SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2004
Commission File No. 0-12817
PERFECTDATA CORPORATION
(Exact name of Small Business Issuer in Its Charter)
California 95-3087593
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
1445 East Los Angeles Avenue
Suite 208
Simi Valley, California 93065
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code:
(805) 581-4000
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 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[ ].
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $2,680,000.
As of May 31, 2004, the aggregate market value of the voting stock held by
nonaffiliates of the issuer was $4,382,150.
As of May 31, 2004, the issuer had 6,209,530 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes[ ] No[X].
The Annual Report on Form 10-KSB for the fiscal year ended March 31,
2004 (the "Annual Report") of PerfectData Corporation (the "Company") is hereby
amended to amend Items 6, 7, 8A and 13, to file a new Exhibit 10.17, to
substitute new exhibits 23(a) and 23(b) and to update the Certifications
Pursuant to Rule 13a-14 (a) and (b) under the Securities Exchange Act of 1934
filed or furnished as Exhibits 31.1, 31.2 and 32 to the Annual Report. Except as
so amended, there is no other change to the Annual Report.
Item 6. 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 7 1/2% of net
sales. 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. 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
formalized the agreement in writing by a 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; (2) the aforementioned payment of
$100,000 will be 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 (including the then pending transaction with SuperCom) was
effected.
The Company will seek shareholders' approval of the sale of its
operating assets to Spray by consents in lieu of holding a meeting. A condition
precedent under the APA to closing the transaction was, prior to the Second
Amendment to the APA, that the Company obtain the approval of its shareholders.
If, on the other hand, as permitted by the Second Amendment to the APA and the
California statute, the put by the Company to spray is exercised as of September
30, 2004, a closing is held and shareholders' approval is not thereafter
obtained, the parties would be required to rescind the transaction. However, in
view of management's discussions with major shareholders in June 2003, as
previously reported, management does not believe that recission is likely to be
required.
As a result of the transaction, as modified, with Spray, the Company
has no operations and will thereafter 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
As previously reported, on July 2, 2003, the Company entered into the
Merger Agreement and related agreements with SuperCom, an Israeli corporation,
culminating the negotiations which had begun in April 2003.
SuperCom is engaged in the research, development and marketing of advanced
technologies and products for government secured ID projects and smart card
production technology. On January 20, 2004, the Company reported that the Merger
Agreement and related agreements had terminated.
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 (including SuperCom) 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 policy, which is most important to the
portrayal of the Company's financial condition and results, and requires 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:
The Company recognizes when products are shipped and the customer takes
ownership and assumes risk of loss, collection of the relevant receivable is
probable, pervasive evidence of an arrangement exists, and the sales price is
fixed or deteminable.
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 in fiscal 2004 increased $675,000, or 34%, to $2,680,000 from
net sales of $2,005,000 in fiscal 2003. The increased sales in fiscal 2004 were
a result of an increase in sales volume with the Company's existing customers.
Spray's management of the fulfillment of orders from the Company's customers, as
described under the caption "Proposed Sale of Business Operations" in this Item
6, had no effect on the increased sales in fiscal 2004.
Cost of Goods Sold ("Costs") as a percentage of net sales was 66% for
fiscal 2004 and 2003, respectively. Even though the Company incurred additional
costs in fiscal 2004 related to the interim management fee for Spray, these
costs were offset by the reduction in overhead expenses when the Company reduced
its staff, as well as the savings in freight expense when orders were shipped
directly from Spray to the Company's customers.
Selling, General and Administrative Expenses ("Expenses") for fiscal
2004 and 2003 were $1,477,000 and $1,358,000, respectively. The increase in
Expenses in fiscal 2004 directly related to costs associated with the SuperCom
transaction, as well as severance pay and related taxes paid to employees whose
employment was terminated when the Company transferred its order fulfillment to
Spray. These costs were partially offset by a reduction in facility expenses
when the Company transferred its order fulfillment to Spray and moved to a
smaller facility. An aggregate of $226,000 in Expenses relating to the SuperCom
transaction were incurred in fiscal 2004 and an aggregate of $115,000 in
Expenses relating to an aborted transaction were incurred in fiscal 2003. See
"Terminated Acquisitions" under Item 1, Part I to this Report. In addition, the
Company recorded compensation
expense of $51,500 in fiscal 2004 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 fiscal 2004 and 2003 was primarily dividend income of
$17,000 and $37,000, respectively.
The decreased net loss in fiscal 2004 directly related to the increased
sales partially offset by the increase in Expenses, as described above.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $270,000 in fiscal
2004. The decrease resulted from cash used in operating activities of $270,000.
The cash used in operating activities was primarily the result of the net loss
of $557,000, partially offset by a decrease in inventories, as well as an
increase in accounts payable and accrued expenses.
The Company had a current ratio of better than 4 to 1 at fiscal year
end and no long-term debt.
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 $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 reported in Note 3 to the
Financial Statements in this Report, as of March 31, 2004, the Company had
approximately $1,903,000 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 $1,896,000 invested in highly liquid money market
instruments with Merrill Lynch, which are not federally insured. The remaining
$7,000 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.
At March 31, 2004, the Company had net operating loss and general
business tax credit carry forwards for income tax purposes of approximately
$5,453,000 and $12,000, respectively, available to reduce future potential
Federal income taxes.
Item 7. Financial Statements.`
The information required by this Item is incorporated herein by
reference to the financial statements listed in Item 13 of Part III of this
Report.
Item 8A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has a CEO and a CFO/CAO, constituting all of management,
and, during the reporting period, six employees to conduct operations. The CEO
and CFO/CAO performed an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as of March 31,
2004. Because of its small size and limited number of personnel, the Company
does not currently have elaborate written procedures, nor does management
believe that such elaborate written procedures are currently necessary to ensure
accurate reporting in the Company's periodic reports. In making their
evaluation, the CEO and CFO/CAO consulted with the Company's outside counsel.
Based on that evaluation, the two officers concluded that the Company's
disclosure controls and procedures were adequate and effective, as of March 31,
2004, to ensure that material information relating to the Company would be made
known to them by others within the Company, particularly during the period in
which this Report was being
prepared. Their evaluation was reported to the Audit Committee in connection
with its review of this Report prior to its filing.
Changes in Internal Controls
There was no significant change during the quarter ended March 31, 2004
in the Company's internal controls over financial reporting identified in
connection with the officers' evaluation reported above that that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Item 13. Exhibits, Financial Statements and
Reports on Form 8-K.
(a) Documents Filed with Report
(1) Financial Statements
The financial statements listed on the accompanying
Index to Financial Statements are filed as part of this
Report.
(2) Exhibits
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation as amended to date (1)
3.2 Bylaws as amended to date (2)
10.1 1985 Employee Stock Option Plan (3)
10.2 Form of Incentive Stock Option Agreement (3)
10.3 Form of Non-Qualified Stock Option Agreement (3)
10.4 Form of Representative Agreement between the
Company and its Representatives (4)
10.5 Form of Standard Exclusive Distributor Agreement
between the Company and its Distributors (4)
10.6 Standard Industrial Lease dated August 26, 1991,
between Wayne Mertes, Mamie Mertes, Mike Butler
and Sarah Butler, as lessor, and the Company, as
lessee (5)
10.7 Stock Purchase Agreement dated January 20, 2000
by and among the Company, Millennium Capital
Corporation ("Millennium"), JDK Associates, Inc.
("JDK") and other Buyers (6)
10.8 Letter Agreement dated January 20, 2000
("Consulting Agreement") by and among the
Company, Millennium and JDK (7)
10.9 Stock Option Plan of 2000 of the Company (2)
10.10 Forms of Stock Option Agreements (8)
Exhibit No. Description of Exhibit
10.11 Employment Agreement dated September 1, 2000 by
and between the Company Harris Shapiro
10.12 Stock Option Agreement dated November 27, 2000
by and between the Company and Terry J. Baker
(9)
10.13 Agreement and Plan of Merger and Reorganization,
dated as of July 2, 2003, by and among
PerfectData Corporation, SuperCom Ltd. and
SuperCom Merger Sub. Ltd. (without disclosure
schedules or exhibits) (10)
10.14 Asset Purchase Agreement entered into as of
October 3, 2003 by and between PerfectData
Corporation and Spray Products Corporation (11)
10.15 First Amendment, dated as of February 26, 2004,
to the Asset Purchase Agreement, dated as of
October 3, 2003, filed as Exhibit 10.14 (12)
10.16 Addendum to Lease Agreement and Standard
Commercial Lease dated September 24, 2003
between Albert and Helen La Monte, as landlords,
and the Company, as tenant (12)
10.17 Second Amendment, dated as of August 12, 2004,
to the Asset Purchase Agreement, dated as of
October 3, 2003, filed as Exhibit 10.14 (13)
23 (a) Consent of Independent Registered Public
Accounting Firm (14)
23 (b) Consent of Independent Registered Public
Accounting Firm (14)
33.1 Certification of Chief Executive Officer
Pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934 (14)
33.2 Certification of Chief Financial Officer
Pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934 (14)
32 Certification Pursuant to Section 906 of
Sarbanes-Oxley Act of 2002 (14)
______________
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for its fiscal year ended March 31, 1990.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for its fiscal year ended March 31, 2000.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for its fiscal year ended March 31, 1985.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for its fiscal year ended March 31, 1987.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for its fiscal year ended March 31, 1992.
(6) Incorporated by reference to the Company's definitive Proxy Statement
dated March 10, 2000 filed on March 14, 2000.
(7) Incorporated by reference to the Company's Form 8-K dated March 31,
2000 filed April 14, 2000.
(8) The four forms of stock option agreements used under the Stock Option
Plan of 2000 are filed as Exhibits 4(d)(1) to 4(d)(4), both inclusive,
to the Company's Registration Statement on Form S-8, File No.
333-51774, and are incorporated herein by this reference.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K
for its fiscal year ended March 31, 2001.
(10) Incorporated by reference to the Company's Form 8-K filed on July 9,
2003.
(11) Incorporated by reference to the Company's Form 8-K filed on October 8,
2003.
(12) Filed with Annual Report on Form 10-KSB as originally filed.
(13) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 2004.
(14) Filed or, in the case of Exhibit 99.3, furnished herewith in connection
with this Amendment.
(b) Reports on Form 8-K
(1) On January 20, 2004, the Company filed a Form 8-K
reporting, under Item 5, that, on January 20, 2004, the
Company issued a press release reporting that the
Agreement and Plan of Merger and Reorganization dated as
of July 2, 2003 by and between PerfectData and SuperCom
Ltd. and related agreements were terminated.
(2) On March 10, 2004, the Company filed a Form 8-K
reporting, under Item 4, that the firm of KPMG LLP had
resigned as independent auditors for the Company.
(3) On March 29, 2004, the Company filed a Form 8-K
reporting, under Item 4, that the firm of Singer Lewak
Greenbaum & Goldstein LLP was retained to audit the
financial statements of the Company and to prepare and
file the Company's tax returns for such fiscal year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
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: September 9, 2004
PERFECTDATA CORPORATION
SEC Form 10-KSB
Index to Financial Statements
Financial Statements Page
Report of Independent Registered
Public Accounting Firm - March 31, 2004 F-1
Report of Independent Registered
Public Accounting Firm - March 31, 2003 F-2
Balance Sheet - March 31, 2004 F-3
Statements of Operations -
Years Ended March 31, 2004 and 2003 F-4
Statements of Shareholders' Equity -
Years Ended March 31, 2004 and 2003 F-5
Statements of Cash Flows - Years Ended March 31, 2004 and 2003 F-6
Notes to Financial Statements F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PerfectData Corporation
Simi Valley, California
We have audited the accompanying balance sheet as of March 31, 2004, and the
related statements of operations, shareholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PerfectData Corporation as of
March 31, 2004, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
As dicussed in Note 2, 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
financial statements to include the operations related to these assets in
continuing operations, since the transaction did not meet the criteria under
generally accepted accounting principles for classification as discontinued
operations. The change in presentation had no effect on revenue or net loss for
the years ended March 31, 2004 and 2003.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 14, 2004, except for
the third and fifth
paragraphs of Note 2,
as to which the date
is August 12, 2004
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
PerfectData Corporation:
We have audited the accompanying statements of operations, shareholders' equity,
and cash flows of PerfectData Corporation (the Company) for the year ended March
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of PerfectData
Corporation for the year ended March 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in note 3 to the financial statements, the Company has restated its
statements of operations and cash flows for the year ended March 31, 2003.
/s/ KPMG LLP
Los Angeles, California
May 9, 2003, except for note 3
to the financial statements, which
is as of August 12, 2004
F-2
Balance Sheet
March 31, 2004
(Amounts in thousands, except share amounts)
Assets
(Restated)
Current assets:
Cash and cash equivalents $ 1,903
Accounts receivable, net of allowance of $3 192
Prepaid expenses and other current assets 58
-------------
Total current assets 2,153
Property and equipment, at cost, net -
-------------
Total assets $ 2,153
=============
Liabilities
(Restated)
Current liabilities:
Accounts payable $ 325
Accrued compensation 35
Other accrued expenses 133
-------------
Total current liabilities 493
-------------
Commitments and contingencies (note 8)
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 11,258
Accumulated deficit (9,598)
-------------
Total shareholders' equity 1,660
-------------
Total liabilities and shareholders' equity $ 2,153
=============
See accompanying notes to financial statements.
F-3
PERFECTDATA CORPORATION
Statements of Operations
Years ended March 31, 2004 and 2003
(Amounts in thousands, except per share information)
2004 2003
----------------- ----------------
(Restated) (Restated)
Net sales $ 2,680 2,005
Cost of goods sold 1,777 1,326
----------------- ----------------
Gross profit 903 679
Selling, general, and administrative expenses 1,477 1,358
----------------- ----------------
Loss from operations (574) (679)
----------------- ----------------
Other income:
Interest, net - -
Other, net 17 37
----------------- ----------------
Net loss $ (557) (642)
================= ================
Net loss per common share:
Basic and diluted $ (0.09) (0.10)
================= ================
Weighted average shares outstanding:
Basic and diluted 6,193 6,159
See accompanying notes to financial statements.
F-4
PERFECTDATA CORPORATION
Statements of Shareholders' Equity
(notes 6 and 7)
Years ended March 31, 2004 and 2003
(Amounts in thousands)
Total
Common Stock Accumulated shareholders'
-------------------------------------------
Shares Amount deficit equity
------------------------ ------------------ ----------------------- -----------------
Balance at March 31, 2002 6,159 $ 11,206 $ (8,399) $ 2,807
Net loss - - (642) (642)
------------------------ ------------------ ----------------------- -----------------
Balance at March 31, 2003 6,159 11,206 (9,041) 2,165
Stock Compensation 50 52 - 52
Net loss - - (557) (557)
------------------------ ------------------ ----------------------- --------------------
Balance at March 31, 2004 6,209 $ 11,258 $ (9,598) $ 1,660
======================= ================== ======================= ====================
See accompanying notes to financial statements.
F-5
PERFECTDATA CORPORATION
Statements of Cash Flows
Years ended March 31, 2004 and 2003
(Amounts in thousands)
2004 2003
--------------- ----------------
(Restated) (Restated)
Cash flows from operating activities:
Net loss $ (557) (642)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 6 20
Stock issued for services 52 -
(Increase) decrease in accounts receivable (34) 20
(Increase) decrease in inventories 160 (34)
(Increase) decrease in prepaid expenses and other assets 32 (7)
Increase in accounts payable 42 76
Increase (decrease) in accrued expenses 29 (18)
--------------- ----------------
Net cash used in operating activities (270) (585)
--------------- ----------------
Net decrease in cash and cash equivalents (270) (585)
Cash and cash equivalents at beginning of year 2,173 2,758
Cash and cash equivalents at end of year $ 1,903 2,173
=============== ================
See accompanying notes to financial statements.
F-6
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
(1) Summary of Significant Accounting Policies
(a) Description of Business
PerfectData Corporation (the Company) sells computer and
office equipment care and maintenance products.
(b) Cash and Cash Equivalents
The Company considers all highly liquid money market
instruments with an original maturity of three months or less
to be cash equivalents. At March 31, 2004, the Company had
cash and cash equivalents of $1,903,000.
(c) Inventories
Prior to the APA entered into with Spray, inventories were
stated at the lower of cost or market and consisted of
finished goods. Cost was determined using the first-in,
first-out method.
The Company transferred all inventory on hand to Spray on
October 31, 2003 pursuant to the APA.
(d) Financial Instruments
The carrying amounts related to cash and cash equivalents,
accounts receivable, and accounts payable approximate fair
value due to their relatively short maturity.
(e) Plant and Equipment
Plant and equipment are stated at cost.
Depreciation on plant and equipment is calculated using the
straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized straight line
over the shorter of the lease term or estimated useful life of
the asset. The estimated useful lives are as follows:
Machinery and equipment 3 to 5 years
Furniture and fixtures 3 to 5 years
Leasehold improvements Life of lease
F-7 (continued)
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
(f) Revenue Recognition
The Company recognizes revenue when products are shipped and
the customer takes ownership and assumes risk of loss,
collection of the relevant receivable is probable, pervasive
evidence of an arrangement exists, and the sales price is
fixed or determinable.
(g) Loss per Common Share
Basic and diluted loss per common share is based on the
weighted average number of shares outstanding during each of
the respective periods. Diluted earnings per share includes
the dilutive impact of stock options, warrants, or other
equity instruments. During the years presented herein, because
net losses were incurred, the impact from such common stock
equivalents was antidilutive; accordingly, the common stock
equivalents were excluded from the calculation.
The following were excluded from the calculation:
March 31, March 31,
Options 2004 2003
1985 Plan 10,000 11,500
2000 Plan 183,500 185,000
1999 Options - 5,000
Warrants 20,000 20,000
(h) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date. The realizability of
deferred tax assets is assessed throughout the year and a
valuation allowance is established accordingly.
F-8
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
(i) Use of Estimates
The preparation of the financial statements requires
management of the Company to make a number of estimates and
assumptions relating to the reported amount of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions
include the allowance for doubtful accounts, inventory
valuation (prior to November 1, 2003), deferred income tax
asset valuation allowances, and the estimated future operating
cash flows from the Company's long-lived assets. Considerable
management judgment is necessary to estimate future operating
cash flows as future cash flows are impacted by competitive
and other factors that are generally out of management's
control. Accordingly, actual results could vary significantly
from management's estimates.
(j) Stock-Based Compensation
The Company applies the intrinsic-value-based method of
accounting prescribed by Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations including FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock
Compensation, and Interpretation of APB Opinion No. 25, issued
in March 2000, to account for its fixed-plan stock options.
Under this method, compensation expense is recorded on the
date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123,
Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company
has elected to continue to apply the intrinsic-value-based
method of accounting described above and has adopted only the
disclosure requirements of SFAS No. 123.
The Company is adopting the disclosure provisions of SFAS No.
148, Accounting for Stock-Based Compensation - Transition and
Disclosure. 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 Transactions 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.
F-9
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
The Company applies APB Opinion No. 25 in accounting for its
employees and director stock option plans. Had the Company
determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123 and SFAS
No. 148, 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 4.57% - 6.26%, a ten-year term, 50%
volatility, and $0 expected dividend rate.
(000's, except per share amounts)
2004 2003
Net income, as reported $ (557) $ (642)
Deduct total stock-based employee compensation
expense determined under fair-value-based
method for all awards, net of tax ( 27) (4)
Pro forma net income $ (584) $ (646)
Basic and diluted net loss per common share:
As reported $ (0.09) $ (0.10)
Pro forma $ (0.09) $ (0.10)
(k) Impairment of Long-Lived Assets and
Long-Lived Assets To Be Disposed Of
SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Live Assets provides a single accounting model for
long-lived assets to be disposed of. SFAS No. 144 also changes
the criteria for classifying an asset as held for sale and
broadens the scope of businesses to be disposed of that
qualify for reporting as discontinued operations and changes
the timing of recognizing losses on such operations. The
Company adopted SFAS No. 144 on January 1, 2002. The adoption
of SFAS No. 144 did not affect the Company's financial
statements.
In accordance with SFAS No. 144, long-lived assets, such as
property, plant, and equipment, and purchased intangibles
subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash
flows, an
F-10
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of would be separately presented
in the balance sheet and reported at the lower of the carrying
amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group
classified as held for sale would be presented separately in
the appropriate asset and liability sections of the balance
sheet.
Prior to the adoption of SFAS No. 144, the Company accounted
for long-lived assets in accordance with SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.
(l) Recently Issued Accounting Standards
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.
(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 7
1/2% 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,
F-11
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
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; (2) the aforementioned payment of $100,000 will
be 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 of the sale of its
operating assets to Spray by consents in lieu of holding a meeting.
As a result of the transaction, as modified with Spray, the Company has
no operations and will thereafter 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 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.
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
financial statements to include the operations related to these assets
in continuing operations, since the transaction did not meet the
criteria under generally accepted accounting principles for
classification as discontinued operations. The effect of
F-12
the restatement on net sales, cost of sales, gross profit, net loss,
basic and diluted loss per common share, current assets, total assets,
current liabilities, total liabilities total liabilities, and
shareholders' equity cash flows from operations as of and for the year
ended March 31, 2004 is as follows:
As
Originally Restatement As Restated
Reported Adjustments
----------------------------------------------------------------------------------------------------
Statement of Operations:
Net Sales $ - $ 2,680,000 $ 2,680,000
Cost of Sales - 1,777,000 1,777,000
Gross Profit - 903,000 903,000
Loss from Continuing Operations (916,000) 359,000 (557,000)
Income from Discontinued Operations 359,000 (359,000) -
Net Loss $ (557,000) $ $ (557,000)
Loss Per Common Share (Basic and Diluted):
Loss from Continuing Operations $ (0.15) $ 0.06 $ (0.09)
Income from Discontinued Operations 0.06 (0.06) -
$ (0.09) $ $ (0.09)
Balance Sheet:
Accounts Receivable $ - $ 192,000 $ 192,000
Prepaid Expenses and Other Current Assets 30,000 28,000 58,000
Current Assets of Discontinued Operations 220,000 (220,000) -
Total Assets 2,153,000 - 2,153,000
Accounts Payable 126,000 199,000 325,000
Other Accrued Expenses 77,000 56,000 133,000
Current Liabilities of Discontinued Operations 255,000 (255,000) -
Total Current Liabilities - 493,000
493,000
Total Liabilities and Shareholders' Equity $ 2,153,000 $ - $ 2,153,000
Statement of Cash Flows:
Loss from Continuing Operations $ (916,000) $ 359,000 $ (557,000)
Accounts Receivable - (34,000) (34,000)
Inventories - 160,000 160,000
Accounts Payable 54,000 (12,000) 42,000
Cash Used in Continuing Operating Activities (743,000) 743,000 -
Cash Provided by Discontinued Operations 473,000 (473,000) -
Cash Used in Operating Activities $ (270,000) $ - $ (270,000)
The effect of the restatement on net sales, cost of sales, gross
profit, net loss, basic and diluted loss per common share and cash flow
from operations for the year ended March 31, 2003 is as follows:
F-13
As Restatement
As
Originally Restatement As Restated
Reported Adjustments
-----------------------------------------------------------------------------------------------
Statement of Operations:
Net Sales $ - $ 2,005,000 $ 2,005,000
Cost of Sales - 1,326,000 1,326,000
Gross Profit - (679,000) (679,000)
Loss from Continuing Operations (631,000) (11,000) (642,000)
Loss from Discontinued Operations (11,000) 11,000 -
Net Loss $ (642,000) $ - $ (642,000)
Loss Per Common Share(Basic and Diluted):
Loss from Continuing Operations $ (0.10) $ - $ (0.10)
Income from Discontinued Operations (0.10) - (0.10)
Statement of Cash Flows:
Loss from Continuing Operations $ (631,000) $ (11,000) $ (642,000)
Accounts Receivable - 20,000 20,000
Inventories - (34,000) (34,000)
Accounts Payable (106,000) 182,000 76,000
Cash Used in Continuing Operating Activities (742,000) 742,000 -
Cash Provided by Discontinued Operations 157,000 (157,000) -
Cash Used in Operating Activities $ (585,000) $ - $ (585,000)
(4) Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash, cash
equivalents, and accounts receivable.
As of March 31, 2004, the Company had approximately $1,903,000 of cash
equivalents in two financial institutions, which exposes the Company to
concentration of credit risk. The Company had approximately $1,896,000
invested in highly liquid money market instruments, which are not
federally insured. The remaining $7,000 was deposited at a bank, which
is federally insured up to $100,000.
The Company sells its principal products to a number of customers in
the retail industry. During the years ended March 31, 2004 and 2003,
two customers accounted for more than 10% of net sales. These customers
each accounted for 71% and 47%, and 13% and 23% in 2004 and 2003,
respectively. As of March 31, 2004 and 2003, approximately 78% and 38%
of recorded accounts receivable were from two wholesale/discount
merchants. For the years ended March 31, 2004 and 2003, sales made to
these customers amounted to $1,911,000 and $337,000 and $942,000 and
$457,000, respectively. To reduce credit risk, the Company performs
ongoing
F-14
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
credit evaluations of its customers' financial conditions but
does not generally require collateral. New customers requiring large
credit accounts are required to provide letters of credit.
(5) 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.
(6) Property and Equipment
Property and equipment at March 31, 2004 consist of:
Machinery and equipment $ 296
Furniture and fixtures 7
303
Less accumulated depreciation
and amortization (303)
$ -
(7) Income Taxes
A reconciliation of the federal statutory income tax rate to the
effective income tax rate on loss from continuing operations is as
follows:
March 31
2004 2003
Federal statutory rate 34% 34%
Increase (reductions) in taxes due to:
State income taxes (net of federal benefit) 3 6
Change in valuation allowance (18) 46
Dividends-received deduction 1 (3)
California net operating loss limitation - (3)
Expiration of federal net operating loss (16) (74)
Expiration of state net operating loss (4) -
Expiration of general business credit - (3)
Other - (3)
-% -%
F-15
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
The tax effects of temporary differences that give rise to a significant portion
of the deferred tax assets at March 31, 2004 are summarized as follows (in
thousands):
Deferred tax assets (liabilities):
Net operating losses $ 1,978
Inventories 13
Accrued expenses 43
Business tax credit carryforwards 12
Other 16
2,062
Less valuation allowance 2,062
$ -
At March 31, 2004, the Company had net operating loss (NOL)
carryforwards of approximately $5,453,000 and $2,205,000 for federal
income tax purposes and California income tax purposes, respectively,
expiring in varying amounts through 2023. 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 2009 if not
utilized. Additionally, the Company has general business tax credit
carryforwards of approximately $12,000 which will begin to expire in
2006.
Realization of the future tax benefits of the NOL carryforwards and
other deferred tax assets is dependent on the Company's ability to
generate future taxable income within the periods in which they
benefit. In assessing the likelihood of utilization of existing
deferred tax assets, management considered the historical results of
continuing operations over the last three years and the current
economic environment in which the Company operates. Management has
determined that future taxable income of the Company will more likely
than not be insufficient to realize the recorded net deferred tax
assets of $2,062,000 and has recorded a valuation allowance of
$2,062,000. During the year ended March 31, 2004, the Company increased
the valuation allowance in deferred tax assets by $118,000.
(8) Shareholders' Equity
On January 20, 2000, the Company entered into certain agreements with
Millennium Capital Corporation (MCC) and JDK Associates Inc. (JDK).
Pursuant to the agreements, the Company sold 1,333,333 shares of its
common stock to MCC, JDK and certain other buyers and issued a warrant
to purchase 1,800,000 shares of the Company's common stock at $2.75 per
share, for aggregate consideration of $3,000,000. In addition, under
the agreements, MCC and JDK will provide financial advisory assistance
to the Company in searching for and closing future acquisitions and
financings for which they will receive an advisory fee of 5% of the
estimated purchase price for a future acquisition which they introduced
to the Company or for additional
F-16
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
capital raised in support of future acquisitions. The term of this
consulting agreement is five years.
Because of the significance of these agreements, the Company was
required to obtain, and they did obtain on March 31, 2000, shareholder
approval. Immediately thereafter, the warrant holders exercised
warrants to purchase 1,780,000 shares of common stock, resulting in the
issuance on March 31, 2000 of 1,515,406 shares of common stock.
Accordingly, on March 31, 2000, 2,848,739 shares were issued for an
aggregate consideration of $3,000,000.
For financial reporting purposes, the Company has accounted for these
transactions as an increase in common stock for $3,000,000, recorded
net of the applicable costs. The future 5% consulting fees will be
accounted for if and when occurred.
The remaining warrants to purchase 20,000 shares of common stock at
$2.75 per share are outstanding at March 31, 2004.
On July 31, 2003, the Company issued 50,000 shares of the Company's
common stock to the Chairman of the Audit Committee as compensation for
his services over the past three years. The Company has recorded
compensation expense of $51,500 for the shares.
The articles of incorporation authorize a class of preferred stock
issuable in classes and series with such designations, voting rights,
redemption provisions, dividend rates, liquidation and conversion
rights, and other preferences and limitations as may be determined by
the board of directors. No preferred stock was outstanding at March 31,
2004.
(9) Stock Option and Bonus Plans
1985 Stock Option Plan
During November 1985, the Company adopted the 1985 Stock Option Plan
(the "1985 Plan") to grant incentive and nonqualified stock options to
officers, directors and key employees of the Company for the purchase
of up to 500,000 shares of the Company's common stock. Under the 1985
Plan, options were granted at prices equal to or greater than fair
market value at date of grant. The shares, subject to various
limitations, are exercisable over terms not to exceed ten years. No
options were granted during the three years ended March 31, 2004.
Options to purchase a total of 377,750 shares were exercised through
March 31, 2004, with an option to purchase 10,000 shares left
outstanding. The 1985 Plan has expired; therefore, no additional
options can be issued under its terms.
On March 31, 2003, an employee of the Company was terminated who was
previously granted an option to purchase 1,500 shares of common stock
at $2.0625 per share. As the terminated
F-17
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
employee had 90 days to exercise, the option was outstanding as of
March 31, 2003. The option subsequently expired unexercised.
Activity under the 1985 Plan is summarized as follows:
Weighted
Number of average
shares exercise price
Options outstanding at March 31, 2002 11,500 $ 1.3017
Options canceled - -
Options outstanding at March 31, 2003 11,500 1.3017
Options canceled (1,500) 2.0625
Option outstanding at March 31, 2004 10,000 $ 1.1877
The weighted average remaining contractual life of the outstanding
options was approximately 1.3 years at March 31, 2004.
1999 Options
On April 28, 1999, the board of directors authorized the granting of
options or warrants to purchase up to an aggregate of 100,000 shares of
common stock to directors, employees, or consultants. The options or
warrants were to be sold to the grantee at $0.05 per share, to have an
exercise price of $1.56 per share, and to have a three-year term from
the respective date of grant. Options to purchase a total of 24,000
shares were exercised through March 31, 2004. Activity for these
options and warrants is summarized as follows:
Weighted
Number of average exercise
Shares price
Options outstanding at March 31, 2002 13,000 $ 1.56
Canceled (8,000) 1.56
Options outstanding at March 31, 2003 5,000 1.56
Canceled (5,000) 1.56
Options outstanding at March 31, 2004 - $ -
F-18
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
2000 Stock Option Plan
On May 22, 2000, the Company's board of directors adopted the Stock
Option Plan of 2000 of PerfectData Corporation (the "2000 Plan") which
provides for the granting of options to directors, officers, employees,
and consultants of the Company. The Company's board of directors
reserved 1,000,000 shares of common stock under the 2000 Plan. On
September 7, 2000, the Company's board of directors amended the 2000
Plan to reserve an additional 1,000,000 shares of common stock. On
October 19, 2000, the shareholders of the Company approved the 2000
Plan and ratified options previously granted.
Options granted under the 2000 Plan shall be at a price no less than
the fair market value of the common stock on the date of grant or in
the case of nonqualified stock options at a price equal to or greater
than 85% of the fair market value on the date of grant. Options granted
under the 2000 Plan are exercisable at various times as determined by
the board of directors or its designee.
On October 31, 2001, the Company granted options to purchase an
aggregate of 10,000 shares of common stock at $3.43 per share to
various employees. The option price was equal to the fair market value
at the time of grant. All of the options described were to become
exercisable in four substantially equal installments, commencing with
the first anniversary of the respective date of grant.
On June 15, 2002, the Company granted an option to purchase 10,000
shares of common stock at $1.60 per share to each of the five
directors. The option price was equal to 120% of the fair market value
at the time of grant. All of the options described were to become
exercisable in three substantially equal installments, commencing with
the first anniversary of the respective date of grant.
On September 17, 2002, the board of directors canceled the options
granted on March 31, 2000 to each director pursuant to the 2000 Plan to
purchase 25,000 shares of common stock at $18.50 per share and those
granted on September 7, 2000 to purchase 25,000 shares of the common
stock at $4.63 per share. None of the options to purchase an aggregate
of 250,000 shares were exercised.
On September 26, 2002, the Company granted an option to purchase 25,000
shares of common stock at $1.00 per share to each of the five
directors. The fair market value of the stock on the date shareholder
approval was obtained was below the exercise price. All of the options
described were to become exercisable in three substantially equal
installments, commencing with the first anniversary of the respective
date of grant. In accordance with FIN 44, the Company has adopted
variable accounting for these replacement awards. No compensation
expense has been recognized in the financial results as the fair market
value has not exceeded the exercise price.
F-19
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
On March 31, 2003, an employee of the Company was terminated who was
previously granted an option to purchase 1,500 shares of common stock
at $3.43 per share. As the terminated employee had 60 days to exercise,
the option was outstanding as of March 31, 2003. The option
subsequently expired unexercised.
Activity under the 2000 Plan is summarized as follows:
Weighted
Number of average exercise
shares price
Options outstanding at March 31, 2002 260,000 $ 11.25
Options granted 175,000 1.17
Options canceled (250,000) 10.97
Options outstanding at March 31, 2003 185,000 1.29
Options canceled (1,500) 3.43
Options outstanding at March 31, 2004 183,500 $ 1.28
As of March 31, 2004, options to purchase 62,584 shares of common stock
are exercisable at a weighted average exercise price of $1.325. As of
March 31, 2004, 1,816,500 shares were available for future grants.
The following table summarizes in more detail information regarding the
Company's stock options outstanding under the 2000 Plan at March 31, 2004:
Weighted Average Weighted Average
Exercise Outstanding Remaining Exercisable Remaining
Price Options Contractual Life Options Contractual Life
$1.00 125,000 7.6 41,667 7.6
$1.60 50,000 8.3 16,667 8.3
$3.43 8,500 8.5 4,250 8.5
Total 183,500 8.4 62,584 8.4
F-20
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
(10) Commitments
The Company leases office space under a six-month lease that expires October 15,
2004. The Company had previously leased a facility under an operating lease
which expired June 20, 2003. The Company continued to occupy the facility, along
with a subtenant to whom the Company sublet warehouse space, on a month-to-month
basis until October 31, 2003.
Rental expense, net of sublease income, was $50,000 and $100,000 for the years
ended March 31, 2004 and 2003, respectively.
F-21
PerfectData Corporation
Index to Exhibits Filed
with Amendment No.
1 to Annual Report
on Form 10-KSB
Exhibit No. Description of Exhibit Page
23(a) Consent of Independent Registered Public E-2
Accounting Firm
23(b) Consent of Independent Registered Public E-3
Accounting Firm
31.1 Certification of Chief Executive Officer E-4
Pursuant to Rule 13a-14(a)under the Securities
Exchange Act of 1934
31.2 Certification of Chief Financial Officer Pursuant E-6
to Rule 13a-14(a) under the Securities Exchange
Act of 1934
34 Certification Pursuant to Rule 13a-14(b) under E-8
the Securities Exchange Act of 1934 and Section
1350 of Chapter 63 of Title 18 of United States
Code
E-1