Buoyed by Recent Reversal, Canadian Buys 6% of PerfectData

Last week a Canadian investor announced that he had bought 6% of PerfectData, a Simi Valley office and computer products firm that has lost $6.8 million since 1984.

In a filing with the federal Securities and Exchange Commission, Sidney S. Deuitch of Ontario revealed that he paid $125,000 to buy 192,307 shares in PerfectData.

Despite PerfectData’s long stretch of financial problems, Deuitch said, “I know the computer industry, and I know PerfectData is in a hot area.” Deuitch, who is the chief executive officer of Data Accessories Corp., a Toronto-based firm that does business with PerfectData, said: “In my mind there’s no question they’ve turned around.”

Deuitch is encouraged because in the third quarter that ended Dec. 31, 1988, PerfectData reported its first profitable quarter since 1985, as it earned $25,000 on sales of $966,000.

Even that slight profit is a positive step because PerfectData has been on a long uphill climb. In the fiscal year that ended March 31, 1986, the company lost $4.5 million on sales of $5.5 million. In the next two fiscal years, it lost $946,000 on sales of $4.1 million and $287,000 on sales of $4 million.

But the company has broadened its products line recently, and Lee Mannheimer, PerfectData’s chief executive officer, believes that its cleaners for fax machines and laser printers could turn into a profitable line.

Despite PerfectData’s troubles, when Mannheimer became PerfectData’s CEO in November, 1986, he was brimming with confidence. “My thinking was that I was Superman, and we could turn this thing around in a year,” he said. “What I came to realize was that I had inherited a brain-dead company.” In fact, the maker of cleaning devices for computer disk drives, which are data storage devices, hadn’t even computerized its own record-keeping. The biggest problem at PerfectData, Mannheimer said, was that PerfectData lacked a long-term game plan--and it made at least two big mistakes.

First, it had staked much of its business in the early 1980s on a line of sophisticated cleaning machines for removable hard disks, another computer data storage device. But by 1986, such hard disks largely had been replaced by disks that did not have to be cleaned. In 1987, PerfectData bailed out, selling the rights to the cleaning machine to a former employee.

Worse, within a matter of months in 1985, the company had bought in and sold out of the floppy disk business at a time when the world markets were flooded with floppies. Floppy disks are flexible plates that store computer data. PerfectData ended up with 1.5 million disks and had to write off about $2.5 million in investments associated with that product line.

Mannheimer’s main accomplishment so far has been to cut costs while maintaining sales, so that PerfectData’s losses have slowly narrowed. In addition to selling off its original line of business, the firm moved in 1987 from Chatsworth to Simi Valley, saving $63,600 a year in rent alone.

And since late 1986, PerfectData also has laid off about 15 of its original 45 employees. The savings reduced PerfectData’s cost of sales--the money devoted to purchasing raw materials and converting them into finished products--from 96% of sales in the year that ended March 31, 1986 to 53% of sales two years later.