<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 _______________
                                  FORM 10-KSB/A

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                                    OF 1934

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended March 31, 2004

                           Commission File No. 0-12817

                             PERFECTDATA CORPORATION
              (Exact name of Small Business Issuer in Its Charter)

                              California 95-3087593
                  (State or Other Jurisdiction of (IRS Employer
              Incorporation or Organization) Identification Number)

                          1445 East Los Angeles Avenue
                                    Suite 208
                          Simi Valley, California 93065
               (Address of Principal Executive Offices) (Zip Code)

                 Issuer's Telephone Number, Including Area Code:
                                 (805) 581-4000

          Securities registered pursuant to Section 12 (b) of the Act:
                                      None

          Securities registered pursuant to Section 12 (g) of the Act:
                                  Common Stock

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15 (d) of the  Securities  Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days:

Yes[X] No[  ].


Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B is not contained herein, and no disclosure will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendments to this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year:  $2,680,000.

As of May 31,  2004,  the  aggregate  market  value of the voting  stock held by
nonaffiliates of the issuer was $4,382,150.

As of May 31, 2004, the issuer had 6,209,530 shares of Common Stock outstanding.

Transitional Small Business Disclosure Format (check one):

Yes[  ] No[X].
<PAGE>

<PAGE>

         The Annual  Report on Form  10-KSB for the fiscal  year ended March 31,
2004 (the "Annual Report") of PerfectData  Corporation (the "Company") is hereby
amended  to  amend  Items  6, 7, 8A and 13,  to  file a new  Exhibit  10.17,  to
substitute  new  exhibits  23(a)  and 23(b)  and to  update  the  Certifications
Pursuant to Rule 13a-14 (a) and (b) under the  Securities  Exchange  Act of 1934
filed or furnished as Exhibits 31.1, 31.2 and 32 to the Annual Report. Except as
so amended, there is no other change to the Annual Report.

Item 6.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.

Proposed Sale of Business Operations

         As previously reported, on October 3, 2003, the Company entered into an
Asset Purchase Agreement (the "APA") with Spray Products Corporation  ("Spray"),
pursuant  to which the  Company  agreed to sell to Spray (or a Spray  affiliate)
substantially  all of the  operating  assets of the Company for a price equal to
the sum of the  value of the  inventory,  collectible  accounts  receivable  and
$100,000, less the amount of trade payables which are being assumed by Spray.

         Since November 1, 2003, Spray had,  pursuant to the APA, been acting as
a  manager  for the  fulfillment  of orders  from the  Company's  customers.  As
compensation  for Spray's  services,  Spray was receiving a fee of 7 1/2% of net
sales.  As a result of the management  arrangement  with Spray,  the Company has
moved to a smaller facility and reduced its staff,  thereby reducing its ongoing
overhead  expenses.  As  indicated in the next  paragraph,  as a result of Spray
assuming,  effective as of June 1, 2004, full  responsibility for all customers,
Spray is entitled to the full economic  benefit of any sale to a customer of the
Company in lieu of the foregoing fee.

         Because the Company's  largest  customer had threatened to seek another
supplier because of a supplier's offer of lower prices,  and because of the long
delay in closing the transaction,  thereby causing uncertainty for customers and
Spray,  the  Company  and  Spray  had  agreed  in  principle,  and  subsequently
formalized the agreement in writing by a Second Amendment dated as of August 12,
2004, to the following  revisions to the APA: (1) effective June 1, 2004,  Spray
assumed  full  responsibility  for all of the  Company's  customers  in order to
prevent possible losses of customer business;  (2) the aforementioned payment of
$100,000  will be reduced to $80,000;  and (3) the Company may put the assets to
Spray for the purchase price on the earlier of (a) September 30, 2004 or (b) the
Company receiving shareholder consent to the sale of Spray

         The  Board  of  Directors,   after   consultation  with  certain  major
shareholders,  had elected in June 2003 to sell the operating business assets of
the Company  because,  despite  efforts by the Company  during the prior  fiscal
years which had increased sales and reduced  expenses,  the Company continued to
operate at a loss,  thereby  diluting  the  Company's  cash,  which is its major
asset.  The Board  concluded that a sale or liquidation of the operating  assets
was in the  best  interests  of the  Company  and  its  shareholders  even if no
acquisition or merger (including the then pending transaction with SuperCom) was
effected.

         The  Company  will  seek  shareholders'  approval  of the  sale  of its
operating assets to Spray by consents in lieu of holding a meeting.  A condition
precedent  under the APA to closing  the  transaction  was,  prior to the Second
Amendment to the APA, that the Company obtain the approval of its  shareholders.
If, on the other hand,  as permitted by the Second  Amendment to the APA and the
California statute, the put by the Company to spray is exercised as of September
30,  2004,  a  closing  is held and  shareholders'  approval  is not  thereafter
obtained, the parties would be required to rescind the transaction.  However, in
view of  management's  discussions  with major  shareholders  in June  2003,  as
previously reported,  management does not believe that recission is likely to be
required.

         As a result of the  transaction,  as modified,  with Spray, the Company
has no operations and will  thereafter  receive no revenues until an acquisition
or merger is effected, as to which and when there can be no assurance.

Efforts to Seek Another Merger or Acquisition Candidates

         As previously  reported,  on July 2, 2003, the Company entered into the
Merger Agreement and related agreements with SuperCom,  an Israeli  corporation,
culminating the negotiations which had begun in April 2003.


<PAGE>

SuperCom  is engaged in the  research,  development  and  marketing  of advanced
technologies  and  products  for  government  secured ID projects and smart card
production technology. On January 20, 2004, the Company reported that the Merger
Agreement and related agreements had terminated.

         The Board of Directors of the Company does not intend to liquidate  the
Company, but instead, with the Company having cash or cash equivalents currently
in excess of $1,500,000, the Board intends to continue its search for a suitable
merger or acquisition candidate. Even though the Company has no operations,  the
Company  believes  its  status as a  publicly-traded  company  is  valuable  and
therefore makes it a viable merger candidate. During the past four fiscal years,
the Company had been  seeking  acquisitions  which have not been  related to its
current  business.  The  Board  was  of  the  opinion  that  profitability  on a
continuous  basis would not be achieved  absent an acquisition of a new business
or businesses and/or new products. However, the Board can not determine when any
such  acquisition  will be consummated,  if at all.  During recent years,  three
potential acquisitions (including SuperCom) were actively pursued;  however, all
terminated for different reasons and the Company incurred expenses in connection
therewith.

Critical Accounting Policies

         Management  believes  that  the  following   discussion  addresses  the
Company's  most  critical  accounting  policy,  which is most  important  to the
portrayal of the Company's  financial  condition  and results,  and requires the
most difficult,  subjective and complex judgments, often as a result of the need
to make  estimates  about the effect of matters that are  inherently  uncertain.
Prior to November 1, 2003,  the date on which Spray assumed  responsibility  for
fulfillment  of customer  orders,  management  also included a discussion of its
evaluation of inventory as a critical accounting policy on an on-going basis.

Revenue Recognition:

         The Company recognizes when products are shipped and the customer takes
ownership  and assumes risk of loss,  collection  of the relevant  receivable is
probable,  pervasive  evidence of an arrangement  exists, and the sales price is
fixed or deteminable.

Allowance for Doubtful Accounts:

         The Company evaluates the collectibility of its accounts receivable and
provides an  allowance  for  estimated  losses  that may result from  customers'
inability to pay.  The amount of the reserve is  determined  by analyzing  known
uncollectible  accounts,  aged  receivables  and  customers'  credit-worthiness.
Amounts later  determined and specifically  identified to be  uncollectible  are
written off against the allowance.

Results of Operations

         Net sales in fiscal 2004 increased $675,000, or 34%, to $2,680,000 from
net sales of $2,005,000 in fiscal 2003. The increased  sales in fiscal 2004 were
a result of an increase in sales volume with the Company's  existing  customers.
Spray's management of the fulfillment of orders from the Company's customers, as
described under the caption "Proposed Sale of Business  Operations" in this Item
6, had no effect on the increased sales in fiscal 2004.

         Cost of Goods Sold  ("Costs") as a percentage  of net sales was 66% for
fiscal 2004 and 2003, respectively.  Even though the Company incurred additional
costs in fiscal 2004  related to the  interim  management  fee for Spray,  these
costs were offset by the reduction in overhead expenses when the Company reduced
its staff,  as well as the savings in freight  expense  when orders were shipped
directly from Spray to the Company's customers.

         Selling,  General and Administrative  Expenses  ("Expenses") for fiscal
2004 and 2003 were  $1,477,000  and  $1,358,000,  respectively.  The increase in
Expenses in fiscal 2004 directly  related to costs  associated with the SuperCom
transaction,  as well as severance pay and related taxes paid to employees whose
employment was terminated when the Company  transferred its order fulfillment to
Spray.  These costs were  partially  offset by a reduction in facility  expenses
when the  Company  transferred  its  order  fulfillment  to Spray and moved to a
smaller facility.  An aggregate of $226,000 in Expenses relating to the SuperCom
transaction  were  incurred  in fiscal  2004 and an  aggregate  of  $115,000  in
Expenses  relating to an aborted  transaction  were incurred in fiscal 2003. See
"Terminated  Acquisitions" under Item 1, Part I to this Report. In addition, the
Company recorded compensation


<PAGE>

expense of $51,500 in fiscal 2004 related to the
50,000 shares of the  Company's  Common Stock issued to the then Chairman of the
Audit Committee for his services as such.

         Other Income for fiscal 2004 and 2003 was primarily  dividend income of
$17,000 and $37,000, respectively.

         The decreased net loss in fiscal 2004 directly related to the increased
sales partially offset by the increase in Expenses, as described above.

Liquidity and Capital Resources

         The Company's cash and cash  equivalents  decreased  $270,000 in fiscal
2004. The decrease resulted from cash used in operating  activities of $270,000.
The cash used in operating  activities  was primarily the result of the net loss
of  $557,000,  partially  offset by a  decrease  in  inventories,  as well as an
increase in accounts payable and accrued expenses.

         The  Company  had a current  ratio of better than 4 to 1 at fiscal year
end and no long-term debt.

         As a result of the continuing negative cash flows from operations,  the
Company is dependent on the  proceeds  from its March 2000 private  placement in
order to meet its payable  requirements.  On March 31, 2000,  certain  investors
(including two of the current directors) purchased from the Company an aggregate
of  1,333,333  shares of the  Common  Stock at $2.25  per share or an  aggregate
purchase price of $2,999,999. The net proceeds approximated $2,895,000.  Because
all of such funds were not required for operations, the funds deemed excess were
invested in a working  capital  management  account with Merrill Lynch,  Pierce,
Fenner & Smith  Incorporated  ("Merrill  Lynch").  As  reported in Note 3 to the
Financial  Statements  in this  Report,  as of March 31,  2004,  the Company had
approximately  $1,903,000 of cash  equivalents  in two  financial  institutions,
which exposes the Company to a concentration of credit risk. The Company had, as
of that date,  approximately  $1,896,000  invested in highly liquid money market
instruments with Merrill Lynch, which are not federally  insured.  The remaining
$7,000 was deposited at a bank, which is federally insured up to $100,000.

         The Company  believes  that,  as a result of the cash  described in the
preceding  paragraph,  the  Company's  working  capital is  adequate to fund its
operations and its  requirements for the fiscal year ending March 31, 2005 while
seeking a suitable merger and acquisition candidate.

         At March 31,  2004,  the  Company  had net  operating  loss and general
business  tax credit carry  forwards  for income tax  purposes of  approximately
$5,453,000  and  $12,000,  respectively,  available to reduce  future  potential
Federal income taxes.

Item 7.  Financial Statements.`

         The  information  required  by this  Item  is  incorporated  herein  by
reference  to the  financial  statements  listed  in Item 13 of Part III of this
Report.

Item 8A.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

         The Company has a CEO and a CFO/CAO,  constituting  all of  management,
and, during the reporting period, six employees to conduct  operations.  The CEO
and CFO/CAO  performed  an  evaluation  of the  effectiveness  of the design and
operation of the Company's  disclosure  controls and  procedures as of March 31,
2004.  Because of its small size and limited  number of  personnel,  the Company
does not  currently  have  elaborate  written  procedures,  nor does  management
believe that such elaborate written procedures are currently necessary to ensure
accurate  reporting  in  the  Company's   periodic  reports.   In  making  their
evaluation,  the CEO and CFO/CAO  consulted with the Company's  outside counsel.
Based  on that  evaluation,  the  two  officers  concluded  that  the  Company's
disclosure controls and procedures were adequate and effective,  as of March 31,
2004, to ensure that material  information relating to the Company would be made
known to them by others  within the Company,  particularly  during the period in
which this Report was being


<PAGE>

prepared.  Their  evaluation  was reported to the Audit  Committee in connection
with its review of this Report prior to its filing.

Changes in Internal Controls

         There was no significant change during the quarter ended March 31, 2004
in the  Company's  internal  controls  over  financial  reporting  identified in
connection with the officers' evaluation reported above that that has materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.

Item 13.   Exhibits, Financial Statements and
           Reports on Form 8-K.

              (a)  Documents Filed with Report


                   (1)  Financial Statements

                        The  financial  statements  listed  on the  accompanying
                        Index to Financial  Statements are filed as part of this
                        Report.

                   (2)  Exhibits

            Exhibit No.         Description of Exhibit

                  3.1           Articles of Incorporation as amended to date (1)

                  3.2           Bylaws as amended to date (2)

                  10.1          1985 Employee Stock Option Plan (3)

                  10.2          Form of Incentive Stock Option Agreement (3)

                  10.3          Form of Non-Qualified Stock Option Agreement (3)

                  10.4          Form of Representative Agreement between the
                                Company and its Representatives (4)

                  10.5          Form of Standard Exclusive Distributor Agreement
                                between the Company and its Distributors (4)

                  10.6          Standard Industrial Lease dated August 26, 1991,
                                between Wayne Mertes, Mamie Mertes, Mike Butler
                                and Sarah Butler, as lessor, and the Company, as
                                lessee (5)

                  10.7          Stock Purchase Agreement dated January 20, 2000
                                by and among the Company, Millennium Capital
                                Corporation ("Millennium"), JDK Associates, Inc.
                                ("JDK") and other Buyers (6)

                  10.8          Letter Agreement dated January 20, 2000
                                ("Consulting Agreement") by and among the
                                Company, Millennium and JDK (7)

                  10.9          Stock Option Plan of 2000 of the Company (2)

                  10.10         Forms of Stock Option Agreements (8)
<PAGE>
            Exhibit  No.        Description of Exhibit

                  10.11         Employment Agreement dated September 1, 2000 by
                                and between the Company Harris Shapiro

                  10.12         Stock Option  Agreement  dated November 27, 2000
                                by and  between  the  Company and Terry J. Baker
                                (9)

                  10.13         Agreement and Plan of Merger and Reorganization,
                                dated  as  of  July  2,   2003,   by  and  among
                                PerfectData   Corporation,   SuperCom  Ltd.  and
                                SuperCom  Merger Sub. Ltd.  (without  disclosure
                                schedules   or   exhibits)   (10)

                  10.14         Asset  Purchase  Agreement  entered  into  as of
                                October  3,  2003  by  and  between  PerfectData
                                Corporation and Spray Products Corporation (11)

                  10.15         First Amendment,  dated as of February 26, 2004,
                                to the  Asset  Purchase  Agreement,  dated as of
                                October 3, 2003, filed as Exhibit 10.14 (12)

                  10.16         Addendum  to  Lease   Agreement   and   Standard
                                Commercial   Lease  dated   September  24,  2003
                                between Albert and Helen La Monte, as landlords,
                                and the Company, as tenant (12)

                  10.17         Second  Amendment,  dated as of August 12, 2004,
                                to the  Asset  Purchase  Agreement,  dated as of
                                October 3, 2003, filed as Exhibit 10.14 (13)

                  23 (a)        Consent of Independent Registered Public
                                Accounting Firm (14)

                  23 (b)        Consent of Independent Registered Public
                                Accounting Firm (14)

                  33.1          Certification   of   Chief   Executive   Officer
                                Pursuant  to Rule  13a-14  under the  Securities
                                Exchange Act of 1934 (14)

                  33.2          Certification   of   Chief   Financial   Officer
                                Pursuant  to Rule  13a-14  under the  Securities
                                Exchange Act of 1934 (14)

                  32            Certification Pursuant to Section 906 of
                                Sarbanes-Oxley Act of 2002 (14)
______________
(1)      Incorporated  by reference to the Company's  Annual Report on Form 10-K
         for its fiscal year ended March 31, 1990.

(2)      Incorporated  by reference to the Company's  Annual Report on Form 10-K
         for its fiscal year ended March 31, 2000.

(3)      Incorporated  by reference to the Company's  Annual Report on Form 10-K
         for its fiscal year ended March 31, 1985.

(4)      Incorporated  by reference to the Company's  Annual Report on Form 10-K
         for its fiscal year ended March 31, 1987.

(5)      Incorporated  by reference to the Company's  Annual Report on Form 10-K
         for its fiscal year ended March 31, 1992.
<PAGE>

(6)      Incorporated by reference to the Company's  definitive  Proxy Statement
         dated March 10, 2000 filed on March 14, 2000.

(7)      Incorporated  by  reference to the  Company's  Form 8-K dated March 31,
         2000 filed April 14, 2000.

(8)      The four forms of stock option  agreements  used under the Stock Option
         Plan of 2000 are filed as Exhibits 4(d)(1) to 4(d)(4),  both inclusive,
         to  the  Company's   Registration  Statement  on  Form  S-8,  File  No.
         333-51774, and are incorporated herein by this reference.

(9)      Incorporated  by reference to the Company's  Annual Report on Form 10-K
         for its fiscal year ended March 31, 2001.

(10)     Incorporated  by reference to the  Company's  Form 8-K filed on July 9,
         2003.

(11)     Incorporated by reference to the Company's Form 8-K filed on October 8,
         2003.

(12)     Filed with Annual Report on Form 10-KSB as originally filed.

(13)     Incorporated by reference to the Company's Quarterly Report on Form
         10-QSB for the quarter ended June 30, 2004.

(14)     Filed or, in the case of Exhibit 99.3, furnished herewith in connection
         with this Amendment.

              (b)  Reports on Form 8-K

                   (1)  On  January  20,  2004,  the  Company  filed a Form  8-K
                        reporting,  under Item 5, that, on January 20, 2004, the
                        Company  issued  a  press  release  reporting  that  the
                        Agreement and Plan of Merger and Reorganization dated as
                        of July 2, 2003 by and between  PerfectData and SuperCom
                        Ltd. and related agreements were terminated.

                   (2)  On  March  10,  2004,  the  Company  filed  a  Form  8-K
                        reporting,  under  Item 4, that the firm of KPMG LLP had
                        resigned as independent auditors for the Company.

                   (3)  On  March  29,  2004,  the  Company  filed  a  Form  8-K
                        reporting,  under Item 4, that the firm of Singer  Lewak
                        Greenbaum  &  Goldstein  LLP was  retained  to audit the
                        financial  statements  of the Company and to prepare and
                        file the Company's tax returns for such fiscal year.


                                   SIGNATURES


         Pursuant to the  requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934,  the  Registrant  has duly caused this  Amendment No. 1 to
this  Report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                              PERFECTDATA CORPORATION

                              By: /s/ Irene J. Marino
                                      Irene J. Marino, Authorized Officer and
                                      Principal Financial and Accounting Officer


Date:  September 9, 2004


<PAGE>
<PAGE>


       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

<PAGE>
<PAGE>

   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


PerfectData Corporation
Simi Valley, California

We have audited the  accompanying  balance  sheet as of March 31, 2004,  and the
related  statements of operations,  shareholders'  equity and cash flows for the
year then  ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of PerfectData  Corporation as of
March 31,  2004,  and the results of its  operations  and its cash flows for the
year then ended in conformity with accounting  principles  generally accepted in
the United States of America.

As dicussed in Note 2, the Company  previously  reflected the operations related
to the  sale of  certain  assets  as  discontinued  operations.  Management  has
reassessed the facts and  circumstances  of the  transaction and has revised the
financial  statements  to include  the  operations  related  to these  assets in
continuing  operations,  since the  transaction  did not meet the criteria under
generally  accepted  accounting  principles for  classification  as discontinued
operations.  The change in presentation had no effect on revenue or net loss for
the years ended March 31, 2004 and 2003.


SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
May 14, 2004, except for
       the third and fifth
       paragraphs of Note 2,
       as to which the date
       is August 12, 2004



                  F-1


<PAGE>
<PAGE>


             Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
PerfectData Corporation:

We have audited the accompanying statements of operations, shareholders' equity,
and cash flows of PerfectData Corporation (the Company) for the year ended March
31, 2003.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of operations and cash flows of PerfectData
Corporation  for the year ended March 31,  2003 in  conformity  with  accounting
principles generally accepted in the United States of America.

As discussed in note 3 to the financial statements, the Company has restated its
statements of operations and cash flows for the year ended March 31, 2003.

/s/     KPMG LLP

Los Angeles, California
May 9, 2003, except for note 3
to the financial statements, which
is as of August 12, 2004



                   F-2

<PAGE>
<PAGE>


                                  Balance Sheet
                                 March 31, 2004
                  (Amounts in thousands, except share amounts)
<TABLE>

                                             Assets
                                            (Restated)

<S>                                                                                 <C>

Current assets:
   Cash and cash equivalents                                                         $   1,903
   Accounts receivable, net of allowance of $3                                             192
   Prepaid expenses and other current assets                                                58
                                                                                    -------------

               Total current assets                                                      2,153


Property and equipment, at cost, net                                                         -
                                                                                    -------------

Total assets                                                                         $   2,153
                                                                                    =============

                                          Liabilities
                                           (Restated)
Current liabilities:
   Accounts payable                                                                  $     325
   Accrued compensation                                                                     35
   Other accrued expenses                                                                  133
                                                                                    -------------

               Total current liabilities                                                   493
                                                                                    -------------

Commitments and contingencies (note 8)

Shareholders' equity:

   Preferred stock.  Authorized 2,000,000 shares; none issued                               -
   Common stock, no par value.  Authorized 10,000,000 shares;
        issued and outstanding 6,209,530                                                11,258
   Accumulated deficit                                                                  (9,598)
                                                                                    -------------

               Total shareholders' equity                                                1,660
                                                                                    -------------

Total liabilities and shareholders' equity                                           $   2,153
                                                                                    =============
</TABLE>

See accompanying notes to financial statements.

                F-3
<PAGE>
<PAGE>

                             PERFECTDATA CORPORATION
                            Statements of Operations
                       Years ended March 31, 2004 and 2003
              (Amounts in thousands, except per share information)

<TABLE>
<S>                                                             <C>                      <C>
                                                                2004                     2003
                                                          -----------------         ----------------
                                                             (Restated)               (Restated)

Net sales                                                  $       2,680            2,005
Cost of goods sold                                                 1,777            1,326
                                                          -----------------         ----------------
                  Gross profit                                       903              679


Selling, general, and administrative expenses                       1,477           1,358
                                                          -----------------         ----------------

                  Loss from operations                               (574)          (679)
                                                          -----------------         ----------------

Other income:

    Interest, net                                                      -               -
    Other, net                                                        17              37
                                                          -----------------         ----------------

                  Net loss                                 $        (557)           (642)
                                                          =================         ================

Net loss per common share:
    Basic and diluted                                      $       (0.09)           (0.10)
                                                          =================         ================

Weighted average shares outstanding:

    Basic and diluted                                               6,193           6,159

</TABLE>


See accompanying notes to financial statements.

                        F-4
<PAGE>
<PAGE>

                             PERFECTDATA CORPORATION
                       Statements of Shareholders' Equity
                                 (notes 6 and 7)
                       Years ended March 31, 2004 and 2003

                             (Amounts in thousands)
<TABLE>
<S>                                             <C>        <C>         <C>              <C>                              <C>
                                                                                                                         Total
                                                       Common Stock                   Accumulated                    shareholders'
                                          -------------------------------------------
                                                Shares                Amount           deficit                         equity
                                          ------------------------ ------------------ -----------------------      -----------------


Balance at March 31, 2002                        6,159              $ 11,206          $   (8,399)                $       2,807


    Net loss                                        -                   -                   (642)                          (642)
                                          ------------------------ ------------------ -----------------------      -----------------

Balance at March 31, 2003                         6,159               11,206              (9,041)                         2,165

    Stock Compensation                               50                   52                  -                              52

    Net loss                                          -                   -                 (557)                          (557)
                                           ------------------------ ------------------ -----------------------  --------------------


Balance at March 31, 2004                         6,209             $ 11,258          $   (9,598)                 $        1,660
                                        ======================= ================== =======================      ====================

</TABLE>

See accompanying notes to financial statements.

                        F-5
<PAGE>
<PAGE>



                             PERFECTDATA CORPORATION
                            Statements of Cash Flows
                       Years ended March 31, 2004 and 2003
                             (Amounts in thousands)
<TABLE>
<S>                                                                                     <C>               <C>
                                                                                       2004               2003
                                                                                  ---------------    ----------------
                                                                                     (Restated)         (Restated)
Cash flows from operating activities:
    Net loss                                                                       $   (557)               (642)
    Adjustments to reconcile net loss to net cash used
        in operating activities:

            Depreciation and amortization                                                 6                  20

            Stock issued for services                                                    52                   -

            (Increase) decrease in accounts receivable                                  (34)                 20
            (Increase) decrease in inventories                                          160                 (34)

            (Increase) decrease in prepaid expenses and other assets                     32                  (7)

            Increase in accounts payable                                                 42                  76

            Increase (decrease) in accrued expenses                                      29                 (18)
                                                                                  ---------------    ----------------

                        Net cash used in operating activities                          (270)               (585)
                                                                                  ---------------    ----------------

                        Net decrease in cash and cash equivalents                      (270)               (585)

Cash and cash equivalents at beginning of year                                        2,173               2,758

Cash and cash equivalents at end of year                                           $  1,903               2,173
                                                                                  ===============    ================


</TABLE>




See accompanying notes to financial statements.

                F-6
<PAGE>
<PAGE>

                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003


(1)      Summary of Significant Accounting Policies

         (a)      Description of Business

                  PerfectData  Corporation  (the  Company)  sells  computer  and
                  office equipment care and maintenance products.

         (b)      Cash and Cash Equivalents

                  The  Company   considers   all  highly   liquid  money  market
                  instruments with an original  maturity of three months or less
                  to be cash  equivalents.  At March 31,  2004,  the Company had
                  cash and cash equivalents of $1,903,000.

         (c)      Inventories

                  Prior to the APA  entered  into with Spray,  inventories  were
                  stated  at the  lower  of  cost or  market  and  consisted  of
                  finished  goods.  Cost  was  determined  using  the  first-in,
                  first-out method.

                  The  Company  transferred  all  inventory  on hand to Spray on
                  October 31, 2003 pursuant to the APA.

         (d)      Financial Instruments

                  The  carrying  amounts  related to cash and cash  equivalents,
                  accounts  receivable,  and accounts  payable  approximate fair
                  value due to their relatively short maturity.

         (e)      Plant and Equipment

                  Plant and equipment are stated at cost.

                  Depreciation  on plant and equipment is  calculated  using the
                  straight-line  method over the  estimated  useful lives of the
                  assets.  Leasehold  improvements  are amortized  straight line
                  over the shorter of the lease term or estimated useful life of
                  the asset. The estimated useful lives are as follows:

                               Machinery and equipment            3 to 5 years
                               Furniture and fixtures             3 to 5 years
                               Leasehold improvements             Life of lease


                               F-7                                   (continued)
<PAGE>
<PAGE>

                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003


         (f)      Revenue Recognition

                  The Company  recognizes  revenue when products are shipped and
                  the  customer  takes  ownership  and  assumes  risk  of  loss,
                  collection of the relevant  receivable is probable,  pervasive
                  evidence  of an  arrangement  exists,  and the sales  price is
                  fixed or determinable.

         (g)      Loss per Common Share

                  Basic  and  diluted  loss  per  common  share  is based on the
                  weighted average number of shares  outstanding  during each of
                  the respective  periods.  Diluted  earnings per share includes
                  the  dilutive  impact  of stock  options,  warrants,  or other
                  equity instruments. During the years presented herein, because
                  net losses were  incurred,  the impact from such common  stock
                  equivalents was  antidilutive;  accordingly,  the common stock
                  equivalents were excluded from the calculation.

                  The following were excluded from the calculation:

                                            March 31,                  March 31,
                  Options                     2004                       2003

                  1985 Plan                 10,000                     11,500
                  2000 Plan                183,500                    185,000
                  1999 Options                 -                        5,000
                  Warrants                  20,000                     20,000

         (h)      Income Taxes

                  Income taxes are  accounted  for under the asset and liability
                  method. Deferred tax assets and liabilities are recognized for
                  the  future  tax  consequences   attributable  to  differences
                  between the financial  statement  carrying amounts of existing
                  assets  and  liabilities  and their  respective  tax bases and
                  operating  loss and tax  credit  carryforwards.  Deferred  tax
                  assets and  liabilities  are measured  using enacted tax rates
                  expected  to apply to  taxable  income  in the  years in which
                  those  temporary  differences  are expected to be recovered or
                  settled.  The effect on deferred tax assets and liabilities of
                  a change in tax rates is  recognized  in income in the  period
                  that  includes  the  enactment  date.  The   realizability  of
                  deferred  tax  assets is  assessed  throughout  the year and a
                  valuation allowance is established accordingly.


                        F-8
<PAGE>
<PAGE>

                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003


         (i)      Use of Estimates

                  The   preparation   of  the  financial   statements   requires
                  management  of the Company to make a number of  estimates  and
                  assumptions  relating  to the  reported  amount of assets  and
                  liabilities  and  the  disclosure  of  contingent  assets  and
                  liabilities  at the date of the financial  statements  and the
                  reported  amounts of revenues and expenses  during the period.
                  Significant  items subject to such  estimates and  assumptions
                  include  the  allowance  for  doubtful   accounts,   inventory
                  valuation  (prior to November 1,  2003),  deferred  income tax
                  asset valuation allowances, and the estimated future operating
                  cash flows from the Company's long-lived assets.  Considerable
                  management  judgment is necessary to estimate future operating
                  cash flows as future cash flows are  impacted  by  competitive
                  and  other  factors  that are  generally  out of  management's
                  control. Accordingly,  actual results could vary significantly
                  from management's estimates.

        (j)       Stock-Based Compensation

                  The  Company  applies  the  intrinsic-value-based   method  of
                  accounting  prescribed  by Accounting  Principles  Board (APB)
                  Opinion No. 25, Accounting for Stock Issued to Employees,  and
                  related interpretations  including FASB Interpretation No. 44,
                  Accounting   for   Certain   Transactions    Involving   Stock
                  Compensation, and Interpretation of APB Opinion No. 25, issued
                  in March 2000, to account for its  fixed-plan  stock  options.
                  Under this  method,  compensation  expense is  recorded on the
                  date  of  grant  only  if  the  current  market  price  of the
                  underlying  stock exceeded the exercise  price.  SFAS No. 123,
                  Accounting   for   Stock-Based    Compensation,    established
                  accounting    and    disclosure     requirements    using    a
                  fair-value-based method of accounting for stock-based employee
                  compensation  plans.  As allowed by SFAS No. 123,  the Company
                  has  elected to  continue  to apply the  intrinsic-value-based
                  method of accounting  described above and has adopted only the
                  disclosure requirements of SFAS No. 123.

                  The Company is adopting the disclosure  provisions of SFAS No.
                  148, Accounting for Stock-Based  Compensation - Transition and
                  Disclosure.  Due to the  reduction  of the  exercise  price of
                  fixed stock options  through the  cancellation of stock option
                  awards and the granting of replacement awards, per FIN No. 44,
                  Accounting   for   Certain   Transactions    involving   Stock
                  Compensation,  the Company has adopted variable accounting for
                  the replacement  awards,  per FIN No. 28, Accounting for Stock
                  Appreciation  Rights and Other  Variable Stock Option or Award
                  Plans.

                               F-9
<PAGE>


<PAGE>

                            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)
<TABLE>
                  <S>                                                            <C>                <C>

                                                                                 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)
</TABLE>

         (k)      Impairment of Long-Lived Assets and
                  Long-Lived Assets To Be Disposed Of

                  SFAS No. 144  Accounting  for the  Impairment  or  Disposal of
                  Long-Live  Assets  provides  a  single  accounting  model  for
                  long-lived assets to be disposed of. SFAS No. 144 also changes
                  the  criteria  for  classifying  an asset as held for sale and
                  broadens  the  scope  of  businesses  to be  disposed  of that
                  qualify for reporting as  discontinued  operations and changes
                  the  timing  of  recognizing  losses on such  operations.  The
                  Company  adopted SFAS No. 144 on January 1, 2002. The adoption
                  of SFAS  No.  144  did  not  affect  the  Company's  financial
                  statements.

                  In accordance with SFAS No. 144,  long-lived  assets,  such as
                  property,  plant,  and  equipment,  and purchased  intangibles
                  subject to amortization,  are reviewed for impairment whenever
                  events or changes in circumstances  indicate that the carrying
                  amount of an asset may not be recoverable.  Recoverability  of
                  assets to be held and used is measured by a comparison  of the
                  carrying amount of an asset to estimated  undiscounted  future
                  cash flows  expected  to be  generated  by the  asset.  If the
                  carrying amount of an asset exceeds its estimated  future cash
                  flows, an

                        F-10
<PAGE>
<PAGE>

                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003

                  impairment  charge is  recognized  by the  amount by which the
                  carrying  amount of the asset  exceeds  the fair  value of the
                  asset. Assets to be disposed of would be separately  presented
                  in the balance sheet and reported at the lower of the carrying
                  amount or fair  value  less  costs to sell,  and are no longer
                  depreciated.  The assets and  liabilities  of a disposed group
                  classified  as held for sale would be presented  separately in
                  the  appropriate  asset and liability  sections of the balance
                  sheet.

                  Prior to the adoption of SFAS No. 144,  the Company  accounted
                  for  long-lived  assets  in  accordance  with  SFAS  No.  121,
                  Accounting  for  Impairment  of  Long-Lived   Assets  and  for
                  Long-Lived Assets to Be Disposed Of.

         (l)      Recently Issued Accounting Standards

                  In June 2002,  the FASB issued SFAS No.  146,  Accounting  for
                  Costs  Associated with Exit or Disposal  Activities.  SFAS No.
                  146  addresses  financial  accounting  and reporting for costs
                  associated  with exit or  disposal  activities  and  nullifies
                  Emerging  Issues  Task  Force  (EITF)  Issue  94-3,  Liability
                  Recognition  for Certain  Employee  Termination  Benefits  and
                  Other  Costs  to  Exit an  Activity.  The  provisions  of this
                  Statement are effective for exit or disposal  activities  that
                  are initiated after December 31, 2002, with early  application
                  encouraged.  The  adoption of SFAS No. 146 is not  expected to
                  have a material effect on the Company's financial statements.

(2)      Proposed Sale of Business Operations

         On  October  3,  2003,  the  Company  entered  into an  Asset  Purchase
         Agreement  (the  {"APA")  with Spray  Products  Corporation  ("Spray"),
         pursuant  to which  the  Company  agreed  to sell to Spray  (or a Spray
         affiliate) substantially all of the operating assets of the Company for
         a price  equal to the sum of the  value of the  inventory,  collectible
         accounts  receivable  and $100,000,  less the amount of trade  payables
         which are being assumed by Spray.

         Since November 1, 2003, Spray had,  pursuant to the APA, been acting as
         a manager for the  fulfillment of orders from the Company's  customers.
         As compensation  for Spray's  services,  Spray was receiving a fee of 7
         1/2% of net sales. As indicated in the next  paragraph,  as a result of
         Spray assuming,  effective as of June 1, 2004, full  responsibility for
         all  customers,  Spray is entitled to the full economic  benefit of any
         sale to a customer of the Company in lieu of the foregoing fee.

         Because the Company's  largest  customer had threatened to seek another
         supplier because of a supplier's offer of lower prices,  and because of
         the long delay in closing the transaction,  thereby causing uncertainty
         for customers and Spray, the Company and Spray had agreed in principle,

                        F-11
<PAGE>


<PAGE>

                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003

         and  subsequently  finalized  the  agreement  in  writing by the Second
         Amendment  dated as of August 12, 2004, to the  following  revisions to
         the APA: (1) effective June 1, 2004, Spray assumed full  responsibility
         for all of the Company's  customers in order to prevent possible losses
         of customer business;  (2) the aforementioned  payment of $100,000 will
         be reduced to $80,000;  and (3) the Company may put the assets to Spray
         for the purchase  price on the earlier of (a) September 30, 2004 or (b)
         the Company receiving shareholder consent to the sale of Spray.

         The  Board  of  Directors,   after   consultation  with  certain  major
         shareholders,  had elected in June 2003, to sell the operating business
         assets of the Company  because,  despite  efforts by the Company during
         the prior fiscal years which had increased sales and reduced  expenses,
         the  Company  continued  to operate  at a loss,  thereby  diluting  the
         Company's  cash,  which is its major asset.  The Board concluded that a
         sale or liquidation  of the operating  assets was in the best interests
         of the Company and its  shareholders  even if no  acquisition or merger
         was effected.

         The  Company  will  seek  shareholders'  approval  of the  sale  of its
         operating assets to Spray by consents in lieu of holding a meeting.

         As a result of the transaction, as modified with Spray, the Company has
         no  operations  and  will  thereafter  receive  no  revenues  until  an
         acquisition or merger is effected.

         The Board of Directors of the Company does not intend to liquidate  the
         Company, but instead,  with the Company having cash or cash equivalents
         currently in excess of  $1,500,000,  the Board  intends to continue its
         search for a suitable merger or acquisition candidate.  Even though the
         Company has no operations,  the Company  believes its status as a
         publicly-traded  company is valuable  and  therefore  makes it a viable
         merger  candidate.  During the past three fiscal years, the Company had
         been  seeking  acquisitions  which have not been related to its current
         business.  The  Board  was  of  the  opinion  that  profitability  on a
         continuous  basis would not be achieved  absent an acquisition of a new
         business or businesses and/or new products.  However, the Board can not
         determine when any such  acquisition  will be  consummated,  if at all.
         During  recent  years,  three  potential   acquisitions  were  actively
         pursued;  however, all terminated for different reasons and the Company
         incurred expenses in connection therewith.

         No adjustments  have been made to the financial  statements as a result
         of these uncertainties.

(3) Restatement

         The Company previously  reflected the operations related to the sale of
         certain assets as  discontinued  operations.  Management has reassessed
         the facts and  circumstances  of the  transaction  and has  revised the
         financial  statements to include the operations related to these assets
         in  continuing  operations,  since  the  transaction  did not  meet the
         criteria   under   generally   accepted   accounting   principles   for
         classification   as   discontinued   operations.   The  effect  of

                F-12
<PAGE>
<PAGE>

         the restatement on net sales,  cost of sales,  gross profit,  net loss,
         basic and diluted loss per common share,  current assets, total assets,
         current   liabilities,   total  liabilities  total   liabilities,   and
         shareholders'  equity cash flows from operations as of and for the year
         ended March 31, 2004 is as follows:
<TABLE>
        <S>                                                 <C>                  <C>              <C>

                                                             As
                                                         Originally          Restatement      As Restated
                                                          Reported           Adjustments

      ----------------------------------------------------------------------------------------------------
      Statement of Operations:
      Net Sales                                        $         -    $         2,680,000  $   2,680,000
      Cost of Sales                                              -              1,777,000      1,777,000
      Gross Profit                                               -                903,000        903,000
      Loss from Continuing Operations                     (916,000)               359,000       (557,000)
      Income from Discontinued Operations                  359,000               (359,000)           -
      Net Loss                                         $  (557,000)   $                     $   (557,000)

      Loss Per Common Share (Basic and Diluted):
       Loss from Continuing Operations                 $     (0.15)   $            0.06     $      (0.09)

       Income from Discontinued Operations                    0.06                (0.06)              -
                                                       $     (0.09)   $                     $      (0.09)

      Balance Sheet:
      Accounts Receivable                              $         -    $           192,000   $     192,000
      Prepaid Expenses and Other Current Assets               30,000               28,000          58,000
      Current Assets of Discontinued Operations              220,000             (220,000)              -
      Total Assets                                         2,153,000                    -       2,153,000
      Accounts Payable                                       126,000              199,000         325,000
      Other Accrued Expenses                                  77,000               56,000         133,000
      Current Liabilities of Discontinued Operations         255,000             (255,000)              -
      Total Current Liabilities                                                         -         493,000
                                                             493,000
      Total Liabilities and Shareholders' Equity      $    2,153,000    $               -   $   2,153,000


      Statement of Cash Flows:
      Loss from Continuing Operations                $     (916,000)   $         359,000   $    (557,000)
      Accounts Receivable                                         -               (34,000)        (34,000)
      Inventories                                                 -               160,000         160,000
      Accounts Payable                                        54,000              (12,000)         42,000
      Cash Used in Continuing Operating Activities          (743,000)              743,000              -
      Cash Provided by Discontinued Operations               473,000              (473,000)             -
      Cash Used in Operating Activities                $    (270,000)   $               -    $   (270,000)
</TABLE>

         The  effect of the  restatement  on net  sales,  cost of  sales,  gross
         profit, net loss, basic and diluted loss per common share and cash flow
         from operations for the year ended March 31, 2003 is as follows:

                F-13
<PAGE>
<PAGE>

<TABLE>
        <S>                                          <C>         <C>         <C>              <C>
As               Restatement
                                                               As
                                                           Originally       Restatement   As Restated
                                                            Reported       Adjustments
      -----------------------------------------------------------------------------------------------
      Statement of Operations:
      Net Sales                                        $           -   $   2,005,000  $    2,005,000
      Cost of Sales                                                -       1,326,000       1,326,000
      Gross Profit                                                 -        (679,000)       (679,000)
      Loss from Continuing Operations                       (631,000)        (11,000)       (642,000)
      Loss from Discontinued Operations                      (11,000)         11,000               -

      Net Loss                                         $    (642,000)   $          -   $    (642,000)

      Loss Per Common Share(Basic and Diluted):
       Loss from Continuing Operations                 $       (0.10)   $          -   $       (0.10)
       Income from Discontinued Operations                     (0.10)              -           (0.10)

      Statement of Cash Flows:
      Loss from Continuing Operations                  $    (631,000)   $    (11,000)  $    (642,000)
      Accounts Receivable                                          -          20,000          20,000
      Inventories                                                  -         (34,000)        (34,000)
      Accounts Payable                                      (106,000)        182,000          76,000
      Cash Used in Continuing Operating Activities          (742,000)        742,000               -
      Cash Provided by Discontinued Operations               157,000        (157,000)              -
      Cash Used in Operating Activities                 $   (585,000)   $          -    $   (585,000)


</TABLE>


(4)      Concentration of Credit Risk

         Financial  instruments  which  potentially  subject  the  Company  to a
         concentration  of  credit  risk  principally   consist  of  cash,  cash
         equivalents, and accounts receivable.

         As of March 31, 2004, the Company had approximately  $1,903,000 of cash
         equivalents in two financial institutions, which exposes the Company to
         concentration of credit risk. The Company had approximately  $1,896,000
         invested  in highly  liquid  money  market  instruments,  which are not
         federally insured.  The remaining $7,000 was deposited at a bank, which
         is federally insured up to $100,000.

         The Company  sells its  principal  products to a number of customers in
         the retail  industry.  During the years  ended March 31, 2004 and 2003,
         two customers accounted for more than 10% of net sales. These customers
         each  accounted  for 71% and  47%,  and 13% and 23% in 2004  and  2003,
         respectively.  As of March 31, 2004 and 2003, approximately 78% and 38%
         of  recorded  accounts  receivable  were  from  two  wholesale/discount
         merchants.  For the years ended March 31, 2004 and 2003,  sales made to
         these  customers  amounted to $1,911,000  and $337,000 and $942,000 and
         $457,000,  respectively.  To reduce credit risk,  the Company  performs
         ongoing

                F-14
<PAGE>
<PAGE>

                            PERFECTDATA CORPORATION

                         Notes to Financial Statements

                            March 31, 2004 and 2003

         credit evaluations of its customers'  financial  conditions but
         does not generally require  collateral.  New customers  requiring large
         credit accounts are required to provide letters of credit.

(5)      Inventories

         Pursuant to the APA, the Company  transferred  its inventory on hand at
         October 31, 2003 to Spray.  Pursuant to this agreement,  Spray will pay
         the  Company  for  the  inventory  at  the  time  of the  close  of the
         transaction.  The Company  reclassified its inventory,  with a net book
         value of $28,000, to other current assets.

(6)      Property and Equipment

         Property and equipment at March 31, 2004 consist of:

                  Machinery and equipment               $        296
                  Furniture and fixtures                           7
                                                                 303

                  Less accumulated depreciation
                      and amortization                          (303)
                                                        $         -

(7)      Income Taxes

         A  reconciliation  of the  federal  statutory  income  tax  rate to the
         effective  income  tax rate on loss from  continuing  operations  is as
         follows:


<TABLE>
        <S>                                                            <C>    <C>       <C>

                                                                              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)

                                                                          -%             -%
</TABLE>

                F-15
<PAGE>
<PAGE>

                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003

The tax effects of temporary differences that give rise to a significant portion
of the  deferred  tax assets at March 31,  2004 are  summarized  as follows  (in
thousands):

                  Deferred tax assets (liabilities):
                  Net operating losses                          $ 1,978
                  Inventories                                        13
                  Accrued expenses                                   43
                  Business tax credit carryforwards                  12
                  Other                                              16
                                                                  2,062
                  Less valuation allowance                        2,062
                                                             $        -

         At  March  31,  2004,   the  Company  had  net  operating   loss  (NOL)
         carryforwards  of  approximately  $5,453,000 and $2,205,000 for federal
         income tax purposes and California  income tax purposes,  respectively,
         expiring in varying amounts through 2023. The NOL carryforwards,  which
         are available to offset  future  profits of the Company and are subject
         to  limitations  should a  "change  in  ownership"  as  defined  in the
         Internal  Revenue  Code  occur,  will  begin to  expire  in 2009 if not
         utilized.  Additionally,  the Company has general  business  tax credit
         carryforwards  of  approximately  $12,000 which will begin to expire in
         2006.

         Realization  of the future tax  benefits of the NOL  carryforwards  and
         other  deferred  tax assets is dependent  on the  Company's  ability to
         generate  future  taxable  income  within  the  periods  in which  they
         benefit.  In  assessing  the  likelihood  of  utilization  of  existing
         deferred tax assets,  management  considered the historical  results of
         continuing  operations  over  the  last  three  years  and the  current
         economic  environment  in which the Company  operates.  Management  has
         determined  that future  taxable income of the Company will more likely
         than not be  insufficient  to realize the  recorded  net  deferred  tax
         assets  of  $2,062,000  and  has  recorded  a  valuation  allowance  of
         $2,062,000. During the year ended March 31, 2004, the Company increased
         the valuation allowance in deferred tax assets by $118,000.

(8)      Shareholders' Equity

         On January 20, 2000, the Company  entered into certain  agreements with
         Millennium  Capital  Corporation  (MCC) and JDK Associates  Inc. (JDK).
         Pursuant to the  agreements,  the Company sold 1,333,333  shares of its
         common stock to MCC, JDK and certain  other buyers and issued a warrant
         to purchase 1,800,000 shares of the Company's common stock at $2.75 per
         share, for aggregate  consideration of $3,000,000.  In addition,  under
         the agreements,  MCC and JDK will provide financial advisory assistance
         to the Company in searching  for and closing  future  acquisitions  and
         financings  for which they will  receive an  advisory  fee of 5% of the
         estimated purchase price for a future acquisition which they introduced
         to the Company or for  additional

                F-16
<PAGE>
<PAGE>
                            PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003

         capital  raised in  support  of future  acquisitions.  The term of this
         consulting agreement is five years.

         Because  of the  significance  of these  agreements,  the  Company  was
         required to obtain, and they did obtain on March 31, 2000,  shareholder
         approval.   Immediately  thereafter,   the  warrant  holders  exercised
         warrants to purchase 1,780,000 shares of common stock, resulting in the
         issuance  on March  31,  2000 of  1,515,406  shares  of  common  stock.
         Accordingly,  on March 31,  2000,  2,848,739  shares were issued for an
         aggregate consideration of $3,000,000.

         For financial reporting  purposes,  the Company has accounted for these
         transactions  as an increase in common stock for  $3,000,000,  recorded
         net of the  applicable  costs.  The future 5%  consulting  fees will be
         accounted for if and when occurred.

         The  remaining  warrants to purchase  20,000  shares of common stock at
         $2.75 per share are outstanding at March 31, 2004.

         On July 31, 2003,  the Company  issued  50,000  shares of the Company's
         common stock to the Chairman of the Audit Committee as compensation for
         his  services  over the past three  years.  The  Company  has  recorded
         compensation expense of $51,500 for the shares.

         The  articles of  incorporation  authorize a class of  preferred  stock
         issuable in classes and series with such  designations,  voting rights,
         redemption  provisions,  dividend  rates,  liquidation  and  conversion
         rights,  and other  preferences and limitations as may be determined by
         the board of directors. No preferred stock was outstanding at March 31,
         2004.

(9)      Stock Option and Bonus Plans

         1985 Stock Option Plan

         During  November 1985,  the Company  adopted the 1985 Stock Option Plan
         (the "1985 Plan") to grant incentive and nonqualified  stock options to
         officers,  directors  and key employees of the Company for the purchase
         of up to 500,000 shares of the Company's  common stock.  Under the 1985
         Plan,  options  were  granted at prices  equal to or greater  than fair
         market  value  at  date  of  grant.  The  shares,  subject  to  various
         limitations,  are  exercisable  over terms not to exceed ten years.  No
         options  were  granted  during the three years  ended  March 31,  2004.
         Options to purchase a total of 377,750  shares were  exercised  through
         March  31,  2004,  with  an  option  to  purchase  10,000  shares  left
         outstanding.  The  1985  Plan has  expired;  therefore,  no  additional
         options can be issued under its terms.

         On March 31, 2003,  an employee of the Company was  terminated  who was
         previously  granted an option to purchase  1,500 shares of common stock
         at  $2.0625  per  share.  As the  terminated

                F-17

<PAGE>
<PAGE>

                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003

         employee  had 90 days to  exercise,  the option was  outstanding  as of
         March 31, 2003. The option subsequently expired unexercised.

         Activity under the 1985 Plan is summarized as follows:

                                                                      Weighted
                                                  Number of            average
                                                    shares        exercise price

         Options outstanding at March 31, 2002      11,500      $        1.3017
         Options canceled                             -                      -

         Options outstanding at March 31, 2003      11,500               1.3017

         Options canceled                           (1,500)              2.0625

         Option outstanding at March 31, 2004       10,000      $        1.1877

         The weighted  average  remaining  contractual  life of the  outstanding
         options was approximately 1.3 years at March 31, 2004.

         1999 Options

         On April 28, 1999,  the board of directors  authorized  the granting of
         options or warrants to purchase up to an aggregate of 100,000 shares of
         common stock to directors,  employees,  or consultants.  The options or
         warrants were to be sold to the grantee at $0.05 per share,  to have an
         exercise price of $1.56 per share,  and to have a three-year  term from
         the  respective  date of grant.  Options to  purchase a total of 24,000
         shares  were  exercised  through  March 31,  2004.  Activity  for these
         options and warrants is summarized as follows:

                                                                       Weighted
                                                Number of       average exercise
                                                  Shares                price

         Options outstanding at March 31, 2002    13,000            $       1.56
         Canceled                                 (8,000)                   1.56

         Options outstanding at March 31, 2003     5,000                    1.56
         Canceled                                 (5,000)                   1.56

         Options outstanding at March 31, 2004        -              $       -

                F-18
<PAGE>
<PAGE>



                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003

         2000 Stock Option Plan

         On May 22, 2000,  the  Company's  board of directors  adopted the Stock
         Option Plan of 2000 of PerfectData  Corporation (the "2000 Plan") which
         provides for the granting of options to directors, officers, employees,
         and  consultants  of the  Company.  The  Company's  board of  directors
         reserved  1,000,000  shares of common  stock  under the 2000  Plan.  On
         September 7, 2000,  the Company's  board of directors  amended the 2000
         Plan to reserve an  additional  1,000,000  shares of common  stock.  On
         October 19, 2000,  the  shareholders  of the Company  approved the 2000
         Plan and ratified options previously granted.

         Options  granted  under the 2000 Plan  shall be at a price no less than
         the fair  market  value of the common  stock on the date of grant or in
         the case of  nonqualified  stock options at a price equal to or greater
         than 85% of the fair market value on the date of grant. Options granted
         under the 2000 Plan are  exercisable  at various times as determined by
         the board of directors or its designee.

         On October  31,  2001,  the  Company  granted  options to  purchase  an
         aggregate  of  10,000  shares  of  common  stock at $3.43  per share to
         various employees.  The option price was equal to the fair market value
         at the time of  grant.  All of the  options  described  were to  become
         exercisable in four substantially equal  installments,  commencing with
         the first anniversary of the respective date of grant.

         On June 15,  2002,  the Company  granted an option to  purchase  10,000
         shares  of  common  stock  at  $1.60  per  share  to each  of the  five
         directors.  The option price was equal to 120% of the fair market value
         at the time of  grant.  All of the  options  described  were to  become
         exercisable in three substantially equal installments,  commencing with
         the first anniversary of the respective date of grant.

         On  September  17, 2002,  the board of  directors  canceled the options
         granted on March 31, 2000 to each director pursuant to the 2000 Plan to
         purchase  25,000  shares of common  stock at $18.50 per share and those
         granted on  September 7, 2000 to purchase  25,000  shares of the common
         stock at $4.63 per share.  None of the options to purchase an aggregate
         of 250,000 shares were exercised.

         On September 26, 2002, the Company granted an option to purchase 25,000
         shares  of  common  stock  at  $1.00  per  share  to each  of the  five
         directors.  The fair market value of the stock on the date  shareholder
         approval was obtained was below the exercise price.  All of the options
         described  were to  become  exercisable  in three  substantially  equal
         installments,  commencing with the first  anniversary of the respective
         date of grant.  In  accordance  with FIN 44, the  Company  has  adopted
         variable  accounting  for these  replacement  awards.  No  compensation
         expense has been recognized in the financial results as the fair market
         value has not exceeded the exercise price.

                F-19
<PAGE>
<PAGE>

                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003

         On March 31, 2003,  an employee of the Company was  terminated  who was
         previously  granted an option to purchase  1,500 shares of common stock
         at $3.43 per share. As the terminated employee had 60 days to exercise,
         the  option  was   outstanding   as  of  March  31,  2003.  The  option
         subsequently expired unexercised.

Activity under the 2000 Plan is summarized as follows:
<TABLE>
<S>                                                             <C>                     <C>
                                                                                       Weighted
                                                               Number of            average exercise
                                                                  shares                price

Options outstanding at March 31, 2002                           260,000           $    11.25

Options granted                                                 175,000                 1.17
Options canceled                                               (250,000)               10.97

Options outstanding at March 31, 2003                           185,000                 1.29

Options canceled                                                 (1,500)                3.43

Options outstanding at March 31, 2004                           183,500          $      1.28
</TABLE>

         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:

<TABLE>
<S>                 <C>                      <C>                   <C>             <C>
                                       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
</TABLE>



                        F-20

<PAGE>

<PAGE>


                             PERFECTDATA CORPORATION

                          Notes to Financial Statements

                             March 31, 2004 and 2003

(10)      Commitments

The Company leases office space under a six-month lease that expires October 15,
2004.  The Company had  previously  leased a facility  under an operating  lease
which expired June 20, 2003. The Company continued to occupy the facility, along
with a subtenant to whom the Company sublet warehouse space, on a month-to-month
basis until October 31, 2003.

Rental expense,  net of sublease income,  was $50,000 and $100,000 for the years
ended March 31, 2004 and 2003, respectively.









                        F-21
<PAGE>

<PAGE>





                             PerfectData Corporation
                             Index to Exhibits Filed
                               with Amendment No.
                               1 to Annual Report
                                 on Form 10-KSB


    Exhibit No.        Description of Exhibit                               Page


     23(a)             Consent of Independent Registered Public              E-2
                       Accounting Firm

     23(b)             Consent of Independent Registered Public              E-3
                       Accounting Firm

     31.1              Certification of Chief Executive Officer              E-4
                       Pursuant to Rule 13a-14(a)under the Securities
                       Exchange Act of 1934

     31.2              Certification of Chief Financial Officer Pursuant     E-6
                       to Rule 13a-14(a) under the Securities Exchange
                       Act of 1934

     34                Certification Pursuant to Rule 13a-14(b) under        E-8
                       the Securities Exchange Act of 1934 and Section
                       1350 of Chapter 63 of Title 18 of United States
                       Code


                                E-1
<PAGE>

<PAGE>