UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 0-26832
Lumisys Incorporated
(Exact name of registrant as specified in its charter)
Delaware 77-0133232
(State of incorporation) (I.R.S. Employer Identification No.)
225 Humboldt Court, Sunnyvale, CA 94089
(Address of principal executive offices) (Zip Code)
(408) 733-6565
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / X / No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of November 8, 1996, 6,392,720 shares of the registrant's
Common Stock, $.001 par value, were outstanding.
Lumisys Incorporated
Index
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated balance sheets at
September 30, 1996 and December 31, 1995 3
Consolidated statements of income for
the three and nine months ended September 30,
1996 and 1995 4
Consolidated statements of cash flows
for the nine months ended September 30, 1996
and 1995 5
Notes to financial statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7 - 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES
10
2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Lumisys Incorporated
Consolidated Balance Sheets
(Unaudited)
Sept. 30, December 31,
1996 1995
--------- ------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 17,430 $ 11,426
Short-term investments --- 3,934
Accounts receivable, net of
allowances of $280 and $249 3,118 2,410
Inventories 3,650 3,003
Deferred tax assets 632 1,114
Other current assets 178 294
--------- ------------
Total current assets 25,008 22,181
Property and equipment, net 141 162
Other assets 196 400
--------- ------------
$ 25,345 $ 22,743
========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 959 $ 1,525
Accrued expenses 1,910 1,468
--------- ------------
Total current liabilities 2,869 2,993
--------- ------------
Stockholders' equity
Preferred stock, $0.001 par value;
5,000 shares authorized; no shares
issued and outstanding --- ---
Common stock, $0.001 par value;
25,000 shares authorized; 6,366 and
6,240 shares issued and outstanding 6 6
Additional paid-in capital 22,788 22,702
Accumulated deficit (87) (2,521)
Notes receivable from stockholders (120) (297)
Deferred compensation related to stock
options (111) (140)
--------- ------------
Total stockholders' equity 22,476 19,750
--------- ------------
$ 25,345 $ 22,743
========= ============
The accompanying notes are an integral part of these
financial statements.
3
Lumisys Incorporated
Consolidated Statements of Income
(Unaudited)
Three months ended Nine months ended
------------------- ------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
------- -------- -------- -------
(In thousands) (In thousands)
Sales $5,933 $5,013 $16,915 $12,091
Cost of sales 2,684 2,322 7,795 5,581
------ -------- -------- -------
Gross profit 3,249 2,691 9,120 6,510
------ -------- -------- -------
Operating expenses:
Sales and marketing 463 412 1,408 1,112
Research and development 1,064 821 3,099 2,042
General and administrative 621 540 1,828 1,322
Acquired in-process
research and development --- --- --- 1,442
------ -------- -------- -------
Total operating expenses 2,148 1,773 6,335 5,918
------ -------- -------- -------
Income (loss) from operations 1,101 918 2,785 592
Interest income 238 32 668 110
------ -------- -------- -------
Income (loss) before
income taxes 1,339 950 3,453 702
Provision (benefit) for
income taxes 522 (47) 1,019 (724)
------ -------- -------- -------
Net income $ 817 $ 997 $ 2,434 $ 1,426
====== ======== ======== =======
Net income per share $ 0.12 $ 0.20 $ 0.36 $ 0.28
====== ======== ======== ======
Shares used to compute net
income per share 6,805 5,096 6,829 5,104
====== ======== ======== ======
The accompanying notes are an integral part of these
financial statements.
4
Lumisys Incorporated
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
------------------------
Sept. 30, December 31,
1996 1995
--------- ------------
(In thousands)
Cash flows from operating activities:
Net income $2,434 $1,426
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 145 122
Deferred income taxes 482 (963)
Interest on notes receivable from
stockholders (7) (10)
Deferred compensation related to stock
options 29 22
Acquired research and development in-process --- 1,442
Changes in assets and liabilities (net of
effects of Imagraph and XRS acquisitions):
Accounts receivable (708) 58
Inventories (647) (1,655)
Other assets 320 (288)
Accounts payable (566) 832
Accrued expenses 442 363
------ ------
Net cash provided by operating activities 1,924 1,349
------ ------
Cash flows from investing activities:
Proceeds from sale of short-term investments 3,934 ---
Purchases of property and equipment (124) (42)
Purchase of Imagraph --- (1,800)
Purchase of XRS --- (200)
------ ------
Net cash provided (used) in investing
activities 3,810 (2,042)
------ ------
Cash flows from financing activities:
Proceeds from sale of common stock, net 86 40
Payment on notes receivable from stockholders 184 ---
------ ------
Net cash provided by financing activities 270 40
------ ------
Net increase (decrease) in cash and
cash equivalents 6,004 (653)
Cash and cash equivalents at beginning of
period 11,426 3,633
------ ------
Cash and cash equivalents at end of period $17,430 $2,980
====== ======
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 620 $ 79
Supplemental schedule of noncash investing
and financing activities:
Common stock issued for purchase of
XRS and to consultant --- $ 33
Series C mandatorily redeemable convertible
preferred stock issued for purchase
of Imagraph --- 200
The accompanying notes are an integral part of these
financial statements.
5
Lumisys Incorporated
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation
The consolidated financial statements of Lumisys Incorporated (the
"Company") presented herein have been prepared pursuant to the
rules of the Securities and Exchange Commission for quarterly
reports on Form 10-Q and do not include all of the information and
note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with
the consolidated financial statements and notes thereto for the
year ended December 31, 1995, included in the Company's Annual
Report on Form 10-K as filed with the Securities and Exchange
Commission.
The consolidated balance sheet as of September 30, 1996, and the
consolidated statements of income for the three and nine months
ended September 30, 1996 and 1995, and the consolidated statements
of cash flows for the nine months ended September 30, 1996 and
1995, are unaudited but, in the opinion of management, include all
adjustments (consisting of normal, recurring adjustments)
necessary for a fair statement of the results for these interim
periods.
The results of operations for the three and nine months ended
September 30, 1996, are not necessarily indicative of the results
to be expected for the entire fiscal year ending December 31,
1996.
Note 2 - Composition of Certain Financial Statement Amounts
Sept. 30, December 31,
1996 1995
-------- ------------
(In thousands)
Inventories:
Raw materials $3,094 $2,283
Work-in-process 695 774
Finished goods 578 779
-------- ------------
4,367 3,836
Less: inventory reserves (717) (833)
-------- ------------
$3,650 $3,003
======== ============
Accrued expenses:
Payroll and related benefits $ 839 $ 538
Warranty 651 533
Accrued income taxes --- 173
Other 420 224
-------- ------------
$1,910 $1,468
======== ============
6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Lumisys develops, manufactures and markets a broad product line of
laser-based very high resolution medical film digitizers, CCD-
based film scanners and video digitizer products necessary for
converting analog medical images into diagnostic quality digital
formats.
Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results
could differ materially from those discussed here. Factors that
could cause or contribute to such differences include, but are not
limited to, those discussed in this section, as well as those
discussed in the Company's 1995 Annual Report on Form 10-K and
other documents filed by the Company with the Securities and
Exchange Commission.
Results of Operations
Total sales for the three months ended September 30, 1996
increased 18.4% to $5.9 million from $5.0 million for the three
months ended September 30, 1995. Total sales for the nine months
ended September 30, 1996 increased 39.9% to $16.9 million from
$12.1 million for the nine months ended September 30, 1995. The
increase for the nine month period was due in part to the
acquisitions of Imagraph and XRS in March of 1995 as well as an
increase in system sales. The percentage increase in sales of
systems, including film digitizers and computed radiography
readers, was 39.1%, primarily as a result of growth in demand for
teleradiology.
Gross profit for the three months ended September 30, 1996
increased 20.7% to $3.2 million from $2.7 million for the
corresponding period of 1995. Gross margin increased in the three
month period ended September 30, 1996 to 54.8% from 53.7% in the
same period of 1995 primarily due to a more favorable product mix.
Gross profit for the nine months ended September 30, 1996
increased 40.1% to $9.1 million from $6.5 million for the nine
months ended September 30, 1995. Gross margin increased in the
nine month period to 53.9% from 53.8%.
Sales and marketing expenses increased 12.4% in the three months
ended September 30, 1996 to $463,000 from $412,000 in the same
period of 1995. As a percentage of sales, these expenses declined
to 7.8% in the three months ended September 30, 1996 from 8.2% in
the same period of 1995. Sales and marketing expenses increased
26.6% to $1,408,000 for the nine months ended September 30, 1996
from $1,112,000 for the same period of 1995. As a percentage of
7
sales, these expenses decreased to 8.3% in the nine months ended
September 30, 1996 from 9.2% in the same period of 1995. The
increase in absolute dollars for the nine month period was
primarily due to the increase in the Company's sales and marketing
personnel as a result of acquisitions. The Company expects sales
and marketing expenses to increase in absolute dollars as the
Company grows.
Research and development expenses increased 29.6% in the three
months ended September 30, 1996 to $1,064,000 from $821,000 in the
same quarter of 1995. As a percentage of sales, research and
development expenses increased to 17.9% in the three months ended
September 30, 1996 from 16.4% in the same quarter of 1995. For
the nine months ended September 30, 1996, research and development
expenses increased 51.8% to $3,099,000 from $2,042,000 for the
nine months ended September 30, 1995. As a percentage of sales,
research and development expenses increased to 18.3% in the nine
months ended September 30, 1996 from 16.9% in the same period of
1995. The increases for both the three and nine month periods
were primarily due to increased engineering personnel expenses as
a result of acquisitions. The Company believes that continuing
product development is a key element in the success of its
business and expects to continue to increase its research and
development expenditures in absolute dollar amounts.
General and administrative expenses increased 15.0% in the three
months ended September 30, 1996 to $621,000 from $540,000 in the
same quarter of 1995. As a percentage of sales, these expenses
decreased in the three months ended September 30, 1996 to 10.5%
from 10.8% in the same quarter of 1995. General and
administrative expenses increased 38.3% in the nine months ended
September 30, 1996 to $1,828,000 from $1,322,000 in the same
period of 1995. As a percentage of sales, general and
administrative expenses decreased to 10.8% in the nine months
ended September 30, 1996 from 10.9% in the same quarter of 1995.
The increase in absolute dollars for the nine month period was due
to the ongoing costs associated with increased personnel expenses
as a result of acquisitions and the expenses of complying with the
responsibilities of being a public company. The Company expects
that its general and administrative expenses will increase in
absolute dollars in the future as the Company continues to grow.
Acquired in-process research and development expenses represent a
non-recurring charge in the first quarter of 1995 of $1.4 million
relating to products being developed by Imagraph and XRS at the
time of the acquisitions.
The Company recognized a provision for income taxes of $522,000 in
the three months ended September 30, 1996. In the same period of
1995, the Company recognized a provision for income taxes of
$95,000, which was more than offset by the recognition of $142,000
of deferred tax assets, resulting in a net benefit for income
taxes of $47,000. The Company recognized a provision for income
8
taxes of $1,334,000 in the nine months ended September 30, 1996,
which was partially offset by the recognition of $315,000 of
deferred tax assets, resulting in a net provision for income taxes
of $1,019,000. In the same period of 1995, the Company recognized
a provision for income taxes of $239,000, which was more than
offset by the recognition of $963,000 of deferred tax assets,
resulting in a net benefit for income taxes of $724,000. The
Company's recognition of deferred tax assets was based on the
Company's assessment that it is more likely than not that this
portion of the deferred tax assets will be realized. The Company
became subject to an effective tax rate of approximately 39%
beginning in the quarter ended September 30, 1996.
Liquidity and Capital Resources
The Company has financed its activities primarily from net cash
provided by operations and the issuance of securities.
At September 30, 1996, the Company's working capital was $22.1
million. The Company's cash, cash equivalents and short-term
investments increased by $2.0 million in the nine months ended
September 30, 1996 to $17.4 million at September 30, 1996 compared
with $15.4 million of cash, cash equivalents and short-term
investments at December 31, 1995. The increase is primarily due
to net income for the period which was partially offset by
increases in the Company's inventories and accounts receivable and
decreases in accounts payable. The increase in inventories is
primarily due to increasing sales.
The Company does not currently have any significant capital
commitments and believes that existing sources of liquidity and
funds expected to be generated from operations will provide
adequate cash to fund the Company's anticipated working capital
and other cash needs for the foreseeable future.
Part 2 - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits furnished:
Exhibit
Number Description of Document
------- -----------------------
27 Financial Data Schedule
b) Reports on Form 8-K: none.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LUMISYS INCORPORATED
Dated: November 13, 1996 By:/s/ Stephen J. Weiss
----------------- --------------------------
Stephen J. Weiss
President, Chief Executive
Officer
November 13, 1996 /s/ Craig L. Klosterman
----------------- --------------------------
Craig L. Klosterman
Chief Operating and Chief
Financial Officer
10
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUMISYS
INCORPORATED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1996 AND
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 17430 17430
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<RECEIVABLES> 3406 3406
<ALLOWANCES> 288 288
<INVENTORY> 3650 3650
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<SALES> 5933 16915
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