<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 JUNE 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 July 31, 2000, there were 6,094,530 shares of Common Stock outstanding.
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PERFECTDATA CORPORATION
INDEX
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<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 2000 (unaudited) and
March 31, 2000 2
Statements of Operations and Comprehensive Income (Loss) -
three months ended June 30, 2000 and 1999 (unaudited) 3
Statements of Shareholders' Equity -
three months ended June 30, 2000 (unaudited) 4
Statements of Cash Flows - three months
ended June 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 - 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)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
------------------------- -------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents, including
short-term certificates of deposit of
$213 at June 30, 2000 and
$222 at March 31, 2000, respectively $ 3,955 $ 4,087
Accounts receivable, less allowance
for doubtful receivables 257 233
Inventories 392 375
Prepaid expenses and other current assets 67 56
Marketable securities, short-term 215 250
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Total current assets 4,886 5,001
Property, plant and equipment, at cost, net 56 53
Other assets, net 24 24
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$ 4,966 $ 5,078
========================= =========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 293 $ 222
Accrued salaries, wages and vacation 40 39
Other accrued expenses 105 98
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Total current liabilities 438 359
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Shareholders' equity:
Preferred Stock. Authorized 2,000,000
shares; none issued - -
Common Stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 6,094,530 shares at
June and at March 11,088 11,088
Accumulated deficit (6,511) (6,345)
Accumulated other comprehensive loss (49) (24)
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Net shareholders' equity 4,528 4,719
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$ 4,966 $ 5,078
========================= =========================
</TABLE>
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1999
2000 (AS RESTATED)
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<S> <C> <C>
Net sales $ 500 $ 524
Cost of goods sold 383 330
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Gross profit 117 194
Selling, general and administrative expenses 340 288
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Loss from operations (223) (94)
Other income:
Interest income, net 5 5
Other, net 52 39
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Net loss (166) (50)
Other Comprehensive Income:
Unrealized gain (loss) on marketable securities (25) 300
-------------------------------------
Comprehensive income (loss) $ (191) $ 250
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Net loss per common share - basic and diluted $ (.03) $ ( .02)
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Weighted average shares outstanding - basic and diluted 6,094 3,175
=====================================
</TABLE>
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
Statements of Shareholders' Equity
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Period from March 31, 2000 through June 30, 2000
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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 - - - (25) (25)
Net loss - - (166) - (166)
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Balance at
June 30, 2000 6,094 $11,088 $(6,511) $(49) $4,528
================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
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PERFECTDATA CORPORATION
Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
JUNE 30,
--------------------------------------------
1999
2000 (AS RESTATED)
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<S> <C> <C>
Cash Flows from operating activities:
Net loss $ (166) $ (50)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 4 7
Stock Issued for services - 26
(Increase) in accounts receivable (24) (131)
(Increase) decrease in inventories (17) 16
(Increase) decrease in prepaid
expenses and other current assets (11) 16
Increase in accounts payable 71 97
Increase in accrued expenses 8 19
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Net cash used in operating activities (135) -
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Cash flows from investing activities:
Purchases of property, plant, and equipment $ (7) -
Decrease in investment securities, net 10 20
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Net cash provided by investing activities 3 20
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Increase (decrease) in cash and cash equivalents (132) 20
Cash and cash equivalents at beginning of period 4,087 1,074
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Cash and cash equivalents at end of period $3,955 $1,094
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</TABLE>
See accompanying notes to financial statements.
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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 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 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 June
30, 2000 and the results of its operations and cash flows for the three
months ended June 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 June 30, 2000 and
March 31, 2000, respectively, are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
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Fair Value Cost Fair Value Cost
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<S> <C> <C> <C> <C>
Other Government Obligations $ 24 $ 27 $ 25 $ 27
Marketable equity securities 191 237 225 247
----------- ------ ----------- -----
$215 $264 $250 $274
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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>
June 30, 2000 March 31, 2000
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<S> <C> <C>
Raw materials $184 $176
Work in process 20 20
Finished products 188 179
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$392 $375
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4. PROPERTY AND EQUIPMENT
Property and equipment consist of (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
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<C> <C> <C>
Machinery and equipment $316 $316
Furniture and fixtures 81 74
Tooling 3 3
Leasehold improvements 155 155
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555 548
Less accumulated
Depreciation and amortization 499 495
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$ 56 $ 53
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</TABLE>
5. INCOME TAXES
At June 30, 2000, the Company had net operating loss (NOL) carryforwards
of approximately $3,857,000 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 which will begin to
expire in 2000.
SFAS 109 requires that the tax benefit of such NOLs and other deferred
tax assets be recorded using current tax rates as an asset 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 $1,718,000. As such, the Company has recorded a valuation allowance
of $1,718,000.
6. STOCK OPTION PLAN OF 2000
On May 22, 2000, two new Advisory Board Members were each granted a
stock option for 25,000 shares of Common Stock under the Stock Option Plan of
2000. The Plan, as well as the stock option grants, are subject to approval
by the shareholders.
7. 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. Diluted net loss
per share includes the dilutive effect of all Common Stock equivalents, such
as stock options. During the respective periods, the impact of the Common
Stock equivalents was antidilutive, therefore they have been excluded from
the calculation.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the first fiscal quarter ended June 30, 2000 ("current
quarter") were $500,000 compared to $524,000 in the year-earlier period. The
decrease in sales of $24,000, or 4.6%, was due, in part, to a decline in
business with the Company's European distributor. The Company is seeking new
channels of distribution for its products in Europe.
Cost of goods sold as a percentage of net sales was 76% for the current
quarter compared to 63% in the year-earlier period. 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 this cost increase during the quarter ended September
30, 1999.
Selling, General and Administrative Expenses ("Expenses") for the
current quarter were $340,000 compared to $288,000 in the year-earlier
period. The increase in Expenses of $52,000, or 18.1%, directly related to
costs associated with opening an acquisition and merger office, legal fees
for the Company's new Corporate Counsel and an increase in accounting fees.
The increased loss from operations in the current quarter was primarily
due to the increase in cost of goods sold and Expenses as described above. As
previously reported in the Annual Report 2000, the shareholders of the
Company approved the Stock Purchase Agreement and related transactions on
March 31, 2000, which resulted in a change in control of the Company. The new
Board is currently reviewing what actions would be appropriate to effect a
turn around in the Company's operations. There can be no assurance, however,
as to when such actions will be implemented or as to the success thereof.
Other income for the current quarter was primarily dividend income of
$56,000 net of loss on securities of $2,000, as compared to Other Income in
the year-earlier period of dividend income of $11,000, a gain on securities
of $8,000 and miscellaneous income of $19,000. The increase in dividend
income in the current quarter directly relates to the $3,000,000 which the
Company received from the sale of its Common Stock pursuant to the Stock
Purchase Agreement.
The Company, with its new directors, is seeking acquisitions which may
or may not be related to its current business. There can, of course, be no
assurance that any such acquisitions will be effected.
Joseph Mazin resigned as President and Chief Executive Officer of the
Company effective July 27, 2000. However, Mr. Mazin will continue to serve as
a Consultant to the Company until March 31, 2001. The Board is seeking a
replacement for Mr. Mazin on an interim and ultimately permanent basis.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $132,000, from $4.087
million at March 31, 2000 to $3.955 million at June 30, 2000. The decrease in
cash during the first quarter of fiscal 2001 resulted primarily from $135,000
used in operating activities. The cash used in operating activities was
primarily the result of the net loss of $166,000, as well as increases in
accounts receivables, inventories and prepaid expenses and other current
assets, partially offset by the increase in accounts payable
The Company believes that it has sufficient working capital ($4.448
million at June 30, 2000) to finance the Company's operational requirements
for at least the next twelve months.
At June 30, 2000, the Company had net operating loss and general
business tax credit carry forwards for income tax purposes of approximately
$3,857,000 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 August 10, 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.
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
implementation date of SAB 101 until the fourth fiscal quarter of fiscal
years beginning after December 15, 1999.
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In March 2000, the FASB issued FASB Interpretation No. 44
("Interpretation No. 44"), and 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 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, and 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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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Inapplicable.
(b) Reports on Form 8-K.
1. As previously reported in the Annual Report
2000, the Company filed a Form 8-K on April
14, 2000, reporting, under Item 2, a change
in control of the Company.
2. As previously reported in the Annual Report
2000, the Company filed a Form 8-K on June
26, 2000, reporting, under Item 4, that on
June 19, 2000 the firm of KPMG LLP was
retained to audit the financial statements
of the Company.
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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
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Irene J. Marino
V.P. Finance, Chief Financial
Officer and Corporate
Secretary (Principal Financial
and Accounting Officer)
Date: August 10, 2000
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