Red Ink Report Expected From Gradco Systems

Gradco Systems Inc. expects to report an estimated $5-million loss for its 1985 fiscal year that puts the Santa Ana company in technical default on some of its loans.

In addition, the maker of printing and copying machine equipment announced Monday that it will be filing its annual report 15 days behind schedule.

The latest bad news from Gradco comes just weeks after the company disbanded its network of dealers and distributors in favor of selling direct to makers of printing and copy machines. Newton Lee, corporate secretary, said the move caused an estimated $3.5-million loss in Gradco’s 1985 fiscal year that ended March 31 and forced the company to reclassify its operating results for the previous five years.

Reworking the results, Lee claimed, caused the company to miss the July 1 deadline for filing its annual report with the Securities and Exchange Commission. He said he expects the report to be filed by July 15.

Lee said the loss includes $1.5 million in expected inventory write-downs from moving about half of its manufacturing operation to South Korea. The move was designed to take advantage of lower labor costs in Korea.

As a result of the estimated $5-million loss, Lee said Gradco no longer meets the minimum-net-worth requirement specified in its loans from Union Bank. Although he declined to reveal the company’s present value, Lee said it was “certainly not negative.”

Lee said Gradco also no longer meets Union Bank’s debt-to-equity requirement on its loans. The loan agreement, he said, requires that the company’s debt not exceed its equity. Although Gradco is still making scheduled payments on the loans, Lee said the company is attempting to renegotiate the debt.