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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1999 Commission File Number 0-12817
PERFECTDATA CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3087593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 West Easy Street
Simi Valley, California 93065-1689
(Address of principal executive offices)
(Zip Code)
(805) 581-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changes since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of January 31, 2000, there were 3,233,306 shares of Common Stock outstanding.
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PERFECTDATA CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Balance Sheets - December 31, 1999 and
March 31, 1999 2
Statements of Earnings and Comprehensive Income
- quarters ended December 31, 1999 and 1998
and nine months ended December 31, 1999
and 1998 3
Statements of Shareholders' Equity -
nine months ended December 31, 1999 4
Statements of Cash Flows - nine months
ended December 31, 1999 and 1998 5
Notes to Financial Statements 6 - 8
Management's discussion and analysis of
financial condition and results of
operations 9 - 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
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PERFECTDATA CORPORATION
BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except number of shares)
<TABLE>
<CAPTION>
December, 31 March 31,
1999 1999
---------------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents, including
short-term certificates of deposit of
$257 at December and $255 at March $ 1,137 $1,074
Accounts receivable, less allowance
for doubtful receivables of
$92 at December and $9 at March 166 186
Inventories 540 639
Prepaid expenses and other current assets 74 57
Marketable securities, short-term 380 327
Deferred income tax benefit 125 113
---------------------- -------------
Total current assets 2,422 2,396
Property, plant and equipment, net 63 86
Deferred Income Tax benefit 69 73
Other assets, net 31 31
---------------------- -------------
$ 2,585 $2,586
====================== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 171 $ 149
Accrued expenses 83 85
Accrued salaries, wages and vacation 37 47
---------------------- -------------
Total current liabilities 291 281
---------------------- -------------
Shareholders' equity:
Preferred Stock. Authorized 2,000,000
shares; none issued - -
Common Stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 3,215,306 shares at
Dec. and 3,154,806 shares at March 8,147 8,110
Accumulated deficit (5,841) (5,747)
Allowance for gain (loss) on
marketable securities (12) (58)
---------------------- -------------
Net shareholders' equity 2,294 2,305
---------------------- -------------
$ 2,585 $2,586
====================== =============
</TABLE>
See accompanying notes to financial statements.
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PerfectData Corporation
STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 387 $ 396 $ 1,383 $ 1,271
Costs and Expenses:
Cost of sales 281 245 929 779
Selling, general and administrative 214 266 829 834
-----------------------------------------------------------
Total costs and expenses 495 511 1,758 1,613
Income (loss) from operations (108) (115) (375) (342)
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Other income and (expense):
Interest income, net 5 5 16 19
Other, net 171 14 258 73
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Total other income and (expense) 176 19 274 92
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Income (loss) before income taxes 68 (96) (101) (250)
Income tax (provision) benefit 44 (6) 7 (25)
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Net income (loss) 112 (102) (94) (275)
Other Comprehensive Income,
Net of Income Tax
Unrealized holdings gain (loss) (54) 23 27 (48)
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Comprehensive income (loss) $ 58 $ (79) $ (67) $ (323)
===========================================================
Net income (loss) per common share $ .03 $ (.03) $ (.03) $ (.09)
===========================================================
Weighted average shares outstanding 3,247 3,156 3,215 3,160
</TABLE>
See accompanying notes to financial statements.
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PerfectData Corporation
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(In thousands)
Period from March 31, 1999 through December 31, 1999
- ---------------------------------------------------------------------------------------------------------------
Common Stock Allowance Net
-------------------------- Accumulated for gain/(loss) shareholders
Shares Amount deficit on mkt. sec. equity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
March 31, 1999 3,155 $ 8,110 $ (5,747) $ (58) $ 2,305
Stock Issued for Services 75 52 -- -- 52
Stock Issued upon exercise
of Stock Options 20 19 -- -- 19
Stock repurchased
and retired (7) (6) -- -- (6)
Stock reacquired (28) (28) -- -- (28)
Net unrealized gain/
(loss) on marketable
securities -- -- -- 46 46
Net earnings (loss) -- -- (94) -- (94)
- ---------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1999 3,215 $ 8,147 $ (5,841) $ (12) $ 2,294
================================================================================================================
</TABLE>
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Month Period Ended
December 31,
---------------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (94) $(275)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 23 29
Stock Issued for Services 52 -
Deferred income tax (benefit) provision (8) 25
(Increase) decrease in accounts receivable 20 80
(Increase) decrease in inventories 99 (7)
(Increase) decrease in prepaid
expenses and other current assets (17) (129)
(Increase) decrease in other assets - -
Increase (decrease) in accounts payable 22 (74)
Increase (decrease) in accrued expenses (2) (3)
Increase (decrease) in accrued salaries, wages and vacation (10) (10)
------------- --------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 85 (364)
------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment $ - $ (3)
(Increase) decrease in investment securities, net (7) 12
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (7) 9
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 19 -
Repurchase of Common Stock (34) (6)
------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (15) (6)
------------- --------------
Increase (decrease) in cash and cash equivalents 63 (361)
Cash and cash equivalents at beginning of period 1,074 1,328
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,137 $ 967
============= ==============
</TABLE>
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Company and its representatives may from time to time make written or oral
forward-looking statements, including statements contained in the Company's
filings with the Securities and Exchange Commission and in its reports to
stockholders. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby identifying
information that is forward-looking, including, without limitation, statements
regarding the Company's future financial performance, the effect of government
regulations, national and local economic conditions, the competitive environment
in which the Company operates, results or success of discussions with other
entities on mergers, acquisitions, or alliance possibilities and expansion of
product offering. Actual results may differ materially from those described in
the forward-looking statement. The Company cautions that the foregoing list of
important factors is not exclusive. The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company either oral or written.
2. In the opinion of the Company, the unaudited financial statements contained
in this report have been prepared on a basis consistent with the financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended March 31, 1999. All adjustments included in the financial statements are
of a normal recurring nature and are necessary to present fairly the Company's
financial position as of December 31, 1999 and the results of its operations and
cash flows for the nine months ended December 31, 1999 and 1998.
3. Marketable securities classified as current assets at December 31, 1999,
include the following (dollars in thousands):
<TABLE>
<CAPTION>
Fair Value Cost
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<S> <C> <C>
Other Government Obligations $ 24 $ 26
Marketable equity securities 356 331
------------ ----------
$ 380 $ 357
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</TABLE>
4. Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at December 31, 1999 and March 31, 1999
consist of the following:
<TABLE>
<CAPTION>
(In thousands)
December 31, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
Raw materials $ 205 $ 243
Work in process 54 63
Finished products 281 333
---------- ----------
$ 540 $ 639
========== ==========
</TABLE>
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5. Property, plant and equipment consist of (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
Machinery and equipment $ 452 $ 452
Furniture and fixtures 99 124
Tooling 387 387
Leasehold improvements 155 155
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1,093 1,118
Less accumulated
depreciation (1,030) (1,032)
--------- ---------
$ 63 $ 86
========= =========
</TABLE>
6. The components of the income tax (benefit) provision were (dollars in
thousands):
<TABLE>
<CAPTION>
December 31, 1999
-----------------
<S> <C>
Current:
Federal $ -
State 1
---------
1
Deferred:
Net (increase) decrease in
deferred tax asset (7)
(Increase) decrease in benefit of
NOL carryforwards (46)
Increase (decrease) in valuation allowance 46
---------
$ (6)
=========
</TABLE>
At December 31, 1999, the Company had net operating loss (NOL) carryforwards of
approximately $3,540,000 for federal income tax purposes expiring in varying
amounts through 2019. The NOL carryforwards, which are available to offset
future profits of the Company and are subject to limitations should a "change in
ownership" as defined in the Internal Revenue Code occur, will begin to expire
in 2001 if not utilized. Additionally, the Company has general business tax
credit carryforwards of $174,109 which will begin to expire in 1999.
SFAS 109 requires that the tax benefit of such NOLs be recorded using current
tax rates as an asset to the extent management assesses the utilization of such
NOLs to be more likely than not. Management has determined that future taxable
income of the Company will likely not be sufficient to realize the recorded
deferred tax asset of $1,281,000. As such, the Company has recorded a valuation
allowance of $1,281,000.
Realization of the future tax benefits of the NOL carryforwards is dependent on
a Company's ability to generate taxable income within the carryforward period.
In assessing the likelihood of utilization of existing NOL carryforwards,
management considered the historical results of continuing operations, the
current economic environment in which the Company operates, and the
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projected results of the Company's cost-cutting measures as well as sales
projections. Management did not consider any non-routine transactions in
assessing the likelihood of realization of the recorded deferred tax asset.
7. During the six months ended September 30, 1999, the Company issued an
aggregate of 75,000 shares of the Company's Common Stock as a form of
compensation to retain the Hudson Consulting Group, Inc. to assist the
Company in acquisitions and mergers and assist with creating a market
for the securities of the Company.
8. During the quarter ended September 30, 1999, the Company issued 20,000
shares of Common Stock to Mr. Mazin under the 1985 Employee Stock
Option Plan for consideration of $18,750.00.
9. During the quarter ended December 31, 1999, the Company repurchased an
aggregate of 6,700 shares of the Company's Common Stock on the open
markt for an aggregate value of $5,618.
10. During the quarter ended December 31, 1999, the Company reacquired
27,800 shares of the Company's Common Stock pursuant to a legal
settlement with the estate of a former shareholder.
11. Net earnings (loss) per share is based on the weighted average number
of shares outstanding during each of the respective periods. Common
Stock equivalents are excluded from the calculation of weighted average
shares outstanding as their effect is immaterial or antidilutive.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the third fiscal quarter ended December 31, 1999 were $387,000
compared to $396,000 in the year-earlier period. Net sales for the nine months
ended December 31, 1999 increased approximately 9% to $1,383,000 from $1,271,000
in the year-earlier period. Upon losing its major customer in fiscal 1997, the
Company focused on increasing business with its existing customers as well as
pursuing new business. As a result of these efforts, sales have increased.
Cost of sales as a percentage of net sales has increased during the current
fiscal year. The increase primarily relates to an increase in the material cost
of the gases used in the Company's principal selling product line of compressed
gas dusters. The Company began realizing this cost increase during the quarter
ended September 30, 1999.
During April 1999, the Company signed an agreement with the Hudson Consulting
Group, Inc. to assist the Company in acquisitions and mergers and assist with
creating a market for the securities of the Company. Included in Selling,
General and Administrative Expenses for the nine months ended December 31, 1999
is $52,732 consulting expense which represents the value of an aggregate of
75,000 shares of the Company's Common Stock which were issued to the Hudson
Consulting Group for their services. During the quarter ended December 31, 1999,
the Company terminated this agreement.
In August 1999, one of the Company's customers filed a Chapter 11 Bankruptcy
Petition. This customer accounted for less than 10% of the Company's net sales.
Included in Selling, General and Administrative Expenses for the nine months
ended December 31, 1999 is a $77,000 allowance for doubtful receivables related
to this customer.
The Company continues to tightly control expenditures. During the first quarter
ended June 30, 1999 it successfully found a sub-tenant to occupy a portion of
its facility, thereby helping to reduce the Company's overhead costs.
The substantial increase in Other Income for the quarter ended December 31, 1999
primarily relates to realized gains on investments. During December 1999, the
Company sold its stock in El Guapo Foods to McCormick Co. and realized a gain of
approximately $84,000, which represents the single largest gain for the quarter.
PerfectData's management has continually sought out potential merger and joint
venture partners for strategic growth opportunities.
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Subsequent to the quarter ended December 31, 1999, the Company announced, on
January 25, 2000, it had executed an agreement with an investor group pursuant
to which the investors will provide equity capital and purchase newly issued
shares of the Company's Common Stock. The investor group would subsequently hold
28% of the Company's stock. Consummation of the purchase is subject to the
Company obtaining shareholder approval. If approved, an investment advisor
agreement will become effective pursuant to which advisors will assist the
Company in making acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The cash position at December 31, 1999 is $1,137,000 including certificates of
deposit of $257,000. The Company has a current ratio of better than 8 to 1 and
no long-term debt.
Management believes that the Company's liquidity and working capital
requirements are adequate to fund the Company's Operations and Capital
requirements for the 2000 fiscal year.
YEAR 2000
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 February 8, 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 that any of its major
customers or third-party suppliers have experienced significant Y2K related
problems.
The Company believes all its critical systems are Y2K ready. However, there is
no guarantee that the Company has discovered all possible failure points.
Specific factors contributing to this uncertainty include failure to identify
all systems, non-ready third parties whose systems and operations impact the
Company, and other similar uncertainties.
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
heading "Forward Looking Statements".
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Inapplicable.
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the quarter for which
this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERFECTDATA CORPORATION
Date: February 8, 2000 Joseph Mazin
---------------- ---------------------------
Joseph Mazin
President,
Chief Executive Officer and
Chairman of the Board
Date: February 8, 2000 Irene J. Marino
---------------- ---------------------------
Irene J. Marino
Corporate Secretary,
V.P. Finance and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,137
<SECURITIES> 380
<RECEIVABLES> 258
<ALLOWANCES> (92)
<INVENTORY> 540
<CURRENT-ASSETS> 2,422
<PP&E> 1,093
<DEPRECIATION> (1,030)
<TOTAL-ASSETS> 2,585
<CURRENT-LIABILITIES> 291
<BONDS> 0
0
0
<COMMON> 8,147
<OTHER-SE> (5,853)
<TOTAL-LIABILITY-AND-EQUITY> 2,585
<SALES> 1,383
<TOTAL-REVENUES> 1,383
<CGS> 929
<TOTAL-COSTS> 929
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (101)
<INCOME-TAX> 7
<INCOME-CONTINUING> (94)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94)
<EPS-BASIC> (.03)
<EPS-DILUTED> 0
</TABLE>
