UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[x] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2004
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to _________.
Commission File Number 0-12817
PERFECTDATA CORPORATION
(Exact Name of Small Business Issues as Specified in Its Charter)
CALIFORNIA 95-3087593
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1445 East Los Angeles Avenue
Suite 208
Simi Valley, California 93065 (805) 581-4000
(Address of Principal Executive Offices) (Issuer's Telephone Number,
Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ____
As of July 30, 2004, there were 6,209,530 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format:
Yes ____ No X
The Quarterly Report on Form 10-QSB for the quarter ended June 30, 2004
(the "Quarterly Report") of PerfectData Corporation (the "Company") is hereby
amended to (1) change the reported Net Sales and Cost of Goods Sold in the
Statement of Operations for the three months ended June 30, 2004 in Part I, Item
1; (2) to add a second paragraph (relating to revenue recognition) to Note 3 to
the Notes to Financial Statements in Part I, Item 1; (3) to amend Part I, Item 2
(Management's Discussion and Analysis of Financial Condition and Results of
Operations) to effect the following changes: (a) to add a sentence at the end of
the third paragraph of the section captioned "Proposed Sale of Business
Operations;" (b) to revise the subsection captioned "Revenue Recognition" in the
section "Critical Accounting Policies;" and (c) to amend the first two
paragraphs relating to sales and cost of sales sold in the section captioned
"Results of Operations;" and (4) to update the certifications filed as Exhibits
31.1, 31.2 and 32. Except as so amended, there is no other change to the
Quarterly Report.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PERFECTDATA CORPORATION
Balance Sheet
(Unaudited)
(Amounts in thousands except share amounts)
June 30,
2004
--------------------
Assets
Current assets:
Cash and cash equivalents $ 1,875
Accounts receivable, net of allowance of $3 134
Prepaid expenses and other current assets 90
--------------------
Total current assets 2,099
Property, plant and equipment, at cost, net ---
--------------------
2,099
====================
Liabilities
Current liabilities:
Accounts payable $ 452
Accrued compensation 26
Other accrued expenses 15
--------------------
Total current liabilities 593
--------------------
Shareholders' equity:
Preferred Stock. Authorized 2,000,000
shares; none issued ---
Common Stock, no par value. Authorized
10,000,000 shares; issued and
outstanding 6,209,530 shares 11,258
Accumulated deficit (9,752)
--------------------
Total shareholders' equity 1,506
--------------------
Total liabilities and shareholders' equity $ 2,099
====================
See accompanying notes to financial statements.
PERFECTDATA CORPORATION
Statements of Operations
(Unaudited)
(Amounts in thousands, except per share information)
Three Months Ended June 30,
2004 2003
-------------------- -- -----------------
Net Sales $ 326 $ 725
Cost of goods sold 264 470
-------------------- -----------------
Gross profit 62 255
Selling, general, and administrative expenses 219 354
-------------------- -----------------
Loss from operations (157) (99)
-------------------- -----------------
Other income:
Interest, net - -
Other, net 3 5
-------------------- -----------------
Net loss $ (154) $ (94)
==================== =================
Net loss per common share:
Basic and diluted $ (0.02) $ (0.02)
==================== =================
Weighted average shares outstanding:
Basic and diluted 6,209 6,159
See accompanying notes to financial statements.
PERFECTDATA CORPORATION
Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
Three Months Period Ended,
June 30,
------------------------------------
2004 2003
Cash flows from operating activities:
Net loss $ (154) $ (94)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization -- 5
Decrease in accounts receivable 58 40
Decrease in inventory -- 80
Increase in prepaid expenses and other assets (32) (14)
Increase (decrease) in accounts payable 127 (98)
(27)
Increase (decrease) in accrued expenses (27)
Net cash used in operating activities (28) (60)
Net decrease in cash and cash equivalents (28) (60)
1,903 2,173
Cash and cash equivalents at end of period $ 1,875 $ 2,113
See accompanying notes to financial statements.
PERFECTDATA CORPORATION
Notes to Financial Statements
1. 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, 2004 and the results of its operations and
cash flows for the three months ended June 30, 2004 and 2003. Results of
operations for the 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. This Report should be read in conjunction with the Company's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 2004 ("Annual
Report 2004").
2. Proposed Sale of Business Operations
On October 3, 2003, the Company entered into an Asset Purchase Agreement
(the "APA") with Spray Products Corporation ("Spray"), pursuant to which the
Company agreed to sell to Spray (or a Spray affiliate) substantially all of the
operating assets of the Company for a price equal to the sum of the value of the
inventory, collectible accounts receivable and $100,000, less the amount of
trade payables which are being assumed by Spray.
Since November 1, 2003, Spray had, pursuant to the APA, been acting as a
manager for the fulfillment of orders from the Company's customers. As
compensation for Spray's services, Spray was receiving a fee of 71/2% of net
sales. As indicated in the next paragraph, as a result of Spray assuming,
effective as of June 1, 2004, full responsibility for all customers, Spray is
entitled to the full economic benefit of any sale to a customer of the Company
in lieu of the foregoing fee.
Because the Company's largest customer had threatened to seek another
supplier because of a supplier's offer of lower prices, and because of the long
delay in closing the transaction, thereby causing uncertainty for customers and
Spray, the Company and Spray had agreed in principle, and subsequently finalized
the agreement in writing by the Second Amendment dated as of August 12, 2004, to
the following revisions to the APA: (1) effective June 1, 2004, Spray assumed
full responsibility for all of the Company's customers in order to prevent
possible losses of customer business, resulting in Spray receiving, thereafter,
the full economic benefits of any sales to customers of the Company; (2) the
aforementioned payment of $100,000 was reduced to $80,000; and (3) the Company
may put the assets to Spray for the purchase price on the earlier of (a)
September 30, 2004 or (b) the Company receiving shareholder consent to the sale
of Spray.
The Board of Directors, after consultation with certain major shareholders,
had elected in June 2003, to sell the operating business assets of the Company
because, despite efforts by the Company during the prior fiscal years which had
increased sales and reduced expenses, the Company continued to operate at a
loss, thereby diluting the Company's cash, which is its major asset. The Board
concluded that a sale or liquidation of the operating assets was in the best
interests of the Company and its shareholders even if no acquisition or merger
was effected.
The Company will seek shareholders' approval by consents in lieu of holding
a meeting, to permit the sale of its operating assets to Spray. As a result of
the new arrangement with Spray effective June 1, 2004, the Company has no
operations and will receive no revenues until
an acquisition or merger is effected.
The Board of Directors of the Company does not intend to liquidate the
Company, but instead, with the Company having cash or cash equivalents currently
in excess of $1,500,000, the Board intends to continue its search for a suitable
merger or acquisition candidate. Even though the Company has no operations, the
Company believes its status as a publicly-traded company is valuable and
therefore makes it a viable merger candidate. During the past four fiscal years,
the Company had been seeking acquisitions which have not been related to its
current business. The Board was of the opinion that profitability on a
continuous basis would not be achieved absent an acquisition of a new business
or businesses and/or new products. However, the Board can not determine when any
such acquisition will be consummated, if at all. During recent years, three
potential acquisitions were actively pursued; however, all terminated for
different reasons and the Company incurred expenses in connection therewith.
No adjustments have been made to the financial statements as a result of
these uncertainties.
3. Restatement
The Company previously reflected the operations related to the sale of
certain assets as discontinued operations. Management has reassessed the facts
and circumstances of the transaction and has revised the disclosure to include
the operations related to these assets in continuing operations, which is in
conformity with generally accepted accounting principles. The restatement had no
effect on net sales, cost of goods sold, gross profit, net loss, basic and
diluted loss per common share, current assets, property and equipment, total
assets, current liabilities, total liabilities and total liabilities and
shareholders' equity as of and for the three months ended June 30, 2004.
The Company previously recognized revenue from sales to its customers on a
gross basis as a principal. Management has reassessed the facts and
circumstances for revenue recognized since June 1, 2004 and has revised the
disclosure to reflect the revenue as recognized on a net basis as an agent,
which is in conformity with generally accepted accounting principles. The
restatement reduced net sales and cost of goods sold by $306,000, but the
restatement has no affect on gross profit, net loss, basic and diluted loss per
common share, current assets, property and equipment, total assets, current
liabilities, total liabilities and total liabilities and shareholders' equity as
of and for the three months ended June 30, 2004.
4. Inventories
Pursuant to the APA, the Company transferred its inventory on hand at
October 31, 2003 to Spray. Pursuant to this agreement, Spray will pay the
Company for the inventory at the time of the close of the transaction. The
Company reclassified its inventory, with a net book value of $28,000, to other
current assets.
5. Property and Equipment
Property and equipment at June 30, 2004 consist of (in thousands):
Machinery and equipment $ 296
Furniture and fixtures 7
303
Less accumulated depreciation
and amortization (303)
$ -
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. Diluted net loss per share
includes the dilutive impact of all Common Stock equivalents such as options and
warrants to purchase the Company's Common Stock. 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 of diluted
loss per share.
7. Stock-Based Compensation
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair-value for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosure in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
In accordance with provisions of SFAS No. 123, the Company applies
Accounting Principles Board ("APB") Opinion No. 25 and related interpretations
in accounting for its stock options plans and accordingly, does not recognize
compensation costs for grants to employees and directors whose exercise prices
equals the market price of the stock on the date of grant.
Due to the reduction of the exercise price of fixed stock options through
the cancellation of stock option awards and the granting of replacement awards,
per FIN No. 44, Accounting for Certain Transaction involving Stock Compensation,
the Company has adopted variable accounting for the replacement awards, per FIN
No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option
or Award Plans. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the Company's
net loss would have been increased to the pro forma amounts indicated below. The
fair value of these options was estimated at the date of grant using a
Black-Scholes option-pricing model, assuming a risk-free interest rate of 3.26%
- 6.26%, three to ten-year terms, 52% volatility, and $0 expected dividend rate.
(000's except per share amounts)
Three Months Ended
June 30,
2004 2003
Net loss, as reported $ (154) (94)
Deduct total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of tax (5) (4)
Pro forma net loss $ (159) (98)
Basic and diluted net loss per
common share:
As reported $ (0.02) (0.02)
Pro forma (0.03) (0.02)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Proposed Sale of Business Operations
As previously reported, on October 3, 2003, the Company entered into an
Asset Purchase Agreement (the "APA") with Spray Products Corporation ("Spray"),
pursuant to which the Company agreed to sell to Spray (or a Spray affiliate)
substantially all of the operating assets of the Company for a price equal to
the sum of the value of the inventory, collectible accounts receivable and
$100,000, less the amount of trade payables which are being assumed by Spray.
Since November 1, 2003, Spray had, pursuant to the APA, been acting as a
manager for the fulfillment of orders from the Company's customers. As
compensation for Spray's services, Spray was receiving a fee of 71/2% of net
sales. As indicated in the next paragraph, as a result of Spray assuming,
effective as of June 1, 2004, full responsibility for all customers, Spray is
entitled to the full economic benefit of any sale to a customer of the Company
in lieu of the foregoing fee. As a result of the management arrangement with
Spray, the Company has moved to a smaller facility and reduced its staff,
thereby reducing its ongoing overhead expenses.
Because the Company's largest customer had threatened to seek another
supplier because of a supplier's offer of lower prices, and because of the long
delay in closing the transaction, thereby causing uncertainty for customers and
Spray, the Company and Spray have agreed in principle and subsequently finalized
the agreement in writing by the Second Amendment dated as of August 12, 2004, to
the following revisions to the APA: (1) effective June 1, 2004, Spray assumed
full responsibility for all of the Company's customers in order to prevent
possible losses of customer business, resulting in Spray receiving, thereafter,
the full economic benefits of any sales to customers of the Company; (2) the
aforementioned payment of $100,000 was reduced to $80,000; and (3) the Company
may put the assets to Spray for the purchase price on the earlier of (a)
September 30, 2004 or (b) the Company receiving shareholder consent to the sale
of Spray. As a result of these revisions, effective June 1, 2004,
the Company began recognizing revenue from sales to customers on a net basis as
an agent in accordance with EITF 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent," because it no longer meets the criteria necessary to
recognize revenue as a principal.
The Board of Directors, after consultation with certain major shareholders,
had elected in June 2003, to sell the operating business assets of the Company
because, despite efforts by the Company during the prior fiscal years which had
increased sales and reduced expenses, the Company continued to operate at a
loss, thereby diluting the Company's cash, which is its major asset. The Board
concluded that a sale or liquidation of the operating assets was in the best
interests of the Company and its shareholders even if no acquisition or merger
was effected.
The Company will seek shareholders' approval, by consents in lieu of
holding a meeting, to permit the sale of its operating assets to Spray.
As a result of the transaction, as amended, with Spray, effective June 1,
2004, the Company has no operations and will receive no revenues until an
acquisition or merger is effected, as to which and when there can be no
assurance.
Efforts to Seek Another Merger or Acquisition Candidates
The Board of Directors of the Company does not intend to liquidate the
Company but instead, with the Company having cash or cash equivalents currently
in excess of $1,500,000, the Board intends to continue its search for a suitable
merger or acquisition candidate. Even though the Company has no operations, the
Company believes its status as a publicly-traded company is valuable and
therefore makes it a viable merger candidate. During the past three fiscal
years, the Company had been seeking acquisitions which have not been related to
its current business. The Board was of the opinion that profitability on a
continuous basis would not be achieved absent an acquisition of a new business
or businesses and/or new products. However, the Board can not determine when any
such acquisition will be consummated, if at all. During recent years, three
potential acquisitions were actively pursued; however, all terminated for
different reasons and the Company incurred expenses in connection therewith.
Critical Accounting Policies
Management believes that the following discussion addresses the Company's
most critical accounting policies, which are those that are most important to
the portrayal of the Company's financial condition and results, and require the
most difficult, subjective and complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain.
Prior to November 1, 2003, the date on which Spray assumed responsibility for
fulfillment of customer orders, management also included a discussion of its
evaluation of inventory as a critical accounting policy on an on-going basis.
Revenue Recognition:
Until June 1, 2004 the Company recognized revenue on a gross basis when
products were shipped and the customers took ownership and assumed risk of loss,
collection of relevant receivables was probable, pervasive evidence of an
arrangement existed and the sales price was fixed or determinable. As a result
of the revisions to the APA with Spray, the Company no longer meets the
criteria necessary to recognize revenue as a principal and
instead recognizes revenue net as an agent.
Allowance for Doubtful Accounts:
The Company evaluates the collectibility of its accounts receivable and
provides an allowance for estimated losses that may result from customers'
inability to pay. The amount of the reserve is determined by analyzing known
uncollectible accounts, aged receivables and customers' credit-worthiness.
Amounts later determined and specifically identified to be uncollectible are
written off against the allowance.
Results of Operations
Net sales for the first fiscal quarter ended June 30, 2004 ("current
quarter") were $326,000 as compared to $725,000 in the year-earlier period. The
Company attributes the decrease in sales of $399,000, or 55%, to two facts.
First, the year-earlier period included an unusually high sales volume with its
largest customer. Second, Spray's management of the fulfillment of orders from
the Company's customers had no effect on the decreased sales in April and May
2004. However, when Spray assumed full responsibility for all the Company's
customers effective June 1, 2004, the Company did not report the $306,000 in
sales in the month of June 2004 for which Spray, effective June 1, 2004,
realized the full economic benefit pursuant to the APA Second Amendment.
Cost of Goods Sold ("Costs") as a percentage of net sales for the current
quarter and year-earlier period was 81% and 65%, respectively. The increase in
Costs was directly related to a price increase from Spray in the months of April
and May 2004. There were no Costs for the month of June 2004 because, as
discussed in the preceding paragraph, the Company did not report any sales.
Selling, General and Administrative Expenses ("Expenses") for the current
quarter were $219,000 as compared to $354,000 in the year-earlier period. As
previously discussed, the Company transferred its order fulfillment to Spray on
November 1, 2003 and moved to a smaller facility. The decrease in Expenses from
the year-earlier period directly related to a reduction in facility expenses as
well as a reduction in payroll and related costs. In addition, the Company
recorded compensation expense of $51,500 in the year-earlier period related to
the 50,000 shares of the Company's Common Stock issued to the then Chairman of
the Audit Committee for his services as such.
Other Income for the current quarter was primarily dividend income of
$3,000 as compared to $5,000 in the year-earlier period.
The increased net loss in the current quarter directly related to the
decrease in sales and increase in Costs, partially offset by the decrease in
Expenses, as described above.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $28,000 from $1,903,000
at March 31, 2004 to $1,875,000 at June 30, 2004. The decrease resulted from
cash used in operating activities of $28,000. The cash used in operating
activities was primarily the result of the net loss of $154,000, partially
offset by an increase in accounts payable.
As a result of the continuing negative cash flows from operations, the
Company is dependent on the proceeds from its March 2000 private placement in
order to meet its payable requirements. On March 31, 2000, certain investors
(including two of the current directors) purchased from the Company an aggregate
of 1,333,333 shares of the Common Stock at $2.25 per share or an aggregate
purchase price of $2,999,999. The net proceeds approximated to $2,895,000.
Because all of such funds were not required for operations, the funds deemed
excess were invested in a working capital management account with Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). As of June 30, 2004, the
Company had approximately $1,875,000 of cash equivalents in two financial
institutions, which exposes the Company to a concentration of credit risk. The
Company had, as of that date, approximately $1,660,000 invested in highly liquid
money market instruments with Merrill Lynch, which are not federally insured.
The remaining $215,000 was deposited at a bank, which is federally insured up to
$100,000.
The Company believes that, as a result of the cash described in the
preceding paragraph, the Company's working capital is adequate to fund its
operations and its requirements for the fiscal year ending March 31, 2005 while
seeking a suitable merger and acquisition candidate.
Recent Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The adoption of SFAS No. 146 is not expected to have a material effect on the
Company's financial statements.
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. 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
condition and the success of the Company's efforts to seek a merger or
acquisition partner and the proposed sale to Spray. Other risks are discussed in
the Annual Report 2004. 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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 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: October 27, 2004
PerfectData Corporation
Index to Exhibits Filed with
Quarterly Report on Form 10-QSB
Exhibit No. Description of Exhibit Page
31.1 Certification of Chief Executive Officer Pursuant to Rule E-2
13a-14(a) under the Securities Exchange Act of 1934
31.2 Certification of Chief Financial Officer Pursuant to Rule E-4
13a-14(a) under the Securities Exchange Act of 1934
32 Certification Pursuant to Section 906 of Sarbanes- E-6
Oxley Act of 2002