<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly 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
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
Commission File Number 0-12817
PERFECTDATA CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-3087593
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) I.D. NUMBER)
110 WEST EASY STREET
SIMI VALLEY, CALIFORNIA 93065-1689
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(805) 581-4000
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT:
Not Applicable
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of October 31, 2000, there were 6,094,530 shares of Common Stock outstanding.
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PERFECTDATA CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 2000 (unaudited) and
March 31, 2000 2
Statements of Operations and Comprehensive Income (Loss)
- quarters ended September 30, 2000 and 1999 (unaudited)
and six months ended September 30, 2000 and 1999 (unaudited) 3
Statements of Shareholders' Equity -
six months ended September 30, 2000 (unaudited) 4
Statements of Cash Flows - six months
ended September 30, 2000 and 1999 (unaudited) 5
Notes to Financial Statements (unaudited) 6 - 7
Item 2. Management's discussion and analysis of
financial condition and results of operations 8 - 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12 - 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
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<PAGE>
PERFECTDATA CORPORATION
Balance Sheets
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
-------------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents, including
short-term certificates of deposit of
$213 at September 30, 2000 and
$222 at March 31, 2000, respectively $ 3,783 $ 4,087
Marketable securities, short-term 209 250
Accounts receivable, less allowance
for doubtful receivables 263 233
Inventories 435 375
Prepaid expenses and other current assets 77 56
-------------- ----------
Total current assets 4,767 5,001
Property, plant and equipment, at cost, net 51 53
Other assets, net 19 24
-------------- ----------
$ 4,837 $ 5,078
============== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 318 $ 222
Accrued salaries, wages and vacation 43 39
Other accrued expenses 120 98
-------------- ----------
Total current liabilities 481 359
-------------- ----------
Shareholders' equity:
Preferred Stock. Authorized 2,000,000
shares; none issued -- --
Common Stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 6,094,530 shares at
September and at March 11,088 11,088
Accumulated deficit (6,698) (6,345)
Accumulated other comprehensive loss (34) (24)
-------------- ----------
Net shareholders' equity 4,356 4,719
-------------- ----------
$ 4,837 $ 5,078
============== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
PERFECTDATA CORPORATION
Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1999
2000 (AS RESTATED) 2000 (AS RESTATED)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 549 $ 472 $ 1,049 $ 996
Cost of goods sold 407 318 790 648
---------------------------------------------------
Gross Profit 142 154 259 348
Selling, general and administrative expenses 376 327 716 615
---------------------------------------------------
Loss from operations (234) (173) (457) (267)
Other income:
Interest income 3 6 8 11
Other, net 44 48 96 87
---------------------------------------------------
Net loss (187) (119) (353) (169)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities 15 (162) (10) 138
---------------------------------------------------
Comprehensive loss $ (172) $ (281) $ (363) $ (31)
===================================================
Net loss per common share - basic and diluted $ (.03) $ (.04) $ (.06) $ (.05)
===================================================
Weighted average shares outstanding - basic and diluted 6,094 3,224 6,094 3,200
===================================================
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
PERFECTDATA CORPORATION
Statements of Shareholders' Equity
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Period from March 31, 2000 through September, 30, 2000
--------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK OTHER NET
----------------------- ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT DEFICIT INCOME (LOSS) EQUITY
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
March 31, 2000 6,094 $ 11,088 $ (6,345) $ (24) $ 4,719
Net unrealized loss on
marketable securities - - - (10) (10)
Net loss - - (353) - (353)
--------------------------------------------------------------------------------------------------------------------------
Balance at
September 30, 2000 6,094 $ 11,088 $ (6,698) $ (34) $ 4,356
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
SEPTEMBER 30,
------------------------
1999
2000 (AS RESTATED)
------- -------------
<S> <C> <C>
Cash Flows from operating activities:
Net loss $ (353) $ (169)
Adjustments to reconcile net loss to
net cash used in operating activities;
Depreciation and amortization 9 15
Stock Issued for services -- 52
Increase in accounts receivable (30) (72)
(Increase) decrease in inventories (60) 143
(Increase) decrease in prepaid
expenses and other current assets (21) 16
Decrease in other assets 5 --
Increase (decrease) in accounts payable 96 (53)
Increase in accrued expenses 26 7
------- -----------
Net cash used in operating activities (328) (61)
------- -----------
Cash flows from investing activities:
Purchases of property, plant, and equipment (7) --
Decrease in marketable securities, net 31 13
------- -----------
Net cash provided by investing activities 24 13
------- -----------
Cash flows from financing activities:
Proceeds from the exercise of stock options -- 19
------- -----------
Net cash provided by financing activities -- 19
------- -----------
Decrease in cash and cash equivalents (304) (29)
Cash and cash equivalents at beginning of period 4,087 1,074
------- -----------
Cash and cash equivalents at end of period $ 3,783 $ 1,045
======= ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
PERFECTDATA CORPORATION
Notes to Financial Statements
1. In the opinion of the Company, the unaudited financial statements contained
in this Report have been prepared on a basis consistent with the financial
statements contained in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2000 ("Annual Report 2000"). As reported in the Annual
Report 2000, when the Company was informed it lost its major customer in June
1997, the Company failed to recognize the event in determining the
recoverability of deferred tax assets and did not record an appropriate
valuation allowance at March 31, 1997. Accordingly, certain accounts were
restated to reflect the correction of this error. All other adjustments included
in the financial statements in this Report are of a normal recurring nature and
are necessary to present fairly the Company's financial position as of September
30, 2000 and the results of its operations and cash flows for the six months
ended September 30, 2000 and 1999. Results of operations for interim periods are
not necessarily indicative of results of operations for a full year due to
external factors that are beyond the control of the Company.
2. MARKETABLE SECURITIES
Marketable securities classified as current assets at September 30, 2000
and March 31, 2000, respectively, are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ -----------------
FAIR VALUE COST FAIR VALUE COST
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Government Obligations $ 25 $ 27 $ 25 $ 27
Marketable equity securities 184 216 225 247
---------- ---- ---------- ----
$ 209 $243 $ 250 $274
========== ==== ========== ====
</TABLE>
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories are summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
Raw materials $ 204 $ 176
Work in process 22 20
Finished products 209 179
------------------ --------------
$ 435 $ 375
================== ==============
</TABLE>
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<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ ---------------
<S> <C> <C>
Machinery and equipment $ 316 $ 316
Furniture and fixtures 81 74
Tooling 3 3
Leasehold improvements 155 155
------------------ ---------------
555 548
Less accumulated
Depreciation and amortization 504 495
------------------ ---------------
$ 51 $ 53
================== ===============
</TABLE>
5. INCOME TAXES
At September 30, 2000, the Company had net operating loss (NOL)
carryforwards of approximately $4,068,000 for federal income tax purposes
expiring in varying amounts through 2020. 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 $174,000, of which $144,000 will
expire in 2000, $17,000 in 2001 and $13,000 thereafter.
SFAS 109 requires that the tax benefit of such NOLs and other deferred tax
assets be recorded as an asset using current tax rates to the extent management
assesses the utilization of such NOLs and other assets to be more likely than
not. Management has determined that future taxable income of the Company will
likely not be sufficient to realize the recorded deferred tax asset of
$1,801,000. As such, the Company has recorded a valuation allowance of
$1,801,000.
6. LOSS PER COMMON SHARE
Basic net loss per share is based on the weighted average number of shares
outstanding during each of the respective periods. During the respective
periods, the impact of the Common Stock equivalents, such as stock options, was
antidilutive; therefore, they have been excluded from the calculation.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the second fiscal quarter ended September 30, 2000 ("current
quarter") increased $77,000, or 16%, to $549,000 from net sales of $472,000 in
the year-earlier period. Net sales for the six months ended September 30, 2000
("current six-month period") increased $53,000, or 5%, to $1,049,000 from net
sales of $996,000 in the year-earlier period. The increased sales are a result
of the Company's efforts to increase business with its existing customers.
On August 29, 2000, the Company engaged the services of Terry J. Baker as
its Vice President, Sales and Marketing, with the assigned task of expanding the
market penetration of its line of computer, office care and maintenance products
and accessories. The Board believes that Mr. Baker's efforts, which represent
the Company's first major marketing campaign in years aimed at its existing,
rather than new, products, will stem the pattern of diminishing sales and
resultant losses and bring these operations at least to a "break even" point.
However, there can be no assurance this objective will be achieved and, if
achieved, the time frame in which this change will be accomplished.
Cost of Goods Sold as a percentage of net sales for the current quarter and
current six-month period were 74% and 75%, respectively, as compared to 67% and
65%, respectively, in the year-earlier periods. The increase primarily related
to an increase in the material cost of the gases used in the Company's principal
selling product line of compressed gas dusters. The Company began incurring
these cost increases during the quarter ended September 30, 1999. These cost
increases had a negative impact on the Company's margins because they were not
passed on to its customers.
Selling, General and Administrative Expenses ("Expenses") for the current
quarter were $376,000 as compared to $327,000 in the year-earlier period, an
increase of $49,000, or 15%. Expenses for the current six-month period were
$716,000 as compared to $615,000 in the year-earlier period, an increase of
$101,000, or 16%. The increases directly related to costs associated with
opening an acquisition and merger office, legal fees for the Company's new
Corporate Counsel and accounting fees.
The increased losses from operations in the current quarter and current
six-month period were primarily due to the increases in Cost of Goods Sold and
Expenses as described above.
Other income for the current quarter was primarily dividend income of
$60,000 net of a loss on securities of $12,000, as compared to dividend income
of $11,000 and a gain on securities of $30,000 in the year-earlier period. Other
income for the current six-month period was primarily dividend income of
$116,000 net of a loss on securities of $14,000, as compared to dividend income
of $22,000, a gain on securities of $38,000 and miscellaneous income of $20,000
in the year-earlier period. The increases in dividend income in the current
quarter and the current six-month period directly relate to the $3 million which
the Company received from the sale of its Common Stock on March 31, 2000.
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<PAGE>
In October 2000, the Company entered into an interim license agreement
to market 50,000 units of the Silkyboard -TM- keyboard and screen protector
accessory for use with the Palm computing platform and other PDAs. The
Silkyboard product is a faster, easier way to write lengthy notes, e-mail
messages and enter data on a PDA because the user only has to tap on the
Silkyboard keyboard to perform these functions. The Company's marketing
efforts with respect to this new product will be directed by Mr. Baker. The
Company intends to distribute this new product through national and regional
consumer electronics dealers and retailers such as CompUSA. The Company has
also entered into an option agreement with the inventor of the technology,
which option is exercisable on or prior to December 22, 2000, which, if
exercised, would enable the Company either to receive a permanent worldwide
license with respect to the Silkyboard patent application or to purchase all
patent application, trademark and other rights thereto, the format of the
acquisition (assets or stock purchase) to be determined following completion
of the Company's due diligence currently being conducted. If the option is
exercised, the Company will pay, as the royalty (if a license) or the
purchase price (if an acquisition), (1) $1,000,000, $300,000 payable at the
closing for the option exercise and the balance through monthly payments of
20% of net sales, with any shortfall to be paid at the end of one-year; (2)
4.25% of the net sales paid; and (3) up to 1,200,000 of shares of the Common
Stock, 600,000 shares at the closing for the option exercise and the balance
to be issued based on an earn out related to the amount of sales over a one
or two-year period. The option has not yet been exercised and there can, of
course, be no assurance that the option will be exercised or, if exercised,
that this new product will contribute significantly to the Company's
operations.
Although the directors are pleased with Mr. Baker's efforts to date (as
described in the sixth preceding paragraph) in his attempt to stem the losses in
the Company's current operations, the Board continues to seek, in addition to
the possible Silkyboard product acquisition, other potential acquisitions,
including those in businesses not related to the Company's current operations,
as the Company's long-term "turn around" strategy. Although the Company has
performed significant due diligence with respect to certain potential
acquisitions proposed to management, as of this date, there has been no
potential acquisition which, after such investigation, has been deemed
attractive enough for the Board to approve the proposal other than the possible
Silkyboard product acquisition. The directors believe that the volatility of the
stock market in 2000, particularly the decline with respect to internet
companies in which area the Company had devoted its initial exploratory efforts,
has adversely affected the Company's search. The Board has, accordingly,
concluded that it may take longer to close a suitable acquisition than initially
contemplated, but remains confident that this objective can be achieved over
time. There can, of course, be no assurance as to when and if a suitable
acquisition will be consummated.
On September 7, 2000, the Board appointed Harris A. Shapiro as Chief
Executive Officer of the Company to replace Joseph Mazin, who resigned that
position on July 27, 2000. Mr. Mazin continues to serve as a consultant to the
Company until March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $304,000 from $4.087
million at March 31, 2000 to $3.783 million at September 30, 2000. The decrease
in cash during the first
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<PAGE>
six months of fiscal 2001 resulted primarily from $328,000 used in operating
activities. The cash used in operating activities was primarily the result of
the net loss of $353,000, as well as increases in accounts receivables,
inventories and prepaid expenses and other current assets, partially offset by
the increases in accounts payable and accrued expenses.
The Company believes that it has sufficient working capital ($4.286 million
at September 30, 2000) to finance the Company's operational requirements for at
least the next 12 months.
At September 30, 2000, the Company had net operating loss and general
business tax credit carry forwards for income tax purposes of approximately
$4,068,000 and $174,000, respectively, available to reduce future potential
Federal income taxes. See note 5 to the financial statements.
YEAR 2000 UPDATE
The Company has completed its Year 2000 ("Y2K") Project ("Project") as
scheduled, including addressing leap year calendar date calculation concerns.
The possibility of significant interruptions of normal operations has been
reduced. As of November 2, 2000, the Company's products, computing, and
communications infrastructure systems have operated without Y2K related problems
and appear to be Y2K ready. The Company is not aware of any of its major
customers or third-party suppliers experiencing significant Y2K related
problems.
Contingency plans are complete and will be implemented if required. Should
a significant problem occur, the Company would revert to standard manual
contingency procedures to continue operation until the problem is corrected.
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 caption "Forward-Looking and Cautionary Statements" in this item.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial
Statements. SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements of all public registrants. Any
change in the Company's revenue recognition policy resulting from the
implementation of SAB 101 would be reported as a change in accounting principle.
In June 2000, the SEC issued SAB 101B which delays the required implementation
date of SAB 101 until the fourth fiscal quarter of fiscal years beginning after
December 15, 1999.
In March 2000, the FASB issued FASB Interpretation No. 44 ("Interpretation
No. 44"), an interpretation of APB Opinion No. 25, Accounting for Certain
Transactions involving Stock Compensation. Interpretation No. 44 is effective
after July 1, 2000, but certain conclusions in
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<PAGE>
Interpretation No. 44 cover specific events that occur after either December 15,
1998 or January 12, 2000. To the extent that Interpretation No. 44 covers events
occurring during the period after December 15, 1998 or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying
Interpretation No. 44 are recognized on a prospective basis from July 1, 2000.
While the Company has not fully assessed the impact of the adoption of
these recently issued accounting pronouncements, the Company believes that
adoption of these accounting pronouncements will not have a significant impact
on the Company.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
With the exception of historical information, the matters discussed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations include certain forward-looking statements that involve risks and
uncertainties. 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 and, accordingly, involves risks and
uncertainties, including, without limitation, statements regarding the Company's
future financial performance, the results or success of discussions with other
entities on mergers, acquisitions, or alliance possibilities and expansion of
the Company's current product offerings. Other risks are discussed in the Annual
Report 2000. As a result, 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 in this Report.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is not subject to any significant market risks such as
fluctuations in foreign currencies or interest rates.
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<PAGE>
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) During the quarter ended September 30, 2000, the Company did not sell
any securities, whether or not registered under the Securities Act of 1933, as
amended (the "Securities Act"), but did grant options to purchase shares of its
Common Stock, no par value (the "Common Stock"), as to which neither the option
nor the underlying shares of the Common Stock were registered under the
Securities Act, as follows:
(i) On September 7, 2000, the Board of Directors granted, subject to
shareholders' approval (which was subsequently obtained on October 19,
2000), stock options expiring September 6, 2010 (the "Options") to
purchase an aggregate of 150,000 shares of the Common Stock pursuant
to the PerfectData Corporation Stock Option Plan (the "2000 Option
Plan").
(ii) There were no underwriters for these grants. The Options were
granted to the five directors of the Company and the Chairman of its
Advisory Board, each Option representing the right to purchase 25,000
shares of the Common Stock.
(iii) None of the Options were sold for cash, the consideration
therefor under the 2000 Option Plan being the optionees' continuing
service to the Company as directors and as Chairman of the Company's
Advisory Board. Under the terms of the 2000 Option Plan, the Options
will terminate upon the termination of service, although there are
varying periods after such termination in which the optionee may
exercise as to the shares of the Common Stock as to which the Option
is then exercisable, the length of the period, if any, depending on
the reason for the termination. There were no underwriting discounts
or commissions.
(iv) The Company claims that the grants of the Options were exempt
from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof, each grant constituting a transaction by an
issuer not involving a public offering. In addition, in the stock
option agreement evidencing the Option, each optionee represented that
he was acquiring the Option for investment purposes and, if at the
time of exercise of the Option, the underlying shares of the Common
Stock were not registered under the Securities Act, he would acquire
such shares for investment purposes. The Company intends to file, as
soon as practicable, a
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<PAGE>
Registration Statement on Form S-8 under the Securities Act
registering the shares of the Common Stock issuable upon the exercise
of stock options granted (including the Options) or to be granted
under the 2000 Option Plan and, where the optionee is an affiliate of
the Company (as are the directors who were granted Options), either to
make available a reoffer prospectus to permit affiliates to resell the
underlying shares or to require them to hold the shares for at least
one year after exercise and then resell pursuant to the exemption of
Rule 144 under the Securities Act.
(v) Each of the Options becomes exercisable on a cumulative basis, at
$4.625 per share, as to 8,333 shares on September 7, 2001, as to an
additional 8,333 shares on September 7, 2002 and as to the remaining
8,334 shares on September 7, 2003.
(vi) Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Inapplicable.
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the quarter for which this
report is filed.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERFECTDATA CORPORATION
By: /s/ IRENE J. MARINO
--------------------------------
Irene J. Marino
Authorized Officer and Principal
Financial and Accounting Officer
Date: NOVEMBER 3, 2000
