<PAGE>



                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                 -------------------

                                      FORM 10-K/A

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

For the fiscal year ended March 31, 1998          Commission File No. 0-12817

                                 -------------------

                               PERFECTDATA CORPORATION
                (Exact name of registrant as specified in its charter)

                California                              95-3087593
   (State or other jurisdiction                      (I.R.S. Employer
    of incorporation or organization)               Identification No.)

           110 West Easy Street
          Simi Valley, California                          93065
   (Address of principal executive offices)              (Zip Code)

                                    (805) 581-4000
                 (Registrant's telephone number, including area code)

                                 -------------------

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

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

                                 -------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes  X    No
    ---      ---

Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
this Form 10-K.  [ X ]

As of May 31, 1998, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $2,469,153.

As of May 31, 1998, the registrant had 3,163,606 shares of Common Stock
outstanding.
--------------------------------------------------------------------------------


<PAGE>

                                        PART I

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

The Company and its representatives may from time to time make written or oral
forward-looking statements, including statements contained in the Company's
filings with the Securities and Exchange Commission and in its reports to
stockholders.  In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby identifying
information that is forward-looking, including, without limitation, statements
regarding the Company's future financial performance, the effect of government
regulations, national and local economic conditions, the competitive environment
in which the Company operates, results or success of discussions with other
entities on mergers, acquisitions, or alliance possibilities and expansion of
product offering.  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 that may be made from time to time by or on behalf
of the Company either oral or written.

ITEM 1.   BUSINESS

     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 (now Unisys), DEC (Digital Equipment Corporation), NCR
(National Cash Register) 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 line
of CareWare Cleaning and Maintenance supplies are designed to address the needs
of the end users of computers and office automation equipment and by maintenance
organizations as part of preventative


                                                                               1
<PAGE>

maintenance programs to reduce equipment "down time" and service costs and to
increase product life.

     In November of 1990, the Company acquired the assets of Coverware Company,
a manufacturer of high quality computer and office equipment dust covers.  On
June 20, 1991, the Company acquired the assets of Anchor Automation, Inc., a
modem manufacturer.  During the first quarter of fiscal 1995 the Company
formally discontinued its modem and other telecommunications operations.

     The Company first entered the ergonomic accessory market with the
introduction of its CopyHolder Systems and Accessories line
in fiscal year 1992.  During fiscal years 1993 and 1995 the Company expanded its
ergonomic line with additional products.  During the fourth quarter of fiscal
1998 the Company made the decision to discontinue its line of ergonomic products
and accessories.

During the third quarter of fiscal 1996, the Company acquired a majority
interest in Starnet Universe Internet, Inc., a web server and Internet provider.
During August 1997, PerfectData distributed the majority of these shares to its
shareholders as a form of dividend.

THE INDUSTRY

     The computer accessories and supplies market has grown with the addition of
accessory products in channels other than those serviced by traditional office
product catalogs, which have catered mostly to medium and large sized
businesses.

     The Company feels that the market potential for its products will continue
to grow and increase in size.  Currently the largest growth area is the retail
SoHo (Small Office Home Office) segment of the market.  This market is serviced
mainly by Office Superstores, mass merchants, Warehouse Clubs and by other
office/computer retail outlets.  The Company is organized to service all
distribution channels.

PRODUCTS

     The following is a brief description of the products currently manufactured
and marketed by the Company:

     CLEANING AND MAINTENANCE PRODUCTS.      The Company designs and markets a
line of consumable cleaning and preventative maintenance products for the Home,
Office and Computer environments.  Many of the Company's products have strong
crossover appeal and applications for use outside of the office/computer
environment.  The potential for developing new markets or channels of
distribution for these products exists.


                                                                              2
<PAGE>

     One of the Company's principal products 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 comprise the cleaning and maintenance line are 
patented disk drive cleaners, optical lens and tape back-up cleaners, 
laser/copier/fax/inkjet cleaners, premoistened cleaning wipes and other 
cleaning systems for specific office equipment.

     NEW PRODUCTS.       All new products recently introduced or under
development are in keeping with the desire to support and expand the Company's
core business of cleaning and maintenance products.

     Recent new product introductions include CD Clean Wipes and Cell Phone
Cleaning Wipes.  With the proliferation of CD use in both business and
entertainment, and the continued growth of the cell phone market, there is a
growing need for convenient, easy to use premoistened cleaning wipes to maintain
these products.

MARKETING

     CUSTOMERS.     Since May of 1982, the Company has been selling its products
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.

     Prior to May 1982, the Company sold substantially all of its products to
companies commonly referred to as "Original Equipment Manufacturers" (OEMs) for
resale under their own product packaging and through their own channels of
distribution.  Only 3% of the Company's sales are to OEM customers.

     The Company actively pursues foreign distribution of its products  through
a network of International distributors and customers.  Sales are almost
exclusively of "PerfectData" branded products.  To support this channel of
distribution, "PerfectData"  product packaging and instructions are
multi-lingual with most products available with a minimum of four languages.
For fiscal years ended March 31, 1998, 1997 and 1996, approximately 16%, 11%,
and 13% respectively of the Company's net sales were to International accounts.

     While the Company sold products to more than 700 customers throughout the
world during fiscal 1998, approximately 68% of the Company's net sales were
accounted for by its 10 largest customers.  Sales to PriceCostco accounted for
23% of total sales.  Sales to


                                                                              3
<PAGE>

this customer were made pursuant to specific purchase orders and the customer is
not obligated under any other agreement.  No other customer accounted for more
than 10% of the Company's net sales.  During June 1997, the Company learned that
its bid for the continuing business of PriceCostco had been rejected.  The loss
of this customer had a significant adverse effect on the earnings of the Company
for the fiscal year ended March 31, 1998.

     SALES ORGANIZATION

     DOMESTIC SALES.     Sales of products under the 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 are 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.     Prior to February 1988, virtually all sales to
accounts in Western Europe were under the supervision of the Company's
wholly-owned subsidiary, PerfectData International (PDI).  Originally acquired
in March 1984, PDI was terminated as the Company's sales agent for Western
Europe in February 1988.  The Company substantially completed the liquidation of
PDI during fiscal 1991.

     Amaray Data International Limited, a wholly-owned subsidiary of Amaray
International Corporation was appointed as the Company's exclusive distributor
for the United Kingdom in February of 1988.  In June 1989, Hunt Manufacturing,
Inc., a U.S. company, purchased the Computer Products Division of Amaray
International Corporation.  The United Kingdom subsidiary then became Hunt Data
Products Europe, Ltd.  The Company terminated its distribution agreement with
Hunt Data Products Europe Ltd. in April 1992.  S.C.E., a newly formed stationery
and computer equipment products distributor staffed by experienced former
employees of the Hunt organization was appointed as the Company's sole European
distributor effective May 1, 1992.

     In January 1990, Hunt Canada International became the exclusive distributor
of "PerfectData" branded products for all of Canada.  Due to a change in their
corporate strategic direction, they discontinued this segment of their business
and, effective November 1997, Hunt Canada International did not renew the
exclusive agreement it had held for the distribution of PerfectData products in
Canada.  As a result it was decided that PerfectData would continue its presence
in the Canadian market utilizing independent manufacturers' representatives.
Canadian sales agency groups were interviewed and representative agreements
finalized.  Effective May 1, 1998, independent sales agencies now represent the


                                                                              4
<PAGE>

Company in the seven Canadian provinces and the northwest territories.

     In addition to S.C.E., approximately 20 International Distributors sell the
Company's products worldwide.

     Agreements between the Company and its foreign distributors may be
terminated on short notice by either party.

     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.  All CareWare cleaning and
maintenance products are warranted for ninety days from date of purchase; all
CopyHolder Systems and Accessories are warranted for a one year period of time.
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.

BACKLOG

     At March 31, 1998 the Company had orders, scheduled for delivery within a
ninety day period or less, aggregating approximately $40,000 as compared with a
backlog of approximately $82,000 at March 31, 1997.  Purchase order release
lead-times depend upon the scheduling practice of the individual customer, and
the rate of booking new orders fluctuates from month-to-month; however, most
orders are placed for immediate shipment.  Under certain conditions, customers
may cancel or delay orders without significant monetary penalties.  Therefore,
the level of backlog at any one time is not necessarily indicative of the trends
in the Company's business.

COMPETITION

     The Company believes that during fiscal year 1998, neither the Company nor
any of its competitors had a dominant position in the cleaning and maintenance
market.  There are many competitors in this market.  However, some of the
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,
new product introductions and responsiveness to accounts' needs, have been the
principal basis on which it competes in these industry segments.


                                                                              5
<PAGE>

     The Company's ability to maintain or increase its market share and expand
its business will depend in large measure, on its ability to conceive, design,
develop and introduce new products to its existing product lines; to continue to
offer more products within the Company's established channels of distribution;
to enter new markets and/or open new channels of distribution with related
product offerings.

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 assembles and/or
packages its cleaning/maintenance and ergonomic products in the United States
from materials and supplies purchased primarily from domestic vendors and
sub-contractors.  Some of the assembled component parts are manufactured by
vendors located in Mexico and the Far East because it is 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 and that it 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 regularly reviews
its vendor relationships and continually searches 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.

PATENTS AND LICENSES

     The Company believes strongly in enforcing its patent rights and has taken,
and will continue to take, appropriate action against anyone whom it believes is
marketing products which infringe upon its patents.

EMPLOYEES

     At March 31, 1998 the Company employed 16 persons, of whom approximately 6
were engaged in assembly and testing, 5 in marketing and sales, and 5 in general
management and administration.

     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.  The expansion of the Company's operations will be dependent,
in part, on its ability to attract and retain highly qualified employees.


                                                                              6
<PAGE>

DISCONTINUED OPERATIONS

     The Company previously entered the Telecommunications industry during
fiscal 1992 through the purchase of assets of Anchor Automation, Inc., a modem
manufacturer.  Subsequently the Company designed and developed a new family of
data and data/fax modems.  Over the next two years the Company's sales of modems
declined and  profit margins eroded dramatically.  Competitors added more
advanced features to their products while lowering pricing, making it difficult
if not impossible for the Company to successfully market modems.  It became
clear that the Telecommunications business belongs to the major corporations who
have all the financial resources and technology necessary to compete in the
increasingly volatile marketplace.

     In its continuing effort to sustain sales growth, during the end of the
first quarter of fiscal 1994 the Company purchased certain inventory and fixed
assets of SubSystems Company, a distributor of computer accessories associated
with the transmission of data.  The Company immediately began selling the cables
and switch boxes through its existing telecommunication channels of
distribution.  It quickly became apparent that the marketplace was highly
competitive.  The Company found it could not compete domestically with off-shore
pricing from the Far East as well as Mexico.

     In the first quarter of fiscal 1995 the Company made the decision to
discontinue operations of these products and stop the outflow of cash associated
with these operations and refocus as a lean and restructured company on its
continuing business lines, which include its core business, care and maintenance
products.  During fiscal 1996, the Company completed liquidation of its
remaining inventory of these discontinued products.

ITEM 2.   PROPERTIES

     The Company relocated its Corporate offices and production facilities
during June 1993.  The Company had previously leased a 13,000 square foot
building in Simi Valley, California, on a month-to-month basis.  It had entered
into a long-term lease for a building to be constructed in Simi Valley for
the specific needs of the Company.  The modern industrial building, comprising
approximately 24,500 square feet, was completed during June 1993.  The lease is
for a term of ten years and includes an option to purchase.

ITEM 3.     LEGAL PROCEEDINGS

     In November 1995, in the Superior Court of Ventura County, California, a
former employee won an award against the Company for $203,403.  The lawsuit
related to the termination, in October 1993, of an employment contract entered
into between the Company and the


                                                                              7
<PAGE>

individual during July 1993.  The Company appealed this award and posted an
appeal bond with the Court.  On March 31, 1997, the Appeals Court issued its
opinion affirming the judgement against the Company.  The judgement became final
on April 30, 1997.

     In December 1995, in the United States District Court, Northern District of
California, the Company filed a complaint against the same former employee and
his company alleging that they copied PerfectData's trademark and trade dress.
On December 21, 1995, the Court granted the Company's motions for a restraining
order and preliminary injunction which enjoin the defendants from the
manufacture and distribution of the product in question.  This case had been set
for trial December 1, 1997.

     During May 1997, the parties reached a global settlement of both actions.
The Company paid the former employee the sum of $185,000 in exchange for its
right to seek further appeal.  Defendants in the trademark infringement action
have agreed to assign and transfer any and all right, title and interest in the
trademark, trade name, and trade dress of their canned air product "Perfect
Cleaner" and any and all goodwill of the Perfect Cleaner business to the
Company.  The former employee and his company have further agreed not to sell a
canned air product in the United States or Canada for three years.  Unresolved
was the amount of attorney's fees owed to the former employee's counsel for
services rendered during the Company's appeal of the original judgement against
the Company.  The parties agreed to have the issue decided by a judge.  On July
21, 1997, a hearing was held in the Superior Court of Ventura County,
California.  On October 17, 1997, the judge ruled in favor of the former
employee and awarded post-judgement attorney fees in the amount of $96,268.32.
During November 1997, the parties settled the post-judgement attorney's fees for
the sum of $82,500, which the Company paid the former employee and his attorneys
in December 1997.

The past CFO of PermaByte Magnetics, Inc. (PMI) filed a complaint in the
Superior Court of San Diego County, California, for unpaid wages and fraudulent
conveyance against PMI, the Company, the Company's chairman and a director of
the Company.  The former CFO claims that PMI owes her approximately $30,000 for
unpaid vacation which had accrued prior to her termination.  She also alleges
that the defendants, including the Company, improperly diverted PMI assets to
the Company.  During a demurrer to the First Amended Complaint, the former CFO
failed to properly seek leave of court to file a second amended complaint.
Consequently, the court dismissed the entire action.  In August 1996, the former
CFO filed a notice of appeal with the 4th appellate District Court of Appeal in
San Diego, California.

On June 11, 1998, in the San Diego Court of Appeal, Fourth Appellate District,
oral arguments were heard.  As of the time of filing this Form 10-K, the
appellate Court has not yet rendered a


                                                                              8
<PAGE>

decision.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None


                                                                              9
<PAGE>



                                       PART II


ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS

     The Common Stock of the Company is traded in the over-the-counter market
and is quoted on NASDAQ under the symbol PERF.  It is located in the NASDAQ
Small Cap listing.  The following table sets forth the range of high and low
sales price per share of Common Stock of the Company for the indicated quarters
of the fiscal years ended March 31, 1998 and 1997, as reported by NASDAQ.  All
quotations have been rounded to the nearest one-eighth.  Such prices represent
inter-dealer quotations without adjustment for retail markup, markdown, or
commission and do not necessarily represent actual transactions.

     The approximate number of shareholders at March 31, 1998 was 1,000
determined by security position listings.  On July 18, 1996 the Company
distributed to its shareholders a dividend in the form of one share of stock in
Starnet Universe Internet, Inc., a privately held corporation, for each twenty
shares of PerfectData stock.  On June 27, 1997, the Company distributed to its
shareholders a dividend in the form of one share of stock in Vision Aerospace,
Inc., a privately held corporation, for each thirty shares of PerfectData stock.
On August 14, 1997, the Company distributed to its shareholders a dividend in
the form of one share of stock in Staruni Corporation, traded under the symbol
SRUN, for each four shares of PerfectData Stock.

<TABLE>
<CAPTION>
                                            SALES    PRICE
                                            HIGH      LOW
--------------------------------------------------------------------------------

          1998
<S>                                         <C>

     First Quarter                          2 7/8    1 5/8
     Second Quarter                         2 1/4    1
     Third Quarter                          3        1 1/8
     Fourth Quarter                         2 3/8    1 1/4

--------------------------------------------------------------------------------
          1997

     First Quarter                          6 1/4    1 1/8
     Second Quarter                         3 1/2    1 5/8
     Third Quarter                          3 3/4    1 7/8
     Fourth Quarter                         4 1/2    1 7/8

--------------------------------------------------------------------------------

</TABLE>

     The last sales price for the Company's Common Stock as of
June 12, 1998 was 1.


                                                                             10
<PAGE>


ITEM 6.     SELECTED FINANCIAL DATA

     The following table summarizes certain selected financial data which are
derived from and qualified in their entirety by the more detailed Financial
Statements included in Item 14 herein.

SELECTED STATEMENTS OF EARNINGS DATA

<TABLE>
<CAPTION>

                                     FISCAL YEAR ENDED MARCH 31,
                              1998      1997      1996      1995      1994
                         ----------------------------------------------------
                         (Dollars in thousands, except per share information)
<S>                          <C>       <C>       <C>       <C>       <C>
Net Sales                    $3,299    $5,761    $6,054    $7,214    $6,783

Income (loss) from
 continuing operations
 before income taxes           (367)       25       144       171        51

Income tax benefit
 (or provision)                (250)     (290)      (20)      359       (13)
                             ------    ------    ------    ------    ------

Income (loss) from
 continuing operations         (617)     (265)      124       530        38

Income (loss) from
 discontinued operations          -         -         -        18      (833)

Gain (loss) on disposal of
 discontinued operations       (182)      (69)     (101)     (179)        -

Cumulative effect of
 change in accounting
 principle                        -         -         -         -       393
                             ------    ------    ------    ------    ------

Net Income/(Loss)            $ (799)   $ (334)   $   23    $  369    $ (402)
                             ------    ------    ------    ------    ------

Earnings (loss)
 per share of
 common stock:

   Continuing operations       (.20)     (.09)      .04       .16       .01

   Discontinued operations     (.06)     (.02)     (.03)     (.05)     (.24)

   Cumulative effect of
    change in accounting
    principle                     -         -          -        -       .11
                             ------    ------    ------    ------    ------

   Net earnings (loss)       $ (.26)   $ (.11)   $  .01   $   .11    $ (.12)
                             ------    ------    ------    ------    ------

Weighted average
 shares outstanding           3,123     3,089     3,107     3,422     3,488

</TABLE>
-------------------


                                                                             11
<PAGE>

SELECTED BALANCE SHEET DATA

<TABLE>
<CAPTION>

                                   AS OF MARCH 31,
                      1998      1997     1996      1995     1994
                    ---------------------------------------------
                               (Dollars in thousands)
<S>                 <C>       <C>      <C>       <C>      <C>
Working Capital     $2,522    $2,940   $2,900    $2,892   $3,423

Total Assets         3,053     4,298    4,630     4,705    4,977

Net Shareholders'
  Equity             2,794     3,500    3,792     3,889    4,048

</TABLE>
----------------------



ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

     Fiscal 1998 net sales from continuing operations decreased to $3,299,000
from $5,761,000 in fiscal 1997 and $6,054,000 in fiscal 1996.  In June 1997, the
Company lost its bid for the continuing business of PriceCostco.  During fiscal
1997, PriceCostco accounted for 42% of the Company's total sales.  The Company
realized the loss of this business during the second fiscal quarter ended
September 30, 1997, and as a result fiscal 1998 sales declined dramatically.

     The decrease in fiscal 1997 sales from fiscal 1996 was due to lower selling
prices, although the actual unit sales for fiscal 1997 had increased over fiscal
1996.

     The United States Environmental Protection Agency announced a ban,
effective January 1, 1994 on Chlorodifluoromethane.  This chemical was contained
in a compressed gas duster that represented approximately 16% of net sales in
fiscal 1995, and approximately 10% of net sales in fiscal 1996.  This product
was offered in two different sizes.  The Company promoted this product and
depleted its inventory of the most popular size in fiscal 1995, and the less
popular size in fiscal 1996.  Approximately 47% of the decrease in fiscal 1996
sales was attributed to the close-out sale of this product held during fiscal
1995.

     The Company developed and offered replacement products during fiscal 1994
that did not contain the banned chemical.  The Company offered a choice of
chemical fills in various sizes.  During fiscal 1995, the replacement products
were more readily accepted and sales increased.  Sales of the replacement
products during fiscal 1995 represented approximately 47% of net sales and 56%
of net sales during fiscal 1996.

     The decrease in fiscal 1996 net sales was also due to increased competition
in the marketplace and inadequate sales and


                                                                             12
<PAGE>

marketing efforts by the Company.  The Company subsequently reorganized its
sales structure as well as set up a new Sales Coordination Department to
interface with an expanded sales representative network.  During the first
quarter of fiscal 1997, the Company appointed a new Director of Sales and
Marketing with extensive skills and experience in sales and marketing
management.

     Cost of sales from continuing operations as a percentage of net sales was
67% for 1998, as compared to 66% for both 1997 and 1996.  During the last
quarter of fiscal 1998 the Company made the decision to discontinue its line of
ergonomic products and accessories and concentrate its resources on its core
computer and office cleaning products business.  The Company had only a minor
share of the ergonomic and accessory market and could not successfully compete
against the dominant competitors.

     The slight increase in cost of sales for fiscal 1998 directly relates to
inventory reserve for this product line.

     Selling, General and Administrative Expenses from continuing operations for
fiscal 1998, 1997, and 1996 were $1,535,000, $2,030,000 and $2,032,000
respectively.  The decrease in expenses in fiscal 1998 directly relates to the
loss of the Company's major customer.  Included in Selling, General and
Administrative Expenses are prepaid freight on qualifying orders, commission
paid to sales representatives, and co-op advertising allowances which are
variable expenses that fluctuate with sales.  As sales declined in 1998 so did
these expenses.  The decrease in costs and expenses in fiscal 1998 also relates
to severe cost cutting measures which included, amongst others, a reduction in
staff and a very tight control of all expenditures.  Although sales in fiscal
1997 had declined from fiscal 1996, those Selling, General and Administrative
variable expenses relating to sales did not.  During fiscal 1997 the Company
offered qualifying customers more aggressive co-op advertising and allowance
programs.

     Other income and expense for fiscal 1998, 1997 and 1996 was primarily
interest income of $33,000, $28,000 and $40,000 respectively; royalty income of
$7,000, 10,000 and $11,000 respectively; and dividend and option income of
$55,000, $47,000 and $30,000 respectively.  Included in fiscal 1998 is a loss on
securities of $21,000.

     During the first quarter of fiscal 1995, the Company made the decision to
discontinue its operations in the telecommunications industry which consisted of
modems, cables and switch boxes.  The substantial losses from this operation
were a result of declining sales, dramatically eroding profit margins and major
competitors who had all the financial resources and technology necessary to
compete in the increasingly volatile marketplace.  The Company immediately
stopped the outflow of cash associated with these operations.  By March 31,
1996, the inventory had been liquidated.


                                                                             13
<PAGE>

The loss from discontinued operations for fiscal 1996 directly related to a
judgement against the Company in favor of a former employee for breach of an
employment contract.  The employee had been employed to work exclusively in the
Company's cable segment which had been discontinued.  The Company appealed the
judgement and posted an appeal bond with the Court.  On March 31, 1997 the
Appeals Court issued its opinion affirming the judgement against the Company.
The judgement became final on April 30, 1997.  The loss on discontinued
operations for fiscal 1997 was primarily due to legal fees relative to the
appeal.

     On October 17, 1997 the judge ruled in favor of the former employee and
awarded post judgement attorney fees in the amount of $96,268.  During November
1997, the parties settled the post judgement attorney's fees for the sum of
$82,500.  The loss from discontinued operations for fiscal 1998 directly relates
to legal fees incurred by the Company relative to the settlement, additional
reserves to cover the $82,500 settlement, and elimination of deferred tax assets
which are not expected to be recognized in the future.

     In June 1997, the Company learned that its bid for the continuing business
of PriceCostco had been rejected.  During fiscal 1997, PriceCostco accounted for
42% of the company's total sales.  The loss of this customer has had a
significant adverse effect on future earnings of the Company.  Due to this, the
possibility exists that the Company may not realize the benefits of its net
operating loss carryforwards before they expire.  Consequently, the tax benefit
that's not expected to be utilized has been reserved, further contributing to
the substantial loss from continuing operations.

LIQUIDITY AND CAPITAL RESOURCES

       The cash position at March 31, 1998 is $1,328,000 including Certificates
of Deposit of $365,000 compared to $891,000 including Certificates of Deposit of
$160,000 at year ending March 31, 1997.

     The Company has a current ratio of better than 10 to 1 at fiscal year end.
During fiscal 1998, the Company did not renew its line of credit; it had never
drawn against the line and saw no future need to continue maintaining the line
at this time.

     As discussed, during May 1997 the Company reached a settlement with a
former employee.  As part of the settlement, the Company paid the former
employee $185,000.  These funds were paid from the litigation deposit the
Company made when it appealed the judgement.  The bond and litigation deposit
were reduced to $75,000, as both parties agreed upon, pending the resolution of
the attorney's fees owed the former employee's counsel.  During December 1997,
the agreed upon post judgement attorney's fees of $82,500 were paid from the
$75,000 litigation deposit, with the balance paid from


                                                                             14
<PAGE>

operating funds of the Company.

     PerfectData is following a plan to expand its distribution and sales base
by focusing on profitable new accounts using outside sales professionals and
electronic commerce.  In order to achieve significant growth, the Company needs
to manufacture and distribute a broader product offering.

     As previously announced, the Company is proceeding to discuss with several
firms the possibility of a potential merger, alliance or other type of business
combination.

     Management believes that the Company's liquidity and working capital
requirements are adequate for the foreseeable future.

     At March 31, 1998 the Company had net operating loss and general business
tax credit carry forwards for income tax purposes of approximately $2,948,673
and $174,109 respectively, available to reduce future potential Federal income
taxes.

     In April 1993 the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes".  SFAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Previously, the Company used the APB 11 approach that gave no recognition to
future events other than the recovery of assets and settlement of liabilities at
their carrying amounts.  Under SFAS 109 the Company recognizes to a greater
degree the future tax benefits of expenses, primarily comprised of tax NOL
carryforwards and inventory reserves, which have been recognized in the
financial statements.  The adjustments to the April 1, 1993 balance sheet to
adopt SFAS 109 netted to approximately $393,000, and is reflected as net income,
a cumulative effect of a change in accounting principle, for the year ended
March 31, 1994.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       The information required by this Item is incorporated herein by reference
to the financial statements and supplementary data listed in Item 14 of Part IV
of this report.

ITEM 9.     DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.


                                                                             15
<PAGE>

                                       PART III


ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS

     The directors and executive officers of the Company are as follows:


<TABLE>
<CAPTION>
NAME                     AGE       POSITION
----                     ---       --------
<S>                      <C>       <C>

Joseph Mazin             51        President, Chief Executive
                                   Officer, Director and
                                   Chairman of the Board

Tracie Savage            35        Director

Ronald M. Chodorow       57        Director

Irene J. Marino          54        Vice President Finance,
                                   Chief Financial Officer
                                   and Corporate Secretary

Al G. Pramschufer        53        Vice President Sales
                                   and Marketing

</TABLE>

     Mr. Joseph Mazin was appointed in June 1993 to be a Director of the Company
by the unanimous consent of the Board.  Mr. Mazin was appointed Chairman,
President and Chief Executive Officer of the Company in October 1993.  He is the
Chairman of the Board, President and Chief Executive Officer of Flamemaster
Corporation, a publicly traded specialty chemicals manufacturer.  Mr. Mazin has
held this position for more than five years.  He previously served as Chairman
of the Board of Altius Corporation, a former manufacturer of industrial steel
products.

     Ms. Tracie Savage was appointed in July 1995 to be a Director of the
Company by the unanimous consent of the Board.  She joined NBC-TV Los Angeles, a
Television Subsidiary of National Broadcasting Company, Inc. in March 1994.  Ms.
Savage is the co-anchor of NBC 4's "Today in LA: Weekend" and also serves as a
general assignment reporter for the "Channel 4 News".  From 1991 to 1994 she was
a general assignment reporter for the independent Los Angeles station, KCAL.
Ms. Savage has been in broadcast journalism for ten years and has been the
recipient of numerous awards and honors in her field.

     Mr. Ronald M. Chodorow was appointed in July 1997 to be a Director of the
Company by unanimous consent of the Board.  Mr. Chodorow is an accountant and
has been in Public Accounting since


                                                                             16
<PAGE>

1966.  In 1978 he opened his own practice and is the president of Ronald M.
Chodorow & Associates, Inc., Accountants and Tax Consultants.  Mr. Chodorow has
sat on the Board of Directors of many small corporations (non-publicly listed
companies).

     Ms. Irene J. Marino originally joined the Company in March 1982 and
rejoined the Company 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 the Company in September 1987, Ms. Marino assumed the positions of
Controller, Chief Financial Officer and Secretary of the Company.  She was
appointed Vice President of Finance in August 1989, and has more than 30 years
experience in finance, accounting and administration.

     Mr. Al Pramschufer joined the Company in June 1996, as Director of Sales
and Marketing with responsibility for directing the Company's domestic sales
activities.  In July 1997, he was promoted to the position of Vice President of
Sales and Marketing and given the additional responsibility of directing the
Company's international sales efforts.  Mr. Pramschufer has more than 20 years
experience in sales and marketing management.  Prior to joining PerfectData, Mr.
Pramschufer was Vice President of Sales for the Scripto Tokai Corporation, a
post he held from 1992 until 1996.

     Directors of the Company are elected annually.  The present term of office
of each director will expire at the next annual meeting of shareholders of the
Company or at such time as his successor is duly elected and qualifies.
Officers serve at the discretion of the Board of Directors of the Company.

ITEM 11.     EXECUTIVE COMPENSATION AND OTHER INFORMATION

     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.  No other executive officer of the Company earned in excess of
$100,000:


                              SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                              Annual Compensation
Name and
Principal Position            Year     Salary($) (1)
------------------            ----     -------------
<S>                           <C>      <C>

Joseph Mazin                  1998     $61,317
President, Chief              1997      63,365
Executive Officer and         1996      65,135
Chairman of the Board
</TABLE>


                                                                             17
<PAGE>


(1)  There are no employment agreements or contracts between the
     Company and Joseph Mazin.

EMPLOYEE STOCK OPTION PLAN

     In 1979 the Company adopted its Employee Stock Option Plan and amended it
in 1981 (the "1979 Plan").  The 1979 Plan, which expired December 31, 1988,
provided for the grant of incentive stock options to officers and other key
employees of the Company.  The 1979 Plan covers an aggregate of 290,660 shares
of Common Stock.  During the year ended March 31, 1996, options to purchase
1,000 shares of Common Stock expired.  There was no activity under the Plan
during the year ended March 31, 1998.  A total of 99,166 shares of Common Stock
have been issued upon the exercise of options granted under the 1979 Plan.  No
options remain outstanding.


1985 EMPLOYEE STOCK OPTION PLAN

     In January 1985, the Board of Directors of the Company established the
Company's 1985 Employee Stock Option Plan (the "1985 Plan").  In November 1985,
the shareholders of the Company approved the Plan.  The Board of Directors voted
to extend the term of the plan by twelve months thereby making the new
expiration date December 31, 1996.  The 1985 Plan, provided for the grant of
both non-qualified stock options and incentive stock options to officers and
other key employees of the Company and for the grant of non-qualified stock
options to non-employee Directors of the Company.  The 1985 Plan covers an
aggregate of 500,000 shares of Common Stock.  During the fiscal year ended March
31, 1998, 70,000 options were exercised.  At March 31, 1998, options covering a
total of 118,000 shares of Common Stock were outstanding at an average exercise
price of $1.069 per share.  Options covering a total of 275,250 shares of the
Company's Common Stock have been cancelled through March 31, 1998.  A total of
286,250 shares of Common Stock have been issued upon the exercise of options
granted under the 1985 Plan.  The 1985 Plan is administered by the Board of
Directors of the Company.  The exercise price of options granted must not be
less than 100% of the fair market price of the Common Stock of the Company on
the date of grant.  The rate at which options granted under the 1985 Plan will
be exercisable shall be determined by the Board of Directors at the time of the
grant of the option, provided that the option may become exercisable in full no
faster than annually over a two-year period and no slower than annually over a
five-year period.  Options which have been granted under the 1985 Plan are
exercisable annually with respect to 25% of the total number of shares covered
by the option.  Options may not be exercised after the expiration of ten years
from the date of grant, are non-transferable, other than by will or inheritance,
and may be exercised only while an optionee is employed by the Company, except


                                                                             18
<PAGE>

that an option may provide that it will be wholly or partially exercisable (a)
within three months after an optionee's termination of employment for any reason
other than cause, (b) within one year after an optionee's termination of
employment, if such employment is terminated by reason of the optionee's death
or permanent disability or if the optionee dies or becomes permanently disabled
within three months after the termination of the optionee's employment, and (c)
within thirty days after the termination of an optionee's employment for cause.
The termination of a non-employee Director's employment is deemed to occur on
the termination of his status as a Director of the Company.

1983 STOCK BONUS AND PURCHASE PLAN

     In May 1983, the Company adopted an Employee Stock Bonus and Purchase 
Plan (the "Bonus Plan") and amended it in 1987 and 1989. The Bonus Plan, 
which expired May 17, 1993, provided for the issuance of a maximum of 745,330 
shares of Common Stock of the Company to certain officers or other key 
employees of the Company.  The Bonus Plan is administered by the Board of 
Directors of the Company which determines to whom shares shall be issued, the 
number of shares which may be issued to any participant, whether shares shall 
be issued as a stock bonus without consideration (other than services), or 
alternatively, the price for which shares shall be purchased by the 
participant and the manner and time of payment of such price, the length of 
time during which shares may be issued to the participant (which may not be 
more than five years from the date the agreement providing for the issuance 
is executed), whether the participant must continue to serve as an officer or 
key employee for a specified period of time following execution of such 
agreement to avoid forfeiture of some or all of such shares to the Company or 
a right in the Company to repurchase such shares, and such other terms and 
conditions as the Board of Directors may specify which are not inconsistent 
with the provisions of the Bonus Plan.

     The Company had entered into stock bonus agreements to issue through 1992
under the Bonus Plan up to an aggregate of 126,269 shares of Common Stock (net
of shares covered by agreements cancelled through March 31, 1993) as stock
bonuses to certain key employees.  At March 31, 1993, all 126,269 shares had
been issued.

     The Company had also entered into stock purchase agreements to issue under
the Bonus Plan up to an aggregate of 101,000 shares of Common Stock (net of
shares covered by agreements cancelled or expired through March 31, 1995), at an
average price of $.5687 per share.  At March 31, 1995, all 101,000 shares had
been issued.


                                                                             19
<PAGE>


OPTION GRANTS, EXERCISES AND HOLDINGS


                    OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

     No stock options or stock appreciation rights (Scars) were granted to the
Company's Chief Executive Officer named in the Summary Compensation Table during
the fiscal year ended March 31, 1998.

     The following table provides certain summary information concerning the
exercise of options during the 1998 fiscal year and unexercisable options held
as of the end of the 1998 fiscal year by the Chief Executive Officer named in
the Summary Compensation Table:


                   AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                          AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>

                                                         VALUE
                                            NUMBER       OF UN-
                                            OF UN-       EXERCISED
                                            EXERCISED    IN-THE-
                   SHARES                   OPTIONS      MONEY
                   ACQUIRED                 HELD         OPTIONS
                   ON         VALUE         AT FISCAL    AT
NAME               EXERCISE   REALIZED      YEAR END     FY-END(2)
                      (#)        ($)           (#)
<S>                <C>        <C>           <C>          <C>
Joseph Mazin           -      $     -       90,000(1)    $45,000

</TABLE>

(1)  As of March 31, 1998, all 90,000 options were exercisable.

(2)  Such value is based upon the market value of the Company's Common Stock as
     of March 31, 1998, less the exercise price payable per share under such
     options.



DIRECTOR COMPENSATION

     No director receives cash compensation from the Company for services
provided as a director.  Non-employee directors may be granted non-qualified
stock options as provided for under the Company's 1985 Employee Stock Option
Plan ("1985 Plan").  During the fiscal year ended March 31, 1998, no new options
were granted to non-employee directors of the Company.


                                                                             20
<PAGE>

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
             AND MANAGEMENT

     The following table sets forth, as of May 31, 1998, certain information
with respect to all shareholders known by the Company to be beneficial owners of
more than 5% of its outstanding common stock, all directors, and all officers
and directors of the Company as a group:

<TABLE>
<CAPTION>

NAME AND ADDRESS OF                NUMBER OF           PERCENT OF
BENEFICIAL OWNER                   SHARES (1)          INTEREST(2)
-------------------                ----------          -----------
<S>                                <C>                 <C>

Flamemaster Corporation            613,497                19.4
11120 Sherman Way
Sun Valley, CA 91252

Leland P. Polak and                292,000                 9.2
Mark E. Polak
11494 Burbank Blvd.
North Hollywood, CA 91601

William R. Woodward                213,349                 6.7
Successor & Special Trustee
Richard M. Drysdale Trust
116 26th Street
Santa Monica, CA 90402

Joseph Mazin                       910,197 (3)(4)(5)      25.9
110 West Easy Street                       (6)(7)
Simi Valley, CA 93065

Ronald M. Chodorow                 18,000                 (9)
23801 Calabasas Road, Suite 2035
Calabasas, CA 91302

Tracie Savage                      10,100 (8)             (9)
3000 W. Alameda Avenue
Burbank, CA 91523


All officers and directors        947,197 (3)(4)(5)       26.5
  as a group (5 persons)                  (6)(7)(8)
                                          (10)

</TABLE>
------------------


(1)  All shares are owned directly by the owner named in the table except as
     otherwise indicated in a footnote below.

(2)  Percentages are based on the number of shares of Common Stock outstanding
     on May 31, 1998.  There were 3,163,606 shares of Common Stock outstanding
     on May 31, 1998.


                                                                             21
<PAGE>


(3)  Includes 613,497 shares owned by Flamemaster Corporation for which Mr.
     Mazin has voting power as President, Chairman and CEO of Flamemaster
     Corporation.

(4)  Includes 37,700 shares owned by the Flamemaster Employees' Profit Sharing
     Plan for which Mr. Mazin is the fiduciary.

(5)  Includes 23,000 shares owned by Altius Investment Corporation for which Mr.
     Mazin has voting power as Chairman of the Board of Altius Investment
     Corporation.

(6)  Includes 25,000 shares which are covered by a stock option which was
     granted June 28, 1993, and which is exercisable at any time on or before
     June 28, 2003.  Percentage of interest excludes these shares.

(7)  Includes 65,000 shares which are covered by a stock option which was
     granted November 24, 1993, and which is exercisable at any time on or
     before November 24, 2003.  Percentage of interest excludes these shares.

(8)  Includes 10,000 shares which are covered by a stock option which was
     granted July 20, 1995, and which is exercisable at any time on or before
     July 20, 2005.  Percentage of interest excludes these shares.

(9)  Represents less than one percent.

(10) Includes an aggregate of 7,500 shares which were not actually outstanding
     as of May 31, 1998, but which are covered by options held by Officers of
     the Company which, to the extent of such number of shares, are exercisable
     within sixty days of such date and assumes exercise of such options as to
     all of such number of shares.  Percentage of interest excludes these
     options.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Mr. Mazin, President and Chief Executive Officer of the Registrant, is also
President and Chief Executive Officer of Flamemaster Corporation, a publicly
traded specialty chemicals manufacturer.  Flamemaster Corporation has acted, in
the normal course of its business, as a manufacturer of certain products for the
Company.  For the fiscal year, sales of products to the Company approximated
$9,912.


                                                                             22
<PAGE>


                                       PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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 and Schedules are filed as part of this
               report.

               (2)  FINANCIAL STATEMENT SCHEDULES

                    The financial statement schedules listed
               on the accompanying Index to Financial Statements and Schedules
               are filed as part of this report.

               (3)  EXHIBITS

                    The exhibits listed on the accompanying
               Index to Exhibits are filed as part of this report.

          (b)  REPORTS ON FORM 8-K

                    No reports on Form 8-K were filed by the
               Company during the last quarter of the fiscal year ended March
               31, 1998.


                                                                             23
<PAGE>

                                       PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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 and Schedules are filed as part of this
               report.

               (2)  FINANCIAL STATEMENT SCHEDULES

                    The financial statement schedules listed
               on the accompanying Index to Financial Statements and Schedules
               are filed as part of this report.

               (3)  EXHIBITS

                    The exhibits listed on the accompanying
               Index to Exhibits are filed as part of this report.

          (b)  REPORTS ON FORM 8-K

                    No reports on Form 8-K were filed by the
               Company during the last quarter of the fiscal year ended March
               31, 1998.


                                                                             24
<PAGE>

                               PERFECTDATA CORPORATION

                                    SEC FORM 10-K

                               ITEMS 8, 14(a) AND 14(d)

                     INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


FINANCIAL STATEMENTS

Independent Auditors' Report - March 31, 1998

Balance Sheets - March 31, 1998 and 1997

Statements of Earnings -
   Years Ended March 31, 1998, 1997 and 1996

Statements of Shareholders' Equity -
   Years Ended March 31, 1998, 1997 and 1996

Statements of Cash Flows -
   Years Ended March 31, 1998, 1997 and 1996

Notes to Financial Statements


SCHEDULES

Valuation and Qualifying Accounts                 Schedule VIII




     All other schedules are omitted as the required information is not
applicable or the information is presented in the Financial Statements or Notes
thereto.


                                                                             25
<PAGE>

                                    [LETTERHEAD]


June 18, 1998

Board of Directors and Shareholders
PERFECTDATA CORPORATION
Simi Valley, California

We have audited the balance sheets of Perfectdata Corporation as of March 31,
1998 and 1997, and the related statements of earnings, shareholders' equity and
cash flows for the years ended March 31, 1998, 1997 and 1996.  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 generally accepted auditing standards.
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, these financial statements present fairly, in all material
respects, the financial position of PerfectData Corporation, as of March 31,
1998 and 1997, and the results of their operations and their cash flows for the
years ended March 31, 1998, 1997 and 1996 in conformity with generally accepted
accounting principles.




    BECKMAN KIRKLAND & WHITNEY


                                                                             26
<PAGE>

                               PERFECTDATA CORPORATION
                                    Balance Sheets
                   (Dollars in thousands, except number of shares)

<TABLE>
<CAPTION>
                                                                                     MARCH 31,
                                                                           -------------------------
                                                                              1998           1997
                                                                           ----------     ----------
<S>                                                                        <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents, including
     short-term certificates of deposit of
     $365 in 1998 and $160 in 1997 (Note 2)                                $    1,328     $      891
  Accounts receivable, less allowance for
     doubtful receivables of $12 and $9 in 1998
     and 1997, respectively (Note 2)                                              289            707
  Inventories (Note 4)                                                            571          1,183
  Prepaid expenses and other current assets                                        87             77
  Marketable securities, short-term (Note 3)                                      448            399
  Current assets of discontinued operations (Note 15)                               -            115
  Deposit on litigation award (Note 12)                                             -            305
  Deferred income tax benefit (Note 8)                                             58             61
                                                                           ----------     ----------

     Total current assets                                                       2,781          3,738

Property, plant and equipment, net (Note 5)                                       118            155
Deferred income tax benefit (Note 8)                                              123            369
Investment in affiliate (Note 6)                                                    -              5
Other assets, net                                                                  31             31
                                                                           ----------     ----------

                                                                           $    3,053     $    4,298
                                                                           ----------     ----------
                                                                           ----------     ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                         $      111     $      324
                                                                           ----------     ----------
  Accrued expenses                                                                 94            153
  Accrued salaries, wages and vacation                                             54             56
  Current liabilities of discontinued operations (Note 14)                          -            265
                                                                           ----------     ----------
     Total current liabilities                                                    259            798
                                                                           ----------     ----------

Commitments and contingencies (Note 12)

Shareholders' equity (Notes 9 and 10):
  Preferred stock.  Authorized 2,000,000
     shares; none issued
  Common stock, no par value.  Authorized
     10,000,000 shares; issued and outstanding
      3,164,000 and 3,094,000 shares in 1998
      and 1997, respectively                                                    8,117          8,051
  Accumulated deficit                                                          (5,345)        (4,546)
  Allowance for loss on marketable securities                                      22             (5)
                                                                           ----------     ----------

     Net shareholders' equity                                                   2,794          3,500
                                                                           ----------     ----------


                                                                           $   3,053      $   4,298
                                                                           ----------     ----------
                                                                           ----------     ----------

</TABLE>

                   See accompanying notes to financial statements.



                                                                             27
<PAGE>


                               PERFECTDATA CORPORATION
                               Statements of Operations
                 (Dollars in thousands, except per share information)

<TABLE>
<CAPTION>
                                                                           MARCH 31,
                                                            ----------------------------------------
                                                                1998           1997          1996
                                                            ----------      ---------      ---------
<S>                                                         <C>             <C>            <C>
Net sales                                                   $    3,299      $   5,761      $   6,054
                                                            ----------      ---------      ---------
Costs and expenses
     Cost of goods sold                                          2,205          3,787          3,966
     Selling, general and
       administrative expenses                                   1,535          2,030          2,032
                                                            ----------      ---------      ---------

         Total cost and expenses                                 3,740          5,817          5,998
                                                            ----------      ---------      ---------

Income from operations                                            (441)           (56)            56
                                                            ----------      ---------      ---------

Other income and (expense)
     Equity in earnings of affiliate                                 -            (15)             -
     Interest income, net                                           33             28             40
     Other, net                                                     41             68             48
                                                            ----------      ---------      ---------

         Total other income and (expense)                           74             81             88
                                                            ----------      ---------      ---------
Income from continuing
     operations before income taxes                               (367)            25            144
Income tax benefit (or provision) (Note 8)                        (250)          (290)           (20)
                                                            ----------      ---------      ---------
Income from continuing operations                                 (617)          (265)           124

Income from discontinued operations (Note 14)                        -              -              -

Loss on disposal of discontinued operations                       (182)           (69)          (101)
                                                            ----------      ---------      ---------

Net income (loss)                                           $     (799)     $    (334)     $      23
                                                            ----------      ---------      ---------
                                                            ----------      ---------      ---------

Net income (loss) per common share:
   Basic:
     Income (loss) from continuing operations               $     (.20)     $    (.09)     $     .04
     Loss on disposal of discontinued operations                  (.06)          (.02)          (.03)
                                                            ----------      ---------      ---------

                                                            $     (.26)     $    (.11)     $     .01
                                                            ----------      ---------      ---------
                                                            ----------      ---------      ---------
</TABLE>

                   See accompanying notes to financial statements.


                                                                             28
<PAGE>


                                   PERFECTDATA CORPORATION
                      Statements of Shareholders' Equity (Notes 8 and 9)
                                       (In thousands)

<TABLE>
<CAPTION>

                                                                                Allow-
                                                                               ance for       Net
                                                                 Accumu-        gain /      share-
                                            Common Stock          lated       (loss) on     holders'
                                         Shares     Amount       deficit      mkt. sec.      equity
                                         -----------------      ---------     ---------     --------
<S>                                      <C>        <C>          <C>            <C>         <C>



BALANCE AT MARCH 31, 1995                 3,156    $  8,138     $  (4,235)    $     (14)    $   3,889

Stock repurchased and retired               (87)       (112)           -             -           (112)

Net unrealized gain/loss on                   
marketable securities                         -           -            -             (8)           (8)

Net earnings                                  -           -            23            -             23
                                       ---------   ---------    ---------     ---------     ---------


BALANCE AT MARCH 31, 1996                 3,069    $  8,026     $  (4,212)    $    (22)     $   3,792

Stock issued upon exercise
of stock options                             28          29            -             -             29

Stock repurchased and retired                (3)         (4)           -             -             (4)

Net unrealized gain/loss on
marketable securities                         -           -            -            17             17

Net loss                                      -           -          (334)           -           (334)
                                       ---------   ---------    ---------     ---------     ---------

BALANCE AT MARCH 31, 1997                 3,094    $   8,051    $  (4,546)    $     (5)     $   3,500

Stock issued upon exercise
of stock options                             70          66             -            -             66

Stock repurchased and retired                 -           -             -            -              -

Net unrealized gain/loss on
marketable securities                         -           -             -           27             27

Net loss                                      -           -          (799)           -           (799)
                                       ---------   ---------    ---------     ---------     ---------

BALANCE AT MARCH 31, 1998                 3,164    $   8,117    $  (5,345)    $      22     $   2,794
                                       ---------   ---------    ---------     ---------     ---------
                                       ---------   ---------    ---------     ---------     ---------

</TABLE>

                               See accompanying notes to financial statements.


                                                                             29


<PAGE>


                               PERFECTDATA CORPORATION
                               Statements of Cash Flows
                                (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                                      MARCH 31,
                                                                                -------------------------------------------------
                                                                                     1998               1997               1996
                                                                                ------------         ----------         ---------
<S>                                                                             <C>                  <C>                <C>
 Cash flows from operating activities:
   Net income (loss)                                                            $    (799)           $   (334)          $     24
   Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
      (Income) loss from discontinued operations                                        -                   -                  -
      (Gain) loss on disposal of discontinued operations                              181                 111                101
      Depreciation and amortization                                                    39                  95                126
      Provision for doubtful receivables                                                3                  (2)               (19)
      Unrealized (gain) loss on marketable securities                                   -                  17                 (8)
     Deferred income tax (benefit) provision                                          250                 290                 20
      Decrease (increase) in litigation deposit                                       305                   -               (305)
      (Increase) decrease in accounts receivable                                      416                 198                162
      (Increase) decrease in inventories                                              612                  62                 10
      (Increase) decrease in prepaid expenses and
      other current assets                                                            (10)                  8                 29
      (Increase) decrease in other assets                                              -                  (13)                12
      Increase (decrease) in accounts payable                                        (213)                (49)               (85)
      Increase (decrease) in acrued expenses                                          (59)                (39)               (69)
      Decrease in accrued salaries, wages and vacation                                 (3)                (13)                (2)
                                                                                 --------            --------            -------
 Net cash provided (used) by operating activities                                     722                 331                 (4)
                                                                                 --------            --------            -------
 Cash flows from investing activities:

      Purchases of property, plant and equipment                                       (2)                 (2)               (24)
     Decrease (increase) in investment in affiliated company                            5                 (17)               (22)
      (Increase) decrease in investment securities, net                               (22)                (76)               (83)
                                                                                 --------            --------            -------
 Net cash used in investing activities                                                (19)                (61)              (129)
                                                                                 --------            --------            -------
 Cash flows from financing activities
      Exercise of stock options                                                        66                  29                  -
      Repurchase of common stock                                                        -                  (4)              (112)
                                                                                 --------            --------            -------
 Net cash provided (used) by financing activities                                      66                 (25)              (112)
                                                                                 --------            --------            -------

 Net cash provided (used) by continuing operations                                    769                (295)              (245)
 Cash provided (used) by discontinued operations                                     (332)                (76)               (12)
                                                                                 --------            --------            -------
 Increase (decrease) in cash and cash equivalents                                     437                (219)              (257)
 Cash and cash equivalents at beginning of year                                       891                 672                929
                                                                                 --------            --------            -------

 Cash and cash equivalents at end of year                                        $  1,328            $    891            $   672
                                                                                 --------            --------            -------
                                                                                 --------            --------            -------
 Supplemental disclosure of cash flow information -
 cash paid during the year for income tax                                        $      -            $      -            $     -
                                                                                 --------            --------            -------
                                                                                 --------            --------            -------
</TABLE>


                     See accompanying notes to financial statements.


                                                                             30


<PAGE>


                               PERFECTDATA CORPORATION
                            NOTES TO FINANCIAL STATEMENTS
                      Years ended March 31, 1998, 1997, and 1996




NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

CASH EQUIVALENTS

The Company considers all highly liquid, non-pledged certificates of deposit
with an original maturity of three months or less to be cash equivalents.
Certificates of deposit pledged as collateral, or otherwise restricted, are not
classified as cash equivalents.

INVESTMENT IN DEBT AND EQUITY SECURITIES

The Company adopted Statement of Financial Accounting Standards No. 115 ("SFAS
No. 115"), "Accounting for Certain Investments in Debt and Equity Securities,"
effective April 1, 1994.   There was no cumulative effect as a result of
adopting SFAS 115 in fiscal 1995.

Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such determination
at each balance sheet date.  Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as available for sale,
along with the Company's investment in equity securities.  Securities available
for sale are carried at fair value, with the unrealized gains and losses
reported in a separate component of shareholders' equity, net of income taxes,
until realized.

The amortized cost of zero-coupon debt securities classified as available for
sale is adjusted for accretion of discounts to maturity.  Such amortization and
interest are included in interest income.  Realized gains and losses are
included in other income or expense.  The cost of securities sold is based on
specific identification method.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization of property and equipment is computed using the
straight-line method based on estimated useful lives ranging as follows:

<TABLE>
               <S>                           <C>
               Machinery and equipment       3 to 5 years
               Furniture and fixtures        3 to 5 years
               Leasehold improvements        Life of lease
               Tooling                       1 to 5 years
</TABLE>


REVENUE RECOGNITION

Revenue from product sales is recognized upon shipment.


                                                                             31
<PAGE>

                               PERFECTDATA CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                      Years ended March 31, 1998, 1997, and 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):


POST-RETIREMENT BENEFITS

The Financial Accounting Standards Board has issued Statement 106, "Employer's
Accounting for Post-Retirement Benefits other than Pensions," a pronouncement on
accounting for post-retirement health care which is effective for fiscal years
beginning after December 31, 1992.  The Company has never offered
post-retirement benefits to employees.

EARNINGS PER COMMON SHARE

Basic earnings per common share is based on the weighted average number of
shares outstanding during each of the respective periods. Diluted earnings per
share is not presented, as the effect is antidilutive.  The weighted average
number of shares outstanding during fiscal 1998 was 3,123,171.

INCOME TAXES

Provisions (benefits) for federal and state income taxes are calculated on
reported financial statement (income) loss based on current tax law and also
include in the current period, the cumulative effect of any changes in tax rates
from those used previously in determining deferred tax assets and liabilities.
Such provisions (benefits) differ from the amounts currently payable because
certain items of income and expense, known as temporary differences, are
recognized in different tax periods for financial reporting purposes than for
income tax purposes.

NOTE 2 - CONCENTRATION OF CREDIT RISK:

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

As of March 31, 1998 the Company had approximately $693,000 of cash and cash
equivalents in one bank which exposes the Company to concentration of credit
risk.  The cash deposited at this bank is federally insured up to $100,000.

The Company sells its principal products to a number of customers in the retail
industry.  As of March 31, 1998, approximately 11% and 38% of recorded trade
receivables were from one mass discount merchant and one foreign distributor,
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.

NOTE 3 - MARKETABLE SECURITIES:

Marketable securities classified as current assets at March 31, 1998, include
the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                  Fair Value         Cost
                                                 ------------    ------------
<S>                                              <C>             <C>
   U.S. Treasury obligations                     $         58    $         57
   Other government obligations                            27              27
   Marketable equity securities                           363             342
                                                 ------------    ------------
                                                 $        448    $        426
                                                 ------------    ------------
                                                 ------------    ------------
</TABLE>


                                                                             32
<PAGE>

                               PERFECTDATA CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                      Years ended March 31, 1998, 1997, and 1996


NOTE 3 - MARKETABLE SECURITIES (CONTINUED):

The contractual maturities of debt securities available for sale at March 31,
1998, follows:

<TABLE>
<CAPTION>
                                                        Fair Value      Cost
                                                        ----------   ----------
   <S>                                                  <C>          <C>
   Due after one year through five years                $     58     $     57
   Due after ten years                                        27           27
                                                        --------     --------
                                                        $     85     $     84
                                                        --------     --------
                                                        --------     --------
</TABLE>

Net unrealized holding gains (losses) at March 31, 1998 and 1997, were
approximately $22,100 and $(4,600), respectively.  During the year ended March
31, 1998, realized gains and losses  from the sale of securities were $10,899
and $32,352, respectively.

NOTE 4 - INVENTORIES:

Inventories, consisting of materials, labor and other costs, are stated at the
lower of cost (determined by the first-in, first-out method) or market and are
summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                          March 31,
                                                  -------------------------
                                                     1998            1997
                                                  ----------     ----------
   <S>                                            <C>            <C>
   Raw materials                                  $     238      $     384
   Work in process                                       68            132
   Finished products                                    265            667
                                                  ---------      ---------
                                                  $     571      $   1,183
                                                  ---------      ---------
                                                  ---------      ---------

</TABLE>

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of (dollars in thousands):


<TABLE>
<CAPTION>
                                                           March 31,
                                                   ------------------------
                                                      1998           1997
                                                   ----------     ----------
   <S>                                             <C>            <C>
   Machinery and equipment                         $     467      $     479
   Furniture and fixtures                                149            151
   Tooling                                               444            711
   Leasehold improvements                                155            155
                                                   ---------      ---------
                                                       1,215          1,496

     Less accumulated depreciation                    (1,097)        (1,341)
                                                   ---------      ---------

                                                  $      118     $      155
                                                   ---------      ---------
                                                   ---------      ---------
</TABLE>

Depreciation expenses for the years ended March 31, 1998, 1997 and 1996 were 
$39,000, $ 95,000 and $125,000, respectively.


                                                                             33
<PAGE>

                               PERFECTDATA CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                      Years ended March 31, 1998, 1997, and 1996


NOTE 6 - INVESTMENT IN AFFILIATE:

The Company owned 15% and 58% of Starnet Universe Internet, Inc., at March 31,
1998 and 1997, respectively.  Prior to March 31, 1997, this investment had been
consolidated with the Company. Subsequent to March 31, 1997, the Company's Board
of Directors resolved to dispose of substantially all of the Company's
investment in Starnet.  As such, this investment was deemed to be temporary and
was not consolidated for fiscal 1997.  Additionally, fiscal 1996 was restated to
conform with the presentation of 1997.

Prior to fiscal 1998, the Company recognized a loss from Starnet of $14,742 in
1997 and income of $183 in 1996. During fiscal 1998, the Company reduced its
ownership interest in Starnet to 15%.  The Company reclassified the investment
as marketable securities available for sale, accounted for under the Cost
Method. The Company's cost basis in this investment was $5,399 at March 31,
1998.


NOTE 7 - NOTE PAYABLE:

During fiscal 1996, 1997 and up until August 31, 1997, the Company had a
$1,000,000 line of credit agreement with a bank.  This line of credit was
secured by accounts receivable, inventory, equipment and general intangibles.
The agreement subjected the Company to certain covenants related to liquidity,
capital expenditures and commitments, net worth and the reacquisition of stock.
Interest on outstanding borrowings was payable monthly at prime plus 1.25%.  The
agreement expired August 31, 1997 and was not renewed.  No borrowings were
outstanding at March 31, 1998 or 1997.


NOTE 8 - INCOME TAXES:

The components of the income tax (benefit) provision attributable to continuing
operations were (dollars in thousands):




<TABLE>
<CAPTION>
                                                                        March 31,
                                                      ----------------------------------------
                                                         1998           1997           1996
                                                      ----------     ----------     ----------
   <S>                                                <C>            <C>            <C>
   Current:
     Federal                                          $       -      $       -      $       -
     State                                                    1              1              1
                                                      ---------      ---------      ---------

                                                              1              1              1
   Deferred:
     Net increase (decrease) in deferred tax asset            4            (43)           (20)
     (Increase) decrease in benefit of NOL
       carryforwards                                       (132)            96            135
     Increase (decrease) in valuation allowance             377           (236)          (136)
                                                      ---------      ---------      ---------

                                                      $     250      $     290      $      20
                                                      ---------      ---------      ---------
                                                      ---------      ---------      ---------
</TABLE>


                                                                             34
<PAGE>



                               PERFECTDATA CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                      Years ended March 31, 1998, 1997, and 1996


NOTE 8 - INCOME TAXES (CONTINUED):

At March 31, 1998, the Company had net operating loss (NOL) carryforwards of
approximately $2,948,673 for federal income tax purposes expiring in varying
amounts through 2013.  The NOL carryforwards, which are available to offset
future profits of the Company and are subject to limitations should a "change in
ownership" as defined in the Internal Revenue Code occur, will begin to expire
in 2001 if not utilized. Additionally, the Company has general business tax
credit carryforwards of $174,109 which will begin to expire in 1998.

In April 1993 the Company adopted Statement of Financial Accounting Standards
No. 109 (SFAS 109), "Accounting for Income Taxes."  SFAS 109 is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.  Previously,
the Company used the APB 11 approach that gave no recognition to future events
other than the recovery of assets and settlement of liabilities at their
carrying amounts.  Under SFAS 109 the Company recognizes to a greater degree the
future tax benefits of expenses which have been recognized in the financial
statements.

SFAS 109 requires that the tax benefit of such NOLs be recorded using current
tax rates as an asset to the extent management assesses the utilization of such
NOLs to be more likely than not.  Management has determined that future taxable
income of the Company will more likely than not be insufficient to realize the
recorded deferred tax asset of $1,054,552, and has recoreded a valuation
allowance of $1,054,552.

Realization of the future tax benefits of the NOL carryforwards is dependent on
a Company's ability to generate taxable income within the carryforward period.
In assessing the likelihood of utilization of existing NOL carryforwards,
management considered the historical results of continuing operations over the
last three years and the current economic environment in which the Company
operates.  Management did not consider any non-routine transactions in assessing
the likelihood of realization of the recorded deferred tax asset.

The following reconciles the federal statutory income tax rate to the effective
rate of the provision for income taxes.



<TABLE>
<CAPTION>
                                                                        March 31,
                                                          ------------------------------------
                                                            1998          1997         1996
                                                          --------      --------     --------
     <S>                                                  <C>           <C>          <C>
     Federal statutory rate                                  34.0%          34.0%        34.0%
     Increases (reductions) in taxes due to:
       State income taxes (net of federal benefit)             .3%           4.0%         6.1%
       Valuation allowance adjustment                      (103.0%)      1,122.0%       (24.1%)
       Other, net                                             0.6%             -%         2.2%
                                                          --------      --------     --------

                                                           ( 68.1%)      1,160.0%        13.8%
                                                          --------      --------     --------
                                                          --------      --------     --------
</TABLE>


NOTE 9 - SHAREHOLDERS' EQUITY:

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, 1998 or 1997.

During the year ended March 31, 1998, the Company reacquired approximately 94
shares of its common stock.


                                                                             35
<PAGE>

                               PERFECTDATA CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                      Years ended March 31, 1998, 1997, and 1996

NOTE 10 - STOCK OPTION AND BONUS PLANS:

During November 1985, the Company adopted the 1985 stock option 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.
During fiscal year 1997, the board of directors voted to extend the term of the
plan by 12 months thereby making the expiration date December 31, 1996.  Under
the 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.  During the year ended March 31,
1998, no options were granted. A total of 286,250 options were exercised as of
March 31, 1998, 70,000 of which were exercised during the current year.

Activity under the plan is summarized as follows:


<TABLE>
<CAPTION>
                                                               OPTION PRICE
                                                   NUMBER OF     PER SHARE
                                                    SHARES       (AVERAGE)      AGGREGATE
                                                 -----------    -----------    -----------
     <S>                                         <C>            <C>            <C>
     Options outstanding at March 31, 1995           202,500           .947        191,825

     Options granted                                  20,000         1.1875         23,750

     Options exercised                                     -              -              -

     Options canceled or expired                     (10,000)          .938         (9,380)
                                                 -----------    -----------    -----------

     Options outstanding at March 31, 1996           212,500           .970        206,195

     Options granted                                  14,500         2.0625         29,906

     Options exercised                               (27,500)        1.0625        (29,219)

     Options cancelled or expired                          -              -              -
                                                 -----------    -----------    -----------

     Options outstanding at March 31, 1997           199,500         1.0370        206,882

     Options granted                                       -              -              -

     Options exercised                               (70,000)         .9375        (65,625)

     Options cancelled or expired                    (11,500)        1.3102        (15,068)
                                                 -----------    -----------    -----------

     Options outstanding at March 31, 1998           118,000         1.0694        126,189
                                                 -----------    -----------    -----------
                                                 -----------    -----------    -----------
</TABLE>



                                                                             36
<PAGE>

                               PERFECTDATA CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                      Years ended March 31, 1998, 1997, and 1996


NOTE 11 - MAJOR CUSTOMER AND EXPORT SALES:


During the year ended March 31, 1998 one customer accounted for more than 10% of
sales.  This customer, a large consumer discount house, accounted for 23% and
41% of sales for fiscals 1998 and 1997, respectively.

In June of 1997, the Company learned that this customer would not renew its
purchase agreement for the next year and orders from the customer ceased in
August, 1997. The loss of this customer has had a significant adverse effect on
the Company's revenues. For fiscals 1998, 1997 and 1996, sales to this customer
were approximately $759,000, $2,403,000 and $2,241,000, respectively.

In addition, the Company had export sales to unaffiliated customers as follows
(dollars in thousands):

<TABLE>
<CAPTION>
                                            Year Ended March 31,
                                  --------------------------------------
                                     1998          1997          1996
                                  ----------    ----------    ----------
   <S>                            <C>           <C>           <C>
   Europe                         $      242    $      209    $      331
   Canada                                199           326           407
   Australia                              20            32            36
   Africa                                 30            36            15
   Far East                               19            26            19
   Other geographic areas                 16            20             1
                                  ----------    ----------    ----------

                                  $      526     $     649    $      809
                                  ----------    ----------    ----------
                                  ----------    ----------    ----------
</TABLE>

Operations by geographic area are summarized as follow (dollars in thousands):

<TABLE>
<CAPTION>
                                            Year Ended March 31,
                                  --------------------------------------
                                     1998          1997          1996
                                  ----------    ----------    ----------
   <S>                            <C>           <C>           <C>
   Net Sales:
   Domestic customers             $    2,773    $    5,112    $    5,245
   International                         526           649           809
                                  ----------    ----------    ----------

   Total                          $    3,299    $    5,761    $    6,054
                                  ----------    ----------    ----------
                                  ----------    ----------    ----------
</TABLE>

NOTE 12 - COMMITMENTS AND CONTINGENCIES:

The Company leases facilities under noncancelable operating leases that expire
through 2003.  Rental expense was $117,000, $117,000, and $124,000 for the years
ended March 31, 1998, 1997, and 1996, respectively.

Minimum annual rental commitments under operating leases are summarized as
follows (in thousands)

<TABLE>
                              <S>                    <C>
                              1999                   $   135
                              2000                       144
                              2001                       146
                              2002                       156
                              2003                       158
                              Thereafter                  26
                                                     -------

                                                     $   765
                                                     -------
                                                     -------
</TABLE>


                                                                             37
<PAGE>

                               PERFECTDATA CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                      Years ended March 31, 1998, 1997, and 1996

NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED):


A lawsuit was filed against PerfectData in the Superior Court of Orange County,
California on May 11, 1995.  The lawsuit involves product liability resulting in
a loss of life.  On June 4, 1996, judgement was found in favor of the Company
with no liability. The plaintiff has appealed this ruling and the court has
ordered a settlement conference scheduled for June 25, 1998 before a retired
Distict Court of Appeal Justice. PerfectData has little, if any, exposure in
this matter as they are covered by a general liability policy issued by CNA
Insurance with liability limits of $6,000,000.  All court costs are being borne
by CNA Insurance.

As the result of a different lawsuit, in November 1995, a former employee won an
award against the Company for $203,403.  The lawsuit related to the termination,
in October 1993, of an employment contract entered into between the company and
the individual during July 1993.  This employment contract was entered into in
conjunction with the purchase, by the Company, of a computer cable business from
the individual.  The award was comprised of damages of $136,525 and attorneys'
fees and other costs of $66,878.  These legal expenses were expensed as part of
discontinued operations.

In January 1996, the Company filed a notice of appeal and on March 31, 1997 the
appeals court issued its opinion affirming the judgement against the Company.
This judgement became final on April 30, 1997.  At the time of its appeal, the
Company posted a Certificate of Deposit in the amount of $305,000 to cover any
amount it would have to pay. This amount appears in the Company's balance sheet
as of March 31, 1997 as a deposit on litigation award.

In December 1995 the Company filed a complaint against the same former employee
and his company alleging that they copied PerfectData's trademark and trade
dress in an attempt to distribute or otherwise sell their product, "Perfect
Cleaner".  The product would compete directly with the Company's line of
products known as PerfectDuster, PerfectDuster Plus and PerfectDuster II Plus.
On December 21, 1995, the Court granted the Company's motions for a restraining
order and preliminary injunction which enjoined the defendants from the
manufacture and distribution of the product in question.

The parties reached a global settlement of both actions.  Under terms of the
settlement, the Company paid the former employee the sum of $185,000 in exchange
for its right to seek further appeal.  Defendants in the trademark infringement
action agreed to assign and transfer any and all right, title and interest in
the trademark, trade name, and trade dress of their canned air product "Perfect
Cleaner" and any and all goodwill of the Perfect Cleaner business to the
Company.  The former employee and his company further agreed not to sell a
canned air product in the United States or Canada for three years.

Unresolved was the amount of attorneys' fees owed to the former employee's
counsel in his case against the Company.  It was the contention of his counsel
that they were entitled to an award of attorneys' fees for services rendered
during the Company's appeal of the original judgement against the Company.  The
parties agreed to have this issue decided by a judge. In fiscal 1997, the
Company accrued an additional $62,000 of loss to cover these actions, bringing
the total to $265,000 since the first suit was filed.  This amount was comprised
of the $185,000 to be paid to the former employee and $80,000 to cover the
Company's and the former employee's legal costs.  This additional $62,000 was
charged to discontinued operations for the year ended March 31, 1997. On July
21, 1997, a hearing was held in the Superior Court of Ventura County,
California. On October 17, 1997, the judge ruled in favor of the former employee
and awarded post-judgement attorney's fees in the amount of $96,268. During
November 1997, the parties settled the post-judgement attorney's fees for the
sum of $82,500 which the Company paid the former employee and his attorneys in
December, 1997. As a result of these actions, including final settlement of the
case, the Company recorded a charge to discontinued operations of $66,000 during
fiscal 1998.


                                                                             38
<PAGE>

                               PERFECTDATA CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                      Years ended March 31, 1998, 1997, and 1996

NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED):


In an unrelated case, the past CFO of Permabyte Magnetics, Inc. (PMI) has
brought an action for unpaid wages and fraudulent conveyence against PMI, the
Company, the Company's chairman and a director of the Company.  The former CFO
claims that PMI owes her approximately $30,000 for unpaid vacation which had
accrued prior to her termination.  She also alleges that the defendants,
including the Company, improperly diverted PMI assets to the Company.

During a demurrer to the First Amended Complaint, the former CFO failed to
properly seek leave of court to file a second amended complaint.  Consequently,
the court dismissed the entire action.  In August 1996, the former CFO filed a
notice of appeal with the 4th Appellate District Court of Appeal in San Diego,
California. On June 11,1998, in the San Diego Court of Appeal, 4th Appellate
District, oral arguments were heard.  As of June 18, 1998, the Appellate Court
had not yet rendered a decision.

The Company feels the former CFO's case is without merit and intends to
vigorously defend itself in this action.  No provision has been made for any
possible loss associated with this action.


NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED):

Quarterly financial data from continuing operations for the eight quarters ended
March 31, 1997 is summarized as follows (dollars in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                               June 30,     September 30,  December 31,    March 31,
                                 1997           1997          1997           1998
                             -----------    -----------    -----------    -----------
<S>                          <C>            <C>            <C>            <C>
Net sales                    $     1,452    $      740     $       525    $       582
Gross profit                         482           270             216            126
Net earnings                          11          (104)           (116)          (408)
Earnings per share                     -          (.03)           (.04)          (.13)
Weighted average
  shares outstanding         $     3,094    $    3,094     $     3,143    $     3,164
                             -----------    ----------     -----------    -----------
                             -----------    ----------     -----------    -----------

<CAPTION>
                               June 30,     September 30,  December 31,    March 31,
                                1996            1996           1996           1997
                             -----------    -----------    -----------    -----------
<S>                          <C>            <C>            <C>            <C>
Net sales                    $     1,430    $     1,471    $     1,382    $     1,478
Gross profit                         516            461            449            548
Net earnings                          20              4             (3)          (286)
Earnings per share                   .01              -              -           (.10)
Weighted average
  shares outstanding         $     3,074  $       3,094    $     3,143    $     3,164
                             -----------    -----------    -----------    -----------
                             -----------    -----------    -----------    -----------
</TABLE>




                                                                             39
<PAGE>

                               PERFECTDATA CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                      Years ended March 31, 1998, 1997, and 1996


NOTE 14 - DISCONTINUED OPERATION:

In May 1994, the Company adopted a formal plan to discontinue all products in
the telecommunications industry line which consisted of modems, cables and
switch boxes.  As part of such plan, the Company discontinued production in May
1994 with the intent of either selling or abandoning the remaining assets and
corresponding operations during fiscal 1995.  As a result, the Company recorded
a fourth quarter charge of $333,000, net of income tax benefit, to write down
the product line assets to their estimated net realizable values.  Such fiscal
1994 losses are included in the Company's net operating loss carryforwards,
disclosed in Note 8.

During fiscal 1995, most assets of the discontinued operations were disposed of,
and the balance, with the exception of deferred tax assets, were disposed of
during fiscal 1996.

Revenues for the discontinued telecommunications product line were approximately
$0, $0, and $1,000 for the years ending March 31, 1998, 1997 and 1996,
respectively.  The assets and liabilities of the discontinued operations have
been reclassified on the balance sheet from their historic classification to
separately identify them as net assets or liabilities of discontinued operations
and consist of the following:

<TABLE>
<CAPTION>
                                                    March 31,
                                             -----------------------
                                               1998            1997
                                             --------       --------
<S>                                          <C>            <C>
CURRENT:
   Accounts receivable                       $      -       $      -
   Deferred tax assets - current                    -            115
   Accrued expenses                                 -           (265)
                                             --------       --------

                                             $      -       $   (150)
                                             --------       --------
                                             --------       --------
</TABLE>

As discussed in Note 12, during fiscal 1996, the Company lost a lawsuit to a
former employee who was employed in connection with the discontinued cable
operations.  As a result of this unanticipated court decision, the Company
recorded a loss of approximately $186,000, offset by a deferred tax asset of
$88,000 to discontinued operations for fiscal 1996.  For fiscal year 1997, the
Company has recorded an additional $62,000 of possible loss which has been
offset by an increased deferred tax asset of $27,000.  This litigation award was
paid during fiscal 1998, thus eliminating the last remaining liabilities
associated with the Company's discontinued operations.  Due to the unlikelihood
that the Company will realize the benefit of any deferred tax assets related to
its net operating loss carryforwards, the Company reserved the remaining
$115,000 of deferred tax assets related to its discontinued operations during
fiscal 1998.




                                                                             40
<PAGE>

                               PERFECTDATA CORPORATION
                  SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
                      YEARS ENDED MARCH 31, 1998, 1997 AND 1996



<TABLE>
<CAPTION>
                                                                                      ADDITIONS
                                                                                    -------------
                                                                          CHARGED
                                              BALANCE      CHARGED TO     TO OTHER                        BALANCE
                                              BEGINNING    COSTS AND      ACCOUNTS     DEDUCTIONS        AT END OF
                                               PERIOD       EXPENSES      DESCRIBE       DESCRIBE          PERIOD
                                              ---------    ---------      ---------     ---------       ---------
<S>                                           <C>          <C>            <C>           <C>             <C>
Year ended March 31, 1998
  Deducted from asset accounts:
   Allowance for doubtful accounts            $   9,000    $   3,000      $       -     $       -       $   12,000
   Allowance for inventory reserves              40,000       80,000              -             -          120,000
   Allowance for net unrealized (gains)
    losses on marketable equity
    securities-current                            5,000            -              -       (27,000)        (22,000)
                                              ---------    ---------      ---------     ---------       ---------

   TOTAL                                      $  54,000    $  83,000      $       -     $ (27,000)      $ 110,000
                                              ---------    ---------      ---------     ---------       ---------
                                              ---------    ---------      ---------     ---------       ---------


Year ended March 31, 1997
  Deducted from asset accounts:
   Allowance for doubtful accounts            $  11,000    $       -      $       -     $   2,000       $   9,000
   Allowance for inventory reserves             155,000            -              -       115,000          40,000
   Allowance for net unrealized
    losses on marketable equity
    securities-current                           22,000            -              -        17,000           5,000
                                              ---------    ---------      ---------     ---------       ---------

   TOTAL                                      $ 188,000    $       -      $       -     $ 134,000       $  54,000
                                              ---------    ---------      ---------     ---------       ---------
                                              ---------    ---------      ---------     ---------       ---------

Year ended March 31, 1996
  Deducted from asset accounts:
   Allowance for doubtful accounts            $  30,000    $   4,000      $       -     $  23,000       $  11,000
   Allowance for inventory reserves             135,000       20,000              -             -         155,000
   Allowance for net realized
    losses on marketable equity
    securities-current                           14,000            -          8,000             -          22,000
                                              ---------    ---------      ---------     ---------       ---------

   TOTAL                                      $ 179,000    $  24,000      $   8,000     $  23,000       $ 188,000
                                              ---------    ---------      ---------     ---------       ---------
                                              ---------    ---------      ---------     ---------       ---------

</TABLE>


                   See accompanying notes to financial statements.


                                                                             41
<PAGE>

                                      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:Joseph Mazin
                                           ----------------------------
                                           Joseph Mazin, President

Date:  June 23, 1998

     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 23, 1998.

     SIGNATURE                          TITLE


Joseph Mazin                       President, Chief Executive
-------------------------          Officer, Director and Chairman
Joseph Mazin                       of the Board (Principal
                                   Executive Officer)

Irene J. Marino                    V.P. Finance, Chief Financial
-------------------------          Officer and Corporate
Irene J. Marino                    Secretary (Principal Financial
                                   and Accounting Officer)

Tracie Savage                      Director
-------------------------
Tracie Savage

Ronald M. Chodorow                 Director
-------------------------
Ronald M. Chodorow


                                                                             42
<PAGE>

                                  INDEX TO EXHIBITS


<TABLE>
<CAPTION>
       EXHIBIT NO.            DESCRIPTION OF EXHIBIT
       -----------            ----------------------
       <S>                    <C>
           3.1                Articles of Incorporation as
                              amended to date(7)

           3.2                Bylaws as amended to date(13)

           9                  Stockholders Agreement dated
                              November 3, 1980(1)

          10.3                Stock Purchase Agreement
                              between the Company and Wood
                              River Capital Corporation
                              dated October 28, 1980(1)

          10.4                Stock Option Agreement with
                              Wood River Capital Corporation
                              dated November 3, 1980(1)

          10.7                1985 Employee Stock Option
                              Plan(2)

          10.8                Form of Incentive Stock Option
                              Agreement(2)

          10.9                Form of Non-Qualified Stock
                              Option Agreement(2)

          10.12               Employee Stock Option Plan(1)

          10.13               Amendment No. 1 to Employee
                              Stock Option Plan(1)

          10.14               Form of Non-Qualified Stock
                              Option Agreement with
                              Repurchase Provisions(1)

          10.15               Form of Amendment No. 1 to
                              Non-Qualified Stock Option
                              Agreement with Repurchase
                              Provisions(1)

          10.16               Form of Incentive Stock Option
                              Agreement with Repurchase
                              Provisions(1)

                                                                             43
<PAGE>

          10.17               Form of Stock Purchase
                              Agreement dated March 23, 1983(1)

          10.25               Lease Agreement dated February 7,
                              1985 between Pension Funds
                              Securities Limited, as lessor,
                              IDA International Data Automation
                              Limited, as lessee, and the
                              Company, as surety (Wokingham,
                              England facility)(2)

          10.26               Surety Agreement dated February 7,
                              1985 between Pension Funds
                              Securities Limited, as landlord,
                              IDA International Data Automation
                              Limited, as tenant, and the
                              Company, as surety(2)

          10.38               1985 Employee Stock Purchase Plan(3)

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

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

          10.42               Agreement between the Company and
                              International Data Automation, dated
                              February 23, 1987, as amended to
                              date(8)

          10.43               License Agreement dated August 14,
                              1987 between Polaroid Corporation and
                              the Company(5)

          10.44               Security Agreement dated August 14,
                              1987 between Polaroid Corporation and
                              the Company(5)

          10.45               Settlement Agreement dated August 14,
                              1987 between Polaroid Corporation and
                              the Company(5)

          10.46               Standard Industrial Lease dated
                              September 25, 1987 between
                              Gurgen Minaskanian, as lessor, and the
                              Company, as lessee(5)


                                                                             44
<PAGE>

          10.47               Agency Agreement dated February 23,
                              1988 between Amaray Data International
                              Limited and the Company(5)

          10.48               License to Assign Sublease (Wokingham,
                              England, facility) between Pension Fund
                              Securities Limited, as landlord,
                              PerfectData International Limited,
                              as tenant, the Company, as Surety, and
                              Integrated Computer Systems and
                              Cybernetics Limited, as subtenant(6)

          10.49               Loan and Security Agreement with respect
                              to line of credit in the amount of
                              $500,000 with Mitsui Manufacturers
                              Bank(6)

          10.52               Loan and Security Agreement with respect to
                              renewal of line of credit in the amount of
                              $500,000 with Mitsui Manufacturers Bank(8)

          10.53               Agreement between the Company,
                              Robert B. Miller and Coverware Company
                              dated November 15, 1990(8)

          10.54               Warrant to Purchase Common Stock
                              dated May 15, 1991 issued to
                              Richard J. Coyle(9)

          10.55               Bills of Sale with respect to purchase of assets
                              of Anchor Automation Inc.(9)

          10.56               Standard Industrial Lease dated
                              August 26, 1991, between Wayne Mertes, Mamie
                              Mertes, Mike Butler and Sarah Butler, as lessor,
                              and the Company, as lessee(9)

          10.57               Loan and Security Agreement with respect to
                              renewal of line of credit in the amount of
                              $500,000 with Mitsui Manufacturers Bank(9)

          10.58               Exclusive Distribution Agreement between the
                              Company and Acoustics and Felts Pty Ltd.(10)

          10.59               Loan and Security Agreement with respect to
                              increased renewal of line of credit in the amount
                              of $1 million with Manufacturers Bank(10)


                                                                             45
<PAGE>

          10.60               License Agreement between the Company and Arthur
                              D. Little Enterprises, Inc.(11)

          10.61               Agreement between the Company and Tony Gigiliotti
                              dba SubSystems, dated June 15, 1993(11)

          10.62               Loan and Security Agreement with respect to
                              renewal of line of credit in the amount of $1
                              million with Manufacturers Bank(11)

          10.63               Stock Purchase Agreement by and among Flamemaster
                              Corporation, the Company, Bruce D. Stuart and
                              Joseph Mazin, Robert Murashige and PermaByte
                              Magnetics, Inc.(12)

          10.64               Loan and Security Agreement with respect to
                              renewal of line of credit in the amount of $1
                              million with Manufacturers Bank(12)

          10.65               Loan and Security Agreement with respect to
                              renewal of line of credit in the amount of $1
                              million with Manufacturers Bank(13)

          10.66               Loan and Security Agreement with respect to
                              renewal of line of credit in the amount of $1
                              million with Manufacturers Bank(14)
</TABLE>

-----------------------

 (1)   Incorporated by reference to the same numbered exhibit to Registration
       Statement on Form S-1, as amended (File No. 2-83836), filed May 18, 1983
       and declared effective July 12, 1983.

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

 (3)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1986.



                                                                             46
<PAGE>

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

 (5)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1988.

 (6)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1989.

 (7)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1990.

 (8)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1991.

 (9)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1992.

(10)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1993.

(11)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1994.

(12)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1995.

(13)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1996.

(14)   Incorporated by reference to the same numbered exhibit to the Company's
       Annual Report on Form 10-K for its fiscal year ended March 31, 1997.



                                                                             47