<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

[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, 1999             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 Form 10-K. [X]

As of May 31, 1999, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $5,131,894.

As of May 31, 1999, the registrant had 3,192,306 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 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.

<PAGE>

         Currently the largest growth area in these other channels is the retail
SOHO (Small Office Home Office) segment of the market. This market is serviced
mainly by office superstores, mass merchants, consumer electronics retailers,
warehouse clubs, and computer superstores. The Company is organized to service
all distribution channels. The Company feels that the market potential for its
products will continue to grow and increase in size.

PRODUCTS

         PerfectData Corporation designs and assembles all of its cleaning and
maintenance products which it markets and distributes. The Company sub-contracts
for its components from a variety of established suppliers and manufacturers.

         The consumable cleaning and preventative maintenance products are for
Home, Office and Computer environments. These products are designed to eliminate
or minimize contamination in and around computer and office automation
equipment. Use of the Company's products on a regular basis reduces equipment
downtime and the need for unnecessary service and repairs.

         The Company's principal selling product is the PerfectDuster EcoDuster
line of compressed gas dusters. This product is offered in a variety of
formulations to meet competitive pressures and buyer demand. All of these
dusters are 100% CFC free and contain no ozone depleting chemicals that could
damage the ozone layer in the earth's upper atmosphere.

         Other products that the Company presently sells are computer disk drive
cleaners, CD and tape drive cleaners, CD player cleaners, static control
products, laser and inkjet printer cleaners, fax and copy machine cleaners, and
a variety of premoistened cleaning wipes for specific equipment.

MARKETING

         CUSTOMERS.  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, 1999, 1998 and 1997, approximately 9%, 16%, and 11% respectively
of the Company's net sales were to International accounts.

         While the Company sold products to more than 400 customers throughout
the world during fiscal 1999, approximately 66% of the Company's net sales were
accounted for by its 10 largest customers. Two of these customers, Eskel-Porter
and Azerty, Inc. each accounted for 14% of total sales. Sales to these customers
were made pursuant to specific purchase orders and neither customer is obligated
under any other agreement. The loss of these customers could have an adverse
effect on the Company's business. No other customer accounted for more than 10%
of the Company's net sales.

<PAGE>

         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 Company in the seven Canadian provinces and the
northwest territories.

         In addition to S.C.E., approximately 15 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, 1999 the Company had orders, scheduled for delivery
within a ninety day period or less, aggregating approximately $60,000 as
compared with a backlog of approximately $40,000 at March 31, 1998. Purchase
order release lead-times depend upon the scheduling practice of the
individual customer, and the

<PAGE>

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 1999, 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.

         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 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, 1999 the Company employed 14 persons, of whom
approximately 5 were engaged in assembly and testing, 4 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.

<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. The Telecommunications
business belongs to the major corporations who have all the financial resources
and technology necessary to compete in the increasingly volatile marketplace.
The Company could not compete with these corporations.

         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 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

<PAGE>

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 claimed that PMI owed 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.

         In March of 1999, the parties agreed to a settlement and Mutual Release
of All Claims whereby the Company paid the former CFO $14,000 to fully and
completely settle the action. The court dismissed the action without prejudice.

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

         None.

<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, 1999 and 1998, as reported by
NASDAQ. 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, 1999 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
------------------------------------------------------------------------------
         <S>                                   <C>           <C>
                  1999

         First Quarter                         $ 1.625       $  .875
         Second Quarter                        $ 1.188       $  .563
         Third Quarter                         $ 2.375       $  .750
         Fourth Quarter                        $ 1.188       $  .750

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                  1998

         First Quarter                         $ 2.813       $ 1.625
         Second Quarter                        $ 2.250       $ 1.000
         Third Quarter                         $ 3.000       $ 1.063
         Fourth Quarter                        $ 3.375       $ 1.250

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

         The last sales price for the Company's Common Stock as of June 14, 1999
was $1.688.

<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,
                                    1999               1998              1997              1996              1995
                                    ---------------------------------------------------------------------------------
                                    (Dollars in thousands, except per share information)

<S>                                  <C>               <C>               <C>               <C>               <C>
Net Sales                            $ 1,689           $ 3,299           $ 5,761           $ 6,054           $ 7,214

Income (loss) from
  continuing operations
  before income taxes                   (406)             (367)               25               144               171

Income tax benefit
 (or provision)                            4              (250)             (290)              (20)              359
                                     -------           -------           -------           -------           -------

Income (loss) from
 continuing operations                  (402)             (617)             (265)              124               530

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

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

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

Earnings (loss)
  per share of
  common stock:

    Continuing operations               (.13)             (.20)             (.09)              .04               .16
    Discontinued operations                -              (.06)             (.02)             (.03)             (.05)
                                     -------           -------           -------           -------           -------

Net earnings (loss)                  $  (.13)          $  (.26)          $  (.11)          $   .01           $   .11
                                     -------           -------           -------           -------           -------

Weighted average
 shares outstanding                    3,159             3,123             3,089             3,107             3,422

</TABLE>

<PAGE>

SELECTED BALANCE SHEET DATA

<TABLE>
<CAPTION>
                                                                  AS OF MARCH 31,
                                     1999            1998               1997             1996             1995
                                    ----------------------------------------------------------------------------
                                                               (Dollars in thousands)
<S>                                  <C>             <C>                <C>              <C>              <C>
Working Capital                      $2,115          $2,522             $2,940           $2,900           $2,892

Total Assets                          2,586           3,053              4,298            4,630            4,705

Net Shareholders' Equity              2,305           2,794              3,500            3,792            3,889

</TABLE>


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

RESULTS OF OPERATIONS

         Fiscal 1999 net sales from continuing operations decreased to
$1,689,000 from $3,299,000 in fiscal 1998 and $5,761,000 in fiscal 1997.

         The dramatic decline in sales in fiscal 1999 and 1998 is directly
related to the loss of a major customer. 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 quarter of fiscal 1998.

         Further contributing to the decline in fiscal 1999 sales was a decline
in the Company's international business. During the fourth quarter of fiscal
1998, the Company's exclusive Canadian distributor discontinued this segment of
their business and no longer distributed the company's products. During fiscal
1998 sales to this Canadian distributor accounted for 6% of the Company's sales.
Also, the Company's European distributor lost one of its major accounts during
the fourth quarter of fiscal 1998. During fiscal 1998, sales to this European
distributor accounted for 7% of the Company's sales. The Company's sales to this
European distributor declined 50% during fiscal 1999.

         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.

<PAGE>

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

         Cost of sales from continuing operations as a percentage of net
sales for fiscal 1999, 1998 and 1997 were 62%, 67% and 66% respectively. The
decrease in cost of sales for fiscal 1999 is a result of a reduction in the
Company's labor costs as well as management's ability to negotiate with its
suppliers to obtain the best possible pricing for its materials.

         The slight increase in cost of sales for fiscal 1998 directly
relates to inventory reserves made for the ergonomic products and accessories
line. The Company made the decision to discontinue this product line during
the fourth quarter of fiscal 1998.

         Selling, General and Administrative Expenses from continuing
operations for fiscal 1999, 1998 and 1997 were $1,180,000, $1,535,000 and
$2,030,000 respectively. The decrease in expenses in fiscal 1999 and 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, so did these expenses. The decrease in costs and expenses
in fiscal 1999 and 1998 also relates to severe cost-cutting measures which
included, amongst others, a reduction in staff and a very tight control of
all expenditures.

         During the quarter ended September 30, 1998 the Company reorganized
its Sales and Marketing Departments and appointed a new director. When the
Company lost its major customer, it commenced seeking out a sub-tenant to
share the facility the Company occupies. Subsequent to fiscal 1999 year end,
the Company successfully found a sub-tenant to occupy a portion of its
facility and reduce the Company's facility costs.

         Other income and expense for fiscal 1999, 1998 and 1997 was
primarily interest income of $39,000, $33,000 and $28,000 respectively;
royalty income of $2,000, $7,000 and $10,000 respectively; and dividend and
option income of $79,000, $55,000 and $47,000 respectively.

         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. 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.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The cash position at March 31, 1999 is $1,074,000 including
Certificates of Deposit of $255,000. The Company has short-term marketable
securities of $327,000.

         The Company has a current ratio of better than 8 to 1 at fiscal year
end and no long-term debt.

         The Company believes that liquidity and working capital are adequate
to fund the Company's operations and Capital requirements for the 2000 fiscal
year.

         The Company continues to follow a plan to expand its distribution
and sales base by focusing on profitable new accounts using outside sales
professionals and electronic commerce.

         At March 31, 1999 the Company had net operating loss and general
business tax credit carry forwards for income tax purposes of approximately
$3,431,233 and $174,109 respectively, available to reduce future potential
Federal income taxes.

         On December 8, 1998, the Company announced the signing of an
agreement of its intent to merge with Pego Systems, Inc. of Long Beach,
California. Pego Systems, Inc., an engineering and manufacturing Company, is
a subsidiary of The Hartcourt Companies. The merger was subject to further
due diligence and the signing of a definitive agreement as well as
shareholder and regulatory approvals. As part of the transaction, PerfectData
and PerfectData shareholders were to receive shares in The Hartcourt
Companies. In reviewing the Pego financials prior to closing of the
agreement, they reflected a slight loss for the year rather than the
anticipated gain. Hartcourt has since spun off Pego Systems to Hartcourt
shareholders, along with other assets, by distributing shares in ENOVA.

         Managements of both PerfectData and The Hartcourt Companies continue
to seek ways to create shareholder value by addressing the needs of each
entity and focusing on a transaction that is mutually beneficial.

         PerfectData's management continues its discussions with potential
merger and joint venture partners including The Hartcourt Companies.

YEAR 2000 UPDATE

         In 1998, the Company established and began to implement a program to
address the Year 2000 issue. The Year 2000 program included the
implementation of previously planned systems as well as specific Year 2000
programs. All programs are on track for completion before the year 2000 with
various applications being upgraded or replaced as needed. The Company does
not expect the Year 2000 program to have a material impact on its results of
operations, liquidity, or financial condition. Additionally, the Year 2000
program has not deferred any other company projects that will have a material
impact on its results of operations, liquidity, or financial condition.

IT SYSTEMS

         In 1998, with the development of the Year 2000 program the Company
began undertaking changes to bring compliant systems and accompanying
methodology on board.

         The IT systems have been inventoried and the necessary Year 2000
upgrades, replacements and retrofits identified. These projects are presently
in various stages of analysis, development and implementation. The Year 2000
program is currently scheduled to be completed by the fourth quarter of 1999.

<PAGE>

NON-IT SYSTEMS

         Non-IT Systems may contain date sensitive embedded technology
requiring the Year 2000 upgrades. Examples of this technology include
security equipment such as access and alarm systems, as well as facilities
equipment such as heating and air conditioning units.

         The Company is a product manufacturer; therefore the "embedded chip"
issue relates to production line components as well as to the equipment used
by the Company. Production line components and facilities and equipment are
being inventoried and assessments are in progress.

COSTS

         The total cost associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's results of
operations, liquidity and financial condition. The estimated total cost of
the Year 2000 effort is expected to be under $20,000. This estimate does not
include the cost of the Company's previously planned business systems
upgrades, which have not been accelerated due to the Year 2000 problem.

RISKS AND CONTINGENCY PLANNING

         The Company has identified and assessed the areas that may result in
an interruption in, or failure of, certain normal business operations or
activities. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company
is unable to determine at this time whether the consequences of the Year 2000
failures will have a material impact on the Company's results of operations,
liquidity or financial condition. The Year 2000 program is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem. The Company believes that through its Year 2000 program, the
possibility of significant interruptions of normal business operations should
be reduced.

         Readers are cautioned that forward looking statements contained in
the Year 2000 Update should be read in conjunction with the Company's
disclosures under the heading "Forward Looking Statements".

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.

<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                        52               President, Chief Executive
                                                     Officer, Director and
                                                     Chairman of the Board

Tracie Savage                       36               Director

Ronald M. Chodorow                  58               Director

Irene J. Marino                     55               Vice President Finance,
                                                     Chief Financial Officer
                                                     and Corporate Secretary
</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 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.

<PAGE>

         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>
Name and                             Annual Compensation
Principal Position                  Year     Salary($) (1)
------------------                  ----     -------------
<S>                                 <C>      <C>
Joseph Mazin                        1999        $60,023
President, Chief                    1998         61,317
Executive Officer and               1997         63,365
Chairman of the Board
</TABLE>

(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, 1999. 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. At March 31,
1999, options covering a total of 103,000 shares of Common Stock were
outstanding at an average exercise price of $ .9945 per share. Options
covering a total of 290,250 shares of the Company's Common Stock have been
cancelled through March 31, 1999. 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

<PAGE>

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 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.

<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, 1999.

         The following table provides certain summary information concerning
the exercise of options during the 1999 fiscal year and unexercisable options
held as of the end of the 1999 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>
                           SHARES                           NUMBER OF                 VALUE OF
                           ACQUIRED                         UNEXERCISED               UNEXERCISED IN-THE-
                           ON               VALUE           OPTIONS HELD AT           MONEY OPTIONS
NAME                       EXERCISE         REALIZED        FISCAL YEAR END           AT FY-END (2)
                             (#)              ($)                (#)
<S>                        <C>              <C>             <C>                       <C>
Joseph Mazin                  -             $  -               90,000(1)                   $  -
</TABLE>

(1)    As of March 31, 1999, 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, 1999, 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, 1999, no new
options were granted to non-employee directors of the Company.

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT

         The following table sets forth, as of May 31, 1999, 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                            19.2
11120 Sherman Way
Sun Valley, CA 91252

Leland P. Polak and                                  316,000                            9.9
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                                         917,697 (3)(4)(5)                  25.9
110 West Easy Street                                         (6)(7)
Simi Valley, CA 93065

Ronald M. Chodorow                                    17,500                            (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                           946,297 (3)(4)(5)                  26.5
  as a group (4 persons)                                     (6)(7)(8)
</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, 1999. There were 3,192,306 shares of Common Stock outstanding
       on May 31, 1999.

(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.

<PAGE>

(5)    Includes 30,500 shares owned by Altius Investment Corporation for which
       Mr. Mazin has shared 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.


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 $4,816.

<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,
                  1999.



<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, 1999

Balance Sheets - March 31, 1999 and 1998

Statements of Earnings -
   Years Ended March 31, 1999, 1998 and 1997

Statements of Shareholders' Equity -
   Years Ended March 31, 1999, 1998 and 1997

Statements of Cash Flows -
   Years Ended March 31, 1999, 1998 and 1997

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.

<PAGE>

[LETTERHEAD]

June 4, 1999

Board of Directors and Shareholders
PERFECTDATA CORPORATION
Simi Valley, California

We have audited the balance sheets of Perfectdata Corporation as of March 31,
1999 and 1998, and the related statements of operations, shareholders' equity
and cash flows for the years ended March 31, 1999, 1998 and 1997. 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,
1999 and 1998, and the results of their operations and their cash flows for the
years ended March 31, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles.


/s/ Beckman Kirkland & Whitney
Beckman Kirkland & Whitney
Agoura Hills, California

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                           March 31,
                                                                               -----------------------------------
                                                                                    1999               1998
                                                                               ---------------    ----------------
<S>                                                                            <C>                <C>
ASSETS
Current assets:
    Cash and cash equivalents, including
       short-term certificates of deposit of
       $255 in 1999 and $365 in 1998 (Note 2)                                   $       1,074      $        1,328
    Accounts receivable, less allowance for
       doubtful receivables of $9 and $12 in 1999
       and 1998, respectively (Note 2)                                                    186                 289
    Inventories (Note 4)                                                                  639                 571
    Prepaid expenses and other current assets                                              57                  87
    Marketable securities, short-term (Note 3)                                            327                 448
    Deferred income tax benefit (Note 8)                                                  113                  58
                                                                               ---------------    ----------------
       Total current assets                                                             2,396               2,781

Property, plant and equipment, net (Note 5)                                                86                 118
Deferred income tax benefit (Note 8)                                                       73                 123
Other assets, net                                                                          31                  31
                                                                               ---------------    ----------------
                                                                                $       2,586      $        3,053
                                                                               ---------------    ----------------
                                                                               ---------------    ----------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                            $         148      $          111
    Accrued expenses                                                                       86                  94
    Accrued salaries, wages and vacation                                                   47                  54
                                                                               ---------------    ----------------
       Total current liabilities                                                          281                 259
                                                                               ---------------    ----------------

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 3,155,000 and 3,164,000 shares in 1999
    and 1998, respectively                                                              8,110               8,117
    Accumulated deficit                                                                (5,747)             (5,345)
    Allowance for loss on marketable securities                                           (58)                 22
                                                                               ---------------    ----------------
       Net shareholders' equity                                                         2,305               2,794
                                                                               ---------------    ----------------
                                                                                $       2,586      $        3,053
                                                                               ---------------    ----------------
                                                                               ---------------    ----------------
</TABLE>

                   See accompanying notes to financial statements.

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                   March 31,
                                                             ---------------------------------------------------
                                                                  1999               1998               1997
                                                             ----------------   ----------------    ------------
<S>                                                          <C>                <C>                 <C>
Net sales                                                     $        1,689     $        3,299      $    5,761
                                                             ----------------   ----------------    ------------
Costs and expenses
     Cost of goods sold                                                1,038              2,205           3,787
     Selling, general and
        administrative expenses                                        1,180              1,535           2,030
                                                             ----------------   ----------------    ------------

        Total costs and expenses                                       2,218              3,740           5,817
                                                             ----------------   ----------------    ------------

Income from operations                                                  (529)              (441)            (56)
                                                             ----------------   ----------------    ------------

Other income and (expense)
     Equity in earnings of affiliate                                       0                  0             (15)
     Interest income, net                                                 39                 33              28
     Other, net                                                           84                 41              68
                                                             ----------------   ----------------    ------------
        Total other income and (expense)                                 123                 74              81
                                                             ----------------   ----------------    ------------
Income from continuing
     operations before income taxes                                     (406)              (367)             25
Income tax benefit (or provision) (Note 8)                                 4               (250)           (290)
                                                             ----------------   ----------------    ------------
Income from continuing operations                                       (402)              (617)           (265)

Loss on disposal of discontinued operations                                0               (182)            (69)
                                                             ----------------   ----------------    ------------

Net income (loss)                                             $          (402)   $          (799)    $     (334)
                                                             ----------------   ----------------    ------------
                                                             ----------------   ----------------    ------------

Net income (loss) per common share:
     Basic:
        Income (loss) from continuing operations              $        (0.13)    $        (0.20)     $    (0.09)
        Loss on disposal of discontinued operations                     0.00              (0.06)          (0.02)
                                                             ----------------   ----------------    ------------
                                                              $        (0.13)    $        (0.26)     $    (0.11)
                                                             ----------------   ----------------    ------------
                                                             ----------------   ----------------    ------------

     Diluted:
        Income (loss) from continuing operations              $        (0.13)    $        (0.20)     $    (0.09)
        Loss on disposal of discontinued operations                     0.00              (0.06)          (0.02)
                                                             ----------------   ----------------    ------------
                                                              $        (0.13)    $        (0.26)     $    (0.11)
                                                             ----------------   ----------------    ------------
                                                             ----------------   ----------------    ------------
</TABLE>

                   See accompanying notes to financial statements.

<PAGE>

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

<TABLE>
<CAPTION>
                                           Common Stock                            Allowance             Net
                                     -----------------------    Accumulated     for gain/(loss)     Shareholders'
                                       Shares       Amount        deficit        on mkt. sec.          equity
                                     ----------   ----------   --------------   ----------------   ----------------
<S>                                  <C>          <C>          <C>              <C>                <C>
Balance at March 31, 1996                3,069     $  8,026     $     (4,212)    $          (22)    $        3,792

Stock issued upon exercise of
stock options                               28           29                0                  0                 29

Stock repurchased and retired               (3)          (4)               0                  0                 (4)

Net unrealized gain/loss on
marketable securities                        0            0                0                 17                 17

Net loss                                     0            0             (334)                 0               (334)

                                     ----------   ----------   --------------   ----------------   ----------------
Balance at March 31, 1997                3,094     $  8,051     $     (4,546)    $           (5)    $        3,500
                                     ----------   ----------   --------------   ----------------   ----------------
                                     ----------   ----------   --------------   ----------------   ----------------

Stock issued upon exercise
of stock options                            70           66                0                  0                 66

Net unrealized gain/loss on
marketable securities                        0            0                0                 27                 27

Net loss                                     0            0             (799)                 0               (799)

                                     ----------   ----------   --------------   ----------------   ----------------
Balance at March 31, 1998                3,164     $  8,117     $     (5,345)    $           22     $        2,794
                                     ----------   ----------   --------------   ----------------   ----------------
                                     ----------   ----------   --------------   ----------------   ----------------

Stock repurchased and retired               (9)          (7)                                                    (7)

Net unrealized gain/loss on
marketable securities                                                                       (80)               (80)

Net loss                                                                (402)                                 (402)

                                     ----------   ----------   --------------   ----------------   ----------------
Balance at March 31, 1999                3,155     $  8,110     $     (5,747)    $          (58)    $        2,305
                                     ----------   ----------   --------------   ----------------   ----------------
                                     ----------   ----------   --------------   ----------------   ----------------
</TABLE>

                   See accompanying notes to financial statements.

<PAGE>

                             PERFECTDATA CORPORATION
                            Statements of Cash Flows
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                     March 31,
                                                                    ------------------------------------------
                                                                        1999            1998          1997
                                                                    -------------   -------------   ----------
<S>                                                                 <C>             <C>             <C>
Cash flows from operating activities:
    Net income (loss)                                                $      (402)    $      (799)    $   (334)
    Adjustments to reconcile net income (loss) to
    net cash provided by operating activities:
       (Gain) loss on disposal of discontinued operations                      0             181          111
       Depreciation and amortization                                          36              39           95
       Provision for doubtful receivables                                     (3)              3           (2)
       Unrealized (gain) loss on marketable securities                       (80)              0           17
       Deferred income tax (benefit) provision                                (4)            250          290
       Decrease (increase) in litigation deposit                               0             305            0
       (Increase) decrease in accounts receivable                            106             416          198
       (Increase) decrease in inventories                                    (68)            612           62
       (Increase) decrease in prepaid expenses and
       other current assets                                                   28             (10)           8
       (Increase) decrease in other assets                                     0               0          (13)
       Increase (decrease) in accounts payable                                38            (213)         (49)
       Increase (decrease) in accrued expenses                                (9)            (59)         (39)
       Decrease in accrued salaries, wages and vacation                       (7)             (3)         (13)
                                                                    -------------   -------------   ----------
    Net cash provided (used) by operating activities                        (365)            722          331
                                                                    -------------   -------------   ----------

    Cash flows from investing activities:
       Purchases of property, plant and equipment                             (4)             (2)          (2)
       Decrease (increase) in investment in affiliated company                 0               5           17
       (Increase) decrease in investment securities, net                     122             (22)         (76)
                                                                    -------------   -------------   ----------
    Net cash provided (used) in investing activities                         118             (19)         (61)
                                                                    -------------   -------------   ----------

    Cash flows from financing activities:
       Exercise of stock options                                               0              66           29
       Repurchase of common stock                                             (7)              0           (4)
                                                                    -------------   -------------   ----------
    Net cash provided (used) by financing activities                          (7)             66           25
                                                                    -------------   -------------   ----------

    Net cash provided (used) by continuing operations                       (254)            769          295
    Cash provided (used) by discontinued operations                            0            (332)         (76)
                                                                    -------------   -------------   ----------
    Increase (decrease) in cash and cash equivalents                        (254)            437          219

    Cash and cash equivalents at beginning of year                         1,328             891          672
                                                                    -------------   -------------   ----------
    Cash and cash equivalents at end of year                         $     1,074     $     1,328     $    891
                                                                    -------------   -------------   ----------
                                                                    -------------   -------------   ----------

    Supplemental disclosure of cash flow information:
    Cash paid during the year for income tax                         $         -     $         -     $      -
                                                                    -------------   -------------   ----------
                                                                    -------------   -------------   ----------
    Cash paid during the year for interest                           $         -     $         -     $      -
                                                                    -------------   -------------   ----------
                                                                    -------------   -------------   ----------
</TABLE>


                See accompanying notes to financial statements.
<PAGE>

                             PERFECTDATA CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                   Years ended March 31, 1999, 1998, and 1997

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.

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.

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 1997

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 1999 was 3,158,671.

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, 1999 the Company had approximately $964,000 of cash and cash
equivalents in three banks which exposes the Company to concentration of
credit risk. The cash deposited at each 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, 1999, approximately 34%, 13% and 29% of
recorded trade receivables were from two wholesale/discount merchants 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.

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 1997

NOTE 3 - MARKETABLE SECURITIES:

Marketable securities classified as current assets at March 31, 1999, include
the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                           FAIR VALUE            COST
                                                          ------------       ------------
   <S>                                                    <C>                <C>
   Other government obligations                           $         26       $         27
   Marketable equity securities                                    301                359
                                                          ------------       ------------
                                                          $        327       $        386
                                                          ------------       ------------
                                                          ------------       ------------
</TABLE>

The contractual maturities of debt securities available for sale at March 31,
1999, follows:

<TABLE>
<CAPTION>
                                                           FAIR VALUE            COST
                                                          ------------       -------------
   <S>                                                    <C>                <C>
   Due after ten years                                    $         26       $          27
                                                          ------------       -------------
                                                          $         26       $          27
                                                          ------------       -------------
                                                          ------------       -------------
</TABLE>


Net unrealized holding gains (losses) at March 31, 1999 and 1998, were
approximately ($58,448) and $22,100, respectively. During the year ended
March 31, 1999, realized gains and losses from the sale of securities were
$2,228 and $7,821, 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               1998
                                                ----------        ------------
<S>                                             <C>                 <C>
   Raw materials                                $     243           $     238
   Work in process                                     63                  68
   Finished products                                  333                 265
                                                ---------           ---------

                                                $     639           $     571
                                                ---------           ---------
                                                ---------           ---------
</TABLE>

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998 and 1997

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:

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

<TABLE>
<CAPTION>
                                                                MARCH 31,
                                                    -------------------------------
                                                       1999                1998
                                                    ----------           ----------
   <S>                                              <C>                  <C>
   Machinery and equipment                          $      452           $      467
   Furniture and fixtures                                  124                  149
   Tooling                                                 387                  444
   Leasehold improvements                                  155                  155
                                                    ----------           ----------
                                                         1,118                1,215

     Less accumulated depreciation                      (1,032)              (1,097)
                                                    ----------           ----------

                                                    $       86           $      118
                                                    ----------           ----------
                                                    ----------           ----------
</TABLE>

Depreciation expenses for the years ended March 31, 1999, 1998 and 1997 were
$36,000, $39,000 and $95,000, respectively.


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, 1999.


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, 1999 or 1998.

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 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,
                                                       -------------------------------------------------------
                                                            1999                1998                  1997
                                                       --------------      --------------        -------------
<S>                                                      <C>              <C>                   <C>
   Current:
      Federal                                            $         -       $          -          $           -
      State                                                        1                  1                      1
                                                         -------------     ------------          -------------
                                                                   1                  1                      1
   Deferred:
      Net increase (decrease) in deferred tax asset               (5)                 4                    (43)
      (Increase) decrease in benefit of NOL
        carryforwards                                           (180)              (132)                    96
      Increase (decrease) in valuation allowance                 180                377                    236
                                                         -------------     ------------          -------------
                                                         $        (4)      $        250          $         290
                                                         -------------     ------------          -------------
                                                         -------------     ------------          -------------
</TABLE>

At March 31, 1999, the Company had net operating loss (NOL) carryforwards of
approximately $3,431,233 for federal income tax purposes expiring in varying
amounts through 2014. 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 1999.

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.

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 1997


NOTE 8 - INCOME TAXES (CONTINUED):

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 $1,234,687, and has recorded a valuation
allowance of $1,234,687.

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,
                                                            ------------------------------------------
                                                              1999           1998              1997
                                                            ---------      ---------        ----------
      <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)             0.2 %          0.3 %              4.0%
        Valuation allowance adjustment                        (35.2)%       (103.0)%          1,122.0%
        Other, net                                                0 %          0.6 %              0.0%
                                                            ---------      ---------        ----------
                                                               (1.0)%        (68.1)%          1,160.0%
                                                            ---------      ---------        ----------
                                                            ---------      ---------        ----------
</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, 1999 or 1998.

During the year ended March 31, 1999, the Company reacquired approximately 8,800
shares of its common stock.

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 1997

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. No options were granted during
the years ended March 31, 1998 or 1999. A total of 286,250 options were
exercised as of March 31, 1999, with 103,000 options left outstanding.

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, 1996                    199,500                  .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 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
                                                            -------           -----------            ----------
                                                            -------           -----------            ----------

   Options cancelled or expired                             (15,000)               1.5833               (23,750)
                                                            -------           -----------            ----------

    Options outstanding at March 31, 1999                   103,000           $     .9945            $  102,439
                                                            -------           -----------            ----------
                                                            -------           -----------            ----------
</TABLE>

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 1997


NOTE 11 - MAJOR CUSTOMER AND EXPORT SALES:


During the year ended March 31, 1999 two customers accounted for more than 10%
of sales. These customers accounted for 14% of sales each.

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% of
sales for fiscal 1998. 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 1999, 1998 and 1997, sales
to this customer were approximately $0, $759,000, and $2,403,000, respectively.

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

<TABLE>
<CAPTION>
                                         YEAR ENDED MARCH 31,
                              -------------------------------------
                                  1999        1998            1997
                                -------      -------        -------
<S>                             <C>          <C>            <C>
Europe                          $   110      $   242        $   209
Canada                               16          199            326
Australia                           -             20             32
Africa                                9           30             36
Far East                             22           19             26
Other geographic areas                3           16             20
                                -------      -------        -------
                                $   160      $   526        $   649
                                -------      -------        -------
                                -------      -------        -------
</TABLE>


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

<TABLE>
<CAPTION>
                                         YEAR ENDED MARCH 31,
                              -------------------------------------
                                  1999        1998            1997
                                -------      -------        -------
<S>                             <C>          <C>            <C>
Net Sales:
Domestic customers              $ 1,529      $ 2,773        $ 5,112
International                       160          526            649
                                -------      -------        -------
Total                           $ 1,689      $ 3,299        $ 5,761
                                -------      -------        -------
                                -------      -------        -------
</TABLE>

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 1997

NOTE 12 - COMMITMENTS AND CONTINGENCIES:

The Company leases facilities under noncancelable operating leases that expires
September 20, 2002. Rental expense was $136,000, $117,000, and $117,000 for the
years ended March 31, 1999, 1998, and 1997, respectively.

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

<TABLE>
              <S>                    <C>
              2000                      129
              2001                      133
              2002                      138
              2003                       69
                                     ------
                                     $  469
                                     ------
                                     ------
</TABLE>

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 hearing in which oral arguments will be heard. Due to a
backlog in the courts, the hearing is not scheduled until late 1999.
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.

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 1997


NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED):


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.

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
claimed that PMI owed her approximately $30,000 for unpaid vacation which had
accrued prior to her termination.

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.

In March of 1999, the parties agreed to a settlement and Mutual Release of
All Claims, whereby the Company paid the former CFO $14,000 to fully and
completely settle the action. The Company paid the $14,000 in May of 1999,
and the court dismissed the action without prejudice.

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 1997


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,
                                1998              1998              1998             1999
                              -------         -------------     ------------      ---------
<S>                           <C>             <C>               <C>               <C>
Net sales                     $   452           $   423           $   396           $   418
Gross profit                      166               175               151               159
Net earnings                      (72)             (101)             (102)             (127)
Earnings per share               (.02)             (.04)             (.03)             (.04)
Weighted average
  shares outstanding            3,164             3,161             3,156             3,155
                              -------           -------           -------           -------
                              -------           -------           -------           -------

                              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)              (16)             (408)
Earnings per share                .00             (.03)             (.04)             (.13)
Weighted average
  shares outstanding            3,094            3,094             3,143             3,164
                              -------           -------           -------           -------
                              -------           -------           -------           -------
</TABLE>



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.

<PAGE>

                             PERFECTDATA CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                   Years ended March 31, 1999, 1998, and 1997

NOTE 14 - DISCONTINUED OPERATION (CONTINUED):

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.

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.

<PAGE>

                             PERFECTDATA CORPORATION
                SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
                    YEARS ENDED MARCH 31, 1999, 1998 AND 1997

                                        ADDITIONS

<TABLE>
<CAPTION>
                                                                                             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, 1999
  Deducted from asset accounts:
   Allowance for doubtful accounts                              $  12,000      $     -       $     -       $  (3,000)     $   9,000
   Allowance for inventory reserves                               120,000          2,000           -             -          122,000
   Allowance for net unrealized (gains)
    losses on marketable equity
    securities-current                                            (22,000)           -          80,000           -           58,000
                                                                ---------      ---------     ---------     ---------      ---------

         TOTAL                                                  $ 110,000      $   2,000     $  80,000     $  (3,000)     $ 189,000
                                                                ---------      ---------     ---------     ---------      ---------
                                                                ---------      ---------     ---------     ---------      ---------


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

                 See accompanying notes to financial statements.

<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 22, 1999


         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 22, 1999.

  SIGNATURE                                     TITLE
  ---------                                     -----

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

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

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

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



<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(15)

           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)

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

<PAGE>

          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)

          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,

<PAGE>

                                    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)

          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)

<PAGE>

          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.

 (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.

(15)  Filed herewith.