SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1997 Commission file number 0-12829
GRADCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-3342977
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3753 Howard Hughes Pkwy, Ste 200,
Las Vegas, Nevada 89109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 892-3714
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 proceeding 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
------- -------
Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at September 30, 1997
------------- ----------------------------
Common Stock, without
par value 7,799,598
GRADCO SYSTEMS, INC.
INDEX
Page Number
Part I. Financial Information:
Consolidated Balance Sheets
at September 30, 1997 and March 31, 1997 3
Consolidated Statements of Operations
for the Three and Six Months Ended
September 30, 1997 and September 30, 1996 4
Consolidated Statements of Cash Flows
for the Six Months Ended
September 30, 1997 and September 30, 1996 5-6
Notes to Unaudited Consolidated Financial Statements 7-10
Management's Discussion and Analysis of
Results of Operations and Financial Condition 11-13
Part II. Other Information 14
-2-
GRADCO SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September, 30 March 31,
1997 1997
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash $11,974 $18,335
Accounts receivable, net 31,713 24,583
Inventories 2,126 1,759
Deferred income taxes 892 252
Other current assets 365 327
------- -------
Total current assets 47,070 45,256
Furniture, fixtures and equipment, net 1,760 2,054
License repurchase 705 4,069
Excess of cost over acquired net assets 1,256 1,278
Deferred income taxes 1,368 -
Other assets 5,493 5,429
------- -------
$57,652 $58,086
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 1,000 $ -
Accounts payable 9,626 10,939
Notes payable to suppliers 17,421 12,608
Accrued expenses 961 684
Income taxes payable 3,236 1,596
Current installments of long-term debt 11 11
------- -------
Total current liabilities 32,255 25,838
Long-term debt, excluding current installments 9 15
Non-current liabilities 2 809 889
Deferred income taxes - 1,833
Minority interest 2,614 14,172
------- -------
Total liabilities 37,687 42,747
------- -------
Shareholders' equity:
Common stock, no par value; authorized
30,000,000 shares, 7,799,598 and
7,798,909 shares outstanding
September 30, 1997 and March 31,
1997, respectively 44,665 44,618
Deficit (27,204) (30,358)
Currency translation adjustments 2,504 1,079
------- -------
Total shareholders' equity 19,965 15,339
------- -------
$57,652 $58,086
======= =======
See accompanying notes to consolidated financial statements.
-3-
GRADCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
-------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues:
Net sales $28,785 $25,601 $68,587 $51,147
Development engineering services 298 237 593 509
Licenses and royalties 842 667 1,507 1,231
------- ------- ------- -------
29,925 26,505 70,687 52,887
------- ------- ------- -------
Costs and expenses:
Cost of sales 23,532 20,982 55,373 41,525
Research and development 684 898 1,602 1,892
Selling, general and administrative 3,564 3,372 6,424 6,540
------- ------- ------- -------
27,780 25,252 63,399 49,957
------- ------- ------- -------
Income from operations 2,145 1,253 7,288 2,930
Interest expense (1) (1) (2) (2)
Interest income 54 49 90 89
------- ------- ------- -------
Earnings before income taxes
and minority interest 2,198 1,301 7,376 3,017
Income tax expense 756 547 3,137 1,220
Minority interest 63 204 1,086 455
------- ------- ------- -------
Net earnings $ 1,379 $ 550 $ 3,153 $ 1,342
======= ======= ======= =======
Earnings per common share $ 0.18 $ 0.07 $ 0.40 $ 0.17
======= ======= ======= =======
Weighted average shares
outstanding (000's) 7,800 7,799 7,800 7,799
See accompanying notes to consolidated financial statements.
-4-
GRADCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
-----------------------
Sept. 30, Sept. 30,
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 3,153 $ 1,342
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 518 588
Amortization 505 844
Deferred income taxes (796) 136
Provision for losses on accounts receivable - 302
Stock based compensation 47 -
Minority interest 1,086 455
Increase in accounts receivable (6,128) (4,763)
(Increase) decrease in inventory (358) 810
Increase in prepaid assets (31) (566)
Decrease (increase) in other assets 208 (977)
(Decrease) increase in accounts payable (1,392) 1,733
Increase in notes payable to suppliers 4,657 3,659
Increase in accrued expenses 274 707
Increase (decrease) in income taxes payable 1,699 (1,837)
Increase in other liabilities 100 110
------- -------
Total adjustments 389 1,201
------- -------
Net cash provided by operations 3,542 2,543
------- -------
Cash flows from investing activities:
Acquisition of property and equipment (182) (654)
Proceeds from sale of property and equipment - 4
Purchase of minority interest (11,139) -
------- -------
Net cash used in investing activities (11,321) (650)
------- -------
-5-
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
Six Months Ended
-----------------------
Sept. 30, Sept. 30,
1997 1996
--------- ---------
Cash flows from financing activities:
Net borrowings on notes less than
three months 1,000 -
Repayment of notes in excess of
three months (6) (5)
Dividend to minority shareholders - (231)
------- -------
Net cash provided by (used in)
financing activities 994 (236)
------- -------
Effect of exchange rate changes on cash 424 (526)
------- -------
Net (decrease) increase in cash and cash equivalents (6,361) 1,131
Cash and cash equivalents at beginning of period 18,335 19,523
------- -------
Cash and cash equivalents at end of period $11,974 $20,654
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 2 $ 2
Income taxes 2,294 2,922
See accompanying notes to consolidated financial statements.
-6-
GRADCO SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: INTERIM ACCOUNTING POLICY
The accompanying consolidated financial statements include the accounts of
Gradco Systems, Inc. and its wholly and majority-owned subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
In the opinion of the Company's management, the accompanying unaudited
statements include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position of the
Company at September 30, 1997 and the results of operations and cash flows for
the three and six months ended September 30, 1997 and 1996. Although the
Company believes that the disclosures in these financial statements are
adequate to make the information presented not misleading, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for interim periods are not necessarily
indicative of results of operations to be expected for the full year.
Foreign currency translation gains of $9,000 and $43,000 are included in
selling, general and administrative expenses for the three and six months ended
September 30, 1996, respectively. In the three and six months ended September
30, 1997, there were foreign currency translation losses of $641,000 and
$474,000, respectively.
The financial information included in this quarterly report should be read in
conjunction with the consolidated financial statements and related notes
thereto in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997.
NOTE 2: INVENTORIES
Inventories are summarized as follows:
(Dollars in Thousands)
Sept. 30, March 31,
1997 1997
--------- ---------
Raw materials $ 482 $ 499
Work-in-process 922 570
Finished goods 722 690
------ ------
$2,126 $1,759
====== ======
NOTE 3: SHORT-TERM DEBT
On September 30, 1997, the Company borrowed $1,000,000 on a 30-day note from a
bank in connection with the acquisition of Gradco (Japan) Ltd.'s ("GJ") U.S.
subsidiary from GJ (Note 7). The note was repaid in October.
-7-
GRADCO SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: INCOME TAXES
The effective consolidated income tax rate used by the Company is based on the
estimated annual effective tax rates for fiscal year 1998 in the countries
where the Company operates applied to results of the quarter.
NOTE 5: NET EARNINGS PER SHARE
Net earnings per common share and common share equivalent were computed based
upon the weighted average number of shares outstanding during each period. The
approximate weighted average number of shares used in the computations were
7,799,000 in the three and six months ended September 30, 1996, and 7,800,000
in the three and six months ended September 30, 1997. For the periods
presented, the effect on net earnings per common share assuming full dilution
is either anti-dilutive or results in less than 3% dilution.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER SHARE, which
establishes a simplified computation of earnings per share ("EPS"). Under SFAS
128, primary EPS is replaced by basic EPS, and dual presentation of basic and
diluted EPS is required for all entities with a complex capital structure. The
Company will adopt SFAS 128 during the third quarter of the current fiscal
year, as required. The adoption of SFAS 128 is not expected to have a material
effect on the Company's reported net earnings per common share.
NOTE 6: COMMITMENTS AND CONTINGENCIES
In the following litigation, material claims have been asserted against the
Company:
HAMMA V. GRADCO SYSTEMS, INC. ET AL., DUBOIS V. GRADCO SYSTEMS, INC. ET AL.
The Company and its (now former) president, Mr. Keith Stewart, have been sued
in the U.S. District Court in Connecticut by John C. Hamma and R. Clark DuBois,
both of whom are former employees of the Company. Complaints in the two cases,
which were consolidated for certain pretrial purposes, primarily allege
misrepresentation and fraudulent concealment by Gradco and Mr. Stewart in
connection with agreements entered into in 1982 with Mr. Hamma and in 1983 with
Mr. DuBois terminating and releasing the Company from royalty obligations under
prior royalty agreements. The complaints, which have been amended a number of
times, seek unspecified damages and other relief. For each of these cases, the
Court bifurcated the liability and damages issues so that a first trial would
determine whether there is any liability and, if so, a second trial would
determine damages.
In March 1992, each of the plaintiffs filed an Application for Prejudgment
Remedy against the Company and Gradco (Japan) Ltd. seeking to attach
$10,000,000 of assets of each of these two defendants. This Application was
dismissed as respects GJ. In November 1992, the Company and the plaintiffs
agreed in principle to a Consent Order instead of proceeding with a hearing on
the Application. If during the pendency of the lawsuits the Company desires to
sell, transfer or take any other action which would affect its ownership of
stock in GJ, it has agreed to give 30 days prior notice to the plaintiffs, who
will then be permitted, if they so request, to renew the Application within the
notice period. Should plaintiffs do so, the Company has agreed to forbear from
proceeding with any such transaction for a limited period. The Company would
-8-
GRADCO SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: COMMITMENTS AND CONTINGENCIES (Continued)
vigorously oppose a renewed Application. Management believes that the Consent
Order is in the Company's best interests because it precludes any attachment of
the Company's assets until such time as a proposed transaction which would
affect its ownership of stock in GJ may arise, and it avoids the legal expense
which would have resulted from a current hearing on the Application.
In June 1995, a jury found the Company to have liability in the lawsuit filed
by John C. Hamma. The Company filed a motion in August 1995 to reverse the
verdict. After a determination by the Court on the Company's motion, a
separate proceeding to determine the amount of damages will be required, with
respect to such portion of the verdict, if any, as remains in effect.
In July 1995, the plaintiffs filed another Application for a Prejudgment Remedy
("July PJR Application") seeking to attach Gradco Systems' assets. The July
PJR Application sets forth various theories of damages including a theory
calling for treble damages under Connecticut law in the amount of $70,500,000.
The July PJR Application asserts that there is probable cause that a verdict in
an amount greater than $70,500,000 will be rendered in the damages part of the
case after trial on those issues. It is Gradco's belief that damages based on
applicable law would result in a significantly smaller damages award even if
the motion by Gradco for judgment as a matter of law is denied. The Court has
determined that it will rule on the July PJR Application only after ruling on
the August 1995 motion for judgment as a matter of law.
In November 1995, the Court ordered the plaintiffs to submit a memorandum
regarding the legal theories on which they based their damages claims and for
the defendants to respond. This issue is also under consideration by the
Court. If Gradco's view prevails, the magnitude of damages, even should the
August 1995 motion prove unavailing, will be reduced substantially from the
amount sought in the July PJR Application.
The Company is presently unable to determine the amount of damages which is
likely to be awarded, but the amount of damages sought by the plaintiffs,
including punitive damages, could only be settled from assets of Gradco
Systems, Inc. (which consist primarily of the capital stock of its
subsidiaries). An award of damages of the magnitude sought by the plaintiffs
could have a material adverse effect on the Company's financial position and
might threaten the Company's existence as an ongoing enterprise. Gradco
(Japan) Ltd., Gradco (USA) Inc. and Venture Engineering, Inc. are not parties
to the lawsuit and any judgment awarded will not affect their operations, since
those operations are independent of Gradco Systems, Inc.
There are substantial differences between the Hamma and DuBois cases. Although
the DuBois case will also be tried before a jury so that there are substantial
elements of uncertainty, the Company continues to believe that the DuBois case
alone will not have a material adverse effect on its consolidated financial
position, or on its results of operations or liquidity.
-9-
GRADCO SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: REORGANIZATION
On June 5, 1997, the Company announced that GJ had obtained agreements from the
holders of 4,271,000 shares of the outstanding stock of Gradco Japan to sell
such stock back to GJ at a price of 299 yen per share. The transaction was
consummated by GJ in July, increasing the Company's ownership in the stock of
GJ from 58.6% to 90.0%. The total purchase price of $11.1 million was paid
from available cash of GJ and was $2.0 million less than the book value of the
net assets acquired. The purchase price has been allocated to the assets and
liabilities acquired based on their estimated fair values on the acquisition
date. Subsequent to September 30, 1997, an additional 580,000 shares of GJ
were purchased by the Company for 325 yen per share or approximately $1.6
million in total. This increased the Company's ownership in the stock of GJ
from 7,180,000 shares to 7,760,000 shares which represents 97.3% of the
currently outstanding shares of GJ. Included in this purchase were 60,000,
40,000 and 35,000 shares acquired from Mark Takeuchi, President of GJ, Tony
Shinomiya, Chief Financial Officer of GJ and the GJ Employee Stock Ownership
Plan, respectively.
On September 30, 1997, GJ's U.S. subsidiary ("GU") was sold to Gradco Systems,
Inc. No gain or loss was recognized in connection with this transaction. GU
will be included in the Company's consolidated U.S. federal tax return
subsequent to the acquisition date. In accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), ACCOUNTING FOR INCOME TAXES, a
reduction in the Company's valuation allowance for its tax loss carryforwards
in the amount of $1.8 million was recorded in conjunction with the acquisition
based on an assessment of expected future results of operations. Because there
were no material noncurrent assets of the acquired enterprise to reduce,
negative goodwill was created as required by SFAS 109 and will be amortized
into income over its estimated useful life.
NOTE 8: EMPLOYEE BENEFITS
The Board of Directors of the Company adopted the 1997 Stock Option Plan (the
"1997 Plan") in September 1997. A maximum of 400,000 shares of the Company's
common stock have been reserved for issuance pursuant to the 1997 Plan.
Options may be granted only to officers, key employees, directors or
consultants of the Company or any of its subsidiaries. The options are not
intended to qualify as "incentive stock options" within the meaning of Section
422(a) of the Internal Revenue Code of 1986, but are instead nonqualified
options. Options for 312,000 shares were granted during September 1997 at an
exercise price of $6.00 per share below fair market value of the common stock
on the date of grant. This difference will be recorded ratably as compensation
expense during the period September 1997 through February 2001, the vesting
period of the options.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's operations are conducted principally through its wholly-owned
subsidiaries Venture Engineering, Inc. ("Venture") and Gradco (USA) Inc. ("GU")
and its majority-owned subsidiary Gradco (Japan) Ltd. ("GJ"). Venture performs
contract engineering and manufacturing services for OEMs and other customers,
primarily for the U.S. market. GJ and GU design, develop, produce (by
contract) and market on a worldwide basis, intelligent paper handling devices
for office copiers, computer controlled printers and facsimile machines.
GJ and GU operate jointly in the development and marketing of products to their
customer base, primarily OEMs. Both companies sell into the U.S. domestic and
foreign marketplace at similar profit margins, after elimination of
intercompany profits. Sales are denominated for the most part in Japanese yen
and U.S. dollars, corresponding to the currency charged for the product by the
contract manufacturer. Although the gross profit margin percentage is thus
protected from foreign currency fluctuations, translation gains and losses can
still occur when receivables and payables are denominated in other than the
local currency of each company.
RESULTS OF OPERATIONS
Revenues for the three and six months ended September 30, 1997 increased
$3,420,000 and $17,800,000, respectively, from the comparable prior year
periods principally as a result of increases in net sales. Although unit sales
in the copier market were 36% higher for the quarter, this volume increase was
partially offset by a lower average sales price in the units. The reduction in
unit sales price was due to a weaker yen as well as the introduction of a new
lower-priced product line. Sales denominated in yen were $1.6 million lower
than they would have been had the yen not decreased by 8% against the dollar
when compared to the same period in the previous year. In the six-month
period, unit sales in the copier market were 68% higher and the yen decreased
by 10% against the dollar. Sales denominated in yen were $4.4 million lower
than they would have been had the yen not decreased when compared to the same
period in the previous year.
Cost of sales as a percentage of net sales decreased to 81.7% from 82.0% for
the three months ended September 30, 1997 and 1996, respectively, and decreased
to 80.7% from 81.2% for the six-month periods then ended.
Research and development expenses ("R&D") in the current quarter totaled
$684,000, 2.3% of revenues, compared to $898,000, 3.4% of revenues, in the
prior year's comparable period. For the six months ended September 30, 1997
and 1996, R&D totaled $1,602,000, 2.3% of revenues, and $1,892,000, 3.6% of
revenues, respectively. The decreases are largely attributable to costs
incurred in the prior year related to transitioning new product production to a
contract manufacturer in Canada.
Selling, general and administrative expenses ("SG&A") in the current quarter
totaled $3,564,000, 11.9% of revenues, compared to $3,372,000, 12.7% of
revenues, in the prior year's comparable period, an increase of $192,000. This
increase was principally attributable to an increase of $650,000 in foreign
currency translation losses, offset by a reduction of $168,000 in SG&A at GJ
caused by the weaker yen and the absence of a $284,000 writeoff taken last year
for a loan made to a prospective business partner. For the six months ended
September 30, 1997 and 1996, SG&A totaled $6,424,000, 9.1% of revenues and
$6,540,000, 12.4% of revenues, respectively, a decrease of $116,000. The
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
favorable translation of SG&A at GJ associated with the weaker yen during this
period accounted for a decrease of approximately $395,000 in SG&A and the
absence of the loan writeoff was another $284,000 reduction. These decreases
were offset by an increase of $517,000 in foreign currency translation losses.
As a result of the above factors, earnings before income taxes and minority
interest increased from $1,301,000 in the second quarter ended September 30,
1996 to $2,198,000 in the current quarter and from $3,017,000 in the six months
ended September 30, 1996 to $7,376,000 in the current six-month period.
Minority interest decreased in the current quarter due to the acquisition of GJ
shares made in July. For further information regarding this transaction, see
Note 7 of Notes to Unaudited Consolidated Financial Statements. Minority
interest for the six-month periods is comparable to the level of pre-tax
earnings.
FINANCIAL CONDITION
Working capital decreased to $14,815,000 at September 30, 1997 from $19,418,000
at March 31, 1997. At September 30, 1997, the Company had $11,974,000 in cash,
a decrease of $6,361,000 from March 31, 1997, and minimal long-term debt.
$11.1 million of cash was used to purchase 4,271,000 shares of GJ from its
minority shareholders (see Note 7). Cash provided by operations was $3.5
million, primarily from net earnings of $3.2 million, non-cash provisions of
$1.3 million for depreciation, amortization, deferred income taxes and minority
interest, $6.4 million in notes and income taxes payable and offset by $7.5
million in increased accounts receivable and decreased accounts payable. $1
million was provided by borrowing on a short-term bank loan which was used by
Gradco Systems to acquire GU from GJ. GJ has informal credit facilities with a
Japanese bank . There were no borrowings under this facility at September 30,
1997.
The Company believes that its cash and credit facilities are adequate for its
short and long-term operational needs. At September 30, 1997, there were no
material commitments for capital expenditures except for the repurchase of
580,000 shares of GJ stock by Gradco Systems for approximately $1.6 million, as
discussed in Note 7 of Notes to Unaudited Consolidated Financial Statements.
Given the Company's current working capital, its available credit facilities
and expected cash flows from operations, it is not anticipated that the
reduction of cash as a result of this transaction will have any adverse effect
upon operations.
In June 1995, a jury found the Company to have liability in a lawsuit by John
C. Hamma, a former employee. The Company has filed a motion to reverse the
verdict. After a determination by the Court on the Company's motion, a
separate proceeding to determine the amount of damages will be required, with
respect to such portion of the verdict, if any, as remains in effect. An award
of damages of the magnitude sought by Mr. Hamma could have a material adverse
effect on the Company's financial position and might threaten its existence as
an ongoing enterprise. The Company believes that as a matter of law the
damages claimed by Mr. Hamma are excessive to a substantial extent. For
further information regarding this litigation, see Note 6 of Notes to Unaudited
Consolidated Financial Statements.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The lawsuit by R. Clark DuBois, a former employee, has not yet been tried.
Although the case will be tried before a jury, so that there are substantial
elements of uncertainty, the Company continues to believe that the DuBois case
alone will not have a material adverse effect on its consolidated financial
position, or on its results of operations or liquidity.
-13-
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information regarding the current status of the Hamma and DuBois
lawsuits, contained in Note 6 of Notes to Unaudited Consolidated
Financial Statements set forth in Part I of this Report, is hereby
incorporated by reference in response to this Item 1.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on
September 12, 1997.
(b) The sole purpose of the meeting was the election of five
directors of the Company, to serve for a term of one year (i.e.,
until the Annual Meeting to be held in 1998). Proxies were solicited
by management for its nominees, pursuant to Regulation 14 under the
Securities Exchange Act of 1934, and there was no opposing
solicitation. All of such nominees were elected as directors by the
required plurality of the votes cast. The directors so elected (all
of whom were incumbent directors) are Bernard Bressler, Thomas J.
Burger, Harland L. Mischler, Robert J. Stillwell and Martin E. Tash.
(c) The votes cast for, against and withheld from each of the
nominees (out of the 7,799,494 shares of Common Stock outstanding
and entitled to vote as of the record date of August 4, 1997) are
set forth below. There were no broker non-votes.
Nominees FOR AGAINST WITHHELD
-------- --------- ------- --------
Bernard Bressler 6,557,421 8,791 20,200
Thomas J. Burger 6,557,421 8,791 20,200
Harland L. Mischler 6,557,421 8,791 20,200
Robert J. Stillwell 6,557,421 8,791 20,200
Martin E. Tash 6,557,421 8,791 20,200
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
None.
(b) REPORTS ON FORM 8-K.
None.
-14-
SIGNATURES
Pursuant to the requirements 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.
GRADCO SYSTEMS, INC.
Registrant
By:
Date: November 12, 1997 HARLAND L. MISCHLER
Harland L. Mischler
Executive Vice President, Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
-15-
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<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
