.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of May 31, 1999, certain
information with respect to all shareholders known by the Company to be
beneficial owners of more than 5% of its outstanding common stock, all
directors, and all officers and directors of the Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES (1) INTEREST (2)
- ------------------- ---------- ------------
<S> <C> <C>
Flamemaster Corporation 613,497 19.2
11120 Sherman Way
Sun Valley, CA 91252
Leland P. Polak and 316,000 9.9
Mark E. Polak
11494 Burbank Blvd.
North Hollywood, CA 91601
William R. Woodward 213,349 6.7
Successor & Special Trustee
Richard M. Drysdale Trust
116 26th Street
Santa Monica, CA 90402
Joseph Mazin 917,697 (3)(4)(5) 25.9
110 West Easy Street (6)(7)
Simi Valley, CA 93065
Ronald M. Chodorow 17,500 (9)
23801 Calabasas Road, Suite 2035
Calabasas, CA 91302
Tracie Savage 10,100 (8) (9)
3000 W. Alameda Avenue
Burbank, CA 91523
All officers and directors 946,297 (3)(4)(5) 26.5
as a group (4 persons) (6)(7)(8)
</TABLE>
(1) All shares are owned directly by the owner named in the table except as
otherwise indicated in a footnote below.
(2) Percentages are based on the number of shares of Common Stock outstanding
on May 31, 1999. There were 3,192,306 shares of Common Stock outstanding
on May 31, 1999.
(3) Includes 613,497 shares owned by Flamemaster Corporation for which Mr.
Mazin has voting power as President, Chairman and CEO of Flamemaster
Corporation.
(4) Includes 37,700 shares owned by the Flamemaster Employees' Profit Sharing
Plan for which Mr. Mazin is the fiduciary.
<PAGE>
(5) Includes 30,500 shares owned by Altius Investment Corporation for which
Mr. Mazin has shared voting power as Chairman of the Board of Altius
Investment Corporation.
(6) Includes 25,000 shares which are covered by a stock option which was
granted June 28, 1993, and which is exercisable at any time on or before
June 28, 2003. Percentage of interest excludes these shares.
(7) Includes 65,000 shares which are covered by a stock option which was
granted November 24, 1993, and which is exercisable at any time on or
before November 24, 2003. Percentage of interest excludes these shares.
(8) Includes 10,000 shares which are covered by a stock option which was
granted July 20, 1995, and which is exercisable at any time on or before
July 20, 2005. Percentage of interest excludes these shares.
(9) Represents less than one percent.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Mazin, President and Chief Executive Officer of the Registrant,
is also President and Chief Executive Officer of Flamemaster Corporation, a
publicly traded specialty chemicals manufacturer. Flamemaster Corporation has
acted, in the normal course of its business, as a manufacturer of certain
products for the Company. For the fiscal year, sales of products to the
Company approximated $4,816.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) DOCUMENTS FILED WITH REPORT
(1) FINANCIAL STATEMENTS
The financial statements listed on the accompanying
Index to Financial Statements and Schedules are filed as part
of this report.
(2) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed on the
accompanying Index to Financial Statements and Schedules are
filed as part of this report.
(3) EXHIBITS
The exhibits listed on the accompanying Index to
Exhibits are filed as part of this report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company
during the last quarter of the fiscal year ended March 31,
1999.
<PAGE>
PERFECTDATA CORPORATION
SEC FORM 10-K
ITEMS 8, 14(a) AND 14(d)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS
Independent Auditors' Report - March 31, 1999
Balance Sheets - March 31, 1999 and 1998
Statements of Earnings -
Years Ended March 31, 1999, 1998 and 1997
Statements of Shareholders' Equity -
Years Ended March 31, 1999, 1998 and 1997
Statements of Cash Flows -
Years Ended March 31, 1999, 1998 and 1997
Notes to Financial Statements
SCHEDULES
Valuation and Qualifying Accounts Schedule VIII
All other schedules are omitted as the required information is not
applicable or the information is presented in the Financial Statements or Notes
thereto.
<PAGE>
[LETTERHEAD]
June 4, 1999
Board of Directors and Shareholders
PERFECTDATA CORPORATION
Simi Valley, California
We have audited the balance sheets of Perfectdata Corporation as of March 31,
1999 and 1998, and the related statements of operations, shareholders' equity
and cash flows for the years ended March 31, 1999, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of PerfectData Corporation, as of March 31,
1999 and 1998, and the results of their operations and their cash flows for the
years ended March 31, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ Beckman Kirkland & Whitney
Beckman Kirkland & Whitney
Agoura Hills, California
<PAGE>
PERFECTDATA CORPORATION
Balance Sheets
(Dollars in thousands, except number of shares)
<TABLE>
<CAPTION>
March 31,
-----------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including
short-term certificates of deposit of
$255 in 1999 and $365 in 1998 (Note 2) $ 1,074 $ 1,328
Accounts receivable, less allowance for
doubtful receivables of $9 and $12 in 1999
and 1998, respectively (Note 2) 186 289
Inventories (Note 4) 639 571
Prepaid expenses and other current assets 57 87
Marketable securities, short-term (Note 3) 327 448
Deferred income tax benefit (Note 8) 113 58
--------------- ----------------
Total current assets 2,396 2,781
Property, plant and equipment, net (Note 5) 86 118
Deferred income tax benefit (Note 8) 73 123
Other assets, net 31 31
--------------- ----------------
$ 2,586 $ 3,053
--------------- ----------------
--------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 148 $ 111
Accrued expenses 86 94
Accrued salaries, wages and vacation 47 54
--------------- ----------------
Total current liabilities 281 259
--------------- ----------------
Commitments and contingencies (Note 12)
Shareholders' equity (Notes 9 and 10)
Preferred stock. Authorized 2,000,000 shares; none issued.
Common stock, no par value. Authorized 10,000,000 shares;
issued and outstanding 3,155,000 and 3,164,000 shares in 1999
and 1998, respectively 8,110 8,117
Accumulated deficit (5,747) (5,345)
Allowance for loss on marketable securities (58) 22
--------------- ----------------
Net shareholders' equity 2,305 2,794
--------------- ----------------
$ 2,586 $ 3,053
--------------- ----------------
--------------- ----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PERFECTDATA CORPORATION
Statements of Operations
(Dollars in thousands, except per share information)
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------
1999 1998 1997
---------------- ---------------- ------------
<S> <C> <C> <C>
Net sales $ 1,689 $ 3,299 $ 5,761
---------------- ---------------- ------------
Costs and expenses
Cost of goods sold 1,038 2,205 3,787
Selling, general and
administrative expenses 1,180 1,535 2,030
---------------- ---------------- ------------
Total costs and expenses 2,218 3,740 5,817
---------------- ---------------- ------------
Income from operations (529) (441) (56)
---------------- ---------------- ------------
Other income and (expense)
Equity in earnings of affiliate 0 0 (15)
Interest income, net 39 33 28
Other, net 84 41 68
---------------- ---------------- ------------
Total other income and (expense) 123 74 81
---------------- ---------------- ------------
Income from continuing
operations before income taxes (406) (367) 25
Income tax benefit (or provision) (Note 8) 4 (250) (290)
---------------- ---------------- ------------
Income from continuing operations (402) (617) (265)
Loss on disposal of discontinued operations 0 (182) (69)
---------------- ---------------- ------------
Net income (loss) $ (402) $ (799) $ (334)
---------------- ---------------- ------------
---------------- ---------------- ------------
Net income (loss) per common share:
Basic:
Income (loss) from continuing operations $ (0.13) $ (0.20) $ (0.09)
Loss on disposal of discontinued operations 0.00 (0.06) (0.02)
---------------- ---------------- ------------
$ (0.13) $ (0.26) $ (0.11)
---------------- ---------------- ------------
---------------- ---------------- ------------
Diluted:
Income (loss) from continuing operations $ (0.13) $ (0.20) $ (0.09)
Loss on disposal of discontinued operations 0.00 (0.06) (0.02)
---------------- ---------------- ------------
$ (0.13) $ (0.26) $ (0.11)
---------------- ---------------- ------------
---------------- ---------------- ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PERFECTDATA CORPORATION
Statements of Shareholders' Equity (Notes 8 and 9)
(In thousands)
<TABLE>
<CAPTION>
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, 1996 3,069 $ 8,026 $ (4,212) $ (22) $ 3,792
Stock issued upon exercise of
stock options 28 29 0 0 29
Stock repurchased and retired (3) (4) 0 0 (4)
Net unrealized gain/loss on
marketable securities 0 0 0 17 17
Net loss 0 0 (334) 0 (334)
---------- ---------- -------------- ---------------- ----------------
Balance at March 31, 1997 3,094 $ 8,051 $ (4,546) $ (5) $ 3,500
---------- ---------- -------------- ---------------- ----------------
---------- ---------- -------------- ---------------- ----------------
Stock issued upon exercise
of stock options 70 66 0 0 66
Net unrealized gain/loss on
marketable securities 0 0 0 27 27
Net loss 0 0 (799) 0 (799)
---------- ---------- -------------- ---------------- ----------------
Balance at March 31, 1998 3,164 $ 8,117 $ (5,345) $ 22 $ 2,794
---------- ---------- -------------- ---------------- ----------------
---------- ---------- -------------- ---------------- ----------------
Stock repurchased and retired (9) (7) (7)
Net unrealized gain/loss on
marketable securities (80) (80)
Net loss (402) (402)
---------- ---------- -------------- ---------------- ----------------
Balance at March 31, 1999 3,155 $ 8,110 $ (5,747) $ (58) $ 2,305
---------- ---------- -------------- ---------------- ----------------
---------- ---------- -------------- ---------------- ----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PERFECTDATA CORPORATION
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31,
------------------------------------------
1999 1998 1997
------------- ------------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (402) $ (799) $ (334)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
(Gain) loss on disposal of discontinued operations 0 181 111
Depreciation and amortization 36 39 95
Provision for doubtful receivables (3) 3 (2)
Unrealized (gain) loss on marketable securities (80) 0 17
Deferred income tax (benefit) provision (4) 250 290
Decrease (increase) in litigation deposit 0 305 0
(Increase) decrease in accounts receivable 106 416 198
(Increase) decrease in inventories (68) 612 62
(Increase) decrease in prepaid expenses and
other current assets 28 (10) 8
(Increase) decrease in other assets 0 0 (13)
Increase (decrease) in accounts payable 38 (213) (49)
Increase (decrease) in accrued expenses (9) (59) (39)
Decrease in accrued salaries, wages and vacation (7) (3) (13)
------------- ------------- ----------
Net cash provided (used) by operating activities (365) 722 331
------------- ------------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (4) (2) (2)
Decrease (increase) in investment in affiliated company 0 5 17
(Increase) decrease in investment securities, net 122 (22) (76)
------------- ------------- ----------
Net cash provided (used) in investing activities 118 (19) (61)
------------- ------------- ----------
Cash flows from financing activities:
Exercise of stock options 0 66 29
Repurchase of common stock (7) 0 (4)
------------- ------------- ----------
Net cash provided (used) by financing activities (7) 66 25
------------- ------------- ----------
Net cash provided (used) by continuing operations (254) 769 295
Cash provided (used) by discontinued operations 0 (332) (76)
------------- ------------- ----------
Increase (decrease) in cash and cash equivalents (254) 437 219
Cash and cash equivalents at beginning of year 1,328 891 672
------------- ------------- ----------
Cash and cash equivalents at end of year $ 1,074 $ 1,328 $ 891
------------- ------------- ----------
------------- ------------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the year for income tax $ - $ - $ -
------------- ------------- ----------
------------- ------------- ----------
Cash paid during the year for interest $ - $ - $ -
------------- ------------- ----------
------------- ------------- ----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
Years ended March 31, 1999, 1998, and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PerfectData Corporation (the Company) designs, assembles and sells computer
and office equipment care and maintenance products.
CASH EQUIVALENTS
The Company considers all highly liquid, non-pledged certificates of deposit
with an original maturity of three months or less to be cash equivalents.
Certificates of deposit pledged as collateral, or otherwise restricted, are
not classified as cash equivalents.
INVESTMENT IN DEBT AND EQUITY SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity
Securities," effective April 1, 1994.
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt securities for which the
Company does not have the intent or ability to hold to maturity are
classified as available for sale, along with the Company's investment in
equity securities. Securities available for sale are carried at fair value,
with the unrealized gains and losses reported in a separate component of
shareholders' equity, net of income taxes, until realized.
The amortized cost of zero-coupon debt securities classified as available for
sale is adjusted for accretion of discounts to maturity. Such amortization
and interest are included in interest income. Realized gains and losses are
included in other income or expense. The cost of securities sold is based on
specific identification method.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property and equipment is computed using the
straight-line method based on estimated useful lives ranging as follows:
<TABLE>
<S> <C>
Machinery and equipment 3 to 5 years
Furniture and fixtures 3 to 5 years
Leasehold improvements Life of lease
Tooling 1 to 5 years
</TABLE>
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment.
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
POST-RETIREMENT BENEFITS
The Financial Accounting Standards Board has issued Statement 106,
"Employer's Accounting for Post-Retirement Benefits other than Pensions," a
pronouncement on accounting for post-retirement health care which is
effective for fiscal years beginning after December 31, 1992. The Company has
never offered post-retirement benefits to employees.
EARNINGS PER COMMON SHARE
Basic earnings per common share is based on the weighted average number of
shares outstanding during each of the respective periods. Diluted earnings
per share is not presented, as the effect is antidilutive. The weighted
average number of shares outstanding during fiscal 1999 was 3,158,671.
INCOME TAXES
Provisions (benefits) for federal and state income taxes are calculated on
reported financial statement (income) loss based on current tax law and also
include in the current period, the cumulative effect of any changes in tax
rates from those used previously in determining deferred tax assets and
liabilities. Such provisions (benefits) differ from the amounts currently
payable because certain items of income and expense, known as temporary
differences, are recognized in different tax periods for financial reporting
purposes than for income tax purposes.
NOTE 2 - CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash, cash equivalents
and trade receivables.
As of March 31, 1999 the Company had approximately $964,000 of cash and cash
equivalents in three banks which exposes the Company to concentration of
credit risk. The cash deposited at each bank is federally insured up to
$100,000.
The Company sells its principal products to a number of customers in the
retail industry. As of March 31, 1999, approximately 34%, 13% and 29% of
recorded trade receivables were from two wholesale/discount merchants and one
foreign distributor, respectively. To reduce credit risk, the Company
performs ongoing credit evaluations of its customers' financial conditions
but does not generally require collateral. New customers requiring large
credit accounts are required to provide letters of credit.
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 3 - MARKETABLE SECURITIES:
Marketable securities classified as current assets at March 31, 1999, include
the following (dollars in thousands):
<TABLE>
<CAPTION>
FAIR VALUE COST
------------ ------------
<S> <C> <C>
Other government obligations $ 26 $ 27
Marketable equity securities 301 359
------------ ------------
$ 327 $ 386
------------ ------------
------------ ------------
</TABLE>
The contractual maturities of debt securities available for sale at March 31,
1999, follows:
<TABLE>
<CAPTION>
FAIR VALUE COST
------------ -------------
<S> <C> <C>
Due after ten years $ 26 $ 27
------------ -------------
$ 26 $ 27
------------ -------------
------------ -------------
</TABLE>
Net unrealized holding gains (losses) at March 31, 1999 and 1998, were
approximately ($58,448) and $22,100, respectively. During the year ended
March 31, 1999, realized gains and losses from the sale of securities were
$2,228 and $7,821, respectively.
NOTE 4 - INVENTORIES:
Inventories, consisting of materials, labor and other costs, are stated at
the lower of cost (determined by the first-in, first-out method) or market
and are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
1998 1998
---------- ------------
<S> <C> <C>
Raw materials $ 243 $ 238
Work in process 63 68
Finished products 333 265
--------- ---------
$ 639 $ 571
--------- ---------
--------- ---------
</TABLE>
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998 and 1997
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Machinery and equipment $ 452 $ 467
Furniture and fixtures 124 149
Tooling 387 444
Leasehold improvements 155 155
---------- ----------
1,118 1,215
Less accumulated depreciation (1,032) (1,097)
---------- ----------
$ 86 $ 118
---------- ----------
---------- ----------
</TABLE>
Depreciation expenses for the years ended March 31, 1999, 1998 and 1997 were
$36,000, $39,000 and $95,000, respectively.
NOTE 6 - INVESTMENT IN AFFILIATE:
The Company owned 15% and 58% of Starnet Universe Internet, Inc., at March
31, 1998 and 1997, respectively. Prior to March 31, 1997, this investment had
been consolidated with the Company. Subsequent to March 31, 1997, the
Company's Board of Directors resolved to dispose of substantially all of the
Company's investment in Starnet. As such, this investment was deemed to be
temporary and was not consolidated for fiscal 1997. Additionally, fiscal 1996
was restated to conform with the presentation of 1997.
Prior to fiscal 1998, the Company recognized a loss from Starnet of $14,742
in 1997 and income of $183 in 1996. During fiscal 1998, the Company reduced
its ownership interest in Starnet to 15%. The Company reclassified the
investment as marketable securities available for sale, accounted for under
the Cost Method. The Company's cost basis in this investment was $5,399 at
March 31, 1999.
NOTE 7 - NOTE PAYABLE:
During fiscal 1996, 1997 and up until August 31, 1997, the Company had a
$1,000,000 line of credit agreement with a bank. This line of credit was secured
by accounts receivable, inventory, equipment and general intangibles. The
agreement subjected the Company to certain covenants related to liquidity,
capital expenditures and commitments, net worth and the reacquisition of stock.
Interest on outstanding borrowings was payable monthly at prime plus 1.25%. The
agreement expired August 31, 1997 and was not renewed. No borrowings were
outstanding at March 31, 1999 or 1998.
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 8 - INCOME TAXES:
The components of the income tax (benefit) provision attributable to continuing
operations were (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------
1999 1998 1997
-------------- -------------- -------------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State 1 1 1
------------- ------------ -------------
1 1 1
Deferred:
Net increase (decrease) in deferred tax asset (5) 4 (43)
(Increase) decrease in benefit of NOL
carryforwards (180) (132) 96
Increase (decrease) in valuation allowance 180 377 236
------------- ------------ -------------
$ (4) $ 250 $ 290
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
At March 31, 1999, the Company had net operating loss (NOL) carryforwards of
approximately $3,431,233 for federal income tax purposes expiring in varying
amounts through 2014. 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.
In April 1993 the Company adopted Statement of Financial Accounting Standards
No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Previously, the
Company used the APB 11 approach that gave no recognition to future events other
than the recovery of assets and settlement of liabilities at their carrying
amounts. Under SFAS 109 the Company recognizes to a greater degree the future
tax benefits of expenses which have been recognized in the financial statements.
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 8 - INCOME TAXES (CONTINUED):
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 insufficient to realize the
recorded deferred tax asset of $1,234,687, and has recorded a valuation
allowance of $1,234,687.
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 over the
last three years and the current economic environment in which the Company
operates. Management did not consider any non-routine transactions in assessing
the likelihood of realization of the recorded deferred tax asset.
The following reconciles the federal statutory income tax rate to the effective
rate of the provision for income taxes.
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
Federal statutory rate 34.0 % 34.0 % 34.0%
Increases (reductions) in taxes due to:
State income taxes (net of federal benefit) 0.2 % 0.3 % 4.0%
Valuation allowance adjustment (35.2)% (103.0)% 1,122.0%
Other, net 0 % 0.6 % 0.0%
--------- --------- ----------
(1.0)% (68.1)% 1,160.0%
--------- --------- ----------
--------- --------- ----------
</TABLE>
NOTE 9 - SHAREHOLDERS' EQUITY:
The articles of incorporation authorize a class of preferred stock issuable in
classes and series with such designations, voting rights, redemption provisions,
dividend rates, liquidation and conversion rights and other preferences and
limitations as may be determined by the Board of Directors. No preferred stock
was outstanding at March 31, 1999 or 1998.
During the year ended March 31, 1999, the Company reacquired approximately 8,800
shares of its common stock.
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 10 - STOCK OPTION AND BONUS PLANS:
During November 1985, the Company adopted the 1985 stock option plan to grant
incentive and nonqualified stock options to officers and key employees of the
Company for the purchase of up to 500,000 shares of the Company's common stock.
During fiscal year 1997, the board of directors voted to extend the term of the
plan by 12 months thereby making the expiration date December 31, 1996. Under
the plan, options were granted at prices equal to or greater than fair market
value at date of grant. The shares, subject to various limitations, are
exercisable over terms not to exceed ten years. No options were granted during
the years ended March 31, 1998 or 1999. A total of 286,250 options were
exercised as of March 31, 1999, with 103,000 options left outstanding.
Activity under the plan is summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER OF PER SHARE
SHARES (AVERAGE) AGGREGATE
---------- ----------- ------------
<S> <C> <C> <C>
Options outstanding at March 31, 1996 199,500 .970 206,195
Options granted 14,500 2.0625 29,906
Options exercised (27,500) 1.0625 (29,219)
Options cancelled or expired - - -
------- ----------- ----------
Options outstanding at March 31, 1997 199,500 1.0370 206,882
Options exercised (70,000) .9375 (65,625)
Options cancelled or expired (11,500) 1.3102 (15,068)
------- ----------- ----------
Options outstanding at March 31, 1998 118,000 1.0694 126,189
------- ----------- ----------
------- ----------- ----------
Options cancelled or expired (15,000) 1.5833 (23,750)
------- ----------- ----------
Options outstanding at March 31, 1999 103,000 $ .9945 $ 102,439
------- ----------- ----------
------- ----------- ----------
</TABLE>
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 11 - MAJOR CUSTOMER AND EXPORT SALES:
During the year ended March 31, 1999 two customers accounted for more than 10%
of sales. These customers accounted for 14% of sales each.
During the year ended March 31, 1998, one customer accounted for more than 10%
of sales. This customer, a large consumer discount house, accounted for 23% of
sales for fiscal 1998. In June of 1997, the Company learned that this customer
would not renew its purchase agreement for the next year and orders from the
customer ceased in August, 1997. The loss of this customer has had a significant
adverse effect on the Company's revenues. For fiscals 1999, 1998 and 1997, sales
to this customer were approximately $0, $759,000, and $2,403,000, respectively.
In addition, the Company had export sales to unaffiliated customers as follows
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Europe $ 110 $ 242 $ 209
Canada 16 199 326
Australia - 20 32
Africa 9 30 36
Far East 22 19 26
Other geographic areas 3 16 20
------- ------- -------
$ 160 $ 526 $ 649
------- ------- -------
------- ------- -------
</TABLE>
Operations by geographic area are summarized as follow (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net Sales:
Domestic customers $ 1,529 $ 2,773 $ 5,112
International 160 526 649
------- ------- -------
Total $ 1,689 $ 3,299 $ 5,761
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES:
The Company leases facilities under noncancelable operating leases that expires
September 20, 2002. Rental expense was $136,000, $117,000, and $117,000 for the
years ended March 31, 1999, 1998, and 1997, respectively.
Minimum annual rental commitments under operating leases are summarized as
follows (in thousands):
<TABLE>
<S> <C>
2000 129
2001 133
2002 138
2003 69
------
$ 469
------
------
</TABLE>
A lawsuit was filed against PerfectData in the Superior Court of Orange
County, California on May 11, 1995. The lawsuit involves product liability
resulting in a loss of life. On June 4, 1996, judgement was found in favor of
the Company with no liability. The plaintiff has appealed this ruling and the
court has ordered a hearing in which oral arguments will be heard. Due to a
backlog in the courts, the hearing is not scheduled until late 1999.
PerfectData has little, if any, exposure in this matter as they are covered
by a general liability policy issued by CNA Insurance with liability limits
of $6,000,000. All court costs are being borne by CNA Insurance.
As the result of a different lawsuit, in November 1995, a former employee won
an award against the Company for $203,403. The lawsuit related to the
termination, in October 1993, of an employment contract entered into between
the company and the individual during July 1993. This employment contract was
entered into in conjunction with the purchase, by the Company, of a computer
cable business from the individual. The award was comprised of damages of
$136,525 and attorneys' fees and other costs of $66,878. These legal expenses
were expensed as part of discontinued operations.
In January 1996, the Company filed a notice of appeal and on March 31, 1997
the appeals court issued its opinion affirming the judgement against the
Company. This judgement became final on April 30, 1997. At the time of its
appeal, the Company posted a Certificate of Deposit in the amount of $305,000
to cover any amount it would have to pay. This amount appears in the
Company's balance sheet as of March 31, 1997 as a deposit on litigation award.
In December 1995 the Company filed a complaint against the same former employee
and his company alleging that they copied PerfectData's trademark and trade
dress in an attempt to distribute or otherwise sell their product, "Perfect
Cleaner". The product would compete directly with the Company's line of products
known as PerfectDuster, PerfectDuster Plus and PerfectDuster II Plus. On
December 21, 1995, the Court granted the Company's motions for a restraining
order and preliminary injunction which enjoined the defendants from the
manufacture and distribution of the product in question.
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
The parties reached a global settlement of both actions. Under terms of the
settlement, the Company paid the former employee the sum of $185,000 in
exchange for its right to seek further appeal. Defendants in the trademark
infringement action agreed to assign and transfer any and all right, title
and interest in the trademark, trade name, and trade dress of their canned
air product "Perfect Cleaner" and any and all goodwill of the Perfect Cleaner
business to the Company. The former employee and his company further agreed
not to sell a canned air product in the United States or Canada for three
years.
Unresolved was the amount of attorneys' fees owed to the former employee's
counsel in his case against the Company. It was the contention of his counsel
that they were entitled to an award of attorneys' fees for services rendered
during the Company's appeal of the original judgement against the Company.
The parties agreed to have this issue decided by a judge. In fiscal 1997, the
Company accrued an additional $62,000 of loss to cover these actions,
bringing the total to $265,000 since the first suit was filed. This amount
was comprised of the $185,000 to be paid to the former employee and $80,000
to cover the Company's and the former employee's legal costs. This additional
$62,000 was charged to discontinued operations for the year ended March 31,
1997. On July 21, 1997, a hearing was held in the Superior Court of Ventura
County, California. On October 17, 1997, the judge ruled in favor of the
former employee and awarded post-judgement attorney's fees in the amount of
$96,268. During November 1997, the parties settled the post-judgement
attorney's fees for the sum of $82,500 which the Company paid the former
employee and his attorneys in December, 1997. As a result of these actions,
including final settlement of the case, the Company recorded a charge to
discontinued operations of $66,000 during fiscal 1998.
In an unrelated case, the past CFO of Permabyte Magnetics, Inc. (PMI) has
brought an action for unpaid wages and fraudulent conveyence against PMI, the
Company, the Company's chairman and a director of the Company. The former CFO
claimed that PMI owed her approximately $30,000 for unpaid vacation which had
accrued prior to her termination.
During a demurrer to the First Amended Complaint, the former CFO failed to
properly seek leave of court to file a second amended complaint.
Consequently, the court dismissed the entire action. In August 1996, the
former CFO filed a notice of appeal with the 4th Appellate District Court of
Appeal in San Diego, California. On June 11,1998, in the San Diego Court of
Appeal, 4th Appellate District, oral arguments were heard.
In March of 1999, the parties agreed to a settlement and Mutual Release of
All Claims, whereby the Company paid the former CFO $14,000 to fully and
completely settle the action. The Company paid the $14,000 in May of 1999,
and the court dismissed the action without prejudice.
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarterly financial data from continuing operations for the eight quarters
ended March 31, 1997 is summarized as follows (dollars in thousands, except
per share amounts):
<TABLE>
<CAPTION>
June 30, September 30, December 31, March 31,
1998 1998 1998 1999
------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales $ 452 $ 423 $ 396 $ 418
Gross profit 166 175 151 159
Net earnings (72) (101) (102) (127)
Earnings per share (.02) (.04) (.03) (.04)
Weighted average
shares outstanding 3,164 3,161 3,156 3,155
------- ------- ------- -------
------- ------- ------- -------
June 30, September 30, December 31, March 31,
1997 1997 1997 1998
------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales $ 1,452 $ 740 $ 525 $ 582
Gross profit 482 270 216 126
Net earnings 11 (104) (16) (408)
Earnings per share .00 (.03) (.04) (.13)
Weighted average
shares outstanding 3,094 3,094 3,143 3,164
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
NOTE 14 - DISCONTINUED OPERATION:
In May 1994, the Company adopted a formal plan to discontinue all products in
the telecommunications industry line which consisted of modems, cables and
switch boxes. As part of such plan, the Company discontinued production in
May 1994 with the intent of either selling or abandoning the remaining assets
and corresponding operations during fiscal 1995. As a result, the Company
recorded a fourth quarter charge of $333,000, net of income tax benefit, to
write down the product line assets to their estimated net realizable values.
Such fiscal 1994 losses are included in the Company's net operating loss
carryforwards, disclosed in Note 8.
<PAGE>
PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended March 31, 1999, 1998, and 1997
NOTE 14 - DISCONTINUED OPERATION (CONTINUED):
During fiscal 1995, most assets of the discontinued operations were disposed
of, and the balance, with the exception of deferred tax assets, were disposed
of during fiscal 1996.
As discussed in Note 12, during fiscal 1996, the Company lost a lawsuit to a
former employee who was employed in connection with the discontinued cable
operations. As a result of this unanticipated court decision, the Company
recorded a loss of approximately $186,000, offset by a deferred tax asset of
$88,000 to discontinued operations for fiscal 1996. For fiscal year 1997, the
Company has recorded an additional $62,000 of possible loss which has been
offset by an increased deferred tax asset of $27,000. This litigation award
was paid during fiscal 1998, thus eliminating the last remaining liabilities
associated with the Company's discontinued operations. Due to the
unlikelihood that the Company will realize the benefit of any deferred tax
assets related to its net operating loss carryforwards, the Company reserved
the remaining $115,000 of deferred tax assets related to its discontinued
operations during fiscal 1998.
<PAGE>
PERFECTDATA CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
ADDITIONS
<TABLE>
<CAPTION>
CHARGED
BALANCE CHARGED TO TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS AT END OF
PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
--------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts $ 12,000 $ - $ - $ (3,000) $ 9,000
Allowance for inventory reserves 120,000 2,000 - - 122,000
Allowance for net unrealized (gains)
losses on marketable equity
securities-current (22,000) - 80,000 - 58,000
--------- --------- --------- --------- ---------
TOTAL $ 110,000 $ 2,000 $ 80,000 $ (3,000) $ 189,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Year ended March 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts $ 9,000 $ 3,000 $ - $ - $ 12,000
Allowance for inventory reserves 40,000 80,000 - - 120,000
Allowance for net unrealized (gains)
losses on marketable equity
securities-current 5,000 - - (27,000) (22,000)
--------- --------- --------- --------- ---------
TOTAL $ 54,000 $ 83,000 $ - $ (27,000) $ 110,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Year ended March 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts $ 11,000 $ - $ - $ 2,000 $ 9,000
Allowance for inventory reserves 155,000 - - 115,000 40,000
Allowance for net unrealized
losses on marketable equity
securities-current 22,000 - - 17,000 5,000
--------- --------- --------- --------- ---------
TOTAL $ 188,000 $ - $ - $ 134,000 $ 54,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: Joseph Mazin
-----------------------
Joseph Mazin, President
Date: June 22, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 22, 1999.
SIGNATURE TITLE
--------- -----
Joseph Mazin President, Chief Executive Officer,
- ------------------- Director and Chairman of the
Joseph Mazin Board (Principal Executive Officer)
Irene J. Marino V.P. Finance, Chief Financial Officer
- ------------------- and Corporate Secretary (Principal
Irene J. Marino Financial and Accounting Officer)
Tracie Savage Director
- -------------------
Tracie Savage
Ronald M. Chodorow Director
- -------------------
Ronald M. Chodorow
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- --------------------------------------
<S> <C>
3.1 Articles of Incorporation as
amended to date(7)
3.2 Bylaws as amended to date(15)
9 Stockholders Agreement dated
November 3, 1980(1)
10.3 Stock Purchase Agreement
between the Company and Wood
River Capital Corporation
dated October 28, 1980(1)
10.4 Stock Option Agreement with
Wood River Capital Corporation
dated November 3, 1980(1)
10.7 1985 Employee Stock Option
Plan(2)
10.8 Form of Incentive Stock Option
Agreement(2)
10.9 Form of Non-Qualified Stock
Option Agreement(2)
10.12 Employee Stock Option Plan(1)
10.13 Amendment No. 1 to Employee
Stock Option Plan(1)
10.14 Form of Non-Qualified Stock
Option Agreement with
Repurchase Provisions(1)
10.15 Form of Amendment No. 1 to
Non-Qualified Stock Option
Agreement with Repurchase
Provisions(1)
10.16 Form of Incentive Stock Option
Agreement with Repurchase
Provisions(1)
10.17 Form of Stock Purchase
Agreement dated March 23, 1983(1)
<PAGE>
10.25 Lease Agreement dated February 7, 1985
between Pension Funds Securities Limited,
as lessor, IDA International Data
Automation Limited, as lessee, and the
Company, as surety (Wokingham, England
facility)(2)
10.26 Surety Agreement dated February 7, 1985
between Pension Funds Securities Limited,
as landlord, IDA International Data
Automation Limited, as tenant, and the
Company, as surety(2)
10.38 1985 Employee Stock Purchase Plan(3)
10.39 Form of Representative Agreement
between the Company and its
Representatives(4)
10.40 Form of Standard Exclusive Distributor
Agreement between the Company and its
Distributors(4)
10.42 Agreement between the Company and
International Data Automation, dated
February 23, 1987, as amended to date(8)
10.43 License Agreement dated August 14,
1987 between Polaroid Corporation and
the Company(5)
10.44 Security Agreement dated August 14,
1987 between Polaroid Corporation and
the Company(5)
10.45 Settlement Agreement dated August 14,
1987 between Polaroid Corporation and
the Company(5)
10.46 Standard Industrial Lease dated
September 25, 1987 between
Gurgen Minaskanian, as lessor, and the
Company, as lessee(5)
10.47 Agency Agreement dated February 23,
1988 between Amaray Data International
Limited and the Company(5)
10.48 License to Assign Sublease (Wokingham,
England, facility) between Pension Fund
Securities Limited, as landlord,
PerfectData International Limited,
<PAGE>
as tenant, the Company, as Surety, and
Integrated Computer Systems and
Cybernetics Limited, as subtenant(6)
10.49 Loan and Security Agreement with respect
to line of credit in the amount of
$500,000 with Mitsui Manufacturers Bank(6)
10.52 Loan and Security Agreement with
respect to renewal of line of credit
in the amount of $500,000 with
Mitsui Manufacturers Bank(8)
10.53 Agreement between the Company,
Robert B. Miller and Coverware Company
dated November 15, 1990(8)
10.54 Warrant to Purchase Common Stock dated
May 15, 1991 issued to Richard J. Coyle(9)
10.55 Bills of Sale with respect to purchase of
assets of Anchor Automation Inc.(9)
10.56 Standard Industrial Lease dated August 26,
1991, between Wayne Mertes, Mamie Mertes,
Mike Butler and Sarah Butler, as lessor,
and the Company, as lessee(9)
10.57 Loan and Security Agreement with respect to
renewal of line of credit in the amount of
$500,000 with Mitsui Manufacturers Bank(9)
10.58 Exclusive Distribution Agreement between
the Company and Acoustics and Felts Pty
Ltd.(10)
10.59 Loan and Security Agreement with respect to
increased renewal of line of credit in the
amount of $1 million with Manufacturers
Bank(10)
10.60 License Agreement between the Company and
Arthur D. Little Enterprises, Inc.(11)
10.61 Agreement between the Company and Tony
Gigiliotti dba SubSystems, dated June 15,
1993(11)
10.62 Loan and Security Agreement with respect to
renewal of line of credit in the amount of
$1 million with Manufacturers Bank(11)
10.63 Stock Purchase Agreement by and among
Flamemaster Corporation, the Company, Bruce
D. Stuart and Joseph Mazin, Robert
Murashige and PermaByte Magnetics, Inc.(12)
10.64 Loan and Security Agreement with respect to
renewal of line of credit in the amount of
$1 million with Manufacturers Bank(12)
<PAGE>
10.65 Loan and Security Agreement with respect to
renewal of line of credit in the amount of
$1 million with Manufacturers Bank(13)
10.66 Loan and Security Agreement with respect to
renewal of line of credit in the amount of
$1 million with Manufacturers Bank(14)
</TABLE>
- ----------
(1) Incorporated by reference to the same numbered exhibit to Registration
Statement on Form S-1, as amended (File No.2-83836), filed May 18, 1983
and declared effective July 12, 1983.
(2) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1985.
(3) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1986.
(4) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1987.
(5) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1988.
(6) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1989.
(7) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1990.
(8) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1991.
(9) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1992.
(10) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1993.
(11) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1994.
(12) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1995.
(13) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1996.
(14) Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for its fiscal year ended March 31, 1997.
(15) Filed herewith.
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on December 1, 1998, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than three (3) or
more than five (5) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be three (3) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of December 11, 1998.
/s/ Irene J. Marino
-------------------------------------
Irene J. Marino, Secretary
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on October 19, 1995, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than three (3) or
more than five (5) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be four (4) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of October 24, 1995.
/s/ Irene J. Marino
-------------------------------------
Irene J. Marino, Secretary
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on November 1, 1994, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than three (3) or
more than five (5) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be three (3) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of November 4, 1994.
/s/ Irene J. Marino
-------------------------------------
Irene J. Marino, Secretary
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on November 4, 1993, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than three (3) or
more than five (5) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be five (5) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of November 8, 1993.
/s/ Irene J. Marino
-------------------------------------
Irene J. Marino, Secretary
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on August 12, 1993, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than three (3) or
more than five (5) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be four (4) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of August 13, 1993.
/s/ Irene J. Marino
-------------------------------------
Irene J. Marino, Secretary
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on June 28, 1993, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than three (3) or
more than five (5) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be five (5) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of June 30, 1993.
/s/ Irene J. Marino
-------------------------------------
Irene J. Marino, Secretary
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on September 6, 1991, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than three (3) or
more than five (5) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be three (3) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of October 31, 1991.
/s/ Irene J. Marino
-------------------------------------
Irene J. Marino, Secretary
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on June 27, 1990, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than five (5) or
more than nine (9) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be five (5) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of August 17, 1990.
/s/ Irene J. Marino
-------------------------------------
Irene J. Marino, Secretary
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on June 22, 1989, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than five (5) or
more than nine (9) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be six (6) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of July 28, 1989.
/s/ Irene J. Marino
-------------------------------------
Irene J. Marino, Secretary
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
President of the above-named corporation and that at the Annual Meeting of
Shareholders duly noticed and held on November 7, 1985, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than five (5) or
more than nine (9) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, or by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be five (5) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of December 31, 1985.
/s/ C. Paul Davis
-------------------------------------
C. Paul Davis, President
<PAGE>
Amendment of Bylaws
of
PerfectData Corporation
This is to certify that I am the duly elected, qualified and acting
Secretary of the above-named corporation and that at a meeting of the Board
of Directors duly noticed and held on April 3, 1985, Section 2 of Article
III of the Bylaws of the above-named corporation was amended to read in its
entirety as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS.
The authorized number of Directors shall be not less than three (3) or
more than five (5) until changed by amendment of the Articles of
Incorporation or by a bylaw duly adopted by the shareholders. The exact
number of Directors shall be fixed, within the limits specified in the
Articles of Incorporation or the Bylaws, by a bylaw or amendment
thereof duly adopted by the shareholders or by the Board of Directors.
"The exact number of Directors shall be five (5) until changed as
provided in the foregoing paragraph of this Section 2."
IN WITNESS WHEREOF, I have hereunto set my hand as of April 3, 1985.
/s/ Lewis A. Whitaker
-------------------------------------
Lewis A. Whitaker, Secretary
<PAGE>
BYLAWS
of
PerfectData Corporation
a California Corporation
EXHIBIT 3.2
<PAGE>
ARTICLE I. OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of the corporation is hereby fixed at 9174 Deering Avenue, Chatsworth,
California 91311. The Board of Directors (herein called the "Board") is
hereby granted full power and authority to change said principal executive
office from one location to another. Any such change shall be noted on the
Bylaws opposite this Section, or this Section may be amended to state the new
location.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any
time be established by the Board at any place or places.
ARTICLE II. SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
either at the principal executive office of the corporation or at any other
place within or without the State of California which may be designated
either by the Board or by the written consent of all persons entitled to vote
thereat, given either before or after the meeting and filed with the
Secretary.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall
be held on March 15 at 10:00 a.m. local time, or such other date or such
other time as may be fixed by the Board; provided, however, that should said
day fall upon a Saturday, Sunday, or legal holiday observed by the
corporation at its principal executive office, then any such annual meeting
of shareholders shall be held at the same time and place on the next day
thereafter ensuing which is a full business day. At such meetings directors
shall be elected and any other proper business may be transacted.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders
may be called at any time by the Board, the Chairman of the Board, the
President, or by the holders of shares entitled to cast not less than ten
percent of the votes at such meeting. Upon request in writing to the Chairman
of the Board, the President, any Vice President or the Secretary by any
person (other than the Board), entitled to call a special meeting of the
shareholders, the officer forthwith shall cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested
by the person or persons calling the meeting, not less than 35 nor more than
60 days after receipt of the request. If the notice is not given within 20
days after receipt of the request, the persons entitled to call the meeting
may give the notice.
1.
<PAGE>
Section 4. NOTICE OF ANNUAL OR SPECIAL MEETING. (a) Written notice
of each annual or special meeting of shareholders shall be given to each
shareholder entitled to vote thereat. Such notice shall state the place,
date, and hour of the meeting and (i) in the case of a special meeting the
general nature of the business to be transacted, and no other business may be
transacted, or (ii) in the case of the annual meeting those matters which the
Board, at the time of the mailing of the notice, intends to present for
action by the shareholder, but subject to the provisions of applicable law,
any proper matter may be presented at the meeting for such actions. The
notice of any meeting at which directors are to be elected shall include the
names of nominees intended at the time of the notice to be presented by
management for election.
(b) Notice of a shareholders' meeting shall be given either personally
or by mail or by other means of written communication, addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice; or if, no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. Notice by mail shall be deemed to have
been given at the time a written notice is deposited in the United States
mails, postage prepaid. Any other written notice shall be deemed to have or
is delivered to a common carrier for transmission, or actually transmitted by
the person giving the notice by electronic means, to the recipient.
Section 5. QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting
of shareholders. The shareholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least
a majority of the shares required to constitute a quorum.
Section 6. ADJOURNED MEETING AND NOTICE THEREOF. (a) Any
shareholders' meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares, the holders of
which are either present in person or represented by proxy thereat, but in
the absence of a quorum (except as provided in Section 5 of this Article) no
other business may be transacted at such meeting.
(b) It shall not be necessary to give any notice of the time and place
of the adjourned meeting or of the business to be transacted thereat, other
than by announcement at the meeting at
2.
<PAGE>
which such adjournment is taken; provided, however, when any shareholders'
meeting is adjourned for more than 45 days or, if after adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given as in case of an original meeting.
Section 7. VOTING. (a) The shareholders entitled to notice of any
meeting or to vote at any such meeting shall be only persons in whose name
shares stand on the stock records of the corporation on the record date
determined in accordance with Section 8 of this Article.
(b) Voting shall in all cases be subject to the provisions of Chapter 7
of the California General Corporation Law and to the following provisions:
(i) Subject to clause (g), shares held by an administrator,
executor, guardian, conservator or custodian may be voted by such holder,
either in person or by proxy, without a transfer of such shares into the
holder's name; and shares standing in the name of a trustee may be voted by
the trustee, either in person or by proxy, but no trustee shall be entitled
to vote shares held by such trustee without a transfer of such shares into
the trustee's name.
(ii) Shares standing in the name of a receiver may be voted by such
receiver; and shares held by or under the control of a receiver may be voted
by such receiver without the transfer thereof into the receiver's name if
authority to do so is contained in the order of the court by which such
receiver was appointed.
(iii) Subject to the provisions of Section 705 of the California
General Corporation Law, and except where otherwise agreed in writing between
the parties, a shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(iv) Share standing in the name of a minor may be voted and the
corporation may treat all rights incident thereto as exercisable by the
minor, in person or by proxy, whether or not the corporation has notice,
actual or constructive, of the nonage, unless a guardian of the minor's
property has been appointed and written notice of such appointment given to
the corporation.
(v) Subject to the provisions of Subsection (vi) below, shares of
this corporation standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxyholder as the bylaws of
such other corporation may prescribe or, in the absence of such provision,
the Board of Directors of such other corporation may determine or, in the
3.
<PAGE>
absence of such determination, by the chairman of the board, president or any
vice president of such other corporation, or by any other person authorized
to do so by the board, president or any vice president of such other
corporation. Shares which are purported to be voted or any proxy purported to
be executed in the name of a corporation (whether or not any title of the
person signing is indicated) shall be presumed to be voted or the proxy
executed in accordance with the provisions of this subdivision, unless the
contrary is shown.
(vi) Shares of the corporation owned by any subsidiary shall not be
entitled to vote on any matter. A subsidiary for these purposes is defined as
a corporation, the shares of which possessing more than 25% of the total
combined voting power of all classes of shares entitled to vote, are owned
directly or indirectly through one (1) or more subsidiaries.
(vii) Shares held by the corporation in a fiduciary capacity, and
shares of the corporation held in a fiduciary capacity by any subsidiary,
shall not be entitled to vote on any matter, except to the extent that the
settlor or beneficial owner possesses and exercises a right to vote or to
give the corporation binding instructions as to how to vote such shares.
(viii) If shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by the
entirety, voting trustees, persons entitled to vote under a shareholder
voting agreement or otherwise, or if two or more persons (including
proxyholders) have the same fiduciary relationship respecting the same
shares, unless the secretary of the corporation is given written notice to
the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, their
acts with respect to voting shall have the following effect:
(A) If only one votes, such act binds all;
(B) If more than one vote, the act of the majority so voting
binds all;
(C) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionately. If the instrument so filed or the registration of the shares
shows that any such tenancy is held in unequal interests, a majority or even
split for the purposes of this section shall be a majority or even split.
(c) Subject to the following sentence and to the provisions of
Section 708 of the California General Corporation Law, every shareholder
entitled to vote at any election of directors may cumulate such shareholder's
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which the shareholder's
shares are entitled, or distribute the shareholder's votes on the
4.
<PAGE>
same principle among as many candidates as the shareholder thinks fit. No
shareholder shall be entitled to cumulate votes for any candidate or
candidates pursuant to the preceding sentence unless such candidate or
candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice, at the meeting prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes
for candidates in nomination.
(d) Elections need not be by ballot; providing however, that all
elections for directors must be by ballot upon demand made by a shareholder
at the meeting and before the voting begins.
(e) In any election of directors, the candidates receiving the highest
number of votes of the shares entitled to be voted for them up to the number
of directors to be elected by such shares are elected.
Section 8. RECORD DATE. (a) The Board may fix, in advance, a record
date for the determination of the shareholders entitled to notice of any
meeting or to vote or entitled to receive payment of any dividend or other
distribution, or any allotment of rights, or to exercise rights in respect of
any other lawful action. The record date so fixed shall be not more than 60
nor less than 10 days prior to the date of the meeting nor more than 60 days
prior to any other action. When a record date is so fixed, only shareholders
of record on that date are entitled to notice of and to vote at the meeting
or to receive the dividend, distribution, or allotment of rights, or to
exercise of the rights, as the case may be, notwithstanding any transfer of
shares on the books of the corporation after the record date. A determination
of shareholder of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting unless the Board
fixes a new record date for the adjourned meeting. The Board shall fix a new
record date if the meeting is adjourned for more than 45 days.
(b) If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held. The record date for determining shareholders for any purpose
other than set forth in this Section 8 or Section 10 of this Article shall be
at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth day prior to the date of such other action,
whichever is later.
5.
<PAGE>
Section 9. CONSENT OF ABSENTEES. The transaction of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum
is present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Neither the business to be transacted at nor the
purpose of any regular or special meeting of shareholders need be specified
in any written waiver of notice, except as provided in Section 601(f) of the
California General Corporation Law.
Section 10. ACTION WITHOUT MEETING. Subject to Section 603 of any action
which, under any provision of the California General Corporation Law, may be
taken at any annual or special meeting of shareholders, may be taken without
a meeting and without prior notice if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Unless a record date for voting purposes
be fixed as provided in Section 8 of this Article, the record date for
determining shareholders entitled to give consent pursuant to this Section
10, when no prior action by the Board has been taken, shall be the day on
which the first written consent is given.
Section 11. PROXIES. Every person entitled to vote shares has the right
to do so either in person or by one or more persons authorized by a written
proxy executed by such shareholder and filed with the Secretary. Any proxy
duly executed is not revoked and continues in full force and effect until
revoked by the person executing it prior to the vote pursuant thereto by a
writing delivered to the corporation stating that the proxy is revoked or by
a subsequent proxy executed by, or by attendance at the meeting and voting in
person by the person executing the proxy; provided, however, that no proxy
shall be valid after the expiration of 11 months from the date of its
execution unless otherwise provided in the proxy.
Section 12. INSPECTORS OF ELECTION. (a) In advance of any meeting of
shareholders, the Board may appoint any persons, other than nominees for
office, as inspectors of elections to act at such meetings and any
adjournment thereof. If inspectors of elections be not so appointed or if any
person so appointed fail
6.
<PAGE>
to appear or refuse to act, the chairman of any such meeting may, and on the
request of any shareholder or shareholder's proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders
or proxies, the majority of shares present shall determine whether one or
three inspectors are to be appointed.
(b) The duties of such inspectors shall be as prescribed by Section
707(b) of the California General Corporation Law and shall include:
determining the number of shares outstanding and the voting power of each;
the shares represented at the meeting, the existence of a quorum; the
authenticity, validity, and effect of proxies; receiving votes, ballots, or
consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all
votes or consents, determining when the polls shall close; determining the
result; and doing such acts as may be proper to conduct the election or vote
with fairness to all shareholders. If there are three inspectors of election,
the decision, act, or certificate of a majority is effective in all respects
as the decision, act, or certificate of all.
Section 13. SHAREHOLDERS' AGREEMENTS. (a) Notwithstanding the above
provisions, in the event this corporation elects to become a close
corporation, an agreement between two (2) or more shareholders thereof, if in
writing and signed by the parties thereof, may provide that in exercising any
voting rights the shares held by them shall be voted as provided therein or
in Section 706 of the California General Corporation Law and may otherwise
modify these provisions as to shareholders' meetings and actions.
(b) EFFECT OF SHAREHOLDERS' AGREEMENTS. Any shareholders' agreement
authorized by Section 300(b) of the California General Corporation Law will
only be effective to modify the terms of these By-Laws if this corporation
elects to become a close corporation with appropriate filing of or amendment
to its Articles as required by Section 202 of the California General
Corporation Law and shall terminate when this corporation ceases to be a
close corporation. Such an agreement cannot waive or alter Sections 158,
(defining close corporations), 202 (requirements of Articles of
Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e)
(reorganization) or Chapters 15 (Records and Reports), 16 (Rights of
Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any
other provisions of the California General Corporation Law or these By-Laws
may be altered or waived thereby, but to the extent
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they are not so altered or waived, these By-Laws shall be applicable.
ARTICLE III. DIRECTORS
Section I. POWERS. Subject to limitations of the Articles or these
Bylaws, and the California General Corporation Law relating to action
required to be approved by the shareholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board. The Board
may delegate the management of the day-to-day operation of the business of
the corporation to a management company or other person provided that the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised under the ultimate direction of the Board. Without
prejudice to such general powers, but subject to the same limitations, it is
hereby expressly declared that the Board shall have the following powers in
addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents, and employees
of the corporation, prescribe the powers and duties for them as may not be
inconsistent with law, or with the Articles or these Bylaws, fix their
compensation, and require them security for faithful service.
(b) To conduct, manage, and control the affairs and business of the
corporation and to make such rules and regulations therefor not inconsistent
with law, or with the Articles or these Bylaws, and they may deem best.
(c) To adopt, make, and use a corporate seal, and to prescribe the forms
of certificates of stock, and to alter the form of such seal and of such
certificates from time to time as in their judgement they may deem best.
(d) To authorize the issuance of shares of stock of the corporation from
time to time, upon such terms and for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bond, debentures, deeds of trust, mortgages,
pledges, hypothecations, or other evidences of debt and securities therefor.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number
of Directors shall be not less than three (3) or more than five (5) until
changed by amendment of the Articles of Incorporation or by a by-law duly
adopted by the shareholders. The exact number of Directors shall be fixed,
within the limits specified in the Articles of Incorporation or the By-Laws,
by a by-law or amendment thereof duly adopted by the shareholders or by the
Board of Directors.
The exact number of Directors shall be four (4) until changed as
provided in the foregoing paragraph of this Section 2.
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Section 3. ELECTION AND TERM OF OFFICE. The directors shall be elected
at each annual meeting of shareholders but if any such annual meeting is not
held or the directors are not elected thereat, the directors may be elected
at any special meeting of shareholders held for that purpose. Each director
shall hold office until expiration of the term for which elected and until a
successor has been elected and qualified.
Section 4. VACANCIES. (a) Any director may resign effective upon giving
written notice to the Chairman of the Board, the President, Secretary, or the
Board, unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor
may be elected to take office when the resignation becomes effective.
(b) Subject to the provisions of Section 305(c) of the California
General Corporation Law, vacancies in the Board, including those existing as a
result of a removal of a director, may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining
director, and each director so elected shall hold office until the next
annual meeting and until such director's successor has been elected and
qualified.
(c) A vacancy or vacancies in the Board shall be deemed to exist in case
of the death, resignation, or removal of any director, or if the authorized
number of directors be increased, or if the shareholders fail, at any annual
or special meeting of shareholders at which any director or directors are
elected, to elect the full authorized number of directors to be voted for at
that meeting.
(d) The Board may declare vacant the office of a director who has been
declared of unsound mind by an order of court or convicted of a felony.
(e) The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors. Any such election
by written consent requires the consent of a majority of the outstanding
shares entitled to vote. If the board accepts the resignation of a director
tendered to take effect at a future time, the Board or the shareholders shall
have the power to elect a successor to take office when the resignation is to
become effective.
(f) No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of the director's
term of office.
Section 5. PLACE OF MEETING. Regular or special meetings of the Board
shall be held at any place within or without the State of California which
has been designated from time to time by the Board. In the absence of such
designation regular
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meetings shall be held at the principal executive office of the corporation.
Section 6. REGULAR MEETINGS. (a) Immediately following each annual
meeting of shareholders the Board shall hold a regular meeting without call
or notice for the purpose of organization, election of officers, and the
transaction of other business.
(b) Other regular meetings of the Board shall be held without call or
notice on the thirtieth day of the first month of each calendar quarter, or
otherwise as specified by the Board; provided, however, should said day fall
upon a Saturday, Sunday, or legal holiday observed by the corporation at its
principal executive office, then said meeting shall be held at the same time
on the next day thereafter ensuing which is a full business day. Call and
notice of all regular meetings of the Board are hereby dispensed with.
Section 7. SPECIAL MEETINGS. (a) Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman of the Board,
the president, or the Secretary or by any two directors.
(b) Special meetings of the Board shall be held upon not less than four
days' written notice or not less than 48 hours' notice given personally or by
telephone, telegraph, telex, or other similar means of communication. Any
such notice shall be addressed or delivered to each director at such
director's address as it is shown upon the records of the corporation or as
may have been given to the corporation by the director for the purposes of
notice or, if such address is not shown on such records or is not readily
ascertainable, at the place in which the meetings of the directors are
regularly held.
(c) Notice by mail shall be deemed to have been given at the time a
written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient. Oral notice shall be deemed to have been
given at the time it is communicated, in person or by telephone or wireless,
to the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly communicate it to the
recipient.
Section 8. QUORUM. A majority of the authorized number of directors
constitutes a quorum of the Board for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall
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be regarded as the act of the Board, unless a greater number be required by
law or by the Articles. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors, if
any action taken is approved by at least a majority of the required quorum
for such meetings.
Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of
the Board may participate in a meeting through the use of conference
telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another. Participation in a
meeting pursuant to this Section 9 constitutes presence in person at such
meeting.
Section 10. WAIVER OF NOTICE. The transactions of any meeting of the
Board, however called and noticed or wherever held, are as valid as though had
at a meeting duly held after regular call and notice if a quorum be present
and if, either before or after the meeting, each of the directors not present
signs a written waiver of notice, a consent to holding such meeting or an
approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
Section 11. ADJOURNMENT. A majority of the directors present, whether or
not a quorum is present, may adjourn any directors' meeting to another time
and place. If the meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 12. FEES AND COMPENSATION. Directors and members of committee
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board,
provided that nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board may be taken without a meeting if all members of the
Board shall individually or collectively consent in writing to such action.
Such consent or consents shall have the same effect as a unanimous vote of
the Board and shall be filed with the minutes of the proceedings of the Board.
Section 14. RIGHTS OF INSPECTION. Every director shall have the
absolute right at any reasonable time to inspect and
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copy all books, records, and documents of every kind and to inspect the
physical properties of the corporation and also of its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made
in person or by agent or attorney and includes the right to copy and obtain
extracts.
Section 15. COMMITTEES. (a) The Board may appoint one or more committees,
each consisting of two or more directors, and delegate to such committees any
of the authority of the Board except with respect to:
(i) The approval of any action for which the General Corporation Law
also requires shareholders' approval or approval of the outstanding shares;
(ii) The filling of vacancies on the Board or on any committee;
(iii) The fixing of compensation of the directors for serving on the Board
or on any committee;
(iv) The amendment or repeal of Bylaws or the adoption of new Bylaws;
(v) The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable;
(vi) A distribution to the shareholders of the corporation except at a
rate or in a periodic amount or within a price range determined by the Board.
(vii) The appointment of other committees of the Board or the members
thereof.
(b) Any such committee must be appointed by resolution adopted by a
majority of the authorized number of directors and may be designated an
Executive Committee or by such other name as the Board shall specify. Except
as set forth below, the Board shall have the power to prescribe the manner in
which proceedings of any such committee shall be conducted; in the absence of
any such prescription, such committee shall have the power to prescribe the
manner in which its proceedings shall be conducted. The regular and special
meetings of any such committee shall be governed by the provisions of this
Article applicable to meetings and actions of the Board. Minutes shall be
kept of each meeting of each committee.
Section 16. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the
provisions of Section 1, in the event that this corporation shall elect to
become a close corporation as defined in Section 186 of the California
General Corporations Law its shareholders may enter into a Shareholders'
Agreement as provided in Section 300(b). Said agreement may provide for the
exercise of corporate powers and the management of the business and affairs
of this corporation by the shareholders, provided, however, such agreement
shall, to the extent and so long as the discretion or the powers of the Board
in its management of
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corporate affairs is controlled by such agreement, impose upon each
shareholder who is a party thereof, liability for managerial acts performed
or omitted by such person pursuant thereto otherwise imposed upon directors
as provided in Section 300(d) of the California General Corporation Law.
Section 17. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION OR
BY-LAWS. In the event only one (1) director is required by the By-Laws or
Articles of Incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise
all of the powers and shall assume all the responsibilities otherwise herein
described as given to a Board of Directors.
Section 18. ADVISORY DIRECTORS. The Board of Directors from time to time
may elect one or more persons to be Advisory Directors who shall not by such
appointment be members of the Board of Directors. Advisory Directors shall be
available from time to time to perform special assignments specified by the
president, to attend meetings of the Board of Directors upon invitation and
to furnish consultation to the Board. The period during which the title shall
be held may be prescribed by the Board of Directors. If no period is
prescribed, the title shall be held at the pleasure of the Board.
ARTICLE IV. OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
president, a secretary, and a treasurer. The corporation may also have, at
the discretion of the Board, a chairman of the board, one or more assistant
treasurers, and such other officers as may be elected or appointed in
accordance with the provisions of Section 3 of this Article.
Section 2. ELECTION. The officers of the corporation, except such
officers as may be elected or appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually by, and
shall serve at the pleasure of, the Board, and shall hold their respective
offices until their resignation, removal, or other disqualification from
service, or until their respective successors shall be elected.
Section 3. SUBORDINATE OFFICERS. The Board may elect, and may empower
the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for a such period,
have such authority, and perform such
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duties as are provided in these Bylaws or as the Board may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION. (a) Any officer may be removed,
either with or without cause, by the Board of Directors at any time, or,
except in the case of an office chosen by the Board, by any officer upon whom
such power of removal may be conferred by the Board. Any such removal shall
be without prejudice to the rights, if any, of the officer under any contract
of employment of the officer.
(b) Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Any such resignation
shall take effect at the date of the receipt of such notice or at any later
time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there be
such an officer, shall be the Chief Executive Officer of the corporation and
shall, if present, preside at all meetings of the Board and exercise and
perform such other powers and duties as may be from time to time assigned by
the Board.
Section 7. PRESIDENT. Subject to such powers, if any, as may be given by
the Board to the Chairman of the Board, if there be such an officer, the
President is the Chief Operating Officer, general manager and, unless there
be a Chairman of the Board, the Chief Executive Officer, of the corporation
and has, subject to the control of the Board, general supervision, direction,
and control of the business and officers of the corporation. The President
shall preside at all meetings of the shareholders and, in the absence of the
Chairman of the Board, or if there be none at all meetings of the Board. The
president has the general powers and duties of management usually vested in
the office of president and general manager of a corporation and such other
powers and duties as may be prescribed by the Board.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board
or, if not ranked, the Vice President designated by the Board, shall perform
all the duties of the President, and when so acting shall have all the powers
of, and
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be subject to all the restrictions upon, the president. The Vice Presidents
shall have such other powers and perform such other duties as from time to
time may be prescribed for them respectively by the Board.
Section 9. SECRETARY. (a) The Secretary shall keep or cause to be kept,
at the principal executive office and such other place as the Board may
order, a book of minutes of all meetings of shareholders, the Board, and its
committees, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at Board and committee meetings, the number of shares present or
represented at shareholders' meetings, and the proceedings thereof. The
Secretary shall keep, or cause to be kept, a copy of the Bylaws of the
corporation at the principal executive office or business office in
accordance with Section 213 of the California General Corporation Law.
(b) The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, if one be appointed, a share register, or a duplicate share
register, showing the names of shareholders and their addresses, the number
and classes of shares held by each, the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
(c) The Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the Board and of any committees thereof
required by these Bylaws or by law to be given, shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform
such other duties as may be prescribed by the Board.
Section 10. TREASURER. (a) The Treasurer is the Chief Financial Officer
of the corporation and shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the corporation, and shall send or cause to be sent to the
shareholders of the corporation such financial statements and reports as are
by law or these Bylaws required to be sent to them. The books of account
shall at all times be open to inspection by any director.
(b) The Treasurer shall deposit all moneys and other valuables in the
name and to the credit of the corporation with such depositaries as may be
designated by the Board. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board, shall render to the president and
directors, whenever they request it, an account of all transactions as
Treasurer and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board.
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ARTICLE V. OTHER PROVISIONS
Section 1. INSPECTION OF CORPORATE RECORDS. (a) A shareholder or
shareholders holding at least five percent in the aggregate of the
outstanding voting shares of the corporation or who hold at least one percent
of such voting shares and have filed a Schedule 14B with the United States
Securities and Exchange Commission relating to the election of directors of
the corporation shall have an absolute right to do either or both of the
following:
(i) Inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours upon five business
days' prior written demand upon the corporation; or
(ii) Obtain from the transfer agent, if any, for the corporation,
upon five business days, prior written demand and upon the tender of its
usual charges for such a list (the amount of which charges shall be stated to
the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election
of directors and their shareholdings, as of the most recent record date for
which it has been compiled or as of a date specified by the shareholder
subsequent to the date of demand.
(b) The records of shareholders shall also be open to inspection and
copying by any shareholder or holder of a voting trust certificate at any
time during usual business hours upon written demand on the corporation, for
a purpose reasonably related to such holder's interest as a shareholder or as
a holder of such voting trust certificate.
(c) The accounting books and records and minutes of proceedings of the
shareholders and the Board and committees of the Board shall be open to
inspection upon written demand on the corporation by any shareholder or
holder of a voting trust certificate at any reasonable time during business
hours, for a purpose reasonably related to such holder's interest as a
shareholder or holder of a voting trust certificate.
(d) Any inspection and copying under this Article may be made in person
or by agent or attorney.
Section 2. INSPECTION OF BYLAWS. The corporation shall keep in its
principal executive office the original or a copy of these Bylaws as amended
to date which shall be open to inspection by shareholders at all reasonable
times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, it shall upon written notice of any
shareholder furnish to such shareholder a copy of these Bylaws as amended to
date.
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Section 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to the
provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, conveyance, or other instrument in writing and
any assignment or endorsements thereof executed or entered into between this
corporation and any other person, when signed by the Chairman of the Board,
the President or any vice president, and the Secretary, any Assistant
Secretary, the Treasurer or any Assistant Treasurer of this corporation shall
be valid and binding on this corporation in the absence of actual knowledge
on the part of the other person that the signing officer had not authority to
execute the same. Any such instrument may be signed by any other person or
persons and in such manner as from time to time shall be determined by the
Board and, unless so authorized by the Board, no officer, agent, or employee
shall have any power or authority to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or
amount.
Section 4. CERTIFICATES OF STOCK. (a) Every holder of shares of the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman of the Board, the President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number of shares and the class or series
of shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile. If any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent, or registrar at the date of issue.
(b) Certificates for shares may be issued prior to full payment as partly
paid and subject to call for the remainder of the consideration to be paid
therefore under such restrictions and for such purposes as the Board may
provide; provided, however, that on any certificate issued to represent any
partly paid shares, the total amount of consideration to be paid therefor and
the amount paid thereon shall be stated.
(c) Except as provided in this Section 4 no new certificate for shares
shall be issued in lieu of an old one unless the latter is surrendered and
cancelled at the same time. The Board may, however, in case any certificate
for shares is alleged to have been lost, stolen, or destroyed, authorize the
issuance of a new certificate in lieu thereof, and the corporation be given a
bond or other adequate security sufficient to indemnify it against any claim
that may be made against it (including expense or liability) on account of
the alleged loss, theft, or
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destruction of such certificate or the issuance of such new certificate.
(d) In the event any shares of this corporation are issued pursuant to a
permit or exemption therefrom requiring the imposition of a legend condition,
the person or persons issuing or transferring said shares shall make sure
said legend appears on the certificate and shall not be required to transfer
any shares free of such legend unless an amendment to such permit or a new
permit be first issued so authorizing such a deletion.
(e) All certificates representing shares of this corporation, in the
event it shall elect to become a close corporation, shall contain the legend
required by Section 418(c) of California General Corporation Law.
Section 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman
of the Board, the President, any Vice President or any other officer or
officers authorized by the Board or the President are each authorized to
vote, represent, and exercise on behalf of the corporation all rights
incident to any and all shares of any other corporation or corporations
standing in the name of the corporation. The authority herein granted may be
exercised either by any such officer in person or by any other person
authorized so to do by proxy or power of attorney duly executed by said
officer.
Section 6. STOCK PURCHASE PLANS. (a) The corporation may adopt and carry
out a stock purchase plan or agreement or stock option plan or agreement
providing for the issue and sale for such consideration as may be fixed of
its unissued shares, or of issued shares acquired or to be acquired, to one
or more of the employees or directors of the corporation or of a subsidiary
or to a trustee on their behalf and for the payment for such shares in
installments or at one time, and may provide for aiding any such person in
paying for such shares by compensation for services rendered, promissory
notes, or otherwise.
(b) Any such stock purchase plan or agreement or stock option plan or
agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold
under the plan or agreement, the number of shares which may be subscribed
for, the method of payment therefor, the effect of the termination of
employment and option or obligation on the part of the corporation to
repurchase the shares upon termination of employment, restrictions upon the
transfer of the shares, the time limits of and termination of the plan, and
any other matters, not in violation of applicable law, as may be included in
the plan as approved or authorized by the Board or any committee of the Board.
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Section 7. ANNUAL REPORT TO SHAREHOLDERS. For so long as the corporation
has less than 100 holders of record of its shares determined as provided in
Section 605 of the California General Corporation Law, the annual report to
shareholders referred to in Section 1501 of the California General
Corporation Law is expressly waived, but nothing herein shall be interpreted
as prohibiting the Board from issuing annual or other reports to shareholders.
Section 8. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction, and definitions
contained in the General Provisions of the California Corporations Code and
in the California General Corporation Law shall govern the construction of
these Bylaws.
Section 9. ACCOUNTING YEAR. The accounting year of the corporation shall
be fixed by resolution of the Board of Directors.
ARTICLE VI. INDEMNIFICATION.
Section 1. DEFINITIONS. For the purposes of this Article, "agent"
includes any person who is or was a director, officer, employee, or other
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, or other enterprise,
or was a director, officer, employee, or agent of a foreign or domestic
corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation;
"proceeding" includes any threatened, pending, or completed action or
proceeding, whether civil, criminal, administrative or investigative; and
"expenses" includes attorneys' fees and any expenses of establishing a right
to indemnification under Section 4 or Section 5(c).
Section 2. INDEMNIFICATION IN ACTIONS BY THIRD PARTIES. The corporation
shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or
in the right of the corporation) by reason of the fact that such person is or
was an agent of the corporation, against expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of such person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction, or upon a
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plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
the person reasonably believed to be in the best interests of the corporation
or that the person had reasonable cause to believe that the person's conduct
was unlawful.
Section 3. INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE
CORPORATION. The corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending,
or completed action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is or was an
agent of the corporation, against expenses actually and reasonably incurred
by such person in connection with the defense or settlement of such action if
such person acted in good faith, in a manner such person believed to be in
the best interests of the corporation, and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would
use under similar circumstances. No indemnification shall be made under this
Section 3;
(a) In respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable to the corporation in the performance
of such person's duty to the corporation, unless and only to the extent that
the court in which such action was brought shall determine upon application
that, in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for the expenses which such court shall
determine;
(b) Of amounts paid in settling or otherwise disposing of a threatened
or pending action, with or without court approval; or
(c) Of expenses incurred in defending a threatened or pending action
which is settled or otherwise disposed of without court approval.
Section 4. INDEMNIFICATIONS AGAINST EXPENSES. To the extent that an
agent of the corporation has been successful on the merits in defense of any
proceeding referred to in Section 2 or 3 or in defense of any claim, issue
or matter therein, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED DETERMINATIONS. Except as provided in Section 4, any
indemnification under this Article shall be made by the corporation only if
authorized in the specific case, upon a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 by:
20.
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(a) A majority vote of a quorum consisting of directors who are not
parties to such proceeding;
(b) Approval of the shareholders, with the shares owned by the person to
be indemnified not being entitled to vote thereon; or
(c) The court in which such proceeding is or was pending upon
application made by the corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney, or other person is opposed by the
corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the corporation prior to the final disposition
of such proceeding upon receipt of an undertaking by or on behalf of the
agent to repay such amount unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article.
Section 7. OTHER INDEMNIFICATION. No provision made by the corporation
to indemnify its or its subsidiary's directors or officers for the defense of
any proceeding, whether contained in the Article, By laws, a resolution of
shareholders or directors, an agreement, or otherwise, shall be valid unless
consistent with this Article. Nothing contained in this Article shall affect
any right to indemnification to which persons other than such directors and
officers may be entitled by contract or otherwise.
Section 8. FORMS OF INDEMNIFICATION NOT PERMITTED. No indemnification or
advance shall be made under this Article except as provided in Section 4 or
Section 5(c) in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the Articles,
Bylaws, a resolution of the shareholders or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the proceeding
in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
Section 9. INSURANCE. The corporation shall have power to purchase and
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such whether or not the corporation
would have the power to indemnify the agent against such liability under the
provisions of this Article.
21.
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Section 10. NONAPPLICABILITY TO FIDUCIARIES OF EMPLOYEE BENEFIT PLANS.
This Article does not apply to any proceedings against any trustee,
investment manager, or other fiduciary of an employee benefit plan in such
person's capacity as such, even though such person may also be an agent of
the corporation as defined in Section 1. Nothing contained in this Article
shall limit any right to indemnification to which such a trustee, investment
manager, or other fiduciary may be entitled by contract or otherwise which
shall be enforceable to the extent permitted by applicable law other than
Section 317 of the California General Corporation Law.
ARTICLE VII. EMERGENCY PROVISIONS
Section 1. GENERAL. The provisions of this Article shall be operative
only during a national emergency declared by the President of the United
States or the person performing the president's functions, or in the event of
a nuclear, atomic, or other attack on the United States or a disaster making
it impossible or impracticable for the corporation to conduct its business
without recourse to the provisions of this Article. Said provisions in such
event shall override all other Bylaws of this corporation in conflict with
any provisions of this Article, and shall remain operative so long as it
remains impossible or impracticable to continue the business of the
corporation otherwise, but thereafter shall be inoperative; provided that all
actions taken in good faith pursuant to such provisions shall thereafter
remain in full force and effect unless and until revoked by action take
pursuant to the provisions of the Bylaws other than those contained in this
Article.
Section 2. UNAVAILABLE DIRECTORS. All directors of the corporation who
are not available to perform their duties as directors by reason of physical
or mental incapacity or for any other reason or who are unwilling to perform
their duties or whose whereabouts are unknown shall automatically cease to be
directors, with like effect as if such persons had resigned as directors, so
long as such unavailability continues.
Section 3. AUTHORIZED NUMBER OF DIRECTORS. The authorized number of
directors shall be the number of directors remaining after eliminating those
who have ceased to be directors pursuant to Section 2, or the minimum number
required by law, whichever is greater.
Section 4. QUORUM. The number of directors necessary to constitute a
quorum shall be one-third of the authorized number of directors as specified
in the foregoing Section, or such other
22.
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minimum number as, pursuant to the law or lawful decree then in force, it is
possible for the Bylaws of a corporation to specify.
Section 5. CREATION OF EMERGENCY COMMITTEE. In the event the number of
directors remaining after eliminating those who have ceased to be directors
pursuant to Section 2 is less than the minimum number of authorized directors
required by law, then until the appointment of additional directors to make
up such required minimum, all the powers and authorities which the Board
could by law delegate, including all powers and authorities which the Board
could delegate to a committee, shall be automatically vested in an emergency
committee, and the emergency committee shall thereafter manage the affairs of
the corporation pursuant to such powers and authorities and shall have all
such other powers and authorities as may by law or lawful decree be conferred
on any person or body of persons during a period of emergency.
Section 6. CONSTITUTION OF EMERGENCY COMMITTEE. The emergency committee
shall consist of all the directors remaining after eliminating those who have
ceased to be directors pursuant to Section 2, provided that such remaining
directors are not less than three in number. In the event such remaining
directors are less than three in number, the emergency committee shall
consist of three persons, who shall be the remaining director or directors
and either one or two officers or employees of the corporation, as the
remaining director or directors may in writing designate. If there is no
remaining director, the emergency committee shall consist of the three most
senior officers of the corporation who are available to serve, and if and to
the extent that officers are not available, the most senior employees of the
corporation. Seniority shall be determined in accordance with any designation
of seniority in the minutes of the proceedings of the Board, and in the
absence of such designation, shall be determined by rate of remuneration. In
the event that there are no remaining directors and no officers or employees
of the corporation available, the emergency committee shall consist of three
persons designated in writing by the shareholder owning the largest number of
shares of record as of the date of the last record date.
Section 7. POWERS OF EMERGENCY COMMITTEE. The emergency committee, once
appointed, shall govern its own procedures and shall have power to increase
the number of members thereof beyond the original number, and in the event of
a vacancy or vacancies therein, arising at any time, the remaining member or
members of the emergency committee shall have the power to fill such vacancy
or vacancies. In the event at any time after its appointment, all members
shall die or resign or become unavailable
23.
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to act for any reason whatsoever, a new emergency committee shall be
appointed in accordance with the foregoing provisions of this Article.
Section 8. DIRECTORS BECOMING AVAILABLE. Any person who has ceased to be
a director pursuant to the provisions of Section 2 and who thereafter becomes
available to serve as a director shall automatically become a member of the
emergency committee.
Section 9. ELECTION OF BOARD OF DIRECTORS. The emergency committee
shall, as soon after its appointment as is practicable, take all requisite
action to secure the election of a board of directors, and upon such election
all the powers and authorities of the emergency committee shall cease.
Section 10. TERMINATION OF EMERGENCY COMMITTEE. In the event, after the
appointment of an emergency committee, a sufficient number of persons who
ceased to be directors pursuant to Section 2 become available to serve as
directors, so that if they had not ceased to be directors as aforesaid, there
would be enough directors to constitute the minimum number of directors
required by law, then all such persons shall automatically be deemed to be
reappointed as directors and the powers and authorities of the emergency
committee shall be at an end.
ARTICLE VIII. AMENDMENTS
These Bylaws may be amended or repealed either by approval of the
outstanding shares or by the approval of the Board; provided, however, that
after the issuance of shares, a Bylaw specifying or changing a fixed number
of directors or the maximum or minimum number or changing form a fixed to a
variable Board or vice versa may only be adopted by approval of the
outstanding shares.
24.
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CERTIFICATE BY SECRETARY OF ADOPTION BY DIRECTORS
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of the
above-named Corporation and that the above and foregoing By-Laws of said
Corporation on the date set forth below by the persons appointed and elected
to act as the first Directors of said Corporation.
IN WITNESS WHEREOF, I have hereunto set by hand this ________ day of May
1983.
------------------------------------
Lewis A. Whitaker
25.
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