9-Month Profit Turned Into Loss : Quality Systems Says Market Crash Cost It $505,000

Quality Systems, a small Tustin computer company, said October’s stock market crash cost it $505,000, turning what would have been a $425,000 profit into a $78,000 loss for the first nine months of its fiscal 1988.

The company had about $4.5 million invested in a mutual fund when the market collapsed. The the fund lost 11% of its value in the crash, compared to a roughly 25% decline in the Dow Jones Industrial Average.

Sheldon Razin, Quality Systems’ chairman and president, said the firm remains in sound financial health despite the loss. The company has about $4.3 million in cash and about $4 million--the remains of its mutual fund portfolio--invested in money market funds.

‘Hedge Fund’

Before the crash, Quality Systems’ investments were in a so-called “hedge fund,” a type of mutual fund that uses certain techniques designed to limit investment risk. The company’s investments in the fund had achieved after-tax returns of between 10% to 15% during the past five years, Razin said.

“It was a good investment for all those years,” Razin said. “When the floor fell out of the stock market, they got caught in that. . . . It hurt in terms of no one likes to lose a half-million bucks.”

The company now has sold most of its securities and reinvested the proceeds in money market funds in order to reduce its future exposure to stock market fluctuations, he said.

“We decided we didn’t want to take even that amount of risk again,” Razin said.

Quality Systems, which markets computer systems to medical and dental offices, reported a net loss for its fiscal 1988 third quarter of $400,000, contrasted with earnings of $143,400 in the year-earlier quarter. Revenues rose 9% to $2.3 million.

For the nine-month period, the company recorded a loss of $78,200 on revenues of $7.5 million. That contrasts with year-ago earnings of $490,600 on revenues of $7.1 million.