SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSACTION 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 (all from
discontinued operations).
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.
PART I
Forward-Looking and Cautionary Statements.
With the exception of historical information, the matters discussed in
this Annual Report on Form 10-KSB include certain forward-looking statements
that involve 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. 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 1. Business.
General
PerfectData Corporation (the "Company") was incorporated in the State
of California on June 8, 1976. The Company was originally founded by an
experienced group of engineers and data processing professionals to design and
manufacture a proprietary line of magnetic media maintenance equipment - disk
pack cleaners and inspectors. This line of equipment, which has since been
discontinued, was originally sold to Original Equipment Manufacturers (OEMs)
such as Burroughs Corporation (now Unisys Corporation), DEC (Digital Equipment
Corporation), NCR Corporation and 3M Corporation. Sales of these products by
such well-known companies contributed to increased user awareness as to the need
for routine computer care and maintenance. It also brought credibility to the
Company as a key manufacturer in the industry.
With the evolution of the computer work environment from the sterile,
climate-controlled surroundings of a clean room to the mainstream office and
home environments, simple preventative maintenance has become a key element in
maintaining equipment efficiency and personal productivity. The Company's
cleaning and maintenance products are designed to address the needs of the end
users of computers and office automation equipment and by maintenance
organizations as part of preventative maintenance programs to reduce equipment
"down time" and service costs and to increase product life.
Proposed Sale of Current 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 has, 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 is 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 an example, the Company expects to save approximately
$11,000 per month in rent and related facility costs.
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 to the following revisions
to the APA: (1) effective June 1, 2004, Spray will assume 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; (3) based on the amounts of the items constituting the purchase price
described above and as modified in (2) as if the closing was held on May 31,
2004, the Company will advise Spray of this estimated purchase price and Spray
will promptly advance to the Company an amount in excess of what the Company
owes Spray for product purchased from Spray; and (4) 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 to Spray.
2
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 continues 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, 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 modified, with Spray, the Company
will have no operations and will thereafter receive no revenues until an
acquisition or merger is effected.
The Industry
The Company's products are sold in the computer and office equipment
accessories and supplies market. This market targets small, medium and large
sized businesses as well as the home environment.
This market is serviced mainly by office product catalogs, office
superstores, mass merchants, consumer electronics retailers, warehouse clubs and
computer superstores. PerfectData has been organized to service all of these
distribution channels.
Products
Prior to November 1, 2003, when management of order fulfillment was
assumed by Spray, the Company had designed, assembled and/or packaged all of its
cleaning and maintenance products which it marketed and distributed. The Company
had sub-contracted for its components from a variety of established suppliers
and manufacturers.
The consumable cleaning and preventative maintenance products are for
home, office and computer environments. These products are designed to eliminate
or minimize contamination in and around computer and office automation
equipment. Use of the Company's products on a regular basis reduces equipment
downtime and the need for unnecessary service and repairs.
The Company's principal selling product is the PerfectDuster EcoDuster
line of compressed gas dusters. This product is offered in a variety of
formulations to meet competitive pressures and buyer demand. All of these
dusters are 100% CFC free and contain no ozone depleting chemicals that could
damage the ozone layer in the earth's upper atmosphere.
Other products that the Company presently sells are CD and tape drive
cleaners, CD player cleaners, static control products, laser and inkjet printer
cleaners, fax and copy machine cleaners, and a variety of premoistened cleaning
wipes for specific equipment.
Marketing
Customers. The Company's products are sold primarily through retail
distribution under the Company's "PerfectData" trademark. The retail
distribution channel is comprised of office product catalogs, office product
distributors and dealers, stationery and computer retail stores and large
warehouse/superstore type accounts.
While the Company sold products to more than 120 customers in the
United States, Canada and other countries during the fiscal year ended March 31,
2004 ("fiscal 2004"), approximately 94% of the Company's net sales were
accounted for by its 10 largest customers. Two customers accounted for 71% and
13%, respectively, of total sales. Sales to these customers were made pursuant
to specific purchase orders and neither customer is obligated to purchase the
Company's products under any other agreement. The loss of either or both of
these customers could have an adverse effect on the Company's business. No other
customer accounted for more than 10% of the Company's net sales in fiscal 2004.
3
Sales Organization.
Domestic Sales. Sales of products under the Company's registered
trademark "PerfectData" are made by independent manufacturers' representative
groups, dealers and large distributors. Sales of the Company's products to
Original Equipment Manufacturers under private label arrangements were handled
by Company sales personnel located in California and, on a selected basis, by
certain assigned independent manufacturers' representatives. Agreements between
the Company and manufacturers' representatives or distributors may be terminated
on short notice by either party.
International Sales. Sales of the Company's products worldwide had been
handled by the Company's sales personnel located in California through
international distributors and customers. The Company has no agreements with
foreign distributors.
Customer Service and Support. In order to enhance customer service,
training, field support and technical support, the Company has a toll free 800
phone number.
All products are sold with a "return to manufacturer" warranty for
replacement of damaged or defective goods only. Products are warranted for 90
days from the date of purchase. Dealers and distributors are required to perform
this replacement service on behalf of the Company. All products returned for
warranty replacement must receive a written return authorization receipt from
the Company prior to the return of any goods. Costs incurred annually by the
Company for product warranties have been insignificant.
Competition
The Company believes that neither the Company nor any of its
competitors has had a dominant position in the cleaning and maintenance market.
There are many competitors in this market and some of these competitors are
substantially larger in size and have greater financial resources than the
Company.
The Company believes that the effectiveness, quality, service and the
price competitiveness of its products, along with its marketing efforts and
programs, product selection and responsiveness to accounts' needs, have been the
principal basis on which it has competed in this market.
Materials and Supplies
The nature of the raw materials used in the Company's products are
various chemicals, metals, plastics and paper goods. The Company assembled
and/or packaged its products in the United States from materials and supplies
purchased primarily from domestic vendors and sub-contractors. Some of the
assembled component parts were manufactured by vendors located in the Far East
because it was more cost effective to obtain goods and fabrication expertise at
significantly reduced costs when compared with purchasing the same goods
domestically.
The Company believes that its established relationships with its
vendors and suppliers are in good order. The Company has not experienced any
significant production delays or loss of revenue due to the lack of parts or
material shortages.
The Company, as a matter of standard business procedures, has regularly
reviewed its vendor relationships and has searched for new sources and ways to
produce its products both domestically and internationally with the improvement
of quality, delivery or lowered cost of goods as its goals.
The Company does not believe that federal, state and local provisions
which have been enacted or adopted regulating the discharge of material into the
environment, or otherwise relating to the protection of the environment, have
had, or will have, any material effect on its capital expenditures, its
potential earnings or its competitive position.
Employees
At March 31, 2004, the Company employed 4 persons, of whom 1 was
engaged in customer service, and 3 in general management and administration.
4
The Company believes that its relations with its employees are good.
The Company has never had a work stoppage and none of its employees are
represented by a labor union.
Terminated Acquisitions
From October 2001 to February 2002, the Company was engaged in
negotiations pursuant to which the shareholders of GraphCo Technologies, Inc.
("GraphCo") would acquire a majority interest in, and control of the Board of,
the Company. GraphCo is a technologies, software and systems development company
providing advanced security solutions for biometric identification, secure
access, surveillance and secure law enforcement incident management. The
negotiations were mutually terminated on February 19, 2002.
In August and September 2002, the Company was engaged in negotiations
with another privately-held company, with annual revenues approximating $100
million, pursuant to which the stockholders of that company would acquire a
majority interest in, and control of the Board of, the Company. Just as the
parties were prepared to execute a definitive merger agreement, the other
company received an offer from another very large public company and
negotiations were terminated during the weekend of September 20, 2002.
On July 2, 2003, the Company entered into an Agreement and Plan of
Merger and Reorganization, or 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. Its common stock is currently
traded on the Euronext Brussels New Market. On October 24, 2003, the Company
filed a Registration Statement on Form S-4, File No. 333-109933 (the
"Registration Statement"), in order to make available a joint proxy statement
for use by the Company and SuperCom to solicit approvals of the transaction from
their respective shareholders and prospectus for the Company to offer shares of
the Common Stock to the SuperCom shareholders if the proposed transaction were
approved and consummated. If the transaction had been consummated, the SuperCom
shareholders would have received approximately 78% of the outstanding shares,
subject to adjustment upward depending on the Company's Final Net Available Cash
(as defined) at the closing, and three of the five directors would have been
designees of SuperCom. When it became obvious to both parties that, in order for
the Registration Statement to become effective, SuperCom would at a minimum, be
required to include audited financial statements for its fiscal year which ended
December 31, 2003, thereby further delaying closing of the transaction as to
which negotiations had begun in April 2003 and which the parties initially hoped
to close by October 2003, the Merger Agreement was terminated after discussions
as to alternatives. From the perspective of the Company's directors,
continuation of the transaction would have required the company to incur
additional expenses, thereby further reducing its Net Available Cash and
resulting in further dilution to its shareholders absent SuperCom agreeing to
change the dilution formula, and with no certainty as to when there would be a
closing.
Item 2. Properties.
The Company leases office space under a six-month lease that expires
October 15, 2004. The Company initially leased the office space for a six-month
term effective October 15, 2003, and subsequently for an additional six-month
term. The Company had previously leased a 24,500 square foot 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. As a result of the management
arrangement with Spray, the Company moved to the smaller facility.
Item 3. Legal Proceedings.
As of March 31, 2004, there were no material pending legal proceedings
to which the Company was a party or of which any of its property was the
subject.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
5
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
Market Information
The Common Stock of the Company is listed on the OTC Bulletin Board
under the symbol PERF. Prior to April 17, 2003, the Common Stock was traded on
the Nasdaq SmallCap Market. The following table sets forth the range of high and
low sales prices per share of the Common Stock for the indicated quarters of
fiscal 2004 and the fiscal year ended March 31, 2003 ("fiscal 2003").
Sales Price
High Low
2004
First Quarter $ 1.29 $ .25
Second Quarter $ 1.35 $ .95
Third Quarter $ 1.24 $ .85
Fourth Quarter $ 1.10 $ .46
2003
First Quarter $ 1.65 $ .69
Second Quarter $ 1.70 $ .69
Third Quarter $ 1.00 $ .55
Fourth Quarter $ .84 $ .50
Holders
The approximate number of shareholders at March 31, 2004 was 1,700
determined by security position listings.
Dividends
Because of its losses from operations, the Company has not paid any
cash dividends on the Common Stock and, until profitability is restored, as to
which and when there can be no assurance, the Company does not intend to pay any
cash dividends.
Unregistered Securities Sales
There were no sales by the Company of shares of the Common Stock during
the fourth quarter of fiscal 2004, whether or not the shares were registered for
sale by the Company under the Securities Act of 1933, as amended. The sole
issuance of any shares during fiscal 2004 was previously reported in the
Company's Quarterly Report on Form 10-QSB for the quarter ended September 30,
2003.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Proposed Sale of Current 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.
6
Since November 1, 2003, Spray has, 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 is 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.
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 to the following revisions
to the APA: (1) effective June 1, 2004, Spray will assume 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; (3) based on the amounts of the items constituting the purchase price
described above and as modified in (2) as if the closing was held on May 31,
2004, the Company will advise Spray of this estimated purchase price and Spray
will promptly advance to the Company an amount in excess of what the Company
owes Spray for product purchased from Spray; and (4) 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 continues 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, 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 modified, with Spray, the Company
will have 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 will have 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 (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.
7
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.
___________
The following discussions of the Results of Operations and Liquidity
and Capital Resources are before the restatement of the Company's financial
statements for the proposed sale of the current business operations.
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 Compan's existing customers.
Spray's management of the fulfillment of orders from the Company's customers, as
described under the caption "Proposed Sale of Current Business Operations" in
this Item 6, had no effect on the increased sales in fiscal 2004. All the net
sales in fiscal 2004 and 2003 related to discontinued operations.
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. All the Costs in fiscal 2004 and
2003 related to discontinued operations.
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. Included in Expenses for fiscal 2004
and 2003 were components related to discontinued operations of $544,000 and
$690,000, respectively.
Other Income from continuing operations 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 continuing operating activities of
$743,000, partially offset by cash provided by discontinued operating activities
of $473,000.
The Company had a current ratio of better than 4 to1 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
8
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 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 and assuming consummation of the proposed sale of business
operations to Spray, the Company's working capital is adequate to fund its
operations and its requirements for the fiscal year ending March 31, 2005
("fiscal 2005"). In the event, which in the opinion of management is deemed
unlikely, that the sale to Spray is not consummated, the Board believes that the
Company would either continue to operate the business for a short period while
seeking another buyer or, more likely would liquidate its operations in an
orderly fashion. In either event, the Company believes it has adequate working
capital to continue to operate for fiscal 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 8. Changes in and Disagreements on Accounting and Financial Disclosure.
See Item 13(b) of this Report for information as to the Forms 8-K
reporting the change in accountants.
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 have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
since the date of their evaluation in the fourth quarter.
9
PART III
Item 9. Directors and Executive Officers.
Directors and Executive Officers
The following table contains certain information relating to the
directors and executive officers of the Company as of May 1, 2004:
Name Age Position
Harris A. Shapiro 68 Chief Executive Officer,
Director and Chairman of
the Board
Bryan Maizlish 42 Director
Timothy D. Morgan 49 Director
Tracie Savage 41 Director
Corey P. Schlossmann 49 Director
Irene J. Marino 59 Vice President Finance,
Chief Financial Officer
and Corporate Secretary
Business History
Harris A. Shapiro was elected as a director of PerfectData and its
Chairman of the Board on March 31, 2000. On September 7, 2000, he was designated
Chief Executive Officer of PerfectData. Mr. Shapiro has been the President of
Millennium Capital Corporation, a consulting firm specializing in mergers and
acquisitions, since 1994. He was Senior Vice President Corporate Finance of
Gilford Securities Incorporated, a registered broker-dealer, from January 1,
1999 to March 29, 2000. Prior to Gilford Securities, he was a Managing Director
of Whale Securities Co., L.P., a registered broker-dealer, from June 1993 until
December 1998.
Bryan Maizlish was elected as a director of PerfectData on March 31,
2000. Mr. Maizlish joined Lockheed Martin Corporation in August 2000 and has
held various managerial positions since then. He is currently serving as the
Chief Technology Officer/IT Program Director of the Integerated Systems and
Solutions Team NSGI of Lockheed Martin Corporation. From January 1998 to August
2000, he was employed by Magnet Interactive Inc., a private Internet
professional services company and its affiliate Noor Group Ltd., a full service
Internet solutions and infrastructure provider offering a full range of services
from networking, hosting, and Internet service provision to web-based services
and entertainment based in Cairo, Egypt, his last position at both companies
being Executive Vice President, Chief Strategy Officer and Chief Financial
Officer. Prior thereto, he held various managerial and consulting positions for
over a decade in the new media and entertainment industries, such as MCA Inc.,
Gulf Western Corporation and Gene Roddenberry's Norway Corporation.
Timothy D. Morgan was elected as a director of PerfectData on March 31,
2000. He has, since October 1997, been a consultant on matters of business
strategies, taxation, finance and asset protection techniques, and providing
interim Chief Financial Officer and Controller services. None of the foregoing
services or any of those hereafter described were provided to PerfectData. From
1980 through October 1997, he was a principal of Abacus Tax and Financial
Services, a firm specializing in tax compliance and pension plan administration.
Prior to 1982, Mr. Morgan was manager of purchasing and accounting departments
for various companies, including Dennison Eastman Corporation, Syntel Cavitron,
Incorporated, and Contempo Casuals, Incorporated.
Tracie Savage was elected in July 1995 as a director of PerfectData.
Ms. Savage has been the main news anchor for KFWB Radio in Los Angeles since
August 2001. From April 2001 to July 2001, Ms. Savage worked for the Los Angeles
television subsidiary of the National Broadcasting Company, Inc. ("NBC"). From
March 1994 to March 2001, Ms. Savage was the co-anchor of NBC Channel 4's "Today
in L.A.: Weekend". From 1991 to 1994,
10
she was a general assignment reporter for the independent Los Angeles station,
KCAL. Ms. Savage has been in broadcast journalism for more than 16 years and has
been the recipient of numerous awards and honors in her field.
Corey P. Schlossmann was elected as a director of PerfectData on March
31, 2000. Mr. Schlossmann has been Chief Executive Officer since October 1999,
and Chief Financial Officer since January 1999, of Nationwide Auction Systems.
Since January 1996, he has also served as a partner of Gordon, Fishburn &
Schlossmann, a management consulting and accounting firm. Mr. Schlossmann was a
partner of Hankin & Co., a consulting firm, from 1988 until 1995.
Irene J. Marino originally joined PerfectData in March 1982 and
rejoined PerfectData in September 1987 after a leave of approximately four
months. Ms. Marino was promoted to Manager of Finance and Administration in
March 1983 and to Controller and Assistant Secretary in March 1986. Upon
rejoining PerfectData in September 1987, Ms. Marino assumed the position of
Controller, Chief Financial Officer and Secretary of PerfectData. She was
appointed Vice President of Finance in August 1989, and has more than 35 years'
experience in finance, accounting and administration.
Other Directorships
Since October 1999, Corey P. Schlossmann has served as a director of
Entrade, Inc., a New York Stock Exchange holding company whose online
subsidiaries (including Nationwide Auction Systems of which he is an executive
officer as indicated in the preceding section "Business History") provide
auction and asset disposition services to the utility and manufacturing
industries, among others.
No other director of the Company serves as a director of a company with
a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any company registered
as an investment company under the Investment Company Act of 1940, as amended.
Compliance with Section 16(a) of the Exchange Act
Based solely on a review of Forms 3 and 4 furnished to the Company
under Rule 16a-3(e) promulgated under the Exchange Act, with respect to fiscal
2004, the Company is not aware of any director or executive officer of the
Company who failed to file on a timely basis, as disclosed in such forms,
reports required by Section 16(a) of the Exchange Act during fiscal 2004, except
for Corey P. Schlossmann who failed to report timely on Form 4 one transaction
on the last day of fiscal 2004 relating to a gift by him of 75,000 shares of the
Common Stock to an unaffiliated trustee for his children.
As of March 31, 2004, i.e., the end of fiscal 2004, there were no
beneficial owners of 10% or more of the Common Stock known to the Company other
than Joseph Mazin who was, until July 27, 2000, the President and Chief
Executive Officer of the Company and, until March 31, 2000, a director of the
company. Mr. Mazin has advised the Company that he timely filed all reports
required by Section 16(a) of the Exchange Act during fiscal 2004.
Code of Ethics
The Board of Directors of the Company has determined not to adopt a
written code of ethics because the Company (1) has only two executive officers,
(2) has agreed to sell the Company's current operations to an unaffiliated
company which has, since November 1, 2003, been acting as the manager for the
fulfillment of orders from the Company's customers and (3) has been actively
seeking a suitable acquisition or merger partner for the Company. Instead the
Board had counsel to the Company review with the two officers the standards
which would have been in a written code of ethics and directed its Audit
Committee to monitor closely the conduct of the two officers on at least a
quarterly basis.
11
Item 10. Executive Compensation.
Summary Compensation Table
The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to the Company
during each of the last three fiscal years by the Company's Chief Executive
Officer as of the end of the last fiscal year. No other executive officer of the
Company earned in excess of $100,000:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Other Compensation
Name and Securities Underlying ($)
Principal Position Year Salary Options
($)
Harris A. Shapiro (1) 2004 150,000 - 2,500 (2)
Chief Executive Officer and 2003 150,000 35,000 2,250 (2)
Chairman of the Board 2002 118,125 - 1,750 (2)
(1) The Board designated Mr. Shapiro as the Chief Executive Officer of the
Company effective September 2000. The Company and Mr. Shapiro entered into
a one-year employment agreement in September 2000 providing for a base
annual salary of $150,000. The Board had, from time to time, extended the
term of his contract at the same salary. Effective April 1, 2004, the Board
amended his contract (a) to a base annual salary of $95,000 and (b) the
contract is terminable upon two weeks' prior notice by either party.
(2) Mr. Shapiro was paid cash compensation for his services as a director.
Option /SAR Grants in Last Fiscal Year
(1) 2000 Option Plan
In May 2000, the Board of Directors of the Company adopted the Stock
Option Plan of 2000 (the "2000 Option Plan"). In October 2000, the shareholders
of the Company approved the 2000 Option Plan and ratified options previously
granted. The Company registered under the Securities Act the shares issuable
upon the exercise of options granted or to be granted pursuant to the 2000
Option Plan in a Registration Statement on Form S-8 filed on December 13, 2000.
As a result of such filing, optionees who are not affiliates of the Company may
resell the shares of the Common Stock received upon exercise immediately, while
affiliates will require a "re-offer prospectus" to resell or wait one year after
exercise to resell pursuant to the exemption of Rule 144 under the Securities
Act. The Company has not as yet filed such re-offer prospectus. The 2000 Option
Plan provides for the grant of options to purchase shares of the Common Stock to
directors, officers, employees and consultants of the Company. Non-qualified
stock options may be granted to directors, officers, employees and consultants.
Incentive stock options, as such form is defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), may be granted only to employees.
The term of the 2000 Option Plan is for ten years and it provides for the grants
of an aggregate of 2,000,000 shares of the Common Stock. The 2000 Option Plan is
currently administered by the Board.
The 2000 Option Plan, consistent with the provisions of the Code,
provides that the exercise price of an incentive stock option shall not be less
than the fair market value of the Common Stock on the date of grant, except
that, if the employee owns stock possessing more than 10% of the total combined
voting power of all classes of stock, the exercise price of the option must be
at least 110% of the fair market value of the Common Stock on the date of grant
and the incentive stock option cannot be exercised after five years from the
date of grant. No stock option granted has, and no option to be granted under
the 2000 Option Plan may have, a term in excess of ten years. The exercise price
of a non-statutory or nonqualified option may be less than the fair market value
on the date of grant.
12
The number of shares subject to an outstanding option and the exercise
price thereof are subject to adjustment in the event of a stock dividend, stock
split, reorganization, recapitalization, combination of shares, change in
corporate structure or similar events. No fractional shares will be issued upon
exercise and the Company has no obligation to pay for such fractional share.
Options granted to date are not exercisable during the first year after
the date of grant and thereafter become exercisable in annual installments of
25% each. It is expected that future options, if any, will be granted on a
similar basis. Some options to be granted to employees may have performance
goals as the condition precedent to becoming exercisable.
Options granted under the 2000 Option Plan are non-transferable and not
immediately exercisable. Future options, if any, are expected to be granted on
the same basis.
If the optionee's employment will terminate for any reason other than
his or her death or disability, he or she may, for a period of up to three
months, exercise the option to the extent exercisable upon the date of
termination. If the optionee's employment will terminate because of his or her
total and permanent disability (as defined in the Code), the optionee will have
12 months to exercise the stock option to the extent exercisable upon the date
of termination. In the event of other disability causing termination, the
optionee may have six months (three months in the event the optionee wants
continuous treatment of the stock option as an incentive stock option) to
exercise the stock option to the extent exercisable upon the date of
termination. If the optionee dies, his estate may exercise the stock option to
the extent exercisable upon the date of death of the optionee, whether it
occurred during the initial term or during the three, six or 12-month periods
described in the three preceding sentences. In no event may a stock option be
exercised beyond its original expiration date. Similar provisions will be
applicable to optionees who are not employees.
For a consultant to be eligible to receive a grant of a stock option
under the 2000 Option Plan, the optionee must be a natural person and the
services rendered for the Company must be of a bona fide nature and not in
connection with the offer or sale of securities of the Company in a capital
raising transaction and do not directly or indirectly promote or maintain a
market for the Company's securities.
At March 31, 2004, options covering a total of 183,500 shares of the
Common Stock were outstanding under the 2000 Option Plan at a weighted average
exercise price of $1.28 per share.
(2) Activity in Fiscal 2004
No stock options were granted to the Company's Chief Executive Officer
who is the sole executive officer named in the Summary Compensation Table during
fiscal 2004.
The Company has never granted any stock appreciation rights (SARs).
Option Exercises and Values
The following table provides certain summary information concerning the
exercise of options during fiscal 2004 and unexercisable options held as of the
end of fiscal 2004 by the Chief Executive Officer who is the sole executive
officer named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Shares Number of Value of
Acquired Unexercised Unexercised In-the-
On Value Options Held at Money Options
Name Exercise Realized Fiscal Year End at FY-End
(#) ($) (#) ($)
Harris A. Shapiro - - 35,000 (1) - (2)
13
(1) As of March 31, 2004, options were exercisable to purchase 11,666
shares.
(2) Such value is based upon the market value of the Common Stock as of
March 31, 2004, less the exercise price payable per share under such
options. As of March 31, 2004, the market value was less than the
exercise price.
Directors' Compensation
Each director is paid $250.00 for telephonic participation and $500.00
for attendance in person at a meeting of the Board.
Directors may be granted stock options as compensation for their
services. During fiscal 2004, no new options were granted to directors of the
Company.
There are no other relationships with respect to other entities that
would require disclosure here under Item 404 of Regulation S-K.
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.
Security Ownership
The following table sets forth, as of May 31, 2004, certain information
with respect to all shareholders known by the Company to be beneficial owners of
more than 5% of its outstanding shares of the Common Stock, the Chief Executive
Officer of the Company (being the sole executive officer named in the Summary
Compensation Table in Item 10 to this Report), all directors and all officers
and directors of the Company as a group. The ownership information was furnished
to the Company by the person or entity.
Number of Shares Percentage of
Name and Address of Common Stock Common Stock
of Beneficial Owner Beneficially Owned Beneficially Owned (1)
Joseph Mazin 788,997 (2) 12.71
c/o Flamemaster Corporation
11120 Sherman Way
Sun Valley, CA 91252
StarBiz Corporation 537,997 (2) 8.66
11120 Sherman Way
Sun Valley, CA 91252
William B. Wachtel, 427,873 6.89
Trustee of Digital Trust (3)
c/o Wachtel & Masyr, LLP
110 East 59th Street
New York, NY 10022
Harris A. Shapiro (4) 309,499 (5) 4.96
c/o PerfectData Corporation
1445 East Los Angeles Avenue
Simi Valley, CA 93065
Bryan Maizlish (6) 19,255 (7) less than 1%
9705 Conestoga Way
Potomac, MD 20854
14
Number of Shares Percentage of
Name and Address of Common Stock Common Stock
of Beneficial Owner Beneficially Owned Beneficially Owned (1)
Timothy D. Morgan (6) 20,455 (7) less than 1%
11734 Gladstone Circle
Fountain Valley, CA 92708
Tracie Savage (6) 29,555 (8) less than 1%
6212 Banner Avenue
Los Angeles, CA 90038
Corey P. Schlossmann (6) 44,758 (7) 7.14
19654-A Roscoe Blvd.
Northridge, CA 91324
All directors and officers as a group 828,088 (9) 13.13
(6 in number)
(1) The percentages computed in the table are based upon 6,209,530 shares
of the Common Stock which were outstanding on May 31, 2004. Effect is
given, pursuant to Rule 13-d(1)(i) under the Exchange Act, to shares
issuable upon the exercise of options or warrants currently exercisable
or exercisable within 60 days of May 31, 2004.
(2) The shares of the Common Stock reported in the table include (a)
537,997 shares owned by StarBiz Corporation, or "StarBiz", for which
Mr. Mazin has voting power as the President, Chairman and Chief
Executive Officer of StarBiz; (b) 36,000 shares owned by the
Flamemaster Corporation Employees' Profit Sharing Plan for which Mr.
Mazin is the fiduciary; and (c) 23,000 shares owned by Altius
Investment Corporation ("Altius") for which Mr. Mazin has shared voting
power as Chairman of the Board of Altius. Certain of the shares
reported in the table are owned by Donna Mazin, his wife, or as to
which shares she shares dispositive and voting powers with Mr. Mazin.
(3) William B. Wachtel as the Trustee of the Digital Trust has, under the
trust agreement, sole voting and investment power with respect to the
shares reported in the table. Harris A. Shapiro, currently the Chairman
of the Board, Chief Executive Officer and a director of the Company,
was the settler of the Digital Trust and made an irrevocable grant to
it of the assets which the Digital Trust used to effect the purchase of
the shares. The beneficiaries of the Digital Trust are Mr. Shapiro's
children and grandchildren who survive him, although the Trustee, in
his absolute discretion, may pay or apply yearly income or the
principal of the Trust to any beneficiary. Because he made an
irrevocable grant and has no voting or investment power with respect to
the shares, Mr. Shapiro is not the beneficial owner of the shares
reported in the table as being owned of record by the Digital Trust and
beneficially by the Trustee.
(4) Mr. Shapiro is the Chairman of the Board, the Chief Executive Officer
and a director of the Company.
(5) The shares of the Common Stock reported in the table reflect (a)
284,500 shares owned by Millennium Capital Corporation, or
"Millennium," for which Mr. Shapiro has voting power as its President;
(b) 6,666 shares issuable upon the exercise of an option expiring June
19, 2012 under the Company's 2000 Stock Option Plan (the "2000 Option
Plan"); (c) 8,333 shares issuable upon the exercise of an option
expiring September 25, 2012 under the 2000 Option Plan; and (d) 10,000
shares issuable upon the exercise by Millennium of a warrant expiring
March 30, 2005. The shares of the Common Stock reported in the table do
not include (x) 3,334 shares issuable upon the exercise of the option
described in (b) or (y) 16,667 shares issuable upon the exercise of the
option described in (c), neither of which was exercisable as to such
shares at May 31, 2004 or within 60 days thereafter.
(6) A director of the Company.
(7) The shares of the Common Stock reported in the table include (a) 6,666
shares issuable upon the exercise of an option expiring June 19, 2012
under the 2000
15
Option Plan and (b) 8,333 shares issuable upon the exercise of an
option expiring September 25, 2012 under the 2000 Option Plan. The
shares of the Common Stock reported in the table do not include (x)
3,334 shares issuable upon the exercise of the option described in (a)
or (y) 16,667 shares issuable upon the exercise of the option described
in (b), neither of which was exercisable as to such shares at May 31,
2004 or within 60 days thereafter.
(8) The shares of the Common Stock reported in the table include (a) 10,000
shares issuable upon the exercise of an option expiring July 20, 2005;
(b) 6,666 shares issuable upon the exercise of an option expiring June
19, 2012 under the 2000 Option Plan; and (c) 8,333 shares issuable upon
the exercise of an option expiring September 25, 2012 under the 2000
Option Plan. The shares of the Common Stock reported in the table do
not include (x) 3,334 shares issuable upon the exercise of the option
described in (b) or (y) 16,667 shares issuable upon the exercise of the
option described in (c), neither of which was exercisable as to such
shares at May 31, 2004 or within 60 days thereafter.
(9) The shares of the Common Stock reported in the table include (a) those
shares indicated in the text to Notes 5, 7 and 8 and (b) 1,250 shares
issuable to an executive officer upon the exercise of an option
expiring October 30, 2011 under the 2000 Option Plan. The shares of the
Common Stock reported in the table do not include 1,250 shares issuable
upon the exercise of the option described in (b), none of which was
exercisable as to such shares at May 31, 2004 or within 60 days
thereafter.
Equity Compensation Plans
The following table sets forth, as of March 31, 2004, certain summary
information with respect to compensation plans under which shares of the
Company's Common Stock are authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
Number of securities Weighted-average Number of
to be issued upon price of securities remaining
exercise of outstanding outstanding available for future
options, warrants and options, warrants issuance under equity
rights and rights compensation plans
(excluding securities
reflected in
column (a) )
(a) (b) (c)
____________________________________________________________________________________________________________________________________
Equity compensation plans
approved by security holders 193,500 $ 1.41 1,816,500
Equity compensation plans not
approved by security holders (1) - - 56,000
________ ______ ________
Total 193,500 $ 1.41 1,872,500
______________
(1) The only plan not approved by the Company's shareholders as to which shares
may be issued as of March 31, 2004 is: In April 1999, the Board of Directors
authorized a reserve of 100,000 shares of the Common Stock for granting of
warrants and options. Said warrants and options will be sold for a price of five
cents per share and will have an exercise price of $1.56 per share. The term
will be three years from date of issuance.
Item 12. Certain Relationships and Related Transactions.
None.
16
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)
10.11 Employment Agreement dated September
1, 2000 by and between the Company
and Harris Shapiro (9)
10.12 Stock Option Agreement dated
November 27, 2000 by and between the
Company and Terry J. Baker (9)
17
Exhibit No. Description of Exhibit
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)
23 (a) Consent of Independent Registered
Public Accounting Firm (12)
23 (b) Consent of Independent Registered
Public Accounting Firm (12)
99.1 Certification of Chief Executive
Officer Pursuant to Rule 13a-14
under the Securities Exchange Act of
1934 (12)
99.2 Certification of Chief Financial
Officer Pursuant to Rule 13a-14
under the Securities Exchange Act of
1934 (12)
99.3 Certification Pursuant to Section
906 of Sarbanes-Oxley Act of 2002
(12)
______________
(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.
18
(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 or, in the case of Exhibit 99.3, furnished herewith.
(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 the Independent
Registered Public Accounting Firm 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.
Item 14. Principal Accountant Fees and Services.
Audit Fees
KPMG LLP ("KPMG"), the Company's then Independent Registered Public
Accounting Firm, billed $50,975 for professional services rendered in
connection with its audit of the Company's annual financial statements for
fiscal 2003 and its review of the Company's financial statements included in the
Company's Forms 10-QSB filed for fiscal 2003.
KPMG billed the Company $10,750 for professional services rendered in
connection with its review of the Company's financial statements included in the
Company's Forms 10-QSB filed for fiscal 2004.
The Company's Audit Committee has authorized a fee estimated to be
$23,500 to $30,000 for the professional services being rendered by Singer Lewak
Greenbaum & Goldstein, LLP (the "Singer Firm"), the Company's current auditors,
in connection with its audit of the Company's annual financial statements for
fiscal 2004, of which $15,000 has already been paid.
The Audit Committee has authorized that the Singer Firm be paid a fee
of $6,500 to $8,500 for its professional services to be rendered in connection
with its review of each of the Company's financial statements included in the
Company's Forms 10-QSB to be filed for the fiscal year ending March 31, 2005.
Audit-Related Fees
KPMG billed the Company (1) $30,000 for its professional services in
fiscal 2004 in connection with the Company's Registration Statement on Form S-3,
File No. 333-109933, filed in connection with the then proposed merger
transaction with SuperCom, which Registration Statement was withdrawn when the
proposed transaction terminated, and (2) $15,000 for its professional services
in connection with the Company's pending preliminary consent solicitation
statement relating to shareholder approval of the proposed sale to Spray and
reincorporation of the Company in the State of Delaware.
19
There were no audit-related fees for fiscal 2003.
Tax Fees
KPMG billed the Company $10,500 for its professional services in
connection with preparing the Company's federal and state tax returns for fiscal
2003.
The Audit Committee has authorized that the Singer Firm be paid a fee
of up to $3,500 for its professional services in connection with preparing and
filing the Company's federal and state tax returns for fiscal 2004.
All Other Fees
During fiscal 2004 KPMG billed the Company $25,000 for its professional
services in connection with a limited due diligence review of SuperCom's
financial statements.
During fiscal 2003 there were no other fees billed by KPMG to the
Company for products and services in the preceding three sections of this Item
14.
Audit Committee Approval
Pursuant to the Audit Committee Charter, only the Audit Committee may
select annually the Independent Registered Public Accounting Firm for the
Company, subject to shareholder ratification. Only the Audit Committee may
replace the Independent Registered Public Accounting Firm. The Charter also
requires the Audit Committee to approve the retention of the independent
auditors for any non-audit service and the fee for such service. The Audit
Committee also approves the scope of the annual audit and the intended fee for
such service and the fees for the quarterly reviews of the financial statements
in the Forms 10-QSB. The Charter does not permit any delegation of the Audit
Committee's authority to management and sets forth procedures for annual reviews
by the Audit Committee of the Independent Registered Public Accounting Firm to
determine their qualifications and independence.
With respect to all of the services described under the captions
"Audit-Related Fees," "Tax Fees" and "All Other Fees," the Audit Committee
reviewed in advance the scope of the services to be rendered and determined that
the services were compatible with maintaining the independence of KPMG or the
Singer Firm, whichever was applicable. The Audit Committee also approved in
advance all of the fees for such services and for the fees described under the
caption "Audit Fees."
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PERFECTDATA CORPORATION
By: /s/ Irene J. Marino
Irene J. Marino, Authorized Officer and
Principal Financial and Accounting Officer
Date: June 28, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 28, 2004.
Signature Title
/s/ Harris A. Shapiro Chief Executive Officer,
Harris A. Shapiro Chairman of the Board and Director
(Principal Executive Officer)
/s/ Irene J. Marino V.P. Finance, Chief Financial Officer
Irene J. Marino and Corporate Secretary (Principal
Financial and Accounting Officer)
/s/ Bryan Maizlish Director
Bryan Maizlish
/s/ Timothy D. Morgan Director
Timothy D. Morgan
/s/ Tracie Savage Director
Tracie Savage
/s/ Corey P. Schlossmann Director
Corey P. Schlossmann
21
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
22
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.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 14, 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 audits.
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.
/s/ KPMG LLP
Los Angeles, California
May 9, 2003, except for the
restatement for discontinued
operations as described in note 2
to the 2003 financial statements,
which is as of June 25, 2004.
F-2
PERFECTDATA CORPORATION
Balance Sheet
March 31, 2004
(Amounts in thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents $ 1,903
Prepaid expenses and other current assets 30
Current assets of discontinued operations, net of allowance of $3 220
-------------------------
Total current assets 2,153
Property and equipment, at cost, net -
-------------------------
Total assets $ 2,153
=========================
Liabilities
Current liabilities:
Accounts Payable $ 126
Accrued compensation 35
Other accrued expenses 77
Current liabilities of discontinued operations 255
-------------------------
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
---------------- -------------------------
Selling, general, and administrative expenses $ 933 $ 668
---------------- -------------------------
Loss from operations (933) (668)
---------------- -------------------------
Other income:
Interest, net - -
Other, net 17 37
---------------- -------------------------
Loss from continuing operations (916) (631)
Income (loss) from discontinued operations 359 (11)
---------------- -------------------------
Net income (loss) $ (557) $ (642)
================ =========================
Net loss per common share:
Basic and diluted:
Loss from continuing operations $ (0.15) $ (0.10)
Income from discontinued operations 0.06 -
---------------- -------------------------
$ (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)
Net
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
-------------- ----------------
Cash flows from continuing operating activities:
Net loss $ (916) $ (631)
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 prepaid expenses and other assets 32 (7)
Increase in accounts payable 54 (106)
Increase (decrease) in accrued expenses 29 (18)
-------------- ----------------
Net cash used in continuing operating activities (743) (742)
Net cash provided by discontinued operating activities 473 157
-------------- ----------------
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) assembles and 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
(continued)
F-7
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.
(continued)
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, 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.
(continued)
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
(continued)
F-10
PERFECTDATA CORPORATION
Statements of Shareholders' Equity
(notes 6 and 7)
Years ended March 31, 2004 and 2003
expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash
flows, an 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) Discontinued 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 has, 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 is receiving a fee of 7
1/2% of net sales.
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
to the following revisions to the APA: (1) effective June 1, 2004,
Spray will assume 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; (3)
(continued)
F-11
PERFECTDATA CORPORATION
Statements of Shareholders' Equity
(notes 6 and 7)
Years ended March 31, 2004 and 2003
based on the amounts of the items constituting the purchase price
described above and as modified in (2) as if the closing was held on
May 31, 2004, the Company will advise Spray of this estimated purchase
price and Spray will promptly advance to the Company an amount in
excess of what the Company owes Spray for product purchased from Spray;
and (4) 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 continues 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.
At such time as the Company has obtained formal approval of its
shareholders to permit the sale to Spray, the Company will have 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 will have 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.
The Company accounted for the sale as a disposal group under Statement
of Financial Accounting Standards ("SFAS") No. 144. Accordingly,
amounts in the financial statements and related notes for all periods
presented have been reclassified to reflect SFAS No. 144 treatment.
(continued)
F-12
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
The carrying amount of the assets and liabilities of the discontinued operations
at March 31, 2004 were as follows:
(amounts in thousands except per share information)
March 31,
2004
Assets:
Accounts receivable net of
an allowance for doubtful
accounts of $ 3 $ 192
Inventory 28
Property and equipment, net -
Total Assets 220
Liabilities:
Accounts Payable $ 255
Operating results of the discontinued operations are as follows:
(amounts in thousands except per share information)
March 31, March 31,
2004 2003
Net revenue $2,680 $2,005
Income (loss) from discontinued operations 359 (11)
Income (loss) per share from
discontinued operations $ 0.06 $ -
(3) 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.
(continued)
F-13
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
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 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.
(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 assets of discontinued operations.
(5) 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)
$ -
(6) 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:
(continued)
F-14
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
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)
-% -%
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 2,002
$ -
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.
(continued)
F-15
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
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
$2,062.00 During the year ended March 31, 2004, the Company increased
the valuation allowance in deferred tax assets by $118,000.
(7) Shareholder's 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 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.
(continued)
F-16
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
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.
(8) 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 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. A total of 377,750 options
were exercised through March 31, 2004, with 10,000 options 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 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
(continued)
F-17
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
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. A total of 24,000 options were exercised
through March 31, 2004. Activity for these options and warrants is
summarized as follows:
Weighted
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 - $ -
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.
(continued)
F-18
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
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 to each director pursuant to the 2000 Plan, on March 31, 2000
to purchase 25,000 shares of common stock at $18.50 per share and 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.
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.
(continued)
F-19
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
Activity under the 2000 Plan is summarized as follows:
Weighted
Number of average option
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
(continued)
F-20
PERFECTDATA CORPORATION
Notes to Financial Statements
March 31, 2004 and 2003
(9) 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
Annual Report on Form 10-KSB
Exhibit No. Description of Exhibit Page
10.15 First Amendment, dated as of February E-2
26, 2004, to the Asset Purchase Agreement,
dated dated as of October 3, 2003, between
PerfectData Corporation, and Spray
Products Corporation
10.16 Addendum to Lease Agreement and E-4
Standard Commercial lease dated as of
September 24, 2003 between Albert and
Helen La Monte, as landlord, and the
Company, as tenant
23 (a) Consent of Independent Registered
Public Accounting Firm E-20
23 (b) Consent of Independent Registered
Public Accounting Firm E-21
99.1 Certification of Chief Executive E-22
Officer Pursuant to Rule 13a-14
under the Securities Exchange Act of 1934
99.2 Certification of Chief Financial Officer E-24
Pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934
99.3 Certification Pursuant to Section 906 of E-26
Sarbanes-Oxley Act of 2002
E-1
Exhibit 10.15
FIRST AMENDMENT
TO
ASSET PURCHASE AGREEMENT
This First Amendment (the "Amendment"), dated as of the 26 day of
February, 2004, to the Asset Purchase Agreement (the "Original Agreement"),
dated as of October 3, 2003, between PerfectData Corporation, a California
corporation, and Spray Products Corporation, a Pennsylvania corporation.
W I T N E S S E T H
WHEREAS, the parties hereto entered into the Original Agreement whereby
Seller agreed to sell, and Purchaser agreed to purchase, substantially all the
assets of Seller; and
WHEREAS, the parties desire to amend the Original Agreement as provided
for herein;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreement set forth herein, the parties agree as
follows:
1. The second sentence of Section 1.5 is hereby amended by the addition
of the following:
"and as provided in Section 4.7 hereof."
2. The following shall be inserted as Section 4.7:
"4.7 Insurance. Purchaser agrees to maintain product
liability insurance covering not only all products
manufactured or shipped by it post-closing, but also
including all products manufactured or shipped by the
Purchaser prior to the Closing Date, including those
during the management period pursuant to Section 5.6
hereof."
3. Section 5.6.3(a) is hereby amended to add the following:
"(iii) be responsible for all freight and shipping
charges incurred by the Buyer in connection with the
transport of inventory from the Facility to the
customers."
4. Section 5.6.3 (b)(ii) is hereby deleted in its entirety.
E-2
5. Except as specifically modified herein, the Original Agreement shall
not be modified and shall remain in full force and effect.
6. All capitalized terms not specifically defined herein shall have the
meaning ascribed to them in the Original Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
PURCHASER:
Spray Products Corporation
By: /s/Bart Bastian
Name: Bart Bastian
Title: President
SELLER:
PerfectData Corporation
By: /s/Harris A. Shapiro
Name: Harris A. Shapiro
Title: Chairman of the
Board and Chief
Executive Officer
E-3
Exhibit 10.16
ADDENDUM TO LEASE AGREEMENT LANDLORD: Albert and Helen LaMonte
TENANT: Perfectdata Corporation
DATE: March 29, 2004
PROPERTY: 1445 E. Los Angeles Avenue, Suites # 208
REGARDING: Lease Extension LANDLORD:
TENANT: PerfectData Corporation
This document (1 pages) serves as written evidence of an addendum to
the Master Lease dated September 24, 2003, by and between Albert and
Helen LaMonte, "Landlord" and Perfectdata Corporation, "Tenant". This
addendum is incorporated by reference and made a part of the Master
Lease agreement.
The Master Lease Agreement is hereby amended to reflect the following:
1. It is agreed that the term of this Lease shall continue
uninterrupted through October 15, 2004 unless sooner terminated
as provided in the Master Lease Agreement.
Other than the modifications specified herein, all other terms and
conditions of the Master Lease agreement shall remain fully enforceable
as written. This addendum and the Master Lease shall not be modified
unless done in writing, signed and dated by all parties to be bound.
The signatures of the parties hereto is evidence of their understanding
of a willingness to be bound by this Addendum.
LANDLORD: TENANT:
By /s/ Albert La Monte Date 5/11/04 By /s/ Irene J. Marino Date 4/19/04
___________________________ Irene Marino
By /s/ Helen La Monte Date 5/12/04
E-4
STANDARD COMMERCIAL LEASE PROJECT: EXECUTIVE CENTER OF
SIMI VALLEY ADDRESS: 1445 LOS
ANGELES AVENUE
GROSS LEASE SUITE: 208
CITY/STATE/ZIP: SIMI VALLEY, CALIF. 93065
1. PARTIES. This Lease dated September 24, 2003 is entered between Albert and
Helen LaMonte, ("Landlord"), and Perfectdata Corporation, ("Tenant").
2. NOTICES.
Any notice required hereunder shall be in writing and served personally or
sent registered or certified United States mail, postage prepaid, addressed
as follows:
LANDLORD: Albert and Helen LaMonte TENANT: Perfectdata Corporation
Executive Center of Simi Valley attn: Irene Marino
1445 Los Angeles Ave. Suite 301 1445 Los Angeles Ave. Suite 208
Simi Valley, California 93065 Simi Valley, California 93065
3. PREMISES.
3.1 Landlord leases to Tenant and Tenant leases from Landlord, on the terms
and conditions hereinafter set forth, that certain demised premises and other
improvements located thereon situated in the City of Simi Valley, County of
Ventura , State of California, commonly known as 1445 Los Angeles Avenue , Suite
#208.
3.2 Landlord shall provide Tenant with possession of the Premises effective
October 15, 2003, as agreed between Tenant and Landlord and subject to receipt
by Landlord of the fully executed Lease document and the monies due thereunder ,
and rent payments as required herein shall commence as of October 15, 2003. If
Tenant causes a delay in occupancy, then there shall be no adjustment to the
commencement date of this Lease nor Tenant's obligation to make rent payments.
3.3 Tenant's Premises, consists of approximately 667 rentable square feet .
The legal description of the Premises is set forth in Exhibit "A" which is
attached to this Lease.
4. TERM.
4.1 The term of this Lease is for Zero (0) years Six (6) months , commencing
on October 15, 2003 and ending on April 15, 2004 unless sooner terminated as
hereinafter provided.
5. MONTHLY RENT. 5.1 Tenant shall pay Landlord as monthly "base rent" for the
Premises the sum of Nine hundred fifty and 50/100 ($950.00) dollars per month,
in advance on the first day of each month beginning October 15, 2003. Rent for
any period during the term of this Lease which is for less than one (1) month
shall be a pro rata portion of the monthly installment. Said proration shall be
calculated on the basis of a thirty (30) day month. Rent shall be payable
without notice or demand and without any deduction, off-set, or abatement in
lawful money of the United States, except as set forth in sub paragraph 22.3
herein, to the Landlord at the address stated herein for notices or to such
other persons or such other places as the Landlord designates to Tenant in
writing.
6. COST OF LIVING RENTAL ADJUSTMENT.
6.1 The monthly "base rent" in Article 5 shall be increased on the annual
anniversary date of this Lease by the greater of 5% or the percent or the
percentage that the United States Department of Labor, Bureau of Labor
Statistics, Consumer Price Index for "All Urban Consumers" (for all items in the
Los Angeles/Long Beach/ Anaheim areas) ("Index") has increased from the first
month of the Lease term through the month in which the rent is to be increases.
SAMPLE RENT CALCULATIONS:
a. Assume for purposes of example that the beginning index
number (month number 1 of the Lease Term) is 208 and the
extension index number (month number 13 of the Lease Term) is
219 and the rent is $1,000.
b. The fraction would be extension index/beginning index of
219/208 x or $1,000 = $1, 053.00.
c. The new rent would be $1, 053.00.
6.2 The Index for the month in which the rent is to be increased may not be
available on the rental adjustment date. At such time as the Index is available,
Landlord shall provide written notice to Tenant and Tenant shall make the
necessary rental adjustment payment to Landlord within fifteen (15) days of said
written notice. If at any time there does not exist an Index in the same format
as herein described, then the Parties shall substitute therefore an official
index publishes by the Bureau of Labor Statistics or its successor which
achieves the same intended purposes.
7. ANNUAL RENTAL ADJUSTMENT FOR EXPENSES.
7.1 Definitions. As used in this Lease, the following terms are defined as
follows:
(a) "Base Year" shall mean the calendar year 2003.
(b) "Tenant Proportionate Share" shall mean a fraction, the numerator
of which is the number of square feet of rentable office space covered
by the Lease and the denominator of which is the total number of
rentable square feet of office space in the Building, whether or not
such space is actually rented.
E-5
(c) "Operating Expenses" means all direct costs of operation and
maintenance of the Building as determined by standard accounting
practices and shall include, but shall not be limited to the following
costs: real property taxes, fees for permits relating to the building,
water and sewage charges, insurance premiums, utilities, janitorial
services for common areas, labor of building attendants, building
management, maintenance of elevators and mechanical systems, supplies,
materials, equipment, and tools used in building maintenance, and
upkeep of any landscaping and common areas. Operating Expenses shall
not include depreciation on the building and leasing commissions.
7.2 If Landlord's Operating Expenses for any calendar year after the base
year exceeds those paid or incurred for the base year, then Tenant shall pay its
proportionate share of the increase within ten (10) days of the billing date.
Adjustment is based upon the increase in Operating Expenses over the base year.
Such Operating Expenses shall be based upon a square foot computation ("Tenant's
Proportionate Share") with Tenant's space being approximately 1.68 %of the total
rentable square feet of the building of which the Premises comprise a part.
7.3 Landlord shall attempt to complete its computation of the actual
Operating Expense increases by March of the year following the year for which
the computation is to be made. Tenant shall pay any additional amounts even if
at the time that Landlord's computation of actual Operating Expenses is made the
Lease term is expired and Tenant has vacated the Premises.
8. SECURITY DEPOSIT.
8.1 Tenant shall deposit with Landlord upon execution of this Lease the sum
of Nine hundred fifty and 00/100 ($950.00) dollars as security deposit for the
Tenant's faithful performance of the provisions of this Lease. The amount
required as security deposit shall be equivalent to one (1) month's rent.
8.2 If Tenant fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Landlord may use, apply or
retain all or any portion of said deposit for:
(a) the payment of any rent or other charge in default, or
(b) the payment of any other sum for which Landlord may become
obligated by reason of Tenant's default, or
(c) to compensate Landlord for any loss or damage which Landlord may
suffer thereby.
8.3 Tenant shall immediately, upon written demand, pay to Landlord the sum
equal to that portion of t he deposit expended or applied by Landlord which was
provided for in this paragraph so as to maintain the security deposit in the sum
initially deposited with Landlord. Tenant's failure to do so shall be a material
breach of this Lease. Such reimbursement shall be payable in cash or by way of a
certified money order. Lessee may not use any portion of the security deposit to
satisfy Lessee's rental obligations including the last month's rent.
8.4 If Tenant performs all of Tenant's obligations under this Lease, the
security deposit or that portion thereof which has not previously been applied
by the Landlord, shall be returned to Tenant within fourteen (14 ) days after
the expiration of the term of this Lease, or after Tenant has vacated the
Premises, whichever is later.
9. USE AND USES PROHIBITED.
9.1 Tenant shall use the Premises only for a general business office , and
for no other use without the Landlord's prior written consent.
9.2 Tenant shall not do, bring, or keep anything in or about the Premises
that will cause a cancellation of any insurance covering the Premises or the
building in which the Premises are located. If the rate of any insurance carried
by the Landlord is increased solely as a result of Tenant's use, Tenant shall
pay to Landlord within ten (10) days after written demand from Landlord, the
amount of any such increase.
9.3 Tenant shall comply with all laws concerning the Premises or Tenant's use
of the Premises, including without limitation, the obligation at Tenant's cost
to alter, maintain, or restore the Premises in compliance and conformity with
all laws relating to the use, or occupancy of the Premises by Tenant during the
term of this Lease.
9.4 Tenant shall not use or permit the use of the Premises is any manner that
will tend to create waste or a nuisance or, if there shall be more than one
tenant of the building containing the Premises, which shall unreasonably disturb
any other tenant.
10. TENANT ACCEPTANCE OF PREMISES AND COMPLIANCE WITH LAW.
10.1 Tenant accepts the Premises in their condition existing as of the date
that Tenant possesses the Premises, subject to all applicable zoning, municipal,
county and state laws, ordinances, regulations governing or regulating the use
of the Premises and accepts this Lease subject thereto and to all matters
disclosed thereby.
10.2 Tenant shall be responsible for complying with any such laws,
ordinances, or regulations prior to possession of the Premises.
10.3 Tenant acknowledges that neither Landlord nor its agent(s) has made any
representation or warranty as to the condition of the Premises or the
suitability of the Premises for the conduct of Tenant's business.
E-6
11. TAXES.
11.1 Real Property Taxes; Landlord shall pay all real property taxes and
general assessments levied and assessed against the building in which the
Premises are located during the term of this Lease.
11.2 Personal Property Taxes; Tenant shall pay, prior to delinquency, all
taxes assessed against and levied upon fixtures, furnishings, walls (which shall
be defined as movable walls and partitions), equipment and all other personal
property of Tenant contained in the Premises. Tenant shall cause said fixtures,
furnishings, walls, equipment, and all other personal property to be assessed
and billed separately from the real property of the Landlord. In the event that
any or all of Tenant's fixtures, furnishings, walls, equipment, or other
personal property shall be assessed and taxed with Landlord's real property,
Tenant shall pay to Landlord Tenant's share of such taxes prior to delinquency,
or within thirty (30) days, after delivery to Tenant of a statement from
Landlord in writing setting forth the amount of such taxes applicable to the
Tenant's personal property, whichever is sooner.
12. UTILITIES AND SERVICES.
12.1 Landlord will furnish the Premises with electricity suitable for the
intended use of the Premises as a general business office, heating and
air-conditioning for the comfortable use and occupancy by Tenant of the
Premises, plus furnishing, supplying, and maintaining building common areas,
parking areas, and restroom facilities including water and sewage disposal in
the building in which the Premises are located, all at the Landlord's expense,
except electric, unless otherwise agreed to in this Lease. Said utilities shall
be provided daily except for heating and air-conditioning which shall be
provided by Landlord Monday through Saturday during business hours of 7:00 a.m.
to 7:00 p.m. If the Tenant shall require electrical current or installation of
electrical equipment including but not limited to electronic data processing
machines or computers, using current which will in any way substantially
increase the amount of the electricity usually furnished for use as general
office space, Tenant will obtain prior written approval from the Landlord and
pay monthly for the additional direct expenses involved. Tenant shall pay
monthly, within 10 days of Landlord's billing, for his pro-rata share of the
cost of electric service to the Premises based upon a square foot computation
("Tenant's Proportionate Share") with Tenant's space being approximately 1.68 %
of the total rentable square feet of the Building of which the Premises become a
part.
13. MAINTENANCE AND REPAIRS.
13.1 By entering into the Premises, Tenant shall be deemed to have accepted
the Premises as being in good and sanitary order, condition and repair.
13.2 Landlord's Obligations:
(a) Except as provided in Article 19, and except for damage caused by
any negligent or intentional act or omission of Tenant, Tenant's
agents, employees or invitees, Landlord at its sole cost and expense
shall keep in good condition and repair the foundation, exterior walls,
exterior roofs, building common area plumbing, heating and air
conditioning systems, sidewalks and other "common area" items. If the
cost of Landlord's obligations under this Subparagraph 13.2 increases
for any reason outside the control of Landlord or all tenants, then
such increase shall be paid by each tenant on a leasable square foot
basis.
(b) "Common area" items shall be defined to include those items of
maintenance or repair which are not directly attributable to Tenant's
Premises but which are attributable to the benefit of all tenants in
the building.
(c) If Landlord determines that additional services are required for
use of a specific Tenant, including but not limited to ,additional
trash removal, additional repairs, increased utility use, then Landlord
shall have the right to charge Tenant one hundred (100%) of such cost
or increase, which shall be payable immediately upon written demand by
Landlord.
14. ALTERATIONS AND ADDITIONS.
14.1 Tenant shall not, without Landlord's prior written consent, make any
alterations, improvements or additions in or about the Premises.
(a) As a condition to giving consent, Landlord may require Tenant to
remove, at Tenant's sole cost, any such alterations, improvement, or
additions at the expiration of the term, and to restore the Premises to
their prior condition by giving Tenant thirty (30) days written notice
prior to the expiration of the term that Landlord requires Tenant to
remove itself from the Premises.
(b) Unless Landlord requires their removal as set forth above, all
alterations, improvements or additions which are made on the Premises
by Tenant shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the term.
14.2 Notwithstanding the terms of this Article 14, Tenant's trade fixtures,
furniture, equipment, and other machinery other than that which is affixed to
the Premises so that it cannot be removed without material or structural damage
to the Premises, shall remain the property of the Tenant and be removed by
Tenant at the expiration of the term of this Lease.
15. FREE FROM LIENS.
15.1 Tenant shall keep the Premises and the property in or on which the
Premises are located free from any liens arising out of any work performed,
material furnished, or obligation incurred by Tenant. Tenant shall not record
this Lease without Landlord's consent.
16. TENANT'S PERFORMANCE.
16.1 With the exception of rental payments due herein, if Tenant fails to
adhere to any time limits set forth in this Lease to complete work or perform
any other requirement herein provided to be performed by Tenant during the term
of this Lease or prior to the
E-7
beginning of this Lease, or if Tenant causes a delay in the completion of any
work performed by any person on the Premises or its appurtenances, then Landlord
shall provide Tenant will written notice of Tenant's violation of this Lease
provision.
(a) If the violation is not corrected within ten (10) days after
notice, Landlord shall have, in its discretion, the right to exercise
any of the legal and equitable remedies set forth in Article 22 or
otherwise provided by law.
(b) In addition, Landlord shall be entitled to retain as liquidated
damages all security deposits made hereunder and any such alterations,
improvements or additions that Tenant may have annexed to the Premises
that cannot be removed without damage thereto (subject to the
provisions of Article 14 above).
17. FORCE MAJEURE.
17.1 If either party to this Lease is delayed or prevented from the
performance of any act required hereunder, including, without limitation, such
reasons as Acts of God, lockouts, labor strikes, inability to procure materials,
restrictive governmental laws, ordinances or regulations, or any other cause
which is beyond the control of the party obligated to perform, then performance
shall be temporarily excused until such time as performance can be had without
such restriction. This shall not be interpreted as excusing Tenant from the
prompt and timely payment of rentals or other charge(s) due under this Lease.
17.2 Each party shall use reasonable diligence to avoid any delay as
described in Subparagraph 16.1 and shall resume performance under this Lease as
promptly as possible after any such delay.
18. INSURANCE; INDEMNITY.
18.1 Fire Insurance:
(a) Landlord at its cost shall maintain during the term of this Lease
on the Premises a policy or policies of standard fire and extended
coverage insurance to the extent of at least eighty (80%) percent of
full replacement value thereof. Said insurance policies shall be issued
in the names of Landlord and Tenant, as their interests may appear.
(b) Tenant, at its own expense, shall maintain during the term of this
Lease a policy of standard fire and extended coverage /casualty
insurance, with vandalism and malicious mischief endorsements, to the
extent of full replacement value insuring Tenant against loss or damage
by fire or other casualty to all Tenant's personal property , including
alterations in or about the Premises and Tenant Improvements for/of
Tenant located in the Premises. The proceeds from any such policy shall
be used by Tenant for the replacement of personal property and the
restoration of Tenant's improvements or alterations.
18.2 Liability Insurance:
(a) Tenant at its sole cost and expense shall maintain during the term
of this Lease a general public liability insurance policy to insure
against all liability of Tenant and its authorized representatives
arising out of and in connection with Tenant's use or occupancy of the
Premises. The single combined liability limitation of such insurance
shall be not less than: Five hundred thousand ($500,000) Dollars with
respect to injury or death of one person, and Five hundred thousand
($500,000) Dollars with respect to any one accident, and Fifty thousand
($50,000) Dollars with respect to property damage, including theft and
a special rider regarding plate glass windows, if the normal policy
does not already cover this item. Landlord shall be named as additional
insured under said policy but only with respect to claims against the
Landlord arising solely out of the Tenant's use and occupancy of the
Property. Tenant, upon separate written request from Landlord, shall
furnish a certificate evidencing said insurance.
(b) If Tenant fails to maintain insurance, Landlord may procure and
maintain such policies at the expense and cost of Tenant, bearing
interest thereon at the maximum rate permitted by law for an individual
to charge, and which shall be due and payable as additional rental to
Landlord together with Tenant's next rental installment.
18.3 Waiver of Subrogation. Tenant and Landlord each waives any and all
rights of recovery against the other, or against the officers, employees,
agents, and representatives of the other, for loss of or damage to such waiving
party or its property or the property of others under its control, where such
loss or damage is insured against under any insurance policy in force at the
time of such loss or damage. Each party shall cause each insurance policy
obtained hereunder to provide that the insurance company waives all right of
recovery by way of subrogation against either party in connection with any
damage covered by any such policy.
18.4 Hold Harmless.
(a) Tenant shall indemnify and hold Landlord harmless from and against
any and all claims arising from:
(1) Tenant use or occupancy of the Premises, or (2) the
conduct of Tenant's business, or (3) from any activity, work,
or things which may be permitted or suffered by Tenant in or
about the Premises including all damages, costs, attorney's
fees, expenses and liabilities incurred in the defense of any
claim or action or proceeding arising therefrom.
(b) Except for Landlord's willful or grossly negligent conduct, Tenant
hereby assumes all risk of damage to property or injury to person in or
about the Premises from any cause and Tenant hereby waives all claims
in respect thereof against Landlord.
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18.5 Exemption of Landlord from Liability.
(a) Except for Landlord's willful or grossly negligent conduct, Tenant
hereby agrees that Landlord shall not be liable for:
(1) Any injury to Tenant's business or loss of income
therefrom, or (2) damage to the goods, wares, merchandise, or
other property of Tenant, or (3) injury to Tenant's person,
employees, invitees, customers or any other person in or about
the Premises whether such damage or injury is caused by or
results from fire, water or rain, steam, electricity, or from
the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing air-conditioning, or
lighting fixtures or from any other cause whether such damage
results from conditions arising upon the Premises or upon
other portions of the building in which the Premises are a
part, or from any other sources or places.
(b) Landlord shall not be liable to Tenant for any damages arising from
any act or neglect of any other tenant, if any, of the building in
which the Premises are located.
19. DAMAGE OR DESTRUCTION.
19.1 Damage - Insured.
(a) If the Premises and/or the building and other improvements in which
the Premises are located are totally or partially destroyed rendering
the Premises totally or partially inaccessible or unusable, and such
damage or destruction was caused by a casualty covered under an
insurance policy required to be maintained hereunder, Landlord shall
restore the Premises and/or the building and other improvements in
which the Premises are located into substantially the same condition as
they were in immediately before such damage or destruction, provided
that the restoration can be made under the existing laws and can be
completed within one hundred twenty (120) working days after the date
of such destruction of damage.
(1) Such destruction or damage shall not terminate this Lease.
(2) If the restoration cannot be made within said 120-day
period, then Tenant may terminate this Lease within fifteen
(15) days of such a determination by giving notice to Landlord
and the Lease will be deemed canceled as of the date of such
damage or destruction. (3) If Tenant fails to terminate this
Lease and the restoration is permitted under existing laws,
Landlord, at its option, may terminate this Lease or restore
the Premises and/or any other improvements in which the
Premises are located within a reasonable time and this Lease
shall continue in full force and effect. (4) If existing laws
do not permit restoration, either party can terminate this
Lease immediately by giving notice to the other party.
(b) Notwithstanding the above, if Tenant is the insuring party and if
the insurance proceeds received by the Landlord are not sufficient to
effect such repair, Landlord shall give notice to Tenant of the amount
required in addition to the insurance proceeds to effect such repair.
(1) Tenant may, at Tenant's option, contribute the required
amount, but upon failure to do so within thirty (30) days
following such notice, Landlord's sole remedy shall be, at
Landlord's option and with no liability to Tenant, to cancel
and terminate this Lease. (2) If Tenant contributes such
amount to Landlord within said thirty (30) day period,
Landlord shall make such repairs as soon as reasonably
possible and this Lease shall continue in full force and
effect. Tenant shall in no event have any right to
reimbursement for any amount so contributed.
19.2 Damage - Uninsured.
(a) If the Premises are damaged or destroyed by a casualty which is not
covered by the fire and extended coverage insurance which is required
by Article 18, then Landlord shall restore the same, at Landlord's sole
expense, on the contingency that if the damage or destruction is to an
extent greater than ten (10%) percent of the replacement cost of the
improvements on the property on which the Premises are located
(exclusive of Tenant's trade fixtures and equipment and exclusive of
foundations and footings), then Landlord may elect not to restore and
to terminate this Lease.
(b) Landlord shall provide Tenant with written notice of its intention
not to restore and terminate this Lease within thirty (30) days from
the date of such damage or destruction and, if not given, Landlord
shall be deemed to have elected to restore and in such event shall
repair any damage as soon as reasonably possible.
(c) If Landlord elects to cancel and terminate this Lease, Tenant shall
have the right, within ten (10) days after receipt of such notice, to
give written notice to Landlord of Tenant's intent to repair such
damage at Tenant's expense, without reimbursement from Landlord. The
Lease shall continue in full force and effect and Tenant shall make
such repairs as soon as reasonably possible. If Tenant does not give
said notice within such ten (10) day period, this Lease shall be
canceled and be deemed terminated as of the date of the occurrence of
such damage or destruction.
19.3 Damage Near the End of Term.
(a) If the Premises are totally or partially destroyed or damaged
during the last twelve (12) months of the term of this Lease. Landlord
may, at Landlord's option, cancel and terminate this Lease as of the
date of the cause of such damage by giving written notice to Tenant of
Landlord's election to do so within thirty (30) days after the date of
the occurrence of such damage. If the damage or destruction occurs
within the last twelve (12) months of the term and if within fifteen
(15) days after the date of such damage or destruction Tenant
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exercises any option to extend the term, Landlord shall restore the
Premises if obligated to do so as provided in Subparagraph 19.1 or 19.2
above.
19.4 Abatement of Rent.
If the Premises are partially destroyed or damaged , the rent payable
hereunder for the period during which such damage, repair or restoration
continues shall be abated in proportion to the degree to which Tenant's
reasonable use of the Premises is impaired. Except for the abatement of rent, if
any, Tenant shall have no claim against Landlord for any damages suffered by
reason of any such damage, destruction, repair or restoration.
19.5 Trade Fixtures and Equipment.
If Landlord is required or elects to restore the Premises as provided
in this Article 19, Landlord shall not be required to restore Tenant's
improvements, trade fixtures, equipment or alterations made by Tenant, such
excluded items being the sole responsibility of Tenant to restore hereunder.
19.6 Total Destruction - Multitenant Building.
If the Premises are a part of a multitenant building and there is
destruction to the Premises and/or the building of which the Premises are a part
that exceeds fifty (50%) percent of the then replacement value of the Premises
and/or the building in which the Premises are a part from any cause whether or
not covered by the insurance described in Article 18 above, Landlord may elect
to terminate this Lease (whether or not the Premises are destroyed) so long as
Landlord terminates the leases of all other tenants in the building of which the
Premises are a part, effective as of the date of such damage or destruction.
20. CONDEMNATION.
20.1 If the Premises or any part thereof, or if the properties of Landlord
including the Premises or any part thereof, shall be the subject of condemnation
by any governmental or any other authority lawfully exercising the right of
eminent domain, Landlord may terminate this Lease with respect to such part of
the Premises condemned and Tenant shall not be entitled to receive any part of
any condemnation award in connection therewith.
21. ASSIGNMENT AND SUBLETTING.
21.1 Tenant shall not voluntarily or by operation of law assign, transfer,
sublet, share, mortgage, or otherwise transfer or encumber all or any part of
Tenant's interest in this Lease or in the Premises without Landlord's prior
written consent which shall not be unreasonably withheld. Any attempted
assignment, sharing, transfer, mortgage, encumbrance, or subletting without such
consent shall be void and shall constitute a breach of this Lease.
21.2 Regardless of Landlord's consent, no subletting or assignment shall
release Tenant or Tenant's obligation to pay the rent and to perform all other
obligations to be performed by Tenant hereunder for the term of this Lease.
(a) The acceptance of rent by Landlord from any other person shall not
be deemed a waiver by Landlord of any provision hereof.
(b) Consent to one assignment or subletting shall not be deemed consent
to any subsequent assignment or subletting.
(c) Tenant shall not accept payment from nor allow any other person or
entity to use the "Premises", the "Building" or the "Common Areas" for
the purpose of conducting any type of business without Landlord's
specific prior written permission.
21.3 As a condition to Landlord's prior written consent to assignment or
subletting by Tenant of the entire Premises, Landlord shall have a first right
of retaking possession of the Premises or, alternatively, Tenant shall provide
Landlord with prior written verification of the terms and conditions of Tenant's
assignment or subletting with the assignee or sublessee and the rental for the
Premises shall remain the same as that provided for in Article 5 above, and as
further modified where appropriate by Article 6 and Article 7 above.
22:DEFAULT:
22.1 Default. The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Tenant:
(a) Abandonment and vacation of the Premises (failure to occupy the
Premises for fourteen (14) consecutive days with no intent of
reoccupying shall be deemed an abandonment and vacation).
(b) The vacating of the Premises resulting in a cancellation of any of
the insurance coverage provided in Article 18 hereof.
(c) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due.
(d) The failure by Tenant to observe or perform any of the covenants,
conditions, or provisions of this Lease to be observed or performed by
Tenant, other than those described in subparagraph 22.1(c) above, if
such failure continues for a period of thirty (30) days after written
notice thereof from Landlord to Tenant unless the nature of Tenant's
failure is such that more than thirty (30) days are reasonably required
for its cure. In such a case, Tenant shall not be deemed to be in
default if Tenant commences such cure within said thirty (30) day
period and thereafter diligently completes such cure.
(e) Any of the following events:
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(1) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors, or (2) the filing by
or against Tenant a petition to have Tenant adjudicated a
bankrupt or a petition for reorganization or rearrangement
under any law relating to bankruptcy unless, in the case of a
petition filed against Tenant, the same is dismissed within
thirty (30) days, or (3) the appointment of a trustee or
receiver to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within
thirty (30) days, or (4) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged within thirty (30) days.
Note: If a court of competent jurisdiction determines that any of the
foregoing acts of subparagraph 21.1(e) does not constitute an event of default
under the terms of this Lease, and a trustee is appointed to take possession of
Tenant's interest under this Lease (or Tenant remains a debtor in possession)
and such trustee or Tenant assigns or subleases Tenant's interest hereunder,
then Landlord shall receive, as additional rent, the difference between the rent
or any other consideration paid in connection with such assignment or sublease
and the rent payable by Tenant hereunder. This Lease and any interest in and to
the Premises shall not become an asset of any proceedings described above and
Landlord shall be entitled to exercise any one or more of the remedies defined
in paragraph 21.2 .
22.2 Remedies. Landlord shall be entitled to exercise any of the following
remedies if Tenant commits a default under this Lease. These remedies are not
exclusive but are cumulative and in addition to any remedies now or hereafter
allowed by law.
(a) Landlord can continue this Lease in full force and effect, and the
Lease will continue in effect so long as Landlord does not terminate
Tenant's right to possession and the Landlord shall have the right to
collect rent when due.
(1) During the period that Tenant is in default, Landlord can
enter the Premises and relet them, or any part of them, to
third parties for Tenant's account.
(2) Tenant shall be liable immediately to Landlord for all
costs Landlord incurs in reletting the premises, including,
without limitation, brokers' commissions, expenses of
remodeling the Premises required by the reletting, and like
costs.
(3) Reletting can be for a period shorter or longer than the
remaining term of this Lease. Tenant shall pay Landlord the
rent due under this Lease on the dates the rent is due, less
the rent Landlord receives from any reletting.
(4) No act by Landlord under this Subparagraph 22.2(a) shall
terminate this Lease unless Landlord notifies Tenant that
Landlord elects to terminate this Lease.
(5) After Tenant's default and for so long as Landlord has not
terminated Tenant's right to possession of the Premises, if
Tenant obtains Landlord's consent, Tenant shall have the right
to assume or sublet its interest in the Lease, but Tenant
shall not be released from liability. Landlord's consent
hereunder shall not be unreasonably withheld.
(6) If Landlord elects to relet the Premises as provided in
this Subparagraph 22.2(a), any rent that Landlord receives
shall apply first to the payment of any indebtedness from
Tenant to Landlord other than the rent due from Tenant to
Landlord; secondly, to all costs, including maintenance,
incurred by Landlord in such reletting; and third, to any rent
due and unpaid under this Lease.
(7) After deducting the payments referred to in this
Subparagraph 22.2(a), any sum remaining from the rent Landlord
receives from such reletting shall be held by Landlord and
applied in payment of future rent as rent becomes due under
this Lease. In no event shall Tenant be entitled to any excess
rent received by Landlord.
(8) If, on the date rent is due under this Lease, the rent
received from the reletting is less than the rent due on that
date, Tenant shall pay to Landlord, in addition to the
remaining rent due, all costs, including maintenance, that
Landlord shall have incurred in reletting that remain after
applying the rent received from the reletting as provided in
this Subparagraph 22.2(a).
(b) Landlord can, at its option, terminate Tenant's right to possession
of the Premises at any time. No act by Landlord other than by giving
written notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, of the appointment of a
receiver on Landlord's initiative to protect Landlord's interest in
this Lease shall not constitute a termination of Tenant's right to
possession. In the event of such a termination, Landlord has the right
to recover from Tenant:
(1) The worth, at the time of the award, of the unpaid rent
that had been earned at the time of the termination of this
Lease.
(2) The worth, at the time of the award, of the amount by
which the unpaid rent that would have been earned after the
date of the termination of this Lease until the time of the
award exceeds the amount of the loss of rent that Tenant
proves could have been reasonably avoided.
(3) The worth, at the time of the award, of the amount by
which the unpaid rent for the balance of the term after the
time of the award exceeds the amount of the loss of rent that
Tenant proves could have been reasonably avoided, and
(4) Any other amount, including court costs, necessary to
compensate Landlord for all detriment proximately caused by
Tenant's default.
Note: "The worth at the time of the award" as used in (1) and (2) of
this paragraph is to be computed by allowing interest at the maximum rate an
individual is permitted by law to charge. "The worth at the time of the award"
as referred to in (3) of this paragraph is to be computed by discounting the
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award, plus one (1%) percent.
(c) Landlord at any time after Tenant commits a default, can cure the
default at Tenant's cost and expense. If Landlord at any time, by
reason of Tenant's default, pays any sum or does any act that requires
the payment of any sum, the sum paid by Landlord shall be due
immediately from Tenant to Landlord at the time the sum is paid, and if
paid at a later date shall bear interest at the maximum rate an
individual is permitted by law to charge from the date the sum is paid
by Landlord until Landlord is reimbursed by Tenant. The sum, together
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with interest thereon, shall be considered additional rent and shall be
payable as such.
(d) Landlord can cure Tenant's default at any time at the Tenant's cost
and expense. If Landlord, by reason of Tenant's default, pays any sum
or does any act that requires the payment of any sum, the sum paid by
the Landlord shall be due from Tenant within three (3) days from
written notice to Tenant Any unpaid sum shall bear interest at the
maximum rate an individual is permitted to charge by law from the date
the sum is paid by the Landlord until the date the sum is reimbursed by
Tenant. The sum, including interest, shall be considered additional
rent and shall be payable as such.
(e) If Tenant is in default, and has not cured such default within
thirty (30) days, then Landlord shall be entitled to demand and receive
back from Tenant reimbursement for any free rent already credited
Tenant. Any future free rent indicated in the Lease agreement shall be
null and void.
22.3 Default by Landlord.
(a) Landlord shall not be in default unless Landlord fails to perform
its obligations within thirty (30) days after written notice by Tenant
to Landlord specifying which obligation (s) Landlord has failed to
perform.
(b) If the nature of the specified obligation (s) is such that more
than thirty (30) days are reasonably required to complete their cure,
then Landlord shall not be in default if it commences to cure within
said thirty (30) day period and thereafter diligently prosecutes the
same to completion.
22.4 Late Charges.
(a) Tenant acknowledges that late payment by Tenant to Landlord of rent
or other sums due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be
impracticable or extremely difficult to ascertain.
(b) Such costs include, but are not limited to: (1) processing and
accounting charges, and (2) late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the
Premises.
(c) If any installment of rent or any sum in addition to rent due from
Tenant is not received by Landlord within five (5) days after the date
such amount is due, Tenant shall pay to Landlord a late charge of ten
(10%) percent of total monthly rent The parties agree that such late
charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of late payment by Tenant.
(d) All sums of money payable by Tenant to Landlord hereunder shall be
deemed rent for use of the Premises and collectible by Landlord from
Tenant as rent, and shall be due from Tenant to Landlord on the lease
due date following the month when the late payment occurred.
23. SIGNS AND AUCTIONS.
23.1 Tenant shall not have the right to place, construct, or maintain any
sign, advertising, awning, banner, or other exterior decorations, lights, or
sound devices on the building or other improvements that are a part of the
Premises without Landlord's prior written consent, which consent shall not be
unreasonably withheld, subject to local ordinances. Tenant further agrees not to
conduct or permit to be conducted any sale by auction in, upon, or from the
Premises, whether said auction be voluntary, involuntary, pursuant to any
assignment for the payment of creditors, or pursuant to any bankruptcy or other
solvency proceeding.
24. PARKING AND COMMON FACILITIES.
Landlord covenants to provide an area for Tenant's use for parking pursuant
to the following provisions:
24.1 Tenant shall have the non-exclusive right to use for Tenant's benefit,
its agents, employees, customers, licensees and subtenants, the parking area and
common facilities in conjunction with Landlord, other present and future owners,
tenants and their agents, employees, customers, licensees and sub-tenants during
the entire term of this Lease, or any extension hereof, for ingress and egress,
roadway, sidewalk and automobile parking which are provided for in existing
covenants, conditions and restrictions of record. Said parking area shall be
used for parking by vehicles not larger than full size passenger cars or pick up
trucks. Prohibited vehicles are not permitted: examples of prohibited vehicles
shall include but not be limited to trucks, trucking equipment, trailers,
campers, boats, recreational vehicles, non-operational vehicles or vehicles
parked longer than 48 hours. No automotive repair/service is allowed. Landlord
shall have the right , without notice, in addition to other rights and remedies
it may have, to remove or tow away the vehicle involved, and the Tenant shall
pay all costs involved to Landlord immediately upon demand.
24.2 The condemnation or other taking by any public authority, or sale in
lieu of condemnation, of any or all of such common facilities and parking areas
shall not constitute a violation of this Article 24.
24.3 Landlord reserves the right to change the entrances, exits, traffic
lanes, and the boundaries and locations of such parking area(s); provided,
however, that anything to the contrary notwithstanding contained in this Article
22, said parking area(s) shall at all times be substantially equivalent to that
shown on the attached Exhibit "A".
24.4 Landlord shall keep said automobile parking and common areas in a neat,
clean and orderly condition, properly lighted and landscaped, and shall repair
any damage to the facilities thereof.
24.5 Tenant, in the use of the parking area(s) and common facilities, agrees
to comply with such reasonable rules and regulations as the Landlord may adopt
from time to time for their orderly and property operation.
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25. EARLY POSSESSION.
25.1 If Landlord permits Tenant to occupy the Premises prior to the
commencement date of the term of this Lease, such occupancy shall be subject to
all the provisions of this Lease. Early possession shall not advance the
termination date of this Lease.
26. SUBORDINATION.
26.1 This Lease, at Landlord's option, shall be subordinated to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewal,
modifications, and extensions thereof.
26.2 Notwithstanding any such subordination, Tenant's right to quiet
possession of the Premises shall not be disturbed if Tenant is not in default
and so long as Tenant shall pay the rent and observe and perform all the other
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms.
26.3 If any mortgagee, trustee, or ground lessor shall elect to have this
Lease prior to the lien of its mortgage or deed of trust or ground lease and
shall give written notice thereof to Tenant, this Lease shall be deemed prior to
such mortgage, deed of trust or ground lease, whether this Lease is dated prior
to or subsequent to the date of such mortgage, deed of trust or ground lease, or
the date of recording thereof.
26.4 Tenant agrees to execute any documents required to effect such
subordination or to make this Lease prior to the lien of any mortgage, deed of
trust, or ground lease, as the case may be, and failing to do so within ten (10)
days after written demand from Landlord does hereby make, constitute and
irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's name ,
place and stead to do so.
27. SURRENDER.
27.1 On the last day of the term of this Lease, or on any sooner termination,
Tenant shall surrender the Premises to Landlord in good condition, broom clean,
ordinary wear and tear accepted.
(a) Tenant shall repair any damage to the Premises occasioned by its
use thereof, or by the removal of Tenant's trade fixtures, furnishings
and equipment which repair shall include the patching and filling of
holes and repair of structural damage.
(b) Tenant shall remove all of its personal property and fixtures on
the Premises prior to the expiration of the term of this Lease, and if
required by Landlord, pursuant to Article 14 above, any alterations,
improvements, or additions made by Tenant to the Premises.
27.2 Landlord may, at its option, apply the provisions of Article 8 in
covering the costs relative to Tenant's failure to adhere to the provisions of
this Article 27.
27.3 If Tenant fails to surrender the Premises to Landlord on the expiration
of the Lease as required by this paragraph, Tenant shall hold Landlord harmless
from all damages resulting from Tenant's failure to vacate the Premises,
including, without limitation, claims made by any succeeding tenant resulting
from Tenant's failure to surrender the Premises.
28. HOLDING OVER.
28.1 If Tenant remains in possession of the Premises or any part thereof
after the expiration of the term hereof without express written consent of
Landlord, such occupancy shall be a tenancy from month to month at a rental in
the amount of one hundred twenty-five percent (125%) of the last monthly rent
installment, plus all other additional rent and other charges payable hereunder,
and upon all the terms hereof applicable to a month-to-month tenancy.
29. BINDING ON SUCCESSORS AND ASSIGNS.
29.1 The terms, conditions, and covenants of this Lease shall be binding upon
and shall inure to the benefit of each of the parties hereto, their heirs,
personal representatives, successors and assigns.
30. LANDLORD'S RIGHT TO INSPECTION.
30.1 Landlord and Landlord's agent shall have the right to enter the Premises
at reasonable times, with Tenants permission which shall not be unreasonably
withheld, and also which shall be provided within a 24 hour period , for the
purpose of:
(a) inspecting the Premises,
(b) showing the Premises to prospective purchasers or lenders, and
(c) making such alterations, repairs, improvements or additions to the
Premises or to the building of which the Premises are a part as
Landlord may deem necessary or desirable. (d) Landlord may enter the
Premises without prior notification in cases of emergency.
30.2 Landlord may at any time place on or about the Premises any ordinary
"For Sale" signs and Landlord may at any time during the last one hundred twenty
(120) days of the term of this Lease place on or about the Premises any ordinary
"For Sale or Lease" signs, all without rebate of rent or liability to Tenant.
31. CHOICE OF LAW.
31.1 This Lease shall be governed by the laws of the State of California.
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32. ATTORNEY'S FEES.
32.1 If either Landlord or Tenant becomes a party to any litigation or
arbitration concerning this Lease, the Premises, or the building or other
improvements in which the Premises are located, by reason of any act or omission
of the other party or its authorized representatives, the losing party shall be
liable to the prevailing party for reasonably attorney's fees and costs of suit.
33. LANDLORD'S LIABILITY.
33.1 The term "Landlord" as used in this Lease shall mean only the owner or
owners at the time in question of the fee title, and in the event of any
transfer of such title, Landlord herein named shall be relieved from and after
the date of such transfer of all liability in respect to Landlord's obligations
thereafter to be performed. The obligations contained in this Lease to be
performed by Landlord shall be binding upon the Landlord's successors and
assigns, only during their respective periods of ownership.
34. WAIVERS.
34.1 No waiver by Landlord of any provision hereof shall be deemed a waiver
of any other provision hereof or of any subsequent breach by Tenant of the same
or any other provision.
34.2 Landlord's consent to or approval of any act shall not be deemed to
render unnecessary the obtaining of Landlord's consent to or approval of any
subsequent act by Tenant.
34.3 The acceptance of rent thereunder by Landlord shall not be a waiver of
any preceding breach by Tenant of any provision hereof, other than the failure
of Tenant to pay the particular rent so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of its acceptance of such rent.
35. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS.
35.1 This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior agreements or understandings pertaining to any
such matter shall be effective. This Lease may be modified in writing only,
signed by the parties in interest at the time of modification. Any other
attempted modification of this Lease shall be void.
36. TIME.
36.1 Time is of the essence of this Lease.
37. SEVERABILITY.
37.1 The unenforceability, invalidity, or illegality of any provision of this
Lease shall not render the other provisions hereof unenforceable, invalid, or
illegal.
38. ESTOPPEL CERTIFICATES.
38.1 Each party, within five (5) days after notice from the other party,
shall execute and deliver to the other party a certificate stating that this
Lease is unmodified and in full force and effect, or in full force and effect as
modified, and stating the modification. This certificate shall also state the
amount of minimum monthly rent, the dates to which rent has been paid in
advance, and the amount of any security deposit or prepaid rent, if any, as well
as acknowledging that there are not, to that party's knowledge, any incured
defaults on the part of the other party, or specifying such defaults, if any,
which are claimed. Failure to deliver such a certificate within the five (5) day
period shall be conclusive upon the party failing to deliver the certificate to
the benefit of the party requesting the certificate that this Lease is in full
force and effect, that there are no incurred defaults hereunder, and has not
been modified except as may be represented by the party requesting the
certificate.
39. COVENANTS AND CONDITIONS.
39.1 Each provision of this Lease performable by Tenant shall be deemed both
a covenant and a condition.
40. JOINT AND SEVERAL LIABILITY.
40.1 "Party" shall mean Landlord and Tenant, and of more than one person or
entity is the Landlord or Tenant, the obligations imposed on the party shall be
joint and several.
41. OPTION TO EXTEND.
41.1 Provided that Tenant shall not then be nor has been previously in
default hereunder, Tenant shall have the option to extend the term of this Lease
for N/A additional N/A year periods upon delivery by Tenant to Landlord of
written notice of its election to exercise such option at least one hundred
twenty (120) days prior to the expiration of the original term hereof.
41.2 If Tenant exercises the option right as described above, then the
parties hereto agree that the terms and conditions of this Lease shall be
negotiable requiring written mutual consent of Landlord and Tenant.
42. BROKER'S FEE.
42.1 The brokers involved in this transaction are MJB Investments, Inc. as
"listing broker" and MJB Investments Inc., as "cooperating broker", licensed
real estate broker(s). A "cooperating broker" is defined as any broker other
than the listing broker entitled to a
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share of any commission arising under this Lease. Upon execution of this Lease
by both parties, Landlord shall pay to said brokers jointly, or in such separate
shares as they may mutually designate in writing, a fee as set forth in a
separate agreement between Landlord and said broker(s), or in the event there is
no separate agreement between Landlord and said broker(s), the sum of $ (per
agreement), for brokerage services rendered by said broker(s) to Landlord in
this transaction.
42.2 Landlord further agrees that (1) if Tenant exercises any Option of the
Lease, which is granted to Tenant under this Lease, or any subsequently granted
option which is substantially similar to an Option granted to Tenant under this
Lease, or (2) if Tenant acquires any rights to the Premises of other premises
described in this Lease which are substantially similar to what Tenant would
have acquired had an Option herein granted to Tenant been exercised, or (3) if
Tenant remains in possession of the Premises after the expiration of the term of
this Lease after having failed to exercise an Option, or (4) if said broker(s)
are the procuring cause of any other lease or sale entered into between the
parties pertaining to the Premises and/or any adjacent property in which
Landlord has an interest, or (5) if the Base Rent is increased, whether by
agreement or operation of an escalation clause contained herein, then as to any
of said transactions or rent increases, Landlord shall pay said broker(s) as fee
in accordance with the schedule of said broker(s) in effect at the time of
execution of this Lease. Said fee shall be paid at the time such increased
rental is determined.
42.3 Landlord agrees to pay said fee not only on behalf of Landlord, but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Landlord's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Landlord's obligation under this paragraph 4.2 . Each listing and cooperating
broker shall be a third part beneficiary of the provisions of this paragraph 42
to the extent of their interest in any commission arising under this Lease and
may enforce that right directly against Landlord
43. ADDENDUM.
43.1 Exhibits "A", "B", and "C" and Addendum to Standard Office Lease are
incorporated by reference and may modify, explain, add to or delete from the
terms of this Lease.
43.2 This shall be amended or modified only in writing and as acknowledged by
Landlord and Tenant
This Lease has been prepared by GLM Properties at the request of the Landlord
and Tenant who are herein referred to as "The Parties" without regard to gender
or number. The parties have been advised to have this document reviewed by their
own independent counsel, and confirm that in signing this document, they have
not relied on any act or conduct of GLM Properties, and its agents, with regard
to the interpretations or meanings of this document. The Parties jointly and
severally waive any and all claims, actions, demands, and loss against GLM
Properties, its agents and each of them, that a Party may incur by reason of
act, error or omission in the preparation of this document and in its
interpretation and meaning, whether or not the interpretation or meaning is the
result of Compromise and settlement among Parties, or the result of
determination by Court or arbitration panel of competent jurisdiction. The
proceeding waiver provisions have been negotiated and agreed by and between the
parties on the one part and GLM Properties on the other part.
Unless dated otherwise the parties hereto have executed this Lease on the date
first above written.
LANDLORD: Executive Center of Simi Valley TENANT : Perfectdata Corporation
By /s/ Albert La Monte Date 10/16/03 By /s/ Irene J. Marino Date 10/3/03
NAME PRINTED: Albert LaMonte NAME PRINTED: Irene J. Marino
By /s/ Helen La Monte Date 10/16/03
NAME PRINTED: Helen LaMonte
CONSULT YOUR ATTORNEY FOR ASSURANCE THAT YOUR RIGHTS ARE PROTECTED HEREUNDER. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY LANDLORD, ITS AGENTS OR
REPRESENTATIVES, AS TO THE LEGAL SUFFICIENCY OR EFFECT, OR TAX CONSEQUENCES OF
THIS DOCUMENT OR THE TRANSACTION RELATING THERETO. THESE ARE QUESTIONS FOR YOUR
ATTORNEY.
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PROJECT: Executive Center of Simi Valley
EXHIBIT "A" - PAGE 1
A. LEGAL DESCRIPTION:
ADDRESS: 1445 Los Angeles Avenue CITY, STATE: Simi Valley, California COUNTY:
Ventura
B: SITE PLAN / FLOOR PLAN:
intentionally left blank
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EXHIBIT "B" -PAGE 1
PROJECT: Executive Center of Simi Valley
This Addendum is made reference to in Article 43 and is attached to and made
part of that certain printed Lease Agreement "(Lease)" entered into by and
between ALBERT AND HELEN LAMONTE, ("LANDLORD") Perfectdata Corporation
,("TENANT") dated September 24,2003.
The promises, covenants, agreements and declarations made and set forth herein
are intended to and shall have the same force and effect as if set forth at
length in the body of the Lease. To the extent that any terms or provisions of
the Addendum are inconsistent with any terms or provisions of the Lease, the
terms and provisions of the Addendum shall prevail and control for all purposes.
All capitalized terms used in the Addendum shall have the same meanings assigned
to them in the Lease, if any, unless otherwise specified in the Addendum.
A. OTHER PROVISIONS:
Tenant acknowledges receipt of notice letter from the City of Simi Valley dated
June 1, 1992 regarding hazardous substance regulations. Such letter is delivered
with this Lease document, but not made a part of same. Tenant is advised to
check with the controlling governmental agencies related to his/her business
operations. Neither Landlord nor their agent(s) make any representation
regarding any requirements, including parking, that the City or other
governmental agencies might impose on Tenant's type of business.
B. JANITORIAL SERVICE
Landlord shall provide and pay for building standard janitorial service to the
Premises a minimum of three (3) days per week.
C: ROOF: Tenant shall obtain Landlord's prior permission before commencement of
any work anticipated on the roof . Tenant shall not make any alterations,
improvements, installations, additions to or placements of utilities or antennas
upon the roof without Landlord's written permission. Should Tenant make any
alterations, etc., without written consent, Landlord may require that Tenant, at
Tenant's obligation and expense, remove any or all of the same and additionally,
Tenant shall pay to the Landlord the amount of any damage to the roof caused by
Tenant or Tenant's actions, or, Landlord may remove same at Tenant's expense.
D: DESCRIPTION OF WORK:
LANDLORD: N/A. The suite is in clean and deliverable condition.
TENANT: 1)Tenant shall , contract for, construct, maintain and repair any
interior improvements and decorations including wiring and lighting fixtures,
telephone and computer line installations, subject to Landlord's obligations set
forth in Article 12. Tenant shall submit any structural modifications to the
Landlord for Landlord's approval prior to any actual construction or
modification of the existing improvements to the Premises. Such approval shall
not be unreasonably withheld. Tenant agrees to hold harmless Landlord for any
claims against Landlord for any reason whatsoever in connection with Tenants
improvements and agrees to prevent any third party claims or liens against
Landlord in connection with Tenants improvements. Additionally, Tenant has been
advised that Landlord reserves the right to require Landlord's contractors to
perform any construction work that requires modification to the Buildings
heating, air conditioning, plumbing or electrical systems. Any space planners or
consultants used by Tenant shall be at Tenant's choice, cost and obligation. 2)
Signage requirements per this Lease agreement to be completed and installed
within thirty (30) days from the beginning of the Lease term.
Accordingly, GLM Properties request Tenant to sign this document confirming
his/her understanding of this policy and that neither GLM Properties nor Tenant
are relying on prior discussions, representations, advertising or otherwise
which have not been set out in this Lease.
Perfectdata Corporation
By /s/ Albert La Monte Date 10/16/03 By /s/ Irene J. Marino Date 10/3/03
ALBERT LAMONTE TENANT
By /s/ Helen La Monte Date 10/16/03
HELEN LAMONTE
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EXHIBIT "C" - PAGE 1
This addendum is made reference to in Article 41 (NNN) or 42 (GROSS) of this
Lease and may modify, alter, or delete from the terms of the Lease.
A. DEPOSIT MONIES: Upon execution of the final Lease Documents, the following
monies shall be due and payable as follows:
(1) First Months Rent $ 950.00
(2) Security Deposit: $ 950.00
TOTAL MONIES DUE UPON EXECUTION: $ 1,900.00
B. TENANT AS PRINCIPAL: Tenant agrees that this Lease is submitted to Landlord
through GLM Properties (Broker) who is the procuring cause of this Lease, and
that Tenant is acting as principal in this transaction and is represented by no
other person entitled to make demand upon Broker or Landlord for any commission
or part thereof that may by payable by Landlord to Broker.
C. SIGN AND AUCTIONS (ADDENDUM TO ARTICLE 22): Tenant acknowledges receipt of a
copy of Landlord's "Tenant's Identification Policy" and does hereby agree to
abide by the same. Said addendum is labeled as Exhibit "C" - Page 3 and is
attached hereto.
D. TENANT IMPROVEMENTS: Tenant is aware that completion of any additional
improvements or changes not covered in the basic Lease shall in no way effect
the commencement of rent payments or any other terms or conditions of this
Lease.
E. Tenant's business hours shall be a minimum of -n/a-.
F. GUARANTEE OF LEASE: Tenant acknowledges receipt of a copy of Landlord's
Guarantee of Lease attached hereto. G. OTHER PROVISIONS:
1) Notwithstanding any of the provisions in the attached Master Lease,
Landlord herein agrees to pay Tenant's pro rata share of (1) Real Property
Taxes, (2) common area insurance, and (3) common area maintenance. If Landlord's
payment of these expenses for any calendar year after the base year exceeds
those paid or incurred for the base year, then the Tenant shall pay its pro rata
share of such increase within ten (10) days of the notice from the Landlord.
Adjustment is based upon the increase in expenses over the base year. Tenant's
premises consists of 1.68% of the total square footage of the building of which
the Premises comprise a part.
2) Landlord agrees, at Landlord's obligation and expense, to provide the
Building standard Janitorial Service for the Tenant's demised premises three (3)
days per week
3) Tenant shall be responsible for providing his own telephone installation
and service.
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EXHIBIT "C" - PAGE 2
PROJECT: Executive Center of Simi Valley
A. DIRECTORY:
Landlord shall provide at no expense to Tenant one (1) building standard
Tenant directory frame located in the main lobby which identifies the company
name and suite number of all Tenants. All directory strips within the directory
frame shall be installed at Tenant's expense and shall conform to Landlord's
requirements for uniformity in size, color, letter style, letter size and letter
color.
B. DIRECTORY STRIP:
Tenant shall install at Tenant's expense one (1) building standard directory
strip which conforms to the following requirements:
STRIP SIZE: 7/8" tall x 8-3/4" wide.
BACKGROUND COLOR: 1/16" thick clear, non-glare acrylic with sub-surface
painted building standard "bronze".
LETTER AND NUMBER COLOR: Building standard screen-printed "white".
LETTER AND NUMBER STYLE: Building standard "Optima Bold", upper and
lower case. LETTER AND
NUMBER SIZE: 1/2" tall.
C. TENANT SIGN FRAMES:
Landlord shall install at no expense to Tenant one (1) building standard sign
frame for each allowed corridor or main lobby door. Tenant sign frame shall be
constructed of anodized aluminum "duranodic bronze", 10" tall x 10" wide x 1/2"
deep, with 5/8 radius corners OR according to Building standard, whichever is
currently in use.
Tenant sign frame shall be centered left to right on the active leaf of
corridor doors, 57" from the floor. Tenant sign frames shall be wall-mounted,
20" from the active leaf of main lobby glass doors, 57" from the floor.
D. TENANT SIGN PLAQUES:
Tenant shall install at Tenant's expense one (1) building standard sign frame
per Tenant sign frame provided by Landlord. Tenant sign plaques shall conform to
the following requirements:
PLAQUE SIZE: 9-1/4" wide x 9-1/4" tall.
PLAQUE COLOR: Building standard 1/16" clear, non-glare acrylic,
sub-surface painted building standard "bronze".
LETTER AND NUMBER COLOR: Building standard sub-surface screen printed
"white".
LETTER AND NUMBER STYLE: Building standard "Optima Bold".
LETTER AND NUMBER SIZE: Letters: 5/8" tall. Numbers: 1-1/2" tall.
COMPANY LOGOS ON SIGN PLAQUES: Size and color subject to Landlord's
written approval prior to installation.
Should Landlord order and /or install signage per Tenant's request or
instruction, Tenant shall reimburse the cost to Landlord within three (3) days
of installation.
Requests for approval for installation of Tenant identification signs should be
submitted in writing to the Executive Center of Simi Valley, Attention Property
Manager: Helen Lamont. Please allow 10 working days for processing. Indicate
Tenant name and suite number on all correspondence.
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Exhibit 23 (a)
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement No.
333-51774 of PerfectData Corporation on Form S-8 of our report, dated May 14,
2004, appearing in this Annual Report on Form 10-KSB of PerfectData Corporation
for the year ended March 31, 2004.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
June 28, 2004
E-20
Exhibit 23 (b)
Consent of Independent Registered Public Accounting Firm
The Board of Directors
PerfectData Corporation:
We consent to incorporation by reference in the registration statement (No.
333-51774) on Form S-8 of PerfectData Corporation (the Company) of our report
dated May 9, 2003, except for the restatement for discontinued operations as
described in note 2 to the 2003 financial statements, which is as of June 25,
2004, with respect to the statements of operations, shareholders' equity, and
cash flows of the Company for the year ended March 31, 2003, which report
appears in the March 31, 2004 annual report on Form 10-KSB of PerfectData
Corporation.
/s/ KPMG LLP
Los Angeles, California
June 25, 2004
E-21
Exhibit 99.1
Certification of Chief Executive Officer
Pursuant to Rule 13-14 under
the Securities Exchange Act of 1934
I, Harris A. Shapiro, certify that:
1. I have reviewed this annual report on Form 10-KSB of Perfect Data
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the small business issuer as of, and for, the periods presented in
this annual report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and
have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in
the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
E-22
5. The small business issuer's other certifying officer(s) and I
have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the small
business issuer's auditors and the audit committee of small
business issuer's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small
business issuer's internal control over financial reporting.
Date: June 28, 2004
/s/ Harris A. Shapiro
Harris A. Shapiro
Chairman of the Board and
Chief Executive Officer
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Exhibit 99.2
Certification of Chief Financial Officer
Pursuant to Rule 13-14 under
the Securities Exchange Act of 1934
I, Irene J. Marino, certify that:
1. I have reviewed this annual report on Form 10-KSB of Perfect Data
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the small business issuer as of, and for, the periods presented in
this annual report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and
have:
e) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
f) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
g) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
h) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in
the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
E-24
5. The small business issuer's other certifying officer(s) and I
have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the small
business issuer's auditors and the audit committee of small
business issuer's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small
business issuer's internal control over financial reporting.
Date: June 28, 2004
/s/ Irene J. Marino
Irene J. Marino
Vice President, Finance,
Chief Financial Officer and
Chief Accounting Officer
E-25
Exhibit 99.3
Certification Pursuant to Section 906
of Sarbanes-Oxley Act of 2002
We, Harris A. Shapiro and Irene J. Marino, do hereby certify that:
1. This annual report of PerfectData Corporation containing the
financial statements for the years ended March 31, 2004 and 2003 fully
complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m) and
2. The information contained in this annual report fairly presents, in
all material respects, the financial condition and results of
operations of PerfectData Corporation.
Date: June 28, 2004
/s/ Harris A. Shapiro _
Harris A. Shapiro
Chairman of the Board and
Chief Executive Officer
/s/ Irene J. Marino_
Irene J. Marino
Vice President, Finance,
Chief Financial Officer and
Chief Accounting Officer
A signed original of this written statement required by Section 906 has been
provided to PerfectData Corporation and will be retained by PerfectData
Corporation and furnished to the Securities and Exchange Commission or its staff
upon request.
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