SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-K

        X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     -------
                 SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                    For the fiscal year ended March 31, 1997

                                      OR

           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  -------
              SECURITIES EXCHANGE ACT OF  1934 [NO FEE REQUIRED]

             For the transition period from _______  to  _______

                       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  
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(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code: (702) 892-3714

         Securities registered pursuant to Section 12(b) of the Act:

                                                Name of each exchange
          Title of each class                    on which registered
          -------------------                   ---------------------
                 None                                   None
-------------------------------------    --------------------------------------
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         Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, No par value
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                               (Title of Class )

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 
                                                  -------           -------
Cover page (cont'd)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 
of Regulation S-K is not contained herein, and will not be contained, to the 
best of Registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in Part III of this Form 10-K or any amendment to 
this Form 10-K.   X
               -------

The aggregate market value of voting stock held by non-affiliates of the 
Registrant (based on the closing sales price of Gradco common stock on the 
NASDAQ National Market System on June 6, 1997) was $31,016,978.

The number of outstanding shares of each class of the Registrant's common stock 
outstanding at June 6, 1997 was: common stock, no par value--7,799,494 shares.













































                                     PART I

Item 1.  Business

     Gradco Systems, Inc. ("Gradco", "Company" or the "Registrant") was 
originally incorporated in California on November 9, 1978.  As previously 
reported in the Registrant's Report on Form 10-K for the fiscal year ended 
March 31, 1992, the Registrant changed its state of incorporation to Nevada 
through a merger which became effective April 3, 1992.  The Registrant's 
principal executive offices are located at 3753 Howard Hughes Parkway, Suite 
200, Las Vegas, Nevada 89109 and its telephone number is (702) 892-3714.

     (a) Financial Information About Industry Segments.

     Gradco and its subsidiaries operate primarily in one industry segment, the 
design, development, production and marketing of intelligent paper handling 
devices and high technology short-run products for the office automation 
market.  Information relating to net sales, net earnings and identifiable 
assets attributable thereto for the fiscal years ended March 31, 1997, 1996 and 
1995 is set forth in response to Item 8 below.

     (b) Narrative Description of Business.

     Gradco is a holding company which conducts business as follows:

     (1) The various activities comprising the copier and printer product 
businesses, as described below, are conducted through Gradco's majority-owned 
Japanese subsidiary Gradco (Japan) Ltd. ("GJ"), and GJ's wholly-owned domestic 
subsidiary Gradco (USA) Inc. ("GJU").  GJ has a domestic branch office, which 
performs research and development activities.  GJU concentrates on marketing 
and sales activities.

     (2) High technology engineering and manufacturing services are performed 
by Gradco's wholly-owned Venture Engineering, Inc. subsidiary based in 
Carrollton, Texas.

     Unless otherwise indicated or unless the context otherwise requires, (1) 
references to Gradco in the remainder of this Item 1(b) are to the parent 
company, (2) references to GJ, in the descriptive material in the remainder of 
this Item 1(b) pertaining to the copier and printer products businesses, 
include the activities of GJ and GJU, (3) references to the Registrant, in 
connection with the presentation of financial data in the remainder of this 
Item 1(b), and in Item 1(c), include the consolidated financial results of 
Gradco and its subsidiaries.

     Sales by GJ of sorter products to the convenience copier market currently 
account for most of the Registrant's consolidated revenues.  Such revenues also 
include sales of printer products by GJ, revenues of GJ from selected 
technology licenses and agreements with original equipment manufacturers and 
marketers ("OEMs"), and from research and development activities conducted by 
GJ on behalf of its OEM customers, and revenues of Venture Engineering from 
contract engineering and manufacturing services on behalf of OEMs and other 
customers.

     Due to the overall maturity of the copier market, high growth cannot be 
expected in this portion of GJ's business, so additional emphasis is being put 
on printer products, including products applicable to the evolving digital 
copiers which function as computer driven printers, scanners and facsimile 
machines.
                                       1
Business of GJ

     General

     GJ designs, develops, produces (primarily by contract) and markets on a 
worldwide basis, intelligent paper handling devices for office copiers, 
computer controlled printers and facsimile machines.  GJ is a leading 
independent supplier of sorters (devices which collate paper sheets) to the 
convenience copier market, and supplies feeders and mailboxing sorters and 
stackers for the computer controlled printer market.  GJ customizes its sorters 
and stackers for inclusion in the convenience copiers and printers of OEMs.  
Sorter products presently constitute GJ's principal source of revenues.  GJ's 
revenues also include revenues from feeders, stackers and mailboxing sorters 
for computer controlled printers, engineering and development activities for 
certain OEMs and selected technology, licenses and agreements with OEMs.  GJ 
has developed and markets to OEMs automatic stackers, high capacity sheet 
feeders and random access mailboxes for non-impact electronic printers and 
paper handling devices for facsimile machines.  GJ also licenses certain 
proprietary technology to OEMs.

     GJ's products are marketed domestically and internationally primarily 
directly to OEMs for incorporation into their product lines.  Principal OEM 
customers include Mita, Xerox, Rank Xerox, Fuji Xerox, Ricoh, Konica, Toshiba, 
Lanier, Panasonic, Sharp, Fujitsu, Olympus and Kyocera.  Marketing in Asia is 
conducted by GJ, and marketing in North America is conducted by GJU.  Marketing 
in Europe is conducted by GJ and GJU, and by Gradco Belgium, S.C., a wholly-
owned subsidiary of GJ.

     GJ produces its products at manufacturing facilities of contract 
manufacturers in Japan and Korea.  GJ has also entered into a contract for 
production at a facility in Canada, at which manufacturing commenced in 
February 1997.

     In addition to marketing intelligent paper handling devices, GJ licenses 
certain OEMs to produce products using GJ technology in exchange for license 
fees and/or royalties, and receives fees from OEMs for research and development 
and customization contracts for its products.  GJ's development engineering 
activities on behalf of OEMs include engineering, development and prototype 
production of various paper handling devices.

     Gradco and GJ do not have any common directors or officers.  However, as 
the majority shareholder Gradco has the controlling vote on major corporate 
transactions by GJ.  Furthermore, members of Gradco's management consult with 
and advise GJ's management on an ongoing basis with regard to current 
operational matters and future plans.

     GJ Products

     Currently, GJ's products are primarily paper input and output devices for 
copiers and computer controlled printers, including sorter products for copiers 
and printers and sheet feeding products for printers.  GJ has development and 
customization contracts with a number of OEMs for several new products for 
copiers and intelligent non-impact electronic page printers.

     Sorter Products.  During the period when Gradco was directly engaged in 
the copier products business, prior to the introduction by it to the 
convenience copier market of the sorters currently sold by GJ, sorters 
available to the market were large and complicated, with many moving parts and 

                                       2
long, complicated paper paths.  The sorters sold by GJ are primarily designed 
to provide a shorter, straight-through or nearly straight-through, single paper 
path.

     The sorters sold by GJ are designed for use with a variety of convenience 
copiers and are available with either 10, 20, or 25 receiving bins.  These 
products may be attached quickly and easily to a copier or may be designed to 
be an integral part of the copier.  Some of GJ's sorters are controlled by 
intelligence contained within the copier, which communicates with the sorter 
through a customized interface, while others contain the necessary intelligence 
to stand alone and receive output from the copier or mechanically and 
electronically interface with a copier.

     New Copier Products.  The new products for the copier market include a 
variety of 10, 15 and 20 bin sorters with a sheet capacity per bin and a copy 
per minute operating speed to satisfy the need in the low through mid-range of 
copiers.  Some products include means for offsetting copy sets to enhance set 
removal and set capacity for mid-range copier use, and some include set-
aligning sheet joggers and in-bin stapling and hole punching capabilities.

     GJ has acquired the exclusive rights to manufacture and market a computer 
forms feeder which improves the feeding of continuous forms in medium to high 
speed copiers.

     New copier products which also are applicable to the printer market 
include sorters which are also operable in a random access mode to function 
with electronic page printers as a mailbox.

     Printer Products.  GJ's products include certain additional automatic 
paper and envelope feeders and specialized output print stations.  These 
include a paper feeder, stacker and mailboxes specially designed for laser 
printers.

     New Printer Products.  New products developed for the printer product 
market include a sheet and envelope feeder, a variety of its high capacity 
sheet feeders applicable to a variety of laser printers, a specialized high 
capacity stacker for a high speed laser printer, a stacker for many low speed 
laser printers, a sheet invertor and a sheet decurler for laser printers and 
facsimile machines.

     GJ Marketing and Customers

     General.  GJ sells its products domestically and internationally primarily 
directly to OEMs.  GJ (under licenses which were assigned to it by Gradco) has 
licensed certain OEMs to manufacture and sell certain products for use in 
conjunction with the OEMs' copiers marketed to other companies.

     GJ frequently develops a new product or a variation of an existing product 
in consultation with an OEM who has agreed to pay for or share in the cost of 
the development work, then submits a prototype for evaluation to the OEM 
customer who may agree to purchase such product in commercial quantities and 
who may share tooling and initial production costs.  In other cases, an OEM 
will present GJ with a copier, printer or other product in the research and 
development stage and engage GJ (at the OEM's expense) to design a paper 
handling device to fit the OEM's specifications.  Any unique interface designed 
to work only with an OEM's particular equipment may be exclusive to the OEM; GJ 
retains ownership of the basic technology and any other technology developed by 
GJ for use in its business.  GJ also does product development work at its own 
expense, based on its evaluation of future market requirements.
                                       3
     In fiscal 1997, Xerox, Rank Xerox, Mita and Lanier accounted for 26%, 17%, 
11% and 11%, respectively, of the Registrant's consolidated revenues.  In 
fiscal 1996, Xerox, Rank Xerox, Mita and Lanier accounted for 29%, 16%, 13% and 
11%, respectively, of the Registrant's consolidated revenues.  In fiscal 1995, 
Mita, Xerox and Sharp accounted for 19%, 16% and 11%, respectively, of the 
Registrant's consolidated revenues.  A loss of any of the current principal 
customers could have a negative impact on the Registrant's consolidated 
operations taken as a whole (see GJ Competition).

     Based on Xerox's system for evaluation of vendors in view of 
business/quality management, GJ is officially recognized by Xerox as one of its 
certified suppliers.

     Licensees.  During the period that it was directly involved in the copier 
business, Gradco entered into certain agreements and granted certain licenses 
to others, described below, to manufacture products using Gradco technology.  
These agreements and licenses were assigned by Gradco to GJ as part of the sale 
to GJ of substantially all of the assets used in Gradco's copier business (the 
"Copier Assets") in fiscal 1991.  Thus, the pertinent rights, obligations and 
technology of Gradco, described below, have devolved upon GJ.  In certain 
instances, GJ and the licensee have entered directly into an amended and 
restated agreement superseding the original license as assigned to GJ, but 
these restatements do not modify the basic features of the arrangement, as 
described below.  In one instance (the license described in the next to last 
paragraph of this section), the license was granted by GJ itself in fiscal 
1993.

     In exchange for a lump sum payment, Gradco and a major OEM customer 
entered into a paid up, royalty-free, worldwide release and agreement not to 
assert against the OEM most of Gradco's then-existing patents relating to 
sorters existing at the time of the agreement.  This agreement is limited to 
sorters made, used or sold by the OEM or its affiliates for use only with 
certain products made by or for the OEM or its affiliates.  In addition, this 
OEM has been granted a non-exclusive worldwide license on a royalty basis 
limited to certain sorter technology and patent rights for use with certain 
products of the OEM or its affiliates.  Gradco and the OEM amended this license 
to include additional defined sorters in exchange for an additional royalty 
payable to Gradco, in conjunction with the grant of royalty-free cross licenses 
between Gradco and the OEM with respect to certain conflicting patent rights of 
Gradco in the United States and the OEM in Japan.

     Another major OEM was granted a limited non-exclusive worldwide license 
for a lump sum payment and future royalties restricted to certain sorter 
technology and patent rights for use with certain products of the OEM or its 
affiliates.  Such sorters are limited by definition of size, capacity and 
copier speed.

     Another OEM was granted a non-exclusive license in exchange for a lump sum 
payment and future royalties on certain limited sorter technology for use on 
copiers manufactured by the OEM.  Certain sorters, as defined in the agreement, 
are territorially limited.

     GJ granted a non-exclusive license to a laser printer OEM to incorporate 
GJ's patented decurler structure in the OEM's printer for a royalty of one 
amount if incorporated in an attachment to the printer, but a lesser amount if 
incorporated directly in the printer.

     These agreements generated recurring royalty revenues of approximately 
$2,694,000 during the fiscal year ended March 31, 1997, $2,528,000 during the 
                                       4
fiscal year ended March 31, 1996, and $2,725,000 during the fiscal year ended 
March 31, 1995.  These agreements allow GJ to receive additional revenues from 
certain OEMs while also selling products to the OEMs, and, overall, are 
expected to result in better market penetration of GJ technology.  However, the 
licensees are able to compete with GJ in some of GJ's customary markets to the 
limited extent set forth in such agreements.  No licensee has the right to 
sublicense the technology to nonaffiliates.

     GJ Competition

     GJ's principal competition for its sorters for convenience copiers is from 
its OEM licensees.  Certain licensees, because of their much larger resources, 
have been able to develop new sorter products more rapidly than GJ.  GJ also 
experiences competition, to a more limited extent, from other OEMs, and from 
other manufacturers of sorters using different technology.  Copier 
manufacturers or other companies, many of whom are much larger than GJ with 
resources far in excess of those of GJ, could seek to enter the convenience 
copier sorter market in direct competition with GJ.  Certain OEMs make sorters 
for use with certain of their convenience copier models using other sorter 
technology such as fixed bin technology.

     In its marketing of printer products, GJ competes with manufacturers of 
mechanical sheet feeding devices, continuous form paper feeding devices and 
automatic paper feeding devices, as well as OEMs that build such devices for 
sale with their information or word processing systems.

     GJ Patents and Proprietary Technology

     GJ has an ongoing program of seeking patent protection for its technology. 
GJ holds numerous patents and patent applications (including those acquired by 
assignment from Gradco as part of the sale of Copier Assets in fiscal 1991) 
relating principally to its sorters in the United States, United Kingdom, 
Japan, Germany, France, Switzerland and Canada.  The unexpired terms of the 
major U.S. sorter patents already issued range from 3 to 17 years.  Patent 
applications are pending on most of GJ's recently introduced new products.  
Patents have been obtained or patent applications are pending in the United 
States and Japan, relating to GJ's paper decurling technology for laser 
printers and facsimile machines.

     GJ also has United States and foreign patents and has several additional 
patent applications pending in the United States and abroad relating to paper 
feeding devices for use with printer products.

     Gradco believes that the issued patents of GJ are material to the 
consolidated operations of Gradco and subsidiaries taken as a whole.  However, 
there can be no assurance that GJ's sorter patents will not be challenged or 
infringed.  In addition, there can be no assurance that other parties will not 
develop new technology which does not violate such patents but which is 
competitive with certain GJ products and patentable by such other parties. 

     GJ has a confidential information and invention assignment agreement to 
protect GJ's technology with each of its key technical employees.

     GJ Production and Assembly

     GJ produces its products at manufacturing facilities of contract 
manufacturers in Japan and Korea.  Effective August 17, 1995, GJ entered into a 
three year nonexclusive, extendible contract for production of a new copier 

                                       5
product at a contract manufacturing facility in Canada, at which manufacturing 
commenced in February 1997.

     Agreements with the manufacturers for finished products provide for 
quality controls and inspection by GJ and its customers.  GJ seeks to control 
product quality in a variety of ways.  It emphasizes initial inspection and 
testing of components.  Each of GJ's product lines has a high commonality of 
parts, enabling GJ to effect certain economies of scale.  Raw materials for 
GJ's products are available from a number of sources to permit timely shipment 
of orders.   Microprocessor programming and electronic assemblies are generally 
proprietary but certain OEMs may specify electronics.  Tooling for most common 
parts is owned by GJ or its contract manufacturers, while a number of OEMs own 
tooling for parts unique to models customized for their products.

     GJU, and GJ's domestic branch office, have obtained quality systems 
certification under ISO 9001 (an International Standard promulgated under the 
European Economic Community Mandate).

Business of Venture Engineering, Inc.

     The Venture Engineering, Inc. ("Venture") subsidiary performs contract 
engineering and manufacturing services, relating to the customer's own 
products, for OEMs and other customers.  Venture offers professional turnkey 
services ranging from design concepts through manufacturing production.  It 
markets its services independently of the engineering services performed by GJ 
for its OEM customers, referred to above.

     Engineering services performed by Venture are principally related to 
paper-handling products and semiconductor processing equipment, including 
electronic motion control devices and devices used for putting marks on 
paper/media.  These devices and applications include printer-plotters, 
peripheral media handling, and specialized printing and support.  Services are 
also performed for other applications such as automated medical diagnostic 
equipment, manufacturing robotics, and test and process control equipment.  
Services are typically billed on a time and material or fixed price basis.  
However, Venture completed a development project in February 1992 which will 
provide a royalty stream through 1998.  This project generated royalty revenues 
of approximately $171,000 in fiscal 1997, $32,000 in fiscal 1996, and $52,000 
in fiscal 1995.

     Manufacturing services principally include fabrication, assembly and 
testing of complex electro-mechanical assemblies for customers in such diverse 
fields as computer equipment, medical equipment and telecommunications.

     Due to the broad and diverse number of markets and customers served by 
Venture, there is not one specific group of competitors.  In most cases, the 
principal competition is from within the prospective customers' own functional 
engineering and manufacturing organizations, or from a product company offering 
standard products which may be adapted to a specific unique application 
requirement.

Costs and Revenues of Development Engineering Services

     In 1997, 1996 and 1995 the Registrant, on a consolidated basis, spent 
approximately $3,605,000, $3,641,000 and $2,164,000, respectively, on research 
and development and development engineering activities.  Costs incurred under 
research and development and development engineering contracts are included in 
research and development expense.  Included in research and development expense
                                       6
are costs related to development engineering service contracts of approximately 
$948,000, $1,603,000 and $676,000, in fiscal 1997, 1996 and 1995, respectively. 
The Registrant, on a consolidated basis, also received revenues from customers 
under development engineering service contracts of approximately $1,125,000, 
$1,877,000 and $923,000, in fiscal 1997, 1996 and 1995, respectively.

Backlog

     Registrant's order backlog at March 31, 1997 from consolidated operations 
was estimated at approximately $47.7 million, and was estimated at 
approximately $39.3 million at March 31, 1996.  Backlog includes orders 
accepted for delivery to customers during the ensuing fiscal year, including 
purchases committed by certain customers in the form of purchase agreements, 
although such orders are subject to cancellation by the customer (in most cases 
upon the payment of a cancellation charge).  Substantially all orders shown as 
backlog were scheduled for delivery within approximately 6 months.  Because 
Gradco's operating subsidiaries generally ship products upon specific releases 
from customers of previously received orders, the Registrant's backlog as of 
any particular date may not be a meaningful measure of the Registrant's actual 
sales for the succeeding fiscal period.

Employees

     As of June 6, 1997, Gradco and its subsidiaries employed 114 persons.  To 
date, Gradco and its subsidiaries have encountered no difficulty in attracting 
and retaining qualified employees.  Gradco believes employee relations to be 
satisfactory.

     (c) Domestic Operations and Export Sales.

     Approximately 64% of the Registrant's consolidated revenues for the fiscal 
years ended March 31, 1997 and 1996 were attributed to domestic sales and 
approximately 36% were attributed to foreign sales.  Approximately 43% of the 
Registrant's consolidated revenues for the fiscal year ended March 31, 1995 
were attributed to domestic sales and approximately 57% were attributed to 
foreign sales.  In its export sales, Registrant is subject to the usual risks 
of international trade, including political instability, restrictive trade 
policies, controls on fund transfers and foreign currency fluctuations.  

     The Registrant's sales are primarily denominated in Japanese yen and 
United States dollars.  In order to limit the risk of foreign currency exchange 
fluctuations, the Registrant attempts to buy and sell products and services in 
the same currency.  However, there are foreign currency exchange gains and 
losses associated with some sales transactions.  The Registrant had currency 
exchange gains of $904,000 and $1,057,000 in fiscal years 1997 and 1996, 
respectively caused by the strengthening of the dollar versus the yen during 
the periods.  In fiscal 1995, the Registrant had a currency exchange loss of 
$387,000 caused by the surge in the value of the yen versus the dollar in March 
1995.

     Financial information regarding foreign and domestic operations and export 
sales is set forth in Note 8 of Notes to the Registrant's Consolidated 
Financial Statements filed in response to Item 8 below.

Item 2.  Description of Property.

     Gradco's corporate offices are located at 3753 Howard Hughes Parkway, 
Suite 200, Las Vegas, Nevada 89109.  The current term of the lease expires in 
March 1998.
                                       7
     GJ's offices are located in Tokyo, Japan.  The offices of GJU (GJ's 
domestic subsidiary) are located in Irvine, California, and GJ maintains a 
branch office at the same location.  The Registrant's Venture Engineering 
subsidiary has engineering, development and light production facilities in 
Carrollton, Texas.

Item 3.  Legal Proceedings.

HAMMA V. GRADCO SYSTEMS, INC., ET AL; DUBOIS V. GRADCO SYSTEMS, INC. ET AL.
     Gradco and its (now former) president, Keith Stewart, were sued in an 
action filed in March 1988 in the United States District Court in Bridgeport, 
Connecticut, by John C. Hamma ("Hamma"), an ex-employee.  The complaint 
primarily alleges misrepresentation and fraudulent concealment by Gradco and 
Mr. Stewart in connection with an agreement entered into in March 1982 which 
terminated and released Gradco from royalty obligations under a royalty 
agreement entered into effective as of August 1979 pursuant to which Hamma 
assigned to Gradco his co-inventor's interest in patent rights for improvements 
in certain products of the Company.  The complaint, which has been amended a 
number of times, sought unspecified damages, and other relief.

      In a separate but related action (which was consolidated with the Hamma 
action for certain pretrial purposes), Gradco and Mr. Stewart were sued in 
August 1989 in the United States District Court in Bridgeport, Connecticut by 
R. Clark DuBois ("DuBois"), also an ex-employee of the Company.  The complaint 
primarily alleges misrepresentation and fraudulent concealment by the Company 
and Mr. Stewart in connection with an agreement entered into in March 1983 
which terminated and released the Company from royalty obligations under a 
royalty agreement entered into effective as of August 1979 pursuant to which 
DuBois assigned to the Company his co-inventor's interest in patent rights for 
improvements in certain products of the Company.  The complaint, which has been 
amended a number of times, seeks unspecified damages, and other relief.  The 
case has not yet been scheduled for trial.

     In March 1992, each of the plaintiffs filed an Application for Prejudgment 
Remedy against the Company and GJ 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 
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 expenses 
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.  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.
                                       8
     In July 1995, the plaintiffs filed a new 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 
are likely to be awarded, but the amount of damages sought by the plaintiffs, 
including punitive damages, 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. and Gradco (USA) 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.

Item 4.  Submission of Matters to Vote of Security Holders.

     No matters were submitted to a vote of security holders during the fourth 
quarter of the fiscal year covered by this report.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Security Holder 
Matters.

     (a) Market Information.

     Gradco common stock is traded in the over-the-counter market and is quoted 
on the NASDAQ National Market System under the symbol GRCO. The following table 
sets forth the quarterly high and low closing sales prices from April 1, 1995 
to March 31, 1997.

Quarter Ended                   High            Low
June 30, 1995..................$ 5.25         $ 1.75
September 30, 1995.............$ 3.25         $ 1.75
December 31, 1995..............$ 3.00         $ 1.75
March 31, 1996.................$ 4.125        $ 2.25
June 30, 1996..................$ 5.00         $ 3.125
September 30, 1996.............$ 4.5625       $ 3.125
December 31, 1996..............$ 4.25         $ 3.375
March 31, 1997.................$ 4.25         $ 3.00
                                       9
      (b) Holders.

      The approximate number of holders of record of Gradco common stock, no 
par value (its sole class of common equity) as of the close of business on June 
6, 1997 is 420.

      (c) Dividends.

     Gradco has not declared any dividends on its common stock.  The present 
policy of Gradco's board of directors is to retain earnings to provide funds 
for the operation and expansion of Gradco's business. 

Item 6.  Selected Financial Data.

     The following selected financial data should be read in conjunction with 
the consolidated financial statements of Gradco and the notes thereto included 
elsewhere herein.

                                               Years Ended March 31,
                                    1997     1996     1995     1994     1993
                                     (In thousands, except per share amounts)
Statement of operations data:
Operating revenues:              $100,887 $100,596  $82,838  $53,148  $61,227
                                 -------- --------  -------  -------  -------

Costs and expenses:
  Cost of sales                    78,331   76,657   64,290   40,629   47,929
  Other operating expenses         15,710   16,625   14,815   12,211   12,423
  Interest income, net               (183)    (226)     (55)     (32)     (19)
  Investment (gains) losses           -        (53)     205       52      -   
                                 -------- --------  -------  -------  -------
                                   93,858   93,003   79,255   52,860   60,333
                                 -------- --------  -------  -------  -------
Earnings before income taxes
  and minority interest             7,029    7,593    3,583      288      894
Income taxes                        2,983    2,748    1,331      535    1,181
Minority interest                   1,194    1,585      800     (241)     196
                                 -------- --------  -------  -------  -------
Net earnings (loss)              $  2,852 $  3,260  $ 1,452  $    (6) $  (483)
                                 ======== ========  =======  =======  =======

Earnings (loss) per common share:

Net earnings (loss)              $    .36 $    .42  $   .19  $   -    $  (.06)
                                 ======== ========  =======  =======  =======

Weighted average shares 
  outstanding                       7,799    7,796    7,784    7,784    7,784

Balance sheet data:
  Working capital                 $19,418  $18,979  $16,727  $10,208  $ 8,349
  Total assets                     58,086   58,015   64,383   41,796   42,988
  Long-term debt                       15       25       35      -        -  
  Shareholders' equity             15,339   16,201   16,997   11,137    9,194





                                      10
Item 7.  Management's Discussion and Analysis of Financial Condition and 
Results of Operations.

     GJ and GJU 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.

Revenues

     Revenues for the fiscal year ended March 31, 1997 increased by $291,000 
from the prior year.  Although unit sales increased by 6%, the amount of net 
sales increased by only $738,000, from $96,159,000 to $96,897,000.  Sales 
denominated in yen, when translated into dollars, were approximately $13 
million lower than they would have been had the yen not decreased by 17% 
against the dollar during the year.  Revenue from development engineering 
services decreased by $752,000 as copier projects partially funded by customers 
in the prior year were completed while royalties increased by $305,000.

     Revenues for the fiscal year ended March 31, 1996 increased by $17,758,000 
(21.4%) from the prior year primarily due to an increase of $17,021,000 (21.5%) 
in net sales, from $79,138,000 to $96,159,000.  Although unit sales in the 
copier market were flat compared to the previous year, the average unit price 
was higher as customers primarily purchased units with in-bin stapling.  The 
yen was on average 3% stronger against the dollar than during the previous 
year, but ended fiscal 1996 significantly lower.  Development engineering 
services revenue increased $954,000 due to increased revenues from new projects 
related to both copier and printer products while royalties decreased by 
$217,000.

Costs and Expenses

     Cost of sales as a percentage of net sales was 80.8%, 79.7% and 81.2% in 
fiscal 1997, 1996 and 1995, respectively.  The increase in the current fiscal 
year is primarily due to a decrease in margins in Venture Engineering's 
contract manufacturing business.  The improvement in fiscal 1996 over the prior 
fiscal year was primarily attributable to a change in mix of units sold toward 
higher margin products.

     Research and development expenses ("R&D") in fiscal 1997 totaled 
$3,605,000 (3.6% of revenues), compared to $3,641,000 (3.6% of revenues) in 
fiscal 1996 and $2,164,000 (2.6% of revenues) in fiscal 1995.  The increase in 
fiscal 1996 R&D of $1,477,000 was due to an increase of $927,000 in costs 
incurred under development engineering service contracts and an increase of 
$550,000 in expenses on behalf of OEM customers and internal research and 
development.

     Selling, general and administrative expenses ("SG&A") decreased by 
$879,000 (6.8%) in fiscal 1997 from the prior year.  The favorable translation 
of SG&A at GJ caused by the weaker yen during the year accounted for a decrease 
of approximately $1,400,000 and a reduction in legal fees associated with the 
Hamma lawsuit, which was tried in June 1995, accounted for a decrease of 
$600,000.  These decreases were offset by lower currency exchange gains 

                                      11
amounting to $153,000 and general increases at the operating subsidiary level.  
SG&A increased by $333,000 (2.6%) in fiscal 1996 from fiscal 1995.  Increased 
SG&A attributable to the growth in revenue was moderated by a currency exchange 
gain of $1,057,000 in fiscal 1996 as the dollar strengthened against the yen 
during the year compared to a currency exchange loss of $387,000 in fiscal 
1995.

Pre-tax Earnings, Taxes, and Minority Interest

     As a result of the above factors, earnings before income taxes and 
minority interest were $7,029,000, $7,593,000 and $3,583,000 in fiscal 1997, 
1996 and 1995, respectively.  Income taxes and minority interest increased in 
fiscal 1996 from 1995 due to the increases in pre-tax earnings.  The tax 
provisions of $2,983,000, $2,748,000 and $1,331,000 in fiscal 1997, 1996 and 
1995, respectively, primarily comprise foreign taxes on the earnings of the 
Company's Japanese subsidiary.  The Company's consolidated effective tax rate 
increased in fiscal 1997 as net operating loss carryforwards at GJ's domestic 
subsidiary, which files a separate return, were fully utilized.  For further 
discussion regarding the tax provisions, see Note 3 of Notes to Consolidated 
Financial Statements set forth in Item 8 below.

Litigation

     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 7 of Notes to 
Consolidated Financial Statements set forth in Item 8 below.

     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.

Effects of Inflation

     To date, the Company has not experienced significant inflationary cost 
increases.

Liquidity and Capital Resources

     Working capital increased to $19,418,000 at March 31, 1997 from 
$18,979,000 at March 31, 1996 primarily from funds generated by operations, in 
spite of the 15% decrease in the value of the yen against the dollar when 
compared to the previous year-end rate.  Working capital increased to 
$18,979,000 at March 31, 1996 from $16,727,000 at March 31, 1995 primarily from 
funds generated by operations, in spite of the 24% decrease in the value of the 
yen against the dollar when compared to the previous year-end rate.




                                      12
     Net cash provided by operations was $1.3 million and $10.3 million in 
fiscal 1997 and 1996, respectively.  The decrease in 1997 from 1996 was due to 
an increase in accounts receivable in 1997 which accounted for a use of $7.0 
million as compared to a decrease in 1996 which provided $2.2 million.  Cash 
provided by net earnings before depreciation, amortization, deferred taxes and 
minority interest decreased to $6.5 million in 1997 from $7.2 million in 1996, 
but was offset by an increase in cash provided by accounts payable and income 
taxes payable of $3.0 million in 1997 as compared to $2.0 million in 1996.

     In fiscal 1995, $3.0 million was used in operations.  The improvement in 
1996 from 1995 was due to a decrease in accounts receivable in 1996 which 
provided $2.2 million as compared to an increase in 1995 which accounted for a 
use of $11.9 million.  Cash provided by net earnings before depreciation, 
amortization, deferred taxes and minority interest increased to $7.2 million in 
1996 from $5.5 million in 1995, but was offset by cash used to increase 
inventory by $.6 million in 1996 as compared to $1.4 million provided by a 
decrease of inventory levels in 1995.

     Net cash used in investing activities of $1.7 million, $1.6 million and 
$1.0 million in fiscal 1997, 1996 and 1995, respectively, was for acquisition 
of property and equipment.

     Net cash provided by financing activities was $1.4 million, $1.3 million 
and $9.8 million in fiscal 1997, 1996 and 1995, respectively.  The fiscal 1995 
amount corresponded to the significant increase in the level of accounts 
receivable which occurred that year as a result of increased sales over the 
prior year.

     Exchange rate changes associated with the weakening yen caused a decrease 
of $2.2 million in cash in fiscal 1997 and $2.6 million in fiscal 1996.  In 
fiscal 1995, exchange rate changes increased cash by $.8 million as the yen 
strengthened against the dollar from the previous year.

     At March 31, 1997, the Company had $18,335,000 in cash and minimal long-
term debt.  The Company's Japanese subsidiary has informal credit facilities 
with a Japanese bank and has established a $2 million line of credit for its 
U.S. subsidiary.  There were no borrowings under this line at March 31, 1997.  
The Company believes that its cash and credit facilities are adequate for its 
short and long-term needs.  The Company does not have any material commitments 
for capital expenditures except that, as discussed in Note 1 of Notes to 
Consolidated Financial Statements set forth in Item 8 below, GJ has 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 is expected to be consummated after a special meeting of GJ to 
be held on June 27, 1997.  The total price of approximately $11 million will be 
paid from available cash of GJ.  After the completion of the transaction, the 
Company will own approximately 90% of the stock of GJ.  Given the Company's 
current working capital, its available credit facilities and anticipated 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.

Item 8.  Financial Statements and Supplementary Data.

     Response to this Item is contained in Item 14(a).

Item 9.  Disagreements in Accounting and Financial Disclosure.

     Not applicable.

                                      13
                                   PART III

Item 10.  Directors and Executive Officers of the Registrant.

     (a) The following table sets forth the name of each director and executive 
officer of the Registrant, and the nature of all positions and offices with the 
Registrant held by him at present.1  Unless otherwise indicated, the term of 
office of all directors and executive officers expires at the next annual 
meeting of stockholders of the Registrant, which is expected to be held in 
September 1997.

Name                          Position

Martin E. Tash                Chairman of the Board, President and Chief 
                              Executive Officer

Harland L. Mischler           Executive Vice President, Chief Financial 
                              Officer and Director

Bernard Bressler              Secretary, Treasurer and Director

Robert J. Stillwell           Director

Thomas J. Burger              Director

Masakazu (Mark) Takeuchi      President and Director of GJ*

Akira (Tony) Shinomiya        Chief Financial Officer and Director of GJ*
__________
*Term expires at ordinary general shareholders meeting of GJ for fiscal 1998, 
to be held in June 1998.

     (1)Masakazu (Mark) Takeuchi and Akira (Tony) Shinomiya, who are listed in 
the table, are executive officers of Gradco (Japan) Ltd. ("GJ"), the 
Registrant's majority-owned Japanese subsidiary.  As described in Item 1(b) 
above, the Registrant's primary business is conducted through GJ.  Due to the 
significance of the role of Messrs. Takeuchi and Shinomiya in managing the 
operations of GJ and conducting its relationship with the Registrant, 

information regarding them has been included in various portions of this part 
III.  However, the inclusion of such references to "executive officers of the 
Registrant" is not an acknowledgment that Messrs. Takeuchi and Shinomiya may be 
so characterized, since they do not perform a policy-making function for the 
Registrant.

(b) The following is a brief account of the recent business experience of each 
director and executive officer and directorships held with other companies 
which file reports with the Securities and Exchange Commission.

Name                                  Business Experience
----                                  -------------------

Martin E. Tash,             Mr. Tash has been Chairman of the Board and Chief 
age 56                      Executive Officer of the Registrant since October 
                            1990, and President of the Registrant since
                            October 1991.  Mr. Tash is also Chairman of the 
                            Board and President of Plenum Publishing 
                            Corporation, a position he has held since July 
                            1977.
                                      14
Harland L. Mischler,        Mr. Mischler has been Chief Financial Officer 
age 65                      and a director of the Registrant since October 
                            1990, and Executive Vice President of the 
                            Registrant since October 1991.  Mr. Mischler is a 
                            certified public accountant.  Mr. Mischler served 
                            as Vice President, Controller and Treasurer of 
                            Hobart Corporation from 1966 to 1981.  From 1981 
                            to 1984 he was Vice President of Finance of Bausch 
                            & Lomb, Inc.  At that time he purchased, with 
                            another, Applied Research Laboratories, Inc., an 
                            analytical instrument company, in a leveraged 
                            buyout from Bausch & Lomb.  After such company was 
                            sold profitably in 1987, Mr. Mischler founded HLM 
                            Capital Resources, Inc., a private investment and 
                            holding company of which he is President and 
                            Chairman.

Bernard Bressler,           Mr. Bressler has been Secretary and a director of 
age 69                      the Registrant since October 1990 and Treasurer 
                            of the Registrant since April 1992.  He has been a 
                            practicing attorney since 1952, and is presently a 
                            member of the firm of Bressler, Amery & Ross, P.C.
                            counsel to the Registrant.  Mr. Bressler is also a 
                            director of Plenum Publishing Corporation.

Robert J. Stillwell,        Mr. Stillwell has been a director of the 
age 61                      Registrant since October 1991. Mr. Stillwell 
                            owns and operates the Robert J. Stillwell Agency, 
                            Inc., an independent life and health insurance 
                            agency which he founded over 20 years ago, and he 
                            owns and operates Nationwide Property Management, 
                            which handles diverse real estate investments in 
                            which he is involved.  In 1985, Mr. Stillwell 
                            founded and is the principal owner of Service 
                            Concepts Unlimited, Inc.  Mr. Stillwell is a 
                            director of Crusader Savings Bank located in 
                            Rosemont, Pennsylvania.

Thomas J. Burger,           Mr. Burger has been a director of the 
age 50                      Registrant since October 1993.  He is Associate 
                            Senior Vice President of NEC America, Inc. (a 
                            position he has held since July 1993), and is 
                            responsible for the sale and marketing of its 
                            business telephone systems throughout the United 
                            States.  Prior thereto, he was President and a 
                            director of two wholly-owned subsidiaries of NEC 
                            America Inc., which conducted the sales, 
                            installation and maintenance of NEC communication 
                            systems and networks throughout the Central, South 
                            and Western United States.  From August 1988 to 
                            December 1989 Mr. Burger was President and a 
                            director of Marcom Communications Inc.  After he 
                            reorganized its telecommunication subsidiary, the 
                            subsidiary was sold to NEC America and he became 
                            an employee of NEC.  In July 1987 Mr. Burger 
                            founded Astra Services Inc., a computer company 
                            providing various software development services to 
                            the communications industry.  Astra Services was 

                                      15
                            sold profitably in 1992.  From 1973 to 1987 Mr. 
                            Burger was employed in various capacities by 
                            Telecom Plus International Inc., one of the major 
                            independent interconnect companies in the U.S.  He 
                            became President in 1980, a position he held until 
                            May 1987 when the company was sold to Siemens 
                            Communications.

Masakazu (Mark) Takeuchi,   Mr. Takeuchi has been President and Chief 
age 60                      Executive Officer of Gradco (Japan) Ltd. since 
                            1989 and a director of GJ since 1988.  He is also 
                            President and a director of Gradco (USA) Inc.  He 
                            was Senior Vice President of Far East Operations 
                            and New Business Development of the Registrant 
                            from August 1988 to October 1990, and a director 
                            of the Registrant from March 1990 until October 
                            1990.  Mr. Takeuchi was also Chairman of GJ from 
                            August 1988 until December 1988.  Previously, from 
                            1961, Mr. Takeuchi was employed by C. Itoh & Co. 
                            Ltd. in various positions.

Akira (Tony) Shinomiya,     Mr. Shinomiya has been Chief Financial Officer 
age 54                      and a director of GJ since January 1989. From 
                            1987 to 1988, he served as deputy General Manager 
                            of C. Itoh Electronics Corp. and from September 
                            1985 through 1986 he was Section Manager of the 
                            Electronics Division of C. Itoh & Co. Ltd.  From 
                            1975 to 1985 he was Vice President of C. Itoh 
                            Electronics Inc. in Los Angeles, California.

Compliance with Section 16(a) of the Exchange Act

     Martin Tash failed to file on a timely basis a Statement of Changes in 
Beneficial Ownership on Form 4, reporting the transfer of 6,250 shares owned by 
Mr. Tash individually into a private profit sharing plan of which Mr. Tash is 
the sole beneficiary.  Such transfer does not affect Mr. Tash's beneficial 
ownership.  Mr. Tash will be filing the Form 4 on or about the date of filing 
of this Form 10-K.

Item 11.  Executive Compensation.

     (a) Summary Compensation Table.  The following table sets forth all 
compensation awarded to, earned by or paid to the following persons through 
June 6, 1997 for services rendered in all capacities to the Registrant and its 
subsidiaries during each of the fiscal years ended March 31, 1997, 1996 and 
1995:  (1) the Registrant's Chief Executive officer, and (2) each of the other 
executive officers whose total compensation for the fiscal year ended March 31, 
1997 required to be disclosed in column (c) below exceeded $100,000:

                          SUMMARY COMPENSATION TABLE
(a)                                   (b)           (c)(1)(2)
Name and Principal Position           Year     Salary and Bonus($)
---------------------------           ----     -------------------

Martin E. Tash                        1997           125,000
Chairman of the Board, President      1996           125,000
and Chief Executive Officer           1995           125,000


                                      16
Masakazu (Mark) Takeuchi              1997           317,996
President,                            1996           315,248
Gradco (Japan) Ltd.                   1995           289,166

Akira (Tony) Shinomiya                1997           278,757
Chief Financial Officer               1996           277,940
Gradco (Japan) Ltd.                   1995           254,123
_______________

(1) With regard to Mr. Tash, the amounts shown in this column represent 
compensation for special services rendered as a director.

(2) With regard to Messrs. Takeuchi and Shinomiya, the amounts shown in this 
column represent compensation paid to such individuals for services as 
executive officers of Gradco (Japan) Ltd.  See note (1) in Item 10(a).  Such 
compensation includes bonuses for 1997 in the amount of $37,286 and $31,072 for 
Messrs. Takeuchi and Shinomiya, respectively.  All such compensation was paid 
in yen by GJ and is translated into dollars at each year's average annual 
exchange rates in the above table.  When measured in yen, there was a 6% 
increase in compensation from 1995 to 1996, and a 17% increase in compensation 
from 1996 to 1997.

     (b) Stock Option Plans.  Gradco has a 1988 Stock Option Plan providing for 
the grant of options which either do or do not qualify as "incentive stock 
options" within the meaning of Section 422A of the Internal Revenue Code.  Any 
officer, director or key employee of Gradco or any of its subsidiaries, in the 
discretion of the Stock Option Committee, may be designated to receive options 
under this plan.  The 1988 Plan provides for the issuance of up to 350,000 
shares of Gradco common stock upon exercise of stock options (subject to 
adjustment in the event of a stock split, stock dividend, consolidation, 
reorganization, or comparable change in Gradco's capital structure).  Gradco 
also has a 1982 Incentive Stock Option Plan designed to satisfy Internal 
Revenue Code requirements relating to "incentive stock options".  The 1982 
plan, which provided for the issuance of up to 550,000 shares of Gradco stock 
upon exercise of stock options, terminated on December 31, 1991 in accordance 
with its terms.  Thus, no additional options may be granted thereunder, but the 
termination does not affect the validity of outstanding options.

     The Gradco stock option plans are administered by the Stock Option 
Committee appointed by the Board of Directors.  Bernard Bressler and Robert J. 
Stillwell currently comprise the Stock Option Committee.  Since no new options 
may be issued under the 1982 Plan, the Committee's powers under such Plan will 
be limited to such administrative matters as may arise with regard to currently 
outstanding options (which cover 4,410 shares).

     Subject to limitations contained in the 1988 Plan, the Committee 
determines the optionees, option prices, number of shares subject to such 
options, the duration of each option (the plans specify a maximum of 10 years 
from date of grant or five years for 10% shareholders), the dates of grant, and 
the schedule for exercise of each option.  The option price is determined by 
the Stock Option Committee at the time the option is granted, but in the case 
of incentive stock options within the meaning of Section 422A of the Internal 
Revenue Code, shall not be less than fair market value of the stock at that 
time.  The Gradco plans provide the option price may be paid in cash or in the 
form of shares of Gradco common stock, subject to the power of the Stock Option 
Committee in its discretion to impose restrictions on an optionee's right to 
exercise an option with shares of Gradco common stock.  The options are subject 
to forfeiture upon termination of employment except by reason of death, 

                                      17
disability or retirement in which event the options may continue to be 
exercised for a limited period.  Currently, options for 331,000 shares are 
outstanding under the 1988 Plan.  There are no shares available for issuance.

     During the last fiscal year, no options under the 1982 or 1988 Plan were 
granted to or exercised by the executive officers named in the Summary 
Compensation Table (above).

     The following table sets forth the number of unexercised options held at 
March 31, 1997 by each of the aforesaid named executive officers.  All of such 
options were exercisable at that date.  The exercise price in each case is 
equal to the closing price of the Registrant's Common Stock on NASDAQ on the 
date that the option was granted.  The exercise price of the options held by 
Messrs. Takeuchi and Shinomiya was above the fair market value of the 
underlying shares at fiscal year end (determined as the closing price of the 
Registrant's Common Stock on NASDAQ on 3/31/97).  Therefore, such options were 
not "in-the-money" at such date.  The aggregate dollar value of the options 
held by Mr. Tash at 3/31/97 (determined as the difference between the fair 
market value and the exercise price of the underlying shares at that date) was 
$25,000.

                                      Number of Unexercised Options
Name                                  at Fiscal Year-End
----                                  -----------------------------

Martin E. Tash                                 50,000
Masakazu (Mark) Takeuchi(1)                    18,000
Akira (Tony) Shinomiya(1)                       6,000
_______________

(1) Messrs. Takeuchi and Shinomiya are executive officers of Gradco (Japan) 
Ltd.  See note 1 in Item 10(a).  

     (c) Retirement Plan (GJ).  In June 1994, GJ adopted a retirement plan 
providing that, subject to approval by GJ's shareholders at the time of 
proposed payment, a retirement allowance be paid by GJ to a member of GJ 
management who retires after his term of office or by reason of reaching his 
mandatory retirement age.  The amount of the retirement allowance is determined 
by a formula multiplying (1) the monthly salary at the time of retirement, by 
(2) the number of years served, by (3) a factor which varies depending upon the 
office held by the eligible individual.  Each of Messrs. Takeuchi and Shinomiya 
is eligible for payments under this Plan upon his retirement.

     (d) Compensation of Directors.

     Each director who is not also an officer receives a fee of $1,250 for each 
quarter in a fiscal year during which he serves in such position.  Accordingly, 
Mr. Stillwell and Mr. Burger each received $5,000 for the 1997 fiscal year.

     Martin E. Tash (the Registrant's President and Chairman of the Board) 
received $125,000 in cash for special services rendered to the Registrant as a 
director during the fiscal year ended March 31, 1997.  This amount is included 
in the Summary Compensation Table in Item 11(a) above.

     HLM Capital Resources, Inc., a closely-held corporation controlled by 
Harland L. Mischler (the Registrant's Executive Vice President and Chief 
Financial Officer) received $70,000 in cash for providing to the Registrant 
special services rendered by Mr. Mischler as a director during the fiscal year 
ended March 31, 1997.
                                      18
     All directors (and Messrs. Tash, Mischler and Bressler in their capacity 
as officers as well) are eligible to receive options under the 1988 Stock 
Option Plan.  See table in Item 10(b) as to options held by Mr. Tash as of 
March 31, 1997.  As of that date, Mr. Mischler held options for 50,000 shares, 
Mr. Stillwell held options for 7,500 shares, and Mr. Burger held options for 
7,500 shares.

     Bernard Bressler, a practicing attorney, receives compensation based on 
his usual hourly rate for attendance at Board meetings.

     (e) Indemnification.

     The Registrant's By-Laws provide that it shall, to the fullest extent 
permitted by the Nevada General Corporation Law, indemnify any person against 
expenses, judgments, fines, settlements and other amounts actually and 
reasonably incurred in connection with any proceeding arising by reason of the 
fact that any such person is or was a director, officer, employee or agent of 
the Registrant.  Accordingly, all current officers and directors of the 
Registrant are entitled to indemnification by the Registrant under this 
provision.  In addition, Masakazu (Mark) Takeuchi, who served as an officer and 
director of the Registrant during 1990, and James P. Owens, who served as an 
officer of the Registrant from 1989 until April 1992, each is entitled to 
indemnification under such provision based on his activities in such capacity.  
Mr. Takeuchi is currently President of Gradco (Japan) Ltd. and Mr. Owens is 
Vice President, Finance and Administration, of Gradco (USA) Inc.

     (f) Compensation Committee Interlocks and Insider Participation.

     The Registrant's Board of Directors has no compensation committee (or 
other Board committee performing equivalent functions); compensation policies 
applicable to executive officers are determined by the Board.  During the 
fiscal year ended March 31, 1997, the officers of the Registrant participating 
in the Board's deliberations concerning executive compensation were Martin E. 
Tash, Harland L. Mischler and Bernard Bressler (who are members of the Board).

     During the fiscal year ended March 31, 1997, Martin E. Tash (an executive 
officer of the Registrant) served as a member of the Board of Directors of 
Plenum Publishing Corporation ("Plenum").  Plenum has no compensation committee 
(or other Board committee performing equivalent functions); compensation 
policies applicable to executive officers are determined by its Board.  Mr. 
Tash is an executive officer of Plenum and is the only such executive officer 
who also served on the Registrant's Board.  Bernard  Bressler (Secretary, 
Treasurer and a director of the Registrant) is an officer and director of 
Plenum, but he is not an executive officer of either entity.

     During the period since April 1, 1996 (the beginning of the Registrant's 
last fiscal year), there were no transactions between the Registrant and Plenum 
of the type required to be disclosed under Item 13, Certain Relationships and 
Related Transactions.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     (a) The following table sets forth information regarding persons known to 
the Registrant to be the beneficial owners of more than 5% of the Registrant's 
voting securities as of June 6, 1997 based on 7,799,494 shares of Common Stock, 
no par value, outstanding as of such date.



                                      19
                                             Amount and Nature
                    Name and Address of        of Beneficial      Percentage
Title of Class        Beneficial Owner           Ownership         of Class 
--------------      -------------------      -----------------    ----------
Common Stock,       Plenum-Tash Group           1,213,672(1)         15.5%
no par value        233 Spring Street
                    New York, NY 10013

                    Ryback Management             992,000(2)         12.7%
                      Corporation
                    7711 Carondelet Avenue
                    Box 16900
                    St. Louis, MO  63105

                    Dimensional Fund              579,649(3)          7.4%
                      Advisors, Inc.
                    1299 Ocean Avenue
                    11th Floor
                    Santa Monica, CA 90401

                    Kennedy Capital               419,800(4)          5.4%
                      Management, Inc.
                    10829 Olive Boulevard
                    11th Floor
                    St. Louis, MO 63141

_______________
(1) As set forth in their joint statement on Schedule 13D dated December 1, 
1989, and amendments thereto through January 3, 1991, Plenum Publishing 
Corporation, Martin E. Tash and his wife Arlene Tash constitute a "group" as 
defined in Rule 13d-5(b)(1) under the Securities and Exchange Act of 1934, 
since Plenum, on the one hand, and Mr. and Mrs. Tash, on the other hand, have 
agreed to act together for the purpose of voting the securities of the 
Registrant held by them, and in general to act together for the purpose of 
acquiring and disposing of such securities (although it is understood that, at 
any given time, a purchase or sale may be effected by one such party without 
the effectuation of a purchase or sale by the other party).  Pursuant to said 
Rule, the Group is therefore deemed the beneficial owner of the shares held by 
each of its members.

The Group beneficially holds 1,213,672 shares of Common Stock of the Registrant 
(including for this purpose currently exercisable options held by Mr. Tash to 
purchase 50,000 shares).  Plenum Publishing Corporation has sole voting and 
dispositive power as to 913,000 shares owned solely by it, representing 11.7% 
of the outstanding stock, and Martin E. Tash has sole voting and dispositive 
power as to 80,672 shares owned solely by him (47,433 shares of which are held 
by a private profit sharing plan of which Mr. Tash is sole beneficiary) which, 
together with his currently exercisable options, represent 1.7% of the 
outstanding stock.  Mr. Tash and his wife, Arlene S. Tash, have shared voting 
and dispositive power as to 170,000 shares owned jointly by them, representing 
2.2% of the outstanding stock.  The shares which may be acquired upon exercise 
of the options held by Mr. Tash have been deemed outstanding for the purpose of 
computing his individual percentage ownership of outstanding shares and the 
percentage owned by the Group as set forth in the table, but not for the 
purpose of computing the percentage owned by any other party.  Plenum has 
disclaimed beneficial ownership of the shares owned by Mr. and Mrs. Tash, they 
have disclaimed beneficial ownership of the shares owned by Plenum, and Mrs. 
Tash has disclaimed beneficial ownership of the shares owned solely by Mr. 

                                      20
Tash.  The Group may be deemed to have obtained control of Gradco in October 
1990 when its nominees were elected as a majority of Gradco's Board of 
Directors.  The Group may be deemed to continue to have control due to the fact 
that the entire Board now consists of five persons designated as nominees at 
the request of the Group. 

(2) As set forth in Amendment No. 2 to Statement on Schedule 13G, dated January 
27, 1997, Ryback Management Corporation ("Ryback"), a registered investment 
advisor, has sole voting and dispositive power as to 992,000 shares as of 
December 31, 1996.  703,000 of such shares are held by Lindner Growth Fund, a 
registered investment company, and 289,000 are managed by Ryback.

(3) As set forth in Amendment No. 5 to Statement on Schedule 13G, dated 
February 5, 1997, Dimensional Fund Advisors Inc. ("Dimensional"), a registered 
investment advisor, is deemed to have beneficial ownership of 579,649 shares as 
of December 31, 1996, all of which shares are held in portfolios of DFA 
Investment Dimensions Group Inc., a registered open-end investment company, or 
in series of the DFA Investment Trust Company, a Delaware business trust, or 
the DFA Group Trust and DFA Participation Group Trust, investment vehicles for 
qualified employee benefit plans, all of which Dimensional Fund Advisors Inc. 
serves as investment manager.  Dimensional disclaims beneficial ownership of 
all such shares.

(4) As set forth in Statement on Schedule 13G, dated February 10, 1997, Kennedy 
Capital Management, Inc. ("Kennedy"), a registered investment advisor, is 
deemed to have beneficial ownership of 419,800 shares as of December 31, 1996.

     (b) The following table sets forth information regarding the voting 
securities of the Registrant beneficially owned by each director of the 
Registrant, each of the executive officers named in the Summary Compensation 
Table in Item 11(a), and all officers and directors as a group (7 persons), as 
of June 6, 1997.

                                             Amount and Nature
                    Name and Address of        of Beneficial      Percentage
Title of Class        Beneficial Owner           Ownership         of Class 
--------------      -------------------      -----------------    ----------
Common Stock,       Martin E. Tash              1,213,672 (2)        15.5%
no par value        233 Spring Street
                    New York, NY 10013

                    Harland L. Mischler           131,932 (3)         1.7%
                    7900 Glades Road
                    Boca Raton, FL 33434

                    Bernard Bressler               15,000 (4)         *
                    17 State Street
                    New York, NY 10004

                    Robert J. Stillwell            22,600 (5)         *
                    1009 N. Bethlehem Pike
                    Springhouse, PA 19477

                    Thomas J. Burger                7,500 (6)         *
                    1555 West Walnut Lane
                    Irving, TX 75038



                                      21
                    Masakazu (Mark) Takeuchi       18,000 (7)         *
                    Shibuya-ku, Tokyo 150 Japan

                    Akira (Tony) Shinomiya          6,000 (8)         *
                    Shibuya-ku, Tokyo 150 Japan

                    All Executive Officers and  1,414,704 (9)        17.8%
                    Directors as a Group (comprising
                    the 7 persons shown above)

* Less than 1%
_______________
(1) In each instance where a named individual is listed as the holder of a 
currently exercisable option, the shares which may be acquired upon exercise 
thereof have been deemed outstanding for the purpose of computing the 
percentage of outstanding shares owned by such person, but not for the purpose 
of computing the percentage owned by any other person, except the group 
referred to in note (9).

(2) Mr. Tash, his wife Arlene S. Tash, and Plenum Publishing Corporation, are 
members of the Plenum-Tash Group.  The shares shown above include all shares 
beneficially owned by the Group, including currently exercisable options to 
purchase 50,000 shares of Gradco stock held by Mr. Tash.  See note (1) to the 
table in Item 12(a) for a breakdown of such ownership among the Group's 
members.  Mr. Tash disclaims beneficial ownership of the 913,000 shares owned 
by Plenum.

(3) Includes 51,932 shares owned directly by HLM Capital Resources, Inc., a 
private investment and holding corporation, of which Mr. Mischler is President, 
Chairman and major shareholder, and 30,000 shares owned directly by Mr. 
Mischler.  Also includes currently exercisable options granted to Mr. Mischler 
to purchase 50,000 shares of the Registrant's stock.

(4) Includes 12,000 shares owned directly by Mr. Bressler and 3,000 shares held 
for Mr. Bressler in an individual retirement account.

(5) Includes 15,100 shares held for Mr. Stillwell in an individual retirement 
account, and 7,500 shares which may be acquired upon the exercise of currently 
exercisable options.

(6) Represents shares which may be acquired upon the exercise of currently 
exercisable options.

(7) See note (1) to table in Item 10(a).  The number of shares shown above 
represents those which are subject to currently exercisable options held by Mr. 
Takeuchi.

(8) See note (1) to table in Item 10(a).  The number of shares shown above 
represents those which are subject to currently exercisable options held by Mr. 
Shinomiya.

(9) Number of shares and percentage owned includes 139,000 shares which may be 
acquired through exercise of currently exercisable options held by certain of 
such persons individually named.  Number of outstanding shares for purpose of 
computation of percentage of ownership by the group includes such shares.




                                      22
Item 13.  Certain Relationships and Related Transactions

     Bernard Bressler, Secretary, Treasurer and a director of the Registrant, 
is a member of the law firm of Bressler, Amery & Ross, P.C., counsel to the 
Registrant.  During the 1997 fiscal year, the Registrant paid legal fees of 
$70,081 to such firm.  

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

     (a) See the index to financial statements and financial statement 
schedules.  See the list of exhibits in paragraph (c) below.

     (b) 8-K Reports - None.

     (c) Exhibits:

     2     Agreement and Plan of Merger dated July 25, 1991 regarding 
           reincorporation of Gradco in Nevada, incorporated by reference from 
           definitive Proxy Statement dated September 18, 1991, Exhibit C.

     3.1   Articles of Incorporation of Gradco as reincorporated in Nevada, 
           incorporated by reference from definitive Proxy Statement dated 
           September 18, 1991, Exhibit D.

     3.2   By-laws of Gradco as reincorporated in Nevada, incorporated by 
           reference from Form 10-K for the fiscal year ended March 31, 1992, 
           Exhibit 3.2.

     10.1  Agreement between Gradco and Minolta Camera Co., Ltd. dated March 
           19, 1984, incorporated by reference from Form 10-K for the fiscal 
           year ended April 7, 1984, Exhibit 10.16.

     10.2  Amended and Restated License Agreement between Gradco (Japan) Ltd. 
           and Minolta Camera Co., Ltd. dated July 1, 1991 (Japanese original 
           and English translation), incorporated by reference from Form 10-K 
           for the fiscal year ended March 31, 1992, Exhibit 10.2.

     10.3  General Agreement between Gradco and Ricoh Company, Ltd. dated July 
           1, 1984, incorporated by reference from Form 10-K for the fiscal 
           year ended March 31, 1985, Exhibit 10.19.

     10.4  Amended and Restated License Agreement between Gradco (Japan) Ltd. 
           and Ricoh Company, Ltd. dated April 1, 1991 (Japanese original and 
           English translation), incorporated by reference from Form 10-K for 
           the fiscal year ended March 31, 1992, Exhibit 10.4. 

     10.5  Agreement between Gradco Systems, Inc., and Canon, Inc., dated as 
           of July 1, 1988, incorporated by reference from Form 8-K for 
           July 1, 1988, Exhibit 10.62.

     10.6  Agreement between Gradco/Dendoki Inc. and Canon Inc. dated February 
           25, 1983, incorporated by reference from Form 10-K for the fiscal 
           year ended March 31, 1986, Exhibit 19.0.




                                      23
     10.7  Agreement between Gradco/Dendoki Inc. and Canon Inc. dated February 
           25, 1983, incorporated by reference from Form 10-K for the fiscal 
           year ended March 31, 1986, Exhibit 19.3.

     10.8  Agreement among Gradco, Gradco (Japan) Ltd. and Canon, Inc. dated 
           April 1, 1991, incorporated by reference from Form 10-K for the 
           fiscal year ended March 31, 1992, Exhibit 10.12.

     10.9  Gradco 1982 Incentive Stock Option Plan, as amended, incorporated 
           by reference from its Registration Statement on Form S-8 filed 
           December 22, 1989, Exhibit 4.4, and amendment thereto dated 
           July 24, 1991, incorporated by reference from Report on Form 10-Q 
           for quarter ended June 30, 1991, Exhibit 19.1.

     10.10 Gradco 1988 Stock Option Plan, incorporated by reference from Form 
           8-K for July 1, 1988, Exhibit 19.3, and amendment thereto dated 
           July 24, 1991, incorporated by reference from Report on Form 10-Q 
           for quarter ended June 30, 1991, Exhibit 19.2.

     10.11 (i) Exclusive License Agreement among Gradco Systems, Inc., John 
           Sudarma and George Howell, III dated February 6, 1990, incorporated 
           by reference from Form 10-K for the fiscal year ended March 31, 
           1990, Exhibit 10.72.

           (ii) Letter Agreement dated October 19, 1992 among Gradco (USA) 
           Inc., John Sudarma and George Howell, incorporated by reference 
           from Form 10-K for the fiscal year ended March 31, 1993, Exhibit 
           10.14 (ii).

     10.12 Amended Umbrella Agreement dated as of December 5, 1990 among 
           Gradco, Gradco (Japan) Ltd. and Gradco (USA) Inc., incorporated by 
           reference from Form 8-K for December 5, 1990, Exhibit 28.

     10.13 Agreement between Gradco and Gradco (Japan) Ltd. dated March 1, 
           1991, incorporated by reference from Form 8-K for March 1, 1991, 
           Exhibit 28.

     10.14 Letter Agreement dated March 29, 1991 between Gradco Systems, Inc. 
           and Gradco (Japan) Ltd., incorporated by reference from Form 10-K 
           for the fiscal year ended March 31, 1991, Exhibit 10.31.

     10.15 Lease Agreement between Venture Engineering, Inc. and Aetna Life 
           Insurance Company, Inc. (formerly Trammell Crow Company) dated 
           October 1, 1988 and subsequent amendments dated July 1, 1989, 
           August 1, 1989, February 1, 1990 and March 1, 1991, incorporated 
           by reference from Form 10-K for fiscal year ended March 31, 1991, 
           Exhibit 19.3.

     10.16 Basic Agreement between Gradco (Japan) Ltd. and Ikegami Tsushinki 
           Co. Ltd. dated as of January 1, 1996 (English translation of 
           Japanese original ), incorporated  by reference from Form 10-K for 
           fiscal year ended March 31, 1996, Exhibit 10.16.

     10.17 Agreement between Gradco (Japan) Ltd. and Lexmark International, 
           Inc. dated September 1, 1992, incorporated by reference from Form 
           10-K for the fiscal year ended March 31, 1993, Exhibit 10.22. 



                                      24
     10.18 Regulations of Retirement Allowance for Board of Directors and 
           Auditors of Gradco (Japan) Ltd., adopted June 3, 1994 (English 
           translation of Japanese original), incorporated by reference from 
           Form 10-K for the fiscal year ended March 31, 1995, Exhibit 10.22. 

     10.19 Agreement among Gradco (Japan) Ltd., Gradco (USA) Inc., and Xerox 
           Canada Ltd. dated as of August 17, 1995, incorporated by reference 
           from Form 10-K for the fiscal year ended March 31, 1996, Exhibit 
           10.19.

     22    List of Significant Subsidiaries

           (i)   Gradco (Japan) Ltd. (Japan)
           (ii)  Venture Engineering, Inc. (Texas)
           (iii) Gradco (USA) Inc. (California)

     23    Consent of Price Waterhouse LLP - filed herewith.

     27    Financial Data Schedule - filed herewith.








































                                      25
                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.



Dated:  June 23, 1997  
                             GRADCO SYSTEMS, INC.



                             By:  /s/ Martin E. Tash                      
                                  ------------------------------------
                                  Martin E. Tash
                                  Chairman of the Board, President and
                                  Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
Registrant and in the capacities and on the dates indicated.


      Signature                       Title                      Date
      ---------                       -----                      ----

                             Chairman of the Board,
                             President and Chief
                             Executive Officer (Principal
/s/ Martin E. Tash           Executive Officer)              June 23, 1997
------------------------
Martin E. Tash

                             Executive Vice President,
                             Chief Financial Officer
                             (Principal Financial
                             and Accounting Officer)
/s/ Harland L. Mischler      and Director                    June 23, 1997
------------------------
Harland L. Mischler


                             Secretary, Treasurer and
/s/ Bernard Bressler         Director                        June 23, 1997
------------------------
Bernard Bressler


/s/ Robert J. Stillwell      Director                        June 23, 1997
------------------------
Robert J. Stillwell


/s/ Thomas J. Burger         Director                        June 23, 1997
------------------------
Thomas J. Burger

















                          ANNUAL REPORT ON FORM 10-K

                         ITEM 14(a)(1) AND (2) AND (d)

                       LIST OF FINANCIAL STATEMENTS AND
                         FINANCIAL STATEMENT SCHEDULES


                      FINANCIAL STATEMENTS AND SCHEDULES

                           YEAR ENDED MARCH 31, 1997

                             GRADCO SYSTEMS, INC.

                              LAS VEGAS, NEVADA































FORM 10-K--ITEM 14(a) (1) AND (2)

GRADCO SYSTEMS, INC.

INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES



The following consolidated financial statements of Gradco Systems, Inc. and 
subsidiary companies are included in Item 8:

     Consolidated Balance Sheets--
        March 31, 1997 and 1996..................................S-2
     Consolidated Statements of Operations--Years Ended
        March 31, 1997, 1996 and 1995............................S-3
     Consolidated Statements of Shareholders' Equity--
        Years Ended March 31, 1997, 1996 and 1995................S-4
     Consolidated Statements of Cash Flows--Years Ended
        March 31, 1997, 1996 and 1995............................S-5
     Notes to Consolidated Financial Statements..................S-7 to S-18
                                                                 inclusive
The following consolidated financial statement schedule of Gradco Systems, Inc. 
and subsidiary companies is included in Item 14(d):
     II--Valuation and Qualifying Accounts.......................S-19

All other schedules for which provision is made in the applicable regulation of 
the Securities and Exchange Commission are not required under the related 
instructions or are inapplicable and, therefore, have been omitted.
































                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders
     of Gradco Systems, Inc.


In our opinion, the consolidated financial statements listed in the 
accompanying index to the financial statements (Item 14a) present fairly, in 
all material respects, the financial position of Gradco Systems, Inc. and its 
subsidiaries (the "Company") at March 31, 1997 and 1996, and the results of 
their operations and their cash flows for each of the three years in the period 
ended March 31, 1997, in conformity with generally accepted accounting 
principles.  These financial statements are the responsibility of the Company's 
management; our responsibility is to express an opinion on these financial 
statements based on our audits.  We conducted our audits of these statements in 
accordance with generally accepted auditing standards which require that we 
plan and perform the audit to obtain reasonable assurance about whether the 
financial statements are free of material misstatement.  An audit includes 
examining, on a test basis, evidence supporting the amounts and disclosures in 
the financial statements, assessing the accounting principles used and 
significant estimates made by management, and evaluating the overall financial 
statement presentation.  We believe that our audits provide a reasonable basis 
for the opinion expressed above.





PRICE WATERHOUSE LLP
Costa Mesa, California
June 5, 1997



























                                      S-1
                             GRADCO SYSTEMS, INC.
                         CONSOLIDATED BALANCE SHEETS
                            (Dollars in thousands)
                                                          March 31,
                                                    1997            1996
                                                    ----            ----
                                     ASSETS
Current assets:
     Cash                                          $18,335         $19,523
     Accounts receivable, less allowance for
           doubtful accounts of $59 and $103        24,583          20,496
     Inventories                                     1,759           1,940
     Deferred income taxes                             252             278
     Other current assets                              327           1,380
                                                   -------         -------
          Total current assets                      45,256          43,617
Furniture, fixtures and equipment, net               2,054           1,708
License repurchase, net of accumulated
     amortization of $10,994 and $11,523             4,069           5,852
Excess of cost over acquired net assets, net
     of accumulated amortization of $451 and $408    1,278           1,321
Other assets                                         5,429           5,517
                                                   -------         -------
                                                   $58,086         $58,015
                                                   =======         =======
                   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Notes payable                                 $12,608         $12,769
     Current installments of long-term debt             11              12
     Accounts payable                               10,939           8,448
     Accrued expenses                                  684             709
     Income taxes payable                            1,596           2,700
                                                   -------         -------
          Total current liabilities                 25,838          24,638
Long-term debt, excluding current installments          15              25
Non-current liabilities                                889             787
Deferred income taxes                                1,833           2,599
Minority interest                                   14,172          13,765
                                                   -------         -------
          Total liabilities                         42,747          41,814
                                                   -------         -------
Commitments and contingencies (Note 7)

Shareholders' equity:
     Preferred stock, no par value; authorized
          7,500,000 shares, none issued
     Common stock, no par value; authorized
          30,000,000 shares, issued 7,798,909       44,618          44,618
     Deficit                                       (30,358)        (33,210)
     Currency translation adjustments                1,079           4,793
                                                   -------         -------
          Total shareholders' equity                15,339          16,201
                                                   -------         -------
                                                   $58,086         $58,015
                                                   =======         =======

         See accompanying notes to consolidated financial statements.


                                      S-2
                             GRADCO SYSTEMS, INC.
                   CONSOLIDATED STATEMENTS OF OPERATIONS
               (Dollars in thousands, except per share amounts)


                                             For the years ended March 31,
                                         ------------------------------------
                                           1997          1996          1995
                                           ----          ----          ----
Revenues:

Net sales                                $ 96,897      $ 96,159      $ 79,138
Development engineering services            1,125         1,877           923
Licenses and royalties                      2,865         2,560         2,777
                                         --------      --------      --------
                                          100,887       100,596        82,838
                                         --------      --------      --------
Costs and expenses:

Cost of sales                              78,331        76,657        64,290
Research and development                    3,605         3,641         2,164
Selling, general and administrative        12,105        12,984        12,651
                                         --------      --------      --------
                                           94,041        93,282        79,105
                                         --------      --------      --------
Income from operations                      6,846         7,314         3,733

Interest expense                               (4)          (13)          (93)
Interest income                               187           239           148
Dividend income                               -             -               4
Gain (loss) on trading securities             -              53          (209)
                                         --------      --------      --------
Earnings before income taxes
     and minority interest                  7,029         7,593         3,583
Income tax expense                          2,983         2,748         1,331
Minority interest                           1,194         1,585           800
                                         --------      --------      --------
     Net earnings                        $  2,852      $  3,260      $  1,452
                                         ========      ========      ========

Earnings per common share                $    .36      $    .42      $    .19
                                         ========      ========      ========


        See accompanying notes to consolidated financial statements.














                                      S-3
                             GRADCO SYSTEMS, INC.
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                            (Dollars in thousands)




                                   Common Stock
                               --------------------               Translation
                                 Shares     Amount      Deficit   Adjustment
                                 ------     ------      -------   ----------

Balance at March 31, 1994      7,783,909    $44,546    $(37,922)    $4,513
     Translation adjustment          -          -           -        4,408
     Net earnings                    -          -         1,452        -  
                               ---------    -------    --------     ------
Balance at March 31, 1995      7,783,909     44,546     (36,470)     8,921
     Issuance of shares in
       lieu of cash               15,000         72         -          -  
     Translation adjustment          -          -           -       (4,128)
     Net earnings                    -          -         3,260        -  
                               ---------    -------    --------     ------
Balance at March 31, 1996      7,798,909     44,618     (33,210)     4,793
     Translation adjustment          -          -           -       (3,714)
     Net earnings                    -          -         2,852        -  
                               ---------    -------    --------     ------
Balance at March 31, 1997      7,798,909    $44,618    $(30,358)    $1,079
                               =========    =======    ========     ======

         See accompanying notes to consolidated financial statements.





























                                      S-4
                             GRADCO SYSTEMS, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Dollars in thousands)


                                              For the years ended March 31,
                                            ---------------------------------
                                             1997         1996         1995
                                             ----         ----         ----
Cash flows from operating activities:
  Net earnings                              $ 2,852      $ 3,260      $ 1,452
                                            -------      -------      -------
  Adjustments to reconcile net income
    to net cash provided by operating
    activities:
    Depreciation                              1,268        1,213          988
    Amortization                              1,583        2,066        1,941
    Deferred income taxes                      (406)        (947)         330
    Unrealized holding gain on
      trading securities                        -             (8)        (126)
    (Gain) loss on sale of securities           -            (45)         335
    Provision for losses on accounts
      receivable                                240           64           18
    (Gain) loss on sale of property
      and equipment                              (5)          66           (6)
    Purchases of trading securities             -           (249)      (2,479)
    Proceeds from sale of trading securities    -            882        3,803
    Issuance of shares in lieu of cash          -             72          -  
    Minority interest                         1,194        1,585          800
    (Increase) decrease in accounts
      receivable                             (7,024)       2,182      (11,896)
    Decrease (increase) in inventory            142         (609)       1,373
    Decrease (increase) in prepaid assets       968           37       (1,516)
    (Increase) decrease in other assets      (2,662)      (1,057)          19
    Increase (decrease) in accounts payable   3,835         (133)         330
    (Decrease) increase in accrued expenses      (9)        (387)         280
    (Decrease) increase in income taxes
      payable                                  (842)       2,135          727
    Increase in other liabilities               204          145          600
                                            -------      -------      -------
      Total adjustments                      (1,514)       7,012       (4,479)
                                            -------      -------      -------
      Net cash provided by (used in)
        operations                            1,338       10,272       (3,027)
                                            -------      -------      -------
Cash flows from investing activities:
  Acquisition of property and equipment      (1,753)      (1,638)      (1,023)
  Proceeds from sale of property and
    equipment                                    10            3           29
                                            -------      -------      -------
    Net cash used in investing activities    (1,743)      (1,635)        (994)
                                            -------      -------      -------







                                      S-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)


                                              For the years ended March 31,
                                            ---------------------------------
                                             1997         1996         1995
                                             ----         ----         ----
Cash flows from financing activities:
  Net borrowings on notes less
    than three months                         1,690        1,305       11,262
  Proceeds from issuance of notes in
    excess of three months                      -            -          1,553
  Repayment of notes in excess of
    three months                                (10)          (9)      (3,007)
  Dividend to minority shareholders            (231)         -            -  
                                            -------      -------      -------
    Net cash provided by financing
      activities                              1,449        1,296        9,808
                                            -------      -------      -------
Effect of exchange rate changes on cash      (2,232)      (2,568)         758
                                            -------      -------      -------
Net (decrease) increase in cash and
  cash equivalents                           (1,188)       7,365        6,545
Cash and cash equivalents at beginning
  of year                                    19,523       12,158        5,613
                                            -------      -------      -------
Cash and cash equivalents at end of year    $18,335      $19,523      $12,158
                                            =======      =======      =======

Supplemental Disclosures of Cash
  Flow Information:

  Cash paid during the period for:
    Interest                                $     4      $    15      $    93
    Income taxes                              4,232        1,910          272



         See accompanying notes to consolidated financial statements.




















                                      S-6
                             GRADCO SYSTEMS, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

     Gradco Systems, Inc. (the "Company") is a holding company which, through 
its subsidiaries, designs, develops, contracts to produce and markets, 
worldwide, intelligent paper handling devices for the office automation 
industry.

Principles of Consolidation

     The accompanying financial statements include the accounts of the Company 
and its majority and wholly-owned subsidiaries.  All significant intercompany 
balances and transactions have been eliminated in consolidation.  The Company's 
current ownership in Gradco (Japan) Ltd. (GJ), its principal operating 
subsidiary, is 58.6%.

     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 
is expected to be consummated after a special meeting of GJ to be held on June 
27, 1997.  The total price of approximately $11 million will be paid from 
available cash of GJ.  After the completion of the transaction, the Company 
will own approximately 90% of the stock of GJ.

Use of Estimates in the Preparation of Financial Statements

     The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and 
disclosure of contingent assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
respective reporting periods.  Actual results could differ from those 
estimates.

Cash Equivalents

     Cash includes all highly liquid debt instruments purchased with a maturity 
of three months or less.

Trading Securities

     Investments in marketable securities have been classified as trading 
securities since they are bought and held principally for the purpose of 
selling them in the near term.  The Company uses specific identification in 
determining cost in computing realized gains or losses on sale of securities.  
For the fiscal year ended March 31, 1996, the $53,000 gain on trading 
securities consisted of unrealized and realized gains of $8,000 and $45,000, 
respectively.  For the fiscal year ended March 31, 1995, the $209,000 loss on 
trading securities consisted of a $126,000 unrealized holding gain and a 
$335,000 realized loss.





                                      S-7
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)

Concentrations of Credit Risk

     Financial instruments which subject the Company to concentrations of 
credit risk consist primarily of trade receivables.  International copier 
manufacturers comprise a significant portion of the Company's customer base.  
All such trade receivables were current at March 31, 1997.

Inventories

     Inventories consist primarily of materials and finished assemblies which 
are held to satisfy spare parts requirements of the Company's customers.  The 
Company has certain contractual commitments to make spare parts available for 
purchase for up to six years after the end of a production cycle.  Inventories 
are stated at the lower of cost (first-in, first-out and weighted average) or 
market (net realizable value).

Long-Lived Assets

     Effective April 1, 1996, the Company adopted the provisions of Statement 
of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the 
Impairment of Long-Lived Assets.  Under SFAS 121, the Company is required to 
review long-lived assets and certain identifiable intangibles for impairment 
whenever events or changes in circumstances indicate that the book value of an 
asset may not be recoverable.  With respect to the excess of cost over acquired 
net assets ("goodwill"), the Company records impairment to the extent that 
future undiscounted cash flows are less than the carrying value of goodwill.  
The implementation of SFAS 121 did not have an impact on the Company's 
financial position or results of operations.

Revenue Recognition

     Revenues from product sales ("net sales") are recorded as units are 
shipped.  Revenues from development engineering services and research and 
development contracts are recognized as earned, and licenses and royalties are 
recognized when all obligations of the appropriate agreements have been 
fulfilled.

Depreciation and Amortization

     Furniture, fixtures and equipment are carried at cost and depreciated on a 
straight-line basis over their estimated useful lives.  Tooling is amortized 
over its estimated useful life, generally four years.  Leasehold improvements 
are amortized over the lesser of their estimated useful lives or the term of 
the lease.  The license repurchase (Note 4) is carried at cost and is being 
amortized over 15 years, the estimated life of the patents associated with the 
license.  The excess of cost over the net assets of acquired companies is 
amortized over 40 years.







                                      S-8
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)

Research and Development Expenses

     Research and development expenses incurred under development engineering 
service contracts, research and development contracts on behalf of OEM 
customers and internal research and development are reflected in research and 
development expense.

     Research and development expenses incurred under development engineering 
service contracts in the fiscal years ended March 31, 1997, 1996 and 1995, 
respectively, were $948,000, $1,603,000 and $676,000.  Research and development 
expenses on behalf of OEM customers and internal research and development 
expenses in the fiscal years ended March 31, 1997, 1996 and 1995, respectively, 
were $2,657,000, $2,038,000 and $1,488,000.

Foreign Currency Translation

     Assets and liabilities of the Company's foreign subsidiaries are 
translated at year-end exchange rates and the resulting adjustments are 
accumulated in shareholders' equity.  Income and expenses are translated at 
average exchange rates for the year.  Foreign currency transaction gains and 
losses are included in net income, except for those relating to intercompany 
transactions of a long-term investment nature which are accumulated in 
shareholders' equity.  There were foreign currency transaction gains of 
$904,000 and $1,057,000 in fiscal 1997 and 1996, respectively,  and a loss of 
$387,00 in fiscal 1995.

Income Taxes

     The Company accounts for income taxes utilizing an asset and liability 
approach that requires the recognition of deferred tax assets and liabilities 
for the expected future tax consequences of events that have been recognized in 
the Company's financial statements or tax returns.  In estimating future tax 
consequences, the Company considers all expected future events other than 
enactment of changes in the tax law or rates.

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, 7,796,000 and 7,784,000 in fiscal years 1997, 1996 
and 1995, respectively.  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 fiscal 1998. 
The adoption of SFAS 128 is not expected to have a material effect on the 
Company's reported net earnings per common share.


                                      S-9
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2--DETAILS OF CERTAIN CONSOLIDATED BALANCE SHEET CAPTIONS

                                                      March 31,
                                                  -----------------
                                                   1997       1996
                                                   ----       ----
                                                   (In Thousands)
Inventories are summarized as follows:

     Raw materials                                $  499     $  644
     Work-in-process                                 570      1,069
     Finished goods                                  690        227
                                                  ------     ------
                                                  $1,759     $1,940
                                                  ======     ======

Furniture, fixtures and equipment, at cost, 
  are summarized as follows:

     Office, shop and automotive equipment        $1,080     $  959
     Computer equipment                              730        541
     Leasehold improvements                          130        118
     Tooling                                       4,991      4,346
                                                  ------     ------
                                                   6,931      5,964
     Less:
          Accumulated depreciation 
            and amortization                       4,877      4,256
                                                  ------     ------
                                                  $2,054     $1,708
                                                  ======     ======

Other assets are summarized as follows:

     Deposits                                     $2,479     $  983
     Patents                                         938      2,339
     Cash surrender value of life insurance          855        984
     Investments                                     835        894
     Intangible pension asset                        228        220
     Other                                            94         97
                                                  ------     ------
                                                  $5,429     $5,517
                                                  ======     ======

Other non-current liabilities are 
  summarized as follows:

     Accumulated benefit obligation               $  730     $  641
     Other                                           159        146
                                                  ------     ------
                                                  $  889     $  787
                                                  ======     ======




                                     S-10
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3--INCOME TAXES

     Income tax expense consists of the following (in thousands):
                                                       Fiscal Year
                                             ------------------------------
                                              1997        1996        1995
                                              ----        ----        ----

     Current
          Foreign                            $2,971      $3,250      $  929
          Federal                               296         218          23
          State                                 122         227          49
     Deferred
          Foreign                              (441)       (779)        330
          Federal                                35        (168)        -  
                                             ------      ------      ------
     Total                                   $2,983      $2,748      $1,331
                                             ======      ======      ======

     The provisions for all years primarily reflect GJ income taxed in Japan.

     Reconciliations of the applicable statutory U.S. federal income tax rate 
of 35% to the effective tax rates on earnings are as follows:

                                                       Fiscal Year
                                             ------------------------------
                                              1997        1996        1995
                                              ----        ----        ----

     Federal statutory tax rate               35.0%       35.0%       35.0%
     Increase (decrease) in tax rate 
        resulting from:
        State income taxes, less 
           federal benefit                     1.2         2.2         1.3
        Foreign tax expense                    6.0         4.8         4.7
        Net operating loss utilized            -          (6.9)       (3.9)
        Other                                  0.2         1.1         -  
                                            ------      ------      ------
     Effective income tax rate                42.4%       36.2%       37.1%
                                            ======      ======      ======

     Deferred income taxes reflect the net tax effects of temporary differences 
between the carrying amounts of assets and liabilities for financial reporting 
purposes and the amounts used for income tax purposes.  Significant components 
of the Company's deferred tax assets and liabilities are as follows (in 
thousands):










                                     S-11
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3--INCOME TAXES--(Continued)

                                                      March 31,
                                                  -----------------
                                                   1997       1996
                                                   ----       ----
     Deferred tax liabilities
        License repurchase                        $1,338     $1,922
        Intercompany loan revaluation                766        883
        Tax benefits for increase in imports          50         87
        Other                                        116        107
                                                  ------     ------
                                                   2,270      2,999
                                                  ------     ------
     Deferred tax assets
        Retirement benefits                          261        219
        Local taxes                                  201        348
        Other                                        227        111
        Tax loss carryforwards                     9,450      9,800
        Valuation allowance                       (9,450)    (9,800)
                                                  ------     ------
                                                     689        678
                                                  ------     ------
     Net deferred tax liabilities                 $1,581     $2,321
                                                  ======     ======

     At March 31, 1997, the Company had federal net operating loss 
carryforwards ("NOLs") for tax reporting purposes of $27,000,000 which will 
expire in 2000 through 2012 if not utilized.  These NOLs are only utilizable by 
Gradco Systems, Inc. and its subsidiary, Venture Engineering, Inc. because 
Gradco (USA) Inc., the Company's other domestic subsidiary, is required to file 
a separate tax return.  At this time it is not deemed more likely than not that 
these NOLs can be utilized and therefore a valuation allowance equal to the 
deferred tax benefit has been established.  At March 31, 1997, the Company had 
unused investment tax and research and development credits for income tax 
purposes of $320,000 which, if not utilized, will expire in 1998 through 2001.  
If certain substantial changes in the Company's ownership should occur, there 
would be an annual limitation on the amount of net operating loss, investment 
tax, and research and development credit carryforwards which can be utilized.

     The Company does not provide for U.S. income taxes on undistributed 
foreign earnings considered permanently invested in its Japanese operations.  
At March 31, 1997, the Company's share of such undistributed foreign earnings 
totaled $6,200,000.  Foreign withholding taxes of approximately $620,000 would 
be due upon remittance of these earnings.

NOTE 4--LICENSE REPURCHASE

     In 1986, the Company entered into an agreement with C. Itoh Electronics, 
Inc. (CIE) to terminate the exclusive Japanese license granted to CIE in 1983.  
The Company paid the equivalent of 1.864 billion yen ($11,500,000 in 1986-87), 
and is amortizing these costs over a period of 15 years. Amortization of the 
license repurchase amounted to $1,004,000, $1,158,000 and $1,436,000 in the 
years ended March 31, 1997, 1996 and 1995, respectively.


                                     S-12
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5-- SHORT TERM BORROWING ARRANGEMENTS

     GJ's U.S. subsidiary has a $2 million line of credit with Sumitomo Bank, 
Limited.  There were no borrowings under this line at March 31, 1997.  Notes 
payable at March 31, 1997 consist of $12,608,000 due to trade creditors in 
ninety days and are non-interest bearing.

     Information relative to short-term borrowings is as follows (in 
thousands):
                                                       Fiscal Year
                                             ------------------------------
                                              1997        1996        1995
                                              ----        ----        ----

     Maximum amount outstanding              $  -        $1,500      $1,500
     Average balance outstanding             $  -        $  111      $1,500
     Weighted average interest rate 
       during the period                       N/A         6.7%        5.6%

NOTE 6--EMPLOYEE BENEFITS

     The Company's 1988 Stock Option Plan has 350,000 shares authorized for 
issuance.  Such options are exercisable in increments over periods at a price 
equal to the fair market value at the date of grant in the case of Incentive 
Stock Options and at or below fair market value in the case of Non-qualified 
Stock Options.  The Company's 1982 Incentive Stock Option Plan, as amended, had 
550,000 shares authorized for issuance.  The 1982 Plan terminated on December 
31, 1991 in accordance with its terms.  Thus, no additional options may be 
granted thereunder, but the termination does not affect the validity of 
outstanding options under the 1982 Plan (4,410 at March 31, 1997).  No options 
may be exercised later than 10 years from the date of grant.

     The Company applies APB Opinion 25 and related Interpretations in 
accounting for its plans.  The Company adopted the disclosure-only provisions 
of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting 
for Stock-Based Compensation.  Accordingly, no compensation cost has been 
recognized.  Had compensation cost been determined consistent with SFAS 123, 
there would have been no effect on results of operations for fiscal 1996 and 
the effect on fiscal 1997 would have been immaterial.

     The following table summarizes stock option activity:
                                                   Weighted Average
                                    Number          Exercise Price
                                    ------         ----------------

     Outstanding March 31, 1994     284,110            $ 4.47
     Granted                         55,000              3.38
     Forfeited                         (200)             9.25
                                    -------
     Outstanding March 31, 1995     338,910              4.29
     Expired                        (15,000)             9.25
                                    -------
     Outstanding March 31, 1996     323,910              4.06



                                     S-13
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6--EMPLOYEE BENEFITS--(Continued)

     Granted                         11,500              3.38
                                    -------
     Outstanding March 31, 1997     335,410            $ 4.04
                                    =======

     Of the options outstanding at March 31, 1995, 1996 and 1997, options to 
purchase 278,910, 284,743 and 305,576 shares, respectively, were exercisable at 
weighted average prices of $4.50, $4.16 and $4.10 per share, respectively.

     The following table summarizes information concerning currently 
outstanding and exercisable stock options as of March 31, 1997:

                           Options Outstanding             Options Exercisable
                 ---------------------------------------  ---------------------
                                  Weighted      Weighted               Weighted
                                   Average       Average                Average
   Range of        Number        Remaining      Exercise    Number     Exercise
Exercise Prices  Outstanding  Contractual Life    Price   Exercisable    Price 
-------------------------------------------------------------------------------
 $2.38 to $3.38    206,500           5.6         $3.11      176,666     $3.06
  4.25 to 5.88      73,500           3.8          4.32       73,500      4.32
  6.75 to 8.31      55,410           2.1          7.13       55,410      7.13
                   -------                                  -------
                   335,410                                  305,576
                   =======                                  =======

     During fiscal 1995, the Company's Japanese subsidiary adopted a retirement 
plan for its management which provides for a lump sum payment to be made to 
each eligible individual at his retirement date.  The payment is based on a 
formula that factors in length of service, position held and salary at the time 
of retirement.  Currently the plan is unfunded.  At March 31, 1997, the Company 
has recorded an intangible pension asset of $228,000 and an accumulated benefit 
obligation of $730,000.  The amount charged to expense in fiscal 1997, 1996 and 
1995 was $149,000, $329,000 and $638,000, respectively.

     The Company's domestic subsidiaries each have a 401(k) employee benefits 
plan.  All employees are eligible for the plan upon the completion of six 
months of service with the Company.  As part of the plans, the Company may 
match employee contributions contingent upon the Company's annual earnings 
performance.  In fiscal 1997, the Company contributed $14,000 to the plans.  No 
Company contributions were made during fiscal 1995 and 1996.

NOTE 7--COMMITMENTS AND CONTINGENCIES

     The Company leases its facilities and certain equipment under non-
cancelable leases.  Under the lease agreements for its facilities, the Company 
is required to pay for insurance, taxes, utilities and building maintenance and 
is subject to certain consumer price index adjustments.






                                     S-14
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7--COMMITMENTS AND CONTINGENCIES--(Continued)

     Future minimum lease payments at March 31, 1997, under noncancelable 
facility and equipment leases with remaining lease terms in excess of one year 
are as follows:

                             1998         $  685,000
                             1999            604,000
                             2000            386,000
                             2001            369,000
                             2002            376,000
                             Thereafter          -  
                                          ----------
                                          $2,420,000
                                          ==========

     Rent expense, net of sub-lease income, was approximately $914,000, 
$916,000 and $799,000 for fiscal years 1997, 1996 and 1995, respectively.

     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 
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.




                                     S-15
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7--COMMITMENTS AND CONTINGENCIES--(Continued)

     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 
are 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 its investment in GJ).  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.













                                     S-16
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8--CUSTOMER INFORMATION AND GEOGRAPHIC DATA

     The Company had sales to major customers (in excess of 10% of revenues) in 
each fiscal year as follows:

                                             Fiscal Year
                                   ------------------------------
                                    1997        1996        1995
                                    ----        ----        ----

     Xerox                           26%         29%         16%
     Rank Xerox                      17%         16%         N/A
     Mita                            11%         13%         19%
     Lanier                          11%         11%         N/A
     Sharp                           N/A         N/A         11%

Geographic data follows (in thousands):

                     Domestic   Europe     Asia     Eliminations   Consolidated
                     --------   ------    ------    ------------   ------------
March 31, 1997
--------------
     Net sales       $63,304    $ 134     $86,388     $(52,879)      $96,897
     Net earnings        600        1       2,578         (327)        2,852
     Assets           18,377       73      51,958      (12,322)       58,086

March 31, 1996
--------------
     Net sales       $62,194    $  89     $86,186     $(52,310)      $96,159
     Net earnings        647        3       2,610          -           3,260
     Assets           19,411       67      53,908      (15,371)       58,015

March 31, 1995
--------------
     Net sales       $34,968    $  94     $72,572      (28,496)      $79,138
     Net earnings        (72)       1       1,523          -           1,452
     Assets           20,037       82      61,120      (16,856)       64,383

     For the years ended March 31, 1997, 1996 and 1995 export sales were 
$18,618,000, $16,279,000 and $8,426,000, respectively, consisting principally 
of sales to Europe and Canada.















                                     S-17
                             GRADCO SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9--INTERIM FINANCIAL RESULTS (Unaudited)

                                                   Quarter
                              -------------------------------------------------
                                First     Second    Third     Fourth     Year
                                -----     ------    -----     ------     ----
                             (In thousands of dollars,except per share amounts)
1997
----
Net sales                      $25,546   $25,601   $21,950   $23,800   $96,897
Gross margin                     5,003     4,619     4,181     4,763    18,566
Earnings before income taxes     1,716     1,301     1,382     2,630     7,029
Net earnings                       792       550       625       885     2,852
Net earnings per common share  $   .10   $   .07   $   .08   $   .11   $   .36

1996
----
Net sales                      $24,505   $23,955   $24,389   $23,310   $96,159
Gross margin                     4,859     4,850     5,318     4,475    19,502
Earnings before income taxes     1,227     1,905     2,028     2,433     7,593
Net earnings                       301       819       908     1,232     3,260
Net earnings per common share  $   .04   $   .10   $   .12   $   .16   $   .42


































                                     S-18
                                                                   SCHEDULE II

                             GRADCO SYSTEMS, INC.

                       VALUATION AND QUALIFYING ACCOUNTS

               For the years ended March 31, 1993, 1994 and 1995



                                            Additions
                              Balance at   Charged to                  Balance
                               Beginning    Costs and                  at End
                               of Year      Expenses    Deductions     of Year
                              ----------   ----------   ----------     -------

Year ended March 31, 1995:
--------------------------
     Allowance for doubtful 
        accounts               $174,000     $ 18,000     $153,000     $ 39,000

Year ended March 31, 1996:
--------------------------
     Allowance for doubtful 
        accounts               $ 39,000     $ 64,000     $    -       $103,000

Year ended March 31, 1997:
--------------------------
     Allowance for doubtful 
        accounts               $103,000     $240,000     $284,000     $ 59,000





























                                      S-19