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, 1998 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 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
------- -------
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, 1998
------------- ----------------------------
Common Stock, without
par value 7,910,848
GRADCO SYSTEMS, INC.
INDEX
Page Number
Part I. Financial Information:
Consolidated Balance Sheets
at September 30, 1998 and March 31, 1998 3
Consolidated Statements of Income
for the Three and Six Months Ended
September 30, 1998 and September 30, 1997 4
Consolidated Statements of Cash Flows
for the Six Months Ended
September 30, 1998 and September 30, 1997 5-6
Notes to Unaudited Consolidated Financial Statements 7-10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
Part II. Other Information 14
-2-
GRADCO SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, March 31,
1998 1998
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $15,493 $ 8,691
Accounts receivable, net 16,210 29,930
Inventories 1,808 1,608
Deferred income taxes 2,919 552
Other current assets 355 166
------- -------
Total current assets 36,785 40,947
Furniture, fixtures and equipment, net 1,052 1,290
Excess of cost over acquired net assets 1,213 1,234
Deferred income taxes 801 1,571
Other assets 3,055 3,429
------- -------
$42,906 $48,471
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,522 $10,241
Notes payable to suppliers 8,139 9,849
Accrued expenses 1,688 1,077
Income taxes payable 339 2,527
Current installments of long-term debt 9 13
------- -------
Total current liabilities 18,697 23,707
Long-term debt, excluding current installments - 2
Non-current liabilities 1,033 1,024
Excess of fair value of net assets acquired
over cost 1,400 1,600
Minority interest 585 665
Shareholders' equity:
Common stock, no par value; authorized
30,000,000 shares, 7,910,848 and
7,854,598 shares outstanding
September 30, 1998 and
March 31, 1998, respectively 45,651 45,325
Accumulated deficit (23,966) (23,972)
Currency translation adjustment (494) 120
------- -------
21,191 21,473
------- -------
$42,906 $48,471
======= =======
See accompanying notes to consolidated financial statements.
-3-
GRADCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
-------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues:
Net sales $19,366 $28,785 $42,498 $68,587
Development engineering services 255 298 506 593
Licenses and royalties 701 842 1,270 1,507
------- ------- ------- -------
20,322 29,925 44,274 70,687
------- ------- ------- -------
Costs and expenses:
Cost of sales 15,600 23,783 33,985 55,860
Research and development 697 734 1,533 1,694
Selling, general and administrative 2,588 3,263 4,542 5,845
Provision for doubtful Mita
receivable 619 - 5,619 -
------- ------- ------- -------
19,504 27,780 45,679 63,399
------- ------- ------- -------
Income from operations 818 2,145 (1,405) 7,288
Interest expense - (1) (1) (2)
Interest income 61 54 110 90
------- ------- ------- -------
Earnings before income taxes
and minority interest 879 2,198 (1,296) 7,376
Income tax expense 235 756 (1,239) 3,137
Minority interest (3) 63 (63) 1,086
------- ------- ------- -------
Net earnings $ 647 $ 1,379 $ 6 $ 3,153
======= ======= ======= =======
Basic earnings per common share $ 0.08 $ 0.18 $ 0.00 $ 0.40
======= ======= ======= =======
Average shares outstanding,
basic EPS 7,911 7,800 7,884 7,800
======= ======= ======= =======
Diluted earnings per common share $ 0.08 $ 0.17 $ 0.00 $ 0.40
======= ======= ======= =======
Average shares outstanding,
diluted EPS 8,052 7,990 8,097 7,921
======= ======= ======= =======
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,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income $ 6 $ 3,153
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 400 518
Amortization (25) 505
Deferred income taxes (1,584) (796)
Provision for losses on accounts receivable 5,948 -
Stock-based compensation 167 47
Minority interest (63) 1,086
Decrease (increase) in accounts receivable 7,205 (6,128)
Increase in inventories (203) (358)
Increase in prepaid assets (208) (31)
(Increase) decrease in other assets (233) 208
Decrease in accounts payable (1,573) (1,392)
(Decrease) increase in notes payable
to suppliers (1,376) 4,657
Increase in accrued expenses 602 274
(Decrease) increase in income taxes payable (2,144) 1,699
Increase in other liabilities 31 100
------- -------
Total adjustments 6,944 389
------- -------
Net cash provided by operations 6,950 3,542
------- -------
Cash flows from investing activities:
Acquisition of property and equipment (180) (182)
Purchase of minority interest - (11,139)
------- -------
Net cash used in investing activities (180) (11,321)
------- -------
-5-
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
Six Months Ended
-----------------------
Sept. 30, Sept. 30,
1998 1997
--------- ---------
Cash flows from financing activities:
Net borrowings on notes less than three months - 1,000
Repayment of notes in excess of three months (6) (6)
Proceeds from exercise of stock options 158 -
------- -------
Net cash provided by financing activities 152 994
------- -------
Effect of exchange rate changes on cash (120) 424
------- -------
Net increase (decrease) in cash and cash equivalents 6,802 (6,361)
Cash and cash equivalents at beginning of period 8,691 18,335
------- -------
Cash and cash equivalents at end of period $15,493 $11,974
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 1 $ 2
Income taxes 2,532 2,294
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, 1998 and the results of operations and cash flows for
the three and six months ended September 30, 1998 and 1997. 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.
A foreign currency translation gain of $360,000 is included in selling, general
and administrative expenses for the six months ended September 30, 1998. In
the three months ended September 30, 1998 and in the three and six months ended
September 30, 1997, there were foreign currency translation losses of $66,000,
$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, 1998.
NOTE 2: INVENTORIES
Inventories are summarized as follows:
(Dollars in Thousands)
Sept. 30, March 31,
1998 1998
--------- ---------
Raw materials $ 159 $ 128
Work-in-process 1,277 992
Finished goods 372 488
------ ------
$1,808 $1,608
====== ======
NOTE 3: INCOME TAXES
The effective consolidated income tax rate used by the Company is based on the
estimated annual effective tax rates for the fiscal years in the countries
where the Company operates applied to results of the quarter.
-7-
GRADCO SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: NET EARNINGS PER SHARE
Basic EPS is computed by dividing net income by the weighted average number of
common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if stock options and other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
For all periods presented, the net earnings available to common shareholders is
the same for both basic and diluted EPS and is equal to the net earnings stated
in the Consolidated Statements of Income. Basic and diluted EPS do not differ
materially from earnings per share previously presented. A reconciliation of
the average number of outstanding shares used in the computation of basic EPS
to that used in the computation of diluted EPS is shown in the following table
(in thousands):
Three Months Ended Six Months Ended
-------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
--------- --------- --------- ---------
Average shares outstanding,
basic EPS 7,911 7,800 7,884 7,800
Effect of dilutive securities:
Stock options 141 190 213 121
------ ------ ------ ------
Average shares outstanding,
diluted EPS 8,052 7,990 8,097 7,921
====== ====== ====== ======
NOTE 5: COMPREHENSIVE INCOME
Effective in the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), REPORTING COMPREHENSIVE
INCOME. SFAS 130 establishes standards for reporting and displaying of
comprehensive income and its components in the Company's consolidated financial
statements. Comprehensive income is defined in SFAS 130 as the change in
equity (net assets) of a business enterprise during a period from transactions
and other events and circumstances from nonowner sources. Total comprehensive
income (loss) was $743,000 and $(313,000) for the three and six months ended
September 30, 1998, respectively and $1,599,000 and $3,837,000 for the three
and six months ended September 30, 1997, respectively. The difference from net
income or loss as reported is the tax affected change in the cumulative
currency translation adjustment.
NOTE 6: NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. This statement, which will become
effective in fiscal 1999, expands or modifies disclosures and will have no
impact on the Company's consolidated financial position, results of operations
or cash flows.
-8-
GRADCO SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: 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. In
1988 and 1989, respectively, the Company and its (now former) president, Keith
Stewart, were 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. The
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 an initial trial would determine whether liability exists and, if so, a
subsequent trial would determine damages.
In March 1992, each plaintiff filed an Application for Prejudgment Remedy
("PJR") against the Company and Gradco (Japan) Ltd. ("GJ") seeking to attach
$10,000,000 of assets of each of these two defendants. This PJR 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 PJR.
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 PJR within the notice period.
Should plaintiffs do so, the Company has agreed to forbear from proceeding with
any such transaction for a limited period.
In June 1995, after trial, a jury found the Company to have liability in the
lawsuit filed by John C. Hamma, including liability for punitive damages, and
the Company filed a motion in August 1995 to reverse the verdict.
In July 1995, the plaintiffs filed another PJR seeking to attach Gradco
Systems' assets. Such PJR was renewed July 14, 1998. These PJRs set forth
various theories of damages including a theory calling for treble damages under
Connecticut law in the amount of $70,500,000 and assert 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 a damages trial. It is Gradco's belief that
damages based on applicable law would result in a significantly smaller damages
award.
In July 1998, the Court issued a decision on the Company's August 1995 motion
to reverse the jury verdict, sustaining the jury verdict on all issues other
than a RICO claim against Keith Stewart. The Court also held that rescission
of the 1982 agreement was an appropriate remedy, which ruling it reaffirmed in
November 1998. At that time it set up a hearing on the PJR motion by
Plaintiffs.
-9-
GRADCO SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: COMMITMENTS AND CONTINGENCIES (Continued)
The Company is presently unable to determine the amount of damages which is
likely to be awarded. Although the Company believes that there is no basis
under any theory which would result in damages of the magnitude sought by
Plaintiffs in the PJR applications, an award of damages of the magnitude set
forth by Plaintiffs could have a material adverse effect on the Company's
financial position and might threaten the Company's existence as an ongoing
enterprise.
Upon the completion of the damages phase of the case, the Company presently
expects to appeal any materially adverse judgment to the 2nd Circuit Court of
Appeals.
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.
NOTE 8: MITA BANKRUPTCY
On August 10, 1998, the Company learned that Mita Industrial Co. Ltd. ("Mita"),
one of GJ's largest customers, had filed a petition in Japan along with five of
its affiliates for the Japanese equivalent of a Chapter XI Reorganization. The
Company has established an allowance of $5.7 million, representing all of
Mita's remaining indebtedness to Gradco as of the bankruptcy date. On an after
tax and minority interest basis, this charge amounted to $313,000 or $.04 per
share and $2,842,000 or $.36 per share in the three and six months ended
September 30, 1998, respectively.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements, including those related to the
Company's growth and strategies, regarding events and financial trends that may
affect the Company's future results of operations and financial position. The
Company's actual results and financial position could differ materially from
those anticipated in the forward-looking statements as a result of competition,
general economic and business conditions, changes in technology, fluctuations
in the rates of exchange of foreign currency and other risks and uncertainties
over which the Company has little or no control.
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, 1998 decreased
$9,603,000 and $26,413,000, respectively, from the comparable prior year
periods principally as a result of decreases in net sales. Unit sales in the
copier market decreased 29% in the quarter from the comparable quarter in the
prior year and 17% from the previous quarter of the current year. Sales
denominated in yen were $1.7 million lower than they would have been had the
yen not decreased by 18% against the dollar when compared to the same period in
the previous year. In the six-month period, unit sales in the copier market
decreased 35% and the yen decreased by 16% against the dollar. Sales
denominated in yen were $3.5 million lower than they would have been had the
yen not decreased when compared to the same period in the previous year.
The decrease in unit sales is primarily attributable to the shift from analog
to digital copiers by the Company's OEM customers as was discussed in previous
reports. The Company is attempting to provide new products to the digital
market and is reviewing cost savings which could be made to lessen the effect
of the change in the market. It is not currently possible to gauge with any
accuracy the adverse effect of the market change or the degree to which such
effect will be softened by the steps being taken by the Company to meet such
change.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross margin on net sales increased to 19.5% from 17.4% for the three months
ended September 30, 1998 and 1997, respectively, and increased to 20.0% from
18.6% for the six-month periods then ended, primarily from a change in product
mix toward higher margin units.
Research and development expenses ("R&D") in the current quarter totaled
$697,000, 3.4% of revenues, compared to $734,000, 2.4% of revenues, in the
prior year's comparable period. For the six months ended September 30, 1998
and 1997, R&D totaled $1,533,000, 3.5% of revenues, and $1,694,000, 2.4% of
revenues, respectively.
Selling, general and administrative expenses ("SG&A") in the current quarter
totaled $2,588,000, 12.7% of revenues, compared to $3,263,000, 10.9% of
revenues, in the prior year's comparable period, a decrease of $675,000. This
decrease was principally attributable to a decrease of $575,000 in foreign
currency translation losses and a reduction of $482,000 in SG&A at GJ caused by
the weaker yen, partially offset by an increase in bad debt expense of $282,000
. For the six months ended September 30, 1998 and 1997, SG&A totaled
$4,542,000, 10.3% of revenues and $5,845,000, 8.3% of revenues, respectively, a
decrease of $1,303,000. The favorable translation of SG&A at GJ associated with
the weaker yen during this period accounted for a decrease of approximately
$725,000 in SG&A and there was a foreign currency translation gain as opposed
to a loss in the prior year period which caused a decrease of $834,000 . These
decreases were offset by an increase of $329,000 in bad debt expense. In
addition to the normal SG&A expenses, the Company has taken a $619,000 charge
in the current quarter and a $5,619,000 charge in the year-to-date period due
to the bankruptcy petition filed by one of GJ's largest customers. For further
information regarding this situation, see Note 8 of Notes to Unaudited
Consolidated Financial Statements.
As a result of the above factors, earnings before income taxes and minority
interest decreased from $2,198,000 in the quarter ended September 30, 1997 to
$879,000 in the current quarter and from $7,376,000 in the six months ended
September 30, 1997 to a loss of $1,296,000 in the current six-month period.
The effective tax rate increased to 95.6% from 42.6% in the six-month period
because there was pre-tax income generated domestically and a pre-tax loss in
Japan where the tax rate is considerably higher.
Minority interest decreased more than proportionally in the six-month period
due to the buyback of GJ shares in the second and third quarters of the prior
year which increased the Company's ownership in GJ from 58.6% to 97.3%.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Working capital increased to $18,088,000 at September 30, 1998 from $17,240,000
at March 31, 1998. At September 30, 1998, the Company had $15,493,000 in cash,
an increase of $6,802,000 from March 31, 1998, and no long-term debt. $6.9
million of cash was provided by operations. $4.9 million of cash was provided
by net earnings before non-cash provisions for depreciation, amortization,
deferred taxes, provision for losses on accounts receivable and stock-based
compensation, $7.2 million was provided by a decrease in accounts receivable
and $0.6 million from an increase in. accrued expenses. $0.6 million of cash
was used to fund increases in inventories, prepaid expenses and other assets
and $5.1 million was used to pay down accounts payable, notes payable to
suppliers and income taxes payable. GJ has informal credit facilities with a
Japanese bank . There were no borrowings under this facility at September 30,
1998. The Company believes that its cash and credit facilities are adequate
for its short and long-term operational needs. At September 30, 1998, there
were no material commitments for capital expenditures.
In June 1995, a jury found the Company to have liability in a lawsuit by John
C. Hamma, a former employee. In July 1998, in response to a motion filed by
the Company in August 1995, the Court sustained the jury verdict on all issues
other than a RICO claim against Keith Stewart, which the Court dismissed. A
separate proceeding to determine the amount of damages is now required. 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 7 of Notes to
Unaudited Consolidated Financial Statements.
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.
Impact of the Year 2000
The Registrant and its subsidiaries have addressed the impact of the Year 2000
on their internal accounting and operating systems and have determined that
these systems are Year 2000 compliant as a result of the recent purchases of
computer software upgrades. The Registrant is completing an assessment of how
its interface with customers and suppliers, in connection with sales and
purchase orders, might be impacted. This assessment is expected to be
completed before the end of the current fiscal year. To date, there do not
appear to be any issues which would have a material impact on the Registrant's
results of operations, liquidity or capital resources.
-13-
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information regarding the current status of the Hamma and DuBois
lawsuits, contained in Note 7 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 18, 1998.
(b) The sole purpose of the meeting was the election of six
directors of the Company, to serve for a term of one year (i.e.,
until the Annual Meeting to be held in 1999). 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, Mazakazu (Mark)
Takeuchi and Martin E. Tash.
(c) The votes cast for, against and withheld from each of the
nominees (out of the 7,910,848 shares of Common Stock outstanding
and entitled to vote as of the record date of August 11, 1998) are
set forth below. There were no broker non-votes.
Nominees FOR AGAINST WITHHELD
-------- --------- ------- --------
Bernard Bressler 5,977,778 84,953 779,844
Thomas J. Burger 6,018,659 44,072 779,844
Harland L. Mischler 6,002,959 59,772 779,844
Robert J. Stillwell 6,018,659 44,072 779,844
Mazakazu (Mark) Takeuchi 6,018,659 43,772 780,144
Martin E. Tash 6,002,959 59,772 779,844
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 13, 1998 HARLAND L. MISCHLER
Harland L. Mischler
Executive Vice President, Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 9/30/98
Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 15,493
<SECURITIES> 0
<RECEIVABLES> 22,313
<ALLOWANCES> 6,103
<INVENTORY> 1,808
<CURRENT-ASSETS> 36,785
<PP&E> 6,179
<DEPRECIATION> 5,127
<TOTAL-ASSETS> 42,906
<CURRENT-LIABILITIES> 18,697
<BONDS> 0
0
0
<COMMON> 45,651
<OTHER-SE> (24,460)
<TOTAL-LIABILITY-AND-EQUITY> 42,906
<SALES> 42,498
<TOTAL-REVENUES> 44,274
<CGS> 33,985
<TOTAL-COSTS> 40,060
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,619
<INTEREST-EXPENSE> (109)
<INCOME-PRETAX> (1,296)
<INCOME-TAX> (1,239)
<INCOME-CONTINUING> 6
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
